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Because many brownfield sites are located in areas with depressed property values, the cost of remediation and redevelopment can be greater than the expected resale value. These sites, referred to here as low-to-no market value brownfields, are rarely addressed under current policies and programs. Rather, the current practice of many brownfield redevelopment projects is to select only the most marketable sites for remediation and redevelopment, essentially perpetuating the age-old “creaming” process. Private and public developers’ avoidance of the lowest market value parcels typically excludes disadvantaged neighborhoods from programs aimed at redeveloping brownfields and creates the potential for widening existing inequalities between better-off and worse-off neighborhoods.
The Role of Land Banks
In a recently completed project supported by the Lincoln Institute, I examined the barriers to brownfield redevelopment and focused on promising approaches for improving the prospects of the least marketable sites. The specific research goal was to identify land transfer procedures and processes through which land bank authorities and other community land development entities would be willing to receive vacant brownfield property that is tax-delinquent and environmentally contaminated, and then arrange for its remediation and sale.
A local land bank authority is typically a nonprofit entity established by either a city or county to address the problems of urban blight and to promote redevelopment. The original motivation for this project was to seek a solution to the problem of land banks being unwilling to accept some tax-delinquent brownfield properties due to fears of becoming liable for the contamination on these properties. Removing that barrier improves the prospects for promoting productive land redevelopment and reducing property vacancies to enhance a community’s economic development.
Over the course of this project, the nature of the original problem shifted in a positive way when recent federal guidelines clarified that land bank authorities that are part of a local government and acquire brownfield properties involuntarily (e.g., because they are tax-delinquent) are not liable for any contamination. With removal of this legal liability, it became clear that the real problem land banks face in taking on tax-delinquent, low-to-no market value properties is a lack of financial resources to arrange for their subsequent remediation, sale or redevelopment.
For example, the Atlanta/Fulton Country Landbank operates on a model of clearing title on properties to allow for private redevelopment, since it does not have the financial resources to act as the redeveloper itself. The Landbank, like most of the public or quasi-public entities we have identified as engaging in brownfield redevelopment, is promoting a market-based, creaming process of redevelopment. While there is validity in employing such processes, to do so exclusively poses a serious public policy issue. It serves to widen the inequality between the most depressed neighborhoods, where the low-to-no market value properties are most likely to be found, and the neighborhoods experiencing revitalization and brownfield cleanup.
Barriers to Brownfield Redevelopment
Our review of current land bank activity in other cities has revealed that, overall, land bank authorities do not take a pro-active stance on brownfield redevelopment for several reasons: operational limitations, fear of legal liability, and/or lack of funds to cover remediation costs. Our national search yielded only two exceptions: the Cleveland Land Bank and the Louisville/Jefferson County Land Bank Authority. But of these two, only the Louisville/Jefferson County Land Bank has pursued brownfield properties actively and has made the required changes in its by-laws to effectively acquire, remediate and redevelop contaminated properties. The Cleveland Land Bank experience in brownfield redevelopment was with a donated parcel that was suspected of being contaminated.
Operational Limitations
The two major operational requirements that currently deter land banks from entering into brownfield redevelopment are the need to identify an end user for a property before the property can be acquired by the land bank and the limited scope of activity for which the land banks were established originally. For example, the Nantucket and Martha’s Vineyard land banks in Massachusetts were established for conservation purposes; they rarely deal with properties that would be considered brownfields, although their organizational structure makes them ideal candidates to do so.
Fear of Legal Liability
As with any owner of contaminated property, land banks are concerned about the legal liability associated with brownfields. Although most state volunteer cleanup programs offer liability exemptions for municipalities, the issue of federal liability still has to be addressed when land banks choose to acquire contaminated properties.
Federal legal liability arises from the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as Superfund, but both federal and state governments have developed programs and guidelines aimed at eliminating that barrier. As a point of clarification, it is not the intent of federal or state programs to release responsible parties from their legal obligation to clean up property that they have contaminated, but, rather, to facilitate brownfield remediation and redevelopment by reducing the fear of unwarranted legal liability.
Landowners who are not responsible for contaminating the property, who did not know, and had no reason to suspect contaminants were present on the property are not liable under CERCLA sections 107(b) and 101(35). This is often referred to as the “innocent landowner defense.” Sections 101(20)(D) and 101(35)(A) protect federal, state and local governments from owner/operator liability if they acquire contaminated property involuntarily as a function of performing their governmental duties, including acquisition due to abandonment, tax delinquency, foreclosure, or through seizure or forfeiture authority. This process was further clarified by the U.S. Environmental Protection Agency (EPA) in June 1997 to facilitate the work of state and local brownfield redevelopment programs.
For land bank authorities that are a part of local government, the above-mentioned program should protect the acquisition of contaminated properties through the land bank’s normal operational functions. However, any land bank seeking to acquire contaminated properties should contact its regional EPA office for further legal clarification and assistance with the redevelopment process.
Lack of Funds for Remediation Costs
The often costly remediation process is another significant problem for land banks seeking to redevelop brownfields. Even when the mission of the land bank is to eliminate blight and spur revitalization, both of which are directly related to brownfield reuse, limited budgets prevent interested and willing land banks from acquiring brownfields for remediation and redevelopment. Therefore, while the land bank authority could be helpful in forgiving the property taxes owed on the parcel as an incentive for reuse, the property’s redevelopment potential is still thwarted by its having little-to-no market desirability.
Promising Alternatives for Low-value Sites
When the focus of this research project became the identification of promising approaches for improving the redevelopment prospects of low-to-no market value brownfield sites, we began to examine different kinds of roles for land banks. These included identifying possible ways of raising revenues for land banks and other community development agencies to use in financing the remediation and redevelopment of low-to-no market value sites, and considering potential reuses of such sites, including open space, residential or commercial/industrial uses.
One alternative is found in community land trusts, which generally are private non-profit corporations in both urban and rural areas engaged in social and economic activities, such as to acquire and hold land for affordable housing development. While traditionally they have not focused on conservation issues, their model could be adapted for brownfield redevelopment efforts. One approach for solving the problem of low-to-no market value brownfields is a community land trust modeled after Boston’s Dudley Neighbors, Inc., which received from the city the power of eminent domain to acquire vacant land and buildings in its neighborhood. This strategy provides an alternative mechanism to a citywide land bank for acquiring brownfield properties, and it can be used to target geographic areas in greatest economic decline.
Another promising alternative to the traditional land bank is modeled after Scenic Hudson, an environmental advocacy organization and land trust located in Poughkeepsie, New York. It has an urban initiative to acquire, remediate and develop environmentally friendly reuses for derelict riverfront sites. Among its projects has been the redevelopment of a twelve-acre abandoned industrial waterfront for a public park, the Irvington Waterfront Park. Scenic Hudson has proven that, with cooperation from public and private organizations, land trusts can be effective vehicles for brownfield redevelopment.
The most popular form of land trust is one founded to protect natural areas and farmlands. Such land trusts most often operate at the local or regional level to conserve tracts of land that have ecological, open space, recreational or historic value. If land trusts choose to expand their conservation goals to include urban open space, they could become very helpful partners in public/private projects to create green space and parks from remediated brownfields. The Scenic Hudson land trust model specifically addresses brownfield redevelopment for the stated purpose of stemming greenfield development.
To address the needs for financing the redevelopment of low-to-no market value brownfields, the Louisville Land Bank Authority’s approach is promising. It established a fund that uses the profits from the sale of remediated brownfields to fund future remediation projects. Another possibility for raising funds for land banks is suggested by the two-percent transfer fee the state of Massachusetts authorized for its Nantucket and Martha’s Vineyard land banks to purchase open space. The transfer fee idea could be adapted by land banks to create a fund for brownfield remediation.
The research project also sought to identify municipalities that did not have a specific land bank authority, but did have a municipal office or program that dealt with tax-delinquent properties and their redevelopment. Two municipalities found to be engaging in noteworthy and innovative brownfield redevelopment are Kalamazoo, Michigan, and, Emeryville, California. Kalamazoo’s brownfield pilot approach of creating brownfield redevelopment districts emphasizes community development over traditional, market-based economic development goals. The city uses stakeholder groups to design brownfield projects and to plan for redevelopment.
Emeryville has determined, through surveying its property owners and developers, that offering financial assistance for site assessment alone is not effective; it must be backed up by financial assistance for remediation. The city’s brownfield program is based on the principle that “sharing of risks should lead to sharing of rewards.” That is, if a community bears the residual risk for permitting the private sector to conduct risk-based cleanup, a portion of the private sector’s savings on remediation expenses should be shared with the community. The Emeryville approach to brownfield redevelopment also recognizes that smaller sites and projects require proportionately more loans, grants and technical assistance than do larger sites and projects.
Conclusion
At the present time, there is a paucity of programs and strategies to address tax-delinquent, low-to-no market value brownfield properties in marginal urban neighborhoods. If this deficiency persists, the current brownfield redevelopment movement will likely lead to a widening of intraurban inequalities. If municipalities, land bank authorities, and community development organizations will recognize the need for, and move towards, promoting more equitable brownfield redevelopment, the approaches presented in this article hold promise for correcting this deficiency and preventing wider inequalities. Further, such actions could remove potential polution sources and health hazards from the neighborhood, provide much-needed open space, and hold the remediated property until the surrounding area increases in value and the site can be redeveloped through traditional market processes.
References
City of Emeryville, Project Status Report, Emeryville Brownfields Pilot Project. Emeryville, California. November 1998. See also
Rosenberg, Steve. “Working Where the Grass Isn’t Greener: Land Trusts in Urban Areas.” Land Trust Alliance Exchange. Winter: 5-9, 1998.
