Reforming Detroit’s property tax system by taxing land at a higher rate than buildings would help to revive the local economy and reduce tax bills for nearly every homeowner, according to a new study from the nonprofit Lincoln Institute of Land Policy. 
 
With the lowest property values of any large U.S. city and some of the highest property tax rates, Detroit is caught in a decades-long cycle of rising tax rates that still fail to generate enough revenue. In the absence of strong public services, high property taxes increase owner costs, reduce property values, and increase the costs of repair and redevelopment, creating a drag on economic recovery. 

Like many economically distressed cities, Detroit copes with this challenge by offering generous tax abatements for new development and for some homeowners. Abatements relieve excess costs and temporarily raise property values, but only a small set of residents and new businesses qualify. This leaves high—sometimes destabilizing—tax bills in place for long-term owners. While high taxes remain on most homes and businesses, inclusive and lasting incentives for reinvestment are absent. 

A higher tax rate for land than for structures—known as “split-rate” because there are two different tax rates—would address the problem more effectively and distribute the benefits more equitably.  

The new study, Split-Rate Property Taxation in Detroit: Findings and Recommendations, finds that taxing land at five times the rate for buildings would result in lower tax bills for 96 percent of homeowners, with an average savings of about 18 percent. Under a revenue-neutral reform, tax savings would be fully offset by tax increases on vacant and underutilized property. 

“By adopting a split-rate property tax, Detroit can make its tax system both more efficient and more equitable,” said John Anderson, an economist at the University of Nebraska, Lincoln, and lead author of the study. “Efficiency is enhanced by removing the tax-related barriers to capital improvements and development. Equity is enhanced by a reduction in taxes for the vast majority of residential homeowners.” 
 
“Splitting the property tax provides long-time Detroiters with the tax relief that new businesses and residents already receive,” said co-author Nick Allen, former manager of strategy and policy for the Detroit Economic Growth Corporation and now a doctoral candidate at the Massachusetts Institute of Technology. “Our study shows that it is an effective, immediate way to permanently reduce burdens on overtaxed households and restore property wealth. It’s not enough, but it is a required step towards racially equitable recovery.” 

In addition, a split-rate tax increases the cost of holding vacant land and reduces the cost of developing it, or of renovating deteriorated buildings. Reduced tax burdens and accelerated investment lead to an average 12 percent increase in residential property value and a 20 percent increase for commercial property. In a supporting technical paper, the project team also found that the proposed 18 percent reduction in residential taxes would reduce residential tax foreclosures by at least 9 percent. 

“Implementation of a split-rate tax in Detroit offers an opportunity to strengthen the property tax system by increasing efficiency, and reducing property tax inequities and tax foreclosure,” said Michigan State University economist Mark Skidmore, a co-author of the study. 

Commissioned by Invest Detroit with support from The Kresge Foundation, the study analyzes data from municipalities in Pennsylvania that have implemented split-rate taxes, as well as real estate and property tax data from Detroit. In addition to Anderson, Allen, and Skidmore, the study’s co-authors include Fernanda Alfaro of Michigan State University, Andrew Hanson of the University of Illinois at Chicago, Zackary Hawley of Texas Christian University, Dusan Paredes of Northern Catholic University in Chile, and Zhou Yang of Robert Morris University. 

“If we are to continue the momentum of Detroit’s positive, equitable growth, we must transform our property tax structure to alleviate the burden on majority Black homeowners and local developers,” said Dave Blaszkiewicz, president and CEO of Invest Detroit. “This report provides a solution that accomplishes that while also disincentivizing blighted and underutilized properties that hinder Detroit’s growth.” 

“With this analysis, Invest Detroit has elevated an equitable approach to taxation that can bring much-needed relief to tax-burdened Detroiters while encouraging investment and growth. This is a timely idea that addresses an urgent concern, and the highly regarded Lincoln Institute of Land Policy has now provided a solid framework for community discussions,” said Wendy Lewis Jackson, managing director of Kresge’s Detroit Program. 

The team also produced three technical papers to support the study: “Assessment of Property Tax Reductions on Tax Delinquency, Tax Foreclosure, and Home Ownership”; “Split-Rate Taxation and Business Establishment Location Evidence from the Pennsylvania Experience”; and “Split-Rate Taxation: Impacts on Tax Base,” all published by the Lincoln Institute. 

The study is available for download on the Lincoln Institute’s website: https://www.lincolninst.edu/publications/other/split-rate-property-taxation-in-detroit 

Will Jason is the director of communications at the Lincoln Institute of Land Policy. 

