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 This week’s OregonPEN is the last issue before the start of the 2016 legislative session, which promises to further highlight the extreme fragility and brittleness in in Oregon’s haphazard kludge of a tax and revenue-raising “system,” which includes the State Lottery, a special tax levied almost entirely on people with who suffer from any of a number of disabilities that are known to cause the impairment in judgment necessary to produce the participation that we choose to call “voluntary.”
 
The unceasing pressure to raise greater and greater revenue streams in a stagnant or contracting state economy creates exponentially greater tensions in the political arena. Senate President Peter Courtney predicts a disastrous session marked by such fierce warfare as to justify comparisons to the Battle of Antietam, the bloodiest day in America’s pugnacious history.  The short, 35-day session is likely to be followed by competing initiative campaigns to raise Oregon’s minimum wage and to tax large corporations, among other hotly contested issues.
 
Both of those ideas are attempts to reverse just some of the dramatic losses that individuals have suffered, as workers and taxpayers, in the roughly 35 years since Ronald Reagan carried Oregon’s then-six electoral votes. Since then, Oregonians have waged increasingly bitter election campaigns and struggled mightily to find the magic lamp with a genie who can produce the fruits of economic expansion despite forces of contraction pressing on the state’s economic fortunes in all directions.
 
Thus, with the shooting about to resume, this is an opportune issue in which to highlight the important news that Oregon can, if it chooses, raise the revenue needed to operate a modern economy without the zero-sum politics that characterizes tax policy today and that regularly pits students and workers against retirees, the students and workers of prior years. But we first have to understand why our system is so poorly performing today.
 
Oregon: A Pogo Stick Instead of a Three-Legged Stool
 
Oregon’s methods of raising the funds needed to pay for public services combines the simplicity of a Rube Goldberg-designed cuckoo clock with the robust stability of a sand-castle built on the beach at low tide.
 
Although most state public finance systems rely on what is called a “three-legged stool” of taxes (income tax, property tax, and sales tax). In most states, the three main taxes differ enough to reduce the overall variability felt during recessions, as sales taxes help cushion falling income tax receipts. Property values do fluctuate, but because the property owning class and investing class is very different from the people who depend on wages, there are substantially different time periods involved in the cycles of wages versus the cycle of property values. (Even in recessions severe enough to force individuals to return to renting, the global pool of investors seeking investment property props up the values.)
 
The net effect is a much greater stability in state revenue pools fed by all three revenue streams.
 
Oregonians famously refuse any form of sales tax entirely, and we further allowed ourselves to be conned into approving strict property tax limitation measures. Thus, instead of a solid base with three supports, Oregon’s revenue is, functionally, a pogo stick with a shortened mainspring, where the truncated spring represents the effect of our property tax limitations.
 
Staying upright on any pogo stick is hard enough, much less making progress towards a desired destination; it requires constant exertion and attention just to stay in place. But Oregon’s specially hobbled pogo stick presents an even greater challenge. Our over-reliance on the income tax as our revenue mainspring means we get an amplified, painful jolt whenever incomes and income taxes fall, such as when national trends compress the state economy. There is no sales tax, and no matter how far incomes fall, the revenue boost available from property taxes is sharply limited. Without state revenue available to make Keynesian investments, the contractions in the business cycle are made more severe and last longer.
 
As if all that wasn’t bad enough, we have to add Oregon’s bizarre state tax “kicker” law to our understanding. If raising the funds needed to pay for services in Oregon requires keeping upright and balanced while jumping up and down on a hobbled pogo stick, the kicker moves the whole show into a concrete basement –with a very low ceiling.
 
Then there are the usual problems common to other states as well: balanced budget requirements coupled with laws that make no distinction between operating expenses and spending on capital improvements that pay for themselves over time.
 
It’s really no wonder that Oregon’s economy struggles. We exhaust ourselves just trying to stay in one place, even as our spending needs operate independently of any of the limits we place on ourselves in terms of raising revenues.
 
Worst of all, our over-reliance on income taxes means that we are heavily dependent on taxing – discouraging – income, which is the very thing we hope to encourage with much of our public spending. It’s as if we are driving with our foot on the brake and the gas at the same time, wondering why the engine overheats and breaks down so much.
 
Time to Get Off the Pogo Stick. It’s Time to Root our Tax System in Oregon Itself
 
There ARE solutions to our funding problems, ways that would let us get off the pogo stick that gives us a painful jolt every time the spring bottoms out and hurts our head whenever we smash against the ceiling kicker.
 
But implementing the solutions requires being willing to think about the problem of raising revenue in a new way, with the “how” first, rather than the “who” first. Oregonians never sat down and created our tax system from a clean slate, but ever since the days of the pioneers, the effort has been, as anywhere, to put the tax burden where it belongs, which is anywhere other than present company – and that applies for all values of present company, all across Oregon. When social scientists say that Oregon is one of the least religious states in America, that is only because tax avoidance and tax hatred is not a recognized faith.
 
This issue of OregonPEN focuses on the first, most fundamental change we need to stabilize our tax system and to improve how we pay for things, regardless of how much we pay.
 
Because our tax system is and always has been so dependent on income, we have an extraordinarily complex and inefficient system, since the income subject to an income tax is a defined quantity, and each definition is subject to countless exceptions, both intended and otherwise (exceptions to the definition of income are generally known as obvious or common sense when used by present company and loopholes when used by others).
 
A better tax basis than income, which is a purely defined quantity, is one where the tax basis is a real quality, and where that real quality is objective and apparent to all, rather than being something that can only be discovered by an accountant operating thousands of definitions in the aptly named “tax code” (where code means a system of sharing information with chosen allies while serving to confound all others).
 
As the articles in this issue will argue, the best basis for a tax system is with the basis for the state itself, the very land that makes up the state. And it is important to distinguish between land value taxation and property taxation, because property taxes – taxing both land and structures on the land — work counterproductively, just like income taxes. That is because property taxes discourage the same things we want to encourage, improvements to land in places where people derive benefits from the improvements.
 
One metaphor to keep in mind throughout this issue of OregonPEN is that of the strong horse and the 200 pound weight. A healthy horse bears a 200 pound burden on its back with ease; but that same horse can be completely immobilized just by lashing the burden to the horse’s leg. Oregon is like a horse in that we have a burden we must bear, in this case the burden of raising the money we need to support the investments and services we want.
 
Sadly, while we expend thousands of hours fighting over the right size of the burden and millions of hours trying to shift the burden away from present company and onto “them,” we have given little or no thought to how we could go farther, faster, just by carrying that burden on our backs instead of having it tied to our legs. By taxing Oregon itself – the land value of our state, rather than the work of Oregonians or their improvements to the land – we can better carry the burden, and we would soon obtain the many additional benefits of a more efficient, transparent, honest revenue system.

Thoreau famously said that “There are a thousand hacking at the branches of evil to one who is striking at the root” and nowhere is that more true than in the area of tax policy, especially in Oregon, where a uniquely virulent refusal to think carefully about taxes has produced a distorted and dysfunctional tax system that has virtually no defenders, except for everyone who would rather live with the distorted and dysfunctional devil they know than one with any changes.

Consider the Oregon Center for Public Policy, a valuable and hard-working nonprofit that hacks away at the branches of Oregon’s dysfunctional tax system by tirelessly studying and explaining how it works in plain English, year in and year out. OCPP does stalwart, intelligent work trying to get the word out about how the present tax system actually functions and contrasting that with the popular disinformation campaigns promoted about the tax system through interest groups seeking to bend the system further to their liking. Here’s how OCPP describes itself:

The Oregon Center for Public Policy (OCPP) does in-depth research and analysis on budget, tax, and economic issues. Our goal is to improve decision-making and generate more opportunities for all Oregonians.
 
OCPP’s Mission
 
Use research and analysis to advance policies and practices that improve the economic and social opportunities of all Oregonians.
 
OCPP’s Core Values
 
Economic justice. Economic justice is found in a progressive tax system and the equitable distribution of the economy’s benefits.
 
Stand with the poor. Our solutions must benefit all Oregonians, but always with a special focus on the interests of low income Oregonians.
 
