News today that Boston Mayor Marty Walsh & Mass Governor Charlie Baker want to redevelop 5.5 acres along Kneeland Street, near South Station (Global Article) got me thinking about how our government needs to rethink how it monetizes development.
In much of our development, the City or State sells land to a developer (Hopefully near market value) and then the developer gets to build and then sell or lease their new property, creating a great revenue stream for the developer. Now, this process is less than ideal because there is much room for back room dealing (A common complaint about the BRA), or undervaluation of property for a well-connected developer (Such news blew up last fall about the Winthop Street Garage in Boston). Plus once the City or State sells of the land, the revenue producing nature of the land shifts to what can be gotten for property taxes or business/sales taxes generated by the site which are then limited by Prop 2 1/2 and others.
As I think about various properties owned by the City, State and other agencies, often hamstrung with tight budgets, is why do they sell these properties in the first place? Maybe the City/State needs to become a landlord.
When we talk about transportation outside the US, and why agencies such as the MTR in Hong Kong or the train companies in Tokyo are so successful and offer good service, it’s because their business is grounded in real estate, not transportation. The transportation is just part of the ecosystem they’ve built to better monetize their property. I’ve written at length about this on BMG before: http://bluemassgroup.com/2015/02/fixing-the-mbta-diving-into-some-numbers-talking-transportation-as-an-investment-transit-around-the-world-and-finding-cash-flow/
It’s exciting to see Boston, Cambridge and the surrounding cities thrive. And it’s great to see the reinvestment flowing back into our urban areas. But I think it’s short sited to watch the Cities & State simply sell off their most prized possessions without finding long term ways to build cash flow from them.
I’d suggest our esteemed leaders not rush to give away land to a developer. Yes, it may help repair a somewhat gritty area, bring in new desperately needed housing & more office space, but by simply selling the land off we’re missing a great opportunity to generate more steady cash flow outside of the normal channels of taxes.
If you want some quick reading on this topic, jump over to Wikipedia and read about Ground Rents: https://en.wikipedia.org/wiki/Ground_rent
Ever wander where the Queen Of England’s money comes from? It’s not taxes – they’re landlords, retaining ownership over huge chunks of prime London & UK real estate: https://en.wikipedia.org/wiki/Crown_Estate
We could follow a similar model, which could also be great as our non-profit and tax free colleges, universities & hospitals continue to gobble up land, depriving municipal coffers of much needed property tax revenues.
MIT, Harvard, and Tufts all own large swaths of real estate as income generating tools.
If this is legal, why aren’t more municipalities doing it? It sounds really brilliant, so I want to know what the catch is.
(first, let me express extreme and gratuitously exuberant thanks for a diary not about the silly in the season. You have — however momentarily — loosed the rains upon a parched, indeed desiccated, intellectual wasteland )
It’s called public housing when the City/State becomes the landlord. There may be benefits to this for actual housing but on land tenanted by corporations and other private consortia, this raises serious serious concerns about influence, parity and governmental independence. Consider the recent anger at the so-called ‘giveaways’ to GE in Boston, some of which involved development of property at little or no cost to GE.
And, while there is a shortage of affordable housing and therefore the state and/or city ought to do something about it, and I certainly would like to see much much more public housing, as a means to raise overall revenue (which is the general thrust of your argument) it’s not a particularly sound idea. The land will have to be developed and then maintained and any decision by a government developer favoring one group over any other, or requiring specific maintenance versus efficiencies, will be subject to lawsuits and protests. Once developed and built, these living quarters will have rents needing to be scrupulously maintained according to some formula that frees the governmental landlords from charges of bias and any and all attempts to raise them will be met with resistance every time. Even if all these hurdles could be overcome, the amount of housing to be added before depressing the overall rents in the city wouldn’t raise revenues significantly more than taxes gained by simply selling the land and letting developers at it.
I certainly think the City and/or State can make better use of these parcels or sell them to recoup taxes. But I don’t think the government as landlord is particularly a lucrative endeavor.
What if the gov’t simply offered 99 year leases on the land, available at public auction? That gets around some of the crony stuff, although perhaps not all of it…
I understand your point about allowing municipalities to collect more revenue by being landlords, but maybe there is a different solution to the problem you seem to be trying to solve.
Why not allow municipalities more options on raising revenues beyond property taxes?
Our current system makes some municipalities winners and other losers, and we wind up treating them as such. Imagine if, tomorrow, the law changed to eliminate property tax and base revenues on sales tax? What would happen to Wellesley? Well, we could make it eligible for state assistance, I guess, and that would make things all right, wouldn’t it?
Of course it wouldn’t, which shows you just how much inequity is simply via the state law which bases municipal revenue on property taxes. So instead of the winners/loses with assistance model, why not allow every community to be a winner? Why not throw a penny or two onto the sales tax and give it to the community that collects it?
This could take away development pressure for $500k houses and would give incentives for more dense housing coupled with nearby retail to serve those residents.
Why use a regressive sales tax to fix the problem facing communities with low commercial density and lower property values (or otherwise feeling squished by 2.5)?
I’d like to see exploration of a state-wide property tax adder: an extra few slivers on all property above some threshold. Maybe it’s a dollar amount ($500k seems like a lot in Pittsfield but its a 2 BR condo in Boston metro). Maybe it’s based on the median property in that community (2x median or something). Maybe it’s based on the percent of square feet of the home in excess of 2000 or some other number. I have no idea what to do with non-residential, etc. This isn’t a policy proposal!
Why not put an extra tax on especially valuable properties?
