Local Democracy's Business Model Is Broken

Local governments’ revenue structures drive the land-use decisions that produce sprawl, unaffordable housing, failing infrastructure, and long commutes. Because cities rely on sales taxes, targeted state and federal grants, and capped property levies, they favor car-centric retail, big-box stores, and projects that generate immediate consumption taxes over housing and public amenities. Surveys of California administrators and studies from Florida show sales-tax dependence correlates with retail-focused zoning and fewer productive uses; competition for limited revenue-generating retailers leads municipalities to subsidize businesses or bend rules. Federal grant strings and road-design standards further incent traffic-scaling “stroads,” while a century of zoning, redlining, urban renewal, and tax limits such as Prop 13 and Proposition 2½ have both excluded marginalized communities and shifted fiscal burdens between jurisdictions.

Replacing that broken model with land value return - raising revenue from unimproved land value via land value taxation and public land leasing - would realign incentives. Because land value reflects the community’s collective investments and economic opportunity, capturing it ties municipal revenue to broad-based growth rather than particular occupants. Cities would care less whether a parcel houses apartments, offices, or shops and more about highest-and-best use; public investments in parks, transit, and schools would clearly pay off through rising land values and a growing tax base. That feedback loop promises to reduce exclusionary zoning, better fund services, and encourage housing and compact development.