11 ms·

Rewarding Neglect and Punishing Investment in Struggling Neighborhoods

108 points by oftenwrong 8y ago

patio11 8y ago
"At the same time, the city's infrastructure is aging and requires more maintenance than it once did." The thing which is aging is more likely the base of city employees and retirees who were promised defined benefit pensions which were underreserved for and routinely looted, over a period of decades. Erie, for example, has an unfunded liability of about $90 million against a total annual budget of ~$115 million. (As is typical, the lion's share is police/firefighters.)
- freddie_mercury 8y ago
  Erie County, Pennsylvania, has an unfunded liability of $9.7 million, according to line 7 of section 2.5 of their 2018 annual report. The annual required contribution is a mere $4.3 million Their pension is 99% funded. I don't know why you'd bring it up, since it is unrelated to the article. Fixing pensions won't change the fact that neglectful landlords get rewarded under the current taxation scheme.
  - patio11 8y ago
    The City of Erie, Pennsylvania, is the Erie on the hook for fire and police pensions. https://www.paauditor.gov/media/default/MunPenReporting/RPT_2016_MuniPension_STATUS_REPORT_Dec2016_FINAL.pdf https://www.paauditor.gov/media/default/MunPenReporting/RPT_... Why bring it up? Because cities are special purpose vehicles to fund police/firefighter pensions which have a side hustle in providing civic infrastructure. That's quite relevant to the question of why costs are increasing (because politically powerful people got placated), whether investments in infrastructure will reduce costs (strictly impossible), and whether property developers are to blame for underfunded infrastructure (they do not receive checks from the city every month).
    - freddie_mercury 8y ago
      That seems like just some random place not mentioned in the article? The article mentionedthe county of Erie. And the quote wasn't about any city in particular, just about generic "many older cities". The city of Erie didn't come up in the article.
      - UncleEntity 8y ago
        > The city of Erie didn't come up in the article. "Joshua Vincent’s piece on land taxation in Pennsylvania examines relative tax rates in Erie County, Pennsylvania, finding that property owners in the city of Erie proper pay close to double the taxes that those in many of Erie's suburbs pay."
  - theobeers 8y ago
    Unfunded pension liabilities are absolutely related, as they represent part of the "vicious cycle" described in the article. Both Erie County and the city of Erie are mentioned. The comment to which you replied was referring to the latter.
- omegaworks 8y ago
  Can we close the book on this "unfunded pension liability" nonsense? The government can create the raw dollars needed to fund the pensions. Just listen to Alan Greenspan himself shut down Paul Ryan's perverse anti-social security zealotry: https://www.youtube.com/watch?v=DNCZHAQnfGU https://www.youtube.com/watch?v=DNCZHAQnfGU
  - function_seven 8y ago
    Some other government could (federal), but not the municipal or state governments. That’s the rub here. These liabilities are hanging around the necks of governments that can’t pull a monetary supply lever.
    - omegaworks 8y ago
      Bailouts are a tried and true mechanism for addressing this liquidity problem for the private sector. I don't see why it shouldn't apply here.
      - rayiner 8y ago
        In the private sector, bailouts were used to address a liquidity problem—if the companies could survive the crunch, they could be in a position to pay the money back. Municipalities aren’t facing a liquidity problem—they’re insolvent. They owe far more than they can ever hope to pay back, because their tax bases aren’t growing at the rates needed to make their obligations manageable.
      - function_seven 8y ago
        I don’t disagree in the abstract. But Erie can’t tell its municipal bond holders, “Don’t worry, we’ll just wait for the bailout. Your debt is safe” This would make a potential future crisis an actual current one.
      - rmilk 8y ago
        The question then becomes how to acquire the money for the bailout. You can’t just ask for money or acquire funding through buyout. Tax increases or bonds are really the only sources of money, and they require voter approvals. Costs can be reduced by cutting services or through bankruptcy, both of which bring their own side effects by reducing the appeal of the city or county or by making future debt more expensive. See this link for a survey of California issues with pensions. The source is the league of CA cities, so there is some bias but the results are still meaningful and eye opening regarding future mandatory spending commitments. http://www.cacities.org/2018PensionSurvey http://www.cacities.org/2018PensionSurvey
- YokoZar 8y ago
  Another article from Strong Towns made the point that infrastructure like roads tends to only last about 30 years before needing complete replacement. In many towns this infrastructure is paid for by assessing fees on new development. Once the city stops expanding, you now have no tax base to pay for all the existing roads needing replacement. All those replacement bills come due: the "aging infrastructure" needs more maintenance.
  - aperrien 8y ago
    Are there any road structures that will last longer than 30 years? I've heard that there are other materials used overseas that do, but I don't know the subject well enough to ask effective questions about it.
    - josephorjoe 8y ago
      cobblestone
- BeetleB 8y ago
