I just returned from Christmas in a surprisingly balmy Minneapolis where I learned about a neat little tax shifting trick that could be a powerful technique for constraining sprawl. The best part is that it’s actually fairer than the current system. Here’s the scoop.
In most places, homeowners pay a simple sewage or drainage rate (it’s often calculated as a percentage of water consumed). Minneapolis decided to break apart the sewage charge into two separate rates: one part based on water consumption and the other part based on the square footage of impervious surface. Okay, I know your eyes are glazing over, but don’t stop reading yet!
Impervious surface is important because it is closely related to how much strain a property puts on city infrastructure and also how much it harms the local environment, — especially the local water bodies that get all the toxic-laden runoff from hard surfaces. So it matters (at least a little) whether your backyard is an eco-groovy natural drainage haven or an asphalt parking lot. By connecting sewage rates to hard surfaces, Minneapolis is making prices tell the truth.
But that’s not the half of it.
First, and perhaps least important, the very existence of a price for impervious surface is signal to property owners to design carefully for environmental (and infrastructure) impact. Adding a green roof or tearing up an concrete parking space could reduce your utility bills, just as you reduced your impact.
Second, if the pricing is truly fair it will set the same rates for all zoning types. So a 10-story condo building would pay the same price per square foot for its impervious surface—a roof and maybe a patio—shared by 10 floors of homeowners. That would have the effect of making density cheaper than single family housing. And that would be fairer because density has much less impact.
But there’s much more potential here. Utility bills are pretty minor expenses; property taxes are not. What if we decided to set property tax rates based partly on how much impervious surface a property has? With an impervious surface tax, folks who accounted for a large extent of high-impact building and pavement would pay higher taxes, precisely because of their high-impact preferences. Folks who prefer to take up less space and thereby strain our resources less, would pay less. And by making taxes and prices fairer, we would shift toward more density-friendly cities.
It would be fairly easy to make a new impervious surface tax revenue-neutral so that, in aggregate, taxpayers would pay just what they do currently. That would (or should) alleviate charges that it’s a tax-raising scheme. Alternatively, it would be possible to allow for a small tax increase. Perhaps in Western Washington, that extra revenue could be dedicated to restoring Puget Sound or saving the local orcas from extinction. Both are principally threatened by the stormwater runoff that is a direct result of too much impervious surface. Better yet, in a recent poll Western Washington residents have said they’d be willing to pay extra to save the Sound.
Ah, synergy.
scarlson
Eric,There are two terms missing from your description that might help clarify this system: “stormwater” and “fee.” Minneapolis did not shift its taxes, but created a new fee so that property owners are fairly charged for stormwater that runs off their property (rather than absorbed into the ground). Sewage is generated by people using municipal water, and as you note is typically charged as a percentage of water bills. Stormwater comes from rain and snow; a parking lot with no water bill at all can still be a huge stormwater “customer.” Seattlites saw the power of stormwater first hand as the volume of water blew out manhole covers in the recent storm.Since stormwater charges are a user fee, not a tax, impervious surface property owners are now paying for the real costs to treat this water, not just for their nebulous impact on city infrastructure. The cool part is that they can reduce their fees by installing filtration ditches, pervious pavement, green roofs, and other systems that retain and treat water naturally. While fees for households typically GO DOWN in this new system, fees can be in the tens of thousands for industial sites and parking lots that haven’t been paying their share.Property taxes, unlike fees, pay for all kinds of things, from schools and roads to 911 service. While I’m a huge fan of density, I wonder about unintended consequences of scaling property tax too much to impervious surface. It would benefit high-density developers and owners, but policitians might suddenly favor sprawling development in order to maintain the tax base. I think Seattle is on the right track by allowing cost-savings for density in other ways, like reducing parking requirements.
jill_erin
Unfortunately, in Washington at least (and I think many other western states), the state constitution requires that jurisdictions tax properties at a uniform rate according to assessed value. (For example, $1.00 for every $1000 in assessed value.) The uniform rate requirement makes it difficult to reward environmentally sustainable infrastructure through the property tax system. Washington State does have one program—the Public Benefit Rating System—which reduces the assessed value of a property if the owner qualifies for the program by conserving and restoring their land. You can check out King County’s program here:http://dnr.metrokc.gov/wlr/LANDS/incentiv.htmTaxes aside, I agree that linking stormwater fees to impervious surface area is a much better way for property owners to pay for the impact of their property on our stormwater and natural drainage systems.