Image: Aerial view of Residential district in Detroit Michigan. Credit: pawel.gaul via Getty Images.

Two weeks after a U.S federal agency rejected affordable housing plans from Fannie Mae and Freddie Mac, a coalition of housing organizations has released a blueprint showing how the two government-sponsored enterprises can better reach underserved mortgage markets.

On January 5, the Federal Housing Finance Agency (FHFA) rejected three-year plans from Fannie Mae and Freddie Mac to comply with Duty to Serve, a federal regulation that requires the enterprises to prioritize and improve affordable housing finance opportunities in three historically neglected markets: manufactured housing, affordable housing preservation, and rural housing. Fannie Mae and Freddie Mac must substantially improve their plans in all three areas, and a new blueprint from the Underserved Mortgage Markets Coalition provides a path that would likely lead to approval.

The coalition consists of 20 leading U.S. affordable housing organizations seeking to hold Fannie Mae and Freddie Mac accountable to their founding purpose: to bring housing finance opportunities to American families not traditionally served by the private market.

“I applaud FHFA for rejecting the proposed Duty to Serve plans,” said George W. McCarthy, president and CEO of the Lincoln Institute of Land Policy, one of the convenors of the coalition. “If Fannie Mae and Freddie Mac adopt the modest consensus recommendations of the Underserved Mortgage Markets Coalition, that would be a win for the enterprises, FHFA, and affordable housing in the United States.”

The coalition’s blueprint outlines key recommendations for the enterprises’ Duty to Serve plans for 2022–24. By recommending specific, prioritized action steps, the coalition hopes to expand and enhance the enterprises’ performance in underserved markets. The blueprint urges the enterprises to increase certain loan purchases in all three markets, improve loan products for rural low- and moderate-income borrowers, and allow for Low Income Housing Tax Credit-equity investment in non-rural markets.

The members of the Underserved Mortgage Markets Coalition include:

• Center for Community Progress
• cdcb
• Enterprise Community Partners
• Fahe
• Grounded Solutions Network
• Housing Assistance Council
• Housing Partnership Network
• Lincoln Institute of Land Policy
• Local Initiatives Support Corporation
• National Council of State Housing Agencies
• National Community Stabilization Trust
• National Housing Trust
• NeighborWorks America
• Next Step
• Novogradac
• Opportunity Finance Network
• Prosperity Now
• RMI
• ROC USA
• Stewards of Affordable Housing for the Future

Photograph: vkyryl via iStock / Getty Images Plus.

In the wake of major global agreements to protect biodiversity and address climate change, hundreds of leaders and practitioners gathered virtually for one of the world’s most significant international conferences on private and civic land conservation.  

At the 3rd Global Congress of the International Land Conservation Network and Eurosite–European Land Conservation Network, leaders in the field discussed how to increase the scale of conservation work to meet ambitious global targets, such as protecting 30 percent of the earth’s land and water by 2030. The conference attracted more than 900 registrants from some 89 countries on six continents.  

“Let’s step up to the responsibilities that we have to pass on, to our children’s children’s children and beyond, the beauty and the value of the earth,” International Land Conservation Network Director Jim Levitt said at the closing of the conference.  

“The global private and civic land conservation community is diverse and multifaceted,” said Tilmann Disselhoff, president of Eurosite–European Land Conservation Network. “We can learn a lot from our colleagues around the world, but we don’t have to copy everything from one another. When we come across an interesting solution or a new idea from another part of the world, let’s adopt it, if it’s good. But let’s also adapt it to our needs.”  

The conference focused on five themes: conservation finance, organization and governance, law and policy, land stewardship, and large landscape conservation. What follows are a few highlights (recordings of all sessions will be available online at no cost in the first quarter of 2022). 

Conservation Finance  

The scale and complexity of private and civic land conservation projects often requires a mix of financing, from both traditional investors and from those focused on social and environmental impacts. Complex projects need an effective intermediary who can balance the needs of multiple investors and incorporate the perspectives of other stakeholders, experts said in a session titled, “Blended Finance and the Role of Intermediaries.”  

Intermediaries play several key roles. They articulate a project’s goals, establish key metrics for success, provide technical support, and communicate between different parties. While individual investors might care mostly about a single outcome such as sequestering carbon, intermediaries can provide a more complete picture of a project’s benefits.  

“I’ve never seen a biodiversity or nature project that wasn’t also, on some level, a social project,” said Stephen Hart, a senior loan officer for the European Investment Bank.  

