How Metro can recapture some of the value it creates
By Walter Rybeck November 24 at 4:00 PM
However, the logical solution to make Metro a world-class transit system has not been heard by the public. Not from the management or board of the Washington Metropolitan Area Transit Authority, not from state and local officials in the jurisdictions that fund Metro, and not from the local media, which correctly declare that the region’s transportation system is in crisis mode.
Metro literally creates its own revenue source. A congressional study I directed in 1980 for the House Banking, Finance and Urban Affairs Committee revealed the astonishing fact that the subway system, although less than 40 percent complete at that time, had already generated $3 billion to $5 billion worth of new land value in the District, Maryland and Virginia. This bonanza of Metro-induced location values has multiplied many times over. A limited number of owners of prime sites near stations reap these Metro-generated land values as windfalls; this fuels land speculation and gentrification.
Metro has every right to receive this treasure, which is a direct reflection of the services it provides. For Metro funders to cry poverty while allowing the lion’s share of these publicly created “Metro dollars” to slip away to lucky landlords who did nothing to earn them would be laughable were it not so self-defeating.
Clearly, the traditional property tax is not suited to recapturing this vast store of Metro’s rightful income. As customarily administered, the property tax falls most heavily on real estate improvements — the homes, apartments, commercial buildings and industrial structures that are the lifeblood of the community — so imposing tax burdens on them seriously harms homeowners, businesses and the regional economy.
Instead, Metro jurisdictions should enact a universal property-tax abatement to greatly reduce or eliminate taxation of privately created building values. In other words, instead of facing a single tax rate on their total property value, owners would find a low or zero rate on their privately created building value and a higher rate imposed on the socially created value of their sites. This would let the property tax work mainly to return and recycle publicly created land values. Property owners would be taxed more equitably, charged in proportion to their Metro access advantages and their other public-sector benefits.
A universal property-tax abatement would bring about results that exceed the wildest dreams of transit supporters and local political leaders, namely:
- It would create ample funds to meet Metro’s current and long-term operating and maintenance needs for safe, reliable and efficient service.
- It would allow Metro to avoid excessive fare increases that discourage the use of mass transit. Keeping fares low would enhance the values of sites served by Metro, values that would then be recycled to further enhance Metro’s financial resources.
- It would reduce speculation by landlords who line their pockets with Metro-generated land values. This would occur when a robust tax on location values minimized windfalls, taking the profit out of keeping developable sites in cold storage while owners hope for future gains.
- It would stimulate affordable transit-oriented development as this tax strategy reduces land-acquisition costs and makes it cheaper to construct, improve and maintain housing and commercial buildings.
- It would ease the region’s severe traffic congestion, as well as the air pollution that congestion causes, when more commuters shift from cars to public transit.
No other fiscal proposal could achieve as much. This is not untried or untested. It relies on the same principles that make Hong Kong’s MTR transit system one of the rare profitable transit systems in the world. Hong Kong’s success stems from recycling the land values it creates to support its first-rate infrastructure.
What excuse can those responsible for Metro’s future give for failing to reach out to those with expertise in this reform and move to adopt this hopeful way forward? Area leaders can continue giving crutches to help Metro limp along. Or they can implement a universal property tax abatement — in essence, transforming the property tax into a public service access fee — making our region more prosperous with a sustainable transit system that will be the envy of cities across the nation.
The writer, a former staff director of the House Subcommittee on the City, is a former associate director of the National Commission on Urban Problems.