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Why Many Cities Have No Money

strongtowns.org

271–280 of 424 posts

Re: Why Many Cities Have No Money

#271
post #256

Earlier quoted context omitted.

You are absolutely right about that, I also would never buy a home in a community with a HOA.

Ah, I see what you are saying: you think that suburbs are not planned down to the most minute of details? I don't know where you live, but I bet if you read a copy of your local zoning code, and have a look at the zoning map, you will probably find that yes, your suburb is very, very heavily regulated, including parking minimums, minimum floor/area ratios, setbacks, uses, and so on and so forth. Probably less than so…

You raise a valid point. I just looked at my local code book of ordinances and they do cover a lot, including the number of parking spaces by square footage.

In my experience, in a smaller town, these things are primarily used as a weapon to punish otherwise bad businesses.

For example, we had a bar whose patrons became a neighborhood nuisance. They began to enforce the letter of the law for every violation until the bar closed.

Re: Why Many Cities Have No Money

#272

The author, Chuck Marohn, has previously made this video that explains how a Land Value Tax would affect the fiscal situation of a city (for the better): https://www.youtube.com/watch?v=ok2uR3btMrE

He says at the end that nobody switches from Property Tax to Land Tax, because people who own underdeveloped land would vote against it due to an immediate increase in their taxes. Are there no ways to make it happen? Maybe propose to switch it gradually over a long period of time? Or would that end just as poorly?

Ah LVTs, my favourite hobby horse.

It can be done. Where I live, the 'state-level' government survived going to an election with an explicit policy of replacing 'stamp duty' (a tax on the value of property sales) with a land value tax increase. Actually, they've survived two so far. They approached it exactly as you supposed: the tax will be phased in over something like 10 years.

FWIW, the two 'political' lessons I got out of it were:

(a) Surprisingly, builders' associations (and the like) should theoretically be very supportive of a switch to LVT, particularly if it's replacing property value taxes (which tax the total value of land and improvements, rather than just the unimproved value of land). They were supportive in our case at any rate. Because a LVT results in high-value land being put to its most productive use (e.g. 'land-banking' becomes profit negative, it incentivises inner-city redevelopment etc.), it means more business for builders (and this would be sustained in the long-run).

(b) Special measures have to be taken to protect people on fixed incomes who occupy high-value land (i.e. pensioners/retirees still living in the family home). This is partially for political reasons: the most effective way to 'negatively campaign' on the issue is to talk about how the LVT will force granny out of the family home. But there are also legitimate fairness concerns too: people who happen to own high-value land during a switch-over will suffer a 'windfall loss'. Although there's a perfectly reasonable counter-argument to this (IMHO), it's way too complex to be politically useful (and far too long to go into here).

I think one approach could be a sort of 'reverse mortgage until death' transitional arrangment: anyone on a retirement pension (or whatever reasonable criteria) prior to the LVT becoming 'official policy' would only have to pay some manageable proportion of the total land-tax due each year. The rest would accrue as a liability against the person's property, to be collected either at time of sale (which would now be voluntary), or from their estate (i.e. when they die). Obviously it would have to be carefully worded, but I think it's a fair compromise that the public could understand.

The downside to this (or any other 'transitional arrangment') is that it would delay some of the economic efficiency gains from a LVT: namely, the efficient reallocation of land (i.e. a retired couple would otherwise have an incentive to 'downsize' from their mostly empty 5 bedroom house to a townhouse or apartment, allowing a family currently crammed into a 2 bedroom flat to move somewhere more appropriately sized).

On the purely 'heartless economic side', it's such a great tax because:

- It's one of the few taxes that results in a more efficient allocation of resources (most other 'large' taxes usually generate some amount of dead-weight loss e.g. income tax, company tax etc.)

- It's a very stable tax base, as the base is completely immobile (you can't live in the US from a property located in India) and the tax is very difficult to avoid (it's pretty difficult to hide a large block of land or sneak it off to a tax haven somewhere). Also, if the rate is set so that it only taxes 'land rents' (unearned profits that accrue to landholders, in the form of higher land prices, due to improved amenities in the surrounding area), then it can actually increase economically activity due to the improved allocative efficiency discussed above. Again, most other taxes do the opposite (excluding Pigovian taxes, most commonly known as 'sin' taxes).

