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Funding Regional Transit Authority

Comments by Bill Sell
member Bay View Neighborhood Association Transportation Committee

Opinions expressed here are those of Bill Sell and not that of BVNA. Many citizens helped write this essay. Thanks to all. Milwaukee is an urban brain trust of talent, skills, experience and enthusiasm for the modern city.


Commuter rail is having trouble leaving the station. With all the tax burdens of the County and City can we afford rail, too?

The experience of other cities suggest that Land Value Taxation might help us develop and operate rail.

LVT is not a new tax but is a way of assessing at property based on its true market value. True market value is a function of location. LVT adjusts for location.

This discussion has been brewing in Bay View since Dave Wetzel’s presentation on July 24, Bay View Library. Mr. Wetzel, reporting directly to the mayor of London, is in charge of all transportation in that massive widespread city. His experience with this tax is wide and deep.

Is LVT a way out of our “no-new-taxes” stalemate? Let’s take a look at how it works.

Let’s take your house in Bay View. Let’s say it is worth $200,000 today, what you could get for it if you sell. Now let’s imagine that your exact same house were located in a blighted neighborhood. What would it be worth there? Less, maybe even half that value. Location is the difference, not the building itself.

Property Tax - Fair

First of all, what is fair about property taxes? Assessing your property based on comparable sales is fair as far as it goes. If you have a more expensive house, it is fair that you pay more for fire and police protection, libraries, and street maintenance.

Property Tax - Overworked and Underfunded

But the property tax has become the dumping ground for the failure of other taxes. The State and the federal governments are well known for short-changing their arrangements with local government. When that happens local governments raise the one tax that they can raise, property tax. Excessive use of the property tax can depress economic activity thereby reducing revenues from income and sales taxes.

The Exemptions Come Home To Roost

Shortchanging local governments has been growing over the years. Wisconsin has written lavish exemptions for businesses - in the billions, to create jobs, to encourage businesses to move here - all worthy goals. For a list, see Wisconsin Tax Exemptions for Business.

Over the years it’s been easy for well-lobbied Madison to grant exemptions that home owners pay for and local governments get blamed for.

The Flaw In Your Assessment

Looking at your tax bill. Your city government, in assessing your house, assesses two items: Land and Improvements (buildings).

If you watch over the years, Improvements assessments increase by vastly larger amounts from year to year than the Land assessments. The assessed value of my Land is only 3.7% higher (0.4% per year) since I moved in (1997); but the Improvement assessment has more than doubled - 135% higher (15% per year).

Yet, what in my house, except paint, some lumber, tuck-pointing, garage roof, and insulation is actually new? In fact, most everything about the house is nine years older. Yet the city’s assessed valuations far exceed any known increase in the cost of building materials.

What about the Land, location? The choice of neighborhood is driven by convenience, schools, and safety - considerations that are not part of your building, but are really related to the neighborhood, the location.

The Distortion of Land Values

While Land (location) appreciates (in Bay View, obviously; but everywhere in the city, in fact) the Improvement (your building) carries more and more weight of the assessment. Multiply that distortion by the hundreds of thousands of assessments the city enforces. Consider what this thinking does to the values in our burgeoning downtown. Vacant or blighted land remains cheap even as it becomes more scarce. The system is in a downward spiral.

I say downward spiral because if you improve your building or home, your taxes may well rise. Holding a property with a blighted building is one way to prevent your assessment from rising fast. If you apply this well known urban wisdom to commercial property, the defect of the present method is clear.

Holding unproductive property is one of the most risk-adverse business decisions in our economy; one is rewarded for waiting until the risks diminish (in other words, one landlord hopes the other landlords will invest first).

The Welfare of Diminished Expectations

The government is subsidizing long term speculation over indolent properties on the backs of the homeowner.

This odd economic system contributes to sprawl and to the appearance that life in the suburbs is less expensive. Let’s call it what it is, a welfare state for properties that “aren’t ready to go to work yet.”

Non Development is funded by assessment welfare. Homeowners pay for this, the welfare of blight. Present assessment strategies resist market forces, penalize investment, and bolster this backwards strategy.

Blight Versus Upkeep; Inaction Versus Community Action

If a neighborhood gets blighted, it affects the value of your home even though you continue to paint, fix up, and repair. Land values are the result of community activity - and therefore a good reason to be involved in neighborhood organizations like the BVNA. The desirability of a community is the product of many public and private investments along with community commitment to safety, education, the amenities of urban life, our parks, our transit.

Consensus Drives Value

The point about location is that the value of your home is largely the result of what others do around you. The value of your home is then a consensus value - we even call it that in our language: the value is what a buyer is willing to pay. Location and effort (or not) of many players drive (or sink) the market value of your home.

Setting the Price

Consider the buzz. People turn their attention to Bay View (maybe they heard a rumor that Bay View is the happening place); they call brokers, and - when the supply cannot meet the demand - they find that house prices have “gone up overnight.” It’s location, the contribution of your neighbors, the renovation of gardens and porches, bike lanes, holiday lights, night time trick or treat, safety conferences with police, a re-energized safety office in the Second District (BVNA gets credit for encouraging the Milwaukee Police Department to make this change), the child friendly sidewalks and streets, our patronage of local businesses, our relatively safe streets - WE are driving our housing values. The world wants to live next door to us. Can we blame them?

What LVT Changes

OK, you say, fine Bill, you’ve convinced me that Land under your house is underassessed. So what if we change the formula? What does this have to do with commuter rail, a South Side rail station, or better transit? And won’t a new system raise my taxes?

