The massive shutdown of K–12 schools sparked by the COVID-19 pandemic has no precedent in U.S. history. By the end of the 2019–2020 school year, at least 50.8 million public school students had been affected by school closures (Education Week 2020). Although schools closed during the 1918 influenza pandemic, fewer children attended school then and schools were not as integral to daily life (Sawchuk 2020). This time, almost overnight, the national education system shifted dramatically. Teachers were required to adapt lessons to virtual meeting platforms. The forced rapid transition to online methods led to learning loss or unfinished learning for many students. The pandemic exacerbated existing disparities and created new challenges for students of color, English language learners, and students with disabilities.
The pandemic also sparked a temporary shift in national education funding as the country experienced one of the deepest economic downturns in its history. Vigorous federal fiscal policy helped make it the shortest recession in the country’s history as well, and as part of this economic rescue effort, Congress funneled hundreds of billions of dollars to education. These funds came via the March 2020 CARES Act; a second infusion sent to state and local governments in December 2020; and the American Rescue Plan Act of March 2021, which contained another $350 billion for state and local governments plus about $130 billion specifically for K–12 education. Altogether in the first year of the pandemic, the federal government provided an unprecedented amount of aid for public K–12 education, equivalent to about $4,000 per student (Griffith 2021).
Although this lessened the fiscal impact of the pandemic in the near term, it did not permanently alter the federal government’s traditionally modest role in funding K–12 education. Public schools are typically supported by a combination of state aid and local funding. The property tax has been the single largest source of local revenue for schools in the United States, reflecting a strong culture of local control and a preference for local provision.
An Ideal Local Funding Source
Property taxation and school funding are closely linked in the United States. In 2018–2019, public education revenue totaled $771 billion. Nearly half (47 percent) came from state governments, slightly less than half (45 percent) from local government sources, and a modest share (8 percent) from the federal government. Of the local revenue, about 36 percent came from property taxes. The remaining 8.9 percent was generated from other taxes; fees and charges for things like school lunches and athletic events; and contributions from individuals, organizations, or businesses.
In many ways, the property tax is an ideal local tax for funding public education. In a well-structured property tax system, without complex or confusing property tax limitations, the tax is both visible and transparent. Voters considering a local expenditure, such as for a new elementary school, will have clear information on benefits and costs. The property tax base is immobile; by contrast, shoppers can easily avoid a local sales tax by driving a few miles and businesses can avoid liability for local income taxes by relocating office headquarters.
The property tax is also a stable tax, as evidenced by its performance relative to the sales tax and income tax each time the economy falls into a recession. Since state governments rely predominantly on sales and income taxes, states often cut aid to schools in recessions in order to balance their budgets. This means that in most recessions public schools increase their reliance on property tax revenues to make up for declining state school aid (see figure 1).
But the property tax as a source of school funding has not been without controversy. In the 1970s, public recognition that disparities in the relative size of local tax bases can lead to differences in the level and quality of public services ignited a national debate about the importance of equal access to educational opportunity. As the single largest source of local revenue, the property tax became the main target in this debate, giving rise to proposals that sought to reduce schools’ reliance on local property taxes and increase the state share of education spending to mitigate educational disparities. Between 1976 and 1981, the local property tax share of national education revenues declined from approximately 40 percent to 35 percent (McGuire, Papke, and Reschovsky 2015). But in the three decades since, the role of the local property tax in school funding has remained remarkably stable, never deviating much from that 35 percent.
In recent years, increased public concern about rising inequality has amplified the debate about ensuring equal access to educational opportunities and adequate funding to address the needs of all students, especially those in traditionally disadvantaged groups. Some suggest that an increase in state aid would accomplish this goal, but there are conflicting results in the literature as to whether centralizing school funding by substituting state aid for local property tax increases or decreases per-pupil spending and equity. With the pandemic forcing a reconsideration of school funding formulas, including those based on enrollment (see sidebar), the following excerpted case studies of Michigan, California, and Massachusetts offer examples that may be helpful to places considering the best way to provide an adequate and equitable education for all. Massachusetts relies heavily on the property tax to fund schools, while California and Michigan rely heavily on state aid (see table 1).
SCHOOL ENROLLMENT AND FUNDING FORMULAS
When the pandemic thrust students across the country into remote and hybrid learning, many public schools lost enrollment. For the 2020–2021 school year, enrollment was down 3 percent nationwide compared to 2019–2020. Declines were uneven across states and student groups, with the largest drops among pre-K and kindergarten students and among low-income students and students of color (NCES 2021). Since state aid for public schools is linked to the number of students attending or enrolled, a slump in attendance or enrollment can reduce that revenue. In response to these enrollment declines, many states adopted short-term policies to hold school districts harmless. Delaware and Minnesota, for example, provided extra state funding for declining districts. Many states, including New Hampshire and California, used prepandemic enrollment to calculate state aid (Dewitt 2021; Fensterwald 2021). Texas announced hold-harmless funding to districts that lost attendance if they maintained or increased in-person enrollment, in an effort to bolster in-person learning. All of these provisions are temporary, and states are waiting to see if enrollment will recover in 2022–2023. If it doesn’t, the data suggest that reduced funding for schools with the highest enrollment declines will disproportionately affect Black and low-income households (Musaddiq et al. 2021). These fiscal and equity concerns are causing educators to rethink the measurement of attendance and enrollment, and its link to funding.
