These items and a multitude of others require the second-most common element in the universe to function. Although it is generally abundant throughout the cosmos, helium is relatively hard to find on Earth, as its low mass allows it to easily escape the atmosphere.
Helium can be found in a few separate deposits under ground as well as in trace amounts in the atmosphere (5 parts per million) and in underground natural gas deposits (up to 7% of total NG volume). It is also a common byproduct of radioactive decay, as alpha particles.
Since the 1920s, the United States government has held a monopoly on helium production. Helium is crucial for national defense applications such as rocket engine testing and air-to-air missile guidance systems. Thus, the government, through the Bureau of Land Management, began to produce and store it in large quantities at the National Helium Reserve in Texas, at one point amassing over one billion cubic feet of helium.
In the 1990s, the National Helium Reserve fell into debt to the tune of $1.4 billion due to poor management and increasing costs of helium extraction. Concerned about bloated government, the 1996 Congress passed the Helium Privatization Act, which initiated the shutdown of the National Helium Reserve. The Reserve was required to sell its entire stockpile at below-market rates, finally shutting down operations entirely in 2015. The intention of the Act was to jumpstart the privatization of the helium industry, but things did not play out as hoped.
The National Helium Reserve flooded the market with helium, which drove worldwide helium prices to record lows. Low prices made helium recycling economically disadvantageous, which increased consumption. Most strikingly, private industry failed to step in because low prices made helium extraction and sales unprofitable.
As the National Helium Reserve continued to sell off its reserves and slouch toward its mandated end, an heir apparent in the private sector failed to appear, and scientists began to worry. A panel convened by the US National Resource Council, a branch of the US National Academy of Sciences, recommended that the US Government increase the cost of helium and slow the depletion of the National Helium Reserve. They warned that if the US failed to take action, the closing of the reserve in 2015 could trigger a global helium crisis, and that consequences of such would be dire due to the ubiquity of the need for helium in scientific and and technological research.
The US Government took action in 2013 by extending the lifespan of the National Helium Reserve and selling existing helium reserves at market prices. But with private industry failing to identify and extract new helium reserves, helium prices soared and US reserves continued to dwindle. Scientists worried that the United States’ poor management of a finite natural resource would devastate the helium market for years to come.
Luckily, due to a recent discovery, this does not seem to be the case. In June 2016, a team of researchers from Durham and Oxford Universities discovered a massive helium gas field in the Tanzanian East African Rift Valley. The field is estimated to contain 54 billion cubic feet of helium, enough to meet global demand for several years.
Although the discovery of this reserve has inspired hope that more like it exist in the world, that hope should not translate into careless use and management of existing helium reserves. Our current understanding tells us that helium is extremely rare on Earth, so we must consume and regulate helium reserves with that fact in mind, at least until the development of new technology to make alternative helium production economical. Scientists have recommended banning the use of helium in party balloons (yes, seriously) and implementing helium recycling technology to prevent the escape of helium from MRI machines and other such devices.
If Tanzania is able to collect economic rent from the exploration and extraction of its helium reserves, it could likely enjoy similar success as Norway while providing the world with a critical resource. Our history with helium is a lesson in the consequences when governments fail to properly manage a finite natural resource. As Tanzania begins to manage its vast reserves of helium, we can only hope that they will heed the lessons of successful natural resource management.
Is traffic a daily problem for you? Bad news: If you live in a major metropolitan area, chances are that traffic congestion is only going to get worse. The nation’s roads and highway systems are being crushed as Americans flock to urban areas for economic and social opportunities. In the San Francisco Bay Area alone, traffic on some highways has increased over 25% in the past 5 years. With a cost to Americans of $124 billion a year, plus the unquantifiable impact on quality of life, cities must take action to abate worsening traffic congestion. For some ideas on how to do that, they should look to London.
London is a global financial center with a burgeoning population of over 8 million. As London’s economy and population ballooned in the 1990s, so did traffic, earning the city its reputation as one of the most congested cities in Europe. Government officials took notice and hatched a plan to reduce traffic in the city center, boost ridership of the London Tube and buses, invest in public transportation, and improve quality of life. Their solution? A congestion tax.
