LAND VALUE TAX SHIFT ANALYSISBURLINGTON, VTMarch 4, 2004
Report by:Gary Flomenhoft, Research AssociateGund InstituteBurlington, VT
Analysis by:Bill BattCentral Research GroupAlbany, NY
“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
Polanyi-Great Transformation“Fictitious commodities”Sold in markets for the first time
LAND: Commons or feudal to markets
LABOR:Humans sold on labor market
MONEY:means of exchange to commodityC-C C-M-C M-C-M* M-M* (95%)
FACTORS OF PRODUCTION:
LAND=R (natural resources)
LABOR=L
CAPITAL=K
Initially: Labor transforms land (raw materials) into capital
Then: Labor and capital applied to land makes more capital
CLASSICAL ECONOMICS ~1650-1890
HISTORICAL FIGURES
CAPITAL (K) = Adam Smith
LABOR (L) = Karl Marx
LAND (R) = Henry George
CLASSICAL ECONOMICS
=
Land (Ingredients)
Labor (Chef )
Capital (Mixing bowl)
+
+ BreadCapital (oven)
CLASSICAL ECONOMICS
=
NEO-CLASSICAL ECONOMICS 1890-
No Ingredients, only labor and capital
P = f(L,K)= ALa . BKb (Cobb-Douglas multiplication)
Labor (Chef )
Capital (Mixing bowl)
xBread?Capital (oven)X
=
NEO-CLASSICAL ECONOMICSINFINITE SUBSTITUTABILITY:
2P = f(L,K)= 2ALa . 2BKb
More Chefs
or Bigger Mixing bowl
x
More Bread?
TAX ON LAND - no production cost
D
P
Q
tax
S
P1
tax?
Q1
tax
“Buy land, they ain’t making any more.”
-Will Rogers
Q*
P*
LAND SPECULATION
Q: Why is speculation bad?
A:
Drives up price of land
Creates Sprawl
Produces nothing
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
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
LAND SPECULATION
Q: How does speculation create sprawl?
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
LAND SPECULATION
Q: What is the formula for return on speculation?
A: ROI = Annual return - holding cost
Return = annual land inflation + annual income
Holding cost = property tax(land + improvements) + bank interest on loan + maintenance
MAXIMIZE RETURN
Annual Return = annual land inflation + annual income
= 16.4% + ?
YEAR BURL MEDIAN HOME PRICE
% increase
Annual increase
1970 $21,500
2000 $127,600 493.5% 16.4%
MINIMIZE EXPENSES
Holding cost = property tax (land + improvements) + bank interest on loan + maintenance
= land tax + improvement tax + int + maint
(1.7% x land) + (1.7% x blds) + int (5%?) + maint.
Incentives:Minimize land assessmentMinimize building improvements = slumsLow interest rateMinimize maintenance=slums
2004
RENT COSTS
“Whether it is the man or the earth I own, the bird or its food, it is essentially the same thing.
---Arthur Schopenhauer
RENT COSTS - CLT
“Land is not the only monopoly, but it’s the mother of all monopolies.”
---Winston Churchill
Community Land Trust (CLT) creates perpetually affordable land by taking land off the market.
Created by Swann and Borsodi - Georgists
CLT
Land costs
According to Georgist theory taxing land at its full “Rental value” would reduce the price to zero.
This would create “leasehold” vs. “freehold ownership
Tax essentially becomes a lease payment for land.
3 Ways to control land prices
1) Community land trust
2) Municipal leasehold
3) Tax land at rental value
What makes land valuable? Publicly created
Populationdemandnatural features public improvementspublic services: fire, police, schools, wasteprivate investment in the areabusiness activitylimited supplyzoninggrowth restrictions (Santa Cruz)growth boundaries
Not due to private effort
What makes land valuable? Publicly created
“Takings”- private compensation when government action reduces property value
“Givings” - public compensation when government action increases property value
“Value Recapture” of public investments
Wright Act 1889: Tulare, CA Irrigation DistrictFinanced by tax on land value. Trees, vines, structures, etc. on the land were exempt
CA Central Valley Irrigation Districts
San Juacquin Valley Agriculture
80% produce in US
“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.
