At Lincoln House

The Weblog of the Lincoln Institute of Land Policy

July 24, 2014

Taxing the true value of land

LVT workshopThe land value tax is getting attention these days, mostly as a way to spur redevelopment. New York City Mayor Bill de Blasio has promised to raise taxes on vacant parcels in outer boroughs. Legacy Cities are similarly interested in the theory that taxing land based on its value would prompt owners to improve the properties to start making a return. In recent years, Camden, New Jersey investigated implementation of a land value tax, and so did New London, Connecticut, where other redevelopment efforts led to the Supreme Court’s landmark Kelo decision.
     New London never moved forward on the idea, but recently Connecticut lawmakers passed legislation allowing municipalities to apply to participate in a  pilot program in land value taxation. Earlier this week, the Lincoln Institute held a special workshop in Hartford for elected officials, assessors and other tax officials to gain more understanding of how the tax might work. The event was moderated by Tom Condon, deputy editorial director and columnist at The Hartford Courant.
     Land value taxation, often introduced in the U.S. as a split rate property tax, is a separate tax on land as distinct from buildings, with the market value of land affected by factors such as location and size. Buildings generally compose the greater part of the base of a standard property tax. A number of communities in Pennsylvania have adopted or experimented with LVT, notably Pittsburgh, as well as several nations outside the US including South Africa, Australia, New Zealand, Jamaica, and France.  “We’re not sailing in unchartered waters here,” said Richard England, a visiting fellow at the Lincoln Institute and co-author with Richard Dye of Assessing the Theory and Practice of Land Value Taxation, published in 2010.
     Robert Schwab, economic professor at the University of Maryland, began with a big-picture introduction,  considering the fundamental questions of whether a tax is simple, fair, and efficient – the best taxes, in the view of economists, being those that minimize distortions, or change behavior in undesirable ways. A classic example is England’s window tax; when assessment was based on the number of windows in a building, property owners simply built fewer windows or even covered existing windows, with disastrous effects for health, safety, and aesthetics.
       The least bad tax is the property tax on the unimproved value of land, said Milton Friedman, and the political economist Henry George believed that if land was taxed anywhere near its rental value, no owner could afford to hold land and not use it. But as noted by John Anderson, professor at the University of Nebraska, the link between LVT and the decision to develop is not totally clear.
     Adoption of an LVT presents two challenges: getting the assessment of land right, which requires keeping track of the sale of vacant lots, using computer assisted mass appraisal and GIS, and sophisticated sales data analysis; and minimizing abrupt shifts in the tax burden. Golf courses and car dealerships have objected to the land value tax, often through classic political lobbying, noted David Brunori from George Washington University and contributing editor at State Tax Notes. But otherwise landowners in the best locations – a mantra of real estate – will pay more, and in that sense the LVT is progressive.
     But the history of the land value tax in the US has been checkered. In Pennsylvania, some 20 cities implemented a split rate tax beginning in 1913. Seven of those communities revoked it, including Pittsburgh, according to Zhou Yang from Robert Morris University. Municipalities seeking to participate in the Connecticut program must put together a committee and do a study before proceeding; Jeff Cohen from the University of Hartford, looking at two potential candidates, New London and New Haven, advised a phased-in approach, starting with a split rate tax, potentially even targeted to just one neighborhood at the start. So far, no community has formally applied to be part of the pilot program.