Good government works. Government can play a necessary and positive role, and we are vigilant and critical in pursuit of improved effectiveness and efficiency of our public structures.

Another valuable nonprofit is Tax Fairness Oregon. Like OCPP, TFO works tirelessly to expose the distortions and giveaways proposed in Oregon tax policy. TFO strikes closer to the root of things by spotlighting the most egregious tax giveaways, which spring up every legislative session the way mushrooms spring up after a rain in an Oregon forest. TFO describes itself thus:

Goal

Our goal is to promote a tax code that is fair, progressive, serves the common good, and is fully enforced.
 
Since 2003, Tax Fairness Oregon has helped save the state budget hundreds of millions of dollars by working towards an equitable tax system.

In some cases that means killing tax breaks like the BETC, or winning changes to enterprise zones such as the Rural SIP. In other cases its means supporting bills that rein in wage theft (which also always means tax theft) or advance tax enforcement.
 
From helping to retain the Oregon Estate Tax to helping to pass Measures 66 and 67, Tax Fairness Oregon has been a critical force in state government.

However, both groups operate entirely within the existing tax paradigm, never addressing whether we could ever find a way to raise revenue for public spending that was less vulnerable to finagling by pressure groups.
 
By accepting the existing tax framework as a given, groups like OCPP and TFO essentially condemn themselves to a never-ending battle against a hydra. Recall that, in Greek myth, one of Hercules’s labors was to destroy the Hydra, a monster with nine poisonous serpent heads, one of which was immortal. Even worse, every time Hercules would chop off one of the hydra’s heads, two would sprout from the wound. Battling the serpent by hacking at the heads only put Hercules in greater and greater peril.
 
According to the myth, Hercules survived thanks to what we might say today was the first instance of “working smarter, not harder:” Instead of redoubling his efforts, Hercules changed tactics, winning by telling his nephew to cauterize the wound left by Hercules’s sword after each cut, preventing the new serpent heads from sprouting.
 
That is very much what is needed in Oregon tax policy: fighting the giveaways is not enough, because for every one defeated, a handful more are proposed. Every special tax break that is proposed, even those denied, just creates increased pressure for additional tax breaks for others.
 
Worse, a system riddled with favors and exceptions lets the media portray groups like OCPP and TFO – the very people fighting on behalf of everyday taxpayers – as enemies of taxpayers, because they are smeared in the media as “pro-tax.” And Oregon’s unstable pogo-stick tax system creates abundant opportunities for lobbyists to argue for exemptions, and legislators are hypnotized by lobbyist promises of jobs, sweet nothings like a lover’s promise to be faithful always.
 
There is a group in Oregon that recognizes the true nature of our problems and realizes that we have to fundamentally change the basis of the tax system if we want to be able to stop struggling to hack at the thousand tax-break branches and to fix the root of fiscal problems: our dangerous over-dependence on income taxes.
 
That group is Common Ground of Oregon and Washington, a chapter of CommonGround-USA. The unique insight of these Common Ground networks is that many of our most vexing public policy problems derive from what and how we choose to levy taxes, rather than the levels of taxation. The CommonGround-USA.net website offers two succinct statements of principles that should be much more widely recognized and applied in Oregon:

The Revenue Source is Under Our Feet

The real estate tax is a combination of fused levies on buildings and improvements, and on site value.

Buildings are assessed at market value, cost of reproduction, and depreciated value by aging. Taxing improvements heavily, as does the present property tax, discourages free enterprise from providing enough rehabilitated and rebuilt housing in older city areas. Individual building investment in declining older neighborhoods is devalued when an entire neighborhood has no incentive to renew itself with private funds.

In cities, studies have shown that presently two-thirds to three-fourths of the “property tax” falls on buildings and improvements. Remodeling, rehabbing, adding an extra family room or a garage punishes the property owner with a higher assessment and consequently a higher property tax. Small wonder older city housing is often not in the best shape when its upwardly mobile owner moves to the suburbs!

The other part of the fused property tax is the tax on land values. Unfortunately, the site under run-down housing is assessed as a residual of a deteriorating building. Therein is a major revenue source problem!

Urban site value is created by increased population bidding for sites to build homes, offices, shops, or factories. Zoning decreed by the local government also adds value to sites. Collectively, the community taxes itself to pay for municipal services (e.g. police, fire, etc.) and amenities (e.g. parks) and for cement infrastructure (sewer mains, etc.) Location value of any site is further influenced by the private investment of other individuals in the neighborhood or shopping district.

The present system of low taxes on the site value of urban land encourages under-utilization and speculatively withholding of land sites from the market. Increasing taxes on unused (vacant lots) and underused (with obsolete buildings) sites is a prod for the owners to put these sites to productive use or sell them to others who will.

Site value taxation stimulates the city to redevelop and allows city services thus to be more economically administered and/or extended in a more compactly developed city. Almost all municipal costs — water supply, sewage disposal, garbage collection, street maintenance, school busing — are increased by distance.
Site value taxation is revenue neutral in providing funds for local budget needs.

Heavier site value taxation takes back for the community the increase in value of land which the community created. A commensurate decrease in the property tax levied on buildings and improvements provides the incentive for private rehabilitation and rebuilding. The potential for revenue increases from site value taxation exists which, coupled with corresponding decreases in other forms of taxation — as benefits occur from economic growth (such as income taxes, sales taxes, etc.), preserves that neutrality.

The nation is looking for tax reform that will reduce the national debt, encourage production, reduce unemployment and under-employment, and put our public finances on a business-like basis, providing sufficient revenue without indebting future generations.

The nation is looking for a method to provide low-cost housing and clean up urban slum areas without government housing subsidies.

The nation is looking for a way to reduce urban sprawl with its waste of farm land and its public cost for providing urban services and its private costs in time and fuel consumed in commuting.

And a letter to mayors suggests how many of the benefits of a new tax paradigm would be felt right where they are most needed, our urban centers. As this issue of OregonPEN arrives, Portland is the “hottest” real estate market in the United States, which means only that more and more of the socially created value in Portland land is being captured by those who can speculate in land, and income is flowing upward, even as people are being made homeless by the rising values:

An Open Letter to the Mayors of the Cities and Towns in the United States

Governing a community, any community, presents tremendous challenges to elected officials, and the person who serves as mayor is very much in the spotlight. His or her decisions and policies are subject to constant scrutiny. Today, the challenges are as great or greater than ever before because many people and most businesses are apt not to have firm roots in any particular community. Businesses come in search of markets and stay when the effort proves profitable. People follow employment opportunities and — when able to choose — they look at the other attributes of the places where they might live, work and play.

As mayors working to retain existing residents and attract new people in, you are certainly aware of the importance of safe neighborhoods, good schools, usable parks, reliable mass transit, bearable taxation and a welcoming climate for businesses. To a very great extent, full employment results in these desired characteristics. At the same time, a community must find ways to fund all of the desired amenities when they are not now present. This has proven to be an elusive goals for many cities and towns.

Common Ground members live and work in many of the communities you serve. We want to stay and make our contribution to the quality of life for our neighbors and our families. That is why we urge you to think seriously about the way our municipal governments raise revenue to pay for the public goods and services we believe are necessary for our quality of life.

One perspective – the one that has driven public policy for a very long time – is that the least harmful way to raise public revenue is by taxing just about everything and everyone – but as moderately as possible. Over time, government has imposed taxes on the wages of every working person, on the homes and automobiles and other personal assets of every resident, on the assets and gross revenue and profits of every business, on every exchange of goods and services, and even penalizing visitors by taxing stays in hotel rooms. The result for many cities has been an ongoing loss of people and commerce.

In place of self-sufficiency has come a perpetual dependency on state and federal governments for revenue at a time when state and federal elected officials have adopted the tenets of “new federalism” that returns authority and responsibility to communities to solve their own social and financial problems. On the bright side, there is today a recognition that heavy taxation of businesses and working people only serves to drive them away. People who have options will not hesitate to abandon a city or region if government is not doing the right things from their perspective.

