5: Part 1
Module Five, Part One
To those who, seeing the vice and misery that spring from the unequal distribution of wealth and privilege,
feel the possibility of a higher social state and would strive for its attainment.
- Henry George, author of Progress and Poverty
This last section of the Land Rights and Land Value Capture course empowers you with the information you need in order to implement this enlightened public finance policy. The impetus for implementation can begin with just a small core of mobilized citizens in alliance with politicians who are true representatives of the people. With the assistance of powerful tools of information technology, coordinated educational campaigns can build a critical mass of support for implementation.
5.1.1 Mobilizing Citizen Campaigns, Asking the Right Questions
The constitutions of several countries and commonwealth governments already claim the land and natural resources on behalf of the people as a whole. Various methods of land value capture for public benefit could be effected by insisting on securing these common ownership rights, already in their existing constitutions. Thus citizens can mobilize to enforce their constitutional rights via land value capture policy. In some places, substantial increases in the amount of land value captured can be gained simply by complying with existing land assessment laws.
Questions to ask when building a movement for land value capture:
- Is there presently any local taxation at all?
- If so, is it on land only or also on improvements?
- What percentage of revenue at the state/local levels is provided by the national level?
- What percentage of the tax base comes from each of these categories: wages, capital, sales, land, natural resources.
- Are there stable local governing institutions that could administer local revenue if there was any to administer?
- Are they registered centrally, at the local, state or national level?
- Is this information easily accessible and if so, how?
- Is there a black market in land titles?
- Can the courts be trusted to adjudicate disputes fairly?
- Are there competing jurisdictions for public funds?
- Is there a "real estate industry"? A mortgage market?
- In areas where these markets exist, how do land registries and jurisdictions compare to areas where they don't?
Types of Land titles:
- In your area are there traditional, tribal land-tenure systems?
- Are there points of intersection between competing land tenure systems? Where are they?
- Is land tenure different in rural and urban areas? How so?
Land Titles in Action:
The margin between urban/rural and formal/informal areas is important. That is where market-based land value is being created where none existed before.
- Where are land sales taking place?
- Where, and how, is the transition from informal/traditional to asset/collateral taking place?
- Who is educating the sellers about emerging markets?
- What information are they collecting?
Answers to these questions will be useful in order to determine how to proceed to establish a land value capture system.
While the answers are being compiled, citizen activists can move forward with general information campaigns via a website established for this purpose, media press releases and public presentations and discussions. Brochures and other material can be downloaded from this website and printed for distribution. Use can be made of the Land Value Capture Endorsement Form to build initial and ongoing public support.
5.1.2 Using Information Technology
Cities and towns are putting property values, tax information and answers to some of the above questions into computer databases and onto the web where this information is transparently and easily accessible. If your city has not yet done so, citizens should insist that it be done. Geographic information systems (GIS) are computer maps containing detailed data. The use of GIS for land value capture is greatly enhancing the ease of implementation.
Here is a map of New York state showing the progress being made by the counties in their conversion to digital mapping of information important for land value capture as of 2005:
The website Google Earth, with free sotware that can be downloaded, can be an invaluable aid to land value capture implementation projects. Google Earth contains satellite imagery, maps, terrain, and the ability to import spreadsheets. To get an idea of the capabilities of Google Earth, go to: http://earth.google.com/
An information and database system for land value capture should include who owns what land, the current assessed land valuation, land use, zoning, current and alternative proposed uses, and what type and amount of property and other taxes are already being collected. Often government departments involved in land management and administration compile such data. If this information is not yet accessible, it needs to be compiled.
5.1.3 Components of a Land Value Capture System
Every improvement in the circumstances of society tends either directly or indirectly to raise the real rent of land,... - Adam Smith,Wealth of Nations, Book I, p. 275
The components of a good land value capture system are:
- Registration of land title so that ownership and/or use rights to land are transparently clear. It would be unjust to implement land value capture without land registration because the rights of the government over the governed would be arbitrary. Land privatization is not necessary to implement land value capture. Constituting tribal, clan or extended family land as types of leaseholds can suffice. What is necessary is to determine who has claims to particular areas of land. The process of land registration can also reveal where land claims are disputed and where a land rights arbitration process is needed to prevent outbreak of violent conflicts.
- Spatial definition of legal land parcel units - knowing exactly what land is claimed by whom.
- Clearly defined legal restraints on land use - the rules of land utilization such as zoning laws defining "highest and best use."
- Trained and certified assessors to conduct valuation of land authorized by an agency independent of the tax setting and judicial review authorities.
- Geographic information systems (GIS) for use by all agencies involved with land value capture administration with a public access (website) portal for all citizens. Information technology is greatly increasing the efficiency and simplicity of administering a land value capture system of public finance.
- A designated public authority responsible for determining the precise method of land value capture to be utilized, collection of funds, monitoring results and impact, and public education concerning the specifics of land value capture policy. Decisions need to be made regarding issuance and frequency of billing statements.
- A land value assessment appeals process and compliance system for ensuring that the land value fee is paid and up to date and/or debts are registered against title. Compliance can be encouraged through a small reduction if the fee is paid by a certain date, a penalty for late payment. Compliance can further be encouraged via elimination of public services including protective services to the site or land confiscation. Non-compliance would be noted on the web so if there is a failure to pay that information would be public. It could also be publicized in the local newspaper under the statuatory listings section or posted in the main city square. An appeals process should be clear and easily available.
