Transportation

When we-the-people spend on transportation, what we get are increases in land value, at least if we spend effectively. The question, of course, is into whose pockets those increases in land value should flow? Is it right that landholders get to privatize those increases, or, as Georgists propose, should those increases in land value be collected — as our common treasure, and as the funding fountain for future investments in infrastructure and other common activities that make life better. Should we pay for those things by taxing wages and sales, and buildings, or by taxing the rental value of land?

• the limited supply and "natural" productivity of the soil and natural resources,
• the publicly provided services, including planning, improvements that increase the market value of land and
• the growth of communities and peoples' competitive demand for the exclusive use of prime locations.

The collection of land rent should be used as revenue, by the community for supplying public needs. This returns the advantage an individual land possessor receives from the exclusive use of a land site, to the balance of the people who live within the community and have allowed the land possessor the exclusive use of the land site for the period of time.

By prohibiting people from using good land, the possessors force the premature use of other less desirable land, which is more distant from the city. This raises the cost of community improvements and the rental value of the unused, but better located, land. This precipitates the degradation of the rural environment by using city land inefficiently -- and creates huge unnecessary pressures on the natural environment.

A problem that we face is that cities throughout the world are spreading out and using land prematurely which is not needed and should not be used. That is because failure to collect land rent subsidizes the waste of natural resources and clutters the environment. Cities that collect the full rental value of land are more compact and provide greater and less costly amenities for their citizens.

Any moves to enact good government principles without collecting the full market rent of the land may result in a failure. People are guided by the profit motive. When people can make a larger profit by doing nothing, but keeping the land they possess out of use for a long period of time, they will do so. When the community collects the full market rent of land, they eliminate the motive for keeping land out of efficient use, because the unearned profit has been collected as public revenue.

Efficient land use appeals to all people because it surpasses the political constraints of most people. Everybody understands that the earth belongs equally to all people. They want a clean environment on earth and to leave a healthy inheritance to the future generations, regardless of their political viewpoints.

The major function of a competent city government is to provide good community services by collecting the land rent created within the community to ensure the efficient use of land and equal opportunities for all of its citizens. Transportation is an important function of government which would facilitate the creation of a compact city, where people can easily find the facilities they desire for education, commerce, religion and recreation. Good land use, with the freedom of individuals to achieve the highest and best use of land, would ensure a desirable community. A compact city would reduce the need to invade the wilderness and devastate the environment.  ... Read the whole article

Winston Churchill: The People's Land 

• The municipality, wishing for broader streets, better houses, more healthy, decent, scientifically planned towns, is made to pay, and is made to pay in exact proportion, or to a very great extent in proportion, as it has exerted itself in the past to make improvements. The more it has improved the town, the more it has increased the land value, and the more it will have to pay for any land it may wish to acquire.
  
• The manufacturer proposing to start a new industry, proposing to erect a great factory offering employment to thousands of hands, is made to pay such a price for his land that the purchase price hangs round the neck of his whole business, hampering his competitive power in every market, clogging him far more than any foreign tariff in his export competition, and the land values strike down through the profits of the manufacturer on to the wages of the workman.
  
• The railway company wishing to build a new line finds that the price of land which yesterday was only rated at agricultural value has risen to a prohibitive figure the moment it was known that the new line was projected, and either the railway is not built or, if it is, is built only on terms which largely transfer to the landowner the profits which are due to the shareholders and the advantages which should have accrued to the traveling public.

Karl Williams:  Land Value Taxation: The Overlooked But Vital Eco-Tax

Ted Gwartney: A Free Market Strategy to Reduce Sprawl

Public Finance by Self-Financing

In the public sector, capital investment in infrastructure projects would no longer be a debt burden, because the projects would become self-financing. User charges for the public services, when combined with the rental income created by these projects, would cover the cost of creating and running a public service.

It was estimated that the BART transportation system in San Francisco produced two times more land value than it cost to build. The public recaptured only a small part of the cost from benefits provided by land taxes and user fees. Most of the cost came from external sources, unrelated sales and income taxes. Most of the profits went into only a few pockets.

