No, the Tax Abatement is not Responsible for 2/3rds of New Construction in Philadelphia

If you have been reading the news, you know that Councilman Curtis Jones is trying to 'green' Philadelphia's construction tax abatement. Under his plan, to get a 100 percent abatement, you would have to make the building 'green,' by getting it LEED Platinum certified.

There is, quite predictably, resistance to this. Whatever you think about the merits of the tax abatement, and whether it is needed, it is effectively a direct cash payment to developers. Those developers are pretty good at getting their voices heard.

But, I want to address one thing that keeps coming up, which touches on a similar theme that Isaiah Thompson mentions in an article about wage taxes, and the 'science' behind the claims about the amount of job losses the tax is responsible for. In the abatement context, we often hear that a study of tax abatements showed that the abatement was responsible for two-thirds of all building in the City.

I read the study, and I respect the work of the study's author, and of Econsult. But I would encourage you to read it, too. Why? Because I don't believe the study demonstrates the above claims.

Here is the study's methodology for this claim: (emphasis in the original)

Figure 9 displays Philadelphia’s per capita housing permits compared to the per-county average of its suburban neighbors housing permits from 1990 to 2000. The figure shows a dramatic change in the rate of housing permits and investment, which coincides with the expansion of abatement programs in 2000. Despite weak permitting in 2001 and 2002, permits averaged over 1,631 units per year in the City from 2000 to 2001, up from an average of only around 507 per year in the period 1990 to 1999.24 This represents more than a threefold jump in the issuance of residential permits in the City. This jump is a sharp contrast to the suburban experience. From 1990 to 1999, permits per county averaged 2,356 per year but, unlike the City, did not see a jump in permitting in the 2000-2005 period. The suburban rate of permit issuance averaged 2,442 per year from 2000-2005. The bottom line is that while the rate of housing permit issuance was basically unchanged in the suburbs in the 2000-2005 period compared to the 1990-1999 period, permits in the City tripled during the same time period.

For the purposes of this analysis, we assume that the City would have continued on its pre-abatement pace of construction, since the suburban rate of housing permits has remained unchanged over the entire period. Because the post abatement rate of permitting in the City was three times as large as in the preabatement period, we estimate that the two-thirds of the post abatement housing investment was a result of the abatement.

In other words, correlation equals causation.

Using similar methodology, I draw my own conclusions: First, my parents' purchase of a used Ford Focus station wagon is responsible for the Phillies winning the World Series. From 1990 to 2007, my parents had zero Ford Focuses (Focii?), and the Phillies and the Pittsburgh Pirates won zero championships. But in 2008, my parents bought a used Ford Focus, and the Phillies won the World Series, while the Pirates did not. Therefore, my parents excellent purchase of a clunky station wagon is responsible for the Phillies winning the World Series. It is a perfect correlation.

Obviously, my example is over the top. There is a connection between suburban and city building, and between costs of building in the city versus the amount of building in the city, but you get my point: correlation and causation are not the same thing. If you want to 'prove' that a tax abatement was responsible for two-thirds of building in the City, there are a lot more factors you need to examine. For example, how are other cities building compared to their own suburbs? Or, what is the price of housing construction, including permitting, in Philadelphia suburbs, and has it remained constant that whole time? Or, if the city and suburbs are competing for the same market, why wouldn't an increase in city building actually decrease suburban building? There are a million other questions, too.

Hell, if you parse the correlation, even that first quoted paragraph seems a little strange. In fact, what the figure shows is that in 2002, two years after the abatement started, Philadelphia had less permits issued than in 1996 or 1997, while the suburbs stayed constant in their level of building. What does that mean? I would assume that many other factors, besides tax abatements, play roles.

No one doubts that abatements are responsible for some level of building in the city. But, there is no proof that the abatement is responsible for two-thirds of Philadelphia building. Let's stop repeating that.

Any opportunity

for a Ford Focus reference.

For the record, I like the Focus

I opted in the end for a used Subaru with low mileage for my brand of clunky old wagon myself, however. Though I fret it has somehow contributed to Mo Cheek's inablity to really turn the tide for the Sixers. And we know now what would have happened if Iverson were still around here if/when Rendell finally gets his downtown casinos.

On the serious tip, I think it might be wise to distinguish between "developers" who build large multi-unit condo conversions and large scale developers and have benefited heartily from the abatement and the smaller scale house rehabbers who sometimes take advantage of the abatment and sometimes find it more hassle than its worth. The former group often gets all the credit but its folks in the latter group which together are probably more responsible for reviving more of Philly's newly vibrant neighborhoods and Marc correctly points out down thread that those latter folks would benefit probably just as much if not more from LVT.

Now if Sam Durso were to post about Cole Hammels living in Center City we would complete the circle of inappropriate sports references about the tax abatement.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Causation, Correlation and the Tax Abatement

There are always difficulties in doing this kind of research particularly when you use time-series data because all sorts of things change over time beside the presumed cause (the tax abatement) of the effect (the increase in building construction.) In this case, because we can compare changes over time not just in the city but in the suburbs, the difficulties are overcome a little but not entirely.

Still, you really can’t discredit this study just by saying that correlation does not prove causation and giving a fanciful example in which two events are correlated without there being a causal relationship between them. There is, in fact, almost never proof of causation. In the political and social sciences, like in the natural sciences, we infer causation when we (1) we understand the causal mechanism that connect a cause and effect and (2) we find correlation and can’t rule out other plausible causes of the effect.

Your example is fanciful precisely because we have no reason to think there is any causal connection between the purchase of a car and a Phillies championship. But in the case of the tax abatement, we know of a potential causal mechanism: tax abatements make the cost of owning center city properties cheaper. The question is how great that effect is.

So, if you want to make a convincing case that the tax abatement had no effect on construction, Dan, you need to specify some other possible cause of the increase in building in the city. I can only think of one that would make a big difference and that I find plausible, that the city became a relatively more attractive place to live than the suburbs in part because of broad cultural changes and in part because of the revival of arts and restaurants in Center City.

This is a hard cause to measure although there is probably evidence of other cities that saw revivals of residential life in the central core. Did other cities accomplish this, and to the extent Philly did, without the tax abatement? I don’t know but I would like to.

You mention a few other factors such as changes in the costs of constuction in the and suburbs. If you specified this some more, it would be worth exploring. But I don't know of any reason to think that relative costs of construction have changed dramatically between city and suburbs in the last twenty years.

Marc, maybe I am missing

Marc, maybe I am missing something...

Did I say there was no connection between the abatement and growth? No.

Did I say my example was over the top (or 'fanciful' as it were), for that reason? Yes.

Is it my responsibility in pointing out the obvious problems with a BIA funded study to run my own? That seems like a pretty high bar.

Agree with Marc

Dan,
I'm as big a fan of the fanciful analogy as anyone (earlier today I compared the comments section of Philly.com to that dark, dirty, run-down bar in my neighborhood that I never want to go in) but Marc makes a point that your example does distract from your overall point no matter how much of a disclaimer you put on it.

I guess, in theory, you'd need to interview each and every developer who did a new housing start, a rehab or a commercial-residential conversion between 2000-2005 and ask them whether they would have done that same project if the tax abatement hadn't been in place. Done anonymously and by a group without any kind of agenda, you could be reasonably assured that they wouldn't say yes just to protect a perk that they obviously like.

Also... I'm falling more in line with the LVT idea. Must be the Clockwork Orange-like indoctrination that comes from Joshua Vincent's many comments on the subject ;)

They both right/ a little wrong

Taxes do in fact matter for driving jobs and development but the abatement claims an awful lot credit for a trend that emerged in cities across the country just as forcefully where there was no abatement or the abatement was more structured. And as in the perpetual wage tax debate, everyone seems to chronically undersell the negative impact of Philly's decidedly un-customer friendly L&I Department on business. And the LVT would indeed have a similar economic benefit for local construction but also do a better job of hitting the "grass roots" level of urban renewal.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

You title makes a pretty bold statement

And while your post, read carefully, is far more moderate than the title, I thought it was worth explaining a little more carefully why I don't think your post justifies the title.

Our judgment about where the burden of proof lies generally rests on our general knowledge of a subject. WE do know, pretty clearly, that building decisions are related to costs of construction and demand and that both are influenced by taxes and interest rates. We have little reason to think that relative construction costs between city and suburbs changed over the last twenty years and no reason to think that relative interest rates between city and suburbs changed. So I do think that the evidnce in this study leads to a plausible conclusion that the tax abatement had a dramatic effect on residential development in the city, especially since the subsidy created by the abatement is really pretty huge.

I suspect the other theory I put forward, the greater desirability of urban living, explains part of the effect as well. I don't know how much. I know that urban areas all over the country are reviving. But I don't know by how much and what building costs and tax subsidies are in other cities.

We have to study this. And of course I'm not asking you to do the study before you comment on this report. (There must be some work done on this now and I'll try to do a search in the next few days to find it.) I'm really just saying that until we do, the title of your post is about as over the top as your fanciful example. I think we have good reason to think the abatement was a major cause of the building boom although it could well account for 40% rather than 66%.

You are a real card, Marc.

You are a real card, Marc.

Your point being....

what exactly?

"We have to study this."

and "I'd really like to see some econometric evidence."

I mean, that's the point, right? The Econsult study, for the methodological shortcomings Dan pointed out, is not the end of the story.

And I think it matters to point out those shortcomings, when the study has been bandied about precisely as such. I mean, policies hinge on this stuff.

But we have to make policy in the meantime

First, let me say that I read Dan's post too quickly and took it to be making a much less moderate argument than, on second reading, it is. My own post makes more or less the same argument he did, perhaps with a more moderate tone.

But, having said that, I should also say that my larger concern is with the politics of the issue.

Because we do have to make policy while we figure out who is right in this debate. And, given that, we don't have much more to go on than the evidence we have...which certainly suggests that the abatement had an impact...and our broader knowledge about how taxes affect what people do, about which there is a great deal of evidence, mostly showing that they do have an impact.

So while Dans was making a moderate analytical point, the political implication, which some less moderate folks such as DE II jumped on, leads to opposition to the abatement. (And DE II got the correlation wrong. I don't support the abatement.)

Something dramatic and largely good happened in the city after a huge tax stimulus. While it there is some reason to think that the tax stimulus is less necessary in Center City than in other neighborhoods, if forced to choose simply between keeping the abatement and getting rid of it, I wouldn't drop it now just because we have other ideas about the cause of that dramatic change for which we have, at this point, little evidence.

But that is not a good choice. I don't support the abatement. I support an LVT which gives all the benefits of an LVT without the inequity of the abatement.

The political difficulty that stands in the way of fixing the abatement is that progressives are lukewarm about the LVT and hot against the abatement, which to my mind is dumb economically and politically. It is dumb politically because we might actually build support inside and outside of Council for eliminating the abatement and replacing it with an LVT. And it is dumb economically because even if taxes are much less important than I think, why should we give up any tool that spurs growth?

We keep wanting to fight old battles about raising and lowering taxes instead of shifting to a new fight, taxing smarter which means taxing in ways that are both more encouraging of development and more progressive. Over the last three years I've put forward five or six ideas along these lines.

But we just keep going back to the old favorites.
Stan Shapiro, here and in an email discussion among leaders of CES, has criticized the LVT for no good reason and been far more insistent that we keep fighting old battles than Dan is here. But if only by implication, Dan is doing it too. So why I appreciate the opportunity to discuss various theories of why the building boom ha happened in Philly, and again apologize to Dan for not reading him carefully, I don't understand why we want to keep fighting old political battles especially when it is not clear we are right, and for that among other reasons, we are going to lose. And it's especially discouraging to see young, smart leftists determined to make the same mistakes of people in my generation.

But we have to make policy in the meantime

And, given that, we don't have much more to go on than the evidence we have...which certainly suggests that the abatement had an impact...and our broader knowledge about how taxes affect what people do, about which there is a great deal of evidence, mostly showing that they do have an impact.

Much more imporatntly, Dan was not just making an academic point but a political point and I don't think the political point was justified and my two posts were making a different and opposing political point.

Something dramatic and largely good happened in the city after a a huge tax stimulus. While it there is some reason to think that the tax stimulus is less necessary in Center City than in other neighborhoods, I wouldn't drop it now because we have other ideas about the cause of that dramatic change for which we have, at this point, little evidence.

Which is not to say I support the abatement. I support an LVT which gives all the benefits of an LVT without the inequity of the abatement.

The political difficulty that stands in the way of fixing the abatement is that progressives are lukewarm about the LVT and hot against the abatement, which to my mind is dumb economically and politically. It is dumb politically because we might actually build support inside and outside of Council for eliminating the abatement and replacing it with an LVT. And it is dumb economically because even if taxes are much less important than I think, why should we give up any tool that spurs growth?

We keep wanting to fight old battles about raising and lowering taxes instead of shifting to a new fight, taxing smarter which means taxing in ways that are both more encouraging of development and more progressive. Over the last three years I've put forward five or six ideas along these lines.

But we just keep going back to the old favorites.
Stan Shapiro, here and in an email discussion among leaders of CES, has criticized the LVT for no good reason and been far more insistent that we keep fighting old battles than Dan is here. But Dan's doing it too. I don't understand why we want to keep fighting old battles especially when it is not clear we are right, and for that among other reasons, we are going to lose. And it's especially discouraging to see young, smart leftists determined to make the same mistakes of people in my generation.

Can we stop with the theater

This is an old battle that we shouldn't fight? There is a bill about to go before council that will modify the tax abatements! One of the arguments used against it will unquestionably be this very study. Pointing out that the study has obvious shortcomings seems to me to be quite relevant.

I don't know why this posted twice

but please read the first one, which is what I meant to post.

Sure policy has to be made in the meantime

While acknowledging the limitations of my expertise in this area, I think it is a big deal to jump from "something good happened after passage of the original abatement" to "we should keep the abatement in place as is," which is one of the things on the political table (the latter's not your words/position). The details and nature of the correlation matter here and I think we have to have some stringent analysis within the limited data we have.

And I'd definitely agree that we need to simultaneously focus on forwarding progressive alternatives to renewal, but not one to the exclusion of the other.

Yes it is an old battle

and even if we win a small change in the abatement--and I am fairly sure we won't find 12 votes for that--we won't make the major change we need. So fighting on the ground of whether taxes matter a little or a lot is a bad political strategy. Most council members believe they do matter a lot and casting inconclusive doubts about this study is not going to change their minds.