Michigan: A Tax Swap
Michigan voters passed a proposal in 1994 that reduced reliance on the local property tax, shifting much of the state’s school funding to the sales tax and other taxes while restructuring state aid to schools. Research suggests this shift led to increased spending in the short term that improved some educational outcomes, but also resulted in a distribution of funds that did not reach the students who most need support.
Michigan voters had considered and defeated a series of proposals to restructure property taxes and school funding before approving Proposal A in 1994, which reduced reliance on the property tax and raised the sales tax to pay for that property tax relief. This “tax swap” greatly increased state education aid in the year of implementation and for some years after, changed the basic state aid formula, and changed the way state education aid is targeted.
The state raised the sales tax from 4 to 6 percent, depositing the revenue into the School Aid Fund. It obtained additional revenue from the income tax, real estate transfer tax, tobacco taxes, liquor taxes, the lottery, and a new state government property tax known as the State Education Tax. Local property taxes levied for school operating costs, which had averaged a rate of 3.4 percent before Proposal A, were eliminated; the state mandated a 1.8 percent local property tax rate on nonhomestead property, and all property became subject to the 0.6 percent State Education Property Tax.
State aid under Proposal A explicitly targeted low-spending districts. Increases in state funding were phased in over time, with substantial increases for low-spending districts, without reducing the funding of initially high-spending districts. In addition, school districts were allowed only limited options for supplementing education spending (Courant and Loeb 1997).
Because Michigan’s tax swap was enacted so long ago, we can observe the impacts of three recessions on state aid and local property tax funding. During the 1990–1991 and 2000–2001 recessions, reliance on state aid decreased while reliance on the local property tax increased. In the Great Recession, reliance on state aid decreased and reliance on the local property tax decreased slightly. The fact that the property tax was less effective as a backstop in the Great Recession is likely due to uniquely restrictive property tax limits in the state.
Michigan’s property tax is subject to all three main types of property tax limits: rate, levy, and assessment. In addition, one provision of the levy limit is particularly restrictive: not only does it require reductions in tax rates when the property tax base grows rapidly (“Headlee rollbacks”), but unlike most state levy limits, it prohibits increased tax rates without an override vote when the property tax base grows slowly or declines. This had a very constraining effect on property tax revenues during the Great Recession, when property values declined (Lincoln Institute 2020).
Although real per-pupil education revenue increased at a faster rate just after passage of Proposal A, beginning with the recession of 2000–2001, real state aid declined for many years, leading to slower growth or declines in total real per-pupil revenue and in educational expenditures per pupil (see figure 2). An empirical study to analyze the impacts of Proposal A on revenue and spending in K–12 education concludes that “the reform increases the level of school revenue and spending at the state level only in the first two years of the reform; the reform eventually decreases it two years after and onwards” (Choi 2017, 4).
Importantly, a tax swap may not create a more equitable school finance system. The school finance restructuring in Proposal A did reduce the disparities in school spending per pupil among school districts (Wassmer and Fisher 1996). This equalization was primarily accomplished by using state aid to raise per-pupil spending of the lowest-spending districts and placing some restrictions on spending on the highest-spending districts. But Michigan’s Proposal A was not designed to target aid to the children or the school districts most in need. It targeted additional school aid to previously low-spending school districts, which tended to be middle-income and rural.
An evaluation of the equity and adequacy of school funding systems across the United States concluded that resources in Michigan’s highest poverty districts are severely inadequate (Baker et al. 2021). Thirty-seven percent of students attend districts with spending below the amount required to achieve U.S. average test scores.
The recovery from the COVID recession, along with the massive influx of federal funds for education, may yet enable a turnaround in Michigan’s K–12 education system. In her 2022 State of the State address, Governor Gretchen Whitmer said her next budget would include the largest state education funding increase in more than 20 years (Egan 2022).
California: Shifting Control
California’s school finance narrative illustrates the tension between school funding equity goals and property tax reduction goals, providing a cautionary tale of the danger of diminishing local funding and the unintended consequences of assessment limits. In its pursuit of educational equity, California shifted funding away from local governments at the cost of local control. In taxpayers’ quest to control property tax increases, they traded horizontal equity for predictability.
Prior to 1979, California school districts raised over half of their revenue locally and school districts exercised control over their budgets and property tax rates. School finance litigation that began in the early 1970s drove legislation that began to erode this local control, shifting authority for property tax revenue distribution to the state in an attempt to equalize school district revenues. This series of cases, known as Serrano v. Priest, was motivated by concerns that the disparities in wealth among school districts created by dependence on local property taxes discriminated against the poor and violated California’s equal protection clause.
