The Pennsylvania Economy League study, Development, Equity and the Graded Tax in the City of Pittsburgh, is not a legitimate independent study, but a silly attack against the land value tax proposal, with sampling distortions, misleading conclusions, and other evidence of blatant and unchecked bias.
However, Donahoe was the mayors former chief budget director. Donahoe's own budget proposals had repeatedly called for increases in other taxes and were rejected by Pittsburgh City Council in favor of land value tax. Year after year, as the mayor's employee, Donaho had the job of coming up with taxes other than land value tax, and of providing arguments against the land value tax.
During Donahoe's stay with the PEL, he produced several studies on controversial subjects at the mayor's request. These studies not only showed that the mayor's position was right, but gave no quarter to opposing claims.
Then Donahoe left the PEL and was reappointed by the mayor as director of the Urban Renewal Authority
This revolving-door relationship between the mayor's administration and the P.E.L. merely casts a shadow on the independence of PEL studies conducted for the city. It would not be damning by itself.
This study was completed early in January of 1985 and submitted to mayor Caliguiri. It was returned with "requests for clarification." These requests led to changes in the final report, a practice which is most irregular for an independent study. It was resubmitted to the city in March.
When studies are commissioned by city officials, it is standard practice for them to be presented to Pittsburgh City Council, and council members are usually given opportunities to raise questions about particular items in the studies. This study was never presented to council, but was released quietly on a Friday afternoon, when it would draw little press coverage and attract little attention. This deliberate sheltering of the study from public scrutiny casts an additional shadow on its reliability.
This section deals with problems in the study itself -- from false assumptions to statistical manipulations to misrepresentations of testimony.
Both are preposterous claims, especially as the building tax rate was just as high during the building boom as it had been before the boom. They offered no evidence that any supporter of land value tax ever made such claims, and the literature of land tax advocates contains ample evidence to the contrary.
Anticipating these "mistakes," the author of this rebuttal called the PEL repeatedly until he was granted an interview. At that interview, he stated emphatically that the graded tax played only a supporting role, and that much of Pittsburgh's construction boom was due to other factors. The PEL was also presented with the booklet, "Pittsburgh's Land Value Tax," which stated. "Pittsburgh's surge of construction in 1980 exceeds the most optimistic projections of land tax experts, and much of the credit belongs to the city administration's agressive efforts at recruiting development."
We also made it clear that the land value tax caused growth primarily by making land speculation more expensive, not by merely giving tax breaks to developers.
It is difficult, therefore, to regard these misinterpretations as anything but deliberate, and a shadow is cast on the reporting of other interviews as well.
Many of the conclusions of the study were based on interviews with "Pittsburghers who are knowledgeable about development in the city and who have at least some experience out side the City. This group includes bankers, contractors, investors and real estate managers." The names of the interviewees were not given. We discovered that the interviewees included people who were not particularly knowledgeable about development, but who had opposed land value tax for reasons having nothing to do with development. These biases were openly stated in the actual interviews, but were not noted in the study.
On the other hand, land value tax supporters with particular expertise, such as Herbert Simon, winner of the Nobel Prize in economics, and Ed Deluca, former director of development of the City of Pittsburgh, were not interviewed, even though their names had been presented to the PEL as sources of expertise who did not have vested interests in the issue.
Even with the selection of interviewees stacked against land value tax, support for the merits of the tax emerged, and were stifled by interviewing technique.
Interviews were conducted informally, with no specific list of questions to be answered. This lack of interviewing control invited the interviewers to "lead witnesses" and to freely interpret answers to suit their purposes. This is exactly what happened.
We learned from the chief interviewer that his standard opening question was, "Did the graded tax cause Pittsburgh's construction boom, or were their other factors?" People who were interviewed corroborated that this was the opening question. From the "either-or" nature of the question, interviewees inferred that they were being asked if land tax caused the construction boom single-handedly. Naturally, they answered in the negative, and the study over-interpreted this response by reporting that "a number of consistent themes emerged from the interviews," one of which was that "the graded tax has very little effect on development."
Donald Stone, dean of the School of Urban and Public Affairs at Carnegie-Mellon University, did not swallow the bait. He told us his reply was hat, while the land tax certainly was not the only factor, it undoubtedly played a significant role, The interviewer quickly shifted the subject to questions about assessment equity. When the study came out, Dr. Stone expressed surprise since the questions asked made him think the PEL interview was not about the merits of the land tax at all.
Donald Lurcott, Pittsburgh's city planning director, reported that he clearly stated his opinion that land tax does encourage growth, but that current rates were insufficient to single-handedly cause the spectacular level of growth Pittsburgh had experienced. This is a far cry from what the PEL study had reported.
It is an even farther cry from the study's conclusion, which stated that additional increases in land value tax "will probably have the same effect on promoting development in the future that it has had in the recent past in the City; that is, none." When the PEL researcher was confronted about the misleading nature of that passage, he casually replied, "I suppose I engaged in hyperbole to make a point" -- a tactic that should not even occur to an objective, independent researcher trying to convey accurate information.
The PEL study claimed to "examine the assessment, tax burden, sales and development activity on a representative sample of city properties."
In fact, samples were anything but representative. In the poor neighborhoods, residential properties within residential areas were not examined. Instead, the researcher chose only residential properties within mixed-use areas. These properties tended to be on or near main business streets, where land values were higher. They also turned out to be overwhelmingly comprised of absentee-owned residences.
