Putting government pension costs into perspective

Wirepoints recently issued a helpful report showing state and local government pension debt per Chicago household.  They estimate the burden at $144,000 per household.  This is a big number, but one could suppose that a prosperous household, over decades, could bear such a burden.  Some could, but probably not those below poverty level.  Take them out of the picture and the per household amount rises to $172,000.  Excluding households with incomes below $75,000, or below $200,000, and the per-household amount rises further, to $393,000 and $2,022,000 respectively.

Here’s their chart: pension debt chart

Of course this doesn’t consider land values, nor businesses.  If prime Chicago land is worth $1,000/sq ft, that’s 5.38 sq miles.  But more typical land value is much less, probably no more than $25/sq ft. (it seems that nobody has tried to estimate citywide values). That would be 112 square miles.  Once we subtract land owned by governments, churches and other exempt nonprofits, we might be approaching the total value of all land in Chicago. And that’s just for pensions, not bonded debt, nor needed capital improvements.  Real estate buyers know, or certainly should know, about these encumbrances.

Of course money can be raised from business taxes, but that’s hardly a way to grow economic opportunity for Chicagoans. I would consider any tax revenue from “gaming” as a kind of business tax.

The lesson Wirepoints draws from this is that pensions have to be downsized somehow, which required amending the state constitution.  And they go further, comparing government salaries to those of the private sector:

some local gov't salaries compared to average workers

So it looks like we’re going to have to confront a large number of people with guns and firehoses and control over our children, who have been getting a lot of money from us for years and may prefer not to moderate their demands.

Tho I don’t know how, this problem will be solved. Maybe MMT will yield a continuing stream of funds to bail us out.  Maybe inflation will accelerate such that the fixed 3% compounded pension increase isn’t a burden.  Maybe Chicagoans will decide that they just don’t want so many government “services.”  Maybe politicians will decide to remove all taxes from productive economic activity, taxing only the value of land and other privileges (such as the private monopoly over street parking fees), which will grow the economy (while reducing the need for emergency services) sufficient to make pensions a non-issue.

And when it is solved, those who own land and other privileges will benefit most.

Why trust corrupt governments to honestly administer a land value tax?

bar chart of what folks say they're afraid of
source: Chapman University Survey of American Fears

I don’t know that governments are always and inevitably corrupt, but there sure seems to be a lot of corruption going on.  It isn’t a new development; maybe it’s worse nowadays or maybe just more visible.

So how can we single taxers say that we want the government to collect all, or nearly all, of the economic rent? Don’t we know that it will be stolen or, at best, wasted?

Not necessarily.  Consider the following:

In the U S at least, real estate tax is administered and collected at the local — that is, substate– level. This is where the records and expertise needed to operate a land value tax exist.

Unlike income tax or sales tax, nearly all the data involved in real estate taxation is public information.   Most of this data is accessible to everyone with internet access, generally without fee. I can see how much real estate tax my neighbor paid.  I cannot see how much income tax they paid. The same goes for sales taxes and most other kinds of taxes. So cheating in real estate tax can be seen.  That doesn’t mean it will always be impossible for people to cheat, but it provides a much greater possibility that cheating will be observed and rectified.

Government corruption seems to be a function of government size.  A survey earlier this year found that “87% of voters nationwide believe corruption is widespread in the federal government. Solid majorities believe there is also corruption in state (70%) and local (57%) government.”  Looked at the other way round, only 13% of us believe the federal government is possibly honest, compared to 30% for states and 43% for localities.  I actually believe that one of the local governments to whom I pay taxes is pretty honest and efficient.

State and federal governments might logically collect some of the economic rent.  Examples currently include severance taxes and could reasonably include rents for electromagnetic spectrum should our rulers become persuaded to levy and collect them. Existing federal agencies are able to review and evaluate collection efforts.