Organization and Governance  

“There’s no future in conservation unless we’re building meaningful relationships with the original holders of these lands.” That assertion by Nathan Cardinal of the Nature Conservancy of Canada (NCC) was part of a wide-ranging and sometimes deeply personal conversation, “Private Land Conservation and Indigenous Rights: Developing an Ethical Framework and Good Practices.”  

Acknowledging that the contemporary conservation movement has benefited from generations of stewardship and land management by Indigenous communities, experts emphasized the urgency of supporting Indigenous rights—a theme that wove through other sessions as well—by taking actions including returning lands to their original owners, ensuring that Indigenous voices are at the table, and providing long-term funding opportunities. “Aboriginal people have managed this land for thousands and thousands of years,” said Cissy Gore-Birch, a Jaru/Kija woman with connection to Balanggarra, Nyikina, and Bunuba country who works as the National Aboriginal Engagement Manager for Bush Heritage Australia. “We are the protectors of the land, and the land speaks to us.”  

Law and Policy  

As global leaders set ambitious conservation goals, questions about how to reach that target are naturally arising. One answer might well be found in Other Effective Area-Based Conservation Measures, known as OECMs. The concept behind this emerging approach is to complement and connect traditional protected areas by identifying areas where conservation already occurs, though the land is primarily managed for other purposes.  

Examples include school campuses, military grounds, cultural sites, and ranchlands. In “The Role of OECMs in an Integrated Conservation Landscape,” panelists agreed that OECMs hold great promise, but that their effective implementation will require more resources, conversation, and collaboration. “As a community of practice, sharing our experiences is going to be important,” said Lisa McLaughlin, vice president of conservation policy from Nature Conservancy of Canada. “. . . We need to keep that going with respect to sharing and learning—the good things, but also talking honestly about the mistakes and the barriers as well, so that we can all accelerate together and not have to learn in parallel.”  

Land Stewardship and Management  

Clare Cannon’s family manages a 6,500-acre sheep and cattle farm at Woomargama Station in New South Wales, Australia. They use two-thirds of that land to raise their livestock, but a few years ago the family set aside the rest—a mix of native grasslands and woodlands—to be managed by the Biodiversity Conservation Trust. In addition to protecting the land, that decision now seems likely to generate new income in the form of biodiversity payments authorized under Australia’s newly adopted National Stewardship Trading Platform.  

Grasslands—known as prairies in North America, pampas in South America, and savannas in Africa—are increasingly being eyed as a climate solution for their ability to sequester carbon. By engaging in sustainable, lower-impact practices, farmers and ranchers from Australia to Colombia, Venezuela, and the United Kingdom can help maintain the integrity of grasslands; reduce the climate impacts of livestock by avoiding or minimizing activities required for conventional agriculture such as deforestation and the cultivation of resource-intensive fodder; and still succeed economically, explained panelists in “Stewarding Grasslands: Good for Grasslands, Good for Climate, Good for Farmers.”  

Landscape-Scale Conservation and Restoration  

As climate change disrupts natural systems around the world, land conservationists can use technology to target their work to help species adapt to changing conditions and maximize the reduction of greenhouse gases. In “Sustaining Nature Under Climate: New Science to Inform Conservation,” Mark Anderson, Director of Conservation Science for the Eastern U.S. for the Nature Conservancy, demonstrated his organization’s Resilient Land Mapping Tool, which uses geospatial data to identify the areas where conservation resources can achieve the greatest impact.  
 
The tool, which covers the United States but carries the potential for expansion worldwide, analyzes biological, geophysical, and climate-related conditions—everything from sun exposure to soil characteristics—to determine which habitats will enable species to thrive in a warming world, which places currently contain the greatest stocks of stored carbon, and which have the greatest potential for future carbon sequestration.  
 
The Nature Conservancy used the tool to identify what it calls a Resilient and Connected Network, comprising a third of the continental United States, to prioritize for conservation. The network currently stores 29 billion tons of carbon and sequesters an additional 236 million tons of carbon a year.  

“That’s the equivalent of taking 188 million cars off the road every year. Why would we want to lose any of this network?” said Anderson, who is also the Lincoln Institute’s 2021–22 Kingsbury Browne Fellow.  

Established in 2014, the Lincoln Institute’s International Land Conservation Network helps build capacity for private land conservation through research, training, and exchanges between conservationists from around the world. In February 2022, the Lincoln Institute and ILCN will publish a Policy Focus Report, From the Ground Up: How Land Trusts and Conservancies Are Providing Solutions to Climate Change, which will present case studies of organizations that are using land conservation as a tool for mitigating and adapting to climate change. The next Global Congress will take place in 2024.

Photograph: Marti Garcia via iStock/Getty Images.

