TWICE THE SIZE - DIT Update - Dublin Institute of Technology

INSIGHT 2: MECHANISMS FOR URBAN DEVELOPMENT FINANCING
As part of the discussions surrounding “the land value question” several innovative
mechanisms for raising finance to promote desirable urban management and development
were identified. A brief description of some of these is provided below.
1. Land Value Taxation
It is argued that the taxation of land only, and not of buildings, sometimes, called ‘site value
taxation’, could improve the efficiency of land use as well as clawing back development
value, or ‘plus value, as public revenue. The International Union for Land Value Taxation
goers so far as to claim that a land tax would curb speculation and private profiteering of the
world’s common heritage, as well as mobilise financial resources for service provision by local
authorities. With an annual levy on site values, the owner has a continuing incentive to
develop and maintain land to its most profitable use. There is also a distinctive to hold or
hoard land.
In Denmark, Land Value Taxation has been working successfully for about 80 years, and is currently set
at 2%of land values. Owners pay an annual 1% tax on the market value of their houses. Danish statistics
suggest that land rent ranged from around 5-10% of GDP from 1965 to 1995. Revenues generated, have
been used to find new infrastructure like the Copenhagen tram system
2. Tax Increment Financing [TIFs]
Tax Increment Financing (TIFs) works by capturing part of the gain generated by rising land
values in the immediate vicinity of a major infrastructure development. It allows the city to
capture the taxes in a designated TIF district, on the difference between the current and the
original tax capacity for that district. Cities can finance the up-front development costs
related to tax increment financing projects in a variety of ways: general obligation bonds of
the city or the development authority; revenue bonds; internal city financing; and pay-as-yougo
financing arrangements (Ratcliffe et al, 1999).
The Urban Land Institute (2004) maintains that TIFs are relatively low risk, and send positive
signals to the private sector. Many European countries and major cities are looking to the
potential afforded by TIFs recognising that the best way of funding large-scale renewal is
tapping the uplift in land values that results from investment in infrastructure.
A TIF regime allows Chicago to reinvest property tax dollars generated from designated districts over a
23-year period. There are 130 TIF districts in Chicago, comprising nearly 30% of the city’s land area. TIFs
in Chicago are almost 100% developer-identified and driven, with the incentive paid in the form of an upfront
loan or bond to the developer. However, in recent cases, the mechanisms has been ’pay-as-you-go’.
Chicago, since 1992, has been able to invest over $7 billion in neighbourhood improvements as well as
public facilities. Downtown Chicago is changing into a 24-hour city, with a dramatically improved image
and enhanced development interest. “TIF is freely acknowledged as being a prime reason for substantial
investment coming back into central Chicago” (McGreal et al, 2002).
3. Business Improvement Districts [BIDs]
Business Improvement Districts (BIDs) are an organising and financing mechanisms used by
property owners and businesses to determine the future of their retail, commercial and
industrial areas. They permit property owners and businesses to band together to use the
city’s tax collection powers to assess themselves. These funds are collected from the State
and returned in their entirety to the BID from which they were collected. The funds are then
used for purchasing supplemental services such as: maintenance, sanitation, security,
promotions, and special events. They can also be sued for capital improvements beyond those
provided by the city, including: street furniture, landscaping and planting, signage and special
lighting (Ratcliffe et al, 1999).
Philadelphia has one of the largest and most successful commercial BIDs in America – known as the Centre
City District (CCD). It covers 80 blocks in the downtown area. Before the formation of the BID, merchants
wanted to increase the aesthetic appeal of the area, and decrease the amount of actual and perceived
crime. With insufficient funds to deal with security and visual improvement projects, property owners
banded together to form the BID. Six years after its creation, the CCD has a 21% increase in police foot
patrols and a drastic decrease in crime. In addition, re-paved footpaths, decorative furniture, daily
footpath cleaning, and landscaping projects, have created an environment pleasing to both business and
consumer alike.
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