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The state of Bosnia and Herzegovina continues its long process of reconstruction and reconciliation, four years after the November 1995 signing of the Dayton Peace Accords, which marked the end of a three-and-one-half-year war. Under the terms of the Accords, the state was set up within the original borders of what had been the Yugoslav Republic of Bosnia and Herzegovina, but was divided into two largely independent entities: the Federation of Bosnia and Herzegovina (Federation) and the Serb Republic (Republika Srpska). Sub-entity levels of government include cantons and municipalities in the Federation and municipalities in the Republika Srpska.
The task of rebuilding a country ravaged by war is never an easy one. International donor organizations have dedicated large amounts of human and financial resources to the cause, greatly assisting in the development of new government institutions and rebuilding the economy. One of the many challenges facing the country is ensuring that there are sufficient resources available to carry out necessary governmental functions. Of particular concern are service responsibilities and infrastructure needs, including reconstruction, which are straining the already limited budgets of the municipalities.
The Lincoln Institute, the World Bank and the United States Treasury have been involved in a joint project that provides assistance to cantonal and municipal governments in Bosnia and Herzegovina as they explore ways to enhance existing revenues and identify new revenue sources. A number of revenue-generating ideas have been discussed, and one option under serious consideration is an area-based property tax.
Ad Valorem vs. Area-based Tax Systems
Ideally, a property tax system should be ad valorem based in order to promote vertical and horizontal equity in the overall tax system. However, an ad valorem system has a number of administrative complexities that limit its full adoption, especially in developing and transitional economies. An efficient and effective ad valorem property tax system requires a functioning market for property, a network of professional appraisers, substantial amounts of exogenous data, and a sophisticated administrative infrastructure. Because Bosnia and Herzegovina is both a transitional and a post-war economy, these necessary elements are not readily available.
The country does not have a robust market for property, although a real estate market is beginning to emerge around the capital city of Sarajevo. A weekly gazette advertises available properties, but the number is limited and the transactions that do occur tend to be cash or barter-based. An initiative to privatize residences and businesses promises to stimulate the supply of privately held property, ultimately increasing the pool of available properties for real estate transactions. However, the privatization effort does not involve “arms-length” transactions because prices are being established by administrative fiat.
Currently no professional appraisal training is available in the country, but it is a necessary condition for a properly functioning ad valorem system of property taxation. Even if such a system is not adopted, training is still needed, as tax authorities administer the tax on non-movables that has been adopted recently in a few cantons. This tax is similar to the property transaction tax used in various states in the U.S. To assure that the sales price being reported by the seller is reasonable, an appointed committee of citizens is asked to validate it. Ideally these citizens would receive training in appraisal techniques before embarking on their duties.
Efficient and effective administration of an ad valorem property tax system requires an extensive administrative infrastructure and substantial amounts of exogenous data. Neither the infrastructure nor the data, such as financial information, cost of construction and mortgage information, are readily available. Therefore, instituting an ad valorem property tax system in Bosnia and Herzegovina would be very costly and would require a substantial amount of lead time to begin collecting the necessary data and to build the required infrastructure.
However, there are at least three property-based alternatives that are appropriate for developing and transitional economies and are worthy of consideration in this case. The first alternative is a flat fee on occupiers/owners of land and/or improvements with no adjustments for size, value or use of the property. A second alternative is an area-based tax that takes into account the size or area of the property, including both land and improvements. The physical area of the land and improvements provides the base for the tax, and the base is multiplied times the rate of the tax, which is generally low. The third alternative is to adjust the aforementioned area-based tax for such factors as the location of the property, its use, and the quality of the improvements on the land.
A hybrid of alternatives two and three-an area-based tax with adjustments for the location and use of the property-seems to make the most sense for Bosnia and Herzegovina, for several reasons:
The Process of “Discovering” Property
For an area-based property tax system to work properly, all property must be discovered. Ideally, discovery would be accomplished by reading digitized cadastral records. However, such information is limited and technological constraints make this approach infeasible at this time.
Both the Federation of Bosnia and Herzegovina and the Republika Srpska have reasonably good cadastral records considering their 40 years of socialism, the nationalization of property, and the effects of war. The legal cadastral records contain data on legal ownership of property, while the land cadastral records document the size of land. Two key missing components are complete information on improvements to the land and accurate property ownership information, due to the mass dislocations of citizens during the war.
It will take a substantial amount of work to update the cadastral records sufficiently to support an area-based property tax system. In the meantime, it makes sense to use existing information to assist in the identification and discovery of property. Public housing records, which are quite complete and in some instances are computerized, are one source. For example, the Sarajevo Housing Authority has detailed information on the size, quality, amenities and location of publicly owned residential apartments, and its rent collection system is computerized.
Other sources are the gas and electric utilities that must possess information about their customers in order to efficiently and effectively bill them for service. Sarajevo Gas appears to have fairly complete customer records and it makes a serious effort to keep these data files up-to-date. The largest of three electric utilities operating in Bosnia and Herzegovina, Public Enterprise Elektoprivreda BiH, also maintains very good customer records on approximately 560,000 customers, including approximately 60,000 businesses.
These housing, gas and electric records contain a lot of information on property and its owner/occupier, yet no single set of records appears to be sufficient for the level of detail necessary for an efficiently operating property tax system. Given the incomplete information contained in the cadastral records, tax administration officials in Bosnia and Herzegovina are faced with the challenge of developing a data discovery process that can best utilize these existing databases.
An active approach to discovery would require occupants to provide the necessary information to the taxing authorities. The reason that occupants rather than owners should be enlisted in this task is because land and property ownership records are incomplete and inaccurate in many parts of the country. The first step would be to develop a form that asks for the name of the occupant, a cadastral identification number, the location of the property, the area of the land, the size of improvements to the land, and the use of the land. In the Federation, it makes sense for the cantons, in cooperation with the municipalities, to develop these records, whereas in the Republika Srpska, municipalities most likely would do this with assistance from the entity-level government.
The second step would involve collecting this information. Asking occupants to fill out the form voluntarily would require a public information campaign explaining why the information is needed, how to comply with the request, and the penalties associated with non-compliance. Occupants would be encouraged to pick up the forms from the local cadastral office, complete them, and return them. A second approach would be to prepare a list of known properties using existing cadastral, housing, and gas and electric utility records, and then either hand deliver or mail the property record form to the occupants.
Once the municipalities have compiled the property information, it should be audited for accuracy and completeness by comparing information on the forms with similar information contained in the records of the electric and gas utilities. In many cases this comparison could be performed electronically. Then a manual comparison could be done with housing and cadastral records. The result will be a list of properties and occupants who have failed to comply with the request for property record information. Non-compliers could be sent a reminder of their responsibility to comply, and in extreme cases of non-compliance, individual visits to the property can be conducted.
Revenue Potential and Administrative Challenges
Despite the presence of property-based taxes in Bosnia and Herzegovina, officials at the cantonal and municipal levels of government do not fully appreciate the revenue potential of area-based property taxes. However, these taxes have the potential to generate sizable amounts of revenue, relative to current local budgets, and eventually produce more than one percent of gross domestic product (See Table 1).
There also are sizable administrative challenges associated with the implementation of such a tax. Foremost is the development of a legal and administrative framework that will ensure uniformity, an important criterion for any property tax system. Fortunately, the current government system is designed to promote uniformity because the Constitution of the Federation of Bosnia and Herzegovina grants sole responsibility for fiscal policy to the Federation. Therefore, a framework law, outlining the methodology for determining the property tax base and the range of allowable tax rates, and authorizing cantons to pass enabling legislation for municipalities to levy the tax, should be prepared at the Federation level. Similarly, a framework law would be prepared at the entity level in the Republika Srpska authorizing municipalities to pass enabling legislation.
To overcome any misconceptions regarding the revenue potential from or the administrative challenges posed by the implementation of an area-based system of property taxation, the cosponsors of this research are planning a short training conference in Sarajevo in the late fall. It will provide a common foundation of knowledge about property taxes to officials for both the Federation and the Republika Srpska and foster discussion about the best way to implement an area-based system.
Three pilot studies will then be launched to test whether sufficient property information can be obtained at a reasonable level of effort and cost. In addition, these studies will help determine the roles that various participants at the entity and sub-entity levels of government should play in the discovery phase. If the pilot studies prove successful, a significant step will have been taken toward the introduction of an area-based property tax and diversification of the local government tax base in Bosnia and Herzegovina.
C. Kurt Zorn is professor of Public and Environmental Affairs at Indiana University in Bloomington. Jean Tesche is resident tax advisor for Bosnia and Herzegovina for the United States Treasury, Office of Technical Assistance, in Arlington, Virginia. Gary Cornia is professor at the Romney Institute of Public Management at Brigham Young University in Provo, Utah.
The authors have prepared a Lincoln Institute Working Paper available for free on the web titled “The Potential for a Property Tax in Bosnia and Herzegovina.”
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The Republic of Lithuania, which declared its independence from the USSR in 1990, is the largest and the southernmost of the Baltic countries, with a total area of 65,300 sq. km. and a population of 3.5 million. Although the other Baltic countries introduced market value-based land taxes earlier, Lithuania anticipates that its up-to-date real property information system and administration network, managed by the State Land Cadastre and Register (SCLR), will speed its implementation. SLCR has been assigned the task of valuing property for taxation, and will utilize its computerized real property information system of land and building data for this purpose.
Tax systems in Lithuania, established early in the post-Soviet period, are gradually being reformed to accommodate development of democratic institutions and market economies, and to advance negotiations for entry into the European Union. The Lithuanian Governmental Action Program for 2001-2004 identified the introduction of market value-based taxes on land and buildings as a priority, contemplating an expanded tax base and a greater role for local government in fiscal decision-making.
Taxes on Land and Buildings
Currently there are two national taxes: a 1.5 percent land tax paid by landowners and 1.0 percent property tax on the value of property (excluding land) paid by corporations and other legal entities. The tax proceeds are returned to the municipalities, where in 2001 they provided on average just over 8 percent of municipal budgets. The revenue from the property tax was nearly 10 times higher than the revenue from the land tax, and has increased annually, representing 2.3 percent of national budget revenues. Neither tax has a market value base at present, although some market elements have been introduced gradually in the land tax base.
Development of the Mass Valuation System
Information Systems
Lithuania initiated development of computer-based real property data 10 years ago. Since establishment of the SLCR in 1997, a fully computerized Real Property Registration System links land parcels and buildings, and cadastre and register data into one unified system. The computer network covers the entire country and links counties and districts to the central databank, so that computerized registration of real property can take place in any branch office or client service bureau throughout the country. Analysis of the data permits monitoring of changes in the real property market, statistical analysis, and utilization of computer-assisted mass appraisal techniques. Figure 1 illustrates the current operation of the Real Property Register and flows of information on real property.