During the same period, dramatic growth in property tax values without an offsetting decrease in property tax rates incited a tax revolt that culminated in the passage of Proposition 13 in 1978. This citizen-initiated constitutional amendment fundamentally changed the nature of property tax assessments and imposed strict limits on growth in assessed values and property tax rates. Among other things, Proposition 13 limited growth in assessed values to 2 percent per year and capped cumulative property tax rates at 1 percent of assessed value.
Combined with the assessment limit, the rate limit provided certainty to taxpayers about how much property taxes could increase in the future—but stripped local governments and school districts of their ability to control spending levels and budgets.
Proposition 13 also instituted acquisition value assessment, under which properties are reassessed only when sold. This provides a strong incentive for taxpayers to remain in their homes and contributes to the state’s housing affordability crisis. Proposition 13 also prevented local governments and school districts from exceeding the limits in order to raise funds for local priorities, except for voter-approved bond measures. It required a two-thirds majority vote by both houses of the California legislature to increase any state tax and required a two-thirds majority vote of the electorate for local governments to impose special taxes.
In 1978, school district tax collections accounted for 50 percent of school district revenue; in 1979, they made up only a quarter of total revenue. The state aid share of school district revenue, supported mostly by state income taxes, climbed from 36 percent in 1978 to 58 percent in 1979.
In 1986, the California Court of Appeal held that the state’s centralized school finance system complied with the state constitution. The court found 93 percent of California students were in districts with wealth-related spending differences of less than $100 per pupil as prescribed by the courts in 1976. While the reforms satisfied the court, making per-pupil spending more consistent among school districts has not definitively improved or equalized educational outcomes.
Together, the court rulings and Proposition 13 altered the school finance landscape in California and inspired a wave of property tax revolts and school finance litigation across the United States. The school finance reforms in California successfully constrained revenues, but at the cost of local control and to the detriment of education quality. School districts lost control over their primary revenue source, per-pupil spending fell below the national average (see figure 2), and academic achievement and public school enrollment declined (Brunner and Sonstelie 2006; Downes and Schoeman 1998).
California’s test scores continue to suffer. National Assessment of Educational Progress (NAEP) scores for California show that its students continue to perform below the national average, although the gaps have narrowed since 2013, when California enacted the Local Control Funding Formula (LCFF) school finance reforms (see figure 3). Among other reforms, the LCFF targets aid to high-need districts through concentration grants and gives districts more discretion over how they spend state funds.
One analysis suggests that California’s reforms played a major role in the rapid decline in public school enrollment in the 1970s and a partial role in the rapid growth in private school enrollment during the same period (Downes and Schoeman 1998).
Persistent efforts to amend the state constitution to eliminate acquisition value assessment for nonresidential property provide evidence of long-term dissatisfaction with Proposition 13 among some Californians. Referred to as a “split roll,” such proposals are often debated but rarely make it to the ballot. Voters narrowly defeated one such proposal, Proposition 15, in November 2020. Proposition 15 would have returned certain commercial and industrial real property to market-value assessment while preserving acquisition value assessment for residential properties and most small businesses.
Massachusetts: Targeted Aid
Massachusetts’ case indicates that targeting state aid to the school districts that need it most and linking accountability standards to increased school aid can produce strong academic results. The state was also able to reduce reliance on the property tax while improving its property tax system. However, recent years show that even strong school finance systems can backtrack and should be reevaluated periodically.
In 1980, Massachusetts enacted a property tax limit known as Proposition 2½. The two most important components of Proposition 2½ limit the level and growth of property taxes: they may not exceed 2.5 percent of the value of all assessed value in a municipality, and tax revenues may not increase more than 2.5 percent per year. Because K–12 schools are part of city and town governments in the state and not independent governments, as in some states, Proposition 2½ directly affects schools.
One might expect that reducing reliance on the property tax in a state that does not allow local governments to levy either sales or income taxes might heavily constrain local government revenues. But local governments were lucky in the timing of the enactment of Proposition 2½. The tax limitation came into force at the beginning of a period of significant economic growth in the state popularly termed the “Massachusetts Miracle.” This enabled the state to increase aid to localities, which cushioned the tax limitation’s impact.
Also important is the fact that Proposition 2½ was not a constitutional amendment, but a piece of legislation that could be modified by the legislature—and was. Altogether, Proposition 2½ had “a smaller impact than either its supporters had hoped or its detractors had feared” (Cutler, Elmendorf, and Zeckhauser 1997). Although not perfect, Proposition 2½ is less restrictive and less distortionary than many property tax limits in other states (Wen et al. 2018).
During the 1980s, the state also reformed its property tax system by moving to assessing properties at full market value. Before this reform, most properties, especially residential ones, were assessed at far less than market value, with high-income properties receiving preferential treatment. Proposition 2½ created an incentive to move to the full value because of the 2.5 percent cap on the property tax levy.
As the state was coming out of a deep recession in the early 1990s, the quality of its public schools had caused broad dissatisfaction. The Massachusetts Business Alliance for Education published Every Child a Winner in 1991, calling for “high standards, accountability for performance, and equitable distribution of resources among school districts” (MBAE 1991). The highest court was considering an equity lawsuit that had been filed in 1978, and the state Board of Education published a report highlighting some schools’ shortcomings (Chester 2014).
