A friend had a letter published in the Portland Press Herald recently, talking about land value taxation. Link and text below:
By Bill Basford of Benton
A news article in a recent Portland Press Herald reported on a dramatic 23 percent decline in car ownership – 26 percent per capita! – in the city of Portland over the past seven years.
This great news was followed by a Press Herald editorial on July 30 urging the city to encourage this trend by relaxing minimum parking requirements, providing better walking and cycling access from off peninsula, and maybe even restoring streetcar service.
Another policy change that the city should consider is a change to land value taxation, or LVT.
LVT is a property tax system that dramatically reduces tax rates on buildings and increases land taxes to make up the difference, while keeping total property taxes the same as before.
A dozen or more cities in Pennsylvania have already changed to this system, or are actively working on this change.
Reducing taxes on buildings encourages developers to put up new buildings, including rental apartments and condos, by reducing the long-term costs of owning and operating a building.
At the same time, a higher tax on land discourages speculators from holding empty lots for years or even decades, while waiting for the value to rise enough to make a killing on the land, without ever building anything on it.
The value of vacant land is greatly affected by what is built on other nearby lots.
Land speculators are, in effect, gambling on if and when new buildings go up on nearby lots. By raising the “holding costs” for empty lots, the city can pressure land speculators to either develop their own vacant lots, to bring in enough revenue to cover the higher holding costs, or sell the land to someone else who can and will develop the empty lots.
Under Portland’s current property tax system, even ordinary surface parking lots can bring in enough revenue to cover the low taxes on otherwise vacant land, allowing speculators to leave it undeveloped for many years.
Several city blocks of surface parking just south and east of the Cumberland County Civic Center show the undesirable effects of Portland’s current low land taxes.
But Portland simply can’t afford to have so much of its limited downtown land area tied up in such unproductive uses.
LVT can be introduced gradually, allowing owners of underutilized land time to adjust their plans without suffering sudden unexpected losses.
For example, Altoona, Pa., recently completed a 10-year transition to LVT, from 2002 to 2011, resulting in a significant increase in both the number and value of building permits.
In comparison, Johnstown, Pa., a similar-size city about 40 miles west of Altoona, has not made the change to LVT and is still enduring a decades-long decline in building permits.
Harrisburg, Pa., the state capitol, with a population slightly less than Portland, changed to a graded tax system, taxing land at six times the mil rate of buildings and other improvements.
It has seen a big increase in new construction, despite other financial blunders that may bankrupt the city government.
While the benefits of LVT or a graded tax system will be most evident in the downtown business area, homeowners have little to fear.
Most homeowners will see a small reduction in total property taxes, with the only likely increases being for smaller than average houses on unusually large lots.
Maine state law now requires municipalities to tax all property at the same mil rate.
But this law was probably intended to prevent blatant tax discrimination, such as taxing out-of-town property owners at higher rates than residents, or taxing rental apartment buildings at higher rates than owner-occupied condominiums.
It should easy enough to convince the Legislature to pass enabling legislation for LVT, as long as all land is taxed at the same mil rate citywide, and all buildings are taxed at the same mil rate citywide.
Furthermore, this change can be made at low cost to the city, without requiring an expensive revaluation, since the property tax database already includes separate valuations for land and buildings.
In summary, a change to Land Value Taxation could bring a surge of new construction to downtown Portland, ease the very tight rental housing market, and draw in still more creative people ready to live without money-sucking cars.
Let me not mince words….slip lanes are the bane of a pedestrian friendly downtown business district, but they may have a larger impact than that on your cities finances.
From a planning perspective, they facilitate fast travel and are suitable for highway on-ramps, rural highways, and places where there isn’t a chance in hell someone is walking or downtown businesses are trying to thrive. I also like to think of things in terms of value and how things build a cities tax base and that is where I intend to head with this post, not the traffic calming rant I seem to have started on.
To illustrate the point I will be making, I am picking on a particular intersection that has four right turn slip lanes, going in each direction and facilitating an effortless cornering maneuver for motorists. As I implied earlier, these are great for places where no one in their right mind would walk, but what are the costs when it is located in what should be a thriving downtown business district?
The marked areas in the map below represents almost 3/4 of an acre of land consumed by the transportation “investment”, and is at the south end of a somewhat thriving downtown (getting better by the day I might add). The block south of downtown sits a old mill that is witnessing a resurgence and has been the recipient of significant private investment dollars, yet when navigating this intersection, it may as well be a mile away. Not only is the street network designed for Interstate traffic (5 lanes including turn lanes), but the slip lanes lead you right into the heart of downtown at breakneck speed.