July 22, 2014

Making sure affordable housing stays that way

     Inclusionary housing policies -- the increasingly common practice of requiring affordable homes linked to new market-rate residential development -- need constant follow-up and careful record-keeping to ensure lasting affordability, according to new research published by the Lincoln Institute of Land Policy.
     Achieving Lasting Affordability through Inclusionary Housing, available for downloading as a Lincoln Institute working paper, is the largest research study of inclusionary housing programs to date. The research, by Robert Hickey, Lisa Sturtevant, and Emily Thaden, was conducted in partnership with the National Housing Conference’s Center for Housing Policy and the National Community Land Trust Network. A special webinar detailing best practices in inclusionary housing is being offered today at 2 p.m. Eastern time.
     Inclusionary housing, which link approvals for market-rate housing to the creation of affordable homes for low- and moderate-income households, are in place in 27 states and the District of Columbia, and in 482 jurisdictions overall. Nearly 80 percent of established programs are in three states – California, Massachusetts, and New Jersey – but interest is increasing, from North Carolina to Colorado.
     A typical program is to require that 15 percent of a residential development be affordable, with the affordable homes built on-site, off-site, or in some cases created through an affordable housing trust fund to which developers contribute. To ensure long-term affordability, jurisdictions must not only set a time frame for the homes to remain affordable – 30 years, for example – but closely monitor those homes to make sure they stay affordable.
     Good stewardship, the researchers say, requires strong legal mechanisms, effective monitoring for both for-sale and rental homes, and well- designed resale procedures to ensure that homes don't fall through the cracks, end up being offered on the open market at unaffordable prices, become lost to foreclosure, or fall into disrepair.
     Ultimately, the researchers say, effective administration and stewardship necessitates adequate staffing. The study identifies the growing practice of forming partnerships with outside organizations, such as community land trusts, nonprofit agencies, for-profit firms/consultants, affordable housing developers, and housing authorities.
    The researchers closely analyzed a set of 20 inclusionary housing programs, and for the 307 programs for which affordability period data was available, found that 84 percent of homeownership inclusionary housing programs, and 80 percent of rental programs require units to remain affordable for at least 30 years; and that one-third of inclusionary housing programs require 99-year or perpetual affordability for rental and/or for-sale housing.
     The case study analysis of 20 programs provides additional insights on the evolution of affordability terms over time, and the mechanisms needed to ensure the lasting affordability of inclusionary units. As inclusionary housing programs have matured, local jurisdictions typically lengthened, rather than shortened, affordability periods. In addition, almost all of the programs studied that have less than perpetual affordability periods restart their affordability terms whenever a property is resold within the control period. This requirement is helping to achieve lasting affordability in places that have not adopted “perpetual” affordability periods for legal or political reasons.
     But as the 20 case study programs revealed, achieving lasting affordability requires more than simply setting long affordability periods. Strong legal mechanisms, carefully designed resale restrictions, pre-purchase and post-purchase stewardship practices, and strategic partnerships are important for ensuring that inclusionary properties continue to be sold or rented at affordable prices, and are not lost due to illegal sales, foreclosure, or lax rental management practices.
     Key legal mechanisms help jurisdictions stay notified of illegal sales, improper refinancing, over-encumbrance with second loans, and defaults that could jeopardize the continued availability of inclusionary homes. These mechanisms include not only deed covenants, but also deeds of trust, the preemptive right to purchase, the right to cure a foreclosure, the right to purchase a home entering foreclosure, and requirements of notice of default or delinquency.
     Resale formulas are being designed to balance the goals of ensuring lasting affordability for subsequent homeowners and promoting wealth-building among homeowners. The most popular resale formula used by case study jurisdictions ties the resale price to the growth in area median income (AMI) over time. But other approaches were reported, including fixed-percentage, appraisal-based, and mortgage-based resale formulas, as well as hybrids of two or more of these approaches.
     Monitoring and stewardship activities are critically important for ensuring lasting affordability of inclusionary housing units. Effective stewardship of a program’s homeownership inclusionary portfolio includes preparing homebuyers for the responsibilities of homeownership, helping owners avoid pitfalls such as delinquencies or foreclosure, monitoring resale and refinancing activities, encouraging and enabling ongoing investment in property maintenance and repair, and staying in regular communication with homeowners. Effective stewardship of a rental inclusionary portfolio includes regular oversight over the leasing and tenant selection process. In some case study programs, this administration involved regular review and training of property managers, while others used in-house management of a centralized waiting list and tenant selection process.

July 09, 2014

George W. McCarthy joins the Lincoln Institute

George McCarthy1 (2)George W. "Mac" McCarthy officially began as president and chief executive officer of the Lincoln Institute of Land Policy this week. McCarthy, most recently part of the leadership of Metropolitan Opportunity at the Ford Foundation, succeeds Gregory K. Ingram, who retired last month. In the July issue of Land Lines, McCarthy filed his first Report from the President
     It is an honor to follow Gregory K. Ingram as the fifth president of the Lincoln Institute of Land Policy, and to join you for my inaugural issue of Land Lines. It will be a challenge to live up to Greg’s accomplished leadership and remarkably productive years at the helm of the Lincoln Institute since 2005. I hope that I can combine my skills and experience with the Lincoln Institute’s formidable tools and talented staff to continue its singular mission: connecting scholars, public officials, and business leaders to blend theory and practice in land policy in order to address a broad range of social, economic, and environmental challenges.
     Tectonic forces—natural, man-made, or both—are reshaping our planet. As we contend with climate change, accelerating urbanization in Asia and Africa, the aging of populations in Europe and North America, the suburbanization of poverty in the United States, and the financial insolvency of American cities, the land use decisions we make today will dictate the quality of life for hundreds of millions of people for the next century. Comprehensive plans and policies that equitably govern land use, political and social systems that ensure sustainability, and sound economic analyses to address these challenges are in critical demand and will remain so for decades to come.
     Lincoln Institute affiliates explore these matters in this issue of Land Lines. The 2013 Lincoln/Loeb Fellow Lynn Richards, incoming president of the Congress for the New Urbanism, lays out 10 nifty steps U.S. communities have taken to make their suburbs more pedestrian-friendly, with affordable housing to offset the suburbanization of poverty and with denser mixed-use development and public transit to reduce automobile use and help to slow climate change. Architect and 2014 Lincoln/Loeb Fellow Helen Lochhead discusses the winners of Rebuild by Design, the international competition that fostered design innovations that will integrate resilience, sustainability, and livability in the re-gions affected by Superstorm Sandy. Public Affairs Director Anthony Flint reports on the Lincoln Institute’s seventh annual Journalists Forum on Land and the Built Environment, which explored prospects for making smarter, more equitable infrastructure investments in 21st-century cities. Finally, in the Faculty Profile, senior research analyst Adam Langley discusses the Institute’s Fiscally Standardized Cities (FiSCs) database—a newly developed tool that will provide the foundation for important new analyses that will guide local responses to fiscal challenges in the United States.
     And just a little about me. Over the last 14 years, I worked at the Ford Foundation, where I occupied a unique perch within global philanthropy that allowed me to support, demonstrate, and test new approaches to solve vexing social problems. Some of my proudest accomplishments include founding the National Vacant and Abandoned Properties Campaign and helping to build and grow the nation’s field of shared-equity housing through collaborations with the National Community Land Trust Network and other partner organizations. I helped to design and then took leadership of Metropolitan Opportunity, the Foundation’s next generation of community and economic development programming, which seeks to reduce the spatial isolation of disadvantaged populations in metropolitan regions by integrating land use planning, affordable housing development, and infrastructure investment to better serve all residents.
     I came to Ford with a research background in housing, economics, and public policy analysis. I enjoyed the opportunity to work with scholars across the globe on issues as diverse as the birth of the environmental movement in Russia, the role of trade imbalances and debt in driving macroeconomic cycles, and the impact of homeownership on the lives of low-income families. I played the role of teacher and mentor to thousands of students and have tracked their successes with great pride. I presented research, advocated for policy change, and enjoyed successful collaborations with researchers, advocates, and public officials on four continents. And now I am delighted and honored to join you in this venture with the Lincoln Institute of Land Policy.