U.S. EPA. Handbook of Tools for Managing Federal Superfund Liability Risks at Brownfields and Other Sites. Office of Enforcement and Compliance Assurance. November 1998.
Nancey Green Leigh, AICP, is associate professor of city planning in the Graduate City and Regional Planning Program at the Georgia Institute of Technology. She teaches and conducts research on urban and regional development, industrial restructuring, local economic development planning, and brownfield redevelopment.
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Like the other New Independent States of Central and Eastern Europe, Estonia is striving to adapt complex social and economic systems to changing conditions. To help Estonian policymakers enhance their understanding of land economics, taxation and related policy issues, the Lincoln Institute has embarked on a far-reaching collaborative education program with the American Institute for Economic Research (AIER).
Of special significance to both institutes is Estonia’s position as one of only a few countries where real estate taxes are applied solely to land, and where buildings and other improvements to land are not taxed. In addition, the country has already made dramatic progress toward establishing a market economy and a system of land taxation based on land value as an incentive for productive use of land and a means of discouraging speculation.
In making the transition to a market economy, Estonian policymakers are constrained by the lack of up-to-date information in the Estonian language on the fiscal and political implications of democratic government or on basic theory and research on land economics. Moreover, as the Estonian Parliament moves the country toward decentralization and land reforms, officials have recognized the need for practical assistance in developing procedures to determine land values and to administer tax assessment and collection systems.
The Lincoln Institute’s Role
For the Lincoln Institute, the current situation offers an opportunity to contribute knowledge about the economics of land markets and taxation based on a broad view of land policy. This approach includes examining the principles expounded by Henry George in his book Progress and Poverty that might be relevant in a country at the early stages of developing land markets.
“Estonia is a model environment for the Lincoln Institute to develop seminars in an economic development framework that analyzes land policy, taxation and valuation,” says Lincoln Institute faculty associate David A. Walker, professor of finance and director of the Center for Business-Government Relations at Georgetown University.
The Institute’s work with Estonia began in September 1993, when senior fellow Joan Youngman and fellow Jane Malme were invited to a conference in Tallinn to discuss the design of a property taxation system. The conference, sponsored and supported by the Paris-based Organisation for Economic Cooperation and Development (OECD) and the Danish Ministry of Taxation, was organized by Tambet Tiits, then director of the Estonian National Land Board and responsible for implementing the land assessment project.
Malme and Youngman subsequently invited Tiits to participate as a faculty member in a Lincoln Institute course on the interaction of land policy and taxation. Designed for government officials from Eastern Europe and the New Independent States, the course was presented in cooperation with OECD at their training centers in Copenhagen and Vienna.
In December 1994, a delegation composed of Malme, Youngman, Robert Gilmour, president of AIER, and C. Lowell Harriss, professor of economics, emeritus, at Columbia University, went on a fact-finding mission to explore research and education opportunities in Estonia. They recommended that the Institute organize educational programs in Estonia with Tiits, and in May 1995 Walker and Tiits cochaired an intensive three-day seminar. More than 20 senior level public policymakers attended, representing academia, business, three city governments, and various ministries and agencies of the national government.
The program focused on three key goals: studying the role of land taxation to promote efficient land use and to finance local government; learning about legal and administrative systems that support the development of efficient land markets; and understanding the relationships among land policies, land taxes, and land utilization, and their effective application to the economy of Estonia.
Other Lincoln Institute faculty associates participating in the May program were Gilmour; Roy Kelly, deputy director of the International Tax Program at Harvard University and research associate at Harvard Institute for International Development; Malme; Anders Muller, project manager for the Property Valuation and Tax Management Department for the Ministry of Taxation in Denmark; Jussi Palmu, director of Huoneistomarkkinointi Oi, a leading real estate agency in Finland; and Vincent Renard, director of research of CNRS for the Ecole Polytechnique, Laboratoire d’Econometrie, in Paris, France.
“We are pleased to be working with Tambet Tiits and other business and government leaders in Estonia,” says Lincoln Institute president Ronald L. Smith. “We believe the Institute can provide the kind of expertise their policymakers can use to develop the best approaches to land and tax reform, and to strengthen their ability to establish viable programs in a new and still changing economic climate.”
Primer on Land Issues in Estonia
The most northern of the Baltic States, Estonia has a strong tradition of family farming and land ownership. Unlike many other former Soviet bloc countries, its history included a period of independence from 1920 to 1940. In 1939 an estimated 145,000 small farms dotted the land area of 45,200 sq. km., and only about 30 percent of the population lived in urban areas. By the early 1990s, more than 70 percent lived in cities, with one-third of the country’s 1.6 million people inhabiting the capital of Tallinn.
During 50 years of Soviet rule from 1940 to 1990, Estonia experienced intense industrialization and urbanization, nationalization of land and mineral resources, and consolidation of its small farms into huge agricultural collectives. Demographic losses due to deportations, emigration and World War II reduced the number of farm workers and shifted the remaining population away from the land. Land use patterns and environmental integrity were further compromised by Soviet agricultural policies, causing much of the traditional farm land to become forested and moving farm activity to more marginal grasslands.
Restitution began in 1991 but it has been a slow process. The lack of up-to-date knowledge and technology, coexisting with bureaucratic inefficiencies and past agricultural policies, are challenging the effective use of land. However, new land use legislation and taxation have been created to solve these problems in a democratic way.
In only a few years, Estonia has become one of the most progressive and stable of the New Independent States. It has a high level of education and its people are eager to catch up with the “information age.” Its business and government leaders have established significant monetary reforms and pursued foreign trade and investment with the west, particularly Finland, other Scandinavian countries, and its former primary trading partner, Russia. Through the privatization of state enterprises such as textiles and forest products, and the growth of new private businesses in the service sector, Estonia is rapidly becoming a strong economic force in the region.
Current Research on Land Taxation in Estonia
Attiat F. Ott, Professor of Economics and Director of the Institute for Economic Studies at Clark University in Worcester, Massachusetts is conducting a research project titled “Land Taxation in the Baltic States: A Proposal for Reform,” with support from the Lincoln Institute. Over the next two years, Ott will conduct an assessment of the land taxation law introduced in 1994 by the Republic of Estonia. This law was developed in conjunction with the privatization and restoration of land to former owners, as stipulated in the 1992 Constitution. During this period of transition, the interrelationship between public ownership and private rights during the transition period is of primary importance. However, as in other countries, the Estonian property rights structure also affects and ensuing patterns of land use and development. These issues are at the core of the first phase of Ott’s research.
In the second phase, Ott will evaluate the land taxation law as an element of Estonia’s new, overall tax structure. The law defines both state and local land taxes using the same bases (sale price or use value of the land), but a different rate of taxation is levied at each level of government. Ott will review the strengths and weaknesses of the existing land tax system as a basis for offering and offer a comprehensive land taxation proposal for Estonia and the other Baltic States. She will incorporate ideas on the use of a site value tax and concerns about the undesirable effects of land speculation, which is occurring such as those occurring in some urban areas of Estonia.
While Ott’s research is directly related to the Institute’s interest in land value taxation, she will also be making methodological contributions as her quantitative work will extend the area of hedonic pricing models from their common application in housing to the area of land valuation.
Additional information in printed newsletter:
Map: Share of Agricultural Land in the Counties of Estonia: 1939, 1955 and 1992. Source: Adapted from Ulo Mander, “Changes of Landscape Structure in Estonia during the Soviet Period,” GeoJournal, May 1994, 33.1, pp 45-54.
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The development of new land and tax systems in countries in political and economic transition in Central and Eastern Europe reflects a unique array of historical, social, political, and economic circumstances. While all transitional countries seeking admission to the European Union (EU) have initiated comprehensive reforms to encourage free markets and democratic governments, the three Baltic nations—Estonia, Latvia, and Lithuania—made privatization and restitution of property rights a prime objective immediately after their independence in the early 1990s. These actions, together with a desire to stimulate real estate markets and capture tax revenues for improved public services, made them the first of the transitional countries to introduce value-based taxation of real property.
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Karl E. Case es profesor emérito de Economía en la universidad Wellesley College, donde ocupó la cátedra en economía Katherine Coman y A. Barton Hepburn y enseñó durante 34 años. Actualmente, es senior fellow en el Centro Conjunto de Estudios sobre Vivienda de la Universidad de Harvard.
El profesor Case es, además, socio fundador de Fiserv Case Shiller Weiss, Inc., empresa de investigaciones inmobiliarias, y miembro del directorio del Depositors Insurance Fund de Massachusetts. Es miembro del Comité Asesor del Índice Standard & Poors, de la Junta Asesora Académica del Banco de la Reserva Federal de Boston y de la Junta Asesora del Instituto Rappaport para el Gran Boston de la Universidad de Harvard. Se ha desempeñado como miembro de los directorios de Mortgage Guaranty Insurance Corporation (MGIC), del Banco Century, del Lincoln Institute of Land Policy y de la Asociación Estadounidense de Economía Urbana e Inmobiliaria. Asimismo, fue editor asociado de las revistas Journal of Economic Perspectives y Journal of Economics Education.
Después de recibir su título de grado de la Universidad de Miami en Ohio en 1968, el profesor Case se desempeñó durante tres años en el servicio activo del ejército y luego recibió su título de doctor en Economía por la Universidad de Harvard en 1976. Sus trabajos de investigación están relacionados con el área inmobiliaria, de vivienda y de finanzas públicas. Es autor o coautor de cinco libros, tales como Principles of Economics, Economics and Tax Policy y Property Taxation: The Need for Reform, y ha publicado numerosos artículos en revistas profesionales. Principles of Economics, un texto básico con la coautoría de Ray C. Fair y Sharon Oster, se encuentra ya en su décima edición.
