This post on land banks and land value tax seems to be catching some attention, so let’s keep going with it.
One of the core concepts in the economics of taxes is that if you tax something, you’ll get less of it.
Philadelphia wants less vacant land. We also want less speculation – the practice of monopolizing properties but waiting to (re)develop them until rents go higher.
Since the question of how to pay for Philadelphia’s land bank is up for debate, I submit that the best possible pay-for is a tax on the value of unimproved land. If we’re going to raise some money for our efforts to combat vacancy, the best way to do it is with a direct tax on vacancy.
That’s your ~30,000 privately-owned vacant lots, your surface parking lots, your auto dealerships, and your strip malls, mostly.
This would likely* require state enabling legislation, since the state of Pennsylvania currently only allows 2nd Class cities (Pittsburgh), 2nd Class A cities (Scranton), 3rd Class cities, Boroughs, Home Rule jurisdictions, and school districts precisely coterminous with 3rd Class cities, to split their real estate taxes out into land and buildings. I’ve heard that Brian Sims’s office has taken an interest in this issue, so perhaps we can persuade some other members to get on board too.
A second best option that we wouldn’t have to go to the state for would be a surtax on stormwater bills. Philadelphia has a progressive stormwater pricing policy where buildings covering most of the lot get a break on their stormwater bills, and properties with large impermeable surfaces, like surface parking lots, pay more. Piggybacking an additional surtax on stormwater bills could mimic the effects of a vacant land tax, since the distribution would favor infill development of underutilized parcels.
The only trouble with the stormwater surtax kludge would be that grassy vacant lots are permeable surfaces, and thus would not end up paying a sufficient share for the land bank. Excellent as the Water Department’s pricing model is, this is a real blindspot, since I’ve been informed that the rainfall on grassy vacant lots often goes pouring into neighboring houses’ basements during heavy storms. That cost really should be priced into vacant lot owners’ stormwater bills, and the real-deal unimproved land value tax I’m offering as the first-best land bank funding option would get the job done.
*I say likely because when Jonathan Saidel was Controller, he got an opinion concurring with Mayor Goode’s 1988 Law Department statement that because Philadelphia is a Home Rule jurisdiction, a split-rate real estate tax may not require state enabling legislation. I’ll leave it to our lawyer friends to answer that question, but just to be safe I’d like to see the state enabling legislation passed anyway.