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Using Land Value Tax
- 1. Using Land ValueTax to Revitalize Markets and Achieve Smart Growth SNEAPA Conference Panelists Thursday, September 20, 2012 Rick Rybeck Mark Speirs Joshua Vincent Toward Sustainable Infrastructure & Land Value Tax (LVT) in Connecticut Taxing Land Values in a Municipal Smarter Growth: User Fees for the context: How, Why and Where Invisible User Center for the Study of Economics Bridgeport, CT Center for the Study of Economics Just Economics, LLC 413 South 10th Street 1669 Columbia Rd, NW, STE 116 Philadelphia, PA 19147 Cell: 203-928-7053 Washington, D.C. 20009-3625 Office: 215-923-7800 ext. 2 Email: Mark@urbantools.org Office: 215-923-7800 ext. 1 Office: 202-439-4176 Email: Joshua@urbantools.org Email: r.rybeck@justeconomicsllc.com Website: www.urbantoolsconsult.org Website:www.urbantoolsconsult.org Website: www.justeconomicsllc.com
- 2. 1669 Columbia Rd,NW, Suite 116 Washington, DC 20009 (202) 439-4176 www.justeconomicsllc.com
- 3. Toward Sustainable Infrastructure & Smarter Growth: User Fees for the Invisible User Rick Rybeck SNEAPA Conference September 2012
- 4. Perversity of Infrastructure Economic Incentives for Sprawl
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- 9. PERVERSITY OF INFRASTRUCTURE •Infrastructure is created to facilitate development • Infrastructure inflates the value of well-served land. • Higher land prices chase development to cheaper, more remote sites • Infrastructure extended to remote sites • Development chased even further away.
- 10. Remedy • Can wefund infrastructure in such a way so that: – The beneficiaries pay a fair share – Development is encouraged adjacent to the infrastructure rather than at more remote locations
- 11. USER FEES FORTRANSIT • Equitable & Comprehensible – Beneficiaries pay in proportion to the benefit they receive • Price Incentives Can Foster Efficiencies – Encourage Shorter Trips or Trip Avoidance – Encourage Off-Peak Trips – Locate Homes & Businesses Closer Together
- 12. Full Cost Recovery? •Charging transit users full costs would – Reduce transit ridership – Increase congestion & pollution
- 13. Are There OtherBeneficiaries? • General public benefits from Transit: – Better Access to employment, shopping, schools & recreation – Cleaner Air – Lower costs of goods • But general benefits not suited to user fees – General Taxes Used Instead
- 14. Traditional Transit Budget Equation Fares + General Taxes = Transit Costs
- 15. Traditional Transit Budget Reality Fares + General Taxes < Transit Costs
- 16. Fares Ridership Traffic Smog Business Opportunities ArisingOut of Concentrating People at Transit Stops & Stations
- 17. General Taxes Disposable Income& Business Opportunities Quality of Life Resentment • Public v. Politicians • Drivers v. Transit Riders
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- 19. Traditional View Is Therean Alternative View That Can
- 20. For New Ideas,Look Back • In the 1800s, the streets of Washington, DC were mostly unpaved. • In wet weather, mud made travel very difficult and unpleasant. • Paving streets and sidewalks was a tremendous advance. It made properties more accessible and the air cleaner. • Everyone would benefit.
- 21. INVISIBLE USERS IDENTIFIED •Yet, people whose property fronted a paved street would benefit more. – No longer would folks track dust, mud and manure into their homes & businesses! • Thus, even if they never walked on the new streets, adjacent landowners would benefit financially from them.
- 22. INVISIBLE USERS CHARGED •In 1894, Congress enacted law requiring adjacent property owners to contribute 50% of the cost of first-time paving of streets, gutters, curbs and sidewalks through a special assessment.
- 23. What is thePotential for Private Sector Participation? • In the 1800s, Congress required private landowners to pay for 50% of the cost of new transportation infrastructure. • In the 1990s, Congress and the District Government were able to obtain a 30% contribution from nearby landowners for a new Metrorail transit station at New York Avenue. • Can we do better?
- 24. Potomac Yards • Inthe mid 1990s, there was an old railroad yard just south of National Airport, across the river from Washington, DC. • The pension fund that owned it wanted to develop it. • Government officials said that development was not possible because the access road, Route 1, was already over capacity during rush hour
- 25. HOWEVER . .. • Officials noted that a rail transit line runs through the middle of this property. • IF a transit station was created there, then dense mixed-use development could be allowed without relying solely on Route 1. • Landowner did the math: It was cost-effective to pay the entire cost of a new transit station to get development rights!