Land Lines: ¿Cómo se involucró usted con el Lincoln Institute of Land Policy?
Chip Case: Supe del Instituto Lincoln en la década de 1970, cuando este patrocinaba conferencias para el Comité de Recursos Tributarios y Desarrollo Económico (TRED, por sus siglas en inglés). Yo había escrito mi tesis de doctorado sobre impuestos a la propiedad y me habían invitado a asistir a una de estas conferencias. En el otoño de 1980, comencé mi primer año sabático en el Wellesley College y necesitaba encontrar alguna forma de financiar mis investigaciones. Organicé una reunión con Arlo Woolery, quien, en ese entonces, era director ejecutivo del Instituto, y él estuvo de acuerdo con apoyar mi trabajo.
Desde entonces, mi relación con el Instituto Lincoln ha continuado durante estas cuatro décadas. Fui miembro del directorio a mediados de la década de 1990 y me desempeñé en los comités de búsqueda ejecutiva para H. James Brown, ex presidente del Instituto Lincoln, y Gregory K. Ingram, actual presidente y gerente general. Dicté clases en varios programas patrocinados por el Instituto Lincoln en el Instituto de Capacitación sobre Reforma del Suelo (actualmente denominado Centro Internacional de Estudios y Capacitación sobre Políticas de Suelo) en Taiwán durante 15 años, y además participé en una gran cantidad de programas en Cuba y China.
La mayor parte de mis investigaciones se encuentra en línea con el espíritu del Instituto, por lo que continúo realizando presentaciones en forma regular en diferentes conferencias y seminarios. Una conferencia especial en la que tuve el agrado de participar fue “La vivienda y el entorno construido: Acceso, finanzas y políticas”, que se llevó a cabo en Cambridge en diciembre de 2007. Posteriormente, el Instituto publicó los artículos y comentarios respectivos bajo el título “Ensayos en honor a Karl E. Case” en un volumen titulado Housing Markets and the Economy: Risk, Regulation, and Policy, editado por Edward L. Glaeser y John M. Quigley.
Land Lines: ¿Qué tipo de trabajo ha realizado usted recientemente para el Instituto Lincoln?
Chip Case: A principios de este año intervine como panelista en la conferencia “Economía Urbana y Finanzas Públicas”, organizada por Daniel McMillen, visiting fellow del Instituto Lincoln, junto con el Departamento de Valuación y Tributación. Este programa anual reúne a académicos líderes en los ámbitos de economía urbana y finanzas públicas con el fin de presentar y debatir sus investigaciones. Es un gran foro y una muy buena oportunidad para exponer nuevos trabajos de corte empírico.
Asimismo, hace poco regresé de un programa del Instituto Lincoln en Beijing, en donde dicté una serie de conferencias dirigidas a planificadores y economistas en el Centro de Desarrollo Urbano y Política de Suelo de la Universidad de Pekín y el Instituto Lincoln. Mi función allí fue ayudar a descifrar lo que ha estado ocurriendo en el mercado de la vivienda de los Estados Unidos y brindar una perspectiva acerca de la relación existente entre el colapso del mercado de la vivienda y la crisis financiera actual.
Los funcionarios chinos se encuentran muy interesados en aprender de la experiencia de mercado de los Estados Unidos. Decir que el mercado de la vivienda en China está pasando por un período fructífero sería quedarse cortos. En la mayoría de las ciudades, el mercado se encuentra en tensión debido a la cantidad limitada de suelo disponible y a una infraestructura insuficiente. El gobierno ha reconocido que el rápido crecimiento supone un desafío para las autoridades que controlan el mercado y, a la vez, es consciente de que este crecimiento puede aprovecharse como una fuente de posibles ingresos para las ciudades de este país.
Land Lines: ¿Qué aprendió usted acerca del problema de las finanzas del gobierno municipal en China?
Chip Case: Los gobiernos municipales en China poseen todo el suelo dentro de sus respectivas jurisdicciones y, tradicionalmente, han recaudado fondos mediante la celebración de contratos de usufructo a largo plazo sobre dichos terrenos con asociaciones de empresas y otras compañías de negocios que, posteriormente, desarrollan el suelo. Los ingresos provenientes de estos contratos de usufructo han permitido a las jurisdicciones municipales proveer de la infraestructura y bienes públicos necesarios sin haber recaudado nunca ningún tipo de impuesto.
Últimamente, algunas jurisdicciones se están quedando sin terrenos nuevos y sin desarrollar para ceder en usufructo y, por lo tanto, están perdiendo la fuente de ingresos que necesitan para financiar las escuelas, la infraestructura y los servicios de salud en sus jurisdicciones. China nunca aplicó impuestos a la propiedad, aunque la solución recomendada para la actual reducción de los ingresos municipales es, justamente, un sistema de impuestos a la propiedad. No obstante, la tarea de convencer a los funcionarios municipales para que implementen un impuesto a la propiedad ha resultado un desafío político por varias razones.
Land Lines: ¿De qué manera se relaciona su investigación con el trabajo realizado por el Instituto Lincoln?
Chip Case: Me he dedicado al estudio de las cuestiones relacionadas con el impuesto sobre el suelo y la propiedad durante mucho tiempo. Publiqué mi tesis doctoral bajo el título de “Tributación a la propiedad: Necesidad de una reforma”. Mi interés en el impuesto a la propiedad desde mis primeros años de investigación me llevó a pensar acerca del mercado de la vivienda y sus ineficacias y fallas. He escrito sobre la eficacia del impuesto a la propiedad y de los efectos distributivos de los precios del suelo y sus aumentos.
Una parte importante de mi investigación trata sobre la forma de medir el valor del suelo y evaluar de qué manera el valor del suelo afecta a la ubicación de los mercados laborales y a la distribución de los recursos y bienes públicos. Al comprar una casa, la persona está comprando el acceso a un paquete de derechos que se encuentran enlazados a la porción de terreno donde se encuentra su casa. El valor de este paquete de derechos se capitaliza en el costo de la casa y se somete a tributación como un componente del valor tasado de la propiedad. Dicho paquete de derechos (lo que incluye y de qué manera varía según su ubicación) es, hoy en día, un tema candente, debido en gran parte a la situación actual del mercado de la vivienda y su impacto sobre la estabilidad financiera de la economía del país.
Land Lines: Cuéntenos un poco más acerca de su interés en el impuesto a la propiedad.
Chip Case: Soy un acérrimo defensor del impuesto a la propiedad. Este tributo tiene el potencial de ser un medio claro y transparente para recaudar ingresos. El valor justo de mercado de una propiedad no es un mal índice para medir la capacidad de pago de los contribuyentes, si lo comparamos con el impuesto a las ganancias federal, el cual se ha vuelto tan complejo que se ha convertido en una forma extraña de distribuir el costo del gobierno y que demuestra una conexión muy poco intuitiva con la capacidad de pago de impuestos.
Los impuestos deberían ser neutrales e, idealmente, no deberían afectar al comportamiento económico. Cuando los contribuyentes modifican su conducta para evitar impuestos, en realidad empeoran su situación y, al mismo tiempo, el gobierno pierde ingresos. Los costos ocultos derivados de estos cambios son, por ejemplo, precios más altos y salarios más bajos. La porción del impuesto a la propiedad correspondiente al terreno es uno de los pocos tributos que no distorsionan la actividad económica y, por lo tanto, es una herramienta extremadamente valiosa para las finanzas públicas.
El impuesto a la propiedad constituye un apoyo a las jurisdicciones municipales, al gobierno autónomo y a la democracia directa. Los gobiernos municipales experimentan muchos obstáculos al imponer tributos independientes a las ventas o a las ganancias si los contribuyentes pueden encontrar una tasa menor en una ciudad o pueblo cercano. Los bienes raíces se definen como inmuebles, lo que representa una buena base para aplicar un impuesto municipal.
El impuesto a la propiedad siempre se encuentra en la mira de sus detractores debido a su alta visibilidad. Casi nadie sabe cuánto paga en términos de impuesto a las ventas en un año y, en el caso de muchos contribuyentes, el impuesto a las ganancias se deduce de sus salarios. No obstante, extender un cheque por un abultado monto en concepto de impuesto a la propiedad llama la atención del contribuyente. Esto da como resultado cierto nivel de controversia, aunque también significa tener la responsabilidad de rendir cuentas y permite al electorado municipal decidir si los impuestos que paga tienen una correlación con los servicios públicos que recibe. Y esto resulta casi imposible de juzgar a nivel estatal o federal.
El impuesto a la propiedad siempre puede mejorarse, lo que representa una parte de la importante misión que tiene el Instituto Lincoln. Sin embargo, se necesitan personas que defiendan este impuesto mostrando sus puntos fuertes, por lo que siempre estaré encantado de cumplir esa función.
Land Lines: ¿Cuál es el tema de su actual investigación?
Chip Case: Estoy trabajando en un artículo junto con Robert Shiller sobre el efecto de las expectativas de la gente en cuanto al mercado de la vivienda en 1988 y durante el período que va de 2003 a 2012. Shiller y yo realizamos cuestionarios a personas que habían comprado o vendido una casa en algún momento de esos años calendario. Recabamos más de cinco mil cuestionarios para generar una base de datos que nos permitiera comprender mejor la naturaleza de la reciente burbuja inmobiliaria e identificar cuándo comienzan los cambios en las expectativas de la gente. Esta base de datos nos brinda una manera de cuantificar y analizar las diferentes expectativas en cuanto al mercado de la vivienda y determinar de qué forma dichas expectativas influyen en la toma de decisiones.
