¿De qué manera se verán afectadas las finanzas del gobierno municipal por la enorme y creciente carga de pagar los costos de pensión contraídos previamente? En particular, ¿de qué manera estos costos de pensión heredados cambiarán la percepción de los residentes respecto al impuesto municipal sobre la propiedad y su intención de pagarlo? como primer paso de un programa de investigación del lincoln institute of land policy mucho más amplio sobre estas cuestiones, cabe preguntarse: ¿Qué sabemos –e igualmente importante, qué no sabemos– acerca de la magnitud de las deudas por pensiones sin fondos del gobierno municipal en los estados unidos? (ver Gordon, rose y Fischer 2012).
Es un principio fundamental de las finanzas públicas que los servicios del presente deberían pagarse con ingresos del presente, y que el financiamiento de deudas debería reservarse para proyectos de capital que brinden servicios a los futuros contribuyentes. este principio se viola cuando las deudas por pensiones relacionadas con los servicios de los trabajadores en el presente no son financiadas con compras de activos financieros en el presente y, en su lugar, deben pagarlas los futuros contribuyentes.
Desafortunadamente, no siempre se observan los principios de la prudencia en las finanzas públicas, y los gobiernos municipales en los estados unidos han acumulado una importante cantidad de deudas por pensiones sin fondos en los últimos años. esta situación genera un quiebre en la importante relación entre los contribuyentes y los servicios que reciben: la correspondencia desigual entre el valor total de los servicios públicos y los recursos tomados del sector privado. existe un importante debate sobre la solidez de dicha correspondencia y cuánta es la similitud de la relación de precios entre el valor pagado y el valor recibido para los contribuyentes particulares; casi no quedan dudas de que utilizar los ingresos corrientes para pagar servicios prestados en el pasado debilita esta relación.
Una conciencia pública creciente
La cuestión de las pensiones para empleados del gobierno estatal y municipal aparece en los titulares casi a diario (recuadro 1). Hasta hace sólo unos pocos años, estas pensiones eran competencia casi exclusiva de unos pocos funcionarios elegidos, juntas designadas, asesores en inversiones, actuarios y agencias calificadoras de crédito. ¿Qué cambió? La respuesta más inmediata es la gran recesión, que condicionó no solamente los ingresos fiscales del estado sino también el valor de los activos de los planes de pensión. En particular, la tenencia de capital proveniente de fondos de pensión estatales y municipales perdió casi la mitad de su valor, ya que cayó del pico de US$2,3 billones alcanzado en septiembre de 2007 a sólo US$1,2 billones en marzo de 2009 (Junta de Gobernadores del Sistema de la Reserva Federal 2012).
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Recuadro 1: ¿En dónde se encuentran en peligro las pensione municipales?
A fin de comprender cuáles son los lugares donde las pensiones municipales estaban experimentando dificultades en particular, Gordon, Rose y Fischer (2012) utilizaron un software de monitoreo de medios de comunicación para realizar una investigación de todas las agencias de noticias nacionales de los EE.UU. durante los tres primeros meses de 2012. La búsqueda se centró en artículos que incluían la palabra “pensión” junto con otros términos que identificaban a los gobiernos municipales, como “municipalidad”, “ciudad” o “condado”, y descripciones de problemas de financiamiento, como, por ejemplo, “pasivo”, “déficit”, “sin fondos”, “recorte”, “mora”, “reforma” y “problema”. Los resultados de la búsqueda produjeron más de 2.000 artículos separados de diferentes lugares en todo el país.
Según este análisis, varios tipos de lugares están experimentando problemas con la cuestión de las pensiones. Un grupo lo forman las jurisdicciones que han estado perdiendo gente y empleos con el transcurso de los años. Uno de los ejemplos más notorios es Detroit, Michigan, en donde la cantidad de jubilados es el doble de los trabajadores activos. En esta categoría también entra la ciudad de Prichard, Alabama, que perdió más del 45 por ciento de su población desde 1970 y, el año 2010 tenía menos de 23.000 residentes. En septiembre de 2009, este municipio sencillamente dejó de enviar los cheques de pensión a sus exempleados y, un mes más tarde, se declaró en quiebra. Para dichas comunidades, los conflictos relacionados con las pensiones también pueden ser un síntoma de mayores problemas fiscales o de disfunciones políticas.
Otro grupo de jurisdicciones pasó del auge inmobiliario a el posterior derrumbe del mercado de la vivienda. Algunos ejemplos son las ciudades de rápido crecimiento en California, como Stockton, que este año se declaró en quiebra, siendo la ciudad más grande que se haya declarado en quiebra en la historia. Mucho más desconcertante es la situación de jurisdicciones relativamente acaudaladas, como los condados de Suffolk o Nassau, en Nueva York, que parecen no ser capaces de aplicar recortes estrictos en los gastos o aumentar los impuestos debido a la paralización política. En lugar de ello, muchas de estas jurisdicciones han recurrido al préstamo para cumplir con sus obligaciones de pago de pensiones.
Solamente dos de las recientes bancarrotas municipales (Vallejo, California, y Central Falls, Rhode Island) fueron resultado de presiones de las pensiones públicas y la compensación de empleados junto con una reducción de la recaudación. Otras jurisdicciones, como Harrisburg, Pensilvania, y el condado de Jefferson, Alabama, están en apuros debido a malas decisiones en las inversiones. Además, algunas ciudades importantes, como Atlanta, San Francisco y Nueva York, han tomado medidas para limitar el crecimiento de las pensiones, con frecuencia gracias a la cooperación de los sindicatos de empleados públicos municipales. Central Falls logró obtener concesiones de oficiales de policía y bomberos en activo, así como de jubilados, pero aun esta medida resultó insuficiente para detener la caída hacia la quiebra.
Aunque el mercado de valores se ha recuperado en gran medida y las tenencias de capital derivadas de planes estatales y municipales se han incrementado nuevamente a más de US$2 billones, las pensiones públicas siguen estando bajo estrecha vigilancia. Las agencias calificadoras de crédito están tomando cada vez más en cuenta las deudas por pensiones sin fondos a la hora de llevar a cabo sus evaluaciones de riesgo crediticio de los gobiernos estatal y municipal. Además, los analistas están haciendo oír cada vez más sus críticas sobre los métodos que comúnmente se utilizan para evaluar los niveles de financiamiento de las pensiones.
El gobierno federal también está prestando atención a este tema. El congreso, alarmado por la posibilidad de que los gobiernos entren en mora, celebró una serie de audiencias sobre las finanzas de los gobiernos estatal y municipal a principios de 2011. Hace poco, los miembros republicanos del comité conjunto económico (JEC, por sus siglas en inglés) emitieron informes en los que se vislumbraba el espectro de una crisis similar a la de la eurozona debido a las deudas por pensiones estatales sin fondos (JEC 2011; JEC 2012).
A la luz de estas críticas y de los motivos de preocupación en torno a los crecientes costos derivados de las pensiones, 43 estados promulgaron reformas importantes en sus sistemas de pensión entre 2009 y 2011 (Snell 2012). Las modificaciones más comunes fueron las siguientes: aumento de los requisitos en la aportación por parte de los empleados (30 estados), aumento de la edad y años de servicio para la elegibilidad (32), ajuste de fórmulas para calcular los beneficios (17), y reducción en los aumentos del costo de la vida (21). En algunos estados, las modificaciones se aplicaron solamente a los nuevos empleados, aunque en otros estados, estos cambios afectaron a los trabajadores activos y a los ya jubilados. Estas medidas han generado una gran controversia y han dado como resultado el inicio de juicios en colorado, Minnesota, Nueva Jersey y Dakota del Sur.
La mayor parte de esta creciente atención hacia las pensiones de empleados del gobierno se ha concentrado en los planes del gobierno estatal, mientras que las pensiones de empleados públicos municipales relativamente no han sido sometidas a análisis. Aunque los planes municipales representan un porcentaje modesto del total de afiliados a las pensiones públicas (10 por ciento) y del total de activos de pensiones públicas (18 por ciento), su quiebra puede ser devastadora. Los residentes y las empresas con posibilidades de mudarse podrían abandonar aquellas comunidades en las que se aplican impuestos altos para reconstruir los activos derivados de pensiones en lugar de brindar servicios básicos. Una base imponible reducida podría empeorar aún más el fondo, con menos posibilidades de pagar los beneficios prometidos. El resultado podría ser el surgimiento de más ciudades como Prichard, Alabama.
Una mirada conjunta a los planes de pensión estatales y municipales
Las pensiones estatales y municipales son una parte importante del sistema de jubilación de la nación. La figura 1 muestra la distribución del total de us$15,3 billones en activos para la jubilación a finales de 2011 por tipo de plan. Los fondos de jubilación de empleados públicos estatales y municipales poseían, en conjunto, us$2,8 billones en activos, o casi un quinto del total.
Todos los estados tienen al menos un plan de pensión para empleados públicos y, en algunos estados, varios planes. Existen más de 220 planes estatales (algunos de los cuales son planes gestionados por el estado que ofrecen cobertura a trabajadores del gobierno municipal) y cerca de 3.200 planes municipales (tabla 1). En total, estos planes dan cobertura a 14,7 millones de trabajadores, 8,2 millones de beneficiarios actuales y 4,8 millones de personas elegibles para obtener beneficios en el futuro pero que aún no los reciben.
Las pensiones estatales y municipales son importantes, además, porque el 27,5 por ciento de los empleados de gobierno no está integrado en el seguro social (Nuschler, Shelton y Topoleski 2011). Estos empleados públicos sin cobertura se encuentran concentrados en unos pocos estados. La figura 2 ofrece una clasificación de los 16 estados que presentan las mayores concentraciones de trabajadores gubernamentales sin cobertura del seguro social. Casi todos los empleados de gobierno, tanto estatal como municipal, de Ohio y Massachusetts y más de la mitad de los empleados públicos estatales y municipales de Nevada, Louisiana, Colorado, California y Texas no están cubiertos por el seguro social.
Otra característica fundamental de las pensiones estatales y municipales reside en que, en su mayoría, consisten en planes de beneficios definidos (DB, por sus siglas en inglés). Los beneficios se calculan utilizando una fórmula que, por lo general, sigue este patrón:
(Salario promedio de los 3 últimos años) x
(Años de servicio) x
(2 por ciento por cada año de servicio) =
Beneficios
La mayoría de las pensiones de gobierno estatal y municipal también incluyen un ajuste según el costo de la vida. Una minoría de trabajadores del sector público se encuentra inscrita en planes de aportes definidos (DC, por sus siglas en inglés), según los cuales se coloca un monto específico en un fondo de jubilación por cada año de trabajo. Si se las compara con los planes dc, las pensiones dB protegen a los empleados de los riesgos derivados de inversiones, inflación y longevidad. Hasta el año 2009, cerca del 80 por ciento de los trabajadores estatales y municipales se encontraba inscrito en planes DB, y sólo poco más del 20 por ciento de los empleados estatales y municipales estaba en planes DC. Los trabajadores del sector privado presentaban la composición opuesta: el 20 por ciento estaba inscrito en planes DB y el 80 por ciento, en planes DC (Oficina de Estadísticas Laborales de los EE.UU. 2011).
Los planes DB predominaban en el sector privado, pero han ido desapareciendo, en parte debido a que la Ley de Seguridad de Ingresos de Jubilación para Empleados de 1974 (ERISA, por sus siglas en inglés) impuso normas mínimas de financiamiento y estableció el requisito de realizar aportaciones para seguros y otras cargas administrativas en relación con estos planes.
La menor cantidad de requisitos de financiamiento y de presentación de reportes que se aplican a las pensiones públicas permite a los gobiernos trasladar los costos de los trabajadores al futuro. Esta es una forma implícita de pedir préstamos, ya que se pueden evadir las normas presupuestarias calculadas y evitar la aprobación del electorado que generalmente se requiere para emitir bonos.
Requisitos de financiamiento y de presentación de reportes para las pensiones estatales y municipales
Históricamente, la mayoría de las pensiones estatales y municipales se financiaron con recaudaciones generales a plazo. La práctica actual de prefinanciar los planes de pensión estatales y municipales comenzó en las décadas de 1970 y 1980. Aunque los planes del sector público no se encontraban sujetos a la ERISA, esta ley sí requería emitir informes sobre sus prácticas. El informe de 1978 indicaba un “alto nivel de ceguera sobre el costo de las pensiones (…) debido a la falta de valuaciones actuariales, la utilización de suposiciones actuariales irreales y la ausencia general de normas actuariales” (Munnell y otros 2008, 2).
Esta señal de alarma llevó a varios planes a incrementar voluntariamente los niveles de financiamiento y prestar más atención a las normas actuariales y contables. En 1984 se creó la Junta de Normas Contables del Gobierno (GASB, por sus siglas en inglés), que emitió las primeras normas para planes de pensión en 1986 y realizó una profunda revisión de sus normas de valuación actuarial en 1994. El cumplimiento de dichas normas es de carácter voluntario, pero tiene el reconocimiento de las agencias calificadoras de crédito, los auditores y otros profesionales encargados de recopilar datos. A diferencia de las normas de la ERISA, que requieren métodos de valuación específicos para todos los planes privados, la GASB establece criterios que permiten cierta flexibilidad en la utilización de métodos específicos por parte de los planes públicos. En consecuencia, existen serios motivos de preocupación en lo referente a la transparencia y la comparabilidad de los datos sobre los que informan los propios planes de pensión estatales y municipales en relación con sus deudas.
Aportaciones de los empleadores
El cálculo del Pasivo Actuarial Devengado (AAL, por sus siglas en inglés) de un plan requiere la siguiente información: edad e historial salarial de los afiliados; proyecciones de incremento salarial, edades de jubilación, ganancias por activos e inflación; tablas de probabilidad de longevidad; y una tasa de descuento para convertir valores futuros estimados en valores en curso. El Pasivo Actuarial Devengado Sin Fondos (UAAL, por sus siglas en inglés) es equivalente al AAL menos los activos del plan.
El “costo normal” de un plan de pensión es el aumento del AAL debido al año de servicio en curso de los empleados existentes. La ERISA requiere que el costo normal se salde con las aportaciones de los empleados y empleadores. La GASB especifica una “Aportación Anual Obligatoria” (ARC, por sus siglas en inglés) de costo normal más una amortización a 30 años del UAAL. El problema reside en que, contrariamente a lo que su nombre indica, en la mayoría de las jurisdicciones no es obligatorio el pago del ARC.
Elección de la tasa de descuento
La cuestión que recientemente ha recibido más atención es la elección de la tasa de descuento. Las normas actualmente aplicables de la GASB permiten el descuento de las deudas futuras en base al rendimiento por inversiones proyectado, lo que dio un promedio del 8 por ciento anual antes de la recesión. No obstante, la mayoría de los economistas y especialistas en teoría financiera estarían de acuerdo con Brown y Wilcox (2009, 538) cuando afirman que “la tasa de descuento utilizada para valuar las futuras deudas derivadas de las pensiones debería reflejar el grado de riesgo de dichas deudas”, no de los activos. Las garantías constitucionales y legales consideran a las pensiones gubernamentales de bajo riesgo, mientras que el rendimiento histórico por inversiones incluye una prima de riesgo.
