Jeffrey Sundberg is associate professor of economics and business at Lake Forest College in Lake Forest, Illinois, where he has taught since 1989. He also serves as chair of the College’s interdisciplinary Environmental Studies Program. He earned his B.A. from Carleton College in 1982, and subsequently received an M.A. and Ph.D. in economics from Stanford University. His current research examines various aspects of public policy toward land conservation, including tax incentives for conservation easements and factors influencing voter approval for programs to protect open space. In a recent article in Land Economics, he examined membership patterns in land trusts across the country as evidence of private willingness to provide a public good (Sundberg 2006).

Sundberg’s interest in conservation extends to his volunteer activities as well. He currently serves as the vice president of the board of directors for the Liberty Prairie Conservancy, a countywide land trust in Lake County, Illinois, and is a past member of the board of directors of the Chicago Audubon Society. He initiated and directs an ongoing habitat restoration program on the grounds of Lake Forest College. A dedicated birder, he leads bird walks annually for several different organizations and volunteers as a bird-bander every spring.

Land Lines: Conservation easements are a topic of great interest to the Lincoln Institute. What specific aspects of them are you researching?

Jeffrey Sundberg: There has been quite a lot of research on the use of easements as a tool for conservation, and there is a growing interest in various legal aspects of easement policy. However, there has been relatively little work on the economic aspects of easements. The number and value of these incentives have increased over the past 20 years, and so has the number of acres under easement. This has had a largely unmeasured effect on tax collections at the local, state, and federal levels.

In collaboration with Richard Dye, my colleague at Lake Forest College and a visiting fellow at the Lincoln Institute, I am examining tax incentives for the donation of easements to nonprofit conservation groups and government agencies (Sundberg and Dye 2006). A broad range of incentives exists, and their effects may vary with the income and assets of the property owner, and the state in which the parcel is located.

An analysis of these tax incentives suggests certain conclusions about the type of property owner who is most able to benefit financially from such a donation. These incentives are likely to affect both the number of available easements and the cost to society of accepting the donations. The easement must have conservation value in order to qualify for the tax savings, but there is no benefits test that compares the amount of conservation value to the amount of tax revenue lost.

Land Lines: What are some of your findings?

Jeffrey Sundberg: Numerous publications, including Jeff Pidot’s recent work with the Institute (Pidot 2005), have speculated that under certain circumstances it would be possible for a landowner to receive tax savings that exceed the value of the donated easement. In fact, under certain conditions a taxpayer could receive more than two dollars of tax savings for every dollar of easement donation, even when future tax savings are discounted. The largest single potential benefit often stems from various estate tax reductions that result from the donation of a qualified easement. However, a donation could create a positive net present value even without qualifying for the estate tax benefit. Many states also have substantial incentives of their own in the form of income tax credits, property tax reductions, or both.

These incentives offer both good and bad news for conservation policy. While they certainly make it easier to persuade property owners to donate a conservation easement on their land, they also create an incentive for owners to take efficiency-reducing actions by tailoring their easements to create the maximum tax benefit, rather than the maximum conservation value. In addition, land trusts and other qualified organizations may have to spend time and energy evaluating relatively low-quality easements offered by financially motivated donors, who may be able to expend considerable effort to find a willing holder of an easement.

Land Lines: What are some public policy implications of your work?

Jeffrey Sundberg: It is important to distinguish between federal and state tax incentives in making policy recommendations. Federal incentives consist of tax deductions, which are most valuable to property owners who have substantial tax liabilities and face high marginal tax rates. Many land parcels with significant conservation value are owned by land-rich, low-income individuals who are unable to take any significant advantage of income tax deductions, and who may not be subject to the estate tax. Federal tax incentives offer relatively low benefits to this type of landowner, even with the recent change that allows a longer carry-forward period until those benefits expire.

State incentives typically offer credits that can be used to offset existing income taxes on a dollar-for-dollar basis. The benefit to the donors does not depend on their marginal tax rate, though high-income donors are still more likely to be able to use their credits. Most credits are not “refundable,” which means that a donor must have taxable income to make use of them. Two states currently allow donors to sell their excess credits, which increases the likelihood that they will be able to benefit financially by donating an easement. A move toward credits, rather than deductions, would allow low-income donors to receive more benefits without necessarily reducing the benefits to high-income donors. This should increase the number of high-quality parcels potentially available for conservation.

Our research also studies the possible impact of eliminating the federal estate (or death) tax. In 48 of the 50 states, estate tax savings are the single largest source of potential financial benefits to easement donors, so elimination of the tax could have a significant chilling effect on easement donations across the country.

Programs for the sale of easement credits highlight another area of concern, the potential for fraudulent activity. Needless to say, fraud is costly in terms of lost tax revenue, in the administrative burden it imposes on governments and conservation organizations that must resolve troublesome donations, and most of all in the loss of trust and goodwill for these important programs, which currently enjoy great public support.

Land Lines: How would an economic approach to easements differ from an environmental approach?

Jeffrey Sundberg: An environmental approach might consider conservation benefits in both ecological and human terms, with an eye toward preserving significant benefits for the future. Their existence would be enough to justify creation of the easement, without the need to set a monetary value. This view is similar to current easement policy, where there is no comparison of benefit to cost.

An economic approach would attempt to place a monetary value on those benefits, not because they can be bought and sold, but because this is the only way to make any kind of reasonable comparison between the benefit of the easement and its cost. Without having at least a rough estimate of these figures, it is impossible to ensure that any particular easement creates a net benefit for society. Under most current easement programs, the organization that accepts the easement only has to certify that some conservation value exists; the organization typically has little idea of the actual cost of the tax subsidy to the easement. The primary cost to the organization is likely to be the obligation to monitor and enforce the easement, which may be a widely varying fraction of the total cost of the easement.

Both environmental and economic approaches would agree that different easements will provide differing amounts and types of benefit, suggesting that the tax incentives should be tailored to encourage the donation of easements that provide the most overall value, whether measured in economic or environmental terms.

Land Lines: Are there alternatives to tax incentives for easement donations that might be more efficient?

Jeffrey Sundberg: It’s a little difficult to answer that, since there is so little data available about our current system. We don’t know what the magnitude of the costs have been, so it would be premature to claim that it has been clearly inefficient. What we do know is that the current system does not provide incentives for efficiency.

For example, consider the case of a land trust that accepts an easement that meets or exceeds several of the requirements for qualification; it provides both ecological and human benefits that are significant. However, the land trust does not have any idea of the amount of tax revenue lost as a result of the donation. Depending on various circumstances, including location of the parcel and the income and wealth of the donor, the tax savings might range from thousands to millions of dollars. There is no way to know the net benefit to society, or even if that net benefit is positive. All we can say is that benefits have been created, and costs incurred. Such a system does not create any expectation of efficient behavior. At best, organizations will accept only easements that generate high conservation benefits, with no regard to the actual cost of the tax benefits generated for the donor.

The problem is that other systems, such as requiring that easements be purchased rather than donated, also generate efficiency problems. Given how little we know about the magnitude of the benefits and costs being created, and the difficulty of predicting responses to a new set of incentives, I favor improvements to the existing system rather than beginning a new experiment.

Land Lines: What role do you see for economic analysis in shaping future environmental protection legislation?

Jeffrey Sundberg: Easement policy is like many kinds of environmental protection legislation—it tends to be benefit-based. Economic analysis can point the way to the creation of appropriate incentives that can reduce the cost of achieving those benefits. It can also suggest the kind of benefits that have greater value to society, and which should therefore receive higher priority.

It is not realistic, or desirable, to use economic analysis to evaluate each easement before a donation is accepted. However, economic analysis can be used to create incentives that are compatible with more efficient kinds of donations. For example, most federal incentives, and those of most states, apply equally to any easement that meets one or more of several possible qualifications, including habitat for endangered species or scenic value for local residents. Economic analysis could be used to suggest which qualifications are of the highest value to society, and tax incentives could then be tailored to provide the most payment for the easements likely to offer the greatest benefit.

References

Pidot, Jeff. 2005. Reinventing conservation easements: A critical examination and ideas for reform. Cambridge, MA: Lincoln Institute of Land Policy.

Sundberg, Jeffrey. 2006. Private provision of a public good: Land trust membership. Land Economics 82(3): 353–366.

Sundberg, Jeffrey, and Richard F. Dye. 2006. Tax and property value effects of conservation easements. Working Paper. Cambridge, MA: Lincoln Institute of Land Policy.

Faculty Profile of Paulo Sandroni

Land value capture is now a popular topic among practitioners of local public finance—in part because the recession-related decline in local government revenues has piqued interest in new revenue sources, and in part because of the need for new ways to finance local infrastructure that has been degraded by underinvestment. The Lincoln Institute’s sixth annual land policy conference in May 2011 addressed many aspects of value capture, drawing on both international and domestic experience.

Basics of Value Capture

Changes in the value of land often result from factors unrelated to the efforts of the landowner: actions by the community in the form of infrastructure investments; nearby growth in industrial, commercial, residential, or recreational activity; zoning that permits the owner to develop the land; or the incremental growth of the community. Value capture applies a tax or fee designed to return to the community some or all of the value added to land by community actions. Its application is particularly attractive when public investment—for roads, water supply, sanitation, or even local amenities such as street lights—increases property values.

International Experience

Land leasing. Perhaps the broadest and most comprehen-sive application of value capture is in China, where municipalities buy agricultural land from farmers at agricultural use prices, service it with infrastructure, and sell it to developers as urban land with permits for urbanization projects. The difference in price between the land’s urban and agricultural values accrues to the municipality, provides a large share of local revenue, and pays for the installed infrastructure.

Co-development. Transit companies in Hong Kong and Tokyo have used revenues from the co-development of residential communities and commercial areas around new transit stations to help finance their costly projects. In Tokyo nonfare revenue is 30 to 50 percent of total revenue for some transit lines. In both cities ongoing revenue from property management is becoming more important than profits from development projects and provides a sustainable income stream.

Development taxation. Attempts to tax betterment values in the United Kingdom began in 1909, but implementation was impeded by valuation and other challenges. Direct betterment levies were replaced by contracts with local authorities under which developers contribute to infrastructure and service provision, affordable housing, and other planning obligations. These contracts are evolving into community infrastructure levies, a betterment levy by alternative means. Following a different historic path, France also has a local infrastructure tax on new development.

Land pooling. India has experimented with land pooling in its implementation of new town planning schemes that replace the old master plans. The practice encourages owners of undeveloped or haphazardly developed land to pool their plots together and then receive a serviced parcel or constructed space when the development is completed. Ahmedabad’s approach uses 15 percent of the land for roads, 10 percent for parks, 15 percent for auction to others, and 60 percent for the pool members.