Por ejemplo, podemos observar que, en el año 2005, la meta de ser propietarios fue desapareciendo del sueño americano. Este tipo de cambio es significativo desde el punto de vista cultural y económico. Cuando, junto con este cambio, se da una inercia en las expectativas de la gente, comenzamos a observar una volatilidad en el mercado de la vivienda. Y si el cambio es lo suficientemente fuerte, observaremos también que la volatilidad puede llegar a afectar la economía nacional.
Debido a que el precio de una casa incluye todos los derechos y recursos relacionados con dicha porción de suelo, las expectativas acerca del mercado y al acceso a futuros derechos y recursos cumplen una función a la hora de determinar el valor de mercado de la casa. El valor de mercado, a su vez, afecta al monto de impuesto que se gravará sobre la propiedad. La relación entre las expectativas del mercado y el impuesto a la propiedad es compleja; no obstante, la investigación que Shiller y yo estamos llevando a cabo arrojará un poco de luz sobre este tema.
Land Lines: ¿Qué piensa usted que ocurrirá en el mercado de la vivienda de los Estados Unidos en el futuro?
Chip Case: Soy moderadamente optimista en cuanto al futuro del mercado de la vivienda. Las cifras parecen indicar que el sector de la vivienda se está estabilizando y está mostrando signos de un crecimiento lento pero positivo. El sector de la vivienda representa solamente cerca del 6 por ciento del PIB del país, pero ha tenido una gran importancia en el pasado. La reactivación de este sector seguramente contribuiría a que la economía se recuperara de los efectos devastadores de la recesión.
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David Vetter (Ph.D., Universidad de California) ha trabajado por más de cuatro décadas en temas de financiamiento y economía urbana en América Latina. He ejercido la docencia y dirigido investigaciones urbanas en Brasil durante 17 años en el Instituto Brasileño de Geografía y Estadísticas (IBGE), el Programa de Ingeniería para Graduados (COPPE), el Instituto de Planificación y Estudios Urbanos y Regionales (IPPUR) y la Fundación Getúlio Vargas. En 1990 se incorporó al Banco Mundial, donde desarrolló programas de inversión y reformas subnacionales para Argentina, Brasil, Chile y Ecuador. A fin de fomentar una mayor participación del sector privado en el financiamiento urbano, ingresó en Dexia Credit Local en 1998 en calidad de vicepresidente, y estableció programas de préstamo en Argentina, Brasil y México. Desde su regreso a Brasil en 2004, ha trabajado como consultor e investigador para varios clientes, como el Banco Interamericano de Desarrollo y el Lincoln Institute of Land Policy, donde ha sido visiting fellow desde julio de 2014. Ha escrito recientemente dos artículos para Land Lines: “Residential Wealth Distribution in Rio de Janeiro” (Distribución de la riqueza residencial en Rio de Janeiro, enero de 2014) y “Land-Based Financing for Brazil’s Municipalities” (Financiamiento basado en el suelo para los municipios brasileños, octubre de 2011).
Land Lines: ¿Cómo se involucró en el Instituto Lincoln?
David Vetter: Por muchos años, ya sea en mis trabajos de investigación y consultoría, o en el Banco Mundial o el sector privado, encontré con frecuencia información sólida del Instituto Lincoln que me ayudó. Más recientemente, el Instituto financió mis investigaciones sobre riqueza residencial y finanzas municipales en Brasil.
Land Lines: ¿Qué investigará como visting fellow y por qué?
David Vetter: Me concentraré en estrategias de financiamiento de infraestructura urbana en Brasil. Como otros países latinoamericanos, Brasil necesita realizar inversiones sustanciales en forma continua para poder mantenerse al día con el rápido crecimiento de nuevos hogares y reducir la cantidad de hogares que no tienen acceso a infraestructura urbana. Entre 2000 y 2010, la cantidad de hogares en Brasil creció en más de 12 millones, o sea, casi 7 veces más que los 1,8 millones de hogares del área metropolitana de Boston-Cambridge en 2010. Dada esta presión demográfica, la cantidad absoluta de hogares de Brasil sin acceso a infraestructura urbana siguió siendo alta en 2010, a pesar de las considerables inversiones efectuadas en la década anterior. Y los déficits de algunos tipos de infraestructura en realidad han aumentado. Entre 2000 y 2010, por ejemplo, la cantidad de hogares urbanos en Brasil sin un sistema adecuado de alcantarillado creció aproximadamente en 2 millones, que es más que la cantidad total de unidades de vivienda en el área metropolitana de Boston en 2010.
El Ministerio de las Ciudades de Brasil estimó que los sistemas de sanidad básicos (agua potable, aguas residuales, residuos sólidos, y alcantarillado) costarían más de US$80.000 millones sólo entre 2014 y 2018. Las carreteras, pavimentación de calles, seguridad pública, salud y educación demandan inversiones de similar magnitud, y estos montos frecuentemente exceden con mucho las fuentes de financiamiento existentes.
Land Lines: ¿Cómo se podría recuperar las plusvalías de estas inversiones en infraestructura para poder financiarlas?
David Vetter: Los beneficios de las inversiones en infraestructura se capitalizan en los precios del suelo y los edificios. Los foros del Instituto Lincoln sobre instrumentos notables de intervención urbana de 2013 demostraron que muchos gobiernos de América Latina están utilizando eficazmente una amplia variedad de herramientas de recuperación de las plusvalías creadas por sus inversiones de infraestructura, como puede comprobarse en el minucioso repaso de la bibliografía realizado por Martim O. Smolka (2013): venta de derechos de desarrollo; contribución por mejoras para pavimentación de calles, alcantarillado y otras mejoras; y alianzas público-privadas (APP) de recuperación de plusvalías, como en el caso de la estructuración financiera de la renovación masiva del puerto de Rio (Porto Maravilha). También sería útil contar con una cobranza más efectiva del impuesto sobre la propiedad y de los impuestos de transmisión de propiedades.
La recuperación de plusvalías puede generar una realimentación positiva, creando un círculo virtuoso que genera recursos adicionales para más inversiones. Por ejemplo, el aumento del valor generado por las inversiones aumentaría la base gravable del impuesto sobre la propiedad, suponiendo que las valuaciones se mantengan actualizadas, y los ingresos resultantes se podrían usar para financiar otras obras.
Land Lines: ¿Hasta qué punto podrían las municipalidades de Brasil aumentar la recuperación de plusvalías?
David Vetter: Según la teoría económica, el valor generado por las inversiones de infraestructura debería ser aproximadamente igual a su costo. Como la oferta de infraestructura parecería ser poco elástica, debido a las restricciones de financiamiento público, el valor de mercado generado podría exceder en realidad el costo de las inversiones.
Por ejemplo, las municipalidades de Brasil invirtieron más de US$82.000 millones en infraestructura y equipos entre 2006 y 2010 (alrededor de US$16.000 millones por año). Pero solamente en 2010, el gobierno nacional y los gobiernos estatales invirtieron también más de US$50.000 millones. La recuperación de aunque sea un pequeño porcentaje de las plusvalías creadas podría proporcionar recursos de inversión significativos. Por ejemplo, la Región Metropolitana de Rio de Janeiro está recibiendo inversiones de infraestructura masivas del gobierno nacional, estatal y municipal, y también de socios privados, para varios proyectos como el cinturón vial Arco Metropolitano y una nueva línea de metro. Algunas son concesiones o APP que reciben un financiamiento significativo a tasas de interés inferiores a las del mercado por parte de los bancos de desarrollo públicos (BNDES y CAIXA).
Land Lines: ¿Qué papel debería cumplir la recuperación de plusvalías en la política de viviendas?
David Vetter: La inversión en infraestructura crea riqueza residencial, ya que su valor se capitaliza en la venta de viviendas. Las estructuras residenciales representan alrededor de un tercio del capital fijo neto de Brasil en las cuentas de riqueza nacional, como es habitual en otros países del mundo. Dada su importancia, nos preguntamos en nuestro trabajo sobre la Región Metropolitana de Rio de Janeiro: ¿Qué genera la riqueza residencial? ¿Cuánta riqueza residencial existe? ¿Quién la tiene? Descubrimos que hay ganadores y perdedores. Por ejemplo, el aumento en el valor generado por la inversión en infraestructura incrementa la riqueza residencial de los propietarios de vivienda, pero también aumenta los precios para los inquilinos en el área beneficiada y los costos de vivienda para personas que se quieren reubicar en esa zona.
Land Lines: ¿Una política de vivienda enfocada a la generación de riqueza residencial y la equidad de su distribución sería muy distinta de la mayoría de los programas de viviendas de bajos ingresos?
David Vetter: Sería bastante distinta. La mayoría de los programas de viviendas de bajos ingresos reduce sus costos construyendo en suelo de bajo valor. El precio del suelo es bajo cuando no tiene acceso a empleo y servicios urbanos básicos, así que las unidades de vivienda social frecuentemente están en estas áreas carentes de servicios. Una política de vivienda enfocada en la riqueza residencial enfatizaría el acceso a empleo y servicios básicos, que son los determinantes clave del valor de una vivienda.
Land Lines: ¿Pero no es esto una utopía? ¿Cómo podríamos recuperar las plusvalías para ayudar a aumentar la riqueza residencial de familias de bajos ingresos?
David Vetter: Sin duda el desafío es grande. Pero la recuperación de plusvalías de familias de mayores ingresos podría subsidiar a las de ingresos menores, sobre todo a los inquilinos que se quieran reubicar en zonas que se benefician de inversiones en infraestructura.
