The Menace of Privilege – Page 3 – While privilege exists, justice can't be achieved.

Distributing privilege differently

Some land in Woodlawn (15 years ago). Image credit: Eric Allix Rogers CC BY-NC-ND 2.0

A D Quig reports in Crains that the City of Chicago’s Housing Commissioner says “everyone who lives in Woodlawn now should be able to stay in Woodlawn.” This can be a challenge as housing costs in the area rise. According to Crains (not corroborated by any press release I can find on web sites of the Department of Housing or the Mayor’s Office), support for housing affordabiity in the area will involve six strategies:

Right of refusal for large apartment building tenants if a landlord seeks to sell his or her building
Helping apartment building owners refinance properties to keep renters in place with affordable rates
Giving grants to long-term homeowners to help with home repairs
Financing the rehab of vacant buildings
Setting guidelines for how city-owned, vacant, residentially zoned land can be developed into affordable or mixed-income housing
Requiring developers that receive city-owned land to meet enhanced local hiring requirements

Details, of course, are yet to be defined, and the whole thing requires action by the City Council. Still, assuming that the program is effectively structured and implemented, what we have is the designation of a privileged class– people who live in Woodlawn– receiving benefits that might otherwise accrue to another privileged class — people who own land in Woodlawn, with a new layer of bureaucracy established (or repurposed) to administer it, including investigating and monitoring the reported income and behavior of the people who are granted permission to live in the area.

Whereas, under a land value tax, the area would now have little vacant land, presumably a lot more housing, probably quite “affordable.”

Of course if you’re the Mayor, you do what you figure is politically feasible and within your power, not what is morally right and economically efficient, but would require persuading a lot of uninformed voters and obtaining cooperation from quite a few other governmental actors.

Who Owns Silicon Valley?

View of Silicon Valley in 2012, showing major employers — Vintage 2012 view of Silicon Valley showing major employers. “Silicon Valley IT Company Topography” by Wayan Vota is licensed under CC BY-NC-SA 2.0

Or more precisely, who owns Santa Clara County? With the cooperation of local officials including the County Assessor, a consortium including the Mercury News has determined who owns the greatest value of real estate in the County. Tech giants Alphabet and Apple are second and third, but the number one owner turns out to be Stanford University.

Some other important information:

Proposition 13 is mentioned, but the incentive which keeps old people in their homes which become unaffordable to most families is not explored.

Local opposition to development, preventing housing construction which might otherwise occur, is discussed.

Stanford’s existing holdings include commercial property, but their current acquisitions seem mainly to provide housing for some of their elite employees. These people are able to buy houses at favorable prices (relative to the area), however Stanford retains the land and retains the right to buy the house back eventually. Local non-Stanford people complain, of course, but do not offer to sell their properties at a discount.

Apparently California practice is to assess all real estate, even that which is exempt. This enables meaningful estimates of ownership even tho $13.3 billion of Stanford’s $19.7 billion in real estate is exempt.

Several local officials were interviewed. They don’t discuss how it feels to know that your opposition, Apple and/or Google, has control of much of your communications and might be monitoring them.

Well worth a read for those interested.

Costs of medical services still out of control– and some ideas for improvement

book cover It’s pretty well-known that medical care is absorbing an increasing proportion of GDP, and putting many Americans into financial (and, in many cases, medical) distress. One source of the problem is poverty– people whose incomes are too low to afford decent housing, food etc. are unlikely to have much left over to pay for medical treatments. And another cause might be an aging population who demand advanced treatments to further extend their lives. Both important issues, but this post focuses on another, probably more important one: The medical system is full of rentiers and other thieves, who, pretending to improve health or efficiency, impose tolls or promote unnecessary treatment, resulting in higher and rising costs. That’s the book Marty Makary (MD) has written.

