Pulling in some discussion from a different thread to keep things on topic.

 

For those that wonder why there seem to be so many vacant properties, especially in prime locations, I suggest reading some of the articles in Strong Town's series on Land Value taxes. They propose a system where the value of land is the sole determination of value when determining property taxes. This is as opposed to the current system that taxes both land and improvements.

 

This article in the series specifically talks about parking lots in prime locations: https://www.strongtowns.org/journal/2019/3/5/whats-with-that-empty-lot-in-the-heart-of-the-city

 

To generate some discussion here, I do believe that there are a lot of good arguments for implementing a land value tax. How would we as citizens go about championing for this type of change?

Vacant properties in prime locations has more to do with CERCLA than anything else.

17 hours ago, E Rocc said:

Vacant properties in prime locations has more to do with CERCLA than anything else.

Can you expand on this? I checked the EPA website and I'm not following how CERCLA keeps properties vacant:

https://www.epa.gov/superfund/superfund-cercla-overview

 

Are you saying the implication is that since responsibility of cleanup of the sites falls on the owner before they can sell people are incentivized to sit on dirty sites?

While the initial theory is nice, it really does not sound very workable and it would ultimately do nothing but punish the small owner and reward the big developer (which I know is part of the goal). However, land prices can easily be manipulated and the article does not address that issue at all in the article.   For example, take a parking lot in downtown Cleveland that currently has a auditor value of $1 million for land plus improvements. The owner sells it for $2 million to a new owner, that does not mean the taxes will be reassessed on the new $2 million land value. Depending on how the purchase is, the value of the land could actually go down and taxes reduced. 

2 hours ago, dastler said:

Can you expand on this? I checked the EPA website and I'm not following how CERCLA keeps properties vacant:

https://www.epa.gov/superfund/superfund-cercla-overview

 

Are you saying the implication is that since responsibility of cleanup of the sites falls on the owner before they can sell people are incentivized to sit on dirty sites?

 

I am saying that there have been cases where a new owner ends up with some share of the liability for cleaning up messes created by long extinct entities.   Or potentially, their lender does.   While this does not happen often as lenders are usually exempt, it can happen and this makes them cautious, and caution is $$.

 

It's cheaper and easier to build on a greenfield, in most cases.

On 1/25/2023 at 3:10 PM, Brutus_buckeye said:

While the initial theory is nice, it really does not sound very workable and it would ultimately do nothing but punish the small owner and reward the big developer (which I know is part of the goal). However, land prices can easily be manipulated and the article does not address that issue at all in the article.   For example, take a parking lot in downtown Cleveland that currently has a auditor value of $1 million for land plus improvements. The owner sells it for $2 million to a new owner, that does not mean the taxes will be reassessed on the new $2 million land value. Depending on how the purchase is, the value of the land could actually go down and taxes reduced. 

In a land value tax system purchase prices aren't considered when valuing the land, it's determined by the size of the lot and what kind of uses it can have (single family, multifamily, business, etc.) I don't have the time to dig into case studies and examples at the moment, but the claim is that property taxes for smaller lots (family sized) will actually go down because the underutilized lots will start paying their fair share.

 

Theoretically, if a city were to implement a land value tax they could work backwards and start with the amount of money the city needs. They'd then determine appropriate $/sf rates for different zoning code to ensure that the final property taxes for the year are equal to the dollar amount needed plus some buffer.

 

Looking at the 2022 budget for Cleveland, the property tax revenue is projected at $41,665,779. Distributed evenly across the 77.7 mi^2 of Cleveland's land area would equal $536,239/mi^2= ~2c/ft^2.

 

Does anyone know what percentage of the total property tax bill goes to the city?

4 minutes ago, dastler said:

In a land value tax system purchase prices aren't considered when valuing the land, it's determined by the size of the lot and what kind of uses it can have (single family, multifamily, business, etc.) I don't have the time to dig into case studies and examples at the moment, but the claim is that property taxes for smaller lots (family sized) will actually go down because the underutilized lots will start paying their fair share.

 

Theoretically, if a city were to implement a land value tax they could work backwards and start with the amount of money the city needs. They'd then determine appropriate $/sf rates for different zoning code to ensure that the final property taxes for the year are equal to the dollar amount needed plus some buffer.