United States Experience

Among the specific U.S. policies that embody value capture are special assessment areas that often include betterment charges. For example, Community Facilities (or Mello-Roos) Districts apply fees paid by residents to retire bonds sold to finance developmental infrastructure. Business Improvement Districts and Tax Increment Finance schemes use earmarked tax or fee revenue from a designated area to fund improvements. Privately negotiated Community Benefit Agreements obligate developers to provide community facilities or economic benefits for local residents. Citywide development and impact fees used to finance infrastructure and related development investments are normally cost-based, but succeed only when the betterment value exceeds the cost.

Most notable about the U.S. experience is that the terms—betterment levies or value capture—are used rarely, even though their principles are practiced widely. Moreover, this country can learn some new value capture approaches from international experience.

The conference volume with papers and commentaries by more than 25 contributors will be published in May 2012.

From its initial economic reform in 1978 through its liberalization of foreign investment and private sector development from the mid-1980s to the present, China’s major economic reforms have given priority to achieving a high rate of economic growth. The policies worked so well that China’s constant dollar GDP per capita grew nearly 10 percent a year from 1980 to 2010. This growth performance is unparalleled for a large country, but it has been accompanied by unaccounted-for costs, including the structural transformation of the economy, social adjustment and migration, and environmental degradation. A new Lincoln Institute book, China’s Environmental Policy and Urban Development, edited by Joyce Yanyun Man, addresses the last of these topics. It reports estimates from governmental agencies of undocumented environmental costs associated with economic production ranging from 9.7 percent of GDP in 1999 to 3 percent in 2004.

Economic growth in low-income countries is typically accompanied by environmental costs. This tradeoff is embodied in the “environmental Kuznets curve,” which postulates that environmental quality deteriorates with economic growth at low income levels and then improves with growth at higher income levels. Estimates of the environmental Kuznets curve for Chinese cities over the years 1997 to 2007 as reported in this book show that measures of industrial pollution in China declined as incomes increased over this period, indicating that cities with higher incomes experienced improvements in these measures of environmental quality as their incomes grew.

Several chapter authors argue that China’s environmental policies and performance are in transition. Environmental indicators are improving in response to new policies and regulations while economic growth continues. At the same time, there have been setbacks. For example, extreme events, such as this winter’s combination of extremely cold weather and atmospheric inversions in Beijing, produced very high levels of particulate concentrations in that city.

The logic behind the environmental Kuznets curve involves elements of both demand and supply. On the demand side, higher income populations have a growing appreciation for environmental amenities, and they advocate for environmental improvements. On the supply side, investment in new capacity uses modern equipment with more environmentally friendly processes and more affordable control technologies. China’s recent environmental improvements also stem from its strengthened environmental regulatory institutions. In 1982 the role of the Environmental Protection Agency was mainly advisory. It was transformed into a national agency in 1988, became the more independent State Environmental Protection Agency in 1998, and then was elevated as the Ministry of Environmental Protection in 2008.

The growing influence of central environmental agencies has been accompanied by a change in the style of regulation. The earlier emphasis on command-and-control regulations (such as emission standards) was partially replaced by instruments based on economic incentives (such as taxes on inputs and a newly announced tax on carbon emissions). Research indicates that to date the commandand-control regulations generally have been more effective.

While central agencies set national standards, the responsibility for monitoring and enforcement was largely decentralized to municipal or metropolitan environmental bureaus. The performance of local managers is reviewed annually based on criteria that emphasize economic growth. Additional improvements in environmental outcomes may occur only when these criteria give greater weight to environmental improvements. For example, a rapid increase in the control of sulfur dioxide emissions from power plants followed the inclusion of reduced sulfur emissions as an annual performance criterion.

While China has much to do to reduce urban air pollution, clean up rivers and lakes, and improve energy efficiency, these objectives are becoming more important to its citizens. The increased availability of data on environmental indicators is stimulating the national dialogue on environmental quality. Professor Man’s new volume contributes to this dialogue by reporting on progress, identifying immediate challenges, and assessing new policies and regulatory approaches to environmental improvement.

Mark Skidmore es profesor de Economía en la Universidad Estatal de Michigan, donde también es titular de la cátedra Morris en Finanzas y Políticas del gobierno estatal y municipal; también colabora en el Departamento de Agricultura, Economía de Alimentos y Recursos y en el Departamento de Economía. Recibió su título en Economía por la Universidad de Washington en 1987, y un doctorado en Economía por la Universidad de Colorado en 1994. Se desempeña como coeditor del Journal of Urban Affairs.

Las investigaciones del profesor Skidmore se han centrado en la economía pública y la economía urbana y regional. Sus intereses de investigación actuales son los siguientes: política tributaria del gobierno estatal y municipal, relaciones intergubernamentales, relación entre las decisiones al nivel del sector público y la actividad económica, y la economía de las catástrofes naturales. Sus trabajos han recibido el financiamiento del Programa Fulbright, el Lincoln Institute of Land Policy, la National Science Foundation, el Urban Institute y USAID.

Los artículos del profesor Skidmore han aparecido en revistas profesionales tales como Economic Inquiry, Economics Letters, Journal of Urban Economics, Kyklos, Land Economics, National Tax Journal, Public Choice, Regional Science and Urban Economics y Southern Economic Journal. Asimismo, sus investigaciones han sido objeto de citas en medios noticiosos importantes, tales como la BBC, China Post, The Economist, Europe Intelligence Wire, Forbes, International Herald Tribune, Los Angeles Business Journal, MSNBC, Newsweek, The New Yorker, The New York Times y PBS News Hour.

Land Lines: Durante este año, usted se desempeña como investigador visitante en el Instituto Lincoln. ¿Sobre qué temas está trabajando?

Mark Skidmore: Hace aproximadamente dos años, junto con mi colega Gary Sands recibimos una invitación del concejal Kenneth Cockrel de la ciudad de Detroit para evaluar el deteriorado entorno del impuesto sobre la propiedad en dicha ciudad. El concejal Cockrel se preguntaba qué ganaría Detroit si se volcara a un impuesto basado en el suelo. Nos dieron acceso a información detallada sobre más de 400.000 parcelas inmobiliarias dentro de la ciudad a fin de llevar a cabo una evaluación. En este sentido, estamos agradecidos al Instituto por el apoyo que nos brindó para realizar dicho proyecto. En nuestro informe identificamos una importante erosión de la base del impuesto sobre la propiedad y analizamos distintas opciones con el fin de expandir dicha base imponible, tal como cambiar el enfoque hacia un impuesto basado en el suelo. Nuestra evaluación mostró que un impuesto basado en el suelo serviría para ampliar la base imponible, aunque también generaría cambios significativos en las cargas fiscales de los propietarios de inmuebles residenciales, comerciales e industriales.

En el año 2013, los problemas fiscales de Detroit llegaron a un punto crítico cuando el gobernador Rick Snyder designó a un gerente financiero de emergencia, quien, a su vez, inició el proceso de declaración de quiebra. El 3 de diciembre de 2013, el juez Rhodes emitió un fallo en el que establecía que la ciudad de Detroit era elegible para recibir la protección ante quiebras establecida en el capítulo 9. A pesar del colapso casi completo del mercado inmobiliario dentro de la ciudad durante la Gran Recesión, el impuesto sobre la propiedad continúa siendo una importante fuente de ingresos y, según cómo se lo administre, puede ayudar u obstaculizar la recuperación económica y fiscal. Durante el año en curso, mi idea es utilizar los datos a nivel de parcelas para analizar algunos problemas importantes, tales como la evasión impositiva, la sobrevaluación de propiedad, el valor de terrenos vacantes y las políticas relacionadas con la transferencia de títulos de propiedad del sector privado al sector público debido a las ejecuciones fiscales y la posterior transferencia de los mismos nuevamente al sector privado.

Land Lines: ¿Cuáles son algunos de los factores subyacentes tras de los problemas actuales que enfrenta Detroit?

Mark Skidmore: Cerca del 48 por ciento de los propietarios de inmuebles en Detroit son evasores fiscales, lo que refleja la erosión del contrato social entre los ciudadanos y la ciudad. Esta tasa de evasión fiscal tan alta es el resultado de una confluencia de factores. En primer lugar, la ciudad no ha logrado hacer cumplir las obligaciones tributarias, particularmente en lo relacionado con las propiedades de bajo valor. En segundo lugar, muchos ciudadanos perciben que el impuesto es injusto debido a la sobrevaluación de sus propiedades. Finalmente, la experiencia indicaría que los ciudadanos no pagan sus impuestos porque las autoridades municipales no les brindan los servicios públicos básicos, tales como la iluminación de calles, el barrido de nieve y la seguridad pública.

Una de las causas principales de la alta tasa de evasión de impuestos es la sobrevaluación de las propiedades para fines fiscales. La crisis inmobiliaria fue particularmente grave para Detroit. En 2010, el precio de venta promedio de una parcela residencial con una estructura era de menos de US$10.000; no obstante, el valor tasado promedio de dicha propiedad para fines fiscales era de US$54.000. Según las pautas del estado, la relación entre el valor tasado y el precio de venta debería ser aproximadamente de 1:1. En septiembre de 2013, los funcionarios municipales anunciaron que, en el plazo de los 3 a 5 años siguientes, todas las propiedades de la ciudad se someterían a una revaluación.

En segundo lugar, Detroit ha tenido la costumbre de demoler estructuras deterioradas sujetas a ejecución fiscal. En consecuencia, es una de las pocas grandes ciudades de los Estados Unidos que presenta una gran cantidad de ventas de terrenos vacantes. Por lo general, resulta difícil establecer el valor de los terrenos vacantes en áreas altamente urbanizadas, aunque resulta esencial determinar valuaciones exactas si se desea imponer un tributo al suelo o un impuesto de dos niveles sobre el suelo y sobre las estructuras. La gran cantidad de operaciones de venta de terrenos vacantes en Detroit brinda una oportunidad para estimar el valor del suelo. Curiosamente, en 2010, el valor promedio de una parcela sin mejoras según los datos de venta era de US$34.000, es decir, un valor mucho mayor que el precio promedio de parcelas residenciales con estructuras, el cual, según se mencionó anteriormente, era inferior a los US$10.000.

En la actualidad, el gobierno municipal posee y administra más del 25 por ciento de la superficie del suelo de la ciudad, y la titularidad de propiedades por parte del gobierno continúa creciendo debido a que las ejecuciones fiscales han superado en rapidez a la transferencia de parcelas públicas a manos privadas. Algunas de las cuestiones que me encuentro investigando son las siguientes: ¿Cuáles son las políticas apropiadas que deben tomarse en una sociedad orientada al mercado con el fin de administrar las operaciones inmobiliarias urbanas de bajo valor? ¿Por qué es tan alta la tasa de evasión fiscal, y qué puede hacerse para mejorar el cumplimiento de las obligaciones fiscales en cuanto al impuesto sobre la propiedad en el contexto de un mercado inmobiliario urbano al borde del colapso? ¿Qué rol desempeña la percepción de valuaciones “injustas” por parte de los contribuyentes en la evasión fiscal?

