I decided to post this since I have a hunch that folks interested in development in the area are also interested in zoning and taxation (I am too). The following post goes nowhere near a full analysis of the situation as far as land taxation in the City of Ithaca, but I hope it will provide some food for thought. It’s largely inspired and replicated from a talk I went to by Joe Minicozzi of Urban3, an urban design/analytics consultancy based in Asheville.
In the past 20 years Ithaca has seen an enormous amount of development happening where “the cars go.” I’m not going to argue the ethical pros and cons of this type of development, but every taxpayer should be aware of some of the incentives at play. One of them is taxation. All across the US, cities generally tax the land of large, strip-mall and suburban-style parcels at less per acre than downtown parcels, but still have to provide the same, or sometimes more infrastructure and public service.
Why land assessment?
Land assessment is synonymous with a “land value tax” or LVT, which is the levy on the land itself. LVT disregards buildings, fixtures, paving, etc., and all other improvements to the land.
This is an important distinction because it establishes an independent economic signal for the ownership of the land, thus a lower land assessment per acre signals a less desirable parcel, but a higher assessment per acre signals a more desirable parcel (if we were to use the assessor’s valuation as the basis for market price).
Many factors affect the land’s actual value, but land assessment can show us how governments view their value. Tompkins County assesses land values separately from the total assessment value, so when we look at our property tax assessment, there are two components: land assessment, and total assessment. Land assessment is lumped-in with total assessment, so if you subtract land assessment from the total, you get the assessed value of everything but the land.
The City and County both tax a flat rate on the total assessment. Unfortunately, it is not a split-rate system. What’s a split-rate? It’s when you shift the tax burden from the building assessment to the land assessment. Why would you do this? If more land is more expensive to hold, and more building is less expensive to hold, then you end up with more building on less land, meaning greater density. Density is important because it’s generally less expensive for cities to provide services to: fire trucks have fewer roads to travel, shorter water and sewer pipes provide more service to a greater number of people, fewer roads mean less potholes to fix, etcetera. Density also pays a greater share of tax revenue per acre. A one-family suburban-style home on one acre will pay less than a 30-unit garden style apartment complex on one acre. Cities rely on density for tax revenue.
From an urban design standpoint, there are also criticisms of taxing the non-land portion, since a higher finish-grade building will get taxed more than a lower finish-grade building since it has a higher value, meaning a higher risk for the developer (in future taxes, marginal construction expenses for higher finish-grade, and possible vacancy due to rent premiums to achieve a return on investment). It leads some developers to go with “run of the mill” designs, less expensive finishes, etc., but that’s another story. Many cities and school districts in Pennsylvania have actually turned to a split-rate system and have seen success- Pittsburgh is a notable example: in the midst of the steel decline, the city still fared quite well.
Henry George, an American writer and political economist from the late 1800s actually proposed that governments need only to establish a single tax on land; however, the idea never really took off in the US, but did in Denmark in 1903, and a few other countries around the world (this economic philosophy is referred to as “Georgism”).
Now the fun part: I have some images I took from a quick GIS analysis I did of Ithaca’s 2011 taxation and zoning. Each map is essentially a “heat map,” one for allowed maximum “zoning density,” and one for land assessment per acre. The zoning density measure is a bit crude- I just used allowed maximum building height multiplied by allowed maximum lot coverage, but it gives a rough idea of what sort of building volume is allowed on each parcel as dictated by 2011 zoning. The “zoning density” map is important to compare to the land assessment per acre map because, in a perfect and predictable world, each parcel (if flat and history and politics didn’t exist) should correlate with how it is zoned i.e., what amount of density is allowed.
There are multitudes of other considerations in deciding land assessment on each parcel and those that take the time to fight their assessment rises probably fare better, but it’s clear that there is some discrepancy. The take-home point here is that regardless of the minor discrepancies in land taxation per acre, look at the parcels where the cars go!
In 2011, Walmart’s parcel (easy target, sorry) had a land assessment of $189,000/acre and consequently paid $3,611/acre in land taxes (if we use the total millage rate in the City of Ithaca for 2011: 19.109240)…. meanwhile, let’s take one of Shortstop Deli’s parcels (the west one) and do a comparison. Shortstop’s parcel’s simple zoning density measure is less than half of Walmart’s, but its land is actually assessed at $463,776/acre, and consequently paid $8,862/acre, more than 2.4 times per acre than Walmart paid.
Unfortunately, similar comparisons yield similar results- take the William Henry Miller Inn for instance: this parcel paid just shy of $11,000/acre, and the office building next door on Aurora? Over $7,200/acre.
Obviously, these are just a few examples, but this analysis begs an important question for long term urban planning in Ithaca, i.e. How can Ithaca better achieve its desired “Smart Growth” if not enough incentives are there to do it? What are the other parts to this equation and what changes need to be made now to create the community that Ithaca wants in the future?