- LVTs are also a 'cycle-neutral' tax. Property taxes and stamp duties, on the other-hand, are pro-cyclical (i.e. when the economy is booming, tax receipts rise considerably, and when the economy is in recession, tax receipts fall). In practice, I think this results in boom-bust cycles that have much higher peaks and much lower troughs, simply because politicians will spend the money if it's there, but seem to be highly averse to taking on debt (so pro-cyclical taxes mean the economy is more overheated during boom-times, and more depressed during busts because of the contraction in government spending).

- [This is my own crazy opinion that other LVT proponents may very well disagree with] I think LVTs would improve macroeconomic-stability and increase economic productivity in the long-run. So much private capital investment gets poured into totally unproductive property speculation; capital that could otherwise be put towards some productive use (e.g. business investment via loans of equities etc.). And if you look at the past-century of economic history, you'll notice that an alarming number of recessions and depressions occurred because speculative bubbles in property markets popped (the 1890s depression, for example). Although speculative bubbles can form for other reasons, my view is that rising land prices are one of the primary triggers of property market speculation (or, at the very least, these rising land prices cause speculation to be more intense and prolonged).

So yer. LVT.

Re: Why Many Cities Have No Money

#273
post #268

Before saying no to higher taxes think about the value of your own property. If the infrastructure (streets, water, electricity, internet, schools, ...) becomes broken in the area around your house and garden, the value of your property will go down, too. In that sense paying higher taxes for infrastructure is also good for preserving the value of your property.

Illinois pays some of the highest taxes in the country. The property taxes are extremely high with some counties having the highest rates in the entire country (second only to some New Jersey counties). Yet property values have been the worse to recover since the great recession.

Re: Why Many Cities Have No Money

#274

Earlier quoted context omitted.

Simple: It creates misguided incentives in all kinds of directions. The simple idea that money is limitless has led to municipalities over-promising on pension benefits for just one example. Who got these developments approved? The developers who made millions and extracted the wealth in partnership with the taxpayers. Same as it ever was.

These are local governments we're talking about. To them, the money supply might as well be fixed. Everyone could be using gold and it wouldn't change the problem of building a street without budgeting for upkeep. They treat money as limitless because they get tax income every year and they are thinking short-term. Not because of anything the federal government does. Not because of debt.

They treat money as limitless because they "know" they'll be bailed out in future by government further up.

Re: Why Many Cities Have No Money

#275
post #259
post #18

I can't say much about mathematics of taxes described in the article, but I always thought that Soviet Union got a lot of it's city planning very much right. Even a small town is built as a relatively tight formation of high-rises, yet leaving plenty of public space and greenery in the middle. The quality of life in the town that I grew up in is super high, because everything one might need: school, hospital, store,…

Not it didn't, speaking as someone who lives in such a planned part of a city. There are several problems: - the areas for living, for offices, and for industry are disjointed and far from each other, necessitating a lot of travel each day. This was partly understandable for workers in polluting industries, but now it's just a pain. - the 'green' spaces are too big (yes, really), which further increases distances and…

>Furthermore the absence of enclosed communal space (what is sometimes inside the 'city blocks') means that the inhabitants don't feel the green space 'belongs to them'.

Yeah this. I never liked the "one huge park for everyone in the city" approach. I think the Chicago-style "many parks" approach is superior. In my neighborhood I have four parks within walking distance, seven or eight if you include school playlots.

>So they don't feel incentives to care for that space, and they don't.

Trash gets picked up quickly in the parks. I do feel a sense of ownership with the closest parks and get pissed when I see trash and promptly pick it up. I think smaller localized spaces do a good job of fighting the 'tragedy of the commons' we see with larger spaces. When something belongs to 'everyone' it really belongs to no one. Sorry but that's just human nature and one of the many reasons communism failed.