Los gobiernos estatales y municipales no pueden evitar los riesgos a largo plazo, como son una prolongada caída en la productividad o una caída de la bolsa durante una década. Por lo tanto, la tasa histórica de rendimiento a largo plazo en una cartera con gran composición patrimonial (antes de aplicar ajustes por riesgos) resulta una tasa de descuento demasiado alta. Las tasas de descuento más altas pueden hacer que las pensiones parezcan tener mayores fondos que los que verdaderamente poseen. Esto reduce los requisitos de aportaciones e impone obligaciones sin garantía a los futuros contribuyentes si no se logran las altas tasas de rentabilidad. Lo que resulta aún peor es que los administradores de los planes tienen de esta manera un incentivo para buscar carteras de alto riesgo con el fin de obtener una mayor tasa de descuento y un menor ARC.
Existen sólidos argumentos a favor de que la tasa de descuento del 8 por ciento que utitilizan muchos de los planes de pensión pública es demasiado alta, aunque existe un consenso menor en lo que respecta a cuánto debería reducirse dicha tasa para ser apropiada. En lugar de analizar estos puntos de vista, obtuvimos una estimación del impacto que podría tener una tasa más baja. Munnell y otros (2012) calculan los posibles cambios que se producirían en las deudas reportadas si en todos los planes se utilizara una tasa de descuento del 5 por ciento, en lugar del 8 por ciento. Dichos autores estiman que las deudas estatales y municipales aumentarían de US$3,6 billones a US$5,4 billones, y que las proporciones de financiamiento totales (activos/AAL) disminuirían de 75 por ciento a sólo 50 por ciento. Este es un cambio enorme, ya que representa el doble de las deudas sin fondos (UAAL = AAL – activos).
Últimas modificaciones en las normas de la GASB
La GASB (2012) emitió nuevas normas contables que entrarán en vigencia en 2013 y 2014. Según la modificación principal, los gobiernos estatales y municipales deberán aplicar diferentes tasas de descuento sobre las partes de las deudas que tienen fondos y las que no los tienen. Se seguirá aplicando una tasa basada en los ingresos en la parte del pasivo que posea financiamiento, mientras que se utilizará una tasa más baja y sin riesgos respecto del UAAL. El impacto de este cambio sobre el pasivo reportado depende de cuántos fondos tenga un plan: los planes totalmente financiados no sufrirán modificación alguna, los planes con fondos suficientes experimentarán unos pocos cambios, y los planes con escasos fondos estarán sujetos a grandes aumentos en las deudas reportadas y reducciones en el financiamiento. Según las nuevas normas, los estados contables del gobierno deberán incluir el UAAL, lo que incrementará la visibilidad del pasivo sin fondos para el electorado.
¿Qué sabemos sobre las pensiones municipales?
A pesar de los crecientes motivos de preocupación respecto a la salud fiscal de los planes de pensión municipales, no se tiene un conocimiento sistemático de los mismos. La mejor información disponible proviene de la Encuesta Anual de Sistemas de Jubilación para Empleados Públicos Estatales y Municipales, llevada a cabo por la Oficina del Censo de los EE.UU. (2012). Cada cinco años se ofrece información detallada sobre cada organismo de gobierno. Cada año se da información de datos a nivel de planes para una muestra que incluye casi la mitad de los 3.200 planes municipales, y estos datos se utilizan para generar estimaciones de totales para cada estado por tipo de gobierno. Las tablas 1 y 2 muestran ejemplos de los tipos de información que presenta la encuesta.
Las principales virtudes de la encuesta sobre jubilaciones de empleados de la Oficina del Censo son la calidad de los datos y el hecho de que son exhaustivos. Una desventaja importante es la falta de relevancia temporal, ya que los últimos datos municipales disponibles son los correspondientes al ejercicio de 2010. Otro problema reside en que hace muy poco que la Oficina comenzó a informar acerca de las deudas de los planes, y sólo incluye estos datos respecto de los planes estatales. Al igual que otras fuentes de datos sobre pensiones, la Oficina del Censo no recaba información sobre los planes DC u otros beneficios posteriores al empleo (OPEB, por sus siglas en inglés).
No obstante, la encuesta sobre jubilación de empleados arroja cierta luz sobre las pensiones municipales. Por ejemplo, la cantidad de planes municipales por estado varía significativamente: 7 estados no poseen planes municipales, 20 estados tienen menos de 10, Florida e Illinois tienen más de 300 cada uno, y Pensilvania posee más de 1.400. La cantidad de afiliados activos por beneficiario es una medida rudimentaria para saber de qué manera los aportes de los empleados sirven para financiar el plan. La tabla 1 muestra que el promedio nacional en los planes municipales es de 1,4 trabajadores por jubilado, aunque la variación entre estados es considerable. Esta proporción de respaldo es menor que 1 en 12 estados; de entre 1 y 2 en 31 estados; y de más de 2 en 7 estados (Utah posee la proporción más alta: 6,8).
Ninguno de estos datos nos dice cuán suficientemente financiadas se encuentran las pensiones municipales. Para obtener esta información, debemos recurrir a encuestas independientes. La mayoría de estas encuestas ofrecen una buena cobertura sobre los planes estatales, aunque, por lo general, incluyen sólo información sobre algunos de los planes municipales más grandes, como, por ejemplo, la encuesta anual de planes de afiliados de la Asociación Nacional de Administradores de Jubilación Estatal (NASRA, por sus siglas en inglés). Unas pocas investigaciones nacionales se han centrado en las deudas por pensiones municipales, en lugar de estatales. Por ejemplo, Novy-Marx y Rauh (2011) analizan las finanzas de las pensiones municipales utilizando datos de los Informes Financieros Anuales Consolidados (CAFR, por sus siglas en inglés) respecto de los planes de ciudades y condados que poseen más de US$1.000 millones en activos a partir de 2006.
El Centro de Investigaciones sobre Jubilación (CRR, por sus siglas en inglés) de la universidad Boston College mantiene una Base de Datos de Planes Públicos (PPD) para los mayores planes estatales y municipales, con datos provenientes de informes actuariales individuales sobre los planes y CAFR del gobierno municipal. Mediante el uso de la PPD más otros tipos de información sobre planes municipales adicionales, el CRR recientemente emitió un informe con datos para 2010 en base a una muestra de 97 planes en 40 estados (Munnell y otros 2011). Esta es una muestra modesta en relación con el total de 3.200 planes municipales; no obstante, debido a que se concentra en los planes grandes, cubre el 59 por ciento de los activos de pensiones municipales y el 55 por ciento de los afiliados.
Un resultado importante de esta investigación es la amplia dispersión que existe en la relación promedio de financiamiento del 77 por ciento en 2010 (figura 3). De los 95 planes grandes de la muestra del CRR con información utilizable, sólo 16 poseían activos para cubrir más del 90 por ciento del pasivo. En el extremo opuesto, hay 9 planes con un financiamiento menor al 50 por ciento (Munnell y otros 2011). Además, este estudio muestra al ARC como un porcentaje de la nómina gubernamental municipal. El promedio general para 2010 es del 22 por ciento, y en este caso también existe una amplia dispersión (figura 4). De los 91 planes grandes en la muestra del CRR con información utilizable, más de la mitad (49) tienen un ACR por debajo del 20 por ciento de la nómina, aunque 16 planes poseen participaciones en el rango menos manejable de entre 30 por ciento y 80 por ciento. Cinco planes poseen un pasivo por pensiones de tal magnitud que, de pagarse por completo, costaría más que el 100 por ciento de la nómina.
Debe tenerse en cuenta que los gobiernos municipales en la mayoría de los estados no están obligados a pagar la cantidad total de ARC . No poseemos datos a nivel municipal; sin embargo, según un informe a nivel estatal, existe una amplia variación en el porcentaje de los ARC efectivamente pagados en todos los planes, todos los años y en todos los estados (Equipo de Trabajo para la Crisis Presupuestaria Estatal 2012). Munnell y otros (2011) calculan los pagos de pensión efectivamente realizados como un porcentaje de los presupuestos municipales, y en este caso también obtienen como resultado una variación considerable: el 14 por ciento de los gobiernos de la muestra destinan más del 12 por ciento de sus presupuestos al pago de las pensiones.
Conclusiones
Las pensiones del gobierno municipal se encuentran, en promedio, significativamente escasas de fondos. La razón fundamental reside en que, ante la falta de una obligación legal, muchos gobiernos no han reservado los suficientes fondos cada año para cubrir las deudas por pensión adicionales contraídas en ese año, y mucho menos para amortizar el pasivo sin fondos de años anteriores. En efecto, estos gobiernos piden préstamos para pagar los servicios de los trabajadores en el presente y trasladar la carga a futuros contribuyentes.
Tenemos muchos menos datos acerca de los 3.200 planes administrados a nivel municipal que los que tenemos sobre los 220 planes estatales. La mejor información respecto de los planes municipales proviene de investigadores que analizan los informes financieros detallados de los planes y los gobiernos municipales. Forzosamente, estos estudios se concentran en los planes más grandes. Lo que sí sabemos es que existe una amplia variación entre los diferentes planes respecto de ciertas medidas clave: el porcentaje del pasivo que se encuentra cubierto por los activos; la aportación completa que debería cubrir tanto los costos de pensión del año en curso como la amortización del pasivo sin fondos (ARC ) relativo a la nómina o a la recaudación anual; el porcentaje del ARC que se paga efectivamente; y el porcentaje del presupuesto en curso que se destina a los costos de pensión. Una importante cantidad de gobiernos municipales está en dificultades por una o más de estas medidas.
Lo que empeora aun más la situación es que lo que sabemos acerca del pasivo proviene de los datos reportados por los propios municipios y la tasa de descuento que estos gobiernos eligen. En casi todos los casos, la tasa de descuento es inadecuadamente alta, y la utilización de una tasa de descuento menor podría aumentar el pasivo sin fondos a más del doble. El resultado es un grave problema con respecto a las deudas por pensiones municipales que amenaza las finanzas del gobierno municipal, aunque no conocemos su magnitud ni el nivel de desigualdad de su distribución.
Sobre los autores
Richard F. Dye es visiting fellow del Lincoln Institute of Land Policy. Asimismo es profesor en el Instituto de Gobierno y Relaciones Públicas de la Universidad de Illinois en Chicago, y profesor emérito de Economía en el Lake Forest College.
Tracy Gordonfellow en Estudios Económicos en el Instituto Brookings, Washington, DC. Su campo de investigación se centra en las finanzas públicas estatales y municipales, la economía política y la economía urbana.
Referencias
Brown, Jeffrey R. y David W. Wilcox. 2009. Discounting state and local pension liabilities. American Economic Review 99(2): 538–542.
Comité Económico Conjunto (Joint Economic Committee o JEC). 2011. States of bankruptcy, part I: The coming state pensions crisis. Republican Staff Commentary, Washington, DC, 8 de diciembre.
Comité Económico Conjunto (Joint Economic Committee o JEC). 2012. States of bankruptcy, part II: Eurozone, USA?. Republican Staff Commentary, Washington, DC, 15 de mayo.
Equipo de Trabajo para la Crisis Presupuestaria Estatal. 2012. Informe del Equipo de Trabajo para la Crisis Presupuestaria Estatal. http://www.statebudgetcrisis.org/wpcms/wp-content/images/Report-of-the-State-Budget-Crisis-Task-Force-Full.pdf.
Gordon, Tracy M., Heather M. Rose e Ilana Fischer. 2012. The state of local government pensions: A preliminary inquiry. Documento de trabajo. Cambridge MA: Lincoln Institute of Land Policy.
Junta de Gobernadores del Sistema de la Reserva Federal. 2012. Flow of funds accounts of the United States, 7 de junio. http://www.federalreserve.gov/releases/z1/current/data.htm.
Junta de Normas Contables del Gobierno (Governmental Accounting Standards Board o GASB). 2012. GASB Improves Pension Accounting and Reporting Standards. Comunicado de prensa. 25 de junio. http://www.gasb.org/cs/ContentServer?c=GASBContent_C&pagename= GASB/GASBContent_C/GASBNewsPage&cid=1176160126951.
Munnell, Alicia H., Jean-Pierre Aubry, Josh Hurwitz y Laura Quimby. 2011. An update on locally administered pension plans. Resumen de políticas del Centro de Investigaciones sobre Jubilaciones de Boston College, julio.
Munnell, Alicia H., Jean-Pierre Aubry, Josh Hurwitz y Laura Quimby. 2012. The funding of state and local pensions: 2011–2015. Resumen de políticas del Centro de Investigaciones sobre Jubilaciones de Boston College, mayo.
Munnell, Alicia H., Kelly Haverstick, Steven A. Sass y Jean-Pierre Aubry. 2008. The miracle of funding by state and local pension plans. Resumen de políticas del Centro de Investigaciones sobre Jubilaciones de Boston College, abril.
Novy-Marx, Robert y Joshua Rauh. 2011. The crisis in local government pensions in the United States. En Growing old: Paying for retirement and institutional money management after the financial crisis. Editado por Robert Litan y Richard Herring, 47–74. Washington, DC: Instituto Brookings.
Nuschler, Dawn, Alison M. Shelton y John J. Topoleski. 2011. Social Security: Mandatory coverage of new state and local government employees. Servicio de Investigaciones del Congreso, julio. http://www.nasra.org/resources/CRS%202011%20Report.pdf.
Oficina de Estadísticas Laborales de los EE.UU. 2011. Employee benefits survey, retirement benefits: access, participation, and take-up rates. Marzo.
Oficina del Censo de los EE.UU. 2012. 2010 annual survey of state and local public employee retirement Systems. http://www.census.gov/govs/retire.
Snell, Ronald K. 2012. State pension reform, 2009–2011. Washington, DC: Consejo Nacional de Legislaturas Estatales, marzo.
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More than any other single variable, the change in land values across time and over space provides important insights into the shifting spatial structure of a city. Whereas a typical property sale reflects the combined value of the land and buildings, the land value alone represents the actual current worth of a location and suggests expectations about the future. Even if a parcel bears the burden of an outmoded construction, the price of the land reflects the present discounted value of the stream of returns that could be earned from the highest and best use of the parcel. Rapidly rising land prices in an area of a city are a clear indication that people expect the neighborhood to be in high demand for some time to come, signaling investment opportunities to developers. Changes in land values may also serve to alert city officials that an area may require zoning changes and investments in infrastructure.