 

Looking at the 2022 budget for Cleveland, the property tax revenue is projected at $41,665,779. Distributed evenly across the 77.7 mi^2 of Cleveland's land area would equal $536,239/mi^2= ~2c/ft^2.

 

Does anyone know what percentage of the total property tax bill goes to the city?

The one challenge is that such a tax would be regressive and be strongly titled in favor of rewarding rich developers who can spend the money to develop a property and punishing poorer landowners who do not have the capacity to develop. In addition, there are other numerous odd shaped land parcels (such as some hillside property or empty parcels created by street easements that make land undevelopable in many cities. It would punish the people who may hold these (albeit a poor investment in my opinion, but still a way to store value for some people). 

 

My point is, this may seem nice in theory, and there could be certain benefits to such a system of taxation, but in practicality it seems like there will be significant problems trying to administer such a system in a fair and equitable manner that it seems impractical

22 hours ago, Brutus_buckeye said:

The one challenge is that such a tax would be regressive and be strongly titled in favor of rewarding rich developers who can spend the money to develop a property and punishing poorer landowners who do not have the capacity to develop. In addition, there are other numerous odd shaped land parcels (such as some hillside property or empty parcels created by street easements that make land undevelopable in many cities. It would punish the people who may hold these (albeit a poor investment in my opinion, but still a way to store value for some people). 

 

My point is, this may seem nice in theory, and there could be certain benefits to such a system of taxation, but in practicality it seems like there will be significant problems trying to administer such a system in a fair and equitable manner that it seems impractical

The challenges you point out I think are features, not bugs! It discourages people from sitting on land as a store of value.

4 minutes ago, dastler said:

The challenges you point out I think are features, not bugs! It discourages people from sitting on land as a store of value.

So assume, Average Joe inherits a small parcel of land as an empty lot worth maybe 20k. He cant develop it but he is a run of the mill plumber and sits on it as a nest egg to preserve his money. Plus, the transaction cost to sell it for a fair price does not incentivize him to sell. The land will sit vacant for as long as Average Joe owns it. I get that is not a great use of land but at the same time, Average Joe should at least have a right to own the land as an asset. 

 

Now, under your proposal, Average Joe inherits this $20k empty lot, but taxes are so ridiculously high that it would cost him more money to keep after 2-3 years than it is worth so he would be incentivized to sell as quick as possible. Who is the buyer?? On the current market, he could fetch a fair price of $20k for the land. Under the new rules, Average Joe Plumber will not be able to be patient to get a fair price because the longer he sits on the property, the more it costs him. The only buyers are well heeled and well funded multi-millionaire developers who can now buy this land for pennies on the dollar (because Joe cannot afford to let it sit because he does not make enough money to afford the land). He sells to this potential developer who pays way below the actual fair market value and is able to "steal" the property for fire sale prices. That same developer banks the land for another 10 years before deciding what to do with it. 

 

Yes, that developer will pay the city a much higher tax rate for the property but you still have an empty lot that is not going to be developed anytime soon. You have also pretty much eliminated any potential for the middle class to own property in an urban area and have only turned it over to multi-millionaire developers. Furthermore, many of the developers who can develop the property are usually tight with the city. This system would further foster a ton of cronyism since the few who could practically get the project off the ground are the ones who can grease the skins of the politicians (lets not pretend this does not happen). So you have just created a system where the cities who collect the taxes are the gatekeepers of who they will allow to play the development game in their town, and they will now control who owns all the land in the city too. 

 

So as I see it, the system that you promote will:

1) destroy wealth of the middle class

2) allow wealthy investors and developers an avenue to acquire property at a steep discount. 

3) promote cronyism and corruption in cities by having land and development controlled by a select few. 

 

I do not see this playing well with the public, plus the politicians that promote this while at the same time speaking about equity in the other breath are nothing but two faced hypocrites.

Won't someone think about the rent-seekers?