13 years after its implementation, the congestion tax has been hailed as a success. The number of cars entering the city center has plummeted by 34%, traffic speeds improved between 20 and 30%, and bus ridership increased by more than a third.
Since Britain voted to leave the European Union, global markets have dropped and people have begun to prepare themselves for a grim possibility: a world with a less stable Europe. But to foreign investors, particularly those with an eye to real estate speculation, the Brexit vote seems to present a golden opportunity. With the value of the British pound falling to its lowest level in decades, overseas buyers have snatched up London properties at a massive discount, with the consequence of an even more overheated housing market.
Significant currency devaluations can have devastating effects on a country’s economy as the costs of imports and exports fluctuates and the risk of inflation increases. For foreign investors, however, currency devaluations create an opportunity to make strategic purchases within the affected country that would not have been feasible before.
Since a dramatic 12% drop in the value of the British Pound Sterling, investors from Hong Kong, the Middle East, and nations with currencies linked to the dollar have begun to buy property in the United Kingdom. This activity has been concentrated in London, where property sales have increased 38% since the Brexit vote. The percentage of recent purchases that have been completed by foreign investors is unclear, but property investment firm Benoit Properties International and real estate consultants Knight Frank have reported a significant surge in purchases by buyers outside of the UK.
Foreign speculation in the London real estate market is not new. As the financial center of the United Kingdom and a rapidly growing metropolis, London’s real estate has generally been a safe, albeit expensive, investment. Between 2008 and 2015, investors purchased £100 billion of property across the city. These purchases mean more than lucrative long-term investment strategies – they provide an opportunity for the wealthy of other countries to move their money overseas, a financial strategy that is becoming increasingly attractive as economies such as China’s falter.
Considering the continuing rise of the tide of xenophobia in the wake of the Brexit vote, it’s important to clarify that foreign investors are not the enemy. Rather, they are driven by an economic and real estate system that makes UK property investments lucrative and accessible. The dearth of opportunities to invest gainfully in growing commercial goods and services industries spurs investors toward land speculation, fostering the housing crisis that is unfolding not only across the UK but worldwide.
The UK’s leaders must enact policies to ensure that Londoners have fair access to affordable housing. As it turns out, they have many other countries to turn to for ideas. Hong Kong and Singapore have instituted a 15% tax on properties purchased by foreign buyers, which has slowed the rise in housing costs. Australia has instituted a similar tax, citing decreasing affordability of homes while also legally interceding in the attempt by Chinese investment group Dakang Holdings to purchase the Kidman Farm empire, which controls 1.3% of the Australian landmass.
An alternative to such measures proposed by many economists is the taxation of land values rather than traditional property taxation. While other strategies limit land speculation by foreign investors, taxing land values would actually inhibit all speculative land grabs by making the holding of real estate for that purpose unprofitable. Instead, by making the ownership of idle land prohibitively expensive, taxation of land values would spur construction on prime locations, which in turn would decrease housing costs for all.
If foreign investors wanted to make money by purchasing land, they would have to develop that land with residential and commercial improvements. In other words, they would need to put forth effort and bear risk in order to see any returns, just as business ought to work. This would result in a growth of construction activity, meaning more residential units available at lower prices. In effect, taxation of land values would effectively convert the current foreign appetite for British property into a sustainablemeans for growing the British economy.
The movement to leave the EU garnered strong support in part for its assertion that too many UK citizens are being left behind economically in our globalized society. As uncertainty shakes the British economy, that problem will likely get worse. UK leaders must act immediately and decisively, and use the tax system to address the disparities caused by land speculation.
Berkeley, California, has long been a bastion for artists, intellectuals, and their progressive ideals. It is home to UC Berkeley (3rd-ranked university in the world), which hatched the politically seminal Free Speech Movement, as well as Telegraph Avenue and People’s Park, epicenters of the counterculture movement of the later 60s and early 70s, and the first enactments of a number of progressive policy measures including a soda tax and the first handicapped-accessible sidewalks. Now, however, skyrocketing housing costs are threatening Berkeley’s inclusive character, as the rising cost of residential rental housing space forces more and more lower and middle-income families to leave.