Second question first. LVT does not change the value of the house - still set by market forces and comparable sales - but it evaluates Land more realistically, more attuned to market forces. The homeowner would not see his or her own property taxes going up because of LVT. If our present tax system is subsidizing indolent buildings, the homeowner will actually benefit from LVT.

Where Land Value Taxation is in use, citizens notice that owners find a new incentive to improve their buildings; there is no “tax penalty” for doing so. Taxes enforced on structural improvements are counter productive taxes; LV assessment encourages improvements. Making a neighborhood attractive also brings the State and local governments more revenue from sales and income taxes.

LVT is being used in many American cities [see end note below] to encourage development without increasing tax rates. Zoning rules are used as they are today - to control development according to the appropriateness of the neighborhood, based on good design, planning and the involvement of the residents. Zoning under LVT will continue its role: preventing, say, the building of a factory in residential neighborhood. Zoning continues its function, to enforce appropriate neighborhood-valued use.

No new taxes? So where is the extra revenue coming from?

Rail

Not long ago, owners of land in Los Angeles found their property had wildly increased in value overnight. The owners had done nothing to cause this. The new values were the result of a single announcement.

What happened in L.A.? The announcement was a decision to build a rail line through a certain section of town. Much of the property near the designated rail routes and stations suddenly became more valuable.

This has been found to be true in many cities. The commitment of rail lines, put down in steel, attracts developers who like to move into areas where there is good reason to expect economic growth. Stores near stores are more successful; the development around Kinnickinnic and Lincoln testifies to that; just as the empty store fronts there are a continuing liability.

How close to the station must property be to experience an increase in value?

The rule of thumb based on research? Walking distance - maybe a quarter or half a mile. Even one-car family commuters who are dropped off at the station want to live close because that family car will be busy mornings. Further from the station property values will experience little or no change as a result of a station. One couple I know lives three blocks from Lincoln and Bay Streets (proposed location of the South Side station); they want the train station even knowing their property values will go up. The station gives them opportunities to negotiate for more jobs, while staying in Bay View. And it is young couples like this one who will revitalize our city - especially those Racine, Kenosha and Northern Illinois commuters who want to live in (and bring their paychecks back to) Bay View.

The good news for Bay View is that only the property near the rail station will rise in value because of the station. Concentrating density in one strategic corner of Bay View will continue to allow our traditional neighborhoods (South Shore, Humboldt Park, Wentworth, Delaware, Illinois to Ohio, Ellen Park) to remain affordable.

Density Unplanned

Milwaukee’s East Side has a clear downside over Bay View. It is the automobile. The squabbles over parking spaces and winter parking rules go back years. Density without sufficient transit is what the East Side has, and planners are awake at night trying to figure out how to correct that situation - economically and politically.

Density Planned

In Bay View, we are poised to correct this problem before it becomes expensive. Land is available at Lincoln and Bay for a first class rail station that will inspire dense development.

This urban life style works. Density brings more services and stores, puts more feet on the sidewalks, and reduces crime because more people are outdoors and watching out for each other. I might add, too, that bicycle you keep in the basement will get more use, guaranteed.

Follow The Money

Cities that installed rail stations have found that, nearby, the dense housing that was developed around the station, with the shops, stores and services, brought in new tax revenue that would not have happened without the train.

This new tax revenue has funded rail. The new tax revenue comes from the perception (like that of the couple I mentioned above) that it is cost effective to rely upon rail, and to live near rail. If rail does not work for you, someone will desire to buy your (now expensive) home.

The good news is that the new revenues make rail affordable without taxing people who live in distant parts of the city. The irony is that once rail is installed, and its benefits well known, other parts of the city may want rail, too.

Is LVT a TIF?

LVT is not a TIF - maybe similar but not quite the same. With a Tax Incremental Finance District, the city waives new tax revenues for a limited time to encourage development which brings jobs, more amenities, etc. The city sometimes invests in roads and sewers; the new tax revenues from development will pay the city back for those costs.

With LVT the city takes little or no risk with its funds, but simply encourages by zoning the kind of development that will drive real estate values, which in turn will pay for the train, the stations and the operating costs. (By the way, except for walking, all transportation modes in America are subsidized.) The capital or development costs of the South Side Station and the rail corridor to Illinois, will be smaller than other cities because the tracks are already in place.

Regional Transit Authority

The drive to fund the new SE Wisconsin Regional Transit Authority will be stymied without a fresh look at what we are doing now. LVT revenue for rail will leave the City and County “whole” - it would take only the taxes we would not get without rail - while providing developers with a target for new commercial and residential efforts. Those who want to use the rail; those who want to open stores and services near rail-station housing developments will benefit from and help pay for this new opportunity.

Will LVT Happen in Milwaukee?

I’ve stopped predicting the future in 1957 when I said the Braves could not beat the Yankees. But LVT may well be the marriage made in heaven, in spite of the difficult politics we have now. LVT encourages stricter market forces (and so appeals to the fiscally conservative) while at the same time pushing property taxes to a more fair and honest formula (appealing to those whose priority is to build the city and its services, without damage to quality of life).

There may be a win-win here for all of us. Other cities have found it so.

Let the discussion begin.


Other LVT issues to cover: transitions to LVT, mistakes some cities have made, and differences in development and new revenue between light rail and commuter rail. For more research on this, GOOGLE: “land value rise Los Angeles rail development announcement” and particularly check the long URL link at rtd.denver.com Also, for a lengthy annotated bibliography: Jeff Smith’s and Thomas Gihring’s Financing Transit Systems Through Value Capture

You are invited to join an LVT list serve and thereby contribute to this discussion in Wisconsin: Send an email to:

You can reach Sell at 414–272–3787, or

Last edited by tree.   Page last modified on November 25, 2006

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