Thus, the claim that a community is short of capital is misleading. In fact, a community could become self-sufficient in the supply of capital from internal sources. But a precondition for this is the reduction of taxes on productive capital and labor. Examine, for example, what would happen as a result of the elimination of taxation of buildings. This decision, not to penalize people who invest their savings in new buildings, leads to the stimulation of a higher level of national income, higher saving, and the creation of new capital. According to the study made by Tideman and Plassmann (1998, The Losses of Nations, Fred Harrison, editor, Orthila Press), shifting taxes off buildings, production and distribution, and onto land and natural resources, could increase the gross national product by 25%, or one trillion 1998 dollars ($1,000,000,000,000).

The Land Value Tax Shift from labor and capital is not only a key to reversing suburban sprawl and protecting rural environments -- it is a key to realizing the dream and fulfilling promises of a truly free market -- with liberty, prosperity, and justice for all. ... read the whole article

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

To get rich, or more likely to stay rich, some of us can develop land, especially sprawling shopping centers, and extract resources, especially oil. While sprawl and oil depletion are not necessary, they are more profitable than a car-free functionally integrated city. Under the current rules of doing business, waste returns more than efficiency. We let a few privatize rent -- ground rent and resource rent -- although rent is a social surplus. As if rent were not profit enough, winners of rent have also won further state favors -- tax breaks, liability limits, subsidies, and a host of others designed to impel growth (20 major ones follow herein).

If we are to sustain our selves, our civilization, and our eco-system, we must make some hard choices about property. What we decide to do with rent, whether we let it reward our exploiting or our attaining eco-librium, matters. Imagine society waking up to the public nature of rent. Then it would collect and share its surplus that manifests as the market value of sites, resources, the spectrum, and government-granted privileges. Then we could forego taxing labor and capital. On such a level playing field, this freed market would favor efficiency - the compact city - not waste - the mall and automobile. ...

• Rent. Not having to pay Rent to their community, urban owners awaiting a higher future return under-use prime sites, forcing development outward. Sprawl requires cars, displacing buses, bikes, and people.
• Taxes. The tax on income makes capital less remunerative, so a blue chip stock, not quite so visionary, becomes more attractive than a risky new start-up trying to make money doing good. A hybrid electric car or a fuel-cell light enough to power buses and trucks begs for funds while a GM doesn't. Tariffs fall on imported vehicles, which tend to be more fuel-efficient than their domestic counterparts. Thus the market share of efficient cars is kept smaller than it otherwise would be.
• License. The price of gasoline does not include all the costs from smog - damage to crops, lungs, buildings, etc - disadvantaging bikes and buses.
• Subsidy. Freeways, overly wide streets, highway patrols, traffic courts, ambulances, and free military chastisement of overseas suppliers that everyone pays for, not just drivers, pave the way for car dependency, not an integrated use of bikes and buses. Gasoline ought to cost at least $7.00 per gallon figures the World Resources Institute (Green Fees, 1992).

• The public good proportion of road use reflects the amount of reliance by services provided by the government and associated agencies like mail service, national defense, public safety (ambulance, police and fire departments), and so on.
• The private use of the roads constitutes the overwhelming amount of its use. This means that as a rule 80 percent of the highway use charges should be paid by individual drivers, directly or indirectly.

• capital investment,
• maintenance costs,
• regulation costs,
• environmental externalities and
• congestion costs.

• One nine-mile stretch of interstate highway in Albany, New York, costing $125 million to construct has yielded $3.8 billion in increased land values within just two miles of its corridor in the 40 years of its existence.(27) This is a thirty-fold return in a timespan typically used for bond repayment!
• The Washington Metro created increments in land value along much of the 101-mile system under of construction in 1980 that easily exceeded $3.5 billion, compared with the $2.7 billion of federal funds invested in Metro up until that time.(28) No doubt the return is far greater today.

Bill Batt: Stemming Sprawl: The Fiscal Approach

It is important to understand how closely linked transportation costs and land costs are. There are fixed costs involved in locating a home or a business in either place: the costs of building a home, office, or factory and the costs of purchasing a car or a truck. Leaving those costs aside for the moment, consider the relationship between the variable operating costs due to locating in an urban center versus those in locating at the periphery ...