 

Why does public policy favor homeowners over renters?

image credit: Stephen Dann CC BY-SA 2.0

It’s certainly true here, where owner-occupants (of houses or condos) pay less tax than renters occupying units of the same value, with additional discounts for old people, some military veterans, and some poor old people.  Some owners also still benefit from deductability of mortgage interest and/or property tax.  So why do renters put up with this discrimination?

I have always thought, and some data seems  to confirm, that it’s because homeowners vote, and renters don’t. But according to this interview, the problem is similar, perhaps worse, in Australia.  Voting in Australia is compulsory, which apparently means one is fined if one fails to at least show up at the polls (the fine is up to $79AU, less for their Federal elections).  They also vote on Saturday, and seem to make a party of it, according to various posts such as here and here.

Of course just showing up doesn’t mean that you vote, nor that you pay much attention to candidates and issues, but the problem of low-information voters isn’t unique to Australia. Maybe there’s something about the worldview of people who rent vs. that of people who own….? Dunno.

U S jurisdictions do often provide some protections for tenants, which can disadvantage landlords, but they wouldn’t affect the status of owner occupants.

Tribune clarifies how TIF’s work

 Great story by Hal Dardick in today’s Tribune explaining the real reason the Lincoln Yards TIF had to be Rahm’d thru the City Council before the new Mayor took office. The area just barely qualified as a TIF, and pending new assessments were going to rise enough that it would no longer be eligible. According to the story, it’s uncertain whether the new Mayor could have stopped the project, but she settled for what appear to be minor concessions.

Of course, the whole idea behind TIF’s is that money can be pulled from general revenue into giant slush funds, which the Mayor (and others) can manipulate with little oversight. Meanwhile, there’s little left for routine maintenance, replacement of infrastructure and funding of government schools and other services.   Which increases the “need” for TIF’s.

Dardick’s article goes into considerable detail, includes a link to a recent report by Lincoln Institute (no relation to Lincoln Yards, afaik). He does say “land” when I think he means “land + improvements.”

One counterfactual that Dardick doesn’t bother with: What would have happened if Joe Berrios was still Assessor? Would he have nudged down some values to keep the area eligible?  Or, to look at it the other way, suppose the current Assessor, who appears to be more conscientious, had been in office since 2013. Perhaps the earlier figures would have been higher, so the increase would be less?

We’ll never know, and it shouldn’t matter. In a well-run city, TIF’s wouldn’t be needed, and a well-informed electorate wouldn’t tolerate them.

 

In Japan, folks know that houses depreciate

image credit: insho impression CC BY-ND 2.0

According to this post, Japanese don’t expect the value of their houses to grow.  It seems that they routinely recognize the house and land as separate purchases, and after a few decades the house might have no value at all.  The inference is that land value also might not increase, but at least is unlikely to drop much. (Of course the same trends in value occur in the U S, but we tend not to recognize it.)

As a result, empty-nesters in Japan don’t count on funding their retirements by selling their houses.  As noted in the comments, this also means that housing in Japan is much more affordable than in North America.

Another post by the same writers observes that vacant land in Japan is subject to very high taxes — six times the rate for land with structures.  So landowners are reluctant to demolish worthless houses.  The result is over 13% of houses (as of 2013) were vacant, many of them deteriorated and uninhabitable.    (This article asserts that Japan had 8.5 million “abandoned homes” in 2018, but provides no source and doesn’t define “abandoned.”  This table from the Japan Statistics Bureau reports 8,764,400 vacant dwellings, 14% of Japan’s housing. Most are “for sale” or “for rent.” )

14% seems like a lot, but the equivalent U S rate is 12.2% (according to the press release here which might soon be memory-holed in favor of an update.)

 

Notes on Cook County Assessments

Selection from Olcott’s Land Values Blue Book, 1936 edition, Numbers represent values per front foot, to be adjusted as described in the book.

