Mayor Stephanie Rawlings-Blake's intention to address Baltimore's derelict and run-down buildings, housing, and neighborhoods is laudable. But the way she has described it, her plan doesn't directly address the root cause, or the problem of personal motivation. The plan's "silver bullet" offers up dollars from the city's depleted tax coffers to would-be middle-class homeowners, in a complex program that would require more administrative overhead in City Hall.
The core of the derelict property problem is that few middle-class people will move here. Our property taxes are too high. And fixing up these properties triggers a significant tax increase. Ironically, our taxes on occupied buildings must be high to offset our many derelict and half-empty neighborhoods. It is a vicious circle.
City leaders can control one element in this circle: property taxes. However, I am not suggesting reducing total tax revenues. I am suggesting we reallocate property taxes to reflect more accurately the costs of properties that drag on the city's infrastructure. This would simultaneously reduce the tax burden on all property owners who are willing to improve their properties.
This can be done through land value taxes, a system popular in many parts of the world but not as familiar in this country. The best way to understand LVTs is to compare them with our current system.
In Baltimore City, property taxes are based on the value of the land plus the value of the improvements on the land. This means that in the current system, for all but empty lots, the majority of taxes on a property are based on improvements to the property — not the land itself. For example, a property assessed at a total of $300,000 has a $50,000 component for land value and a $250,000 component for the value of the house that improves the property. What if I owned a dilapidated building next door to this "average property" that hadn't been fixed since the 1970s? My taxes would be less than half of my neighbor's. And my taxes would skyrocket if I improved the property. The policy simply doesn't fit the goal of getting people to fix up these properties.
There is a motivation problem here. In the current tax system, there is nothing to motivate owners to fix up a dilapidated property — especially if they believe the neighbors' efforts will eventually increase the neighborhood's desirability. Unless they believe there is a real estate bonanza on the horizon (which the past three years have shown is unsustainable), there is no reason to show care for dilapidated property. A $5,000 stimulus handout targeted at government employees, like the one proposed by the mayor, isn't going to change that — it will just provide opportunities for people to "work the system."
Land value taxes remove the improvements from the tax assessment equation. To maintain the city's overall tax revenue, the tax on the land must go up. The result is that owners maintaining and improving their properties will see a significant property tax reduction. The reverse is true for owners of dilapidated properties, abandoned lots and surface parking lots — all elements the city is trying to reduce. If I own one of these elements, I now have plenty of motivation to improve the property, or sell it as quickly as possible to someone who will.
Land value taxes in Baltimore would have the following effects:
• They incentivize basic improvements to our built environment without a stimulus, tax credits, or other complex and difficult-to-administer handouts. The days of throwing government money at the problem need to end. While more challenging, reconciling policy with causes and effects is the future of reform, as it inherently restricts political and legal abuse.
• They will radically stimulate construction, and thus the economy, in the area.
• They will bring more people into a heavily depopulated city. As the tax base grows, the basic property tax percentage can be lowered — so in the long run, overall property taxes can be reduced without a reduction in the level of service.
• They shift the tax burden to owners who aren't improving their property. This means that absentee landowners, and well-heeled property owners who seem to have little interest in the quality of Baltimore's urban environment, might fight hard against this change. Conversely, middle-class homeowners (which Baltimore desperately needs) will see significant tax relief.
• They reconcile the individual's tax burden with the actual cost of their property to the city. A well-maintained house doesn't cost the city any more than a dilapidated house or an abandoned lot that needs constant police, trash, and fire monitoring. Let's rectify that imbalance. Similarly, dense urban properties would see the greatest tax relief — and why not? They are inherently "green," requiring less roads and other infrastructure paid for by the city.
Baltimore could be the poster child for this tax reform. And there is precedence. Harrisburg, Pa., enacted land value taxes in 1982. In less than a decade, an intransigent surplus of more than 5,000 abandoned properties shrank to fewer than 500. Property taxes were reduced for the majority of homeowners, and, from what I have seen, quality of life in the area improved significantly. Pittsburgh did too, with similar success. And even more telling, when voters at the outskirts of Pittsburgh effectively repealed LVTs, construction came to a screeching halt and taxes went up.
As a foundational change, achieving this tax system will take hard work and persistence. The beauty of simplifying and rectifying taxes is that it is a bold and effective long-term solution. The problem with bold reform is that those who have "skated" for years will receive a wake-up call. But as a simple and elegant solution, the results will be correspondingly solid and long-lasting. Land value taxes make irrefutable sense for traditional, dense, aging urban environments, especially ones like Baltimore with no real suburban hinterland within the city limits.
There are adjustments that must accompany LVTs. Obviously, land value assessments become more crucial, and must be well documented. High-rise buildings present an anomaly in this system as well. The zoning code must ensure that owners and developers can't abuse the system by building hyper-dense projects. Finally, there is nothing keeping Baltimore from a more moderate approach: increasing taxes associated with land, while decreasing (but not totally eliminating) taxes associated with improvements.
Given the state of the economy, now is a great time to consider this change. The result will replace a vicious circle with a "happy circle." Owners of unimproved and under-improved properties will either improve or sell their properties. New Baltimore residents will flow in, motivated by lower taxes and increased property sales. Both groups will, in turn hire real-estate agents, architects, contractors and the like, all frequenting local businesses. This will result in improvement of our neighborhoods and broadening of the tax base, to the benefit of all.
Lance Aaron Decker is a Baltimore-based artist, designer and architectural consultant. His e-mail is lance@silentdesign.com.