In 2010, the average monthly rent for a new apartment in Berkeley was $1,975. Today, that number stands at $3,308, a staggering 60% increase in just 6 years. With Berkley’s median household income of $65,283, such staggering rents can easily consume two-thirds of a family’s gross income, leaving little money for other expenditures.
Housing costs in Berkeley are being inflated by forces affecting the entirety of the San Francisco Bay: a burgeoning population, an increase in the number of well paying jobs, and a lack of new housing construction chief among them. A recent survey revealed that 78% of Berkeley residents believe affordable housing is the number one issue the city should be tackling. Elected officials are starting to take action.
In early June, Berkeley City Council unanimously approved a November ballot measure to levy a 1.8 percent gross-receipts tax on landlord rents. The tax, if passed by voters, is expected to raise $5 million annually, which would then be spent on affordable housing projects. It’s a clever way of circumventing California’s Proposition 13 which, along with a long list of municipal revenue limitations, caps the amount that real estate (encompassing both land and buildings) can be taxed at 1% of market value.
Low taxation on real estate–or, more to the point, on land values–effectively encourages the purchase of land for the sole purpose of speculation. Low property (land value) taxes paired with high taxes on improvements (structures) discourages commercial or residential development of that land, as rising land values reap financial reward for property owners without their having to undertake the risk and trouble of adding any improvements. Often times this means there is little, if any, incentive for property owners to build the quality low-cost housing needed by growing communities. In turn, they benefit from the resulting artificial housing scarcity much more than active building ever would.
In response to these condition and their effects, Stephen Barton, Berkeley’s former Director of Housing, has become a major proponent of what is being dubbed the “landlord tax.” Barton, drawing from the ideas of Henry George, explains that landlords are not creating the value that is leading to skyrocketing rents. Land values are a social product, directly inflated by a growing population and its subsequent economic development, which, in the case of the Bay Area, has in turn been buoyed by the region’s diverse culture and ample public infrastructure.Proposition 13’s limiting effect on the land portion of property taxes has enabled landlords to privatize this socially-created value for their own personal profit.
At present, Proposition 13 allows landlords in Berkeley (and all across California) to capture the increasing land values. When a tenant leaves a unit, even if it is rent-controlled, a landlord has the opportunity to increase the rent as much as the market allows. As a result, landlords have increased overall rents by $100 million annually, an amount well beyond what constitutes a fair return on investment. “This has been a massive income transfer from tenants to landlords,” Barton said. “It’s deeply hurtful to low-income people.” The result of this excessive transfer of income also serves to gentrify the poor right out of Berkeley.
The this new landlord tax is a distortion of land value taxation (LVT). LVT was originally proposed by American political economist Henry George, who recognized that land values are a social product (affected primarily by the size and productivity of the nearby community) and should be taxed so that their value can be returned to the community. The difference between LVT and the landlord’s tax arises when considering raw, vacant and underdeveloped land. LVT is a tax on land values, independent of improvements, that provides incentive for landowners and landlords to put all land to its best use. By comparison, the landlord tax depends on gross receipts, punishing those that increase tenancy and rewarding that hold their land idle, which is not a good way to encourage walkable and well-maintained communities with ample housing.
Taxes on land, in comparison to the ubiquitous tax on improvements we have in the United States, has been shown to actually increase the supply of both residential and commercial space by preventing the privatization of of socially-created land values by landlords. A sufficiently high LVT makes the ownership of land expensive, which then forces the landowner to develop the rental space needed to pay the higher land value tax. Conversely, the tax on improvements has the opposite effect, penalizing the construction of rental space by increasing the amount of one’s property taxes at pace with an increase in building.
