LVT | Scott Stringer on Vacant Lots in Manhattan (Updated Sept. 25, 2016)

At a Manhattan breakfast meeting this morning sponsored by the Drum Major Institute. Boston Mayor Thomas Menino spoke about his survey of abandoned buildings in Boston. Based on this survey,  through a variety of creative initiatives (not without opposition), he reduced the number of abandoned units by 77 percent.

In 2006 the U.S. Conference of Mayors recognized the Mayor's strategy as "best practice." The event was recorded in a liveblog by Corinne Ramey. I posted a comment on the following two paragraphs of her report:

• Brad Lander, Director of the Pratt Center for Community Development, returns to the idea of approaching vacant buildings in different markets. We've only in the past few days fixed certain tax laws, he says. He says that the J51 tax abatement rules need to be fixed here, but might be slightly different in different cities.
• Scott Stringer, Manhattan Borough President, jumps in. "Or we could sit down and figure out a different tax structure for abandoned buildings," he says. "Right now we tax buildings -- imagine if we created a system of incremental land value taxation. I don't know what the result would be, but we need to figure out the next bold move as it relates to tax policy. Let's research what's going on in other cities and other states. Land is our asset and commodity."

Clearly, the reason that Manhattan Borough President Stringer has been able to find so many vacant properties in Manhattan is that property-owners suffer no penalty for warehousing empty lots or buildings. The owners are waiting for prices to rise. Unimproved land is taxed at a much lower rate than improved land.

Some cities have attempted to solve this problem–the low taxation rate of unimproved land, encouraging speculative warehousing of land–by taxing vacant land at a multiple of the rate for improved land. Others have taxed improvements at a fraction (e.g., half) the rate of taxes on land value.

The ultimate fix is to tax just the underlying land (hence "land value taxation" or LVT) and not the improvements, so that property-owners pay the same tax regardless of improvements. The LVT concept isn't far from NYC's actual practice of encouraging developers/builders to put up new buildings with tax abatements or, more recently, fixed Payments in Lieu of Taxes (PILOTs).

But there is a problem with tax abatements and PILOTS. The bigger, and therefore the more effective/attractive, they are, the more they undermine the City's ability to pay for the service needs created by the development. These service needs include education, sanitation, police, and the annual debt service for the bond issues to pay for local infrastructure improvements.

Comment (September 25, 2016)

The use of PILOTs grew significantly during Mayor Bloomberg's administration. The impact of these PILOTs grows every year as new services are required for developments approved a few years ago.