Historic Property Tax Credit: Layering Good Stuff On Top of Crap

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This historic property reinvestment tax break is cool I guess, but the reason PA’s urban areas are suffering from underinvestment is that the state’s urban policy is complete garbage, not because people aren’t getting enough tax breaks.

The biggest issue is the state’s municipal finance policy. Other states have County-level tax bases, so outmigration to the suburbs hasn’t hit urban tax bases as hard in those places. PA and other “little box” government states in the northeast aren’t like that. When wealthier people move from cities to the suburbs, their earned income taxes go with them, and cities alone are on the hook for the legacy costs of aging infrastructure, older workforces and pensions, lower-income residents who need more government services, etc. The pain is not getting shared fairly within regions.

This allows suburban areas to boast lower tax rates, especially property tax rates, since they rely more on earned income taxes. They’re able to do this because their residents earn more on average.

Cities, by contrast, have fewer earned income tax-paying residents, so they have to rely more on property taxes to fund government services. Because millage rates are higher in cities than suburbs, you see more real estate investment in the suburbs than in the cities.

It’s not the only reason of course, but the lack of regional tax bases is one important way that state municipal finance policy makes things unduly hard for older core cities.

Another issue is that PennDOT is also overly focused on building new highway capacity and boondoggles, and does far too little to reinvest in maintenance of existing developed areas. If most of PennDOT’s budget went toward improving multimodal mobility within the largest metros, more private investment in cities would follow.

At the local level, cities hurt themselves by taxing building value instead of land value. You like a tax abatement for historic property improvements? How about a tax abatement for all property improvements? Cities would see more investment if they’d shift their tax bases away from property improvements (assessed building value), and only taxed the land – the speculative portion of a parcel’s value. Funding public services with a land value tax would remove disincentives to improve properties, while turning up the heat on blighted property owners.

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