Taxes are only one contributing factor to a high cost of living or of doing business. With markets often global rather than national or regional, a location to be desirable must allow businesses the opportunity to compete internationally, absorb local costs of producing goods or offering services and still make a profit for the owners. The responsibility and challenge to our elected representatives is to strike the right balance between the need for revenue and the need for a healthy, nurturing economy.

A more deeply penetrating analysis than is the norm of how taxation affects markets, investment decisions and the migration of people is part of the educational mission of Common Ground U.S.A. and its membership. Our research leads us to rather striking conclusions of how the way we raise our public revenue drives economic and social outcomes.

What cities have to offer most is location. Cities are where they are because at some time in the past the location was advantageous: an excellent harbor, a navigable river, rich farmland, mild weather, the crossroads of natural trade routes. With the increase in population coming to live in the same geography, locations come to have exchange value. In fact, every location has some annual rental value in the market place. This rental value is what people are willing to give up from what they produce as payment for control over a particular location.

In our cities the most valuable locations are usually in or near the central business districts. Values tend to decline the further away from the center one goes (until you get close to another business district or a riverfront or ocean beach or mountain vista). An important practical observation is that this location rental value grows or falls independent of what any individual does with a location. Location value is created by aggregate public and private investment.

As such, this value ought to be – we would say “needs” to be — fully captured by government to pay for public goods and services. When, as is largely the case, location rental values are only lightly taxed, the market recognizes the net rental value as “imputed income” to the holder of the land deed. This income stream is capitalized into a selling price. Here is a simple example. Say a parcel of land can be leased for $10,000 a year and a market rate of return on investments is 10%. The $10,000 in rental income is capitalized, at 10%, into a selling price of $100,000 for that parcel. However, if location rents are rising every year, the owner will try to capture this future increase in income by charging a price greater than “current value” would suggest.

The lower the annual tax in relation to location rental value, the greater is the imputed income to be capitalized. Thus, a city with a low effective tax rate on location rental values will experience high levels of land hoarding and speculation, as well as land markets with a strong tendency to spiral upwards rapidly, then crash when businesses can no longer afford to absorb the higher costs of doing business triggered by the speculative land market. Strangely, we have come to accept these dynamics as the unfortunate consequences of a market economy, of the business cycle, when rational public policy could attack the problem at its core.

Our mission to provide objective and thoughtful analysis to our mayors, urging you to take the lead in removing one of the most serious impediments to the economic health of our cities by looking to location rental values as the primary source of public revenue and removing the burden of taxation from the productive activities in which we engage.

Taxing (i.e., collecting) location rental values brings in revenue, discourages land speculation and pressures those who own land parcels to improve them according to “highest and best use” as dictated by the market. Zoning and planning measures are important factors in these investment decisions, and current thinking is to encourage mixed-use development so that people can live, work and play in the same geography – reducing our dependency on the automobile and paving the way to a cleaner environment.

When the land owner then makes an investment in a home or office building or store – improving the land parcel to its highest and best use – the best thing the city can do is exempt these assets from taxation. Selective and limited abatements have been employed for decades. Exempting all property improvements from taxation simply extends this wise policy to all property owners. Never again should anyone be penalized by an increase in their taxes as a result of constructing a new building or renovating an old one.

The same logic applies to taxes on the wages and salaries of working people and on the sales of goods. These forms of taxation started out at very low levels and have been increased over time, often in response to revenue shortfalls. The long-term impact of these measures has been to drive people and businesses to lower (or no) tax geographies. All across the United States, people live in one state because there are lower real estate taxes, work across a border because the wage taxes are lower and shop in another state because there are no sales taxes. People act rationally, even if our tax policies are not.

Every city or town would benefit, we believe, by the measures we have described. Perhaps more to the point, the people who work and produce and contribute to the economic and social health of our communities will be rewarded – as they should – for doing so. Those who enjoy the privilege of controlling the use of the most desirable and potentially profitable locations in our communities will, finally, pay for this privilege.

This insightful analysis from November 2000 is about Seattle, but it could be easily updated and slightly modified to reflect the slight differences in Portland, Oregon, circa. 2012 to the present. That is because the author zeroes in on the DNA-level factors that express themselves as urban blight and fiscal weakness wherever we tax land and improvements at the same rate.

And we have only to look at what has transpired in Seattle since this article to see what is impending for Portland and the metro area: staggeringly expensive infrastructure projects that lead to tax revolts, levels of inequality within the city not seen since pre-Revolutionary Paris, huge amounts of gridlock, rising levels of homelessness, and equally huge profit taking by speculators.

This insightful analysis is by one of the key figures in Common Ground OR-WA, Tom Gihring:

The Growing Housing Affordability Gap

Mayor Paul Schell, during his campaign for office, promised to confront Seattle’s growing housing affordability gap.  The resulting Housing Action Agenda (1998) took a traditional view of the housing crisis by focusing on the supply and demand imbalance. The assumption is that by adding a large volume of market rate housing units, prices and rents will be brought down through the filtering process. A set of modest incentives to encourage new development activity forms the centerpiece of city’s current housing policy.

The supply-demand view may be a valid way of looking at short term spikes in housing prices, but it is not a particularly useful way of addressing the housing affordability problem.  The lack of affordability has been a long term trend since the late 1970’s, and it is best described as the growing gap between rapidly rising housing costs and moderately rising household incomes. A more effective way to solve the housing affordability crisis is to enable the housing market to produce housing at all income levels–by bringing down the most rapidly growing cost component of housing production, land values.  In regional housing markets across North America there is strong evidence that rising residential land prices are largely responsible for driving the increase in housing costs.  At the national level, residential land prices rose by 2,000 percent during the decades 1950 to 1990, compared to about 400% for building components and incomes.

In the Seattle market, the highest growth period for both home values and incomes occurred during the 1970s.  The annual growth in King County median home value was 12.7% during that decade, while the rate for median income was 8.3 percent.  Since 1977, median home prices have risen faster than median income.  While incomes multiplied in the county by over 10 times during the total 40-year trend period (1950-90), housing values increased over 14-fold.  During the past decade, household incomes have been growing at an annual average rate of about 6%, while total assessed land values have risen at the county-wide rate of about 8% annually.

Up-to-date trends are more alarming.  In most Seattle city neighborhoods, median home prices experienced double digit inflation over the past two years.  It is now difficult to find a habitable single family house for under $200,000.  What is the driving force behind rapid appreciation in land values, often referred to in real estate circles as the “location” factor?

Factors Causing Land Price Inflation

Here are six interrelated factors that combine to bring about land price inflation:

Homeowner’s expectations about equity build-up  

In 1950, the $9,230 Seattle median priced home was easily affordable to the median income household.  That family’s $3,100 annual income was sufficient to purchase a dwelling priced at $15,800, leaving an income surplus of 30 percent.  At mid-20thcentury, price increases were modest; mortgage interest rates were under 6 percent.  Urban middle class families saw homeownership as a “hedge” against inflation.

Then, in the late 70’s, a new mode of thinking began to unfold – the recognition that potential economic gains could be realized from shrewd real estate investments.  Who can forget the proliferation of popular seminars promising quick returns to disciples of the “leverage” principle.  This newly found source of windfall was coincidental with the era of the “exploding metropolis”, characterized by rapid suburbanization and the phenomenon of neighborhood dynamics—push and pull factors causing the simultaneous rise and decline of socially disparate localities.

Rapidly increasing urban mobility gave rise to the preeminence of location as the major factor in attracting real estate investments.  “Slumming” was profitable in declining neighborhoods, and upgrading was profitable in rising neighborhoods. 

By the 1990s, the information/service economy produced a new generation of explosive and concentrated wealth.  Under the rapid pursuit of the American Dream, the housing market had been transformed from a supplier of shelter to a source of economic gain through equity accumulation.  Those families without the capital resources to jump onto the equity bandwagon with a first-time home purchase are often left behind as the affordability gap widens.  The federal minimum wage is now one-third of the amount needed to rent a modest 2-bedroom apartment in King County.  This standard of housing, requiring an hourly wage of $15.50, is unavailable to almost half of the renters within the county. 

