I've heard this point made a couple of times recently, but particularly liked the way Gail Collins expressed it in her recent column, George Speaks, Badly:
Besides being incoherent, this is a perfect sign of an utterly phony speech. Earmarks are one of those easy-to-attack Congressional weaknesses, and in a perfect world, they would not exist. But they cost approximately two cents in the grand budgetary scheme of things. Saying you’re going to fix the economy or balance the budget by cutting out earmarks is like saying you’re going to end global warming by banning bathroom nightlights.
The relative magnitude of earmarks relative to total federal spending or total discretionary federal spending may be rather small. But earmarks do have tremendous potential to do good locally. They can fund projects that may not be feasible for local government to fund, which can contribute mightily to local economic activity and economic rent.
The question, I think, is what happens AFTER the earmark project. Will the local community that benefits from that federal spending collect the benefit from the local residents who are benefited, or will that benefit keep accruing to particular individuals, and continue to be just a nice permanent federal gift to them?
Federal highways are an example of federal spending with tremendous local effects. A new highway increases land values near every exit -- and the radius of that effect grows with time. A new highway exit added to an existing highway creates large increases in land value.
Who should get that land value?
- The landholder who lobbied hard to get the federal dollars expended in his backyard?
- His neighbors similarly situated who didn't lobby?
- Or his entire community, by collecting a significant share of that increase in land value as the common treasure?
We can turn earmarks into the beginning of a permanent income source for our communities, or we can continue to treat them as a very nice federal gift for the well-situated.
How do we do that? How do we transform a one-time federal gift into an ongoing local revenue source?
A simple reform of the property tax -- and one that we should undertake for many other reasons.
1. Frequent property assessments, valuing land first. The assessor's goal should be to approximate 100% of the market value for every property, without regard for the income it is (or is not) currently producing, or how long ago it last changed hands, or the difference between the buildings' replacement value and their depreciated value. Every teardown provides information about how much local land is worth. Update these assessments at least every 3 years. Map the land values. Put the valuations online, and make them readily available for anyone to download and manipulate.
[do you want more information? see assessment, building residual method, teardowns, obsolescence]
2. Divorce the millage rate on land from the millage rate on buildings. (This will probably require enabling legislation at the state level, which should be possible to get. Cite Harrisburg's experience)
[want more information, or help getting this done? See urbantools.org]
The marriage of a tax on buildings and a tax on land should never have happened. (Nor should chattel slavery, but it did.) It did, and we can, and should, annul it.
3. Let the millage rate on buildings start to sink. Increase the millage rate on the land. Let's say that the local property tax was 15 mils per $1,000 of market value. Lower the millage rate on the buildings, by, say, 10% or 15% -- to 13.5 or 12.75 mils. Staying revenue neutral, increase the millage rate on land value. Depending on how much of the local property value is in land and how much is in buildings, that might be a 5%, 10% or 15% increase in the millage rate on land value.
4. Let it be known that the millage rates will continue to diverge. If local government needs more revenue, raise the millage rate on land. Watch the local economy blossom.
What appreciates when a worthwhile* earmark project takes place -- think of the bridge to nowhere, or a highway exit, or the reopening of a closed bridge -- is that the sites best served by it rise in value relative to other properties in the area. When the millage rate on land is low, there is little burden in holding onto the land, unused or underused, for future appreciation. Rising assessments coupled with a rising millage rate motivates the fellow who is mostly a land speculator to either become something more -- a more effective user of the land himself -- or become a seller! But think about what happens to the neighboring property where the owner has already put the land to good use: his land tax rises, just like the underuser's, but his tax bill for his buildings goes down. This encourages him to put his land to even better use, and doesn't penalize him when he does so.
* A worthwhile project can be readily defined as one which produces a larger increase in land value than the cost of the project. If a proposed project is not expected to produce an increase in land value higher than its cost, it is truly a boondoggle.
The question is what we should call it when it DOES create more land value than the project cost, and we FAIL to collect that increase from the beneficiaries! A windfall? A free lunch? Their just due? Winning the lottery without buying a ticket? Just smart on their part? Privilege.
And most of all, it creates an ongoing income stream for the locality out of a one-time federal earmark.
Might some landholders lobby AGAINST an earmark if it would raise their land value and therefore their carrying costs? Only if they aren't business people. Only if their interest as landholders exceeds their interest as entrepreneur. I suppose that an individual farming near a new major highway might not be enthusiastic about that highway coming in, if their livelihood as a farmer depended on continuing to farm all the acreage, even if farming stopped being the highest and best use of that land. [I specified "individual," because a corporate farm would simply move on.]
To return to Gail Collins' analogy about the nightlight,
earmarks may be a small part of the federal budget, but they have the
potential to make a big difference locally -- as every US senator and
congressman knows -- but the question is whether the light they provide
locally should be for the permanent benefit of a small group of
landholders, or for the ongoing benefit of the entire local community.
A money drain? Or a local revenue fountain?
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