Pay for Alan Jennings’s NIZ Ideas By Taxing Land Speculators

The whole point of the Allentown NIZ is to reduce rents and encourage development in downtown Allentown. The state subsidies for “developers” are actually a subsidy for the end users of the office space – business tenants. Likewise, Alan Jennings’s proposed surcharge on “developers” will actually be a tax on the tenant businesses who end up renting the space.

I can get down with a Community Benefit Agreement, but think it’s a bad idea to pay for it with something that’s going to raise rents, when the whole point of the NIZ is to reduce rents. The financing method should reinforce what you want people to do, not work against it.

I think ANIZDA should pay for the CBA with a tax that will reduce rents – a small millage increase in Allentown’s land value tax on the land inside the NIZ. Paying for the CBA with the land value tax would tax people for not developing land in the NIZ, instead of taxing people who are developing land.

That is, speculators who own empty parcels that are now quite valuable. These landowners have gotten a windfall in the land value of their properties for no other reason than that the state passed the NIZ law. Folks who are simply pocketing that windfall and not building anything new are using valuable land poorly, and it makes sense that they should face a tax penalty for waiting to avail themselves of these very powerful state subsidies.

One way to do this might be to layer a Neighborhood Improvement District onto the NIZ land parcels, and then pay for whatever services you want with a small increase only on the land portion of Allentown’s split-rate property tax.

Comments

  1. GDub says:

    It would be interesting to see what the law actually allows, since by the article the members of the board don’t seem to understand what it permits. I don’t recall ANIZDA having the authority to impose land-value “taxes”. While I agree with your position on the LVT, I don’t see how a person who owns land has “pocketed” anything unless he sells the land.

    I would also think it proper for Mr. Jennings to resign from the non-profit who would (likely) receive the funding. Without assuming ill-motives, this is a normal and necessary step for transparency.

    The opinions on what makes this project “successful” seem rather varied for me. If developers build a bunch of empty buildings at taxpayer expense, that’s a short term “win” for construction companies but the city still loses. So far, the companies that are moving into the zone include–the development company that is building the arena/”hotel”, a hospital branch closely associated to the developer, the Allentown-based construction company renovating another building (presumably partially in exchange for rent), a tobacco company owned by the developer using a tax dodge, a highly speculative brewery project, the bank financing the project (presumably also for reduced rent), and a couple small Allentown-based firms. Might be a little early to start talking about how to spend the “windfall.”

    • Jon Geeting says:

      The ANIZDA doesn’t have the authority. My position is that the ANIZDA board should stick to approving development projects, and if people want some extra services for the surrounding neighborhoods, that should be paid for with an NID, funded by land taxes. The windfall for landowners is in the higher land values. It’s true that it’s only possible to collect the windfall when you cash out, but that is an option that is available to people. They can exchange their land for more cash than they paid if they want. They could also choose to build a higher value structure on the land and collect more rent. There is an opportunity cost landowners are imposing on everyone else by preventing the higher value land from being used for a higher value project. The city can bill that opportunity cost directly to the landowners with a higher land tax, and use the money for useful services like free trolley buses or whatever people want to do.

  2. John says:

    2nd GDub’s comments, he’s right on.

  3. GDub says:

    I don’t have the access to look at the city’s numbers, but my concern at this point isn’t “what people want,” but rather “how do we bridge the fiscal gap for the next few years?” Between the NIZ and the water plant (assuming the lease happens), Allentown is losing some fairly significant revenue sources that won’t be immediately filled. I’d also assume that, to reinforce the quality of the downtown area, there already will be higher (more expensive) demand for policing and other civic services.

    If Allentown can raise taxes without penalty to the health of the NIZ, I’d prefer they look to apply them in those areas instead of worrying about a small business incubator or facade improvements.

    • Jon Geeting says:

      Whatever you think people will want/need to spend money on, it’s still the case that taxing site value is a less economically damaging way of paying for it than taxing property improvements/new construction. And those are the only two options, since all the other local taxes are being used for the NIZ.

  4. GDub says:

    The tax options (either way) are perfectly fine. I would think being a bit more conservative in expectations in this project would also be called for.

    • Jon Geeting says:

      They’re not both fine though. Economists think the property tax on improvements is one of the worst taxes there is, and the land value tax is one of the best. It’s a shame that they’re coupled together so often when they can be separated rather easily.

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