Le voy a dar un ejemplo. La cantidad de hogares en la Región Metropolitana de Rio de Janeiro aumentó en más de 600.000 entre 2000 y 2010 (esto es el doble de la cantidad de hogares en Washington, DC en 2010). Como consecuencia, los déficits de infraestructura urbana de la región siguen siendo altos a pesar de la gran cantidad de inversiones realizadas. Un reciente estudio de impacto del nuevo cinturón vial de Rio de Janeiro (Pontual et al., 2011) exploró la posibilidad de desarrollar nuevos vecindarios completos, socialmente integrados y con todos los servicios de infraestructura, para albergar a la enorme cantidad de hogares que se esperan a lo largo del cinturón. Este desarrollo podría financiarse en parte con la recuperación de las plusvalías generadas por las inversiones masivas en infraestructura planificadas y en proceso de implementación. Parte de las plusvalías recuperadas de familias de mayores ingresos se podría usar para financiar a las familias de menores ingresos.
El estudio de impacto analizó cuál sería la mejor ubicación para estos vecindarios. ¿Qué instrumentos de recuperación de plusvalías funcionarían mejor en este caso? Es interesante señalar que el sector privado ya está desarrollando lo que se describen como “barrios verdes” en las regiones aledañas al Río metropolitano. ¿Tiene sentido planificar proyectos de vivienda individuales cuando se va a producir un aumento tan grande en la cantidad de hogares?
Land Lines: ¿Las familias de bajos ingresos estarían en condiciones de pagar por la infraestructura?
David Vetter: En América Latina, los criterios de elegibilidad de programas de recuperación de plusvalías casi siempre incluyen una prueba de capacidad de pago. Por supuesto, la recuperación de plusvalías sólo se debería aplicar a familias que estén en condiciones de pagarla.
Land Lines: ¿Cómo respondería a los profesionales de Brasil dedicados a temas urbanos que argumentan que es imposible recuperar las plusvalías por razones legales o culturales?
David Vetter: Si bien la constitución de Brasil concede amplios poderes para recuperar plusvalías, sólo las municipalidades más grandes, como São Paulo y Rio de Janeiro, parecen usarlos. Otros gobiernos subnacionales y nacionales dedican mucho menos esfuerzo para recuperar las plusvalías de sus considerables inversiones públicas.
Ello probablemente se deba, en parte, a resistencia de aquellos que creen que la recuperación de plusvalía es legalmente imposible. Aun cuando la contribución por mejoras encuentra una resistencia similar, Silva y Pereira (2013) estiman que los ingresos totales por dicho concepto superaron los US$300 millones en las municipalidades de São Paulo, Paraná y Santa Catarina entre 2000 y 2010, a pesar de que relativamente pocas municipalidades utilizaron este instrumento. Esta cantidad no es muy significativa para estados de este tamaño, pero demuestra que las contribuciones por mejoras son viables.
Una de las razones por las que las contribuciones por mejoras fueron exitosas en Paraná y Santa Catarina fue que el Banco Mundial y el Banco Interamericano de Desarrollo exigieron medidas de recuperación de costos en sus proyectos de desarrollo municipal desde la década de 1980. Este éxito respalda la idea de que los incentivos de un programa nacional o estatal pueden fomentar el uso de la recuperación de plusvalías a nivel municipal.
Además, hay muchos casos de recuperación de plusvalías que pasan desapercibidos. En la ciudad de Rio de Janeiro, por ejemplo, la venta de suelo excedente del sistema de metro existente se usó parcialmente para financiar una nueva línea completa, y los desarrolladores instalan agua corriente y alcantarillado como condición para la aprobación de un proyecto en un vecindario de mayores ingresos, Barra de Tijuca.
Land Lines: ¿De qué manera podrían fomentar el uso de la recuperación de plusvalías los programas gubernamentales nacionales y estatales?
David Vetter: Una de las maneras sería proporcionar acceso a financiamiento como un incentivo para que las municipalidades hagan uso de la recuperación de plusvalías. El banco de desarrollo de Ecuador (Banco del Estado) utiliza este tipo de acceso para alentar a las municipalidades a usar las contribuciones por mejoras. El acceso a financiamiento se podría usar para implementar una gama más amplia de instrumentos de recuperación de plusvalías, como la venta de derechos de desarrollo y aranceles de impacto, además de las contribuciones por mejoras.
Land Lines: ¿Cómo puede estimular el Instituto Lincoln el financiamiento de infraestructura por medio de la recuperación de plusvalías?
David Vetter: Lincoln ha hecho un trabajo excelente para generar el conocimiento de la recuperación de plusvalías, por medio de investigaciones, foros, programas de capacitación y publicaciones. El Instituto podría ampliar su trabajo sobresaliente en recuperación de plusvalías en la región por medio de más foros y publicaciones, y asesorando en forma directa a los dirigentes políticos en lo que al diseño y ejecución de programas se refiere.
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Since first holding democratic elections at the national and provincial levels in 1994, South Africa has undertaken far-reaching constitutional changes. Arguably, the most fundamental transformation is taking place at the local government level, where the divisions created by apartheid were most severe. These changes were set in motion by the Local Government Transition Act of 1993, and during 1994-1995 the formerly racially segregated urban local authorities were amalgamated into a variety of non-racial transitional councils:
In non-metropolitan areas, the former regional services councils were transformed into district councils, thereby retaining a secondary tier of local government in rural areas.
In March 1998 the national government published the White Paper on Local Government, which set out its vision for the future of local government. The White Paper resulted in passage of the Local Government Demarcation Act and the Local Government: Municipal Structures Act. Under the Demarcation Act, the Municipal Demarcation Board was established to assign new boundaries for the different categories of municipal governments throughout the country. The present 843 transitional municipalities are to be severely reorganized after the local elections in November 2000 into 284 newly demarcated municipalities (see Table 1).
Within the six metropolitan areas to be established, single-tier metropolitan municipalities will replace the TMCs and TMLCs. In the non-metropolitan areas 47 district municipalities will replace the present 42 district councils. Each district municipality will consist of two or more (primary-tier) local municipalities to replace the present local and rural councils. A typical future local municipality will consist of a number of neighboring towns and their rural hinterland. In sparsely populated rural areas where the establishment of a local municipality is not viable (designated as district management areas), a district municipality will be the only form of local government.
Municipal Finance Reform
The structural reforms at the local government level also require reform of municipal finances. The government is currently preparing two important pieces of legislation in this regard, the Local Government: Property Rates Bill (dealing exclusively with property taxation) and the Municipal Finance Management Bill.
Section 229 of South Africa’s Constitution guarantees “rates on property” (i.e., the property tax) as an autonomous source of revenue for municipalities. It states that the “power of a municipality to impose rates on property…may be regulated by national legislation.” National framework legislation regarding the property tax is indeed needed for the following reasons:
Therefore, the Local Government: Property Rates Bill, currently in its 10th draft, is to be welcomed, at least in principle. It has not yet been published for public comment and may be further amended. However, when this bill is eventually passed into law, it will regulate the levying, assessing and collection of property taxes by municipalities.
Policy Issues in the Property Rates Bill
Diversity of Tax Bases
Urban municipalities generally have a choice between three tax bases, which are spread remarkably evenly throughout the country:
Earlier drafts of the Property Rates Bill retained this diversity as well as local choice. However, clause 5(1) of the 10th draft of the bill now states that a rate levied on property “must be…an amount in the Rand (South Africa’s currency) determined by the municipality on the improved value of the property.” Although it seems that government has opted for a single tax base (i.e., improved capital value), the bill goes on to provide that a rate levied on the “improved value of property may be composed of separate amounts on the site value of the property and the value of the improvements.” By implication, therefore, composite rating and site rating have been retained (if the amount in the Rand on improvements is set at zero).
Extension of the Tax Base and Possible Exclusions
In principle a municipality may tax “all property in its municipal area,” including areas where the property tax has not been levied before, such as agricultural and tribal land. However, the bill also allows a municipality to exclude a category or categories of property from rating. These excluded properties need not be reflected in the valuation roll.
McCluskey and Franzsen (2000) suggest several reasons why municipalities should include all properties in the valuation roll, and then allow specific exemptions rather than exclusions from the taxing process. First, it can be difficult to justify and defend exclusions constitutionally; second, it is politically easier to phase out an exemption than to introduce a tax on formerly excluded properties; and third, if properties are not valued and thus not reflected in the valuation roll, the extent of the tax base relinquished through exclusions is not known.
“Public infrastructure” is to be excluded from the tax base. This will have significant implications, particularly for municipalities with large tracts of land owned by public utility companies, and may need to be reconsidered in light of privatization. International practice suggests that public utilities should be rated at least on their operational land.
Differentiation and Phasing-in of Rates
Current legislation only provides for rate uniformity throughout a municipal area. However, municipalities sometimes achieve effective differentiation by granting arbitrary rebates to certain properties on the basis of zoning. For example, all improved residential properties in the Pretoria TMLC are presently granted a 35 percent rebate.
The bill provides that different rates may be levied for different categories of property according to use, status or location-a critical point in light of the extension of municipal boundaries into rural areas. For example, it would be possible for a future local municipality (comprising various small towns, commercial farmland and tribal land) to have the following different property categories (and therefore different tax rates):
However, a municipality will have to justify its differential rate schedule in an annually revised rates policy document presented to all taxpayers. Although municipalities may be permitted to treat ratepayers differently, they must justify this action. The bill also allows for the phasing-in of rates over a three-year period with respect to property not subject to property taxation before 1 July 1999 (e.g., tribal land). In certain instances the period may be extended for a further three years.
Tax Rates
The bill (clause 5(2)) states that municipalities may set their own tax rates. However, the Minister for Local Government, in concurrence with the Minister of Finance, may set a limit or rate cap on the amount. Apart from reducing municipalities’ fiscal autonomy, rate caps set nationally may not reflect differences in taxing capacity that exist between municipalities (see Table 2).
