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The recent fiscal crisis in Asia has affected systems of taxation and land use regulation throughout the region. The situation in Korea is typical. A series of collapses of large conglomerates led to a severe economic crisis, with 5.5 percent of total loans in default by the end of 1997. Currency and stock indexes fell to one-half their value within a year. Major measures to control the crisis, undertaken in cooperation with the International Monetary Fund (IMF), include cutting government expenses by 10 percent and initiating a series of tax reforms to raise revenues.
In this context, a recent seminar on the taxation of real property in Asia provided a valuable and timely forum for the exchange of ideas. The seminar was hosted by the Organization for Economic Cooperation and Development (OECD) and the Government of Korea at the Korea-OECD Multilateral Tax Center in Chonon in early March. Tax administrators from China, Korea, Singapore and Vietnam attended the two-part program, which included a four-day seminar on property taxation and a one-day workshop hosted by the Korea Ministry of Finance. My fellow instructors in the seminar were Michael Engelschalk of OECD’s Fiscal Division in Paris and Anders Muller of Denmark’s Ministry of Taxation.
Seminar Themes
The seminar addressed three major issues concerning local government systems for property taxation:
Local Revenues and Fiscal Decentralization:
Anticipating increased political and fiscal decentralization in many Asian countries, the seminar explored the role of local government within the national tax structure. These fundamental issues are particularly of interest to China, which is just beginning to develop a property tax system, and Korea, which is beginning to exercise stronger local autonomy.
Market Economy and Property Valuation:
For Vietnam and China, which are moving toward a market-based economy, establishing reliable sales information on property markets and developing effective valuation techniques are major challenges. Korea and Singapore, with their more advanced property tax systems, must be able to respond to a dynamic property market. Singapore’s annual value rating method and Korea’s market capitalization approach are very different systems, and the issue of improving valuation models remained a hotly debated subject during the seminar.
Taxation Administration and Enforcement:
Computerization, a collection process and legal procedures need to be developed and implemented in all governments to improve the efficiency and effectiveness of management and enforcement procedures. Political issues such as assignment of local and central government functions, determining ability to pay and the role of wealth taxation were also discussed extensively by the participants.
Tax Policy Issues in Asian Countries
Although China at present does not permit private ownership of land, three categories of taxes are applied to use rights:
taxes on land use (land use tax, land occupation tax and agricultural tax):
taxes on ownership of buildings (house tax and real estate tax); and
taxes on transactions (land appreciation tax, business tax, stamp duty and deed tax.)
Property tax reform in China is needed for two reasons: redundancy and out-of-date regulations. Even after the economic reforms of the 1980s, foreign investment in real property has been regulated and taxed according to a 1951 law. The central government has decided to reform and simplify property taxes by consolidating the domestic house tax with the land use tax for local people, consolidating domestic and foreign house taxes for foreigners, and possibly eliminating the deed tax.
Korea proposed a land value increment tax several years ago to capture the capital gains from land transactions, but the proposal was defeated. To capture land value increments and avoid speculation, Korea instead implemented a capital gains tax system that covers both real property and other asset transactions. To discourage land speculation, the tax rate will be fixed at 50 percent for property sales within two years of purchase, but owners who hold properties for more than two years will have a lower capital gains tax rate.
Korea’s GNP is expected to grow less than one percent in 1998 and tax revenues are projected to decline by US$4.4 billion. In response, the government designed a package to raise tax revenues by US$2.4 billion and to cut government expenditures by US$5.6 billion. In the tax reform package, minimum tax levels will generally be raised but capital gains taxes on land sales and value-added tax exemptions will be reduced.
Vietnam began reforming its tax system in 1990 with the introduction of uniform tax laws and ordinances across the country. Some examples are the 1994 Law on Agricultural Land Use Taxes, the 1992 Ordinance on Land and Housing Taxes, and the 1994 Law on Taxes on Land Use Right Transfer. Although Vietnam endorses a market economy, these central government regulations set the standard for all taxation administration. Property valuation (use value) is also defined by national law, although the taxable price is determined by the People’s Committee of the province or city, which is directly under central government power. In other words, the valuation is based on market value but must be approved by the People’s Committee.
In Singapore property owners pay an annual tax of 12 percent on the annual value of the property. The annual value for buildings is based on the estimated market rent per annum. The value for vacant land or land under development is derived from five percent of its estimated market value. The total annual tax in 1996-97 constituted six percent of the government’s operating revenue. Other property-related taxes include transfer taxes, inheritance taxes and development charges. Given the dynamic urban real property market and high land prices, the Inland Revenue Authority of Singapore (IRAS), which oversees the taxation system, is continuously developing new valuation and collection methodologies.
In summary, the demand for research on tax policies is critical in Asia. This seminar offered an educational environment where instructors and participants could share basic principles on the taxation of real property and learn from each others’ experiences.
Alven Lam is a fellow of the Lincoln Institute and academic dean of the Land Reform Training Institute in Taiwan.
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Thomas A. Jaconetty is the chief deputy commissioner of the Board of Review (formerly the Board of Appeals) of Cook County, Illinois. During the past 24 years he has been involved in the disposition or review of taxes on more than 600,000 parcels of real estate. He is a member of the International Association of Assessing Officers (IAAO); the Chicago, Illinois State (ISBA) and American Bar Associations; the Justinian Society of Lawyers; and many other professional associations. He has served as a member and chair of the ISBA State and Local Taxation Section Council and contributed to the Illinois Department of Revenue’s Recodification Project.
A certified review appraiser and formerly an arbitrator for the Circuit Court of Cook County, Jaconetty has authored numerous articles and chapters for legal and taxation publications, edited three books and is working on a fourth. He has lectured at or moderated many educational programs on property taxation and assessment administration, and has published over a dozen articles on those topics. In 1998 he was appointed to the Planning Committee of the National Conference of State Tax Judges, and he served as conference chairman for the past two years.
Land Lines: How did you first become involved with the Lincoln Institute?
Thomas Jaconetty: I was familiar with the Institute’s work through its presentations at the annual conferences of the International Association of Assessing Officers (IAAO) and various other educational seminars. In 1994 the chairman of the National Conference of State Tax Judges, Ignatius MacLellan of the New Hampshire Board of Tax and Land Appeals, invited me to attend the conference after reviewing articles I had written on “Highest and Best Use” and “Valuation of Federally Subsidized Housing.” I found the experience invigorating, challenging and intellectually stimulating. The conference was and continues to be the best seminar in which I am involved each year, and I attend quite a few.
LL: As the past chairman, how do you see the role of the National Conference?
TJ: For 25 years the conference has functioned as a clearinghouse of ideas for officials exercising judicial or quasi-judicial powers over tax cases for statewide or regional jurisdictions. Noted authorities in the field, state tax court judges and officials of established tax courts are drawn together in an informal, collegial environment. The conference encourages improved decision making, the exchange of data and resources, the analysis of complex legal issues, and an avenue for a free-flowing interchange of ideas. The personal and professional relationships are open, friendly and dynamic, and there is plenty of room for divergent opinion, eclectic thought and agreement to disagree.
The Planning Committee of about 15 regular participants develops annual programs, and the rest of the members are actively involved with making presentations, offering suggestions, working on committees, attending the sessions and contributing to the overall educational experience. The annual fall conference is the most significant opportunity for formal interaction, but ongoing discussions are supported by the use of e-mail, the Lincoln Web site and the members’ professional involvement in other organizations.
LL: Why is it important for tax adjudicators to have this forum?
TJ: We are surrounded by ever-changing ideas and theories that we must balance against time-honored principles of taxation, complex economic relationships and the expectations of government. Each state has individual statutes and case law, but there is a high level of commonality among basic tax principles and a finite number of responses to factual situations. In spite of the many recurring and vexing issues that confront us, regular communication offers an opportunity to encourage consistency and consensus on the one hand and divergent opinion and reasoned dissent on the other. Members actively seek suggestions, advice and even help from their colleagues, who eagerly and generously respond.
LL: How have you seen the National Conference evolve during the years of your involvement?
TJ: Actually, there has been a remarkable level of consistency. There has been a core group of representatives from about 15 states and another dozen or so that change over time. Many members predate my involvement and others are very new. The most significant changes have been the enhanced communication offered by e-mail and the willingness of the group to probe into ethical, theoretical, decision-making and policy-based questions. There also has been a noticeable increase in volunteerism and in the number of women who are active participants.
I think there is a growing awareness that the deference given to any fact-finding agency (such as the state tax courts from whence our members come) creates a complementary responsibility to evaluate tax controversies within a framework that addresses all of the pertinent legal, valuation, philosophical and public policy issues. From all of that we hope to attain “justice,” which James Madison argued “is the end of government.”
LL: What do you see as the greatest challenges to the conference?
TJ: Remaining timely and relevant, and maintaining a cutting-edge outlook. Not every ascendant theory is always supportable or reasonable, but we seek to remain receptive, open and flexible while respecting the basic principles of state and local taxation that have stood the test of time. As issues become more complex and multi-jurisdictional, there is always a tug-of-war between local control and innovation versus national consistency and uniformity. This era of enormous budgetary constraints on state and local agencies places a premium on knowing where to go for expertise.
We face new challenges and are learning every day, and the conference presents the opportunity to encourage that growth. As John Quincy Adams said, “To furnish the means of acquiring knowledge is . . . the greatest benefit that can be conferred upon mankind.” We are also working to increase our membership and recruit more participation from states not currently represented. The optimum goal is to have around 55 to 60 active participants at any one time.
LL: What role does the Lincoln Institute play?
TJ: It is the heart and the soul of the conference. Especially in these trying economic times, without the Institute’s support many of our members would not have the local funding and financial wherewithal to attend the conference. And, without the organizing ability of the Institute staff, there would be no conference. The Lincoln Institute is uniquely qualified to create the healthy intellectual environment that brings the tax policy, legislative, academic, practitioner and administrative points of view before those very persons who decide the cases and, in so doing, “make the law.”
LL: You alluded to policy. Should judges and tax adjudicators be involved in considering public policy?
TJ: I can only suggest my own view. How judges and adjudicative bodies rule is almost inevitably a reflection of what they learn, know, believe, have proven before them, sense and comprehend, as well as what appears to be just. Everything must be taken against the backdrop of the purposes of the law and the ends that the law seeks to achieve. The more informed, eclectic, analytical and open the decision maker, the better the outcome.
The valuation of contaminated property (brownfields) and subsidized housing are two real property tax areas that immediately come to mind. These are technical issues, but they require an appreciation of the larger context and policy implications, as well as the proper balance between legislation and its interpretation.
The Lincoln Institute has had a significant and salutary impact on the development of sound tax policy. Henry George, whose writings inspire the Institute’s work, addressed these issues in The Land Question “[Taxation] must not take from individuals what rightfully belongs to individuals.” In Progress and Poverty he stated, “It is the taking by the community, for the use of the community, of that value which is the creation of the community.” But, as an exercise of power, it “must not repress industry . . . check commerce . . . [or] punish thrift . . .”
LL: What are some of the major tax issues facing tribunals today?
