Land Value Taxation: A New Tool In Buffalo’s Toolbox?
The city of Buffalo is rich in resources and potential. But the city works only for a few. However, when it comes to economic renewal, it’s time to tap into those resources and, at the same time, reject the culture of subsidies and giveaways to “encourage” construction. Instead, a city should be rebuilt with a sense of purpose that includes all citizens. The city can thrive equitably without the 485-A programs or the Buffalo Billion.
The Fruit Belt Community Land Trust, blazes a humane and practical path that the city can emulate. Much like a CLT, Buffalo could look to the land as a resource for the city’s recovery and revitalization.
Buffalo: Equitable Economic Reform From The Ground Up
Buffalo, New York, has a long and proud history. Founded in 1832, it was an essential stop along the Erie Canal. It became a manufacturing center for steel, chemicals, aircraft, trucks, and a vital port for grain and ores. The advent of the St. Lawrence Seaway had the unfortunate effect of bypassing Buffalo. Today, Buffalo has problems shared by many other cities in the country. In the three quarters of a century since theend of World War II, the American love affair with the automobile has brought lots of changes. Cars made it possible for people to live a long distance from their workplace. People started to move out of the cities. The demand for housing after WW II, aided and abetted by FHA and VA mortgage insurance, encouraged builders to build in the clean and green countryside. This was an additional factor in the flight of people from the city. I have the assessments, and we’ve done some initial research.
As cities lose population, the demand for housing and commercial and industrial sites is reduced and the tax base shrinks. In these days of budget deficits, State and Federal aid to cities is being reduced each year. However, city budgets continue to rise. That means that fewer and fewer people are paying more and more taxes every year. One result is that more and more people are leaving the city to escape the tax burden.
Buffalo is peppered with vacancy and blight. At least 15,000 parcels are judged vacant by the assessor. Each underused and blighted parcel lowers surrounding property values and punishes those Buffalonians who have kept the faith in the city with high property taxes. Often the most valued land is used as a parking lot with no buildings.
The problem of land vacancy is a problem of absentee owners who do not pay their fair share.
Buffalo’s property tax system has an added drag on the city: the higher tax rate on businesses. A wealthy or service based business can leave Buffalo and avoid property tax, and other local tax. Businesses that rely on the community to survive and small businesses can’t go anywhere. They’re stuck.
We are thankful there seems to be interest in changing Buffalo’s property tax policy to encourage human-sized development while reversing decades of disinvestment and depopulation.
What is LVT?
LVT is a responsive, flexible modification of the traditional ad valorem real property tax. It can be implemented in many ways, with different intended outcomes.
Under a land value tax system, the taxing jurisdiction gradually reduces or eliminates the tax on improvements. To ensure that the taxing jurisdiction receives the same revenue, it increases the tax rate on land value.
Why should a community do this? The conventional property tax is, in fact, two separate and distinct taxes: a tax on land and on improvements (buildings). Each has very different impacts due to its supply elasticities.
The current property tax penalizes those who improve the city and rewards those who hold it back. That’s precisely backward.
The current property tax makes a city worse than it has to be.
Those who improve the city by building new structures or improving older ones see their taxes go up.
Those who let their building go to rack and ruin can grieve their assessments, get assessment reductions, and see their taxes decrease.
Titleholders who own vacant land are barely taxed and have no incentive to build. The real motivation in the present system is to hold the site idle, hoping that the city (or their neighbors) improves the area and the vacant land will increase in value. The low holding cost encourages land speculation.
The induced scarcity of land from parcels held off the market drives potential development to the second-best sub-optimal sites.
The under-taxation of land values (an appreciating component) and the over-taxation of improvements (a depreciating component) means strong incentives for absentee ownership, especially residential parcels purchased for the short-term investment potential.
Land Value Taxation is a variant of real property taxation. Whereas the typical property tax taxes land and improvements at the same rate, LVT applies to land at a higher rate while simultaneously reducing or eliminating the tax on buildings.
For example, in Allegheny County, Pennsylvania, Clairton has levies of 103 mills on land and 4.32 mills on buildings rather than 29.5 mills on both (City and School District combined).
Where has Land Value Taxation Been Implemented?
In the United States, LVT is best associated with Pennsylvania; nearly 20 cities, school districts, and boroughs have implemented LVT. In Harrisburg, the tax on improvements is only one-sixth of the land tax. Many urban economists credit the “Renaissance” of Pittsburgh over the last three decades to Pittsburgh’s increased shift to Land Value Taxation in 1978.
Many of Pennsylvania’s cities suffered severe economic distress after de-industrialization. Many adopted LVT to provide a “bridge” to the future.
The problem of land vacancy is a problem of absentee owners who do not pay their fair share.
Buffalo’s property tax system has an added drag on the city: the higher tax rate on businesses. A wealthy or service based business can leave Buffalo and avoid property tax, and other local tax. Businesses that rely on the community to survive and small businesses can’t go anywhere. They’re stuck.
We are thankful there seems to be interest in changing Buffalo’s property tax policy to encourage human-sized development while reversing decades of disinvestment and depopulation.