June 17, 2014

Protecting rural land, but not "fake farmers"

NY State landThe policy of lowering property taxes on rural land helps protect farms and vital ecosystems, but reforms are needed to curb abuses, according to researchers at the Lincoln Institute of Land Policy. John E. Anderson and Richard W. England, authors of Use-Value Assessment of Rural Land in the United States, also suggest the policy be fined-tuned to take into account fairness and whether housing or other development might be appropriate on some parcels.
     Across the nation, state and local governments have adopted a number of policies to regulate the conversion of rural land to developed uses. One of the most significant and least understood is preferential assessment of rural land under the real property tax, often called use-value assessmentor current-use assessment. Nearly all states across the country permit, and even require, local assessors to value some parcels of undeveloped land far below their fair market value for the purpose of levying local property taxes--in order to encourage their continued use to support agriculture, working landscapes, and valuable ecosystems.
       Despite their stated purpose of preserving rural lands from urban development, use-value assessment programs can have unintended negative consequences. One is erosion of the legal and constitutional principle of uniformity of taxation; another is shifting the local tax burden to other property owners, arguably in a regressive manner.
      Abuses are also a problem, as “fake farmers” enjoy low property tax bills, while using the land to sell firewood or Christmas trees to a few friends and neighbors. Others are clearly preparing land for development, taking advantage of the preferential assessment in the meantime.
     The authors review several ways of tightening eligibility and reporting in use-value assessment programs, such as raising the amount of revenue gained by agricultural use of land, and requiring better documentation of same; disqualifying landowners who have pending applications for rezoning, install survey stakes, or put in utility services not required for agricultural use; and stiffening penalties that are either nonexistent or weak.
     Use-Value Assessment of Rural Land in the United States explains the origins, key features, impacts, and flaws of use-value assessment programs across the United States as a fiscal tool for primarily farmland preservation. It describes in detail the process and characteristics of use-value assessment programs in 44 states, and recommends reforms that can serve as a road map for public officials, scholars, and journalists concerned with agricultural taxation and land use issues.
      John E. Anderson is the Baird Family Professor of Economics at the University of Nebraska–Lincoln. Tax policy is the focus of his research; he has advised government agencies in the United States and around the world and served from 2005 to 2006 with the President’s Council of Economic Advisers in Washington, DC. Richard W. England is professor of economics at the University of New Hampshire– Durham. His research concerns property taxation, land development, conservation, and housing markets. Together with Richard F. Dye, he edited the Lincoln Institute book Land Value Taxation: Theory, Evidence, and Practice (2009). Anderson and England are both visiting fellows at the Lincoln Institute of Land Policy.

June 10, 2014

David C. Lincoln, C. Lowell Harriss Fellows Named

     The Lincoln Institute announced recipients of the David C. Lincoln and C. Lowell Harriss Fellowships for 2013-2014, named as part of a continuing effort to support research on the cutting edge of tax and land policy.
     The C. Lowell Harriss Fellowships, named in honor the late Columbia University economist who served for decades on the Lincoln Institute’s board of directors, support work on dissertations; the recipients and their topics are:
     Pengju Zhang,  The Maxwell School of Citizenship and Public Affairs, Syracuse University, “Three Essays on Capitalization Issues in Local Public Finance”; Maria Soppelsa, University of Illinois at Urbana-Campaign, “ State Tax breaks for Conservation: Do they work?”; Sarah Cordes, New York University, ”Off the Hook or Doubling Down: The Effect of School Finance Reform on Parental Investments in Children’s Human Capital”; Christos Makridis, Stanford University, “Do Environmental Taxes Affect Land Values and the Housing Market?”; Elliott Ash, Columbia University, “Effects of Property Taxes on Foreclosures and Unemployment”; Shu Wang, University of Illinois at Chicago, “Effects of Tax and Expenditure Limitation Evolution on Local Government Finance: A Legal Approach”; Jennifer Brodie, Ohio State University, “Just Another Levy? A Look At the Factors Influencing Ohio Communities’ Use of Property Tax Levies to Fund Public Services”; Meagan Ehlenz, University of Pennsylvania, “Anchoring Communities: The Impacts of University-Led Neighborhood Revitalization”; Nathan Ela, University of Wisconsin – Madison, “Cultivating a Commons?  Urban Farming and the Possibilities of Property”; and Sandip Chakrabarti, Sol Price School of Public Policy, University of Southern California, “Does Service Reliability Promote Transit Use?”
     Harriss, who died in 2010 at 97, authored a dozen books and several hundred articles on land and tax policy. A native of Nebraska, he earned a bachelor’s degree in economics from Harvard in 1934, and joined the economics faculty at  Columbia University four years later. He simultaneously worked on his doctorate in the discipline, which he earned from Columbia in 1940. He was a visiting professor at Stanford, Yale, Princeton, the University of California at Berkeley, the Wharton School at the University of Pennsylvania, and Peterhouse College at Cambridge University. He won Fulbright professorships at the Netherlands School of Economics and the University of Strasbourg in France. He was a board member of the Lincoln Institute of Land Policy from 1974 until 2009.
     The David C. Lincoln Fellowships in Land Value Taxation (LVT) were established in 1999 to develop academic and professional interest in this topic through support for major research projects. The fellowship program honors David C. Lincoln, former chairman of the Lincoln Foundation and founding chairman of the Lincoln Institute, and his long-standing interest in LVT. The program, administered through the Lincoln Institute’s Department of Valuation and Taxation, encourages scholars and practitioners to undertake new work in the basic theory of LVT and its applications. These research projects add to the knowledge and understanding of LVT as a component of contemporary fiscal systems in countries throughout the world. The 2013–2014 DCL fellowships announced here constitute the 14th group to be awarded.

