Reforming Parking and Property Taxes

By Dom Nozzi

An important reason why a parking cash out program, once enacted, becomes quite popular for both employees and employers is that it creates a more fair, equitable parking system (by allowing those who do not need employee parking to obtain benefits) without removing an existing perk (free parking).

For several decades, the conventional approach used by nearly all organizations in the nation has been to provide a large subsidy only to those who drive to work alone. For those who don’t drive to work alone, no subsidy is offered. This system strongly encourages driving alone to work (which artificially creates more solo drivers than would be the case had we not distorted the market with this subsidy), and is unfair to those who car pool, use transit, bike or walk to work.

Parking cash out simply establishes a program which equitably levels the playing field. We retain the subsidy for driving alone to work, but we provide the same subsidy for those who car pool, use transit, walk or bike to work.

It is a simple matter of fairness.

Land value taxation is another needed tax reform. This property tax system has been tried in Pittsburgh to remove the tax incentive for retaining undesirable surface parking lots in downtowns, and discouraging downtown infill, building construction, building renovation and a more productive use of an underused lot (the conventional tax structure used throughout the nation penalizes such desirable conversion of surface parking or dilapidated/underused downtown buildings by increasing the tax rate when you improve your property).

The result of conventional property taxation is that a great many downtowns in America have an enormous amount of surface parking and abandoned buildings, which significantly deadens a downtown, makes it less attractive to live in our visit, results in a downward spiral of declining tax revenue and lowered quality of life, and increases crime. Sprawl is Houston Downtownthereby encouraged.

The conventional tax rate structure used by nearly all cities taxes buildings instead of land. The higher the value of a building on a piece of downtown land, the higher the tax. As a result, downtown property owners have a strong incentive to build or retain low-value or decrepit buildings, or simply keep it as a vacant lot (or parking lot) in order to minimize their tax rate while they wait for their land to increase in value. Usually, this underutilized land is being held for speculation. And takes life away from the downtown by being held in an underutilized way for long periods of time.

The alternative is to tax land itself, not the building on it. Under this approach, land that is close to the center is taxed higher, since this is the location where there is usually the closest proximity to goods, services, culture, government activities, etc. By using this system, housing is promoted downtown (housing that is more affordable to the middle class). By promoting new, higher-value, or refurbished buildings, the alternative system improves the overall downtown tax base. It would promote more compact, mixed use cities, and discourage sprawl.

The idea of taxing land instead of buildings is called “site-value taxation” (or “land value taxation”), and was the idea of Henry George.

Pittsburgh and Harrisburg PA (and other cities in that state) are using a modification of the George system. These cities are using what is called a “two-tiered” property tax, where land is increasingly taxed more than buildings incrementally over time.

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Filed under Economics, Sprawl, Suburbia, Urban Design

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