TJ: On the real property taxation side there is the taxation of contaminated property; the use and misuse of the cost approach; valuation of subsidized housing; the effect of low-income housing tax credited property; and the changing face of charitable and nonprofit entities. There are so many other issues: the application of traditional sales, use, gross receipts and income tax principles to an ever-expanding and global economy; related questions of nexus jurisdiction and extraterritorial power; the impact of e-commerce; the clash and interrelationship of the due process and commerce clauses; local autonomy challenged by movements to adopt model acts.
Other more general concerns include alternative dispute resolution; pro se litigants; ethics (appraiser, assessor, judicial); regulation versus deregulation; court management; and the role of policy in decision making. Added to these are the routine daily determinations that must be made by tribunals and agencies that form the grist of the taxation process, which is the lifeblood of government—that which Oliver Wendell Holmes characterized as “what we pay for civilized society.”
LL: How does the National Conference of State Tax Judges interact with other professional associations?
TJ: Many members of the conference are active at the state and local level with continuing legal education (CLE), appraisal or assessment organizations, such as seminars offered with the Appraisal Institute. Others take part in presentations sponsored by local directors of revenue or bar-related symposia on tax issues. Some sit on advisory commissions, boards, panels and task forces. Still others, including myself, have a continuing relationship with the IAAO, which offers an especially valuable and practical access to the assessment side of the real property world.
LL: Any final thoughts on the conference and its future?
TJ: Having just completed my two-year term as chairman, I hope it can be said that the conference maintained the high standards set by my immediate predecessors—Ignatius MacLellan, Joseph Small and Blaine Davis. I certainly feel that the future is in capable hands with our new chair, Arnold Aronson. With the biannual rotation of the conference to different locations around the U.S., it returns to Cambridge next year to celebrate its twenty-fifth year. I will simply echo what many of us say every year when we convene: This conference is the finest and most beneficial professional education endeavor in which any of us are engaged.
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Faculty Profile: Petra Todorovich
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American cities have promising long-term prospects as hubs of innovation and growth, with expansion in technology and health sciences beginning to offset the decades-long erosion of manufacturing. Cities also remain places of vitality, offering urban design, density, and trans-port options that attract residents of all ages and backgrounds. In fact, nine of the ten most populous U.S. cities gained population over the last decade, according to the 2010 U.S. Census.
Yet the short-term prospects for cities are fraught with challenges. The recent sharp decline in tax revenues, caused by the 2008 housing market collapse and related financial crisis and economic slowdown, has made it extraordinarily difficult for state and local governments to maintain basic services, let alone plan for investments in infrastructure. Federal funds from the American Recovery and Reinvestment Act (ARRA) helped local governments offset revenue declines in the past three years, but ARRA funds are no longer available for the coming fiscal year (a transition now termed “the cliff”), leaving local officials to confront the full force of revenue shortfalls.
The 2011 Journalists Forum on Land and the Built Environment: The Next City brought scholars, practitioners, and political leaders together with print and broadcast journalists to explore the theme of infrastructure for cities in the context of the ongoing economic recovery. This program is an annual partnership of the Lincoln Institute of Land Policy, the Nieman Foundation for Journalism at Harvard University, and Harvard Graduate School of Design.
Two roles for infrastructure investments and related services permeated discussions at the Forum. First was the near-term role of investment in infrastructure as a fiscal stimulus aimed at turning around the economy and increasing employment. Second was the longer-term role that infrastructure plays in sustaining the transformation of municipal economies and increasing their competitiveness and livability in a globalized world.
Infrastructure and the Local Government Fiscal Crisis
The country’s need for fiscal stimulus to jump-start the economy in 2009 raised the prospect of massive infrastructure investments to help meet that need. However, the kinds of projects that could be launched quickly at the local level tended to be smaller-scale efforts, such as roadway repairs and facilities maintenance. More ambitious initiatives, such as intercity high-speed rail, failed to materialize due to spending and debt concerns and because much more design was needed before implementation could proceed.
Lawrence H. Summers, who recently returned to his professorship at Harvard after being director of the White House National Economic Council, defended the Obama administration’s stimulus plans, which he said were necessary to restore confidence in the financial system and keep the recession “out of the history books.” However, he said, “while local governments were able to use stimulus funds to cover revenue shortfalls, there were very few large shovel-ready projects.”
Moreover, the grim reality of fiscal stress is that cities cannot focus on large-scale, long-range infrastructure projects because they are struggling to cut spending and reform the delivery of local public services, noted Michael Cooper, reporter for The New York Times. Some examples of lost services include the Hawaii program that furloughs public school teachers every Friday through this school year; the San Diego boy who died choking on a gumball because a nearby fire station had been shuttered on a rotating basis; Colorado Springs’ decision to turn off a third of its streetlights each night and to auction off the police helicopter; and the California town that recalled its mayor because he revamped the city’s failing wooden pipes in its water system, but increased water fees to pay for it.
Many jurisdictions also have ongoing fiscal problems with the underfunding of pension funds and benefits. Some are worsening the problems simply by not making the required annual payments, a stopgap applied by Governor Chris Christie in New Jersey, among others. The municipal bond market faces tumult and some cities, like Harrisburg, Pennsylvania, are on the brink of bankruptcy. Fiscal deficits are growing because local governments have now expended the last of their
ARRA funds.
Adrian Fenty, former mayor of Washington, DC, said cities need to be run on a more business-like basis, moving to the politics of performance and away from the politics of patronage. Improvements are needed in both the efficiency of basic service delivery and the management of city finances. Because education is so important to the economic growth of cities, his administration gave priority to education reform—human infrastructure as well as physical infrastructure. During his term as mayor, his administration closed 20 percent of the schools and reduced administrative personnel by 50 percent. He also revamped teacher contracts, offering a merit pay system without tenure that 60 percent of the teachers opted to join.
Infrastructure Challenges: The Case of High-Speed Rail
President Barack Obama’s $53 billion high-speed rail initiative has brought the challenges of the local government fiscal crisis into sharp relief. Governors in Florida, Ohio, and Wisconsin returned the federal funding allocated to those states for intercity rail, claiming that their state and local governments could not possibly afford the resulting maintenance and operating costs, and questioning ridership projections. The high-speed rail project in California, though financed by a voter-approved bond issue, faces similar opposition because of financial burdens and local land use disputes.
Bruce Babbitt, former governor of Arizona and secretary of the U.S. Department of Interior, and a member of the Lincoln Institute board of directors, said the Obama administration’s campaign for high-speed intercity rail was a “political disaster,” and that the underlying vision needed a reassessment. He suggested that the Northeast Corridor should be the model, and that a revised plan should include a well-defined system of reliable financing—similar to the approach used to build the interstate highway system.
Paying for high-speed rail infrastructure will require a dedicated funding stream, perhaps from an increase in the gasoline tax in the states where the new rail lines would be located, and a system of value capture to engage private landowners who benefit from increases in property value as a result of such public works projects. “We don’t have the political courage to define our priorities,” Babbitt said. It will take a “national hammer” to address the nation’s infrastructure deficit without abdicating control to governors and states.
High-speed rail may live or die based on economic considerations. Petra Todorovich, executive director of America 2050, which has issued numerous analyses of high-speed rail’s potential, proposed a framework of 12 U.S. megaregions that represent collections of metropolitan areas where enhanced rail service offers the greatest potential for replacing automobile and short-haul airline travel. High-speed rail can deepen labor markets, increase agglomeration economies, and boost productivity by linking urban centers. Japan, France, and China are among the countries that have demonstrated how rail lines between major cities can foster economic synergies through the strategic location of high-speed rail stations and their connections to commuter rail and transit.
This economic payoff argument was seconded by Edward Rendell, former governor of Pennsylvania and mayor of Philadelphia, who is part of Building America’s Future, a campaign for investments in crumbling infrastructure nationwide. Rendell argued that the United States has been resting on its past investments, and that shoring up the nation’s decaying physical foundations is now an urgent priority. Without world-class infrastructure, the country will not be competitive in attracting private investment, sustaining rapid technological innovation and productivity growth, or maintaining the growth of good jobs domestically.
Infrastructure and the Future of Cities
As the recovery continues and economic growth returns, investments in new communication technology, green energy, smart urban systems, transport such as high-speed rail and mass transit, and other infrastructure will be needed to help cities fulfill their roles as the centers of innovation, culture, and productivity.
The vision of infrastructure combined with long-range planning is also a central theme in how cities can adapt to the inevitable impacts of climate change, including a possible one-meter sea level rise and associated storm surges, flooding, and increasing numbers of extreme weather events. Infrastructure in most coastal cities is so old that even a moderate storm event can do extensive damage, said Ed Blakely, public policy professor at the University of Sydney and former hurricane recovery czar in New Orleans.
Cities have been able to base their current plans on the relatively calm meteorological record of the last 200 years, but that calm is likely to erode with climate change, making much of the existing infrastructure inadequate or obsolete. Attention should not be focused on rebuilding after disasters like Hurricane Katrina, Blakely said, but on relocating, repositioning, and “future-proofing” for more resilient cities.
Infrastructure as an amenity that improves city livability is seen in New York’s High Line project, the conversion of an elevated freight line through the Meatpacking District and Greenwich Village. One of the architects on that project, Liz Diller, principal in Diller, Scofidio + Renfro, suggested that such retrofits can transform urban areas, provide a focal point for social and cultural events, and promote economic activity—though she cautioned that “architecture can’t really fix big problems.”
In spite of the current fiscal crisis, cities are expected to experience other changes that may aid their economic recovery. Among these are the fallout from the current housing crisis that is likely to spur demand for rental units and the demographic shift as the baby boom generation enters retirement age and begins to downsize housing choices.
Professor Arthur C. (Chris) Nelson, professor at the University of Utah, noted that both changes may generate more demand for urban lifestyles. For example, the current reduction in demand for owner-occupied, single-family houses at the metropolitan periphery is evident in the Intermountain West, Southwest, and South, where entire subdivisions are virtually empty. The percent of households owning homes has declined from a high of 69.2 percent in 2004 to 66.4 percent in 2011, fostering more demand for rental units that typically are located in more urbanized areas.
Demographic shifts are also related to changes in household composition. By 2030 single-person households will constitute one-third of the population, and only about one out of four households will include children, a decline from 45 percent with children in 1970 and 33 percent in 2000. These changes are likely to foster a significant adjustment in housing markets and values as aging baby boomers offer their suburban houses for sale and move to more urbanized locations with access to transit and walkable neighborhoods. At the same time, upcoming changes in mortgage markets and the reform of Fannie Mae and Freddie Mac may make mortgage financing (and homeownership) more costly and cause younger families to choose renting over owning.
Cities as Engines of Growth
Investing in infrastructure to support metropolitan regions might have an additional rationale grounded in the surprising resilience of cities themselves. The ongoing urban resurgence is visible in the income growth of highly skilled professionals, the relatively modest housing price declines and even recent increases in several prospering cities, and a concentration of innovation in urban areas, said Harvard economics professor Edward Glaeser. “We could move anywhere that suits our biophilia,” he said. “Yet we keep flocking to cities.”
Urban population growth is highly correlated with average urban incomes, education levels, and the share of employment in small firms as cities continue to draw entrepreneurs and foster productivity. If incomes everywhere were like those in New York City, the national GDP would rise 43 percent, Glaeser said. Cities will also continue to be prized for their environmental value as places of density and transit, reflecting relatively lower per capita energy use and carbon emissions than suburban and rural areas. Glaeser argued against restrictive zoning and regulations that discourage greater density and leave older, low-rise urban neighborhoods “frozen in amber.” He also stressed that public education remains the most important investment that cities can and should make to enhance their continued economic growth and quality of life.
