Real Estate Wealth Taxes as a Anti-Gentrification Tool

New Orleans   Recently I listened to an interview with a prominent local developer on WAMF in New Orleans as he was asked about gentrification.  He tried to walk the line between his self-interest and progressive values.  He was against displacement on one hand, but he opposed inclusionary zoning that would require developers to create affordable units in their properties.  He claimed it would sacrifice three units for every one that it created without mentioning that most of the three units built would be for high-end customers.  He opposed a tax on developments that would fund affordable housing or homeless programs.  He claimed the city and state had no money, so the real solution to gentrification had to be federal.

In some ways his argument was breathtaking in its chutzpah.  He was claiming to believe that gentrification was in some ways a pejorative term for a natural process, while opposing displacement, protecting his self-interest, and at the same time presenting himself as an advocate of a national remedy.  Unsaid was the fact that given our Developer-in-Chief president and the current situation in Congress and HUD, the chance of a federal remedy is much less than that odds Vegas would give a snowball in hell.

Chuck Collins, director of the Program on Inequality at the Institute for Policy Studies, in a commentary in YesMagazine made a much stronger, more realistic case for local action, saying:

Municipalities should move with due haste to enact high-end real estate transfer taxes, requirements for the disclosure of beneficial ownership, and regulations aimed at the disruptive impact absentee-owner-investors are having on our cities.

Collins doesn’t claim this will stop gentrification but makes the case that it will discourage “rapacious global capital” from exacerbating displacement and artificially increasing ownership and rental prices by discouraging the kind of offshore wealth capital “parking” that has been so destructive in Vancouver and London.  As an example, he cites the situation in San Francisco, another favor of “ultra-high net worth individuals” with over $30 million in assets, where voters passed a high-end real estate transfer tax on residential and commercial properties with $5 million price tags and higher.  According to Collins, the tax…

“…the tax expected to generate $44 million a year, which has been allocated to fund free tuition for residents at San Francisco Community College and help pay for the city’s tree maintenance program.”

That’s not the same as building affordable housing, but it’s moving in the right direction.  Furthermore, there’s no reason it could not leverage other funds to construct affordable housing or provide city-based rent subsidies.

We can’t wait for Washington.  We have to act now, and whether a real estate tax on $5 million or $1 million or whatever, if such a tax builds local equity by creating affordable housing or other programs that fight displacement, it’s worth a fight.

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Stopping the Free Ride for Nonprofits on Property Taxes

New Orleans   Talking recently about greater accountability for nonprofit hospitals with a health expert from Massachusetts, she kept bringing up PILOT programs and why they were important in funding health care expansion in her state.  PILOT in the tax world stands for “payments in lieu of taxes.”  It perked my interest to find out how prevalent such payments might be, so let’s take a look.

First, the backstory.  All of the states in these United States offer property tax exemptions of one kind or another to tax exempt nonprofits.  Nonprofit educational institutions and hospital combines dominate their specific industries.  In cities where they are important service providers and employers, their historic and institutional footprint often also makes them significant landholders.  If these property holdings were taxed in the same way that other real estate properties, either residential or commercial, are taxed, the revenues received by their home cities would be a game changer for all citizens.

All of these “payment in lieu of taxes” situations are voluntary.  Some are wrested from nonprofit operators by cities using leverage when the institutions want to build or develop on public land.  Others have been able to negotiate PILOT arrangements when nonprofits are involved in what otherwise would be classified as for-profit enterprises like running food and lodging establishments.

A working paper by several people at the Lincoln Institute for Land Policy offered the most comprehensive view.  They undertook some exhaustive research and found that “218 localities in at least 28 states since 2000” have collected such payments and “these payments are collectively worth more than $92 million per year.”  Not chicken feed, but not a cure-all either.

The Lincoln Institute also found that most of the action is in the Northeast, more specifically in Massachusetts and Pennsylvania.  They mention that if Palo Alto in California, the home of Stanford University and health system in the West were separated and Baltimore was not included in the South, then 95% of PILOT revenues are collected in the northeast.  They also were clear that the bulk of the money comes from universities rather than hospitals.  The working paper indicates that “the majority of revenue comes from just 10 organizations: Harvard University, Yale University, Stanford University, Brown University, Boston University, Massachusetts General Hospital, Dartmouth College, Brigham & Women’s Center, Massachusetts Institute of Technology, and Princeton University” in that order.  Sadly, not a lot of money goes to local entities from what the researchers found.  Where they could get the numbers, they concluded that the payments were less than 1% of tax revenues.

Given the robust competition between nonprofit and for-profit hospital chains, it was surprising to see the small potatoes most of these tax-exempt operations are providing in local revenues.  Senator Chuck Grassley (R-IA) made this point a cornerstone of his contribution to the Affordable Care Act.

Seems like a lot of cities would be well advised to make PILOT a major goal for revenue enhancement, especially given the contention of how much charity really exists in charities.

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Please enjoy John Fogerty’s The Holy Grail (featuring Billy Gibbons of ZZ Top).

Thanks to KABF.

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