The Berkeley Rental Housing Coalition, a landlord’s organization, says the proposed tax is too burdensome. They plan to put a similar, albeit smaller, tax proposal on the November ballot. Charlotte Rosen of East Bay Housing Organizations fears that two landlord tax measures on the ballot could split the vote and cause both measures to fail, which would be the landlords’ first preference. If the landlord tax measure proposed by the Berkeley City Council passes, cities across the Bay Area will be watching closely to see whether the new policy does actually stem the housing crisis.
Elizabeth F, of St. Louis, Missouri, is yearning for something different. “I don’t know what it is, but I just want to get out of my car for once,” she says. “I feel like I am in a cage all the time. I want my city to seem more like a neighborhood and less like a huge mesh of cul-de-sacs. I want to actually be able to walk places; to take public transit, without having to move to New York. I love St. Louis, but we have to start planning better. I just want to be able to walk to the park or the store instead of driving there. I want to see my neighbors more. I just want…more connection.”
Elizabeth is not alone. The development goals of many metro areas are changing with the times. Sprawl is out; compacted development is in. Public transit and pedestrian by-ways are taking the place of the public-private space of the personal car. Many communities are devoting more time and more planning to the process of Transit-Oriented Development (TOD). TOD focuses on building up rather than out in order to provide more walkable neighborhoods. These pedestrian-friendly neighborhoods both include a healthy mix of retail, residential, and industrial areas centered around public transit and encourage the interpersonal connection that has been lost.
City planners across the country are taking residents such as Elizabeth and others seriously and are making strides in TOD planning. Because TOD planning is unique to each region, cities and towns are learning from the implementation successes and mistakes of others, and they are creating individualized plans for future development.
This radical change in developmental demeanor has its costs–mainly the destruction of affordable housing and a lack of sustainable funding for capital improvements on public lands. The Land Value Tax can curb the potential negative consequences of TOD and ensure its success in the future.
How Do Transit Costs Affect Disposable Income in Lower-Income Households?
Residents of auto-dependent exurbs, the wealthier areas of cities that sprawl past the suburbs, spend up to 25% of their incomes on transportation costs. However, communities that have more public transit options spend considerably less on transit–only 9% in “location efficient environments.”
Lower-income households in compacted development areas retain 59% versus 43% of their disposable income. This difference goes to pay for any expense that is not transportation or housing related. As incomes decrease, available disposable income also decreases. Decreasing disposable income by even a few percentage points can be the difference between financially making it, or not, for lower-income families.
Arlington County, VA: A TOD Success Story
Arlington County, Virginia, is often cited as a successful metro area that has addressed their transit and lower-income housing issues. It has not only created an environment where affordable housing is preserved, but it has taken steps to cluster affordable units around public transit hubs.
How Does Arlington Pay for TOD?
Some of the tactics used by Arlington County include:
Federal tax credits that rely on transportation as a stipulation: HUD’s Low-Income Housing Tax Credits, which are distributed to each state, allow individual states to determine the criteria for which projects are funded. Some states use transportation as a factor in the allocation of these funds.
The Special Affordable Housing Protection District: The Arlington Special Affordable Housing Protection District mandates that affordable housing units near transportation hubs are to be replaced on a one-for-one basis in new developments.
Together, these tactics create an environment in which transportation and housing are able to develop in tandem.
Elizabeth’s hometown of St. Louis plans to mimic Arlington’s success.
Case Study: Transit and Housing Development in the St. Louis, MO, Metro Region
How can Transit-Oriented Development Planning be used to protect low-income housing units while maximizing transit options and new development?
Released in January of 2011, the (TOD): Best Practices Guide outlined the first regional attempt to marry long-term transit planning with sustainable development.
How Does St. Louis Plan to Pay for Transit-Oriented Development?
Funding is the primary killer of TOD. TOD is a good idea that, unfortunately, will remain a good idea without the money to back it. Land Value Tax could be the answer to the financing dilemma TOD-planning creates. LVT naturally incentivizing high-density development goals and provides more housing options that for lower-income families.
However, the St. Louis Metro Area plans to rely heavily on federal block grants to fund regional improvements. St. Louis also focuses on sales and property taxes as a way to fund TOD.
