Reassessment may lead city to re-evaluate land tax
The city may be heading for a re-evaluation of its land value tax – although not before the county completes its reassessment in late 2016.
As the only jurisdiction in the country with land value tax of 100 percent, Altoona calculates its property levy solely on the assessed value of land – instead of equally on land and buildings, like most jurisdictions.
The practice was panned recently as the source of “seemingly gross inequities” in a county study of the current outdated assessment system.
The practice also has failed to deliver, according to critics.
“The intention was good,” said controller A.C. Stickel. “But I’m not sure there’s any evidence that it has helped.”
The city began moving incrementally toward land value tax in 2003 after a presentation by Josh Vincent of the Center for the Study of Economics in Philadelphia, an advocacy organization – completing the phase-in in 2011.
The practice discourages the speculative holding of land because that becomes costly – even as it encourages development, because it eliminates the tax penalty for improvements, according to advocates.
Local realtor Richard Johnston of Howard Hanna Johnston Realty recently illustrated his disapproval of land value tax to a visiting British journalist who’s working on an article about the practice by taking him to a neighborhood of 50-foot-wide lots.
Johnston pointed out a nice brick house, a nice frame house, a Cape Cod and an empty lot.
The city taxes are the same on all of those properties, he told the journalist, adding, “I don’t like it.”
The county study provided another example of alleged inequity, citing a property that sold for $10,000 with a higher city tax bill than one that sold for $1.8 million.
Presumably, the property that sold cheaply was vacant, while the other had a substantial building.
A supporter of land value tax might say the alleged “inequity” of these examples – which illustrates that it doesn’t matter what building is on a piece of ground – is the whole point: Altoona wants to eliminate the tax penalty for improvements to property.
But it’s not that simple because the assessed values the county is currently using for the land itself are likely distorted, and thus inequitable, and because the land-tax incentives aren’t always operative.
Further, not everyone has the means or inclination to act in accord with the incentives, even when they are operative, according to Gene Porterfield, owner of Evaluator Services and Technology, the company the county has hired to do the reassessment.
Land value tax could even create a counter-incentive to development, according to Interim City Manager Peter Marshall.
The land assessments used by the county were probably not equitable even when they were created in 1958, when the most recent assessment was done, according to Porterfield.
Assessing land values is not an exact science, but there are methods for arriving at approximations – abstraction, allocation and market data analysis – and the evidence shows that the 1958 assessment didn’t take full advantage of those, according to Porterfield.
Abstraction involves taking selling prices, then “abstracting” land values by calculating the cost of construction and subtracting depreciation, which can be subjective, according to Porterfield.
Allocation involves taking total property values in a specific area and “allocating” a percentage – say 20 percent – for land.
Market data analysis involves taking assessments on exemplary sales of vacant ground, then adjusting to account for lot size and the cost of bringing in utilities.
Changes in land value over the years, as suburbanization took hold and businesses and residents moved out, greatly exacerbated the initial inequities, according to Porterfield.
“Marketability” of once-thriving downtown areas in all cities and boroughs in the state have deteriorated since the late 1950s, he said.
Land in the heart of the city was valuable then, when the heart of the city was flourishing, compared to land in the outskirts, where not much may have been happening.
Now, land in the heart of the city, in neighborhoods degraded by poverty, is far less marketable than land in the roomier outskirts.
Yet the values on which the city’s entire property tax is based reflect those long-gone, late-1950s market conditions.
“Blair County is not a booming housing market,” said city Planning Director Lee Slusser.
The market trends, however, are showing signs of reversing, according to Slusser.
“Twenty-five foot lots are not for everybody,” Slusser said. “But some consumers are liking more walkable communities.”
Altoona’s core neighborhoods were built before cars were common, “where guys had to walk to work, and (it paid) to get as many people close to the workplace, corner stores and churches as possible,” he said.
New urbanism planning calls for development that mimics that old Altoona, he said.
“The market will always be the driving force,” Slusser said.
The land value tax incentives are not always operative because land value tax is only about a third of total property tax for most people and because many city lots aren’t feasible for development.
The land value tax is only about a third of the total property tax because owners also pay property tax to the Altoona Area School District and the county, which seriously dilutes the development incentive. Both of those taxing bodies tax land and buildings at the same rate.
Current state law doesn’t allow the school district or county to adopt land value tax, even if they wished, according to Vincent. In addition to third-class cities like Altoona and boroughs, only school districts that are co-terminus with a municipality, home rule counties and home rule townships can adopt land value tax, he said. The Altoona school district includes land beyond the city, and Blair County is not under home rule.
There’s a bill in the General Assembly that would let any school district switch to land value tax, but it’s probably two or three years away from gathering enough support for adoption, Vincent said.
Because most counties, including Blair, contain rural areas, they’re not likely to press for the right to switch, he said.
Many of the city’s vacant – and presumably developable – lots aren’t economically feasible for development, because of the area’s housing market, which eliminates the necessary incentive, creating what one could call a gratuitous hardship.
Many of those lots became vacant when derelict homes were demolished in a city program to combat blight, and many were subsequently acquired by adjacent homeowners for side yards.
Few if any such homeowners want to build another house next door, after demolition provided some extra space in their crowded old neighborhoods, nor do they want to sell the lots for someone else to build.
Low housing prices in this area would make it economically unfeasible to build on those usually narrow lots anyway.
So those adjacent homeowners are paying incentive-based extra tax on those properties – even though they’re not susceptible to the incentive that is the reason for that extra tax.
The lots, however, are at least theoretically developable, thanks to a change in setback regulations adopted by the city a few years ago to allow construction of homes with setbacks matching the average on the block, according to Slusser.
Moreover, the extra tax homeowners pay for those side yards are often offset – dollar-for-dollar in his own case – by the land value tax savings they realize for the properties on which their house sits, Slusser said.
The city’s land value tax is revenue-neutral, which means – because the collective land assessments are only one-seventh of the collective building assessments – that millage on land is seven times higher than if the city had standard taxation.
So individual property owners pay less tax if their land values are less than one-seventh of their total assessed value.
Conversely, they pay more if their land values are more than one-seventh of total assessed value.
Even if the land tax had been equitable and the incentives are operating, not all owners have the cash, borrowing power and will to put their money into buildings, as land value tax is designed to encourage, Porterfield said.
Land value tax also makes it too easy financially to hold onto a derelict building without making improvements, Marshall said. There’s not enough of a penalty for letting a building disintegrate because the owner doesn’t need income from the building to pay the property taxes, Marshall said. The argument is the mirror image of the one in favor of land value tax – that the standard method of property taxation makes it too easy financially to hold only vacant land without making improvements.
“Overall, I don’t think the plan [for land value tax] came to fruition,” Porterfield said.
Still, land value tax has worked in the case of at least one major project – Randy Green’s transition of the former Altoona Artificial Limb and Appliance building into apartments on Ninth Street off Chestnut Avenue.
“(Land value tax) was definitely a factor for me,” said Green, whose total project costs will be about $235,000.
Green learned about the opportunity through an interview with Stickel to fulfill a mock debate assignment when he took a Leadership Blair County course.
“What I figured out was, it was a big deal,” Green said.
Green hopes the city
doesn’t change its mind.
If it does, it will be “the worst luck in the world,” he said.
Vincent has estimated that Green’s taxes would go up 60 to 70 percent on the property, Green said.
Green’s profit margin on the property is slim, and eliminating land value tax would eliminate that margin, he said.