infrastructure – The Menace of Privilege

Yes you can pay for big infrastructure projects from local real estate tax

August 2017 view south from Jackson Blvd bridge. It turns out this structure is the remnant of an underground bypass to handle river flow. Click image to enlarge. (photo by Menace of Privilege)

Building The Canal to Save Chicago by Richard Lanyon is a great book about a critical infrastructure project. It’s the story of what we now call the Chicago Sanitary and Ship Canal, built at the close of the 19th century to protect Chicago’s water supply. Of course there’s more to it than that, including effects on flooding, navigation, and downstate.

The book is full of photographs of the work, and one cannot ignore how dirty, strenuous, dangerous (and noisy) it must have been. Power shovels, dredges, locomotives, various devices for moving soil out of the channel– all powered by coal, burned without emission controls of course. Over 5,000 people were employed, and there were deaths — unfortunately no count is provided.

We get some useful details about the costs and funding. Substantially all of the construction (which began in 1892 and was substantially complete in 1900) was done by contractors under competitive bidding. The work day was set at 8 hours, with extra pay for work beyond that time. Minimum wage was to be 15¢/hour.

Adjusted to today’s (2015) GDP/capita, that 15¢ equates to about $37.50, but other approaches would yield vastly different numbers. Of course, due to the primitive equipment available, the workers could not have been nearly as productive as equivalent workers would be today.

Total cost of the project was reported as $33,530,000 (page 355 — excluding work east of Damen). This could equate to $8.38 billion today. It was paid entirely (page 338) from property taxes imposed on the approximate area benefited (including bonded debt paid from these taxes), without federal or state financial assistance. Initially the tax rate was 0.5% of assessed valuation, later raised for a five-year period to 1.5%. If based on actual property value, this would be a very hefty tax, but traditionally property in Cook County has been assessed at a modest fraction of market value.

I say “property tax” rather than “real estate tax” because, up until the 1970s, Illinois taxed personal property as well as real estate. The tax was poorly-enforced and hard to administer, and was replaced by a corporate income tax surcharge. I suspect that personal property never amounted to more than a small fraction of the tax base.

Sound concept, everything else wrong

Argyle station, one of the platforms to be widened. Graham Garfield photo from Wikimedia, Creative Commons Attribution Share-alike 2.0 generic license

[The following was written in September 2016, but for some reason was not published until January 2017.]

If good transit increases land values – which it does – then shouldn’t the increase in real estate values should be used to fund transit infrastructure? Yes, if you do it right.

Case in point is CTA’s “Red Purple Modernization Project” and, in particular, the “Lawrence to Bryn Mawr Modernization.” The structure is nearly 100 years old, been maintained somewhat, it seems reasonable that it might need rebuilding. Maybe it’s even reasonable to widen the platforms (which must account for a lot of the >$1 billion cost), even tho we know from Granville and Loyola that elevator access can be achieved on existing narrow platforms. It would be interesting to know of any evidence that narrow platforms actually are associated with more accidents or injuries than wider platforms.

We’re already stuck with a federal funding system thru which skilled local politicians have milked federal taxpayers for over $1 billion just for this 1.3 mi segment. But a local match is needed. It’s not clear from the posted documents how much this match would be, but under new laws the State permits “Transit TIF’s” which can be used to raise much of it.

According to the CTA documents, “Transit TIF funds are created by growth in property value, known as increment, that occurs because of the investment in transit.” That’s almost certainly a lie, as a TIF absorbs the entire increase in assessed value that occurs during its life. Increase due to better schools goes to the transit TIF. Ditto for increase due to more effective policing, sanitation improvements, libraries, flood control, fire protection, or anything else the government does and pays for. Ditto for increases due to private activity that makes the area more desirable (for instance, good private schools have been shown to raise land values). Ditto for inflation, which has already returned to real estate values and will doubtless continue, on the average tho not every year, for decades.

So where will governments get the money to pay for schools, sanitation, libraries, and everything else including pension costs resulting from past services? The land value increase is already taken, as is the increase in improvements and from inflation. So it’ll have to come from other taxes. We’re already seeing higher taxes for nearly every kind of productive activity, and we’ll just see more. It’s been pretty well demonstrated that people will put up with this. Not a lot all at once, but a bit more every year.

We’re stuck with this, it is going to happen, the current crew will be re-elected repeatedly or similar ones put in their place. But, just for fun, we might consider what should have been done instead.

Well, first, a proper evaluation should have been done of restoring the third track on the parallel Metra line a mile or so west. Restore a couple of the stations which existed there sixty years ago, integrate the fare structure, and we might find that two tracks would have been sufficient. But that would have required more coordination than legislators seem to feel is necessary.

Second, CTA needs to fix operational problems that constrain its capacity. At Clark Junction, for instance, it takes about 18 seconds to reset the switches and signals after the route clears. Similarly, at Howard trains approaching from north and south are often held out because nobody can get empty trains out of the station, or perhaps sometimes because nobody got around to changing the signals. How could this be fixed? How many more trains handled?

CTA Continues Investment in Employee Comfort

Yes, transit facilities should be comfortable. Investments to improve comfort can be a smart use of limited transit funds, attracting ridership and … oh, employee comfort. Well, sure, it’s good that we’re past the days when ‘L’ conductors had perch precariously between cars. And providing employees with comfortable facilities can be a cost-effective alternative to treating them with respect or paying them well — last I heard, some full-time journeyman CTA employees are paid less than $65,000 per year. But somebody forgot about the passengers.

Observant passengers already know that CTA has hundreds of public washrooms — owned by the public, tho not accessible to them. But in the short run [between elections] and for the most part, we are captive riders, and fares don’t provide the majority of CTA revenue anyway.