Avoiding Increased State Income Tax: Sales and Property Taxes
The St. Louis Metro Area has historically used sales tax to fund capital improvement projects while avoiding raising income tax. As it stands today, there are areas of St. Louis County and St. Louis City, which are burdened by sales-tax rates in upwards of 10%. Sales-tax is highly regressive and downgrades the spending power of every citizen. Sales tax is especially harmful to those who do not generate enough income to offset the tax. High property taxes come with another set of problems.
High taxes on the development of the land creates disincentives to develop the high-density, pedestrian-friendly neighborhoods that the region craves. By taxing capital improvements on the land near transportation hubs, the St. Louis stakeholders encourage blight and reduce economic competitiveness.
The primary goals of TOD are similar to the Land Value Tax. The emphasis is on creating pedestrian friendly, higher-density urban and suburban areas. TOD and LVT also protect low-income residents by reducing the amount of time and money spent on transportation. Finally, property values increase as a result of intrinsic capital-improvement incentives.
Elizabeth is optimistic about TOD planning in St. Louis. “It’s going to take a long time; it’s a huge shift in the way we all think about our neighborhoods. I’m willing to stick with the process, though,” she says. “This is my home, and I think if we do it right, we can make it whatever we want it to be.”
Once Detroit was motown, the home of Mustangs, Chevies and Cadillacs, of Aretha, the Jacksons, the Temptations. What happened? How can it be turned around? How can other cities escape the suffering that Detroit has endured?
In the 1960s, in the town of Southfield, the Detroit suburb where the Council of Georgist Organizations (CGO) annual conference will take place, a forward-thinking Mayor, James Clarkson, and an expert Assessor (Ted Gwartney, who will be one of our featured speakers) implemented reforms that made Southfield one of the fastest-growing cities in the country. Southfield’s success reprised the tax and business climate Detroit enjoyed in the early 20th century, the policies that made it the USA’s automotive capital.
This conference will explore that fascinating history, and bring together social scientists and reformers from around the world to focus on innovative solutions to today’s most “intractable” economic problems. The CGO looks beyond the ideological limits of “Left” or “Right” to explore viable Third Way policy solutions that can move society toward greater equality, without sacrificing prosperity.
I once introduced a paper at a conference with the laugh line, “Many of the papers you’ll hear this week make extensive use of mathematics, but mine is a bit different: it makes extensive use of arithmetic.” The economists in the audience knew what I was getting at: minutiae can be examined in fascinating (sometimes Nobel-winning) detail, but often the really important points are made by keeping track of the relevant orders of magnitude — in other words, by counting the zeros.
Here’s an example, to get us started. How many days, months, whatever, does it take for a million seconds to go by? I whipped out my calculator and discovered that a million seconds equals about 11.6 days. Surprised? Well, then, how about a billion seconds? That’s a thousand times longer: 31.7 years. The next one is easier, because we’re sticking with the same unit, but it boggles the mind nevertheless: a trillion seconds equals 31,709 years.
Let’s explore the wonders of zero-counting by comparing and contrasting a couple of lines in the budget of the United States.
Amtrak’s Northeast Corridor Passenger Rail Service
The F35 “Lightning” Joint Strike Fighter
— relatively inexpensive; mildly profitable
— most expensive weapon in history
— deeply maligned, desperately underfunded
— despite criticism, lavishly funded
— used by over 11 million passengers annually
— appropriations shared by contractors in 46 states
— ridership increasing as highway congestion worsens
— not yet cleared to fly in inclement weather
Dear reader, you can probably see where I’m going with this, but please bear with me: the numbers involved are noteworthy.
