Investment in infrastructure three pillars of city resilience

Land Value Tax: Lessons Learned
INVESTMENT IN INFRASTRUCTURE
OPPORTUNITIES
CHALLENGES

• Incentivizes development of unimproved/underutilized land in prime urban locations
• Can leverage property tax assessment systems already in place
• Can be an effective tool to spur revitalization in areas affected by natural hazards
• If adequately structured and implemented can increase tax revenue providing additional funds for public works

• Might increase complexities of tax administration
• Needs technical capacity at municipal level for maintaining advanced land cadaster and land reassessment systems
• Fiscal powers have to be devolved so that municipalities could structure and impose such a tax

Land Value Tax: Sampled Project
INVESTMENT IN INFRASTRUCTURE
Project Description
In 1989 the city of Mexicali diverted from conventional practice assessing a composite property tax on both land and permanent structures and started taxing only the value of the land
This fiscal policy shift involved major changes in tax administration including changes in land assessment promoted by consensus of representatives from real estate organizations and professional appraisal associations
Value Capture Component
During the first periods of implementation the new taxing system allowed the Citi of Mexicali to increase property tax revenue twofold generating additional revenue for infrastructure upgrades
Introduction of Land Value Tax in the City of Mexicali, Mexico
New tax rates were specified based on distance from pre-specified “high-value locations”. Separate flat-rate surcharges were applied to residential and commercial lands.
This new tax policy waned out after changes in Mexicali’s municipal administration and the land value tax was eventually terminated in the City of Mexicali. However, the positive results in the first years of land taxing in Mexicali prompted other municipalities of the state of Baja California to implement land value taxing in their jurisdictions
Betterment Levies: Overview
INVESTMENT IN INFRASTRUCTURE
DESCRIPTION

• An additional tax/special rate levied to property owners within a specifically defined geographic area, which is regarded as the main concentration of beneficiaries of respective publicly funded infrastructure upgrades
• Betterment levies are also called special assessments in some countries
• Application of betterment levy can be narrowed down to specific types of users or owners within the defined geographic area, such as owners of large commercial building or owners who have an intent to develop in the area and are seeking construction permit
• Rate and length of time of the levy depends on when and how funding requirement is fulfilled
• In contrast to Tax Increment Financing (TIF), betterment levy is applied to full assessed value, whereas in TIF a special assessment applies to incremental property value increase.