I'd love to read what you guys have to say about Land Value Tax. Would seem to accomplish similar aims as property tax insurance, but probably at a greater magnitude. Would it be constitutional? Would it spur empty lots on the south/west sides to develop? Any drawbacks?
Thats what i was thinking the whole time read this! We could even do a partkal land value tax, apply it to empty lots, particularly in high value neighborhoods like the Loop, and you should see some real movement
Hey - I think there's a lot of upside to a land value tax, and Conor and I have kicked around the idea of writing about it. The issue is that assessment is tricky, since you don't have direct sales comps. But Pittsburgh did something close, that seemed to have real benefits for their downtown: https://www.chicagofed.org/publications/chicago-fed-letter/2023/489
I would say though that the benefit is a little different - LVT may well have bigger overall impacts/benefits, but it wouldn't necessarily remove the risk of a large, after-you-built tax increase thanks to the city's pension obligations.
Sorry, I posted my other comment before seeing these! "It's too hard in practice" was certainly a valid knock on LVT 100 years ago, or even 40. But it's totally feasible now. A lot of places have split rate schemes. A friend of mine (Will Larson) has done a lot of work on land valuation. Another friend (Greg Miller) has a new center advocating for LVT. It's time to make a serious push to do this in IL.
(And, as noted above by Little Bear, if a full LVT or split rate scheme doesn't work, taxing vacant land is an easier second best option)
Really interesting idea. That being said, I believe a far better course for the City would be to focus its attention and resources on getting it's operational and fiscal house in order rather than "insuring" against the risk of CPS (high likelihood) or County (moderate likelihood) continuing their current path of property tax growth. That would put the City in a precarious position. Focus on what the City Corp can control. While the fiscal situation is very challenging, there remains considerable low-hanging operational improvement fruit. As one example, look at the efficiencies tree trimming achieved moving to grid-based operations, then apply that to everything currently done on a ward or strictly complaint-basis. Street sweeping is one example.
You kind of lost me in the second half (maybe because I'm reading while half-watching my kids), but in the first half it seemed like you were building towards a case for a land value tax!! I think you somewhat underrate the effect of a property tax as a disincentive to increasing a property's value via improvements. Considering how desperate the city's situation is, it's about time to put the perfect tax on the table.
“The city’s labor contracts, debt schedules, and pension obligations are enshrined in binding legal contracts.”
They are legally binding but they are not death pacts. Chicago need not die to fulfill these obligations. The real barrier is political, changing these priorities takes concerted political action and will to upset some constituencies to ensure Chicago can survive.
The risk premium has as much or more to do with the political barriers than the practical fiscal realities.
I'd love to read what you guys have to say about Land Value Tax. Would seem to accomplish similar aims as property tax insurance, but probably at a greater magnitude. Would it be constitutional? Would it spur empty lots on the south/west sides to develop? Any drawbacks?
Thats what i was thinking the whole time read this! We could even do a partkal land value tax, apply it to empty lots, particularly in high value neighborhoods like the Loop, and you should see some real movement
Hey - I think there's a lot of upside to a land value tax, and Conor and I have kicked around the idea of writing about it. The issue is that assessment is tricky, since you don't have direct sales comps. But Pittsburgh did something close, that seemed to have real benefits for their downtown: https://www.chicagofed.org/publications/chicago-fed-letter/2023/489
I would say though that the benefit is a little different - LVT may well have bigger overall impacts/benefits, but it wouldn't necessarily remove the risk of a large, after-you-built tax increase thanks to the city's pension obligations.
Sorry, I posted my other comment before seeing these! "It's too hard in practice" was certainly a valid knock on LVT 100 years ago, or even 40. But it's totally feasible now. A lot of places have split rate schemes. A friend of mine (Will Larson) has done a lot of work on land valuation. Another friend (Greg Miller) has a new center advocating for LVT. It's time to make a serious push to do this in IL.
(And, as noted above by Little Bear, if a full LVT or split rate scheme doesn't work, taxing vacant land is an easier second best option)
100%. Some really smart people have put a lot of work into figuring out how to assess land and turns out it's incredibly difficult.
Really interesting idea. That being said, I believe a far better course for the City would be to focus its attention and resources on getting it's operational and fiscal house in order rather than "insuring" against the risk of CPS (high likelihood) or County (moderate likelihood) continuing their current path of property tax growth. That would put the City in a precarious position. Focus on what the City Corp can control. While the fiscal situation is very challenging, there remains considerable low-hanging operational improvement fruit. As one example, look at the efficiencies tree trimming achieved moving to grid-based operations, then apply that to everything currently done on a ward or strictly complaint-basis. Street sweeping is one example.
Hey thanks. I’d certainly think of this as a both/and rather than either/or situation. We’ve got lots of thoughts on operational efficiencies…
Nice! Thanks for clarifying
You kind of lost me in the second half (maybe because I'm reading while half-watching my kids), but in the first half it seemed like you were building towards a case for a land value tax!! I think you somewhat underrate the effect of a property tax as a disincentive to increasing a property's value via improvements. Considering how desperate the city's situation is, it's about time to put the perfect tax on the table.
I want to push back on this quote a little bit.
“The city’s labor contracts, debt schedules, and pension obligations are enshrined in binding legal contracts.”
They are legally binding but they are not death pacts. Chicago need not die to fulfill these obligations. The real barrier is political, changing these priorities takes concerted political action and will to upset some constituencies to ensure Chicago can survive.
The risk premium has as much or more to do with the political barriers than the practical fiscal realities.