Land value is also an important component in the cost approach to property assessment, which is one of the three commonly used assessment methods (including the sales comparison and income approaches). The cost approach has three major components: (1) the cost of building the existing structure if it were new at the time of assessment; (2) the depreciation of the building to its current condition; and (3) the price of the land parcel. Adding (1) to (3) and subtracting (2) generally produces a good estimate of overall property value. In standard property transactions, however, land values are not easily separated from the value of structures. Sales of vacant land, which more clearly indicate a site’s value, are relatively rare in large, built-up urban areas; as a result, relatively few studies of vacant land sales exist (see Ahlfeldt and Wendland 2011; Atack and Margo 1998; Colwell and Munneke 1997; Cunningham 2006). Teardowns can sometimes be used to measure land values, because land represents the entire value of a property when the existing building is demolished immediately following a sale (McMillen 2006; Dye and McMillen 2007). However, teardowns tend to be concentrated in certain high-value neighborhoods, and the data on demolitions can be hard to obtain.
Among U.S. cities, Chicago is uniquely fortunate to have a data source, Olcott’s Land Values Blue Book of Chicago, which reported estimates of land values for every city block and for blocks in many Cook County suburbs for most of the 20th century. Olcott’s provided a critical input to the cost assessment procedure: After determining the building cost and depreciation, the overall value of a property can be assessed by multiplying the parcel size by the land value provided in the Blue Book series. This article is based on a sampling of data from the Olcott volumes (box 1). It includes a series of maps that provide a clear picture of the spatial evolution of Chicago during the 20th century, similar in spirit to the classic book, One Hundred Years of Land Values in Chicago (Hoyt 1933).
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Box 1: Data Sources for Chicago Land Values
Olcott’s Land Values Blue Book of Chicago covers the City and much of suburban Cook County with a series of 300 maps, each printed on one page of a book. The city itself comprises 160 individual maps with an impressive level of detail. Most block faces have a value representing the price per square foot for a standard 125-foot-deep lot. Land use is also indicated. Large lots and most industrial land have prices quoted by the acre or occasionally by the square foot for an unspecified lot depth. The data represent land values for 1/8- x 1/8-mile square grids, which closely follow Chicago’s street layout and thus resemble city blocks. Each year’s data set includes 43,324 observations for the entire city.
The Lincoln Institute of Land Policy has provided funding to digitize the data contained in Olcott’s Blue Book for a series of years spanning much of the twentieth century: 1913, 1926, 1932, 1939, 1949, 1961, 1965, 1971, 1981, and 1990. A more thorough description of the procedure used is presented in Ahlfeldt et al. (2011). Digitizing the maps involves bringing them into a GIS environment. Average land values are calculated for 1/8- x 1/8-mile squares overlaid on the maps. The full data set has more than 600,000 data points across the 10 individual years.
Olcott’s stopped publication in the early 1990s, and the last year of digitized data is 1990. To supplement Olcott’s records for recent years, the authors obtained data on all vacant land sales in the city from 1980 to 2011. More than 16,000 sales were successfully geocoded, and they display the dramatic increase in land prices during the period prior to the collapse of the housing market at the end of 2006. These combined data sets provide a unique opportunity to analyze the changing spatial structure of an entire city over an extended time.
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Spatial Variation in Land Values
Despite its flat terrain, Chicago has never been a truly monocentric city. Lake Michigan has long been an attractive amenity for its scenic value, its moderating effect on the climate, and the series of parks lining its shore. The Chicago River also has had a significant influence on the location of both businesses and households. Development to the north of the Central Business District (CBD) was delayed because the bridges over the main branch of the river had to open so often for river traffic that commuting to the Loop business area was unpredictable and time consuming. The north and south branches of the river attracted both industrial firms and low-priced residential developments for laborers while repelling high-priced homes designed for CBD workers. The locations of major streets, highways, and train lines also had significant effects on development patterns. Thus, there is ample reason to expect that the rate of change in land values varies across the city.
The maps in figure 1 show this spatial variation in land values in Chicago over time. In 1913, land values were highest in a large area around the CBD, and they were also quite high along the lakefront and along some of the major avenues and boulevards leading out of the downtown area. In 1939, this pattern was generally similar, along with the rise of the north side relative to the south side of the city: Land values were very high all along the northern lakefront and extending well inland on the north side. The area at the edge of the city due west of the CBD (the Austin neighborhood) also had relatively high land values in 1939.
By 1965, the pattern of land values had changed markedly. Very high land values were confined to a relatively small area in the CBD. The high-value area of the west-side Austin neighborhood was much smaller in 1965 than in 1939, and nearly all the formerly high-value areas had shrunk in size.
By 1990, however, the situation changed dramatically. The area with very high values extended much farther north and inland than previously. Areas on the south side had relatively high land values in 1990, particularly around the South Loop (near the CBD) and Hyde Park (along Lake Michigan south of the CBD).
After 1990, the pattern of continued redevelopment of the city is based on an analysis of actual sales of vacant land. The expansion of the high-value area to the north and west of the CBD is remarkable, and the near south side also enjoyed a resurgence during this time.
Figure 2 addresses how the recent recession affected the growth of land values in Chicago by expressing land values as a function of distance from the CBD. The plots show the change in average (log) land values over time for tracts with centroids falling within 2-, 5-, and 10-mile rings around the CBD. In 1913, average land values were far lower 10 miles from the CBD than in the closer rings. By the 1960s, there was little difference between land values across these distances. Since then, average values grew much more in the 2-mile ring than in more distant locations. During the Great Recession, land values declined rapidly in the 2-mile ring, less rapidly in the 5-mile ring, and not at all in the 10-mile ring. Thus, the areas that had the highest rates of appreciation during the period of extended growth also had the highest rates of decline during the recession.
Figure 3 provides a different perspective on the spatial variation in land values over time. The three panels show smoothed land value surfaces for 1913, 1990, and 2005. The 1913 and 1990 surfaces are estimated using Olcott’s data, while the 2005 estimates are based on sales of vacant land. In all three years, land values are far higher in the CBD than elsewhere. In 1913, there are a large number of local peaks in land values at the intersections of major streets. These areas were relatively small commercial districts that served local residents in a time before car ownership was commonplace. In 1990, the land value peak in the CBD is accompanied by a much lower plateau just to the north along the lakefront. In 2005, the plateau has grown to a large area that extends well into the north side and inland along the lakefront. The region of high land values has also extended south along the lakefront, with a local rise much farther south in Hyde Park.
Persistence of Spatial Patterns
Historical land values are interesting not only because they reveal how an urban area has changed over time, but also because the past continues to exert substantial influence on the present. Cities are not rebuilt from scratch in every period. Buildings last a long time before they are demolished, and sites that were attractive in the past tend to remain desirable for a long time. One of the unique features of the Olcott’s data set is that it allows us to compare land values from 100 years ago to current land values and land uses.
Figure 4 shows the average date of construction for the 1/8- x 1/8-mile squares. The recent recentralization of Chicago is evident in the donut shape of building ages around the CBD. The newest buildings are close to the CBD, while the oldest buildings are in the next ring. Buildings in the most distant region were most likely built between 1940 and 1970.
Figure 5 summarizes this relationship by comparing the mean construction date to distance from the CBD. The oldest buildings are in a ring just over 5 miles from the CBD.
A good measure of structural density is the ratio of building area to lot size. Economic theory predicts that structural densities will be high where land values are high. Structures last for a long time. How well do past values predict current structural density? Figure 6 compares the structural density of buildings in the 2003 Cook County assessment rolls to land values in 1913 and 1990. This data set includes the building area of every small (six units or fewer) residential structure in Chicago.
The height of the bars indicates the structural densities: Tall bars have relatively high ratios of building areas to lot sizes. The color of the bars indicates land values: Red bars have relatively high and values. Thus, we should expect to see a large number of tall red bars and low green bars. In general, the two panels do indicate a positive correlation between structural density and land values. The correlation is particularly evident on the north side and along the lakefront. The correlation with 1990 is less clear on the south and west sides. Several elevations in the density surface are not matched by correspondingly high land values. One explanation for these results, which are in line with the reorientation of high-priced areas toward the north side, is that the relatively high densities in these areas are artifacts of a past when those blocks were relatively more valuable and when there were incentives to use the land intensively. The 1913 panel of figure 6 suggests that land values are actually more closely correlated with building densities for 2003 than are the 1990 values. The root of this apparently anomalous result is that building density reflects the economic conditions at the time of construction, and most of the buildings in that part of the city date from long ago. The past continues to exert a major influence on the present.
Conclusion
Olcott’s data provide a clear picture of the changes in Chicago’s spatial structure during most of the 20th century. Never a truly monocentric city, Chicago began the century with very high land values in the CBD, along the lakefront, and along major avenues and boulevards leading out of the downtown area. Values were also high in neighborhood retail areas at the intersections of major streets. By 1939, the north side of Chicago had already begun to display its economic dominance. The city then suffered an extended period of decline, with the CBD holding the only major cluster of high land values in the 1960s. Since then, the city has undergone a remarkable resurgence. High land values now extend over nearly the entire north side, and land values have also rebounded in parts of the south side. Our analysis also shows the strong role that history continues to play in the current spatial structure of the city. A result of this persistence is that land values from a century ago are better than current land values at predicting the density of the current housing stock.
Acknowledgments
The authors thank the Lincoln Institute of Land Policy for generous funding and support, and are grateful to the Centre for Metropolitan Studies at the TU-Berlin for hosting a team of researchers during the project work. Kristoffer Moeller and Sevrin Weights are acknowledged for their great contribution to designing and coordinating the compilation of the data set. Philip Boos, Aline Delatte, Nuria-Maria Hoyer Sepulvedra, Devika Kakkar, Rene Kreichauf, Maike Rackwitz, Lea Siebert, Stefan Tornack, and Tzvetelina Tzvetkova provided excellent research assistance.
About the Authors
Gabriel M. Ahlfeldt is associate professor at the London School of Economics and Political Sciences (LSE) in the Department of Geography and Environment and Spatial Economics Research Centre (SERC).
Daniel P. McMillen is professor in the department of economics at the University of Illinois at Urbana-Champaign.
Resources
Ahlfeldt, Gabriel M., Kristoffer Moeller, Sevrin Waights, and Nicolai Wendland. 2011. “One Hundred Years of Land Value: Data Documentation.” Centre for Metropolitan Studies, TU Berlin.
Ahlfeldt, Gabriel M., and Nicolai Wendland. 2011. “Fifty Years of Urban Accessibility: The Impact of the Urban Railway Network on the Land Gradient in Berlin 1890–1936.” Regional Science and Urban Economics 41: 77–88.
Atack, J., and R. A. Margo. 1998. “Location, Location, Location! The Price Gradient for Vacant Urban Land: New York, 1835 to 1900.” Journal of Real Estate Finance & Economics 16(2) 151–172.
Colwell, Peter F., and Henry J. Munneke. 1997. “The Structure of Urban Land Prices.” Journal of Urban Economics 41: 321–336.
Cunningham, Christopher R. 2006. “House Price Uncertainty, Timing of Development, and Vacant Land Prices: Evidence for Real Options in Seattle.” Journal of Urban Economics 59: 1–31.
Dye, Richard F., and Daniel P. McMillen. 2007. “Teardowns and Land Values in the Chicago Metropolitan Area.” Journal of Urban Economics 61: 45–64.
Hoyt, Homer. 1933. One Hundred Years of Land Values in Chicago. Chicago: University of Chicago Press.
McMillen, Daniel P. 2006. “Teardowns: Costs, Benefits, and Public Policy.” Land Lines, Lincoln Institute of Land Policy 18(3): 2–7.
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The study of property taxation in Europe offers special challenges because each country has a different definition of land and property, and a different approach to local property taxation. The term property often includes both land and buildings, but may also include plants and machinery as well as certain possessions, such as automobiles. In Denmark, for example, separate taxes may be levied on the land and property elements of a single holding.
Among the 41 counties in our study, we identified 61 different forms of local taxation. Most are based on annual value, usually assessed on a capital or rental basis, and are payable annually. While most countries tax the sale of property at the state level, the Czech Republic, Italy, Portugal, Slovakia and Spain levy such taxes locally. Yet, amid such diversity, a basic central pattern emerges. Each county, except Malta, operates some form of annual property tax on the use or occupation of land and/or property, usually levied at the local level, and the revenues contribute to the provision of local services.
Tax Reform and the European Union
Over the last 10 years France, Denmark, Germany, the Netherlands, Belgium, the United Kingdom and the Republic of Ireland have either completed or are in the process of completing substantial reforms to their taxation systems. Other countries have undertaken more minor reforms. Even some emerging democracies are reviewing and reforming their relatively new taxation systems in light of changes elsewhere. No individual tax exists in isolation, and all are affected by larger fiscal, economic and political developments. The reform of one tax will often have consequential effects on others, and property taxation in all its forms is no exception.
One impetus to tax reform in Europe is the European Union (EU). Fifteen of the countries in our study are members, and many other countries are in various stages of being considered for membership. Many countries are taking this opportunity to reform and improve their tax administration systems and to make their taxation rates competitive with those of other member states. Tax harmonization is not one of the declared aims of the EU, although it may be a natural consequence of many EU polices.
The main incentive for tax reform in Europe is coming from the states themselves. In one of the first signs of the problems caused by traditional national taxation systems, the Ministry of Finance in the Netherlands noted in the early 1990s that not only were businesses locating in the most tax-favorable areas but they also were buying goods and services from other countries where tax rates and other costs were lower. The close proximity of the Netherlands to Germany, France, Belgium and Luxembourg, as well as the good transport links between the countries, exacerbated the situation.
The introduction of the Single European Market has opened internal markets to foreign competition with the removal of trade barriers and the abolition of customs duties between member states. Business competitiveness now depends primarily on efficiency and the amount of taxation imposed by the national government, rather than on state aid and trade policies.
Approaches to Local Taxation
The Taxpayer
The majority of property taxes are payable by the owner. Of the 51 taxes we studied, 29 identified the owner as the taxpayer and 12 are paid by the occupier; the remaining 10 are sales-based taxes. The occupier figure was distorted because the United Kingdom accounted for 50 percent of this figure, due to differences in the implementation of its local taxes. In the Netherlands both parties can be taxed at different amounts. For sales-related taxes the results were less clear, with the taxpayer being the seller in half the cases and the purchaser in the other half.
Sources of Valuation Information
Many countries have some form of computerized cadastral system to record property-related information, and as part of the assessment process different levels of government usually exchange information. The nature and implementation of such systems vary considerably, from a series of different registers administered at various levels of government to a single register administered nationally.
The rights of the taxpayer to centrally held information also differ among countries. Some provide no rights to any information, while others provide notice whenever a new valuation or alteration is made. In some cases, valuation and comparable evidence may be made available at the request of the taxpayer.
Bases of Valuation
Three alternative approaches for the valuation bases are used most frequently. The Capital Value Approach is normally based on the open market value of the property at a specified baseline date, which may be a current date such as the start of the tax year. Sweden designates a date two years before the tax year. This approach has the advantage of giving valuation authorities more time to consider all the evidence available before arriving at their final valuations. The open market value is usually defined on the basis of a property’s best and/or highest value.
