A Modest Tax Proposal

The City of Pittsburgh is millions of dollars underwater on its pension obligations (and other things), and as a result it wants to impose a "tuition tax" on Pittsburgh college and university students. The City probably doesn't *really* want to impose that tax; the City really wants to force the area's colleges and universities to step up and make a meaningful contribution to the City's bank account - because those colleges and universities are otherwise sitting on vast tracts of untaxed real estate.

This morning's PG reports on a recent study by Sustainable Pittsburgh on the huge and growing costs to the region associated with Pittsburgh's massive inventory of vacant real estate. The headline says it all: "Millions of dollars lost in taxes, investment because of 'growing crisis' of blight." Most of that vacant land is taxable in theory, but there is no tax revenue associated with it. It's not being developed.

Chris at NullSpace has written a lot about the vacant land problem and the fact that the City has taken positive steps toward development by buying back tax liens; I've lobbed a note or two in that direction myself. But clearing taxes is one thing; moving the properties back into productive use is something else. From the Sustainable Pittsburgh website:

"[T]here exists no regional plan, decision-making table, nor coordinated regional effort to tackle the growing crisis of blight and abandonment in our communities. Southwestern Pennsylvania needs to begin now to develop a collaborative regional strategy and actions to prevent and address blight and abandonment...The figure of 67,886 abandoned housing units in Southwestern Pennsylvania commands attention, particularly when factoring that vacancy begets abandoned properties and the compounding associated costs to individuals, neighborhoods, social networks, the economy and region which is working so hard to reach its economic aspirations. Blight and abandonment affects all counties in the region. And it affects our regional economy...Blight remediation fosters an environment conducive to job creation (including jobs associated with remediation itself) and increase in property values... Given the regional impacts and nature of this issue, regional approaches are in order."

Are there two problems here that are waiting for an integrated solution? What better engines of regional innovation and development could there be than our great universities, from whom so much more is legitimately expected?

How about this stone to kill two birds:

[1] Take the Tuition Tax plan off the table.
[2] The region's universities partner in setting up a regional non-profit Vacant and Abandoned Property Inventory and Transfer Center, which starts by buying the tax liens now owned by the City of Pittsburgh. Stretch those payments out a bit, but give the City positive cash flow right now, and pay off the balance over time via step 3.
[3] Share the proceeds of sales to developers. Jointly (with the City) assemble a set of criteria for qualifying buyers (don't dump the properties for the quickest buck and have the properties stay vacant); work with the URA so that efforts are complementary, not competitive. Timing questions aren't easy here (what time period are we talking about here? I don't know.), but my guess is that they can be figured out. Structure at least part of the deal so that the universities come out stronger (i.e., healthier) than they are today: why not offer mortgage and rent subsidies to university employees -- to any college and university employees -- who buy/rent properties that emerge from this initiative, especially if those properties are in the City of Pittsburgh? Perhaps the state could finance some of the debt that the universities would issue to buy the tax liens. That sounds like recycling money to no great purpose, except that the state would likely be more interested in investing in the region if it takes some form other than "give cash to the City of Pittsburgh," and the state is usually intrigued by economic development efforts sponsored by higher ed.

Universities are not, as a rule, in the real estate business, and there is no reason to expect them to do well with this -- except when it comes to their own real estate, and in that area universities seem to do pretty well: Start with fear and loathing of vacant property; raise money, partner with developers, build buildings, comply with complex federal regulations, avoid real estate tax. It sounds to me like they've got just the kind of background that this enterprise needs, starting with an urgent need to avoid sitting on vacant land. Moreover, (i) their increased engagement in the region's economic success is something that just about everyone wants and expects; (ii) their increased engagement in the community (starting with the City, but not limited to the City) is something that just about everyone wants and expects; (iii) properly structured -- and with good partnerships with developers with local college ties -- the universities could (a) make money; (b) give back to the region; (c) get the City of their backs; (d) do something truly innovative in town/gown relations.

And who else in the region has the institutional muscle to make something like this work?

Actually, there is another entity that could be an invaluable partner in all of this: Google. All of those new Googlers who will be setting up shop in Bakery Square? Throw some of their cycles at creating a technical and policy infrastructure to manage the process of creating productive property from abandoned property. I'm a copyright guy; I'm thinking that if Google can assemble Google Book Search to create markets for millions of the world's books, Google can create the Google Property Project to create markets for thousands of parcels in SW Pennsylvania. The whole thing needs a front office (though I know some energetic and creative developers in Pittsburgh who could use something new to do), but the Universities can put up the capital (and the "regional vision" that the Sustainable Pittsburgh report calls for), and Google can supply the back office.

I'm happy to admit that this all occurred to me this morning, when I saw news of the Sustainable Pittsburgh report and wondered why no one (at least in what I've seen so far) connected some of the region's major assets (the colleges and universities) with its other major assets (all of this undeveloped land) -- when the topic du jour in both domains is "taxes." So, I haven't researched the legal questions, and I haven't anticipated replies to the usual barrage of nay-saying Pittsburghers who will argue that nothing like this has even been done before - and therefore can't be imagined now.

But try it on for size, and if you don't like how I've spec'd it out, figure out what might work. It can't hurt. Can it?