With the demise of the State transportation package and local options along with it, transit agencies and advocates are now scrambling for a last-ditch effort to procure some kind of revenue before Metro cuts kick in next year. I’m not entirely hopeful that this will happen, largely because the root problem is Olympia itself. I’m in agreement with Matt on this, but there’s one talking point coming from Senator Rodney Tom which I think is particularly startling:
[Tom] insists that any new tax for Metro be tied to a state plan, rather than letting pro-transit, pro-tax King County voters go it alone.
“If you don’t link them, what happens is, once the transit crowd gets what they consider they want, the road package gets torpedoed, and vice versa,” he said.
Setting aside the clear snarkiness in that statement, this is bad policy for bad reasons, plain and simple. The thinly veiled implication here is that the highway lobby needs the support of the “transit crowd,” or else road expansion measures would never pass. It’s nothing more than a form of logrolling, bribery, and political maneuvering. We saw it when Olympia demanded the marriage of roads and transit in the 2007 Prop. 1 measure, and we saw it again with the House transportation bill this time around.
What I find interesting is that by Tom’s own admission, separating roads and transit should be good policy. If the “road package gets torpedoed,” that means that people don’t want more roads because they don’t want more roads, not because they don’t want transit. Conversely, we’ve seen people vote for transit-only measures (ST2, Transit Now, etc.) because of the transit, and not because there were roads in the package to entice them.
52 Replies to “Bad Policy is Bad Policy”
With this scary new attitude, it’s a shame that the fate of ST3’s funding abilities will likely fall into the hands of Olympia as well.
The road-building lobby noticed what happened to Roads and Transit vs. what happened to ST2.
This is an act of desparation on their part; they know they’re losing, and they’re going to try to take everyone else down with them.
These people FAIL EVERY TIME. We need to protest and get them to act adequately or get them fired. I made a facebook group to organize.
I don’t know who runs this blog – GOOD JOB. I’m a professional photographer and web developer and I’m down for the cause. LET’S MAKE CHANGE HAPPEN. Email is available for contact.
Martin, let’s meet. Bensch@gmail.com :)
Any comparison with a “real city” like New York and you have to realize that despite being billed as a premium destination and residence, Seattle property taxes, even with all the levies are minuscule in comparison especially as a percent of value and as a percent of income.
So what you have are lots of very well off people paying near to nothing and yet demanding more and more social amenities. The customer base can well afford to pay more…a lot more. It should start with rationalizing the property tax based on other cities and areas.
Check out King County:
Property Taxes on Owner-Occupied Housing, by County, Ranked by Taxes As a Percentage of Home Value, 2007 – 2009 (three-year average)
97th for median property tax
873rd for percent of home value (!!)
223rd for percent of income
And that in a state without an income tax. We’re damn cheap, and you get what you pay for.
Of course, if it were up to Seattlites (even including the metro area), we’d probably have no problem taxing ourselves to provide for our needs. But the state won’t let us tax ourselves, and the state is controlled by anti-tax evangelists.
Unfortunately, it’s illegal to tax property here. Washington would need at least 2 constitutional amendments and multiple pieces of legislation overhauling the tax systems at every level of government. Most states are in a similar situation and I’m convinced that this is an issue that the public is just not capable of understanding, especially considering how well funded the opposition is.
? We currently tax property here. It’s income that’s state-tax free.
Bailo is talking about raising property taxes to fund transit.
Jonathan is right. We can have a philosophical discussion about whether raising property taxes or instituting an income taxe would be a good idea, but that’s so long-term it’s irrelevant to the current problems of saving Metro and funding ST3 building out Seattle’s TMP. We can’t depend on something that doesn’t have a chance of passing in the next few years. Just like we can’t assume that self-driven hydrogen taxis will be mainstream in a few years so we don’t need to build transit improvements in the meantime. If/when self-driven taxis become mainstream, then we can start talking about using them instead of a few bus routes. Likewise, if property taxes or an income tax become realistic someday, then we can talk about using them for transit. But if the Legislature is skeptical about even giving a mundane levy authorization, it’s certainly in no mood to raise property taxes, and an income tax is political suicide for Legislators.
No it’s VERY relevent.