The F35 is, in terms of its design parameters, one seriously groovy airplane. It is a “fifth-generation” fighter jet, intended to supersede a number of the fighter jets that are now in use. It is called “joint strike” because the basic plane would be used, with some modifications, by various branches of the military in different missions: fly from carriers for the Navy, take off and land vertically for the Marines, evade radar detection, and locate enemy fighters long before they’re able to locate it. Its pilot will wear a helmet designed to make the plane an extension of his brain; all manner of information will be displayed right before his eyes; next-level optics will allow the pilot to see through the plane as if it were transparent. This is majorly awesome, sci-fi stuff. Lockheed Martin puts it this way:
The supersonic, multi-role F-35 represents a quantum leap in air dominance capability with enhanced lethality and survivability in hostile, anti-access airspace environments…. Missions traditionally performed by specialized aircraft — air-to-air combat, air-to-ground strikes, electronic attack, intelligence, surveillance and reconnaissance — can now be executed by a squadron of F-35s.
However, alas, the F35 is also far behind schedule, and way over budget. “A single Air Force F-35A costs a whopping $148 million.” writes Winslow Wheeler, for the Project on Government Oversight. “One Marine Corps F-35B costs an unbelievable $251 million. A lone Navy F-35C costs a mind-boggling $337 million. Average the three models together, and a ‘generic’ F-35 costs $178 million.” That’s per plane — and, because the F35 is being tested as it is produced, and faulty systems must be retrofitted on planes that are already being flown, the per-plane cost is likely to increase.
The following cost figures for the F35 program were reported by CBS news: $400 billion will be spent to buy 2,400 aircraft — twice as much, in constant dollars, as the Apollo program. To date, the F35 program is $163 billion over budget. It will cost approximately $1.5 trillion over the life of the program. In 2014 we spent approximately $6 billion on the F35.
Maybe you didn’t hear me. I said: twice the cost of the Apollo Program.
Reasonable people can disagree about the urgency of the United States’s need for this airplane. The stated mission is to assert overwhelming superiority, in any aerial combat mission, over any plane the Russians or Chinese might plan to build in the foreseeable future. The US already has a fifth-generation fighter in service, the F22A Raptor — which itself costs some $150 million per unit and, according to the US Air Force, “cannot be matched by any known or projected fighter aircraft.” Only Russia has any plane that is even remotely comparable, and Russia is obviously throwing much less money at the problem than the US is.
The thing about the F35, though, it that its development and manufacture is distributed with great skill through a multiplicity of key Congressional districts. “Lockheed takes every opportunity to remind politicians that the airplane is manufactured in 46 states and is responsible for more than 125,000 jobs and $16.8 billion in “economic impact” to the US economy….” wrote Adam Ciralsky in Vanity Fair. “Political engineering has foiled any meaningful opposition on Capitol Hill, in the White House, or in the defense establishment.”
To make a long story short: it is virtually certain that — whether we need it, or can afford it, or not — we’re going to have the F35 “Lightning” Joint Strike Fighter. That nickname, by the way, is ironic, because the F35 has not yet been cleared to fly within twenty miles of a thunderstorm.
Fixing Our Trains
Amtrak, the US’s much-maligned passenger rail system, operates 21,300 miles of routes. But, for the purpose of our present comparison, we’ll concentrate on the 471-mile segment that actually turns a profit: the Northeast Corridor. This is the rail service between Washington, DC and Boston, on which Amtrak carried 11.4 million passengers last year. It is only on this route that Amtrak operates its Acela express trains, which can go over 150 mph — they can, at least, on the few sections of track that are in good enough repair. Amtrak owns and maintains these tracks, which are also used by commuter-rail systems in DC, Baltimore, Philadelphia, New York and Boston — and some of them have gotten quite rickety over the years.
To pick one of many examples, the Portal Bridge over the Hackensack River in New Jersey is 100 years old and carries 450 trains a day — if things stay on schedule. The old swinging drawbridge causes many delays. It would cost $900 million to replace it with fixed bridge. Republicans have harshly criticized Amtrak for many years — and they can’t all be wrong; it’s likely that there is some significant degree of inefficiency and inertia in Amtrak’s program. The House of Representatives recently voted to cut Amtrak funding for the coming year to the tune of one and two-thirds F35s ($260 million) — the very day after a deadly derailment outside of Philadelphia.
