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Poll -- Californians down over finances again
water projects land value

How to finance California's water projects

Is even the richest US state decomposing into a two-class society? Not if they get behind geonomic tax reform. We trim, blend, and append two 2010 from (1) San Francisco’s Gate (home of The Chronicle), Jan 19 on attitudes sent in by Frank Walker and (2) Let California Prosper, Jan 1, on water works by Frank Walker.

by Frank Walker

Excerpting from San Francisco’s Gate:

JJS: Clearly, Californians, like people everywhere, are in need of economic succor. What would help in general would also help in particular, addressing infrastructure.

Gov. Arnold Schwarzenegger and the Legislature recently placed an $11.1 billion bond measure on next November’s ballot to finance water-related projects. Another initiative, the Tax Reform Initiative, provides a common-sense method of paying off these bonds.

Los Angeles Times correspondent George Skelton quotes California Treasurer Bill Lockyear and writes as follows:

Construction of these water projects will raise land values -- both its rental value and its selling price -- tremendously in the areas benefiting from the new water supply. Collection of 75% of this increase in rental value will recoup much, perhaps all, of the construction cost involved. This is the revenue that should be used to pay off the bonds sold to raise the funds necessary to build the project.

The water itself could be sold in auction-style bidding to water districts which, in turn, will charge their customers for the water. The proceeds of the sale of the water should more than pay for the operating costs of the project and will likely also cover much of the interest on the bonds. Even when landowners must pay for water they receive, an assured supply of water makes possible many uses of the land which are not possible in the absence of a reliable water supply, thereby greatly increasing both its productivity and its value.

If much of the increase in land value resulting from the construction of the water projects financed by the people of California is not collected by means of a tax on land values, the owners of the land benefiting from the new water supply will be enriched at public expense. The 75% tax on the rental value of land proposed by Prosper California will collect the largest portion of the land value created by all public services (law enforcement & public safety, education, parks, libraries) and publicly-financed infrastructure (water projects, roads, highways & bridges, ports, airports, etc.). Without these publicly financed services and infrastructure projects, California’s land would have little value instead of its enormous current value.

JJS: “Nobel” laureate William Vickrey noted that there’s never been a desirable public works project that could not pay for itself from the resultant rise in nearby site values. Problem is, most governments don’t bother to recover much if any of the increase -- except for one over a century ago.

Then California did do something quite similar. The legislature passed the 1887 Wright Act, which allowed communities to create by popular vote irrigation districts to build dams and canals and pay for them by taxing the resultant rise in land value. Once irrigated, land was too valuable to use for grazing, and the tax made it too costly for hoarding. So cattlemen sold off fields to farmers and at prices the farmers could afford. In ten years, the Central Valley was transformed into over 7,000 independent farms. Over the next few decades, those tree-less, semi-arid plains became the "bread basket of America", one of the most productive areas on the planet. (magazine of the Historical Society of California)

However, as usually happens, once farmland got too valuable, it became an object of speculation and insider political forces ended what had worked. Why didn’t ordinary folk defend the tax? Perhaps in part because the revenue never entered their pockets directly.


Jeffery J. Smith runs the Forum on Geonomics.

Also see:

A Major Newspaper Promotes a Major Reform

The data point to a recovery leaving some behind

Could other taxes on use of nature get passed this way?

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