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LAND VALUE TAX SHIFT in Downtowns, a tool for SMART GROWTH May 11, 2010 Gary Flomenhoft

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LAND VALUE TAX SHIFT in Downtowns, a tool for SMART GROWTH May 11, 2010 Gary Flomenhoft Research Associate/ Lecturer CDAE, Fellow, Gund Institute UVM, Burlington, VT.

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slide1

LAND VALUE TAX SHIFT

in Downtowns, a tool for SMART GROWTH

May 11, 2010

Gary Flomenhoft

Research Associate/ Lecturer CDAE, Fellow, Gund Institute

UVM, Burlington, VT

slide2

“There is nothing more difficult to carry out, more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For those who would institute change have enemies in all those who profit by the old order, and they have only lukewarm defenders in all those who would profit by the new order.”

---Nicolo Machiavelli, 1490

slide4

VT Tax Revenue 2004

Property taxes comprising 35%

Personal income 20%

Sales and use 12%

Energy taxes 12%

slide5

VT Tax Revenue-Property split

Buildings 24%

Personal income 20%

Sales and use 12%

Energy taxes 12%

Land 11%

slide8

Q: What Causes Sprawl?

One factor is land speculation. How?

A: By withholding land from the market, and holding for gain, price is driven up, and people have to move further out from center city to find available affordable land. (30% vacant land-Brookings)

“The most comfortable, but also the most unproductive way for a capitalist to increase his fortune, is to put all monies in sites and await that point in time when a society, hungering for land, has to pay his price.” ---Andrew Carnegie

slide9

LAND SPECULATION

Q: Why is speculation bad?

A:

  • Drives up price of land
  • Creates Sprawl
  • Withholds land from market
  • Creates slums
  • “Flipping”

VT anti-speculation tax: only applies to >25 acre industrial and forest land

PROP 13: corporations avoid through selling shares

slide10

LAND SPECULATION

Q: What good or service does a land speculator provide to the market?

A: Nothing. Mortgage backed securities=Real Estate Bubble and financial collapse?

“The land speculator profits in direct proportion to the damage done to society”

-Winston Churchill

slide11

ANNUAL RETURN

“Land is not the only monopoly, but it’s the mother of all monopolies.” ---Winston Churchill

VT HAS an anti-speculation tax

slide12

What makes land valuable? Publicly created

Population

demand

natural features

public improvements

public services: fire, police, schools, waste

private investment in the area

business activity

limited supply

zoning

growth restrictions (Santa Cruz)

growth boundaries

Not due to private effort

slide13

What makes buildings valuable-Privately created

Work

Investment

Materials

Architecture

Etc.

Value created through private effort

slide14

CLASSICAL ECONOMISTS ON LAND

Adam Smith:

“Ground rents are a species of revenue which the owner, in many cases, enjoys without any care of attention of his own. Ground rents are therefore, perhaps a species of revenue which can best bear to have a peculiar tax imposed upon them.”

John Stuart Mill:

“Landlords grow richer in their sleep without working, risking, or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.”

slide15

Modern Economists

Right: “Land tax is the least bad tax”

---Milton Friedman

Left: “Usurious rent is the cause of worldwide poverty” ---Joseph Stiglitz

Green: “Taxation of value added by labor and capital is certainly legitimate. But it is both more legitimate and less necessary after we have, as much as possible, captured natural resource rents for public revenue.” ---Herman Daly

slide16

HOUSING GAP

FROM:

HOUSING&WAGES IN VERMONT

VT HOUSING COUNCIL

slide17

3 Ways to control land prices

Community land trust

Municipal leasehold

Tax land at high enough rate to deter speculation

slide18

Tax Increment Financing-TIF (Wikopedia)

TIF is a tool to use future gains in taxes to finance the current improvements that will create those gains. When a public project such as a road, school, or hazardous waste cleanup is carried out, there is an increase in the value of surrounding real estate, and often new investment (new or rehabilitated buildings, for example). This increased site value and investment creates more taxable property, which increases tax revenues.

Delay-Loss of revenue

slide19

“Value Recapture” (Wikopedia)

Value capture refers to the process by which all or a portion of increments in land value attributed to "community interventions" rather than landowner actions are programmed in advance and recouped by the public sector. These "unearned increments" may be captured indirectly through their conversion into public revenues as taxes, fees, exactions or other fiscal means, or directly through on-site improvements to benefit the community at large…

slide20

SUMMARY OF INCENTIVES

LOCATION TAXES ARE CONSTRUCTIVE

Encourage building upkeep

Strong anti-blight influence

Stimulate new construction

Lower land prices

Bring land into use

Discourage sprawl

Pro-labor, creativity & effort

IMPROVEMENT TAXES ARE DESTRUCTIVE

Penalize buildings & improvements

Reward rundown buildings

Promote slums and blight

Raise land prices

Encourage sprawl

Subsidize unearned land speculation

Anti-labor, anti-creativity & anti-effort

slide22

“Value Recapture” of public investments

Wright Act 1889: Tulare, CA Irrigation District

Financed by tax on land value. Trees, vines, structures, etc. on the land were exempt

CA Central Valley Irrigation Districts

San Joaquin Valley Agriculture

80% produce in US

slide23

“Value Recapture” of public investments

Crossrail – the London rail project was under consideration to fund by land tax.