Because what I see is a lot of long time residents sitting on gold mines that don’t want to pay market fair valuate taxes for living in an expensive city.
Meanwhile a lot of newcomers who are wage slaves are being taxed 10% on all their purchases and the thieves here in Washington want to add more fees and taxes on top of that and have temerity to add an income tax.
If there is a restriction in the state Constitution I have yet to hear one single Democrat speak up about changing it, even though they went to bat against the supermajority for tax increases year after year.
Look…you guys have exhausted all other possibilities. Stop tap dancing around the issue. You can to break the property tax limit, or forever be quiet. Put up or shut up as they say at the poker table.
There were 1,823 counties in the list. The fact that our property taxes are 97th highest isn’t evidence in favor of them being low. Quite the contrary.
King County is just outside the top 5% for median property tax and in the top 15% for property tax as a percentage of income. Even the tax as percentage of home value is above the median, and our land is significantly more expensive than the national average.
You compare us to New York. Let’s make that comparison. New York County (aka Manhattan) is ranked 54th on median property tax (slightly higher than us), 464th on tax as a percentage of income (lower than us), and 1494th on tax as a percentage of home value (much lower). That’s Manhattan, the financial capital of the world, where many of the richest New Yorkers live. Let’s compare to Brooklyn (Kings County) instead. Their property taxes were ranked 203rd, 1567th as a percentage of property value, and 278th as a percentage of income. That’s lower than Seattle in all respects.
Of course, New York has income taxes, so it’s reasonable to expect their property taxes to be lower. Just don’t try to tell us that our property taxes are lower than New York’s, when on most measures they simply aren’t.
If there is a restriction in the state Constitution I have yet to hear one single Democrat speak up about changing it
Dave Sims talked about it a lot in 2004. He lost the primary to Gregoire by a 3:1 margin, and the other party is even more hostile to an income tax. We also know that KC will support things like MVETs and income taxes for projects they believe are valuable.
You’re not wrong to talk about it, but we want fully funded and improved urban transit in near term. To paraphrase Donald Rumsfeld, you go to war with the political climate you have, not the political climate you wish you had.
Er, Ron Sims, not Dave. Currently watching the Mariners.
New York City makes for a complicated comparison, as some of the surrounding suburbs have far higher property taxes (you mention the city income tax which somewhat compensates). Nassau County to the east has the highest total tax bill ($8478) and, Westchester County to the north has the second-highest ($8474). Further to the east on Long Island, Suffolk County has the twelfth-highest ($7012).
The MTA (which runs subways, commuter rail, bridges and tunnels, etc.) has a number of funding sources, including a payroll tax (http://www.tstc.org/101/mta.php).
I want to compare us to Dallas County Texas (a state with no income tax, and a reasonable sales tax, about half of our 10% rate).
Dallas County Texas $2,575 221 $130,600 1.97% 54 $64,069 4.02% 181
King County Washington $3,474 97 $423,600 0.82% 873 $91,473 3.80% 223
So in the first category Dallas County residents are paying less aggregate median tax than King County residents. Given. But look at the percentages based on household value. Dallas people pay twice as much as Seattlites!
The argument that “our houses cost more” doesn’t make sense to me. If the houses costs more, and the property is that much more expensive, then, as I keep making the argument, it could tax residents more because everything costs more. It costs more to house teachers here. It costs more to house transit workers.
Seattle is an expensive place with people sitting on valuable property who are forever crying “poor” and expecting working and productive people to pay the services. You guys have made an industry out of milking the Feds for money. But guess where that money comes from — yeah, income tax out of our wallet.
Seattle has to stop pretending to be poor and act it’s income.
Seattle is an expensive city.
If you don’t have to money to live there, leave.
Let someone else who can afford to live there do so.
That’s free market.
If you let people sit around on high valued properties with little or no impact, then you get the current situation…lots of rentals, lots of would be home buyers who can’t get in and a few people extracting money on rents but unwilling to pay the proper tax money so that a “real city” can be built and operated.
King County does tax people more, as you yourself pointed out. King County’s property taxes are 35% higher than Dallas County’s property taxes, when measured in US dollars. The taxes need to be higher for reasons such as those you pointed out, namely that housing is more expensive so salaries need to be higher to give government employees an equivalent standard of living.
