Dartmouth economics professor Bill Fischel has posted “Fiscal Zoning and Economists’ Views of the Property Tax,” which will be a chapter in a revised edition of Fischel’s classic The Economics of Zoning Laws. Fischel provides a great overview of zoning, development, and property taxes, highlighting the important fact that zoning is fiscal in nature — that is to say, local governments use zoning to “preserve and possibly enhance the local property tax base.”
Fischel goes into much detail and posits that zoning makes the property tax more efficient. But the notion of fiscal zoning is an interesting one, something that is rarely discussed by the public or even members of the real estate press. Contrary the great myth of benevolent city planners getting together and using the best available evidence to scientifically apply land-use regulations that will maximize social welfare, land-use regulations are developed like most government “goods”: through competing self-interested special interest groups fighting over benefits in the political arena.
For example, suppose a property owner believes he will preserve his property value by demanding that his neighbors be similar to him in income and aesthetic preferences. Conscious of this and not wishing upset residents so they flee to other jurisdictions that will honor their political demands, city officials separate uses, issue design standards, and employ a whole host of controls over private property in an attempt to maximize their tax revenue. With impassioned pleas against variances, planned unit development approval, etc., vocal local interests with trivial objections often prevail over correct interpretations, common sense, and good old fashioned deference to property rights. Anyone who has attended a zoning board meeting will confirm this account.
But even supposedly learned scholars reject this fact of life. Take, for instance, this New York Times op-ed from eco-lawyer and Vermont law professor John Echeverria regarding the Supreme Court’s important takings decision in Koontz v. St. John’s River Water Management District. “As Justice Kagan correctly explains in her dissent, the decision will very likely encourage local government officials to avoid any discussion with developers related to permit conditions that, in the end, might have let both sides find common ground on building projects that are good for the community and environmentally sound,” complains Echeverria. “Rather than risk a lawsuit through an attempt at compromise, many municipalities will simply reject development applications outright — or, worse, accept development plans they shouldn’t.”
To left-wing environmentalists like Echeverria, all building projects are harmful and all private property should be subject to the whims of people like him. Cato’s Randal O’Toole responds here, noting:
The danger behind Echeverria’s view is not just that it arbitrarily takes away people’s property rights and makes development more expensive, but that it gives cities and other municipalities incentives to claim a development is harmful simply to get as much as they can out of developers and property owners. After all, when the district wasn’t satisfied that Koontz was willing to give up 75 percent of his property, and demanded 95 percent instead, it seems likely that the district was simply being greedy.
The Echeverrias of the world would have you believe that municipalities are staffed by benevolent social planners who selflessly protect the community from evil developers looking to spew externalities all over their unsuspecting neighbors and ecosystems.
This is wrong. In reality, land-use regulation is conducted by highly politicized star chambers frequently captured by powerful, self-interested special interests seeking to maximize their private benefits at the public’s expense. Now, being one of those self-interested special interests, Echeverria certainly sees it differently. But that doesn’t mean we need to believe his implicit claim that “elected officials and technical experts on issues of regulatory policy” ought to be accorded broad deference on matters related to land-use regulation because they supposedly have our best interests at heart. They don’t.