The Hartford Courant published an editorial yesterday entitled "Let's Redirect Sprawl." The title is taken from a statement by Pennsylvania governor Ed Rendell.
The editorial says, in part,
Advocates for smart growth often cite the need for "infill development." But "redirect sprawl" gets the message across better. One of the aspects of smart growth that is sometimes forgotten is — growth. To redirect sprawl is emphatically to keep growing, but in places that don't waste energy, add to traffic congestion or ruin the view.
How do we do this? The editorial doesn't say. It does mention the underused land in our cities:
That should be part of a strong and focused effort to redirect sprawl to the empty and underused sites that pockmark nearly all of our urban areas. The central part of Hartford, for example, has acres of land that is severely underused as surface parking.
It usually does cost more to build in town centers and transit corridors. But it is the right thing to do. If we rebuild cities to a healthy urban density, we won't have to drive as much, and thus will save energy and cause less pollution. Cities will be safer and more walkable. There will be less pressure to develop the last of our farms.
"People want to live in cities, if you do it right," Mr. Rendell said.
This ought to be the next phase of the smart-growth movement in Connecticut, and Mr. Rendell may have provided the catchphrase.
So how might we change our policies to promote redirecting sprawl?
First and foremost -- necessary, if not sufficient! -- is the change how we tax property. Our existing property tax represents the marriage of two taxes, and while it may have been functional at one time, it was never meant to be. (I'll return to why it might have once been functional; the other part of my assertion will come first.)
The two poorly matched taxes are one which is quite virtuous and one which is quite devilish. As Susan Pace Hamill says of Alabama's churches (with respect to the revenue adequacy of taxes), an 'A' in charity doesn't make up for an 'F' in justice, and doesn't work out to a 'C' average. And not only is the bad portion of the property tax unjust, it is also full of perverse incentives -- it encourages people to do things which are socially undesirable. The good part of the property tax has the power to make our communities better places to live and work -- it if isn't harnessed to its evil twin!
The bad part of the property tax is the part that falls on buildings and other improvements. For the farm, those improvements include the clearing of the field, drainage and fencing; for the urban property, it is the buildings placed on the lot. When we tax such things, we get undesirable effects:
- downtowns occupied by buildings suitable to another century
- poorly maintained buildings
- buildings sufficient to cover the taxes and their own maintenance, but not meeting all the demand for housing or commercial space
- diners where there should be first-floor coffee-shops; single-family homes in what are now commercial districts; single-story banks which should the ground floor tenant in a multistory building
- vacant lots downtown, with chain link fences, parking lots, queen anne's lace and chicory, earning just enough to cover taxes, but not creating jobs or utilizing the valuable infrastructure provided by the community -- a wasteland, with potholes, instead of lots of small businesses, side by side, serving a variety of community needs and wants
- serviceable vacant buildings that get town down in order to save on taxes, instead of being put to good use
- slow redevelopment, and when it eventually occurs, a building that may not represent the highest and best use of the site
- buildings which are technologically obsolete: poor insulation, old drafty windows, inefficient heating and cooling systems
Depending on what part of the country we're talking about and the age and condition of the neighborhood, the building, even with all its accumulated depreciation (buildings, like cars and machinery, depreciate every year; a Federal Reserve Board study pegs annual depreciation at 1.5%) may represent as little as 15% of the value, or as much as 75% of the value.
So an old low-rise building in a midwestern city might represent 75% of the value; but in a coastal city, a similar building likely sits on a far more valuable lot, and represents only 15% of the value. In that midwestern city, 75% of that property tax is falling on that building! And in that situation, the vacant lot next door is only paying 25% as much in taxes as the old building-and-lot is paying, and the incentive is to ... tear it down!
The good part of the property tax is the part which falls on land value. On a farm, the land value -- before the farmer's improvements such as clearing, drainage, irrigation, fencing, fertilizing -- is quite low per acre -- $2500 per acre, perhaps, where the climate is favorable. In a small town, the land in town is worth far more than the surrounding farmland, due largely to public spending on infrastructure and services -- often 20 or more times as much. As city size increases, urban land values increase -- for reasons that have nothing to do with the individual landholder and everything to do with the density of population, with public spending, with technology. There is an acre site in midtown Manhattan whose value as a teardown has been estimated at $412 million to $1 billion.
Why is this tax good?
- When we tax land value, not one acre leaves town in the middle of the night; the supply is not reduced, cannot be reduced, by the action of taxing its value -- unlike things that are manmade.
- When we tax land value, the landholders who have been sitting and waiting for someone else -- neighbors, local taxpayers, pork spending -- to do something to make their site more valuable are motivated to stop waiting; those who have sat on the land thinking it to be a fine nestegg for their grandchildren someday find themselves with higher carrying costs. Both groups fall into the category known as speculators, not entrepreneurs. (Dogs in the manger is an old-fashioned phrase.)
- When we tax land value, the contribution to paying for municipal
services is identical between the lot that sports only a chain-link
fence and a lawn, and the neighboring lot of similar size that has a
high-rise and creates jobs and opportunities for those who work and
produce.
- When we tax land value, we ask landholders to pay for the services that the community provides. The best sites pay more, the fringe sites pay less -- because they get less! The community delivers foot traffic, transportation systems, city water, sanitary and storm sewers, police, ambulance, fire protection, paving, sidewalks, schools, libraries, bridges, public health services, courts, jails.
- When we tax land value, the best sites are nudged toward their highest and best use, considering current community needs. The landholder is forced to be an entrepreneur, figuring out how best to make his land serve his community. Putting one acre downtown to its highest and best use can save 20 acres on the fringe from premature development -- and much of that development comes at the expense of the taxpayer, not the fellow who builds on the fringe. Wider roads, fire houses, more police, schools, sewers, city water, hydrants, etc.
- When we tax land value, the best sites are developed in a way that creates the kind of density that makes good public transportation really viable.
- When we tax land value, we get better land use; people occupy what they can put to good use, and leave the rest for someone else, rather than acquiring for future development and leaving it unused for decades.
When we marry these two taxes, and use the same millage rate for land and for improvements, we get incentives pulling in two different directions. An increase in the tax on buildings discourages redevelopment and maintenance; an increase in the tax on land value encourages it.
Let's divorce these two taxes which never should have been married in the first place.
I promised to describe why the marriage might once have been functional. At some times and in some places, assessors have acknowledged that buildings depreciate, and, while a newly developed property might have been 25% land value and 75% building value, with the passage of a few years, assuming the economy is healthy, that 25%L/75%B ratio would give way to 50%L/50%B and 75%L/25%B. If all the land is in use, taxing land value and building value at similar rates might not have been too destructive. But when some buildings age and are torn down and not replaced, the equal-rate taxation becomes dysfunctional and a perverse incentive.
Grant the divorce. Do what Harrisburg did 35 years ago, and start reducing the millage rate on buildings and increasing it on land value. The sprawl that is occurring on the fringes will be redirected into the places where vacant and underused lots sit within range of all the infrastructure that makes the central business district the place to be.
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