Local Government Tax and Land Use Policies in the United States: Understanding the Links

By Helen F. Ladd; Lincoln Institute of Land Policy | Go to book overview

CONCLUSIONS

Regional tax base sharing has the potential to enhance the efficiency and equity of metropolitan economies and public sectors. It is difficult to evaluate the efficiency implications of tax base sharing as implemented in the Twin Cities under the Fiscal Disparities Programme. However, the programme is structured in a way that reduces the incentives for inter-local competition for tax base and narrows tax rate disparities in the region (although this effect is rather modest). Equity outcomes are more clear-cut. Despite the fact that the programme's design ignores many general equity concerns, its net effect is a significant equalization of total local tax base. This effect has diminished slightly in recent years, especially at the lowest end of the tax base distribution, and exceptions to the pattern exist, but the overall association is relatively strong. Evaluating equity outcomes using a more general measure of local fiscal needs (the need—capacity gap) also shows fairly strong correlation between net distributions from Fiscal Disparities and local needs. Again, notable exceptions are evident — Minneapolis is the clearest example — but, on average, net distributions from Fiscal Disparities operate to relieve local fiscal stress in the region.

Proposals to extend Fiscal Disparities to residential tax base would enhance all of these relationships. Simulations show that the redistribution per dollar of shared tax base is greater for the residential tax base sharing programmes than in the existing programme. For instance, a proposal that would create a residential pool from residential assessments in excess of $150 000 would generate a tax base pool just one-third the size of the current business tax base pool but would narrow tax base disparities at the extremes of the distribution to a greater extent, on average, than the current programme and relieve local fiscal stress to roughly the same extent. This type of reform has shown itself to be relatively viable politically — one variation actually passed the Minnesota legislature in 1995 only to be vetoed by the Governor. However, such reforms still generate anomalies like those in the current programme: relatively low capacity/high need places that are net contributors to the pooled tax base and relatively high capacity/low need places that are net receivers. Simulations from the Twin Cities and elsewhere show that explicit consideration of these factors in distribution formulae is necessary to ensure that such inconsistencies do not occur.


NOTES
1.
See Gold ( 1995) for a review of the fiscal conditions of state governments in the early 1990s and Downs ( 1994) on decentralization patterns in metropolitan areas.

-251-

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Local Government Tax and Land Use Policies in the United States: Understanding the Links
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures vii
  • Tables viii
  • List of Contributors x
  • Acknowledgements xiii
  • Lincoln Institute of Land Policy xiv
  • 1. Introduction 1
  • Notes 21
  • References 21
  • Part I - Interactions Between Tax and Land Policies 23
  • 2. Theoretical Controversies: Land and Property Taxation 25
  • Notes 38
  • References 39
  • Notes 48
  • References 48
  • References 53
  • 3. Land Use Regulation as a Fiscal Tool 55
  • Notes 72
  • References 72
  • Notes 80
  • References 81
  • 4. Effects of Taxes on Economic Activity 82
  • Notes 99
  • References 99
  • Notes 107
  • Notes 115
  • 5. Tax Policies to Promote Economic Development 116
  • Notes 128
  • References 129
  • Part II - Tax Policy as a Land Use Tool 131
  • 6. the Pittsburgh Experience with Land- Value Taxation 133
  • Notes 141
  • References 142
  • 7. Property Tax Treatment of Farmland: Does Tax Relief Delay Land Development? 144
  • Notes 157
  • References 159
  • 8. Incentives, Firm Location Decisions and Regional Economic Performance 168
  • Notes 180
  • References 180
  • 9. Tax Increment Financing as a Tool of Redevelopment 182
  • Notes 196
  • References 197
  • Part III - Fiscal and Distributional Impacts 199
  • 10. Fiscal Impacts of Business Development in the Chicago Suburbs 201
  • Notes 212
  • References 214
  • Appendix 215
  • 11. Who Pays Development Fees? 218
  • Notes 231
  • References 233
  • 12. Regional Tax Base Sharing: the Twin Cities Experience 234
  • Notes 251
  • References 253
  • Index 255
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