HMN 2025: What is the metro-level wealth divide

Local governments in the United States are responsible for many of the services people rely on daily—schools, parks, public safety, and more. But the resources available to fund these services depend heavily on the amount of taxable property wealth within each city or town’s borders. And those borders, it turns out, matter a lot.

A new study from the University of Michigan, published in Socio-Economic Review, reveals how the patchwork of city boundaries and economic segregation combine to create what the authors call tax base fragmentation: the uneven distribution of taxable property wealth across the many small cities, towns, and villages that make up a metropolitan area. The result? Some communities end up with a windfall of taxable wealth, while others—sometimes right next door—have very little, with major consequences for their ability to fund public services.

The researchers, led by sociologist Robert Manduca, analyzed 138 million property tax records nationwide to map where property wealth is concentrated. They found that in many large metro areas, the gaps are extreme—not just because of income inequality, but because state laws often allow wealthier areas to form their own municipalities, keeping their property wealth inside small borders rather than sharing it with the broader region.

Measuring fragmentation

To quantify these divides, the team introduced two new metrics:

• Tax Base Fragmentation Quotient (TFQ): At the metro level, this measures how much of a region’s property wealth would need to be redistributed across local borders for every city and town to have the same tax base per person. In some metros, more than 20% of all property wealth would have to shift to achieve equality.
• Fiscal Capacity Ratio (FCR): At the local level, this compares a municipality’s per capita property wealth to the average for its metro area, highlighting places that are especially advantaged or disadvantaged by the way boundaries are drawn.

Winners and losers: Municipal tax havens and fiscally impoverished jurisdictions

The study identifies two distinctive types of outlier communities:

• Municipal tax havens are cities or towns whose per capita property wealth is at least three times higher than the average for their metro area. These include famous enclaves like Malibu, Miami Beach, and Greenwich, but also many smaller or lesser-known places—some with virtually no residents but enormous commercial tax bases, such as Bay Lake, Florida (home to Disney World), or Vernon, California (an industrial enclave near Los Angeles). These municipalities function as local tax shelters, allowing residents or corporations to benefit from the broader metropolitan economy while contributing little to shared regional services.
• Fiscally impoverished jurisdictions are on the opposite end: municipalities whose per capita property wealth is less than one-third of the metro average. These include large, well-known cities like Detroit, Newark, and Bridgeport, as well as small towns like Brooklyn, Illinois. Such places face severe fiscal stress, often struggling to fund even basic services, not simply because they are “poor” in the conventional sense, but because their boundaries exclude them from the wealth of their surrounding region.

Why does this happen?

The U.S. is unusual among wealthy countries in devolving so much responsibility for public services to local governments, while providing little in the way of centralized fiscal transfers. Combined with permissive laws for creating new municipalities, this means that local boundaries often overlap with patterns of economic segregation—amplifying inequalities between neighboring communities.

For example, the Detroit metro area is among the most fragmented in the country: the city of Detroit has a tax base per resident less than one-third the metro average, while tiny suburbs like Lake Angelus have per capita tax bases more than 20 times higher. In contrast, Honolulu, Hawaii, which has no local governments smaller than the county, shows that even with high economic segregation, the absence of jurisdictional fragmentation means all residents share the same tax base.

Consequences for public services

The study finds that municipalities with smaller tax bases do not fully make up the difference through higher tax rates or state and federal transfers. Instead, they often rely more heavily on regressive sources like fines, fees, and utility charges—further burdening residents who are already disadvantaged.

A hidden driver of inequality

Overall, the research shows that tax base fragmentation is a major—and often overlooked—driver of inequality between communities in the same metro area. It’s not just about rich and poor neighborhoods, but about how local boundaries can protect wealth in some places while deepening financial stress in others.

The authors argue that these divides are not inevitable. They result from policy choices about how local governments are structured and funded. Addressing tax base fragmentation—through reforms to municipal boundaries, revenue sharing, or state and federal transfers—could help create more equitable metropolitan regions.

The study appears in Socio-Economic Review. Co-authors with Manduca are Brian Highsmith (UCLA) and Jacob Waggoner (Harvard). To accompany the study, the researchers created an interactive web visualization mapping the fiscal capacity of every municipality nationwide, which allows users to examine tax base fragmentation in their own metropolitan areas.

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