  >The thing which is aging is more likely the base of city employees and retirees who were promised defined benefit pensions which were underreserved for and routinely looted, over a period of decades. Let me ask: How were those pension banks supposed to be funded? The reason I ask is because my state has a defined pension plan for many public workers. The benefits are defined irrespective to how the market performs. We're also one of the highest income tax states out there. Yet the pension is underfunded. No one's been "looting" it. No one takes money out of it for some other purpose. The tax rate simply isn't enough to fund it. And we have a high tax rate. Whoever designed this for our state did so with the assumption that market returns would be enough to fund it. It never was a plan of simply collecting tax money. They were wrong. The market returns were not enough. Current retirees are getting their pensions. We just won't have enough for the next batch at current funding rates. It's gone to court, and the courts have ruled that there are no loopholes: People will get their pensions, no matter what. So now we're dealing with the "no matter what". We have one of the worst high school graduation rates in the country, and the quality of education overall is rated fairly low. Yet, we can't solve that problem with money. Because for the next decade or two, pretty much all increases in education funding are going to fund the pensions. A number of cities are growing, and the mayors are very clear about the problems: They cannot afford more police officers and other similar employees to keep pace with the growing cities - because all the extra revenue they are collecting in taxes is going to fund the retirement funds. The only solution the courts will allow is to change retirement plans for those just entering the workforce. But we will have to deal with this problem for a few decades where we must increase all kinds of taxes to pay for pensions, and allow the rest of the infrastructure to decay. There's no cap on the defined benefits for high income folks, BTW. University football coaches, and retired presidents, get a lot of money (at least one of them gets over $70K/month). Of course, these are outliers. The median is under $40K/year. Defined benefits is a bad idea. They need to switch to defined contributions from employers, and let the investments dictate their pay (and probably give employees more choices for the investments).
  - ohazi 8y ago
    > The only solution the courts will allow is to change retirement plans for those just entering the workforce. The best time to plant a tree was twenty years ago. The second best time is now.
- tomjen3 8y ago
  What I don't get is how on Earth that was ever legal. A defined benefit retirement service must require you to purchase an annuity, so how is it possible to underfund those retirement founds?
  - AnimalMuppet 8y ago
    You purchase an investment, but not an annuity - say, some stocks. You make an over-optimistic assumption about how fast that investment is going to grow, because that lets you put less money in this year to fund it. But when the investment doesn't grow as fast as you forecast, you have an underfunded liability.
baroffoos 8y ago
I wonder if higher density living could lower costs for councils/cities. With more people living closer you would think less money needs to be spent on footpaths and such, maybe less police because they are spread out less. Also makes me wonder what the maintenance costs of rail are. I don't know much about it but light rail tracks look like they would probably last a really long time without being replaced where as it seems roads hardly last a few years before needing to be resurfaced.
JamesBarney 8y ago
I always wonder why these articles about growing infrastructure costs and shrinking tax bases are about cities and not the suburbs. You would think the issues would be worse in the suburbs because the lower density would drive up the amount of required infrastructure per house.
- UncleEntity 8y ago
  Probably because people have been leaving the city and flocking to the suburbs for a few generations now. People leaving the cities plus all the new people means the suburbs are (probably) absorbing all that growth.
  - externalreality 8y ago
    > all the new people What do you mean by this - population growth? Younger generations coming of age and such.
- CalRobert 8y ago
  Citylab, strongtowns etc. Often discuss the tyranny of the suburbs and how city residents subsidize their infrastructure.
- maxsilver 8y ago
  Infrastructure costs don't scale up linearly with distance, they scale up exponentially with complexity. Suburban infrastructure, while spread further apart than city infrastructure, is usually far simpler to build and simpler to maintain and simpler to replace. Costs go up a little bit in raw resources (longer wires, longer pipes, etc). But costs drop dramatically in amount of labour, length of time, installation costs, and so on. So usually, it's net-cheaper overall.
  - magduf 8y ago
    But it externalizes its costs: it requires people to have cars, which not only costs a lot of money in direct costs (car payments, maintenance/repairs, fuel), but also has a steep environmental penalty, plus a cost in lives lost due to crashes.
externalreality 8y ago
Corruption and ultra high salaries of government officials and police drain the life out of these cities. This is a story playing out in small piggy-banks, ahem, cities all across the nation. I lived in a particularly egregious one called Yonkers, NY for a while. This place is the only city in NY (other than NYC) that goes after your income too in addition to ridiculously high prop taxes.
- selimthegrim 8y ago
  The Key and Peele Obama Meet and Greet sketch that became a huge meme platform last year has a version where the people being greeted are various areas in the Bronx and Yonkers is the person ignored at the end as Obama walks out.
jelliclesfarm 8y ago
I find the idea of taxing one’s primary residence utterly distasteful. People live and work and buy things..all of which is taxable. A house sits and does nothing. It doesn’t ‘consume’ anything and if it does consume or it’s residents consume, that’s taxed. We should have consumption tax..not property taxes for one’s primary residence. We have road tax, gas tax, sales tax, income tax ..we pay for utilities, essential services, schools. But why should we pay taxes for living under a roof and getting married and giving birth and I guess when we die. That’s being taxed for existing.
- Scaevolus 8y ago
  Property consumes limited space. If anything, property taxes are too low! Look at all the underdeveloped lots that provide a few parking spots next to tall apartment buildings.
  - YokoZar 8y ago
    Land Value Taxes are what tax the scarce land, not property taxes. That's the article's point: moving away from property taxes towards LVTs creates the incentive to move away from underdevelopment.
    - jelliclesfarm 8y ago