David Albouy
Associate Professor of Economics, University of Illinois at Urbana-Champaign
Urban Land Value: Measurement and Theory
This project will estimate land-value differences across U.S. metropolitan areas with a large, new database of market values. Explained through site characteristics, lot size, distance, and regulations, these differences are used to estimate production parameters for residential housing, including the income share to land. The project will also estimate the costs and benefits of “regulatory taxes” on land to determine if they reduce land values. Finally, the theory of urban land values is addressed in an urban system of heterogeneous cities.

Alex Anas
Professor of Economics, State University of New York at Buffalo
The Effects of Land Value Taxation in Los Angeles and Paris in a Computable General Equilibrium Model
The project will utilize the RELU-TRAN (Regional Economy, Land Use and Transportation) model, a dynamic computable general equilibrium model that has been econometrically estimated and calibrated for the Los Angeles and Greater Paris regions. Systematic simulations for L.A. and Paris will reveal the effects of a shift toward land taxation on land use densification, population and job dispersion, urban sprawl, the labor markets, and traffic congestion. The simulations would also quantify the economic efficiency and equity effects of shifting taxation away from income and excise taxes toward land taxation in L.A. and Paris—two very different metro areas.

Calvin A. Kent
Lewis Distinguished Professor of Business, Marshall University
State and Local Ad Valorem Taxation of Mineral Interests
While property taxes have received extensive attention, particularly in urban contexts, there has been little investigation into ad valorem taxation of mineral interests. Yet mineral interests have been a major source of property tax revenue for governments in many states. Their importance has grown due to advances in extraction technology and economic growth. This study will provide an extensive compilation of the varying methodologies states use for mineral property taxation. It will also analyze the economic impacts of these taxes and consider how they correspond to Henry George’s “Cannons of Taxation.”

Zhou Yang
Assistant Professor of Economics, Robert Morris University
The Spillover Effects of the Two-Rate Property Taxes in Pennsylvania: A Zero-Sum Game or a Win-Win Game?
This project will be the first to empirically investigate the spillover effects of the two-rate (split-rate) property taxation on economic activity in surrounding single-rate jurisdictions in Pennsylvania. Using a unique and rich data set, this project proposes a new empirical model to explore the economic impacts of the two-rate property taxation on adjoining municipalities. The findings of this study have important policy implications and may facilitate the decision making on property tax reforms by local governments.