There are, however, people on Council who are warming to the LVT. It will be hard to make such a major change now. But we can create a coalition of progressives, people who hate the abatement and pro-development forces on this if we start to work now and get it at the top of the agenda in September. And that will be far more progressive than cutting the abatement to eight years or other minor changes.

Josh has done great work on the policy details. He can't carry the lobbying burden alone and the reaction of the progressive community to the reemergence of the LVT debate has been very disappointing especially since we, for very good reasons, think the abatement is inequitable.

Hear, hear!

Well said, Marc. I've only been in Philadelphia less than a year, but the progressive community's resistance to land value taxation is perplexing. Opposing the tax abatements for the argument of fairness is fine, but incessant debating over how much it has or hasn't helped redevelop portions of the city are becoming a waste of time, as time is running out.

If we want to remove this privileged program, fine, but please think seriously about the need to replace it with a better policy that provides that fairness AND retains the incentives associated with abatements that many people credit for revitalization. LVT is a universal, permanent, automatic, and retroactive version of the 10 year tax abatement that rewards both old and new investments alike now and forever. It provides many advantages over the 10-yr. abatement and the property tax that are too numerous to mention here. We are going to work up a detailed comparison.

It seems to me that people are more bent on proving that the abatements are not a silver bullet (one doesn't exist) than on pushing for truly progressive socioeconomic reforms. I would like to think I'm wrong.

--
Eron Lloyd
Henry George Foundation of America & Center for the Study of Economics
413 S. 10th St., Philadelphia PA 19147
215-923-7800
www.urbantools.org
www.ourcommonwealth.org
www.henrygeorgefoundation.us

Dan's hyperbole doesn't negate the validity of his larger point

People are interpreting causation without controlling for enough of the relevant variables to even approach a valid conclusion.

Along with his "fanciful" analogy, Dan provided quite a few, very valid criticisms of the methodology the authors of the study used to draw conclusions.

Given that, whether he embellishes his point with an analogy involving a certain American, sub-compact, clunky, station-wagon, seems largely irrelevant to his overall argument. I just chalk it up to the well-known "Stan Shapiro effect."

It's probably not coincidental, however, that both commenters who felt that Dan's analogy detracted from his point also disagreed with his overall point (a prioi?).

Correlation or causation?

Point of Order!

The clunky thing was a joke! Look at this sleek machine!

Now you've gone too far, Dan

Calling that car sleek completely undermines your credibility.

PS The Better Alternative is an LVT

Just for the record, my seat of the pants judgment is that the tax abatement actually did contribute a great deal to development in Philly.

But it was still unnecessary. Replacing our real estate tax with a land value tax would have the same effect without the unfairness created by the tax abatement.

Also during the same period

Mayor Street did take some steps, bless his heart, towards streamlining the permiting process. Nowhere near all the recomendations in the BIA's still largely unfufilled 2004 "If You Fix It, They Will Come" study, but some small steps. Like posting building permit forms online so you can at least have form filled out in advance with your check and only go stand in line at MSB once. One could imagine what would happen with a fully automated application process.

The hassle or "opportunity cost" of dealing with L&I is something that alot of contractors I talk to mentions as something very noticeably different between working in the city and working in the burbs. Recently I joined Angie's List and alarmingly found that many of the contractors with highest ratings specify not working in the city while not differentiating against the various burbs. Its a noticeable enough trend that I actually suggested Angie's List add it as a sortable category for its database of customer ratings - whether the contractors are willing to work in the city or not.

Also during the same period there was across the country a huge surge in popularity in "downtown living" leading to lots of stories in other cities about the "new urbanism", etc. Here for example is a story Google found randomly about the same national trend effecting Raleigh, N.C. that Center City Philadlephia no doubt benefited from. Various theories have been floated about this trend - that many Gen Xers like myself dislike the suburbs many of our Boomer parents chose for us as kids, that as Boomers become "empty nesters" they choose to abdandon those burbs themselves, that sprawl has reached unsustainable levels and that many people are opting to live closer in for ecological reasons. The point is it was a nationwide trend, widely noted, and Philadelphia's performance in relation to the wider trend was not in fact spectacularly impresive, tax abatements or no.

Thirdly, during the same period, importantly, Center City added jobs - not at the same rate as Chester County and not even enough to offset the continuing job loss in other neighborhoods, leaving Philly still with a continuing overall net loss - but still a gain within the confines of Center City. More jobs in CC, more culture and "vitality" to CC - all of that contributed in some part to development trends independent of the tax abatement.

So yeah correlation is not causation and even the BIA, if offered the choice between everything they want in terms a better permitting process and a more selectively applied version of taxation to encourage development, would likely prioritize the former over the latter.

-Sean
MrLuigi, my cat, actually only types half as badly as I do.

I asked Mayor Nutter re: LVT

When I asked Mayor Nutter re: LVT, his reply was that he wasn't aware of it being used on a scale comparable to Philadelphia's. He didn't seem enthusiastic about the idea.

-Z

Well they aren't using it at all in Raleigh

so obviously the abatements are not the whole story.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Raleigh doesn't need abatements

Raleigh has a go-go, unregulated, corporatist, low tax environment. They don't perceive the need to get out from under a bad tax system, so they don't have abatements.the state offers plenty of mega-corp tax incentives.
They do recruit families, firms and grads from Michigan, Ohio, NY and here.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

And the whole triangle is sprawling out of control

I really wonder how much development is taking place in downtown Raleigh or Durham--which didn't have a huge downtown to be redeveloped.

When I lived there, the enormous growth was outside the center of town and between Raleigh and Cary and north toward Research Triangl Park and South from Durahm to Research Triangle Park. Development it is. Urban development it is not.

The same is true in Charlotte. There was one great neighborhood, Fourth Ward, in Uptown Charlotte (which is what downtown was called because it is on hill), an inner suburb Mt. Airy like neighborhood called Elizabeth and then lots and lots of mcmansion development mostly in Southeast Charlotte but also by the time I left near UNCC. Again, most development in these cities, and most elsewhere in the country, is suburban sprawl.

Anthropology, My dear Marc

There's a big culture shift going on--worthy of some study. Rebellion against the suburbs + disinterest in traffic/parking + an extended pre-child bearing period for most couples = condo in CC, drinks at Continental, and obnoxious straights all over town.

And this has been the case in every city in the country. Cities are hot. At least for young. middle to upper middle class young people AKA yuppies and hipsters. (And most of these people--I should also note--move to Philly despite its taxes. Remember most property tax abatement recipients paid for their tax perk in a jacked up home value.)

This point has been made a few times already, but as bad as Dan's examples are, I gotta agree it is really hard to believe that a tax abatement drove the massive development in Center City. I remember reading somewhere that the late 90's early 2000s boom saw the most new construction in the city since the WPA in the 30s. That kind of money does not just flow because of a pretty piddly tax abatement (think about how low real estate tax is).

And a big nail in the coffin of the eConsult study is the use of Philadelphia suburbs as a baseline against which Philadelphia real estate development is measured. Again, I think a huge reason for the boom was an interest in urban living. So it's logical that suburban permit applications would remain on an even keel while urban construction jumped up much more. Yet that very comparison--of apples and oranges--is what the claim that the abatement "works" relies on. That is confusion of correlation and causation.

Not to mention that to claim a tax abatement alone was responsible for 2/3 of growth is kinda of crazy since real estate growth has been huge in every town and city throughout the country over the past 5 or 10 years (remember sub-prime lenders, foreclousres and our current global financial crisis?) If our boom was only due to an abatement, wouldn't that mean that our underlying real estate market was really anemic?

So it would be very interesting if the City hired someone to do a study to compare 10 cities--with and without incentives--to see what our tax abatement's impact was. There may well have been some...but largely, I think claiming it generated 2/3 of development without more data is...not the best idea.

You'd also need to find some way

even in that study, to control for factors such how much property you get for your money in the various locations, how close the properties would be to attractions, the conditions and features of any housing stock that was being permitted for renovation, what percentage of buyers had family ties to the region, whether proximity to NY might have been a factor. In short, a statistician's nightmare.

Well, Ray

You are restating my point about the cultural shift towards cities at greater length. I obviously agree with you. And I think it is one of the most promising political and social transformations of our time.

But I sometime wonder whether our enthusasiam for it leads to some overstatemenet about how strong this shift is. There has been a lot more suburban development than urban redevelopment in most of the country in the last ten years. And, as far as Philly goes, I would still like to see some evidence that shows that development in Center City was not higher than in other cities.

I suspect that you will find that it is higher and of a different kind. In lots of cities around the country, the urban shift is being expressed not in new construction or massive conversion of office space to apartments, but in smaller rehabs by urban pioneers...the kind of development that is happening in West Philly now and that happened in SOHO in the sixties and a neighborhood I spend a great deal of time in in New York in the seventies and eighties, Tribeca. My guess is that this development that is slower and less capital intensive than what we have seen in Philly. It relies on a lot of sweat equity in initial stages until the pioneers are ultimately displaced as neighborhoods get hot and tax values rise (which is why the former residents of SOHO moved to Tribeca).

Again, I might be right. I might be wrong. My observation is totally based on looking around in the cities I've visited and could be totally skewed. I'd really like to see some econometric evidence.

(My Tribeca story: The summer after I graduated college I spent much of the summer hanging out with a friend in Tribeca in Independence Plaza where Sonny Rollins lived. There was four story building nearby that was for sale for 200k. I called my Dad and told him he had to buy it becaue he would make a fortune. My Dad passed. Two years later Robert DeNiro bought it for maybe 400k. A few years after he rehabbed one floor as a loft apartment, the other three floors each sold for one million dollars.)

One final point: I'm amused about how opponents of the the tax abatement complain about how massively unfair it is on the one hand and on the other hand you call it piddling. It ain't piddling for our former left fielder to have a 35,000 tax break EACH YEAR. That's massive. And so is a 5,000 tax break per year for a property work 250-400,000. If the tax break weren't so massive, we wouldn't be complaining about how unfair it is.

One can track abatements on the tax rolls

They have a particular notation on the BRT rolls that says they were improvements applied for under the several abatement ordinances. Simply put, the builder would have to have been aware enough of the abatement to apply for it; not an easy process if one looks at the ordinances. In other words, one can filter the ten-yeat tax abatement from study results.
Sound simple, but I bet those notations have not been researched by the pros or the cons.

The enacted abatements were stronger than the 1980s and early 90s abatements, but the marketing job on them was superb. The abatements were actually capitalized into higher asking prices, as part of the larger economy's access to cheap money. The abatements also permitted building in a city where fixed labor costs are higher than surrounding jurisdictions; combined with the cheap money it was a win/win at a particular time in the city. But the fact of the abatement, combined with clever, orgasmic marketing played a role.

Yes, marketing, brainwashing, New Speak. During the boom if one didn't have "CONDOS! TEN YEAR TAX ABATEMENT!" on the cheesy signs, those gimcrack NoLibs condos would sit emptier still.

Obligatory LVT moment:

It's funny when people ask for facts to counter assertion in a city where the craziest stuff is enacted into law without blinking an eye. It's all so selective. Anyhoo, LVT numbers, methods, and results are open to all anytime at our cool HQ at 413 S. 10th. Same can't be said for the other proposals pinballing around this town.

And Hey, Dan Pholig, join us Droogs. We're really nice ;)

New bullet points for LVT:

LVT is a universal abatement for all construction, past or present, high-end or low-end. Lower taxes to the ground and level the playing field on said ground. Perfect for the birthplace of Democracy.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

I suspect I am like many

I suspect I am like many people with the LVT: I think it makes some intuitive sense, but I have some questions. These could be for a different post that we could put on the front, but here are a couple:

First and foremost, what would this do to mixed uses? As an example, would the land underneath Liberty Place be valued the same as the land across the street from it, which is much smaller buildings, with lunch places, etc.

If not, why not, since it is land on the same block? If so, then won't either Liberty Place's owner get a huge tax break, or the smaller buildings be forced to scale way up?

Our numbers and office door are always open

We always invite questions and discussion on LVT, and would love to provide material for a full post on the subject.

For your first question, I need to clarify something that many people misunderstand about LVT: the assessment of properties is done by the BRT, and is completely separate from the type of tax applied to property values, whether it be the current single rate on total property value or a pair of rates for building and land values. We simply use the existing values already established by the BRT and utilized for current tax bills.

That said, in Philadelphia we classify mixed-use properties as "Class 3: Store with Dwelling", and as a whole LVT would have a nominal impact on these types. This can be seen in the following report, on page 8: http://www.scribd.com/doc/13429485/2009-Philadelphia-Land-Value-Tax-Budg.... In a nutshell, LVT poses little additional burden on mixed use properties.

If there is anything that is killing mixed use, it's the use & occupancy tax on top of the property tax, which helps explain the many vacant properties along Chestnut st. that candidate Nutter promised to help revive. It's cheaper to keep these properties empty than to improve them, lease out the bottom for a business, and rent out the floors above as apartments. Look up around CC in these areas, and notice how many properties have vacant stories with windows boarded up, filled with decades old junk, or simply empty.

We'd like to invite everyone to our lecture on LVT this Saturday @ 10am, where you can learn more about the idea and what we're doing to make it happen: http://www.henrygeorgeschoolphila.org/events/georgism-here-there-everywh...

OK, so, but then wouldn't

OK, but then wouldn't this give a tremendously big tax cut to those with skyscrapers?

Where do you build skyscrapers?

Skyscrapers are extremely expensive to build. And square footage costs go up the higher they get because you need more elevators to get people to higher floors. No one would build a skyscraper unless the land where they want to put offices and apartments is so expensive that building out rather than up is even more expensive. So skyscrapers are only built on extremely valuable land which would be taxed highly under an LTV

I once heard some weird stat...Josh and friends must know it...that the value of the land in ten square blocks of mid-town Manhattan is greater than the value of land in 25 states taken togeher. That's not it exactly but you get my point.

I haven't been following this fully

but I think the concern is with situations like Liberty Place and the Comcast Center, where you do have small buildings with lower-income-producing uses right adjacent (more directly adjacent with Liberty than Comcast, but pretty close--we have a pretty damn compact skyscraper/business district). It seems that either the LVT tax value would be low enough in those areas that the skyscrapers are getting an unecessary break, or high enough that we would no longer have those other small-building uses.

