LAND VALUE TAX SHIFT

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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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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. ---Nic
olo Machiavelli, 1490
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HISTORICAL BACKGROUND
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CLASSICAL ECONOMISTS ON LAND
Physiocrats Quesnay agricultural basis of
economy Limpot unique land tax David
Ricardo- Law of RentDifference in production
(return) over the worst landRent Unearned
incrementunearned profit from land rent
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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.
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CLASSICAL ECONOMISTS ON LAND
Thomas Paine, Agrarian Justice 1797 Men did
not make the earth...it is the value of the
improvements only, and not the earth itself, that
is individual property...Every proprietor owes to
the community a ground rent for the land which he
holds....from this ground rent...I...propose to
create a national fund, out of which there shall
be paid to every person...a sum.
Alaska Oil Dividend
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HISTORY OF LAND VALUE TAX
Henry George Progress and Poverty 1879.
Poverty deepens as wealth increases, and wages
are forced down while productive power grows,
because land, which is the source of all wealth
and the field of all labor, is monopolized. To
abolish all taxation save that upon land values
The single tax. Forerunner to modern day Green
tax shift tax bads, not goods. The taking by
the community, for the use of the community, of
that value which is the creation of the
community. Basis of modern assessments.
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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
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Economics 101
A Little Economics
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TAX ON BUILDINGS - production cost
P
S1
CS
p1
PS
D
q1
Q
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TAX ON BUILDINGS - production cost
S2
P
S1
CS
p2
Loss of CS
Deadweight loss
p1
Loss of PS
PS
tax
tax
D
q1
q2
Q
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TAX ON LAND - no production cost
S
Buy land, they aint making any more.
-Will Rogers
P
P
tax?
P1
tax
tax
D
Q
Q1
Q
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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
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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 gt25 acre
industrial and forest land PROP 13 corporations
avoid through selling shares
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LAND SPECULATION
Q What good or service does a land speculator
provide to the market?
A Nothing.
The land speculator profits in direct proportion
to the damage done to society -Winston
Churchill
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ANNUAL RETURN
Annual Return annual land inflation annual
income 6.65/yr ?
YEAR BURL MEDIAN HOME PRICE increase Annual increase
1970 21,500
2005 204,500 952 6.65
CPI Increase 1970-2005 CPI Increase 1970-2005 503
Land is not the only monopoly, but its the
mother of all monopolies. ---Winston
Churchill
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Return on speculation
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HOUSING GAP
FROM HOUSINGWAGES IN VERMONT VT HOUSING COUNCIL
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3 Ways to control land prices