May 27, 2014

Land and the City, Land and Education

Meeting photLeading scholars in housing, demographics, urban expansion, fiscal policy, and the environment will convene for Land and the City, the Lincoln Institute’s 9th annual Land Policy Conference June 1-3, 2014 at The Charles Hotel in Cambridge.
     At the same time, the book based on last year’s conference, Education, Land, and Location, edited by Gregory K. Ingram and Daphne Kenyon, has been published. That volume explores the nexus of residential location and public schools, funding by local governments for education, equality of opportunity, and racial and socio-economic segregation.
      Land and the City is set to begin with a pre-conference presentation by Kairos Shen, Director of Planning, Boston Redevelopment Authority. The conference’s first session, “Urban Growth and Demography in the U.S.,” chaired by William Fischel of Dartmouth College, will be led by Dowell Myers and Hyojung Lee of the University of Southern California; the discussant is Ann Forsyth, professor at Harvard University’s Graduate School of Design.
    In “Planning for Urban Growth,” chaired by Eugenie Birch, professor at the University of Pennsylvania and co-director of the Penn Institute for Urban Research, Shlomo Angel from New York University will share insights from his ongoing monitoring of global urban expansion. Angel, as a visiting fellow at the Lincoln Institute, is author of Planet of Cities and the Atlas of Urban Expansion, an online resource that is being updated and expanded for 2015. The discussant is Michael B. Teitz of University of California, Berkeley.      
     Karl “Chip” Case of Wellesley College, co-founder of the Case-Shiller Index, will chair “U.S. Housing Policies and Outcomes,” led by Dan Immergluck, professor at the Georgia Institute of Technology, considering the impact of foreclosures on neighborhoods. The discussant is Jim Follain, senior fellow at the Rockefeller Institute, and co-author of the Lincoln Institute Policy Focus Report Preventing Housing Price Bubbles: Lessons from the 2006-2012 Bust. Laurie Goodman, Urban Institute, will follow with an assessment of ongoing housing finance reform, and the discussant is Bill Apgar, Harvard University.
    In a focus on municipal finance, chaired by Henry Coleman, University of New Jersey, Rutgers, Steven Sheffrin and Grant Driessen, both of Tulane University, will look at the past and future of urban property taxes, joined by the discussant John M. Yinger of Syracuse University.  Adam Langley, research analyst at the Lincoln Institute, is set to share findings from recent updates to the Fiscally Standardized Cities online database, tracking trends in tax revenues and expenditures in 112 major cities nationwide. The discussant is Michael Pagano, University of Illinois at Chicago.
     Martim Smolka, director of the Program on Latin America and the Caribbean at the Lincoln Institute, will chair a session on housing in the international context, with independent consultant Eduardo Rojas examining the Latin America experience from 1960 to 2010, and Stephen Malpezzi of the University of Wisconsin-Madison as the discussant. Joyce Y. Man, past director of the Lincoln Institute’s China program and the Peking University-Lincoln Institute Center for Urban Development and Land Policy, will present a paper on China’s land and housing policies with David Geltner and Xin Zhang, both of the Massachusetts Institute of Technology, as discussants.
     The question of adaptation to climate change will be addressed in a session chaired by Lincoln Institute senior fellow Armando Carbonell, chairman of the Department of Planning and Urban Form. Amy K. Snover, University of Washington, and William D. Solecki, Hunter College of the City University of New York, will present, with Elisabeth Hamin, University of Massachusetts, Amherst, and Matthias Ruth, Northeastern University, as discussants.
     Finally, the subject of socioeconomic stratification and housing, in a session chaired by Joan Youngman, chairman of the Department of Valuation and Taxation at the Lincoln Institute, will be examined by Evan McKenzie, University of Illinois at Chicago, and discussant Gerald Korngold, of New York Law School. A comparison of socio-economic segregation in schools in the US and Latin America, 1964-2012, will be presented by Anna K. Chmielewski of Michigan State University, with Tara Watson of  Williams College as the discussant.
     This is the 9th year of the Land Policy Conference. The papers and discussant commentaries are compiled in a conference volume published each spring. Education, Land, and Location, based on the proceedings of the 8th annual Land Policy Conference in June of 2013, includes coverage of such topics as school choice, charter schools, and home schooling; the importance of cognitive skills for economic growth; the role of the property tax in school finance and alternative revenue sources; the structure of school districts; transportation to school; effects of school location; and housing policies that can unlink education and location.
     Because most children throughout the world attend elementary and secondary schools near their homes, where they live has a major influence on where they go to school. In the United States, the relationship between residential location and education has been especially strong given the dominance of local funding and local control of K–12 education. School quality varies markedly across the more than 14,000 school districts in the United States and also within many of the country’s large urban districts. Housing prices reflect school quality so that houses in better school districts or more advantaged neighborhoods of large districts sell at a premium. In other words, school quality is capitalized into the price of land.
     Previous volumes in the Land Policy series have been: Infrastructure and Land Policies (2013) Value Capture and Land Policies (2012) Climate Change and Land Policies (2011) Municipal Revenues and Land Policies (2010) Property Rights and Land Policies (2009) Fiscal Decentralization and Land Policies (2008) and Land Policies and Their Outcomes (2007).

May 21, 2014

Mayors at Regenerating Legacy Cities Roundtable

XavMayors from post-industrial cities in the Northeast and Midwest arrived at the Lincoln Institute of Land Policy today to begin a two-day workshop in strategies for revitalization.
     The chief executives in attendance are Toledo, Ohio, Mayor Michael Collins; Gary, Ind., Mayor Karen Freeman-Wilson; Syracuse, New York Mayor Stephanie Miner; Pittsburgh Mayor William Peduto (who was featured in a recent article on innovative practices in cities in The American Prospect); Dayton, Ohio, Mayor Nan Whaley; and Huntington, West Va. Mayor Steve Williams.
     The Roundtable on Regenerating Legacy Cities, organized by the Lincoln Institute, the Center for Community Progress, and the Greater Ohio Policy Center, also includes public and private sector practitioners, foundation leaders, and scholars. Alan Mallach, a leading authority on Legacy Cities, will be joined by Tamar Shapiro, president and CEO of the Center for Community Progress, and Lavea Brachman, executive director of the Greater Ohio Policy Center. Brachman and Mallach were co-authors of the Lincoln Institute Policy Focus report Regenerating America’s Legacy Cities, which recommends the approach of “strategic incrementalism” for cities wrestling with job and population loss.
       The Roundtable is set to be an open, pragmatic conversation about strategies to foster sustained revitalization of our nation’s older industrial cities. The dialogue centers on three central themes: fostering neighborhood change and revitalization; building effective community and anchor institution partnerships; and building effective regional strategies for economic development. Participants will learn from experts and each other, and return home with new ideas, strategies and insights.
     The conference began yesterday with a presentation by Xavier De Souza Briggs, Vice President of Economic Opportunity and Assets, at the Ford Foundation. "We're on the eve of ... higher-road economic growth," Briggs said, that is more inclusive and sustainable and less short-term. Today begins with a workshop led by Stephen Goldsmith, former mayor of Indianapolis, and currently director of the Innovations in American Government Program at Harvard's Kennedy School of Government.  Lincoln Institute on Twitter: @landpolicy Hashtag #LegacyCities

