The Wright Act, California, USA SWOT Analysis
SummaryIn the second half of the 19th century, as the American state of California filled up with settlers after the Gold Rush, a few cattlemen owned massive amounts of land. Consequently, many farmers and miners lacked access to sufficient amounts of water flowing in rivers and streams. For instance, Henry Miller, a German immigrant who anglicized his name from Heinrich Mueller, owned about 1,000,000 acres of land. He could drive his herds of beef on the hoof from Mexico to the state of Oregon and spend every night on his own land.
In 1886 Miller won full rights to the water of the Kern River. Some people concerned with justice figured Miller had overstepped reasonable bounds and organized to take a stand for water and land rights. In particular, a rural schoolteacher, C. C. Wright, ran for a seat in the state Assembly just so he could advance a tax on land value. Back then in his time and place, the logic of charging owners for their holdings so that they would sell off their excess was well understood by a populace that had first hand experience with “latifundia” and with the arguments of Henry George circulating through political discussion.
Wright won his election, took his seat in the capitol in Sacramento, and in 1887 persuaded his fellow legislators to pass the Wright Act. After the governor signed the act into law, Wright retired from politics. His political achievement allowed communities to create, by popular vote, irrigation districts to build dams and canals and issue bonds which would be repaid by capturing the resultant rise in land value. The levy not only raised funds for the new infrastructure, it also prodded owners to release their excess land.
Once irrigated, land was too valuable to use for grazing. Others were willing to pay more to farm it since the market price for grain per acre was higher than the profit from beef per acre. As the value of the land rose, so did the tax upon it, making it too costly for owners to hoard the land for ranching. So cattlemen sold off fields to farmers and at prices the farmers could afford.
In ten years, the Central Valley was transformed into over 7,000 independent farms. The Wright Act became even more "Georgist" after several years of use when it was amended to mandate the total exemption of improvements from the tax base. Irrigation Districts included and taxed land that was not used for farming but for residence and commerce within townships. Steadily the Irrigation Districts evolved to do more than just deliver water. They also expanded to provide reclamation, recreation, and electric power at cheaper rates than private utilities. Over the next few decades the tree-less, semi-arid plains of the San Joaqin Valley became the "bread basket of America", one of the most productive areas on the planet.
StrengthsIn 1958, California's U.S. Senator William Knowland, a Republican, described the Wright Act as “more important to the growth of California than the discovery of gold. It taxes people into instead of out of business.”
One of the main strengths of the Wright Act – as an example of public collection of land rent – is not economic, despite its obvious economic success, but political. It demonstrated the power of one person to bring about a major advance in justice that benefited his entire society. One citizen became a leader who won office, won over his fellow legislators, and won the signature of the state’s governor.
Another political strength is that this approach to funding infrastructure appealed to all the major players. It was convincing to both a majority of voters, who had elected Wright as their representative, and it appealed to enough politicians, including the governor, to get the reform passed into law. The proposal to build infrastructure and to pay for it by recovering the resultant rise in land value was easy to explain and considered to be fair by nearly everyone.
The formation of local authorities to raise bonds to pay for irrigation made the Wright Act a highly decentralized method of public funding based on the “user pay” principle. Rather than burdening the general taxpayer with debt, the bonds were repaid by those willing to pay for access to land based on the higher productivity provided by the irrigation systems. This infrastructure was built entirely without need for state or federal aid.
The Wright Act demonstrated that land value capture can be a powerful instrument for effective, efficient, and fair land reform. Rather than mandating acreage limitations like other land reform approaches, this land value capture approach allocated land according to those who were willing and able to make appropriate use of land at its highest and best use once irrigated. The Wright Act was further strengthened when it was amended in 1917 to exempt improvements such as crops, orchards, vineyards, buildings and personal property, further strengthening incentives for agricultural production.
The Wright Act naturally and non-coercively but steadily nudged underutilized land owned by a handful of large landowners onto the market and into the hands of smaller producers who had the willingness, skills and capacities to farm the land intensively, thus greatly increasing the supply of food. Other approaches to agrarian land reform often lead to bloodshed or reduced output per acre and leave society divided into hostile camps.