1. Community land trust
2. Municipal leasehold
3. Tax land at high enough rate to deter speculation

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Tax Increment Financing-TIF (Wikopedia)
Tax Increment Financing, or TIF, is a tool for
redevelopment and community improvement projects
throughout the United States for more than half a
century. With federal and state sources for
redevelopment generally less available, TIF has
become an often-used financing mechanism for
municipalities. Similar or related approaches are
used elsewhere in the world. See for example,
Value capture. 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.
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Value Recapture (Wikopedia)
Value capture refers to a type of innovative
public financing in which increases in private
land values generated by a new public investment
are all or in part captured through a land
related tax to pay for that investment or other
public projects. 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 Value capture can be thought of as a
fully contained sub-set of land value tax,
however with a much more focused domain of
application as indicated here.
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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
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Value Recapture of public investments
Crossrail the London rail project now 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.
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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 growt
h restrictions (Santa Cruz) growth boundaries
Not due to private effort
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What makes buildings valuable-Privately created
Work Investment Materials Architecture Etc.
Value created through private effort
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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
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LAND TAX IS PART OF GREEN TAX SHIFT
Pay for what you take, not for what you
make Tax bads not goods Tax waste not
work
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HISTORICAL APPLICATIONS
Denmark 1790s, 1950s, 1960s California
1890s irrigation districts Australia
1930s-present, Sydney, Canberra-leasehold New
Zealand 1930s-present 80 site only South
Africa Jo-berg Hong Kong leasehold Singapore
rent collection Taiwan 1940s-land to the
tiller NY city 1920s 10 yr. abatement of
improvements Pennsylvania 1913-present
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MODERN APPLICATIONS
Australia, New Zealand Pennsylvania, date adopted
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MODERN APPLICATIONS
City Ratio
Aliquippa School District 14.8182
Aliquippa 7.0702
Allentown 4.6976
Altoona 10.1833
Clairton 22.9508
Clairton School District 24.1935
DuBois 21.1111
Duquesne 1.8890
Ebensburg 3.0075
Harrisburg 6.0000
Lock Haven 5.7036
McKeesport 3.9286
New Castle 4.8391
Oil City 3.3764
Pittsburgh (Until 2001) 6.0000
Pittsburgh Improvement N/A
Scranton 4.5981
Steelton 1.4617
Titusville 3.1137
Washington 15.0000
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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.
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EVIDENCE
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EVIDENCE
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EVIDENCE
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Average Annual Value of Building Permits Dun and
Bradstreet Data (Rustbelt)
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(No Transcript)
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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)
• economicboom_at_yahoo.com (e-mail)
• www.EconomicBoom.info

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Vermont Property Tax Shift-Statewide
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VT Tax Revenue 2004
Property taxes comprising 35 Personal income
20 Sales and use 12 Energy taxes 12
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VT Tax Revenue-Property split
Buildings 24 Personal income 20 Sales and
use 12 Energy taxes 12 Land 11
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VT Tax Revenue-Existing Green Taxes
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Recommendations

• Apply LVT only in growth centers.
• Reverse current ratio to generate 2/3 of state
  property tax revenue from taxes on land.
• Work with established growth boundaries being
  developed by the Vermont Smart Growth
  Collaborative.
• Maintain Revenue Neutral.

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Revised State Green Tax Revenue
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2004 Vermont Property Taxes
Tax Rate 2004 Revenue
Property Transfer Tax .5- 1.25 33,951,657
Speculative Gains Tax 5-80 4,288,132
Current Use Penalty Tax 10-20 404,155
Property Tax (State Portion) avg 1.52 741,600,000

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Vermont Property Taxes
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Proposed Property Tax Revenue
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Vermont Property Tax-shift Study Criteria

1. Revenue neutral
2. 50 or 100 shift to land value tax statewide
3. Total revenue divided by total land assessment
   land value tax rate

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Vermont Property Tax-shift Study Limitations

1. Single rate statewide city by city
2. No separation of school district from municipal
   tax district
3. No adjustment for common level appraisal

