Tuesday, December 11, 2012

Incentivize Develoment

By Greg

I led a walking tour at the American Planning Association (APA) conference in Philadelphia in 2007. As I herded the group of planners along Market Street on the east side of City Hall, one of my flock asked me, "how can there be a parking lot right here in the center of the city?" Good question. Philadelphians just take for granted that we have a slew of surface parking lots downtown, but in other cities this is not an economic possibility because of the cost of owning high-value land that is not maximizing revenue.

For years now I've been telling planner friends about my theory of why these parking lots can exist. It has to do with the way Philadelphia taxes property at a higher rate than land. It is extremely cheap to own land in Philadelphia, even in a very valuable location. A study in Minneapolis revealed the same problem and rationale for why there are so many downtown parking lots there, and proposed a solution: "taxing land at a higher rate than buildings."

In recent history there have been several mayor-appointed and independent tax reform studies in Philly, and they almost always recommend some kind of reform that has to do with changing the way we tax land. Cities that have implemented a full "land-value tax" have not found great success. Pittsburgh did this then repealed it. However, many cities tax both property and land in a way that makes it financially desirable to develop vacant land to its highest and best use in an area that has high or appreciating value.

This problem extends well beyond parking lots, though. There are thousands of vacant lots across Philadelphia, even in neighborhoods with high property values, like Northern Liberties. The same tax policy solutions could be used to incentivize development in neighborhoods as well as downtown.

Right now there are neighborhoods around the city that appear blighted, but where many vacant buildings and lots are owned by speculators--sitting on them, waiting for them to maximally appreciate. In a sense this causes the neighborhood to gentrify before anybody on the street knows it. The neighborhood still looks rundown, but it is already bought up. The reason those speculators don't develop their property sooner is because it is so cheap to sit on vacant land.

Adjusting the way we tax land would greatly change the development scene in Philadelphia. It would increase the pace of neighborhood redevelopment, and, importantly, give people on the ground a better visual cue about the state of their neighborhood's pace of development.

So why doesn't the City address this? The only thing I can think of is politics. There are companies that benefit from parking lots being cheap to own, and developers who don't want to pay more taxes for vacant land. But City Council should get beyond that and do something about this. Not only will it boost Center City development, but it will change the way neighborhood redevelopment operates. That will benefit the whole city, not just downtown.

Sunday, December 9, 2012

What Would a Smart Family Do?

By Greg

Anyone who has been paying attention knows that our nation’s infrastructure is falling apart, without the funding to rebuild and upgrade. An editorial in the New York Times today explained: “Civil engineers in every state are monitoring ominous cracks in roads and bridges that carry freight and school buses. … Around the country, there are 70,000 structurally deficient bridges…” In conclusion: “The need for investment in public works, never more urgent, has become a casualty of Washington’s ideological wars.” This war has revealed itself most recently by house Republicans standing in the way of President Obama’s proposal to invest $50 billion for “transportation improvements.”

The counter argument, of course, is that in a recession, with a huge national debt, we simply can’t afford any new spending. Opponents of new infrastructure investment often compare our nation’s fiscal situation to that of an American family sitting around at home, making tough belt-tightening decisions in order to pay the bills (remember John McCain’s “kitchen table” speech?).

This comparison of our nation’s spending to the average American family has become ubiquitous in discussions about our nation’s financial future. Of course there are differences between a family and our government (most families I know can’t print money and set interest rates). But other parts of the argument are apt, so I want to focus on what this average American family would actually do (if it were smart) to get back on its feet.

Cutting costs is a necessary short-term strategy for unexpected situations that adversely affect our finances. But a family that simply accepts a “new normal” and, month after month, finds new ways to cut spending is not going to rebuild wealth in the long-term. If this family is smart, it doesn't just work on cutting expenses, but also focuses on strategies for increasing revenue, such as seeking an advanced degree or additional job training/professional development, finding a higher-paying job, changing jobs/careers, re-aligning investments, etc.

Often revenue-building strategies involve some degree of risk and up-front costs; you have to spend money to make money. And those costs have short-term repercussions, such as incurring additional debt, (yet more) belt tightening, getting a second job, refinancing, selling assets, withdrawing money from savings, etc. But in the long-term this approach may be necessary to regain financial stability and growth. Focusing on both reducing expenses and also increasing revenue is what families do, it's what businesses do... it's what our federal government should do too.

The federal government should be spending money now, when times are tough, to invest in our workforce and global competitiveness. Our lawmakers talk about not wanting to “kick the can down the road,” but why not? Once we have recovered and times are flush, then we can work to reduce our national debt. For now, the discussion should be about how we keep funding for essential programs stable, while “spending money to make money” by rebuilding our infrastructure and investing in the competitiveness of our businesses and workforce.

So much of our nation lacks high-speed internet, has crumbling roads, rails, and bridges, lacks the basic systems needed by industry to compete with companies overseas. If we want our businesses and workforce to be competitive, but are unwilling to invest in infrastructure now, then we are truly kicking the can down the road. Making critical investments in the future when times are tough is exactly what the smart American family, sitting around its kitchen table would do. So why won’t our lawmakers?