      There is some merit to the idea but it shouldn’t be punitive but must possess an incentive for it to be developed. Afterall, possession of a limited resource shouldn’t create a disadvantage to the owner of said possession. That makes no logical sense wrt property and ownership rights.
      - istjohn 8y ago
        The limited nature of land is precisely why possession should be costly. Efficient use of land will produce an economic surplus adequate to pay a reasonable land tax and then some. But if someone squanders their land and insists on letting it sit fallow, so to speak, they will pay for the privilege. If it is sufficiently important to the land owner that the land be unproductive, they will be happy to pay the price in the form of the land tax; otherwise, they will sell the land to someone who can put the land to better use. There is nothing natural about land ownership. The government creates the artificial construct of land as property to avoid the tragedy of the commons, where no one has an incentive to invest in making land productive--for example, by building a home, factory, or farm. A land tax prevents a land owner from squandering the privileges of land ownership.
calineczka 8y ago
How does the property tax work in the US? How big is it? There is a similar concept in Poland but the values are relatively low and I don't think they affect the economy of cities much. Also, it doesn't get bigger if you renovate. It depends on the square meters of the building.
- afarrell 8y ago
  > It depends on the square meters of the building Is that the Sq meters of the ground floor, or sq meters when you add up the space of all the floors? If the former, that sounds like a land value tax—-something that lots of people have suggested would improve construction incentives
  - Tade0 8y ago
    We have both in Poland - they're pretty minimal unless you're running a business in there - then the latter shoots up roughly 30x[0]. [0] Provided you dedicate at least one whole room for commercial activity. If you don't then apparently there's no additional taxation. I am not qualified to give tax-related advice though, so don't quote me on that.
- hanging 8y ago
  Property tax is a function of assessed value of the land plus improvements (generally buildings).
- chewz 8y ago
  Each and every MoF is suggesting real estate value tax in Poland. Sooner or later they will get what they want. In Italy Berlusconi abolished this tax I think but it works in other EU countries. It ain't such a bad way of taxation. At the right rate it stimulates the economy - instead of being frozen in real estate excess capital (peoples savings) moves into more productive parts of economy. Sorry link is in Polish. https://ksiegowosc.infor.pl/podatki/podatki-osobiste/podatek-od-nieruchomosci/726984,Podatek-katastralny-moze-zostac-wprowadzony-do-2020-r.html https://ksiegowosc.infor.pl/podatki/podatki-osobiste/podatek...
huffmsa 8y ago
Taxation based on the value of the edifice is such a dumb idea it could only have come from the government. It does precisely what this article says, disincentives improvements, because "the government" is just going to take more of your money. Seems illegal to boot (although I imagine there's plenty of precedent). Taxing the land at least has some logic to it. "This land is serviced by this government, you pay for those services". As well having a high land tax means you're going to build high revenue generating structures to meet your burden.
- smadge 8y ago
  Some form of property tax has been around since the feudal era and the idea of a land value tax has been around in western economics since the 1700s.
- yason 8y ago
  There should also be a portion of the land tax that comes from the relevant part of the city-owned road network which needs maintenance. Buying a lot in the suburbs which necessitates massive highways and arterials built and maintained should have that factored in the land tax to balance the gap between suburbs and downtown. In the downtown your land tax would be higher because of demand of lots and higher land value, and in the suburbs it would be higher because of higher per-lot costs to the city.
- tchaffee 8y ago
  It's not just the land that is serviced though. Aren't the infrastructure and service needs (fire department for example) different for no building vs. a one story building vs. a forty story building?
  - rocqua 8y ago
    Perhaps, but thats an argument for occupancy based tax, not building-value based tax.
    - tchaffee 8y ago
Wyndtroy2012 8y ago
Good article. The land tax is probably the preferred tax of libertarians, and it does make sense in many cases. But in the case of cities with vastly higher municipal costs than its neighboring jurisdictions, the land tax would still be high enough to ward off new residents, which would just work to keep rents too low, etc. The city will have to see where its costs are, get them under control if possible, and grow its "brand." There are a lot of things that are attractive to a city as opposed to the suburbs, but the negatives would need to be dealt with, too.
- rocqua 8y ago
  A land tax with the same total revenue of a property tax benefits those with houses that are expensive w.r.t. the landvot sits on. This means some people would be worse of, and some better of. In general, it drives high density and quality development. I might speculate that this will increase demand for housing, which would push up land value.
tomohawk 8y ago
Big fan of land value taxes. They apply pressure to make the best use of the land rather than sitting on it. However, I'm not sure it will help cities like Baltimore, where they were unable to turn things around even by giving away houses for $1 and no taxes for a few years. In a city, you're more dependent on the government to take care of things, and in most US cities, with single party control, it does not happen. They don't take care of crime. They let infrastructure decay. The schools are crap (despite high per-pupil spending). They make crony deals with the unions on pensions and benefits that are not possible to fund. Not feeling safe and with a bleak future for their kids, people move out. I've seen this happen over and over again with coworkers who initially were big on city living, but eventually moved out when they got mugged or had kids. The result is insane taxes as population leaves, and subsidies from the surrounding areas to try to keep the failed city afloat. The high taxes and obvious government incompetence then act as a moat to keep people out.