Not that everyone drives this fast when approaching the downtown business district, but the transportation network certainly doesn’t prevent it. In other words, it happens frequent enough for me to notice.
In terms of our point about the lost value to the city, these slip lanes represent what could be development opportunities for ‘thee’ prime location in the City. Not only is it close to the neighboring town across the river, but given the right changes in zoning code, these properties could allow for significant investment, never mind the fact that developing these properties is probably illegal according to the towns (and every other towns) current zoning code.
If I were a good (even remotely decent) graphic designer, I would crank out a sketch-up of these properties as they would look if developed with downtown buildings, with no setback from the street’s ROW (right of way). Not only would this add tax paying properties to the City, but would serve as a continuation of the downtown corridor linking the investment in the mill just south of downtown. As one approaches the City coming in from across the river, one would know they were arriving somewhere worthy, a place to arrive to, instead of a place to drive through.
Some might argue that the properties are too small for significant investment, but if we look at the property just north of the 0.19 acre property, it is actually only .145 acres and on it sits a very nice building that sadly is suffering from lack of investment. By combining the property that is 0.33 acres with the property (large parking lot along the river with 1.165 acres) to the northeast, you end up with a property large enough to build a great building site and provide some adequate parking. The same is the case with the parcels on the south end of the intersection.
I began this post thinking about tax revenue for the city and how to increase value. So lets play with some numbers… Pretend each corner attracted an average investment of $1M. At our current tax rate, that would represent an additional $96,000/year in tax revenue if my calculations are remotely correct. Considering that the infrastructure (street, water, sewer) is already in place in this area of town, this investment would be gravy for the city. They could either make other strategic investments in attracting business, or over time, reduce the tax burden on each property owner after the changes in the transportation system that led to this are reimbursed.
I keep looking at the places I happen by and see opportunities from strengthening communities everywhere. I won’t talk about why there is a 5 lane bridge between the two towns at this time, or the one-way streets that also facilitate fast traffic, but that too should be considered in a holistic fashion along with this. Perhaps the towns comprehensive plan will address these issues or a more narrowly focused downtown master plan could offer some direction? At this point it isn’t my place to bring these up, but hope that someone with more clout than myself, might run with it? These are all complicated issues and can’t be looked at in isolation, but it is good to start somewhere.
Cities levy taxes to pay for things people need. Some of those things are schools, parks, streets, police & fire protection. Understandably, nobody really likes taxes, so cities try their best to keep taxes low. In a town like Waterville, in what is considered a service center town, taxes can be a bit higher. This is largely due to having more hospitals, churches, non-profit organizations, judicial buildings, schools and colleges, than many of the surrounding communities. These places don’t pay property taxes and that is ok, because they bring people to the community for those services and the jobs they represent.
It can be argued then that service center towns will have a much more difficult time attracting residents who use tax rates as a measure of attractiveness to settle in a particular town. One solution to that problem is to focus on adding more value per acre of taxable property, thereby reducing the property tax rate and the burden on a towns citizens.
While increasing the density of value may be a difficult political sell in some respects, it represents a solution to a vexing problem of overtaxing a tax-weary citizenry. The map below is a simple parcel map of Waterville, ME that shows the value of each parcel in terms of its area (value/acre). The most valuable parcels of the town are primarily the downtown (red parcels), which also happens to be the most dense part of town.
Considering that infrastructure and other city services become less expensive as density increases (less roadway to pave, less patrolling needed, etc.), it begs the question of why we create zoning codes that promote low density development? If residential housing is restricted to 4 homes/acre (.25 acre lots) and the street that those houses reside on costs the same as a street that is zoned for 6 houses/acre (.17 acre lots), which street has a better chance of being supported by the tax revenue of the properties on the street?
When we look at downtown, you note that most parcels are either red or dark orange, representing value/acre at over $1M or $750K respectively. These represent breadwinners for the cities coffers and probably subsidize much of the low density areas infrastructure costs. Not that downtown development is right for every part of town, but any chance a city has to increase density will increase value on a per acre basis.
As a planner, I feel it is my responsibility to find solutions to how cities develop that cater to people of the broadest possible political persuasions. Reducing tax rates while maintaining a high level of city services appeals to a broad coalition. Reducing our ecological footprint by taking up less space is also appealing to many.