June 2006 Vol 32 No 3 Incentive Taxation

Download a PDF version here.

• LVT Comes To A Parking Lot Near You  Smart Parking & Variable Pricing
• Poor Pittsburgh, Again  Money's Judgment
  
• New Jersey and LVT, Perfect Together?  Plan Endorses LVT
• Coatesville: What Happened?  Pennsylvania Town Looks for Management Stability
• Farewell to A Friend
  
• Namibia, A Quiet Success  Achieving Land Equity in Western Africa
• Historic Preservation in the US  LVT’s Favorable Edge Over HTC
• ”Brilliant And Baleful” Jim Kunstler’s Brief , yet never tedious, Visit

LVT Comes to a Parking Lot Near You

Explain LVT to citizens and the light bulb goes on quickly and brightly. Those trying to get policy and political people to understand LVT always need a fallback in making it simple. Parking is an often-used real-life example.

Parking meters are downtown, because that’s where the “rent” for that site – the parking space – is high enough to try to collect. Got parking meters sitting at the edge of town in an industrial area? Not likely.

Similarly, the parking “industry” recognizes that knocking down a great old building to suck off the site value provided by actual productive taxpayers is a cheap and profitable business model. Moreover, during high-demand times, they often hike their rates even further, gaining profit during temporary site value increases. For example, the Philadelphia Flower Show always meant bouquets of cash for the parking barons, until outlawed by the City of Philadelphia.

Smart Parking

Now, entrepreneurs are going to government with a new idea: “smart parking.”  It will be a case study of LVT writ small. Moreover, it can mean increased rent going to government instead of buccaneers in Armani suits. How?

The happening phrase is “variable pricing.” That means a “smart” meter connected to a central computer. If no one parks, the rates are low. If there’s a scrum to get into the site, the rates take off. For example, if you’re a well-heeled lobbyist in DC, and running late for a K Street meeting, you’d be happy to drop $40 an hour into the meter (no quarters, a credit card!) because you need that site NOW.

Public Rent for Public Use of Public Space

This publication has always been consistently opposed to the privatization of economic rent that should go to the community. Parking as an “industry,” is recognized economic drag on the expensive economic development efforts of government. If government is able to transform parking into a public good, it will help remove the stultifying effect of that “industry” on productive businesses.  

Done right, “smart parking” can remove the perceived need for “free parking” in old downtowns where merchants often knock down the building next door and lather on the asphalt. The flexibility of the new systems can assist government in making an asset it already owns more competitive with the corrosive parking “industry.”

      Is this new technology expensive? For now, the answer is yes but unlike a fire station, “smart parking’ is an infrastructure improvement that gives back in dollars and cents. More info:  www.sparkparking.com

Poor Pittsburgh, Again - "Managing Decline"

Of all the phrases that anyone remotely involved with government or culture or ethics should avoid, this is it.  Yet, we at IT hear it a lot, either unconsciously or in the actual words of people dealing with the thorny issues of urban America.  We’re hearing it a lot now from the new leadership in the Steel City.

Back in the day, when Pittsburgh LVT was in full bloom, it was fun for us to tout Pittsburgh’s status as “most livable city” (in Rand-McNally magazine’s eye).

This year’s Money judgment: Minneapolis “HOT”, Pittsburgh “NOT.”  No, another TIF district will not help.

New Jersey and LVT, Perfect Together?

Yes, of course. For many years, New Jersey officials from the Cahill Commission to the Local Government Committee of the Assembly have tried to get a fair hearing for LVT. Recently, many newspapers from Newark to Trenton have lauded the Regional Plan Association  (www.rpa.org) for its recommendations for serious property tax reform. LVT is one of the tools offered.

Several studies by CSE of troubled cities such as Camden, Asbury Park, Jersey City, and Paterson confirmed the thesis: there was so much vacant and underused land in established urban service centers (cities to you and me) that a shift to land value taxation would spare the taxman’s hand from poor, working, and senior homeowners.

Since property tax is substantial in Jersey, the benefit of lower tax on buildings would be comparable to the myriad tax abatements that have made the state notorious for corporate welfare for developers. Unlike the usual break-the-budget giveaways for literal Taj Mahals, a higher tax on land completes the reform of property taxation: it no longer pays to sit on vacant or destroyed buildings, not does it reward the current business model of making profit through wrecking neighborhoods.

CSE’s studies are available by contacting our office.

Coatesville: What Happened? 

In our February issue, we ran the roll of progress in Pennsylvania LVT advancement. This issue, we examine what happens when a city adopts LVT, but does not quite know what to do with it. This year, Coatesville, an old industrial town 38 miles outside Philadelphia, stopped using the land tax, even though there were no complaints about it (unlike Connellsville where a ten-year campaign to make vacant lots safe for democracy finally convinced a neophyte city government).

This month, IT had lunch with former Coatesville Council President Bill Chertok at Willie’s where le tout Coatesville eats lunch. As we broke bread, Mr. Chertok gave us chapter and verse of the history of a city that has had difficulty and where LVT played a very small role indeed. The land tax never exceeded the building tax by more than 2.5 to 1.