As both the national economy and local government revenues recover, a key priority will be to balance expenditures between current services and longer-term investments. Economic growth will make it easier to finance investments in infrastructure, but investments in infrastructure are needed to increase economic growth. The challenge is to find a politically feasible way of breaking into this virtuous circle.
About the Authors
Gregory K. Ingram is president and CEO of the Lincoln Institute of Land Policy.
Anthony Flint is fellow and director of public affairs at the Lincoln Institute of Land Policy.
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Land trusts across the United States differ vastly in terms of age, size of protected acreage, mission, strategy, budget, and context. Audrey Rust, an acknowledged conservation leader and the 2012 Kingsbury Browne Fellow at the Lincoln Institute, is in a unique position to parse the differences between two strikingly distinct yet successful preservation efforts in the American West. She served as president and CEO of the Peninsula Open Space Trust (POST) in Palo Alto, California, for 24 years until July 2011, and she is now a board member of the American Prairie Reserve (APR) in Bozeman, Montana.
APR is one of the nation’s most ambitious new conservation efforts, aiming to assemble 3.5 million acres and create the largest wildlife complex in the lower 48 states—in Montana, the nation’s fourth largest state with the seventh smallest population (just one million as of 2012). By contrast, POST encompasses only 2 percent of APR’s projected acreage, yet is considered remarkably successful for amassing 70,000 acres of very expensive open space, farms, and parkland in a densely settled region, from San Francisco to Silicon Valley, with more than seven million inhabitants.
Despite their dissimilar profiles, these organizations share a surprising number of similarities. In this Q&A with the Lincoln Institute, Rust compares POST’s and APR’s particular histories and characteristics, based on her first-hand experience with each organization, and offers some universal lessons for all involved in the difficult and challenging work of preserving open space.
Lincoln institute: How did the Peninsula Open Space Trust begin and what is its mission?
Audrey Rust: POST is a 35-year-old, traditional land trust in a dense metropolitan region, which has grown significantly since POST was founded in 1977. It began as a private conservation partner for the Midpeninsula Regional Open Space District, a public, tax-supported agency on the San Francisco Peninsula (figure 1). Working on the urban fringe, POST would raise private funds on behalf of the District and take on an occasional land donation project. To this day, all the territory it protects lies within a major metropolitan area.
Given POST’s densely populated location, it was essential from the beginning to immediately include opportunities for low-intensity public recreation and provide exposure to the biodiversity of the peninsula, where within a 12-mile transect one can pass through at least nine distinct ecosystems. POST works to assure a system of interconnected open lands in corridors along the San Francisco Bay, the Santa Cruz Mountains, and the Pacific Coast. No specific number of total acres is contemplated, unless a particular campaign is underway, but giving people a place to experience nature is a driving force.
Lincoln institute: How do the genesis and mission of the American Prairie Reserve compare?
Audrey Rust: Since it was founded in 2002, APR has amassed 274,000 acres but seeks to permanently protect some 3.5 million contiguous acres of short-grass prairie as a wildlife reserve in northeastern Montana—one of only four places on earth where such a conservation effort is possible (figure 2). The idea originated from research done by a group of nonprofit conservation organizations working in the northern Rockies, with science assistance from the World Wildlife Fund at the start.
APR is reintroducing plains bison that are free of cattle gene introgression and intends to develop a sustainable herd of 10,000 animals while restoring other native species including prairie dogs, black-footed ferrets, and burrowing owls. APR acquired a lot of land quickly, but it will take decades to reintroduce wildlife and foster significant growth of species populations.
Federal lands form a large part of the wildlife habitat APR is assembling. The Reserve lands are adjacent on the south to the Charles M. Russell National Wildlife Refuge and on the west to the Upper Missouri River Breaks National Monument, which figures prominently in our nation’s history as part of the Lewis and Clark expedition.
Lincoln institute: What are the key challenges for POST and APR?
Audrey Rust: Funding any conservation work is always the biggest challenge. The first hurdle is identifying potential donors and getting their attention. To do that, you need a clearly articulated vision and the ability to make the project relevant to the potential donor. Validation of the mission from a third respected party is key. You also need some means for the donor to experience the relevant work and feel appropriately included, in addition to a well-developed relationship that results in an appropriate request for support made at the right time.
Lincoln institute: What are the particular funding challenges at POST?
Audrey Rust: In the San Francisco Bay Area, millions of people see and appreciate how proximity to nature enhances their quality of life, but most do not know the role POST plays in assuring this; or, if they do know, they don’t necessarily feel moved to support POST’s work financially. Competition for philanthropic dollars within the small geographic area of Silicon Valley is intense. All the major conservation organizations, plus Stanford University’s powerful fundraising machine, operate in the area.
Fundraising takes a traditional course at POST. There is a well-developed annual giving program that moves many donors to the upper capital gift levels. Many of them are willing to lend their networks to the effort, and because of the successes of the organization and the existing donor list, people feel comfortable and supported by their community when making a gift. POST’s model has also depended on finding and creating public funds and then selling land or easements to a public entity, at or below the price paid by POST, allowing the organization to return donor funds to be used again and again.
POST also faces the challenge of success. Often leadership-level donors are ready to move on to new ideas and new environmental issues, seeing that their personal impact is not as visible as it would be in starting their own new organization. Some donors feel they have done their part, and now it’s someone else’s turn. New top leadership-level donors are as difficult as ever to attract.
Lincoln institute: How do APR’s mission and goals affect its fundraising strategy?
Audrey Rust: APR faces what is often called a “pipeline” problem. As a relatively new organization—and one where the potential donor population is both scattered and at a great distance from the Reserve—finding the right people has required many false starts and unproductive gatherings. It has been difficult to expose potential donors to the project in ways that can build a philanthropic relationship. Although board members are willing, only a few have networks that have proven productive for APR. It’s difficult and expensive to assess the real interest of a potential donor, estimate his or her likely gift level, and develop an ongoing relationship with a person who is geographically removed. As yet, status is not associated with being a supporter, and the enormity of the campaign goal ($300 million to $500 million) dwarfs even million-dollar gifts. Any practical campaign would need to attract a gift of $80 million to $100 million at the top of the fundraising pyramid.
Building a productive leadership-level prospect list is only worthwhile if meetings and relationships can happen. Geography creates difficulties when there are not enough people in one area, and efforts can’t be leveraged. Time is a key element in building the needed relationships.
Because of its rare size and scope, however, APR may have singular appeal to extremely wealthy individuals who, like the Rockefellers decades ago, could create this Reserve with their philanthropy alone. This is the unfulfilled dream of every executive director. Chances are slim, but history shows it is possible. APR’s model has never looked to public funding as a way to leverage private dollars, since the leased public lands are in some measure doing just that.
Another key funding challenge for APR is the scale of the project. Impact comes in increments of 50,000 or 100,000 acres in a landscape where conservation biologists have determined that a mixed-grass prairie would need to be approximately 5,000 square miles (roughly 3.2 million acres) to be a healthy, functioning ecosystem that supports the full complement of native prairie biodiversity.
Lincoln institute: How has the leadership at both organizations handled the funding challenges?
Audrey Rust: At both APR and POST, the first president/executive director, who also served as a board member, had a solid business background but no experience fundraising or running a nonprofit organization. The second board chair of both organizations was a successful venture capitalist and was viewed as a founder. All these leaders were charismatic and well-connected. Last but not least, both founding executive directors had to contribute or lend substantial funds to the organization to keep it afloat.
APR’s founding President Sean Gerrity is still at the helm after ten years, and his passion for conservation is undiminished. The time needed for extensive travel and meeting the financial needs of the organization was more than a full-time job, however, and none of the development professionals he hired could relieve his load. On the premise that potential donors want to meet someone with a title, two years ago Gerrity made a major change in how the organization functions by hiring two managing directors who are able to carry a significant fundraising and content load. The strategy requires regular telephone or in-person meetings to stay aligned on all aspects of the organization, but it’s working. Organizing around the managing director model has allowed APR staff to travel more and develop better donor relationships. Current personnel have been in place for fewer than two years, but they are making progress.
Lincoln institute: How did you weather the fundraising challenge at POST?
Audrey Rust: When POST hired me to replace Founding Executive Director Robert Augsburger in 1986, my first mission was to raise $2 million in a few months in order to exercise an option on a key coastal ranch, POST’s first truly independent project.
I understood the local donor community and had a good deal of experience in fundraising and nonprofit management. I was completely absorbed by the work and the need to meet our financial obligations. Although travel usually wasn’t necessary to raise funds, the proximity of potential donors meant that every weekend, every farmer’s market, every local event was an opportunity to connect. We undertook one major project after another, doing good conservation work and building momentum, but I was exhausted.
To solve this problem, I also found really good staff people. My approach, however, was traditional: Get enough money in the bank to hire adequate staff and ensure one of them was a young lawyer with potential to take on additional responsibilities and leadership. I would continue doing large-gift fundraising as well as oversee key land acquisition strategy and negotiation, and others would take over more of the day-to-day work and administration. The ability to grow the staff and delegate some of the work was a major step forward for me and the organization.
Lincoln institute: What has been POST’s basic approach to land acquisition and how has that affected its financial strategy?
Audrey Rust: Both POST and APR want to connect existing public lands through acquisition of adjacent, privately held property, and both have treated local conservation entities as key allies in the task of preserving biodiversity, providing public access, and creating a larger vision of a protected landscape. Their different basic land conservation strategies, however, lead to very different funding patterns and long-term financial impacts.
POST plans to transfer all the land it protects, and most of it will go into public ownership as federal, state, and county parks or to one of the regional open space districts for its management and permanent protection. Agricultural land, protected by strict conservation easements, is sold to local farmers. POST retains the easements along with an easement endowment fund to assure their monitoring and compliance.
The first project POST undertook in the late 1970s resulted in the gift and subsequent sale (at half the appraised value) of a highly visible property adjacent to the town where a high percentage of potential donors lived. The funds resulting from this sale allowed POST to save some additional lands. However, the organization progressed slowly for nearly a decade, with no real financially sustainable land protection strategy in place.
In 1986, driven by an opportunity to purchase a 1,200-acre coastal ranch, POST optioned the property, which required owner-financing, significant fundraising, and later statewide political action. Success led to the creation of a working capital fund that allowed POST to repeat a similar strategy several times, focusing on prominent and ambitious conservation projects. Gaining a reputation for delivering on its promises, POST transitioned to raising funds in a capital campaign for a much larger inventory of property. Having working capital freed POST to focus on what needed to be done, rather than what could be done.
Lincoln institute: What were the key accomplishments and shortfalls of POST’s strategy?
Audrey Rust: POST was able to build working capital and show donors a leveraged return. Success built on success, and today POST operates with a working capital account of more than $125 million. Protected land was never at any risk of being lost due to financial issues. The type of public funds used, coupled with private gifts, provide further assurances.
Each accomplishment has given POST the confidence to move to another level in direct protection, restoration, and collaboration. Sustainable forestry, affirmative easements on farmland, conservation grazing, and exotic species removal are all now a part of its conservation arsenal.