I like your proposal to look beyond property taxes for the needed new local revenue. Like stomv, I suggest we avoid shifting from one regressive tax to another. I therefore suggest we do whatever is needed to allow local communities to impose a local income tax.
The state of MD has, for years, allowed local communities to add a percentage of the federal income tax as a local tax adder. It becomes more or less progressive (in the word’s “tax policy” sense) as the progressiveness of the federal income tax rate changes.
I’d like to see Massachusetts shift our tax base from regressive sales and property taxes to progressive income and gift/estate taxes.
As long as the SJC interprets the uniformity clause of the state Constitution to apply to the income tax, a local income tax is not permissible. I cannot find the language for the current proposal for a graduated income tax so do not know if it would void that problem.
Agreed.
It’s an example of a constraint that I expect an overwhelmingly Democratic legislature to remove.
The legislature cannot remove the uniformity clause from the Constitution. That can only be done by the electorate and no sooner than 2018.
I am guessing that the Constitutional amendment was drafted or at least vetted by the wise and sagacious Peter Enrich, maybe Carl Valvo also, so I expect that it was as legally sound as is possible.
I understand and don’t challenge that.
The clause in question has been cited by Democrats for an eternity, who say something along the lines of “I would really LOVE us to have a graduated income tax, but the constitution prevents it” — and who then do nothing to help change the constitution (or actively work to block such a change).
I’m reminded of several local Democrats who told anti-abortion audiences “I’m opposed to abortions and would make them illegal if I could, but Roe v. Wade means that I can’t do that” and who told pro-choice audiences “I’m fully in favor of a woman’s right to choose. Roe v. Wade is the law of the land and I support it”.
I think that if an empowered majority or supermajority of the legislature make passing the needed amendment their highest priority, it will happen — especially if that happens while the sitting governor is a Democrat.
The clause still exists, and we still lack a progressive income tax, because our “Democratic” government hasn’t actually wanted a progressive income tax.
Not really, Tom. Constitutional amendment fights are rare and should be for practical reasons. It only requires fifty votes from the 200 gathered legislators at a ConCon when an amendment is initiated by a signature petition.
Even after a ConstAmend is passed by the voters, the legislature will then need to pass enabling legislation to set the tax rates, and then engage in an annual act of appropriating money raised by it and all of the other revenue streams of the Commonwealth.
But let’s be clear, this is a program initiated by activists, as it should be. I am very happy that Harris Gruman, the best community organizer I have ever met, is overseeing the effort. But it is an uphill battle since the electorate is in charge. The last time we did it for the grad tax, in the four year period until 1994, we advocates were joined by legislators to put the Constitutional question, along with a companion statute on the law books. We got crushed after we outspent the anti-tax crowd by a mile.
Once the amendment is passed by the two ConCons, legislators are prohibited by campaign finance laws from using any of their office resources to promote the measure. They can only answer questions about whether they support or oppose the measure(s), cannot use staff to advocate and cannot place calls from State House offices. They are free to do a lot of other things outside of the State House and with their own time and money, like every citizen.
This process is happening over the next three years with only fifty votes needed in each of the next two biennium sessions of both ConCons. When you write
because our “Democratic” government hasn’t actually wanted a progressive income tax.
you should be writing our that democratic electorate has rejected it five times in the last half century. Yes, I know you hate the legislative Dems, but at least get your facts right.
Former state Rep John McDonough had a great piece in Commonwealth magazine in 2002 explaining the formalities of various types of ballot questions.
http://commonwealthmagazine.org/politics/taking-the-laws-into-their-own-hands/
Our income concentration is significantly higher now than it was when this issue was put on the ballot. The proponents, in the past, were not successful at persuading voters that the resulting tax increase would be felt only by the wealthy and very wealthy.
We now have an income and wealth distribution that is much flatter across most of the population than it has ever been, and with a MUCH higher spike at the wealthy extreme that we have ever seen. This distribution explains several mathematical realities:
1. It explains why so many of us feel so poor — a MUCH higher portion of the overall wealth (the area under the distribution) is now in the hands of the wealthiest (top 1%, even the top 0.1%).
2. It explains why effective tax rates on the very wealthy are so low in comparison to everyone else — our flat or capped tax rates still hit nearly the entire distribution, and are nearly flat. For those on the wealthy extreme, the total of their untaxed wealth/income (above the amount that is taxed) is MUCH higher than for everyone else, and so their tax rate is much lower
3. It explains why a combination of increased rates and increased exemptions affects only the wealthy.
The argument I heard most frequently against the earlier graduated income tax proposals was “I’m not wealthy, my taxes will still go up, and my taxes are already too high”.
One key aspect that we need to address is the difference between wealth and income. When the net worth of the six wealthiest people in Massachusetts increased from $32.18 B in 2014 to $36.0 B in 2015 (an increase in personal net worth of $3.82B), do we think that state tax revenues from this group increased by anything like the $191M that our 5% income tax rate would suggest?
The personal net worth of Abigail Johnson alone (our state’s wealthiest resident) increased OVER A BILLION DOLLARS, (from $13.1B to $14.2B) in this year alone. Does anyone think she paid anything approaching $55 M in INCREASED taxes on that ONE YEAR increase in wealth?
I am optimistic enough about our state’s voters that I feel confident that if we show them the data about how much wealth the very wealthy have, about how much INCREASE in that wealth the very wealthy receive, and the means by which we will tax only the wealthy and the very wealthy, our state’s voters will support this initiative.
Under these proposals, the six people on that list will pay more in taxes. The rest of us will not.