Assessor Fritz Kaegi appears to seek assessments that are more consistent with applicable laws and ordinances, and easier for taxpayers to understand. This might be a good thing, tho one hopes that, once taxpayers understand how assessments are done, they’ll demand a more helpful system, one which doesn’t punish homeowners and businesses for building or improving.

Traditionally, Continue reading Notes on Cook County Assessments

“Chicago’s growth spurt” part of expanding Gaffney trove

Michigan Avenue around 1912.

As Polly Cleveland continues her project posting Mason Gaffney’s works, we find “Chicago’s Growth Spurt, 1890-1900.”  It’s not very long, and worth reading today as a contrast to our current stagnation. Most importantly, Gaffney deduces circumstantial evidence that during the era of growth, land values were significantly taxed.  As he notes in conclusion, “More research into Chicago’s political history is needed.”

The whole trove contains dozens of working papers, class notes, and publications, in Gaffney’s concise and understandable style.  (You’ll find it linked here as well as above; depending on your screen size and magnification you might need to scroll over to the right to see it.)

 

Ideas from Jeff Smith

Jeff Smith has provided some interesting ideas for achieving geoist progress, and enumerated a bunch of them in a February 15 2018 email to many geoists with subject line “Re: LT: Re: Trump Infrastructure Plan Calls for Value Capture Financing“.  Previously and subsequently, Jeff has suggested that geoists should act in accordance therewith. Possibly because of the subject line, or the nature of internet discussions, some of us may have forgotten or never seen this message. Jeff’s text is reproduced below:

Never forget reading is part of the problem. Doing is part of the solution.
 
The fact that I’m the only Georgist with the curiosity to research what’s known about social change is a very telling fact. I should not be your gatekeeper to this world of fascinating information. Every or at least dozens of
 
people with the dream of changing society should want to know how society changes!
 
To not want to know is a constant reminder that I’m a member of a mad species — just like most people don’t want to know how to make economies work right.
 
Here are some efforts of others who know paradigm shifts follow principles:
 
Kuhn is the classic. “Old minds don’t change; they just die out, replaced by young open ones.” So appeal to the young. Learn to dance, you stiff fuddy-duddies. Our problem: Georgist elders attract youth exactly like themselves—conservative, conformist, obedient, not your classic profile for agents of change. https://www.ted.com/talks/derek_sivers_how_to_start_a_movement
 
More recently, Reich’s 4 buttons: Rot at top, Barbarians at gate, Self-made, Group identity. Even though by a Dem (Clinton’s Labor Sec), only Trump was savvy enough to use them, unlike us and other ideologues: http://changingminds.org/disciplines/storytelling/plots/reich_narrative.htm
 
Lakoff, one of my grad school contemporaries, is also ignored for urging do-gooders to learn how to frame: “Frame yourselves before others frame you.” You framed yourself as a taker (taxist), not a sharer, like basic income, which has far more innate appeal: https://medium.com/indivisible/george-lakoff-on-indivisible-36931ee03c5
 
Use unique language, like “geonomics” not boring code like “LVT”: https://www.bustle.com/p/9-genius-ways-to-change-someones-mind-according-to-science-2307178
World Bank: To measure progress, count (John Berger made the same point):  http://blogs.worldbank.org/voices/5-tips-on-starting-a-social-movement
 
Develop empathy, lose British classism and academic snobbery: “Strong beliefs, loosely held.”  https://heleo.com/facts-dont-change-peoples-minds-heres/16242/
 
Harvard: Engagement, not rhetoric—interact with real people on their terms:  https://hbr.org/2016/11/what-successful-movements-have-in-common
Leadership—suggestions for everyone, even non-alpha rats: http://nclp.umd.edu/resources/social_change_model
Source of millions of volunteers, an enormously valuable resource for Georgists to ignore: https://www.dosomething.org
 
 
But don’t limit yourself. Google. Yet balance mere reading with actual doing.
 