On the other hand, a broad vision of what the future could hold was never well articulated, as POST essentially worked in an incremental fashion. Stirring the imagination of leadership-level entrepreneurial donors, the primary wealth in the Valley, became more difficult as time went on. It was also difficult for the organization to embrace the restoration and management of land being held for later transfer.
As public funds have begun to dry up, public agencies are less likely to take on the obligation of additional land ownership. POST experiences both the expense of holding the property indefinitely and the inability to sell the land to return capital to its account.
Lincoln institute: What has been APR’s basic approach?
Audrey Rust: APR faces a different situation in Montana, where the privately held ranches are far larger than any parcel in the Santa Cruz Mountains, and their owners control additional vast tracks of federally owned leased land. APR intends to hold these private fee lands and leases in perpetuity. Privately raised endowment funds will be required to ensure the management of these lands.
APR wanted to show from the beginning that it could make real progress on its large conservation vision, despite the lack of funds. APR moved quickly to acquire land and the accompanying leases using owner financing. The leadership of the organization felt putting a stake in the ground was the only way to begin to attract the money it would need to acquire the property that would make up the Reserve. Without sufficient fundraising experience or a developed prospect list, the struggle was enormous. Until recently, only minimal funds were held in reserve, making it extremely stressful to meet financial obligations, especially for debt.
Lincoln institute: What are APR’s key accomplishments and ongoing challenges?
Audrey Rust: Persistence and good work are now paying off. Critical advances include the opportunity to acquire fees and associated leases on a 150,000-acre ranch and in 2012 a very important gift from one of the organization’s largest supporters. APR also began building a high-end “safari camp” to open in 2013 that will allow them to bring leadership-level donors to the prairie, build relationships, and deepen their connection to the land.
The organization has a track record, demonstrating its ability to get things done, and can begin management practices to foreshadow future activity. Reintroducing genetically pure bison is a charismatic example. Extraordinary opportunities for acquiring key pieces of land can now be pursued. Without significant working reserves, however, APR staff and leadership are under great stress to meet their financial obligations. This creates a climate of looking for quick delivery on donations rather than developing the kind of leadership gifts the organization needs most for the long haul. As yet, plans are incomplete for assuring the permanent private protection of the acquired lands. Land that carries owner financing or is especially well priced may be purchased, even though its priority for acquisition may not be high. Raising the necessary endowment funds for the ongoing stewardship of the land has been slow.
Lincoln institute: In conclusion, what are key commonalities between these two very different organizations?
Audrey Rust: POST and APR are at different stages in their organizational growth, and their futures are based on their most obvious differences and track records. However, it is possible to identify similar key elements leading to success:
Both organizations continue to face significant challenges in funding their goals. POST has successfully transitioned to new leadership and is pursuing ever larger and more complex conservation initiatives. Its success has dominated the organization for so long that it is difficult for new philanthropists to find something to “invent” and support. It is a very well-run organization, which leaves little room for the new Silicon Valley elite to provide their trademark “we can do it better” involvement. POST needs to do more to identify and attract those very few top-of-the-pyramid donors. This challenge is especially difficult because government participation has virtually ended, and POST’s three largest donors are no longer making grants, in the $20 million to $50 million range, to this type of conservation. Further, it is difficult to point to an endgame, and, without it, the organization will lose urgency and gift support.
APR is new and exciting. The organization has sought a creative partnership with National Geographic, which produced an hour-long video called The American Serengeti, elevating APR’s mission and bringing with it the national prominence APR needs to raise large gifts in the national arena. It is during this time that key leadership donors must become involved. In all nonprofit organizations, funding pyramids are becoming more and more vertical. Campaigns such as this one often depend upon one or two donors to make gifts equal to half or even two-thirds of the total goal. Without these donors, staff members are worn out by raising money, and the cost of fundraising rises rapidly.
I am convinced that the size, scope, and ability to measure the vision held by an organization are key determinants of success. Donors and the public in general are elevated by the idea that we can change our world. Clearly articulating and promoting that vision is instrumental. POST needs to work on its messaging to better articulate its current vision. APR needs to find more venues to effectively communicate its vision and develop a critical mass of supporters.
Conservation leader Audrey Rust, the 2012 Kingsbury Browne Fellow at the Lincoln Institute, will lecture on “The Peninsula and the Prairie: Regional and Large Landscape Conservation,” at Lincoln House on May 1, 2013, at noon (lunch is free).
In the aftermath of the Great Recession, the financing of U.S. public elementary and secondary education has become particularly challenging, given the close link between school finance and property taxation. Across the nation, the sharp drop in housing prices that triggered the recession led to reductions in property tax revenues. Public schools derive more than 80 percent of their local own-source revenue from the property tax (McGuire, Papke, and Reschovsky 2015), and nearly half of total property tax dollars collected in the United States are used to finance public elementary and secondary education (U.S. Census Bureau 2014, U.S. Census Bureau 2013).
As a means of encouraging new research on these issues, the Lincoln Institute of Land Policy organized a conference on “Property Tax and the Financing of K–12 Education” in Cambridge, MA, in October 2013. The Fall 2014 issue of Education Finance and Policy features five of the conference papers along with two additional works submitted as part of the journal’s call for papers for the special issue, which underwent the journal’s peer review process. We served as guest editors, working closely with the journal’s editors, Thomas A. Downes and Dan Goldhaber. Thanks to funding from the Lincoln Institute, the special issue is available for free downloading until January 2016 from the website of the Association of Education Finance and Policy (www.aefpweb.org/journal/free-fall-2014).
Challenges for Funding K-12 Education
Using revenue data from the National Center for Education Statistics (2014), we determined that in real per pupil terms, total revenues devoted to public education fell by 6.2 percent from September 2008 to June 2012. Although comprehensive figures are not yet available for the most recent years, existing evidence points to a continued decline in financial support for public education. Data from the U.S. Census Bureau’s Quarterly Summary of State and Local Tax Revenue indicate that per capita real local government property tax revenues (for school and nonschool purposes) were 2.7 percent lower at the end of fiscal year 2014 than they were at the end of fiscal year 2011. And a survey conducted by the Center on Budget and Policy Priorities found that, in at least 35 states, real per-student state education aid was lower in fiscal year 2014 than in fiscal year 2008 (Leachman and Mai 2014).
Many school districts around the country responded to reduced revenues by laying off employees. In fact, the U.S. Bureau of Labor Statistics (2013) reports that between the employment peak in June 2009 and the trough in October 2012, education employment by local governments fell by 357,400—a decline of 4.4 percent. During this same period, public school enrollment grew by 0.9 percent (National Center for Education Statistics 2013).
Current projections signal significant increases in both K–12 enrollment and cost per pupil. The National Center for Education Statistics (NCES 2013) projects that per pupil expenditures will increase from an average of $10,518 in the 2009–10 school year to $12,530 in 2021–22. The NCES also projects substantial increases in public school enrollment, although growth projections for specific states vary and are generally much higher for the southern and western states (8.9 percent and 12.7 percent from 2010 to 2021) than for the Northeast and Midwest (2.2 percent and 2.4 percent). Although public policies and priorities can change, based on current policies and revenue projections, it is unlikely that revenues in support of public education will grow fast enough to match the projected growth in student enrollment and in costs.
National data indicate that in 2011–12, 10 percent of total public education revenue came from the federal government, with the rest split fairly evenly between state and local government sources (U.S. Census Bureau 2014). Federal government programs in support of education are classified as domestic discretionary expenditures. While to date Congress has done little to rein in the growth of spending on entitlement programs, it has mandated strict limits on the growth of domestic discretionary expenditures through the Budget Control Act of 2011 and the fiscal year 2014 Congressional budget agreement. The Congressional Budget Office (2013) predicts that, relative to GDP, domestic discretionary spending will decline through at least 2023. Given these overall spending caps, along with competition from other pressing domestic needs, reductions in real per pupil federal education support appear likely.
School funding systems vary tremendously across states, and future trends in state support for public education will differ greatly across states as well. However, many state governments face several long-run structural problems that are likely to constrain future state funding for public education. On the revenue side, many states have narrow sales tax bases that exclude many services and, as a result, fail to grow proportionally to their economies. The revenue problems are exacerbated by the inability of states to collect sales taxes on many Internet and mail order purchases. In the past few years, a number of states have adopted individual income tax cuts. These tax cuts have generally been enacted with no offsetting revenue increases, or they have been funded using revenue from one-time state budget surpluses.
On the spending side, funding for K–12 education must compete with other priorities. In many states, spending on Medicaid will grow faster than state tax revenues, a trend influenced in part by the aging of the population. Many states are also facing large and growing unfunded pension liabilities. Addressing these unfunded liabilities will undoubtedly require substantial increases in state government pension contributions. Although polls indicate that voters favor increased spending on education over spending in other areas, unless state governments make politically difficult decisions to increase taxes, states’ growing Medicaid and pension obligations may crowd out spending on K–12 education (Pew Research 2011).
With diminished prospects for growth in funding from federal and state governments, local school districts will likely play an increasingly important role in funding public education. Increasing local government funding for public education will require the politically difficult step of increasing property taxes, or, if that proves impossible, the development and widespread adoption of alternative sources of local government revenue. Neither strategy will be easy to implement.
This rather bleak picture of the prospects for public education funding raises a number of research questions. For example, can state governments adopt policies that would make the property tax more publicly acceptable? What role do alternative local sources of revenue play in funding public education? Can their role be increased? Is it possible to design state education aid systems that result in a more steady flow of state aid during economic downturns? Can state policies aimed at providing property tax relief be made more effective? Can state aid systems be reformed in ways that increase the educational opportunities of all students? The Property Tax and the Financing of K–12 Education considers these and other questions.
Conclusion
Three central themes emerge from this special issue. The first is the potential for unintended consequences to arise from state legislation. Eom et al. find that New York’s prominent property tax relief program, STAR, induces voters to increase school spending and raise property taxes, thereby undercutting much of the intended property tax relief. Jeffrey Zabel finds that property tax overrides in Massachusetts have led to increased racial segregation. And Phuong Nguyen-Hoang finds that the use of TIFs in Iowa has led to modest reductions in education spending.
A second theme is the potential for state school finance and property tax policies to provide greater advantages for high-wealth or high-income school districts than for low-wealth or low-income districts. In some cases, this pro-wealthy tilt is an explicit program feature. For example, the sales price differential adjustment factor in STAR channels a disproportionate amount of property tax relief to the wealthiest school districts. Likewise, Michigan’s state aid system sends about 7 percent more state aid per pupil to the wealthiest districts. In other cases, the tilt toward wealthier districts arises in more indirect ways. Chakrabarti et al. find that high-wealth school districts are likelier to increase property tax revenues in response to cuts in state aid. Zabel notes that higher income towns are more likely to pass property tax overrides. Nguyen-Hoang finds that TIFs have a greater negative effect on school spending in low-income or low-wealth districts than in high-income or high-wealth districts. Finally, Nelson and Gazley find that well-off districts are more likely to receive revenue from school-supporting nonprofits, and their per-pupil contributions tend to be higher.
A third theme is the enduring importance of the property tax as a funding source for public education in the United States. Papers by both Nelson and Gazley and by Downes and Killeen demonstrate that non-tax revenue plays a relative minor role in the funding of public schools. And no evidence suggests that the share of revenue from student fees and charges, school-supporting nonprofits, or from miscellaneous non-tax revenues has increased during or after the Great Recession.
