February 2006 Incentive Taxation

• 2005 Saw Progress... In Pennsylvania, Lock Haven, McKeesport, and Altoona use LVT to help attract development.
• Collecting Land Rent, Part 1  The results of land assessment need not be controversial when done right.
  
• From County to County What Edisto Beach wants..and wants and wants.
• Rent & Rent Seeking by Bill Batt
• Reasonable Reason  Few takers for city's abatement offer.
• Light on the left coast  Land Value Capture prospects in Oregon.
• HGF Director Speaks Out Philadelphian's letter

2005 Saw Progress...

In Pennsylvania, Lock Haven, McKeesport, and Altoona use LVT to help attract development. From Incentive Taxation February 2006, Page 1

Lock Haven, seat of Clinton County, PA adopted a new budget with the budget increasing, but only with a tax increase on land values. Lock Haven, using LVT since 1991, made the dramatic choice to collect more revenue from land for all the right reasons:

In an effort to continue to encourage development of vacant lots, the full millage increase was imposed on land, leaving taxes on buildings and improvements steady.

“This will not penalize those increasing the investment they’re making to their structure and, basically, will penalize somebody for not using the property,” City Manager Rich Marcinkevage said.

“That’s absolutely the way to go,” Councilman Joel Long said. “That was the idea of the split  millage.”

Land taxes will increase to 96.79 mills, while building taxes will remain at 16.97 mills.

-Lock Haven Express, 12/29/05

With this move, Lock Haven vaults its ratio of land tax to building tax from 3.8:1 to 4.8:1 Business and industrial concerns looking to invest in plants will have cheap land, a good work force, and low taxes if they chose Lock Haven over potential high-tax regional choices such as Williamsport, State College, or Montoursville.

2005 also saw McKeesport reduce its building tax rate slightly from 4.6 to 4.2 mills while keeping the tax on land at 16.5 mills Altoona is well into its planned reduction of the building tax rate in stages:  tax rates are now 168.58 mills on land and only 24.78 mills on buildings.

That leaves Altoona, for decades struggling with industrial and population loss, with a lower tax rate on buildings than its Blair county peers: the boroughs of Duncansville, Hollidaysburg and Tyrone. Tax relief for homeowners – especially the poor and elderly – is reality in Altoona. Now, the job of attracting big-ticket development starts.

Next Issue… An in-depth look at poverty: Coatesville, PA and LVT

Collecting Economic Land Rent

The results of land assessment need not be controversial when done right and the community benefits from the collected land rent. From Incentive Taxation February 2006, Page 1

Greenwich, Connecticut is one of the most prosperous places on the planet. Everybody wants to be there. Merchants like to be there, because everyone that IS there has cash and then some.

What happens to land values in a place where everyone wants to be? They skyrocket. Ted Gwartney, Town Assessor (featured in our 09/05 issue) reports that 2005’s revaluation resulted in 70% of the city’s tax base listed as land value. It’s refreshing to see accurate values. In addition, annual revaluations don’t present problems. The result need not be controversial when done right and the community benefits from the collected land rent.

Other Shoe?
Mr. Gwartney reports little objection to the new values, except from country clubs upset over increased land values.
Gwartney is a brave man, since lawyers are plentiful on membership lists of country clubs, members legendary for their sense of privilege, in so many ways. Yet nowadays, instead of simply having the assessor shot, they need new a tack: “We’re really environmentalists!”

"I'm not sure the assessor is paying attention to the open space designation that we've had," said Everett Fisher, a lawyer who belongs to the Round Hill Club. (Greenwich Times 12/8/05)

Uh huh. Let’s reintroduce the mighty and noble Eastern Mole to Round Hill and see how long the altruism of “open space” holds. Your editor plans to camp on the 16th green sometime after the last frost in ’06. If I don’t get beaten to death by the Caddyshack worshipping groundskeeper, I’ll let you know.

From County To County, Greedheads Seek Bounty

Rent & Rent-seeking By Bill Batt

Land Value Taxation recovers from market activity for public use “economic rent,” the socially created surplus of enterprise. It is sometimes called land rent or ground rent. Because markets always have a locus (even those online), rent always has an address.

So it is that certain addresses in large cities can have a market value of $500 million per acre and other sites cannot be had for the taking. The greater the economic attraction of a location, the higher the land rent. But rent is not the creation of any individual or site; rather it is socially created. The failure to recover rent is a windfall to those who have title to such sites.  But taxing the economic rent that accretes to landsites provides a moral basis for both taxation and for economics generally. Henry George saw the issue clearly: one of his speeches when he ran for Mayor of New York was entitled Thou Shalt Not Steal!

The land rent generated by a robust economy is huge. Harvard economist Terry Dwyer calculates that it represents 27 percent of the GDP of Australia. Other studies suggest a similar proportion. Rent is sufficient to provide support for all the public services we demand, obviating the need to employ tax designs that impose an “excess burden” on private enterprise. In contrast, taxing economic rent has no distortion at all, and in fact enhances the vitality of the market. Harvard’s Martin Feldstein calculated that taxes on labor and manufactured capital can put a pre-tax drag on the economy as much as 50 percent. No wonder businesses hate these taxes; they are the only kind they know.

Unfortunately, the US government agencies don’t keep figures on economic rent. But there is growing appreciation of its effects. Rent seekers, long the parasites of productive enterprise, won’t be able to live off economic rent so easily if it is marked and recovered for public purposes. Land value taxation does just that.