On the building part, yes

But not the huge part that is land value. I could fund a couple of towns each year with the proceeds of the land value under the Empire State Building alone.

If the zoning and planning calls for a skyscraper, and demand calls for a skyscraper then a skyscraper it is. The best Center City example is the the Blue Cross building nd the windswept lot next to it.

Why ought a building that leases space to thousands and employs dozens, and is serviced by hundreds (and is the source of wage and BPT tax if you want to go that way), pay a huge tax, while the Grassy Knoll pays near zip?

Land value taxes are meant to pay the community back for the services offered by government expenditure and the public's desire to be in a certain spot. That's why the two lots ought to pay the same tax, all other things being equal.

Assessors call buildings "improvements." They are. So, why tax something that's an improvement? Why nearly exempt something from taxation that is created by the public. That's a broad sketch of the rationale of a land value tax.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Because there are different definitions

of the 'highest use' that aren't purely tied to the amount of money a particular plot can generate?

True, Jennifer

The community defines highest and beat use; that's where zoning and planning come in, and the law trumps what the market says. Each action of government to restrict the use of a parcel lowers the land value accordingly. That's why a conservation easement makes land value almost disappear.

Matt Ruben gave a good case on the Delaware Waterfront in NoLibs, when an industrial use was changed to commercial and it shot up the land value overnight. The story he related (It think I have it right) was funny; it was a pure land speculation. the holding company was called LHTW, LLC ("Let's Hope This Works").

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Ah

so it might make more sense when reliably coupled with a modernized and functional zoning/planning process (which doesn't exist now but is, god help us, hopefully in the works). I personally think for that to work there would have to be pretty intensive intervention on the government side (defining not just categories of use, but dimensions and other aspects of structures that would be most likely to produce the desired mix of uses), and vigorous community involvement in that. Imposing a lot of new restrictive zoning, even as part of a big redo of the code, is not an easy or popular thing, and has its own drawbacks.

I'm still not sold on philosophically rejecting the idea that 'improvements' get taxed in line with their value or capacity to produce value, because that rejection still seems to de facto encourage a narrowly revenue-based definition of the highest use for a given space, but hopefully I can more fully engage with all this stuff at some point soon.

Could you address this more, Josh

I'm still not sold on philosophically rejecting the idea that 'improvements' get taxed in line with their value or capacity to produce value, because that rejection still seems to de facto encourage a narrowly revenue-based definition of the highest use for a give space,

How do you envision ensuring definitions of value that include non revenue-based considerations - in this City, at this time?

I envision what currently exists in this case at this time

I hope I am understanding the question. Tell me if I got it wrong.

When LVT is introduced in a town, the existing constraints on highest and best use are maintained, such as zoning and planning. The definitions of what is value is established by the Commonwealth Constitution. It's "ad valorem" or "to the value."

That's how the current property tax works, that's how and LVT would work.

To put non-revenue based considerations into the picture of value we'd need to use the legal tools at hand and the community involvement tools that exist. In Chicago or NYC, the use of community boards as a sub-government leads to changes in land uses (ergo value) all the time. Here, civics fulfill that function somewhat. I think the reason we are all here is to empower the the weak against the powerful. I think we want to get rid of privilege (narrow tax abatments, KOZ for Comcast, better schools in tony neighborhoods etc.)

Philosophically, we can agree to disagree. I DO believe that in a city setting, capacity to produce value is a good thing, especially with dense commercial zoning. It makes the city strong, and discourages sprawl.

That's why the enabling bill for LVT in Connecticut was supported totally strange bedfellows, just like LVT hearings in Philly in 2002 and 2004:

New London City Council
Mayor John DeStefano of New Haven
Southeastern Connecticut Sierra Club
Connecticut Coalition for Justice in Education Funding
AFSCME Council 4
Rivers Alliance
New London Landmarks
Connecticut Farmland Trust
Homebuilders Assn of Connecticut
Ct. Forest & Parks
Connecticut Conference of Municipalities
New London Main Street
Farmington River Watershed Association
Connecticut Sierra Club

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Yeah - I had trouble with wording the question

That's why is was so unclear. Your response seems like a partial answer. I'm still struggling, though, with the concept of the LVT (I'm not sure why it seems so hard to get a hold of), and from jennifer's line of questions, I was left wondering if somehow, instituting a LVT might skew planning in this city even further towards moneyed interests than it is currently.

I get your point that environmental groups supported LVT in Connecticut: developers and environmentalists don't necessarily have to be in opposition to each other and options that work towards mutual interest are the best. But given the history of planning in this City, and the disasters of the casinos and the convention center from the perspective of balancing the interests of the moneyed with the rest of Philadelphians, I'm trying to figure out how the LVT might intersect with planning here.

So - maybe my confusion is based on a lack of understanding of the LVT. Maybe the issue of influence in planning decisions and the existence of a LVT don't really intersect; but if they do, could you try to give a more context specific answer?

Can I try?

Jennifer raised a really good point: if we tax on the basis of land value, then the land under a three story building in Center City that could as a matter of zoning right, have a skyscraper on it, next to a large skyscraper will be very valuable and taxed highly, probably much more highly than today. There will be an incentive to tear it down and replace it with a larger building.

The same incentive exists today, by the way, since the revenues generated by a large building would be greater than that of a three story building. But the incentive would increase with an LVT.

Josh's answer is that if we want to keep low rise buildings in Center City we have to zone to protect them. If you can't build a skyscraper on a plot of land in Center City because of zoning, the value of that plot is reduced and the LVT is much lower than the lot next door that has a skyscraper.

Zoning, which limits the possible uses of land, is, in other words, the way in which we express the public value of land uuse that is not captured by economic return to the owner of the land. We reduce that economic return when we limit potential uses of the land, and also reduce potential tax revenues. From a philosophical point of view, the reduction in value to the owner is justified because the value of land has little to do with its intrinsic characterstics and everythind to do to where it is, and all the public and private amenities around it. Similarly, when we enhance the value of the land by enhancing those public amenities--say by building a transit station near it--we capture a large part of the benefit that goes to private individuals becaue the value of the land and the taxes goes up. And yet there is no disincentive to investment that takes advantage of the public amenity because buildings--and not just new buildings--are never taxed under an LVT.

I don't know this for sure, but I think those zoning restrictions by and large exist now in Center City. Skyscrapers generally require zoning variances or ad hoc changes in the zoning code. Certainly the mega-development was proposed for the rail tracks would have required zoning changes.

We need good zoning reform in Philly. I have my doubts whether we are going to get it. But I don't have any reason to think that LVT is going to make life worse if zoning continues to be ad hoc. It might actually create pressure for better zoning to protect the character of those parts of Center City that we want to keep low rise.

Taxes and planning/zoning DO intersect. I'm getting you

Sorry to not get it the first time. I hope this helps.

Truly, we live in a city with an archaic plan and weak citizen involvement. In assessment though, zoning always trumps the market and the values. Zoning is a function of the police power of the state; when something is zoned residential, commercial, whatever, it changes the land value overnight. LVT, therefore (as well as the property tax current)is subject to those restrictions.

As we know,there are 6 broad land uses in the city. A class 3 "Mom and Pop" next to a class 1 "residential" will have a higher land value (it is income producing) to the residential (no or little income potential).

Land values (and resulting taxes) are subservient to the legal use and zoning.

Land value tax works best in a book format or a public meeting format; I don't like some of this yelling stuff. Its funny, in places like Holmesburg, Grey's Ferry or Olney, they get it right away, because they are victims of an unfair system and know why, but we ask them what wrong with their neighborhoods, and it usually comes down to blight, absentees, taxes and a city government they don't much like.

Come to our Saturday morning hoedown http://www.henrygeorgeschoolphila.org/events
We promise to discuss our idea in Philadelphia and the numbers.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Thanks for the reply, Josh

I guess I'm just uncomfortable with trusting this City's zoning processes to protect the interests of a diverse set of stakeholders. I'd be worried about moving to a system that might be even more dependent on our zoning processes to achieve a fair outcome. It seems that moving to a LVT would move in that direction.

Also, as I understand this discussion, given the questions that Jennifer and Dan raise, with a LVT we would be operating with a more tightly drawn definition of "value" -- to one that is narrowed even more to equate with economic productivity. That isn't inherently something bad, but it does seem that it could be accompanied by a downside, which could lead to less of the diversity which, IMO, makes Philly more livable and more interesting than cities with lots of nice, swanky, and generically flavored commercial establishments.

Given that, it would seem to me that providing reassurance that a non-dysfunctional zoning process would be in place before moving to a LVT, one that really reflected a diversity of stakeholders equitably, would be pretty important for my support - for what it's worth. And you underscore in your excerpt how crucial a fully functional assessment system would be to have a successful LVT. It certainly seems that we're a long way off from a fully functional assessment process in this city. Where do you get your confidence that a LVT would work well without better zoning and assessment processes being established first?

There are other upsides that you describe which seem much more straight forward and unambiguously positive to me. The idea of incentivizing property owners to develop empty lots (assuming that developing empty lots doesn't turn into a lack of open spaces) is, obviously, very appealing.

I guess that the bottom line for me is the question of who benefits the most. If I can eventually wrap my mind around the issue, and do become convinced that it would mean a tax system that ultimately taxes poorer people less and wealthier people more, I would imagine that would trump my other concerns.

One other consideration

I once had a conversation with Stan Shapiro in which it seemd that he believed that it is somehow wrong to tax some things but not others. It was as if it were unfair to tax wages but not business profits or revenue raised from investment in buildings. I think this notion has something to do with Stan's opposition to the LVT.

I think this gets things backwards. From my modified Rawlsian point of view, taxation is justified when the revenues it raises allows us to serve the common good or improve the well being of the worst off. And the fundamental consideration in devising tax policy is to try to tax as much as necessary but in ways that do not reduce economic activity. There is nothing intrinsically fair or unfair about taxing wages and not business profits or wages and not return to investment in buildings. Ultimately people not businesses or buildings pay all taxes and the only moral consideration is how to tax enough to support a government that does what it should while minimizing the economic harm of taxation.

A land tax, because it taxes economic rents, is ideal from that point of view, which is one reason Rawls endorses in in A Theory of Justice.

Progressivity and practical reality fade into the background

Forget that the architect who moves into the newly-renovated $400K house that sits on the same size plot as the 80 year old retiree's older house which -- even with gentrification -- is worth half of what the architect's is worth, now and in perpetuity would pay the same property taxes.

Forget that this is potentially how the LVT would affect most people. The people with the newer, nicer houses would pay less, and those with the older, more run down houses, would pay more.

Forget that the logic that says those whose property is worth more should pay more is the basic logic of progressive property taxation.

Forget that the Rawls argument you quote doesn't take the ability to pay into consideration, and thus is not progressive taxation.

Forget it really because, I think, the handful of places that have used LVT tended to limit it to downtowns areas because -- as my example above suggests -- it screws so many older home owners.

But why practice something like this when in practical experience it's never played much of a role in the economic growth of cities similar to ours?

At least with abatements there are examples we can study where they were employed and similar economies grew significantly. I agree that firms like eConsult overstate the role abatements have played.

But at least to begin with there are a lot more potential success stories to look at and query.

Where do people build nice new homes, Sam?

Where land is cheap or where land is more expensive?

The tax abatement is in effect throughout the whole city. Where is the new development occuring? Where the land is cheapest or where land is already higher in price because it is closer to center city or higher priced neighborhoods? People are squeezing new homes into Mt. Airy and Chestnut Hill even though land prices are enormously higher than Germantown.

To take one more example, if the only respect in which we evaluate the progressivity of a tax is the extent to which we tax income at differential rates, then no property tax is going to be progressive.

But (1) both land and building values track income to some extent, althought not perfectly and there is no reason to think that on average, buildling values track it better than land values.

(2) There is a good reason for wealth taxation that is independent of income taxation. The accumulation of wealth undermines our democracy. And while I would argue, on these grounds for broader wealth taxation than ownership of expensive land does more or less track ownership of other property.

(3) As I've already pointed out, we should use a broader notion of just taxation than this narrow kind of progressivity. That was Rawls's point in arguing for what he called procedural justice which leads to the conclusion that we should evaluate taxes not just in terms of their effect on income but in terms of their consequences for the economic activity that makes the lives of the worst off better. That's why that in this case a narrower tax on wealth is better than a broader one, that is, because it has fewer negative consequences for economic activity.

Or, more concretely, even if a real estate taxation regime tracks income a little better than LVT, if it leads to much less development which means fewer jobs and more expensive housing (since new high end housing creates more hand me downs at the lower end) than it is less just because it makes the lifes of the least well of worse.

I can see I've gotten you angry. But you really ought to stop and think for a minute because you are getting more and more ridiculous by the moment. What's totally bizarre about what you are writing is that every argument you make against LVT applies much more to the tax abatement you support than to LVT.

Finally, LVT is not some new fangled untried idea--although why all of a sudden you have gotten so Burkean as to be distrustful of a new idea is beyond me. It is used successfully not just in Pittsburgh but in cities as large as Philadelphia: Singapore, Honk Kong, Sydney, Canberra. It is found in Taiwan and Estonia. And Mexicali, where, to be fair, it is occasionaly blamed for the blues.

I've raised the fairness issue

because it's the first political argument against LVT.

I am of the opinion that neither you nor Josh has gotten past it.

Even if your prognostications regarding its effect on investment in the city were correct, you have to face the fairness issue on the floor of Council and in 215.

So

1) both land and building values track income to some extent, althought not perfectly and there is no reason to think that on average, buildling values track it better than land values

Really? My ability to buy a $400K home in a neighborhood is not a more precise indicator of how much I'm worth than my ability to buy any similarly-sized lot in a neighborhood?

That isn't true. It especially isn't true in neighborhoods where apartment buildings stand on lots that are roughly the size as the lots of homes.

(2) There is a good reason for wealth taxation that is independent of income taxation. The accumulation of wealth undermines our democracy.

This is a non-sequitur and unlikely to convince anyone. Yes, most people want to tax wealth as well as income.

Most people include the house on your land when they calculate your wealth.

This seems to me an argument against LVT.