As of August 2002 nearly 4.7 million properties were registered, including more than 1 million land parcels, 615,000 buildings, 1.6 million auxiliary buildings, 950,000 flats and premises, and 395,000 engineering constructions. The central databank is expected eventually to register 6 million properties, including 2.3 million land parcels and 3.7 million buildings of different types.
Sales Data
The SLCR has been collecting real property sales information since 1998, and there are a sufficient number of transactions of flats, garages and land parcels to support mass valuation modeling based on market principles. The SLCR has created a databank of real property sales, and when a new real property unit is formed, it is inventoried and described in the Real Property Cadastre and all property rights are registered in the Real Property Register. At the conclusion of a transaction, a new owner registers the ownership in the register, but the data in the cadastre are not changed. When the transaction is registered the sale price indicated in the purchase-and-sale agreement is recorded into the database, allowing the price information to be supplemented by descriptive (cadastral) attributes. Table 1 shows the number of property sales registered during 1998-2001.
Mass Valuation Pilot Project
To prepare for the implementation of value-based real property taxation, the Ministry of Finance assigned to SLCR the task of undertaking a pilot project using mass valuation techniques. The results will be presented to the Ministry of Finance and other interested state institutions.
SLCR’s objectives are to complete the development of a real property mass valuation system to accomplish the following goals:
At the conclusion, SLCR will be able to analyze various possibilities for introducing a computer-assisted mass appraisal (CAMA) system in Lithuania, and to prepare proposals regarding ad valorem property tax administration and relevant institutional infrastructure development. The project involves 40 property valuers from both SLCR’s central and branch offices, who have been trained by specialists within SLCR and international experts, including the Lincoln Institute, Organisation for Economic Co-operation (OECD), Swedesurvey and the Finnish National Land Survey.
Progress of Project Implementation
Property valuations have been nearly completed in the 11 municipalities selected as demonstration projects, one located in the territory of each SLCR branch office. The experience gained from these pilot projects will be valuable in extending the valuation throughout the entire country. Table 2 summarizes the progress made by SLCR and the Ministry of Finance in completing various steps in the implementation of the mass appraisal system.
Kestutis Sabaliauskas is director general of the State Land Cadastre and Register (SLCR) of Lithuania and Albina Aleksiene is chief of the Market Data Analysis Group.
A History of SLCR and Lincoln Institute Collaboration
The Lincoln Institute and the Lithuanian State Land Cadastre and Register (SLCR) have been collaborating on a series of seminars and research studies since 1997, in preparation for the introduction of market value-based taxation of real property in this Baltic country. A May 2001 Land Lines article, “Market Value-Based Taxation of Real Property,” reported on a weeklong course presented in February 2001 at the Lincoln Institute for a group of senior-level public officials from Lithuania. Participants included representatives from Parliament, the Prime Minister’s office and the Ministry of Finance; the United Nations Development Program provided financial support for the program. Their visit was important both in developing knowledge of real property taxation systems and in creating a working group of representatives from different governmental institutions who were eager to cooperate in establishing an up-to-date taxation system in Lithuania.
In November 2001, the Institute conducted a follow-up series of programs on market value-based taxation in Vilnius for representatives from institutions including the Government of the Republic of Lithuania, several ministries, the Tax Inspectorate, the Association of Municipalities, and the Lithuanian Association of Property Valuers. A second seminar, “Value-Based Taxation Of Real Property in the Baltic Countries: A Comparative Review,” drew participants from Estonia, Latvia and Lithuania to discuss the progress of property tax reforms and shared experiences in undertaking mass valuations. A third seminar, organized in cooperation with the Committee of Budget and Finance of the Lithuanian Parliament, attracted many members of Parliament and top-level governmental officials involved in shaping various aspects of tax policy: policy considerations in introducing a real property tax based on market value; the challenges and benefits of value-based taxation; and ways of implementing an efficient real property tax acceptable to the general public in Lithuania. Over 100 representatives of various institutions of Lithuania and the Baltic States attended one or more of these November seminars.
In May 2002 a faculty group organized and sponsored by the Lincoln Institute visited Lithuania for another series of meetings and briefings organized by SLCR to explore effective approaches to implementing value-based real property tax system. SLCR staff presented extensive information on its activities and readiness to perform mass valuations at central headquarters as well as local offices, where most property valuers work. One outcome of the May meetings is development of an educational program on mass valuation using Lithuania as a case study, which may be valuable to other countries in economic transition. This case will be presented during the next collaborative program to be held in Vilnius in 2003.
Lincoln Institute faculty participating in these programs are Joan Youngman, senior fellow and chairman of the Institute’s Department of Valuation and Taxation; Jane Malme, fellow of the Lincoln Institute; Richard Almy and Robert Gloudmans, partners in Almy, Gloudemans, Jacobs & Denne, Phoenix; and John Charman, consultant valuation surveyor, London.
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C. Lowell Harriss is Professor Emeritus at Columbia University, where he taught economics from 1938 until his retirement in 1981. He then served as executive director of the Academy of Political Science until 1987. He has been a consultant to and a member of numerous government commissions and boards of professional organizations. He has written and edited many books and hundreds of articles, and is the recipient of countless honors and awards. Dr. Harriss has been a valued associate of the Lincoln Institute since its founding in 1974, as a faculty member, research scholar, and board member. Joan Youngman, senior fellow and chairman of the Institute’s Department of Valuation and Taxation, spoke with him about his lifelong commitment to education, public service, and property taxation.
Joan Youngman: How does land value differ from improvement value as a property tax base?
Lowell Harriss: The significant factor with land is location, the unimproved condition of nature in the most fundamental economic sense. Whatever results from private or public investment and labor, such as streets, buildings, and so forth, is not part of land in this definition. Land differs from other productive resources because it is immobile and its quantity is fixed.
Land exists not because people produce it, but because it’s there by nature. The price one pays for land, as contrasted with other resources, has no role in creating supply. Land is also unique in that no two pieces are the same, so the kind of analysis appropriate for labor and capital with fungible aspects is not applicable to land.
Another important element is the ability to control land use–for example, to receive rent as payment for access, rather than because the owner created anything. The person who controls land use can serve a constructive function by directing it into better instead of poorer uses, and I think there should be the prospect of rewards for doing so. Market forces will indicate demand, and one interested in public policy hopes that the land will be used in the best possible ways. The owner of desirable land will get higher returns, but not because of anything he or she did to create it.
Almost any urban use illustrates this. Some thirty or forty years ago, I was walking down Park Avenue and I saw a very fine building in a key location, 64th Street, I think, housing some offices of the New York City Board of Education—much too valuable a location to be used for administrative purposes. I raised this point with someone in the school system, and he said that they were moving out. They had come to the same economic realization.
Any use of land prevents another use. Holding land idle or partially idle affects not only the owner but neighbors and society at large. Others will have to travel further to get to work or to the grocery store or to school. Land is so crucial, so important to life, that society will be better off if there are forces, market forces or governmental forces, inducing better rather than poorer uses.
JY: How can the tax system encourage better land use?
LH: A tax system that imposes higher taxes on land creates pressure on owners to make more productive use of their land. I don’t like the term “land value tax,” because it emphasizes the tax aspect. My focus over the years has been on reducing the tax rates on structures to induce more investment in improvements. I have not emphasized increasing the tax rates on land to increase pressure for better land use, but these can go together. If the tax system can create a built-in inducement, year in and year out, for better use of land, that will be a plus. I don’t want to be unduly skeptical about more direct land use regulation, but government is politics and the political pressures that affect government regulation do not always represent mankind at its best.
JY: How would you deal with past improvements to land, before the implementation of a land-based tax?
LH: I would just establish the tax on the current condition of the land. The past is past. We’re not talking about a tax on capital gains but a recurring tax on an immobile resource. Some of its current value does reflect prior capital investment, the same as for structures, but I don’t see how to make any differentiation for an annual tax on land value. As a practical matter we have no market for land the way it was hundreds of years ago.
Going forward, it would be desirable to distinguish the value of unimproved land from the value of capital improvements to the land, such as infrastructure and grading, that aren’t viewed commonly as “buildings” but that represent investment and effort. The tax system should not create obstacles to investment. I would certainly be open to learning more about what might be administratively feasible in that regard.
JY: What about the taxation of farms, forests, and open space?
LH: Well, this raises complicated concerns. On one hand, I think it would be good to have additional pressure on some owners of agricultural land to speed up nonagricultural development, especially in the urban fringe. On the other hand, decisions about land use are often irreversible. Covering more acres in Westchester County, where I live, with asphalt and buildings will affect drainage for years to come. I think if anything there should be bias against decisions that are costly in the long run and difficult to reverse if conditions change. But it’s also pretty clear that interests vary, and what is in the interest of farmers is not always in the interest of the public as a whole.
Land is a large part of farm investment, and anticipated future income is reflected in land prices. The market value of land does not necessarily reflect current cash flow, so if taxes are high they may constitute a substantial portion of farm income. I’m sometimes considered not very sympathetic to farmers, because I think they have undue political influence.
The effect of many state and federal programs to benefit farms will be capitalized into higher land values. The consumer will pay forever, and the benefits will go to the person who owned the land when the policy was established. This is not a new conclusion. It’s been in the literature since farm programs began in the 1930s, but it has not affected the political decision-making process. Congressman Barney Frank of Massachusetts asked why the family farm deserves more consideration than the family shoe store, and I agree with the implication of his question.
JY: What about two people who own identical parcels of land, side by side, but one has a small, older house and the other has a new commercial building or shopping center? Many people think it’s unfair to impose the same tax on both.
LH: There are real problems here, too, partly because of imperfections in the capital markets. The person with unimproved land, let’s say it’s a widow, might ideally get a reverse mortgage to realize cash income from her property. The logical thing at that stage of life is to consume capital, for example, by drawing down retirement accounts. We have a systematic market that enables us to live off of our capital when it’s in the form of financial investments, but it’s not that well developed for the real estate market.
I always want to be sympathetic with the person who is having trouble, but wise public policy cannot be made well by concentrating on the extreme cases. Society needs to deal both with the cases of human need and with other problems such as the pressures on land use. Those whose land has become valuable, not because of what they did, but because of their neighborhood, are lucky, even though they may not recognize it. We need separate instruments to deal with separate problems, such as the person whose tax bill goes up even when his cash income does not.
Another aspect of the question is that the property tax is not a personal tax and cannot be evaluated on the same grounds as, say, an income tax. To attempt to do so can mislead. A rich person may own no land and a person with very little cash may own a good deal of land. There are ways to deal with the cash-flow problem, such as circuit breakers that limit property taxes to a certain percentage of income or deferral of tax payments until the property is sold.
JY: Is speculation a special concern? Is everyone who holds property with the hope that it will rise in value a speculator?
