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Here’s one way to reduce the number of undeveloped lots in Minneapolis

MinnPost photo by Peter Callaghan
This lot on Hennepin Avenue is the type of property that could see increased taxes should cities like Minneapolis shift to a land-value tax that assesses the value of land at higher rates than improvements.

It would be understandable if members of the Minneapolis City Council wanted to avoid talking about property taxes for a while. 

A dispute over the size of the city’s 2015 tax levy led to an acrimonious end-of-year debate. Yet not quite a month later, a council committee went there anyway, though in a way that could end up providing more revenue from property taxes, not less.

Last week, the Intergovernmental Relations Committee discussed an idea known as land-value taxation. In brief, it means taxing land separately and at a higher rate than the buildings and other improvements that sit on top of that land. Currently, land and improvements are lumped together and taxed at a single rate, with the building usually making up the vast majority of the total.

“This is an idea that has been floating around,” said committee chair Elizabeth Glidden. “It definitely has had some research and support from academics.”

The local chapter of the group known as Common Ground USA has been quietly pushing the idea throughout the region. Employed in a handful of cities around the U.S. — though none in Minnesota — land-value taxation discourages leaving property undeveloped or underdeveloped (i.e. surface parking lots). Paying more in property taxes for fallow land, the thinking goes, would encourage owners to develop it.

In exchange, taxes on improvements would be lowered under the system, so that developers would not face a disincentive to build or improve buildings. Depending on how it is structured, the system could produce the same amount of revenue as the existing system, or even raise additional money, and could be applied across a city or in specific districts, such as the central business district. 

At least that’s the theory, which is supported by research done over the years by the University of Minnesota and the state of Minnesota. 

Any tax shift, however, would produce winners and losers, acknowledged Common Ground USA state chapter president Rich Nymoen. While a land-value system could be set up so most property owners broke even, owners of highly developed properties would likely pay less while underdeveloped and fallow land would pay more. 

In a 2012 article on streets.mn, Chris Keimig called the current system “essentially backwards” in terms of what it rewards and what it punishes. “It penalizes property owners for building or making improvements to their structures, while rewarding speculators and absentee landlords who would rather allow their properties to decay than make expensive (and annually taxable) improvements,” Keimig wrote.

Nymoen said he doesn’t think the Minnesota constitution would have to be changed to allow split-rate taxation, but he does think it would require legislative permission. The group is working legislators about introducing a bill, but nothing has been filed yet.

As far as the Minneapolis city council is concerned, the briefing was of interest but does not appear likely to lead to much action, given that land-value taxation isn’t part of the city’s official legislative agenda. “We think it’s a year or two conversation before we have any hope of a decision,” Nymoen said. “It’s a marathon, not a sprint.”

Comments (7)

  1. Submitted by Bill Lindeke on 01/12/2015 - 10:51 am.

    post mentioned is here

    the post mentioned above, called “tax land, not buildings,” is here: http://streets.mn/2012/12/10/tax-land-not-buildings/

    well worth reading!

  2. Submitted by Tom Moore on 01/12/2015 - 11:08 am.

    many questions

    Who is funding “Common Ground, USA”? I looked at their site and it is far from transparent about who is giving how much money to the organization.

    Also, from their site it seems the group’s aim is to lower taxes on businesses. Lots of talk on their page about lowereing taxes for businesses. So, is this group’s concern really about underdeveloped properties or is it more about lowering the taxes on profitable businesses?

    Also, they really are going to use Harrisburg, PA as an example for a city that has used this policy? I lived in the Harrisburg area; anyone can do a quick google search of “harrisburg, finances” to see what has gone on there. Not a good idea to use Harrisburg as an example for this group.

    Also, are we assuming that any property that doesn’t feature a large, expensive building is “underdeveloped”? If this group believes in free-market libertarian policies (as their web site states) then why should government push land owners and business owners off of their properties just for not having a higher-valued building or business on the lot? Are we really going to kick a small business out of Downtown or Uptown because they haven’t razed their business in favor of building or selling to a luxury high-rise?

    And isn’t Minneapolis growing pretty rapidly and upwards without forcing property owners to sell by raising their property tax until they have no choice?

    As this group comes before my city’s government we will need to vigilant about its true intentions, the long-term implications of its policies, and the rights of property and/or business owners to not be forced into developing or selling when they are making it under current rules.

    Thanks.

    I

  3. Submitted by Tom Moore on 01/12/2015 - 11:22 am.

    really…

    …. it seems like a way of squeezing lower-valued businesses into selling at lower rates (as scores of property owner would presumably be squeezed by the land tax at the same time and with no consideration for current market conditions) all the while profitable, larger businesses have their taxes cut substantally just because we are to assume that the previously “underdeveloped” parcels will now be developed into profitable, more highly-taxable buisinesses.

    Just seems like a tax-lowering ruse for the benefit of big business that stomps on the property rights of smaller businesses and less wealthy land owners.

  4. Submitted by Connie Sullivan on 01/12/2015 - 12:02 pm.

    If you follow annual property valuations made by the assessor, on residential property out in the neighborhoods, land has a visibly changing valuation, and is separate from the value of whatever structure is on the lot. Land is valued differently in different parts of the residential city, as well. So, obviously somebody isn’t really looking at what Minneapolis and Hennepin County are actually doing with regard to taxation of residential property.

    Changes in land values can be seen on the Minneapolis Property Information pages, buy property. to see the area, or ward, differences, you have to look up multiple specific addresses in various parts of Minneapolis. Work, but worth it to see that this article really has to do with the sometimes preferential treatment given to some business people’s properties.

  5. Submitted by Rich Nymoen on 01/12/2015 - 03:28 pm.

    Answers to “many questions”

    Common Ground USA is a citizens group funded with member dues. It’s not a front for any special interests. The group’s concern is with capturing community-created value (e.g. the value of land) for community purposes and doing so does create an incentive to use land efficiently. Communities should charge for the value they provide just as any private party would. Harrisburg’s recent financial difficulties resulted from unwise public funding for an incinerator, not it’s use of a land value tax. More info here:

    http://webapps.icma.org/pm/9202/public/cover.cfm?author=walter%20rybeck&title=retooling%20property%20taxes

  6. Submitted by Janne Flisrand on 01/12/2015 - 08:54 pm.

    A proven approach

    If implemented properly, this would place the greatest pressure on existing surface parking lots to set aside speculation and reduce the excessive burden on high-value uses.

    As with any policy shift, it would have to be phased in, but would use the market to nudge people in the direction of more appropriate uses. The practice of holding surface parking as an interim use for speculative property purchases harms everyone in the city (through unnecessarily reducing the tax base and increasing sprawl even in the heart of the city). It also encourages businesses to have more parking than they really need (when is the last time you saw a full lot at the Nicollet-closing K-Mart).

    This is smart, affordable, and will make Minneapolis better. I hope it gets implemented.

  7. Submitted by Wayne Coppock on 01/13/2015 - 12:55 pm.

    I’ve been an advocate of land-value taxation since I learned about (probably like ten years ago? or more?). It just makes so much sense from the perspective of promoting development. People who are quick to complain are likely profiting from the current perverse incentives on leaving land in an undeveloped state in the urban core (often as paid parking–where they can collect high fees and spend next to nothing on taxes and maintenance). People who own surface lots in dense areas basically have a money printing machine and will fight this sort of thing tooth and nail, but the change is in the best interests of everyone else and the future of the city.

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