Land Lines: ¿Cuál sería el pronóstico a largo plazo para Detroit?

Mark Skidmore: La problemática fiscal de la ciudad es un síntoma de problemas subyacentes más profundos. Ya sea que consideremos el redesarrollo de un área urbana en franco deterioro o la reconstrucción posterior a una catástrofe natural de grandes proporciones, los elementos más importantes en cualquier recuperación son el capital humano y los atributos sociales y culturales. Si aceptamos la premisa de que estos elementos son los factores esenciales de cualquier redesarrollo, y si dichos elementos escasean, la prioridad principal será entonces considerar la adopción de políticas y medidas que faciliten su desarrollo. En el año 2011, la tasa de graduación de la escuela secundaria en Detroit fue del 62 por ciento. El porcentaje de hogares conformados por sólo uno de los padres fue del 62 por ciento. Según algunas mediciones, la tasa de alfabetización funcional entre los adultos es de solamente el 53 por ciento. Resulta difícil construir una economía urbana dinámica y sólida sobre un fundamento tan débil.

Queda claro entonces que los encargados de elaborar políticas deben tratar los problemas fiscales inmediatos, pero el pronóstico a largo plazo para Detroit dependerá de las medidas que se tomen para mejorar la base económica subyacente, es decir, el capital humano y social. Si no se abordan estos profundos desafíos, Detroit continuará tambaleándose. No existe una solución rápida. Para que Detroit tenga una oportunidad de prosperar nuevamente, Michigan deberá comprometerse a largo plazo a mejorar dichas condiciones de fondo.

Land Lines: ¿Puede considerarse a Detroit como un indicador para otras ciudades de los EE.UU.?

Mark Skidmore: Sí y no. Otros gobiernos municipales también enfrentan problemas fiscales significativos, como Chicago, Jacksonville, Los Angeles, Oakland y Providence, por nombrar sólo algunos. Uno de los principales problemas es el de los planes de aportaciones para el futuro pago de jubilaciones sin suficientes fondos. Aun así, muchas de estas ciudades tienen una probabilidad razonable de resurgir y, posiblemente, prosperar en un futuro no muy lejano, debido a que las agudas crisis que están atravesando son un resultado de la recesión y no necesariamente de problemas fiscales crónicos. No obstante, las ciudades que presentan problemas crónicos debido a déficits importantes en su capital social y humano podrán considerar a Detroit como un indicador de su propio futuro. Espero que los encargados de elaborar las políticas estatales y municipales en todo el país puedan aprender de la experiencia de Detroit y comenzar así a realizar las inversiones a largo plazo que sean necesarias en su activo más importante -las personas y, en particular, los niños- a fin de evitar los problemas económicos y fiscales crónicos que se han observado en Detroit.

Land Lines: ¿De qué manera el proyecto de Detroit encaja en sus tareas de investigación en general?

Mark Skidmore: Una gran parte de mi investigación tiene que ver con las relaciones entre la toma de decisiones en el ámbito público y la actividad económica. Con el correr de los años he analizado cuestiones como la efectividad de las finanzas basadas en el aumento de los impuestos, las implicaciones que conlleva imponer tarifas de impacto a fin de solventar los costos de infraestructura asociados con el desarrollo, y los efectos que los impuestos sobre la propiedad, las reducciones impositivas y otros subsidios tienen sobre el desarrollo. También he estudiado otras cuestiones relacionadas con las finanzas públicas, como las loterías estatales, los impuestos a las ventas y los impuestos a las ganancias. En particular, me interesan las relaciones espaciales, dinámicas y competitivas entre jurisdicciones tributarias adyacentes y superpuestas.

Land Lines: Una gran parte de su investigación gira en torno a las políticas y finanzas gubernamentales en los Estados Unidos. ¿Qué otros trabajos ha realizado usted a nivel internacional?

Mark Skidmore: En los últimos años, recibí, junto con mis colegas de la Universidad Estatal de Michigan (MSU), una subvención financiada por la Agencia Estadounidense para el Desarrollo Internacional (USAID) en Mali. Mi tarea ha sido analizar de qué manera el sistema de gobierno recientemente descentralizado de Mali puede utilizarse en forma más efectiva en los ámbitos de seguridad de los alimentos y gestión del uso del suelo. El cambio climático afecta a Mali en formas muy tangibles: debido a que el suelo en el norte se ha vuelto más árido, se ha observado una migración significativa hacia el sur, que posee un mejor acceso al agua. Esta migración ha dado como resultado una violencia cada vez mayor debido a que los derechos de posesión y propiedad del suelo son ineficaces. Ahora que se ha reestablecido el gobierno democrático, estamos trabajando nuevamente junto con nuestros socios de Mali a fin de desarrollar sistemas que involucren a las autoridades municipales para gestionar la seguridad de los alimentos, el acceso al suelo, los derechos de propiedad y los conflictos relacionados con el suelo. Curiosamente, el problema relativo a qué hacer con todos los terrenos de propiedad pública en Detroit ha dado forma a nuestro trabajo en Mali y viceversa.

Por otro lado, actualmente también estoy investigando sobre la economía de las catástrofes naturales. En uno de mis artículos publicados recientemente (cuya autoría comparto con Hideki Toya), se utilizaron miles de catástrofes ocurridas en todo el mundo para demostrar que los países con sistemas gubernamentales más descentralizados sufren una cantidad significativamente menor de muertes por dichas catástrofes. Según nuestra investigación, existen pruebas de que los gobiernos descentralizados brindan servicios esenciales de manera más efectiva que los sistemas más centralizados.

Un tercer proyecto recientemente concluido demuestra que, en diferentes países, la confianza de la sociedad tiende a aumentar en los años posteriores a las catástrofes climáticas. La relación que observamos es sólida, por lo que podemos sugerir la hipótesis de que dichas catástrofes requieren y brindan oportunidades para que las personas trabajen salvando las barreras de las clases sociales a fin de superar sus desafíos, lo que genera confianza y capital social. Aunque las catástrofes naturales pueden tener un terrible impacto humano y económico, un posible efecto beneficioso derivado de la exposición a una catástrofe de grandes magnitudes podría ser una sociedad mucho más unida.

Land Lines: ¿De qué manera su investigación refleja los intereses y valores del Instituto Lincoln?

Mark Skidmore: El Instituto Lincoln es reconocido en todo el mundo como una organización líder en temas del uso, regulación y tributación del suelo (impuestos sobre la propiedad, reducción de impuestos, políticas de desarrollo económico y sistemas fiscales descentralizados), temas todos que son el centro de mi investigación. A lo largo de los años, el Instituto Lincoln ha apoyado mi trabajo relacionado con las finanzas basadas en el aumento de los impuestos en Wisconsin, el estrés fiscal del gobierno municipal de Michigan y mi actual investigación sobre el entorno del impuesto sobre la propiedad en Detroit. El sistema estadounidense de un gobierno nacional y varios gobiernos subnacionales en gran medida autónomos brinda un campo fértil a los investigadores que desean estudiar y aprender qué “experimentos en política” obtienen mejores o peores resultados. De verdad me encanta este trabajo y estoy agradecido por tener al Instituto como socio en mis investigaciones.

Peter Nichols es un apasionado amante de la naturaleza y uno de los abogados de derecho hídrico más importantes de Colorado. No es infrecuente verlo entrar en el vestíbulo de su oficina de Berg Hill Greenleaf & Ruscitti en Boulder, una sala decorada con piedra, maderas nobles y una recepcionista elegantemente vestida, con su traje de letrado arrugado y calzando un par de gastadas sandalias de río. Según sus propias estimaciones, ser abogado de derecho hídrico es su sexta carrera profesional. “Ser un loco del esquí fue mi primera carrera”, confiesa. Después trabajó en la Asamblea General de Colorado, ayudó a las comunidades del Oeste a lidiar con el rápido desarrollo energético, y fue consultor de derechos de agua para las propias compañías de energía. En 2001, Nichols volvió a la Universidad de Colorado, donde había obtenido su maestría en Administración Pública en 1982, para obtener su título en Derecho con especialización en derecho hídrico. Desde entonces ha estado sentando precedentes en las cuencas de Colorado.

Uno de sus logros que más le enorgullece, dice, fue un caso de 2013 en que la Corte Suprema de Colorado reafirmó la prerrogativa de los grupos de conservación para gravar los derechos de agua en servidumbres de conservación con el objeto de resolver problemas ecológicos y de suministro de agua en los ríos de Colorado. También se enorgullece de la presentación que inspiró al Comité del Acuerdo entre Cuencas de Colorado, que supervisa la elaboración del Plan Hídrico de Colorado, un modelo histórico de gestión hídrica colaborativa para todo el estado, dado el rápido crecimiento de la población. Pero entre todos sus logros, el más importante ha sido su trabajo sobre la cuenca del río Arkansas en Colorado. Este es “el crisol” de cómo el Oeste va a gestionar la gran escasez de agua que se prevé en esta región de crecimiento acelerado de las Montañas Rocosas.

“El problema comenzó aquí”, dice, “y si vamos a resolverlo, vamos a tener que resolverlo aquí”. El problema al cual se refiere es la tendencia a la adquisición de agua para las ciudades conocida como “buy-and-dry” (comprar y secar).

En una adquisición buy-and-dry, una compañía municipal de aguas cubre la creciente demanda de agua de la población comprando intereses en tierras agrícolas de regadío, dejando dicho suelo en barbecho permanentemente, y utilizando el agua que le corresponde por derecho para surtir a los residentes de la ciudad. En el río Arkansas de Colorado, donde no hay agua disponible para usos nuevos, y hay una demanda constante de suministro adicional, las tácticas de buy-and-dry han reducido las tierras agrícolas de regadío de toda la cuenca. En el valle bajo del río Arkansas, donde el río corre por la pradera oriental de Colorado, algunas comunidades agrícolas de ciertos condados han quedado completamente devastadas.

Dice Nichols: “El plan hídrico de Colorado está muy enfocado en eliminar buy-and-dry“. La cuestión es cómo hacerlo. “No podemos impedir que las ciudades obtengan el agua que necesitan, pero quizá podamos cambiar las reglas [del juego] para que no se convierta en un sálvese quien pueda”.

La alternativa más prometedora, según él, es Super Ditch.