Let's get to your one and only point:

(3) As I've already pointed out, we should use a broader notion of just taxation than this narrow kind of progressivity. That was Rawls's point in arguing for what he called procedural justice which leads to the conclusion that we should evaluate taxes not just in terms of their effect on income but in terms of their consequences for the economic activity that makes the lives of the worst off better. That's why that in this case a narrower tax on wealth is better than a broader one, that is, because it has fewer negative consequences for economic activity.

Or, more concretely, even if a real estate taxation regime tracks income a little better than LVT, if it leads to much less development which means fewer jobs and more expensive housing (since new high end housing creates more hand me downs at the lower end) than it is less just because it makes the lifes of the least well of worse.

Leaving aside what Rawls thought, as they likely would in Council or 215 (though many of us respect his writing), what you finally get around to saying is this:

Sure, considering the buildings and the land may in fact reflect a person's wealth more accurately than considering just the land...but LVT will be so beneficial otherwise that you'll forgive the loss in fairness.

To this I ask: Pittsburgh (which dumped it in 2001) and Scranton are your examples of these benefits?

I think you're going to have make a better argument.

Sam is incorrect on the facts and the theory

I apologized to Mr. Durso once because I took his bait on a snarky use of the phrase "19th Century". Silly me.

Mr. Durso speaks of forgetting. Yes, let's. But first.

Forget that I have referenced, before Mr. Durso ever thought of it, that "an architect" (oh dear) might get a gain on the improvement portion and that a bad assessor might put that improvement gain on the retiree's building as well, especially in out city. That's why we want to take out most of the equation of a bad assessment: the building value. The lot value is still the same. Mr. Durso made an essential error in understanding how property is valued, by everyone, everywhere.

Forget that the numbers, those cursed numbers, prove beyond doubt, by anyone that has looked at them over the past 25 years, that people with homes in older, distressed neighborhoods benefit dramatically with an LVT in the City of Philadelphia right now.

Forget that the current system of property tax, by definition and numbers (these numbers will turn out to be pesky things for you Mr. Durso)is not progressive, and that patterns of land value ownership make a land value tax very progressive. Those that choose to be on the side of the Zurtiskys, Sunoco, Rohm and Hass, and Gary Barbera are welcome to it.

Forget that the ability to pay of a valuable lot pales to that of the row house homeowner in Olney, Port Richmond, Wissionoming,Kingessessing, etc., etc). Yet, they now pay the greater burden of the property tax, would pay under the Mayor's program, and LVT - study after study - shows double digit percentage decreases over the traditional property tax.

Forget that Mr. Durso's assertion on LVT being used in downtown areas is absolutely, 100% not factual. It is used city-wide, in Pennsylvania ranging from towns as small as Steelton to as large as Allentown. Internationally, it is used city-wide, from Copenhagen, to Sydney to Hong Kong to Wellington. LVT passed by a popular vote of older, poorer homeowners in Allentown. In Pittsburgh, the loss of LVT increased taxation on Homewood and the Hill District dramatically; that is to say majority African-American and poor neighborhoods. It is still used in the BID.

Forget that if you want to not practice LVT, we sit and do what we've done, or a city resorts to privileged abatements or giving out monopolies. Or (better yet?) sit and debate.

For years, people could look at Hallwatch and decide of the land vlaue tax was good for the poor, working class and middle class of this city. Most people did nothing. Now, we have the numbers that are spot on, and unimpeachable.

All I'm asking for is for people to give this an honest, unbiased look.
And, I'll debate any person anytime. This program has a proud and long history of fighting for and defending working people and others who want to make it.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Josh, forgive my skepticism re: LVT as simple solution

that politicians simply refuse to implement, but skeptical I am.

A system that, on the one hand, you suggest shifts property tax burden away from home owners and toward large developers, but on the other hand -- and at the same time -- encourages large developers to invest in the city, does in fact sound too good to be true, to me.

Your argument that it is easier to assess the value of land than it is to assess the value of buildings and land together seems wrong to me: at least in Philadelphia, buildings and land are sold together far more frequently than is land by itself, so there are far more specific examples to cite when making an assessment of land + building rather than just land alone.

Again, at this level, unless I am predisposed to believe that no one should ever tax my house but that it's okay to tax the land it sits on, why wouldn't I think that I'm being taxed based on phony representation of my real wealth, if the city is assessing my ability to pay this way?

Regarding your claim that numbers will bear out the progressive nature of LVT, I'm willing to consider them, but I have not seen them. Show me.

I admit that my hypothetical examples of folks living on similarly-sized lots in gentrifying neighborhoods certainly is just that, hypothetical, but they're also kind of common sense.

I really think you need to go through a compelling set of numbers to answer this.

There is also a narrative you should address: Pittsburgh before 2001 doesn't seem like such a great example of a city benefiting from a wondrous tax plan. And then there's the fact that they dropped it and never went back.

Addressing even-handedly both points in that narrative seems necessary if you want to convince skeptics like me.

I'm willing to look, but simply saying "check my website" is hardly a compelling argument for a tax system that asks everyone to change the way they define taxable property and wealth.

We have the info.

we present our data to each and every city, as we have done in Philadelphia. Perhaps we can sit side by side: show me yours, I'll show you mine.

Come to our class, posted twice in the past 12 hours. I'll sit down with you afterward and show you the data,street by street, parcel by parcel. If you are skeptical then you are doing the right thing; you have to give the other guy a chance to persuade you.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

The reason you don't undersand this, Sam

is that you don't seem capable of grasping the difference between a tax on land value and a tax on land and buildings.

Looking back at last night's interchange, it finally dawned on me that this was the problem. Philosophical arguments about why LVT is fair won't work with someone who doesn't understand that and LVT is not a real property tax and thus a) is not thinking through the implications of a shift from one to another and b) wants to evaluate the fairness of taxing only land in terms of how close it is to taxing land and building together.

On the fairness issue, let me give you a parallel argument to yours.

A and B both own 100,000 row houses. A owns a Rolls Royce. B owns a Focus. Therefore it is unfair for them to pay the same real property tax because A owns much more property than B.

Obviously the answer is, we don't evalute the fairness of two different real estate tax bills in terms of all the property someone owns but only in terms of the real property they own.

Similarly, we don't evaluate the fairness of two different LVT bills in terms of how much real property they own but in terms of the land they own.

All my arguments were about the fairness of LVT vs real property taxation as a whole. But I can see why you just ignored them...because you haven't gotten that the LVT is not a different way of collecting tax on real property but is a tax on land value not a tax on real property.

And that difference is key to understanding why a LVT is both a strong incentive to developemtn even though it falls more heavily on the rich than the poor.

So let's go back to basics.

If you tax land but not buildings, there is no disincentive to building as there is with a property tax. You can build a very expensive building on cheap land and you don't pay more in taxes. There is also a a strong incentive to build on vacant but valuable land because you are paying high taxes on vacant valuable land bu tnot getting an return on your ownership of the land.

In fact, you can tax land very heavily and a) the disincentive does not increase and b) the incentive actually increases.

Now here are three truisms about the value of land.

Land that is suitable for commercial development tends to be of high value because you can make a lot of money on this land by using it in commerce.

Land in neighborhoods where people of means want to live--where big expensive houses are found--tends to be of higher value.

Land in neighborhoods where people live only because they can't afford to live anywhere else tend to be less valuable.

So the LVT one pays on an acre of land in in apoor neighborhood is likely to be low, it is likely to be higher in a richer neighborhood, and highest in commercial areas.

So a LVT can sock the rich and yet spur development.

It's not done with mirrors. It happens precisely because highly valuable land earns large economic rents.

You've made me into a straw man, Marc

[Note: This is in reply to Marc Stier's post of 4/22 at 7:20 PM. I tried to place it there but, no luck.]

With all due respect, I have no recollection of any such conversation. I don't think I ever said anything to suggest there are certain kinds of income or property that shouldn't be taxed, and I don't believe it. I just believe that taxes, on whatever subject they may be levied, ought to be progressive, and capable of fair, transparent administration. I don't support the LVT because, among other things, it is inherently opaque and subject to abuse.

Actually any real estate tax has some of that quality, but LVT raises the opaqueness level exponentially. With all the discussion of this tax, I've yet to hear how it's computed with real examples connecting to real numbers. What is compared to what to arrive at value? What is the "scientific" methodology that everyone could agree on that supports that methodology? I don't believe there is any such methodology that actually ignores the value of improvements. In its absence, you have taxes assessed on the basis of subjective judgments, and that is the antithesis of everything I believe should characterize a just tax system.

Those BRT notes

It looks as if Econsult used those notes from the BRT:

Table 1: Philadelphia Property Tax Abatement Ordinances

M 10-year abatement for existing residential rehabilitation, capped at
9611 $50,400 of total value.
1 10-year abatement for existing residential rehabilitation, uncapped.
1456 N 10-year abatement for new residential construction, uncapped.
970274 6 10-year abatement for conversion of existing buildings to commercial
residential use.
1130 8 10-year abatement for either improvements or new construction of
commercial, industrial or other business properties.
175 2 30-month abatement granted to developer of residential property until
properties are sold or otherwise transferred.

So, one would have to go into the BRT roll and check, especially on the identified properties that were not listed as abated but clearly (Symphony House, etc.) are. 2006 is also a long time ago.

Frankly, an update is needed; and the some uninterested agency should do the report. BRT? Revenue Department? Ideas?

The Econsult report also gives shrift to the issue of fairness, particularly the inflated price leading to inability of those on fixed incomes or renters to participate in the housing market. We know that south of Market (say Bella Vista) long-time homeowners were swept up in the inflated sale prices of abated properties during those spot BRT reassessments of 2003-2006. So, if a yup's Queen village gut-rehab condo sold for $500K, the neighboring row owned by a retired seamstress might be up-assessed dramatically, based on the yup's improvement (entirely within the realm of how the BRT did business). That's problematic. Confusing improvement value with total or parcel value leads to the older row's building value equated with a new condo's shiny fixtures and top-end new construction and is inherently unfair. The resentment of the abatments here in Phily (to me) originated in that period, and has festered since.

N.B.:I like the City of Harrisburg's codicil in their abatement program that an abated parcel's improvement value shall not be the basis for revaluing neighboring buildings for a period of years.

One can make a pretty convincing case that they worked; but they worked as a granting of privilege, which may be SOP in the city of Philadelphia, but picking winners means creating losers. I think we're all against that.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

First, an ad hominem

First, an ad hominem rhetorical question: I know eConsult has a good reputation, but when has an eConsult study ever NOT come out in favor of a supply side tax policy? (KOIZs anyone?)

Second, I agree with the main theme of Josh's argument - i.e. we should first look at larger structural factors, like the '90s economic boom; and then the dot-com bust, when lots of capital fled high-tech and flooded into an already heating-up real estate market, where it found (among many other places of course) the ridiculously undervalued real estate of downtown Philly

And as a side note, Center City's population increased not only during the past decade or so, but also between 1960 and 1980 (it was the only part of the city whose population rose in that period).

All of which is to say, I agree with Dan's original notion, that the tax abatement clearly has had an effect, but eConsult is likely way overstating it.

Best,
Matt

I figured I'd respond

to someone whose position I generally agree with, so Matt Ruben.

Like Matt (and Dan to a certain extent) I agree that the tax abatement clearly had an effect, and that eConsult is likely way overstating it.

On the one hand, that may help us come to a conclusion about eConsult -- they always come down on the supply side of economics strategy -- and that may be useful in considering future metrics for the city's economic performance; but, on the other hand, settling one argument about one local consulting firm is not terribly useful in figuring out what the city should do to make its economic situation better, which is the question that seems to me is hovering just behind this discussion.

The more specific question raised is whether or not some version of the tax abatement program ought to be preserved.

Dan links the local argument about eConsult, via Isiah Thompson's interesting City Paper article, to two much larger arguments -- really they're almost rhetorical -- about governmental economic strategies, and about the nature of Economics.

The economic strategy argument is about to what extent the level of taxation plays a role in losing or attracting jobs and residents to a city. If your goal really is to attract jobs and residents to the city, you have to address that argument when you're preparing your strategy. More on this later.

The nature of Economics argument really is a rhetorical argument: it's part of the whole "Are the social sciences really sciences?" argument, and honestly sometimes I think it's rooted in the deep desire and wish by many people that Economics were less a social science like Anthropology and Sociology (which it is) and more a physical science like, say, Orthodontics (which, obviously, it is not).

We'd really, really like to be able to fix bad economies as easily and predictably as we can crooked teeth, but societies don't work like that.

There are way too many factors that affect economies to allow for them to be as predictable the human body.

Doesn't mean you should give up on working to make economies better though.

In my brief experience with societies and governments, things work this way, when things work: people in government come up with strategies for making things better, political rivals scrutinize and criticize those strategies, and those strategies are either continued, improved, or replaced with other (hopefully better) strategies.

Returning to the two questions raised here, to the first question about what the city should do to make its economy better, one thing pertinent to this discussion that I think we ought to be able to agree upon is that -- despite the lack of 100% reliable economic prognostication -- we ought always to be implementing some strategies to attract more high-paying and middle class jobs to Philly.

We have fewer than other cities that are otherwise similar to us.

We are the city with the lowest average and median income of all cities in our region, lower than Baltimore and Pittsburgh, and we are 2d lowest of all the large cities.

But attracting more good-paying jobs and economically-secure residents cannot be the only strategy for improving the city's economy. We ought also to be investing in things like the Community College, in order to make the city's workforce more employ-able and the city more attractive to new businesses.

We also have to invest in making the city's school district better in order to make the city's future workforce more employable.

Regarding the second question, about whether we should keep, amend, or end the tax abatement, I am squarely on the amend side.

Abatements played a role in attracting investment to the city. Almost certainly not to the extent that eConsult says, but to an extent. More importantly, in my opinion, the city's tax burden is already worse than every other city in the whole of the U.S. except Bridgeport, Connecticut, and it's about to get worse. Unless you have an ulterior motive to do so, I don't think you can completely separate the city's comparatively poor job performance with its comparatively high tax burden.

If we're trying to grow the economy here, if we want to make Philly the destination and home to new green building and to the new green economy (which I and others think it can be) that burden very likely is going to be a drag.

Abatements address that and help alleviate that, one small part of the whole package that the city can use to sell itself, which we always must be doing in a competitive world.