LH: I’ve always been reluctant to use the term “speculation,” and I certainly would not say that public policy should penalize the speculator. But, to the extent that government plays a role, I would say its bias should be toward use rather than idleness, and tax policy also supports this view. There is a whole range of speculation, from an owner deciding not to sell a house this week because of hopes for a better price next week, to holding a plot of ground idle in downtown Manhattan, knowing that someone is going to offer a very high price for it eventually.
The developer is presumably a constructive element in the total process. I don’t think anyone really wants equilibrium, but something better than what would be equilibrium. More people live better by reasonable standards now than was the case 20 or 100 years ago, and the real estate developer has played a part in that process. Sometimes it’s fashionable to be disparaging of developers, but we owe a lot to them. Maybe we’ve overpaid some of them, but plenty of them have lost their shirts. It can be a very risky business.
JY: How should the tax system treat government-financed improvements to land?
LH: In New York City, for example, I don’t know how much of the cost of building and extending subways could be borne by taxing the increments of the land value in the neighborhood, but probably a good deal. It’s not going to slow down progress to use those land value increases to help finance the expansion of the subway system.
We need to distinguish, however, between year-in, year-out financing of government by taxes on land and more or less one-time charges. That is, if the subway system is extended, there will be immediate capital gains as well as a long-term increase in the property tax base. Each of these effects deserves consideration in public policy.
JY: What is the difference between someone who invests in a piece of land and then watches as the price of land rises and someone who invests in a stock and then watches the stock market rise?
LH: Well, as far as income taxation is concerned I would think they are the same, but for financing local government they’re very different. The land stays in place, yet the stockholder can move. The ability of the landowner and stockholder to pay may be the same, but that isn’t the only relevant consideration. In thinking about how to tax gains you need to take into account whether the taxpayer can move from the jurisdiction.
I think that taxing people annually to finance local government, based on their ownership of land, is good public policy. The effort to apply that same principle to intangibles was a complete failure in the late nineteenth and early twentieth centuries, because you can’t tax people locally on the basis of resources that are so mobile.
The distinction here is not between earned and unearned income. For income tax purposes the tax is applied after a sale when the owners have realized their gain. But, to finance schools and other services you don’t want to rely on residents’ decisions about whether or not to sell their land. You want a permanent and steady source of tax revenue.
This is quite different from the question of unearned income, that is, whether or not the owner grew rich in his sleep. If the Astors became rich from owning land in Manhattan, but paid their property taxes year in and year out, well, so be it. I think that the property tax can take only a very limited account of differences in wealth. The administrative difficulties of a net wealth tax could be enormous. And the identification of a property tax with a tax on wealth or net worth is, I think, diverting and dangerous. It shifts attention from the goal of financing government to issues of personal status and relative position.
JY: Could you say more about the problem of jurisdictions competing for business by offering tax reductions?
LH: It seems to me there is no need for property tax exemptions on land. Special concessions may be appropriate for buildings, as an acceptable means of competition, but I’m dubious and favor broad reduction of taxes on structures. In any case, the land is not going to move. If you give concessions for land, they will tend to be capitalized into capital gains for the present owners. Under a two-rate land and buildings tax system, any concessions should be made on the basis of the variable resource, which is the building value. Inducements are not going to create more land, but they might create more structures. In this way, economic development incentives might be more effective under a land tax.
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Land Lines April 2009 Report from the President
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Hace más de 50 años, un proceso lento pero fundamental comenzó a transformar el impuesto sobre la propiedad en los Estados Unidos. Como este proceso se desarrolló a nivel estatal y local, y no a nivel federal, y dado que la adopción casi universal del avalúo preferencial tomó varias décadas, la mayoría de los ciudadanos no son conscientes de que los dueños de parcelas rurales a menudo reciben un tratamiento preferencial. En consecuencia, hoy millones de hectáreas de suelo rural se avalúan muy por debajo de su valor justo de mercado a efectos del impuesto local sobre la propiedad.
Estas modificaciones del impuesto sobre la propiedad comenzaron en Maryland en 1957, cuando la Asamblea General promulgó una ley de avalúo de suelos de uso agrícola. Esta ley estableció que los campos y pastizales se podían avaluar por debajo del precio del mercado, siempre y cuando se “utilizaran activamente” con fines agrícolas. Como prueba de uso agrícola activo, un dueño sólo tiene que demostrar que la propiedad generó US$2.500 o más de ingresos brutos anuales por la venta de productos agrícolas en los últimos años.
Varios factores impulsaron a docenas de gobiernos estatales a emular a Maryland y crear programas de avalúo por valor de uso (use value programs, o UVA) en las décadas de 1960 y 1970. El primero fue la expansión masiva de las regiones metropolitanas de los EE.UU. después de la Segunda Guerra Mundial, que provocó la conversión de decenas de millones de hectáreas de suelos agrícolas, ganaderos, forestales y otros suelos rurales a uso residencial y a otros usos no agrícolas. Alig et al. (2003) estima que el área desarrollada del país aumentó más del doble entre 1960 y 1997, de 10,3 a 26,5 millones de hectáreas. La rápida urbanización del suelo rural había llegado antes a Maryland que a otros estados debido a que la población de los condados de Montgomery y Prince George, cerca de la rápidamente creciente capital del país, Washington, DC, se cuadruplicó entre 1940 y 1960.
El segundo factor fue que el suelo agrícola que se encontraba al borde de las áreas metropolitanas aumentó significativamente de precio en las décadas posteriores a la guerra debido a su potencial de desarrollo inmobiliario, por lo que algunos productores rurales se vieron obligados a pagar facturas de impuestos mucho mayores debido al mayor valor de sus suelos. Entre 1950 y 1971, por ejemplo, se produjo un incremento del 330 por ciento en la relación de precios de suelos agrícolas con ingresos agrícolas netos en Maryland (Gloudemans 1974). Un estudio en dos estados y siete condados de la región de Kansas City a comienzos de la década de 1960 encontró que la proporción de ingresos brutos agrícolas absorbida por el impuesto sobre la propiedad en el condado más urbanizado era cuatro veces mayor que en la región metropolitana en su totalidad (Blase y Staub 1971). Por lo tanto, la adopción de un avalúo preferencial para el suelo rural se justificó frecuentemente como una medida política para proteger a las familias de agricultores y ganaderos de penurias económicas o, incluso, la ruina.
Una tercera razón, más sutil, de la adopción de programas UVA, tiene que ver con la manera en que el impuesto sobre la propiedad había sido administrado en muchos estados antes de 1957. Hasta ese momento en la historia de los EE.UU., los valuadores municipales y de condado habían otorgado preferencias tributarias de facto a los agricultores, a pesar de que las cláusulas constitucionales estatales exigían uniformidad y equidad en la tributación. Estas prácticas informales de avalúo tenían como objetivo proporcionar alivio tributario a “ciudadanos que se lo merecían”, pero producían como efecto secundario diferencias considerables en los avalúos de propiedades dentro de la misma comunidad.
La expansión de los programas de ayuda estatal a los gobiernos locales después de la Segunda Guerra Mundial puso al descubierto algunas de estas discrepancias. La cantidad de propiedades por residente o estudiante era frecuentemente un factor importante para determinar las fórmulas utilizadas para la asignación de subsidios estatales. Por lo tanto, creció la presión a nivel estatal para adoptar prácticas locales uniformes de avalúo, con el fin de asegurar una distribución equitativa de subsidios estatales. La eliminación de las preferencias tributarias de facto otorgadas por los valuadores a los agricultores y ganaderos dentro de sus comunidades aceleró los esfuerzos para obtener preferencias tributarias de jure para los suelos rurales, por medio de leyes estatales o enmiendas constitucionales.
California fue uno de los estados que adoptó inicialmente el avalúo por valor de uso para los suelos rurales. En 1965, el poder legislativo aprobó la Ley de Conservación de Suelos de California, comúnmente llamada la Ley Williamson. El objetivo de esta ley era la preservación del suelo rural para poder asegurar un suministro adecuado de alimentos, desalentar la conversión prematura de suelos rurales a uso urbano, y preservar las propiedades agrícolas debido a su valor como espacio abierto.
La Ley Williamson permite a condados y ciudades ofrecer un avalúo preferencial al dueño de un suelo agrícola, condicionado a un contrato que prohíbe el desarrollo del suelo por un mínimo de diez años. Después de la primera década del contrato, este se prolonga automáticamente cada año a menos que el dueño presente una notificación de no renovación de contrato. Una vez presentada esa notificación, el avalúo de la propiedad aumenta anualmente hasta que alcance su valor justo de mercado, y el contrato vence finalmente después de nueve años.
Diversidad y alcance de los programas de avalúo por valor de uso
Con poca repercusión en los medios de comunicación nacionales, el avalúo preferencial de los suelos rurales se ha convertido en una característica fundamental de los impuestos locales sobre la propiedad en los Estados Unidos. En California, por ejemplo, más de 6,7 millones de hectáreas de suelo agrícola se acogieron a los contratos de la Ley Williamson en 2008-2009. Según el Departamento de Conservación de California, las propiedades sujetas a la Ley Williamson constituían casi un tercio de todos los suelos privados a comienzos de 2009.
Más de 6,5 millones de hectáreas de suelos agrícolas en Ohio estaban inscritas en el programa de Valor de Uso Agrícola Actual (CAUV, por sus siglas en inglés) para 2007. En promedio, estos suelos se habían valuado en sólo un 14,2 por ciento de su valor de mercado. En diciembre de 2011, la Sala de Representantes de Ohio votó por unanimidad a favor de ampliar el programa CAUV del estado para incluir suelos utilizados para la producción de energía por biomasa y biodiésel.
En Nueva Hampshire, se inscribieron 1,2 millones de hectáreas en el programa estatal de avalúo por uso vigente en 2010. Estas parcelas valuadas en forma preferencial constituían más del 51 por ciento del área total de suelos del estado. Como la agricultura desempeña un papel menor en la economía de Nueva Hampshire, más del 90 por ciento de estos suelos sin desarrollar son bosques y humedales, no campos agrícolas ni pasturas.
Dado que las circunstancias económicas, políticas y legales varían sustancialmente entre los 50 estados, no es sorprendente que los gobiernos estatales hayan adoptado programas UVA diversos. En 1977, once estados ya habían creado programas en los cuales las parcelas elegibles quedaban inscritas automáticamente. En otros 38 estados, los programas requerían que los propietarios presentaran solicitudes de avalúo preferencial. Casi todos los estados ofrecían avalúos por debajo del valor de mercado para suelos agrícolas, pero sólo 21 estados extendían avalúos preferenciales para suelos madereros y bosques.
Desde el punto de vista de la conservación de suelos, la diferencia más importante entre los estados es que 15 de ellos no imponen penalizaciones si un dueño convierte su propiedad a un uso no calificado (ver figura 1). Otros siete estados exigen la devolución de un porcentaje del desarrollo inmobiliario efectuado en parcelas inscritas en el programa. Es decir, el propietario tiene que pagar al estado o al municipio un porcentaje del valor de mercado de la parcela en el año en que se desarrolla la propiedad.