Houses in King County cost more than three times what they do in Dallas County. Salaries aren’t three times more here. Buses don’t cost three times more here. Neither does fuel. Therefore taxes don’t need to be three times higher either. They just need to be enough higher to cover the difference in actual expenses.
Hold on, John.
Seattle has to stop pretending to be poor and act it’s income.
Seattle is an expensive city.
If you don’t have to money to live there, leave.
So where do these people go? This is the gentrification
and unintended sprawl I have been alluding to all this time. Don’t believe me? Why are rents at TODs along WMATA unaffordable? Why are reasonable rents in Manhattan an SF hard to find? Market demand. …but I think that has pushed your lower and middle class out of the city. The only areas in the city are undesirable neighborhoods like Anacostia in DC and Rainier Beach here in Seattle.
So why can Dallas/Dallas County cover its expenses without an income tax, and with half the sales tax and less property tax then Seattle/King?
“If you don’t have to money to live there, leave.”
That’s fine in Europe, where you can move to a smaller inexpensive city and it still has an all-day regional train, full-time internal transit, and buses to the surrounding towns, and the larger cities have night owls to all neighborhoods and suburbs at least on Fridays and Saturdays. But in the US, going to a less expensive area generally means going to a car-dependent wasteland. That adds a significant expense, it’s a miserable way of life, and you’re destroying the planet every time you go out of your door. Plus the fact that a lot of these areas have high unemployment and most of the jobs available are minimum wage. We shouldn’t be forcing people into that.
Fine, instead of shipping billions into Seattle, develop lots of smaller cities and spread good jobs there and add some measure of bus transit and bikeways so it’s not fully car dependent.
So why can Dallas/Dallas County cover its expenses without an income tax, and with half the sales tax and less property tax then Seattle/King?
That’s a very easy answer. Lack of unions! It comes with perks, you know. Lower cost of government operation, lower taxes, and then you have a state that knows how to operate. In Washington State, a whopping 19.5% of employees are represented by unions. In Texas, that figure, with a far larger labor pool, is a palatable 6.8%.
Bureau of Labor Statistics Union Affiliation Figures
Unions inflate wages and resort to blackmail to get their way. Case & Point: BART! I read in the SF Chronicle that it was 20% over the course of 2 years. In the last 2 years, I have not had any pay increase! Not to mention, management wanted to make minor revisions to medical care because an employee paid a flat rate each pay period regardless of family size. Unfair in my eyes. Why should I pay more, if I’m single, if Jim Bob has five kids and a wife? His premiums cost more and he should pay his fair share rather than the user. Currently, this translates into more costs and taxes to users.
I apologize if my views are evidence that I moved here from the state with the lowest union membership within the United States.
The next argument will be…oh, but they don’t do as much…
Dallas Area Rapid Transit board approves $1.6 billion budget
Don’t use 5 year old links, please. Ridership on DART went sky high in 2008 (directly proportional with the skyrocketing gas prices) and only matched it in 2013 when they opened in the Orange Line earlier this year. Oddly enough, gas prices have been elevated, even by their standards, for much of this year. The Blue Line ridership is tanking! …and why is that?
Dallas Observer Article – DART Scales Back Plans
I truthfully like the design and like the layout of DART over the design of Link. The design of Link, north of Seattle is horrible. All of the articles critical of DART seemed to be anti-transit, rather than advocating smarter transit decisions….blasting the debt accumulated by transit development etc. Even that was highlighted by the Dallas Observer article.
So lets roll-out a “Home-Rule” initiative that states that citizens of counties and municipalities are not restricted in the amount or means of taxation they vote for themselves free from interference or approval of the State Legislature.
I want our state government to work for all of us, but they also need to get out of the way when we want to tend to our own needs.
That sounds great! Let’s organize a campaign for that; I think we can get a fair number of conservative-leaning voters on board as well!
(Of course, I have zero experience organizing and next-to-zero campaigning; does anyone with more experience want to join?)
I’m in favor. Down with the anti-tax nanny state!