An alternative, and more practical, “capping” measure that has been inserted in the 10th draft (clause 5(3)(a)(ii)) is to limit the annual tax rate increases, not unlike one part of Proposition 13 in California.
Extension of Property Tax to Tribal Land
Extending property taxation to tribal land is an area of major political concern and is fraught with practical problems. “Ownership” of tribal land is not uniform, and some tribal authorities are not prepared to accept any form of local government within their area of jurisdiction, let alone any form of taxation of “their” land. Identifying the taxpayer may be problematic. Furthermore, formal ownership of tribal land seldom reflects the complex system of tenure rights of the individuals entitled to the use of that land. Even if it were possible to identify a taxpayer and establish an assessed value for (tribal) “property,” the abject poverty and inability of residents in many tribal areas to pay any tax will have to be considered. In fact, few tribal areas presently receive municipal services that could justify the introduction of a property tax.
Rates Policy
Clause 13 of the bill requires municipalities to adopt a rates policy and then levy rates accordingly. This is a welcome change. The rates policy, which is to be reviewed annually, must explain and justify the provision of exemptions, rebates, reductions and relief for the poor. This policy should significantly enhance the transparency, efficiency and accountability of municipal councils, and perhaps encourage compliance.
Valuation Quality Control
Another welcome aspect in the bill concerns monitoring valuation quality for equity and consistency across the country. However, the bill (clause 64) confers this responsibility on the Minister responsible for local government. McCluskey and Franzsen (2000) suggest that an independent and professional valuation agency, preferably at the national level, should be established for this highly technical task. Such agencies exist in Australia, New Zealand and Canada. In South Africa, this type of agency should perform the following primary tasks:
The monitoring service could well be expanded to provide valuation advice, expertise and data to municipalities. Such an agency could also undertake valuations of property for other taxes levied at the national level, such as estate and gift taxes.
Conclusion
The Local Government: Property Rates Bill should provide a solid framework for property taxation as South Africa begins to implement its new local government structure. If municipalities adhere to the principles articulated in the bill, a more uniform, equitable and efficient property tax system will play an even more important role in the future.
Riël C.D. Franzsen is professor in the Department of Mercantile Law at the University of South Africa in Pretoria, South Africa. His research on property tax reform in South Africa has been supported in part by the Lincoln Institute.
References
Budget Review 2000: Chapter 7. South Africa Department of Finance. http://www.finance.gov.za/b/budget_00/default.htm
Franzsen, R.C.D. 1999. Property taxation in South Africa. In W.J. McCluskey (ed.) Property Tax: An International Comparative Review. Aldershot, UK: Ashgate, 337-357.
Local Government: Property Rates Bill. 2000. 10th draft. South Africa Department of Provincial and Local Government.
McCluskey, W.J., and R.C.D. Franzsen. 2000. Some policy issues regarding the Local Government: Property Rates Bill. SA Mercantile Law Journal 12: 209-223.
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The Republic of Lithuania, which declared its independence from the USSR in 1990, is the largest and the southernmost of the Baltic countries, with a total area of 65,300 sq. km. and a population of 3.5 million. Although the other Baltic countries introduced market value-based land taxes earlier, Lithuania anticipates that its up-to-date real property information system and administration network, managed by the State Land Cadastre and Register (SCLR), will speed its implementation. SLCR has been assigned the task of valuing property for taxation, and will utilize its computerized real property information system of land and building data for this purpose.
Tax systems in Lithuania, established early in the post-Soviet period, are gradually being reformed to accommodate development of democratic institutions and market economies, and to advance negotiations for entry into the European Union. The Lithuanian Governmental Action Program for 2001-2004 identified the introduction of market value-based taxes on land and buildings as a priority, contemplating an expanded tax base and a greater role for local government in fiscal decision-making.
Taxes on Land and Buildings
Currently there are two national taxes: a 1.5 percent land tax paid by landowners and 1.0 percent property tax on the value of property (excluding land) paid by corporations and other legal entities. The tax proceeds are returned to the municipalities, where in 2001 they provided on average just over 8 percent of municipal budgets. The revenue from the property tax was nearly 10 times higher than the revenue from the land tax, and has increased annually, representing 2.3 percent of national budget revenues. Neither tax has a market value base at present, although some market elements have been introduced gradually in the land tax base.
Development of the Mass Valuation System
Information Systems
Lithuania initiated development of computer-based real property data 10 years ago. Since establishment of the SLCR in 1997, a fully computerized Real Property Registration System links land parcels and buildings, and cadastre and register data into one unified system. The computer network covers the entire country and links counties and districts to the central databank, so that computerized registration of real property can take place in any branch office or client service bureau throughout the country. Analysis of the data permits monitoring of changes in the real property market, statistical analysis, and utilization of computer-assisted mass appraisal techniques. Figure 1 illustrates the current operation of the Real Property Register and flows of information on real property.
As of August 2002 nearly 4.7 million properties were registered, including more than 1 million land parcels, 615,000 buildings, 1.6 million auxiliary buildings, 950,000 flats and premises, and 395,000 engineering constructions. The central databank is expected eventually to register 6 million properties, including 2.3 million land parcels and 3.7 million buildings of different types.
Sales Data
The SLCR has been collecting real property sales information since 1998, and there are a sufficient number of transactions of flats, garages and land parcels to support mass valuation modeling based on market principles. The SLCR has created a databank of real property sales, and when a new real property unit is formed, it is inventoried and described in the Real Property Cadastre and all property rights are registered in the Real Property Register. At the conclusion of a transaction, a new owner registers the ownership in the register, but the data in the cadastre are not changed. When the transaction is registered the sale price indicated in the purchase-and-sale agreement is recorded into the database, allowing the price information to be supplemented by descriptive (cadastral) attributes. Table 1 shows the number of property sales registered during 1998-2001.
Mass Valuation Pilot Project
To prepare for the implementation of value-based real property taxation, the Ministry of Finance assigned to SLCR the task of undertaking a pilot project using mass valuation techniques. The results will be presented to the Ministry of Finance and other interested state institutions.
SLCR’s objectives are to complete the development of a real property mass valuation system to accomplish the following goals:
At the conclusion, SLCR will be able to analyze various possibilities for introducing a computer-assisted mass appraisal (CAMA) system in Lithuania, and to prepare proposals regarding ad valorem property tax administration and relevant institutional infrastructure development. The project involves 40 property valuers from both SLCR’s central and branch offices, who have been trained by specialists within SLCR and international experts, including the Lincoln Institute, Organisation for Economic Co-operation (OECD), Swedesurvey and the Finnish National Land Survey.
Progress of Project Implementation
Property valuations have been nearly completed in the 11 municipalities selected as demonstration projects, one located in the territory of each SLCR branch office. The experience gained from these pilot projects will be valuable in extending the valuation throughout the entire country. Table 2 summarizes the progress made by SLCR and the Ministry of Finance in completing various steps in the implementation of the mass appraisal system.
Kestutis Sabaliauskas is director general of the State Land Cadastre and Register (SLCR) of Lithuania and Albina Aleksiene is chief of the Market Data Analysis Group.
A History of SLCR and Lincoln Institute Collaboration
The Lincoln Institute and the Lithuanian State Land Cadastre and Register (SLCR) have been collaborating on a series of seminars and research studies since 1997, in preparation for the introduction of market value-based taxation of real property in this Baltic country. A May 2001 Land Lines article, “Market Value-Based Taxation of Real Property,” reported on a weeklong course presented in February 2001 at the Lincoln Institute for a group of senior-level public officials from Lithuania. Participants included representatives from Parliament, the Prime Minister’s office and the Ministry of Finance; the United Nations Development Program provided financial support for the program. Their visit was important both in developing knowledge of real property taxation systems and in creating a working group of representatives from different governmental institutions who were eager to cooperate in establishing an up-to-date taxation system in Lithuania.
In November 2001, the Institute conducted a follow-up series of programs on market value-based taxation in Vilnius for representatives from institutions including the Government of the Republic of Lithuania, several ministries, the Tax Inspectorate, the Association of Municipalities, and the Lithuanian Association of Property Valuers. A second seminar, “Value-Based Taxation Of Real Property in the Baltic Countries: A Comparative Review,” drew participants from Estonia, Latvia and Lithuania to discuss the progress of property tax reforms and shared experiences in undertaking mass valuations. A third seminar, organized in cooperation with the Committee of Budget and Finance of the Lithuanian Parliament, attracted many members of Parliament and top-level governmental officials involved in shaping various aspects of tax policy: policy considerations in introducing a real property tax based on market value; the challenges and benefits of value-based taxation; and ways of implementing an efficient real property tax acceptable to the general public in Lithuania. Over 100 representatives of various institutions of Lithuania and the Baltic States attended one or more of these November seminars.
In May 2002 a faculty group organized and sponsored by the Lincoln Institute visited Lithuania for another series of meetings and briefings organized by SLCR to explore effective approaches to implementing value-based real property tax system. SLCR staff presented extensive information on its activities and readiness to perform mass valuations at central headquarters as well as local offices, where most property valuers work. One outcome of the May meetings is development of an educational program on mass valuation using Lithuania as a case study, which may be valuable to other countries in economic transition. This case will be presented during the next collaborative program to be held in Vilnius in 2003.
Lincoln Institute faculty participating in these programs are Joan Youngman, senior fellow and chairman of the Institute’s Department of Valuation and Taxation; Jane Malme, fellow of the Lincoln Institute; Richard Almy and Robert Gloudmans, partners in Almy, Gloudemans, Jacobs & Denne, Phoenix; and John Charman, consultant valuation surveyor, London.