I say improve the abatements. Kudos again to Curtis Jones, but don't stop there. If we can get them to cost less on the front end, let's do that too. Eventually, we ought to have economic goals that we can reach in order to retire them, as New York has, after a decades worth of sustained growth.

Anyone who suggests eliminating them now though, I think, ought to come up with a better way of attracting good-paying jobs and residents.

Orthdontics a physical science?

I'd be laughing hysterically except that I'd be afraid someone would see my crooked post-orothodonture teeth.

Talk about fanciful example

And, by the way, LVT is the better way for which you are looking.

Nitrous oxide, Marc?

I meant biological science, yes thank you, but the metaphor holds and unfortunately you seem to be in the process of exemplifying.

People want simple medical-type solutions to complex economic problems is what I said above, and that you seem to be proving below.

Prescribing the LVT as such, Dr. Stier, is a case in point.

At least with tax abatements there's the recent experiences of many governments who saw investment go up when they implemented abatements, New York and Philly included; ignoring completely the fact that investment right here did pick up precisely when abatements started is not smart planning.

I realize the LVT is not legal in most states, but still, it's far less practiced and proven than abatements.

It's not as science at all

Orthodontics is a trade, slightly less complicated than plumbing.

Pittsburgh had an LVT for a very long time. Scranton, I believe has had one for fifty years and still does. Harrisburgh has had it for twenty years.

The mechanism by which implement it is exactly the same mechanism we use to implement a real estate tax. In fact, you can gradually move to an LVT by raising the mill rate on land and lowering it on buildings.

And not only is the practice straightforward, the theory is basically simple. Compared to the intricacies of, say, developing a theory of wages, the theory of land and property taxation is blissfully simple.

There is no good excuse for progressives to keep putting their head in the sand on this one, as you are exemplifying.

Leave aside the question of whether the tax abatement works. (And lately you have gotten as predicatable as econsult, never seeing a tax cut for the rich you don't like.) It is both grossly unfair and a major revenue killer.

If you and the Mayor really want to keep cutting business taxes, you need an alternative source of revenue unless you are going to embrace Mark Alan Hughes's theory of trickle up economics and tell a million Philadelphians ot move to hell (or North Carolina). This is one of the better ones.

That's why so many right wing libertarians beat us to it?

Come on.

Those raging success stories of Scranton and pre-2001 Pittsburgh draw such a clear map to economic growth, Marc?

Get real.

You're aware of LVT's popularity with Ayn Rand-ers of course. That's simple to explain. They hate government. They hate taxes. They're happy when anything we currently tax is rendered not tax-able. LVT takes improvements off the table.

One reason progressives everywhere are wary of LVT is the way, on a very basic level, it isn't progressive. Progressive property taxation usually involves figuring out how much a property is worth and taxing those worth more at higher rates than those worth less.

Rand and Bob Nozick support freedom of speech

so does that mean I shouldn't?

Have you been in Scranton or Pittsburgh lately? Considering the kinds of economic blows those two cities have gone through. their downtowns actually look pretty good.

I know you support progressive taxation at the Federal level. But you have been less supportive in the city. And in supporting the tax abatement over LVT you are supporting an abominable tax from the point of equity. The LVT is an progressive tax. It taxes land it according to its worth. How is that less progressive than a real estate tax? You are making the same mistake I address in another post, thinking that to be progressive you have to tax everything and anything that generates income. This is absurd. You don't, we can't and we shouldn't try.

This is a long response I wrote to a similar discussion among a group of CES folks that deals with the issue of the intellectual provenance of LVT.

LVT has always been a left wing, progressive cause, starting with Henry George whose ideas were of some interest to Karl Marx and were endorsed by Rawls. The folks who push it now have serious training in economics. Considering the kind of reception that left wing ideas often get, I really find it disappointing that some of us are using the typical tactics of right wingers against the LVT proponents. You can find a, mostly appreciative, discussion of LVT in almost any public finance textbook.

In fact, that might be part of the problem progressives have with the LVT...it actually has some support from moderate and libertarian economists as well as leftists. There is one reason for this. All of them appreciate the technical advantages of an LVT, that unlike any other tax, it creates no disincentive to economic activity because it taxes what is technically called an economic rent. In addition, just like contemporary liberals do (eg John Rawls) the libertarian Vienna school of economics has long argued that taxation of economic rents is just because it has no effect on the use of goods. Liberals have a broader notion of economic rent than the libertarians do as we argue, but they deny, that large corporations generate monopoly power that gives them economic rents. But we have historically agreed with the libertarians that the ownership of land creates an economic rent. That's why we find ourselves in some agreement on this issue with libertarians and other folks who tend to support market solutions much more than we do. There is nothing sinister in this agreement.

BTW, an economic rent is a return to the holder of some good (that is, an income generated by the good) that is above and beyond that needed to give the holder of the good reason to put it into production. Economic rents are generated by the scarcity of the good in question. Land generates an economic rent because as the saying goes, they ain't making any more of it. Say someone owns land in Center City and rents it to someone who puts an office building on it. The rent the owner of the land receives is far more than that necessary to give him a reason to rent the land because there is only so much Center City property. And the rent he gets is due to the proximit of the land to other public and private economic activity and resources, not due to anything the owner has put into the land. Another, very different example of an economic rent is the income generated by athletic seven footers. They (and in fact most professional athletes) make far more money than they need to be paid to get them to play professional sports because there are so few people with these natural talents that they have in effect almost a monopoly on them. Just as we could tax 80% of the earnings of professional athletes without losing many of them to the sport (how else could they make even 20% of wha they are paid?), we can heavily tax land without people withholding it from the market.

If, on the other hand, we tax investment in buildings or machinery we get less of it. That in a nutshell is why LVT is a better tax than the real estate tax. (And it is also why a progressive income tax is a good tax because their is little evidence that, except at the extremes, higher rates of income tax lead to reduced effort.)

Fake progressivity

To call LVT progressive we have to pretend buildings don't add to the value of the properties they sit on.

If we don't, the owner of the $200K house who would pay the same as the owner of the $400K house might smell something funny about our notion of progressive taxation.

While we're at it, we have to pretend Pittsburgh and Scranton provide better models of growth than does, say, New York City.

Have you been to Harlem lately?

What's next Marc, an academic argument for the progressive nature of VATs?

Some academic arguments are best left in the academy.

Why don't you use your training in English

to go read what I've written above where you will see that I've already explained (1)why economic justice does not require us to tax everything of value (buildings as well as land) that people own and (2) why taxing land is taxing an economic rent and thus always just.

If it is unfair to tax land and not buildings, then are you suggesting that it is unfair that we don't tax all forms of property: stocks and bonds, cars, furniture, etc.

And then go to the BRT and find me some residential examples where the the value of land under a 400,000 house is much lower than the value of land under a 200,000. That is the kind of disparity one gets with the tax abatement. It's much less likely with an LVT in the medium term and unlikely over a longer period because as the value of land and taxes go up, there is a strong tendency for people to buy the land and improve or replace the buildings on it so that they can get a level of return that enables them to pay the tax.

That's pretty much what happens now although it happens much less fairly as Josh pointed out in one of his posts because valuations of buildings tend to go up in improving neighborhoods even when they remain unchanged.

And that gives me a moment to point out that LVT is good for many things but it doesn't cure the common cold or deal with all the downside of gentrification. We need other policy tools to do that, like inclusionary zoning, which I believe would be more effective under an LVT than a real estate tax.

ad hominem attackers = those with lousy arguments

generally.

That's something English education taught me.

Marc, as Dan suggests elsewhere on this thread, if you want everybody to change their definition of something as essential taxable property -- if you really want the $200K homeowner to be down with paying the same property taxes as the $400K homeowner -- insisting that they study more closely your abstract argument is not going to cut it in real politics, at least not in this life.

Your argument above simply doesn't answer the real progressive argument against LVT, let alone the more important $200K homeowner's argument.

These parts seem to me obsfuscation, meant to deceive the progressive who wants people who have more to pay more by saying, "Hey, look! People you like like the LVT!"

LVT has always been a left wing, progressive cause, starting with Henry George whose ideas were of some interest to Karl Marx and were endorsed by Rawls. The folks who push it now have serious training in economics.

And worse:

In fact, that might be part of the problem progressives have with the LVT...it actually has some support from moderate and libertarian economists as well as leftists. There is one reason for this. All of them appreciate the technical advantages of an LVT, that unlike any other tax, it creates no disincentive to economic activity because it taxes what is technically called an economic rent. In addition, just like contemporary liberals do (eg John Rawls) the libertarian Vienna school of economics has long argued that taxation of economic rents is just because it has no effect on the use of goods. Liberals have a broader notion of economic rent than the libertarians do as we argue, but they deny, that large corporations generate monopoly power that gives them economic rents. But we have historically agreed with the libertarians that the ownership of land creates an economic rent. That's why we find ourselves in some agreement on this issue with libertarians and other folks who tend to support market solutions much more than we do

Oh, but I know why I and the $200K home should acquiesce. It's because:

an economic rent is a return to the holder of some good (that is, an income generated by the good) that is above and beyond that needed to give the holder of the good reason to put it into production. Economic rents are generated by the scarcity of the good in question.

That's so much fairer than considering a $400K house worth twice as much as a $200K house and taxing it more because of it!

Except it's not.

Progressives like me base our definition of progressive taxation at least partly on the ability of the taxpayer to pay, so our view of property taxes includes the value of the whole thing, the building and the property, just as it is valued when it's purchased or sold.

Why I should ignore that and focus instead on economic rents is something you have not made a persuasive argument for.

I knew you're well-intentioned, Marc, but you're argument, with all due respect, is getting a bit tin-eared.

Good NIght, Sam

Get some rest and if you can look in the mirror in the morning, maybe you will be able to read this and recognize who has been making arguments and who has, instead of answering been repeating made up examples that prove nothing.

Sleep well in your Frank Furness home, Marc

Sorry if that's another "made up example that proves nothing."

Buildings do not add to the value of land. Period.

Here's a thought exercise which Mr. Durso needs.

If I build the Empire State Building on 34th Street in Manhattan, I will become rich.
If I build the Empire State Building in the Death Valley, I will become bankrupt.

"Hey!"I exclaim. "Someone told me that buildings add to the value of land!"

On the other issues; Pittsburgh and Scranton have wage taxes almost on a par with Philly's. they killed themselves.

New York City just enacted a law (July 2008)) that removes preferential tax treatment of vacant land. Harlem is gentrified; they are driving the original inhabitants out; is that the preferred outcome?

Done for this one. I don't like the shotgun method preferred by some. ;)

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Oh Josh

abstract arguments like that are not going to convince many people of LVT's fairness.

It's an exercise that can work against you just as easily: I just bought a home in -- fill in the gentrifying neighborhood -- and, oh no, it fell down!

No worries! I can sell it tomorrow and it's still worth the same!

Property taxes for most people means taxes on homes, and if you're advocating a policy that taxes a homeowner the same whether his home is standing or burns down, I suggest finding a more persuasive strategy.

In a city where gentrification is an issue, you will need to give owners of older homes $200K homes better reasons why they should pay the same property taxes as the folks who just bought the renovated $400K home, people they see on their street.

Change in politics is hard enough even when there is agreement that the status quo is unfair. See health care The policy you're suggesting changing -- taxing owners of expensive homes and valuable buildings at rates higher than owners of less expensive homes and less valuable buildings -- is one that most people consider fair, I'd guess.

That's why I keep suggesting you guys answer more directly, in terms most people use, the fairness question.

I will say it again, there

I will say it again, there are pieces of the LVT that intuitively make sense, especially the part where we go after vacant lots, speculators, surface parking lots, etc.

But, Sam raises legitimate questions, as does Jennifer. (And, why exactly did Pittsburgh dump it?)

And maybe I am stupid, but I still don't see how this wouldn't severely go after the mixed uses and mixed scale that makes center city so walkable and so diverse. If the answer is to use restrictive zoning over each small parcel of land, then at the very least, let's acknowledge that that is a huge practical obstacle with all kinds of ramifications.

I am not sure why, when LVT backers are asking for a radically different system of taxation, anyone should expect people to simply jump on board.

Mixed Use and complications

The complications are where they always are, Dan, in the zoning code. By definition, a mixed use building is defined and created by zoning now. We do in fact zone parcels next to one another very differently through the process of giving variances while putting in broad restrictions about, for example, height, over blocks and multi-block units. And that's how it would be under LVT. LVT does nothing at all to change that.

I think you may be confused because some jurisdiction tax different kinds of property--eg residential or commercial--at different rates. We don't in PA because of the uniformity clause. (I think we would be much better off if we could, but that is another story.) So that issue doesn't arise here.

No one thinks that we should move to LVT without a lot of thought. But there really has been a great deal of negative stuff here, and in some CES debates, that seems not only totally uniformed but willfully so. I'd say that part of the problem is that we have too many lawyers and not enough folks with training in economics among us although that would be totally unfair to you and Jennifer who are not having any trouble grasping these arguments. (The english teachers, however.....)

I suspect the real problem is (1) understanding the arguments for LVT requires a willingness to grapple with some abstract and difficult ideas about economic rents and justice; (2) the support economists of all stripes give to the LVT; and (3) the odor of 19th century Georgism--which in fact was a totally respectable progressive movement--leads people to dismiss these ideas just the way people on the left reject ideas that have anything to do with Marx. And that really is a shame.

First, when I say mixed

First, when I say mixed uses, I don't mean of a specifc property, but of areas. And of course the LVT would have something to do with that.

I think you may be confused because some jurisdiction tax different kinds of property--eg residential or commercial--at different rates. We don't in PA because of the uniformity clause. (I think we would be much better off if we could, but that is another story.) So that issue doesn't arise here.

We have a very mixed City. One half of a block from Rittenhouse Square, with giant condo towers and office buildings, are three story homes. Given the uniformity clause and everything, would the small apartment and the condo tower now be taxed similarly? If so, the three story house or apartment would be taxed incredibly high, leading Center City to much more dense development, because of the land value, or the Condos would be taxed strangely little.

Or, similarly, Chestnut Street and Liberty Place, versus Chestnut Street and the Rite Aid, the salad bar type lunch counter, or a Radio Shack.

Would all of those places be taxed the same? If so, I cannot see how that would be 1)smart policy and 2) would be termed progressive.

