United States

American Journal of Economics and Sociology, The,  Dec, 2000  by Walter Rybeck

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F. Revenues

Cities customarily estimate expected revenue from all other sources--sales taxes, income taxes, excises, licenses, fees, fines, state and federal grants--and then set property tax rates at a level needed to fund the rest of their annual budget.

Two-rate cities do the same thing. Various cities in various years have used the two-rate tax to produce more, less, or the same revenue. Many cities adopted the reform as a less painful way of increasing taxes. Some increased rate levels to reduce objectionable non-property taxes. Some increased rate differentials to produce the same revenue while enhancing their tax incentives. At one time, cities finding a need for less revenue kept the prior tax rate on land and reduced only the rate on buildings.

G. The Harrisburg Story

In 1981, Harrisburg, suffering blight and a sluggish economy, was cited by a federal agency as the second most distressed city in the nation. By 1994, it had reduced vacant boarded-up housing units from 4,200 to less than 500. Its business firms in that period grew from 1,908 to 4,329. An additional 4,700 new job positions had been filled. The market value of private real estate rose from $212 million to over $880 million. According to Mayor Stephen R. Reed, the two-rate tax played a central role in Harrisburg's resurgence. He also relates tax reform to farmland preservation, an issue of concern throughout America as well as to the region around Harrisburg. "Many states try to save farmland by buying development rights. That's expensive. Without spending a dime, we can achieve the same goal with a two-tier tax. Unused urban land is what pushes development into open spaces. This tax, by assuring better use of unused land in cities and suburbs, will discourage the gobbling up of farms." [43]

H. Hawaii

In Hawaii, a graded property tax was adopted by the State Legislature in 1963 in order to encourage the highest and best use of land throughout the state. From the outset, this legislation was known as the "Pittsburgh law" because the differential rates on land and buildings were similar to those used in Pittsburgh; however, in Pittsburgh they applied only to municipal, not to county and school district levies, whereas in Hawaii they applied to all jurisdictions.

Hawaii, more than any other state, suffers from an extremely high concentration of landownership--much of it in the hands of descendants of those missionaries who "came to do good and did well." In 1969, for example, twelve owners held 52 percent and 60 owners controlled 80 percent of the private lands of the state, a situation that limits the amount available for use and development. However, shortly after the passage of the legislation cited (Act 142), "there was a move on the part of the large landowners on Oahu to enter into development agreements with land developers transferring the development rights to the land to them, and also the tax burden. The Bishop estate, the largest private land owner in Hawaii, has transferred the development rights to practically all of its developable lands on Oahu to developers." [44]