- 27. UNFORTUNATELY . .. • Nearby residents thought that the development was too dense & would bring too much new traffic. • They pleaded for Down-Zoning • Politicians Listened to Constituents • Down-zoned parcel no longer supported enough development to justify a new station.
- 28. Matter-of-Right Development: Dumb Growth • Unable to get zoning permission for mixed-use TOD, landowner sought “matter-of-right” development. • Big Box retail was the answer. • Low-density, auto-oriented development generates much more traffic than the TOD would have.
- 29. • If downzoninghad not occurred, could this private funding of infrastructure be replicated or was it unique? • At Potomac Yards, a single landowner internalized most of the externalities associated with a new transit station. • Most of the time, there are many owners. • But this does not negate the fact that the value created by public transit can exceed the cost of construction. It only makes it more difficult to collect.
- 30. Invisible Users • Landownersmight never drive on a road, or ride a transit vehicle, but they use this infrastructure to extract windfall profits from public investments. • Thus, landowners are the invisible users of transportation facilities and services. • Value Capture is like a user fee that recaptures publicly-created land values in proportion to the benefit received.
- 31. Can Infrastructure BeFinancially Self-Sustaining? • Successful infrastructure generates higher land rents that are windfalls to landowners who did not create the infrastructure. • Landowners simply appropriate the value that the infrastructure created. • Capturing infrastructure-created value for the entity that created it, can help make infrastructure financially self-sustaining.
- 32. NEW Transit Budget Equation Value Capture + Traditional User Fees + General Taxes = Facilities & Services
- 33. Benefits of ValueCapture • Financial Viability – An often overlooked revenue stream • Equitable & Comprehensible – Beneficiaries pay in proportion to the benefit they receive • BUT WAIT – THERE’S MORE!!!
- 34. Value Capture Incentives •User Fees, if properly structured, create incentives for efficiency. • Value Capture Can Promote Efficient Land Use – Recapturing Land Value Motivates Development Near Infrastructure
- 35. Development Fees vValue Capture • Development Fee = Tax on Building Value Tax = Cost of Production Cost of Production Quantity Produced & Prices • Do we want to reduce development near transit and increase its price? • Taxing buildings appropriates private value. It burdens builders & the public.
- 36. Development Fees vValue Capture • Value Capture = Tax on Land Value Land is NOT Produced Land Tax ≠ Cost of ProducƟon What’s the Impact of Land Tax on Land Price? • Price of Land Not Based on Cost • Price of Land Based on Expected Benefits
- 37. Development Fees vValue Capture • Land Tax = Cost of Ownership Cost of Ownership Benefits Price • Taxing land does not diminish its quantity and tends to lower its price. • Taxing land captures Publicly-Created Values. No burden on private production.
- 38. Development Fees vValue Capture • Landowner Responses: – Avoid the Development Fee Number / size / quality of new buildings Maintenance / improvement of existing buildings Investment in buildings at a lower-tax locations – Fund Value Capture • Land Tax Cannot be Avoided – Location-value of parcel not determined by owner – Owner can’t move land to a lower-tax location • Land will be developed – or sold to someone who will
- 39. Value Capture = User Fee For Invisible Users • Invisible users (landowners) receive a substantial benefit. • Through value capture, landowners pay in proportion to benefit received. • Value Capture encourages development of high- value land. Instead of chasing development away, value capture draws development to infrastructure -- which is where we want development to occur.
- 40. HOW TO PROCEED •What kind of Project? – Are the benefits general or localized? • Project might create both types of benefits. • If localized and traditional user fees are subsidized, the surplus benefits will probably be capitalized into higher land values. • Do local assessors determine separate values for buildings and land?
- 41. HOW TO PROCEED •Can assessors use regression analysis to determine the proportion of land value created by various public goods & services? • Are landowners willing to pay for the benefit they will receive or can they be compelled to do so? • Can the public and public officials be educated to understand & support this approach?
- 42. Making Economics Workfor People 1669 Columbia Rd, NW, Suite 116 Washington, DC 20009 (202) 439-4176 www.justeconomicsllc.com
- 43. Land Value Tax(LVT) in Connecticut SNEAPA Conference September 20, 2012 Mark Speirs Regional Director Center for the Study of Economics 413 South 10th Street Philadelphia, PA 19147 Office: 215-923-7800 ext 2 Website: www.urbantoolsconsult.org
- 44. What is LVT •Not a new tax. It replaces the traditional property tax. • It is optional. It gives towns and residents the chance to choose what property tax works best for them. Municipalities can determine if LVT would be beneficial to them and then decide if they want it or not. • It uses current property tax assessments so it is simple to implement and there is no growing of government. • It is revenue neutral so it does not increase or decrease tax revenue for the municipality.