The Rental Value Approach is based on the open market rental value at a specified date. England, Wales, Scotland and the Republic of Ireland specify a baseline date some time before the new values come into effect, as in Sweden. The open market rental value may be restricted by assumptions as to changes of use and alterations. The rationale is that the tax is levied on the occupier and the amount of tax is based on the current use of the property, not its potential value.
Properties not normally bought and sold in the market require alternative approaches to valuation. For example, the use of a revenue (or accounts) approach has been adopted in England and Wales for many types of leisure-related property, and its use is expected to increase. The cost approach, related to the cost of construction, also is widely accepted in England and Wales and in other European countries.
The Overall or Unit Approach relates to a property’s size. The tax is levied at a prescribed rate per square meters or per unit, which may vary depending on the predominant use of the property. These rates may be loosely based on rental or capital values, but are more often an arbitrary rate fixed by the appropriate taxation authority. In 1997 the Netherlands moved away from such a system in favor of a market-related capital value approach. Many new democracies have adopted the unit approach due to a lack of property information, a limited and restricted property market, and insufficient resources to enable the development of alternative systems. It is anticipated that many of these countries will move to a value-based system when resources and circumstances permit.
A number of other approaches are used under special circumstances. One is the capital value banding approach adopted for the valuation of residential property for the Council Tax in England, Wales and Scotland. In this approach property is ascribed to various value bands rather than valuing each individual property precisely. Another example is the local business tax, which includes the value of the property plus in the case of France a percentage of salaries and in the case of Spain and Switzerland the business profits.
Revaluation of the Tax Base
One of the key factors in examining European property tax systems is whether the valuations on which the tax is charged are up-to-date. Our research identified a very mixed picture: some countries have not revalued their tax bases for many years and others undertake revaluations regularly, every four or five years (see Table 1). Many countries have either no provision for regular revaluations or have postponed revaluations so often that their tax base bears little resemblance to current market values.
Indexation
Many countries have attempted to overcome the problems associated with infrequent revaluations by some form of indexation. Those countries performing annual revaluations may implement them through actual annual revaluations, indexation of an earlier revaluation or self-assessment declarations by the taxpayer. While annual indexation between regular revaluations every few years may ensure a relatively accurate tax base, its use becomes more questionable when the base has not been updated for 10 or 20 years. The position is made far worse in countries where the property market is changing rapidly, especially in major cities and towns. Any adopted index needs to be closely related to the property market in that location and to the specific property type. In most cases, however, the index is a single figure applied across the entire country and for all types of property.
Exemptions and Reliefs
Exemptions can be considered from two viewpoints: the nature of the property or the nature of the taxpayer. In addition, some countries have introduced arrangements that place a ceiling on the amount of tax payable. Some common features relating to the types of properties for which some form of relief may be granted are:
Relief to taxpayers takes many forms and can include:
Calculating the Amount of Tax
The simplest systems for calculating tax payments adopt a given tax per square meter occupied. Once the area of the property is agreed, it is a relatively simple matter to apply a given tax rate to that area. In some countries, the assessed value must be multiplied by an index or co-efficient and then by a locally determined rate that can vary depending on the size of the authority levying the charge. In France, the situation is even worse for the business tax, where a series of limitations have to be calculated to ascertain whether a ceiling or cap applies to the taxable amount.
Appeal Systems
Most countries have a system by which the taxpayer may challenge the tax assessment or valuation, although that action generally does not postpone the payment of the tax. In some cases the first step is an informal approach to the authority, which may be able to resolve the dispute without the need for more formal action. Where a formal approach is adopted, the appeal may be dealt with as part of the general tax appeal process through the normal tax tribunals and courts, or it may be handled outside the normal tax system, often in courts and tribunals established for the purpose.
Tax Collection and Payment
In many countries taxes are collected by the national tax authority, often as part of the income tax process. This method has the advantage of being linked with national exemptions and benefits; the resulting tax is usually payable over the whole tax year. Under the second common method, the tax is paid directly to the relevant taxing authority, sometimes in installments.
Conclusion
European countries are constantly reviewing their tax systems and adopting the best features of other systems. This presents special challenges to a survey such as ours, but also enhances its potential impact by allowing comparative analysis to influence new legislation. One very important conclusion at this early stage of the research project is the importance of keeping the tax base up-to-date. This not only simplifies the entire valuation and collection process but also ensures a tax base that is more acceptable and understandable to taxpayers. During this year we propose to widen our research and complete data collection on other European countries. In addition, we will attempt to compare the amounts of revenue raised by each type of taxation and analyze them within the context of each country’s local government and finance system.
Peter K. Brown is professor of property taxation at Liverpool John Moores University, a frequent author and a regular speaker on valuation, rating and taxation matters. Moira Hepworth is head of research at the Institute of Revenues, Rating and Valuation (IRRV), based in London. The authors are joint recipients of a David C. Lincoln Fellowship in Land Value Taxation. This article is based on their first year of research and their recent working paper.
Related Publication
Peter K. Brown and Moira Hepworth. 2000. “A Study of European Land Tax Systems.” Lincoln Institute Working Paper. 156 pages.
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Governments have often intervened in land markets in Asian cities, but with limited effects. In recent decades, economic globalization and political democratization have created even stronger demands for more efficient and equitable land use policies. Rapid economic growth in cities with scarce land resources has generated a wave of new thinking on land values and land markets among scholars and policymakers.
The GATT (General Agreement on Tariffs and Trade) negotiations are stimulating new production structures in much of Asia, which consequently shift demand from agriculture into manufacturing and other urban land uses. At the same time, local governments are struggling with more financial autonomy and are becoming dependent on revenues from increased land values to subsidize the costs of development.
Three countries illustrate emerging land and tax policy issues raised by these complex interactions of international and local economies.
In Taiwan, land values for urban and agriculture uses are extremely divergent. The immediate issues are: 1) how to better use the 40,000 hectares of agricultural land that are no longer needed for production as a result of the GATT agreements; and 2) how to distribute the development benefits created by this conversion of agricultural land.
In Korea, the challenge concerns the legality of taxation to capture excessive increases in land value and gains from land speculation. Faced with builders’ pressure to develop greenbelts and open spaces in metropolitan areas and with local politicians’ concerns over fiscal autonomy, the central government is preparing a major tax reform to capture these increments in land value.
In Japan, land values have changed dramatically over the past ten years, but the reasons for these fluctuations are not always clear. Land speculation, unpredictable market forces and government regulation all play a part. Analysis of failed attempts to control land prices will be valuable in developing future policies.
Land Value and Speculation
The perception of land value in Taiwan, Korea, and Japan may not be significantly different from that in other capitalist countries. The problem is in the speculative value, also known as “unearned income” or the “unearned increment” in land value. This value can be so high that it distorts all the legal, administrative, political and social measures designed to manage the use of land. In Japan, for example, land value in major cities tripled from 1983 to 1989. In Korea, land value increased 13 times between 1975 and 1990, while the national income increased only 5 times in the same period. In Taiwan, the value of farm land increased 155 percent from 1986 to 1990, compared to the GDP’s 36 percent growth during the same period.
Policies intended to control land values during periods of high speculation are unlikely to succeed. During the boom times of the 1980s in all three Asian countries, special interest groups and politicians dependent on economic growth failed to anticipate any negative downturn effects. Land policies became disorganized, and conflicts arose among different government departments. For example, some local governments subsidized farmland owners who had already sold their land for conversion to urban uses and had benefited financially from this speculation. Financial institutions provided loans to corporations which depended on land speculation for their corporate earnings. The results were devastating: farmers who wished to farm could not afford to buy farm land; manufacturers could no longer compete when 60 percent of their investments were spent on land costs; and average citizens had an even more difficult time owning a house.
Reevaluating Land and Tax Policy
As land values have dropped in recent years, there is a new opportunity to revise land policies. Special interest groups and land value speculators have softened their opposition to government intervention on land markets. The GATT and WTO (World Trade Organization) negotiations are requiring countries to better coordinate their land policies and general economic policies in the interests of industrial readjustment. Future policies in Taiwan, Korea, and Japan will likely incorporate the following measures:
New regulations will be designed to convert some farmland and environmentally less-sensitive land for housing and mixed-use urban development. The goals are to continue sustainable development and to assist the conversion of the agricultural sector.
Tax reform and exaction-like laws will be introduced to capture the “unearned income” from land speculation. A capital gains tax, land value tax and land value increment tax will be the hallmarks of tax reform. Local government will be given more autonomy to require private developers to share benefits with the community.
Land use planning systems will be coordinated at all levels of government to manage growth. New land use controls will be designed to cope with new economic activities derived from the economic readjustments.
To help advance these land and tax policy reforms, the Lincoln Institute research staff is working with colleagues in each country. The Council of Agriculture in Taiwan, Republic of China, and the Institute are conducting a three-year joint study (1994-97) on land value capture and benefit distribution mechanisms. A team of researchers from the Lincoln Institute and the Korea Tax Institute is researching tax reform for the Korea Ministry of Finance during the 1995-1996 academic year. Both American and Japanese scholars are examining land values in Japan from a macroeconomic perspective.
Alven Lam in a Lincoln Institute fellow whose current research focuses on land value capture and property rights in Asia.
Additional information in the printed newletter.
Chart: Indices of Korea Land Values and Major Economic Indicators: 1980, 1985 and 1990. Land prices, housing prices, national income and wholesale prices are charted. Source: Office of National Statistics, Korea Statistical Yearbook, each year, and Kim, Dai-Young, “Choices for Future Land Policy,” in Land Policy Problems in East Asia, 1994.
Large-scale urban redevelopment projects (termed grandes projectos urbanos or GPUs in Spanish) raise many questions about the impacts of subsequent urban development induced by the intervention. GPUs are characterized by an impact in a significant part of the city, often with the use of some new fiscal or regulatory instruments and the involvement of a large network of agents and institutions. These projects are expected to affect land prices, recycle existing or create new infrastructure and facilities, and attract other new buildings.
GPUs as an urban policy instrument have been the object of considerable controversy and debate throughout Latin America. It is often argued that they promote social exclusion and gentrification, have limited effects in stimulating real estate activities, and require large (sometimes hidden) public subsidies that often draw fiscal resources from other urban needs. In spite of their increasing popularity in Latin America, there is little empirical evidence to support these criticisms.
This article presents the case of a GPU introduced in São Paulo, Brazil, in 1996 as an “urban operation” to redevelop a middle-income area of mostly single-family homes that was to be traversed by the extension of the Faria Lima Avenue. The project is known as the Faria Lima Urban Operation Consortium (OUCFL). We examine economic principles that affect the fiscal performance of the project and its opportunity for value capture, evaluate changes in residential density, and analyze changes in income distribution and ownership structure. Finally, we offer some policy suggestions on how and when to use this kind of instrument based on these assessments.
What is an Urban Operation?
An urban operation is a legal instrument that seeks to provide local governments with the power to undertake interventions related to urbanistic and city planning improvements in association with the private sector. It identifies a particular area within the city that has the potential to attract private real estate investments to benefit the city as a whole. The proper city planning indexes (i.e., zoning and other regulations on construction coefficients, rates of occupation, and land uses) are redefined in accordance with a master plan, and investments are made in new or recycled infrastructure.
An urban operation allows the municipality to capture (through negotiated or mandatory means) the land value increments associated with the subsequent land use changes. In contrast to other value capture instruments, these funds are earmarked or internalized within the perimeter of the project to be shared between government and the private sector for both investments in urban infrastructure and subsidies to private real estate investments to support the project itself.
Each urban operation in Brazil is proposed by the executive and approved by the legislative branch of the jurisdiction. In the case of São Paulo, this authority was created in the Lei Organica Municipal (Constitution of the City) in 1990, which was later inserted in the new Brazilian urban development law (Statute of the City of 2001). The first proposed projects were the Operation Anhangabaú (subsequently expanded as a part of the Downtown Operation and renamed Center Operation) and Água Branca, followed by the Água Espraiada and Faria Lima operations. After the approval of the city’s new Master Plan in 2001, nine other urban operations were generated. These thirteen projects are expected to affect 30 to 40 percent of the buildable area of the City of São Paulo.
Financing Faria Lima
The Faria Lima urban operation (OUCFL) was proposed and approved in 1995 with the aim of obtaining private resources to fund the public investments necessary to purchase land and install infrastructure in order to extend Faria Lima Avenue. These costs were deemed at the time to be approximately US$150 million, two-thirds for land acquisitions and one-third for the avenue itself. The project was heavily contested by many stakeholders on grounds ranging from the source of the funds (i.e., advanced out of the local budget through new debt) to neighborhood concerns (one of which managed to keep the floor-area-ratios [FARs] unchanged and legally excluded from the OUCFL zoning) and technical design issues.
Technical studies carried out at the time indicated that it would be possible to take advantage of an additional potential 2,250,000 square meters beyond what was already permitted by the city’s zoning legislation, and the FARs were changed accordingly. These additional building rights were granted against a payment of a minimum of 50 percent of their market value using the existing “Solo-Criado” (Selling of Building Rights) instrument. OUCFL aroused great interest on the part of real estate entrepreneurs. This instrument nevertheless was also questioned for its lack of transparency, its project by project approach, and the arbitrariness in the way relevant prices were established and then used to calculate the value of the additional building rights.
By August 2003 a total of 939,592 square meters, or nearly 42 percent of the available total of these 2,250,000 square meters, had already been licensed. More than 115 real estate projects were approved, including nearly 40 percent commercial buildings and 60 percent high-quality residential buildings. Nevertheless, the resources (approximately US$280 million) obtained from these approved projects had not fully compensated for the expenditures (US$350 million, including principal plus interest) associated with the expansion of the avenue, considering the high interest rates prevailing in Brazil for the nearly eight years since the realization of expenditures. Thus, about 80 percent of the cost (albeit more than anticipated) has been recovered through the Selling of Building Rights process. Since July 2004 the compensation for these advance funds was obtained through an ingenious new value capture mechanism known as CEPAC, an acronym for a Certificate of Additional Potential of Construction. One CEPAC represents one square meter.
The Introduction of CEPACs
Although CEPACs were defined in Brazil’s Statute of the City of 2001, they were not approved by the CVM (Brazilian equivalent to the U.S. Security and Exchange Commission) as freely tradable in the Brazilian Stock Exchange until December 2003. The regulation establishes that the price of each certificate is defined by public auction and that the corresponding square meters of building rights (which also include use changes and occupation rates) expressed in each certificate may be executed at any time. The regulation also states that new batches of certificates can be issued (and sold through auction) only upon confirmation that the resources captured by the previous sale have been effectively earmarked to the project. To ensure this designated use, the revenues are deposited in a special account, not in the municipal treasury. From the perspective of the private investors this designation ensures the acceptability of this value capture instrument at its own valorization. By issuing a lower number of certificates than potential building rights—that is by managing their scarcity—the public sector may benefit from the valorization and thus be able to capture value “ex-ante” (Afonso 2004, 39).