What makes buildings valuable-Privately created
Work
Investment
Materials
Architecture
Etc.
Value created through private effort
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”
CLASSICAL ECONOMISTS ON LAND
PhysiocratsQuesnay; agricultural basis of economy: L’impot unique = land tax
David Ricardo-Law of Rent=Difference in production (return) over the worst land=RentUnearned increment=unearned profit from land inflation
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.”
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.”21 years of dividends
2002 $1,540.762001 $1,850.282000 $1,963.861999 $1,769.841998 $1,540.881997 $1,296.541996 $1,130.681995 $990.301994 $983.901993 $949.461992 $915.841991 $931.341990 $952.631989 $873.161988 $826.931987 $708.191986 $556.261985 $404.001984 $331.291983 $386.151982 $1,000.00
Alaska Oil Dividend
RENT DIVIDENDS-BASIC INCOME
21 years of dividends2002 $1,540.762001 $1,850.282000 $1,963.861999 $1,769.841998 $1,540.881997 $1,296.541996 $1,130.681995 $990.301994 $983.901993 $949.461992 $915.841991 $931.341990 $952.631989 $873.161988 $826.931987 $708.191986 $556.261985 $404.001984 $331.291983 $386.151982 $1,000.00
Alaska Oil Dividend
HISTORY OF LAND VALUE TAX
Henry George: Progress and Poverty 1879.
“To abolish all taxation save that upon land values”
“The taking by the community, for the use of the community, of that value which is the creation of the community.”
“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.”
The “single tax”. Forerunner to modern day Green tax shift: “tax bads, not goods.”
Basis of modern assessments.
HISTORY OF LAND VALUE TAX
NY Mayoral election of 1886:Abraham Hewitt (D)-stolen by Tammany hallTheodore Roosevelt (R)-3rdHenry George (Labor)-won
Attacks from left and right:
“Capitalists last ditch.” ---Karl Marx
“If George wins landowners should go out on their vacant land and hang themselves.” --- “Boss” Croker
NY Mayoral election of 1897: George died 4 days before.
SINGLE TAX ADVOCATES
TOLSTOYSUN YAT SENHELEN KELLERALBERT EINSTEINCHANG KAI SHEKTEDDY ROOSEVELTMARK TWAIN
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
HISTORICAL APPLICATIONS
Denmark: 1790’s, 1950’s, 1960’s
California: 1890’s irrigation districts
Australia: 1930’s-present, Sydney, Canberra-leashold
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
MODERN APPLICATIONS
Australia, New Zealand
Pennsylvania, date adoptedAliquippa Schools '93Aliquippa '88Clairton '89Coatesville '91Connellsville '92DuBois '91Duquesne '85Harrisburg '75Lock Haven '91McKeesport '80New Castle '82Oil City '89Pittsburgh '13+Scranton '13+Titusville '90Washington '85
MODERN APPLICATIONS
City Ratio
PittsburghScrantonHarrisburgMcKeesportNew CastleWashingtonDuquesneAliquippaClairtonOil CityTitusville
5.61 to 13.90 to 14.00 to 14.00 to 11.75 to 14.35 to 15.61 to 116.20 to 14.76 to 11.23 to 18.68 to 1
MODERN APPLICATIONS
Philadelphia
City Controller-Saidel
Tax Reform Commission
Board of Realtors
10,000 Friends of Pennsylvania
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.