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ASSESSMENTS-2000
2000 BLD LAND TOTAL RATIO
State 12.2B 5.4B 17.8B 2.26
68.8 30.4 100
Burlington 1.1B .53B 1.59B (8.9 of state) 2.04
67.6 33.2 100
-13.5/yr
5 YR SHIFT-1 54.1 45.9 100
2 40.6 54.4 100
3 27.1 72.9 100
4 13.6 86.1 100
5 0 100 100
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Statewide DECREASE and INCREASE BY GPC
INCREASE
DECREASE
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Burlington Tax Shift Analysis (2004)
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Burlington INCREASE OR DECREASE BY GPC
INCREASE
DECREASE
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Burlington BIGGEST INCREASE
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Burlington BIGGEST DECREASE
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Burlington RESULTS BY PROPERTY CLASS
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ESSEX JUNCTION LAND VALUE TAX SHIFT DETAILS
(2008)
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ESSEX JUNCTION RES,CONDO,COM MERGED
LAND BLDS TOTAL BLD/ LAND RATIO RATE REV
309,345,011 801,849,353 1,111,194,364 2.59 .020563- .021058 23,227,393
309,345,011 7.5086 23,227,393
CATEGORY NUMBER AVERAGE
DECREASE 1422 -3,223
INCREASE 1960 2,335
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ESSEX JUNCTION SEPARATED RESIDENTIAL CONDOS
LAND BLDS TOTAL BLD/ LAND RATIO RATE REV
252,071,291 511,368,773 763,440,064 2.029 2.1058 16,076,521
252,071,291 6.3778 16,076,521
CATEGORY NUMBER AVERAGE
DECREASE 1716 -1,170
INCREASE 1474 1,362
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ESSEX JUNCTION SEPARATED RESIDENTIAL
CONDOS-TOP 10 DECREASE
TYP PARCEL TOTAL LAND SIZE /ACRE DIFF
RES 5 TIFFANY LN 615,400 91,000 1.140 79,825 -7,155
RES 71 CASCADE ST 487,900 80,800 0.780 103,590 -5,121
RES 40 BEECH ST 450,500 74,600 1.030 72,427 -4,729
RES 24 CORDUROY RD 501,700 95,300 0.710 134,225 -4,487
RES 23 MAPLE ST 476,500 89,600 0.480 186,667 -4,320
RES 40 TYLER DR 414,400 70,100 0.340 206,176 -4,256
RES 39 TYLER DR 408,200 69,800 0.310 225,161 -4,144
RES 22 TYLER DR 406,200 69,400 0.250 277,600 -4,128
RES 35 TYLER DR 405,500 69,200 0.230 300,870 -4,126
RES 6 TYLER DR 405,100 69,500 0.260 267,308 -4,098
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ESSEX JUNCTION SEPARATED RESIDENTIAL
CONDOS- TOP 10 INCREASE
TYP PARCEL TOTAL LAND SIZE /ACRE DIFF
RES 4 HIAWATHA AVE 102,700 102,700 0.190 540,526 4,387
RES 3 WILLEYS CT 104,000 104,000 3.290 31,611 4,443
RES 165 MAIN ST 104,400 104,400 2.030 51,429 4,460
RES 10 OLD COLCHESTER RD 104,900 104,900 2.090 50,191 4,481
RES 1 NORTH HILLCREST RD 107,100 107,100 0.150 714,000 4,575
RES 60 OLD COLCHESTER RD 111,600 111,600 3.000 37,200 4,768
RES 22 JACKSON ST 117,600 117,600 0.120 980,000 5,024
RES 71 BRICKYARD RD 137,900 137,900 19.500 7,072 5,891
RES 76WEST ST 144,600 144,600 7.730 18,706 6,177
RES 315 SOUTH ST 1,215,200 589,000 446.66 1,319 11,975
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ESSEX JUNCTION SEPARATED COMMERCIAL
LAND TOTAL BLD/LAND RATIO RATE REV IBM
57,273,720 347,754,300 5.07 2.0563 7,150,872 2,131,281 (30)
57,273,720 12.4854 7,150,872 584,820 (8.2)