The final approval of CEPACs for OUCFL and all the necessary steps for launching them in the financial market occurred in mid-2004, and the first auction at the end of December 2004 generated nearly R$10 million (about US$4 million), corresponding to the sale of approximately 9,000 CEPACs out of an authorized stock of 650,000 square meters. The OUCFL certificates were sold at a face value of R$1,100 (about US$450) per square meter with no observed premium pricing as a result of the bidding process.
This situation contrasts with that of the Água Espraiada urban operation, which was expected to be fully funded by CEPACs from its start. In its third auction, the certificates were already capturing R$370 per certificate against a face value of R$300 set for this operation. A more recent auction in Água Espraiada sold 56,000 CEPACs and captured R$21 million ($US9.5 million), reflecting a certificate price of R$371. This pricing contrast reflects the different original face values in the two projects. In the case of OUCFL developers bought (and stocked) building rights in advance, to benefit from the more flexible rules prior to the CVM approvals. The certificate price in Faria Lima started at more than R$1,100 because it is a more valued area. In Água Espraiada developers were willing to pay more than the original face value because the certificates were less expensive and thus in greater demand.
Land Price Implications
The prices of vacant land and developed areas experienced a considerable increase in some blocks within the perimeter of OUCFL during the 1990s, but decreased in other blocks. Yet, the average square meter price of new real estate development fell throughout the Metropolitan Region of São Paulo (RMSP) in all price bands, when comparing the average price from 1991 to 1996 with those of 1996 to 2000.
After controlling for a number of attributes associated with the changing character of the developments and their location, the price estimations showed an unequivocal relative increase after the operation was launched. The average price per square meter within the OUCFL perimeter increased from R$1.68 thousand in the 1991–1996 period to R$1.92 thousand in the 1996–2001 period, a 14 percent increase, while prices in RMSP decreased from R$1.21 thousand to R$1.06 thousand, a 12 percent decrease in the same period (R$1.95/US$1.00 in December 2000). Thus, the price per square meter in OUCFL was higher than that of RMSP by around 26 percent. The price per square meter in OUCFL was 38 percent higher than the average price in the RMSP in 1991–1996, and it increased to 81 percent higher in 1996–2001.
Was this increase captured by the municipality as anticipated? Considering that the cost of construction in average is around R$1,000 per square meter, the 2004 auction (the only one so far) captured almost all of the value added at current prices. The previous pre-CEPAC system captured about 50 percent or more, depending on the capacity and success of municipal negotiators, and the correctness of the reference price. CEPAC now changes this percentage and the face value of the instrument may capture all the value increment or even more, depending on the relation of this face value to market prices, and on the results of future auctions. Comparing a redevelopment project financed totally by construction bonds (like CEPACs) and one financed totally with general property taxes, there is no doubt that the former is less regressive than the latter. Even with a progressive property tax, with rates increasing according to values, part of the costs would be paid by poorer households.
This evidence that about 80 percent of the total cost of the project has already been recovered, combined with the auctioning of the remaining building rights through CEPACs and the impact of the property appreciation on the current property tax revenues, indicates that the project should not only pay its own way but actually generate a fiscal surplus for the city as a whole over the next five or seven years.
In effect, the changes caused by substituting older single-family houses with new residential and commercial buildings resulted in a substantial change in property tax collection in the OUCFL area. Many lots and even entire blocks had been occupied by single- and two-story houses constructed since the 1950s. Many of these structures were eligible for a discount coefficient for obsolescence of up to 30 percent of the property tax. They were replaced with new, taller and higher-quality buildings for which the discount was null. Our estimates indicate that the differences in property tax collection by square meters constructed may have increased by at least 2.7 times and up to 4.4 times. That is, the average property tax per square meter increased to a minimum of R$588.50 up to R$802.50 from R$220.95 if the house was 25 years old, or from R$179.70 if the house was 30 years old.
Social Implications
The OUCFL case offers a unique opportunity to quantify changes in resident characteristics before and after the intervention, since data at the census track level is available for 1991 and 2000, and the intervention began in 1996. Our analysis of gentrification and displacement of poorer residents mainly confirms the findings of Ramalho and Meyer (2004) that the average income has increased relatively in most of the blocks inside the OUCFL perimeter. By Brazilian standards, the upper-middle class was displaced from the region by the richest 5 percent of households in the metropolitan area. The census data also showed that residential density fell between 1991 and 2000, from 27 to 22 residences per hectare, although these figures may be distorted because they reflect the ratio of total residences in the entire area, not an average of the ratios per plot where land use was converted.
The data from 1991 indicated that the population was already leaving the OUCFL area before the approval of the urban operation, but this exodus intensified after 1996, generating vacant plots in the process of site-assembly to accommodate the new high-rise developments. At the same time, building density increased. The average number of floors per new building in the area increased from 12.6 in the 1985–1995 period to 16.7 in the 1996–2001 period. The number of housing units per building increased from 37.1 to 79.6 over the same periods.
This apparent contradiction between decreased residential density and increased numbers of housing units is explained in part by the construction of commercial buildings that replaced many single-family residencies on small and average-sized lots. OUCFL induced considerable real estate concentration as the new commercial and residential buildings replaced the houses and required greater land areas for high-class architectural projects. The 115 projects approved between 1995 and August 2003 that requested increases in the utilization coefficients required a total of 657 lots, or an average of 5.7 lots per project.
The combination of the increase in income level and the reduction in household density indicates that the gentrification process advanced in and around the OUCFL region during the 1990s. Nevertheless, this is not a classic case of gentrification, where poor families are driven out of an area due to various socioeconomic pressures. In this case mostly upper-middle classes were displaced. Except for the small nucleus of remaining favelados (Favela Coliseu), the region was already occupied by people belonging to the richest segments of society.
Some Policy Observations
This article contributes to the debate about the social management of land valuation by furnishing real data assessments and economic elements. These elements have been missing from most analysis, and we believe that this gap in the literature has contributed to an incomplete interpretation of the implications of an urban operation and to mistaken public policy recommendations.
Our conclusion is that the CEPAC funding mechanism itself does not increase the regressive characteristic of urban operations, since without those building rights bonds all the investment in redevelopment would be financed by general taxes. If the OUCFL project were inadequate in terms of income distribution, it would have been even worse without the value capture mechanism. Instead, CEPAC and the value capture mechanism used previously offered two desirable characteristics of any public investment: charging the new landowners is at least neutral in terms of income distribution; and the primary beneficiaries end up paying for the project.
Furthermore, the urban operation mechanism offers incentives for redevelopment. Given that most projects increase land prices and drive out the poor from the region, it would be better to invest the entire municipal budget in small-scale projects. This is the opposite of what happened with the redevelopment of the adjacent high-end Berrini area where developers decided how to concentrate their investment, resulting in even more income concentration than in the OUCFL area. Because of inaction by policy makers in that case, the municipality did not capture any value from Berrini, yet paid the entire cost of infrastructure.
The use of building rights bonds may diminish the regressive aspect of land development, but to make a project truly progressive requires attention on the expense side, by funding all the investment through instruments like CEPACs. The main limitation on distributing benefits to the poor is that the law establishes that all funds collected through value capture (CEPACs or other instruments) must be invested within the perimeter of the intervention. One way to make these interventions more progressive is to invest in activities that will furnish spillovers to the poor, such as public transit, education, and health. Moreover the relevant legislation allows the administration to select an area inside the perimeter of an urban operation and declare it a zone of special social interest (ZEIS) where lots can be used only for low-income social housing.
Another alternative is to establish social housing areas within the perimeter of the urban operation. By subsidizing low-income housing with money from developers and new landowners, there would be no distortion in prices outside of the housing industry. The subsidy results from segmenting the market and transferring the extra rent to poor households. This is real social management of land valuation.
Ciro Biderman is affiliated with the Center for Studies of Politics and Economics of the Public Sector (Cepesp) at the Economic and Business School at the Getúlio Vargas Foundation in São Paulo, Brazil. He is a visiting fellow in international development and regional planning in the Department of Urban Studies and Planning at Massachusetts Institute of Technology, Cambridge.
Paulo Sandroni is an economist and professor at the Economic and Business School at the Getúlio Vargas Foundation.
Martim O. Smolka is senior fellow and director of the Lincoln Institute’s Program on Latin America and the Caribbean.
Photograph Credit: wsfurlan via iStock / Getty Images Plus.
References
(These publications are available only in Portuguese.)
Afonso, Luis Carlos Fernandes. 2004. Financiamento eh desafio para governantes (Financing is a challenge to government). Teoria ane Debate No. 58, Maio-Junho: 36–39.
Ramalho, T., e R.M.P. Meyer. 2004. O impacto da Operação Urbana Faria Lima no uso residencial: Dinâmicas de transformação (The impact of the Faria Lima Urban Operation on residential use: Transformation dynamics). Mimeo. São Paulo: Lume/FAUUSP.
Biderman, Ciro, e Paulo Sandroni. 2005. Avaliação do impacto das grandes intervenções urbanas nos precos dos imoveis do entorno: O caso da Operação Urbana Consorciada Faria Lima (Evaluation of property price impacts near large-scale urban interventions: The case of Faria Lima Urban Operation Consortium). Lincoln Institute of Land Policy Research Report (April).
How will local government finances be affected by the large and increasing burden to pay for previously obligated pension costs? How, in particular, will these pension legacy costs change residents’ perceptions of the local property tax and their willingness to pay? As a first step in a larger Lincoln Institute of Land Policy research agenda on these questions, we ask: What is known–and just as importantly, what is not known–about the magnitude of unfunded local government pension liabilities in the United States? (see Gordon, Rose, and Fischer 2012)
It is a first principle of public finance that current services should be paid with current revenues and that debt finance should be reserved for capital projects that provide services to future taxpayers. This principle is violated when pension liabilities associated with current labor services are not funded by current purchases of financial assets and instead have to be paid for by future taxpayers.
Alas, principles of prudence in public finance are not always observed, and local governments in the United States have accumulated substantial unfunded pension liabilities in recent years. This situation breaks an important link in the relationship between taxpayers and the services they receive–the rough correspondence between the overall value of public services and the resources taken from the private sector. There is considerable debate about the strength of this correspondence and how price-like the relationship is between value paid and value received for individual taxpayers, but there can be little question that using current revenues to pay for past services weakens the link.
Growing Public Awareness
State and local government employee pensions are in the headlines almost daily (box 1). Only a few years ago, they were the nearly exclusive province of a few elected officials, appointed boards, investment advisors, actuaries, and credit rating agencies. What changed? The most immediate answer is the Great Recession, which sapped not only state tax revenue but also the value of pension plan assets. In particular, state and local pension fund equity holdings lost nearly half of their value, dropping from a peak of $2.3 trillion in September 2007 to a low of $1.2 trillion in March 2009 (Board of Governors of the Federal Reserve System 2012).
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Box 1: Where Are Local Pensions in Trouble?
To understand where local pensions were experiencing particular difficulties, Gordon, Rose, and Fischer (2012) used media monitoring software to conduct a search of all U.S. domestic news outlets for the first three months of 2012. To satisfy the query, articles had to include the word “pension” in conjunction with terms that identify local governments (e.g., municipality, city, or county) and descriptions of funding problems (e.g., liability, deficit, underfunded, cut, default, reform, or problem). The search yielded over 2,000 separate articles from places all over the country.
Their analysis suggests several types of places are experiencing pension troubles. One group consists of jurisdictions that have been losing people and jobs over time. A prominent example is Detroit, Michigan, which has twice as many retirees as active workers. Also in this category is Prichard, Alabama, which has lost more than 45 percent of its population since 1970 and by 2010 had fewer than 23,000 residents. It simply stopped sending pension checks to its former employees in September 2009 and declared bankruptcy one month later. For such communities, pension problems may also be a symptom of larger fiscal distress or political dysfunction.
Another group of jurisdictions rode the housing boom and bust. Examples include fast-growing California cities like Stockton, which just entered bankruptcy proceedings this year, the largest city ever to do so. More puzzling are relatively affluent places, such as New York’s Suffolk or Nassau Counties, which appear unable to make tough spending cuts or raise taxes because of political gridlock. Instead, many of these jurisdictions have turned to borrowing to meet their pension obligations.
Only two recent municipal bankruptcies (Vallejo, California, and Central Falls, Rhode Island) stemmed from public pensions and employee compensation pressures together with falling revenues. Other places such as Harrisburg, Pennsylvania, and Jefferson County, Alabama, are struggling with poor investment decisions. Also, major cities such as Atlanta, San Francisco, and New York have taken steps to limit pension growth, often with cooperation from local public employee unions. Central Falls managed to extract concessions from active police officers and fire fighters as well as current retirees, but even this was insufficient to stop the slide toward bankruptcy.
Although stock markets have largely recovered and state and local plan equity holdings have climbed back over $2 trillion, public pensions remain under scrutiny. Credit rating agencies increasingly are taking unfunded pension liabilities into account when developing their assessments of state and local government borrower risk. In addition, analysts are growing more vocal in their criticisms of methods commonly used to evaluate pension funding levels.
The federal government is also paying attention. Alarmed by the prospect of defaults, Congress held a series of hearings into state and local government finances in early 2011. More recently, the Republican staff of the Joint Economic Committee (JEC) has issued reports raising the specter of a Eurozone-like crisis due to unfunded state pension liabilities (JEC 2011; JEC 2012).
In light of these criticisms and concerns about growing pension costs, 43 states enacted significant reforms to their pension systems between 2009 and 2011 (Snell 2012). The most common changes were: increased employee contribution requirements (30 states); raised age and service for eligibility (32); adjusted formulas for calculating benefits (17); and reduced cost of living increases (21). In some states the changes applied to new employees only, but in others they affected active workers and current retirees. The latter actions have proven especially controversial, prompting lawsuits in Colorado, Minnesota, New Jersey, and South Dakota.
Most of the heightened attention to government employee pensions has concentrated on state government plans, while local public employee pensions remain relatively unexplored. Although local plans represent a modest share of total public pension membership (10 percent) and assets (18 percent), their failures could be devastating. Mobile residents and businesses could flee communities that levy higher taxes to rebuild pension assets rather than to provide basic services. A shrinking tax base would leave the fund even worse off and potentially less able to pay promised benefits. The result could be more cities like Prichard, Alabama.
Looking at State and Local Pension Plans Together
State and local pensions are an important part of the nation’s retirement system. Figure 1 shows the distribution of the total of $15.3 trillion in retirement assets at the end of 2011 by type of plan. State and local public employee retirement funds held a combined $2.8 trillion in assets, or almost one-fifth of the total.
Every state has at least one public employee pension plan and some have many. There are more than 220 state plans—some of which are state-administered plans that cover local government workers—and almost 3,200 local government plans (table 1). Together these plans cover 14.7 million current workers, 8.2 million current beneficiaries, and 4.8 million people eligible for future benefits but not yet receiving them.
State and local pensions are all the more important because 27.5 percent of government employees do not participate in Social Security (Nuschler, Shelton, and Topoleski 2011). These uncovered public employees are highly concentrated in a handful of states. Figure 2 ranks the 16 states with the highest concentrations of government workers not covered by Social Security. Almost all state and local government employees in Ohio and Massachusetts and more than half in Nevada, Louisiana, Colorado, California, and Texas are not covered.
