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.


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.)


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.




Fictitious people and their imaginary taxes

Credit: Mike Licht (CC BY 2.0)

Matt Levine has an illuminating post about why the recent reduction in corporate tax rates results in a reduction in some corporations’ reported profits.  It seems that past losses can be saved as a “deferred tax asset,” permitting a reduction in taxes to be paid in future years.  But the ratio of losses to tax reduction declines when the tax rate declines, so the deferred tax asset is reduced.   Levine notes that such tax rate reduction can cause a corporation to appear less well capitalized, since it reduces assets, even tho it increases expected after-tax income.

Just another illustration of the absurdity of a corporate income tax (or perhaps of corporations in general).  Of course corporations should pay taxes – based on the land (including spectrum and other natural resources) that they claim.  And they should pay additional taxes reflecting the limited liability granted by the state.  But the accounting concept of corporate income has little to do with this.

“The hero turns out to be Henry George”

Ray Kroc’s first McDonalds in Des Plaines, IL, is now a historic site. Image credit: Matt Thorpe CC BY-NC-ND 2.0

I’ve complained before about Russ Roberts’ Econ Talk failing to note the importance of economic rent and land costs.  So I was pretty pleased to hear his guest Philip Auerswald say

I think the hero in all this, and I talk about this in The Code Economy, turns out to be Henry George. I mean, I think he really, you know, the 19th century U.S. economist–and he really anticipated these phenomena more clearly than anybody.

Pleased enough to read Auerswald’s new book. And he does get a lot of what George wrote about.

Auerswald’s main point seems to be that an economy doesn’t just have inputs and outputs, but what’s more important is the methods by which the inputs are used to produce the outputs. That’s “code,” and folks have been using it for 40,000 years.  In recent centuries, standardization and automation of various kinds have increased productivity — the amount of stuff which a given amount of inputs could produce.

And, as we see computers and machine-driven processes increasingly capable of replacing human labor, what will humans do?  He endorses Henry George’s analysis that, as productivity increases, rents will increase.  And he supports the citizens’ dividend (tho he does not use the term), to be funded by a land value tax.

But his concluding pages seem to assume that, of course everyone will have a guaranteed income from land rent, no problem there, but what will people do with their time? To George, the problem was to get a fair distribution (not redistribution, because by right the rent belongs to everybody) of wealth, which he expected would result, over time, in social progress and a more constructive community. When I look at Wikipedia, Flickr, some blogs and a bunch of other internet resources, I tend to agree with George. Auerswald assumes the wealth distribution, but doesn’t assume that people and the community will improve.  If I looked at Facebook or some other sites I might agree with him.

Auerswald also makes interesting use of the concept of comparative advantage, applying it to humans exchanging work with machines. Machines can do certain kinds of work millions of times faster than humans, so logically machines should do such work.  In other tasks the difference might be much less, so those tasks would remain with humans (tho I would guess at much lower wages than currently.) And then there are some “low-volume, high-price” tasks which might remain human monopolies.

*****If you’re not the editor of Auerswald’s book, stop reading here*****

This book is full of irritating errors.  On page 2 is a list of ingredients for chocolate chip cookies, comprising butter, sugar, water, salt, and chocolate chips — but no flour. Page 92 says “slavery was abolished in the British Empire in 1807,” while Wikipedia provides various dates, depending on your definition, in the 1830s or 1840s. Page 120 places Ray Kroc’s first McDonalds in “Desplaines, California.”  Page 175 calls Zipcar a “ridesharing” platform, corrected on page 213 to “car-sharing.”   “As Henry George understood nearly a century ago” on page 232 doesn’t seem likely regarding a man who died in 1897 mentioned in a 2017 book. There are probably more, that historians or various kinds of geeks would notice.


Land Cost Note from Singapore

Singapore Skyline by Bernard Spragg .NZ (public domain)

According to Bloomberg, “Malaysian Tycoon” Quek Leng Chan’s company spent S$1.62 billion (reportedly equivalent to US$1.2 billion) for a development site. Bloomberg doesn’t tell us the size of the site, but the local source Today says  it includes permission for a building of up to 950,592 sq ft., thus requiring a site cost of S$1704, or about US$1262, per square foot of building.  My guess is that you could produce a very nice office building for construction cost less than $1200/sq ft, in which case site cost will actually be greater than the entire construction cost of the new building.  Today notes a couple other costs for the developer:

  • He has to replace the police station currently on the site
  • This isn’t a fee-simple purchase, but a 99-year lease

Which I guess indicates that land is still a nontrivial part of the cost of doing business.  No surprise.

Another example of location value

Don’t know if fair use permits me to use Bloomberg’s picture, so here’s a goose in Aurora, maybe somewhere near the site of interest. Image credit: Kenneth Cole Schneider (CC BY-NC-SA 2.0)

Just in case anybody doubts that location has value in the 21st century, here’s a report from Bloomberg about a 31-acre Aurora parcel that became valuable because it’s adjacent to the CME Group‘s data center, enabling one to trade a millionth of a second faster. The site sold for $14 million, “probably twice as much as it’s worth” according to a local real estate exec. I would argue that it must be worth $14 million, else the buyer would not have paid it.

The article reports a couple other nearby deals, but provides no parcel numbers nor even a map, so we can’t see what the assessment of this parcel is.  There’s also no indication who the seller was.

How come a LaSalle County TV station is the most valuable in the country?

image credit: Brian Smith (CC BY-NC-SA 2.0)

Well now, more precisely, how come the spectrum held by  a TV station broadcasting from Ottawa fetched a higher price than any other station offered? WWTO is owned by Trinity Broadcasting and broadcasts on five digital subchannels according to the Wikipedia article.  According to the report today from the Federal Communications Commission, their spectrum sold for $304 million, highest in the U S. , while WYCC’s spectrum in Chicago fetched only $16 million.  I know there are all kinds of technical considerations that might explain the difference, but it’s a curious one. Some of us are suspicious when government-owned assets are sold for a comparatively low price.  Both stations are reportedly going off the air.

Nationwide, most of the spectrum has been “purchased” by wireless companies but apparently some will be returned to the “unlicensed” category for use by wifi and similar low-power devices.

So most of the spectrum will be used by private corporations to provide services from which they expect to obtain a profit.  Kind of like commercial land, which everyone agrees is subject to tax.  So why does the government not tax privately-held spectrum?