Business Forum: ‘Givings’ could help fund LRT expansion
by David Morris
Originally published in the Minneapolis Star Tribune, April 2, 2006
We’re all familiar with the “takings” movement, and its central argument. If a public action reduces the value of property, the public should compensate the owner for the loss.
You’ve probably never heard of the “givings” movement. That’s understandable. It doesn’t exist — yet. But it should, because “givings” are simply the flip side of “takings.” If a public action increases the value of our property, the public should be compensated. Any rezoning of residential land to commercial property, or low-density residential to high-density residential, should result in the bulk of the unearned profits from that public decision accruing to the public.
“Public decisions affect the value of real estate in both directions,” real estate expert Donovan Rypkema of Place Economics explained. “It is one of the risks and potential rewards of ownership.”
Adam Smith himself would support a givings initiative.
“As soon as the land of any country has all become private property,” Smith observed, “the landlords, like all others, love to reap where they never sowed.”
This musing on takings and givings is inspired by the challenges facing the Central Corridor light-rail line, and the prospect that applying the principle behind givings and takings could help address these challenges.
The first challenge is how to deal with the possibly severe loss of income that existing businesses along University Avenue will suffer during construction. This is a takings issue. I am unaware of any proposal to compensate business owners for these losses, even though such compensation would constitute at most a very tiny part of the overall cost of the light-rail line.
Several years ago, a major road repaving and bridge rehabilitation project all but closed down the business district of Dinkytown for two years. Almost half a dozen businesses shut down or relocated (including a drugstore, hardware store and copying shop). Increasing the construction budget by 1 to 5 percent to compensate local businesses for a portion of their losses could have saved several of these firms and preserved the district’s diversity.
The other challenge is how to finance the University Avenue line, a challenge for future lines as well. This is a givings issue.
The light-rail line will dramatically raise property values within a quarter of a mile (walking distance) of each station. The increased property values will result in increased property taxes, to be sure, but these will represent only a very small portion of the appreciated value of the land.
The public deserves to retain at least a majority of the unearned profits. A windfall profits tax should be imposed at the time the property is sold.
Many economists, including recent Nobel laureate William Vickrey, have embraced the concept of financing transit systems by taxing the increased value of land near the improvements. One study reportedly found that the added land values resulting from the development of Washington’s Metro transit system exceeded the entire cost of building the system.
The self-financing concept has been applied successfully in Hong Kong. Its rail transit system receives no subsidies. All costs, including interest on bond indebtedness, are paid from land rents derived from development in areas around stations.
The lower densities and lower land values in St. Paul and Minneapolis than in Hong Kong or Washington mean that the application of the givings principle will not be able to fully finance the system. But it might be able to generate a significant portion of the needed funds.
It’s really a simple idea. Protect businesses from losses that result from public actions. Minimize the taxpayer’s losses by eliminating the unearned profits that result from public actions.
Seems like a concept all political ideologies could endorse.
David Morris is vice president of the Institute for Local Self-Reliance, based in Minneapolis and Washington, D.C. (www.ilsr.org).