- dsfyu404ed 8y ago
  >They don't take care of crime. They let infrastructure decay. The schools are crap (despite high per-pupil spending). They make crony deals with the unions on pensions and benefits that are not possible to fund. To expand on this point, why would there be any institutional will to take more than a token effort to do any of those things? It's not like they risk getting voted out by someone who isn't on the same side and will leave the root system of the party's power to control government mostly intact (doing the opposite would anger enough people to not be in the self interest of anyone who gets elected). Even if you keep voting in different politicians who actually want to do anything you're never actually getting a major refresh until you get someone from a different party who aggressively appoints a different set of cronies.
- maxsilver 8y ago
  > Big fan of land value taxes. They apply pressure to make the best use of the land rather than sitting on it. I like that Land Value Taxes hurt anyone hoarding land to ride the rising assessments (which is a major problem today). But I don't like that LVT punishes people for productively using land. Land Value Taxes apply pressure to make the highest capital return on every piece of land, which is not the same thing as the best use of the land, and would hurt many good uses of land that are not profitable. > In a city, you're more dependent on the government to take care of things, and in most US cities, with single party control, it does not happen. Yep. And what's worse, most cities intentionally want to make all of these things worse. Cities are often intentionally destroying their infrastructure (tearing down useful-but-unloved infrastructure for useless-but-pretty replacements) and intentionally destroying their affordable housing (purposefully gentrifying areas of their cities, to drive out residents deemed undesirable) The cycle of driving people out of the city by attacking housing/transportation/services is not an accident, it's not happenstance. This is an intentional design goal baked into how they frame every problem and how they approach every change. It's not something anyone will admit to upfront, but if you travel through Urbanist circles long enough, you can get into the behind-doors conversations they have and see this in action. > I've seen this happen over and over again with coworkers who initially were big on city living, but eventually moved out when they got mugged or had kids. Yep. And if you escape the crime or the school problem, they'll hit you on housing or transportation instead. There's no escaping the never-ending list of problems forced upon residents. Suburbs are the place for affordable housing. Suburbs are for functional schools. Suburbs are for sustainable living. Suburbs are for decent infrastructure. Suburbs are for diversity, especially on the low-income/working-class side of things. Suburbs are the place you begin your startup in a garage, because Suburbs are the only place cheap enough that a regular person could have a garage at all. Cities aren't for people. Cities are for the conglomeration of capital, and capital alone. Humans need not apply.
rocqua 8y ago
How do you asses land value? For property value, you at least have an active market to reffer to. Since most land is sold witg property on it, there is much less of a market to indicate the value of plain land.
- joncrocks 8y ago
  Property value - estimated construction costs? Reconstruction costs are something that I think are frequently estimated for building insurance purposes.
- oftenwrong 8y ago
  You compare the value of a given property to that of similar properties in other locations. Let us say you have two identical apartment buildings: one in the city center, and one on the outskirts of the city. It is likely that renting an apartment in the former is more expensive, despite both building being exactly the same. The difference in rental rates between the two buildings is due to the difference in value of the land they are built on. Further reading: http://kaalvtn.blogspot.com/p/valuations-and-potential-lvt-receipts.html#2 http://kaalvtn.blogspot.com/p/valuations-and-potential-lvt-r...
js2 8y ago
Similar piece from The Economist a few years back, but looking at the opposite side of the coin, wildly successful cities with ridiculous housing costs due to poor land use, but still prescribing LVT as part of the solution: https://www.economist.com/leaders/2015/04/04/space-and-the-city https://www.economist.com/leaders/2015/04/04/space-and-the-c... Related article on LVT: https://www.economist.com/free-exchange/2015/04/01/why-henry-george-had-a-point https://www.economist.com/free-exchange/2015/04/01/why-henry... "But if LVTs are so great, why are they so rare?" LVTs would impose concentrated costs on today’s landowners, who face a new tax bill and a reduced sale price. The benefit, by contrast, is spread equally over today’s population and future generations. This problem is unlikely to be overcome. Economists will continue to advocate LVTs, and politicians will continue to ignore them. https://www.economist.com/the-economist-explains/2014/11/10/why-land-value-taxes-are-so-popular-yet-so-rare https://www.economist.com/the-economist-explains/2014/11/10/...
intrasight 8y ago
How it was explained to me in a business course in college is that capital should be taxed based upon it's economic yield. How much it costs a municipality to service a property shouldn't be taken into account. I've always believed that to make sense, and this article didn't sway me. If I want to sit on some empty land, then the government doesn't deserve any tax revenue from me because I'm not getting any revenue from the land. The government shouldn't be able to tax based upon "possible" revenue - because they are a poor judge of what is possible (as are most people). But they should be able to audit my books to find out what actual revenue is accruing from my ownership of capital. Taxing the rewards of capital is the basis of capitalism.

