A letter to the editor in Tuesday’s News-Miner sparked a little discussion about the Fairbanks Parking Authority. It seems that a number of people don’t like getting tickets when they park downtown and blame the Parking Authority for excessive zeal. They seem to want parking offered that is free of charge and unrestricted as to duration, place, and manner.
The economist Milton Friedman is famous for saying, “There is no such thing as a free lunch.” I offer a corollary, one that should rile all those who hate government subsidies, and certainly those who hate the subsidy of private goods at the expense of community good:
There is no such thing as free parking.
This may go against the experience so many of us have of driving to a retail or commercial establishment, finding a parking place, and never coughing up so much as a dime. That is because parking is subsidized by community money. An example should help explain this:
Our local Wal-Mart, located near the intersection of the Johansen and the Old Steese, occupies a total area of 1,154,562 square feet. Of this, the building occupies 259,992 sq. ft., or 22.5%, and the non-building area — mostly parking — occupies 894,570 sq. ft., or 77.5%. The total assessed value of Wal-Mart’s local property is $24,864,040. Of this, the structures are valued at $17,359,387, or 69.8%, and the land value (which probably includes the land the building sits on) is $7,504,653, or 30.2%. (These figures are from the 2007 assessment, available at the FNSB Property Database.)
Okay, that was a lot of numbers. What’s relevant here is that the building, which occupies less than a quarter of the land area, accounts for more than two-thirds of the entire property’s assessed value, while the land itself, over three-quarters of which is not built on (and about half of which seems to be parking), accounts for less than a third of the assessed value.
In short, the Borough taxes parking lots far less than it taxes buildings. That is the subsidy. The shame of it is, it’s like this nearly everywhere.
The value of a property to the Borough, it seems to me, is the value of what could be built there. It is like this when we pay for many things that, like land, are finite: we pay more for the use of a scarce resource, and what we pay is based heavily on how much we keep others from using. Wal-Mart, no matter how many square feet their building occupies, still uses 1.1 million square feet. That’s over a million square feet not available to other retail, commercial, civic, or residential uses, a million square feet that has potential value to the citizens of the Interior.
So when Wal-Mart is taxed most heavily on how less than a quarter of its land is used, the Borough is giving their car-driving shoppers a big, wet kiss. I suspect that if land were taxed at the same rate as buildings, Wal-Mart would install parking meters overnight — or at least their “everyday low prices” couldn’t be so low.
Wal-Mart is not receiving special treatment this way. My own house occupies slightly more than a quarter of the land it sits on, yet it accounts for over 92% of the property’s assessed value. The Borough seems to be subsidizing my driveway and my lawn, and I’m not so sure this is fair.
There certainly are land uses that deserve government subsidy, things that are social goods. Agriculture comes to mind as the most worthy. But parking is not a social good: it benefits only the driver and does nothing for those too young, too old, too poor, or too infirm to drive. What’s more, the ease of “free” parking encourages people to drive to their destinations, rather than busing, biking, or walking. Free parking only makes living far away from neighbors and community more desirable. And that’s not a behavior government has any business encouraging.
More thought is called for by your piece on “No free parking,” although it does a fine job of raising the issue. Taxation on the value of what “could” be built on a piece of vacant property is a complicated question. In the examples of Wal-Mart and of your house, actual construction on the vacant property would result in a significant deterioration of the value of the property already built upon. In Wal-Mart’s case the additional tax might make its business economically unfeasible. In your case, not only would the value of your house plummet, but the single-family residential zoning that I presume is in effect where you live would be destroyed. So there goes the residential neighborhood as everyone pushes for maximum economic development, and there perhaps goes a major business that is a part of the local tax base and in its way an economic service to the community. Fair taxation for what is now free parking — yes. But what constitutes fair taxation demands further study.
Your post is an interesting take on an idea popularized by the 19th century political economist Henry George: tax land, not buildings. Henry George actually advocated shifting all taxes to land value.
It is possible that taxing land value at a higher rate than built infrastructure could encourage better development in Fairbanks. It would certainly be a tool to address development in the downtown area. As things are now, it is not costly to hold undeveloped or underutilized property in the city core. Furthermore, an owner of an empty lot downtown benefits if others develop first. The highest costs and risks are incurred by whomever goes first. A high land tax makes such speculative land holding costly and so encourages development. Use it lose it to the borough.
Naturally we cannot expect the tax policy to produce the pedestrian and community friendly downtown we desire without a larger planning effort.
As an example of how such a policy could benefit downtown Fairbanks, a grocery store or big box store could have the option to offer very limited parking or no parking at all if built downtown, as part of a larger pedestrian and bicycle friendly development plan. There’s still a need for downtown parking in this scenario but it is shared by multiple users. Contrast this with the enormous parking lot for each store along the Johansen expressway. It should be noted that these stores are required to offer a certain number of parking spaces.
High land taxes would obviously make the downtown arrangement an attractive option. It may even make it attractive
On the residential side, high land taxes could encourage tighter residential development, with less lawns and more community parks and spaces.
Fortunately evidence from Pennsylvania cities where this type of property tax system has been used suggests it can be beneficial. Pittsburgh has had a higher land tax rate than building tax since 1913, and currently taxes land at 6 times the rate of buildings.
However, the small population of Fairbanks and the availability of land outside the city core still make things a bit more challenging.
Certainly one of the reasons I’m attracted to what I think is called “site-value” or “land-value” taxation is that, as Russell points out, it would discourage land speculation. Currently, it costs somebody much less to hold an undeveloped, unused piece of land than it costs to have a profitable enterprise built there, so it’s an incentive to keep empty a potentially useful plot of land in a residential or business district. Then other uses are forced to locate outside the desirable business areas, and — shazaam! — there’s more sprawl.
I suppose that whether land taxes made downtown an attractive place for business would depend on what tax rate was applied there. I see no reason why different rates couldn’t be applied to different areas, to encourage or discourage development.
Williard, I’m not sure that land-based taxes would make a Wal-Mart unfeasible. It might prove that their per-square-foot assessment, when compared with other people’s holdings, could amount to less than what their land and structures together are worth now. Or it could be more. They might find a way to re-build so that their store occupies three stories on a third the space, and decide that they don’t need to allot enough parking for the Saturday before Christmas. They might ditch their current property altogether for a three-story store downtown. Better there, I think, than on the outskirts.
Of course, whether they need to allot that much parking or not is up to the Borough, which probably mandates so many parking spaces per square foot or something like that. Similarly, whether the zoning for a single-family-home neighborhood would have to change is up to the Borough Assembly — but I think people might clamor to build taller houses that could accommodate some rentals, or they might put granny flats above their garages.
Personally, I don’t see more-crowded neighborhoods as a problem in itself, although I know they’re anathema to much of Fairbanks. I tend to think that, within limits, more neighbors mean more eyes on the street, which means more safety. The problem for me would come when people brought their cars and their traffic with them (as my wife and I have done) and the streets lost what appeal they had as places to meet neighbors and enjoy the atmosphere. If the greater population density weren’t accompanied by a transition to more neighborhood-serving businesses and an increased availability of public transit, it could have a bad effect on the quality of life, indeed.
You raise an interesting question about the value of my house. Would its value on the open market have to drop if my property assessment also dropped? I live on less than a tenth of an acre which means it wouldn’t be assessed at much, but wouldn’t other factors — say, architecture or location — increase its market value? I really don’t know.
On property assessment and market value: There’s no reason to believe that shifting to land value taxes would decrease the market value of your home. The overall outcome depends on how such a tax is implemented, along with all the other factors that make a location more or less desirable.