Yes, if I undertand you correctly this time.

Land of the same size in basically the same location with the same development rights would be taxed at the same rate.

If the Rite Aid is on land on which one could build a multi-story apartment building, it would be taxed at the same rate as the land on which the multi-story apartment building is taxed.

I'm not sure why you would think this is a problem. The land is worth the same and the fact that one owner uses the land more intensively than the other doesn't seem to me to give the later who is not using the land intensively grounds for a tax break.

Indeed, one beauty of the LVT is that it gives owners who sit on very very valuable and don't develop it because their low taxes doesn't force them to do so, a strong incentive to use the land productively. There are some horrendous examples of this on Josh's website.

As you surmise, this is likely to lead the owner of the Rite Aid building to want to use his land more productively. Assuming that there are no issues with added density and height creating a great burden on others, is this a bad thing? I would think it is a good thing.

And if there is a problem with density and height, then we limit growth in the Rite Aide block with zoning and the tax goes down.

You seem to think that these kind of regulations by block would be a nightmare. Have you seen the master plan drawn up a few years ago by the CCRA? It had just this kind of detail, with careful analysis of which corners and blocks are suited for high rise and mid-rise development and which are not. It was a lovely plan and a great example of the very detailed planning that strong community associations can and should do. I hope it is brought into the new zoning code and other communities get the resources to do the same kind of plan.

Or look at the upper east side in New York. There is no way all the lovely townhouses in the east sixties would survive splinterization if height restrictions did not protect them by keeping their property taxes low. New York selectively allows mid-block high rise development. I assume it happens when the buildings replaced are of little architectural value and with limits on how many there are, so that the all light isn't cut off from the low rises.

And, anyway, I'm would be surprised if there are not limits to size on the Rite Aid block and that Liberty Place required a zoning variance not for height but on other grounds. Because our zoning code is so crazy, there is little building that goes on in the city without some kind of variance needed which gives community associations some power. Hopefully that power won't be eroded by the new zoning code and the code will take into the local knowledge of community associations.

So in a slow transition to LVT, with the tax on land gradually going up and that on buildings going down, I don't think development has to outstrip our ability to zone for it. And if we don't zone well, the tax abatement which is not going away anytime soon, is going to lead as quickly to the development you fear as an LVT.

As you surmise, this is

As you surmise, this is likely to lead the owner of the Rite Aid building to want to use his land more productively. Assuming that there are no issues with added density and height creating a great burden on others, is this a bad thing? I would think it is a good thing.

Define productively. To me, a vibrant piece of center city would be hurt (Forget the rite aid. How about the small apartment building, or a pizza place). I like the fact that Center City has a mixture of properties and sizes and general diversity. Until I am comfortable that the LVT wouldn't hurt that, which in your scenario, it would, I don't think it sounds so great.

These are good quesitons

Jennifer raises legitimate questions, as does Dan. Sam does not, he's throwing stuff.

I think that the land use and zoning restrictions in place do make a large barrier to overbuilding. Plain market economics will do the rest. No one will build where there is no market. We just want to create a market by removing barriers, and socialize the publicly created land value already out there.In practical terms, skyscrapers are almost dead in this city; that's why Liberty Place is trying to convert to condos.

We're not asking, we're offering our ideas and research. We've done the numbers. Come hear us on Saturday at the Henry George School.

The town that have used our research have said yes or said no. We've even recommended that a LVT city (Coatesville) lose LVT because of bad assessments. We're straight shooters on this.

I will upload several Pittsburgh pieces in the AM. I wrote this at the time of rescission:

After the Sabre Systems reassessment of Allegheny County in 2000, several things should have been done that weren’t. Unlike many jurisdictions around the country that have to deal with an agonizing reappraisal, the new numbers were brought in overnight, with no phase-in to help citizens adjust. There was no independent audit or examination of the numbers. There was no assistance to those jurisdictions using land based property taxation.

Indeed, Allegheny County Executive Roddey has seen fit to disparage the tax policies of the four cities that use land taxation and essentially demanded they stop using a program that has seen lowered taxes for most and economic development – without costly giveaways and sweetheart deals – for all. Roddey’s solution to “archaic” land based property taxes? Get this: more income and sales taxes, as well as more tax on buildings. Yes, always a recipe for urban prosperity

It seems likely that Sabre is running scared because they suspect that they indeed blew it with their land and building splits. The self-evident solution: get rid of anything that would highlight their botch job. This won’t fly; non-land tax Liberty borough has seen such wild variation in land values that mass appeals are in the works. It isn’t the tax, it’s the valuation.

The City of Pittsburgh had to deal with the reassessment with several strikes already against it: the springing of the land and buildings splits with short notice, the fact that school taxes are stupefyingly high and getting higher with reassessment and the reality of a mayoral race between a hungry challenger and an incumbent with some problems. In lunging about for a real issue to define himself, the challenger – or his staff – seized upon the reassessment issue, but only the part he could see himself doing something about: the land based property tax.

Luckily, for the challenger, several high profile areas of Pittsburgh – the comfortable neighborhoods of Squirrel Hill and Shadyside – were struck by oddball and inaccurate assessments. Rather than strike at the root of the problem, the challenger called the land tax the enemy. He also struck a tinny “man of the people” stance, giving no consideration to the reality that the largely poor, working-class and African-American communities would be paying higher tax bills if the land tax were lost. He also triumphantly brayed that the downtown office buildings that have been crowding into Pittsburgh in the last 30 years would pay through the nose without a land tax. Never mind that Pittsburgh’s traditionally business-friendly land tax kept rents low for tenants and productive businesses.

Well, weeping “soccer mom” types are pure eye candy to TV and the papers. It worked. Pittsburgh has lost its land tax for the year 2001. It is possible that it will return if statesmen rule the roost in Pittsburgh, not someone seeing his opportunities and taking them. The incumbent – sensing the problem with a “unified” tax - has at least tried to salve the wounds of the poor by insisting on an exemption of $10,000 on homestead properties. The City Council agreed. Interestingly, this bid to help the powerless never occurred to the “man of the people.” In any case, those that are renters will see their taxes climb with no relief in sight, except for leaving town.

Clairton presents a sane and rational opposite. To be sure, a smaller city than Pittsburgh, but one with problems that would make any Pittsburgher quail. The steel mill has contracted from employing tens of thousands to a few thousand. The downtown Central Business District nearly disappeared with the steel industry. Yet, Clairton, which has also had land taxation for years, did not panic when reassessment occurred.

Clairton took the time to analyze the numbers. Clairton took the time to explore all the options. They realized that if they followed the advice of the County’s assessment whizzes and used the Roddey Reassessment without the land tax, taxes for most homeowners would skyrocket. If the land tax were dropped, those holding vast tracts of vacant land – crucial to the city’s redevelopment efforts - would see their tax levy drop to negligible levels.

So, Clairton’s elected and appointed officials did what the county-level appointed and elected officials could not conceive or imagine: they dropped the building tax down to almost nothing: 1.22 mills. They rocketed the Clairton land tax up to 28 mills. Courage ruled the day. A study indicated that by reducing the building tax, 96% of homeowners - 96% - saw a reduction in property tax. Homeowners saw a permanent reduction, with no mind-bending applications to City Hall, long lines, red tape, or eternal busy signals. So much more efficient than the statewide property tax rebate and certainly an improvement on the jury-rigged exemption that is being proffered in Pittsburgh.

Clairton’s elected and appointed officials checked the facts before they made a move. The tragedy for “the affordable San Francisco” is that Pittsburgh did not.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

LVT is hated by most Randroids.

And loved by some. Ludwig von Mises and Muyrray Rothbard, the twin fathers of modern anti-state Libertarianism excoriated LVT.

LVT is hated by most Marxists, and loved by some. Karl Marx included LVT, but hated the concept as a stand alone. The relational between LVT and socialism is much more complicated. Here's a good example from the days when both ideas were fighting for attention. In fact, some years earlier, the eulogy and remembrance of Marx by Henry George is fascinating.

It's hard to pick and choose what philosophical slot LVT fits into.

LVT was wrecked by the Soviet-backed Bela Kun government in Hungary. LVT was wrecked by the Fascists of Franco's Falange in Barcelona.

If, on a basic level - a roots level - LVT isn't for the poor and those who work, why was Samuel Gompers a pallbearer at the funeral of Henry George? Why did Tom Paine fight for LVT as the mechanism to fund government? I think that has to be answered here, along with an alternative program that has been researched so we can compare numbers.

Missed you all on Saturday, perhaps next time?

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Josh, with your data, do you

Josh, with your data, do you know:

What happens to the taxes of Liberty Place from their current rate? What happens to the much smaller properties on the other side of the street, south and west of it?

I am trying to wrap my mind around this.

Right now, this is the current tax info for Liberty Place:
Land area: 36080 sq feet
Land: $4,100,000
Improvement: 50,300,000
Tax: $4,495,616.00

So, let's assume it is revenue neutral for Liberty Place. That means we are getting 4.495 million from 36080 sq feet, or $124.60 in taxes for each sq foot. (Maybe I am doing this wrong?)

Now, let's go a half block away, to 1701 Chestnut. This is what they pay in property taxes:

Land area: 7986 Ft of land,
Land: $402,774
Improvement: $280,426
Tax: $56,459.65

So, if we instead switched them to the same value as Liberty Place, and the $124.60 in taxes per square feet, their 56k in taxes changes to.... $995,000!

If we did the reverse, and started with the smaller building, we would see a value of about 7 tax dollars a foot. If we instead used that as the norm, and gave it to Liberty Place, their taxes would go from 4.5 million a year to $255,000, or in other words, a break of 4.25 mil per year.

In other words, under one scenario, the small building could not survive, and under the other, skyscraper owners get a huge break. I am choosing extremes here, obviously- Liberty Place versus a Vitamin Store, and the ultimate answer is probably in between.

But, the bottom line as I see it, unless I am missing something, is that 1) the value of Center City land will greatly increase, towards the Liberty Places of the world, meaning the smaller buildings absolutely have to build up, or else cannot survive. Or, 2) the price is more reasonable, and skyscraper owners get a huge windfall, which is sort of annoying.

And if the answer is comprehensive restrictive zoning, well....

You can't build another Liberty Place on 1701 Chestnut Street

Maybe you don't think there is restrictive zoning in Philadelphia, but my very cursory look at the zoning regulations shows that our you can't build a building as big as Liberty Place on this site. There are fairly strict setback requirements on sites designated C-5 which Liberty Place does not meet.

From 14-305 of the City Code:

(.1) Buildings within the basic allowable gross floor area, as provided herein, and three hundred feet or less in height above the average ground level:
(.a) For lots designated class "C-4" Commercial, and not exceeding a floor area ratio (F.A.R.) of five hundred percent (500%) and lots designated class "C-5" Commercial, and not exceeding a floor area ratio of one thousand two hundred percent (1,200%), buildings may occupy one hundred percent (100%) of the lot area for the first sixty-five feet of building height above the average ground level and no more than seventy-five percent (75%) of the lot area for portions of the building above the first sixty-five feet of building height.
(.2) Buildings in excess of the basic allowable gross floor area, as provided herein, (on lots designated class "C-4" Commercial, exceeding a F.A.R. of five hundred percent (500%) and on lots designated class "C-5" Commercial, exceeding a F.A.R. of one thousand two hundred percent (1,200%) and which are over three hundred feet in height above the average ground level:
(.a) From ground level to a point sixty-five feet above the average ground level of the lot, buildings may occupy one hundred percent (100%) of the lot;
(.b) From a point sixty-five feet above the average ground level of the lot, buildings, including mechanical space, shall occupy no more than seventy-five percent (75%) of the lot up to a point three hundred feet in height above the average ground level;
(.c) From three hundred feet above the average ground level of the lot, buildings, including mechanical space, shall occupy no more than fifty percent (50%) of the lot up to a point five hundred feet in height above the average ground level, or buildings, including mechanical space, over three hundred feet but less than five hundred feet in height above the average ground level may be constructed so that the average lot coverage of the building above a point sixty-five feet above the average ground level of the lot, shall not exceed sixty percent (60%) of the lot;
(.d) From five hundred feet above the average ground level of the lot, buildings, including mechanical space, shall occupy no more than forty percent (40%) of the lot up to a point seven hundred feet in height above the average ground level, or buildings, including mechanical space, over five hundred feet but less than seven hundred feet in height above the average ground level may be constructed so that the average lot coverage of the building above a point sixty-five feet above the average ground level of the lot, shall not exceed fifty percent (50%) of the lot;

I don't have time to figure out the details, but while you can build a big building on the site, with the setback requirements it would not have the bulk of Liberty Place. And thus, given these restrictions, the land would not be as valuable as the land under Liberty Place.

And, had you chosen the South side of Chestnut Street, the restrictions are much tougher. Because of the Center City Special Commercial Controls There are restrictsion on height and also on the width of buildings that don't apply on the North side. It's possible that the

Would it be so awful if a larger building replaced the one currently 1701? I don't see why. I've often wondered why more buildings were not taller on Chestnut Street. I'd have trouble with streets South of Chestnut getting much taller but not necessarily on Chestnut Street itself.

At any rate, the broader point is that your utter scepticism about zoning is unwarranted. Philadelphia already restricts development through zoning controls and could do an even better job of it in the future under LVT.

And there are other ways to protect low income uses

I'm not a big fan of urban malls, but they do have their place. And one is to provide an opportunity for lower income businesses to survive as property values go up. The mall in Liberty Place is an example.

Thirty years agos, some of food places in the mall might have been able to rent the ground floor of a building. Now they have what is in effect a take-out stand and share tables with the others take-out places. The same is true of the food court at the Bellevue.

Much the same could be said for some of the shops. Is a Ritz Camera in an urban mall on Chestnut Street worse than a Ritz Camera on the street?

There are probably ways to make these spaces more available to a variety of low income businesses. For example, zoning bonuses of certain kinds could be offered for developers that create commercial rental spaces whose rent is required to be at, say, a certain percentage of the median commercial rents in Center City.

This would be personal taste....

Much the same could be said for some of the shops. Is a Ritz Camera in an urban mall on Chestnut Street worse than a Ritz Camera on the street?

Yes.

Um

I chose extremes. But, yes, you could still build a very big building.

There is nothing inherently wrong about big buildings. But, if this would mean more homogenize of size in Center City, we should at least note that?