108 points by oftenwrong 8y ago

"At the same time, the city's infrastructure is aging and requires more maintenance than it once did." The thing which is aging is more likely the base of city employees and retirees who were promised defined benefit pensions which were underreserved for and routinely looted, over a period of decades. Erie, for example, has an unfunded liability of about $90 million against a total annual budget of ~$115 million. (As is typical, the lion's share is police/firefighters.)

freddie_mercury 8y ago
Erie County, Pennsylvania, has an unfunded liability of $9.7 million, according to line 7 of section 2.5 of their 2018 annual report. The annual required contribution is a mere $4.3 million Their pension is 99% funded. I don't know why you'd bring it up, since it is unrelated to the article. Fixing pensions won't change the fact that neglectful landlords get rewarded under the current taxation scheme.
- patio11 8y ago
  The City of Erie, Pennsylvania, is the Erie on the hook for fire and police pensions. https://www.paauditor.gov/media/default/MunPenReporting/RPT_2016_MuniPension_STATUS_REPORT_Dec2016_FINAL.pdf https://www.paauditor.gov/media/default/MunPenReporting/RPT_... Why bring it up? Because cities are special purpose vehicles to fund police/firefighter pensions which have a side hustle in providing civic infrastructure. That's quite relevant to the question of why costs are increasing (because politically powerful people got placated), whether investments in infrastructure will reduce costs (strictly impossible), and whether property developers are to blame for underfunded infrastructure (they do not receive checks from the city every month).
  - freddie_mercury 8y ago
    That seems like just some random place not mentioned in the article? The article mentionedthe county of Erie. And the quote wasn't about any city in particular, just about generic "many older cities". The city of Erie didn't come up in the article.
    - UncleEntity 8y ago
      > The city of Erie didn't come up in the article. "Joshua Vincent’s piece on land taxation in Pennsylvania examines relative tax rates in Erie County, Pennsylvania, finding that property owners in the city of Erie proper pay close to double the taxes that those in many of Erie's suburbs pay."
- theobeers 8y ago
  Unfunded pension liabilities are absolutely related, as they represent part of the "vicious cycle" described in the article. Both Erie County and the city of Erie are mentioned. The comment to which you replied was referring to the latter.
omegaworks 8y ago
Can we close the book on this "unfunded pension liability" nonsense? The government can create the raw dollars needed to fund the pensions. Just listen to Alan Greenspan himself shut down Paul Ryan's perverse anti-social security zealotry: https://www.youtube.com/watch?v=DNCZHAQnfGU https://www.youtube.com/watch?v=DNCZHAQnfGU
- function_seven 8y ago
  Some other government could (federal), but not the municipal or state governments. That’s the rub here. These liabilities are hanging around the necks of governments that can’t pull a monetary supply lever.
  - omegaworks 8y ago
    Bailouts are a tried and true mechanism for addressing this liquidity problem for the private sector. I don't see why it shouldn't apply here.
    - rayiner 8y ago
      In the private sector, bailouts were used to address a liquidity problem—if the companies could survive the crunch, they could be in a position to pay the money back. Municipalities aren’t facing a liquidity problem—they’re insolvent. They owe far more than they can ever hope to pay back, because their tax bases aren’t growing at the rates needed to make their obligations manageable.
    - function_seven 8y ago
      I don’t disagree in the abstract. But Erie can’t tell its municipal bond holders, “Don’t worry, we’ll just wait for the bailout. Your debt is safe” This would make a potential future crisis an actual current one.
    - rmilk 8y ago
      The question then becomes how to acquire the money for the bailout. You can’t just ask for money or acquire funding through buyout. Tax increases or bonds are really the only sources of money, and they require voter approvals. Costs can be reduced by cutting services or through bankruptcy, both of which bring their own side effects by reducing the appeal of the city or county or by making future debt more expensive. See this link for a survey of California issues with pensions. The source is the league of CA cities, so there is some bias but the results are still meaningful and eye opening regarding future mandatory spending commitments. http://www.cacities.org/2018PensionSurvey http://www.cacities.org/2018PensionSurvey
YokoZar 8y ago
Another article from Strong Towns made the point that infrastructure like roads tends to only last about 30 years before needing complete replacement. In many towns this infrastructure is paid for by assessing fees on new development. Once the city stops expanding, you now have no tax base to pay for all the existing roads needing replacement. All those replacement bills come due: the "aging infrastructure" needs more maintenance.
- aperrien 8y ago
  Are there any road structures that will last longer than 30 years? I've heard that there are other materials used overseas that do, but I don't know the subject well enough to ask effective questions about it.
  - josephorjoe 8y ago
    cobblestone
BeetleB 8y ago
>The thing which is aging is more likely the base of city employees and retirees who were promised defined benefit pensions which were underreserved for and routinely looted, over a period of decades. Let me ask: How were those pension banks supposed to be funded? The reason I ask is because my state has a defined pension plan for many public workers. The benefits are defined irrespective to how the market performs. We're also one of the highest income tax states out there. Yet the pension is underfunded. No one's been "looting" it. No one takes money out of it for some other purpose. The tax rate simply isn't enough to fund it. And we have a high tax rate. Whoever designed this for our state did so with the assumption that market returns would be enough to fund it. It never was a plan of simply collecting tax money. They were wrong. The market returns were not enough. Current retirees are getting their pensions. We just won't have enough for the next batch at current funding rates. It's gone to court, and the courts have ruled that there are no loopholes: People will get their pensions, no matter what. So now we're dealing with the "no matter what". We have one of the worst high school graduation rates in the country, and the quality of education overall is rated fairly low. Yet, we can't solve that problem with money. Because for the next decade or two, pretty much all increases in education funding are going to fund the pensions. A number of cities are growing, and the mayors are very clear about the problems: They cannot afford more police officers and other similar employees to keep pace with the growing cities - because all the extra revenue they are collecting in taxes is going to fund the retirement funds. The only solution the courts will allow is to change retirement plans for those just entering the workforce. But we will have to deal with this problem for a few decades where we must increase all kinds of taxes to pay for pensions, and allow the rest of the infrastructure to decay. There's no cap on the defined benefits for high income folks, BTW. University football coaches, and retired presidents, get a lot of money (at least one of them gets over $70K/month). Of course, these are outliers. The median is under $40K/year. Defined benefits is a bad idea. They need to switch to defined contributions from employers, and let the investments dictate their pay (and probably give employees more choices for the investments).
- ohazi 8y ago
  > The only solution the courts will allow is to change retirement plans for those just entering the workforce. The best time to plant a tree was twenty years ago. The second best time is now.
tomjen3 8y ago
What I don't get is how on Earth that was ever legal. A defined benefit retirement service must require you to purchase an annuity, so how is it possible to underfund those retirement founds?
- AnimalMuppet 8y ago
  You purchase an investment, but not an annuity - say, some stocks. You make an over-optimistic assumption about how fast that investment is going to grow, because that lets you put less money in this year to fund it. But when the investment doesn't grow as fast as you forecast, you have an underfunded liability.

