by James A. Bacon
Last year I published research documenting the vast discrepancy in property tax revenue per acre between commercial development in low-density versus high-density settings in Sarasota, Fla. A mid-rise tower with retail on the ground floor and condominiums above could yield literally 100 times the property tax revenue per acre as a Wal-Mart. (See “The Fiscal Fix.”) What Virginia needed, I suggested, was more “tax literacy,” to borrow the phrase of Joe Minicozzi, whose Asheville, N.C.,-based Public Interest Projects, compiled the Sarasota data.
It turns out that a couple of enterprising young women in Virginia have conducted research showing comparable results here in the Old Dominion. I highlight one of those now: Alanna McKeeman, who performed an in-depth analysis of the Fairfax County tax base for her 2012 Master’s Thesis in urban planning at Virginia Tech, “Land Use, Municipal Revenue Impacts, and Land Consumption.” McKeeman now works as an Associate in ICF International’s Washington, D.C., transportation practice.
Massaging data on more than 357,000 properties in Fairfax County using ArcGIS software, McKeeman calculated the property tax revenue per acre for 159 categories of land use. She published two sets of figures: “basic” revenue, based upon the then-current rate of $1.07 per $100 of assessed value, and “total” revenue that included special taxes and fees aimed at financing specific projects such as Route 28 corridor improvements and the extension of Metrorail to Dulles airport.
The chasm in revenues per acre is mind-boggling — high-rise condominiums yield literally 100 times more taxes per acre than single-family dwellings, which occupy over half the county’s land area. Unfortunately for Fairfax County, the highest grossing land uses comprise only a tiny fraction of the county’s land.
While tax revenues-per-acre soar with higher density, the cost of providing roads, utilities and other infrastructure does not. In fact, McKeeman cites a Brookings Institution study that found the up-front capital cost of installing infrastructure in high-density settings to be nearly half that of low-density settings, and the ongoing maintenance costs to be nearly 20% lower.
In her Master’s Thesis, McKeeman compared property tax revenues for Reston Town Center and Tysons Corner, two of the county’s major commercial centers. In Reston, high-rise apartments and condos generate property tax revenue as high as $2.8 million per acre — almost double the revenue from comparably zoned properties in Tysons Corner. While density may be the major reason for the discrepancy — the Reston apartment towers might be taller and contain more units, for instance — McKeeman suggests that other factors may be at work:
Clearly, the land and buildings in [the Reston] study area are quite valuable compared to County averages for the same land uses. Extremely high-value, dense housing and office space surround the Town Center, suggesting agglomeration benefits and perhaps a premium on the pedestrian accessibility of these properties to various amenities in the surrounding area. … The denser, walkable nature of Reston Town Center, combined with proximity to Dulles airport, appears to result in higher property values.
In other words, Reston is a walkable, mixed-used community and Tysons is not. Tysons grew not because of its hodge-podge pattern of low-rise buildings surrounded by acres of parking lots but because of its strategic location near the intersection of Interstate 66, the 495 Capital Beltway and other major arterials. In other words — and this is me speaking, not McKeeman — Tysons grew despite its dysfunctional land use patterns. The coming of the Metro may provide the impetus to reconfigure Tysons land use to a more tax-efficient arrangement but the cost of making that transition will run into the billions of dollars.
The link between Reston’s walkability and its higher property values remains a hypothesis, McKeeman cautions. Additional research or modeling is necessary before firm conclusions can be drawn.
In another interesting close-up, McKeeman looks at the Shady Oak neighborhood in the Great Falls area bordering the Potomac River. The average single-family home value in the area exceeds $1.5 million and the average lot size is almost five acres. Homeowners pay what they undoubtedly feel are high taxes — averaging $3,463 per acre. (At nearly five acres per house, that implies the average homeowner pays roughly $17,000 yearly in property taxes.) Yet on a per-acre basis, McKeeman says, Shady Oak homeowners pay less than property owners of Fairfax’s mobile home parks. Given the higher infrastructure costs per unit in Great Falls, her data imply that Fairfax’s property tax system is more regressive (tilted against those with lower income) than commonly thought.
To be sure, local governments must consider more than property tax revenue yield-per-acre when making land use decisions. For instance, McKeeman’s numbers do not include the sales tax generated by commercial property (although other studies suggest that including the sales tax makes a relatively trivial difference.) Moreover, the tax yield must be weighed in conjunction with the cost-per-acre of installing and maintaining infrastructure, public services and schools. On a per-acre basis, houses in Great Falls place a tiny fraction of the burden on public schools that a high-rise condo in Reston might. Bottom line, property tax revenue-per-acre is only half the equation. But it is an element that is almost entirely missing from the public discourse.
Among her policy recommendations, McKeeman suggests reforming property tax structures to incorporate long-term infrastructure maintenance costs rather than charging one-time impact fees. “Under such a system,” she writes, “two equally-valued properties with different demands on infrastructure and rates of land-consumption would not pay the same amount of property tax revenue.”
To rephrase her suggestion in the argot of Bacon’s Rebellion, property owners should pay their location-variable costs. The political reality is that potential losers from any proposed restructuring of property taxes would mobilize to thwart meaningful reform. But at the very least, Virginians should demand that local government leaders consider the property tax revenue-per-acre implications of their land use decisions going forward.