Using a conversational style, well-organized, packed with personal anecdotes, Makary, a cancer surgeon at Johns Hopkins, works his way thru some of the reasons medical care costs so much. Sources are meticulously cited in endnotes. I think his findings can be pretty well summarized:

Some medical professionals offer screenings and other promotions to entice folks to get treatment they really don’t need.
Hospital charges are, not quite random, but pretty much void of any relationship to actual costs or what other customers pay for the same service.
Some hospitals take advantage of their quasi-monopoly status to charge excessive prices, and aggressively sue customers who don’t pay promptly. On the other hand, at least a few hospitals in similar circumstances find they can prosper while charging more reasonable prices.
Air ambulance (and, to some extent, surface ambulances) have been largely taken over by private equity firms, and impose excessive (mostly unregulated) charges on people who are in no position to bargain.
Some doctors are outliers in terms of types of birth delivery and various surgeries, meaning that they perform invasive and/or expensive procedures at a much higher rate than the norm. This may be because they’re selfish and inconsiderate, or maybe they just haven’t thought about it and, when shown the data, mend their ways.
The opioid problem, as reported elsewhere, is partly due to some doctors prescribing more pills than really necessary.
Overtreatment is a problem; often a more conservative approach is more effective (as well as less expensive).
A few organizations have managed to rethink how medical care is provided, giving more autonomy to practitioners as well as more support to patients. Also, a few payers (meaning, typically, employers who pay for insurance) are managing to learn the charges imposed by various providers, and incentivizing their insureds to choose less costly providers.
“Health insurance,” which is really a care financing arrangement and not insurance in the conventional sense, is an even sleazier business than I thought, and insurance brokers are incentivized to maximize costs.
Pharmacy benefit managers may have seemed like a good idea at one time, but basically are toll collectors between the payer and the drug provider. Similarly, “group purchasing organizations” charge a toll on hospital purchases of equipment and supplies. In both cases it’s rarely possible to get accurate data on who is paying who how much for what.
Then there’s the “wellness” industry. Of course sensible diets and some exercise are good things, but “wellness” seems to have evolved to divert attention from the main causes of escalating costs.

The book concludes with a few recommendations, mostly for providers and legislators, but also for consumers, who are encouraged shop around, and ask for prices before agreeing to treatment.

A few important concepts are missed.

The scandal of “Certificate of Need” laws, which protect hospital monopolies and still exist in several backward states, isn’t mentioned.
While the cost of drugs receives attention, no mention is made of the patent games by which the U S Government enables drug manufacturers to extend protection, and collect rents, far beyond the statutory period.
Little attention is given to the history of medical care in America, including lodge practice and the role of wealthy foundations in choosing how medicine developed.

Finally, I hope the next edition will avoid doubling the populations of Missouri and Wisconsin (page 79).

Some effects of high and misconfigured real estate taxes

Delinquent taxes soaring in Cook County

Reportedly, taxes of 163,036 parcels in Cook County were not paid on time. This comprises 2018 taxes which should have been paid in 2019. and amounts to 8.7% of all parcels in the County. For a dozen south Cook County municipalities, this amounts to 20% or more of total parcels. Counts by municipality are posted separately for south, west, and north Cook. All sources show the percentage of parcels with unpaid taxes within the City of Chicago as 9.9%.

Separately, the reports show that only 7.8% of the delinquent taxes offered for auction in 2018 were bought by investors, which might imply that the remaining parcels are considered worth less than the taxes owed.

Unfortunately the source doesn’t tell us how many of the parcels are vacant, residential, commercial, or other uses, and gives no historical context, so we don’t really know how any of these figures compare to prior years. But regardless, the current numbers are alarming.

Suppose that the real estate tax system was changed, so that improvements would be tax-free while the value of land as vacant would be heavily taxed to make up the difference. For vacant parcels, construction of houses or other structures would not increase the tax. For parcels which contain improvements, taxes likely would be lower than now, and improvements would again be tax free. Just a thought.

Maybe expanding tax-exempt institutions raise land prices?

Crains tells us that a strikingly-designed two flat, less than 30 years old, is worthless. Well, they didn’t say it quite that way, but it was sold for $1.9 million to a buyer who will demolish it. So the $1.9 million was for the land. I don’t know whether any developer of housing or anything else taxable would have paid nearly that much for the site, but the buyer was tax-exempt Illinois Masonic Medical Center. Their exempt status of course made the land more valuable to them. Which raises the interesting question of whether buying land in the path of such an institution’s expansion might be a profitable strategy. Of course, a fair-minded community might decide to tax land used for hospitals at the same rate as land used for housing and other useful things. But we’re not there yet.

“Taxes – De Standaard” by Stijn Felix is licensed under CC BY-NC-ND 4.0

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?

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