baroffoos 8y ago

I wonder if higher density living could lower costs for councils/cities. With more people living closer you would think less money needs to be spent on footpaths and such, maybe less police because they are spread out less. Also makes me wonder what the maintenance costs of rail are. I don't know much about it but light rail tracks look like they would probably last a really long time without being replaced where as it seems roads hardly last a few years before needing to be resurfaced.

JamesBarney 8y ago

I always wonder why these articles about growing infrastructure costs and shrinking tax bases are about cities and not the suburbs. You would think the issues would be worse in the suburbs because the lower density would drive up the amount of required infrastructure per house.

UncleEntity 8y ago
Probably because people have been leaving the city and flocking to the suburbs for a few generations now. People leaving the cities plus all the new people means the suburbs are (probably) absorbing all that growth.
- externalreality 8y ago
  > all the new people What do you mean by this - population growth? Younger generations coming of age and such.
CalRobert 8y ago
Citylab, strongtowns etc. Often discuss the tyranny of the suburbs and how city residents subsidize their infrastructure.
maxsilver 8y ago
Infrastructure costs don't scale up linearly with distance, they scale up exponentially with complexity. Suburban infrastructure, while spread further apart than city infrastructure, is usually far simpler to build and simpler to maintain and simpler to replace. Costs go up a little bit in raw resources (longer wires, longer pipes, etc). But costs drop dramatically in amount of labour, length of time, installation costs, and so on. So usually, it's net-cheaper overall.
- magduf 8y ago
  But it externalizes its costs: it requires people to have cars, which not only costs a lot of money in direct costs (car payments, maintenance/repairs, fuel), but also has a steep environmental penalty, plus a cost in lives lost due to crashes.

externalreality 8y ago

Corruption and ultra high salaries of government officials and police drain the life out of these cities. This is a story playing out in small piggy-banks, ahem, cities all across the nation. I lived in a particularly egregious one called Yonkers, NY for a while. This place is the only city in NY (other than NYC) that goes after your income too in addition to ridiculously high prop taxes.

selimthegrim 8y ago
The Key and Peele Obama Meet and Greet sketch that became a huge meme platform last year has a version where the people being greeted are various areas in the Bronx and Yonkers is the person ignored at the end as Obama walks out.

jelliclesfarm 8y ago

I find the idea of taxing one’s primary residence utterly distasteful. People live and work and buy things..all of which is taxable. A house sits and does nothing. It doesn’t ‘consume’ anything and if it does consume or it’s residents consume, that’s taxed. We should have consumption tax..not property taxes for one’s primary residence. We have road tax, gas tax, sales tax, income tax ..we pay for utilities, essential services, schools. But why should we pay taxes for living under a roof and getting married and giving birth and I guess when we die. That’s being taxed for existing.