Though come to think of it, we shouldn’t frame it as a pro-tax initiative. Rodney Tom’s quote gives a great reason for someone in another part of the state who is anti-tax to vote in favor of a local control initiative. But we need to make the initiative acceptable to those voters, perhaps by guaranteeing new local taxes must come to a vote.
I’m used to politicians BSing around this sort of craven behavior. Points for honesty, I guess.
Cities like Seattle have a virtually unlimited source of non-distortionary revenue that could not only pay for things like Metro but completely replace all local revenue within a decade or two. They’re called development rights, and Seattle currently gives them away to the tune of billions of dollars.
Lincoln just released a comprehensive report on value capture in Latin America that includes another good summary of the CEPAC (sale of development rights, pg 54) program in Brazil, which they call “the most original and effective instrument [in the world] to mobilize land value increment generated by large-scale urban projects.” Rio and Sao Paulo have raised billions with programs like these in less than a decade and there’s nothing stopping Seattle from doing the same.
Spending the money on buses that have to be subsidized doesn’t seem like the greatest idea to me, but, well… it’s not my field.
Yes. I hear people are happy with the price of bus fare in Brazil. /sarcasm
It actually sounds like a terrible idea. Taxing development increases rent and purchase prices, and discourages development. That’s the opposite direction we should be going.
Sounds like a grown-up response to criticism. Tell us how this differs from taxing development.
1. The condition of being unable to read and write.
2. An error, as in writing or speech, made by or thought to be characteristic of one who is illiterate.
3. The condition or quality of being ignorant or unknowledgeable in a particular subject or field: cultural illiteracy; scientific illiteracy.
“A tax upon ground-rents would not raise the rents of houses.”
– Adam Smith
“A tax on rent would affect rent only; it would fall wholly on landlords, and could not be shifted to any class of consumers.”
– David Ricardo
“Its burden falls entirely on landowners, it does not distort economic decisions in regard to land use, and it does not generate the excess burden (deadweight loss) common to most taxes (Oates and Schwab 2009).”
– the document I originally provided
Care to actually rebut Matt’s point, instead of just quoting the dictionary and the first three Google results for “quotes I can pretend support my argument?”
Jonathan, in his charming way, is trying to use the idea that property taxes (and by his implication development taxes) don’t affect rent, but takes it a few steps too far. He likely sees this as free money from rich landlords, and doesn’t realize that just as property taxes decrease the incentive to build (as profits are reduced), leading to lower supply and higher rents, development taxes have this effect but stronger.
In the end, it’s generally a bad idea to heavily tax what you want more of.
I agree completely… which is why it kills me that almost US tax revenue comes from these tax bases!
Jonathan’s quotes are true for a tax on *land* value. They are arguably approximately true for a general property tax, as most property value here is land value. They are not at all true for a development tax, as that falls exclusively on the portion of the value that developers can create, thereby discouraging the creation of additional value.
I agree with the rest of what you wrote (and, indeed, I think it’s completely noncontroversial, at least among economists). However, according to the Lincoln Institute of Land Policy, land value represents 15% of the share of the value of all residential property in the state of Washington.
Now, having said that, the same data set also says that land value represents 77% of the share of the value of all residential property in the District of Columbia. So it’s possible/likely that, within the City of Seattle, land value represents a similarly high share of property value.
But I definitely don’t think it’s correct to say that the King County property tax, for example, is approximately a land tax. I know for a fact that there’s plenty of land within the county that’s worth much less than the mansions built on top of it.
“I know for a fact that there’s plenty of land within the county that’s worth much less than the mansions built on top of it.”
Sure, but is that the land you’re trying to encourage development on?
Well, yes and no. If you’re going to build on that land, you might as well make the most of it. With respect to unincorporated King County, a traditional property tax just encourages people to have huge lots, which makes it more expensive to provide public services.
Meanwhile, in the city, taxing improvements creates a meaningful disincentive to build denser buildings, or to upgrade existing buildings. If you’re a slumlord, why would you upgrade your property, if you know that the extra rent you’d earn won’t make up for the higher property tax you would pay?