Mucho más común es la penalización de reversión, un disuasión del desarrollo que exige al dueño que pague la diferencia entre el impuesto sobre la propiedad efectivamente pagado en los últimos años gracias al avalúo por valor de uso, y el impuesto que hubiera pagado en esos años si el avalúo hubiera sido efectuado al valor de mercado (más los intereses acumulados por dicha diferencia, en algunos casos). Veintiséis estados utilizan esta forma de penalización al desarrollo inmobiliario. Las investigaciones económicas han demostrado que la falta de penalizaciones al desarrollo inmobiliario debilita significativamente la capacidad de un programa UVA para demorar el desarrollo de suelos rurales que se encuentran en el borde de las regiones metropolitanas (England y Mohr 2006).
La práctica de avalúo por valor de uso a veces crea tensiones políticas en la comunidad e incluso puede dañar la legitimidad de la tributación sobre la propiedad como fuente de ingresos locales. En noviembre de 2011, una estación de televisión de Wisconsin reportó que los dueños de lotes vacantes en una subdivisión residencial de lujo habían cosechado malas hierbas en sus parcelas y solicitado con éxito un avalúo agrícola para sus lotes, mientras la construcción estaba pendiente. Este alegato hizo que por lo menos un representante estatal solicitara la realización de audiencias legislativas por abuso del programa de avalúo por valor de uso del estado. Según el representante Louis Molepske, “Esto debería molestar a todos los habitantes de Wisconsin porque han sido engañados por aquellos que… [quieren] transferir injustamente la carga de los impuestos sobre la propiedad a todos los demás” (Polcyn 2011).
Cómo salvar a los agricultores familiares y los paisajes rurales
Los programas UVA, ¿han “salvado al agricultor familiar”, como predijeron originalmente algunos de sus defensores? En realidad, no. Durante la década de 1980, la población agrícola de los Estados Unidos descendió drásticamente un 31,2 por ciento. Desde 1991 a 2007, la cantidad de granjas comerciales pequeñas continuó disminuyendo, de 1,08 millones a 802.000. En ese mismo período de tiempo, las granjas muy grandes (con 1 millón de dólares en ingresos brutos por lo menos) aumentaron su participación en la producción agrícola nacional desde casi el 28 por ciento hasta casi el 47 por ciento (Servicio de Investigación Económica del Departamento de Agricultura de los Estados Unidos, sin fecha).
Si el avalúo preferencial de los suelos rurales no ha prevenido la disminución de las actividades agrícolas familiares, ¿ha reducido la tasa de desarrollo del suelo rural en los Estados Unidos? Existen pruebas positivas al respecto, pero son modestas. Un estudio sobre el cambio en el uso del suelo desde que Nueva Jersey adoptó el avalúo por uso del suelo en 1964, hasta 1990, encontró que el programa tuvo un impacto muy modesto en la tasa de conversión de suelos agrícolas a usos urbanos (Parks y Quimio, 1996). Después de su estudio en 1998 de casi 3.000 condados de los Estados Unidos, Morris (1998) concluyó que, en promedio, los programas UVA tuvieron como resultado el mantenimiento de aproximadamente un 10 por ciento más de suelos agrícolas en un condado después de 20 años de funcionamiento del programa. Después de su estudio detallado sobre el cambio de uso del suelo en Luisiana, Polyakov y Zhang (2008) concluyeron que se hubieran desarrollado 65.000 hectáreas más de suelos agrícolas durante los cinco años posteriores a 1992 si no hubiera existido un programa UVA en el estado. Parece, entonces, que los programas UVA han ralentizado algo la expansión metropolitana durante las últimas décadas.
Transfiriendo la carga tributaria a nuestros vecinos
Si bien la reducción en la tasa de desarrollo del suelo constituye un beneficio medioambiental y público de los programas UVA, viene acompañado de un costo social. Cuando las propiedades de agricultores, ganaderos y dueños forestales reciben un avalúo muy por debajo del valor de mercado, los gobiernos locales recaudan menos impuestos, a no ser que suban la tasa de impuestos de todas las demás propiedades gravables. Al elevar las tasas tributarias para mantener los niveles de gasto público, los pueblos y condados aumentan las facturas de los impuestos sobre la propiedad de los propietarios no sujetos al UVA, que principalmente son los dueños de viviendas.
Este impacto potencialmente regresivo de los programas UVA se conocía desde hacía décadas. En su informe de 1976 sobre el avalúo preferencial de suelos agrícolas y espacios abiertos, el Consejo sobre Calidad Medioambiental del Presidente (1976, 6-8) expresó claramente que estos programas estatales tienen un costo tributario de magnitud significativa, afectando la redistribución de ingresos entre los contribuyentes:
Todas las leyes de avalúo diferencial… [generan] ‘gastos tributarios’, porque las facturas de cobro de algunos contribuyentes se reducen…. En lamayoría de los casos, el costo de esta reducción se distribuye entre todos los demás contribuyentes… El efecto de un gasto tributario es precisamente el mismo que si los contribuyentes que reciben el beneficio debieran pagar sus impuestos a la misma tasa que los contribuyentes no preferenciales, y al mismo tiempo recibieran un subsidio… por el valor del beneficio tributario.
La magnitud de esta transferencia de impuestos entre los dueños de propiedades puede ser considerable. El informe de Anderson y Griffing (2000) estima los gastos tributarios de dos condados de Nebraska asociados con el programa UVA del estado. El gasto tributario promedio es aproximadamente el 36 por ciento de los ingresos del condado de Lancaster y el 75 por ciento de los ingresos del condado de Sarpy.
Dunford y Marousek (1981) han estudiado el impacto de la Ley de Impuestos sobre Espacios Abiertos (OSTA, por sus siglas en inglés) del estado de Washington sobre la distribución de la carga tributaria en el condado de Spokane. Ocho años después de la creación del programa OSTA, se han inscrito aproximadamente 180.000 hectáreas del condado de Spokane, es decir, alrededor del 40 por ciento del área total de suelos del condado.
Los autores calculan que el aumento de impuestos de las propiedades no participantes para compensar la reducción de impuestos a los dueños de las parcelas inscritas ascendería al 1,3 por ciento, si se deseara mantener los ingresos constantes. No obstante, oculto en este cálculo promedio para el condado, se encuentran enormes diferencias entre las distintas comunidades. Aun cuando la transferencia tributaria a las propiedades no participantes sería sólo del 1-2 por ciento en muchas localidades, esta alcanzaría hasta el 21,9 por ciento en una comunidad. La conclusión de este y otros estudios es que el otorgamiento de avalúos preferenciales a los terratenientes rurales podría ayudar a retrasar el desarrollo inmobiliario de sus propiedades, pero también podría imponer una carga fiscal sobre los propietarios de viviendas así como también sobre los dueños de propiedades comerciales e industriales.
Reforma de los programas de avalúo por valor de uso
Como muchos estados han tenido casi medio siglo de experiencia con sus programas UVA, este es un buen momento para que los legisladores estatales y los departamentos tributarios hagan una pausa y se pregunten si esta característica de su sistema tributario estatal y local debería ser reformada o no. La transferencia de la carga del impuesto sobre la propiedad causada por los programas UVA en muchas comunidades sólo se puede justificar si dicha tasa tributaria preferencial sirve al más amplio interés público. El argumento a favor de la reforma cobra más impulso si se considera que el 94 por ciento de las unidades familiares agrarias tienen un patrimonio neto mayor a la mediana de todos los hogares de los Estados Unidos.
Después de la brusca caída de los mercados inmobiliarios residenciales y comerciales en 2008–2010, la tasa de conversión de suelos rurales a uso urbano disminuyó en muchos estados, al menos por el momento. Para las comunidades, puede ser más fácil considerar la adopción de reformas a los programas UVA durante este período, cuando muchos dueños de suelos rurales no tienen expectativas de vender sus propiedades a emprendedores inmobiliarios en un futuro cercano. Después de una amplia revisión de la literatura de investigación sobre los programas UVA estatales, recomiendo las siguientes reformas (England, 2011).
Aquellos estados que no imponen todavía una penalización cuando un suelo se retira del programa UVA deben comenzar a hacerlo. A menos que el propietario de suelos rurales tenga que pagar una multa en el momento en que su parcela se desarrolle, solamente se aprovechará del ahorro en el impuesto sobre la propiedad ofrecido por el programa UVA hasta que el precio de mercado del suelo desarrollado sea suficientemente atractivo. Por otro lado, la imposición de una penalización alta por hectárea, que disminuya con la cantidad de años de inscripción en el programa, podría inducir al propietario de suelos rurales a retrasar su desarrollo inmobiliario por años. Durante estos años, los fideicomisos de suelos y agencias estatales tendrían la oportunidad de imponer servidumbres de conservación sobre las parcelas rurales que merecen protección permanente contra el desarrollo inmobiliario. En una era en que pocos propietarios de suelos rurales son agricultores pobres, los programas UVA deberían ayudar a proteger los paisajes rurales y preservar los servicios de ecosistemas, en vez de subsidiar a los terratenientes ricos.
Los estados también deberían reconsiderar tres categorías de suelos rurales que son elegibles para el avalúo por valor de uso. (1) Los suelos agrícolas y ganaderos no deberían inscribirse automáticamente, como es la práctica en algunos estados. En lugar de ello, se debería obligar a los propietarios rurales a documentar los ingresos netos considerables recibidos por la venta de productos agrícolaganaderos durante el año fiscal precedente. Esto evitaría que el propietario de suelos ociosos a punto de ser desarrollados recibiera un descuento en su impuesto sobre la propiedad. (2) Las parcelas agrícolas no deberían ser elegibles para el avalúo por valor de uso si ya se presentaron planes de subdivisión o si las parcelas han sido reasignadas para uso residencial, comercial o industrial. Si existen pruebas consistentes de que un terrateniente va a comenzar pronto a desarrollar una parcela, no hay ninguna razón para continuar dándole el tratamiento tributario preferencial del programa UVA. (3) Los bosques, humedales y otras parcelas de uso no agrícola deberían ser elegibles para el avalúo por valor de uso si generan beneficios públicos tales como protección contra inundaciones, hábitat silvestre y vistas panorámicas. Por otro lado, los suelos áridos con gran potencial de desarrollo que se encuentran en el borde de las áreas metropolitanas se deberían avaluar al valor del mercado si no producen servicios de ecosistemas que beneficien a la sociedad en su conjunto.
Los estados deberían revisar cuidadosamente los métodos de capitalización de ingresos empleados para estimar el valor de uso agrícola de las propiedades rurales. Las pautas para estimar los ingresos netos de suelos agrícolas y para seleccionar la tasa de descuento que capitaliza el flujo de ingresos se debe basar en principios económicos sólidos, y se debería presentar a los contribuyentes de manera transparente. Debido a que los cálculos de capitalización de ingresos son muy sensibles a la elección de la tasa de descuento, dicha elección se debe justificar apropiadamente, y no puede tomarse arbitrariamente. En principio, la tasa de descuento libre de riesgo se tiene que ajustar según la inflación, el riesgo de incumplimiento, el riesgo de vencimiento y las restricciones de liquidez.