Scaevolus 8y ago
Property consumes limited space. If anything, property taxes are too low! Look at all the underdeveloped lots that provide a few parking spots next to tall apartment buildings.
- YokoZar 8y ago
  Land Value Taxes are what tax the scarce land, not property taxes. That's the article's point: moving away from property taxes towards LVTs creates the incentive to move away from underdevelopment.
  - jelliclesfarm 8y ago
    There is some merit to the idea but it shouldn’t be punitive but must possess an incentive for it to be developed. Afterall, possession of a limited resource shouldn’t create a disadvantage to the owner of said possession. That makes no logical sense wrt property and ownership rights.
    - istjohn 8y ago
      The limited nature of land is precisely why possession should be costly. Efficient use of land will produce an economic surplus adequate to pay a reasonable land tax and then some. But if someone squanders their land and insists on letting it sit fallow, so to speak, they will pay for the privilege. If it is sufficiently important to the land owner that the land be unproductive, they will be happy to pay the price in the form of the land tax; otherwise, they will sell the land to someone who can put the land to better use. There is nothing natural about land ownership. The government creates the artificial construct of land as property to avoid the tragedy of the commons, where no one has an incentive to invest in making land productive--for example, by building a home, factory, or farm. A land tax prevents a land owner from squandering the privileges of land ownership.

calineczka 8y ago

How does the property tax work in the US? How big is it? There is a similar concept in Poland but the values are relatively low and I don't think they affect the economy of cities much. Also, it doesn't get bigger if you renovate. It depends on the square meters of the building.

afarrell 8y ago
> It depends on the square meters of the building Is that the Sq meters of the ground floor, or sq meters when you add up the space of all the floors? If the former, that sounds like a land value tax—-something that lots of people have suggested would improve construction incentives
- Tade0 8y ago
  We have both in Poland - they're pretty minimal unless you're running a business in there - then the latter shoots up roughly 30x[0]. [0] Provided you dedicate at least one whole room for commercial activity. If you don't then apparently there's no additional taxation. I am not qualified to give tax-related advice though, so don't quote me on that.
hanging 8y ago
Property tax is a function of assessed value of the land plus improvements (generally buildings).
chewz 8y ago
Each and every MoF is suggesting real estate value tax in Poland. Sooner or later they will get what they want. In Italy Berlusconi abolished this tax I think but it works in other EU countries. It ain't such a bad way of taxation. At the right rate it stimulates the economy - instead of being frozen in real estate excess capital (peoples savings) moves into more productive parts of economy. Sorry link is in Polish. https://ksiegowosc.infor.pl/podatki/podatki-osobiste/podatek-od-nieruchomosci/726984,Podatek-katastralny-moze-zostac-wprowadzony-do-2020-r.html https://ksiegowosc.infor.pl/podatki/podatki-osobiste/podatek...

huffmsa 8y ago

Taxation based on the value of the edifice is such a dumb idea it could only have come from the government. It does precisely what this article says, disincentives improvements, because "the government" is just going to take more of your money. Seems illegal to boot (although I imagine there's plenty of precedent). Taxing the land at least has some logic to it. "This land is serviced by this government, you pay for those services". As well having a high land tax means you're going to build high revenue generating structures to meet your burden.

smadge 8y ago
Some form of property tax has been around since the feudal era and the idea of a land value tax has been around in western economics since the 1700s.
yason 8y ago
There should also be a portion of the land tax that comes from the relevant part of the city-owned road network which needs maintenance. Buying a lot in the suburbs which necessitates massive highways and arterials built and maintained should have that factored in the land tax to balance the gap between suburbs and downtown. In the downtown your land tax would be higher because of demand of lots and higher land value, and in the suburbs it would be higher because of higher per-lot costs to the city.
tchaffee 8y ago
It's not just the land that is serviced though. Aren't the infrastructure and service needs (fire department for example) different for no building vs. a one story building vs. a forty story building?
- rocqua 8y ago
  Perhaps, but thats an argument for occupancy based tax, not building-value based tax.
  - tchaffee 8y ago

Wyndtroy2012 8y ago

Good article. The land tax is probably the preferred tax of libertarians, and it does make sense in many cases. But in the case of cities with vastly higher municipal costs than its neighboring jurisdictions, the land tax would still be high enough to ward off new residents, which would just work to keep rents too low, etc. The city will have to see where its costs are, get them under control if possible, and grow its "brand." There are a lot of things that are attractive to a city as opposed to the suburbs, but the negatives would need to be dealt with, too.

rocqua 8y ago
A land tax with the same total revenue of a property tax benefits those with houses that are expensive w.r.t. the landvot sits on. This means some people would be worse of, and some better of. In general, it drives high density and quality development. I might speculate that this will increase demand for housing, which would push up land value.

tomohawk 8y ago

Big fan of land value taxes. They apply pressure to make the best use of the land rather than sitting on it. However, I'm not sure it will help cities like Baltimore, where they were unable to turn things around even by giving away houses for $1 and no taxes for a few years. In a city, you're more dependent on the government to take care of things, and in most US cities, with single party control, it does not happen. They don't take care of crime. They let infrastructure decay. The schools are crap (despite high per-pupil spending). They make crony deals with the unions on pensions and benefits that are not possible to fund. Not feeling safe and with a bleak future for their kids, people move out. I've seen this happen over and over again with coworkers who initially were big on city living, but eventually moved out when they got mugged or had kids. The result is insane taxes as population leaves, and subsidies from the surrounding areas to try to keep the failed city afloat. The high taxes and obvious government incompetence then act as a moat to keep people out.