2 hours ago, Brutus_buckeye said:

So assume, Average Joe inherits a small parcel of land as an empty lot worth maybe 20k. He cant develop it but he is a run of the mill plumber and sits on it as a nest egg to preserve his money. Plus, the transaction cost to sell it for a fair price does not incentivize him to sell. The land will sit vacant for as long as Average Joe owns it. I get that is not a great use of land but at the same time, Average Joe should at least have a right to own the land as an asset. 

 

Now, under your proposal, Average Joe inherits this $20k empty lot, but taxes are so ridiculously high that it would cost him more money to keep after 2-3 years than it is worth so he would be incentivized to sell as quick as possible. Who is the buyer?? On the current market, he could fetch a fair price of $20k for the land. Under the new rules, Average Joe Plumber will not be able to be patient to get a fair price because the longer he sits on the property, the more it costs him. The only buyers are well heeled and well funded multi-millionaire developers who can now buy this land for pennies on the dollar (because Joe cannot afford to let it sit because he does not make enough money to afford the land). He sells to this potential developer who pays way below the actual fair market value and is able to "steal" the property for fire sale prices. That same developer banks the land for another 10 years before deciding what to do with it. 

 

Yes, that developer will pay the city a much higher tax rate for the property but you still have an empty lot that is not going to be developed anytime soon. You have also pretty much eliminated any potential for the middle class to own property in an urban area and have only turned it over to multi-millionaire developers. Furthermore, many of the developers who can develop the property are usually tight with the city. This system would further foster a ton of cronyism since the few who could practically get the project off the ground are the ones who can grease the skins of the politicians (lets not pretend this does not happen). So you have just created a system where the cities who collect the taxes are the gatekeepers of who they will allow to play the development game in their town, and they will now control who owns all the land in the city too. 

 

So as I see it, the system that you promote will:

1) destroy wealth of the middle class

2) allow wealthy investors and developers an avenue to acquire property at a steep discount. 

3) promote cronyism and corruption in cities by having land and development controlled by a select few. 

 

I do not see this playing well with the public, plus the politicians that promote this while at the same time speaking about equity in the other breath are nothing but two faced hypocrites.

Let's use real world examples... I finally found some data on how much of my property tax goes to the city of Cleveland. Per this 2022 report, 15.16% of residential property taxes go to the city. My 1,738sf lot would have a yearly property tax bill of $2,968.70 if it didn't have an abatement. The city would get ~$450 of that using the 15.16% figure. In my current tax bill, the land is 7.73% of the total value. At 7.73%, the land portion of the bill is ~$230, $34.79 of which goes to the city.

 

Using the equal distribution method that I figured before, at 2c/sf would only need to give $34.76 (wow this is shockingly close to the current system) to the city and my total tax bill would only be ~$230, a more than 10x reduction. That doesn't take into account the land area that is publicly owned (and thus shouldn't be included in the equal distribution), but I can say with certainty that public land is not 90% of the total. You'd need more than 90% to be non-taxable in order to boost the theoretical tax bill up anywhere close to my current one.

 

If we assume 50/50 public/private ownership (which is extremely conservative), that doubles my estimates to 4c/sf and $460/yr, I'm pretty comfortable that that's a worst case scenario. We can now ratio old to new tax situations as $230:$460 = 1:2 for empty lots.

 

In this theoretical world, you're right that Joe Plumber's $20k lot would have twice as much in property tax. However, using Cleveland's tax rates he'd only be going from $527.90 to $1,055.80, it's a couple hundred difference not thousands like you seem to be implying.

 

On top of this strawman though, this hugely benefits everyone that owns and lives in the city! I'm very confident that the proposed system would benefit vastly more people than it harms.

Edited January 27, 20232 yr by dastler

On 1/26/2023 at 3:38 PM, dastler said:

Theoretically, if a city were to implement a land value tax they could work backwards and start with the amount of money the city needs.

 

Wouldn't that last word become "wants" and couldn't that lead to all sorts of overspending and overtaxing?

15 hours ago, dastler said:

Let's use real world examples... I finally found some data on how much of my property tax goes to the city of Cleveland. Per this 2022 report, 15.16% of residential property taxes go to the city. My 1,738sf lot would have a yearly property tax bill of $2,968.70 if it didn't have an abatement. The city would get ~$450 of that using the 15.16% figure. In my current tax bill, the land is 7.73% of the total value. At 7.73%, the land portion of the bill is ~$230, $34.79 of which goes to the city.