Figure 10.1 shows that a household or business is likely to incur costs by locating at either site, whether at a city's center or at the city's edge. At a center site, the costs will take the form of higher land rent; at the city's edge, the costs will be transportation related. If this is not readily apparent, it is because society provides subsidies to titleholders and travelers beyond what are directly experienced or understood.

Transportation Costs

Consider first the costs of transportation in remote areas; such costs are necessarily higher. The way in which geographers and some land economists understand transportation is by using the terms "accessibility" and "mobility." ...

... We do an awful lot of driving just to do what we need to do. This is because transportation engineers and land use planners have confused two fundamental concepts: access and mobility.

By confusing these two principles, we spend an inordinate amount of money on transportation services, most of it on roads and highways. One 1993 study calculated that the total costs of motor vehicle transportation to our society equal approximately a fourth of our gross domestic product (GDP).[3] The study concluded that "when the full range of costs of transportation are tallied, passenger ground transportation costs the American public a total of $1.2 to $1.6 trillion each year. Just the costs of automobile crashes represents a figure equal to 8 percent of the American GDP.[4] Japan, by way of comparison, spends an estimated 10.4 percent to satisfy all its transportation requirements, although the figure might be a bit low because not all externalities are included in the calculation.[5] Road user fees in 1991 totaled only about $33 billion, whereas the true costs to society were ten times that;[6] put another way, drivers pay only 10 percent of the true costs of their motor vehicle use.[7] The balance is paid by society, effectively subsidizing highway use by paying for all but the marginal out-of-pocket operating costs.

The relationship between transportation costs and land values can be made even clearer by empirical study of how land values increase as one moves toward the center of the city. In an investigation for the Urban Land Institute, the author concluded that, for Portland, Oregon, each additional mile [traveled] translated into slightly more than $5,000 in housing costs; closer-in locations command a premium, those farther out save money. A ten-mile difference, all other things being equal, would amount to about $56,000 in new home value.

For a household in which one worker drives downtown (or at least to a more central location) to work, that ten-mile difference may amount to 4,600 miles annually, assuming 230 days of commuting and a round-trip of 20 miles each day. Moreover, if non-work trips to the central area and elsewhere doubled that amount, the tradeoff would be about 9,000 miles annually, which could mean a higher/lower driving cost of $3,000 annually, not counting the time saved/spent.[8]

Such are the savings for living closer to the urban center by ten miles. If the urban resident has to rely on a car nonetheless, subtracting some $3,000 annual travel expenses will still leave him paying again that much (and likely more) to own a car. Author James Kunstler put the true costs along with other experts at about $6,100 annually seven years ago.[9] The American Automobile Association calculated that a car driven 15,000 miles in 2001 cost 51 cents per mile, or $7,650.[10] This figure reflects only direct costs to the driver, not the additional costs passed on to society.

The latter figures include externalities such as pollution and the costs of highway crashes. Hortatory public pleas for people to tune up their engines so that they pollute less, to inflate tires properly, and to drive more safely are not likely to change the reality that people are forgetful and fallible. Pollution-free cars are not available; people must drive to participate in this society. The consequences of sulfur dioxide, carbon dioxide, and ozone are no longer a matter of debate; they are scientific fact. Despite frequent headlines about replacing the internal combustion engine, all the realistic substitutes also ultimately rely on fossil fuel power, solar-powered cars are far in the future, if at all, and also fail to deal with any transition. And every person driving his or her own car multiplies the probabilities of accidents. When people step into a car, they are seldom mindful of such odds. Yet if the direct pecuniary costs of driving increase in any substantial way, there will surely be significant changes in the trade-offs involved in housing/transportation choices. As will be made clear later, making costs visible and linking them to private personal behavior is one way to ensure that transportation pays its own way. ...

Sooner than Americans are likely to bear the real burden of global warming's environmental consequences, they are likely to experience the onset of price rises for petroleum. Experts are divided, but among those best insulated from the pressures of bias, there is increasing consensus that the peak of oil extraction worldwide will come sometime around 2010 if not sooner.[11] Rising prices will not induce greater supply; it will not change the fact that the world will have passed the point of most easily extracted oil and will enter a long and increasingly steep period of declining availability. It is rather a matter of physics: When it costs more in energy to bring oil from deep in the earth than what can be extracted, it is not worth the investment. Even the greater wealth of American society will not insulate it from world competition over what is a limited and fungible commodity. How this alters the calculations Americans make about where to live and work will increasingly depend on the price they are willing to pay for transportation service. ...

