A Novel Approach for Eliminating Surface Parking Lots

Chris Keimig looks at the ways in which the conventional property tax system is sabotaging Minneapolis's development goals by disincentivizing more productive use of the city's overabundance of surface parking lots; a blight that covers one-third of the entire surface area of downtown. "The conventional property tax, which taxes land and buildings at the same rate, is essentially backwards when it comes to the behaviors it incentivizes," argues Keimig. "It penalizes property owners for building or making improvements to their structures, while rewarding speculators and absentee landlords who would rather allow their properties to decay than make expensive (and annually taxable) improvements."

To solve this dilemma, Keimig advocates a two-rate system that would tax land at a higher rate than buildings. "By taxing land at or near its development potential," he says, "owners of land being used at less than maximum productivity would be paying a disproportionate amount in taxes in order to keep it that way."

"Aside from the obvious goal of raising money to pay for public services, we levy taxes either to discourage a particular behavior in favor of another (taxes on cigarettes and alcohol discourage consumption and thus promote healthier lifestyles/lower health care costs), or because a given resource is scarce while demand for it is high (i.e., the gasoline tax). But if the city is trying to encourage development—and to attract the 70,000 more downtown residents it seeks by 2025—it hardly makes sense to place a tax on that behavior. Similarly, if the city wants potential developers to treat land as the scarce resource that it is—encouraging them to build up rather than out in order to maximize economic output and reduce sprawl—it makes sense to tax land at a higher rate than buildings."