These findings suggest that in order to ensure sufficient funding for public education into the future, efforts should be made to make the property tax a more appealing source of revenue. These property tax improvements might include the expansion of well-designed targeted property tax relief programs, such as circuit breakers, the adoption of property tax deferral programs for taxpayers facing high property tax burdens or rapid increases in their property tax bills, and improvements in tax administration that focus on increased transparency.
Given the great diversity in school finance and property tax systems across the U.S. and the fiscal challenges ahead, the papers in this special issue cannot possibly provide insights into the full range of policies needed to assure adequate and equitable funding for public education. However, it is our hope that these papers will be thought-provoking for both policy makers and researchers, and also inspire additional research on property taxation and school funding.
Contents
Introduction to Special Issue on the Property Tax and the Financing of K–12 Education
Daphne A. Kenyon and Andrew Reschovsky
Did Cuts in State Aid During the Great Recession Lead to Changes in Local Property Taxes?
Rajashri Chakrabarti, Max Livingston, and Joydeep Roy
Michigan and Ohio K–12 Educational Finance Systems: Equality and Efficiency
Michael Conlin and Paul Thompson
The Unintended Consequences of Property Tax Relief: New York’s STAR Program
Tae Ho Eom, William Duncombe, Phuong Nguyen-Hoang, and John Yinger
Unintended Consequences: The Impact of Proposition 2½ Overrides on School Segregation in Massachusetts
Jeffrey Zabel
Tax Increment Finance and Education Expenditures: The Case of Iowa
Phuong Nguyen-Hoang
The Rise of School-Supporting Nonprofits
Ashlyn Aiko Nelson and Beth Gazley
So Slow to Change: The Limited Growth of Non-Tax Revenues in Public Education Finance, 1991–2010
Thomas Downes and Kieran M. Killeen
About the Authors
Daphne A. Kenyon, Ph.D., is an economist who is a fellow at the Lincoln Institute of Land Policy and principal of D. A. Kenyon & Associates.
Andrew Reschovsky, Ph.D., is a fellow at the Lincoln Institute of Land Policy and a professor emeritus at the University of Wisconsin-Madison.
References
Congressional Budget Office. 2013. Updated Budget Projections: Fiscal Years 2013 to 2023. Washington, DC (May). www.cbo.gov/sites/default/files/cbofiles/attachments/44172-Baseline2.pdf.
Leachman, Michael and Chris Mai. 2014. “Most States Funding Schools Less Than Before the Recession,” Washington, DC: Center on Budget and Policy Priorities, Updated September 12. www.cbpp.org/cms/index.cfm?fa=view&id=4011.
McGuire, Therese J., Leslie E. Papke, and Andrew Reschovsky. 2015. “Local Funding of Schools: The Property Tax and Its Alternatives,” chapter 22 in Handbook of Research on Education Finance and Policy, revised edition, edited by Helen F. Ladd and Margaret Goertz, Routledge, 376–391.
National Center for Education Statistics (NCES). 2014. “National Public Education Financial Survey Data,” School Year 2010–11. http://nces.ed.gov/ccd/stfis.asp.
National Center for Education Statistics (NCES). 2013. “Projections of Education Statistics to 2021.” http://nces.ed.gov/programs/projections/projections2021/index.asp.
Pew Research. 2011. “Fewer Want Spending to Grow, But Most Cuts Remain Unpopular.” Center for People and the Press. February 10. www.people-press.org/2011/02/10/fewer-want-spending-to-grow-but-most-cuts-remain-unpopular.
U.S. Bureau of Labor Statistics. 2013. Table B-1a: Employees on Non-Farm Payrolls by Industry Sector and Selected Industry Detail, Seasonally Adjusted. Current Employment Statistics, Establishment Data. www.bls.gov/web/empsit/ceseeb1a.htm.
U.S. Census Bureau. 2013. 2011 Annual Survey of State and Local Government Finance, State and Local Government Data. www.census.gov/govs/local/.
U.S. Census Bureau. 2014. 2012 Data, Public Elementary-Secondary Education Finance Data. www.census.gov/govs/school/.
Una versión más actualizada de este artículo está disponible como parte del capítulo 4 del libro Perspectivas urbanas: Temas críticos en políticas de suelo de América Latina.
En los últimos cinco años el Instituto Lincoln ha respaldado el estudio de las políticas e instrumentos de recuperación de plusvalías en muchos países latinoamericanos. Pese a la diversidad de enfoques y la variedad de casos específicos, hemos podido identificar siete lecciones preponderantes que pueden ayudar a aclarar parte de la confusión y los conceptos errados que se asocian con la implementación de los principios de recuperación de plusvalías. Cada lección resumida más adelante presenta uno o dos ejemplos tomados de libro Recuperación de Plusvalías en América Latina: Alternativas para el Desarrollo Urbano.
La recuperación de plusvalías se refiere al proceso por el cual el sector público recupera la totalidad o una porción de los incrementos en el valor del suelo atribuibles a los “esfuerzos comunitarios” más que a las acciones de los propietarios. La recuperación de estos “incrementos inmerecidos” puede hacerse indirectamente mediante su conversión en ingresos públicos en forma de impuestos, contribuciones, exacciones y otros mecanismos fiscales, o directamente mediante mejoras locales para beneficio de la comunidad por entero.
1. El concepto de recuperación de plusvalías no es nuevo en América Latina. La experiencia latinoamericana en este campo tiene largos años de precedentes históricos. En varios países los debates públicos sobre el uso de la recuperación de plusvalías e instrumentos asociados comenzaron a principios del siglo XX. En los años de 1920, el debate surgió por acontecimientos concretos, como el problema de la pavimentación de las calles en São Paulo, Brasil y la falta de financiamiento externo para obras públicas necesarias en Colombia. En otros casos, los factores políticos e ideológicos han motivado discusiones de alcance nacional. Los representantes del Partido Radical en Chile intentaron introducir la idea en varias ocasiones y en los años 1930 el Presidente Aguirre Cerda propuso una ley para crear un impuesto nacional sobre las plusvalías (incrementos en el valor del suelo) con fundamento en las ideas de Henry George.
2. No obstante, sigue siendo limitada su aplicación en los planes de política urbana. A pesar de los numerosos informes sobre experiencias pertinentes que integran los principios de la recuperación de plusvalías, el tema no están bien representado ni ha ganado suficiente reconocimiento dentro de la esfera de las políticas urbanas. En algunos casos, han surgido valiosas iniciativas para la recuperación de plusvalías que han cobrado notoriedad en su momento, sólo para quedar olvidadas más tarde. Un ejemplo destacado es el conocido Informe Lander en Venezuela durante los años 1960, en el cual se proponía que el suelo y los incrementos de su valor debían ser la fuente principal de financiamiento para los proyectos de desarrollo urbano. Sentaba las bases para recomendaciones sobre las finanzas del desarrollo urbano incluidas en las deliberaciones de la cumbre Habitat I (1976).
En otros casos, se están perdiendo o desestimando oportunidades interesantes para usar la recuperación de plusvalías como una herramienta de las políticas urbanas. Actualmente algunos países de América Latina no están aprovechando los posibles incrementos del valor del suelo generados por grandes proyectos de renovación en los cascos urbanos. Aunque está generalmente aceptada la noción de recuperación de plusvalías, en realidad es poco lo que efectivamente se ha recuperado y redistribuido de los incrementos del valor del suelo derivados de las acciones urbanísticas.
3. A menudo existe la legislación, sólo que no se aplica. Como en muchos otros países de la región, la variedad de los instrumentos de recuperación de plusvalías existentes en México –desde la contribución por mejoras (una tasación especial o gravamen por mejora dirigido a recuperar los costos de las obras públicas), hasta los impuestos sobre las plusvalías– ilustra la discrepancia entre lo que es legalmente posible y lo que verdaderamente se implementa. Contrario a lo que suele aducirse, el problema general no radica en que los planificadores o funcionarios públicos carezcan de acceso legal o práctico a estos instrumentos, sino que tienden a prevalecer las siguientes condiciones:
4. La resistencia obedece más a la ideología que a la lógica. Incluso cuando se entienden la legislación y los instrumentos para la recuperación de plusvalías –o en algunos casos justamente porque se entienden–, es posible que no puedan implementarse a cabalidad debido a la manifiesta “falta de voluntad política”. Esta resistencia puede tomar la forma de interpretaciones engañosas, racionalizaciones estereotipadas y hasta “prédicas” puramente ideológicas.
Resulta sencillo encontrar justificación pública de que la aplicación de tales instrumentos es inoportuna o inapropiada, especialmente si la justificación se basa en interpretaciones engañosas. Algunos de estos argumentos sostienen que las imposiciones sobre el valor del suelo son inflacionarias y alteran el buen funcionamiento de los mercados, o que provocan una doble tributación inaceptable de la misma base. Estos conceptos erróneos parecen hallarse detrás de la renuencia que muestra el Ministerio de Vivienda y Urbanismo de Chile para promover la revisión y reintroducción ante el Congreso de algunas disposiciones sobre la recuperación de plusvalías en el nuevo marco legal de urbanismo del país.
Las objeciones basadas en racionalizaciones estereotipadas pueden recurrir a los siguientes argumentos:
No obstante, en oposición a estos argumentos, están los programas participativos de mejoras que se han llevado a cabo con éxito en áreas pobres de muchas ciudades (por ejemplo, en Chile, Brasil y Perú). Estos programas han sido eficaces técnica y económicamente y por lo general han contado con un apoyo sólido de la población de bajos ingresos afectada.
Finalmente, algunas objeciones son de índole netamente ideológica. Por ejemplo, la resistencia a la implementación de la participación en plusvalías en Colombia se basa en la aseveración de que este mecanismo, si bien se reconoce que tiene una buena formulación técnica, representa una forma más de “interferencia” pública indeseable en el negocio inmobiliario urbano, como lo son una mayor carga fiscal, limitaciones de los derechos de propiedad o más regulación (Barco de Botero y Smolka, 2000). Esta posición ha quedado sustituida recientemente por un amplio consenso entre los políticos, líderes empresariales y el público general de que la aceptación de este instrumento es una mejor opción que la exigencia de otros impuestos a la propiedad.
5. La recuperación de plusvalías se va haciendo cada vez más popular. A pesar de los obstáculos y la resistencia política, la experiencia reciente en América Latina con la recuperación de plusvalías muestra un creciente interés en el tema y en las condiciones que justificarían su utilización. Atrae la atención de planificadores municipales en toda la región y comienza a percibirse como una iniciativa importante de las políticas urbanas. Esta popularidad creciente está vinculada a varios factores que se presentan en la región.
En primer lugar, una mayor descentralización administrativa y fiscal exige más autonomía para redefinir y obtener fuentes alternativas de fondos públicos para financiar el proceso de urbanización. La necesidad de más recursos locales se ha visto acentuada por las demandas sociales y las presiones políticas asociadas con los actuales procesos de redemocratización y el mayor grado de participación popular. La generación de fondos no presupuestados requeridos para financiar programas sociales especiales está vinculada a casi todas las nuevas iniciativas de recuperación de plusvalías y ha sido una de las razones más poderosas para implementar dichas políticas.