Another key feature of state and local pensions is that they are mostly defined benefit (DB) plans. Benefits are calculated by a formula, typically something like:
(Average salary in final 3 years) x
(Years of service) x
(2% for each year of service) =
Benefits
Most state and local government pensions also include a cost of living adjustment. A minority of public sector workers are enrolled in defined contribution (DC) plans where a specified amount is put in a retirement fund for each year of work. Compared to DC plans, DB pensions protect employees from investment, inflation, and longevity risks. As of 2009, nearly 80 percent of state and local workers were enrolled in DB plans and just over 20 percent were in DC plans. Private sector workers had the opposite mix: 20 percent in DB plans and 80 percent in DC plans (U.S. Bureau of Labor Statistics 2011).
DB plans used to be more prevalent in the private sector but have been disappearing partly because the Employee Retirement Income Security Act of 1974 (ERISA) imposed minimum funding standards, required insurance contributions, and other administrative burdens on them.
The weaker funding and reporting requirements that apply to public pensions allow governments to shift labor costs into the future. This is an implicit form of borrowing that can evade balanced budget rules and avoid the voter approval usually required for issuing bonds.
Funding and Reporting Requirements for State and Local Pensions
For most of their history, state and local pensions were financed out of general revenues on a pay-as-you-go basis. The current practice of prefunding state and local pension plans began in the 1970s and 1980s. While public sector plans were not covered by ERISA, the act did mandate a report on their practices. The 1978 report found a “high degree of pension cost blindness . . . due to the lack of actuarial valuations, the use of unrealistic actuarial assumptions, and the general absence of actuarial standards” (Munnell et al. 2008, 2).
This wake-up call led to voluntary increases in funding levels by many plans and increased attention to actuarial and accounting standards. The Government Accounting Standards Board (GASB) was formed in 1984, issued its first rules for pension plans in 1986, and extensively revised its actuarial valuation standards in 1994. Compliance with these rules is voluntary, but is rewarded by credit rating agencies, auditors, and other data consumers. Unlike ERISA rules that require specific valuation methods for all private plans, GASB sets out criteria that allow some latitude as to which specific methods are used by public plans. As a consequence there are serious transparency and comparability concerns with the self-reported data on state and local pension plan liabilities.
Employer Contribution
The calculation of a plan’s Actuarial Accrued Liability (AAL) requires the following information: ages and salary histories of members; assumptions for salary growth, retirement ages, asset earnings, and inflation; longevity probability tables; and a discount rate to translate estimated future values into present values. Unfunded Actuarial Accrued Liability (UAA L) equals AAL minus plan assets.
The “Normal Cost” of a pension plan is the increase in AAL due to the current year of service by existing employees. ERISA requires that normal cost be covered by employee and employer contributions. GASB specifies an “Annual Required Contribution” (ARC) of normal cost plus a 30-year amortization of UAA L. The problem is that, contrary to its name, payment of ARC is not strictly required in most jurisdictions.
Choice of Discount Rate
The issue that has received the most recent attention is the choice of discount rate. Current GASB rules allow discounting future liabilities based on projected investment returns, which averaged 8 percent per year prior to the recession. But most economists and financial theorists would agree with Brown and Wilcox (2009, 538) that “the discount rate used to value future pension liabilities should reflect the riskiness of the liabilities,” not the assets. Constitutional and other legal guarantees make government pensions of low risk, while historical investment returns include a risk premium.
State and local governments cannot avoid longterm risks such as a protracted productivity slump or a decade-long down market. Therefore, the historical long-term rate of return on an equity-heavy portfolio–before risk adjustment–is too high a discount rate. Higher discount rates can make pensions appear better funded than they truly are. This reduces contribution requirements and imposes unwarranted obligations on future taxpayers if the high rates of return are not achieved. Worse, there is an incentive for plan managers to seek high-risk portfolios in order to get a higher discount rate and lower ARC.
There are strong arguments that the 8 percent discount rate used by many public pension plans is too high, but there is less agreement on just how much lower the appropriate rate should be. Rather than review the arguments, we report one estimate of just how much of an impact a lower rate would have. Munnell et al. (2012) calculate the would-be change in reported liabilities if all plans used a 5 percent rather than an 8 percent discount rate. They estimate that state and local liabilities would increase from $3.6 trillion to $5.4 trillion and aggregate funding ratios (Assets/AAL) would fall from 75 to only 50 percent. This is a huge change, and represents a doubling of unfunded liabilities (UAA L = AAL – Assets).
Recent Changes in GASB Standards
GASB (2012) has released new accounting standards to take effect in 2013 and 2014. The key change requires state and local governments to apply different discount rates to the funded and unfunded portions of liabilities. An earnings-based rate will still be applied to the funded portion, but a lower, riskless rate will be applied to UAA Ls. The impact of this change on reported liabilities depends on how well funded a plan is: no change for fully funded plans; a small change for well funded plans; and large increases in reported liabilities and decreases in funding ratios for poorly funded plans. The new standards also require that the UAA L be shown on the government’s balance sheet, which will increase the visibility of unfunded liabilities to voters.
What Do We Know About Local Pensions?
Despite mounting concerns about the fiscal health of local pension plans, systematic knowledge about them is rare. The best available information comes from the U.S. Census Bureau’s (2012) Annual Survey of State and Local Public Employee Retirement Systems. Detailed data for each government entity is reported every five years. Plan-level data for a sample that includes roughly half of the 3,200 local plans is reported each year and is used to create estimates of totals for each state by type of government. Tables 1 and 2 exemplify the types of information in the survey.
The main virtues of the Census Bureau’s employee retirement survey are its quality and comprehensiveness. A key disadvantage is lack of timeliness, since the most recent local data available is for fiscal year 2010. Another problem is that the Bureau only recently began reporting plan liabilities, and it does so only for state plans. Like other pension data sources, the Census Bureau does not collect information on DC plans or other post-employment benefits (OPEBs).
Nevertheless, the employee retirement survey provides some insights into local pensions. For example, the number of local plans per state varies greatly: 7 states have no local plans; 20 states have fewer than 10; Florida and Illinois have over 300 each; and Pennsylvania has over 1,400. The number of active members per beneficiary is a crude measure of how well employee contributions can fund the plan. Table 1 indicates the national average for local plans is 1.4 workers per retiree, but there is considerable variation across states. This support ratio is less than 1 in 12 states; between 1 and 2 in 31 states; and over 2 in 7 states, with Utah having the highest ratio at 6.8.
Neither of these pieces of information tell us how well funded local pensions are. For this information, we must turn to independent surveys. Most have good coverage of state plans, but they generally survey only a few of the larger local plans: e.g., the National Association of State Retirement Administrators’ (NASRA ) annual survey of member plans. A small number of national studies have focused on local, as opposed to state, pension liabilities. For example, Novy-Marx and Rauh (2011) analyze local pension finances using data from Consolidated Annual Financial Reports (CAFRs) for city and county plans holding more than $1 billion in assets as of 2006.
The Boston College Center for Retirement Research (CRR) maintains a Public Plans Database (PPD) for the largest state and local plans with data from individual plan actuarial reports and local government CAFRs. Using the PPD plus information on some additional local plans, CRR recently issued a report with data for 2010 from a sample of 97 plans in 40 states (Munnell et al. 2011). This is a modest sample relative to the total of 3,200 local plans, but by concentrating on large plans it covers 59 percent of local pension assets and 55 percent of participants.
An important finding is the wide dispersion around the average funding ratio of 77 percent in 2010 (figure 3). Of 95 large plans in the CRR sample with usable information, only 16 had assets covering more than 90 percent of liabilities. At the other tail are 9 plans with below 50 percent funding (Munnell et al. 2011). This study also shows the ARC as a percent of local government payroll. The overall average for 2010 is 22 percent, and again there is wide dispersion (figure 4). Of 91 large plans in the CRR sample with usable information, more than half (49) have ARC below 20 percent of payroll, but 16 have shares in the less manageable 30 to 80 percent range. Five plans have such large pension obligations that if paid in full they would cost more than 100 percent of payroll.
Keep in mind that local governments in most states are not required to pay the full amount of the ARC. We do not have data at the local level, but a state-level study reported wide variation in the percent of ARC actually paid across plans, across years, and across states (State Budget Crisis Task Force 2012). Munnell et al. (2011) calculate pension payments actually made as a share of local budgets and again find considerable variation, with 14 percent of the sample governments devoting more than 12 percent of their budgets to pay for pensions.
Conclusions
Local government pensions are on average significantly underfunded. The key reason is that, absent a legal compulsion to do so, many governments have not set aside enough funds each year to cover the extra pension liabilities incurred in that year, much less to amortize unfunded liabilities from earlier years. In effect, they are borrowing to pay for current labor services and shifting the burden to future taxpayers.
We know much less about the 3,200 locally administered plans that we do about the 220 state plans. The best information on local plans comes from researchers who review the detailed financial reports of the plans and local governments. Of necessity, these studies concentrate on the larger plans. We do know that there is wide variation across plans on key measures: the share of liabilities that are covered by assets; the would-be full contribution to cover both current year pension costs and amortization of unfunded liabilities (ARC) relative to payroll or annual revenues; the share of ARC that is actually paid; and the share of the current budget that goes to pension costs. A significant fraction of local governments are in trouble by one or more of these measures.
Worse, what we know about liabilities comes from municipalities’ self-reported data and their own choice of discount rate. In almost all cases this discount rate is inappropriately high, and the use of a lower discount could more than double unfunded liabilities. The result is a big problem with local pension liabilities that threatens local government finances, but we do not know how big, and we do not know how unequally it is distributed.
About the Authors
Richard F. Dye is a visiting fellow of the Lincoln Institute of Land Policy. He is also a professor at the Institute of Government and Public Affairs, University of Illinois at Chicago, and professor of economics emeritus at Lake Forest College.
Tracy Gordon is a fellow in Economic Studies at the Brookings Institution, Washington, DC. Her research focuses on state and local public finance, political economy, and urban economics.
References
Board of Governors of the Federal Reserve System. 2012. Flow of funds accounts of the United States, June 7. http://www.federalreserve.gov/releases/z1/current/data.htm
Brown, Jeffrey R., and David W. Wilcox. 2009. Discounting state and local pension liabilities. American Economic Review 99(2): 538–542.
Gordon, Tracy M., Heather M. Rose, and Ilana Fischer. 2012. The state of local government pensions: A preliminary inquiry. Working Paper. Cambridge MA: Lincoln Institute of Land Policy.
Governmental Accounting Standards Board (GASB). 2012. GASB Improves Pension Accounting and Reporting Standards. Press Release. June 25. http://www.gasb.org/cs/ContentServer?c=GASBContent_C&pagename=GASB/GASBContent_C/GASBNewsPage&cid=1176160126951
Joint Economic Committee (JEC). 2011. States of bankruptcy, part I: The coming state pensions crisis. Republican Staff Commentary, Washington, DC, December 8.
Joint Economic Committee (JEC). 2012. States of bankruptcy, part II: Eurozone, USA? Republican Staff Commentary, Washington, DC, May 15.
Munnell, Alicia H., Jean-Pierre Aubry, Josh Hurwitz, and Laura Quimby. 2011. An update on locally administered pension plans. Center for Retirement Research at Boston College Policy Brief, July.
Munnell, Alicia H., Jean-Pierre Aubry, Josh Hurwitz, and Laura Quimby. 2012. The funding of state and local pensions: 2011–2015. Center for Retirement Research at Boston College Policy Brief, May.
Munnell, Alicia H., Kelly Haverstick, Steven A. Sass, and Jean-Pierre Aubry. 2008. The miracle of funding by state and local pension plans. Center for Retirement Research at Boston College Policy Brief, April.
Novy-Marx, Robert, and Joshua Rauh. 2011. The crisis in local government pensions in the United States. In Growing old: Paying for retirement and institutional money management after the financial crisis, Robert Litan and Richard Herring, eds., 47–74. Washington, DC: Brookings Institution.
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Uno de los argumentos principales para justificar la tributación del valor del suelo es que no crea ningún incentivo para alterar el comportamiento con el objeto de evadir el pago del impuesto. En contraste, un impuesto sobre la propiedad convencional, que se grava sobre los edificios, puede frenar la intención de los propietarios de erigir estructuras en su terreno que de otra manera serían deseables. Por ejemplo, los propietarios pueden dejar un sótano sin terminar o no agregar un segundo baño, porque ello aumentaría su obligación tributaria. Por lo tanto, un impuesto sobre la propiedad convencional llevaría a relaciones de capital/suelo excesivamente bajas y un ‘carga excedente’, es decir un costo para los contribuyentes mayor que el mero pago monetario efectuado a las autoridades fiscales. Este artículo informa sobre un estudio reciente de carga excedente al antecesor británico del impuesto moderno sobre la propiedad: el impuesto sobre la ventana, del siglo XVII.
El caso del impuesto sobre la ventana
En 1696, el Rey Guillermo III de Inglaterra, en apremiante necesidad de recursos adicionales, introdujo un impuesto sobre la unidad de vivienda que gravaba la cantidad de ventanas de una morada. El impuesto fue diseñado como un impuesto sobre la propiedad, tal como se deduce del debate en la Cámara de los Comunes en 1850: “El impuesto sobre la ventana, cuando se lo concibió, no tenía intención de tributar una ventana sino una propiedad, ya que se consideraba que una casa era una estimación segura del valor de los bienes de una persona, y se suponía que la cantidad de ventanas era un buen índice del valor de la casa” (HCD, 9 de abril de 1850).
En su forma inicial, el impuesto consistió en una tasa única de 2 chelines por cada casa y un cargo adicional de 4 chelines sobre casas que tenían entre 10 y 20 ventanas, u 8 chelines sobre casas que tenían más de 20 ventanas. La estructura tarifaria se fue enmendando a lo largo de los años; en algunos casos, las tasas crecieron significativamente. En respuesta, los dueños de las moradas intentaron reducir sus facturas de impuestos tapando ventanas o construyendo casas con muy pocas ventanas. En algunas viviendas había pisos enteros sin ventanas, lo que causaba efectos adversos muy graves para la salud. En un caso, la falta de ventilación causó la muerte de 52 personas en el pueblo circundante, según el informe de un médico local que fue llamado a una casa ocupada por familias pobres:
“Para reducir el impuesto sobre la ventana, todas las ventanas de las que todavía podían prescindir los pobres habían sido clausuradas, y por lo tanto se eliminaron todas las fuentes de ventilación. El olor dentro de la casa era sobrecogedor y nauseabundo hasta un extremo insoportable. No había ninguna evidencia de que se hubiera importado la fiebre a esta casa, sino que más bien se propagó de la misma a otras partes del pueblo, y 52 moradores murieron” (Guthrie 1867).