Puesta en marcha de Super Ditch

Al oeste del meridiano 100, donde es necesario riego suplementario para el cultivo, las acequias son una solución normal para suministrar agua de un río, lago o embalse a los usuarios que se encuentran en su curso. En el valle bajo del río Arkansas hay aproximadamente 20 importantes sistemas de acequias comunes. Sin embargo, Super Ditch no es una auténtica acequia. Más bien consiste en una corporación —Lower Arkansas Valley Super Ditch Company, Inc. (Compañía de la Mega Acequia del Valle Bajo del río Arkansas)— establecida para proporcionar agua agrícola por arrendamiento a las ciudades como alternativa a la política de buy-and-dry. Representa a siete compañías que operan ocho canales entre dos embalses: Pueblo y John Martin.

Super Ditch comenzó a arrendar agua por primera vez este año, por medio de un pequeño proyecto piloto. Pero se formó en 2008 con la asistencia del Distrito de Conservación de Agua del Valle Bajo de Arkansas (Lower Arkansas Valley Water Conservancy District, LAVWCD por su sigla en inglés), un distrito especial establecido por los votantes en 2002. Los que votaron por la formación del distrito, fueran dueños de agua o no, estaban cansados de ver cómo se desviaba “su río” a ciudades que estaban a más de 150 kilómetros de distancia, algunas de las cuales se encontraban en cuencas hídricas completamente distintas. Incluso los electores urbanos de la ciudad de Pueblo, una comunidad dedicada a la producción de acero del río Arkansas (con 108.000 habitantes) votaron a favor de los agricultores rurales debido a sus problemas económicos. “¡Ni una gota más!” fue el lema utilizado para oponerse a que el agua saliera del valle.

Nichols es consejero legal especial de LAVWCD y ayudó al distrito a desarrollar la propuesta de Super Ditch. La inspiración provino de California, donde el Distrito de Riego de Palo Verde estableció un programa de barbecho-arrendamiento de largo plazo con el Distrito Metropolitano de Aguas de California del Sur (Metropolitan Water District of Southern California, MWD por su sigla en inglés) en 2005. El contrato entre estas dos entidades se propone suministrar agua a 27 comunidades costeras del sur de California, incluidos San Diego y Los Ángeles, 4.500 millones de metros cúbicos de agua del río Colorado a través un canal durante un periodo de 35 años. Los agricultores participantes se comprometen a dejar de regar por un periodo específico de tiempo, dejan sus campos en barbecho y reciben un pago por su agua que, en vez de ser utilizada para regar sus campos, se destina a los clientes de MWD.

LAVWCD trató de crear un proyecto similar, basado en el concepto de rotación de barbecho-arrendamiento, pero Super Ditch fue un emprendimiento mucho más elaborado. Esta colaboración entre siete compañías mutuales de canales, cada una con su junta directiva y su estructura de gobierno, estuvo cargada de desafíos. La naturaleza compleja de las leyes hídricas de Colorado y los poderosos mecanismos del mercado y las dependencias de trayectorias que guían las estrategias de adquisición de agua urbana en el estado complican el tema más aún. Las municipalidades de Colorado dudan de depender del arrendamiento de agua, y con causa justificada. Es fundamental saber con certeza que habrá un suministro suficiente, y la naturaleza temporal del arrendamiento, en contraposición con la permanencia de la propiedad de los derechos de agua, inquieta a la mayoría de las empresas municipales proveedoras de agua. ¿Qué ocurriría si la población creciera en 50.000 habitantes, y el agua arrendada de la que esta gente depende ya no estuviera disponible, o se vendiera a otro proveedor de agua?

Nichols trató de desarrollar el concepto de Super Ditch para resolver estas inquietudes. Super Ditch reúne los suministros de agua de los distintos agricultores, y provee de agua a las ciudades bajo contratos de arrendamiento de largo plazo. Para garantizar que los insumos arrendados estén disponibles cuando termine el período de arrendamiento, LAVWCD comenzó a trabajar con los agricultores para establecer servidumbres de conservación en las granjas participantes, protegiéndolas del desarrollo inmobiliario y reservando el agua para el suelo a perpetuidad, con el objeto de garantizar la futura producción potencial. Si bien se permiten transferencias temporales, las servidumbres eliminan la posibilidad de cualquier separación, desvío o cambio permanente en el uso del agua. En otras palabras: no es buy-and-dry.

Las servidumbres de conservación han protegido el entramado de las comunidades agrícolas en Colorado y en el resto del país. Una base de suelos protegidos por servidumbre garantiza que se mantendrá la futura producción potencial de una comunidad agrícola, frente a la amenaza de conversión de suelo debido al crecimiento urbano desordenado, la explotación de petróleo y gas, o los programas buy-and-dry municipales. Una vez protegida la base del suelo, las industrias agrícolas asociadas pueden invertir con confianza en la región. Esto, a su vez, tiene un efecto positivo sobre las ciudades.

Super Ditch proporcionó su primer suministro de agua en mayo de 2015: cinco granjas del canal Catlin suministraron 600.000 metros cúbicos de agua a la ciudad de Fountain (27.000 habitantes), la ciudad de Security (18.000 habitantes) y el pueblo de Fowler (1.200 habitantes). El ingeniero del Departamento de Recursos Hídricos de Fountain, Michael Fink, explicó que “la ciudad recibió el agua sin ningún problema”, y añadió que el éxito a largo plazo del programa depende de que Super Ditch no utilice un modelo económico basado en la oferta.

Nichols dice que eso no es un problema. “Las ciudades pueden arrendar [de los agricultores] tres de cada 10 años, o el 30 por ciento del tiempo. Tienen la responsabilidad de informar a los agricultores por adelantado [cuando van a arrendar]. Pero en la mayoría de los casos, las ciudades no necesitan agua en años de sequía; la necesitan al año siguiente para volver a llenar [los embalses]”.

Al dejar en barbecho un tercio de sus campos tres de cada diez años, los agricultores “hacen descansar” el 100 por ciento de su suelo una vez cada 10 años. Este es un proceso compatible con las prácticas recomendadas de rotación de cultivos y gestión del suelo, permitiendo al mismo tiempo que el agua propiamente dicha se convierta en un cultivo comercial. Nichols señala que con una rotación de cultivo de tres de cada diez años se puede satisfacer una demanda de 30 millones de metros cúbicos de agua con la participación del 40 por ciento de los regantes. Algunos agricultores creen que hasta el 80 por ciento querrá participar. No cabe duda alguna de que harán falta muchos participantes. Se estima que el déficit de oferta de agua en la cuenca del río Arkansas se incrementará a 100 millones de metros cúbicos para el año 2050. La prueba definitiva para el éxito de esta propuesta será si las grandes ciudades responsables de la mayoría de la actividad de buy-and-dry (Aurora, con una población de 346.000 y Colorado Springs, con una población de 440.000) se suscriben al programa. “El desafío principal sigue siendo la aceptación, por parte de las municipalidades, de arrendar en vez de comprar”, dice Nichols.

De pioneros a buy-and-dry

En el valle bajo del río Arkansas, el agua ha dividido a las comunidades durante gran parte del siglo XX. En el siglo XIX, dividió a países enteros. Este río fue el límite de tres fronteras internacionales a lo largo del tiempo: entre España y los Estados Unidos después del Tratado de Adams-Onís de 1819, que determinó la frontera de la Compra de la Luisiana entre los dos países; entre México y los Estados Unidos después de la independencia mexicana de España en 1821; y entre la República de Texas y los EE.UU. antes de la anexión de Texas en 1845. Dos años después de la firma del Tratado de Adams-Onís, se construyó el Camino de Santa Fe a lo largo del curso del río, atrayendo a comerciantes, soldados, mineros y colonizadores a Colorado. Estos pioneros desarrollaron algunos de los asentamientos iniciales de Colorado y, junto con ellos, proyectos de desvío de agua a lo largo de las riberas del río.

El Oeste es seco, y, aunque el río Arkansas es el segundo tributario más largo del río Mississippi, lleva muy poca agua a Colorado. Veamos cuán rápidamente se apropiaron de las aguas en el valle bajo del río Arkansas. Después de las apropiaciones iniciales de 1861, se promulgó la Ley de Colonización de 1862. Con los asentamientos, se fueron apropiando de más derechos sobre el agua. En 1874 se dictó el último decreto de derechos sobre el agua con una prioridad del 100 por ciento (lo que significa que siempre habría agua suficiente en el río para satisfacerlos), dos años antes de que Colorado se convirtiera en un estado en 1876.

Los derechos de agua de los que se apropiaron en 1887 tienen hoy en día prioridad menos del 50 por ciento del tiempo. Hoy en dia, los derechos de agua de 1896 tienen prioridad menos del 10 por ciento del tiempo. Esto quiere decir que un agricultor moderno en el valle del río Arkansas que tenga un derecho de agua establecido en 1896 por su bisabuelo podrá regar sólo el 10 por ciento del tiempo con una precipitación promedio. El resto del tiempo, cuando hay un “aviso sobre el río” (es decir, que no hay agua suficiente en el sistema para todos los poseedores de derechos), tendrá que desistir de desviar agua a sus campos, para que los tenedores de derechos de agua más veteranos la puedan usar.

Dada la excesiva apropiación de derechos del río Arkansas desde antes de comienzos del siglo, las ciudades comenzaron a comprar agua a los agricultores ya en la década de 1890. Pero la escasez de agua o los conflictos también se abordaron desarrollando proyectos de trasvases entre cuencas (que trasladaban agua desde otras cuencas hídricas al río Arkansas) o proyectos de almacenamiento (que trataban de acumular agua excedente en embalses durante periodos de gran caudal). Estos proyectos llegaron a su límite en la década de 1970. Fue entonces cuando las ciudades comenzaron a considerar seriamente los terrenos de regadíos.

En las décadas de 1970 y 1980, Colorado Springs y Aurora, junto con terratenientes corporativos y la Ciudad de Pueblo, adquirieron intereses sobre 22.000 hectáreas de suelo agrícola servido por el Canal Colorado. Estas ciudades desviaron posteriormente cerca de 90 millones de metros cúbicos de agua para uso municipal, secando la mayor parte del condado de Crowley. Crowley se transformó en el símbolo de buy-and-dry, y sigue ostentando hoy en día este título tan poco distinguido. Las tasas de pobreza superan el 35 por ciento. Las calles principales son una sombra de las comunidades que existían allí a mediados del siglo XX. Las plagas de malas hierbas nocivas y las tormentas de polvo son frecuentes en los suelos secos. La restauración de estas granjas a su estado de pradera original no solamente es caro; en la práctica, sería difícil o imposible.

Hoy en día, la pérdida de agricultura de regadío a causa de la venta de agua en el valle bajo del río Arkansas afecta a más de 40.000 hectáreas, lo cual representa más de 185 millones de metros cúbicos de agua al año. Algunas granjas continúan con su actividad, arrendando temporalmente suelo o agua de las ciudades a las que se los vendieron, pero estos contratos de arrendamiento vencerán pronto, lo que generará pérdidas aún mayores. En una región que históricamente regaba 130.000 hectáreas de suelo agrícola, un tercio de la tierra labrada está hoy seca, hay muy pocas o ninguna alternativa de uso de suelo económicamente viable, y la gente se pregunta si no nos estamos acercando a un punto sin retorno que marcará el colapso de la agricultura de regadío en el área.