Sociologists who researched the communities and towns in the Wright Act area of some five million acres found them to be significantly more diversified in their economic base and having more amenities and social benefits compared to those in nearby non-Wright Act territory of California.
WeaknessesThe Wright Act was established to fund specific infrastructure and was not sufficiently understood as an approach to public finance that could be expanded to fund other public needs for education, transportation, and even public health. There was no enabling legislation in place that would have facilitated the establishment of land value capture in lieu of taxation of production as a basis for overall local public finance.
In the post-World War II era, rapid urban and rural growth again made water scarcity a top California priority. Local and state leaders, instead of turning to the Wright Act, persuaded the federal and state governments to give billions of tax payer funds for the Central Valley and Feather River irrigation projects. This approach has given American public works projects the bad name of “pork barrel” with politicians voting to please each other’s constituents. It taxes the many for the profit of a relative few, without the local attention and care induced when beneficiaries pick up the tab.
The hundred or so California irrigation districts still functioning (as of year 2000) suffer somewhat from their own success. Free water led to waste of this precious resource, so water tolls were added. As fees for electricity paid off debts and met revenue needs, land value rates were greatly reduced. Because land values continued to rise as living conditions in this region improved but were not captured back for public benefit, there was thus a return to some of the very conditions the districts originally remedied – absentee ownership, land speculation, and over-sized holdings.
OpportunitiesOpportunities to expand upon this approach to financing infrastructure in California appear limited at this time. As the state progressed in complexity and centralization of tax powers, public finance moved rapidly from land based taxes to a mix of taxes on income, homes and other buildings. This eventually led to a “taxpayers revolt” in the form of legislation that many consider in hindsight was destructive. Proposition 13 was the state law which set limits on assessment increases, regardless of market values, and which set rate ceilings that forced greater reliance on non-property revenue sources.
California has struggled to meet budgetary needs for government services ever since. And high land prices drove up the price of housing to such a degree that many residents became vulnerable to subprime and adjustable rate mortgages which are now in foreclosure putting the dream of home ownership forever beyond the reach of millions of residents of this “rich” state.
Walter Rybeck, director of the Center for Public Dialogue and former assistant director of the National Commission on Urban Problems has analyzed the shift in tax policy in the United States away from the almost exclusive use of property taxes which, at first were predominantly taxes on land values to fund local and state government needs, to a federal government structure which grew to over-shadow the state-local sector, funding itself with taxes on production and income. He had this to say at the cusp of the millennium:
“Land value taxation in the United States is a story of the struggle to recall and apply overlooked lessons from the nation’s formative years to ease the mammoth socio-economic pathologies generated in large part by the detrimental tax policies of later eras.”
ThreatsThose puzzled by the slow progress of land tax reforms should not overlook how big landlords, bankers, and private utilities fought mercilessly to undermine the Wright Act. When their votes failed to overturn it, they took their opposition all the way to the US Supreme Court where they called the act “communism and confiscation under guise of law.” The high court disagreed, holding that the act “does not deprive the landowners of any property without due process of law.”
Those opposed to the Wright Act did not give up. During the 1930s Depression, Californians who had made excessive loans on land in the districts were unable to meet their payments. Under the Wright Act the first lien on the land for non-payment of the district land taxes was held by the local governing authority. Mortgage bankers holding these loans urged Congress to pass arcane bankruptcy laws to rescue them in a way that erased their obligation to pay the district land taxes, which would have put the first lien on the land in the hands of the banks.
J. Rupert Mason, who documented these episodes, said “perhaps no other law in any State has been more often attacked in the courts.”
This SWOT analysis, compiled by Alanna Hartzok, draws heavily from the United States section, written by Walter Rybeck, of the book Land Value Taxation Around the World, an anthology compiled by Robert Andelson and available from the Robert Schalkenbach Foundation.