- 45. How it works •A lower (or no) mill rate is placed on buildings, improvements, and maintenance to incentivize construction, investment, and upkeep. • A higher mill rate is placed on land to capture lost revenue. Since land is not man made, there is no effect on jobs nor is there an increase in the cost of land. • It is phased in over a period of years.
- 46. Why is thisof interest to New England planners? 1. Increase investment and owner upkeep in neighborhoods and downtowns. 2. Support Smart Growth objectives. 3. Protect historic districts. Preserve the identity and character of small towns.
- 47. 1. How doesLVT increase investment and owner upkeep in neighborhoods and downtowns Assessed Value $64,100 25.3 mill tax rate $1135 a year $95 a month Center for the Study of Economics • 413 South 10th Street, Philadelphia, PA 19147 • 215-923-7800
- 48. How LVT Createsa fiscal environment for investment Yearly Yearly Tax Bill Tax Property with $300,000 building Bill Rise in holding cost $6448 7500 incentivizes land 6000 owner to build or sell Decrease in tax bill 4500 allows builder/developer $2917 $2917 3000 to capitalize savings into selling 1500 price allowing for $1135 higher profit per 0 40000 80000 120000 160000 200000 240000 280000 320000 unit or ability to sell 360000 Building Value Building Value units for less resulting in more Traditional @ 25.3 mill tax rate units sold LVT @ 65 mill tax rate land Center for the Study of Economics • 413 South 10th Street, Philadelphia, PA 19147 • 215-923-7800
- 49. 2. How doesLVT encourage Smart Growth? Norwalk, CT Business Area
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- 52. LVT Creates Compactness& Yearly Density, Reduces Sprawl Yearly Tax Bill Tax Bill 7500 6000 4500 3000 1500 0 40000 80000 120000 160000 200000 240000 280000 320000 360000 Building Value Value Building Traditional @ 21 mil tax rate LVT @ 34 mil tax rate land – 2.6 building Center for the Study of Economics • 413 South 10th Street, Philadelphia, PA 19147 • 215-923-7800
- 53. Norwalk tax shiftwith LVT from Main St. to Connecticut Ave Total Tax YEAR 1 Collected Year 0 YEAR 2 $6,399,220 Connecticut Ave. YEAR 3 Main St. YEAR 4 YEAR 5 Total Tax YEAR 6 Collected Percent Change in Property Year 6 Tax $6,399,220 - +124 91.6% %
- 54. 3. Stimulate investmentand preserve historic districts Upper Albany Historic District
- 55. 3. Stimulate investmentand preserve historic districts
- 56. Upper Albany historicdistrict tax shift YEAR 0 YEAR 1 Average Decrease YEAR 2 = 9.0% YEAR 3 Average Increase YEAR 4 = 9.7% YEAR 5 YEAR 6
- 57. Stimulate investment. Preserve historic districts • Hartford – 280 Edgewood St. Value = $124,500
- 58. 280 EDGEWOOD ST Land Value = $10,500 Building Value = $114,000 Invest $50,000 Tax before Tax after $50,000 investment investment Increase Standard tax 71 mill $6,256 $8,769 $2,513 LVT tax 435 mill land 11 mill bldg $6,256 $6,641 $385
- 59. LVT preserves historicdistricts, downtowns, and small town identity and character Additional $50,000 Improvement Tax Bill per Year 5000 4000 3000 $2513/year tax increase 2000 1000 $385/year tax increase 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 Increase in tax bill after improvement Improvement with traditional property tax Increase in tax bill after improvement with LVT
- 60. To Summarize 1. Increaseinvestment and owner upkeep in neighborhoods and downtowns. .
- 61. How LVT Createsa fiscal environment for investment Yearly Yearly Tax Bill Tax Property with $300,000 building Bill Rise in holding cost $6448 7500 incentivizes land 6000 owner to build or sell Decrease in tax bill 4500 allows builder/developer $2917 $2917 3000 to capitalize savings into selling 1500 price allowing for $1135 higher profit per 0 40000 80000 120000 160000 200000 240000 280000 320000 unit or ability to sell 360000 Building Value Building Value units for less resulting in more Traditional @ 25.3 mill tax rate units sold LVT @ 65 mill tax rate land Center for the Study of Economics • 413 South 10th Street, Philadelphia, PA 19147 • 215-923-7800
- 62. To Summarize 1. Increaseinvestment and owner upkeep in neighborhoods and downtowns. 2. Support Smart Growth objectives.