CATEGORY NUMBER AVERAGE
DECREASE 37 -73,240
INCREASE 156 17,371
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ESSEX JUNCTION SEPARATED COMMERCIAL-TOP 10
DECREASE
PARCEL TOTAL LAND SIZE /ACRE DIFF
1000 RIVER ST 103,646,400 4,684,020 233.150 20,090 -1,546,461
POWER LINES 24,862,200 0 85.040 0 -511,241
3 EDUCATIONAL DR 35,248,400 4,406,700 97.800 45,058 -174,617
128 WEST ST 3,686,700 0 7.070 0 -75,810
GAS LINES 3,672,000 0 0.000 0 -75,507
48 PARK ST 7,583,600 869,800 25.370 34,285 -47,343
136 WEST ST 2,183,500 0 0.000 0 -44,899
203 PEARL ST 2,156,200 0 1.140 0 -44,338
1 PEARL ST 4,197,700 446,300 1.890 236,138 -30,595
34 PARK ST 2,036,800 181,500 2.600 69,808 -19,222
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ESSEX JUNCTION SEPARATED COMMERCIAL-TOP 10
INCREASE
PARCEL TOTAL LAND SIZE /ACRE DIFF
56 PEARL ST 390,900 279,300 0.29 963,103 26,834
150 WEST ST 1,491,900 478,600 7.25 66,014 29,077
102 MAPLE ST 10,216,300 1,967,600 33.5 58,734 35,586
30 OLD COLCHESTER RD 414,200 414,200 7.93 52,232 43,197
30 HIAWATHA AVE 2,622,100 802,600 7.92 101,338 46,290
111 WEST ST 2,012,600 761,000 29.46 25,832 53,629
75 PEARL ST 3,409,000 996,300 5.14 193,833 54,293
29 CASCADE ST 1,950,600 952,100 32.0 29,753 78,764
58 PEARL ST 3,232,300 1,393,100 8.57 162,555 107,469
105 PEARL ST 27,444,400 9,627,300 129.75 74,199 637,671
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GROWTH CENTER Res, Condo, Comm
Merged
LAND BLDS TOTAL BLD/LAND RATIO RATE REV
16,086,725 40,324,075 56,410,800 2.507 .020563- .021058 1,163,543
16,086,725 .072329 1,163,543
CATEGORY NUMBER AVERAGE
DECREASE 36 -7,410.73
INCREASE 58 4,599.76
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GROWTH CENTER MERGED TOP 10 DECREASE (ALL COM)
PARCEL TOTAL LAND SIZE /ACRE DIFF
1 PEARL 4,197,700 446,300 1.890 243,152 -54,037
34 PARK 2,036,800 181,500 2.600 68,373 -28,755
15 LINCOLN 1,805,800 149,900 0.550 180,514 -26,290
4 PARK 1,869,300 225,300 1.400 155,045 -22,143
82 PEARL 1,535,300 232,500 0.840 276,762 -14,754
4 PEARL 1,567,400 243,300 0.940 240,720 -14,633
9 LINCOLN 1,195,800 145,400 0.440 340,182 -14,073
100 PEARL 1,557,700 256,900 1.110 227,782 -13,450
4 MAIN 1,053,800 148,500 0.510 303,685 -10,928
20 MAIN 1,033,900 145,100 0.430 364,418 -10,765
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GROWTH CENTER MERGED TOP 10 INCREASE (ALL COM)
PARCEL TOTAL LAND SIZE /ACRE DIFF
110 PEARL 777,400 317,300 0.730 434,658 6,964
15 PEARL 280,100 176,600 0.210 840,952 7,014
106 PEARL 764,700 316,500 0.720 439,583 7,168
86 PEARL 258,900 195,800 0.200 979,000 8,838
92 PEARL 219,500 202,300 0.340 595,000 10,119
1 MAPLE 471,700 275,300 0.220 1,251,364 10,213
98 PEARL 230,900 208,200 0.450 462,667 10,311
102 PEARL 204,100 204,100 0.380 537,105 10,566
56 PEARL 390,900 279,300 0.290 963,103 12,164
58 PEARL 3,232,300 1,393,100 8.570 162,555 34,296
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GROWTH CENTER SEPARATED RESIDENTIAL AND CONDOS
LAND BLDS TOTAL BLD/LAND RATIO RATE REV
2,407,525 4,800,875 7,208,400 1.994 0.021058 151,794
2,407,525 0.06305 151,794
CATEGORY NUMBER AVERAGE
DECREASE 15 -1,296.27
INCREASE 14 1,388.86
