THE SENATE                           S.R. NO.              75
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                    SENATE  RESOLUTION

  REQUESTING THE COUNTIES TO ENACT ORDINANCES TO IMPLEMENT A
    SYSTEM OF LAND VALUE TAXATION IN EACH COUNTY.


 1        WHEREAS, under a system of land value taxation, land
 2   assessments are generally taxed at a higher rate than that of
 3   building assessments; and
 4   
 5        WHEREAS, a system of land value taxation provides a number
 6   of benefits over conventional property taxation; and
 7   
 8        WHEREAS, for example, a land value taxation system may
 9   preserve open space while discouraging urban sprawl, such as
10   strip malls and large lot subdivisions; and
11   
12        WHEREAS, the traditional single rate tax makes it cheaper
13   to develop undeveloped sites in remote locations where there is
14   little or no infrastructure, producing a "leap frog" pattern.
15   Developers seek cheaper sites since people who own vacant or
16   underutilized sites in urban areas are holding out for a price
17   that may exceed what developers are willing to pay; and
18   
19        WHEREAS, however, the cycle repeats itself once the sites
20   have been developed.  The new residents eventually pressure the
21   municipality for sewers and other amenities, which drives up
22   land costs to the point where they choke off further
23   development, thus causing developers to seek new undeveloped
24   sites in other remote areas; and
25   
26        WHEREAS, this logic is reversed by a two-rate land value
27   tax, which encourages developers to select sites in developed
28   areas where the roads, sewers, and other infrastructure are
29   already in place; and
30   
31        WHEREAS, a lower tax rate on buildings makes that
32   development more profitable and encourages compact, energy
33   efficient urban design; as a result, the greater use of land
34   adjacent to existing infrastructure reduces the demand for
35   developing outlying areas; and
36   
37        WHEREAS, inefficient land use causes the premature
38   disappearance of open space.  A tax on land values causes land
39   to be used more efficiently as landowners seek to gain as much
40   income or use as possible from their improvements in order to
41   at least cover the higher land tax; and

 
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 1   
 2        WHEREAS, with development taking place in the more
 3   urbanized areas, legitimate agricultural and open space lands
 4   will be freed from the speculation that is artificially
 5   inflating their price.  If the land price there is low, so will
 6   be the land value tax.  Therefore, these lands will be
 7   preserved and used for agriculture or open space; and
 8   
 9        WHEREAS, in addition to preserving open space and the
10   environment and deterring urban sprawl by discouraging
11   speculative land holding, land value taxation also encourages a
12   more efficient land market.  The necessity to pay the tax
13   obliges landowners to develop vacant and under-used land
14   properly or to make way for others who will; and
15   
16        WHEREAS, a system of land value taxation will also help to
17   finance environmental programs and is particularly apt for
18   establishing parks and playgrounds.  Since the tax lowers land
19   price, governments will find it easier to buy land with land
20   value taxation revenue; and
21   
22        WHEREAS, land value taxation will also help to strengthen
23   the economy.  A tax on labor, buildings, and machinery
24   discourages people from constructive and beneficial activities
25   and penalizes enterprise and efficiency.  The reverse is the
26   case with a tax on land values, which is payable regardless of
27   whether or how well the land is actually used; and
28   
29        WHEREAS, it is better for the economy to tax land sites
30   into use rather than to tax workers and building owners out of
31   production.  In the long run, land value taxation will help to
32   stimulate new business and new employment, with reductions in
33   the need for costly government welfare; and
34   
35        WHEREAS, a system of land value taxation also reduces
36   bureaucracy and prevents avoidance or evasion.  Land value
37   taxes are straightforward and will not require complicated
38   forms and demands for information.  Re-evaluation would become
39   relatively simple.  Moreover, land cannot be hidden, removed to
40   a tax haven, or concealed in an electronic data system; and
41   
42        WHEREAS, during the 1960s, the State of Hawaii, which was
43   suffering from a high demand for available land and from a high
44   concentration of land ownership, experimented with land value
45   taxation by imposing a slightly higher tax on land values; and
46   

