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Taking a different approach to local taxation

By LAURA NATUSCH

Publication: The Day

Published October 09. 2011 4:00AM   Updated October 10. 2011 12:14PM

New Londoners know our property taxes are high. We also know we have only a small amount of land with which to generate revenue. That's why we debate the merits of granting tax abatements for economic development projects, and talk so frequently about the percentage of land held by nonprofits. Whenever a property owner pays little or no taxes, it increases the burden on everyone else.

On the other hand, we need our hospitals, colleges, churches, social services and cultural institutions. And we need jobs. We're willing to subsidize nonprofits and some commercial projects by waiving property taxes because they serve the public good.

But why would anyone want to subsidize landlords who let buildings fall into disrepair and speculators who keep properties vacant? Far from serving the public good, these run-down, empty buildings depress neighbors' property values and hurt nearby businesses. Yet under our current tax system, the same people harmed by irresponsible or indifferent property owners end up subsidizing them. The subsidies are unintentional, but real. When one person's property taxes go down, someone else has to pick up the slack.

Conversely, when a landlord improves a building, everyone - including speculators - benefits. Yet we penalize that landlord with higher taxes.

There is a remedy. It's called Land Value Taxation, or LVT. In its purest form, property owners are taxed only on their land, not on the buildings which sit on that land. This means that their taxes remain the same regardless of whether they improve or neglect their buildings.

People sometimes misconstrue LVT as punishing people who don't maintain their buildings while rewarding those who do. Mayoral candidate Martin Olsen has referred to it as a form of coercion and candidate Lori Hopkins-Cavanagh has likened it to eminent domain. But LVT supports property rights. Unlike our current system, it doesn't punish or reward anyone. What it does do is remove the penalty for improving buildings while taking away the subsidies to which speculators have become accustomed.

People have other misperceptions about LVT. It neither increases nor decreases the amount of taxes a city collects: it's revenue-neutral. And it won't hurt downtown businesses. On the contrary, it tends to help small businesses, both because it encourages population density and because buildings with active storefronts almost always see their taxes go down when a city transitions to LVT. Finally, LVT won't force the elderly or anyone else from their homes. Implemented only in New London's downtown Central Business District, LVT would have no effect on the city's residential zones.

Of course, no tax system is perfect. Using LVT, some businesses that benefit the city but require large amounts of land could see tax increases. (This isn't necessarily the case: a 2009 study predicts New London Mall would pay lower taxes with LVT because they're already taxed heavily on their well-maintained buildings.) Some property owners who can't afford to fix their buildings might see higher tax bills, too. But cities can prevent inequities and assist property owners with targeted exemptions, Enterprise Zone programs, grants and loans. Furthermore, LVT complements these existing programs because property owners could use them to renovate buildings without facing higher tax bills once they're done.

LVT isn't high risk, nor does it have to be permanent. Municipalities which decide to try LVT can shift as much or as little of the tax assessment to land as they wish, they can do so as gradually as they wish, and they can limit the use of LVT to whichever portions of the city they wish. Furthermore, they can revert back to traditional property taxes at any time.

By itself, LVT won't make a distressed city thrive. But at least it removes the penalty for people who improve their properties, and ends the subsidy for people who won't.

Laura Natusch lives in New London.

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