State should allow cities to test split-rate taxation
I’d like to suggest that New York State ought to pass enabling legislation to allow for municipalities to experiment with split-rate taxation.
What is split-rate taxation? Traditional property taxes are based on the combination of the assessed value of the land and the value of structures, multiplied by the rate for each municipality. Split-rate taxation simply gives each of these assessed values its own separate rate, usually taxing land at a much higher rate than that of structures, changing the incentive structure of development in cities.
Evidence suggests that this policy change has an effect on Rust Belt cities and is correlated with downtown economic development, even in times of regional decline. According to a study published by the Federal Reserve Bank of St. Louis, from 1913 to 1979, Pittsburgh had a split-rate tax in place, with the tax rate on structures being twice the rate of land. Then, beginning in 1979, it raised the tax on land to five times the relative rate on structures. The study suggested that land-value taxation provides cities with a tax instrument that “generates revenues, but has no damaging side effects on the urban economy.”
While I don’t advocate for any specific increase or decrease, Pittsburgh experienced a boom in downtown construction over the next decade.
New York State should pass enabling legislation allowing cities to test the policy. Properties without structures on them (surface lots) will be the properties primarily affected by this change to the tax structure, and the downtown Buffalo area is filled with these properties.
Eric D. Hammer
Master of urban planning candidate
University at Buffalo