La gente protestó y presentó numerosas peticiones ante el Parlamento. Pero a pesar de sus efectos perniciosos, el impuesto duró más de 150 años, hasta que fue finalmente revocado en 1851.
Para la mayor parte de las familias, el impuesto sobre la ventana representaba una suma sustancial. En Londres, oscilaba entre aproximadamente el 30 por ciento del valor de renta en “casas más pequeñas de la calle Baker” hasta el 40 al 50 por ciento en otras calles, según un debate en la Cámara de los Comunes de 1850 (HCD, 9 de abril de 1850). El impuesto era particularmente oneroso para familias pobres que vivían en conventillos, donde los tasadores tributaban el impuesto a los residentes en forma colectiva. Por lo tanto, si un edificio contenía 2 apartamentos, cada uno de ellos con 6 ventanas, el impuesto se cobraba sobre 12 ventanas. En contraste, en las casas muy grandes de los ricos, el impuesto normalmente no excedía del 5 por ciento del valor de renta.
La tasa de impuestos sufrió varios cambios importantes antes de ser finalmente revocada. En 1784, el Primer Ministro William Pitt aumentó las tasas tributarias para compensar la reducción del impuesto sobre el té. Después, en 1797, la Ley de Triple Tributo de Pitt triplicó la tasa tributaria para ayudar a financiar las guerras napoleónicas. Al día siguiente de esta nueva ley, los ciudadanos cubrieron miles de ventanas y escribieron con tiza en los espacios cubiertos: “Ilumina nuestra oscuridad, ¡te rogamos oh Pitt!” (HCD, 24 de febrero de 1848).
Inglaterra y Escocia estaban sujetas al impuesto sobre la ventana, pero Irlanda estaba exenta debido a su estado de pobreza. Un miembro del Parlamento bromeó: “Al abogar por la extensión del impuesto sobre la ventana a Irlanda, el honorable caballero parece haber olvidado que una ventana inglesa y una ventana irlandesa son cosas muy distintas. En Inglaterra, la ventana es para dejar que entre la luz; pero en Irlanda, la ventana se usa para dejar que se vaya el humo” (HCD, 5 de mayo de 1819).
El impuesto sobre la ventana, dicho sea de paso, era considerado una mejoría con respecto a su antecesor, el impuesto sobre el hogar. En 1662, Carlos II (después de la Restauración) impuso un tributo de 2 chelines sobre cada hogar y estufa en Inglaterra y Gales. El impuesto generó una gran indignación, sobre todo por el carácter entrometido del proceso de tasación. Los “chimeneros”, como llamaban a los tasadores y cobradores de impuestos, tenían que entrar en la casa para contar la cantidad de hogares y estufas. El impuesto sobre la ventana, en contraste, no exigía acceso al interior de la morada; los “mirones de ventanas” podían contar los vanos desde el exterior sin invadir la privacidad del hogar.
El impuesto sobre la ventana, sin embargo, creó algunos problemas administrativos propios, sobre todo con respecto a la definición de ventana con fines tributarios. La ley era vaga y frecuentemente no quedaba claro qué era una ventana para el cobro de impuestos. En 1848, por ejemplo, el profesor Scholefield de Cambridge pagó impuestos por un agujero en la pared de su depósito de carbón (HCD, 24 de febrero de 1848). El mismo año, el Sr. Gregory Gragoe de Westminster pagó impuesto por una trampilla de entrada a su sótano (HCD, 24 de febrero de 1848). Todavía tan tarde como en 1850, los contribuyentes urgían al Secretario del Tesoro que aclarara cuál era la definición de ventana.
Las tallas y sus efectos sobre el comportamiento
A lo largo de su historia, el impuesto sobre la ventana consistía en una serie de “tallas (notches)”. Se produce una “talla” en una estructura tributaria cuando un pequeño cambio de comportamiento, como el agregado de una ventana, provoca un gran cambio en la obligación tributaria.
Las tallas son poco comunes (Slemrod 2010) y no se deben confundir con las discontinuidades o “pliegues” (kinks), que son mucho más comunes, incluso en la actualidad. Una discontinuidad en la estructura tributaria se produce cuando un pequeño cambio de comportamiento lleva a un gran cambio en la tasa tributaria marginal, pero sólo un pequeño cambio en la obligación tributaria. El impuesto sobre los ingresos en los Estados Unidos, por ejemplo, tiene varias discontinuidades. Las parejas casadas con ingresos tributables de US$17.850 a US$72.500 están en el segmento tributario marginal del 15 por ciento; las parejas con ingresos tributarios de US$72.500 a US$146.400 están en el segmento tributario marginal del 25 por ciento. Si una pareja con ingresos de US$72.500 ganara un dólar más, su tasa tributaria marginal saltaría al 25 por ciento, pero su obligación tributaria sólo aumentaría 25 centavos.
Los registros de microfilm de datos tributarios locales en el Reino Unido entre 1747 y 1830 permiten examinar de manera más sistemática el impacto del impuesto sobre la cantidad de ventanas y las tallas. Este artículo utiliza el conjunto de datos de 1747 a 1757, con información de 493 moradas en Ludlow, un pueblo comercial en Shropshire, cerca del límite con Gales. En este período, la estructura del impuesto sobre la ventana contenía 3 tallas. Durante este período, un propietario:
Los propietarios que compraban una 10a ventana, por lo tanto, pagaban un impuesto de 6 peniques sobre la 10a ventana y también sobre las 9 ventanas restantes, que antes eran libres de impuestos. O sea, el impuesto total sobre la 10a ventana era de 60 peniques, equivalente a 5 chelines. Si el impuesto sobre la ventana distorsionara las decisiones tributarias y llevara a una carga excedente, podríamos esperar que muchas casas tuvieran 9, 14 ó 19 ventanas, pero muy pocas con 10, 15 ó 20. A continuación se ensaya esta hipótesis.
Durante la primera mitad del siglo XVIII, la administración del impuesto había sido problemática, ya que los propietarios frecuentemente camuflaban o cubrían las ventanas hasta que el cobrador de impuestos se había ido, o se aprovechaban de vacíos legales o ambigüedades en el código tributario. En consecuencia, la recaudación de impuestos fue mucho menor de lo esperado. En 1747, sin embargo, el Parlamento revisó el impuesto elevando las tasas e introduciendo medidas para mejorar su administración. En particular, prohibió la práctica de cubrir y luego reabrir ventanas para evadir el impuesto; los infractores tenían que pagar una multa de 20 chelines (1 libra) por cada ventana que reabrieran sin notificarlo al inspector de impuestos (Glantz 2008).
La ley de 1747 redujo la evasión tributaria significativamente, así que los datos para los 10 años subsiguientes deberían brindar una estimación razonable de la cantidad de ventanas de una morada. Si el impuesto sobre la ventana distorsionara el comportamiento, se podría esperar un pico en la cantidad de moradas al límite de la talla, con 9, 14 ó 19 ventanas. Y esto es precisamente lo que demuestran los datos. La figura 1 es un histograma que muestra la cantidad de ventanas por vivienda de la muestra. El patrón es claro: hay aumentos bruscos en la cantidad de casas con 9, 14 ó 20 ventanas:
Los ensayos estadísticos estándar rechazan la hipótesis de que hay una cantidad igual de casas con 8, 9 ó 10 ventanas; con 13, 14 ó 15 ventanas; o con 18, 19 ó 20 ventanas. Es obvio que la gente respondió al impuesto sobre la ventana quedándose en una de las tallas para reducir al mínimo su obligación tributaria.
Los datos de una muestra de 170 casas en el período de 1761 a 1765 explican la respuesta del público a las revisiones parlamentarias del impuesto en 1761. Además de un aumento de tasas, las revisiones de 1761 ampliaron la cobertura del impuesto a casas con 8 ó 9 ventanas. En las estructuras impositivas anteriores, las casas con menos de 10 ventanas no pagaban ningún impuesto sobre la ventana. Para esta segunda muestra, en la figura 2 se observa un pico pronunciado en 7 ventanas: el 28,2 por ciento de las casas tiene 7 ventanas, pero sólo el 5,2 por ciento tiene 6 ventanas y sólo el 2,9 por ciento tiene 8 ventanas. Una vez más, es fácil rechazar la hipótesis de que había una cantidad igual de casas con 6, 7 u 8 ventanas.
En resumen, la evidencia de nuestras dos muestras demuestra claramente que había una amplia tendencia a alterar el comportamiento para reducir el pago de impuestos. La gente decidía cuántas ventanas poner, no para satisfacer sus propias preferencias, sino para no tener que pagar impuestos más altos. El impuesto sobre la ventana, en pocas palabras, generaba una “carga excedente”.
¿Cuán grande fue la carga excedente del impuesto sobre la ventana?
Como ya explicamos, el impuesto sobre la ventana era sustancial e indujo a un comportamiento generalizado para evitar el impuesto. De acuerdo a algunas técnicas estándar de análisis económico, nuestro modelo de simulación genera una estimación de lo que la gente hubiera estado dispuesta a pagar por su cantidad deseada de ventanas. El modelo captura la demanda de cada consumidor por ventanas con y sin el impuesto, la cantidad de impuestos pagada y la pérdida de bienestar al ajustar la cantidad de ventanas como respuesta al impuesto.
En la muestra de 1747 a 1757, las pérdidas estimadas de bienestar fueron muy grandes para los hogares que estaban al límite de la talla. Para ellos, la pérdida de bienestar (es decir, la carga excedente) es del 62 por ciento de los impuestos que pagaron. O sea, por cada dólar recaudado bajo nuestra versión simulada del impuesto sobre la ventana, el tributo impuso una carga o costo adicional de 62 centavos sobre dichos hogares. No es de sorprender que la carga excedente es particularmente grande para los hogares que eligieron tener 9 ventanas Uno de los criterios utilizados por los economistas para evaluar un impuesto es la carga excedente relativa a los impuestos pagados. Utilizando este criterio, un buen impuesto es aquel que recauda ingresos significativos pero produce cambios muy pequeños en las decisiones de los contribuyentes. Los consumidores que compraron 9 ventanas están por lo tanto en el peor de los casos. Estos consumidores no pagaron ningún impuesto; para ellos, entonces, toda la carga tributaria es excedente.
Para nuestra muestra completa de 1.000 hogares simulados, la carga excedente como fracción de los impuestos pagados es de alrededor del 14 por ciento. Por lo tanto, por cada dólar recaudado por el impuesto sobre la ventana, nuestra simulación sugiere la existencia de un costo adicional de 14 centavos para los contribuyentes como resultado de la distorsión en sus decisiones.
Algunos comentarios para concluir
El impuesto sobre la ventana representa un caso muy claro y transparente de carga excedente: un tributo que impuso costos altos sobre los contribuyentes además de sus obligaciones tributarias, debido a los ajustes de comportamiento que deben realizar para evitar el impuesto. Pero, como se mencionó anteriormente, los impuestos modernos sobre la propiedad también crean una carga excedente, si bien las consecuencias son menos drásticas que en el caso del impuesto sobre la ventana.
Es importante considerar este tema al diseñar un sistema tributario. Lo ideal, en principio, sería un impuesto neutral que incremente los ingresos deseados pero no distorsione el comportamiento del contribuyente creando cargas adicionales. Dicho impuesto es un tributo puro sobre el valor del suelo, gravado sobre el valor del suelo de una propiedad, es decir su valor sin mejoras. Por lo tanto, el valor de tasación del suelo (y por lo tanto la obligación tributaria del propietario) es completamente independiente de las decisiones efectuadas por el propietario de la parcela. A diferencia del impuesto sobre la ventana, que brinda un ejemplo convincente de los costos adicionales que surgen cuando la obligación tributaria depende del comportamiento del dueño de la propiedad, un impuesto sobre el valor del suelo no crea ningún incentivo de comportamiento para evadir su pago.
Sobre los autores
Wallace E. Oates es profesor universitario distinguido de Economía, emérito, de la Universidad de Maryland, y fellow universitario en Resources for the Future.
Robert M. Schwab es profesor de Economía en la Universidad de Maryland.
Recursos
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Dickens, Charles. 1850. Household Words. Vol. 1. London: Bradbury and Evans.
Douglas, Roy. 1999. Taxation in Britain since 1660. London: MacMillan.
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Fielding, Henry. 1975. The History of Tom Jones, A Foundling. Wesley University Press.
George, M. Dorothy. 1926. London Life in the XVIIIth century. New York: Alfred A. Knopf.
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Guthrie, Thomas. 1867. “How to Get Rid of an Enemy.” The Sunday Magazine.
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Because many brownfield sites are located in areas with depressed property values, the cost of remediation and redevelopment can be greater than the expected resale value. These sites, referred to here as low-to-no market value brownfields, are rarely addressed under current policies and programs. Rather, the current practice of many brownfield redevelopment projects is to select only the most marketable sites for remediation and redevelopment, essentially perpetuating the age-old “creaming” process. Private and public developers’ avoidance of the lowest market value parcels typically excludes disadvantaged neighborhoods from programs aimed at redeveloping brownfields and creates the potential for widening existing inequalities between better-off and worse-off neighborhoods.
The Role of Land Banks
In a recently completed project supported by the Lincoln Institute, I examined the barriers to brownfield redevelopment and focused on promising approaches for improving the prospects of the least marketable sites. The specific research goal was to identify land transfer procedures and processes through which land bank authorities and other community land development entities would be willing to receive vacant brownfield property that is tax-delinquent and environmentally contaminated, and then arrange for its remediation and sale.
A local land bank authority is typically a nonprofit entity established by either a city or county to address the problems of urban blight and to promote redevelopment. The original motivation for this project was to seek a solution to the problem of land banks being unwilling to accept some tax-delinquent brownfield properties due to fears of becoming liable for the contamination on these properties. Removing that barrier improves the prospects for promoting productive land redevelopment and reducing property vacancies to enhance a community’s economic development.
Over the course of this project, the nature of the original problem shifted in a positive way when recent federal guidelines clarified that land bank authorities that are part of a local government and acquire brownfield properties involuntarily (e.g., because they are tax-delinquent) are not liable for any contamination. With removal of this legal liability, it became clear that the real problem land banks face in taking on tax-delinquent, low-to-no market value properties is a lack of financial resources to arrange for their subsequent remediation, sale or redevelopment.
For example, the Atlanta/Fulton Country Landbank operates on a model of clearing title on properties to allow for private redevelopment, since it does not have the financial resources to act as the redeveloper itself. The Landbank, like most of the public or quasi-public entities we have identified as engaging in brownfield redevelopment, is promoting a market-based, creaming process of redevelopment. While there is validity in employing such processes, to do so exclusively poses a serious public policy issue. It serves to widen the inequality between the most depressed neighborhoods, where the low-to-no market value properties are most likely to be found, and the neighborhoods experiencing revitalization and brownfield cleanup.