LVT was introduced by Mr. Chertok in 1991. The land rate adopted was very low, and never expanded, blunting any major effect. In the years since, CSE had tried to get LVT inculcated into the political culture, with little success. In those years, there were continual turnovers in the manager-council city culminating in three managers from 1994 to 1997, and one whose tenure was 13 weeks in 1997. Other city positions had as much change. So, it was hard to gain a foothold in the psyche of Coatesville’s leaders, as the city moved from crisis to crisis.

Finally, in late 2005 a bruising eminent domain battle and an unexpected shortfall of about around $3 million (this in a city where property tax raised about $2.5 million), led to the departure of yet another manager. To plug the gap, the new finance team decided they had to tax buildings.

Finally, after many years of requests, CSE was given a meeting to explain LVT; it was a day late and a dollar short. This year, we will return to speak to the brand-new council and the brand-new management team and hope they can realize that having the highest tax rate on buildings in Chester County is not be a good thing.

Farewell to a Friend

Claude Arnold served as a member of the Henry George Foundation Board from 1979 until his death May 5, 2006 at the age of 88. For 27 years, the sensible counsel, dry wit, and total commitment to the idea and implementation of land value taxation made Claude – and his wife Dian, who predeceased him – someone that is said not to exist: an indispensable man.

Claude came by his LVT advocacy in the bosom of Fairhope, Alabama, a haven of Henry George’s Single Tax. Until the end, he taught LVT in Fairhope. As is the case with many LVT advocates, he was involved in a profession that called for logic, precision, and results: land surveying. As is the case with architects, engineers and scientists, this was not a coincidence.

We will miss Claude as we already miss Dian.

Namibia, a Quiet Success

Compared to South Africa’s (RSA) stumbling efforts at land reform (they dumped LVT because some very important foreigners told them to), and Zimbabwe’s land grabbing Berserker-as-Government philosophy, Namibia’s experience has been the bane of the wild-eyed.  No trauma, no train-wreck outcomes, little noise. 

This sane process is what theorists expect of LVT: a use of market forces to achieve justice and equity, without the guns, corpses and mayhem that mar so much of our planet’s history.

The national land value tax, imposed on agricultural land raised N$28 million ($4.6 million US) in 2005.  The cash is going to willing, mostly foreign sellers (who have become more willing since LVT started) and the land transferred to Namibians. 

There are concerns that farms at the margin of viability owned by smallholders might be sold, but this is not seen as a reason to abandon the program. 

The Dutch government has funded a study of the program, as it exists. The study is fair and well done, and compares the Namibian experience to neighbors to the North and South. Happily, the Euro-tendency to doubt success that does not entail confiscatory policies is muted: www.lac.org.na/lead/Pdf/landwefarm.pdf.

By taking the Taiwanese and Japanese alternative, instead of the Mugabe abyss or RSA errors, Namibia enjoys the civic peace its people deserve.

Historic Preservation in the US

If a historic building needs rehabilitation, the costs can be enormous. Recognizing that our history is a vital tool to understanding the present, the Federal Government gives up to a 20% historic tax credit (HTC) on the costs of renovations. Therefore, if you spend $1,000,000 you qualify for a credit of $200,000. Sweet.

At the state and local level, historic preservation’s reward is more HTC. For example, in the City of Baltimore, a qualifying house, in a qualifying neighborhood, gets a 10-year declining HTC on new improvements. Therefore, suppose an old house got a rehabilitated kitchen and dining room. The building that was worth $60,000 is now worth $105,000. The homeowner saves about $8,100 in property taxes over the life of the credit. Sweet.

How can LVT be competitive? Consider the Baltimore Historic Property: the new improvements of $45,000 can be reduced by 36% annually with a city-wide LVT that reduces the building tax rate by 32.5% ($1,071 to $687). This option reduces the take from buildings from 75% to 50% of total revenue. No tax on buildings would mean no added tax liability. Total savings using LVT? $6,180; by any other name, still as sweet.

The similarities between LVT and HTC end there. Here’s why:

“Brilliant and Baleful”

One of the better explanations of LVT was penned by (shocker) one of our better writers. Jim Kunstler’s chapter on LVT in Home From Nowhere (Simon & Schuster,1996) is titled  “A Mercifully Brief Chapter on a Frightening, Tedious, But Important Subject.”

That single chapter makes the work of IT and CSE much easier. By approaching a novel idea with fresh eyes and an assertive voice, Kunstler helps land tax advocates smash through the hard-bitten reactionary opposition of some members of the business community, and overwhelm the rote opposition of some of socialism’s fatuous world-savers.

His newest book is The Long Emergency (www.groveatlantic.com), which describes what he sees as a coming crisis in oil depletion, climate change, and a day of reckoning for the throwaway aspects of American lifestyles and economies. It’s having an impact, and, hey, who wouldn’t like the Washington Post to call you “brilliant and baleful?”

On a recent appearance to promote the book, Kunstler agreed that LVT could play a role in managing and consolidating our urban centers as the predicted crisis takes hold. He also said, regretfully, that LVT was too abstract for people to understand.  Mr. Kunstler sold himself short. His chapter on LVT is one of our basic tools for education. You can find this helpful chapter on our website: www.urbantools.org.

Jim Kunstler’s blog is at www.kunstler.com/homebody.html