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A major tragedy of empirical work is the low ratio of analysis to data, in part due to the lack of publicly available datasets. Many data collectors are reluctant to share data with other researchers until they have harvested all its new insights. Accordingly, researchers often collect new data because they cannot access existing information.
A new initiative of the Lincoln Institute is to compile data relevant to the analysis of land and tax policy, make it available on our Web site, and encourage new research. Three very different datasets are currently available, and a fourth is under development.
Significant Features of the Property Tax. This database title refers to the well-known publication, Significant Features of Fiscal Federalism, produced by the Advisory Commission on Intergovernmental Relations, which between 1959 and 1996 reported on the relationships among local, state, and national levels of government. This online and interactive database, produced and continually updated in partnership with the George Washington Institute of Public Policy, presents property tax data for all 50 states
Great care is taken to ensure that data reported across jurisdictions are comparable and similarly defined. Users may access property tax information and data online in standard tables or create new downloadable tables containing the specific data they seek. Unlike many interactive databases, Significant Features also includes many table entries in text that explain, for example, how each state categorizes property, defines taxable value, and restricts or caps rates and assessments.
Land and Property Values in the U.S. These more traditional tabular files contain numeric data on the values and rents of residential properties in the United States. The national ratio of rents to prices for the stock of all owner-occupied housing is available quarterly from 1960 to the present. National indices of prices and values of housing (land inclusive of structures), land, and structures are available quarterly from 1975 to the present and annually from 1930 to the present. For 46 metropolitan areas, quarterly indices of prices and values of single-family, owner-occupied housing (land inclusive of structures), land, and structures are available from 1985 to the present.
The implicit rents of owner-occupied housing, the value of structures, and the value of residential land are rarely observed directly, and therefore are estimated using techniques that are explained on the Web site. These data were created and are updated by Morris A. Davis, a fellow at the Lincoln Institute and faculty member at the University of Wisconsin School of Business, Department of Real Estate and Land Economics.
University Real Estate Development Cases. Many university real estate development projects involve the expansion of facilities, the upgrading of neighboring properties, and long-term investment in real estate. Such projects are often controversial when they displace current residents and businesses or transform neighborhoods. As part of the Lincoln Institute’s research on town-gown issues, this database presents quantitative and qualitative information on 897 projects that are outside traditional campus boundaries. These cases provide a useful composite picture of recent university real estate activities.
Digital Maps of Urban Spatial Extension. Visiting fellow Shlomo Angel is examining the spatial growth of a sample of global cities and has created a set of digital maps derived from satellite data and historic sources. Focusing on measures of developed versus undeveloped land, the maps form the basis for several Lincoln Institute working papers on the spatial growth of cities over time. The maps will exist as digital files that can be downloaded and analyzed by others who want to pursue related work.
These datasets are the Lincoln Institute’s first steps toward increasing the availability of data to researchers, analysts, policy makers, and concerned citizens with an interest in land policy and taxation. The information is freely accessible on the Tools and Resources section of the Institute Web site at www.lincolninst.edu.
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Karl E. Case is professor of economics emeritus at Wellesley College, where he held the Katherine Coman and A. Barton Hepburn Chair in Economics and taught for 34 years. He is currently a senior fellow at the Joint Center for Housing Studies at Harvard University.
Professor Case is also a founding partner in the real estate research firm, Fiserv Case Shiller Weiss, Inc., and serves as a member of the Board of Directors of the Depositors Insurance Fund of Massachusetts. He is a member of the Standard and Poors Index Advisory Committee, the Academic Advisory Board of the Federal Reserve Bank of Boston, and the Board of Advisors of the Rappaport Institute for Greater Boston at Harvard University. He has served as a member of the boards of directors of the Mortgage Guaranty Insurance Corporation (MGIC), Century Bank, Lincoln Institute of Land Policy, and the American Real Estate and Urban Economics Association. He was also an associate editor of the Journal of Economic Perspectives and the Journal of Economics Education.
After receiving his B.A. from Miami University in Ohio in 1968, he spent three years on active duty in the Army and received his Ph.D. in economics from Harvard University in 1976. His research has been in the areas of real estate, housing, and public finance. He is author or coauthor of five books including Principles of Economics, Economics and Tax Policy, and Property Taxation: The Need for Reform, and he has published numerous articles in professional journals. Principles of Economics, a basic text coauthored with Ray C. Fair and Sharon Oster, is in its tenth edition.
Land Lines: How did you become involved with the Lincoln Institute of Land Policy?
Chip Case: I learned about the Lincoln Institute in the 1970s, when it was sponsoring conferences for the Taxation Resources and Economic Development (TRED) Committee. I had written my dissertation on property taxes and had been invited to attend one of those conferences. In the fall of 1980, I began my first sabbatical year from Wellesley College and needed a way to fund my research. I arranged a meeting with Arlo Woolery, who was executive director of the Institute at the time, and he agreed to support my work.
My relationship with the Lincoln Institute has continued over the four decades since then. I was on the Board of Directors in the mid-1990s and on the executive search committees for H. James Brown, the former president of the Lincoln Institute, and Gregory K. Ingram, the current president and CEO. I taught at many Institute-sponsored programs with the Land Reform Training Institute (now the International Center for Land Policy Studies and Training) in Taiwan for 15 years, and have participated in programs in Cuba and China multiple times as well.
Much of my research is in the spirit of what the Institute is about, and I continue to make regular presentations at various conferences and seminars. I was especially pleased to be involved with a conference on “Housing and the Built Environment: Access, Finance, Policy,” held in Cambridge in December 2007. The Institute later published the papers and commentaries as “Essays in honor of Karl E. Case” in a volume titled Housing Markets and the Economy: Risk, Regulation, and Policy, edited by Edward L. Glaeser and John M. Quigley.
Land Lines: What sort of work have you done for the Lincoln Institute recently?
Chip Case: Earlier this year I served as a discussant for the “Urban Economics and Public Finance Conference,” which was organized by Lincoln Institute visiting fellow Daniel McMillen with the Department of Valuation and Taxation. This annual program brings together leading scholars in the fields of urban economics and public finance to present and discuss their research. It’s a great forum and a good opportunity to showcase new empirical work.
I also recently returned from a Lincoln Institute program in Beijing, where I gave a series of lectures to planners and economists at the Peking University–Lincoln Institute Center for Urban Development and Land Policy. My role was to help decipher what has been happening in the U.S. housing market and to provide insight into the relationship between the housing market crash and the current financial crisis.
Chinese officials are very interested in learning from the market experience of the United States. To say that the housing market in China is in a boom period would be an understatement. In most cities, the market is straining under the limited amount of available land and insufficient infrastructure. The government has recognized that the rapid growth poses a challenge to its market authority and at the same time realizes that the growth can be harnessed as a source of potential revenue for the country’s cities.
Land Lines: What did you learn about the problem of local government finance in China?
Chip Case: Local governments in China own all the land inside their jurisdictions, and they have traditionally raised money by signing long-term leases on that land with joint ventures and other business interests that then use the land for development. The revenue from these leases has enabled local jurisdictions to provide the necessary public goods and infrastructure without ever collecting a tax.
Lately some jurisdictions are running out of new, undeveloped land to lease and thus are losing the source of revenues they need to support local schools, infrastructure, and health services. China has never had a property tax, but a property tax system has been recommended as a solution to falling local revenue. Convincing the local officials to implement a property tax, however, has proven to be a political challenge for many reasons.
Land Lines: How does your research relate to the work of the Lincoln Institute?
Chip Case: I have studied land and property tax issues for a long time. I published my doctoral dissertation under the title Property Taxation: The Need for Reform. My early interest in the property tax led me to think about the housing market, its inefficiencies and failures. I have written about the efficiency of the property tax and about the distributional effects of land prices and increases.
A significant component of my research deals with measuring land value and assessing how land value affects the location of labor markets and the allocation of resources and public goods. When someone buys a house, that person is buying access to a package of rights that is tied to the piece of land under the house. The value of the package of rights is capitalized into the cost of the house and is taxed as a component of the property’s assessed value. The package of rights–what is included and how it varies by location–is a hot issue right now, in no small part because of the current state of the housing market and its resulting impact on the financial stability of the country’s economy.
Land Lines: Tell us more about your interest in the property tax.
Chip Case: I’m an unabashed fan of the property tax. It has the potential to operate as a clear, transparent means of raising revenue. The fair market value of property is not a bad index of the ability to pay. Compare this to the federal income tax, which has become so complex as to be a bizarre means of allocating the cost of government, with very little intuitive connection to taxpaying ability.
Taxes should be neutral, and ideally not affect economic behavior. When taxpayers change their actions to avoid tax, they are worse off and the government has lost revenue at the same time. The hidden costs of these changes include higher prices and lower wages. The land portion of the property tax is one of the few taxes that does not distort economic activity, and that’s an extremely valuable tool for public finance.
The property tax offers support for local jurisdictions, self-government, and direct democracy. Local governments have a hard time imposing independent sales or income taxes if people can find a lower rate in the next city or town. Real estate is immovable property, and that’s a good base for a local tax.
The property tax is always under attack because it is highly visible. Almost no one knows how much sales tax they pay in a year, and for many people income taxes are withheld from their wages. But writing a large check for the property tax focuses taxpayer attention. That means controversy, but it also means accountability, and it allows local voters to decide whether their taxes are in line with the public services they receive. That’s almost impossible to judge at the state or federal level.
The property tax can always be improved, and that’s part of the important mission of the Lincoln Institute. But it needs supporters who can point to its strengths, and I’m always happy to take on that role.
Land Lines: What is the subject of your current research?