- A recommended compliment to a land value capture system is a "Participatory Peoples Budget" process charged with educating the citizenry about this method of public finance and with the power to make informed and enforceable decisions regarding allocation of a portion (recommended at least two thirds) of public funds received via land value capture. For example, citizens might decide that rather than building an expensive sports stadium it would be best that basic services such as clean water, sanitation, and needs for food and shelter were first secured for all residents. This chart shows some of the information citizens would need for a Participatory Peoples Budget process:
5.1.4 Gradual Shift and Revenue Neutral Initially
The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not the individual who might hold title. - John Stuart Mill, English philosopher, economist, and social reformer (1806-1873)
In areas not yet having a well-established system of taxation, a decentralized approach to land value capture recommends starting at the local level with land registration and land value assessment. In countries such as Australia when local governments levy land value only revenue fees this is called a "site rating" system. A 2% land value capture fee would be put in place the first year followed by a 2% increase each year thereafter until arriving at 10% land value capture by year five. There should be annual reassessments during this period. A percentage of land rent can be passed up to higher levels of governance for services better accomplished by more centralized government.
In cities or countries with well-established existent systems of taxation, land value capture is best administered gradually and at least initially as a "revenue neutral" - revenue remaining constant - tax shift, not an increase in taxes. The benefits of this approach is that economic incentives will immediately start moving in the right direction and then proceed at a strong steady pace.
In jurisdictions with an existing property tax falling on both building and land value, to implement land value capture it is necessary to separate these two values. Many places already legally require land and improvements to be separately assessed. The Assessment Registry has records of each property's land and building values, which many municipalities currently tax at the same rate.
With the values of buildings and land recorded separately, the next step is to adjust the tax rates. Because we want to begin shifting the tax off of buildings and onto land, the tax rate on buildings must be decreased and the tax rate on land must be increased. It is important to gradually phase in the change so that taxpayers who will see an increase can make adjustments as to how they manage their property.
So a common rule-of-thumb is to decrease the building tax rate by 20% and increase the tax rate on land enough to ensure that the shift remains revenue neutral at least in the beginning of the transition. This shift – reducing the rate on buildings while increasing the rate on land value – would occur annually until ideally there are no taxes remaining on buildings. Thereafter the rate applied to land value can be increased until the desired rate is reached, which ideally would be capture of full land rent.
A similar step-by-step phase-in process should then proceed (or have already begun) in the reduction and elimination of other forms of taxes. Reductions on income taxes would begin with those falling on the lowest income workers. Sales tax reductions would begin with sales from basic, necessary goods and services. Throughout the stages of implementation the land value of parcels should be frequently reassessed, ideally at least on an annual basis.
Since most taxation levied by central government falls on wage income, value-added, or sales, land value capture should be coordinated with movements to reduce these taxes and further decentralize and enhance government capacity at the local level. State/regional and central government public funding can be procured via capturing rent of other natural resources exclusive of surface lands and/or a percentage of surface land rent can be passed up to central government for its services which can include the distribution of funds to other areas of the country to assure overall country-wide balanced development.
Land rent is roughly estimated to be 10% of current land value. Thus if you calculate 2% land value capture for year one, 4% for year two, 6% for year three, 8% for year four, and 10% for year five, you will arrive at substantial land rent capture with greatly reduced or ideally, no taxes on wages and production. With each increase in the land value capture percentage other taxes should be eliminated by the same amount. Thereafter, with close monitoring of assessed land values, the land value capture fee can be increased to the point of full land value capture.
An online calculator is available to give those interested in implementing land value capture the percentage of land value necessary in order to collect a specific amount of public revenue. This calculator is most useful if land value records are kept by city administrators who have accurately assessed and recorded the current value of all land parcels. As data improves, results improve. The calculator along with further descriptive information is at: http://gltn.lvtproject.org/
A best practices model for a land valuation and record system developed by the Center for the Study of Economics can be found online at: http://www.marylandlandtax.org/calculator and http://www.lvtproject.org
5.1.5 Monitoring and Evaluation
Regarding monitoring and evaluation, a number of studies which evaluated the impact of land value capture have relied on analysis of the number of building permits issued in a city both before and after the shift and at intervals thereafter. This has served as a general indicator of overall improvements underway. Decrease in crime and arson and increase in employment have also been used as indicators of positive results. It is now recommended that analysis of gini coefficients - a measure of wealth distribution – should also be included in the monitoring of the impact of the shift to land value capture. In cities with stable populations (for example, not having a rapid influx of refugees) another useful indicator would be to chart the number of homeless people at regular intervals.
Various quality of life indicators are now recommended in lieu of GDP for monitoring and measuring progress of social and economic well-being. For links to many of these go to Beyond GDP.
After the full shift to land value capture, public finance administration is simplified with no fiscal expense for assessing houses and other buildings or to track wage income or sales taxes. Tax administration’s primary job would be to assess, monitor, and post land values for transparent, free and easy public access (on the web) and to collect the land rent at regular intervals.
Regarding implementation of land value capture on leasehold land, here is a model land lease agreement that determines lease fees based on land values: Community Land Trust Lease Agreement Based on Land Rent
Information on estimating land values to be found in the next section can also be useful in implementing land value capture on leasehold land.
Most well-maintained properties would pay less under land value capture than under systems which tax both land and building values. Under land value capture only, properties like the ones above would pay more and thus the owners’ incentives would be to make improvements or to sell to someone willing and able to do so.
Owners of underutilized and vacant lands like this pictured above in urban areas with easily accessible nearby infrastructure would be encouraged to put these lands to good use, perhaps for housing or light industry, under a land value capture system. Alternatively, this land could be developed as a public park, thus increasing land value in the surround area that then can be captured for additional public benefits.