MichelleV.P.
Great ideas.Just wondering what the post’s headline means? Is that Minneapolis-speak?
Arie v.
Public Benefit Rating System (PBRS) came to my mind as well. Unfortunately it is complex and not applied by default, but those of us who know the ins and outs get significant tax breaks for keeping acreage in natural vegetative state and improving or restoring it. I like the “pay for use” aspect of this run off scheme, but that is not always easy to determine fairly. We should take care to not make the system even more complex – there is a cost of bureacratic friction. I’ll take my monthly shot at DDES now :). As a handy example a 3 acre lot we sold in one day now may take 4 months to close due to having to schedule and complete a critical areas designation. We can afford to wait, but not every one is so fortunate.
Steve Hussey
Jill said: “Unfortunately, in Washington at least (and I think many other western states), the state constitution requires that jurisdictions tax properties at a uniform rate according to assessed value.”In the case of stormwater this is not so. WA state defines this as a fee for service and each jurisdiction handling stormwater is free to choose an appropriate system for collecting the funds. I’m a Natural Resources Planner for a small conservation district in WA, and have just completed a stint on our local stormwater utility. After taking an EPA class on determining rate charges for stormwater utilities I proposed a system based on average impervious surface areas for residential parcels, and Equivalent Service Units (ESUs) for everything else. Our average house plus impervious surface area was some 2,400 SF. This was set as 1 ESU. Therefore a commercial property of 9,000 SF would be 4 ESUs. (We round up to the nearest whole ESU, with a 1 ESU minimum.) We finally set a rate of $3.85 per ESU and all properties are levied this rate: residential, churches, commercial, industrial, county and city offices and county roads (roads comprise about half the total number of ESUs in our county).The EPA has stated that although you can choose to charge property owners on an ad valorem basis this will usually not survive a legal challenge, since in a fee for service basis the value of a property has no relationship to its contribution to the problem. Most smart agencies choose something related to impervious area. To simplify admin it’s wise to base it on an average area, rather than the area of each property. This usually has to be done from aerial photography, is time consuming and subject to frequent challenge from property owners – additionally they often don’t realize that the EPA treat compacted gravel driveways as impervious, as they also do for decks etc.HTH Steve Hussey
Steve Hussey
Michelle said: “Great ideas. Just wondering what the post’s headline means? Is that Minneapolis-speak?” I think they are poking fun at the movie Borat. 😉
butzodaddy
I’m a Minneapolis resident and I can tell you that however innovative this new tax/fee is, it was implemented unfairly. I pay approximately $11 per month more than I used to, about a 30% increase on my water/waste bill for supposed treatment of runoff from my property. The only problem I have with this is, there is no runoff from my property. How could that happen? Well, I do have a large driveway, and roof area that are impervious to rain. However, no runoff from my roof or driveway ends up in the street for the simple reason that my property is below street level. The runoff on my property all soaks into the ground. It would take a Noah’s flood for there to be street runoff. How did this happen? Well apparently the city used aerial photographs to determine the impervious surface area on properties but did not take into account topography. DUH! It’s truly outrageous that this was allowed to pass. Not only that, but in order to have my fee changed I have to hire an architect or licensed landscape engineer to certify that my runoff does not go in the street, where any three year old could simply look and see the obvious truth.Best regards,Frustrated Homeowner.