En segundo lugar, la redefinición de las funciones del estado (incluida la privatización), en conjunto con la disminución de la planificación integral, ha dado pie a la materialización de intervenciones públicas más flexibles y negociaciones directas sobre la regulación del uso del suelo y las alianzas entre los sectores público y privado. También cobra significación la apertura de áreas públicas al mercado inmobiliario privado, así como una mejor coordinación entre los intereses de los propietarios privados y el sector público con miras a fomentar nuevas áreas en las ciudades. Cabe destacar que incluso en Cuba encontramos un programa pujante mediante el cual la Oficina del Historiador de la Ciudad de La Habana, que funciona como una suerte de compañía inmobiliaria, refinancia las operaciones del estado con los incrementos del valor del suelo provenientes de proyectos de rehabilitación urbana en forma de impuestos cobrados a los “socios” privados en las obras de desarrollo (Núñez, Brown y Smolka, 2000).
Otros factores favorables incluyen las condiciones estipuladas por los planes de los organismos multilaterales, que claramente promueven la universalización de los gravámenes al usuario y la recuperación de los costos de las inversiones públicas. La creciente popularidad de los nuevos instrumentos de recuperación de plusvalías también puede atribuirse a cierta frustración causada por los resultados mediocres que se obtuvieron en décadas anteriores con la aplicación de impuestos y otras contribuciones tradicionales relacionadas con el suelo urbano, en cuanto a los ingresos y los objetivos de las políticas urbanas.
6. El pragmatismo prevalece sobre las justificaciones éticas o teóricas. Como corolario al punto anterior tenemos que la creciente popularidad de la recuperación de plusvalías parece inspirarse más en razones fundamentalmente pragmáticas que en criterios éticos, nociones de igualdad o justificaciones teóricas o políticas. Algunas reformas tal vez se han introducido sin plena conciencia política del proceso, o de su importancia teórica, como se ilustró anteriormente en el caso de Mexicali. Los indicios históricos muestran que en su mayoría las iniciativas de recuperación de plusvalías han respondido más que todo a la necesidad de enfrentar las crisis fiscales y otros problemas locales en el financiamiento del desarrollo urbano. Es el mismo caso que ocurre en Argentina, donde la necesidad de ingresos predominó sobre los principios establecidos que se oponían a nuevos impuestos cuando se recurrió a un aumento provisional del 5% en el impuesto a la propiedad como una de las iniciativas para financiar las inversiones en el nuevo sistema de subterráneo de Buenos Aires.
No obstante, no debería darse por sentado a partir de los ejemplos anteriores que la acumulación de experiencia no es importante para el perfeccionamiento de instrumentos y la evolución de las políticas de recuperación de plusvalías. Un caso pertinente es la experiencia colombiana con la contribución de valorización desde los años 1920 y los innumerables intentos para resolver algunas de sus limitaciones, especialmente en los últimos 40 años. La participación en plusvalías promulgada recientemente es una versión de mayor logro técnico y políticamente aceptable de un instrumento dirigido a recuperar los incrementos –en ocasiones enormes– del valor del suelo asociados con las decisiones administrativas con respecto a la zonificación, niveles de densidad y otras normas y regulaciones urbanísticas.
7. La recuperación de plusvalías no es necesariamente progresiva o redistributiva. Es necesario señalar que de ninguna manera la referencia a las plusvalías es un monopolio de la izquierda política. Las experiencias recientes de Argentina y Chile indican claramente la disposición hacia el tema en contextos neoliberales. Además, las operacões interligadas (operaciones interligadas), desarrolladas en São Paulo y aplicadas con efectividad por administradores con tendencias políticas e ideológicas opuestas, fungieron como argumento convincente de la imposibilidad de etiquetar estos instrumentos a priori.
Los gobiernos locales progresistas, por otra parte, a veces son renuentes a utilizar estos instrumentos, y hasta pueden rechazar de un todo la noción, por tres razones: Primero, es posible que crean que tales contribuciones serían un mero mecanismo para imponer nuevos gravámenes fiscales sin ningún efecto redistributivo. Segundo, incluso cuando los ingresos generados se destinen a la población de bajos ingresos, pueden resultar insuficientes para reducir las diferencias entre ricos y pobres en lo concerniente al acceso al suelo urbanizado (Furtado 2000). Tercero, el argumento intergeneracional de que tales gravámenes se imponen a los residentes más nuevos –generalmente pobres– que necesitan servicios, mientras que las generaciones anteriores no pagaron por servicios de infraestructura o instalaciones recreativas.
De tal modo, la naturaleza progresista de dichas políticas no se resuelve “creando impuestos” sobre los incrementos del valor del suelo ni tampoco apuntando hacia los contribuyentes de altos ingresos. La imagen de Robin Hood de tales políticas se diluye en cuanto queda claro que la parte del valor realmente recuperada de esta manera tiende a ser sólo una fracción –a menudo pequeña– de lo que el propietario recibe en realidad en beneficios. Este punto parece haber sido bien entendido por muchas poblaciones de bajos ingresos, como las de Lima, donde un programa exitoso que comprendía unos 30 proyectos se valió de la contribución de mejoras para financiar obras públicas a principios de la década de 1990.
Este ejemplo y otros indicios fuertes confirman la necesidad de reconsiderar las nociones convencionales sobre la tensión que existe entre los principios de beneficio y la capacidad de pago. En la práctica, la estrategia de atraer cierta intervención pública hacia nuestro vecindario (incluso si ello implica pagar su costo) es más ventajosa que la alternativa de quedar relegado. Sin embargo, este punto debería tratarse con cautela, a la luz de ciertas experiencias en las que se ha aplicado la contribución de mejoras en áreas de bajos ingresos con fines distintos al beneficio de los ocupantes; por ejemplo, para justificar el desalojo o provocar la partida de aquellos residentes que no pueden pagar las mejoras (Everett 1999).
Consideraciones finales
A pesar de las dificultades de interpretación y resistencia a la implementación descrita más arriba, las políticas de recuperación de plusvalías sin duda están despertando nuevo interés y logrando mayor aceptación. Los esfuerzos para utilizar la recuperación de plusvalías se han multiplicado en número y creatividad y sus virtudes, aparte de ser una fuente alternativa de financiamiento público, se entienden cada vez más. Los funcionarios de la administración pública se están dando cuenta del “valor de mercado” de su competencia privativa para controlar los derechos de uso del suelo, así como para definir la ubicación y fecha adecuada de las obras públicas. Asimismo ven que la negociación transparente del uso del suelo y las relaciones de densidad reducen el margen de transacciones que solían realizarse “por debajo de la mesa”. Como el vínculo entre la intervención pública y el incremento del valor del suelo se hace cada vez más notorio, las actitudes están cambiando para hacerse más favorables a la creación de una cultura fiscal que fortalezca los impuestos a la propiedad y los ingresos locales en general.
Sin embargo, todavía queda mucho por hacer en ambas esferas: investigar la naturaleza compleja de las políticas de recuperación de plusvalías y promover un mayor entendimiento por parte de los funcionarios públicos de la manera en que pueden usarse para beneficiar a sus respectivas comunidades. Es indispensable conocer mejor ciertas idiosincrasias latinoamericanas, como cuando los incrementos significativos del valor del suelo se generan bajo regímenes alternativos de tenencia de la tierra que no gozan de la protección del estado, y en casos en que el suelo representa un importante mecanismo de capitalización para los pobres.
Más allá de las limitaciones tradicionales estructurales de patrimonialismo, corrupción, intereses velados, insensibilidad ideológica y demás, una parte considerable de la “variación inexplicable” en las diferentes experiencias con la recuperación de plusvalías en América Latina puede atribuirse a la falta de información. Con el fin de mejorar la comprensión de los principios e implementación de la recuperación de plusvalías, quedan muchas oportunidades para documentar y analizar las experiencias actuales con valoración alternativa del suelo y los instrumentos impositivos.
Martim Smolka es miembro principal y director del Programa para América Latina y el Caribe del Instituto Lincoln, y Fernanda Furtado es miembro del Instituto y profesora del Programa de Posgrado en Urbanismo de la Universidad Federal de Río de Janeiro.
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Decades before Henry George made a passionate case for the “single tax” in Progress and Poverty, the classical economists had recognized that, in theory, the land value tax was almost the perfect tax. There was a strong moral basis for the land value tax—land value increased over time because of growth in population and improvements made by the community, either as utility infrastructure or transportation investments by government and the private sector.
Today, many scholars and practitioners question whether land value tax is a serious contender as a revenue source. But, whatever its political potential may be, economists continue to find the theoretical case for land value tax compelling. This article examines the efficiency of the land value tax as well as land value tax as a substitute for other taxes;
Edwin Mills examines the issue of land value tax in the context of an urban economy, showing that the land value tax is indeed efficient in its effects on land use, as claimed.
Thomas Nechyba explores the land value tax in the context of a general model of the entire economy. He develops what is known as a “computable general equilibrium model” that quantitatively describes the changes in the macro-economy that will occur with the substitution of the land value tax for income taxation.
Author of this article, Dick Netzer, argues that, although the empirical evidence on land values is poor, some reasonable estimates suggest that, at least in the United States, the land value tax could replace the conventional local property tax at reasonable tax rates.
Andrew Reschovsky points out that the current balmy climate for state and local finance in the United States is likely to change radically, for the worse. State governments may be looking for substantial additional revenues. Is the land value tax the right, or the likely, choice for hard-pressed state governments?
Roy Bahl reviews the many difficulties and deficiencies in the use of property taxes by local governments in both developing countries and former Communist countries.
Edward Wolff suggests that substitution of the land value tax for the federal individual income tax would make the U.S. tax system less rather than more progressive with respect to income.
Decades before Henry George made a passionate case for the “single tax” in Progress and Poverty (published in 1879), the classical economists had recognized that, in theory, the land value tax was almost the perfect tax. Unlike other taxes, it causes no distortions in economic decision making and therefore does not lower the efficiency of a market economy in allocating resources. Also, it was obvious in the nineteenth century that a tax on the value of land would be highly progressive.
There was a strong moral basis for the land value tax, as well. Land value increased over time because of growth in population and improvements made by the community, either in the form of utility infrastructure or transportation investments by government and the private sector. Individual landowners did nothing to increase the value of their own land but rather realized “unearned increments” over time, unlike those who contributed labor and capital to production and thus earned their compensation.
In George’s day there was little question that the tax could provide adequate revenue, at least in the United States where the role of government was small-no more than a tenth as important relative to gross domestic product as it today. Virtually all government services were supplied by local governments, which relied entirely on property taxes. Today, many scholars and practitioners question whether land value taxation is a serious contender as an important revenue source. But, whatever its political potential may be, economists continue to find the theoretical case for land value taxation compelling.
In January, the Lincoln Institute sponsored a conference to address these issues: “Land Value Taxation in Contemporary Societies: Can It and Will It Work?” In the opening paper, William Fischel focuses on the special nature of local government in this country, stressing its importance as an instrument of enhancing property values within communities. He argues that, in pursuing that role, local land use controls actually achieve substantial efficiency advantages by more closely matching consumer preferences to local government services and taxes. This is what economists refer to as the Tiebout-Hamilton model.
