Land Value Taxation – The Harrisburg Experience

In 1980, Harrisburg, Pennsylvania, was cited by HUD as one of the nation's most distressed cities. It had lost 800 businesses and a third of its population in 20 years. Mayor Stephen Reed initiated the two-rate tax in that era, reducing the tax rate on buildings to one-half the rate on land.  Reed, who continued as mayor until January 2010, credits the reform with playing a major part in reversing the city's downward slide. 

 

MAYOR STEPHEN REED ADDRESSED THE CGO CONFEREES 

at the Conference of Georgist Organizations, Harrisburg, PA,  August 2, 2012


Excerpts from the speech, transcribed and printed in GroundSwell, July-August 2012:

In most places in the United States the real estate millage for tax rates is the same for both the land and for buildings and improvements.  We find this, frankly, to be punitive on a broad scale, and thus in the city of Harrisburg a land value tax has been in effect for quite some time.  The tax rate for buildings and improvements is now only one-sixth of the tax rate that is charged on land.  This land value tax policy first began as a one to two ratio, meaning the tax rate on buildings was only one-half the tax rate on land, but we determined that did not have the necessary incentive we were looking for from the land value taxation policy, and so we changed to a one to four ratio, then to a one to five ratio, and then years back to a one to six ratio.  We can affirm, without hesitation based on this experience, that the land value tax policy can and does have a significant effect on inviting new and additional investment, while simultaneously offering additional jobs, a larger tax base and expanded economic activities overall.  

The land value tax achieves the following purposes.  First, it serves to induce the highest and best use of land.  In municipalities, urban communities in particular, that is significant.  In most cases in the United States, and especially in the Commonwealth of Pennsylvania, cities cannot annex or appropriate outlying areas.  They have inelastic boundaries. The boundaries you have today are the boundaries you are going to have tomorrow and for the foreseeable long term future.  You want to make sure that the highest and best use of that finite quantity of land is something that happens.  And your land value tax, I believe, is the key to making that happen.  Second, the land value tax rewards rather than penalizes the greater and highest uses of land while the single rate tax policy does exactly the opposite.  Third, the land value tax discourages land speculation and allowing land to sit vacant and unused.  Fourth, it dramatically encourages vertical development of  high rise development, while discouraging horizontal development that involves greater and lesser use of land, and the sprawl that is experienced in most parts of our country.  Fifth, the land value tax reduces the need and the pressure to spread single projects across larger tracts of land and because of that, the land tax policy has made it easier to secure and to preserve open space areas for parks, recreation, historic sites, and other public purposes, without those sites always being coveted for encroaching development purposes.  

What I would like to argue here is that a single tax rate system proliferates… sprawl.  A land value tax policy instead serves to invite and reward vertical development in our cities and older communities, that saves land, utilizes existing infrastructure, and creates a sense of community and place that commuter oriented areas of a sprawl simply do not have. 

In Harrisburg we uniformly apply the land value tax to all real estate parcels in all areas of the city (not to specific areas while excluding other parts of the city).  Its administration is uniquely simple.  When the tax billings are issued, the lower tax rate on building and improvements is automatically applied to the value of those improvements and those buildings.  The taxpayers have nothing to file, nothing to annually renew.  No special unit or staffing had to be created to maintain the land value tax system.  The administrative cost of having a land value tax policy in Harrisburg, PA has been and is zero.  

Two-thirds of downtown at the beginning of the 1980s was vacant.  The downtown of Harrisburg then actually cost the city more money for police, fire, public parks, and other municipal services than it was giving to the city in taxes and fees.  In case you didn’t know, that is the official definition of a dead downtown.  The downtown of today is radically different, 180 degrees different.  And it produces revenues to the city and to others that basically pay for most of the neighborhood services and throughout the rest of the city.  

What was the outcome of the initiative and policies I have just described?  In period of 1982 to the end of 2009, $4.8 billion worth of investment occurred, the number of businesses on the tax rolls increased in 1988 to 9100, thousands of new jobs were created, over 40,000 building permits were issued.  The tax base, the assessment of taxable properties, went from $212 million to a total of $1.6 billion.  The number of residential units sharply increased.  In fact, the city of Harrisburg from its different housing programs and initiatives played a direct role in either building or helping others to build over 6,000 residential units.  There is no city our size in America that had that much to do with that many residential units in that period of time.  The crime rate came down 46%, the fire rate dropped 78%, the number of vacant structures fell by 80%.  In 2010 this merited one sentence in the local paper.  The population of Harrisburg increased for the first time since 1950.  All this vitality going on in the city didn’t end at the city limits.  That served as a stimulus throughout the entire region.  It was catalytic to the whole region.  All kinds of things started getting done around the region because of what was going on in Harrisburg.  And Harrisburg was right there in the front helping to lead the regional intergovernmental cooperation to get things done that individual municipalities by themselves cannot do.  

 

 

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