Los gobiernos estatales deberían reconocer que, si bien sus programas UVA generan beneficios medioambientales para el público en general, también imponen cargas fiscales sobre las localidades en que los dueños privados de suelos rurales se benefician de un avalúo preferencial. Por ejemplo, California promulgó su Ley de Subvención de Espacios Vacíos en 1972 para mitigar el impacto de la Ley Williamson sobre los presupuestos de los gobiernos locales, proporcionando subsidios estatales para reemplazar en parte los ingresos tributarios perdidos del impuesto a la propiedad. Entre 1972 y 2008, estos subsidios de Sacramento a las ciudades y condados ascendieron a 839 millones de dólares. (Estos subsidios fueron suspendidos en 2009, sin embargo, debido al enorme déficit presupuestario del estado.)
Como el avalúo preferencial del suelo rural se ha convertido en una característica fundamental del impuesto sobre la propiedad en los Estados Unidos, los gobernadores y los legisladores estatales deberían hacer una pausa y reconsiderar si estos tipos de reformas podrían mejorar tanto el desempeño de sus programas UVA como el apoyo popular a los mismos.
Sobre el autor
Richard W. England es profesor de Economía y Recursos Naturales de la Universidad de Nueva Hampshire. También es visiting fellow del Departamento de Valuación y Tributación del Instituto Lincoln.
Referencias
Alig, Ralph J., Andrew J. Plantinga, SoEun Ahn, and Jeffrey D. Kline. 2003. Land use changes involving forestry in the United States: 1952 to 1997, with projections to 2050. Technical Report. Portland, OR: U.S. Forest Service, Pacific Northwest Research Station.
Anderson, John E., and Marlon F. Griffing. 2000. Measuring use-value assessment tax expenditures. Assessment Journal (January/February): 35–47.
Blase, Melvin G., and William J. Staub. 1971. Real property taxes in the rural-urban fringe. Land Economics (May): 168–174.
Council on Environmental Quality. 1976. Untaxing open space: An evaluation of the effectiveness of differential assessment of farms and open space. Washington, DC: U.S. Government Printing Office.
Dunford, Richard W., and Douglas C. Marousek. 1981. Sub-county property tax shifts attributable to use-value assessments on farmland. Land Economics (May): 221–229.
England, Richard W. 2002. Current-use property assessment and land development: A theoretical and empirical review of development penalties. State Tax Notes, 16 December: 795.
———. 2011. Preferential assessment of rural land in the United States: A literature review and reform proposals. Working paper. Cambridge, MA: Lincoln Institute of Land Policy.
England, Richard W., and Robert D. Mohr. 2006. Land development and current use assessment. In Economics and contemporary land use policy: Development and conservation at the rural-urban fringe, ed. S.K. Swallow and R.J. Johnston. Washington, DC: Resources for the Future.
Gloudemans, Robert J. 1974. Use-value farmland assessments: Theory, practice, and impact. Chicago: International Association of Assessing Officials.
Morris, Adele C. 1998. Property tax treatment of farmland: Does tax relief delay land development? In Local government tax and land use policies in the United States, ed. Helen F. Ladd, 144–167. Cheltenham, U.K.: Edward Elgar.
Parks, Peter J., and Wilma Rose H. Quimio. 1996. Preserving agricultural land with farmland assessment: New Jersey as a case study. Agricultural and Resource Economics Review (April): 22–27.
Polcyn, Bryan. Lawmaker calls for hearing after farmland tax loophole exposed. WITI–TV, Twin Lakes, Wisconsin, 22 November 2011.
Polyakov, Maksym, and Daowei Zhang. 2008. Property tax policy and land-use change. Land Economics (August): 396–408.
USDA Economic Research Service. n.d. Washington, DC. U.S. Department of Agriculture. http://www.ers.usda.gov
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A New Yorker cartoon by Jack Ziegler captures the essential irony of buying into condominiums, cooperatives, and other homeowner associations. A car is entering a driveway that leads to a group of townhouses in the distance, and a sign by the entrance proclaims, “Welcome to Condoville and the Illusion of Owning Your Own Property” (Ziegler 1984).
Despite this ambiguity, about a quarter of the American population now lives in association housing situations, collectively known as common interest communities (CICs). Figure 1 shows the tremendous increase in CICs over the past several decades. From 1970 to 2013, the number of housing units in such communities spiked from about 700,000 to 26.3 million, while the number of residents multiplied more than 30-fold from 2.1 million to 65.7 million.
With their growing popularity, common interest communities have raised policy challenges and legal issues that require ongoing resolution. These conflicts generally reflect either external concerns that CICs segregate the wealthy from the rest of society or internal disagreements between individual owners and their associations’ governing bodies. This article examines some of the controversies associated with the CIC model and its governance, and suggests approaches for enhancing the benefits of common interest communities for both property owners and society at large.
The Rise of Common Interest Communities
With increasing industrialization during the 19th century, the intrusion of pollution, traffic, noise, and disease led many planners and citizens to favor the separation of residential, commercial, and industrial uses. (Zoning had not yet emerged as a planning tool and would not be validated by the Supreme Court of the United States until 1926.) Some residential developers thus imposed “servitudes”—covenants, restrictions, and easements—on their subdivision projects. Servitudes generally restricted the properties to residential uses and often created shared rights to communal facilities and services in exchange for fees. Lot purchasers agreed to the servitudes, and once the restrictions were recorded, subsequent purchasers were also legally bound. The common law proved to be an effective vehicle for creating high-end residential areas, including New York City’s Gramercy Park (1831) and Boston’s Louisburg Square (1844).
After a slowdown during the Great Depression and World War II, construction of CICs began to boom in the late 1960s, after the Federal Housing Administration (FHA) recognized the condominium as an insurable ownership vehicle, and state statutory authorization followed. FHA mortgage insurance encouraged developers to build middle-class condominiums, which gained market acceptance as a result of the “new town” movement—exemplified by early planned communities such as Reston, Virginia (1964), and Columbia, Maryland (1967). The passage of California’s Proposition 13, the initiative that limited property taxation in 1978, and similar measures in other states also spurred an increase in CICs, as cash-strapped local governments, under increased pressure to provide more services, were unwilling to absorb the infrastructure and service costs from new development. As a result, they tended to approve new developments only in CIC form, where the developer (and ultimately the owners) covered the costs.
Today, CIC owners are generally subject to a variety of constraints related to their private units, from limitations on the layout and design of buildings and the type of construction materials used, to restrictions on visible home decorations, ancillary structures, and landscaping. There are often controls on the owner’s behavior and use of the property, which is typically limited to residential occupancy. Noise, parking, and traffic rules may also be imposed, along with vehicle restrictions. In some cases, political signs, leafleting, and related activities are also prohibited.
In exchange for their association dues, owners have access to common facilities, such as roads and recreational areas, and to private services, such as security, trash collection, street cleaning, and snow plowing. The CIC is usually administered by a private residential government and various committees, elected by the owners and subject to the law of contract rather than public administrative and Constitutional law (see Box 1).
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Box 1: Common Interest Community Models
CICs typically create a private government elected by the owners to administer and enforce contracts, and to promulgate rules to advance community interests. While the exact form of the arrangement may vary, the basic concepts are similar.
Homeowner Associations
Unit owners hold fee title to their individual properties, which are usually single-family or townhouse homes. The association holds title to common areas and grants the owners easement rights for their use. These can be created by common law or under statutes in some states. Homeowner associations make up more than half of community associations nationally.
Condominiums
Unit owners receive fee title to their units plus a percentage ownership in the common areas. The association administers the common areas but does not hold title to them. Condominiums may be vertical (high-rise) or horizontal (single-family or townhouse homes), and they are created exclusively pursuant to state statute. Condominiums represent 45 to 48 percent of community associations.
Cooperatives
A cooperative corporation owns the building, and the owners receive shares in the corporation and automatically renewable, long-term leases on their individual units. Unlike condominium and homeowner associations, the corporation can control transfer of leases and shares by cooperative owners. Only 3 to 4 percent of community associations are organized as cooperatives.
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Economic Benefits of CICs
CICs bring substantial economic benefits to owners and to society at large. Residents who buy into these communities have determined that shared facilities, such as recreational areas, are a better value than, say, personal swimming pools and other private facilities. Similarly, those joining CICs have determined that certain restrictions—such as a prohibition on parking mobile homes in driveways—increase property values.
These communities help to achieve efficient use of land as well. The costs of organizing and administering a private residential community are lower than in a public system (Nelson 2009). Transaction costs and rent-seeking through the political system are also reduced. Finally, because it is free from statutory and constitutional restraints, a private community has greater flexibility in the substance of its rules and operations, freeing it from adherence to public guidelines when entering into contracts with service providers and suppliers.
American courts have recognized these efficiency benefits when enforcing CIC arrangements and the owners’ reliance on them. As one court noted, “It is a well-known fact that [covenants] enhance the value of the subdivision property and form an inducement for purchasers to buy lots within the subdivision” (Gunnels v. No. Woodland Community Ass’n, Tex. Ct. App, 17013 [1978]).
External Concerns: Secession from the General Community
Despite these benefits, various commentators have argued that the services and private facilities of CICs are available only to those who can afford them and facilitate the separation of the wealthy from the rest of society. The rest of a CIC’s municipality is forced to do without, creating a permanent, two-tier system of housing. Critics also claim that privatization of infrastructure and services isolates CIC residents and reduces their stake in broad communal issues.
By this logic, CIC dwellers are less willing to engage with public government on civic matters and more likely to resist tax increases, given that the CIC rather than the municipal government provides many services. Where community associations are part of suburban developments, isolation from the urban core may be acute. These concerns often center on a fear of class and economic segregation. As former Secretary of Labor Robert Reich wrote in a New York Times article called “Secession of the Successful”: In many cities and towns, the wealthy have in effect withdrawn their dollars from the support of public spaces and institutions shared by all and dedicated the savings to their own private services. . . . Condominiums and the omnipresent residential communities dun their members to undertake work that financially strapped local governments can no longer afford to do well (Reich 1991).
Freedom of Choice
This characterization of community associations, however, is at odds with the fundamental American values of freedom of contract and freedom of association. It is a shared value that people may spend their money for lawful purposes as they wish and enter into contracts as they please. The law intrudes on freedom of contract only in rare instances when major policy considerations are at stake. Courts have recognized freedom of contract as an important consideration for upholding private servitude arrangements: We start with the proposition that private persons, in the exercise of their constitutional right of freedom of contract, may impose whatever restrictions upon the use of land which they convey to another that they desire to impose (Grubel v. McLaughlin, D. Va. [1968]).