Fischel maintains that there is substantial justice in this outcome, which might be improved only marginally by land value taxation. That is, land use controls permit local governments to appropriate much of the value generated by community growth. Moreover, this system is widely used, which argues that it is more workable than land value taxation, although the latter is, in principle, more fair.
Efficiency of the Land Value Tax
Two papers treated the efficiency characteristics of the land value tax. Edwin Mills examines the issue in the context of an urban economy, showing that the tax is indeed efficient in its effects on land use, as claimed. But he believes that this is immaterial because the land value tax cannot yield more than trivial revenues, even at rates that are so high that the courts would find them to be an unconstitutional “taking” of property. Moreover, it is so difficult to value land properly that the efficiency advantages cannot be realized.
Thomas Nechyba explores the land value tax in the context of a general model of the entire economy. He develops what is known as a “computable general equilibrium model” that quantitatively describes the changes in the macro-economy that will occur with the substitution of the land value tax for income taxation. Given his assumptions, the model predicts that the reduction in taxation of capital will so increase the aggregate amount of capital that the demand for land on which to use the capital will generate substantial increases in land values. That in turn will permit the land value tax to generate considerable revenues at a rate that is not confiscatory. Most economists would consider the significant increases in total national output predicted by the model to be real gains in economic efficiency.
Land Value Taxation as a Substitute for Other Taxes
Another pair of papers examines the land value tax as a substitute for other taxes used by sub-national governments in rich countries. In my own paper I argue that, although the empirical evidence on land values is poor, some reasonable estimates suggest that, at least in the United States, the land value tax could replace the conventional local property tax at reasonable tax rates. But the main thrust of my argument is that those rich countries in which substantial government spending is done by local governments are the most plausible candidates for the use of the land value tax (see Table 1). Furthermore, its use is probably most feasible in those countries familiar with the idea of valuing real property for tax purposes. The combined administrative, compliance and evasion costs of most other taxes are so large that, even if the administrative costs of land value taxation are high, land value taxation is still promising.
Andrew Reschovsky points out that the current balmy climate for state and local finance in the United States is likely to change radically, for the worse, in the not too distant future. For a variety of reasons, state governments in particular may be looking for substantial additional revenues. Is the land value tax the right, or the likely, choice for hard-pressed state governments? He concludes, first, that the economic gains from the adoption of a new land value tax would be modest, compared to increasing the rates of existing state taxes. Second, a land value tax should help improve the equity of the state tax system. Third, he believes that it would add an element of cyclical stability to state revenue systems.
Nevertheless, Reschovsky remains skeptical about the tax on administrative grounds and is not convinced that it can generate enough revenues to replace any important existing state tax source. In the case of large central cities, however, he rates the land value tax somewhat higher as a replacement for existing tax sources, largely because of the probable lack of adverse locational effects. He views it as especially appropriate for those cities like Philadelphia that now receive relatively small percentages of tax revenue from the property tax.
Roy Bahl reviews the many difficulties and deficiencies in the use of property taxes by local governments in both developing countries and former Communist countries. There is widespread agreement that the property tax is the appropriate major local government tax, and in some countries this agreement extends to site value taxation as well. But, Bahl notes, the property tax usually provides negligible revenues, because of low nominal rates, low and inaccurate valuations, and poor collection experience. Almost everywhere, the basic requisites of good administration are lacking. Moreover, the political unpopularity of the tax generally is far greater than in the United States. Nonetheless, the property tax, especially the site value tax variant, is considered the best local revenue source in these countries.
Perhaps the most surprising research finding reported at the conference was the conclusion of Edward Wolff, who has written extensively on the distribution of income and wealth in the United States. He suggests that substitution of the land value tax for the federal individual income tax would make the U.S. tax system less rather than more progressive with respect to income (see Table 2). This result may be explained by the fact that the ratio of the value of land owned to household income rises steeply with the age of the householder. That is, mean household income declines sharply with age after age 54, while the mean value of land owned declines only slowly. On the other hand, a land value tax would be much more progressive with respect to wealth than is the income tax.
Broader Principles and Questions
Nicolaus Tideman, a convinced follower of Henry George, argues that the basic principles of and justifications for land value taxation apply to much more than the problems of land use in cities and suburbs-the usual focus for discussion of this form of taxation. He offers applications to environmental, congestion and population problems and to questions of efficient resource use and economic growth on a worldwide scale. He bases his views on the general principle that “all persons have equal rights to natural opportunities and should therefore pay for their above-average appropriations of natural opportunities.”
Throughout the conference, there was lively disagreement about whether the land value tax could really produce substantial revenues. Some, like Mills, held that it could not even replace the conventional American property tax on land and buildings, much less a substantial portion of other state and local taxes as well. Others, including Tideman, Nechyba and I, presented data that suggested the possibility that land value taxation indeed could be an important factor in the American fiscal system. Participants also discussed the problems of administering a land tax so that tax liabilities actually and accurately reflect the value of individual parcels of land as bare sites, which is essential if the tax is to be a truly efficient one.
The conferees did not produce an agreed answer to the basic conference question, Can and will land value taxation work today? But they made it clear that the question remains a relevant one that deserves serious and continuing attention.
Dick Netzer is professor of economics and public administration in the Robert F. Wagner Graduate School of Public Service at New York University. He was the conference coordinator and is the editor of a book containing the eight conference papers and the remarks of the formal discussants, which will be published by the Lincoln Institute later this year.
Land Value Taxation in Contemporary Societies: Can It and Will It Work?
Authors of Conference Papers
Roy Bahl, Professor of Economics and Dean, School of Policy Studies, Georgia State University
William A. Fischel, Professor of Economics, Dartmouth College
Edwin Mills, Professor of Real Estate and Finance, Kellogg Graduate School of Management, Northwestern University
Thomas Nechyba, Professor of Economics, Stanford University
Dick Netzer, Professor of Economics and Public Administration Robert F. Wagner Graduate School of Public Service New York University
Andrew Reschovsky, Professor of Agricultural and Applied Economics, University of Wisconsin-Madison
Nicolaus Tideman, Professor of Economics, Virginia Polytechnic University
Edward Wolff, Professor of Economics, New York University
Discussants
Alexander Anas, Professor of Economics, State University of New York at Buffalo
Daniel Bromley, Professor of Agricultural and Applied Economics, University of Wisconsin-Madison Karl Case, Professor of Economics, Wellesley College
Riel Franzsen, Professor of Mercantile Law, University of South Africa
Yolanda Kodrzycki, Economist, Federal Reserve Bank of Boston
Daphne Kenyon, Professor of Economics, Simmons College
Therese McGuire, Professor of Economics, Institute of Government and Public Affairs, University of Illinois-Chicago
Amy Ellen Schwartz, Professor of Economics, Robert F. Wagner Graduate School of Public Service New York University
Robert Schwab, Professor of Economics, University of Maryland
Robert Solow, Professor of Economics, Emeritus, Massachusetts Institute of Technology
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This article is adapted from a policy roundtable report on national spatial development strategies prepared under the auspices of the Lincoln Institute, Regional Plan Association and the University of Pennsylvania School of Design. The roundtable was held in September 2004 at the Pocantico Conference Center of the Rockefeller Brothers Fund. The impetus for this project developed in the spring of 2004 in a graduate city planning studio directed by Robert Yaro and Jonathan Barnett, both Practice Professors in City and Regional Planning at Penn, and Visiting Professor Armando Carbonell. With funding support from the Ford Foundation’s Institute of International Education, additional input was provided by a distinguished team of European and American planning experts hosted by Professor Sir Peter Hall at the Institute of Community Studies in London, England.
European efforts to develop policies and investments for the entire continent and for regions that cross national boundaries have been organized under the umbrella of the European Spatial Development Perspective, a set of policy directives and strategies adopted by the European Union in 1999 (Faludi 2002). Over the past generation the EU has initiated a large-scale approach to planning for metropolitan growth, mobility, environmental protection and economic development. Europeans use the umbrella term “spatial planning” to describe this process, involving plans that span regional and national borders and encompass new “network cities” spread out over hundreds of kilometers (see Figure 1). The EU is also mobilizing public and private resources at the continental scale, with bold plans and investments designed to integrate the economies of and reduce the economic disparities between member states and regions, and to increase the competitiveness of the continent in global markets.
By contrast, the United States has no strategy to anticipate and manage comparable concerns, even though the U.S. population is expected to grow another 40 percent by 2050. How can this growth be accommodated in metropolitan regions that are already choking on congestion and approaching build-out under current trends and policies? How can we improve the competitiveness and livability of our own emerging constellation of network cities? How can the U.S. reduce the growing disparities in wealth and population among fast-growing coastal regions, vast interior rural areas and declining industrial cities? How can the U.S. promote regional strategies designed to address these concerns?
Two important precedents have shaped this analysis of America’s spatial development. The national development and conservation strategies prepared by President Thomas Jefferson in 1807 and President Theodore Roosevelt in 1907 stimulated the major infrastructure, conservation and regional economic development strategies that powered America’s economic growth in its first two centuries. Other major strategies and investments promoted in the administrations of Presidents Lincoln, Franklin Roosevelt and Eisenhower also had a profound impact on the nation’s growth. Some examples are the Morrill Act land grant university system, the Homestead Act, and creation of the national rail and interstate highway systems.
Economic, Demographic and Spatial Trends
Rapid population growth
The U.S. Census Bureau forecasts that the nation’s population will grow by 40 percent to 430 million by 2050, whereas most European countries are expected to lose significant numbers of residents, due to declining birth rates and limited immigration. This means we must build half again as much housing and as much commercial and retail space and the infrastructure needed to support these activities in the next half century as we have in the past two centuries.
The study of historical settlement patterns sheds light on current and future patterns. While early settlers clung primarily to the coasts and in compact urban regions, the inventions of rail transportation and later the automobile forever changed settlement patterns and allowed people to set up homes in the interior of the country and in highly decentralized metropolitan areas. Fast-growing Sunbelt states, such as Texas, California and Florida, are expected to see sustained rapid population growth, spurred by the trend of immigrant populations settling in those and surrounding states.
While most central cities will continue to grow at a moderate pace, many metropolitan regions around these urban cores are expected to experience remarkable development. As the city of Philadelphia continues to lose population, for example, its adjacent suburbs and areas further outside the city continue to grow. In general, however, the number of people living in urbanized areas as opposed to rural areas is projected to continue rising, signaling an increase in the amount of urbanized land in the coming decades.
The building out of suburban America
Since 1970 the vast majority of the nation’s economic and population growth has occurred in 30 large metropolitan regions, mostly in their sprawling outer rings. While some cities and inner-ring suburbs are now experiencing infill development and renewed population growth, many others are approaching “build-out,” which increases traffic congestion and commuting times, contributes to loss of farmland, and creates conflicts between new development and green infrastructure, such as public water supplies and wildlife habitat.
In less than three centuries, 46 million acres of America’s virgin landscape have been converted to urban uses. In the next 25 years that number will more than double to 112 million acres. If current growth and land consumption rates continue, another 100 million acres will be urbanized by 2050, at a rate seven times faster than the population will grow.