In 1993, a pivotal year, the state legislature passed the Massachusetts Education Reform Act (MERA) and the state’s highest court ruled in McDuffy that the state was not meeting its constitutional duty to provide an adequate education for all students. MERA had a number of important components, including a large increase in state aid for education (from $1.6 billion in 1993 to $4 billion in 2002), and a new school funding formula targeted to districts that needed it most. Another component of MERA was curriculum standards and accountability. In 1998, the MCAS (Massachusetts Comprehensive Assessment System) was administered for the first time to measure student achievement.
In a second school funding lawsuit, Hancock v. Driscoll, settled in 2005, the Supreme Judicial Court concluded that “a system mired in failure has given way to one that, although far from perfect, shows a steady trajectory of progress” (Costrell 2005, 23). One measure of Massachusetts’ achievement is the improvement of state scores on NAEP tests (see figure 3). Although the original intention was to reevaluate and, if need be, revise the state’s school funding formula periodically, that did not happen. Furthermore, after several years of growth in state school aid, cuts came in 2004, then again in 2009 after the onset of the Great Recession.
In 2015, a Foundation Budget Review Commission was established to review the state’s school aid system (Ouellette 2018). The commission concluded that local governments were bearing a disproportionate share of the cost of educating children and that several elements of the foundation aid program, such as the way health insurance costs were taken into account, were outdated.
In 2019, the legislature passed and Governor Charlie Baker signed the Student Opportunity Act (SOA), which provides $1.5 billion in additional school aid better targeted to low-income students. This revised school aid system was designed to be phased in over seven years. In 2020, the state delayed the funding increases because of pandemic-related economic uncertainty. However, in 2021, the legislature fully funded the act for the first time (Martin 2021).
Finding the Right Combination
Neither state aid nor the property tax on its own can provide adequate, stable, and equitable school funding. But the right combination can provide all three. Just as weaving requires lengthwise and crosswise threads (the warp and woof), so a sound school finance system requires a well-designed property tax and well-designed state school aid.
The system of state and local funding should provide sufficient funding so that all children, no matter their race, ethnicity, or income, can receive an adequate education. When designed properly, state aid can ensure that all school districts can provide an adequate education and weaken the link between per-pupil property tax wealth and per-pupil education funding—without sacrificing the benefits that come from a stable property tax base and local control of public schools.
Daphne Kenyon is a resident fellow in tax policy at the Lincoln Institute. Bethany Paquin is a senior research analyst at the Lincoln Institute. Semida Munteanu is associate director, valuation and land markets at the Lincoln Institute.
Lead image by skynesher via Getty Images.
REFERENCES
Baker, Bruce, Matthew Di Carlo, Kayla Reist, and Mark Weber. 2021. The Adequacy and Fairness of State School Finance Systems, School Year 2018–2019, Fourth Edition. Albert Shanker Institute and Rutgers University Graduate School of Education. December.
Brunner, Eric J., and Jon Sonstelie. 2006. “California’s School Finance Reform: An Experiment in Fiscal Federalism.” Economic Working Papers 200609. Hartford, CT: University of Connecticut.
Chester, Mitchell. 2014. Building on 20 Years of Massachusetts Education Reform. Massachusetts Department of Elementary and Secondary Education.
Choi, Jinsub. 2017. “The Effect of School Finance Centralization on School Revenue and Spending: Evidence from a Reform in Michigan.” Proceedings, Annual Conference of the National Tax Association (110): 1–31.
Costrell, Robert M. 2005. “A Tale of Two Rankings: Equity v. Equity.” Education Next, Summer: 77–81.
Courant, Paul N., and Susanna Loeb. 1997. “Centralization of School Finance in Michigan.” Journal of Policy Analysis and Management 16 (1): 114–136.
Cutler, David M., Douglas W. Elmendorf, and Richard Zeckhauser. 1997. “Restraining the Leviathan: Property Tax Limitation in Massachusetts.” Working Paper 6196. Cambridge, MA: National Bureau of Economic Research.
Dewitt, Ethan. 2021. “School Enrollment Decline Persists Despite Return to Classrooms.” New Hampshire Bulletin, November 24.
Downes, Thomas A., and David Schoeman. 1998. “School Finance Reform and Private School Enrollment: Evidence from California.” Journal of Urban Economics 43 (418–443).
Education Week. 2020. “The Coronavirus Spring: The Historic Closing of U.S. Schools (A Timeline).” July 1.
Egan, Paul. 2022. “Whitmer Budget to Propose Billions Extra for Schools, Five Percent Boost in Per-Pupil Grant.” Detroit Free Press. February 6.
Fensterwald, John. 2021. “Projected K–12 Drops in Enrollment Pose Immediate Upheaval and Decade-long Challenge.” EdSource, October 18.