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
Vermont Property Tax-shift Study Criteria
1) Single rate statewide & city by city
2) No separation of school district from municipal tax district
3) No adjustment for common level appraisal
Vermont Property Tax-shift Study Limitations
Burlington Current System yr-2000 by GPC
Current combined TaxYield is 100% from total assessmentLand Yield from total assessment =33.18%Current Single Rate = $24.65 per $1000
Gross Property # Building Land Total
bld/ land Total % total
class Parcels Value Value Value Ratio revenue Yield
Agricultural 5 $114.9M $419.5K $408.0K 0.27 $10K 0.00%Commercial/ Industrial 1,130 $377.4M $153.4M $519.7M 2.46 $12.8M 32.6%
Residential 8,925 $699.2M $375.0M $1073.5M 1.86 $26.4M 67.40%
Total 10,060 $1,076.7M $528.8M $1,593.6M 2.04 $39.3M
Burlington 100% of tax from land
Example of Tax on 100% LandIncreasing the yield from land to 100%Reducing the yield from improvements to 0%Land Rate =$74.27per $1,000Improvement Rate = $0.00 per $1,000
Total Diff w/ % Diff w/ Ave diff % Total
100% land 100% land 100%L per parc Yield
Agricultural $31.1K $21.1K 210% $4,220 0.1%Commercial/ Industrial $11.4M -$1.4M -11% -$1,252 29.00%
Residential $27.9M $1.4M 5% $156 70.90%
Total $39.3M
2000 BLD LAND TOTAL RATIO
State $12.2B $5.4B $17.8B 2.26%
68.8% 30.4% 100%
Burlington $1.1B $.53B 1.59$B(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%
ASSESSMENTS-2000
GrossPropertyClassNumber_of_Parcels
AvgParcelDiffFromCurrent
Agricultural 1319 $8,916
Commercial/Industrial 3082 $8,283
Not Available 5 $6,528
Residential 68916 $3,144
Total 73322 $3,464
Statewide WINNERS and LOSERS BY GPC
LOSERS
WINNERS
GrossPropertyClassNumber_of_Parcels
AvgParcelDiffFromCurrent
Agricultural 324 -$6,714
Commercial/Industrial 5794 -$10,927
Not Available 5610 -$6
Residential 87837 -$2,198
Total 99565 -$2,597
Burlington WINNERS and LOSERS BY GPC
GrossPropertyClassNumber_of_Parcels
AvgParcelDiffFromCurrent
Agricultural 4 $11,443
Commercial/Industrial 605 $11,088
Residential 6,437 $2,617
Total 7,046 $3,350
LOSERS
WINNERSGrossPropertyClass
Number_of_Parcels
AvgParcelDiffFromCurrent
Agricultural 1 -$1,256
Commercial/Industrial 525 -$14,080
Residential 2488 -$3,820
Total 3014 -$5,606
Burlington BIGGEST LOSERS
Acres Prp Cl Owner Name Street Name $ Diff
6.21 CL MCAULEY SQUARE HOUSE 123 ST PAUL STREET $534,736
16.72 RL FLYNN EST J J TRUSTEE ATTN PRISCILLA S $324,133
2.16 C DONOHOE O'BRIEN BOX 119 $237,471
4.89 C LAKE CHAMPLAIN KING STREET $200,695
2.06 CL PAM-RADISSON 60 BATTERY STREET $198,870
1.21 CL DONOHOE O'BRIEN BOX 119 $152,246
3.3 CL UNIVERSITY OF VERMONT C/O LAND $147,935
1 CL CODY CHEVROLET INC ET L C T $126,370
1.79 C HOWARD BANK N A 111 MAIN STREET $110,327
0.31 CL CHITTENDEN COUNTY OF L C T $95,316
0.85 C CHITTENDEN TRUST CO P O BOX 820 $90,503
Acres Prp Cls Owner Name Street name $ Diff
