Burnaby considering LVT
Frank de Jong
"As part of that process, the city also plans to review land value capture. For example, when public infrastructure is built – say, a transit station – speculators may seek to buy properties around that infrastructure prior to it being built to cash in on the buoyed land values when the infrastructure is complete. That speculation, itself, can also drive up land values."
"Land value capture policies, such as a land value tax, are intended to see profits from those land values transferred from private enterprise to the city."
Burnaby council approves 'ambitious' 2-year city planning roadmap
Frank Remiz
Great that Burnaby is looking at LVT city-wide.
It's also looking at 'land-value capture', i.e. extracting, for the public good, the value of land attributable to some of its 'infill' efforts. Perhaps this will take the form of supplemental tax rates, i.e. higher ones at the centre of the development where the localized benefits are, and lower ones further away. The challenge will be to determine, as a result of its community development infrastructure spending, the increase in land value of the adjacent private properties. One would need to isolate the municipal services that are localized (e.g. transit stations, parks), as opposed to those that are general (i.e. throughout the municipality). Even if an LVT system was in place, it might not be detailed enough to differentiate at the local level where there are disproportionate benefits.
Let me offer an alternative way to get LVC, in a particular community (as opposed to city-wide), based on 'tax increment financing' (TIF). TIF is generally used to finance local infrastructure. Property taxes are frozen just before a development, such that the tax increments that would normally occur in successive years are captured and redirected to pay for a specific project (or pay down a loan for that project). My suggestion is for Burnaby to either look forward or back to estimate a set of annual tax increments associated with that particular development, then capitalize them, i.e. express them as an equivalent 'net present value.' This calculation represents the windfall (the lucky/speculative increase in property value, a.k.a. 'unearned rent'). This would also be applicable to the adjacent area. Burnaby could then use a conservative (say, 80%) estimate of this 'uplift' to land value to calculate an equivalent stream of supplementary annual taxes by the property owners.
I’ll use this opportunity to provide a little more background on TIF: In Ontario, it came up in 2003 (to encourage private sector development in the Etobicoke Centre Secondary Plan Area), in 2007 (to help develop the East Bayfront area), in 2012 (to incentivize, through a 50-yr levy on properties within 800 m, private sector development along two proposed public subway lines), in 2015 (to fund portions of the proposed Smart Track rapid transit line), in 2019 (to enable Sidewalk Labs to recoup its proposed $6B investment in new transit infrastructure in the Toronto Quayside Project, by getting a cut of future property tax increases). In 2006, the Government of Ontario enabled the use of TIF. However, instead of providing regulations it opted for a case-by-case approach. No Ontario municipality has yet implemented TIF. ………….. Reasons (I reply to some of them) for not proceeding with TIF include: a) deemed unnecessary insofar as the assessed property value would increase on its own, particularly if there was re-zoning, b) it decreases the total potential new assessment growth that is added to the tax base each year, c) concerns about municipal exposure to the risk associated with debt financing of projects reliant on projected future property tax revenue (but there are market-based models too), d) the challenges of getting multiple municipalities to agree, in the case of regional transit investments, e) encroachment on the provincial education component of property tax (but legislative amendments are possible), and f) some resistance to the notion by civil servants in finance departments, due to a prevailing conservatism with banking & taxation practices (but a greater understanding could be achieved). TIF is only really useful in certain situations (S.Huston, 2020). ………….. However, TIF can revitalize communities, provide new infrastructure or services, or redirect growth to create a more sustainable city (G.C.Schwartz, 2016).
….Frank Remiz