August 2006 Vol 32 No 4 Incentive Taxation

Download a PDF version here.

• Reinventing Reading  Activist's ideas for city's revival
• Real School Property Tax Reform, Right Now: LVT for Clairton  School District implements progressive LVT
  
• IT Remembers Clairton's Mayor: Serapiglia Passes in August  Dominic Serapiglia
• Pittsburgh's Last Land Tax Laughs Last  Downtown Partnership's elegant solution
• Pennsylvania League of Cities Bash A Smash
  
• CSE & HGFA Boards Meet Under the Bridge  Ideas for Frederick's future
• We're Pretty Vacant and We Don't Care Accurate assessments Philly's goal
• Land Vacancy LVT applications, second in a series

Reinventing Reading

August 5 saw the launch of an initiative to revive the noble old city of Reading, PA. Long plagued by depopulation, disinvestment, and crime, one local activist Eron Lloyd (pictured), wanted to make a difference.  Ideas from waste management, taxation, crime and commerce are tackled.

Lloyd researched any and all issues that would transform Reading. The root of all of his research was LVT, either in property tax shift, enterprise tax shift, or value capture.  The Reading native’s motivation was the growing acceptance by many that a land tax is a location benefit levy: the greater part of location value is created by investment from the community; therefore the community should collect what it has created.

The full report can be downloaded at www.reinventingreading.info

Real School Property Tax Reform, Right Now: LVT for Clairton

The supposed outcry against school property taxes in Pennsylvania has mirrored other such kerfuffles across the country. Literally dozens of bills have been offered to change school funding.

Most plans are somewhat cynical (or maybe its your editor). Some have had more life than others have: the Democrats are either pushing higher income taxes or gambling. Of course, higher income taxes create a drag on economy. Gambling is a tax on poor people, with the political cover of not being exactly a tax. The placement of slot parlors in Pennsylvania in poor and working class neighborhoods guarantees that the prime customers will be those who can’t afford to gamble, but most likely will.

The Republican plans are no better. GOP candidate Lynn Swan wants Proposition 13 in the Keystone State. Luckily, the California experience (disaster) makes this essentially a non-starter.

Most GOP legislators want to expand sales taxes to include clothing, food, and services. So, even if you win $50 at the slots, you pay more for your groceries.

Why all this angst and furious energy? Well, the real property tax is regressive! How do we know? Someone says it is! The reality is, the current proposals would also spare the taxman’s hand from many commercial/industrial properties, as well as prosperous homeowners and increase tax bills on young and working families and renters. THAT’s regressive.

The property tax may be slightly regressive, but LVT is very progressive. Moreover, it can be implemented right now; and in fact has been:

LVT Beats Them to It

On July 1st, 2006, the School District of the City of Clairton, Pennsylvania adopted LVT. Not just adopted, but also introduced in a big way: instead of 22 mills on land and buildings, the School District decided to drop the building tax 86% to 3.1 mills. The land tax is now 75 mills.

The 3.1 mill tax rate on buildings is 75% lower than the next lowest school tax in Allegheny County.

The total building tax (city and school) in Clairton is now 4.32 mills (.432%). The total land tax is now 103 mills (10.3%). In other words, the ratio of land tax to building tax is 23.84 to 1. (The Allegheny County tax remains a fly in the ointment at 4.69 mills on land and buildings.)

LVT has existed in Clairton since 1988, but only 21.3% of the property tax (the city tax) was affected. The school portion of the tax bill is 64.9%. So, around 86% of the tax bill is a tax on land values.

Some facts on the ground:
The combined annual reduction for owner-occupied properties is 17.7%.
The average annual reduction for homeowners is $283.

IT hopes and expects that not only CSE but also other policy groups and academics will research the impact of LVT on Clairton in the coming years.

The next issue of IT will have an expanded essay on the importance of Clairton’s change.

IT Remembers Clairton's Mayor: Serapiglia Passes in August

Dominic Serapiglia spent most of his adult life serving the City of Clairton, Pennsylvania. He was a firm supporter of LVT, and acknowledged its role on the hard road back from the collapse of the steel industry in the late 70s.

Mr. Serapiglia was in his fourth term at the head of a community whose politics and survival occupied his life for decades. He was mayor for four terms, and councilman for four terms.

Pittsburgh's Last Land Tax Laughs Last

What happens when a bit of land gets cleaned up, made safer, and publicized to attract business and visitors? Why, land values rise.

So, it makes sense to collect at least part of that increase in value to pay for continued services to that area. Simple? Yes. That’s LVT in the Pittsburgh Downtown Partnership.

Enacted in 1996, the location levy on land values has spruced up downtown, even in the face of huge tax hikes when Pittsburgh City abandoned LVT in 2001. It’s proved a success, and now the PDP wants to do more, raising the LVT from 3.92 to 4.9 mills.

Director of the PDP Michael Edwards understands what is going on: He expects land values to rise, so that millage might actually be reduced in the future (a la Harrisburg, PA).

IT hopes that the elegant solution to funding a business improvement district reminds the greater community of Pittsburgh what they had and may have again: a benefits-based tax that removes the corrosive forces of disinvestment  and depopulation that property, business, and income taxes cause.