Meantime, the prudent homeowner is in an acutely advantageous position.  In the Seattle market, an “empty nester” household, after 3 typical moves into increasingly higher value homes, will derive enough resale proceeds to purchase a dream home priced 70 percent above the price which a first-time home buyer can afford (holding income constant).  Experienced movers leverage themselves into higher value homes by applying resale proceeds towards principal, thus reducing monthly mortgage costs to an affordable level. 

Landowners’ practice of speculative holding

King County assessment records reveal the extent to which land values have been rising historically.  Throughout the period 1977 to 1998, total land assessments increased by 945 percent.  On the other hand, general monetary inflation has been growing at an average annual rate of about 4%, or 128 percent over the twenty-year period.  In reality, the increase in value realized from a property’s location amounts to speculative gain—reflected in land values.  Thus, in the Seattle land market, the 817% net balance in land value inflation is independent of the individual investors’ capital improvements and can be viewed as potential windfall.  From the point of view of individual investors, buildings actually lose value over a period of time, eventually to the moment of zero at the end of their economic life.  Assessors here usually assign a nominal improvement value ($1000) to a fully depreciated, deteriorated building.  

Some shrewd investors will capitalize on the rising land market by purchasing properties in high value locations, letting existing buildings deteriorate while holding onto the land.  Such is the case of landowner Sam Israel who over several years accumulated a portfolio of nearly 30 parcels of old commercial buildings in downtown Seattle.  By 1996, his land value assessments had grown to $21 million, more than twice the value of the remaining buildings.  Half of the 3property inventory consisted of cleared sites or nominally valued buildings.  Currently, the downtown construction boom has boosted true market land values far beyond these assessment figures.  By way of illustration, the Douglas Hotel property was purchased for $16,000 and later resold for $1 million.  The Samis land trust is now leveraging the value that its predecessor played no part in creating.  In effect, the Israel speculative holdings contrived an artificial scarcity of land by withholding valuable sites from productive use. 

Major landowners in rapidly suburbanizing areas of the metropolis can easily produce the same effect of constricting land supply by holding sites at the urban fringe while surrounding land escalates in value.  The expectation of windfall gains from rising location values itself exacerbates inflationary pressures, as others join in the race for maximizing unearned profits from eventual resale at higher prices.  This scenario literally played itself out in Clark County, Washington, during the early 1990s in anticipation of legal restraints on limitless urban expansion, accompanying the state’s urban growth management act.

Builders’ need to increase building-to-land value

As land prices rise, builders find that in order to make new homes marketable they must erect larger houses to increase the building value relative to the lot value.

Homebuilders cannot market modest dwellings on expensive sites. What family will pay $300,000 for a 2-bedroom bungalow on a $150,000 lot? Sellers typically need a 2:1 ratio of building-to-lot value to attract homebuyers. The trend towards higher and higher land values leads to bigger homes, and higher developed-site prices.
Builders who choose to specialize in affordable housing are being driven away from neighborhoods rising in value. This is because the search for buildable lots priced low enough to allow affordable resale home prices is becoming increasingly difficult.  Consider the following Seattle Times excerpt:

“HomeSight, which helped ignite the Central Seattle housing craze by having the guts to build where no one else would, now finds itself priced out of the market it helped create. In the mid-1990’s, it sold 18 new [affordable] houses for $135,000 each. One was recently re-appraised for $205,000. Looking at the astronomical prices for houses in the area, HomeSight is packing up and heading south to cheaper pastures.”  

This course of defensive action, replicated in varying degrees throughout the urban region, feeds the neighborhood dynamics process, leading to further geographic concentrations of wealth and deficiency. 

Real estate industry records show the distinct trend towards larger single family homes, which itself generates consumer preferences for more living space.  New homes are 40 percent larger than they were in 1970 when the stage was being set for the commodification of housing.  The median size of a new home was 1,605 square feet in 1985; by the end of the century that typical home size grew to 2,030 square feet.  Home size is less a function of household size than a product of upgrading one’s housing status.

Mortgage lenders’ practice of leveraging 

Higher developed site costs, including more expensive lots and larger homes, induces the use of highly leveraged long-term mortgages.  But, reducing down payment costs by shifting the balance to monthly mortgage payments merely increases the total cost to housing consumers.  Observe the long term trend towards greater and greater leveraging—the lightening of up-front costs and the loading of carrying costs.  These hypotheticals are generated from historical data:

In 1950, the typical mortgage loan terms stipulated a loan-to-value ratio of 60 percent, on a 25-year loan at 5% interest.  For the median income family purchasing a median priced home in King County, total ongoing housing costs amounted to 17% of household income.  Total accumulated mortgage debt was $13,200 on a $9,230 house, for a debt-to-price ratio of 1.4.  By 1970, the typical loan terms had changed to a higher leveraged 80%, 30-year loan.  Nevertheless, incomes nearly kept up with home prices; the ratio of housing costs to income rose slightly to 18.3 percent.  The debt-to-price ratio rose to 1.9.   See summary table 1.

By 1990, down payment on the median priced house had edged down to 10%, driving up the debt burden to a hypothetical 42.5% of median household income.  Needless to say, many aspiring homeowners could not qualify under these conditions.  For those who did, the debt-to price ratio rose to an all-time high of 3.3.

By comparison, the 1950 typical buyer paid out 40% more to the lender than the home price; the 1990 buyer’s cost was two and a third times more than the purchase price, paid over the term of the loan.  (It should be noted that the current debt-to-price ratio of about 2.8 is affected by lower interest rates.)

By now, housing prices are so high that lenders are finding ways to convert 95% or more of home value into mortgage debt.  The effect is to allow more potential purchasers into the home buying market and to compete for higher price housing.  However, this is accomplished through the social obligation of greater long-term debt, which coincidentally translates into greater institutional profits.

Brokers’ practice of commission sales

For many years the real estate industry has clung to the practice of basing commissions on the sale price of homes sold by agents.  The industry standard is a fixed 7 percent, despite the rapidly escalating home prices in some markets.

Historically, the consumer price index in the Seattle region has increased at an average annual rate of 4 percent; household incomes have risen at the rate of about 6 percent.  But commission fees, being pegged to home prices, are accelerating at rates closer to 8 and 10 percent. 

This fee-basing system creates the incentive for real estate agencies to seek the highest price for homes, and to turn over home resales as rapidly as possible.  It goes without saying that the industry benefits greatly from both (i) homeowners’ tendency to build up equity through successive moves, and (ii) the push & pull forces of neighborhood dynamics, creating more reasons to move from comparatively lower value locations to higher value locations.

Earlier this year, the Seattle Times published a series titled “Sticker Shocked”, listing detailed home price trends for several neighborhoods in the Seattle region.

Some of the featured neighborhoods experienced a 15-year growth in housing prices averaging as high as 10 percent annually.  In Capitol Hill, for example, the median priced $475,500 home had appreciated by nearly $361,700 over the growth period 1983-1998.  When comparing the annual housing costs on this home to the annual equity gain, the calculated return on cost amounts to a generous 44 percent (see summary table 2).  This exceeds by far any typical investment return in the financial market.  By way of contrast, lower value neighborhoods such as Georgetown have been appreciating at the rate of 6 percent annually.  This makes for a considerable difference in equity position.  Here, the typical owner realizes a negative 23% return on cost.  That is, the $5,050 annual equity gain compares unfavorably with the $6,215 in total annual housing costs.

Why do not homeowners resist the obligation to pay $35,000 sales commissions on $500,000 homes?  Because of the prospect of ever-higher resale prices and the resulting proceeds.  A few thousand lost in commissions can easily be recovered if an agent can bump up the price margin by tens of thousands.  Nevertheless, the general public is beginning to question the wisdom of this shell game.  Some nonconforming agencies are now offering lower percentage commissions, with the expectation that some day a fee-for-service system will prevail.  Almost every other professional service in the U.S. economy bases fees on an hourly rate.