Studies say public transit could pay for itself through capture of increase in land values around transit stops.

slide24

HISTORICAL APPLICATIONS

Denmark: 1790’s, 1950’s, 1960’s

California: 1890’s irrigation districts

Australia: 1930’s-present, Sydney, Canberra-leasehold

New Zealand: 1930’s-present 80% site only

South Africa: Jo-berg

Hong Kong: leasehold

Singapore: rent collection

Taiwan: 1940’s-land to the tiller

NY city 1920’s: 10 yr. abatement of improvements

Pennsylvania: 1913-present

slide25

MODERN APPLICATIONS

Australia, New Zealand

Pennsylvania, date adopted

slide27

Harrisburg-Poster Child for LVT

1983 listed as 2nd most distressed city in US.

* The number of vacant structures, over 4200 in 1982, is today less than 500 (1994) = 80% reduction in vacancy.

* With a resident population of 53,000, today there are 4,700 more city residents employed than in 1982.

* The crime rate has dropped 22.5% since 1981.

* The fire rate has dropped 51% since 1982.

* Number of businesses tripled to 3000

* 3.5B invested in projects

These results are especially noteworthy when one considers the fact that 41% of the land and buildings of Harrisburg cannot be taxed by the city because it is owned by the state or non-profit bodies.

slide31

Average Annual Value of Building Permits

Dun and Bradstreet Data

(Rustbelt)

slide33

Evidence for development

  • 45 studies prove that when towns adopt LVT, a spurt in new construction and renovation results.
  • 63 studies conclude that towns switching from taxing buildings to taxing land always out-constructed and out-renovated their neighbors who were subject to the same economic-growth influences.
  • Contact:
  • Steven B. Cord (Professor-Emeritus)
  • 10528 Cross Fox Lane, Columbia MD 21044
  • 1-410-997-1182 (phone/fax)
  • [email protected] (e-mail)
  • www.EconomicBoom.info
slide34

Goal for Today

Gather support for enabling legislation allowing Vermont Downtowns, Growth Centers, and Village Centers to tax land at a higher rate than buildings.

slide35

Vermont Property Tax-shift Study Criteria

Revenue neutral

50% or 100% shift to land value tax statewide

Total revenue divided by total land assessment =land value tax rate

slide36

Vermont Property Tax-shift Study Limitations

Single rate statewide & city by city

No separation of school district from municipal tax district

No adjustment for common level appraisal

slide44

ESSEX JUNCTION:

LAND VALUE TAX SHIFT DETAILS (2008)

slide46

ESSEX JUNCTION SEPARATED

RESIDENTIAL & CONDOS

slide47

ESSEX JUNCTION SEPARATED

RESIDENTIAL & CONDOS-TOP 10 DECREASE

slide48

ESSEX JUNCTION SEPARATED

RESIDENTIAL & CONDOS- TOP 10 INCREASE

slide50

ESSEX JUNCTION SEPARATED

COMMERCIAL-TOP 10 DECREASE

slide51

ESSEX JUNCTION SEPARATED

COMMERCIAL-TOP 10 INCREASE

slide53

GROWTH CENTER MERGED

TOP 10 DECREASE (ALL COM)

slide54

GROWTH CENTER MERGED

TOP 10 INCREASE (ALL COM)

slide55

GROWTH CENTER SEPARATED

RESIDENTIAL AND CONDOS

slide56

GROWTH CENTER SEPARATED

TOP 10 DECREASE RES&CONDO

slide57

GROWTH CENTER SEPARATED

TOP 10 INCREASE RES&CONDO

slide59

GROWTH CENTER SEPARATED

TOP 10 DECREASE COMMERCIAL

slide60

GROWTH CENTER SEPARATED

TOP 10 INCREASE COMMERCIAL

slide65

LESSONS FROM THE PAST

  • Get zoning/set-asides in place to protect environmental/agricultural assets
  • Get assessments right
  • Don’t implement at same time as reassessment (Amsterdam, NY, Pittsburgh, PA)
  • Implement gradually ie: over 5 years
  • Alaska dividend, or Aspen voucher-irreversible
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