“Como en gran parte del Oeste, la agricultura es el corazón de la herencia cultural de esta región”, dice Summer Waters, directora de Western Lands and Communities, un programa conjunto del Sonoran Institute y el Instituto Lincoln de Políticas de Suelo. “No obstante, hemos ingresado en una era en que las ciudades también son parte de nuestro legado cultural. Esto nos plantea una pregunta que tenemos que contestar colectivamente: ¿Qué aspecto tendrá el nuevo Oeste?”

“Idealmente, tanto las ciudades como las áreas agrícolas podrán coexistir en el nuevo Oeste”, dice Waters. “La clave para encontrar un punto de equilibrio estriba en cómo manejamos nuestros recursos hídricos. El concepto de Super Ditch es una manera innovadora de flexibilizar nuestros sistemas de agua, y esta flexibilidad es fundamental en los momentos en que el suministro es incierto”.

Un pimiento prometedor en un lugar poco prometedor

Mike Bartolo está visiblemente frustrado. Teme que los travases de agua desplacen a la agricultura. “Estamos perdiendo parte de las tierras más fértiles del estado”, dice. “Estas son tierras de alta calidad que no existen en otros lugares. ¿Cómo se puede generar certeza en el sector [cuando está ocurriendo todo esto]? Esa es la cuestión”.

Bartolo, que tiene un doctorado en Fisiología Vegetal por la Universidad de Minnesota, es miembro del cuerpo académico hídrico de la Universidad Estatal de Colorado (CSU) y científico senior en el Centro de Investigación del Valle del río Arkansas de CSU. Es miembro de la junta directiva de Super Ditch, en representación del canal Bessemer (uno de los ocho canales participantes), del cual es accionista. Con derechos de agua establecidos en 1861, el canal Bessemer es una de las fuentes más antiguas y confiables de agua de las granjas del valle bajo del Arkansas, y riega algunos de los mejores suelos del valle. Bartolo todavía está lamentando la pérdida del 28 por ciento del agua del canal en 2009, vendida por agricultores que él conoce a la Junta de Aguas de Pueblo (Pueblo Board of Water Works, PBWW), la empresa que suministra agua municipal a la ciudad de Pueblo.

Según Nichols, ha habido ocasiones en que las ciudades se aproximaron estratégicamente a los agricultores cuando la situación era mala —una combinación de recesión, sequía, precios bajos de las materias primas, endeudamiento excesivo y otros factores— obligándolos a negociar desde una posición desventajosa. Pero también es cierto que algunos agricultores que estaban por jubilarse se unieron para negociar convenios de venta de agua al por mayor a las ciudades. Los accionistas del canal Bessemer que vendieron 5. 540 acciones a PBWW por US$10.150 la acción (una acción de agua del canal Bessemer irriga aproximadamente media hectárea) se estaban jubilando y no tenían herederos, y, en un momento en que los precios de los productos agrícolas estaban cayendo, intentaron capitalizarse con el aumento del valor del agua después de la grave sequía de 2002. Con la venta, que tuvo lugar en 2009, obtuvieron una ganancia neta de US$56 millones de dólares. Si se tiene en cuenta que el suelo sin riego se vende frecuentemente en la región por menos de US$750 por hectárea, se puede ver dónde reside su valor: en el agua. Para proteger a otros productores y la vida agrícola de las comunidades regadas por el canal Bessemer, Bartolo trató de convencer a los agricultores de que no vendieran, pero fue en vano. “Les dije: ‘Busquemos otras opciones, en servidumbres de conservación, en Super Ditch, pero hay que tener en cuenta que los vendedores estaban pensando en esto desde hacía ya mucho tiempo. Incluso si se hubieran mostrado interesados en otras alternativas, ninguna podía competir con la cantidad de dinero que les ofrecían”. (En ese momento, Super Ditch ya se había establecido como empresa, pero aún no estaba funcionando).

Los agricultores de la región tienen un gran respeto a Bartolo. Es un agricultor de cuarta generación que desarrolló la variedad Mosco del pimiento (chile o ají) verde picante Mirasol, que es la variedad más popular de pimientos verdes que crecen en la región, y el centro del Festival de Pimientos y Frijoles de Pueblo, que atrae a más de 100.000 personas de Colorado todos los años. Whole Foods decidió recientemente vender los pimientos Mosco del Valle del Arkansas, en vez de los pimientos Hatch de Nuevo México — duro golpe para el orgullo de Nuevo México, cuya verdura estatal es el pimiento picante.

Bartolo desarrolló el pimiento Mosco a partir de unas semillas que su padre recogió en la casa del tío de Mike, Henry Mosco, después de su muerte en 1988. Mike plantó las semillas. “Una de las plantas creció distinta”, dijo. “Tenía mejor rendimiento, daba frutos más grandes y pulpa más carnosa que lo hacía más fácil de asar”. Mike comenzó a cultivar esta variedad a partir de esta planta. Aisló las características que quería y repitió el proceso, desarrollando el pimiento durante un periodo de quince años.

Hay muchos productos de granja reconocidos que provienen del valle bajo del Arkansas: los melones cantalupo Rocky Ford y los pimientos Mosco son los principales. Mike los ha cultivado todos. De todas maneras, cuando se trata de introducir una nueva manera de utilizar el agua, como está tratando de hacer Super Ditch, Mike concede que hay mucho trabajo todavía por realizar. “Buy-and-dry se ha convertido en una actividad políticamente incorrecta para las ciudades, pero eso no ha amedrentado a otros especuladores [de cumplir el papel que antes tenían las empresas municipales de agua]”. A principios de este año, Pure Cycle, una empresa de servicios de agua potable y agua para alcantarillado que arrienda 6.000 hectáreas de suelo en el canal Fort Lyon a arrendatarios agrícolas, vendió las granjas a una filial de C&A Companies y Resource Land Holdings, LLC. C&A es una compañía que planea suministrar agua del río Arkansas a ciudades de la región de Front Range más al norte. “Estos mecanismos de transferencia alternativos tienen que definirse muy bien, y deben tener un historial para poder competir”, dice Bartolo. Tienen que ser igualmente expertos y rápidos en pagar en efectivo como en una venta directa de agua.

El agua como cultivo comercial

El valor del agua en el Oeste aumenta cada vez más. En el valle bajo del río Arkansas, hay una gran riqueza relacionada con el agua de los agricultores. Es irónico que las comunidades que poseen un activo tan valioso se estén enfrentando a pobreza y decadencia. Más desconcertante es todavía que los agricultores estén liquidando un activo cuyo valor sigue creciendo. Si se le pregunta a un asesor de inversiones: “¿Vendería usted un activo cuyo valor seguirá creciendo?”, probablemente responda: “No…, a menos que no tuviera otra alternativa, o que no hubiera ninguna otra manera de obtener beneficios de ese activo”.

Con respecto al agua, el problema es que en la actualidad hay una estricta dicotomía de opciones. Los granjeros que la poseen tienen medios limitados para ganar dinero, salvo: (1) cultivar alimentos y obtener ganancias de acuerdo al precio del mercado; o (2) vender el agua y obtener dinero por su valor vigente. En parte, esta limitación tiene que ver con la complejidad del derecho hídrico de Colorado. Si una ciudad quiere arrendar agua de un agricultor, tiene que obtener aprobación para el cambio de uso en los tribunales de agua. Para ello hay que llevar a cabo estudios de ingeniería y recurrir a expertos legales, con un costo de decenas de miles de dólares. El peticionario del cambio tiene que demostrarle al tribunal que otras partes que tienen derecho al agua, como los agricultores aguas abajo de la misma acequia, no se verán perjudicados. Si los tribunales o estas terceras partes disputan esta premisa, el costo de la solicitud de cambio de uso puede aumentar en cientos de miles de dólares. Pasar por un proceso como este para un arrendamiento temporal, junto con el deseo de las ciudades de garantizar el suministro de agua de manera permanente debido al crecimiento de su población, es otro factor que ha limitado históricamente el arrendamiento de agua.

Super Ditch, gracias a legislación propuesta por Nichols en 2013, permite que este trámite de cambio de uso se realice de manera mucho más eficiente, por medio de procedimientos administrativos supervisados por la Junta de Conservación de Agua de Colorado (CWCB). Ahora, Bartolo y Nichols están a la espera de lo que ocurra cuando los agricultores tengan más de dos opciones. Están persuadidos de que, si los agricultores pueden retener la propiedad del agua, cultivar alimentos y obtener ganancias del arriendo de agua todo al mismo tiempo —como lo harían con otros tipos de activos— la perspectiva económica del valle bajo del río Arkansas cambiará.

Esta opinión coincide con estudios económicos. Mientras el concepto de Super Ditch estaba cobrando impulso en 2007, el economista agrario George Oamek de CH2M Hill comparó distintas opciones para los agricultores: vender el agua, seguir cultivando, o seguir cultivando y al mismo tiempo participar en un programa rotativo de barbecho y arrendamiento. Sus proyecciones muestran que, en un horizonte de 40 años, los agricultores que vendan su agua ganarían más que los agricultores que sigan cultivando, pero los agricultores que cultivan y participan del programa de barbecho y arrendamiento ganarían los que más. En un comentario publicado en el diario Pueblo Chieftain después de realizado el estudio, Oamek dijo que Super Ditch podría asegurar el mejor precio para los agricultores: “En economía, se usa la colaboración como manera de conseguir un precio más alto”.

Por la misma razón, sin embargo, el concepto de barbecho y arrendamiento es difícil de vender a las grandes ciudades. Siguiendo el principio de colaboración de Oamek, las ciudades han estado colaborando entre sí para adquirir fuentes de agua agrícola a precios más bajos. El escepticismo de las ciudades se intensifica la preocupación inflacionaria. Si el costo del agua seguirá creciendo, ¿por qué no comprarla ahora, que los precios son bajos, para no tener que subir las tarifas?

Para resolver esta cuestión, Nichols investigó distintos mecanismos para establecer escalamientos de precios que protegieran a compradores y vendedores, como:

1. un escalamiento en base al mercado, siguiendo los precios de otros suministros de agua;
2. un escalamiento basado en el aumento de la cuota de impacto promedio de agua municipal a lo largo del tiempo;
3. un escalamiento basado en el aumento promedio de la tarifa de agua municipal a lo largo del tiempo;
4. un escalamiento basado en los costos, de acuerdo al Índice de Precios al Consumidor y el Índice de Precios del Productor.