For example, when they examined property within a predominantly poor black census tract in Homewood, they focused on a mixed-use section where residential property paid more, but where the rate of owner-occupancy was only 22%, and they ignored the rest of that census tract, where residential property saved and where the owner-occupancy rate was 80%. The PEL researcher explained that he had selected poor neighborhoods by driving around and looking for properties in deteriorated condition. The researcher's false notion that poor home owners do not maintain their property caused him to bias his selection of which neighborhoods to study.
When confronted with this discrepancy, the PEL researcher replied, "We assumed the tax would be passed on to the tenant." Again, we had anticipated this "mistake" as soon as the study was announced, and had given the researcher photocopies from standard economics textbooks, stating flatly that land tax is no passed on to tenants, but is absorbed from the profits of the landowners. We see no excuse for the PEL researcher to knowingly make assumptions that contradict standard economics conventions.
The PEL study charges that "the benefits fall primarily on single-family dwellings in more affluent neighborhoods." Yet the income levels in most of the neighborhoods cited as affluent were below the average for neighborhoods in the Pittsburgh metropolitan area. The only affluent neighborhood cited was within North Squirrel Hill. Despite the fact that the PEL did not examine mixed-use neighborhoods for Squirrel Hill, as they had done in poorer areas, their own statistics show that the only genuinely affluent neighborhood studied fared poorly compared with blue-collar working-class neighborhoods, which the PEL had called "more affluent neighborhoods."
The PEL study refers to "owners of smaller properties downtown" in a way that implies that they are less wealthy than owners of developed properties. We have found that the overwhelming majority of these "small property owners" actually own several properties, and sometimes hundreds of properties, while the owners of developed properties tend to own fewer properties.
The same thing is true of "owners of poorer properties" in the various neighborhoods. It is the properties that are poor, not the owners. Usually the owners live outside the city and sometimes outside the state. It is the better properties that are owned by people who actually live in the poor neighborhoods.
These distinctions are important to the question of progressivity. Cities do not want to be mislead into giving tax consideration to the "poor property owner" who lives in some affluent suburb on the income from 25 dilapidated tenements, or to "small property owners" like Exxon, Gulf, Amoco and Goodyear, which have suburban-style service stations in Pittsburgh's Golden Triangle.
There are other mistakes in the PEL study. For example, they counted 9 parcels within a vacant lot, each with the same owner, as 9 separate properties, confounding statistics on how many properties saved or paid more with and how many property owners saved or paid more.
In a time of sharply declining construction for Pennsylvania, they compared Pittsburgh's construction rate with constant dollars, when the proper thing to do was to compare it with the state, the region, or with other northeastern cities. Worse of all, they employed what is known as the "tobacco defense." (The tobacco industry is famous for saying, "Evidence that cigarette smoking causes cancer generally is not relevant. We will accept only specific proof that smoking these particular cigarettes caused cancer for this specific person.")
When presented with strong statistical evidence that land value tax has consistently led to increased construction wherever it has been adopted, the PEL researcher replied, "We aren't questioning whether land tax leads to development anywhere else. We are only questioning whether there is evidence of a cause-and-effect relationship between Pittsburgh's land value tax and the development that followed."
To most objective researchers, a consistent increase in development following the introduction of land value tax in city after city suggests a cause-and-effect relationship in all those cities. But, just as the consistent relationship between smoking and cancer is not considered to be evidence for researchers hired by the Tobacco Institute, neither is a consistent pattern of construction surges following shifts to land value tax considered to be evidence by this PEL researcher, who knew this study was commissioned by a land tax opponent whose former and future employee was the researcher's boss.
This study can be most easily refuted by an appeal to common sense and an awareness of other facts surrounding it. For example, land value tax had been endorsed by the Pittsburgh Neighborhood Alliance and the Pittsburgh chapter of ACORN (Alliance of Communities Organized for Reform Now). One must wonder why both of these organizations, which traditionally took up the cause of poorer neighborhoods, would endorse a tax that shifts the burden to people who live in poor neighborhoods.
Herbert Simon, Pittsburgh's only Nobel Laureate in economics, endorsed the land value tax, calling it "good economics and good common sense." This is not something one would expect for a tax that has no economic merit.
The real estate editor of Fortune and his research assistant spent three weeks in the Pittsburgh area studying land value tax. They interviewed people on both sides of the issue, called both sides back to reconcile conflicting statements, researched their own statistics, and wrote a rave review of land value tax. It is difficult to reconcile this review with the PEL study, for the differences go far beyond a mere difference of perspective. The obvious question, then, is whether undue influence was put on the real estate editor of Fortune by land tax supporters, or put on the director of the PEL by his former and future employer.
Finally, there are common-sense questions.
Do the poor really own a large share of land, or are they poor partly because they must pay rent to someone else who owns the land where they have to live?
Does taxing land heavily while taxing buildings lightly discourage people from building, or does it discourage people from holding valuable land idle?
Would real estate owners, when interviewed, report to the PEL that a tax which falls more heavily on them be good for the community, or would they tend to take a position that suits their vested interests?
The Pittsburgh experience and the experiences of other land-taxing cities is consistent with the common-sense answers to these questions. The PEL study ignores these questions entirely.
The PEL study cannot be taken seriously. It is not an independent study, it is not an objective study, and it is not a credible study.
The PEL study is not evidence that the land tax is improper. To the contrary, it is evidence of how far opponents of land value tax must go in order to make even a superficial case against it.
There have been genuinely independent examinations of the land value tax, all of which have been far more favorable than the PEL study.
We recommend, therefore, that the PEL study be considered not as an independent study, but as a propaganda piece for land value tax opponents.