dsfyu404ed 8y ago
>They don't take care of crime. They let infrastructure decay. The schools are crap (despite high per-pupil spending). They make crony deals with the unions on pensions and benefits that are not possible to fund. To expand on this point, why would there be any institutional will to take more than a token effort to do any of those things? It's not like they risk getting voted out by someone who isn't on the same side and will leave the root system of the party's power to control government mostly intact (doing the opposite would anger enough people to not be in the self interest of anyone who gets elected). Even if you keep voting in different politicians who actually want to do anything you're never actually getting a major refresh until you get someone from a different party who aggressively appoints a different set of cronies.
maxsilver 8y ago
> Big fan of land value taxes. They apply pressure to make the best use of the land rather than sitting on it. I like that Land Value Taxes hurt anyone hoarding land to ride the rising assessments (which is a major problem today). But I don't like that LVT punishes people for productively using land. Land Value Taxes apply pressure to make the highest capital return on every piece of land, which is not the same thing as the best use of the land, and would hurt many good uses of land that are not profitable. > In a city, you're more dependent on the government to take care of things, and in most US cities, with single party control, it does not happen. Yep. And what's worse, most cities intentionally want to make all of these things worse. Cities are often intentionally destroying their infrastructure (tearing down useful-but-unloved infrastructure for useless-but-pretty replacements) and intentionally destroying their affordable housing (purposefully gentrifying areas of their cities, to drive out residents deemed undesirable) The cycle of driving people out of the city by attacking housing/transportation/services is not an accident, it's not happenstance. This is an intentional design goal baked into how they frame every problem and how they approach every change. It's not something anyone will admit to upfront, but if you travel through Urbanist circles long enough, you can get into the behind-doors conversations they have and see this in action. > I've seen this happen over and over again with coworkers who initially were big on city living, but eventually moved out when they got mugged or had kids. Yep. And if you escape the crime or the school problem, they'll hit you on housing or transportation instead. There's no escaping the never-ending list of problems forced upon residents. Suburbs are the place for affordable housing. Suburbs are for functional schools. Suburbs are for sustainable living. Suburbs are for decent infrastructure. Suburbs are for diversity, especially on the low-income/working-class side of things. Suburbs are the place you begin your startup in a garage, because Suburbs are the only place cheap enough that a regular person could have a garage at all. Cities aren't for people. Cities are for the conglomeration of capital, and capital alone. Humans need not apply.

rocqua 8y ago

How do you asses land value? For property value, you at least have an active market to reffer to. Since most land is sold witg property on it, there is much less of a market to indicate the value of plain land.

joncrocks 8y ago
Property value - estimated construction costs? Reconstruction costs are something that I think are frequently estimated for building insurance purposes.
oftenwrong 8y ago
You compare the value of a given property to that of similar properties in other locations. Let us say you have two identical apartment buildings: one in the city center, and one on the outskirts of the city. It is likely that renting an apartment in the former is more expensive, despite both building being exactly the same. The difference in rental rates between the two buildings is due to the difference in value of the land they are built on. Further reading: http://kaalvtn.blogspot.com/p/valuations-and-potential-lvt-receipts.html#2 http://kaalvtn.blogspot.com/p/valuations-and-potential-lvt-r...

js2 8y ago

Similar piece from The Economist a few years back, but looking at the opposite side of the coin, wildly successful cities with ridiculous housing costs due to poor land use, but still prescribing LVT as part of the solution: https://www.economist.com/leaders/2015/04/04/space-and-the-city https://www.economist.com/leaders/2015/04/04/space-and-the-c... Related article on LVT: https://www.economist.com/free-exchange/2015/04/01/why-henry-george-had-a-point https://www.economist.com/free-exchange/2015/04/01/why-henry... "But if LVTs are so great, why are they so rare?" LVTs would impose concentrated costs on today’s landowners, who face a new tax bill and a reduced sale price. The benefit, by contrast, is spread equally over today’s population and future generations. This problem is unlikely to be overcome. Economists will continue to advocate LVTs, and politicians will continue to ignore them. https://www.economist.com/the-economist-explains/2014/11/10/why-land-value-taxes-are-so-popular-yet-so-rare https://www.economist.com/the-economist-explains/2014/11/10/...

intrasight 8y ago

How it was explained to me in a business course in college is that capital should be taxed based upon it's economic yield. How much it costs a municipality to service a property shouldn't be taken into account. I've always believed that to make sense, and this article didn't sway me. If I want to sit on some empty land, then the government doesn't deserve any tax revenue from me because I'm not getting any revenue from the land. The government shouldn't be able to tax based upon "possible" revenue - because they are a poor judge of what is possible (as are most people). But they should be able to audit my books to find out what actual revenue is accruing from my ownership of capital. Taxing the rewards of capital is the basis of capitalism.