El proyecto piloto con Fountain, Security y Fowler garantiza la estabilidad de precios ajustando el precio del arrendamiento cada cinco años de acuerdo al cambio porcentual del Índice de Costos de Servicios Públicos de Colorado publicado por la Liga Municipal de Colorado.

Con un precio de US$0,40 por metro cúbico, el arrendamiento de agua vigente de Super Ditch se traducirá en un ingreso de un cuarto de millón de dólares este año para los cinco agricultores participantes, además del ingreso por el cultivo de las tierras que no están en barbecho. Algunos de estos cultivos, como el forraje, son de bajo valor, y el arrendamiento de agua genera un buen ingreso al contrario que estos cultivos. Otros, como los melones y pimientos, son cultivos de alto valor. Bartolo está entusiasmado con la retención de estos ingresos agrícolas, porque cree que generarán un efecto multiplicador en las diversas comunidades del valle. “Con 5.000 metros cúbicos de agua puedo cultivar una hectárea de pimientos, o sea, unos 35 metros cúbicos, lo cual genera de US$10.000 a US$15.000 en ingresos a puerta de granja”.

Aun cuando los precios del agua municipal están aumentando, si tenemos en cuenta la escasez que enfrenta el Oeste, siguen siendo bajos. Las ciudades han tratado de mantener los precios bajos adquiriendo la mayor cantidad de agua posible y lo antes posible, siempre dentro de los límites de la doctrina antiespeculativa de Colorado.

Al diversificar los “tipos” de agua que determinan los precios —tanto en la llave de paso (precio del servicio público) como en la compuerta del canal (precio de la materia prima)— Super Ditch puede crear una innovación disruptiva para alterar el precio del agua en consonancia con la realidad del Oeste. Si los agricultores retienen el control del agua y la arriendan a las ciudades, los precios se ajustarán de acuerdo a la demanda creciente, en un entorno de propiedad diversificada. Este es un nuevo tipo de competencia en el mercado, y enhorabuena por ello. El crecimiento urbano no tiene que venir acompañado de una decadencia rural. Y un vaso de agua puede seguir siendo la bebida más barata para acompañar un plato de pimientos rellenos cultivados en la región.

Scott Campbell es un galardonado planificador y consultor de conservación especializado en formar equipos diversos para resolver problemas medioambientales, sociales y económicos complejos. Scott fue fellow Lincoln Loeb de 2015 en la Escuela de Diseño para Graduados de la Universidad de Harvard, y también fellow en el Instituto Lincoln de Políticas de Suelo. Anteriormente, Scott dirigió uno de los mayores fideicomisos de suelos del país: la Fundación William J. Palmer Parks.

Fotografía: John Wark/Airphoto NA

The study of property taxation in Europe offers special challenges because each country has a different definition of land and property, and a different approach to local property taxation. The term property often includes both land and buildings, but may also include plants and machinery as well as certain possessions, such as automobiles. In Denmark, for example, separate taxes may be levied on the land and property elements of a single holding.

Among the 41 counties in our study, we identified 61 different forms of local taxation. Most are based on annual value, usually assessed on a capital or rental basis, and are payable annually. While most countries tax the sale of property at the state level, the Czech Republic, Italy, Portugal, Slovakia and Spain levy such taxes locally. Yet, amid such diversity, a basic central pattern emerges. Each county, except Malta, operates some form of annual property tax on the use or occupation of land and/or property, usually levied at the local level, and the revenues contribute to the provision of local services.

Tax Reform and the European Union

Over the last 10 years France, Denmark, Germany, the Netherlands, Belgium, the United Kingdom and the Republic of Ireland have either completed or are in the process of completing substantial reforms to their taxation systems. Other countries have undertaken more minor reforms. Even some emerging democracies are reviewing and reforming their relatively new taxation systems in light of changes elsewhere. No individual tax exists in isolation, and all are affected by larger fiscal, economic and political developments. The reform of one tax will often have consequential effects on others, and property taxation in all its forms is no exception.

One impetus to tax reform in Europe is the European Union (EU). Fifteen of the countries in our study are members, and many other countries are in various stages of being considered for membership. Many countries are taking this opportunity to reform and improve their tax administration systems and to make their taxation rates competitive with those of other member states. Tax harmonization is not one of the declared aims of the EU, although it may be a natural consequence of many EU polices.

The main incentive for tax reform in Europe is coming from the states themselves. In one of the first signs of the problems caused by traditional national taxation systems, the Ministry of Finance in the Netherlands noted in the early 1990s that not only were businesses locating in the most tax-favorable areas but they also were buying goods and services from other countries where tax rates and other costs were lower. The close proximity of the Netherlands to Germany, France, Belgium and Luxembourg, as well as the good transport links between the countries, exacerbated the situation.

The introduction of the Single European Market has opened internal markets to foreign competition with the removal of trade barriers and the abolition of customs duties between member states. Business competitiveness now depends primarily on efficiency and the amount of taxation imposed by the national government, rather than on state aid and trade policies.

Approaches to Local Taxation

The Taxpayer

The majority of property taxes are payable by the owner. Of the 51 taxes we studied, 29 identified the owner as the taxpayer and 12 are paid by the occupier; the remaining 10 are sales-based taxes. The occupier figure was distorted because the United Kingdom accounted for 50 percent of this figure, due to differences in the implementation of its local taxes. In the Netherlands both parties can be taxed at different amounts. For sales-related taxes the results were less clear, with the taxpayer being the seller in half the cases and the purchaser in the other half.

Sources of Valuation Information

Many countries have some form of computerized cadastral system to record property-related information, and as part of the assessment process different levels of government usually exchange information. The nature and implementation of such systems vary considerably, from a series of different registers administered at various levels of government to a single register administered nationally.

The rights of the taxpayer to centrally held information also differ among countries. Some provide no rights to any information, while others provide notice whenever a new valuation or alteration is made. In some cases, valuation and comparable evidence may be made available at the request of the taxpayer.

Bases of Valuation

Three alternative approaches for the valuation bases are used most frequently. The Capital Value Approach is normally based on the open market value of the property at a specified baseline date, which may be a current date such as the start of the tax year. Sweden designates a date two years before the tax year. This approach has the advantage of giving valuation authorities more time to consider all the evidence available before arriving at their final valuations. The open market value is usually defined on the basis of a property’s best and/or highest value.

The Rental Value Approach is based on the open market rental value at a specified date. England, Wales, Scotland and the Republic of Ireland specify a baseline date some time before the new values come into effect, as in Sweden. The open market rental value may be restricted by assumptions as to changes of use and alterations. The rationale is that the tax is levied on the occupier and the amount of tax is based on the current use of the property, not its potential value.

Properties not normally bought and sold in the market require alternative approaches to valuation. For example, the use of a revenue (or accounts) approach has been adopted in England and Wales for many types of leisure-related property, and its use is expected to increase. The cost approach, related to the cost of construction, also is widely accepted in England and Wales and in other European countries.

The Overall or Unit Approach relates to a property’s size. The tax is levied at a prescribed rate per square meters or per unit, which may vary depending on the predominant use of the property. These rates may be loosely based on rental or capital values, but are more often an arbitrary rate fixed by the appropriate taxation authority. In 1997 the Netherlands moved away from such a system in favor of a market-related capital value approach. Many new democracies have adopted the unit approach due to a lack of property information, a limited and restricted property market, and insufficient resources to enable the development of alternative systems. It is anticipated that many of these countries will move to a value-based system when resources and circumstances permit.

A number of other approaches are used under special circumstances. One is the capital value banding approach adopted for the valuation of residential property for the Council Tax in England, Wales and Scotland. In this approach property is ascribed to various value bands rather than valuing each individual property precisely. Another example is the local business tax, which includes the value of the property plus in the case of France a percentage of salaries and in the case of Spain and Switzerland the business profits.

Revaluation of the Tax Base

One of the key factors in examining European property tax systems is whether the valuations on which the tax is charged are up-to-date. Our research identified a very mixed picture: some countries have not revalued their tax bases for many years and others undertake revaluations regularly, every four or five years (see Table 1). Many countries have either no provision for regular revaluations or have postponed revaluations so often that their tax base bears little resemblance to current market values.

Indexation

Many countries have attempted to overcome the problems associated with infrequent revaluations by some form of indexation. Those countries performing annual revaluations may implement them through actual annual revaluations, indexation of an earlier revaluation or self-assessment declarations by the taxpayer. While annual indexation between regular revaluations every few years may ensure a relatively accurate tax base, its use becomes more questionable when the base has not been updated for 10 or 20 years. The position is made far worse in countries where the property market is changing rapidly, especially in major cities and towns. Any adopted index needs to be closely related to the property market in that location and to the specific property type. In most cases, however, the index is a single figure applied across the entire country and for all types of property.

Exemptions and Reliefs

Exemptions can be considered from two viewpoints: the nature of the property or the nature of the taxpayer. In addition, some countries have introduced arrangements that place a ceiling on the amount of tax payable. Some common features relating to the types of properties for which some form of relief may be granted are:

• land owned by the state and used for the provision of public services, such as schools, hospitals, cemeteries etc., if usually exempt or excluded from the tax legislation;
• land and property used for religious purposes;
• historic land and buildings;
• agricultural land.

Relief to taxpayers takes many forms and can include:

• relief to persons of retirement age;
• relief to disabled persons;
• relief of a percentage of the tax for certain owner-occupiers or remittance of an initial amount of the tax.

Calculating the Amount of Tax

The simplest systems for calculating tax payments adopt a given tax per square meter occupied. Once the area of the property is agreed, it is a relatively simple matter to apply a given tax rate to that area. In some countries, the assessed value must be multiplied by an index or co-efficient and then by a locally determined rate that can vary depending on the size of the authority levying the charge. In France, the situation is even worse for the business tax, where a series of limitations have to be calculated to ascertain whether a ceiling or cap applies to the taxable amount.

Appeal Systems

Most countries have a system by which the taxpayer may challenge the tax assessment or valuation, although that action generally does not postpone the payment of the tax. In some cases the first step is an informal approach to the authority, which may be able to resolve the dispute without the need for more formal action. Where a formal approach is adopted, the appeal may be dealt with as part of the general tax appeal process through the normal tax tribunals and courts, or it may be handled outside the normal tax system, often in courts and tribunals established for the purpose.

Tax Collection and Payment

In many countries taxes are collected by the national tax authority, often as part of the income tax process. This method has the advantage of being linked with national exemptions and benefits; the resulting tax is usually payable over the whole tax year. Under the second common method, the tax is paid directly to the relevant taxing authority, sometimes in installments.