Pennsylvania League of Cities Bash a Smash

CSE Director Joshua Vincent and HGF Board Member John Kromkowski attended the Pennsylvania League of Cities conference in Pittsburgh on June 26.

Particular interest in LVT was shown by Lancaster’s new mayor, the new council and mayors of Sunbury and Coatesville, as well as Wilkes-Barre, Pottsville, and Erie. Thanks to the conference, CSE has arranged meetings during the upcoming budget season. Want to join the parade? Contact CSE and get the research necessary to see if your city could use land value taxation.

^{Coatesville Councilmember Patsy Ray and Council President Kareem Johnson with HGFA's John Kromkowski}

CSE & HGFA Boards Meet Under The Bridge

August 11th and 12th saw the boards of the Center for the Study of Economics and the Henry George Foundation of America meet in annual conclave in Frederick, Maryland. Why Frederick? Well, two of our directors who live there (Alan Feinberg and Sharon Suarez) invited us to play a role in shaping the future of that fine old city.

We saw, during a tour co-sponsored by the Maryland Planners Association, a new project meant to jump start redevelopment in the heart of Frederick: The Carroll Creek Project (CCP).

Having a swarm of LVT advocates with estimable skill-sets helped the Planners see that, although ambitious, lovely, and a good start, the CCP has no real mechanism to recoup the already increased land values around the area.

One property in particular - abandoned for over 30 years - had many taxpayer-funded design amenities that make the site much more valuable indeed. It took a village of LVT experts to note that the private collection of that economic value should stop at the capital and labor investment, and not include the site value. That belongs to all of Frederick from business tycoon to bus driver.

During the tour, our board members offered the most obvious tool: a BID that would collect a tax on the increased land values for either the general fund, or a way to ameliorate the rent increases that local community businesses (that have been in Frederick for decades) are already suffering.

Ben and Jerry’s can outbid them on the increased site values, but shouldn’t Fredrick Fudge and Ice Cream get a fair shot too?

Ending our stay in Frederick, CSE and HGF put on an outreach session for local worthies. Attendance was intimate, and exchanges were lively. LVT will be jump-started as a result.

We're Pretty Vacant...And We Don't Care

That used to be the sad song of the City of Philadelphia and its assessment arm, the Bureau of Revision of Taxes.
About 40,000 vacant parcels of land sat for years, revalued when there was a sale, otherwise out of sight, out of mind and out of city coffers.
No longer. Now, the city realizes that accurate vacant land values mean more city revenue. They realize that city services create land value, and that value should be recouped.
This summer, 20,000 vacant parcels will be revalued. It’s high time.
A glance at current vacant land values would make Paris Hilton blush: The lot at 1401 South 54th Street in the troubled Kingsessing neighborhood is a case in point.
• The lot was purchased in 2004 for $11,000.
• The official “market” value? $2,400
• The official “assessed” value? $640
• Total tax bill? $53!
Meanwhile the house next door pays about 10 times more at $570 a year.
The overdue reassessment of vacant land is welcome. Next step: cut the taxes on the poor homeowner, and raise the holding cost of vacant lots. How? Land Value Taxation.

LVT Applications, The Second in a Series

LAND VACANCY

Vacant lots are the most obvious form of urban decay and disinvestment (and depopulation). IT is published in Philadelphia, which still has over 40,000 vacant properties, even in a hot real estate market.

Strategies to battle land vacancy in cities include:

• Using the police power of the state to seize land for back taxes

• Buy or condemn properties deemed in the way of reinvestment • Assist local property owners financially to keep the properties developed.

• Create public land banks (as opposed to current private land banking)

• Create public/private financing entities (TIFs, Enterprise Zones, etc.) to encourage artificial market activity.

These programs often work on the surface, although no advocate would suggest that they tackle the root of the problem of land vacancy, and they certainly require MORE public spending with no sure payout at the end of the process.

Why does land become vacant and how can LVT play a role in reduction of same?

Often, the city sees decline caused by the shifting of the economic currents. When the jobs leave, people that are able to leave DO leave. The people remaining have generally less ability to get the respect required for safe streets or good schools. The city becomes a ward, not an engine.

Philadelphia was a manufacturing city, and one day it woke up to find all the industry gone. Of course, this doesn’t explain why Phoenix is growing like a house afire, with a healthy industrial component. Any city can be healthy.

A sick city attracts parasites. These parasites learn that a working business model for success includes:

• Demolition by neglect (lower tax bill through lower assessments)
• Renting to the poor and powerless (collecting rent, and never renovating)
  
• Holding onto vacant land (the taxes are negligible)
  
• Holding out for high sales prices (when the desperate city comes knocking)

LVT makes this script untenable. A high LVT (in Singapore, say) has allowed cities with no particular attraction or gifts to thrive.

• LVT punishes decaying improvements
• LVT reduces taxes on the land where the poorest live
• LVT can make the holding cost of land too expensive
  

When LVT works, the city need not bribe bad-actor landowners to do the right thing. LVT permits markets to much of the heavy lifting, in way that other programs simply do not.

Understanding LVT