Good grief. Would a picture help? This graph applies to all kinds of government granted monopolies, not limited to land, building permits, pollution permits, taxi licenses, fishing licenses, water rights, etc. This is introductory economics. You will find lengthy discussions of taxing goods with supply elasticities of zero in the textbooks for public finance courses at the 300 and 400 level. This really is not a matter of opinion.
An upzone is a gift of land value, which would be very clear to anyone who read the report by a land policy scholar entitled “Implementing Value Capture in Latin America.” It’s repeated over and over again. What do you think “value capture” or “land value increment” are referring to?
Let’s get rid of the building to avoid confusion. A vacant lot zoned for 2 stories is rezoned for 8 stories: what has changed?
If the city gives the upzone away for free, will it be resold by the owner/developer at a discount?
If the city charges the full market value for the upzone, will the owner/developer be able to increase the price beyond the market value?
Looked at another way, DNR owns farm and timber land all over the state and there are plenty of firms that are perfectly happy to cultivate these lands in return for wages. The same is true for WA ports. Similarly, in Hong Kong there are plenty of firms that are more than happy to build and maintain skyscrapers on land that is leased from the government. The World Trade Center is built on land leased from the port of NYC.
The funny thing is that it doesn’t get any more pro-development than this. It’s the ultimate supply-side policy because it corrects a market failure while allowing you to cut all other taxes. And yes the property tax is a combination of two very different taxes, one on land, the other on improvements.
The supply of land is perfectly inelastic. I think we all agree there.
Regarding development rights, I believe what you’re proposing is this:
– When the city upzones a piece of land, that land increases in value.
– Currently, this increase in value is effectively a gift to the landowner.
– By selling these upzoning rights at auction, we instead allow the market to determine the value of the upzone, and we allow the city to capture that value instead.
I think I agree with you that such a system is neutral with respect to development. However, the existing system is not neutral; it penalizes developers who buy upzoned land, and subsidizes developers who buy land which later gets upzoned.
Under the current regime, you would expect to see that under-zoned property is more expensive than it should be; that is, the market implicitly builds the expected value of future upzones (including the expected likelihood that they will occur) into the price of property. For example, in South Lake Union, it’s clear that the empty properties currently owned by Vulcan were bought under the assumption that the zoning would be improved. Unquestionably, they would have been worth much less under a regime where Vulcan would have had to pay the market value for the upzone.
That brings up a second point, which is that switching to this regime is effectively a one-time transfer of wealth away from the owners of under-zoned property. I don’t see that as a problem.
Ultimately, as you say, this shouldn’t really create any negative incentives with respect to development. Aside from the one-time wealth transfer, the only lasting effect of this scheme is that it removes the speculative price difference between buying land and asking for it to be upzoned, versus buying land that has already been upzoned. But the real cost of buying land that can be developed should not change.
So, if the city upzoned, and also raised the taxes of every property that was upzoned regardless of whether they took advantage of the upzone or not, then your reasoning would apply. However I suspect the sort of thing most people are thinking of when you suggest development taxes is where you say, okay, we’ll raise the height limit but anyone who goes over the old height limit must pay extra. In Seattle this has taken the form of “Let’s require developers to spend on affordable housing if they go above four floors.” That is not a case of taxing a good with zero supply elasticity. Likewise for any sort of sale of development rights.
Land value increment taxes, however, are fine in theory, although I’m not sure how easy it is to separate land value from building value in practice. Maybe if instead of taxing property based on its own value, you taxed based on the average per-acre value of property in its neighborhood? But then in some cases your land really is worth less than your neighbor’s, so I’m not sure that would work well either. The other thing about land value increment taxes is that they are kind of heavy handed. So if you’ve lived in your house for ages, then your land value goes up dramatically due to new infrastructure (say, a subway stop). Now you have to pay for your gain in value whether or not you want to redevelop your property. Yes, you could cover the cost by selling your property, but it’s the fact that you will likely have to sell your property, right away, or you have to redevelop it to make enough money off your property to be worth owning it now that you have to pay for its gain in value. That is going to strike many as unfair, though it is quite efficient.
Matt and Eric,
I think Jonathan has a point, actually.
It’s not correct to construe the proposal as a tax on development. Rather, it’s a way to capture the value that’s created when a property is upzoned.
