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Leaking Economic Value of Communities

by Jeffery J. Smith

Wearing pajamas outdoors in the winter, one wouldn’t expect to retain body heat. Yet, people do try to sustain community while hemorrhaging its commonwealth. Losing it, residents must work more than necessary.

When residents import food and energy, they deprive others in the community of income. Yet, the loss pales when compared to paying mortgages and [income] taxes. A recent study of Oakland, CA found torrents of dollars pumped out of town headed for the treasuries of distant capitols and the bank vaults of distant lenders.

While mortgages and interest elevate an elite elsewhere, they keep debtors on a treadmill at home. To those anxious over every next payment, how appealing is an economy no longer expanding its girth? In addition, what’s their debt for? Credit? The total savings of all members of a community should suffice. Local bank "used to" be the norm.

The other major drain, taxes, at about 40% of the average worker’s income, usually total more than the value of government services received. And who receives them? Corporate loggers, miners, factory farms, and tractor trailers. Lose such subsidies, leveling the playing field, and local recyclers, family farmers, and freight haulers could compete. Their success would plug the visible leaks - imported food, energy, and materials.

While a community might not be able to command a distant capitol to turn off the subsidies, a locality may be able to avoid federal and state taxes. Besides Callenbach’s ecotopian secession, there are a host of legalisms for a wanton community to entice a big, hiring firm - tax breaks like TIFs, Redevelopment Districts, Enterprise Zones, etc. Why not use them to liberate not just one company but the entire community from outside taxes?

Cutting out outsiders’ taxes means the locality would have to take over providing the outsiders’ services: nuclear power plants, toxic dumps, scarifying freeways, submarines, whatever. To pay for whatever desired services, from where will the city or county get the money? From themselves, their commonwealth. It’s the money they spend on the nature they use, the prices and rents paid for sites and resources.

How can communities capture that flow of natural values and keep it circulating locally? Get local government to charge some kind of land use fee. Depending on state law, the locality could replace the property tax with a site value tax, raise the fee for defending deeds, levy a fee for resource use, and/or resurrect ancient land dues.

No matter what the mechanism, as the community collects more of its value, that leaves less for owners to capitalize into price; as land dues rise, land prices must fall. Cheap land means buyers need borrow less, shrinking mortgages. Less demand for credit also drops the lending rate. Deflated profits makes real estate less attractive to mega-banks, more suitable to local lenders.

Not only would it plug the leaks of loans and outside taxes, collecting land value would also spur efficient use of land, making cities compact, less auto-infested (see "Suburbonomics" in the summer issue of Terrain at www.terrain.org).

Northwest Environmental Watch calls shifting taxes from homes (and other useful things) to locations "the sprawl tax". The property tax shift has become the cutting-edge proposal of the Sierra Club, Friends of the Earth, Sustainable America, and others. Ernest Callenbach wrote that if he had heard of site-value taxation earlier, he would have included it in his classic novel, Ecotopia.

Forgoing natural values makes sustaining community tough. Where communities improve infrastructure - pave a bike path, clear an amphitheater, recycle gray water, bury their transmission lines - they attract people. Where people do community well—vote, volunteer, host block parties, join neighborhood watch, organize open-air markets—they draw people. People moving in push up the cost to live there. Rising values attract speculators who further inflate site values.

Inflated land values require heavier mortgages and are afforded by high-income people paying high taxes. Expanding infrastructure to accommodate growth forces local government to raise taxes or borrow. Many people who made their community attractive can no longer afford to live there.

Were a community to collect its own values, it could not only afford its public services; most places would also end up with a surplus that they could disburse as a local dividend (a la Alaska’s oil dividend). The author of Steady-State Economics, Herman Daly, noted this possibility. Receiving this "rent share," people could live where they love, love where they live.

Community, where we live, and economy, how we live, cannot be separated. As long as communities leak economic value, they cannot sustain themselves in a steady-state, like the skinny guy with a tapeworm wondering why he’s always hungry. By reclaiming land values, a community plugs its leaks so residents can sustain the lives of nature and neighborhood.

Jeff Smith is editor of the "Geonomist." He researches the flows of natural rents, is published in popular and academic press, speaks before groups, conferences and presides over the Geonomy Society. He resides in the US Northwest. Reach Jeff: geonomist@juno.com.

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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper