How to Rehabilitate a City at No Tax Cost
Shift the Property Tax
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This guest editorial originally appeared way back in 1979. The politicians did not take the author's advice, so cities such as Chicago have deteriorated. Now the author is running for Governor of Illinois. His recommendations are even more on-target now. See for yourself. |
by Cal Skinner, Jr.
The primaries are over. Everyone has paid lip service to "the neighborhoods." With Sandburg Village going condo, more people have started talking about rehabilitating existing apartment buildings in Chicago.
The mayor and city council have used municipal bonds to provide lower than market interest mortgages to home and condo purchasers. Of course, we all will help pay for that subsidy through our federal income taxes.
No one but me is likely to suggest that there may be a way to save Chicago's neighborhoods at no cost to the taxpayer: a simple change in the real estate tax.
Right now, the real estate tax encourages apartment owners to let their buildings deteriorate. If an owner invests rent receipts to improve the buildings, the tax assessor is mandated by law to increase the building's tax assessment. That, of course, results in a higher tax bill.
There are even charges that some arson results from apartment owners wanting to collect insurance money and cut real estate taxes.
So what shall we do?
Why not change the state constitution to allow a home rule city [primarily cities over 25,000 people] to change the real estate tax structures, by designating areas where rehabilitation or growth is desired? Let the city council mandate the shifting of the tax burden from land and buildings, to land alone.
With a new tax rate to assure no loss of property tax revenue, think of the results of such a shift.
Picture three adjacent lots, one with an apartment building, one with a residence, and the third empty. Under my suggestion, the real estate tax would be the same for all three properties. That's right; I am suggesting that similar-sized lots in the same block pay the same tax bill.
What will that mean to an apartment owner?
First, apartment owners will not see their tax bills jump as they improve their buildings. In fact, the new tax assessment system will encourage owners to improve their properties. That way they can provide better housing and prosper without paying higher real estate taxes.
How about the homeowners? The more valuable the home, the more savings they will enjoy. The poorer the home, the greater the incentive to make improvements.
Okay, what about the owner of an empty lot or an empty block?
For starters, property taxes on vacant land will greatly increase. So owners of empty lots will no longer be able to hold onto them for virtually no cost.
If you owned vacant land in what the city council designated as a "Rehabilitation and Growth Incentive" area, you would be strongly encouraged by the new property tax option to do something with it or sell it. You couldn't afford to let it sit vacant.
Will it work? New York City tried it. For five years right after World War I, all new housing improvements were exempted from property taxes. The result was the biggest building boom for housing in New York City's history.
If a proposal like this were adopted, the city council could harness the self-interest of real estate owners and developers to provide improved housing for people in any neighborhood. The same tool could be used to lure commerce and industry to specific parts of the city.
Surely, the harnessing of private self-interest to accomplish society's goals beats waiting for government at any level to get something done.
I think implementing my "Rehabilitation and Growth Incentive" constitutional amendment would be best for both Chicago and its suburbs.
It doesn't make sense, in this era of scarcity, to raze blocks of the city to produce urban weastelands, while at the same time covering some of America's richest farmland with subdivisions.
While suburban taxpayers are being forced to subsidize growth, Chicago residents are seeing fewer and fewer people around to help pay the fixed costs of police and fire services, water and street systems. The costs of some public services like public transportation and education have been shifted to the suburbs and, indeed, to the entire state, but this generalization remains valid: Chicagoans' taxes will tend to increase as people move to the suburbs, leaving fewer and fewer people in Chicago to pay for needed public services.
The solution to both problems is to give private enterprise the incentive to rehabilitate housing in Chicago, and to utilize the 'blocks of weeds' to increase the housing supply where utilities and streets already exist.
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