Tax-exempt Land

In many cities, much of the best land is off the tax rolls. Colleges, universities, hospitals, municipal and other government buildings tend to be centrally located. The presence of their employees and customers helps to make the surrounding properties particularly valuable places to conduct business. When a signficant share of the downtown is occupied by entrenched tax-exempts, those who need a central location to conduct their business must pay higher rents to landlords who own the scarce remaining sites. Churches and their affiliates also occupy prime downtown land. Sometimes they provide a wide variety of social services, including services to the low-income portion of the population, who are severely burdened by the high rents they must pay in most cities; sometimes all they provide are worship opportunities and social events for their members — and few jobs.

Downtown parks also tend to make the surrounding properties far more valuable than they would otherwise be, with the most extreme effects on selling prices falling off within a few hundred feet.

When a church or a college or other tax-exempt entity decides it no longer needs a piece of land, should the tax-exempty entity get the full proceeds of the sale of that land, or should some portion of that huge gain be returned to the commons?  Is paying 5 years' worth of back property taxes sufficient compensation to the commons? 10 years' worth? More?  Should the entire gain go to the community?

Tax-exempt properties receive a lot of services from the taxpayer: police and fire protection and other emergency services, not to mention the schools which provide the employees who carry out their missions.

I would advocate not placing any property taxes on the buildings owned by those properties that are currently tax exempt, but it doesn't seem unreasonable to ask them to pay the commons for the use of their site, just as we ask others to pay as a function of the value of their sites. Might this cause some of them to sell off a portion of their underused holdings, or even relocate outside the central business district? Possibly. They might find that if they needed to make a business decision about their land, they would be led to use less-choice sites, freeing the centrally located property for the use of the private sector.

Mason Gaffney: Land as a Distinctive Factor of Production