Griffith, Michael. 2021. “An Unparalleled Investment in U.S. Public Education: Analysis of the American Rescue Plan Act of 2021.” Learning in the Time of COVID. Washington, DC: Learning Policy Institute.
Korman, Hailly T.N., Bonnie O’Keefe, and Matt Repka. 2020. “Missing in the Margins 2020: Estimating the Scale of the COVID-19 Attendance Crisis.” Bellwether Education, October 21.
Lincoln Institute. 2020. “Towards Fiscally Healthy Michigan Local Governments.” Cambridge, MA: Lincoln Institute of Land Policy, October.
Martin, Naomi. 2021. “Low-Income Students Are Receiving ‘Game-Changer’ Student Opportunity Act Funding.” Boston Globe. July 17.
MBAE. 1991. “Every Child a Winner.” Boston, MA: Massachusetts Business Alliance for Education.
McGuire, Therese J., Leslie E. Papke, and Andrew Reschovsky. 2015. “Local Funding of Schools: The Property Tax and Its Alternatives.” In Handbook of Research in Education Finance and Policy, 392–407. New York, NY: Routledge.
Musaddiq, Tareena, Kevin Stange, Andrew Bacher-Hicks, and Joshua Goodman. 2021. “The Pandemic’s Effect on Demand for Public Schools, Homeschooling, and Private Schools.” Working paper 29262. Cambridge, MA: National Bureau of Economic Research.
NCES. 2021. “New Data Reveal Public School Enrollment Decreased 3 Percent in 2020–2021 School Year.” Blog post. National Center for Education Statistics. July 26.
Ouellette, John. 2018. “Two Decades into Education Reform Effort, Commission Calls for Substantial Changes to Funding Formula.” Municipal Advocate: 29 (2).
Sawchuk, Stephen. 2020. “When Schools Shut Down, We All Lose.” Education Week. March 20.
Wassmer, Robert W., and Ronald C. Fisher. 1996. “An Evaluation of the Recent Move to Centralize the Funding of Public Schools in Michigan.” Public Budgeting and Finance 16 (Fall): 90–112.
Wen, Christine, Yuanshuo Xu, Yunji Kim, and Mildred E. Warner. 2018. “Starving Counties, Squeezing Cities: Tax and Expenditure Limits in the U.S.” Journal of Economic Policy Reform 23(2): 101–119.
New Report: Taxing Land More Than Buildings Would Help Detroit Homeowners and Spur Development
Reforming Detroit’s property tax system by taxing land at a higher rate than buildings would help to revive the local economy and reduce tax bills for nearly every homeowner, according to a new study from the nonprofit Lincoln Institute of Land Policy.
With the lowest property values of any large U.S. city and some of the highest property tax rates, Detroit is caught in a decades-long cycle of rising tax rates that still fail to generate enough revenue. In the absence of strong public services, high property taxes increase owner costs, reduce property values, and increase the costs of repair and redevelopment, creating a drag on economic recovery.
Like many economically distressed cities, Detroit copes with this challenge by offering generous tax abatements for new development and for some homeowners. Abatements relieve excess costs and temporarily raise property values, but only a small set of residents and new businesses qualify. This leaves high—sometimes destabilizing—tax bills in place for long-term owners. While high taxes remain on most homes and businesses, inclusive and lasting incentives for reinvestment are absent.
A higher tax rate for land than for structures—known as “split-rate” because there are two different tax rates—would address the problem more effectively and distribute the benefits more equitably.
The new study, Split-Rate Property Taxation in Detroit: Findings and Recommendations, finds that taxing land at five times the rate for buildings would result in lower tax bills for 96 percent of homeowners, with an average savings of about 18 percent. Under a revenue-neutral reform, tax savings would be fully offset by tax increases on vacant and underutilized property.
“By adopting a split-rate property tax, Detroit can make its tax system both more efficient and more equitable,” said John Anderson, an economist at the University of Nebraska, Lincoln, and lead author of the study. “Efficiency is enhanced by removing the tax-related barriers to capital improvements and development. Equity is enhanced by a reduction in taxes for the vast majority of residential homeowners.”
“Splitting the property tax provides long-time Detroiters with the tax relief that new businesses and residents already receive,” said co-author Nick Allen, former manager of strategy and policy for the Detroit Economic Growth Corporation and now a doctoral candidate at the Massachusetts Institute of Technology. “Our study shows that it is an effective, immediate way to permanently reduce burdens on overtaxed households and restore property wealth. It’s not enough, but it is a required step towards racially equitable recovery.”
In addition, a split-rate tax increases the cost of holding vacant land and reduces the cost of developing it, or of renovating deteriorated buildings. Reduced tax burdens and accelerated investment lead to an average 12 percent increase in residential property value and a 20 percent increase for commercial property. In a supporting technical paper, the project team also found that the proposed 18 percent reduction in residential taxes would reduce residential tax foreclosures by at least 9 percent.
“Implementation of a split-rate tax in Detroit offers an opportunity to strengthen the property tax system by increasing efficiency, and reducing property tax inequities and tax foreclosure,” said Michigan State University economist Mark Skidmore, a co-author of the study.