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GROWTH CENTER SEPARATED TOP 10 DECREASE RESCONDO
TYP PARCEL TOTAL SIZE /ACRE DIFF
RES 18 LINCOLN 491,700 0.480 215,668 -3,708.75
RES 15 MAPLE 409,800 0.680 131,522 -3,150.52
RES 7 PARK 388,300 0.200 445,915 -1,392.64
RES 20 LINCOLN 330,300 0.350 256,588 -1,381.84
RES 14 RAILROAD 311,800 0.420 207,627 -1,231.85
CONDO 65 PEARL 217,700 -1,152.83
CONDO 65 PEARL 208,500 -1,104.11
CONDO 65 PEARL 208,500 -1,104.11
CONDO 65 PEARL 196,500 -1,040.57
CONDO 65 PEARL 196,500 -1,040.57
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GROWTH CENTER SEPARATED TOP 10 INCREASE
RESCONDO
PARCEL TOTAL LAND SIZE /ACRE DIFF
112 PEARL 210,900 83,000 0.250 301,420 792
2 PARK 277,200 106,500 0.100 935,637 878
90 PEARL 200,100 85,300 0.500 178,721 1,164
25 SCHOOL 239,600 106,700 0.120 912,059 1,682
5 SCHOOL 238,300 108,300 0.260 426,112 1,810
3 PARK 233,400 106,800 0.130 768,977 1,819
29 SCHOOL 221,500 106,500 0.100 1,035,289 2,050
27 SCHOOL 215,700 107,400 0.180 597,073 2,229
5 SCHOOL 188,300 106,200 0.080 1,196,067 2,731
5 PARK 189,400 107,800 0.210 698,831 2,808
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GROWTH CENTER SEPARATED COMMERCIAL
LAND BLDS TOTAL BLD/LAND RATIO RATE REV
13,679,200 35,523,200 49,202,400 2.597 0.020563 1,011,749
13,679,200 0.073962 1,011,749
CATEGORY NUMBER AVERAGE
DECREASE 24 -10,396.76
INCREASE 43 5,802.84
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GROWTH CENTER SEPARATED TOP 10 DECREASE
COMMERCIAL
PARCEL TOTAL LAND SIZE /ACRE DIFF
1 PEARL 4,197,700 446,300 1.890 236,138 -53,308
34 PARK 2,036,800 181,500 2.600 69,808 -28,459
15 LINCOLN 1,805,800 149,900 0.550 272,545 -26,046
4 PARK 1,869,300 225,300 1.400 160,929 -21,775
82 PEARL 1,535,300 232,500 0.840 276,786 -14,374
4 PEARL 1,567,400 243,300 0.940 258,830 -14,235
9 LINCOLN 1,195,800 145,400 0.440 330,455 -13,835
100 PEARL 1,557,700 256,900 1.110 231,441 -13,030
4 MAIN 1,053,800 148,500 0.510 291,176 -10,686
20 MAIN 1,033,900 145,100 0.430 337,442 -10,528
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GROWTH CENTER SEPARATED TOP 10 INCREASE
COMMERCIAL
PARCEL TOTAL LAND SIZE /ACRE DIFF
110 PEARL 777,400 317,300 0.730 434,658 7,483
15 PEARL 280,100 176,600 0.210 840,952 7,302
106 PEARL 764,700 316,500 0.720 439,583 7,685
86 PEARL 258,900 195,800 0.200 979,000 9,158
92 PEARL 219,500 202,300 0.340 595,000 10,449
1 MAPLE 471,700 275,300 0.220 1,251,364 10,662
98 PEARL 230,900 208,200 0.450 462,667 10,651
102 PEARL 204,100 204,100 0.380 537,105 10,899
56 PEARL 390,900 279,300 0.290 963,103 12,620
58 PEARL 3,232,300 1,393,100 8.570 162,555 36,571
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Growth Center land value/acre
TYP LAND VALUE SIZE /ACRE
RES 2,065,500 6.154 335,620
COM 13,679,200 50.055 273,286
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Greenwich land value/acre
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LESSONS FROM THE PAST

• Get zoning/set-asides in place to protect
  environmental/agricultural assets
• Get assessments right
• Dont implement at same time as reassessment
  (Amsterdam, NY, Pittsburgh, PA)
• Implement gradually ie over 5 years
• Alaska dividend-irreversible