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

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

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  1. 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

  2. “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

  3. Vermont Property Tax Shift-Statewide

  4. VT Tax Revenue 2004 Property taxes comprising 35% Personal income 20% Sales and use 12% Energy taxes 12%

  5. VT Tax Revenue-Property split Buildings 24% Personal income 20% Sales and use 12% Energy taxes 12% Land 11%

  6. Vermont Property Taxes

  7. Proposed Property Tax Revenue

  8. 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

  9. 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

  10. 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

  11. ANNUAL RETURN “Land is not the only monopoly, but it’s the mother of all monopolies.” ---Winston Churchill VT HAS an anti-speculation tax

  12. 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

  13. What makes buildings valuable-Privately created Work Investment Materials Architecture Etc. Value created through private effort

  14. 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.”

  15. 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

  16. HOUSING GAP FROM: HOUSING&WAGES IN VERMONT VT HOUSING COUNCIL

  17. 3 Ways to control land prices Community land trust Municipal leasehold Tax land at high enough rate to deter speculation

  18. 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

  19. “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…

  20. 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

  21. HISTORICAL BACKGROUND

  22. “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

  23. “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.

  24. 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

  25. MODERN APPLICATIONS Australia, New Zealand Pennsylvania, date adopted

  26. MODERN APPLICATIONS City Ratio

  27. 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.

  28. EVIDENCE

  29. EVIDENCE

  30. EVIDENCE

  31. Average Annual Value of Building Permits Dun and Bradstreet Data (Rustbelt)

  32. 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@yahoo.com (e-mail) • www.EconomicBoom.info

  33. 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.

  34. 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

  35. 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

  36. ASSESSMENTS-2000

  37. Statewide DECREASE and INCREASE BY GPC INCREASE DECREASE

  38. Burlington Tax Shift Analysis (2004)

  39. Burlington INCREASE OR DECREASE BY GPC INCREASE DECREASE

  40. Burlington BIGGEST INCREASE

  41. Burlington BIGGEST DECREASE

  42. Burlington RESULTS BY PROPERTY CLASS

  43. ESSEX JUNCTION: LAND VALUE TAX SHIFT DETAILS (2008)

  44. ESSEX JUNCTION RES,CONDO,COM MERGED

  45. ESSEX JUNCTION SEPARATED RESIDENTIAL & CONDOS

  46. ESSEX JUNCTION SEPARATED RESIDENTIAL & CONDOS-TOP 10 DECREASE

  47. ESSEX JUNCTION SEPARATED RESIDENTIAL & CONDOS- TOP 10 INCREASE

  48. ESSEX JUNCTION SEPARATED COMMERCIAL

  49. ESSEX JUNCTION SEPARATED COMMERCIAL-TOP 10 DECREASE

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