0 C RAD-BURL L L C PAM-RADISSON -$268,344.00
0 C STARR FARM C/O VENCOR INC -$241,677.00
25.93 CA NORTHGATE HOUSING P O BOX 3094 -$225,725.00
0.25 C BURLINGTON SEVEN P O BOX 119 -$206,911.00
0.91 C VERMONT SUBACURE LLC P O BOX 1103 -$194,112.00
0 CC PECOR, RAYMOND C JR KING STREET -$189,769.00
1.77 C THE MAY DEPARTMENT 611 OLIVE STREET -$156,388.00
0 C FIRST HEALTHCARE CORP 3300 AEGON CENTER -$145,538.00
0 C DONOHOE O'BRIEN BOX 119 -$140,337.00
0 C BURLINGTON SQUARE CURTIS CENTER -$130,232.00
Burlington BIGGEST WINNERS
Prop Property Bldg/
Cls Class # Building Land Total Land Total Total Diff w/ % Diff w/
Code Name Parcels Value Value Value Ratio Current 100% Land 100% Land 100%L
C Commercial 368 $184,002,513 $81,786,800 $264,356,721 2.25 $6,515,422 $6,074,324 -$441,099 -7%
CA Commercial Apartments 350 $101,175,845 $28,664,900 $129,709,145 3.53 $3,196,854 $2,128,948 -$1,067,906 -33%
CC Commercial Condo 83 $30,107,301 $804,500 $30,858,401 37.42 $760,546 $59,750 -$700,796 -92%
CL Commercial Land 57 $5,029,400 $15,577,000 $11,573,000 0.32 $285,232 $1,156,907 $871,675 306%
CR Commercial 212 $30,013,355 $17,267,200 $47,280,555 1.74 $1,165,292 $1,282,439 $117,147 10%
CRC Commercial 1 $40,600 $119,800 $160,400 0.34 $3,953 $8,898 $4,944 125%
E Education 11 $2,592,000 $504,600 $3,096,600 5.14 $76,320 $37,477 -$38,843 -51%
EU Education - Utility 1 $26,500 $43,600 $70,100 0.61 $1,728 $3,238 $1,510 87%
F Farm 2 $78,900 $237,700 $262,200 0.33 $6,462 $17,654 $11,192 173%
FL Farm Land 3 $36,000 $181,800 $145,800 0.2 $3,593 $13,502 $9,909 276%
I Industrial 14 $16,645,107 $4,429,900 $21,075,007 3.76 $519,422 $329,010 -$190,412 -37%
IL Industrial Land 4 $300,800 $1,300,500 $1,289,700 0.23 $31,786 $96,588 $64,802 204%
MH Mobile Home 124 $2,493,000 $26,200 $2,519,200 95.15 $62,089 $1,946 -$60,143 -97%
ML Mobile Home on Land 6 $146,200 $116,700 $262,900 1.25 $6,480 $8,667 $2,188 34%
R1 Residential < 6 Acres 5,098 $372,403,300 $283,223,300 $655,493,000 1.31 $16,155,495 $21,035,057 $4,879,561 30%
R2 Residential >= 6 Acres 1,114 $77,587,300 $50,129,300 $127,716,600 1.55 $3,147,745 $3,723,114 $575,369 18%
R3 Residential 344 $29,072,700 $15,466,100 $44,538,800 1.88 $1,097,718 $1,148,671 $50,953 5%
R4 Residential 239 $22,914,800 $10,950,800 $33,865,600 2.09 $834,663 $813,318 -$21,344 -3%
RC Residential Condo 1,757 $191,790,100 $931,100 $192,721,200 205.98 $4,749,870 $69,153 -$4,680,717 -99%
RL Residential Land 199 $853,800 $12,887,100 $13,191,900 0.07 $325,132 $957,128 $631,996 194%
TE Education 29 $7,503,602 $2,905,600 $10,210,602 2.58 $251,654 $215,800 -$35,854 -14%
V1 Vacation 1 44 $1,938,400 $1,282,500 $3,220,900 1.51 $79,383 $95,252 $15,868 20%
Municipal Totals 10,060 $1,076,751,523 $528,837,000 $1,593,618,331 2.04 $39,276,840 $39,276,840 0 $0
Burlington RESULTS BY PROPERTY CLASS
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