The perverse nature of the conventional property tax

The present property tax system is a good example of how perverse financial incentives lead to unrestrained land price inflation, disinvestment, and the over- consumption of raw land. Under the present system where buildings and land are taxed at the same rate, owners have no incentive to invest in property improvements or more compact development, because doing so will result in higher taxes.

Holding onto underutilized lots or letting buildings deteriorate results in lower taxes. Yet, housing affordability could be enhanced through greater site utilization or higher residential densities, because of lower per unit development costs.  Thus, inherent in the equal rate method of property taxation is a built-in disincentive to utilize land more efficiently or to place it on the market at reasonable prices.  
 
Land speculation leads to a tightening of the land market and further inefficiencies in the allocation of urban land resources.  Even the region at large is impacted because jurisdictions are forced to increase taxes on productive properties to balance the losses from speculative holdings that are losing real or potential building value.  Any tax tends to diminish the base upon which the tax falls.  Because buildings constitute the greater portion of total assessed value, a tax burden falling mainly on improvements discourages capital investment in properties.  
Inflationary land prices remain largely unaffected by the property tax which taxes land values lightly.  Rising land costs are the major factor in driving up housing prices.  If tax burden were shifted from building value onto land value (accomplished through differential tax rates), the property tax could put a damper on land price inflation.  A land-based tax system would discourage land speculation and over time bring land prices into the range of affordability.

Conclusion

In the long run, what drives housing price inflation is the anticipation of financial gain, on the part of homeowners, landholders, home-builders, mortgage lenders, and realtors. The interactions among these “stakeholder” groups provoke speculative tendencies in the housing market, and lead to the commodification of housing.  This emphasis on the exchange value of housing is reflected in upward pressures on residential land values.

What is revealing about the factors contributing to rising land values is that none of them, with the exception of speculative land holding in predominantly developed areas, have anything directly to do with housing supply and demand.  Thus, the strategy of increasing housing production is unable by itself to change the circumstances surrounding cost. Even the effort to increase residential land supply by expanding urban growth boundaries is based on a fallible argument because it will not curtail the propensity to speculate on fringe sites.  It is essentially the amount of speculation, not the amount of land that governs home prices.

To be sure, housing price changes tend to occur in business cycles.  Noticeable price spikes took place in Seattle’s regional market at the closing years of the past several decades. Such cyclical events often trigger a burst of construction activity. But at no time do real estate investors and developers reach a point of meeting full demand, unless by collectively overshooting the anticipated market. A phase of slow activity then follows, until pent-up new demand precipitates another flurry of activity.  

In any case, effective demand does not extend down into the “affordable” range. The for-profit housing sector competes for the higher-end housing market.  Increasing the supply of market rate housing will not be effective in bringing filtered-down units into the affordability range, because additional supply alone cannot bring down residential land prices. If indeed land value inflation is the principal cause of rising home prices, then it must be dealt with directly.  The most effective means to secure housing affordability without committing immense public financial outlays is to devise financial incentives that discourage real estate speculation.

The OregonPEN Agenda

February 14th marks two birthdays, Oregon’s and OregonPEN’s: One of many for the state (157th), but the very first for OregonPEN.

In keeping with OregonPEN’s mission of “giving readers news and commentary that empowers and engages, providing the knowledge and insights needed for making Oregon better,” OregonPEN is developing a policy agenda or framework to guide its reporting and editorial work for the next decade, a period likely to be marked by substantial, fundamental changes in Oregon and the rest of the world.
 
Although the elements or themes of the OregonPEN policy agenda outlined in this and future issues are not intended to be static necessarily, the final list, culled from many candidates, were chosen with the idea that these are profound enough that, if adopted, they have the potential to make a great positive difference in ordinary life. As such, it is unlikely that these will be attained quickly or easily. As a wise Wisconsin graduate, computer scientist and pioneer Howard Aiken, once noted, “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”
 
And so the OregonPEN agenda will probably change slowly, more often by accretion of new policies than through deletion following successful attainment. Which is not to say at all that the policies are unattainable; indeed, to be worth pursuing, a policy has to be pragmatically possible, because the view here is that Idealistic policy prescriptions that presume a better class of people are better left to the religious institutions, not newspapers. So the trait common to all the ideas in the OregonPEN agenda is down-to-earth applicability with the people we actually have around now. That’s because, while the status quo we have today – which is a society in advanced decline, with an increasingly sclerotic politics that is unable to engage with basic, well-recognized threats, and that is dominated by rapacious but only short-term self-interest – is advantageous for a tiny few, it is not in the best interests of most Oregonians to allow this to continue. And self-interest is the most reliable source of motivation for change.  
 
Indeed, the dismal and worsening status quo maintains itself in large part only thanks to the failure of our corporate media competitors to do their job. The job of the press is not just amusement and the delivery of advertising. Rather, it is not only making sure that the people of Oregon know what’s wrong today but why, and how it can be fixed. That’s where today’s media entities are blocked, because they are controlled by and answer to their shareholders: who are the same shareholders in the corporations that are plundering in Oregon and around the world and making the dismal future an impending calamity.
 
Therefore, those media channels cannot offer their readers a clear view of the situation, because the last thing the corporations who own the media channels want is for ordinary Oregonians to understand our dire situation and that there are some fairly straightforward principles that, if adopted and implemented throughout Oregon, can reverse our decline and equip us to face the next century with confidence.
 
So it is left to OregonPEN to deliver the good news: we are not fated to become an increasingly corrupted and stratified society where the real decisions of life affecting everyone are made by a tiny handful of wealthy people in Mitt Romney’s “quiet rooms.” By observing just a handful of key principles, we can create a more just, happier, healthier, and much more anti-fragile society without any supernatural miracles and without a fundamental change in human nature required.

Beginning in this issue are some of those key ideas. OregonPEN will develop and return to these themes again and again in the next decade, and will use them as measurement standards when assessing the news, ideas, policies, and programs of others, especially those of governments.

Election Systems 101

There are two main families of electoral systems in the world: proportional and winner-take-all. All single-winner systems are, by definition, winner-take-all. Multi-winner systems may be proportional or winner-take all.

Single-winner systems vs Multi-winner systems
Sometimes it makes sense to elect just one person. For example, a nation would only ever choose one president at a time. However, when electing a legislative body, there is a real decision to make between using single-winner and multi-winner districts. That choice has profound consequences.
The academic consensus is that multi-winner districts are associated with: 

  • Larger and more populous districts; 
  • Districts contested by multiple parties and candidates;
  • Legislatures that more proportionately reflect voters’ political preferences;
  • Governing by a coalition of parties rather than one single majority party;
  • The election of more women to the legislature

 On the other hand, single-winner districts are associated with: 

  • Smaller districts, with a closer link between elected representative and constituents;
  • Uncontested districts and two-party systems (see Duverger 1972);
  • A lack of proportionality between votes cast across the country for a party and seats won by that party;
  • Governing by single-party majorities;
  • The election of fewer women to the legislature.

Common single-winner systems include:

Plurality: A system in which the candidate with the most votes wins without necessarily a majority of votes. It is the most common system used in nation-states descended from the British and French Empires, including the United States and Canada. 

Two Round System: A system identical to the plurality system except that if no winner attains the majority of votes in the initial election a second “runoff” round of voting takes place between the two candidates who received the most votes in the initial round. 

Single-winner Ranked Choice Voting: A system in which voters rank candidates in order of preference. A candidate who receives over 50% of the first preference votes will be declared the winner; if this does not occur, the ballot count simulates a series of runoff elections. The candidate with the fewest first-place votes is eliminated, and ballots cast for that candidate are “transferred” to second choices as indicated on voters’ ballots. This process of transferring votes continues until one of the candidates has a majority.
Common multi-winner systems include: 

Block voting: A system in which electors have as many votes as there are candidates to be elected. Counting is identical to a plurality system, with the candidates with the most votes winning the seats. 

Single Voting: A multi-winner system in which electors have one vote. The candidates with the most votes win. 

List Proportional Voting: A multi-winner system in which political parties nominate candidates and electors vote for their most preferred party (or candidate nominated by a party).   The seats are allocated to each party in proportion to the share received in the national vote. 