Just as recovering the costs of transportation service equilibrates costs and benefits on one side of the equation, recovering the economic rent accruing to land value facilitates efficient space configurations on the other side. Figure 10.2, again conceptually, portrays how the collection of various transportation user fees as well as the recovery of land rent corrects the economic distortions that today result in sprawl development. The shaded area indicates the pricing correctives necessary to ensure that neither urban nor rural land sites are disadvantaged in travel or location choices that individuals make for either residential or commercial purposes.

As it happens, collecting land rent is a relatively simple operation: It involves a small computer adjustment in the assessment base of what is now the local real property tax. The real property tax to an economist is really two separate taxes: that put on land value and that put on improvement values. A gradual phaseout of the tax on the improvement component, shifting totally to a tax on the land, recovers economic rent in a way that satisfies all the principles of sound tax theory.[35] It is efficient, neutral, equitable, administrate, stable, and simple. It is also absolutely foolproof: One cannot hide land or take it to a remote tax haven. It relieves poor households (who typically own no land) of any tax burden and rewards those titleholders who use their sites efficiently. High-value sites are induced to construct high-value improvements, and low-value sites are left alone. In this way, central locations, where commercial enterprises typically locate, pay according to their intensity; home owners, who typically locate at the periphery of a neighborhood community, pay moderately; and agricultural land and forestlands pay little if anything. By an automatic and natural process, the centrifugal forces of sprawl development are reversed, and investment is encouraged in core locales. The higher density resulting affords the necessary ten to twelve households per acre (or the commercial equivalent) that makes public transportation service economically viable, lessening the prospect of automobile dependency.[36] ... read the whole article

Bill Batt: How Our Towns Got That Way   (1996 speech)

The railway. . . was capable of accepting and disgorging its loads, whether of passengers or freight, only at fixed points. This being the case, it tended to gather together, and to concentrate around its urban terminus and railhead, all activity that was in any way related to movements of freight or passengers into or out of the city. It was in this quality that it had made major and in some ways decisive contributions to the development not only of the great railway metropolises of the Victorian age particularly of such inland cities as Moscow, Berlin, Paris, and Chicago but even certain of the great maritime turnover ports, such as London and New York.

The automobile, on the other hand, had precisely the opposite qualities. Incapable, in view of its own cumbersomeness and requirements for space, of accepting or releasing large loads at any concentrated points anywhere, but peculiarly capable of accepting and releasing them at multitudes of unconcentrated points anywhere else, the automobile tended to disintegrate and to explode all that the railway had brought together. It was, in fact, the enemy of the concentrated city. Thus it was destined to destroy the great densely populated urban centers of the nineteenth century, with all the glories of economic and cultural life that had flowed from their very unity and compactness. ...

Transportation planners know that public transit typically takes a density of at least 8-10 households per acre in order for it to be economically viable. Because tax policies have been instituted that have the effect of deliberately fostering low density suburban sprawl, society has become dependent upon motor vehicle transportation rather than transit service. Had taxes been imposed heavily or solely upon land value, just the opposite would have occurred: development would have been most intense on the high land-value parcels, right by the transit services, making our society less dependent upon motor vehicles.

• Unused land is far more abundant than we realize.
• End the Public Subsidy of Land Speculation and Sprawl
• Counterproductive growth limitations and regulations should be abolished.
• A Strategy for Urban Renewal
• A Strategy for Economic Development
• Public Finance by Self-Financing

In the public sector, capital investment in infrastructure projects would no longer be a debt burden, because the projects would become self-financing. User charges for the public services, when combined with the rental income created by these projects, would cover the cost of creating and running a public service.

It was estimated that the BART transportation system in San Francisco produced two times more land value than it cost to build. The public recaptured only a small part of the cost from benefits provided by land taxes and user fees. Most of the cost came from external sources, unrelated sales and income taxes. Most of the profits went into only a few pockets.