Commissioned by Invest Detroit with support from The Kresge Foundation, the study analyzes data from municipalities in Pennsylvania that have implemented split-rate taxes, as well as real estate and property tax data from Detroit. In addition to Anderson, Allen, and Skidmore, the study’s co-authors include Fernanda Alfaro of Michigan State University, Andrew Hanson of the University of Illinois at Chicago, Zackary Hawley of Texas Christian University, Dusan Paredes of Northern Catholic University in Chile, and Zhou Yang of Robert Morris University.
“If we are to continue the momentum of Detroit’s positive, equitable growth, we must transform our property tax structure to alleviate the burden on majority Black homeowners and local developers,” said Dave Blaszkiewicz, president and CEO of Invest Detroit. “This report provides a solution that accomplishes that while also disincentivizing blighted and underutilized properties that hinder Detroit’s growth.”
“With this analysis, Invest Detroit has elevated an equitable approach to taxation that can bring much-needed relief to tax-burdened Detroiters while encouraging investment and growth. This is a timely idea that addresses an urgent concern, and the highly regarded Lincoln Institute of Land Policy has now provided a solid framework for community discussions,” said Wendy Lewis Jackson, managing director of Kresge’s Detroit Program.
Will Jason is the director of communications at the Lincoln Institute of Land Policy.
Image: Aerial view of Residential district in Detroit Michigan. Credit: pawel.gaul via Getty Images.
Blueprint Shows How Fannie Mae and Freddie Mac Can Create More Housing Opportunities
By Lincoln Institute Staff, Enero 20, 2022
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Two weeks after a U.S federal agency rejected affordable housing plans from Fannie Mae and Freddie Mac, a coalition of housing organizations has released a blueprint showing how the two government-sponsored enterprises can better reach underserved mortgage markets.
On January 5, the Federal Housing Finance Agency (FHFA) rejected three-year plans from Fannie Mae and Freddie Mac to comply with Duty to Serve, a federal regulation that requires the enterprises to prioritize and improve affordable housing finance opportunities in three historically neglected markets: manufactured housing, affordable housing preservation, and rural housing. Fannie Mae and Freddie Mac must substantially improve their plans in all three areas, and a new blueprint from the Underserved Mortgage Markets Coalition provides a path that would likely lead to approval.
The coalition consists of 20 leading U.S. affordable housing organizations seeking to hold Fannie Mae and Freddie Mac accountable to their founding purpose: to bring housing finance opportunities to American families not traditionally served by the private market.
“I applaud FHFA for rejecting the proposed Duty to Serve plans,” said George W. McCarthy, president and CEO of the Lincoln Institute of Land Policy, one of the convenors of the coalition. “If Fannie Mae and Freddie Mac adopt the modest consensus recommendations of the Underserved Mortgage Markets Coalition, that would be a win for the enterprises, FHFA, and affordable housing in the United States.”
The coalition’s blueprint outlines key recommendations for the enterprises’ Duty to Serve plans for 2022–24. By recommending specific, prioritized action steps, the coalition hopes to expand and enhance the enterprises’ performance in underserved markets. The blueprint urges the enterprises to increase certain loan purchases in all three markets, improve loan products for rural low- and moderate-income borrowers, and allow for Low Income Housing Tax Credit-equity investment in non-rural markets.
The members of the Underserved Mortgage Markets Coalition include:
Center for Community Progress
cdcb
Enterprise Community Partners
Fahe
Grounded Solutions Network
Housing Assistance Council
Housing Partnership Network
Lincoln Institute of Land Policy
Local Initiatives Support Corporation
National Council of State Housing Agencies
National Community Stabilization Trust
National Housing Trust
NeighborWorks America
Next Step
Novogradac
Opportunity Finance Network
Prosperity Now
RMI
ROC USA
Stewards of Affordable Housing for the Future
Photograph: vkyryl via iStock / Getty Images Plus.
Oportunidades de becas de posgrado
2022 C. Lowell Harriss Dissertation Fellowship Program
The Lincoln Institute's C. Lowell Harriss Dissertation Fellowship Program assists PhD students, primarily at U.S. universities, whose research complements the Institute's interests in land and tax policy. The program provides an important link between the Institute's educational mission and its research objectives by supporting scholars early in their careers.
In the wake of major global agreements to protect biodiversity and address climate change, hundreds of leaders and practitioners gathered virtually for one of the world’s most significant international conferences on private and civic land conservation.
At the 3rd Global Congress of the International Land Conservation Network and Eurosite–European Land Conservation Network, leaders in the field discussed how to increase the scale of conservation work to meet ambitious global targets, such as protecting 30 percent of the earth’s land and water by 2030. The conference attracted more than 900 registrants from some 89 countries on six continents.
“Let’s step up to the responsibilities that we have to pass on, to our children’s children’s children and beyond, the beauty and the value of the earth,” International Land Conservation Network Director Jim Levitt said at the closing of the conference.