At any rate, the broader point is that your utter scepticism about zoning is unwarranted. Philadelphia already restricts development through zoning controls and could do an even better job of it in the future under LVT.

When you put it that way, I am convinced.

How about an argument, Dan

Actually there is something inherently wrong with big buildings if they are in the wrong places in Center City. The north side of Chestnut Street probably isn't one of those places. But really big buildings on Walnut Street and building bigger than currently found on Locust and Spruce Streets would really damage the city.

It would be nice to know why you don't think zoning cannot, and for that matter, is not already protecting those blocks. Do you really think that the only reason developers have not been eager to build more high rise apartment buildings on those streets is that their real estate taxes are low?

You express scepticism, but I have to wonder if you have ever actually looked at the zoning code and seen how restrictive it already is.

Setting aside how the zoning process works

E.g. the current reliance on/proliferation of variances, and the fact that we are in the middle of a wholesale rewriting...

What I don't get (and yeah, I know, consistency is the hobgoblin of small minds and all that) is how the acceptance or use of restrictive zoning as the method to ensure diversity of uses squares with the whole purpose of the LVT. That makes no sense to me: you are giving up much of the whole point of what you are proposing.

You need to see the grey

Tending a city is not all black and white. It's not a matter of being pro or anti development; pro or anti gentrification; pro or anti taxing rich people. It's not about finding the one policy---cutting business taxes or instituting an LVT--that will save teh city.

It's an oversimplified either / or approach that gave us the disasters of mid-twentieth century urban planning.

Tending a city is a a matter of using the variety of tools a city has to shape development and change in ways that serve a number of different goals: housing for all, jobs for all, a thriving street life with a diversity of providers of all kinds of goods and services, high and low culture, sufficient tax revenues that enable us to provide good schools, transit and other public goods and services for everyone and many other things.

So we need good zoning whatever tax system we use. Development in the city is shaped by the zoning code now.

And, we want to set up market incentives with, among other things, good tax system, that encourage development and redevelopment of properties within the zoning plan. We want empty valuable lots filled in. We want parking lots replaced by buildings (with garages if necessary.) We don't just want to create a paper grid on the waterfront we want a real grid with real buildings.

The point of zoning, taxation, and other tools is to make sure that this development occurs within a plan that creates a vibrant, exciting and just city. There is plenty of room in this city for good development that meets a good zoning plan. It's hard to talk about everything all at once but I think I've made it clear that I think LVT is a good idea, not alone, but in the context of other good public policies some of which--zoning, inclusionary housing, transit oriented developmnt, other tax changes like exempting small businesses for the GRT--I've mentioned before.

I've written elsewhere about how the politics of cities requires, more than anything else, what Aristotle called phronesis, good judgement in particular cases that aims to find a way to attain multiple goods. It's not about large scale ideas that are meant to solve all our problems in one fell swoop.

Sometimes LVT is presented as if it were a single bullet. Certainly it is caricatured in those terms. But that's not how Josh and others who support LVT in Philadelphia has ever presented it.

LVT is a tool

It's part of the toolbox that all cities need. LVT in the foreseeable future cannot have these sea change effects. That happens in places like Australia or Hong Kong. Pittsburgh was a success, but it was much much more of a success when the city tax was larger than the school tax. The school district there never had LVT, and it showed.

One overriding reality of LVT is that it is subservient to the many limitations on the "bundle of rights" that is land and property ownership. Zoning, planning and easement all chip away at what the market might bear. That's an important difference.

All a LVT can promise is revenue stability and encourage appropriate development. It is meant to be a neutral tax, that is to say to have no impact on peoples' economic decisions.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Liberty Place

Scratch that first draft! Refer to the other later post. Mea Culpa

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Liberty Place

Like many of us, the first thing I notice about Liberty Place is the down-assessment of the building throughout the real estate boom. This may be the function of its transition from empty offices to full condos (going from income methods of value to imputed residential value), but still:

Year Market Value Assessed Land (Taxable) Assessed Improvement (Taxable) Total Assessment Gross Tax
2009 $170,000,000 $4,100,000 $50,300,000 $54,400,000 $4,495,616.00
2008 $170,000,000 $4,100,000 $50,300,000 $54,400,000 $4,495,616.00
2007 $170,000,000 $4,100,000 $50,300,000 $54,400,000 $4,495,616.00
2006 $170,000,000 $4,100,000 $50,300,000 $54,400,000 $4,495,616.00
2005 $172,000,000 $4,100,608 $50,939,392 $55,040,000 $4,548,505.60
2004 $180,000,000 $4,100,608 $53,499,392 $57,600,000 $4,760,064.00
2003 $201,000,000 $4,100,608 $60,219,392 $64,320,000 $5,315,404.80

Legally, property taxes are based ad valorem or "to the value." In 2004, When Kevin Gillen wrote a study that said LVT was bad and terrible, he based his tax numbers on square footage, which is not the legal basis for tax, so his study was fundamentally flawed.

Anyway, we are not doing anything with the values. We are applying different tax rates to the values that exist (for better or worse). We have to live with whatever the government provides us, and when it comes to Center City commercial values, shenanigans galore exist.

1701 Chestnut is actually 1701 to 1705 Chestnut. In 1998 - long before the boom - the sales price was $18,750,000. Yet, it is assessed at 3.64% of its sales price from 10 years ago! They've been skating for years.\I hate being tangential, but I feel I have to. I bet this parcel used to be a big building, and I bet the hope of the NYC owner is that conditions will someday ripen so that they may tear down that whole strip and put up a skyscraper. These buildings, while serving the tenants in the surrounding Liberty Place ar classic "transitional" uses.

Back to tax:
I pulled the numbers on both properties. I used the LVT rates using the current Philadelphia tax rate (in other words not using our proposal given the Mayor's budget, which is still way up in the air).
Here's what I found, all details included. Let me know if this helps, or if more information is needed.

I don't like to cherry pick, since most tax policy discussion doesn't take place in that context. But, Dan's concerns deserve an answer. Theoretically, I know that those shops make their money from the proximity of people,Liberty Place being paramount as a source of those customers. That's why it is worth it for NYC owners to have bought that strip for such a high price.If those shops were at 5th sand Diamond, they'd be closed up tight.

Is it bad to reduce the tax on Liberty Place? Given their investment and work at providing a place for tenants and support staff, I say yes as they are not being granted a privilege like an abatement.

Is it bad to increase the tax on 1701 to 1705 Chestnut? First, I realize that I have to get away from the fact that they have been underpaying for years (but certainly not providing correspondingly lower rents to tenants. That's a bad valuation, paid for by poorer areas that are over-assessed, but its the system that is used by government, more's the pity.

So, using this example, those shops increase about $28K a year. That's about $5,600 a year. Yet, they make money because of their proximity to people. Location, location, location. A land value tax is also much harder to pass on to a tenant.

Now, skyscrapers are supposed by some to be an expression of something bad. I don't understand that. I think they are a good use of space, and an efficient and economically beneficial thing, if they are not exempted from proper taxation.

I appreciate Dan's serious questions, and will endeavor to answer them as quickly and completely as I can.

By the way, the new assessments are out there somewhere. any ideas on who has them and when they will be leaked out?

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

While you're busy being wrong about economics

you're also wrong about me and taxes, Marc.

I support raising business and personal taxes at the federal level now, and I always have.

So you're conveniently misrepresenting my position (um, as you've done in the past) in this argument.

you are overthinking this

This is much simpler than you are all trying to make it, and you don't need all of the fancy studies. The only obstacle that ever meant anything to developers was the extraordinary cost of development in the City. Until the boom reached Philly to the level that you could sell for a high enough price to create a margin over the cost, no developer would come. The Abatement allowed a higher price, and brought us to that critical "tipping point" sooner. Now that values have dropped below the costs, building will stop until prices return. Eliminating the abatement will only delay the return.

While the City process (L&I, etc.) is challenging, it is worth dealing with if you can make money.

So, if I get you right

The only obstacle that ever meant anything to developers was the extraordinary cost of development in the City.

You're saying that because of tax incentives, builders would have built housing regardless of whether there was a market for what they developed? And you're also saying that increased demand had no effect on the prices builders could put on what they built - so as to offset the cost of building?

you obviously don't "get me right."

What I am saying is that the demand and market rose to the level that you could charge enough to make money building houses. However, the abatement added value on top of the demand, so we crossed the threshold of money making sooner. At the top of the market, it would have done fine without the abatement. The boom started earlier that demand alone would have allowed because of the added value of the abatement. Likewise, any recovery will start sooner with the abatement than without.

My point is, Ogie

That there may have been many factors which added value on top of the demand. Proximity to a vibrant city. Good housing stock with attractive features available at lower prices than in other urban environments. Cool neighborhoods with historically significant buildings and provenance. Proximity to New York. Opportunities for people who want to live close to family already living in the area. Trend of increased desire to live in a urban environment.

The study uses abatements, only, without any consideration of any of those other variables, to explain the increased growth in City housing permits as compared to suburban housing permits. And so, apparently, do you when you said that "the only obstacles that ever meant anything....." I don't think that makes a whole lotta sense. That's not to say that abatements had no impact - only to say that your assumption that abatements is the only relevant factor makes the same mistake as the conclusions in the study. If you're modifying your earlier statement to say that abatements was one of a variety of factors that contributed to increased construction, but it's very difficult to quantify how much those different factors contributed, then I'd agree with you.

I don't know if it's overthinking

But last week on WHYY's Radio Times Kevin Gillen of Econsult was debating the merits of tax abatements with Jonathan Stein. Gillen stated very clearly that the purpose of the abatement was to offset the high cost of construction in Philadelphia, which leads one to wonder . . . isn't the tax abatement just another bone to entice people to accept things the way they are rather than address some of the crazy construction/labor entitlements that make building in this city not only expensive but rather unpleasant?

Having gone through an experience with building a school in this city and dealing with some of the horrible experiences we had as a relatively small outfit, I can't imagine what developers go through to rehab or build larger projects. Rather than boast that abatements have been responsible for 2/3 of building in the city (vastly overstated), I wonder how much business is lost because of the refusal of most others to contend with the building environment locally.

Nice job on the radio today, Helen

Pretty soon WHYY is going to just devote all of their local programming to interviewing you.

Uh oh

Wouldn't want to have a listener-funded campaign based on that! But thanks.

The Threat to Us All From PVC pipes

How about the fact that Philadelphia is just about the last place in the world to not allow the use of PVC?

http://philadelphia.bizjournals.com/philadelphia/stories/2009/01/19/stor...

And, Econsult largely confirmed that abatements

are used to off-set lunacy like that. Imagine being a green building forced to install copper pipes you'll never use just to get the go ahead to move forward. And that's for a major project. That kind of abuse is rained down upon large and small developments all over the city. The City looks the other way, and offers abatements to pacify developers. Meanwhile, another possible alternative (or concurrent process) - even if it's an "old struggle" - would be to establish some sense of building ethics and process so we ensure fair wages and conditions for workers but particular unions don't just run the show.

But those pipes will release toxic gasses

when they spontaneously catch on fire 3 feet underneath the ground and pavement.
Don't you know that, Dan?

FWIW, The PVC is for drain pipes, so the alternative is cast iron which used to be joined with oakem and molten lead (a serious skill challenge for DIY-ers) but now sections of cast iron pipe are joined by big rubber gaskets which which take even less skill than PVC to put together. Plus the rubber gaskets are a mechanical connection prone to failure when the little metal band that tightens the rubber gasket on rusts and fails as they innevitably do. So the final result is many many times more expensive in terms of material, takes no skill to install, but much much more prone to failure.

The future for supply pipes is PEX BTW, modular and cheap, as easy to get to just about anywhere as electrical wires - which is legal in the Philadelphia building code currently.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

It's about jobs.

Back when I used to blog, the subject of tax abatements was one of my pet issues that have toyed with for a couple of years now. So, I can't help but chime in despite my self-imposed moratorium.

As a policy, the tax abatement's purpose was to create jobs. Not create condos, or lure yuppies or empty nesters. It was to create construction jobs. In all the hyperbolic and largely misinformed rhetoric about the fairness of the abatement and what not that has developed over the last couple of months, folks have seemed to have forgotten this underlying premise.

I don't buy the whole fairness critique of the abatement as it's pretty clear to me that the tax abatement is more about tax shifting (it results in a larger purchase price so while the City collects less in yearly property tax, the City collects significantly more on the transfer tax as a result of inflated property values) than about tax reducing.

But I do buy the argument that the tax abatement has failed because it has not done a good job addressing its original purpose - the creation of jobs.

In my opinion, the tax abatement policy fails because it creates bad, low-skilled jobs. As I discussed ad nauseum over at the now shut down Phillyville, the present, configured incentivizes cheap, shoddy construction. For years now, I've lampooned it as the "architectural-tear-down tax credit."

By reconfiguring the abatement to be based on a LEED rating, it would fix this problem by creating incentives for high-skilled jobs that would create greater security for construction workers. To quote a post from TBFKAP* I wrote a long while back:

Tonight, during his speech to the Urban Sustainability Forum at the Academy of Natural Sciences, Mark Alan Hughes provided the most succinct definition of sustainability I've ever heard that does not require a background in Economics to understand. He also prefaced his summary of the task ahead of him by reciting the various truisms of the green movement. Not surprisingly, he acknowledged in his preface the oft-repeated phrase, "the greenest building is the one that is already built."

All of which is a long way of getting to my point - why isn't anyone talking about the 10-Year Tax Abatement?

The hardest thing to do is to doubt your own success. And arguably, the 10-year Tax Abatement is the most successful city policy of the last 25 years. And despite all that, it needs to go.

And it really needs to go if Mayor Nutter wants to accomplish his goal of making Philadelphia the greenest city in America.

The 10-year Tax Abatement needs to go because it's not sustainable. It's the antithesis of "green." It's anathema to the commitment to meet our present needs without constraining the ability of future generations to meet their needs, which by the way is Dr. Hughes's definition of sustainability.

As then Candidate Nutter wrote in his Plan for Better Housing Now, "One of Philadelphia’s advantages among large U.S. cities is our large stock of historic, high-density, and well-located housing." As some other candidate for some fictional office wrote, "instead of locally-crafted wrought iron and copper sheathing, we install built-in-somewhere-else, pre-fab garage doors."