May 20, 2014

George W. McCarthy Named President of Lincoln Institute

George W. McCarthy New President Lincoln Institute of Land Policy smallerGeorge W. “Mac” McCarthy, an economist at the Ford Foundation dedicated to improving conditions in metropolitan areas worldwide, has been named the 5th president of the Lincoln Institute of Land Policy. Beginning July 1, McCarthy, 57, will succeed Gregory K. Ingram, who is retiring after serving as president since 2005. McCarthy will bring new vision and a fresh perspective to the Cambridge-based think tank as it continues to promote dialogue and sound land use policy in the U.S. and around the world, said Kathryn J. Lincoln, chair of the board of directors at the Lincoln Institute.
“His experience bears so much on the work of the Lincoln Institute, and he bridges the worlds of policymakers, the academy, and the public arena,” said Lincoln. “He is visionary and energetic, and his leadership will be transformational.”
     A story on the appointment appeared in today's editions of The Boston Globe.
     As director of Metropolitan Opportunity at the Ford Foundation, McCarthy has supported collaborative regional efforts to overcome the social, economic and spatial isolation of disadvantaged populations living in and around metropolitan areas worldwide.
     “This is a pivotal and important time for cities around the world. The Lincoln Institute plays a unique and extremely important role in identifying the central importance of land policies, across a range of social and economic challenges,” said McCarthy. “The story of opportunity is told in how we organize ourselves spatially. Without an effective response, we will double the one billion people living in unplanned settlements around the world’s cities in the next thirty years.  Land use decisions made today will dictate the life chances of generations to come.”
     The Lincoln Institute of Land Policy, founded in 1974, is a private operating foundation and think tank with an international scope, with a focus on global urbanization, urban planning, and tax policy as it relates to land.
     As director of Metropolitan Opportunity, McCarthy sought to improve access to jobs and other opportunities by coordinating regional planning efforts, transportation and infrastructure investments, and housing development policies to alleviate poverty and reduce its concentration within metropolitan areas.
     Before becoming director in 2008, he administered a Ford Foundation program that focused on using homeownership to build wealth for low-income families and their communities. That work centered on improving housing and housing finance markets to increase the chances that low-income homeowners could succeed in exiting and staying out of poverty.
     Prior to joining the Ford Foundation in 2000, he was a senior research associate at the Center for Urban and Regional Studies at the University of North Carolina at Chapel Hill. He has worked as professor of economics at Bard College; resident scholar at the Jerome Levy Economics Institute; visiting scholar and member of the High Table at King's College of Cambridge University; visiting scholar at the University of Naples, Italy; and research associate at the Centre for Independent Social Research in St. Petersburg, Russia.
     He earned a Ph.D. in economics from the University of North Carolina at Chapel Hill, a master's degree in economics from Duke University and a bachelor's degree in economics and mathematics from the University of Montana. The son of two public school teachers in Massachusetts, he grew up in Boston and Sharon, Mass., and taught in the Weymouth public schools for two years. He will be returning to the Bay State from his current home in Westchester County, N.Y., where he lives with his wife, Tootie Larios, an actress, and their three dogs. 
     Ingram, president of the Lincoln Institute of Land Policy since June 2005, was previously Director-General of Operations Evaluation at the World Bank, where he also held positions in urban development and research, and was Staff Director for the World Development Report 1994, Infrastructure for Development; he was also an associate professor of economics at Harvard University. The previous leaders of the Lincoln Institute were H. James Brown, Ronald Smith, and Arlo Woolery.
     The Lincoln Institute of Land Policy is a leading resource for key issues concerning the use, regulation, and taxation of land. Providing high-quality education and research, the Lincoln Institute strives to improve public dialogue and decisions about land policy. 