CICs also reflect the American belief in freedom of association, exemplified in a long tradition of utopian communities and other belief-centered networks. Residents in modern CICs might share common interests, such as the homeowners living in golf or equestrian communities. Other residents may simply share a desire for neighborhood tranquility or character. In Behind the Gates, Setha Low suggests that CICs allow “middle-class families [to] imprint their residential landscapes with ‘niceness,’ reflecting their own aesthetic of orderliness, consistency, and control” (Low 2004). Whatever the reason, community associations are consistent with de Tocqueville’s observation about American interactions: Americans of all ages, all conditions, and all dispositions, constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds—religious, moral, serious, futile, extensive or restricted, enormous or diminutive (de Tocqueville 1835).
Moreover, the available evidence indicates that CIC residents are generally happy with their choice. In a 2014 survey conducted by Public Opinion Strategies for the Community Associations Institute, 64 percent of owners were positive about their overall experience, and 26 percent were neutral. While 86 percent of respondents indicated that they wanted either less or no additional governmental regulation, 70 percent maintained that association rules and restrictions protect and enhance property values.
The Issue of Double Taxation
While the rise of CICs reflects a variety of factors, the constrained finances of municipalities following the property tax revolts in the 1970s were key. In fact, a different take on the “secession” narrative is that some owners in common interest communities believe that municipal government abandoned them.
CIC owners pay property taxes at the same rates as other citizens, even though they privately purchase services such as trash collection, street cleaning, and security with their community association dues. This amounts to double taxation, charging association owners for a service they are not receiving.
If a no-service policy were in effect before an owner purchased a unit in a CIC, theoretically the buyer could lower the offer price to reflect the lack of municipal services and the double-taxation-effect. The unit owner would be protected, and the developer would absorb the loss. But if a municipality reduces services but not taxes after the unit purchase, the owner suffers an uncompensated loss. This outcome would be bad policy in that it permits rent seeking, allowing the majority of citizens in the town to select one group of residents to bear an extra tax burden even though they do not create extra costs. This offends notions of both fairness and efficiency, and it’s antithetical to community building and civic trust.
It is especially important for legislatures to avoid the use of double taxation as a matter of policy, given that judicial challenges are unlikely to succeed. The few courts that have entertained attacks on double taxation have been unsympathetic to claims that it violates due process of law, offends the equal protection clause of the Constitution, or works a taking of property without compensation. While double taxation may be bad policy, it is not unconstitutional. The courts should not overturn such legislative decisions, because these are essentially political outcomes that the public should challenge at the ballot box.
The Question of Inequality
The “secession of the wealthy” argument appears to be based on the notion that only higher-income owners with higher-value homes live in common interest communities. The available data, however, do not clearly support this assumption. As Figure 2 indicates, prices for condominiums and cooperatives—half of the units in CICs nationally—are below those for all existing homes (including condominiums, cooperatives, and single-family homes inside and outside of community associations). While these estimates are not deeply segmented (for example, they do not break out single-family homes inside and outside CICs), they do show that the values of condominiums and cooperatives are consistent with those of homes generally.
Housing affordability and access are significant challenges in the United States, but community associations are not necessarily the cause of these deep-seated, complex problems. Employed before CICs became popular, exclusionary zoning imposed by local governments in the form of large lot requirements has prevented developers from building affordable housing. CICs have in fact been found to lower the costs of home purchases. Multi-unit housing, such as condominiums and townhouses, is more affordable than single-family homes because it cuts the cost of land, infrastructure, and building (Ellickson & Been 2005). Affordable housing cooperatives permit restrictions on resale prices and owner income, thus ensuring that housing opportunities remain available for lower-income families. For these purposes, developers operating under city requirements or incentives often designate condominium units within a project as affordable units.
It is therefore simplistic and counterproductive to see community associations as a battleground between rich and poor. Similarly, pejorative use of the term “gated” communities to describe those CICs with limited public access does not advance understanding. Indeed, a moderate-income cooperative with a front door locked for basic security reasons falls within the definition of a “gated” community.
Guiding Principles
In what ways should the “secession of the successful” critique affect our understanding, acceptance, and authorization of common interest communities? The issue is complex and does not lend itself to binary choices. Instead, it is a matter of accommodating competing interests according to the following principles:
Internal Conflicts: Individual Owners vs. the Community
In his groundbreaking book Privatopia: Homeowner Associations and the Rise of Private Residential Governments (1996), Evan McKenzie warned that: CICs feature a form of private government that takes an American preference for private home ownership and, too often, turns it into an ideology of hostile privatism. Preservation of property values is the highest social goal, to which other aspects of community life are subordinated. Rigid, intrusive, and often petty rule enforcement makes a caricature of . . . benign management, and the belief in rational planning is distorted into an emphasis on conformity for its own sake.
Conflicts between residents and CIC associations or boards often revolve around two general issues: the substance of the restrictions and the procedures for enforcement (see Box 2). As Figure 3 shows, disputes may focus on a range of topics, from landscaping restrictions to assessment collection. Indeed, 24 percent of CIC residents responding to the 2014 Public Opinion Strategies survey had experienced a significant personal issue or disagreement with their associations. Of this group, 52 percent were satisfied with the outcome and 36 percent were dissatisfied; in 12 percent of cases, the issue was still unresolved.
There are indeed certain risks that community associations can overstep with respect to the substance and enforcement of restrictions, but legislation and judicial supervision can address these substantive and procedural policy concerns.
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Box 2: Conflicts Make Good Copy
While the following headlines fail to represent the myriad positive interactions between individual owners and associations, they do suggest some of the difficult interactions that can occur.
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Freedom of Choice
As discussed earlier, individuals exercise their freedom of choice by purchasing homes in CICs and agreeing to be subject to their rules. Association living may not be for everyone, but the expectation of people who choose the CIC life should generally be respected and not be frustrated by someone who subsequently seeks to violate the compact. The courts generally reflect this view, as suggested by this 1981 ruling: [The original] restrictions are clothed with a very strong presumption of validity which arises from the fact that each individual unit owner purchases his unit knowing and accepting the restrictions to be imposed. . . . [A] use restriction in a declaration of condominium may have a certain degree of unreasonableness to it, and yet withstand attack in the courts. If it were otherwise, a unit owner could not rely on the restrictions found in the declaration . . . since such restrictions would be in a potential condition of continuous flux (Hidden Harbour Estates v. Basso, Fla. Ct. App. [1981]).
There are several scenarios, though, where homeowners may have no freedom of choice. First, it is possible that the only new housing available to buyers would be in CICs—i.e., developers are no longer building new homes outside of associations. Indeed, a recent report found that in 2003, 80 percent of all homes being built at that time were in associations (Foundation for Community Association Research 2014). In addition, municipal government may require developers to create associations as a condition for subdivision approval. (Recent legislation in Arizona prohibiting this practice indicates that it still occurs.) Finally, some courts have suggested that while rules in place at the time of purchase should be enforced, a rule subsequently enacted by the association or board under a reserved power should not be enforced if an owner can show that it is “unreasonable.” Other courts disagree: Homeowner should not be heard to complain when, as anticipated by the recorded declaration of covenants, the homeowners’ association amends the declaration. When a purchaser buys into such a community, the purchaser buys not only subject to the express covenants in the declaration, but also subject to the amendment provisions. . . . And, of course, a potential homeowner concerned about community association governance has the option to purchase a home not subject to association governance. . . . For this reason, we decline to subject the amendments . . . to the “reasonableness” test (Hughes v. New Life Development Corp., Tenn. Sup. Ct. [2012]).
Guidelines for Protecting Personal Autonomy
Association restrictions raise concerns when they threaten the personal autonomy and fundamental individual rights of owners. Constraints of this type might include prohibitions of political signs or messaging, and restriction of occupancy to “traditional” families.
Courts should enforce restrictions if they limit spillovers (also known as fallout or externalities) from one owner to the rest of the community. They should not, however, enforce restrictions that limit the nature or status of the occupants or the behavior within a unit that does not create externalities. This approach is based on the theory that the primary purpose of CIC regimes is to enhance economic value and encourage efficient exchanges. Thus, if the owner creates no externalities, the courts should not enforce bans on the particular behavior. Moreover, some values of personal autonomy are too important and trump the usual rules of contract. We do not, for example, permit contracts of indentured servitude or the sale of human organs.
By this standard, limiting noise and banning smoking (because of seepage of odors) in multi-family units would be legitimate, but restrictions based on the marital status of residents would not. Some situations are trickier—for example, restrictions on pets. Under the suggested guidelines, it would usually be legitimate to bar pets because of the potential noise and the reluctance of some residents to share common areas with them. In the case of service animals, however, the unit owner’s health needs may trump community concerns.
First Amendment–type issues present special challenges. Free expression—such as political or issue-related signage, leafleting, demonstrations, or other manifestations—can cause spillovers that may include noise, aesthetic interference, and disruption of the community’s general ambience. At the same time, however, free speech is fundamental to our republican form of government, arguably whether it is addressed to the larger public government or the private government. In expression cases, courts might apply the longstanding doctrine that prohibits covenants that violate public policy, rejecting total bans on speech in favor of reasonable restrictions on time, place, and manner. This would allow expression but limit, if not eliminate, spillover on the community.
Religious freedom is another fundamental American value. Restrictions on the placement of a mezuzah on doorposts and the display of crèches, statues of saints, and Christmas lights limit free exercise of religion. While it would open a Pandora’s box to engage in balancing the religious importance of colored versus white Christmas lights against CIC standards, it would nevertheless be appropriate for the courts to impose a general standard of reasonable accommodation on CIC regulations that affect religious practices.
Finally, in the development and enforcement of association rules, CIC property owners have a right to expect certain behavior from associations and boards. This expectation traces from the obligation of good faith and fair dealing that is incumbent on all parties to a contract. Thus, an owner should have a right to fair procedures, including notice and an opportunity to be heard; to be treated equally to other similarly situated owners; and to be free from bias, personal animus, and bad-faith decision making by the board and its members.
Conclusion
Common interest communities are a large part of the American residential landscape, currently providing homes for a quarter of the U.S. population. While CICs bring great economic advantages to residents and society in general, these types of housing arrangements do require nuanced interactions between the community association and the municipal government, and association rules can impinge on the personal autonomy of members. However, strategies are available to mitigate if not overcome these problems. Indeed, these approaches can make ownership of a home in a CIC less of an illusion and more of a reality.
About the Author
Gerald Korngold is Professor of Law at New York Law School and a visiting fellow at the Lincoln Institute of Land Policy. He teaches and writes in the fields of property and real estate law.
References
De Tocqueville, Alexis. 1835. Democracy in America. London: Saunders and Otley.
Ellickson, Robert C. & Vicki L. Been. 2005. Land Use Controls. New York, NY: Aspen Publishers, 3rd edition.