Not to mention, a lot of those Soviet towns are little more than endless ugly apartment blocks. The idea of a home with a unique design or a single family home with its own yard didn't fit in with the engineer led design of 'everyone lives in efficient boxes.' I find towns like that to be depressing and ugly. I'd rather trade some efficiency for beauty and livability. Top-down approaches get praised by geeks, but ultimately are simply worse than bottom-up approaches many American cities developed from. I'd much rather live in chaotic NYC, LA, or Chicago than 'ultraplanned' cities in Russia or China. Considering how many people we have dying to immigrate here, I suspect wanting those types of lifestyles reflects something in human nature.

Re: Why Many Cities Have No Money

#276
post #180

It seems to be a uniquely American practice to expect infrastructure maintenance and renewal to be funded by cities exclusively using property taxes. Cities generally act not only as trading hubs providing services to the region surrounding them, they also act as tax revenue sweeteners due to higher concentration of high income residents. Ie. they have positive externalities for the region, province or nation. While…

Cities have access to money from property taxes and sales taxes. States have access to sales tax and income tax. The state should be assisting with local budgets to level the playing field but that isn't really detailed in this article for some reason.

Re: Why Many Cities Have No Money

#277
post #12

What a crock. This is an extremely biased presentation meant to prime the reader for the awful right wing plan he's going to unveil in his next blog post. No doubt privatizing the infrastructure to "relieve" the taxpayer of the burden. Never mind that somehow it is still going to have to be paid for and if it's privatized we will have to pay more so the new owner can make a profit. The reality is cities are insolvent…

I don't read Strong Towns much, but I don't think you've read much of the stuff they put out. The blog definitely isn't in favor of mass privatization — that wouldn't help much, since the infrastructure is still crazy expensive and not worth paying for. The model of development that gets us out of this mess probably is one of much greater density + changes in accounting practices.

that wouldn't help much, since the infrastructure is still crazy expensive and not worth paying for.

Surely it would help, then? The entire point of the article is that local governments built infrastructure that isn't worth paying for, and paid too much for it, because of bad planning/misaligned incentives.

If towns were fully privatised then there'd be no assumption of government bailouts, and towns that overbuilt would go bankrupt and be abandoned/eventually bulldozed. In practice governments are rarely willing to let that happen. Even in the case of Detroit it was bailed out.

Re: Why Many Cities Have No Money

#278
post #235

Earlier quoted context omitted.

Presumably some governmental authority. Some realtime bidding system would be nice, but that may or may not realistic. I think a realistic goal is that the prices should be set such that there's always 1-2 spots available in any given small area (say, one city block). If you have zero spots available, then the prices are too low and should be raised. If half the street is empty, the prices are too high and should be…

> Some realtime bidding system would be nice, but that may or may not realistic. Realtime bidding would be a UX nightmare, though I guess it's Econ 101 (i.e., ignoring lots of real factors, including transaction costs) optimal.

Yea, I don't really think realtime bidding is worthwhile for these kinds of transactions. It makes bothering with it too much trouble.

Rather, I think a municipality setting prices by fiat to be something that mostly gives the an approximate solution most of the time.

Re: Why Many Cities Have No Money

#279
This is a problem, but not the problem.

Like schools, local public safety and other core government functions in incorporated cities are provided by municipal government.

Broken streets and infrastructure are expensive, but engineers always overstate the costs of maintenance and replacement when they are waving the tin cup around. The acute problem is that opex is driven by police and fire salaries, pensions and workers compensation. Take those numbers and divide by 3 or 4 to get a realistic number, especially for things like water pipes that have very long service lives.

The more fundamental problem is that post-war America focused investment and tax bad growth on towns and other places outside of cities, and left the costs in the cities. If the average suburban/exurban community requires 1 police/fire visit per 100 household, and urban environment requires 15-20 per 100 households.

Re: Why Many Cities Have No Money

#280

I've seen the infrastructure thing come up for awhile now, and it's definitely true. In my area, as in others I've read of, they're smashing paved roads into gravel roads as the paved are too expensive. The thing that fascinates me is that it feels like a forgone conclusion that infrastructure costs cannot be made cheaper. Have we really hit the most cost effective, cheapest, most sustainable method of laying/replaci…

Who is going to do that innovation? A startup? Good luck getting a municipal government to take risks by handing maintenance contracts to a startup. Their incentives are to do nothing and wait to be bailed out through inflation.
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