This seemed an exceptionally spiteful move, even for Congress. This particular accident was probably caused by human error. But it could have been prevented, had a “Positive Train Control” system been in place; a 2008 law requires it to be implemented by the end of this year. Such systems are routinely used across Europe. Amtrak, however, is strapped for funds. Its “Vision Statement for the Northeast Corridor” laments:
In the New York vicinity, some areas are operating at 100% capacity, resulting in significant delays from even minor operating disturbances. The [Northeast Corridor] consists of a mix of aging infrastructure, much of it built 80-150 years ago, that will require extensive repair for safe and efficient operations at current traffic levels.
Folks, that’s like commuting to work every day at 70 mph. in an old VW beetle that only goes that fast (and has a tendency to overheat). Nothing against the beetle, but — how long could you count on that?
Reasonable people can disagree about the efficacy of subsidized passenger rail service in the megalopolis between DC and Boston. I don’t think anyone disputes, however, that the highways in that region are getting more congested all the time, and that reliable, reasonably-priced intercity rail service wouldn’t be a bad thing. But, can we trust Amtrak to provide that? Not according to Rep. John Mica (R-FL), who said this on the day of the budget vote: “The problem is you give Amtrak the money and they blow the improvements or squander it. Congress does not trust Amtrak. They’ve given them the money before.” Mica’s largest campaign contributor is the air travel industry.
Let’s talk numbers
Amtrak’s overall operation was $329 million in the red for 2014, but its Northeast Corridor service made a profit of $286 million. You heard that right: that means that the 20,829 miles of non-NEC Amtrak routes are subsidized by over half a billion dollars a year! That’s fully ten percent of what we spend annually on the F35 “Lightning” Joint Strike Fighter! (And, it’s eight percent of what the British government spends annually on passenger rail.)
Amtrak’s “Vision for the Northeast Corridor,” offers various proposals for improving service and reliability, which are echoed in somewhat greater detail in a report by the by the Federal Railroad Administration. The proposals are graded, A through D, in escalating wish-lists. The ones in section A amount to simply maintaining existing capacity (which nevertheless calls for some rather expensive catching up). The suggestions in section D, though, are the stuff of Republican apoplexy; they propose to:
transform the role of rail, so that the rail system would accommodate a significantly higher percentage of travelers and passengers, enabling new travel patterns and new markets to be served… positioning rail as a dominant mode. This would be accomplished through a major increase in the capacity of the NEC along its entire length, service to new markets, and a dramatic reduction in trip times.
What the heck, you might as well ask for what you want. This dramatic vision (including such luxuries as replacing the Portal Bridge in Hackensack), this pie-in-the-sky wish list, way more than Congress would ever appropriate, this tremendous infrastructure enhancement that would make life so much more efficient and convenient in the Northeast (not to mention conferring significant environmental benefits) — this commie-liberal subsidized rail boondoggle — would be gradually implemented between now and 2040, at a projected cost of $151 billion. That would amount to about $6 billion per year. Does that figure sound familiar? It’s the amount that we spent in 2014 on the F35 “Lightning” Joint Strike Fighter.
To reiterate: the total projected cost of the most ambitious plan for a long-term upgrade of Northeast Corridor Rail infrastructure is $151 billion. The amount by which the F35 program is over budget, so far, is $163 billion. It really helps to count the zeros.
Two P. S.’s
1) It is widely known by economists and smart people everywhere that quality public transportation facilities increase real estate values. The city of London has capitalized on this obvious fact to fund rail improvements with levies on the windfall gains that the railroads have created. In Florida, a private concern, Florida East Coast Industries, has bought up lots of land around the terminals of a passenger rail service it plans to introduce between Miami and Orlando. Indeed, this is exactly the way the transcontinental railroads in the US were financed. Financing passenger rail improvements with taxes on land values is an easy, sensible and fair policy; we should start doing it immediately!
2) By the way: If you really want to get your mind boggled, you gotta check out Wikipedia’s page on Orders of Magnitude!