How you can get the story right about TIF’s

Civic Lab has a Crowdfunding project to create a series of videos explaining Tax Increment Financing in Chicago. I’m confident they’ll do a good job of describing what’s wrong and why TIF’s, in anything like their current form, are detrimental to sound economic development. I’m a bit concerned about their proposed fifth video: Alternatives to TIFs. Do they understand that the way to prosperity starts by looking at what the proper function of government is, and the proper way to fund government?.

Once we recognize that government should be funded by collection of economic rent, which in a well-run city is largely land rent, we can see that elimination of taxes on productive activity will make all kinds of enterprises viable, quite likely causing a labor shortage which is they key to prosperity for working people. I don’t know that this message will get thru in the video, but the project offers a way to do it.

According to the web site, for $1,000 you’ll get a chance to express your own idea in their video. You could simply say that proper role of government in economic development is to collect the rent, protect the environment, build the infrastructure, operate the natural monopolies, and stay out of the way. Just a thought for prosperous Georgists.

Local land prices show that location still matters

taken about 8 years ago by Zachary Korb, via flickr (cc) — A different vacant parcel, about 8 years ago by Zachary Korb, via flickr (cc)

Crains reports the sale of a vacant parcel in the fashionable North State Street neighborhood for $70 million — $4075 per square foot. The article says that “Under a zoning agreement the city approved in 2006, a developer could build as many as 261 residential units on the parcel,” which would work out to about $268,000 land cost per unit. You can buy a nice residential lot in many decent neighborhoods for a lot less than $268,000 (and in less-decent neighborhoods land is practically free). Perhaps the buyer is expecting to obtain an increase in permitted density.

The article also reports that the seller, a “Miami-based developer” who has held the parcel only four months, will realize a $42 million profit. It’s unfortunate that none of this profit goes to support the intensive and expensive infrastructure which helps keep the neighborhood functional.

America Fast Forward to Transit Future Obligations

Over here in Illinois a coalition of powerful and dangerous people and organizations seems to be supporting a “transit future” initiative to harvest a “robust revenue stream,” inferentially a further increase in the sales tax. I say “seems to be” because I haven’t verified that everyone listed (including southern California’s moveLA) is in fact a supporter rather than a typo. And “inferentially” because the examples cited on the site involve sales tax increases.

GETTING TO HYDE PARK…

There is some fancy mapping at vision.transitfuture.org Continue reading America Fast Forward to Transit Future Obligations

Progressive proposal from Kenya

detail from photo by Jennifer Wu via flickr (cc)

Writing in Standard Digital, Charles Kanjama proposes that “If government was clever, it would include a value-capture approach in project financing.” He’s writing about big infrastructure projects, which in his time (2014) and place (Kenya) include railway and port improvements. He suggests that perhaps half the cost should come from land value tax, without explaining why it would be appropriate for landowners to receive half the benefit of improvements paid for by the general community. (Kanjama is an attorney and accountant who was rated among the top 100 legal minds in Kenya as well as one of the 100 most influential people in that country.)

The same edition (January 4 2014) carries another article showing a problem resulting from failure of the community to collect all the rent. It seems that the government wanted to remove a large number of squatters who had settled in a protected forest. Ordered to vacate, they each received 400,000 shillings ($4604.67 US, according to Wolfram Alpha) to purchase land elsewhere. Now the time for relocation has expired, and many spent the money on things other than land. Of course I don’t know these people, don’t know what land was available, don’t know their needs, but very clearly if land were nearly free (as results from a high land value tax) they would almost certainly be better off.

Location remains critical, even as the criteria change

The Internet doesn’t make the earth economically flat. Some locations are still worth many times as much as others. But technology can affect the criteria for “most valuable site,” as most recently illustrated by the sale of One Wilshire Blvd in Los Angeles for more than twice the price per square foot of a mostly similar office building nearby. It also commands about twice the rent, per square foot.

The difference: One Wilshire is ” the primary terminus for major fiber-optic cable routes between Asia and North America,” and is therefore is a location prized by telecommunications firms.

“You can’t reproduce the connectivity,” said real estate broker Kevin Shannon of CBRE Group Inc. “It’s telecom gold.”

Of course the buyer thinks it’s a fine investment that will only become more valuable in the future. Presumably the seller thinks different. The only thing certain is that technology will change, and the pattern of valuable sites will likely be affected.

Dangers of China’s cities– and ours

4512012308_2f3170c122_n — photo credit: Beth Burdick via Flickr (cc)

China Daily’s article “Hidden Danger Hazards of Big City Living” is really an infrastructure and construction story. Sinkholes open up and swallow people, sections of glass-walled buildings drop down and kill people, big cities flood. Of course, pretty much the same things happen in Chicago: The loop floods (tho the streets are spared); neighborhoods flood regularly; windows fall from buildings killing pedestrians; sinkholes swallow cars (tho not pedestrians, probably because we have so few pedestrians). Sure, it’s not an everyday occurrence, but China’s urban population is about 250 times Chicago’s, so it’s not surprising that more accidents happen.

The article quotes officials saying that coordination among infrastructure construction and maintenance actors is poor, as is the quality of construction and building inspection. Probably true, and surely in Chicago the inspectors are trustworthy and respected, and infrastructure work is usually well-coordinated.

What really does seem to be a difference is how long infrastructure is expected to last. The China Daily article says 1200 out of 5100 total km of Beijing sewers (possibly referring only to storm sewers) is “at least 30 years old, with some of it dating back six decades. This is typical for most cities, experts say.” One infers that Chinese sewers are expected to last only 30 years. In Chicago by contrast, 1/4 of the water pipes is said to be over 100 years old, apparently the age at which replacement is likely to be justified. Sewers are perhaps even older. And I think this age profile is typical of mature American cities.