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Securing the RTA's Fiscal Future: A Land Value Tax?

Ted Rosenbaum

Former athlete, full-time engineer. I'd tell you more but I'd have to kill you.

Right now, the Regional Transit Authority--the organization which oversees the CTA, Metra, and Pace--is mandated by law to collect 50% of its revenue from fares.  The other 50% is a combination of state and federal grants and assistance, investments, and in particular, sales tax revenue from the 6 county area. (That's Cook, McHenry, Lake, Dupage, Will, and Kane counties.)  As we've seen recently though, sales tax revenue is volatile and cyclical with the economy.  When sales tax receipts fall, the RTA is left in the lurch, often for millions of dollars.  Short-term, there's no great way to fix this without pain.  Now is a great time, however, to introduce a measure that could improve the RTA's financial situation long-term: the Land Value Tax.

LVT Example Chart.jpg

Though I certainly don't want to promote pure Georgism, I do believe that the correlation between improved transit access and increased land value is actually causation, and as such the city should reap what it sows.  Unpacking that a little, I think both anecdotal and empirical evidence [pdf] supports the idea that as a neighborhood gains better access to transit--tying its people and businesses more tightly to the rest of the municipal economy--the property values in that neighborhood increase.  The city invests in the future well-being of that neighborhood, and while it recoups that investment generally in the form of a wider income tax base and higher property taxes, there is no devoted funding stream for further transit improvements.  A Land Value Tax would change that.

Currently Cook County taxes both land and the property which is built on it.  The trick is structuring the tax--and relevant zoning regulations--to incentivize owners to put their land to good use.  In many cases--including parcels near good transit connections--taxes and zoning incentivizes owners to either do nothing or simply pave it over and open a surface parking lot.  Finding a way around this would both improve the aesthetic appeal of Chicago and help plug the RTA's budget woes--no small feat.

How exactly? One, identify those parcels with potential for growth which are currently held back by zoning restrictions--for example, low-height commercial-only parcels on an arterial within a half mile of an L station.  Re-categorize them as "planned development" (allowing for taller and mixed-use construction) and remove parking minimums.  Two--and this is vital to help remove fallow lots--restructure the real estate tax to weigh more heavily on land than property.  This will only increase the tax bill of those owners who have no property built on the land.  It would encourage actual, useful construction (made easier by the relaxed zoning code) on their part because without the added income from development, the tax bill would eat at their bottom line.  Third, devote a certain percentage of the increased property tax bill in future years to transit.  This shouldn't be an onerous part of the increased tax revenue--perhaps 10-20%?  We don't want to create a "Transit TIF," we merely want to recognize that without the investment in transit, nearby property likely would not appreciate in value as much.

Now, I'm not a real estate lawyer--nor do I pretend to be.  Is there some fundamental reason (i.e. not just "no one will agree to this") why something along these lines wouldn't work?  And as I said, this won't cure potential fare hikes or route cuts this year or next.  But if Chicago's mass transit can survive this dip, the LVT could help it withstand the next one without all these doomsday proclamations.



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1 Comment

Rob Ross said:

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Also, consider other improvements to the transit system. In particular, sound abatement technology that quiets the L while increasing real estate values along the line. Under a land value scheme, those technologies would basically pay for themselves through increased real estate values.

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