May 14, 2014

Recession lingers for city revenues, spending

6a00e551dab759883401a3fd08cfcf970b-800wiThe Great Recession continues to wreak havoc on city budgets long after it officially ended, depriving many of the nation’s largest central cites of tax revenue even as the economy recovers, according to a new data analysis by researchers at the Lincoln Institute of Land Policy.
     America’s cities saw tax revenue decline significantly beginning at the start of this decade, according to an analysis of 2011 data that has been added to the Fiscally Standardized Cities database on the Lincoln Institute’s website. The FiSC database provides detailed annual fiscal information on 112 of the nation’s largest central cities, from 1977 to 2011.
     Although the Great Recession officially ended in June 2009, the fiscal impacts of the recession and the collapse of the housing market have lingered.
     For the two years of the Great Recession, 2007 through 2009, the average real per capita revenue of the cities in the database remained largely unchanged, in part because increases in property taxes and user fees offset declines in revenue from state aid and other local taxes. In 2010 however, average real per capita general revenues fell by three percent from their 2007 level. This decline continued in 2011, with per capita real revenues nearly five percent below where they were in 2007.
    The FiSC database provides a full picture of revenues raised from city residents and businesses and spending on their behalf, whether done by the city government or by a separate overlying school district, county, or special district. The database was constructed using data collected by the Governments Division of the U.S. Census Bureau.
     The decline in real per capita revenues between 2009 and 2011, and especially between 2010 and 2011, is attributable to a decline during those years of the two most important sources of revenue for cities — the property tax and state aid. On average, the property tax accounts for one-quarter of general revenues for the 112 cities in the database. Other taxes, such as general and selective sales taxes, account for 13 percent, and charges and fees levied on residents, tourists, commuters, and businesses, represent on average 17 percent. Intergovernmental revenues from states and the federal government average nearly 40 percent of total revenue. 
     Reflecting the decline in property values in most parts of the country, real per capita property tax revenues declined on average by 1.6 percent between 2009 and 2010, and by 4.8 percent between 2010 and 2011.While large, these revenue reductions were much smaller than the decline in housing prices in most cities.
     Following the passage of the federal stimulus legislation, the American Recovery and Reinvestment Act, federal aid increased by 6.1 percent between 2009 and 2011. But during this same period, state aid, a much more important source of intergovernmental revenue for most cities, declined by nearly four percent.
     Revenues from local sales and income taxes also declined steadily during the course of the recession. By 2010, these revenues were 12 percent below 2007 levels. In 2011, they increased slightly reflecting the slowly improving economy.
       Overall, there was wide variation in revenue declines across the country compared to pre-recession 2007 levels. The largest revenue reductions occurred in Florida and in the West, with particularly large reductions between 2007 and 2011 in Las Vegas (20.2 percent), Sacramento (17.8 percent), Miami (13.9 percent), Fort Lauderdale (13.2 percent), and Phoenix (13.0 percent). Revenue increases between 2007 and 2011 occurred in a handful of cities including Baltimore, Buffalo, Ft. Worth, Minneapolis, and San Francisco.
       In terms of expenditures, in 2011 the average city in the database had per capita current expenditures of $4,473. One third of current expenditures were for education. Spending for public safety accounted for 14.1 percent of expenditures. Spending patterns vary widely; for example, education makes up over half of spending in Jackson (MS) and Springfield (MA), but less than 20 percent of spending in Ft. Lauderdale and San Francisco.
      Real per capita current expenditures grew from 2007 to 2009, as local governments were able to draw down fund balances and reserves, then declined from 2009 through 2011. Overall, however, the cuts in spending were smaller than the spending increases from 2007 to 2009, and thus on average real per capita expenditures in 2011 were 2.6 percent higher than they had been in 2007.
    In 45 central cities, spending fell between 2007 and 2011. In six cities, including Reno, Richmond, Sacramento, and San Diego, real per capita spending fell by more than 10 percent. During the same four-year period, spending rose by more than ten percent in 20 cities, including Baltimore, Buffalo, Pittsburgh, and San Antonio.
    The impact of the Great Recession on central cities’ finances is an unfolding story. Fuller assessment of that impact must await the availability of comprehensive data for 2012 and 2013. The 2012 Census of Government Finances is currently scheduled to be released in December 2014, and once available, these data will be added to the FiSC database.
      But given the slow rate of economic recovery combined with recent fiscal trends, and the likelihood that many cities got through the recession by deferring expenditures for capital maintenance and wage increases, most cities appear to be in for leaner times for an extended period.
      There is evidence that revenues continued to decline into 2012, with some stabilization in 2013. For the nation as a whole, real per capita local government property taxes fell nearly 3 percent in 2012 and stayed near that level in 2013.
       Prospects for state and federal aid to cities may be gloomy as well. Although comprehensive data on state aid to local governments are not available, a survey conducted by the Center on Budget and Policy Priorities found that in 33 states real per student state aid to primary and secondary education was lower in fiscal year 2014 than it had been in fiscal year 2008. The winding down of the federal government stimulus program resulted in a sharp drop of federal aid to state and local governments in 2012. Looking forward, in light of the most recent Congressional budget agreement, it is likely that over the next decade federal grants to local governments will decline.
      The analysis of the 2011 data for the Fiscally Standardized Cities database was done by Howard Chernick, a professor in the Department of Economics at Hunter College and the Graduate Center, City University of New York; Adam Langley, a research analyst in the Department of Valuation and Taxation at the Lincoln Institute of Land Policy; and Andrew Reschovsky, a fellow in the Department of Valuation and Taxation at the Lincoln Institute, and a Professor Emeritus at the University of Wisconsin-Madison.