 

Using the equal distribution method that I figured before, at 2c/sf would only need to give $34.76 (wow this is shockingly close to the current system) to the city and my total tax bill would only be ~$230, a more than 10x reduction. That doesn't take into account the land area that is publicly owned (and thus shouldn't be included in the equal distribution), but I can say with certainty that public land is not 90% of the total. You'd need more than 90% to be non-taxable in order to boost the theoretical tax bill up anywhere close to my current one.

 

If we assume 50/50 public/private ownership (which is extremely conservative), that doubles my estimates to 4c/sf and $460/yr, I'm pretty comfortable that that's a worst case scenario. We can now ratio old to new tax situations as $230:$460 = 1:2 for empty lots.

 

In this theoretical world, you're right that Joe Plumber's $20k lot would have twice as much in property tax. However, using Cleveland's tax rates he'd only be going from $527.90 to $1,055.80, it's a couple hundred difference not thousands like you seem to be implying.

 

On top of this strawman though, this hugely benefits everyone that owns and lives in the city! I'm very confident that the proposed system would benefit vastly more people than it harms.

Yes, but the nature of what you are saying is that the ENTIRE property tax assessment be based on land value and not improved value, not just the city portion. When you apply it to the entire tax bill, that is a huge difference because the revenue to be made up from the lack of being able to tax improvements would be massive and would ultimately create a regressive tax that would benefit the super wealthy in that case at the expense of the middle class. 

 

Now to your point, assume that this only affected the city tax portion of the tax bill and not the overall tax bill. Now what you get is a system that essentially raises taxes on some to the detriment of others (ok, not much different than the current tax abatement in place now) but does not actually create any pain to truly alter the behavior you seek, so nothing really changes and people are not really incentivized to sell vacant property or it does not provide enough inducement to development if I understand you right?

2 minutes ago, E Rocc said:

 

Wouldn't that last word become "wants" and couldn't that lead to all sorts of overspending and overtaxing?

This really is a moot hypothetical discussion anyway because 1) the city would not be able to implement such a policy without the blessing of the state. 2) The state legislature right now is not overly keen on helping cities raise taxes through these types of schemes 3) There is already a lot of butting heads between the more progressive city administrations and statehouse who seeks to keep what they can do in check. 

As far as the city goes, I pointed out in another thread how close to irrelevant the property tax is to Cleveland; this does not mean irrelevant to the school system or the county - just the city government. Using the latest Bibb Mayor's Estimate: 2023 total revenues for Cleveland will be $661.0 million of which $42.5 million (6.4%) will come from property taxes.

 

Unthinkable, of course; but the city could abolish its share of the property tax without a lot of disruption. If it were residential property tax only, leaving commercial and industrial tax in place, it would be even easier.

On 1/28/2023 at 11:33 AM, Dougal said:

As far as the city goes, I pointed out in another thread how close to irrelevant the property tax is to Cleveland; this does not mean irrelevant to the school system or the county - just the city government. Using the latest Bibb Mayor's Estimate: 2023 total revenues for Cleveland will be $661.0 million of which $42.5 million (6.4%) will come from property taxes.

 

Unthinkable, of course; but the city could abolish its share of the property tax without a lot of disruption. If it were residential property tax only, leaving commercial and industrial tax in place, it would be even easier.

I remember a few years ago, I was working on a development project in a local municipality which would have represented a nice improvement over the blight that was on the property. I knew it would be a tough sell because it did not bring in many jobs and the payroll taxes generated from it would be minimal. However, I made my case that the project (which conformed to zoning) would be a benefit to the city because in its improved manner it would increase the property taxes on the property because of the overall improvement to the project.  The economic development director looked at me and laughed and said, property taxes are pretty much irrelevant to us, we get pennies on the dollar in property taxes, property taxes really only matter for the school board. She said what matters to us is payroll taxes.

 

I knew that while we could have proceeded with our development as a matter of right and likely won, the city was going to be a thorn in our side the entire time so we abandoned it.