Detroit, in the mid 20th century, was a vibrant center of American industrial manufacturing with a prospering middle class. It is now the poster city of blight and urban decay. As industry has collapsed across the region, job scarcity, white flight, and soaring crime rates have driven hundreds of thousands of people out of the city. Thousands of homes, retail spaces, and civic buildings sit empty and dilapidated. Today, due to the faulty set of incentives implemented to encourage investment, real estate investment–a force that was once thought to have the potential to save Detroit–is worsening blight and costing the city millions of dollars.
After decades of declining investment in Detroit, locals were excited when, beginning in 2013, investors began to purchase large swaths of residential properties. Jimmy Lai, a billionaire based in Hong Kong, purchased 32 homes at a tax foreclosure auction. At the same auction, local real estate agent Wendy Briggs walked away with a staggering 428 properties. Despite the hopes of local residents, it became obvious right away that Jimmy Lai, Wendy Briggs, and the myriad others snatching up Detroit real estate had no plans to invest in their properties. Instead, they anticipated that Detroit would experience a real estate boom in the next several years, allowing them to unload their properties at a large profit.
Thousands of homes owned by speculators have fallen into disrepair as their owners wait for a real estate boom that does not appear on the horizon. In the meantime, a house at 3383 15th Street, owned by Jimmy Lai, partially burned down in 2015. To date, he’s made no effort to clear the wreckage, which poses a safety hazard in the neighborhood. At one point, Detroit paid over $200,000 demolishing a single speculator’s properties after they fell into disrepair and then into foreclosure.
So what factors are driving this mess? A big cause is real estate taxation in Detroit. Facing debilitating revenue shortages during the 2008 financial crisis, Detroit over-valued residential properties with the hope that increased revenue from property taxes could help the city stay afloat. They did this without the understanding that increasing property taxes reduces incentives to build or rebuild. Without this understanding, Detroit’s taxing strategy proved disastrous. In 2016 alone, the city sent 38,000 foreclosure notices due to unpaid taxes. The majority of tax bills totaled less than $2,000. If overdue taxes couldn’t be paid, the homes went up at tax foreclosure auctions, where speculators would subsequently make the majority of their purchases. It simply was too easy for speculators to game the system–with minimal cost to them and minimal gain for the city.
Many speculators fail to consider taxes in the total cost of their investment, now owing Detroit millions of dollars in back taxes. Wendy Briggs alone, who purchased 428 properties for just $379,000, owes $4.7 million in back taxes. 95% of her properties will be auctioned in 2016. In fact, nearly 80% of all properties purchased at the 2013 tax foreclosure auction are back in foreclosure. So not only do speculators let their properties fall into decay, they fail to pay their taxes, which deprives the city of a critical revenue stream and puts homes back into the tax foreclosure auction. This cycle continues to repeat itself.
Detroit and Michigan are taking steps to reduce the number of foreclosures and ability of investors to hoard properties. The state has cut interest rates on tax repayment plans by two-thirds, reducing the number of homes foreclosed due to unpaid taxes. Wayne County has closed a loophole that allowed speculators owing back taxes to purchase additional properties at auction. In addition, property assessments are expected to drop. The next step would be to eliminate taxation on buildings and focus solely on taxing land values. Both measures, if implemented worldwide, are predicted by experts to induce landlords to either immediately develop their properties or to sell to those who will.
These measures have cooled investor interest in Detroit. In 2016, the top ten investors bought nearly half as many homes than they did in 2013. Although housing activists applaud this progress, they believe more can be done. Local residents propose making it easier for people in poverty to file property tax exemptions and further decreasing the number of real estate investors in the market. However, this could have the opposite effect, as low property taxes decrease property owners’ incentive to develop their properties.
Detroit residents, having learned that speculators tend not to care about their communities, are thrilled to see them go. “They think Detroit is just a bunch of criminals who don’t care and the city is meaningless to them. The idea of a neighborhood or community is a foreign concept to these people,” says Bill Cheek, a resident in the North Corktown neighborhood. The challenge, some believe, will be keeping them out. By implementing sufficient land value taxation and exempting buildings from taxation, they should be able to do just that.