Editor’s Note: This article was adapted from “Investing for the Future,” published July 22, 2021. 
 
As governments consider major infrastructure proposals, the Lincoln Institute has published a new book that will help policy makers achieve a greater return on public investments. Edited by José A. Gómez-Ibáñez and Zhi Liu, Infrastructure Economics and Policy: International Perspectives includes contributions from 30 leading international academics and practitioners on topics such as project appraisal, financing, governance, climate change, and technology. 

The book comes out at a time when governments of many countries are considering infrastructure as a policy instrument to stimulate national economies that have been adversely affected by the COVID-19 pandemic. The book offers case studies, data, and analyses that can help governments evaluate infrastructure proposals. 

It includes the following six takeaways to consider in any infrastructure investment package, based on extensive research into the ingredients for success: 

Think Long-Term Growth, Not Quick Stimulus. Contrary to conventional wisdom, infrastructure investment is not an effective way to provide a quick economic stimulus. It takes many years to secure the permissions and funding necessary to begin construction on a new project, and the sophisticated equipment and training required by modern construction means such projects do not offer pathways to quick employment for large numbers of unskilled workers. Infrastructure Economics and Policy explains why infrastructure investments offer few short-term impacts, even when the long-term economic impacts are clearly positive. 

Shovel-Worthy Matters, Not Shovel-Ready. The impacts of infrastructure projects depend greatly on their quality. Many infrastructure agencies are required to prepare cost-benefit analyses of the major projects or policies they are considering and of the relevant alternatives to those projects. However, few governments (if any) require the agencies to adopt the alternative with the highest net benefit. This is often because of political considerations, including concerns that cost-benefit analysis might not adequately reflect the goals of fairness and equity. While cost-benefit analyses are not perfect, they are one of the best tools available for evaluating infrastructure proposals, and agencies should be cautious about departing significantly from the option with the highest net benefit without good reason. 

Beware of Over-Confidence and Over-Optimism. A landmark analysis of some 2,000 infrastructure projects found that actual costs were significantly higher than forecast, while usage was significantly lower, as Bent Flyvbjerg and Dirk W. Bester explore in a chapter of the book. The authors identify several well-known behavioral limitations that lead to these outcomes, particularly overconfidence bias and optimism bias. Fighting these biases is difficult because they are so deeply ingrained in human nature, but the book describes measures that can help, such as holding forecasters legally accountable or using independent audits. 

Take Equity Seriously. The costs and benefits of infrastructure projects are often distributed inequitably. On the one hand, major infrastructure facilities such as highways and power plants are often built in locations where the negative impacts are felt disproportionately by low-income residents and people of color. On the other hand, the lack of access to basic infrastructure, particularly in the developing world, impairs quality of life and contributes to inequality. Governments need to take both problems seriously and enact complementary policies to address them. 

Consider Governance Challenges. State and local governments have historically been deeply involved in regulating both private and government-owned infrastructure due to important concerns including access, siting, and protecting against monopolization. However, the advent of a major new infrastructure program—particularly one focused on decarbonizing the energy system to address climate change—will increase the role of the national government. National governments are uniquely positioned to invest in new technologies that require collective action, and to mitigate the economic impact of climate change policies—for example, compensating owners of fossil fuel plants and other assets that lose their value. These and other governance challenges related to infrastructure may prove even more difficult than the financial challenges that current debates focus on. 

Invest for the Future and Address Radical Uncertainties. In the face of radical uncertainties including climate change, the pandemic, automation, and the emerging sharing economy, governments must not only fix deteriorating infrastructure, but also invest in a new generation of infrastructure that is climate-resilient and takes advantage of new technologies. This transformation will require overcoming significant institutional barriers, assessing the pros and cons of the new technologies, and putting an effective change management process in place. 

Sustainably built infrastructure is indispensable to resilient, equitable, and livable communities and regions worldwide. Through in-depth analysis, Infrastructure Economics and Policy questions the conventional wisdom about several issues, from the most efficient levels of congestion charges on routes into city centers to the belief that privatization greatly affects the performance of infrastructure. With chapters covering land value capture and other funding mechanisms; the role of infrastructure in urban form, economic performance, and quality of life, especially for disinvested communities; and other essential concepts, this new book offers evidence-based solutions and policy considerations for officials in government agencies and private companies that oversee infrastructure services, for students, and for policy-oriented lay readers alike. 

To learn more or to order a copy of Infrastructure Economics and Policy, visit https://www.lincolninst.edu/publications/books/infrastructure-economics-policy.

Image Credit: shaunl via Getty Images.