Exactions as Double Taxation Peter F. Colwell and Joseph

							   Thought for the Day


Exactions as Double Taxation
Peter F. Colwell and Joseph W. Trefzger
Municipalities routinely take from owners       market value of an agricultural parcel in     Webster’s Ninth New Collegiate Diction-
some of their rights to use land, and,          the area close to urban developments          ary lists the synonym “EXTORTION.”
instead of paying compensation for the          reflects two components: the value in use        Of course, if owners of land on the
property taken, require the owners to pay       of the tract as farm land, and the value of   urban fringe do not pay taxes on the
ransom to recover their lost rights. These      the owner’s option to develop the agricul-    option value prior to undertaking devel-
payments are euphemistically referred to        tural land for urban activities.              opment, and if after development they
as exactions; they entail charges in the           If the undeveloped land is assessed for    receive services of greater value than
form of money, land, or public facilities       tax purposes based on its value in use,       their immediate tax payments could buy,
improvements required by local govern-          then the owner certainly is not paying for    then they indeed receive subsidies from
ments in return for development rights.         an urban level of public services. If, how-   owners of established properties. Howev-
Money charges of this nature, sometimes         ever, the undeveloped land is assessed        er, to the extent that owners of not-yet-
called impact fees, may be as high as tens      based on its higher market value, the         developed tracts on the urban fringe do
of thousands of dollars per lot.                owner of the undeveloped land pays sub-       pay taxes in excess of the values of the
   The popular view is that in the absence      stantial sums for a trivial level of public   public services received, it is they who
of exactions, developers of new projects        services. Yet the higher property tax rep-    are subsidizing the owners of previously
would not be paying their fair share for        resents only the first time that the owner    developed land. In such instances, if
the new public facilities (for example,         of undeveloped land must pay for these        owners of undeveloped land must then
waste water treatment and road or utility       urban services.                               pay for rights to develop, they are clearly
extensions) required specifically to serve         The owner then pays for urban services     being required to pay twice.
their new developments. Many feel that          a second time, when forced to acquire the        It would be interesting to learn the
without exactions, owners of previously         right to develop the property by paying       relative magnitudes of the subsidies that
developed properties would be subsidiz-         exactions. For example, in order to gain      exist. Perhaps, contrary to the popular
ing the owners of new developments.             the jurisdiction’s approval to subdivide      view, the owners of undeveloped land
   This view may be incorrect, however,         a parcel into residential lots, the owner/    pay more than their fair share; such an
as it fails to recognize the double taxes       developer might have to donate to the         outcome would result if the subsidies
that can actually be applied to undevel-        jurisdiction a tract that can be used as      these owners paid prior to developing
oped properties that are prime candidates       a public park or as the site for a new        exceeded the subsidies they received
for development. Imagine a community in         school. Essentially, the municipality has     after development occurred. Of course,
which the jurisdictions of taxing authori-      captured the rights to use and develop        the net subsidy depends on the rules for
ties (such as a fire protection or mass tran-   land, and will return these rights only if    assessing agricultural land and the juris-
sit districts) extend beyond the urbanized      the owner pays an exaction. It should not     dictional boundaries.
area into the agricultural fringe. The          surprise the reader that under “exaction,”



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