Uneven and inequitable growth patterns
While most population and economic growth has been in large metropolitan regions, other areas of the country have experienced losses. Large rural regions where resource-based economies or groundwater reserves are in permanent decline are left without the means to support even basic services. A number of large urban centers and second-tier cities also have experienced decades of decline. For example, Philadelphia, Baltimore, Pittsburgh, Cleveland, Detroit, St. Louis and New Orleans have lost a third or more of their populations since 1960. Even in cities where the outer-ring suburbs have grown, many inner cities and inner-ring suburbs have lost residents, tax base and economic activity, and poverty has become highly concentrated. Many of these places have high concentrations of African-Americans, Native Americans, Latinos and poor whites who will be increasingly disadvantaged as economic opportunities in these regions decline.
In contrast with the U.S., the European Union for decades has invested vast sums to promote development and redevelopment of comparable bypassed areas. These investments have produced dramatic results in revitalizing the economies of Ireland, Spain, Portugal and Greece, and formerly depressed cities and regions in Europe’s periphery. Similar strategic investments in America’s disadvantaged cities and regions could produce comparable results.
Limited infrastructure capacity
Metropolitan infrastructure of all kinds, most of it built in the last half of the twentieth century, will reach its capacity limits in the first decades of the twenty-first century. Unless new capacity is created in roads, rails, airports, seaports and other systems, the nation’s economic potential will be artificially limited. Federal transportation investments over the past decade have been largely focused on maintaining the existing infrastructure, not on expanding the capacity of these systems.
Over the last 50 years, Americans have become increasingly mobile. The increase in miles traveled per person has been most pronounced in car and aircraft travel, creating new challenges to keep various types of transportation corridors congestion-free. At the same time, congestion poses a serious threat to manufacturing and freight sectors of the economy. Experts believe that by 2020 there will be nearly a doubling of trucks on the roadways over current numbers. Significant policy measures are needed to channel more resources into high-capacity transportation systems for both individual and commercial activity.
Emergence of megalopolis
In 1961 French geographer Jean Gottman described the Boston–Washington Megalopolis. Between now and 2050, more than half of the nation’s population growth, and perhaps as much as two-thirds of its economic growth, will occur in this and seven other emerging megalopolitan regions whose extended networks of metropolitan centers are linked by interstate highway and rail corridors. Similar networks of cities in Europe and Asia are now seen as the new competitive units in the global economy. Major public and private investments are being made in high-speed rail, broadband communications and other infrastructure to strengthen transportation and economic synergies among their component centers.
The New Megalopolis
The new megalopolis is a model for cooperation among the cities and regions in the U.S. that are growing together and creating diseconomies in congested transportation networks, which in turn affect the economic vitality and quality of life of these regions. This model is based on the idea that if the cities in these colliding regions work together they can create a new urban form that will increase economic opportunity and global competitiveness for each individual city and for the nation as a whole.
These component metropolitan areas will have to cooperate in the formation of a structure that takes advantage of the complementary roles of each area while addressing common concerns in the areas of transportation, economic development, environmental protection, and equity. The new megalopolis model will contribute to improving social and economic cohesion along with a better territorial balance, and will support more sustainable development by emphasizing collaboration on important policy issues, infrastructure investments and instruments for facilitating economic growth and job creation.
To facilitate the development of megalopolitan areas, the U.S. could focus on creating a truly intermodal network linking rail, highway and air transportation. Such connections would relieve congested airports and provide greater options for freight movement. The resulting transportation flexibility would be less vulnerable to terrorist attacks and disaster. Furthermore, regional infrastructure and development focused around rail stations would shape and redirect urban growth in more efficient, less sprawling patterns.
Our current direction is building a country whose competitiveness is threatened by inefficient urban forms and declining rural communities. The new megalopolis concept points us in a different direction, one in which urban areas and their surrounding regions work together on a larger scale to address common concerns and share their complementary strengths. This new model would produce an America that is environmentally sustainable, socially equitable, and competitive in an increasingly global economy.
Six distinctive regions can be identified based on common history, geographic location and topography: the Northeast, Mid-Atlantic, South, Midwest, Southwest and West. Most of the nation’s rapid population growth, and an even larger share of its economic expansion, is expected to occur in eight emerging metropolitan areas spread over thousands of square miles and located in every one of these regions (see Figure 2). These megalopolitan areas are becoming America’s economic engines: centers of technological and cultural innovation where the vast majority of immigrants who are driving population and economic growth will assimilate into the economic and social mainstream.
In Europe and Asia similar network cities are already being seen as the new competitive units in the global economy. The European Union and national governments in Europe, China and Japan are investing hundreds of billions of dollars in new intermodal transportation and communication links and other infrastructure to underpin the capacity, efficiency and livability of these regions. In all of these places, new high-speed rail networks are integrating the economies of formerly isolated regions.
Toward an American Spatial Development Perspective
An American Spatial Development Perspective (ASDP) could encompass long-range strategies to achieve five broad national goals.
The federal government could play a crucial role in this process, through collaborations with existing and emerging “bottom-up” networks of interconnected regional strategies, encompassing each of the emerging megalopoli. Ideally, the federal government would help coordinate and “incentivize” these planning efforts, but rely on local and regional initiatives to drive each region’s own strategies.
The federal government could also lead in coordinating infrastructure planning and investments for national and regional intermodal, high-speed transportation networks, as it did in promoting creation of the national rail and interstate highway systems. These investments would be made through partnerships between federal, state and regional government, and private investors. User fees, tolls and fares would cover a substantial portion of the cost of developing and managing these systems.
Regional strategies could also promote investments in major higher education and research institutions needed to maintain the nation’s competitive advantage in technology and create a lifelong learning system to help skilled workers adapt to economic change. This broad approach could also identify the important natural resource systems that sustain public water supplies, biological resources, sense of place and recreational opportunities. Future growth could be designed to reuse formerly used sites and to reclaim and restore impaired landscapes and natural resource systems.
Plans for these infrastructure systems should be closely coordinated with strategies for smaller-scale urban and regional development, to ensure that future development patterns support, and are supported by, these infrastructure investments. Federal and state governments could invest in demonstration projects to test innovative transportation, land use, environmental and other strategies.
Building and Financing the ASDP
The proposed new infrastructure systems and urban development outlined in this article could cost trillions of dollars, much of which could be financed through user fees and public-private partnerships. It should also be possible to employ modest payroll or other taxes to finance some of these investments, which would generate trillions of dollars of new economic capacity for the whole nation. The expected doubling of the national economy by 2050 would expand the gross domestic product by more than $14 trillion (in constant dollars). Redirecting even a small share of the growth of tax revenues in these strategic investments could secure the nation’s economic future.
For over a hundred years, the U.S. has financed major infrastructure projects through a “top-down” system, with major funding from the federal government complemented by state resources. Based on general public agreement of national priorities, this model financed several generations of growth and paid for one of the world’s great infrastructure systems. However, this approach is now being challenged as the needs of maintaining our aging infrastructure systems outpace federal and state funding, to say nothing of new capacity expansion. Today we witness a debate between “donor” and “donee” states over the fairness of federal transportation funds, even as the total amount of federal dollars falls far short of estimated needs. As a result, we find ourselves increasingly starved for capital for infrastructure systems.
To provide more funding for system maintenance and expansion, metropolitan regions are looking to new and innovative financing systems. Public authorities use their tax-free status to attract private dollars through bond issuances, sales and lease-back arrangements. New user fees, such as congestion pricing or high-occupancy-vehicle lanes on toll roads, link charges to those who benefit the most from new investments, creating new revenue streams. And value capture models, such as tax increment financing, allow increases in land values to finance infrastructure investments.
The federal government is advancing instruments such as TIFIA, the Transportation Infrastructure Innovation Act, to stimulate the development of these projects. However, megalopolitan areas have a critical role to play in this emerging system. They provide a vital link between state and federal government and local jurisdictions, which in many cases have the last word over land use decisions. These regional areas transcend political boundaries and capture the true economic and social geography of their communities. And they have the size, capacity and expertise to undertake complex planning strategies.
Armando Carbonell is senior fellow and co-chair of the Lincoln Institute’s Department of Planning and Development. Robert D. Yaro is president of the Regional Plan Association in New York City.
References
Faludi, Andreas, ed. 2002. European spatial planning. Cambridge, MA: Lincoln Institute of Land Policy.
Lincoln Institute of Land Policy and Regional Plan Association. 2004. Toward an American spatial development perspective. Policy Roundtable Report. September.
University of Pennsylvania School of Design. 2004. Planning for America in a global economy: 2004–2005. City Planning Studio Report. Spring.
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To enhance the Lincoln Institute’s commitment to building research capacity on international land policy issues, the Program on Latin America and the Caribbean initiated an expanded effort in 2006 to support research in that region. Since then the Lincoln Institute has issued annual public requests for research proposals that set out the criteria used to evaluate the proposals and a set of priority thematic topics, normally related to land markets, local public finance, and urban development. This year’s priorities include implementation and impacts of land use regulations; land-based instruments to finance urban development; land markets; and urban form.
Most of those who submit research proposals are affiliated with academic institutions throughout Latin America. Other applicants are typically practitioners from government entities, nongovernmental organizations, and private consultancies, as well as scholars working on Latin American themes at universities outside the region. About two-thirds of the proposals submitted and funded are from researchers having no prior affiliation with our Latin America Program, which is consistent with one objective of the research program—to widen the network of those studying land policy issues in the region.
The average size of research project funding has increased over time from around $10,000 in 2006 to about $26,000 at present. Some projects that involve extensive field work to support empirically based research have received larger amounts. Over time the program has also become more competitive, with the number of applications growing from 90 in the first year to 150 currently.
The priority topics and selection criteria are designed to encourage empirical studies, and the 18-month funding cycle allows time for data collection, analysis, and preparation of a final report. Lincoln Institute staff provide technical assistance to many researchers as they finalize their research designs and carry out their work. The participants are also invited to a methods workshop at the beginning of each research project cycle to review survey instrument and sample design, multivariate statistical analysis, experimental methods, and the use of geographic information systems.
At the end of each research project cycle all participants discuss each others’ draft papers at a research seminar. Both the methods workshop and research seminar are highly valued by the researchers, and the events have been offered in Colombia, Argentina, and Costa Rica to facilitate access from different parts of the region. Other training courses offered by the Latin America Program, such as those on urban economics and land market analysis, are also often relevant for those carrying out these research projects.
Selected final research reports are posted as working papers on the Lincoln Institute Web site. Currently 33 final papers are available and another 15 are in process. Many of these papers are downloadable in both English and either Spanish or Portuguese. In addition, seven of the completed research papers have been summarized as Land Lines articles, making their results accessible to a wide audience. This April issue presents one such report on home values in Mexico, and announces the completion of a CD-ROM that compiles more than 80 Land Lines articles that have been translated into Spanish under the title Perspectivas Urbanas.
This research program complements another long-standing Latin America Program initiative that provides support for students working on dissertation and masters theses. The graduate student program is also competitive and based on open requests for proposals. In the past two years, the Lincoln Institute has taken steps to increase the coordination between these two research support initiatives, particularly by coordinating the priority topics and harmonizing the selection criteria. By supporting both emerging graduates and more experienced researchers, these initiatives are developing an extensive network of capable analysts who can advance knowledge about land policy and its consequences in Latin America.
The request for research proposals in 2010 will be posted on the Lincoln Institute’s Web site and distributed electronically by email to those in the region who have registered on our Web site. See page 28 of this Land Lines issue for additional information.