Proportional vs Winner-take-all

Another choice, in addition to the one between single- and multi- winner districts, is whether to elect legislators proportionally or using something called “winner-take-all”. 

In proportional representation, groups of winners are allocated in alignment with the proportion of the vote they receive. For example, in a five winner district, a political party that received 38% of the vote would elect two candidates and a party that received 62% of the vote would elect three. Naturally, then, only multi-winner districts can be proportional.

Winner-take-all, by contrast, operates on the principle that the candidate(s) with the most votes win. This means that some voters get representation and others do not. For example, in a five winner district using winner-take-all, all five seats could be won by one party with just over half of the vote. Indeed, this sort of outcome was quite common in early congressional elections. 

There are a multitude of different proportional systems, including the Single Voting and List Proportional Voting, as well as: 

Cumulative Voting: A method of election in which voters have a number of votes equal to the number of seats to be elected. Voters can assign as many of their votes to a particular candidate or candidates as they wish. In a three seat district, for example, a voter could give all three of their votes to one candidate, two votes to one candidate and one to another, or one vote to three different candidates. 

Ranked Choice Voting in Multi-Winner Districts: A method of voting in which voters have one vote but are able to rank candidates in order of preference. Initially, every ballot counts as a vote for its highest ranked candidate. Those candidates who have enough votes to win are elected and the weakest performing candidates are eliminated.  For instance, in a five-seat district, a candidate is elected if they receive more than 1/6 of all votes cast, as this threshold ensures that they will be one of the top five finishers. If not enough candidates as number of seats reach the threshold to win, then voters’ second choices come into play.  

Winner-take-all systems include all single-winner district systems and the block vote. 

Mixed Systems

Mixed systems—which combine single-winner winner-take-all elements with multi-winner proportional elements—are increasingly popular. Many consider them to be “the best of both worlds” because they maintain the link between constituent and representative in single-winner districts, while embracing proportionality. 

The two main types of mixed systems are: 

Mixed Member Proportional: An electoral system in which each voter gets two votes: one for a candidate in a local constituency and another for party. A fraction of seats are elected using plurality and the remainder from list proportional systems. The list seats are allocated after the plurality seats in such a way as to achieve proportionality with the national party vote.

Parallel Systems: An electoral system in which each voter gets two votes: one for a candidate in a local constituency and another for party. A fraction of seats are elected using plurality and the remainder from list proportional systems. The list seats are allocated proportionality with the national party vote, but the legislature itself need not reflect the party vote across the nation.
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This is just one of scores of important, informative, and readable articles about election methods, the DNA of our politics, that are available from Fairvote.org, the leading nonpartisan nonprofit working to help Americans improve elections.

What is ranked choice voting?

Ranked choice voting is an increasingly common election method that allows voters to rank candidates in order of choice. Those rankings ensure that as many voters as possible will help elect a candidate they support.

Ranked choice voting has a long history of use in U.S. elections. It has been used to elect city councils in more than two dozen cities, including New York City, Cincinnati, Cleveland, Boulder, and Sacramento. It is used to elect multiple offices in Cambridge, MA and in Minneapolis, MN, and it is used to elect single-winner offices in four cities in the Bay Area in California, the two largest cities in Minnesota, and other cities in Colorado, Maine, Minnesota, and Maryland. Four states use ranked choice ballots to ensure that overseas and military voters can fully express their choices in elections that may go to a runoff.

Ranked choice voting is widely used in the English-speaking world. It is used in at least one election by every voter in Australia, Ireland, New Zealand, Northern Ireland, and Scotland. Its single-winner method is recommended by Robert’s Rules of Order for elections of officers when repeated voting is impractical and, as a result, widely used in non-governmental elections.

Is ranked choice voting the same as instant runoff voting/single transferable vote/preference voting/the alternative vote?

Yes. The terms “instant runoff voting,” “single transferable vote,” “preference voting,” “the alternative vote,” all refer to ranked choice voting.

Usually, the term “instant runoff voting” or “IRV” only refers to electing a single-winner office like mayor or governor, because when used to elect one candidate, RCV allows a jurisdiction to have the benefits of multiple runoff elections, but voters only need to vote a single time.

Also, the term “single transferable vote” or “STV” usually refers to electing a multi-winner office, like a city council or legislature. It is a “single” vote, because every voter has one vote, as compared to block voting, in which voters may vote for more than one candidate if more than one will be elected; and it is a “transferable” vote, because it uses round-by-round tabulation in which votes may “transfer” from candidates who are elected or who are defeated in the prior round.
See our glossary for more details and other terms.

Why is ranked choice voting better?

Ranked choice voting has a number of benefits, including promoting majority support, minimizing negative campaigning, and providing voters with more choices. In multi-winner districts, it can promote fairer and more inclusive representation than winner-take-all methods. For example, the Ranked Choice Voting Act for Congress would help ensure that Representatives to Congress would better represent the full spectrum of voter opinion in the United States and have more incentive to work across party lines in the interest of their constituents.
For more detail, see Benefits of Ranked Choice Voting and Problems RCV Can Help Solve.


How does ranked choice voting work?


Ranked choice voting is simple for voters: rank candidates in order of choice. Voters can rank as many or as few voters as they want to. The votes are counted to ensure that as many voters as possible help to elect a candidate they support. In a single-winner election like for mayor or governor, that means that ranked choice voting helps to elect a candidate with majority support. In a multi-winner election, it means that ranked choice voting helps a super-majority of voters elect a candidate they support, by allowing smaller groups of voters to each elect one of the winners.
To see how ranked choice voting works in detail, see How Ranked Choice Voting Works.


Where is ranked choice voting used?


Ranked choice voting has been adopted in U.S. cities in ten states. It is used by overseas and military voters to vote in places with runoff elections in five other states. Over 50 U.S. colleges and universities use ranked choice voting to elect student government officers. Internationally, it is used by every voter in six countries and in local elections in many more. Ranked choice voting is recommended for private organizations by Roberts Rules of Order, and many private organizations use it, including the Academy Awards in both nominating and selecting the winner for its prestigious awards. For more detail, see the following resources:

Ranked Choice Voting in U.S. Elections 

Ranked Choice Voting on Campus

Ranked Choice Voting in Private Organizations and Corporations 

International Election Systems

What about other “alternative” voting reforms, like Top Two, party list proportional representation, cumulative voting, approval voting, or others?


There are many ways to elect officers. Although they all have some benefits and they all have some flaws, FairVote has identified ranked choice voting as the most empowering and effective voting method for use in United States elections, from city councils to Congress. To learn more about other methods, see the following resources:

For other forms of proportional representation, see Other Fair Voting Methods

For our research and criticism of “Top Two,” see Top Four

For alternative single-winner election methods like approval voting, see Alternatives to Ranked Choice Voting
 
Why is Ranked Choice Voting Superior?

Promotes Majority Support

Too often, candidates can and do win election to offices like Mayor and Governor despite being opposed by most voters. With ranked choice voting, if no candidate has more than half the vote in first-choices, candidates finishing last are eliminated round-by-round in an instant runoff until two candidates are left. The winning candidate will be the one with majority support when matched against the other. In a multi-winner election, ranked choice voting promotes majority rule because the majority of voters will always be able to elect a majority of seats, without fear that an entrenched minority has used gerrymandered districts to ensure they stay in office.

Discourages Negative Campaigning

In non-ranked choice voting elections, candidates benefit from “mud-slinging” by attacking an opponent’s character instead of sharing their positive vision with voters. With ranked choice voting, candidates do best when they reach out positively to as many voters as possible, including those supporting their opponents. A comprehensive Rutgers University poll of voters in 7 cities with ranked choice voting found that voters report friendlier campaigns and that RCV had majority support in all of the cities using it.

Provides More Choice for Voters

Democracy is strongest when more voices are heard. Too often, to avoid “vote splitting” in which candidates can and do win with very little support (see “Promotes Majority Support” above), efforts are taken to limit the number of candidates who compete. This limits voters’ choices. In some places, that means a low turnout primary election eliminates most of the candidates; in others it means restrictive ballot access laws keep out challengers; and in others it means that candidates are shamed into staying out the race. Ranked choice voting allows more than two candidates to compete without fear of splitting the vote.