I have my own that worked to start several cutting-edge groups: How to Make a Movement in 5 Easy Steps:
1 Message
2 Members, including celebs
3 Money
4 Media, including star power
5 Maintenance—every other meeting should be a party. Seriously.
6 aMass the Multitudes—demonstrate—and Meet the Minions of the Moguls—i.e., lobby.
7 Make Merry your victory
 
Georgists fail at Step 1, so they can’t get out the gate. They must redo Step 1 and translate their message into the language of their intended audience. To know what to say, they’d have to use focus groups, polls, and surveys. But that’s too rational for ideologues, so far.
 
“We cannot become what we need to be by remaining what we are.”
 
You can’t reform by conforming. You just lose the respect of both reformers and conformists.
 
If there is a mistake to be made in shifting paradigms, Georgists have made all of them.
 
Thanks, Fred, the opportunity to feel nostalgic for old, ignored, powerful ideas. You did not offer to quit doing what does not work and devote that time to doing what does work. Hence, most likely, you asked me to waste my time. 
 
“The dog barks but the caravan moves on.” Into the desert.
 
I should stop barking now.

Jeffery J. Smith
Author, Perfect Timing. 503/568-5889
Co-founder, principal, DocTours. 707/355-3002
https://www.medicaldentaltourism.net

Buyers can’t afford houses, so land prices go … up?

Crains reports today that rising land costs, as well as increases in construction costs and uncertainty about real estate taxes, is slowing construction of single family housing on the north side.  One might think this would result in lower land prices, but a builder is quoted as saying lots in Lincoln Park and Lakeview, which recently sold in the $700,000 range, are now going for $900,000 and up. This makes it difficult or impossible to build a new house selling for the $1 to $1.5 million that buyers seem willing to spend.

So if it’s not demand for houses, what is driving up the price of land? Possibly more multi-family is being built? Or other uses? (Other than the City’s massive database — which doesn’t specify type of structure nor how many units, except as inconsistent text fields — I can’t find any statistics on housing construction within the City.  Must be somewhere…)

Or possibly the supply of vacant lots, or deteriorated structures on lots that could be made vacant, has depleted?  Or purchase and sale of vacant lots is used to launder money?

The article also notes that land costs are much lower in an isolated part of Bridgeport/Chinatown, specifically Throop & Hillock, where a recent development of attached and detached houses paid $55,300 per unit for land.

Notes on farmland from the 2017 Census of Agriculture for Illinois

wind turbines in a farm field
1009 Illinois farms have leased wind rights to others. (“Farms” by jopaha is licensed under CC BY-ND 2.0 )

The 2017 Census of Agriculture Illinois report was issued earlier this month, and here are a few statistics of interest:

Total value of land and buildings for the 72,651 farms in the state was $196,542,978,000. This amounts to $2.7 million per farm, and $7,278 per acre. Real estate taxes paid were $431,625,000, implying an effective tax rate of 0.22%.

58% of the acreage is tenant-farmed.  However most (44,378) of the farms are owned by the operator, whereas 6,021 are farmed by tenants.  The remainder (22,252) combine owned and rented acreage. The rent may be cash, or a share of crop, or other arrangement. Cash rent was reported to total $1,956,402,000.

Remember that whereas Georgists are concerned about who receives land rent:

  • The above figures may be mostly land, but do include buildings
  •  Even farmland may have some improvements, for example drainage tiles, and the value added by these is not “land” for purposes of political economy.

Illinois contains 7,992 very small farms of 1-9 acres (Anything smaller than 1 acre isn’t counted in this census,)  Most have less than $2500 revenue, but 64 of them report $1,000,000 or more.  3122 are operated by people who say farming is their primary occupation.

The report contains a huge amount of detailed information gathered from farm operators.  That may help explain why the actual response rate (nationally) was just 71.8%, with systematic estimates covering the remainder. This rate is down from 74.6% in 2012, and 78.2% in 2007.  Much of the data is reported at the county level as well as statewide.