A dumb, dumb tax loophole

Wednesday's Statesman had a piece on a property-tax break for "ecolabs."  A property owner who opens up his property to ecological research is entitled to reduced property taxes.  Not surprisingly, this has sparked intense interest in bugs and grass among a number of property owners (including Michael Dell).  The tax appraisers are more skeptical:

The issue has led to an unlikely contest, with academics and some landowners squaring off against tax appraisers.

Ecolab exemptions, like those for farming, ranching or wildlife management, can reduce the appraisal value of a property as much as 90 percent. The land is valued as if it were dedicated to agricultural use.

. . .

But county appraisers, suspicious of the arrangements, have begun rejecting ecolabs.

The Travis Central Appraisal District has overturned all ecolab exemptions it granted last year. And within the past year, the Hays Central Appraisal District has rejected eight ecolab applications, and the Bexar Appraisal District has rejected one.

The appraisers say the ecolabs have little oversight and cost counties and school districts thousands of dollars in missed revenue, and they question the merits of the research projects.

The appraisers are being diplomatic.  This is an idiotic loophole.  Not because ecological research is not valuable.  It is.  It is certainly something that our universities should do.  This is just a stupid way to fund it.

The ecologists complain that they need access to private land.  There's no question that they do.  But people get access to private land all the time.  They rent it.

That's effectively what's happening here.  The state is renting land for ecological research, paying rent in the amount of the tax breaks.  (Actually, that's not quite right:  The state is obtaining access to the land but compelling counties and cities to pay the rent.)

This is a dumb, dumb way to pay rent, and not just because city and county governments are being forced to pick up the tab.  This is a dumb way to pay rent because the people who obtain the benefit from the property, and are therefore in a position to judge the value of the property, don't pick up the tab.  This means that the amount of rent doesn't necessarily have any bearing on the value of access to the property.  For example, one property owner's assessed value has been cut by $2.8 million.  He's effectively getting $60,000+ in rent per year for letting researchers perform ecological research on his property.  Is it worth it?  I don't know.  No one knows, because the researchers' institutions don't have to foot the bill.  If we gave the institutions an extra $60,000 to spend on ecological research, they might spend it all for access to a single piece of property.  But then they might not.  They might decide that $60,000 could be used better to fund a bunch of other projects. 

Even if the researchers were determined to get access to a specific property, they might be able to get it for a lot less than $60,000.  The typical property owner probably wouldn't give access for free.  But if he's got 40 undeveloped acres just sitting there, earning no economic return at all, he might consider even a few thousand dollars a windfall.  This loophole virtually guarantees that we'll overpay for ecological research.

Access to the property might not be worth the price for another reason.  The research itself might not be worth very much.  All research is not created equal.  Universities, departments, and even individual researchers have to prioritize all the time.  They do this in part based on a cost-benefit analysis.  I don't mean they calculate the fiscal benefits of the research -- there frequently is none -- but they balance the potential advance of knowledge against the cost of procuring that advance. 

When universities or academic departments or grant-issuing government agencies foot the bill, they have an incentive to monitor the research project, to make sure it is worth the resources it will consume.  This is a good system because they have the expertise to decide what's valuable and what's not.  Under the tax-break system, though, the university or academic department or grant-issuing government agency doesn't have to worry about the cost of property access.  Trivial research -- that is, research that no sensible academic would spend ten bucks on -- can be used to lop thousands of dollars off the tax rolls.  (Also, there's the possibility of collusion between property owner and researcher.)

This system forces the burden of monitoring the quality of the research on . . . the tax appraiser.  The tax appraiser must determine whether the project is a justifiable ecological research project or just a tax dodge.  I doubt many tax appraisers anticipated that they would need a research degree in ecology when they signed up for the job. 

Rep. Patrick Rose has introduced a bill to tighten the ecolab tax break.  Do us a favor, Representative.  Don't tighten.  Chop.