Book Prospectus for Needful Buildings: The Property Tax Exemption in American Urban History and the Rise of the American Commons (Previously Under Contract with Johns Hopkins University Press)

The property tax exemption for governmental, educational, cultural, recreational,

charitable and religious property has shaped the American urban landscape and influenced the

nature of American urban life from the colonial era to the present. The property tax exemption is

an institutionalized social practice and a persistent component of the laws of the United States.

However, its character as an important institution in its own right has been obscured despite

serving as an important material foundation for the rise of the American commons. This will be

the first book to address a topic of fundamental importance for American urban history: the

property tax exemption and its role in the development and perpetuation of property devoted to

public works, public and religious education, public health, public democracy, public recreation

and public worship.

The book will show how the property tax exemption provided incentives for the

establishment and maintenance of an American commons made up of devoted property, by

which is meant property devoted to higher purposes such as religion, charity and public life. The

American commons is defined here as the public, nonprofit and religious land and buildings

which provide a home for the nation’s governmental, educational, cultural, healthcare,

recreational, religious, and other public and voluntary institutions.1

1 For a fuller definition of the commons, please see David Horton Smith, Robert A. Stebbins, and Michael A. Dover, 2006, A Dictionary of Nonprofit Terms and Concepts . Bloomington: Indiana University Press.

The origins of discourse on the commons are in the well-known but pessimistic metaphor of Garrett Hardin. When some sheep herders graze additional sheep on the public grazing area known as the commons, but fail

to recognize that many others might also do so, overgrazing can produce a tragedy of the commons. On the other hand, as Elinor Ostrom has more optimistically pointed out, the commons also presents opportunities for cooperation that can lead to a triumph of the commons. Overall, the book shows that the rise of the American commons been more of a triumph of the commons than a tragedy of the commons. The book will show that during the colonial era, later within early American towns and cities, as well as in Ohio all along, most exempt property originated in what I refer to as development (the construction of buildings for exempt use on previously undeveloped or underdeveloped land) rather than in displacement (the removal of valuable developed parcels from the tax rolls.) Over the years, the growth of exempt property by development and displacement yielded the gradual establishment of valuable complexes of public, nonprofit and religious property in our urban areas.

Although the property tax exemption spans the urban, suburban and rural areas of our country, its greatest impact has been in our towns and cities. The development of land set aside for religious, educational, governmental and other uses has been a subject of important debates that have guided decisions about land patents, plats, plans, zoning and exemptions. The overall purpose of this book is to illuminate the nature of the development of exempt property, the early and subsequent decisions made about property tax exemptions, and the nature of the debates

Chapters 2-4 of this book focus on Ohio. Why Ohio? First, not all states have the necessary data for a thorough study of the property tax exemption. Only fourteen states out of thirty-nine which responded to a 1973 Senate survey reported that they regularly assess exempt property and publish the data, Ohio being one of them. Previous research found that many of these same fourteen states lacked at least one key source of the data utilized in this study, such as data on effective property tax rate, proportion of exempt property, exemptions by type of exemption (public, nonprofit, etc.), valuation of school property, valuation of private school property, or valuation of public property excluding public schools. Also, a Russell Sage Foundation study of exempt property found that Ohio’s Annual Reports of the Department of Taxation were “universally respected.” Furthermore, Ohio had the following combination of fortuitous factors in place since 1955: Availability of abstracts of both exempt property and taxable property; consistent subtotals for the same set of property types in recent decades; consistent assessment of property values for all classifications of taxable real property; the breakdown of most major cities into taxing districts based on the various school districts within each city, and an office of Tax Analysis within the Department of Taxation., staffed by experienced policy analysts. Finally, one economist reported that the data on exempt property in Ohio is based upon a thorough job of appraising. In my dissertation, two appendices demonstrate that the reader can have confidence in the ability of the quantitative data used to portray the extent of property held by public, nonprofit and religious institutions in Ohio in recent decades.

In doing so, this book contributes to a better understanding of the relationship of markets and institutions through a focused study of a neglected institution: the property tax exemption. Throughout the book the development of the property tax exemption will be studied as one component of a social system of real property. The property tax exemption arose within the institutional context of the system of real property ownership and taxation in early American towns and cities. Glenn Fisher, Alvin Rabuska, Robin Einhorn and others have shown how central the property tax was for local and state public finance in American history. Fisher wrote the only recent full-length study of the property tax in America, The Worst Tax? A History of the Property Tax in America , published in 1996 by University Press of Kansas. He pointed out that the property tax was essential to the autonomy of local government, and that without the property tax our system of taxation would have been centralized at the state and federal levels. McNeil’s Rise of the West showed that one response to industrialization was the growing centralization of governmental authority (including taxation). Yet the United States remained one of the most

decentralized advanced capitalist democracies.

One key to understanding this is that until recently the property tax remained the single most important source of local public finance. In recent decades cities have come to rely increasingly upon the income tax, a development which was motivated in part by declining tax revenues from the property tax on industrial property. However, the property tax still continues to provide an essential source of support for public education in most cities. Along with documenting periodic changes in laws and administrative regulations concerning the property tax exemption, the book studies the key debates which surrounded these decisions. Throughout American history there have been periodic debates about the property tax

Critics have contended that it caused higher taxes, violated the separation of church and state, or violated the uniformity of taxation principle. In recent decades, serious concerns have arisen that the property tax exemption has undermined the property tax base for urban schools and government. This book is needed in order to place these historical developments and debates in perspective. The book discusses these debates within the larger context of contending visions of the nature of our civilization. These debates were symptomatic of fundamental disagreements about the relationship of government and commerce, of religion and state, and of public

provision and private charity. For instance, Fisher traced the origins of the uniformity principle of equal taxation of all real property to revolutionary era objections to Britain’s property tax exceptions for nobles and for businesses. In the United States, exceptions to the uniformity principle were also made in order to stimulate desired economic development and to exempt religious, charitable and governmental property. But this did not take place without the controversies studied in this book’s focus on debates about the property tax exemption.

These debates have become more salient in recent decades, during which there has been considerable discussion of the causes of the urban crisis. A number of social scientists have argued that the growth of property tax exemptions and abatements are contributing factors to urban decay, the stratification of place, reduced quality of life, inadequate urban school system property tax revenue, and city and county government fiscal incapacity. However, no systematic study of these concerns has been performed. This book concludes that the post-industrial

complexes of exempt property that comprise the American commons have reduced the extent of urban decay and have created a central city foundation for metropolitan integration.

The property tax exemption reflects a compromise between two ideals central to American life. On the one hand, belief in equal protection of the law and in the uniform application of tax laws. On the other hand, belief in the ability of people to establish institutions free from the interference of the government. The property tax exemption and its ability to exempt selected institutions from equal taxation took on an institutional character that has had a

major impact on urban life, urban landscape and urban policy. The book will study the extent to which compromises reached over the property tax exemption were essential not only to the preservation of exempt property but to our reliance upon the property tax as the foundation of local public and school finance and to the evolution of our uniquely decentralized system of political democracy. Without an improved understanding of the importance of these compromises about the property tax exemption, our ability to ensure the survival and evolution of property tax exempt institutions as we know them may be diminished.