Minimizes Strategic Voting

Voters should be able to vote for candidates they support, not just against candidates they oppose most. Yet in elections without ranked choice voting, voters may feel that they need to vote for the “lesser of two evils,” because their favorite candidate is less likely to win. With ranked choice voting, you can honestly rank candidates in order of choice without having to worry about how others will vote and who is more or less likely to win.

Mitigates Impact of Money in Politics

Too often, candidates win by barraging opponents with a slew of expensive, negative ads, rather than building a positive, grassroots campaign for support. Candidates who have run and won in ranked choice voting elections have been successful because they built grassroots outreach networks. Those more positive and inclusive campaign tactics cost less than polarizing negative radio and television elections, helping to explain why candidates seem able to win ranked choice voting elections even when outspent.

Saves Money When Replacing Primaries or Runoffs

Many local offices are elected in two rounds of elections; either a primary winnowing the field to two followed by a general election, or a general election followed by a runoff if no candidate has a majority. In either case, the election that takes place outside of the context of the general Election Day often suffers from very weak and unrepresentative turnout, while raising issues of vote splitting in the first round and the possibility of disenfranchising overseas and military voters. Ranked choice voting can accomplish the benefits of a primary/runoff election structure with only one election, avoiding these issues while saving the jurisdiction the costs of running two elections. That’s why ranked choice voting is often called “instant runoff voting” when used to elect mayors, governors, and other single-winner offices.

Promotes Reflective Representation

Compared to winner-take-all elections, ranked choice voting in multi-winner contests allows more diverse groups of voters to elect candidates of choice. This promotes diversity of political viewpoint as well as diversity of candidate background and demographics. Even in single-winner races, ranked choice voting can promote the representation of historically under-represented groups like racial and ethnic minorities and women. A report co-authored by FairVote and the New America Foundation found that racial minority populations prefer ranked choice voting and find it easy to use, and that ranked choice voting increased turnout by 2.7 times in San Francisco.

Problems RCV Can Help Solve

Avoiding Split Votes and Counter-Majoritarian Outcomes

Too often, candidates can and do win election to offices like Governor despite being opposed by most voters. That’s because when more than two candidates run, a majority of votes may be split among the two or more losing candidates. For example, in Maine, nine of the 11 gubernatorial elections between 1994 and 2014 were won with less than 50% of votes.

With ranked choice voting for single-winner offices, if no candidate has a majority in first-choices, the candidates in last place will be eliminated one-by-one. If a voter’s first choice is eliminated, their vote instantly goes to their second choice. That way, we can find out which of the top candidates has real majority support.

With ranked choice voting for multi-winner offices like city councils and state legislatures, a majority of voters will always have the power to elect a majority of seats. If a group big enough to elect two candidates votes overwhelmingly for one, that candidate’s extra support will spill over to help their next choices. Similarly, a group big enough to elect one candidate will always be able to elect one candidate, even if they split their support among several, because the candidates in last place will be eliminated one-by-one until a candidate gets enough votes to win.

Eliminating Expensive and Unnecessary Primary or Runoff Elections

In some places without ranked choice voting, if no candidate has a majority vote, a second election is held in which only the two candidates with the most support in the first election run. Those candidates must campaign again – often in a very negative head-to-head race – and voters must return to the polls to vote again. If this runoff election occurs after Election Day, usually turnout plummets in the second round. If instead the first round occurs before Election Day, as in a nonpartisan primary, then turnout is often very low in the first round, giving a small and less representative group of voters the power to knock out most of the candidates.
With ranked choice voting, a jurisdiction can get the benefit of two rounds of voting in a single, more representative, higher turnout election. That is why ranked choice voting is often called “instant runoff voting.” In this context, RCV can save the jurisdiction a lot of money – the entire cost of a second election – while helping promote majority rule and civil campaigning. This has been the motivation for the adoption of RCV in places like San Francisco (replacing runoffs) and Minneapolis (replacing primaries).

Including Military and Overseas Voters in Runoff Elections

Protecting the right to vote for men and women serving overseas in the armed forces or living abroad is of the highest importance. In places with runoff elections, including deployed military and other overseas voters means sending and receiving ballots multiple times: once for the first election and then again for the second. However, international mail takes time, and so military and overseas voters may not have time to receive, complete, and return a runoff ballot before the day of the election, which is why federal law requires at least 45 days between rounds of voting in federal elections. Still, many state and local runoff elections occur as little as one week after the first round, effectively disenfranchising overseas and military voters.

With RCV ballots, a military or overseas voter can vote in the first round and then rank their back-up candidates. Then, when the runoff occurs, the ranked ballot is counted for whichever candidate in the runoff the overseas voter ranked highest. As of 2016, five states use RCV ballots to include overseas and military voters in runoff elections: Alabama, Arkansas, Louisiana, Mississippi, and South Carolina. Illinois has created the option for local jurisdictions to use this reform as well, and Springfield, IL has adopted it pursuant to that option. 

RCV ballots can also help overseas and military voters participate in presidential primaries. Rather than returning a ballot only to find that it can’t be counted because their candidate withdrew by the time the ballot was counted, they can return a ranked ballot, so that their vote can count for their next choice if their favorite has withdrawn.

For more information, see FairVote’s Policy Guide items for RCV ballots for military and overseas voters.

Improving the “Top Two” System

The Top Two system used in California and Washington replaces party primaries with a blanket preliminary election, followed by a general election between only the top two candidates from that preliminary contest. Although Top Two has admirable goals, it results in a general election that typically features only the top Republican and Democrat and no other choices, or even two Republicans or two Democrats with no other choices. And often such races happen as the result of vote splitting among a large number of candidates in the preliminary contest.

To enhance voter choice, the same primary election could advance more than two candidates. For example, with “Top Four,” the top four candidates from the preliminary contest advance to the general election. RCV can help accommodate the inclusion of more candidates in the general election. FairVote research shows that Top Four would result in many more competitive races both between and within political parties, as well as do more to include candidates outside of the two major parties.

For more information, see Top Four.

Promoting Fair Representation for All
When Electing a Legislature in Multi-Winner Districts

All states and all congressional elections currently use winner-take-all rules that elevate district lines over voters. Legislatures elected by winner-take-all are characterized by distortions in partisan representation, entrenchment of incumbents in safe seats, regional polarization, and low representation of women and racial and ethnic minorities. When combined with multi-winner districts electing at least three members, ranked choice voting helps to make elections fairer and more reflective in every district. This ends the cycle of gerrymandering, and creates competitive elections in which every vote really counts.

To see how this can work for the U.S. House of Representatives, see FairVote’s Ranked Choice Voting Act.

To see how it can impact your community, see FairVote’s Policy Guide item for RCV for at-large local elections.

To see how multi-winner RCV is working in Cambridge, Massachusetts, see Spotlight: Cambridge
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All content courtesy of Fairvote, which has worked “for a more perfect union” by providing education and advocacy for better election methods and pro-democracy reforms for more than 20 years. Fairvote.org

Three sayings capture the public attitude about our politics today: The first is H.L. Mencken’s line that

Democracy is the theory that the common people know what they want, and deserve to get it good and hard.”
 
And the next two are bits of bumper sticker wisdom:
 
            “Don’t vote, it only encourages them.
 
            “If voting changed anything, they’d make it illegal.
 
What would it require to persuade people in Oregon stop thinking that politics is just another name for a con game?
 
Perhaps the most important place to start is by recognizing that selecting public officials by using the same basic rules and setup as Mixed-Martial Arts Cage Fighting Championships might have more than a bit to do with why our politics have become so polarized and negative.
 
Oregonians should also be made aware that there is an a long list of democracies that are not only formally democratic on paper, but also practically so, unlike the United States. And these are countries like ours, only with happier, more literate people, people who are better educated, more secure, less depressed, less violent, and much less afraid of their neighbors than we are.
 