Chip Case: I am working on a paper with Robert Shiller about the effect of people’s expectations on the housing market in 1988 and during the period from 2003 to 2012. Shiller and I collected questionnaires from people who had purchased or sold a house at some point during those calendar years. We used more than 5,000 questionnaires to create a dataset that allows us to better understand the nature of the recent housing bubble and to pinpoint the beginning of shifts in expectations. It gives us a way to quantify and analyze various expectations about the housing market and to determine how those expectations play a role in decision making.
We can see, for example, that in 2005 the goal of owning a house began to fade from the American dream. This type of shift is culturally and economically significant. When it occurs in conjunction with the inertia of people’s expectations, we begin to see volatility in the housing market. And if the swing is strong enough, we also see that volatility may affect the national economy.
Since the price of a house includes all rights and resources tied to that piece of land, expectations about the market and access to future rights and resources play a role in determining the market value of the house. The market value in turn affects the amount of tax levied on the property. The relationship between market expectations and the property tax is complex; the research that Shiller and I are doing will provide some insight.
Land Lines: What do you anticipate will happen in the U.S. housing market going forward?
Chip Case: I am cautiously optimistic about the future of the housing market. The numbers seem to indicate that the housing sector is stabilizing and showing signs of slow but positive growth. The housing sector composes only about 6 percent of the country’s GDP, but it has been enormously important in the past. Its recovery would certainly help the economy come back from the devastating effects of the recession.
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David Vetter (Ph.D., University of California) has worked for more than four decades on urban finance and economics issues in Latin America. He taught and conducted urban research in Brazil for 17 years at the Brazilian Institute of Geography and Statistics (IBGE), the Graduate Engineering Program (COPPE), the Institute of Urban and Regional Planning and Studies (IPPUR), and the Fundação Getúlio Vargas. In 1990, he joined the World Bank, where he developed subnational investment and reform programs for Argentina, Brazil, Chile, and Ecuador. To push for greater private-sector participation in urban financing, he joined Dexia Credit Local in 1998 as vice president and established lending programs in Argentina, Brazil, and Mexico. Since returning to Brazil in 2004, he has worked as a consultant and researcher for various clients, including the Inter-American Development Bank and the Lincoln Institute of Land Policy, where he has been a visiting fellow since July 2014. He recently authored two articles for Land Lines: “Residential Wealth Distribution in Rio de Janeiro” (January 2014) and “Land-Based Financing for Brazil’s Municipalities” (October 2011).
Land Lines: How did you become involved with the Lincoln Institute?
David Vetter: For many years—whether I was doing research, consulting, or working at the World Bank or in the private sector—I quite often found solid information to help me from the Lincoln Institute. More recently, the Institute financed my research on residential wealth and municipal finance in Brazil.
Land Lines: What will you research as a visiting fellow and why?
David Vetter: I will focus on strategies for financing urban infrastructure in Brazil. Like other Latin American countries, Brazil continually needs to make substantial investments to keep pace with the rapidly growing number of new households and to reduce the number of them without access to urban infrastructure. From 2000 to 2010, the number of households grew by more than 12 million—an increase nearly 7 times the 1.8 million households in the Boston-Cambridge Metro Area in 2010. Given this demographic pressure, the absolute number of Brazilian households without access to urban infrastructure remained high in 2010, despite sizeable investments over the previous decade. And the deficits of some types of infrastructure actually increased. From 2000 to 2010, for instance, the number of Brazilian urban households without adequate sewage systems rose by nearly 2 million—more than the total number of housing units in Metropolitan Boston in 2010.
Brazil’s Ministry of Cities estimated that basic sanitation (potable water, waste water, solid waste, and drainage) would cost more than US$80 billion just for 2014 to 2018. Highways, street paving, public security, health, and education demand similarly high investments, and the amounts required often greatly exceed existing sources of financing.
Land Lines: How could value captured by these infrastructure investments help to finance them?
David Vetter: The benefits of infrastructure investments are capitalized into land and building prices. The Lincoln Institute’s 2013 forums on Notable Instruments for Urban Intervention showed that many governments in Latin America are effectively using a wide variety of tools to capture value created by their infrastructure investments, as detailed in Martim O. Smolka’s comprehensive review of the literature (2013): sale of development rights; betterment levies for street paving, drainage, and other improvements; and public-private partnerships (PPPs) involving value capture, as in the financial structure of Rio’s massive port renovation (Porto Maravilha). More efficient collection of the real estate property and transfer taxes help as well.
Value capture can generate positive feedback, creating a virtuous circle that generates additional resources for further investments. For example, the increases in value generated would increase the base for the property tax if real estate assessments were conducted in a timely manner, and the resulting revenue could be used to finance further investment.
Land Lines: To what extent could Brazilian municipalities increase the use of value capture?
David Vetter: According to economic theory, the value generated by infrastructure investments should roughly equal their cost. Because the supply of infrastructure would seem to be inelastic due to public finance constraints, the market value generated can actually exceed the cost of the investments.
For example, Brazilian municipalities invested more than US$82 billion in infrastructure and equipment from 2006 to 2010 (about US$16 billion per year). But in 2010 alone, state and national governments also invested more than US$50 billion. Capture of even a relatively small percentage of the value created could provide significant resources for investment. For example, the Rio de Janeiro Metropolitan Region is receiving massive infrastructure investments from national, state, and municipal governments, as well as from private sector partners, for various projects including the new Arco Metropolitano beltway and a new Metro line. Some are concessions or PPPs with significant financing at below-market interest rates from the public development banks (BNDES and CAIXA).
Land Lines: What role could value capture play in housing policy?
David Vetter: Infrastructure investment creates residential wealth, as its value is capitalized into housing value. Residential structures represent about one third of Brazil’s total net fixed capital in the national wealth accounts, as is typical for other countries around the world. Given this importance, we ask in our own work on the Rio de Janeiro Metropolitan Region: What generates residential wealth? How much residential wealth exists? Who holds it? We found that there are winners and losers. For example, the increase in value generated by infrastructure investment increases the residential wealth of homeowners, but it raises prices for renters in the benefitted area and housing cost for homebuyers wishing to locate there.
Land Lines: Would a housing policy focused on generating residential wealth and the equity of its distribution differ from most low-income housing programs?
David Vetter: It would be quite different. Most low-income housing programs keep unit costs down by building on low-cost land. Land price is low when it lacks access to employment and basic urban services, so affordable units often end up in these poorly serviced areas. A housing policy focused on residential wealth would emphasize access to employment and basic services, as they are among the key determinants of housing value.
Land Lines: But isn’t this utopian? How could value capture help to increase the residential wealth of lower-income families?
David Vetter: The challenge is certainly great. But value capture from higher-income families could allow cross subsidies to lower-income ones, especially renters who wish to locate in the areas benefiting from infrastructure investments.
Let me illustrate. The number of households in the Rio de Janeiro Metropolitan Region increased by more than 600,000 from 2000 to 2010 (that’s twice the number of households in Washington, DC, in 2010). As a result, the region’s urban infrastructure deficits remain high despite high investments. A recent impact study of metropolitan Rio de Janeiro’s new beltway (Pontual et al. 2011) explored the possibility of developing whole new socially integrated and fully serviced neighborhoods to hold the huge expected increase in the number of households along the beltway. This development could be financed in part by capturing value generated by the massive infrastructure investments planned and being implemented. Part of the value captured from higher-income families could be used to finance lower-income ones.
This impact study analyzed where such neighborhoods might best be located. Which value capture instruments might work best in this case? It is interesting that the private sector is already developing what they describe as “green neighborhoods” in the outlying regions of metropolitan Rio. Does it make sense to plan individual housing projects when such large increases in households are involved?
Land Lines: Would lower-income families be able to pay for infrastructure?
David Vetter: In Latin America, the eligibility criteria for value capture programs almost always include a test for capacity to pay. Of course, value capture should only be applied to families who can afford it.
Land Lines: How do you respond to the Brazilian professionals working on urban issues who argue that it is impossible to capture value for legal or cultural reasons?
David Vetter: Although Brazil’s constitution provides broad powers for value capture, only the largest municipalities, such as São Paulo and Rio de Janeiro, appear to be using them. Other sub-national and national governments are doing much less to capture the value of considerable public investments.
This failure is probably due in part to resistance by some who think that value capture is legally impossible. Yet while betterment levies meet with similar resistance, Silva and Pereira (2013) estimate that total revenue from them exceeded US$300 million among municipalities in the states of São Paulo, Paraná, and Santa Catarina from 2000 to 2010, even though relatively few municipalities employed them. This amount is not very significant for states of this size, but it does show that betterment levies are feasible.
One reason why betterment levies were successful in Paraná and Santa Catarina was that the World Bank and Inter-American Development Bank have required cost recovery in their municipal development projects since the 1980s. This success supports the idea that incentives of a national or state program can encourage use of value capture at the municipal level.
In addition, many cases of value capture seem to go unnoticed. In the City of Rio de Janeiro, for example, the sale of excess land from the existing subway system partly financed the expansion of a whole new line, and developers provide water and sewerage trunk lines as a condition for project approval in a higher-income neighborhood, Barra da Tijuca.
Land Lines: How might national or state government programs encourage greater use of value capture?
David Vetter: One way would be to provide access to financing as an incentive for the municipalities that use value capture. Ecuador’s development bank (Banco del Estado) uses such access to encourage municipalities to employ betterment levies. Access to financing could be used to provide access to a broader range of value capture instruments, such as the sale of development rights and impact fees, as well as betterment levies.
Land Lines: How can the Lincoln Institute encourage infrastructure financing through value capture?
David Vetter: Lincoln has done an excellent job of generating knowledge about value capture through its research, forums, training program, and publications. The Institute could scale up its excellent work on value capture in the region through more forums and publications, and by directly advising policy makers regarding program design and implementation.
