Give Cities New Tax Tool
By The Day
Published on 1/25/2009 in Home »Editorial »Editorial
Cities in Connecticut should have the option of using land-value taxation (LVT) to encourage redevelopment in urban centers.
LVT removes the disincentive that causes many property owners in city districts to leave lots vacant and buildings abandoned. Under the current property tax system, the more improvements an owner makes the higher taxes he or she pays. This leads many owners to land bank, fearful they will not be able to attract the necessary tenants to pay for higher taxes and development costs.
LVT allows municipalities to assess taxes either entirely or predominately on the land, rather than the building improvements on the land. Using such a system, the owner who makes improvements to his buildings or builds on his vacant lot pays no more taxes than the guy who leaves the property rundown.
The system provides an incentive to redevelop and improve properties or, at the very least, sell the land to someone who will. Typically LVT ordinances phase in the new taxing system over a number of years, gradually shifting the assessment from buildings and the land to the land only. Owners with vacant lots and empty storefronts see their taxes increasing as the assessment shifts, driving them to improve the property and generate revenue.
Lawmakers have filed three bills in the state legislature to permit cities to use LVT, either for entire municipalities or in designated districts within cities. Rep. Ted Moukawsher of Groton introduced a bill in the House and Sens. Andrew Maynard and Andrea Stillman, of Stonington and Waterford, respectfully, filed in the Senate.
The legislature must be careful to limit LVT to urban centers. If ever used in rural and suburban towns, it would penalize farms and those holding large tracts of open space, encouraging development and sprawl.
But utilized where it makes sense, it could prove an important tool in encouraging development of empty lots and unused buildings in urban commercial districts, such as downtown New London and Norwich. In Pennsylvania such a tax system has helped drive redevelopment in formerly struggling cities, including Harrisburg and Pittsburgh.
An important point is the use of LVT would be optional, giving cities the option to use it where it makes sense.
See related commentary “Putting higher levy” on Page F3.
Isn't land value taxation using a tax strategy to solve a land use planning problem?
ReplyDeleteHow would LVT encourage more compact, mixed use development in New London when developers are getting state funding to extend sewer lines and build new residential subdivisions on the edge?
New London would be better served by a strong plan, reinforced by zoning, and cooperation at all levels of government to keep growth in and stop sprawling out.
LVT alone, could make it very difficult for New London's middle income homeowners to pay their property taxes. Is this really a strategy that's in the long term best interests of the little city that could?
Heidi, LVT aligns our incentives with the direction we want to go. As things stand now, we've got two taxes pulling in different directions.
ReplyDeleteBuilders go to virgin land on the fringe only when they can't get land which is already served by infrastructure. Most people would prefer to live closer to their work, closer to shopping, to existing schools, to well-equipped firehouses and hospitals, and will pay more for a good location. If all they can afford is on the fringe, they'll go there, and lobby for schools and firehouses and fire hydrants and city water and sewer -- paid for by someone else.
LVT nudges the owners of well-located and underused land to put it to good use. Right now, we tax them only lightly, and we place the burden on those who have homes and buildings on their land.
LVT doesn't raise the taxes on those who own and use fringe land (e.g., farmers); much of their value is in specialized buildings, which LVT would untax.
LVT lowers the penalty on those who put their well-located land to good use. In Stamford, for 30+ years, we've had a 4.3 acre "hole in the ground" in the middle of our downtown. Hard to believe, but true. Across the street is an 18-story Marriott, which provides jobs, hotel rooms, meeting rooms, meals, parking. Our current tax regime taxes the Marriott heavily and the owners of the hole in the ground lightly enough that they keep waiting for someone to pay them their price. Meanwhile, it blossoms with a chainlink fence and junk trees. We have to walk around it, drive around it, maintain the water and sewer pipes, streets, plow, patrol it. It contributes nothing. A better incentive would be to untax the Marriott's buildings and to make the taxes on the two properties more similar. The owners of the hole would see their carrying costs rise, and they would lower their asking price. Land speculation -- waiting for someone else to do something -- would no longer be profitable. And creating jobs and providing services the market wants would carry a lower annual tax burden.
Further, good development of that 4.3 acre site would serve human wants and needs, without sprawl into current residential areas. That might be some combination of an additional grocery option; some affordable housing for middle class folks, working folks, retirees, young people; commercial venues. 4 acres downtown well developed could conserve many more on the fringe from premature development.
The middle class who live in New London would see their taxes go down, because we wouldn't be taxing them so much on their well-maintained homes. The folks who own well-located and underused or vacant lots would see their taxes rise. (Many of them aren't local voters anyway.)
Land use planning and regulations and zoning are all "command and control" measures. They work, but incentives work better. Align the incentives with where New London wants to go. LVT creates healthier cities. You might take a look at Harrisburg's experience with it; it has gone from being a very sad city to being a lively one, with a mayor who keeps getting re-elected.
The current property tax is two taxes yoked together. The part that falls on buildings penalizes those who take good care of their homes, and penalizes those who redevelop their land to its highest and best use, as if those were things we mean to discourage. And the part that falls on land value isn't high enough to promote intensive use of really choice sites. Unyoke them, reduce the penalties on maintenance and redevelopment, and increase the incentives to use prime sites well.
I dunno. LVT is certainly elegant, that´s for sure; I feel it is really interesting and deserves more exploration.
ReplyDeleteThe problem is the transition from one system to another, and how you fine tune the tax so it really doesn´t become a huge burden in those who have a lot of land (farmers).
Roger, it won't burden farmers; in fact, it will unburden them, unless they are farming in the middle of town, where we probably don't want them anyway. Much of what farmers currently get taxed on is not the value of their land, but the value of their buildings and sometimes even their equipment, which is quite specialized and often expensive. LVT, even introduced gradually, would reduce the taxes on those improvements.
ReplyDeleteOne of the beauties of LVT is that it can be introduced very gradually, if that is what seems to be desirable, or less gradually.
If 5 Connecticut cities decided to utilize LVT, each might do it differently, based on local needs, and the relative value of land and buildings.
Shifting to LVT will cause people to look more carefully at local assessments, and it would be wise to plan to revalue regularly, with particular attention to getting land value right. (For instance, in Stamford, the assessments don't currently assign any land value to condominiums, either residential or commercial! This makes no sense, and would need to be corrected. Not a big deal, but needs to be attended to. Our assessments have improved a lot in recent years; I follow transactions in a number of Stamford's neighborhoods, and each time, the assessor gets closer to getting the land values right. Every teardown gives us a clear picture of what land is worth; that ought to show up in our assessments. Stamford's are online for all to see, at http://www.cityofstamford.org/apps/tax/AssessmentMain.htm ; that "hole in the ground" is on Tresser Blvd, if you want to explore a bit (no street address).