The big difference is that their political systems both help to produce and to reflect a much more robust form of “pluralism” than we see here in America. Here, our cage-fight-rules politics has produces such a rock-hard gridlock that, nationally, we see the GOP giving up on the idea of democracy entirely and essentially declaring that a Democratic centrist administration is illegitimate and that the GOP’s mission is to prevent from governing at all, while creating an enormous backlog of federal court judicial vacancies and spreading the poison into the judiciary.
 
It is difficult to recall that there was a time in America when the minority on any question were supposed to be able to feel like “Well, I may not have gotten my way, but at least my position was heard and I gave it my best even though we lost. Now my job is to make the best of things and help things work out best for everyone. I don’t like the outcome, but the process was fair.”
 
That doesn’t occur now. Why not?  Is it because Americans are uniquely toxic and somehow have become a nation of people who think the worst of each other and that each person only takes positions to gain political advantage over opponents?
 
No, Americans are not uniquely toxic. But the winner-take-all rules of American politics are uniquely good at accentuating the worst in the American people. In other words, this is a case where we really can and should blame “the system” rather than the flaws of individuals. Because we are no worse as individuals than we have ever been; but our electoral rules are also no better than they were in 1793, when we faced a vastly different set of problems.  
 
Modern neuroscience confirms what social scientists have long thought: as humans, our reasoning tends to follow our feelings, rather than the other way around as political idealists would suggest. But our election methods, virtually unchanged since 17th Century Britain, elicit certain kinds of feelings – the kinds seen at a cockfights and cage fighting championships – so it’s no surprise that our politics reflect the cockfight-to-the-death mentality.
 
The first mistake we make is that we use geographic districts to decide who can sit as a representative of others, as if the most important aspect of a person needing expression in the halls of power is that a zip code. Under our rules, we say that the only thing that matters is the place where a citizen lays their head at night, rather than whether they had anything to eat that day, work that year, or faced barriers because of the color of their skin. 
 
And the usual practice with district-based are inherent in single winner elections. If you use an antiquated voting technology that was capable of handling the original paperless ballots – a handful of wealthy white men voting out loud in groups – you can only get from it what that technology is capable of producing.  And that’s a simple yes-no result, one winner, who wins it all, leaving no representation for the others.
 
Thus, in Oregon, we start with the premise that we must divide up the state into geographic districts, and have each district elect one person. This is the metaphorical DNA of our toxic politics, and that DNA inevitably expresses itself in our national body politic just as DNA expresses itself in the shape of every living organism.
 
Luckily, there’s a better way. We can have a better result by using larger, multiple-winner districts, or even let everyone vote for all the representatives at once, and then awarding seats to winners in proportion to the share of the vote received. Hence the term, “proportional representation,” or PR.
 
PR lets people form fluid political coalitions that can be but need not only be based on geography. Indeed, the virtue of PR is that it allows citizens to band together because of shared views on traits other than a common zip code. As a state with very polarized politics, Oregonians can easily understand that just living near someone doesn’t necessarily mean you share many values with them.
           
The issue is this:  Politicians don’t go into office to become neutral advocates and to present both sides of a question. No one goes to Congress or their state legislature and says “Gee, many people in my district feel this way, and many feel that way and there are good arguments for both sides and here’s what I think, but I’m going to vote against what I think because I’m in the minority in my district.”
 
That has long been an issue at the heart or a question at the heart of democratic theory: are representatives supposed to vote the way that the district majority wants or should representatives feel free to reject the wisdom of the people who elected the representative?
 
Our method of holding many parallel winner-take-all elections, one per district, also explain why we have the most toxic and the most expensive elections: in each district, the winner takes all dynamic drives up the costs because there is no logical endpoint to spending by the two contending factions when control of the state’s entire legislative agenda can ride on one individual race in a balanced district (almost nothing gets spent in “safe” districts, where the gerrymandering has produced a comfortable majority for one party or the other).
 
This motivation to unlimited spending is fueled by the zero sum nature of winner-take-all. Because there is no second place in a single-winner district, anything that helps candidate A comes at the expense of candidate B and vice versa. Therefore, no matter how much has already been spent, there is no logical limit to future spending before election day, because only the winner gets any reward.
 
The solution is to realize that we’re asking the wrong thing of our politicians.

Basically, we should stop asking politicians to “represent” people whose views they staunchly oppose. That means the views of the voters in the district who did not vote for the winner. That is usually the minority of voters, but it can even be the majority: When more than two candidates vie for a seat in a single-member district, voters may divide enough among more than two candidates that the “winner” only obtains a plurality instead of a majority of voter support.
Instead of asking politicians to “represent” views they oppose, Oregon should instead ask them simply to do their best to represent the views they actually do hold, while electing multiple winners from enlarged districts, so that people who hold other views can also win representation too, even if they aren’t in the majority.
 
The contradiction caused by single-member districts is in large part why Oregon politics is so toxic: there is an irreconcilable conflict between choosing a single person to represent all the voters in a geographic area and the idea of representation for all.
 
Today, with technology, the tools are widely available to allow parties to carefully sculpt legislative bodies out of single member districts in such a way as to maximize the power of the group drawing the district lines and to minimize or even, in practical terms, to eliminate any chance that the voters could rebel and choose for themselves. It is possible today, with ordinary home computers to slice and dice the electorate into discrete packages, block by block, and to know exactly which positions are likely to gain support. 
 
Thus, we now live in a state of unrepresented people who are supposedly living in a representative democracy. In the small “Blue” area of metropolitan Portland, where Democrats hold the overwhelming electoral advantage, anyone with a view outside the Democratic party is completely unrepresented and has zero chance of winning any representation in the Oregon Legislature or in Congress for their views. Similarly in the vast “Red” spaces that make up most of Oregon by acreage, Democrats and others have exactly zero chance of having any representation for their views. In both cases, the minority voters are only nominally participants in the system. The have essentially the same power to affect the outcome of an election as does an anti-Putin voter in today’s Russia.
 
As theory predicts, election systems built on districts with single winners are inevitably dominated by only two parties. The two factions in a two-party system pivot around the balance point, the number of votes where just one more vote decides the election for one side or the other. Since we elect from single-member districts, in each one only one party can win. Thus, Oregonians live almost entirely in one-party districts where they have no voting power. In eastern Oregon, anyone outside the GOP has zero chance of having a vote help elect anyone to represent them; likewise, a GOP voter in Portland has more of a gravitational pull on the orbit of the moon than on the views of their “representatives,” who are all uniformly Democratic Party members.
 
This systematic disenfranchisement is why no country making the transition to democracy since WWII has adopted any part of American election methods.
 
Consider South Africa: a tortured country with a vast black majority oppressed by a tiny white minority through terror and killing, but miraculously led to a peaceful revolution and a peaceful takeover by the majority black peoples. If South Africa had adopted a winner-take-all system like Oregon’s for elections, there would have been a bloodbath with a black takeover and slaughter or exile of the tiny white minority inheritors of the stolen wealth of the people. Although South African struggles continue, with crushing poverty widespread, it is generally a peaceful place and power is shared in a pluralistic society. South Africa wisely chose to avoid the single winner system and the single member district system. They recognized that, while majority rule is the essence of democracy, they also knew that peace meant making sure that minorities could be present and be heard in the Parliament, even without the power to win a majority of seats.
 
This idea can be called proportional representation, but it may be more correct to call it full representation, because it produces a much fuller kind of representation, with the majority winning the majority of seats, but allowing for significant minority groups to win some seats. The proportional representation name is troublesome, because it is a very abstract term that suggests it requires voters to do math or proportions or ratios. But full representation is not complicated in practice. It is simply based on an alternative ideal to the winner take all premise, one that avoids the contradiction at its heart (representation of opposing views by one individual). The idea of full representation election methods is that all voters matter and should be entitled to a voice, and that elections where the partisan winners are a foregone conclusion simply because of gerrymandering are shams.

In Oregon, instituting full representation elections would be quite simple for, say, the state house: with 60 members, instead of 60 separate, winner-take-all races, there would be 12 5-member districts. With that setup, any candidate with at least 17% of the vote would win one of the five seats in that district.