 
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 1        WHEREAS, published studies by recognized property tax
 2   experts indicated that the use of land value taxation
 3   stimulated housing construction and that investments in
 4   improvements increased by a maximum of twenty-five per cent;
 5   and
 6   
 7        WHEREAS, a 1990 report on real property tax valuations
 8   further found that the counties of Kauai and Hawaii taxed land
 9   assessments at a slightly higher rate than building
10   assessments; and
11   
12        WHEREAS, other states have also considered land value
13   taxation.  The Virginia Legislature recently considered a bill
14   to study whether this type of taxation would benefit
15   municipalities; and
16   
17        WHEREAS, the City of Baltimore adopted a resolution in
18   1992 urging the Maryland State Legislature to amend the
19   Annotated Code of Maryland to permit that city to modernize its
20   property tax system and differentiate the tax rate placed on
21   land from that placed on buildings and improvements; and
22   
23        WHEREAS, in 1996, Maryland's attorney general found that
24   municipalities could levy land value taxes, although none have
25   apparently done so; and
26   
27        WHEREAS, Pennsylvania has also allowed specified
28   municipalities and school districts to levy land value taxes,
29   including the municipalities of Pittsburgh and Scranton, which
30   have levied land value taxes since 1913; and
31   
32        WHEREAS, in 1979 and 1980, Pittsburgh restructured its
33   property tax system by raising the rate on land to more than
34   five times the rate on structures; and
35   
36        WHEREAS, in the 1980s, Pittsburgh experienced a dramatic
37   increase in building activity, far in excess of other cities in
38   the region.  A recent National Tax Journal study suggests that,
39   while a shortage of commercial space was a primary driving
40   force behind the expansion, the reliance on increased land
41   taxation played an important role by enabling Pittsburgh to
42   avoid rate increases in other taxes that could have impeded
43   development; and
44   
45        WHEREAS, land value taxation has also been used
46   successfully in Australia.  For example, in Brisbane, state law

 
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 1   since 1896 has forbidden any taxes on improvements, but the
 2   unimproved value of the land is subject, above a small
 3   exemption, to a nine per cent annual tax, regardless of whether
 4   one builds a fifty story building on the land or uses it as a
 5   parking lot; and
 6   
 7        WHEREAS, according to Colin Clarke, the Oxford economist
 8   who lived in Australia for twenty years, the City of Brisbane,
 9   with a metropolitan population of almost three-quarters of a
10   million people, is "the only great city in the world without a
11   slum"; and
12   
13        WHEREAS, in addition to Australia, local government
14   variants of land value taxation, also known as site value
15   rating, are accepted practice in Denmark and South Africa; and
16   
17        WHEREAS, Article VIII, Section 6 of the Hawaii
18   Constitution provides that "all functions, powers and duties
19   relating to the taxation of real property shall be exercised
20   exclusively by the counties"; and
21   
22        WHEREAS, there is a need for Hawaii's counties to enact
23   ordinances to establish a system of land value taxation in each
24   county, including pilot programs in selected areas; now,
25   therefore,
26   
27        BE IT RESOLVED by the Senate of the Twentieth Legislature
28   of the State of Hawaii, Regular Session of 1999, that the
29   counties are requested to enact ordinances to implement a
30   system of land value taxation in each county; and
31   
32        BE IT FURTHER RESOLVED that the ordinances enacted by the
33   counties are requested to be in the form of pilot programs to
34   determine the feasibility of implementing land value taxation
35   on a permanent basis in each county; and
36   
37        BE IT FURTHER RESOLVED that the City and County of
38   Honolulu is specifically requested to establish a land value
39   taxation pilot program to revitalize Wahiawa; and
40   
41        BE IT FURTHER RESOLVED that certified copies of this
42   Resolution be transmitted to the Governor and the Mayor and
43   Chairperson of the Council of each county.
44 
45 
46 
47                         OFFERED BY:  ____________________________