“The global private and civic land conservation community is diverse and multifaceted,” said Tilmann Disselhoff, president of Eurosite–European Land Conservation Network. “We can learn a lot from our colleagues around the world, but we don’t have to copy everything from one another. When we come across an interesting solution or a new idea from another part of the world, let’s adopt it, if it’s good. But let’s also adapt it to our needs.”
The conference focused on five themes: conservation finance, organization and governance, law and policy, land stewardship, and large landscape conservation. What follows are a few highlights (recordings of all sessions will be available online at no cost in the first quarter of 2022).
Conservation Finance
The scale and complexity of private and civic land conservation projects often requires a mix of financing, from both traditional investors and from those focused on social and environmental impacts. Complex projects need an effective intermediary who can balance the needs of multiple investors and incorporate the perspectives of other stakeholders, experts said in a session titled, “Blended Finance and the Role of Intermediaries.”
Intermediaries play several key roles. They articulate a project’s goals, establish key metrics for success, provide technical support, and communicate between different parties. While individual investors might care mostly about a single outcome such as sequestering carbon, intermediaries can provide a more complete picture of a project’s benefits.
“I’ve never seen a biodiversity or nature project that wasn’t also, on some level, a social project,” said Stephen Hart, a senior loan officer for the European Investment Bank.
Acknowledging that the contemporary conservation movement has benefited from generations of stewardship and land management by Indigenous communities, experts emphasized the urgency of supporting Indigenous rights—a theme that wove through other sessions as well—by taking actions including returning lands to their original owners, ensuring that Indigenous voices are at the table, and providing long-term funding opportunities. “Aboriginal people have managed this land for thousands and thousands of years,” said Cissy Gore-Birch, a Jaru/Kija woman with connection to Balanggarra, Nyikina, and Bunuba country who works as the National Aboriginal Engagement Manager for Bush Heritage Australia. “We are the protectors of the land, and the land speaks to us.”
Law and Policy
As global leaders set ambitious conservation goals, questions about how to reach that target are naturally arising. One answer might well be found in Other Effective Area-Based Conservation Measures, known as OECMs. The concept behind this emerging approach is to complement and connect traditional protected areas by identifying areas where conservation already occurs, though the land is primarily managed for other purposes.
Examples include school campuses, military grounds, cultural sites, and ranchlands. In “The Role of OECMs in an Integrated Conservation Landscape,” panelists agreed that OECMs hold great promise, but that their effective implementation will require more resources, conversation, and collaboration. “As a community of practice, sharing our experiences is going to be important,” said Lisa McLaughlin, vice president of conservation policy from Nature Conservancy of Canada. “. . . We need to keep that going with respect to sharing and learning—the good things, but also talking honestly about the mistakes and the barriers as well, so that we can all accelerate together and not have to learn in parallel.”
Land Stewardship and Management
Clare Cannon’s family manages a 6,500-acre sheep and cattle farm at Woomargama Station in New South Wales, Australia. They use two-thirds of that land to raise their livestock, but a few years ago the family set aside the rest—a mix of native grasslands and woodlands—to be managed by the Biodiversity Conservation Trust. In addition to protecting the land, that decision now seems likely to generate new income in the form of biodiversity payments authorized under Australia’s newly adopted National Stewardship Trading Platform.
Grasslands—known as prairies in North America, pampas in South America, and savannas in Africa—are increasingly being eyed as a climate solution for their ability to sequester carbon. By engaging in sustainable, lower-impact practices, farmers and ranchers from Australia to Colombia, Venezuela, and the United Kingdom can help maintain the integrity of grasslands; reduce the climate impacts of livestock by avoiding or minimizing activities required for conventional agriculture such as deforestation and the cultivation of resource-intensive fodder; and still succeed economically, explained panelists in “Stewarding Grasslands: Good for Grasslands, Good for Climate, Good for Farmers.”
Landscape-Scale Conservation and Restoration
As climate change disrupts natural systems around the world, land conservationists can use technology to target their work to help species adapt to changing conditions and maximize the reduction of greenhouse gases. In “Sustaining Nature Under Climate: New Science to Inform Conservation,” Mark Anderson, Director of Conservation Science for the Eastern U.S. for the Nature Conservancy, demonstrated his organization’s Resilient Land Mapping Tool, which uses geospatial data to identify the areas where conservation resources can achieve the greatest impact.
The tool, which covers the United States but carries the potential for expansion worldwide, analyzes biological, geophysical, and climate-related conditions—everything from sun exposure to soil characteristics—to determine which habitats will enable species to thrive in a warming world, which places currently contain the greatest stocks of stored carbon, and which have the greatest potential for future carbon sequestration.
The Nature Conservancy used the tool to identify what it calls a Resilient and Connected Network, comprising a third of the continental United States, to prioritize for conservation. The network currently stores 29 billion tons of carbon and sequesters an additional 236 million tons of carbon a year.
“That’s the equivalent of taking 188 million cars off the road every year. Why would we want to lose any of this network?” said Anderson, who is also the Lincoln Institute’s 2021–22 Kingsbury Browne Fellow.