Foundation for Community Association Research. 2014. “Best Practices. Report #7: Transition.” www.cairf.org/research/bptransition.pdf.
Foundation for Community Association Research. 2013. “National and State Statistical Review for 2013.” www.cairf.org/research/factbook/2013_statistical_review.pdf.
Grubel v. McLaughlin Gunnels v. No. Woodland Community Ass’n, 17013, Texas Court of Appeals (1978).
Hidden Harbour Estates v. Basso, Florida Court of Appeals (1981).
Hughes v. New Life Development Corp., Tennessee Superior Court (2012).
Low, Setha. 2004. Behind the Gates: Life, Security, and the Pursuit of Happiness in Fortress America. London: Routledge.
McKenzie, E. 1996. Privatopia: Homeowner Associations and the Rise of Private Residential Governments. New Haven, Connecticut: Yale University Press.
Nelson, R. H. 2009. “The Puzzle of Local Double Taxation: Why Do Private Communities Exist?” The Independent Review. 13 (3) (Winter) 345–365.
Public Opinion Strategies. 2014. “Verdict: Americans Grade Their Associations, Board Members and Community Managers.” Falls Church, Virginia: Community Associations Institute.
Reich, Robert. 1991. “Secession of the Successful.” The New York Times Magazine. January 20.
Treese, C. J. 2013. Association Information Services, Inc., compiled from National Association of Realtors data. https://docs.google.com/document/d/1I_2LgTIYSqR4nLPRxN-HtCV-oOFK_QqN1AcO5JJTw-g/edit.
Ziegler, J. 1984. The New Yorker. September 3.
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Una versión más actualizada de este artículo está disponible como parte del capítulo 3 del libro Perspectivas urbanas: Temas críticos en políticas de suelo de América Latina.
El impuesto brasileño a la propiedad es un gravamen anual administrado por los gobiernos municipales a los propietarios de edificios y tierras urbanas. Si bien los procedimientos para establecer la base impositiva y las alícuotas varían considerablemente, la base impositiva se deriva del valor en el mercado y se estandariza a través de diferentes autoridades municipales.
En la ciudad de Porto Alegre, el método tradicional empleado para tasar bienes inmuebles para fines impositivos se basa en los costos. No existen requisitos legales referentes a lapsos transcurridos entre las valuaciones, y el último avalúo general se llevó a cabo en 1991. En los años en que no ha habido valuaciones, se ha hecho un reajuste uniforme de la base impositiva según las tasas de inflación imperantes. Las alícuotas del impuesto a la propiedad son progresivas, con tasas móviles para seis niveles de valuaciones catastrales a fin de introducir un elemento de “capacidad de pago” en el sistema. El impuesto se calcula sumando cada porción del valor catastral y multiplicando la suma por la tasa respectiva para dicha clase. La tasa máxima para inmuebles residenciales llega al 1,2 por ciento.
Análisis del sistema actual
Recientemente se realizó un estudio del sistema de tributación inmobiliaria en Porto Alegre con la finalidad de examinar la relación que existe entre los valores catastrales y los valores comerciales. A continuación se resumen algunos resultados del estudio.
Nivel de tasación y uniformidad
Se encontró que la valoración media de apartamentos residenciales en Porto Alegre fue de apenas un 34 % de su valor de venta, un porcentaje mucho menor que el nivel regulativo del 100 %. Al aplicar el coeficiente de dispersión (COD) a la mediana de la relación entre el valor catastral y el precio de venta como medida de la variabilidad, se obtienen resultados que reflejan una baja uniformidad de valuación (36 % aproximadamente). En Brasil no existen normativas municipales ni nacionales para evaluar el rendimiento de las valuaciones catastrales. A modo de comparación, un nivel aceptable de uniformidad para viviendas unifamiliares en los Estados Unidos es un coeficiente del 10 al 15 %. En la fig. 1 se ilustra el amplio margen de desviación de las relaciones de valuación identificadas en este estudio.
Factores determinantes de la falta de uniformidad en las valuaciones
Se creó un modelo multivariante para estudiar los efectos simultáneos de los factores determinantes de las faltas de equidad, tanto verticales como horizontales. De esta manera fue posible identificar un gran número de factores responsables por las diferencias sistemáticas de los niveles de valuación, a saber: características del lugar, calidad de la edificación, año de construcción, presencia de ascensores, y otras variables similares. También se halló regresividad de valuación vertical.
Método de valuación
Podemos aseverar que la causa principal de la falta de uniformidad en las valuaciones es el método de costo utilizado tradicionalmente para adjudicar valores a las propiedades inmobiliarias. Algunas debilidades teóricas del método están relacionadas con la gran cantidad de simplificaciones que las autoridades locales hacen para facilitar su aplicación, y es muy posible que las desigualdades se deban a tales ajustes. Entre algunos de los problemas del método del costo figuran la desvinculación que hay entre las tablas de costos y el rendimiento del mercado de bienes raíces, y la baja correlación que existe entre las tasas de depreciación adoptadas y la reducción del precio debido a la edad, caída en desuso o deterioro de las edificaciones. Otro factor que parece haber contribuido a la alta discrepancia en las valuaciones es la falta de un control sistemático en el rendimiento de las valuaciones.
Intervalos entre valuaciones
Claramente, la reducción de la base impositiva se debe al método utilizado para ajustar las valuaciones inmobiliarias, basado en las tasas inflacionarias existentes para los años en que no hubo valuaciones. Por ejemplo, en 1993 la valoración media de las propiedades fue de un 38 % de su valor comercial, pero sólo un 27 % en 1995.
Comparación entre las tasas de impuestos a la propiedad: efectivas y regulativas
Las tasas para propiedades residenciales son progresivas según seis niveles de valuaciones. El cálculo de la tasa efectiva se obtiene a partir del tributo inmobiliario real (sin considerar la evasión fiscal), dividido por el precio de venta. La tasa regulativa se obtiene a partir del tributo por propiedad que se obtendría si los impuestos fuesen establecidos según el precio de venta, dividido por el precio de venta. La tasa efectiva es mucho más baja que la regulativa, y su mediana representa apenas un 0,17 por ciento del precio de venta. La distribución de la carga de impuestos se ha visto afectada por los métodos impropios de valuación, no sólo por la falta de relación entre los valores catastrales y los comerciales, sino también por la clasificación incorrecta de las propiedades. Durante el período del estudio, el monto del tributo inmobiliario recaudado fue aproximadamente un 25 por ciento de los ingresos que podrían haberse adquirido si los valores catastrales hubiesen sido equivalentes a los comerciales.
Tabla 1: Comparación de las tasas de impuesto a la propiedad efectivas y regulativas
MEDIDA TASA (%)
Efectiva Regulativa
Mediana 0,17 0,75
Coeficiente de dispersión 56,87 18,26
Tasa mínima 0,02 0,29
Tasa máxima 1,18 1,15
Causas de las deficiencias del sistema fiscal sobre la propiedad inmobiliaria
La mala administración de los impuestos a la propiedad en Porto Alegre y su ineficacia como fuente de recursos podrían explicarse por factores históricos. Durante los años setenta, el gobierno central y fortunas privadas transfirieron grandes sumas de dinero a las municipalidades para complementar las recaudaciones al nivel del gobierno municipal. Como resultado, las autoridades no se preocuparon por recaudar sus propios impuestos y los contribuyentes se acostumbraron a pagar sumas insignificantes de impuestos a la propiedad. La tarea de procurar un buen rendimiento en términos de valuaciones y un nivel aceptable de equidad de las valuaciones fue relegada a un plano secundario.
Ahora bien, las crisis financieras en décadas recientes y la necesidad urgente de inversiones públicas en servicios y equipos de infraestructura han forzado a las autoridades locales a mejorar sus sistemas fiscales. Sin embargo, los esfuerzos para incrementar los recaudos y la equidad de las valuaciones provocan malestar general debido a la alta notoriedad de los impuestos a la propiedad y a la falta de aceptación por parte de los contribuyentes. Además, cualquier cambio de la base impositiva debe ser aprobado por los miembros de la Cámara de Concejales elegidos por el municipio. Siempre que se hagan planes para una nueva valuación, los miembros del concejo son responsables por apoyar sistemas que establezcan límites con el fin de proteger a los contribuyentes de bajos recursos o jubilados. No obstante, tales límites favorecen verdaderamente sólo a los sectores de altos recursos puesto que las personas de bajos ingresos o jubiladas pueden recibir descuentos según los ingresos que perciban.
Desde 1991, dos propuestas para alterar la base impositiva de Porto Alegre han sido rechazadas por la Cámara de Concejales debido a que la inflación del momento habría determinado los ajustes sobre los valores estimados de algunas de las propiedades. Sin embargo, la falta de equidad de valuación vertical conduce a que los inmuebles más costosos sean los beneficiados del deficiente sistema fiscal inmobiliario.
Recomendaciones
Para mejorar un sistema tributario es primordial conocer a fondo las fallas del mismo. El análisis llevado a cabo en Porto Alegre ofrece un mayor entendimiento del sistema, así como del grado de falta de equidad de las valuaciones y de sus causas principales. Por primera vez se midieron y cuantificaron las fallas y desventajas del sistema, se identificaron las propiedades beneficiadas del mismo y la cantidad de recaudos desperdiciados. Porto Alegre tiene ahora la oportunidad de mejorar su sistema de recaudación de impuestos inmobiliarios utilizando datos exactos y no por conveniencias políticas.
Varias medidas podrían contribuir a aumentar la equidad general del sistema de valuación, y al mismo tiempo mejorar la recaudación de recursos y el nivel de vida de la comunidad; entre ellas se tienen las siguientes:
Lograr la equidad de los tributos inmobiliarios y mejorar los niveles de rendimiento de los servicios públicos son metas comunes de políticos, miembros de la comunidad y administradores (entre otros). Se debe aprovechar las nuevas tecnologías para evaluar los impuestos a la propiedad y recolectar datos a fin de procurar el funcionamiento justo y eficiente de los sistemas fiscales. Sin embargo, las mejoras técnicas son sólo una parte del proceso; es también crítico ganar la aceptación del público, y para ello hay que concertar diálogos entre los habitantes de la comunidad y los políticos, donde se expliquen las desventajas del sistema actual y las consecuencias de mantenerlo. Al organizar discusiones serias dentro del dominio público, aumentará la confianza colectiva en el sistema fiscal.
Claudia M. De Cesare es consultora del Departamento de Tributación Local de la municipalidad de Porto Alegre. En 1999 obtuvo una beca de tesis del Instituto Lincoln para financiar la investigación comunicada en este informe y en su tesis de doctorado en la Universidad de Salford en Inglaterra. El Instituto Lincoln continúa desarrollando programas educacionales con administradores, políticos, expertos y miembros de la comunidad de Porto Alegre para ayudar a mejorar la equidad y eficacia del sistema de impuestos a la propiedad.