Conclusion

European countries are constantly reviewing their tax systems and adopting the best features of other systems. This presents special challenges to a survey such as ours, but also enhances its potential impact by allowing comparative analysis to influence new legislation. One very important conclusion at this early stage of the research project is the importance of keeping the tax base up-to-date. This not only simplifies the entire valuation and collection process but also ensures a tax base that is more acceptable and understandable to taxpayers. During this year we propose to widen our research and complete data collection on other European countries. In addition, we will attempt to compare the amounts of revenue raised by each type of taxation and analyze them within the context of each country’s local government and finance system.

Peter K. Brown is professor of property taxation at Liverpool John Moores University, a frequent author and a regular speaker on valuation, rating and taxation matters. Moira Hepworth is head of research at the Institute of Revenues, Rating and Valuation (IRRV), based in London. The authors are joint recipients of a David C. Lincoln Fellowship in Land Value Taxation. This article is based on their first year of research and their recent working paper.

Related Publication

Peter K. Brown and Moira Hepworth. 2000. “A Study of European Land Tax Systems.” Lincoln Institute Working Paper. 156 pages.

The introduction of property taxation in transitional economies offers a unique perspective from which to study fiscal and governmental decentralization, land privatization and market development. These reforms all involve fundamental changes from the centrally controlled and planned societies of the communist period. The Lincoln Institute has a particular interest in the experiences of countries that are adopting property taxation and is underwriting a series of case studies in consultation with research associates in Armenia, the Czech Republic, Estonia, Poland, Russia and the Slovak Republic.

These studies demonstrate similarities in the challenges and problems faced by countries in transition and the extraordinary changes that have taken place in less than a decade since the fall of communism. At the same time, each country has followed a somewhat different path, adopting strategies that reflect its unique set of past traditions and current circumstances.

Decentralization and Privatization

Among the challenges facing these countries after nearly 50 years of communist rule are the decentralization of fiscal and political control and the reduction of the role of government in favor of private-sector ownership and activity. Privatization of land ownership has been a particularly sensitive issue. Taxes on real property have been introduced as part of a strategy to provide a revenue source to local governments, to encourage privatization of government-owned real estate assets, and to improve land utilization. Although in most cases the central governments continue to play a dominant role, a degree of local fiscal authority and autonomy has been introduced. Poland and Estonia have assigned these taxes to local self-governments, with authority to determine tax rates within limits established by their national parliaments.

In the other countries, national law sets the rate of taxation, but some local control is achieved by adjusting the coefficients applied to area measures that establish the tax base. The revenues raised from land and building taxes are still a relatively modest source of local revenue, and generally benefit rural communities more than urban areas. Although property taxes raise a minor portion of these countries’ total taxes at present, central governments envision a larger role for them in improving inter-governmental finance systems.

Privatization of state assets and ownership rights to real property is an essential yet complicated process that is still underway in each of the countries studied. In Estonia, for example, the desire to restitute land to pre-Soviet-period owners or their heirs initially complicated the determination of property rights. The adoption of a land tax in 1993, within two years of independence, was an essential element of Estonia’s land reform program, which also included privatization and market development. Limiting the tax base to land alone was intended to encourage its productive use, stimulating owners of restitution rights “to develop the property or sell it.”

In the former Soviet satellites, considerable private ownership remained under communism, but the formal cadastral systems were not maintained and the recording of property rights is still far from complete. During the Soviet period, land was treated separately from buildings, and this practice has continued in some countries, making real estate units more difficult to assemble for investment purposes. Property (buildings and structures) is treated separately from land for taxation purposes in Armenia, the Czech and Slovak Republics, and Russia.

While housing and business privatization has progressed to a degree in all countries, the release of land to private ownership and especially to ownership by foreigners has been a contentious issue. In Russia, although the Constitution and Civil Code provide for private property, the government and the Duma have failed to agree on a Land Code to provide a legal basis for land ownership. Most countries have placed some restrictions on foreign ownership, but permit long-term leases. Land taxation offers a potentially broad and expanding revenue base as privatization continues.

Market-based Reforms

In the absence of secure property rights and developed property markets, most countries have taken an incremental approach to incorporating market-based elements into their property tax bases. With the exception of Estonia, the countries in this study levy taxes on the basis of land or building area, adjusted by coefficients related to location, population, usage or other factors not derived directly from market indicators. As a logical step in their transitional reforms, Armenia and the Czech Republic are each exploring the addition of ad valorem elements to their area-based property tax, and Poland is considering proposals to shift to a market-based system. Plans for an ad valorem tax in the Slovak Republic await further fiscal, governmental and market reforms.

Estonia’s strong ideological commitment to a market economy led its Parliament to take the bold step in 1992 to base its land tax on market value. The first valuation assigned price zones to each assessment area, with the expectation that the methodology could be refined as understanding of real estate markets improved and as the markets matured. The collection of land tax information has strengthened real estate market activity and has been a catalyst for the development of land records, sales registries and cadastral maps. A revaluation in 1996 incorporated the expanded market databases.

Recent efforts to develop a pilot project for market value-based real property taxation in two Russian cities illustrate both the potential and the frustration of tax reform in the current Russian fiscal climate. The program began with funding from USAID in 1995, and federal legislation authorized the “experiment” in 1997. Before the current fiscal crises, the city of Novgorod anticipated implementation of the new tax in 1999 to replace the three existing non-value-based taxes on land, property of individuals and assets of enterprises. Whether the local officials will consider it possible to risk implementation under current conditions is now unclear.

Other Challenges

The reorganization of administrative functions and the cost of integrating and collecting property tax information are other challenges to the development of modern market-based property tax systems. Each country is struggling with structural reforms of Soviet-based administration and are seeking to improve inter-agency cooperation and efficiency in planning for property tax reforms.

The case studies illustrate the complex transitions that are underway in each of these countries. At the same time, the studies point out the important role that property taxation can play in providing a stable source of independent revenue to local governments, developing democratic and accountable public institutions, and maintaining a public claim on property entering the private market.

The potential benefits of market value-based taxation in stimulating real estate markets and promoting urban revitalization and efficient land use are just beginning to be recognized. The financial hardships still experienced by many people in these countries may keep property taxes at very modest levels for some time, making the design of a broad-based system with limited exemptions particularly important to the viability of property taxation in these new economies.

Note:

1. “Unlikely Icon,” Economist (February 28, 1998): 78.

Jane H. Malme is a fellow of the Lincoln Institute specializing in the development and implementation of property taxation in diverse international contexts.

She is coordinating the preparation of case studies with colleagues for the following transition countries:

Armenia: Richard R. Almy, consultant, Almy, Gloudemans, Jacobs & Denne, Chicago, Illinois, with Varduhi Abrahamian, International City/County Management Association, Yerevan, Armenia

Czech Republic: Gary Cornia and Phillip Bryson, Romney Institute of Public Management, Marriott School of Management, Brigham Young University, Provo, Utah, with Dr. Alena Rohlícková, Ministry of Finance, Czech Republic

Estonia: Jane H. Malme with Tambet Tiits, director, AS Kinnisvaraekspert, Tallinn, Estonia

Poland: Jane H. Malme with W. Jan Brzeski, president, Cracow Real Estate Institute, Cracow, Poland

Russia: Jane H. Malme with Dr. Natalia Kalinina, Center for Real Estate Analysis, Moscow, Russia

Slovak Republic: Gary Cornia and Phillip Bryson with Ing. Sona Capová, Univerzita Mateja Bela, Banská Bystrica, and Milos Koncek, Ministry of Finance, Slovak Republic

Sources: These figures are based on official country data sources and were provided by the research associates. No data was available from Russia.

My father John C. Lincoln (1866-1959) had a strong code of ethics that played a prominent role in both his practice of business and his ideas about land. In 1895 he founded the Lincoln Electric Company of Cleveland, Ohio, which became the world’s leading manufacturer of arc welding equipment. He drew his ideas about land from the 1879 book Progress and Poverty, by the American political economist and social philosopher Henry George.

My father’s core ethical principle was to treat people as you would like to be treated. This implied the following precepts:

1) Treat people with absolute fairness. This means all people. In business it includes all the constituents of a company—employees, customers, owners, and the community. In society it means government must treat individuals fairly, and vice versa.

2) Whoever creates something should be entitled to keep it. Receiving the fruits of someone else’s labor—a windfall—often occurs. But for each windfall there is a wipeout—someone doesn’t get all he or she produced. Both the windfall and the wipeout are unethical.

3) People are important. They should be treated with respect and dignity, not as machines or cogs in a wheel.

Ethics in Business

Largely as a result of following these principles, the Lincoln Electric Company has demonstrated superior performance for its entire 100-year history. Many things have to happen to run a business ethically. One of them is making an adequate profit, which benefits the shareholders. But in my opinion, any company and all its constituents are better served if the customer comes first.

At Lincoln Electric, most employees are on piece work. If they produce more, they get more. The company has an annual bonus program, and the kitty for this bonus is composed of the extra profit beyond the returns required to run the business. Running the business includes providing a fair but not excessive dividend to shareholders and investing in new products and production methods. Beyond these costs, employees at Lincoln Electric get to keep any extra profit they produce. Recently bonuses have been about 50 to 60 percent of annual salaries. There are no windfalls, and no wipeouts.

Nowadays, manufacturing is no longer as much the “thing” as it once was. Making Lincoln Electric a successful global company requires more emphasis on company-wide teams. Individual pay is more dependent upon cooperation across departmental lines. This can work just as well as more individual programs of the past, but it is more difficult to manage. Incentives must be tailored to each location where we operate.

Ethics in Land

The heritage of the Lincoln Institute of Land Policy stems from my father’s interest in the ideas of Henry George, especially the land value tax. The ethics of this tax concept are parallel to those used at Lincoln Electric.

Someone who works the land should be entitled to keep the fruits of his labor. If he produces more because of increased skill or effort, he should reap a higher reward. However, Henry George said that land is a natural monopoly. Its value is largely created by things unrelated to the actions of the land’s owner, such as population pressure or mineral deposits. The landowner or user has nothing to do with these factors, yet if they cause the land value to increase, the owner gets a windfall.

This ethical dilemma disturbed my father, as it disturbs me. He subscribed to the remedy proposed by Henry George, which is to take as a tax each year the full rental value of land produced by natural or social factors. This would eliminate the windfall. It would still leave for landowners and users the value created by their own investments and labor.

A hundred years ago land was considered one of the three factors of production, along with labor and capital. Land was essential as both a place to work and a source of raw materials. Things are more complex today. A great deal of the economy has to do with telecommunications and computer software, which allow businesses to locate anywhere and use few or inexpensive natural resources. These changes may not negate the basic economic theories of Henry George’s time, but they do make it a bit more difficult to analyze the role of land in the economy.