Barriers to Brownfield Redevelopment
Our review of current land bank activity in other cities has revealed that, overall, land bank authorities do not take a pro-active stance on brownfield redevelopment for several reasons: operational limitations, fear of legal liability, and/or lack of funds to cover remediation costs. Our national search yielded only two exceptions: the Cleveland Land Bank and the Louisville/Jefferson County Land Bank Authority. But of these two, only the Louisville/Jefferson County Land Bank has pursued brownfield properties actively and has made the required changes in its by-laws to effectively acquire, remediate and redevelop contaminated properties. The Cleveland Land Bank experience in brownfield redevelopment was with a donated parcel that was suspected of being contaminated.
Operational Limitations
The two major operational requirements that currently deter land banks from entering into brownfield redevelopment are the need to identify an end user for a property before the property can be acquired by the land bank and the limited scope of activity for which the land banks were established originally. For example, the Nantucket and Martha’s Vineyard land banks in Massachusetts were established for conservation purposes; they rarely deal with properties that would be considered brownfields, although their organizational structure makes them ideal candidates to do so.
Fear of Legal Liability
As with any owner of contaminated property, land banks are concerned about the legal liability associated with brownfields. Although most state volunteer cleanup programs offer liability exemptions for municipalities, the issue of federal liability still has to be addressed when land banks choose to acquire contaminated properties.
Federal legal liability arises from the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as Superfund, but both federal and state governments have developed programs and guidelines aimed at eliminating that barrier. As a point of clarification, it is not the intent of federal or state programs to release responsible parties from their legal obligation to clean up property that they have contaminated, but, rather, to facilitate brownfield remediation and redevelopment by reducing the fear of unwarranted legal liability.
Landowners who are not responsible for contaminating the property, who did not know, and had no reason to suspect contaminants were present on the property are not liable under CERCLA sections 107(b) and 101(35). This is often referred to as the “innocent landowner defense.” Sections 101(20)(D) and 101(35)(A) protect federal, state and local governments from owner/operator liability if they acquire contaminated property involuntarily as a function of performing their governmental duties, including acquisition due to abandonment, tax delinquency, foreclosure, or through seizure or forfeiture authority. This process was further clarified by the U.S. Environmental Protection Agency (EPA) in June 1997 to facilitate the work of state and local brownfield redevelopment programs.
For land bank authorities that are a part of local government, the above-mentioned program should protect the acquisition of contaminated properties through the land bank’s normal operational functions. However, any land bank seeking to acquire contaminated properties should contact its regional EPA office for further legal clarification and assistance with the redevelopment process.
Lack of Funds for Remediation Costs
The often costly remediation process is another significant problem for land banks seeking to redevelop brownfields. Even when the mission of the land bank is to eliminate blight and spur revitalization, both of which are directly related to brownfield reuse, limited budgets prevent interested and willing land banks from acquiring brownfields for remediation and redevelopment. Therefore, while the land bank authority could be helpful in forgiving the property taxes owed on the parcel as an incentive for reuse, the property’s redevelopment potential is still thwarted by its having little-to-no market desirability.
Promising Alternatives for Low-value Sites
When the focus of this research project became the identification of promising approaches for improving the redevelopment prospects of low-to-no market value brownfield sites, we began to examine different kinds of roles for land banks. These included identifying possible ways of raising revenues for land banks and other community development agencies to use in financing the remediation and redevelopment of low-to-no market value sites, and considering potential reuses of such sites, including open space, residential or commercial/industrial uses.
One alternative is found in community land trusts, which generally are private non-profit corporations in both urban and rural areas engaged in social and economic activities, such as to acquire and hold land for affordable housing development. While traditionally they have not focused on conservation issues, their model could be adapted for brownfield redevelopment efforts. One approach for solving the problem of low-to-no market value brownfields is a community land trust modeled after Boston’s Dudley Neighbors, Inc., which received from the city the power of eminent domain to acquire vacant land and buildings in its neighborhood. This strategy provides an alternative mechanism to a citywide land bank for acquiring brownfield properties, and it can be used to target geographic areas in greatest economic decline.
Another promising alternative to the traditional land bank is modeled after Scenic Hudson, an environmental advocacy organization and land trust located in Poughkeepsie, New York. It has an urban initiative to acquire, remediate and develop environmentally friendly reuses for derelict riverfront sites. Among its projects has been the redevelopment of a twelve-acre abandoned industrial waterfront for a public park, the Irvington Waterfront Park. Scenic Hudson has proven that, with cooperation from public and private organizations, land trusts can be effective vehicles for brownfield redevelopment.
The most popular form of land trust is one founded to protect natural areas and farmlands. Such land trusts most often operate at the local or regional level to conserve tracts of land that have ecological, open space, recreational or historic value. If land trusts choose to expand their conservation goals to include urban open space, they could become very helpful partners in public/private projects to create green space and parks from remediated brownfields. The Scenic Hudson land trust model specifically addresses brownfield redevelopment for the stated purpose of stemming greenfield development.
To address the needs for financing the redevelopment of low-to-no market value brownfields, the Louisville Land Bank Authority’s approach is promising. It established a fund that uses the profits from the sale of remediated brownfields to fund future remediation projects. Another possibility for raising funds for land banks is suggested by the two-percent transfer fee the state of Massachusetts authorized for its Nantucket and Martha’s Vineyard land banks to purchase open space. The transfer fee idea could be adapted by land banks to create a fund for brownfield remediation.
The research project also sought to identify municipalities that did not have a specific land bank authority, but did have a municipal office or program that dealt with tax-delinquent properties and their redevelopment. Two municipalities found to be engaging in noteworthy and innovative brownfield redevelopment are Kalamazoo, Michigan, and, Emeryville, California. Kalamazoo’s brownfield pilot approach of creating brownfield redevelopment districts emphasizes community development over traditional, market-based economic development goals. The city uses stakeholder groups to design brownfield projects and to plan for redevelopment.
Emeryville has determined, through surveying its property owners and developers, that offering financial assistance for site assessment alone is not effective; it must be backed up by financial assistance for remediation. The city’s brownfield program is based on the principle that “sharing of risks should lead to sharing of rewards.” That is, if a community bears the residual risk for permitting the private sector to conduct risk-based cleanup, a portion of the private sector’s savings on remediation expenses should be shared with the community. The Emeryville approach to brownfield redevelopment also recognizes that smaller sites and projects require proportionately more loans, grants and technical assistance than do larger sites and projects.
Conclusion
At the present time, there is a paucity of programs and strategies to address tax-delinquent, low-to-no market value brownfield properties in marginal urban neighborhoods. If this deficiency persists, the current brownfield redevelopment movement will likely lead to a widening of intraurban inequalities. If municipalities, land bank authorities, and community development organizations will recognize the need for, and move towards, promoting more equitable brownfield redevelopment, the approaches presented in this article hold promise for correcting this deficiency and preventing wider inequalities. Further, such actions could remove potential polution sources and health hazards from the neighborhood, provide much-needed open space, and hold the remediated property until the surrounding area increases in value and the site can be redeveloped through traditional market processes.
References
City of Emeryville, Project Status Report, Emeryville Brownfields Pilot Project. Emeryville, California. November 1998. See also
Rosenberg, Steve. “Working Where the Grass Isn’t Greener: Land Trusts in Urban Areas.” Land Trust Alliance Exchange. Winter: 5-9, 1998.
U.S. EPA. Handbook of Tools for Managing Federal Superfund Liability Risks at Brownfields and Other Sites. Office of Enforcement and Compliance Assurance. November 1998.
Nancey Green Leigh, AICP, is associate professor of city planning in the Graduate City and Regional Planning Program at the Georgia Institute of Technology. She teaches and conducts research on urban and regional development, industrial restructuring, local economic development planning, and brownfield redevelopment.
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Like the other New Independent States of Central and Eastern Europe, Estonia is striving to adapt complex social and economic systems to changing conditions. To help Estonian policymakers enhance their understanding of land economics, taxation and related policy issues, the Lincoln Institute has embarked on a far-reaching collaborative education program with the American Institute for Economic Research (AIER).
Of special significance to both institutes is Estonia’s position as one of only a few countries where real estate taxes are applied solely to land, and where buildings and other improvements to land are not taxed. In addition, the country has already made dramatic progress toward establishing a market economy and a system of land taxation based on land value as an incentive for productive use of land and a means of discouraging speculation.
In making the transition to a market economy, Estonian policymakers are constrained by the lack of up-to-date information in the Estonian language on the fiscal and political implications of democratic government or on basic theory and research on land economics. Moreover, as the Estonian Parliament moves the country toward decentralization and land reforms, officials have recognized the need for practical assistance in developing procedures to determine land values and to administer tax assessment and collection systems.
The Lincoln Institute’s Role
For the Lincoln Institute, the current situation offers an opportunity to contribute knowledge about the economics of land markets and taxation based on a broad view of land policy. This approach includes examining the principles expounded by Henry George in his book Progress and Poverty that might be relevant in a country at the early stages of developing land markets.
“Estonia is a model environment for the Lincoln Institute to develop seminars in an economic development framework that analyzes land policy, taxation and valuation,” says Lincoln Institute faculty associate David A. Walker, professor of finance and director of the Center for Business-Government Relations at Georgetown University.
The Institute’s work with Estonia began in September 1993, when senior fellow Joan Youngman and fellow Jane Malme were invited to a conference in Tallinn to discuss the design of a property taxation system. The conference, sponsored and supported by the Paris-based Organisation for Economic Cooperation and Development (OECD) and the Danish Ministry of Taxation, was organized by Tambet Tiits, then director of the Estonian National Land Board and responsible for implementing the land assessment project.
Malme and Youngman subsequently invited Tiits to participate as a faculty member in a Lincoln Institute course on the interaction of land policy and taxation. Designed for government officials from Eastern Europe and the New Independent States, the course was presented in cooperation with OECD at their training centers in Copenhagen and Vienna.
In December 1994, a delegation composed of Malme, Youngman, Robert Gilmour, president of AIER, and C. Lowell Harriss, professor of economics, emeritus, at Columbia University, went on a fact-finding mission to explore research and education opportunities in Estonia. They recommended that the Institute organize educational programs in Estonia with Tiits, and in May 1995 Walker and Tiits cochaired an intensive three-day seminar. More than 20 senior level public policymakers attended, representing academia, business, three city governments, and various ministries and agencies of the national government.
The program focused on three key goals: studying the role of land taxation to promote efficient land use and to finance local government; learning about legal and administrative systems that support the development of efficient land markets; and understanding the relationships among land policies, land taxes, and land utilization, and their effective application to the economy of Estonia.
Other Lincoln Institute faculty associates participating in the May program were Gilmour; Roy Kelly, deputy director of the International Tax Program at Harvard University and research associate at Harvard Institute for International Development; Malme; Anders Muller, project manager for the Property Valuation and Tax Management Department for the Ministry of Taxation in Denmark; Jussi Palmu, director of Huoneistomarkkinointi Oi, a leading real estate agency in Finland; and Vincent Renard, director of research of CNRS for the Ecole Polytechnique, Laboratoire d’Econometrie, in Paris, France.
“We are pleased to be working with Tambet Tiits and other business and government leaders in Estonia,” says Lincoln Institute president Ronald L. Smith. “We believe the Institute can provide the kind of expertise their policymakers can use to develop the best approaches to land and tax reform, and to strengthen their ability to establish viable programs in a new and still changing economic climate.”
Primer on Land Issues in Estonia
The most northern of the Baltic States, Estonia has a strong tradition of family farming and land ownership. Unlike many other former Soviet bloc countries, its history included a period of independence from 1920 to 1940. In 1939 an estimated 145,000 small farms dotted the land area of 45,200 sq. km., and only about 30 percent of the population lived in urban areas. By the early 1990s, more than 70 percent lived in cities, with one-third of the country’s 1.6 million people inhabiting the capital of Tallinn.
During 50 years of Soviet rule from 1940 to 1990, Estonia experienced intense industrialization and urbanization, nationalization of land and mineral resources, and consolidation of its small farms into huge agricultural collectives. Demographic losses due to deportations, emigration and World War II reduced the number of farm workers and shifted the remaining population away from the land. Land use patterns and environmental integrity were further compromised by Soviet agricultural policies, causing much of the traditional farm land to become forested and moving farm activity to more marginal grasslands.
Restitution began in 1991 but it has been a slow process. The lack of up-to-date knowledge and technology, coexisting with bureaucratic inefficiencies and past agricultural policies, are challenging the effective use of land. However, new land use legislation and taxation have been created to solve these problems in a democratic way.
In only a few years, Estonia has become one of the most progressive and stable of the New Independent States. It has a high level of education and its people are eager to catch up with the “information age.” Its business and government leaders have established significant monetary reforms and pursued foreign trade and investment with the west, particularly Finland, other Scandinavian countries, and its former primary trading partner, Russia. Through the privatization of state enterprises such as textiles and forest products, and the growth of new private businesses in the service sector, Estonia is rapidly becoming a strong economic force in the region.
Current Research on Land Taxation in Estonia
Attiat F. Ott, Professor of Economics and Director of the Institute for Economic Studies at Clark University in Worcester, Massachusetts is conducting a research project titled “Land Taxation in the Baltic States: A Proposal for Reform,” with support from the Lincoln Institute. Over the next two years, Ott will conduct an assessment of the land taxation law introduced in 1994 by the Republic of Estonia. This law was developed in conjunction with the privatization and restoration of land to former owners, as stipulated in the 1992 Constitution. During this period of transition, the interrelationship between public ownership and private rights during the transition period is of primary importance. However, as in other countries, the Estonian property rights structure also affects and ensuing patterns of land use and development. These issues are at the core of the first phase of Ott’s research.
In the second phase, Ott will evaluate the land taxation law as an element of Estonia’s new, overall tax structure. The law defines both state and local land taxes using the same bases (sale price or use value of the land), but a different rate of taxation is levied at each level of government. Ott will review the strengths and weaknesses of the existing land tax system as a basis for offering and offer a comprehensive land taxation proposal for Estonia and the other Baltic States. She will incorporate ideas on the use of a site value tax and concerns about the undesirable effects of land speculation, which is occurring such as those occurring in some urban areas of Estonia.
While Ott’s research is directly related to the Institute’s interest in land value taxation, she will also be making methodological contributions as her quantitative work will extend the area of hedonic pricing models from their common application in housing to the area of land valuation.
Additional information in printed newsletter:
Map: Share of Agricultural Land in the Counties of Estonia: 1939, 1955 and 1992. Source: Adapted from Ulo Mander, “Changes of Landscape Structure in Estonia during the Soviet Period,” GeoJournal, May 1994, 33.1, pp 45-54.
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The development of new land and tax systems in countries in political and economic transition in Central and Eastern Europe reflects a unique array of historical, social, political, and economic circumstances. While all transitional countries seeking admission to the European Union (EU) have initiated comprehensive reforms to encourage free markets and democratic governments, the three Baltic nations—Estonia, Latvia, and Lithuania—made privatization and restitution of property rights a prime objective immediately after their independence in the early 1990s. These actions, together with a desire to stimulate real estate markets and capture tax revenues for improved public services, made them the first of the transitional countries to introduce value-based taxation of real property.
