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Abatements

Property tax abatements are incentives given to those who offer to develop property that has sat undeveloped or underdeveloped. They generally involve reducing or eliminating the taxes that are placed on buildings, for some period of time.

Georgists think that reducing or eliminating taxes on buildings is an excellent idea, but they would not limit those reductions to selected properties for a fixed period of time, but extend them to all properties permanently. If localized short-term abatements produce desirable effects in a small area, shouldn't we use them widely and permanently?

How do we make up for the lost revenue? Increase the millage rate on land value. Land values in the central business district are many times higher than land values on the fringes, or even land values halfway to the fringe. Increasing the millage rate on land close to the fringe will probably still result in a decrease in property taxes for those landowners. But land close to the center of things will experience an increase in taxes unless they have already developed their site to its current highest and best use.


Jeff Smith and Kris Nelson: Giving Life to the Property Tax Shift (PTS)

John Muir is right. "Tug on any one thing and find it connected to everything else in the universe." Tug on the property tax and find it connected to urban slums, farmland loss, political favoritism, and unearned equity with disrupted neighborhood tenure. Echoing Thoreau, the more familiar reforms have failed to address this many-headed hydra at its root. To think that the root could be chopped by a mere shift in the property tax base -- from buildings to land -- must seem like the epitome of unfounded faith. Yet the evidence shows that state and local tax activists do have a powerful, if subtle, tool at their disposal. The "stick" spurring efficient use of land is a higher tax rate upon land, up to even the site's full annual value. The "carrot" rewarding efficient use of land is a lower or zero tax rate upon improvements. ...

Partial Applications -- Abatements

 With first Spanish and then Mexican control, much California land had been pueblo, or public. Though very little of that pueblo land remains, some of it is still quite valuable. In the 1960s, various towns sitting on San Diego Bay designated their water fronts as the Port District. The Port Authority collects hundreds of millions of dollars of land rents each year and is one of few local government agencies with a consistently positive cash flow. Where does that cash flow to? While not into any bloated bank accounts of private owners, by law it can not flow back to the "pueblo." Instead, it must be spent by the Port Authority who tend to take numerous trade missions to exotic destinations and redecorate their offices each year.

Benefits of the PTS have also been achieved with building tax abatements and by simply obeying assessment laws.

During World War One, in New York City construction nearly ground to a halt. After the war, housing in the City was in short supply and the demand for new homes was doing little to relieve the shortage. Then, in 1920, despite fears of revenue losses, the legislature enacted enabling legislation so that NYC could pass an ordinance that exempted taxes for ten years on new buildings used only for dwellings. The City continued to tax land beneath buildings. Within two months of enactment, a building boom swept the city. Restored neighborhoods and public improvements generated higher land assessments. Housing became an attractive investment, civic panic faded, and municipal revenues rolled in.

The boom lasted until builders saw the decade-long window closing. The law was not extended or expanded.

  • First, because the law exempted just new construction, not all housing, it failed to lower rents for middle and low-income tenants.
  • Second, the real estate industry argued that government should stay out of "the free market". Yet such a building tax exemption is more accurately a market correction, not an interference, since it removes the market disincentive to build.

To arrest urban decay in the seventies, reformers tried temporary abatements. Peoria, Illinois, set up an enterprise zone that granted a ten-year abatement on the value of new or repaired commercial or industrial buildings. As land values rose, the tax on land was allowed to keep pace. Within three years, the dollar value of industrial and commercial construction permits within the zone climbed from eight to 21 percent of the city's total. The maverick business leader behind the idea, John Kelly, extolled the turnaround: "Enormous building investments led to a consensus that this abatement of taxes on new construction is the best development program Peoria ever undertook."

 On the down side, abatements usually don't apply to all areas and are ripe for political cronyism. Businesses in older buildings despise subsidizing tax breaks and new buildings for their competitors. Abatements tend to be less effective in the housing market. The many smaller housing developers shy away from the "abatement game" and are reluctant to risk major projects.

A big problem needs a big solution which in turn needs a matching shift of our prevailing paradigm. Geonomics -- advocating that we share the social value of sites and natural resources and untax earnings -- does just that. Read the whole article

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