There are many positive illustrations that ethical business practices lead to economic success. Unfortunately, there are not clearcut illustrations showing that land value taxation produces broad economic benefits. Nevertheless, economic research suggests that land value taxation could encourage the productive and careful use of land. Individuals who used the land in ways that increased its production would be able to keep the full value they had created, and society would keep the value it created.

I believe ethical practices will benefit all sides in any transaction. Ethical land taxation should lead to an improved economy, just as ethical business practices lead to more successful companies. One should get to keep the fruits of one’s labor, but the fruits of speculation or monopolies should accrue to the community as a whole, not to individuals as windfalls. Both the private sector and the public sector would benefit. Good ethics is good business. Good ethics is good for society as well as the economy.

___________________

David C. Lincoln, president of the Lincoln Foundation and former chairman of the Lincoln Institute, presented the annual Founder’s Day lecture on August 1 at Lincoln House. He had served as chairman for the Institute’s first 22 years before stepping down in May 1996. His talk, excerpted here in part, commemorated the 130th anniversary of the birth of his father, John Cromwell Lincoln, the Cleveland, Ohio, industrialist who founded the Lincoln Foundation in 1947.

It is undeniable that land use change in the United States has been occurring at a rapid rate. Between 1982 and 1997 alone, developed land increased nationwide by 25 million acres, or 34 percent. Population growth certainly helped to fuel this increase in settled land area, as the U.S. resident population grew by 15.6 percent during the same period. From these two trends, it follows that the average population density of developed areas has declined during the late twentieth century: the average number of residents per developed acre fell by 13.6 percent nationwide. This declining density of settled areas is one indicator that “sprawl” has been unfolding across the U.S.

Concerns about Sprawl

Rapid conversion of forests, farms and wetlands to residential, commercial and industrial uses has provoked growing concern among elected officials and voters in many states. In 1999, the National Governors’ Association adopted a statement of principles on better land use that called for preservation of open space and encouragement of growth in already developed portions of the landscape.

The deepening concern for containing sprawl and promoting denser development has been expressed repeatedly at the state and local levels of government. The recent report of the Connecticut Blue Ribbon Commission on Property Taxation and Smart Growth, for example, has explicitly linked “loss of farms, forest and open space . . . [to] decline of and flight from urban areas, along with economic and racial segregation” (State of Connecticut 2003). In New Hampshire during the spring of 2003, a dozen small towns in that politically conservative state authorized million-dollar bond issues to finance conservation of rural lands threatened by metropolitan growth radiating from Boston.

Urban economists have often noted that we should expect the areas of metropolitan regions to expand along with growth of population and income per capita, but this readiness of land markets to accommodate a larger and more affluent population is not the entire story. Jan K. Brueckner and Hyun-A Kim, for example, have pointed out that the territorial expansion of metropolitan regions during recent decades has probably been excessive from a social efficiency point of view. One reason is the failure of developers to account for the loss of amenity values as development consumes open spaces. (Ecological economists would describe this loss as depreciation of natural capital.) Another reason is the failure of local governments to charge developers for the full cost of public infrastructure investments necessitated by metropolitan expansion. Other contributing factors are mortgage interest subsidies under the federal income tax and a failure to price congestion externalities on the roadways linking the metropolitan center to its fringe communities.

There may be other reasons for believing that metropolitan regions have expanded excessively in the U.S. since World War II. First, federal and state grant formulas sometimes reward towns and cities for adopting low-density zoning rules. An example is state reimbursement of pupil busing costs, a subsidy that encourages local school boards to ignore the land use implications of their school siting decisions. Second, several rounds of federal tax cuts since the 1980s have increased the disposable incomes of already affluent households and fueled a status competition favoring construction of ever larger homes on ever larger residential lots.

Tax Policy Tools for Smart Growth

Whatever the exact set of reasons for metropolitan sprawl, state and local policy makers have been scrambling to find policy tools with which to promote compact development. More than a generation ago, nearly all states adopted use-value assessment of rural lands in an effort to protect agricultural lands and other kinds of open space from development. When a rural parcel is enrolled in a use-value assessment program, it is treated for purposes of property taxation as though it were going to remain undeveloped in perpetuity. This legal fiction conveys a substantial tax benefit to rural landowners on the metropolitan fringe because their parcels have far greater market value than assessed value. Under the law, property assessors are required to ignore the development potential of undeveloped parcels enrolled in use-value assessment programs.

Theoretical research by Robert D. Mohr and this author (2003) has found that use-value property assessment, if properly designed, can postpone land use change and thereby provide a window of opportunity for local governments and conservation groups to buy development rights before rural lands are lost to metropolitan growth. However, in 15 states (including Arizona, Florida and New Mexico), the private decision to develop a rural parcel that has enjoyed use-value assessment results in no financial penalty at all to the owner. Hence, the tax incentive to postpone development is very weak. Only in those states (such as Connecticut and Rhode Island) that impose stiff development penalties if a parcel has been enrolled in the use-value assessment program for less than a decade is there a fairly strong incentive to postpone development despite escalating urban land rents. Perhaps it is time for state governments to review their use-value assessment programs to see if they actually postpone development of rural lands. If not, reform of use-value assessment statutes is in order.

Another way to promote compact metropolitan development would be to permit city governments to adopt split-rate property taxation. Under this type of property tax reform, a city can lower the tax rate on buildings and other capital improvements and still maintain the level of municipal services by raising the tax rate on land values. The Commonwealth of Pennsylvania has had this form of property taxation since 1913. Pittsburgh and Scranton have been the pioneers in tax reform, but by 1995, some 15 cities in the Keystone State had adopted two-rate property taxation. Although the evidence is circumstantial, Wallace Oates and Robert Schwab (1997) have tentatively concluded that lowering the tax rate on building values relative to land values helped to spur downtown commercial construction in Pittsburgh during the 1980s, despite the sharp decline of the city’s steel industry.

A Case Study of New Hampshire

As the fastest-growing state in the Northeast, New Hampshire is witnessing the rapid transformation of its traditional landscape of forests, farms and villages. Between 1982 and 1997, the developed area in the state increased by 210,000 acres, a 55 percent increase, although the population increased only about 26 percent (England 2002). To date, policy makers have paid little attention to the impact of the state’s high property taxes on these trends.

Using a regional econometric model to perform tax reform simulations, I have explored a revenue-neutral shift toward land value taxation in the state. In one study, the statewide property tax (which raised $460 million in 1999) is hypothetically replaced by a pure land value tax yielding an equal amount of state tax revenue. This policy simulation suggests that gross state product, employment and residential construction in the Granite State all would receive a boost from this type of tax reform. The boost to the state’s economic development would be long lasting, not transitory. However, because net migration into the state would receive a strong stimulus, this statewide approach to property tax reform would not serve to deter sprawl (England 2003b).

In a companion study, I simulated a shift to two-rate property taxation in New Hampshire’s largest city, Manchester, and in the economically depressed mill town of Berlin (England 2003a). In both cities, local employment, output and construction would receive a persistent boost following reform of the property tax. This stimulus to urban economic activity also would help to restrain the migration of households and businesses to surrounding rural areas.

If we want to slow down the development of rural lands, then we need to promote employment opportunities and healthy neighborhoods in already settled urban areas. A shift to two-rate property taxation by city governments could help to spark urban revitalization and thereby protect undeveloped lands on the metropolitan fringe. However, even though a shift to two-rate property taxation would promote investment and reinvestment in urban areas, this type of tax reform is likely to confront skepticism and even political opposition. Because industrial and commercial properties frequently have a higher ratio of building value to land value than do residential properties, raising the tax rate on land values in order to pay for a rate cut on capital improvements could have a regressive impact on the distribution of property tax payments. The owners of office buildings and electric power plants, for example, might enjoy lower tax bills while many homeowners might find increased tax bills after implementation of split-rate taxation.

My present research as a David C. Lincoln Fellow aims to see whether this potentially regressive impact of shifting to two-rate property taxation can be avoided, thereby undercutting potential voter opposition. Figure 1 demonstrates that the combination of a generous credit with two tax rates could make a “typical” homeowner a supporter of property tax reform.

Analysis of property tax data for three New Hampshire cities suggests that the introduction of split-rate taxation would indeed be acceptable to many homeowners if it were accompanied by a uniform tax credit on each annual tax bill. One of these communities is Dover, a small but growing city with abundant undeveloped land. In 2002, the total property tax rate was 1.89 percent of market value. Applied equally to land and building values totaling $2.03 billion, this single rate raised $26 million for municipal services and local public schools, with additional revenues raised for county and state purposes.

If the City of Dover had cut the tax rate on buildings by $2 per thousand dollars of assessed valuation and offered a (maximum) credit of $1,000 on each tax bill, then it would have needed to raise the tax rate on assessed land values by roughly $18 per thousand in order to maintain the level of municipal and local school spending during 2002. That particular tax reform would have lowered the annual property tax payment of most owners of single-family homes and residential condos in the city, especially those with relatively modest values. Because of the credit, even owners of inexpensive residential lots would have gained from the tax reform. Many owners of apartment complexes, large commercial properties and extensive tracts of vacant land, however, would have paid more local taxes after the shift to two-rate taxation and a uniform credit applied to each tax bill.

Conclusion

More than a century ago, Henry George advocated taxation of land value in the name of social equity. Contemporary economists have more often advocated land value taxation as an efficiency-enhancing policy favoring economic development. My own research suggests that taxing land values more heavily than building and improvement values could foster urban revitalization and help to protect undeveloped land at the same time. However, unless the design of property tax reform takes distributional impacts explicitly into account, George’s concern for social equity is unlikely to be served.

Richard W. England is professor of economics and natural resources and director of the Center for Business and Economic Research at the University of New Hampshire. He has held a David C. Lincoln Fellowship in Land Value Taxation for three years and will be a visiting fellow at the Institute during 2004.

References

Brueckner, Jan K. and Hyun-A Kim. 2003. Urban Sprawl and the Property Tax. International Tax and Public Finance 10: 5–23.

England, Richard W. 2002. Perspective: A New England Approach to Preserving Open Space. Regional Review, Federal Reserve Bank of Boston 12(1): 2–5.

———.2003a. Land Value Taxation and Local Economic Development: Results of a Simulation Study. State Tax Notes, 22 April: 323–327.

———.2003b. State and Local Impacts of a Revenue-Neutral Shift from a Uniform Property to a Land Value Tax: Results of a Simulation Study. Land Economics, February: 38–43.

England, Richard W. and Robert D. Mohr. 2003. Land Development and Current Use Assessment: A Theoretical Note. Agricultural and Resource Economics Review, April: 46–52.

Oates, Wallace E. and Robert M. Schwab. 1997. The Impact of Urban Land Taxation: The Pittsburgh Experience. National Tax Journal 50(1): 1–21.

State of Connecticut. 2003. Report of Blue Ribbon Commission on Property Tax Burdens and Smart Growth Incentives.