In today’s world, consider two identical vacant lots, side by side, except that one is zoned for mid-rise, and the other is zoned for high-rise. Clearly, the latter one will be more valuable and more expensive.
However, suppose that an enterprising developer, Alice, buys the former lot, and then petitions the government to upzone it to high-rise. Suddenly, the value of Alice’s land just increased by a lot, purely by government fiat. Alice could now turn around and sell that land for way more than she bought it for, despite not having really created any new value.
Now, of course, it’s not just one developer who makes this observation; there may be dozens, or hundreds. So, in practice, the price of the former property may be artificially inflated, based on the probability that it will be upzoned, and the expected value if it is.
So, instead, imagine that upzones worked more like this. Alice asks for her property to be upzoned from mid-rise to high-rise. The government uses some assessment mechanism to figure out the current value of the property, and to estimate the value of the property if the zoning change goes through. This difference represents the value that the government is creating by changing the zoning. Therefore, Alice pays this amount to the city, in exchange for getting the upzone he wants.
Note that the cost of development, in general, has not increased! The total price that Alice pays is identical to the price that Bob paid for the adjacent lot that already had the proper zoning. The only difference is that upzoning is no longer a gift to the lucky people who happen to own the upzoned property. Instead, that value is captured by the government, who can use it for all sorts of things, such as providing better public services.
Additionally, the price of urban property will go down in general, because the price no longer includes the speculative value of future upzoning potential.
The other thing I want to emphasize is that, if you structure it correctly, the price of upzoning is precisely the price that the market places on the development potential. By definition, the price cannot be too high; if the market places a low value on a zoning change, then its cost will be low as well.
The key difference is that it’s not a perpetual tax; rather, it’s a one-time adjustment, to capture the value created by changing the zoning.
Again, let’s say that Property A with mid-rise zoning is worth $100,000, and identical Property B with high-rise zoning is worth $150,000. By definition, these two properties are identical except for the zoning, so the market has essentially valued the zoning change at $50,000.
If Property A is upzoned, then in today’s world, it’s effectively a $50,000 gift to its owner. You can think of that as subsidizing development. But it’s a very inefficient and capricious subsidy. It makes the owner of Property A better off than the owner of Property B, for no good reason.
In a value-capture world, that $50,000 would be paid by the owner in exchange for the higher zoning. Therefore, the owners of Property A and Property B are equally well off. Instead, the $50,000 is captured by the city, which can use it to encourage development and growth in a much smarter way. For example, it could use the money to lower the tax on property improvements in general, or on property in the neighborhood of A and B in particular. Or it could use the money to help build or operate new transit lines. There are lots of ways to spend the money that would benefit everyone in the neighborhood or city, rather than the lucky few who owned property that got upzoned.
The other key difference is that selling development rights is market-based (or, at least, it must be to be successful). It’s not just a matter of the government deciding, by fiat, to impose some arbitrary rules or fees. It’s about figuring out the actual value that the market places on the development potential of higher zoning, and asking the land owner to pay that actual price. By definition, the price for these zoning rights will never be more than developers are willing to pay.
Okay, so let’s start with the wrong way to sell development rights: the city council says anyone who pays $x per acre will have their height limit raised. Obviously this would not be a case of taxing an inelastic good and would inhibit development. But you propose something slightly different, which is to assess the price on a property by property basis and choose a price low enough that anyone who wishes to develop will agree to pay it, so development is not inhibited. It will otherwise be as high as possible, so no one will have anything to gain from speculating on future upzones.
Sounds good to me, but I’m curious to hear how you go about assessing the value of the rights? There isn’t really a market here; there is only one seller and only one possible buyer per property.
I think this is just a special case of assessing land values in general. We already do this for the purposes of taxing land.
Anyway, there are plenty of transactions where the price is agreed by negotiation between two parties, rather than by taking a market price. For example, when a private company gets bought, there’s generally only one interested buyer. Of course, outside influences (such as independent assessments, and evaluation of sales of nearby property with different zoning rules) can help each side in their negotiations.
You’d have libertarians and republicans calling that a socialist grab of “private capital”. Not that it’s not a good idea, it just creates a political storm.
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