(The Center Square) – Spokane residents pay property taxes every year, just like the rest of the state, but the city council is looking at a new model to spur development around town: a land value tax.
The elected officials discussed the model with Joshua Vincent, president of the Center for the Study of Economics, on Thursday. The tax focuses on the land value rather than the building sitting on it and could lower residential rates while putting pressure on the vacant lots.
Vincent contends that land value taxes are fairer than run-of-the-mill property taxes, incentivizing development while punishing those driving down value. Spokane is full of vacant, underdeveloped, rundown properties and parking lots, Vincent calls them taxpayers.
Land Value Taxes are comparable to user fees; in this case, Spokane provides the land value through infrastructure like water, sewer, waste collection and other services. Residents and businesses pay the user fees, or tax, in return for cheaper rates that incentivize construction.
“I’m going to use an old-fashioned American phrase: you should pay for the privilege of sitting on top of all this infrastructure, and that’s what a land tax is,” Vincent told The Center Square.
Currently, only around 20 Pennsylvania cities and two school districts use a land value tax nationwide. However, Connecticut passed legislation in 2009 allowing municipalities to test the model, and Detroit Mayor Mike Duggan proposed a split-tax model last year.
Some areas that employ a land value tax pair it with an accompanying property tax, for example, a 20% tax on the assessed land value, with a building rate of 80%. Altoona, Penn., is the only city that relies entirely on a land value tax, but it slowly transitioned using this split-tax model.
Vincent said Spokane would require state authorization from the Legislature, which he thinks could take at least five years; after that, it would be as simple as adding the land value rate with their regular property tax rate each year, slowly transitioning the two.
Essentially, vacant lot owners would pay a similar amount in property taxes as their neighbors down the street. This means an empty parking lot downtown pays as much as the hotel and office space to its left and right, disincentivizing the industry, car dealerships and other businesses.
“A skyscraper or condo would benefit the most monetarily from a land value tax because you’re piling buildings up, you know, 150, 200 feet up into the sky,” Vincent said, “and the more you build on that lot, the more you’re going to benefit from not taxing the building.”
The issue is that land is finite, so once Spokane runs out of room and revenue plateaus, the only way to increase collection is by driving up assessments. Altoona bases its assessments off the strip adjacent to the street and location, with value decreasing the further away from downtown.
Property taxes typically increase by 1% annually, so municipalities can continue to bring in more revenues as their budgets inflate. Like Washington, California limits increases to 1%, but unlike the Evergreen State, it restricts assessments to 2%, limiting the revenue that a city can generate.
Vincent said if the council approves a deeper dive into Spokane, he could gauge its sustainability within the budget. If the city were to adopt the model, he recommends doing so over five to ten years to give owners time to adjust to the new reality.
Spokane County Assessor Tom Konis told The Center Square that the idea is new to him but that it could take more than just state authorization to get rolling. He said the state constitution provides that all properties should be taxed at “a uniform and equal rate,” which may require an amendment.
“People hate taxes. I don’t blame them. I hate taxes, too. I hate taxes on sales. I hate taxes on income. I hate taxes on productive business,” Vincent said, “but this tax is more of a user fee.”