Established in 2014, the Lincoln Institute’s International Land Conservation Network helps build capacity for private land conservation through research, training, and exchanges between conservationists from around the world. In February 2022, the Lincoln Institute and ILCN will publish a Policy Focus Report, From the Ground Up: How Land Trusts and Conservancies Are Providing Solutions to Climate Change, which will present case studies of organizations that are using land conservation as a tool for mitigating and adapting to climate change. The next Global Congress will take place in 2024.
Photograph: Marti Garcia via iStock/Getty Images.
New Book “Infrastructure Economics and Policy” Offers an Essential Guide to Smart Public Investment
By Lincoln Institute Staff, Diciembre 15, 2021
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Editor’s Note: This article was adapted from “Investing for the Future,” published July 22, 2021.
As governments consider major infrastructure proposals, the Lincoln Institute has published a new book that will help policy makers achieve a greater return on public investments. Edited by José A. Gómez-Ibáñez and Zhi Liu, Infrastructure Economics and Policy: International Perspectives includes contributions from 30 leading international academics and practitioners on topics such as project appraisal, financing, governance, climate change, and technology.
The book comes out at a time when governments of many countries are considering infrastructure as a policy instrument to stimulate national economies that have been adversely affected by the COVID-19 pandemic. The book offers case studies, data, and analyses that can help governments evaluate infrastructure proposals.
It includes the following six takeaways to consider in any infrastructure investment package, based on extensive research into the ingredients for success:
Think Long-Term Growth, Not Quick Stimulus. Contrary to conventional wisdom, infrastructure investment is not an effective way to provide a quick economic stimulus. It takes many years to secure the permissions and funding necessary to begin construction on a new project, and the sophisticated equipment and training required by modern construction means such projects do not offer pathways to quick employment for large numbers of unskilled workers. Infrastructure Economics and Policy explains why infrastructure investments offer few short-term impacts, even when the long-term economic impacts are clearly positive.
Shovel-Worthy Matters, Not Shovel-Ready. The impacts of infrastructure projects depend greatly on their quality. Many infrastructure agencies are required to prepare cost-benefit analyses of the major projects or policies they are considering and of the relevant alternatives to those projects. However, few governments (if any) require the agencies to adopt the alternative with the highest net benefit. This is often because of political considerations, including concerns that cost-benefit analysis might not adequately reflect the goals of fairness and equity. While cost-benefit analyses are not perfect, they are one of the best tools available for evaluating infrastructure proposals, and agencies should be cautious about departing significantly from the option with the highest net benefit without good reason.
Beware of Over-Confidence and Over-Optimism. A landmark analysis of some 2,000 infrastructure projects found that actual costs were significantly higher than forecast, while usage was significantly lower, as Bent Flyvbjerg and Dirk W. Bester explore in a chapter of the book. The authors identify several well-known behavioral limitations that lead to these outcomes, particularly overconfidence bias and optimism bias. Fighting these biases is difficult because they are so deeply ingrained in human nature, but the book describes measures that can help, such as holding forecasters legally accountable or using independent audits.
Take Equity Seriously. The costs and benefits of infrastructure projects are often distributed inequitably. On the one hand, major infrastructure facilities such as highways and power plants are often built in locations where the negative impacts are felt disproportionately by low-income residents and people of color. On the other hand, the lack of access to basic infrastructure, particularly in the developing world, impairs quality of life and contributes to inequality. Governments need to take both problems seriously and enact complementary policies to address them.
Consider Governance Challenges. State and local governments have historically been deeply involved in regulating both private and government-owned infrastructure due to important concerns including access, siting, and protecting against monopolization. However, the advent of a major new infrastructure program—particularly one focused on decarbonizing the energy system to address climate change—will increase the role of the national government. National governments are uniquely positioned to invest in new technologies that require collective action, and to mitigate the economic impact of climate change policies—for example, compensating owners of fossil fuel plants and other assets that lose their value. These and other governance challenges related to infrastructure may prove even more difficult than the financial challenges that current debates focus on.
Invest for the Future and Address Radical Uncertainties. In the face of radical uncertainties including climate change, the pandemic, automation, and the emerging sharing economy, governments must not only fix deteriorating infrastructure, but also invest in a new generation of infrastructure that is climate-resilient and takes advantage of new technologies. This transformation will require overcoming significant institutional barriers, assessing the pros and cons of the new technologies, and putting an effective change management process in place.
Sustainably built infrastructure is indispensable to resilient, equitable, and livable communities and regions worldwide. Through in-depth analysis, Infrastructure Economics and Policy questions the conventional wisdom about several issues, from the most efficient levels of congestion charges on routes into city centers to the belief that privatization greatly affects the performance of infrastructure. With chapters covering land value capture and other funding mechanisms; the role of infrastructure in urban form, economic performance, and quality of life, especially for disinvested communities; and other essential concepts, this new book offers evidence-based solutions and policy considerations for officials in government agencies and private companies that oversee infrastructure services, for students, and for policy-oriented lay readers alike.
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