April 2006 Vol 32 No 2 Incentive Taxation

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• Upstate NY: Spitzer & CSE Sound Off   New York State developments
  
• Kansas City Here I Come...  Missouri LVT can grow
• New Report Stops Just Short  "Development Strategy" in the Delaware Valley
• Nairobi Learns Where The Land Values Are
• Connecticut Redux  State's business association opposes its own best interests
• Pittsburgh LVT: Thoughts on a Long, Slow Assault  Developments and damage continue side-by-side
• And A Child Shall Lead Them?  Let's follow that idea

Upstate NY: Spitzer & CSE Sound Off

Nothing has so ill served the people of the State of New York as its tax system.  While a vibrant New York City/Metropolitan area can likely handle the high tax incidence on labor and capital, upstate quails under the load as industry flees, leaving impoverished cities and people.

Eliot Spitzer, NY Attorney General and front-running Democratic candidate for governor, created a stir when he said the upstate region "looks like Appalachia," and has "an economy that is devastated."  Well, he told the truth by any measure.

So, where does upstate begin?  For our purposes, it begins at Poughkeepsie, which is where CSE’s Bill Batt and Josh Vincent fired off a letter about long -overdue reassessments:

Reassessment will bring positive change

The March 2 [Poughkeepsie] Journal editorial on the merits of reassessment invites comment from many perspectives.

Far from being apprehensive about it, citizens should look forward to it. This is because over the course of the past 30 years since last done, structures have mostly depreciated even as land has appreciated. Moreover, because land values are the determining factor in most market changes, it is this component most needing correct appraisal.

The property tax is really two separate taxes — on buildings and on land. The part on buildings discourages their care and maintenance, leading to the situation alluded to on the City of Poughkeepsie's Main Street. The tax on the land components encourages full and efficient use of sites, the higher the better. For this reason, we advocate the gradual down-taxing of the rate on structures and increasing the rate on land in a revenue-neutral manner. This is legal in New York, and with better data and modern data analysis, we are able to show exactly what results.

Many Nobel prize-winning economists endorse land-value taxation; it conforms with all the principles of a good tax. It also reverses the centrifugal forces of sprawl development, fosters urban revitalization and makes clear and apparent the logic and fairness of taxation for all to see. Check www.urbantools.org  for more.

We hope LVT will begin its long march to Buffalo from the Hudson Valley.

Kansas City Here I Come...

LVT Exists in KC

Twenty years ago Kansas City, Missouri, decided that things like park operations should be financed using the theory that if one receives community-created benefits, the site owners should pay for that privilege.

In the case of the many parks, large and small in Kansas City, those that enjoyed the most benefit were, obviously, those that lived nearest to the green space.  So, Mr. Carlson suggested that since increased land values were the most reliable measure of a successful park, those land values be taxed to pay for parks upkeep and maintenance. Today, that tax rate on land is $.50 per $100 of value. Low, but in the context of the aggregate real property rate of $1.50 per $100 it’s significant.

In the 1990s, a tax along sites proximate to road projects charged a rate of $.25 per $100.  This LVT regime is the proverbial foot in the door, and just might be a way out for a stressed older city.

Implications for a City in Competition

Kansas City has, like many cities in a bind, made a Deal with the Devil in the form of a cliché: “The Three Legged Stool.”

The cliché asserts that property, sales, and income taxes should be roughly proportional so that the jurisdiction may “pluck the goose so as to get the most feathers with the least hissing,” in the words of Colbert, Treasurer to Louis XIV.

In fact, the city studied its tax structure in 2000 and concluded (in nearly one breath) that the levels of taxation were evenly spread and that was a good thing, but that many of the taxes were regressive; some are knocked as difficult and expensive to administer and those are bad things.

Of course, we disagree, as do the businesses and citizens of the KC Metropolitan area. Growth is healthy, except within city boundaries.  Since 1970, Kansas City proper has lost about 15% of its population, although that trend is slowly leveling with signs of reversal.

The report also noted that all surrounding jurisdictions had a lower “tax effort,” a jargony way of saying how much stuff there is to tax, and how high a percentage of that stuff is taxed. [www.kcmo.org/auditor/00-01audits/taxanalysis.pdf]

What KC Taxes Now

The pie chart, reproduced from the 2006 KC budget, shows the deadly monotony of taxing this, that, and the other.

As a Philadelphia-based publication, IT is acutely aware of the inherent problems in taxing labor (wage taxes) and capital (sales, utilities, franchises, transactions, etc.).

To knock over the three-legged Stool, some tax authorities look to New Hampshire as an example of a state that relies on taxation of land values in greater proportion than elsewhere.  Its economic growth is solid.

Forced to Sit on the Stool

So, why can’t KC move more towards a land value tax? Well, they already have one, so they could expand it.  However, there are obstacles. The state assesses classes of real property differently.  Farm property is assessed at 12% of “real” value, residential property is assessed at 19%, commercial/industrial/utility at 32%, and personal property at 33 1/3%. Classification is unfair, unequal, and drags economies.

Along with strictly state-mandated rate and revenue caps, Kansas City’s tax structure is almost forced to be regressive and anti-enterprise. CSE will continue to work with Missouri legislative leaders to fix this erroneous policy.

New Report Stops Just Short

The Delaware Valley Regional Planning Commission has issued a new report, A “Post-Global” Economic Development Strategy, which suggests that resource depletion (“peak oil”) will drive US overseas competitors (China) into sloughs of despond and the Delaware Valley’s time will return, so we better get ready. We can debate the assumptions, but the prescriptions are the point.