To which, nearly two years later, I'd like to add that by shipping in all that pre-fab crap we also increase our collective carbon footprint by several orders of magnitude. Not to mention, all of that old growth pine that that turn-of-the-century Philadelphians used as studs gets gutted and tossed in the local landfill - or worse - shipped to some Lou DeNaples landfill somewhere up in Scranton courtesy of some no-bid NTI contract.

Now I'm not saying that Philadelphia should not provide tax incentives for construction projects. I'm just saying that we should only provide tax incentives for the right kind of construction projects.

And by right kind of construction projects, I mean those that are sustainable. Those that create the right kind of jobs here in Philadelphia. And, fortunately the U.S. Green Building Council has already provided us a handy, dandy metric for measuring the right kind of construction projects - LEED.

I'd rather not get into all the details because, after all, this is just a blog. Boiled down to basics, if I was to rejigger the whole abatement the basic structure would look something like this:

Platinum buildings would receive a 100% abatement.
Gold buildings would receive a 75% abatement.
Silver would get a 50% abatement.
Certified would get a 25% abatement.

Basing the tax abatement upon LEED certification would incentivize new construction AND the preservation of the existing housing stock that creates the sense of place that defines Philadelphia.

And not only would a LEED-based abatement reduce the incentive to rely on low-skilled construction labor, another positive externality would be to increase demand for locally-made products. A building's final LEED score roughly approximates the overall carbon footprint of associated with the construction and subsequent operation of the building. And because locally-crafted wrought iron has a lower carbon footprint than built-in-somewhere-else, pre-fab garage doors, a LEED-based abatement would cause builders to choose local products made by Philadelphians.

And if Philadelphia is ever going to be really sustainable in not just the "green" kinda way, we really need to get back into that whole locally-made-products business.

And, not to mention, having a tax abatement based upon LEED score would be a damn fine way to get around that whole constitutional issue associated with local preferences.

Disclosure: Mandel for Controller, Campaign Manager.

Econsult is LAW!

The absurdity is that a developer funded study on a developer perk is accepted as fact by any legislator. Where is the critical eye here folks!

The Econsult study makes the crazy correlation = causation claim based on a chart on page 41 of their report comparing suburbs development to Philadelphia. There are a few differences in those markets (maybe those differences were the real reason).

I also heard something about an unprecedented real estate bubble. Maybe that was the real cause?

This seems most likely because even though the abatement continues, development as the BIA will tell you has "fallen off a cliff"; I don't get it - didn't the abatement alone cause 2/3 of development? If so shouldn't development be still at the 2/3 level?

Nevermind, Econsult is the LAW!

Since Council is looking to contract with Econsult

it goes to show you the lack of brain trust in Philly around this area of analysis (no offense to lots of great brains here).

And the irony about the jobs issue

is the open-ended question left by Gillen about whether we have a construction industry notorious for its phenomenal PR campaign to turn folks off to building in Philly. So we employ tactics like tax abatements to make the unpleasantness of building here barely palatable.

LEED is a huge mistake

I'll guess that most of the people pushing for LEED certification as a requirement have never actually built a LEED project. First, you are not certified until after, so I am not sure how you are supposed to determine the financial viablity of a project without knowing you will have an abatement. You can't use it as a marketing tool with buyers, because you can't represent an abatement with any certainty. It almost completely defeats the purpose.

Secondly, the process of getting certified is onerous and expensive. The only extra jobs it will create is for the consultants who navigate the forms and submittals for you.

Couldn't have said it better, Sam

The whole notion of assessing land without regard to the improvements on it, just seems absurd to me. Presumably in arriving at the value of one piece of land, while pretending there's nothing on it, the value of improvements on nearby properties does get assessed in some way for comparison purposes. So the fact that improvements have value is recognized on every parcel of land unless it's the one being assessed, and then no.

On the other hand, if improvements on neighboring properties are not assessed for comparison purposes, then there is no rational basis of any kind for assessing anything. And that's the truth about LVT imho.

Assertions are fun..

...and you may believe it to be absurd, but you will then have to lead a revolution against established practice of a century or more on how to value property: value first as if vacant, then figure out the building. It's SOP, it's how appraisal and assessing is taught, and no one can get around that unless you blow up the whole system and start over or remove property taxes altogether, thereby following in the steps of Howard Jarvis and Prop 13.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

I thought it was you wanting to blow up the whole system

not me. I do confess, though, to not being a student of the fine art of real estate assessment. But it troubles me that only experts may be capable of critically determining what's a fair assessment or not. And experts are always for sale, and even when honest, which lots of them undoubtedly are, you can find experts on every side of every question.

I do hope that you can explain to us regular folk out there how you can assure that any two given assessors will arrive at the same value for any particular parcel of improved land, while imagining that it is unimproved.

That something seems absurd to you

may say more about you than about what you are thinking about.

My failure to understand how the Benjamin Franklin Bridge stands up is no argument that it doesn't.

Large cities all over the world use the LVT and no one complains that it is harder to estimate the value of land than buildings.

Indeed many jurisdictions that use a real property tax, including Philadelphia, place a separate valuation on land and buildings. Because we already have that data Josh can tell us the impact of a shift from a property tax to an lvt on different neighborhoods.

All these valuations are difficult but not impossible for people with training and an SOP. Vacant land or land that is sold just for the land (with the building on it torn down and replaced by something else) can be found in most areas of the any city. So there usually some point of comparison of the value of land sans buildings. We can, of course, also come up with an estimate of the value of land by looking at sales prices for land and buildings and then subtract our estimate of the cost of the building.

It is easier when unbuilt land is sold somewhere in a neighborhood or land is sold and the the building is replaced. Then estimating the value of land throughout a neighborhood becomes much easier than estimating the value of land and buildings for this reason: the quality of a building and its state of repair is hard to estimate. Can you really tell from a cursory examination how well built a building is and its state of repair? No. But the size and location of a piece of land is there for everyone to see.

So a land values are actually easier to determine than real property values that include land and buildings.

We know that inequities arise and that they are skewed to the advantage of the rich. That happanes now. It presumably will happen under an LVT as well. Since it is not going to change, that is no reason to oppose the LVT.

Still

None of us (except that one guy) has really crunched the numbers, so let's just assume that it'd be fair on the residential neighborhood end (that is, uniformly poor neighborhoods would pay less or their taxes would stay low).

I still haven't heard an adequate response to the concern that this system would necessarily homogenize areas of the city. It's somewhat misleading to just say 'incentivize' in this context--what we are talking about is making some uses simply not economically viable in land-valuable areas of the city.

Now, tax and regulatory regimes that limit or supress development are surely a problem. We have some of that here on the regulatory side, which is plagued by various inefficiencies. And there places where Philadelphia's 'diversity' in uses is a sign of underdevelopment--the famous nice block next to half-vacant and degraded block thing.

But we are not just talking about lifting those limits. We are talking about making it impossible (without a whole bunch of restrictive zoning, which begs the problem we are trying to fix) to do anything but use land to produce at least enough revenue to support a tax based on the potential value of land in a particular area. There are a whole range of definitions of valuable use that do not produce money-value sufficient to pay this kind of tax. I fail to see how the result isn't homogenization.

Manhattan's been invoked in this conversation based on the fact that land is so expensive there it has to incline towards the most money-productive uses. This evolution has certainly not been all positive, with many people decrying the loss of real street-level diversity, both commercial and residential. And specifically with lower Manhattan, we've seen in the past couple years real cartwheel-turning to try to get back some of the vibrant mixed uses that had been lost.

Protecting Mixed Uses

I think the real answer is what I've been saying the real answer is all along: good zoning regulation. I don't think you or Dan have explained why that won't work.

The threat to a diversity of uses arises when high land values force owners to tear down low rise building and replace them with high rise buildings and / or dramatically raise rents.

One reason zoning will work in Philly is that we pretty clearly want to preserve low rise buildings in Center City. So long as we do that by zoning rules--and the existing rules already do that--the land value and taxes under those buildings will be kep relatively low, which means that existing buildings will surive and rents will remain reasonable.

Why do you think that is not sufficient protection?

As for Lower Manhattan, the area I know best, Tribeca, is far more diverese than it was 25 years ago when there was on supermarket, one restaurant in a mostly commercial / distribution area. Most, but not all of the food and egg distributors have left for other locations that serve them just as well. In the meantime, there are hardware stories, clothign stores, restaurants, places to hear music, banks and all sorts of other uses within walking distance to Wall Street, City Hall, and the Tweed Courthouse. This strikes me as a model of good urban re-development.

Do we have a good zoning

Do we have a good zoning process that I am unaware of?

Second, I think you are underestimating how tough it will become to restrict future uses of a property. If I own a three or four story property right now, I have reasonable investment backed expectations that, should I want to, I could sell the property to developer x, y or z.

I think a parcel by parcel decision on restrictive zoning would be vehemently opposed (read: lawsuits), and a total mess.

And, no, I don't think the existing zoning rules do that.

Basic zoning principles

It's not at all desirable to rely heavily on very restrictive zoning. Just a couple general reasons/principles:

People do not like, and in fact will sue, if you try to impose a whole bunch of new limits on their use of property. Existing zoning regimes certainly do it to an extent (it's the essence of zoning), but it's more of a necessary evil and generally is done along neighborhood/district lines. It would be phenomenally messier to try to force mixed uses* by limiting the use of particular plots in the midst of other, not-limited plots. That kind of zoning is also currently legally disfavored and can be hard to defend.

Like I did say before, you are creating the same problem that arguably LVT helps you evade: artificially limiting the creation of value. It is a big jump from me saying, "I would be opposed to a regime that makes it impossible to have lower-income-producing uses," to saying, "I want to require those lower-income-producing uses."

Right now, the deli or community center could be part of the footprint of the next Comcast Center, but doesn't have to be. Both are possible. Using zoning in this way would mean that either one possibility could exist or the other, not both. I think too much is lost in that tradeoff, even making what--as Dan notes--is a big jump, that this restrictive zoning would be possible.

*I've been generally using 'mixed uses' in this context as referring to higher- and lower-income-producing uses, rather than the conventional reference to mixed commercial and residential. That kind of mix is much easier to achieve though various zoning mechanisms.

You are missing the remedy

I don't think we can or should force mixed use in the sene of higher and lower return businesses on a paricular plot of land, through the zoning process. And I don't think we need to micro-manage parcel by parcel zoning.

We can, and do, however, limit the size and density of development. And that has the indirect effect of eliminating the problem you are worried about: creating incentives for maximal return on every piece of land in Center City.

Right now we do it through a process that is crazy: you pretty much cannot build anything in this city without a variance. As a result we limit a lot of development.

If, say, someone, say, wanted to put up a row of skyscrapers above the RR tracks from the river to 17th street, they would need a massive zoning variance and, most likely, a city ordinance to do so.

And they would never get it because people in the town houses and the apartment buildings would scream bloody murder and the head of the neighborhood association and the 1st district council members would not introduce such a bill or support such a variance even if the Governor of the state yelled at both of them for an hour on the phone.

I hope that we will get a much better zoning process soon which incorporates the really good plan of CCRA, which sets reasonable size and density limits of the kind we need. The CCRA was very concerned with mixed use and maintaining a wide variety businesses because they represent residents who needs those businesses.

Zoning regulations will not be parcel by parcel but they will define areas on each block where different sized development will be allowed; will require that all residential development provide parking spaces or room for car share; that all new buildings maintain the street line and create commercial spaces along that line; that properties get density bonuses if they provide community spaces of various kinds; and so forth.

There is nothing fancy about this or anything that can be challenged in the courts. This is what happens in every reasonably governed city in America.

I think it will happen in Philadelphia because residents in Center City and developers both want it in order to protect against haphazard development that undermines both commercial and residential development. Some landowners may not want because they are thinking about future prospects. But with the current non-system, landowners have no good idea about what might happen in the future. While some individual landowners might cavil at a particular zoning provision, those who own a lot of land in Center City will appreciate the regular process created by sensible zoning.

I share your concerns to the extent that I think we should introduce LVT slowly and perhaps not move fully to it until new zoning for center city is established. But I don't think you have put forward any reason to think that this can't work in Philly. And we need this zoning in Center City whether we move to LVT or not. Under our current tax system bad development can and does happen all the time.

I am not sure this can work in the way you're implying

Zoning regulations will not be parcel by parcel but they will define areas on each block where different sized development will be allowed

I still think that the drive would be towards homogenization within areas of the city, and greater segregation of income levels.

Why not?

I've seen lots of zoning documents and taken part in planning meetings in Mt. Airy ultimately aimed at revising zoning.

In my experience, this is how it is done.

For example, in Mt. Airy we would expect higher density and larger buildings close to train stations and Germantown Avenue with higher buildings at major intersections on Germantown Avenue and lower ones mid-block. . We are zoned for Rowhouses in two or three blocks off the avenue; There are some blocks and corners which are zoned for commerce even on these residential blocksa little further out we are zoned for twins and single family houses.

I don't see why we can't do this in Center City. That is what is in the CCRA master plan which is a pretty typical zoning document.

I want to transition

Not blow up.

In any case, the profession's legal standards and what the law requires for valuation are big established things. None of us here have anything to do with it.

I don't have to provide you with chapter and verse on assessment. I spent a lot of time -months - explaining my position, which I am happy to do on an ongoing basis. I hope I getBrownie points for giving myposts a break on here for weeks at a time.

Go and look up how assessments are done - they are on most government web sites - and tell me what you find. If its essentially different from what I have said, I'll happily say sorry, and I will help bring Prop 13 to Philadelphia.

Your use of the word "imagine" is funny, though, I have to admit.

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Monopoly and the LVT

It turns out the the board game monopoly goes back to a game invented by a "Quaker woman named Elizabeth (Lizzie) J. Magie Phillips created a game through which she hoped to be able to explain the single tax theory of Henry George."

How cool is that?

http://en.wikipedia.org/wiki/Monopoly_(game)

Monopoly

The world's greatest living expert on that subject happens to be Richard Biddle, Director of Education at the Henry George School on s. 10th street. "History Detectives" on PBS did a good show on how the game was essentially stolen by Parker Brothers to make into a "greed is Good" game rather than an idealistic teaching tool.
http://www.pbs.org/opb/historydetectives/pdf/202_monopoly.pdf

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

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