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William Fischel is professor of economics and the Patricia F. and William B. Hale ’44 Professor in Arts and Sciences at Dartmouth College in Hanover, New Hampshire. He was a member of the Hanover zoning board for 10 years, and has long served on the teaching and research faculty of the Lincoln Institute. He has written more than 50 articles and three books about the related topics of local government, land use controls, school finance and property taxation. Fischel’s most recent book pulls those themes together under the title The Homevoter Hypothesis (Harvard University Press 2001), and he will discuss them at a course at the Lincoln Institute on April 25.
Land Lines: The term homevoter doesn’t seem to be in any dictionary. What does it mean?
William Fischel: I coined the word to convey the theme of my book. My original title was Municipal Corporations and the Capitalization Principle, but when I tried it out on people their eyes glazed over. I had to think of something catchier, and homevoter popped into my head. In local government elections, residents tend to “vote their homes.” For example, if the school board proposes a tax increase to reduce class size, most homeowners will consider the impact of the taxes and the better school quality on the value of their homes as well as on their personal situations.
LL: What’s the difference between people voting their personal situations and voting their homes?
WF: If people voted only according to their immediate situation, almost every school referendum would be voted down. Since the last of the baby boomers graduated from high school in the late 1970s, only about a third of all American households have any children in public school. If people only cared about whether school expenditures benefited them directly, the two-thirds of voters without kids in school would vote down school referenda and save themselves some taxes. The reason they usually don’t is that they know that scuttling the local schools will drive their home values down. They may not like paying taxes, but most voters will not actively oppose a reasonable school budget.
LL: Why would home values override immediate concerns about taxes, since most homeowners plan to keep their houses for a long time?
WF: For the great majority of homeowners, the equity in their home is much larger than their holdings of stocks and bonds and savings accounts. An owner-occupied home is a huge asset, and it is nearly impossible to diversify the financial risk of holding on to it. People who own a lot of stocks can diversify their holdings by buying mutual funds. But you cannot diversify your homeownership portfolio by buying a tenth of a house in Cambridge, a tenth in Springfield, a tenth in Pittsburgh, and so forth. You are stuck with all your homeownership eggs in one local basket. If the schools are declining, so is much of your investment. You don’t have to plan to sell a home soon to be concerned about its value, just as you don’t have to be ready to retire to be concerned about your retirement investments.
LL: So even people who will never have kids are interested in the quality of public schools?
WF: They sure are, especially when they are buying a house. Many economic studies of housing values have found that the major determinant of house price differences among communities is the quality of public schools. Further, the difference in home values is not reflected in the cost of the structure but in the land value. If your home burned down and you decided to sell your lot instead of rebuilding, the price of the lot would reflect the value of the community’s public assets such as its schools. The structure itself would just reflect the cost of building it.
LL: What other community assets do homevoters pay attention to?
WF: Lots of things, including neighborhood traffic, local parks, good (or bad) views, local air quality, open space, crime rates and public libraries. Like school quality, all of these community characteristics are capitalized in home values if they are better or worse than average.
LL: Capitalized? As in the stock market?
WF: Yes, just as in the stock market. If Merck Pharmaceuticals develops an effective drug to treat cancer, the value of Merck stock will go up. That good news is quickly capitalized in (or reflected in) the price of the stock. If a particular city found a good way to control traffic noise and congestion, the value of homes there would rise. In both cases, the stockholders would be pleased.
LL: How is a city like Merck?
WF: They are both corporations. One is a municipality and the other is a business, but each has a corporate identity that is independent of its owners or residents. The main difference is that a city’s major stockholders, its homeowners, cannot diversify their assets. So unlike most business stockholders, residents pay close attention to what their corporation’s managers are doing. They make managers do their business in the open most of the time, and they make their board of directors—the city council—stand for election more frequently than business corporation boards.
LL: What about the role of other stakeholders, such as local business owners?
WF: Business people are usually behind development plans, and city councils pay attention to them. But in the municipalities where most people live—cities and towns of less than 120,000 population—homeowners have to be persuaded that the proposed development will do them some good. Just creating jobs and lowering taxes is not enough in most places. A job-creating, tax-paying factory whose traffic, noise and pollution devalue the homes of nearby residents will have a hard time getting permission to locate there. Homevoters may not be as active as developers, but they are usually more numerous and vocal, and few city councils can afford to ignore their concerns.
LL: And how do renters benefit from the system?
WF: Renters get the benefit of municipal services that are more consumer-oriented as a result of homevoters’ activism. But renters have a shorter time horizon because when they move they neither gain nor lose from the local improvements they leave behind. This may explain why renters tend to participate in local government less than homeowners. They don’t have the long-term financial stake that even the short-term homeowner has.
LL: What’s the downside of homevoters’ influence?
WF: The downside is exclusionary zoning. Zoning is a necessary tool for local governments to rationalize development. The problem is that homevoters can overuse this tool. Because homes are not a diversifiable asset, homeowners often become risk averse to any development that might reduce their home’s value. The NIMBY (Not In My Back Yard) syndrome is most often seen in homeowners, and my theory says they are rational to behave this way. But what is rational for the homeowners in a single community might not be rational for the larger region. Siting low-income housing, power plants, half-way houses and the other necessary but sometimes unlovely developments is impeded by having people too worried about their home values.
LL: Is there a way to control the bad side of homevoting and still keep the good side?
WF: Understanding where the problem comes from is a start. People who oppose low-income housing projects are not necessarily opposing low-income people. They may be mainly worried about their home values. One way to deal with that would be to offer home-value insurance for neighborhoods that feel threatened by proposed land use changes. An innovative program in Chicago offered home-value insurance to help forestall “panic selling” and thus stabilize neighborhoods with respect to both home values and socioeconomic composition. It might be worth extending home equity insurance to other situations in which neighborhood change raises the anxieties of homeowners.
LL: But people have lots of reasons to oppose neighborhood changes besides loss of property value.
WF: It is rare for people to mention property values in public discussions. It sounds too selfish to talk about in a public forum. But economists know that most of the things that people do talk about, such as traffic, noise, open space and service costs, clearly affect people’s home values. Whether owners are consciously relating these characteristics to home values or simply intuitively aware of this connection is hard to say. If developers could take home values off the table in such debates, it might go a long way to overcoming the NIMBY problem.
LL: You mentioned earlier that the quality of community life was reflected in land values. Would this argue for a tax on land rather than improvements in order to finance local services?
WF: I think it does, and in fact that’s what most property taxes really do tax. Local development is a highly regulated activity because of zoning laws, planning reviews and environmental impact statements. I believe that local land use regulation is tight enough to make buildings essentially indistinguishable from land as a tax base. Take the example of the home that burns down. The buyer of the lot typically has to put up another home of the same type, and the tax payment on land and structure will be the same as before. For the most part, owners of homes and businesses in zoned communities have only one allowable use for their land, so that increasing or decreasing local taxes is not going to affect that use. That’s exactly the same virtue as a tax on land. Beyond that, taxing property value gives voters cooperative incentives on the zoning front. Homevoters won’t want to trash another side of town with an unfriendly land use, because devaluing other people’s property would cause property taxes to be shifted to the remaining homeowners.
LL: A land tax is what Henry George advocated more than 100 years ago. Are you saying that the local property tax already is a land tax?
WF: Yes, within certain contexts. It is quite a bit like a land tax in largely residential communities and for most new development. Zoning limits a developer’s alternatives, so the tax rate will not alter his behavior. A general property tax would not be like a land tax, however, if it were administered by a large jurisdiction such as a state or national government, unless those governments also had local zoning controls in place. It is the combination of local zoning plus the property tax that approximates a land tax. Henry George’s ideas came in through the back door of suburban zoning and property taxation rather than through the front door of state and national taxation.
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The core competence of the Lincoln Institute of Land Policy is the analysis of issues related to land, and ours is one of the few organizations in the world with this focus.
The Institute’s current work program, both in the United States and in selected countries around the world, encompasses the taxation of land, the operation of land markets, the regulation of land and land use, the impacts of property rights, and the distribution of benefits from land development. This focus on land derives from the Institute’s founding objective—to address the links between land policy and social and economic progress—as expressed by Henry George, the nineteenth-century political economist and social philosopher.
The Institute plays a leading role in the analysis of land and property taxation, land valuation and appraisal, the design of land information and cadastral systems, and the reform and establishment of property tax systems. Work on the operation of land markets includes the analysis of transit-oriented development and research on urban housing and the expansion of urban areas. The regulation of land encompasses work on smart growth and growth management, visualizing density and the physical impact of development, mediating land use disputes, land conservation, and the management of state trust lands in the West. Analysis of property rights includes research on diverse topics including informal markets and land titling in developing countries, the establishment of conservation easements, and the preservation of farmland. Much work is underway on the distribution of benefits from land development, including value capture taxation, tax increment financing, university-led development, and community land trusts that seek to promote affordable housing.
While the Institute’s work in recent years has emphasized urban land issues, it has also addressed problems beyond urban boundaries such as conservation, management of state trust lands, and farmland preservation. A balance of activities across urban and rural topics will persist as the Institute’s work program continues to focus on land issues of relevance to social and economic development. The Institute will not normally address topics that lack a strong link to land policy.
Communicating new findings through education programs, publications, and Web-based products is a core Institute activity. The overarching objective is to strengthen the capacity of public officials, professionals, and citizens to make better decisions by providing them with relevant information, ideas, methods, and analytic tools. The Institute offers traditional courses and seminars, and is moving aggressively to make many of its offerings available on the Web as either programmed instruction or as online courses with real-time interactions between students and instructors. The Institute also develops training materials and makes them available to others, for example through activities in several developing countries that involve the training of trainers in topics such as appraisal and tax administration.
Research strengthens the Institute’s training programs and contributes to knowledge about land policy generally. The Institute supports both mature scholars who conduct groundbreaking research and advanced students who are working on their dissertations or thesis research. The Institute offers several fellowship programs and other opportunities for researchers to propose work on important topics that can contribute to current debates on land policy. The results of this research are regularly posted on the Institute Web site as working papers and are published in books, conference proceedings, and policy focus reports.
Demonstration and evaluation activities constitute the third major component of the Institute’s agenda. Recently the Institute has begun to combine education, training, research, and dissemination in demonstration projects that apply knowledge, data collection, and analysis to the development and implementation of specific policies in the areas of property taxation, planning, and development. These projects are being expanded to include the analysis of policies as they are applied, and to assess and evaluate outcomes in terms of the intended objectives of the policies. The goal is to provide more rigorous evidence about how well and in what circumstances specific land and tax policies achieve their objectives so that information can be incorporated into future research and training programs.
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For many years, researchers have puzzled over the causes and consequences of voter-approved tax and expenditure limits (TELs), a fiscal rule that weakens the ability of elected officials to raise revenues or make expenditures.