May 13, 2014

Governing and Financing Cities in the Developing World

     The fast-growing cities of the developing world would benefit from a major overhaul in governance structure, to improve the financing and delivery of essential services, according to a report published by the Lincoln Institute of Land Policy. Governing and Financing Cities in the Developing World, by Roy W. Bahl and Johannes F. Linn, examines more than 50 cities in the developing world in the midst of the rapid urbanization that has become typical in those metropolitan areas. The authors recommend a new relationship between major cities and national governments that combines autonomy and national fiscal planning.
     “After decades of neglect, due in large part to the lack of effective political pressure on national, provincial, and local authorities, the stars may now align in favor of a metropolitan strategy for many cities in the developing world,” the authors write. “With the increase in urban population, the metropolitan area constituency is growing in political power and may be, more than ever, in a position to sway votes. Moreover, the opportunities and the challenges of metropolitan cities are likely to become great and evident enough to force themselves onto the policy agenda of the governments around the world.”
     Big cities generate the most dynamic economic development, the strongest links to the global economy, and the resources to help poorer countries become more competitive and prosperous. However, the same advantages that drive investment and growth in these areas also draw migrants who need jobs and housing, lead to demands for better infrastructure and social services, and result in increased congestion, environmental damage, and social problems.
     Governments in developing countries face two key challenges: how to capture a share of the economic growth to finance the needed expenditures, and how to manage cities so that the urban economy functions efficiently, services are delivered cost-effectively to all, and citizens have a voice in governing the city.
     Governing and Financing Cities in the Developing World, the latest Policy Focus Report published by the Lincoln Institute, identifies the critical issues and describes current practice, the gap between practice and theory, and potential paths to reform. The authors identify two fundamental challenges: how to manage complex vertical and horizontal urban governance structures, and how to raise the finances to promote efficient, equitable, and sustainable metropolitan growth. The report explores local revenue instruments, with a focus on property-based local taxes and user charges, as well as external revenue sources such as intergovernmental transfers, borrowing, public-private partnerships, and international assistance.
       Among the conclusions drawn from prevailing practice:
     • Industrial countries and developing countries have different patterns. While allowing for significant outliers, developing country governments overall tend to be more centralized; their metropolitan areas tend to be more fragmented; their cities are less self-financing and, hence, more reliant on transfers; they borrow less and have fewer PPPs; and they rely more on external aid financing, especially in the poorest countries. There does not appear to be a significant movement away from these distinctions.
     • There are few lasting, overall success stories of metropolitan governance and finance in developing countries. Hong Kong and Singapore have had tremendous and sustained success, but they are special cases due in part to their status as city-states. Bogotá and Shanghai have also become successful cities in recent decades, but they also demonstrate how ephemeral success can be, as significant problems now confront both cities due to changes in city management (Bogotá) or a buildup of legacy issues, including congestion and pollution (Shanghai).
     • Too few central governments have clear strategies for supporting the development of the metropolitan areas in their countries. With few exceptions (e.g., cases of new capital cities, such as Astana, Kazakhstan), national-level authorities do not focus on developing visions and strategies for their metropolitan areas; rather, they deal with them in an often-undifferentiated manner from other local or regional jurisdictions. They do not coordinate across functional ministries that are involved in metro-area services, regulation, and taxation, and they rarely see their function as one of supporting—rather than controlling—the local authorities in their difficult task of managing the complex and challenging metropolitan dynamics.
     • Political economy is at the heart of the metropolitan finance problems in both developing and industrial countries. Entrenched interests preserve the status quo; short-term time horizons and misaligned incentives result in putting off difficult decisions; and corruption in and around government undermines effective public service provision and financing. As a result, central governments do not want to give up control and create political competition at the metropolitan level; metropolitan managers do not want to introduce unpopular but essential local revenue measures; competition among sub-metropolitan jurisdictions prevents effective coordination; and local managers are not held accountable for managing effectively the limited functions they have.
     • Some innovative financing and management practices have emerged. These include the use of information and communications technology (ICT) and geographic information systems (GIS) in land use planning and property taxation; land value capture; metropolitan bond issues; municipal development funds for channeling grant and loan finance together with capacity-building assistance; and PPPs in infrastructure finance and alliances in slum improvement.
     Clearly there are no blueprints, silver bullets, or universal solutions for metropolitan governance and finance reform. What might the future metropolitan areas look like in terms of the prevailing governance and financing patterns if they evolve in appropriate directions? Broadly speaking, the typical metro area in the mid-twenty-first century would have the following four key characteristics:
     • Authority would be decentralized and governance consolidated at the metropolitan level, with metropolitan governments exercising a great deal of control over function, finance, and functionaries in a way that aligns autonomy, accountability, and capacity.
     • Metropolitan areas would be largely self-financing, relying on a combination of well-designed and well-administered property taxes, nonproperty taxes, and user charges to ensure that urban citizens pay for the costs the city incurs on their behalf.
     • Metros would finance their large capital investment needs by well-regulated borrowing or rely on public-private partnerships to bring finance and management discipline.
     • Metros would rely on grants only to a limited extent; these would be performance-based, competitive, and asymmetrical with nonmetropolitan areas.
     Governing and Financing Cities in the Developing World, the Lincoln Institute’s most recent Policy Focus Report, was preceded by the book Financing Metropolitan Governments in Developing Countries, by Bahl, Linn, and Deborah L. Wetzel, country director for Brazil at the World Bank. The research has been the basis for a webinar series on governance and finance produced by the World Bank.
     About the Authors: Roy W. Bahl is Regents Professor of Economics, emeritus, and founding dean of the Andrew Young School of Policy Studies at Georgia State University. He is the author of numerous books and papers on taxation and financing local governments, and he has worked extensively as an advisor to governments in the United States and in countries around the world. Johannes F. Linn is a resident senior scholar at the Emerging Markets Forum in Washington, DC, and a nonresident senior fellow at the Brookings Institution. Prior to joining Brookings, he worked for three decades at the World Bank in various capacities, including as the Bank’s vice president for financial policy and resource mobilization, and as vice president for Europe and Central Asia.