Although nice to see the words "land, labor, and capital," the tendency of planners at all levels, including DVRPC, is to tread lightly on the financing issues of revitalization and avoid consideration of deadweight loss caused directly by over-reliance on taxation of labor and capital. The report’s one stab at dealing with taxation is a desire to wed the proven-dicey benefits of Keystone Opportunity Zones with Transit Oriented Development (TOD).

The report acknowledges the increase of land values around TOD nodes, and touts Denver's experience. Fine, but Colorado has low taxes, the Delaware Valley does not. That’s how the West and the Sunbelt grow while the Northeast and Midwest US shrivels.

From many more cases, we know that although land values increase, development often does not. In the many cases of sub-par development around DC Metro stations, Brookings recommends land value capture, as does the Transport of London in their scenarios for development. In the Philadelphia area, one need only look at the anemic economic activity around the Norristown, PA Transportation Center and the Trenton NJ Train Station to see that transit nodes don’t always = nifty buildings.

Finally, the report pitches an expensive way to combat sprawl: buying land ("Stop me before I sprawl again!"). How about taxing land values where we want development to incentivize growth and show land speculators we have the guts to defy their malign influence?

Nairobi Learns Where the Land  Values Are

Administration of any tax must be fair, efficient and honest. Unhappily, one of few positive legacies of British colonialism – the local site value tax – is being undervalued and cheated into irrelevancy.  While the Kenyan capital’s budget is withered and city employees are rarely paid, land values in the richest suburbs are clearly too low, and, as in the US, the poor and middle-classes pay the burden.

According to the East Africa Standard (2/27/06): “A computer-generated simulation of land ownership developed by GeoMaps, a consultancy firm, indicates that a large percentage of the land rates rip-off involves big landowners in leafy suburbs of the city such as Lavington, Kileleshwa, Muthaiga and Loresho.”

Fraud and values manipulation has mounted to nearly 15 Billion Kenya Shillings ($208 billion US) outstanding in the city accounts.

Luckily, GIS technology is letting reformers (such as the Karen-Langata Association, a homeowners and tenants group), get a handle on the extent of the corruption.

Connecticut Redux

In 2005, LVT permission for Connecticut cities seemed assured. Yet, in the dead of night, back-room opposition by the Connecticut Business and Industry Association led to the stalling and eventual defeat of that bill recommended by a bi-partisan vote of the joint Planning and Development Committee.

Of course, the CBIA doesn’t understand LVT. Generally, when business groups oppose LVT, they do so because a sliver of their membership – whose business model is based on the destruction of cities through speculation, vacant lots, and the parking “industry” – whine. Production, enterprise, and investment (the essence of industry and business) is rewarded by LVT.

That’s why Connecticut’s unalterably pro-business voice William Buckley has said:

The effect of this [LVT]  would be that if you have a parking lot and the Empire State Building next to it, the tax on the parking lot should be the same as the tax on the Empire State Building, because you shouldn't encourage land speculation. Anyway, I've run into tons of situations where I think the Single-Tax [LVT] theory would be applicable.

Why should CBIA disagree? They shouldn’t, but they should overrule their city-busting colleagues and get behind a law that would permit markets to work for everyone.

In 2006, LVT legislative supporters urban, rural, Democrat, and Republican have attached LVT enabling legislation to a bill that would curtail Kelo vs. New London-style eminent domain actions (HB5038). As of March 27, it has passed out of its committee unanimously.

Pittsburgh LVT: Thoughts on a Long, Slow Assault

LVT in Pittsburgh happened in the early 20th century because Progressive leaders of that city wanted it. For years it worked but forces of reaction combined constantly against working people and productive business: Early advocate William A. McGee, who became two-term mayor in 1927, warned that a new regional government would erase LVT:

The small home owner found he would have about a $50 a year taxes by reason of the half-rate of millage on his house, a saving of ten mills on about $5,000 of assessed value. If the metropolitan plan goes through, he will lose this advantage for the benefit of the large areas of vacant land, which will not only be assessed at one-third their value, but will have the millage reduced. In the city all property holders whose improvement value exceeds the land value will have their taxes raised.

Well, in 2001, it finally happened. In the midst of a botched reassessment, forces of fear played successfully in the midst of a bitter mayoral primary campaign. Now, “economic development” is reserved for deep pockets speculators who refuse to do anything without tax abatements and givebacks shouldered by the poor and middle class homeowners.

Although the ribbon-cutting ceremonies beloved of politicians may well be increasing, the number of unheralded initiatives - sweat equity -  is likely falling.

Instead we see the routines of police investigations, fire calls, code violations, and foreclosures. Downbeat ceremonies in neighborhoods where there are no limos, grins, and handshakes.

Finally, the privilege seekers won. Finally, Pittsburgh was just like every other struggling US City, an outcome devoutly and weirdly wished for by the “urban experts,” who ply their trade in the Iron City.

The ghosts of Mayors Magee, McNair, Scully, Lawrence, ("the Graded Tax discouraged hoarding of vacant land for speculation.") and Barr ("Fine structures erected through private investment as part of the renewal program benefited by the lower tax rate on buildings.") can be seen at night, looking down sadly from Mt. Washington…

And a Child Shall Lead Them?

Kayla Davis is a 12 year-old in Dyer, Indiana. She was one of the finalists in a local “If I Were Mayor” essay contest. The North West Indiana Times of 2/27/06 reports: “that she would work to lower taxes on buildings.”

Kayla, we look forward to your run at mayor in 2012.  Hopefully, current Indiana Mayors will see the advantage of taxing land instead of buildings (or sales, incomes, receipts, gumball machines, franchises, cars, etc. etc. etc.)