The taxman cometh, over land

December 1, 2002

Mike Bailey
mbailey@pjstar.com

John Kelly - mild-mannered stockbroker by day, intrepid tax code reformer by night - first discovered the property tax system was broken in 1983, when a neighbor stopped by to apologize. "I'm appealing my assessment," the neighbor told him. "I want to make my house look as bad as it can."

It was a revelation for Kelly that the real estate tax as applied encourages all the wrong behaviors, punishes those who invest in bricks and sticks, stimulates blight, accelerates sprawl and motivates otherwise well-intentioned politicians struggling to fix the fallout to adopt unfair and counterproductive economic development incentives (if you recognize MidTown Plaza's Cub Foods in that description, bless you, my son).

For the 20 years since, Kelly has been saddled atop his high horse, lobbying City Hall to turn Peoria's property tax system upside down. He'd tax land at a much higher rate, while significantly reducing the burden on buildings.

Unfortunately for Kelly, it has been one lonely, bruising ride, as he's met the brick wall of bureaucrats unwilling to abandon their comfort zones - sure it's an awful tax, but it's our awful tax - confronted Council members buried too deep in crisis management to come up for air, just generally gotten the cold shoulder.

And so today - at this writing the day after Thanksgiving, a.k.a. Double Antacid Day - is Kelly's lucky day, as he gets the undivided attention of this bellyaching audience of one.

The last two decades of watching the non-stop deterioration of the inner city, the proliferation of vacant properties, the stretching of Peoria's boundaries in budget-busting fashion have only reinforced Kelly's resolve.

He isn't just making this land tax thing up. Economist Henry George published "Progress and Poverty" in 1879, introducing the idea of un-taxing labor/capital and assessing land because he was depressed by what the Industrial Revolution was doing to make winners of the few, losers of the many. Since then more than 700 communities around the globe have put his idea into practice, most notably in Pennsylvania.

OK, more history than you want. Kelly puts it this way: "We're stuck with this tax system that encourages all the bad things and discourages all the good things," partly because "governments have a big hammer. They can take whatever they want, so they take what's easiest, not what's best."

What's easiest is "sales tax generators" - read Wal-Mart - "which are not true creators of wealth," like Caterpillar, which provides "jobs that raise a family. That's what we want." Problem is, the current tax system penalizes a capital-intensive company like Caterpillar by taxing the bejesus out of its factories and offices.

If land were taxed more aggressively than buildings, government could still get its money to build infrastructure and provide services; development of the inner city could become more attractive, as landlords might be less inclined to leave property vacant or allow its deterioration because they couldn't afford to let it lie unproductive; speculators might be less keen on turning cornfields into asphalt; Cat might have more incentive to expand its presence locally.

"Cheap land doesn't attract people. Expensive land attracts people. Manhattan is a lot more attractive than Saskatchewan," says Kelly. "If free land entices someone, we probably don't want them."

Unfortunately, "we recognize that investing in the city is not such a great deal and we keep trying to fix it" with inducements like tax-increment financing. "If it didn't work in Detroit, it's time to do it here" is how Kelly describes it. "I could sell snowballs to Eskimos if you subsidize me enough.

"The market creates cities. It's a natural occurrence. To the extent cities don't work, there's something non-market screwing it up," he says. "I'd like to see land use follow land value . . . America is the best, not because we have better people, but because we have a better system. Peoria can have a better system."

Oh, I'm not ready to endorse this just yet, for fear of unleashing the Law of Unintended Consequences. All I know is that I am ready for a reinvention of local government, for some "new" ideas - no matter how old they are - because what we're doing isn't working, so help me Menard's ...

All I know is that a Cohen's Furniture downtown might not stay boarded up for five years, or the old Shearson building at Fulton Plaza and Adams Street - where Kelly once worked, ironically - for double that, if the land they're sitting on was taxed at quadruple the current rate, while those buildings could be prepared for occupancy without penalty ...

That those most likely to be opposed to this change - owners of abandoned industrial sites, surface parking lots, Wal-Mart, suburban developers - make me ask just one question: when can we start? That we have choices: our leaders can continue to be "trustees of the city's demise," or they can take a risk, without which progress is rarely achieved ...

That the natives are getting restless. Forum writer Bob Murphy is disgusted by another commercial building going up near his Mossville home, killing his view of the bluffs beyond, with empty storefronts minutes away. "There ought to be a law" forcing owners to tear down those buildings after two years of vacancy.

For all I know, Murphy already has the bulldozer booked for 2004. Like I said, choices.

Mike Bailey is an associate editor with the Journal Star.

This article ©2002 Mike Bailey and/or The Peoria Journal Star. I posted it here because it was no longer available on the website it was originally posted on, and will be gone from Google's cache soon.