- 63. Norwalk tax shiftwith LVT from Main St. to Connecticut Ave Total Tax YEAR 1 Collected Year 0 YEAR 2 $6,399,220 Connecticut Ave. YEAR 3 Main St. YEAR 4 YEAR 5 Total Tax YEAR 6 Collected Percent Change in Property Year 6 Tax $6,399,220 - +124 91.6% %
- 64. To Summarize 1. Increaseinvestment and owner upkeep in neighborhoods and downtowns. 2. Support Smart Growth objectives. 3. Protect historic districts. Preserve the identity and character of small towns.
- 65. Mark Speirs Regional Director Mark@urbantools.org 215-923-7800 ext. 2
- 66. Taxing Land Valuesin a Municipal context: How, Why and Where SNEAPA Conference September 20, 2012 R. Joshua Vincent Executive Director Center for the Study of Economics 413 South 10th Street Philadelphia, PA 19147 Office: 215-923-7800 Website: www.urbantoolsconsult.org
- 67. How Can theProperty Tax Be Used as a Policy Tool for Growth and a Revenue Enhancer for strapped Cities? Property Tax has 2 Components
- 68. Most Parcels have2 Components Building Value •$130K Land Value •$70K Total Value •$200K
- 69. These 2 ComponentsAdded Give us the Property Tax Building • $130K x .017 = $2,210 Tax Land • $70K x .17 = $1,190 Tax Total • $200K x .17 = $3,400 Tax
- 70. Which brings inthe City Real Estate Tax Building • $3 B x .017 = $51M Tax Land Tax • $2 B x .017 = $34M Total City • $5 B x .017 = $85M Tax
- 71. Exempt Buildings orOther Things We Want from Tax Building • $0.00 Tax • $2 B x .0425 = $85 M Land Tax Total City • $2 B x .0425 = $ 85 M • (Revenue-Neutral) Tax
- 72. 1 Component -Land Value - Gives Us Property Tax 2.0 Building Tax • $100K x .0 = $0 Land • $70K x .0425 = $2,975 Tax • $2,975 Total • Reduction of $425 Tax • 12.5% Reduction
- 73. Current Tax SystemsRepel Labor & Capital Adding Drag to the Urban Economy “Fair Current Land Share” Tax Tax Difference $65K x .017 $65 K x .0425 $2,763-$1,105 $1,100 $2,763 $1,658K
- 74. What Other Methodsof LVT? The need for a BID is often caused by vacant or blighted lots. LVT in a BID puts burden on owners that cause the problem. Business • Pittsburgh Downtown Improvement Partnership District • $1.4 M Primary • 39% of Budget Revenue Source: Land Value • Street & Walk Cleaning Operational • Lot Maintenance Purpose
- 75. What Other Methodsof LVT? Parks and Greenways provide public benefit to proximate landowners. Kansas City, MO Parks, and Boulevards Levy collects from those beneficiaries. Benefit has a cost. • Parks and Boulevards System, planned and built Kansas City, MO 1890s - 1940s • Boulevard Tax that is Revenue: currently $1.00/ft, and Land Value generates $600,000 • Parkway Maintenance Tax Purpose: Maintenance levied on Land-Only, of the City Plan generates $6.6 million a year
- 76. What other usesfor LVT? • Berkshire County MA: Regional Stark Division of Tax Base Poverty and Wealth Sharing • A regional LVT shares Revenue: benefits created by Land state and local Value investment Purpose: • Wealthier towns assist Broad- but are not dragged based down economically. economic benefit
- 77. Harrisburg, PA Early LVT Late LVT
- 78. Harrisburg, PA Early LVT Late LVT
- 79. What happened withLVT? Per Capita Residential Building Permits Harrisburg, PA and Albany, NY 147 151 Albany 115 115 Harrisburg 91 80 70 72 64 55 50 34 33 24 Harrisburg Expands LVT 2001 2002 2003 2004 2005 2006 2007
- 80. Do Development PatternsChange to Assist Planning? Classic LVT Study: Oates and Schwab, 1997
- 81. Joshua Vincent Executive Director Joshua@urbantools.org 215-923-7800 ext. 2
- 82. Funding for thisprogram was provided in part by the Henry George School of Social Science, New York, NY 10016