I just returned from Christmas in a surprisingly balmy Minneapolis where I learned about a neat little tax shifting trick that could be a powerful technique for constraining sprawl. The best part is that it’s actually fairer than the current system. Here’s the scoop.

In most places, homeowners pay a simple sewage or drainage rate (it’s often calculated as a percentage of water consumed). Minneapolis decided to break apart the sewage charge into two separate rates: one part based on water consumption and the other part based on the square footage of impervious surface. Okay, I know your eyes are glazing over, but don’t stop reading yet!

Impervious surface is important because it is closely related to how much strain a property puts on city infrastructure and also how much it harms the local environment, — especially the local water bodies that get all the toxic-laden runoff from hard surfaces. So it matters (at least a little) whether your backyard is an eco-groovy natural drainage haven or an asphalt parking lot. By connecting sewage rates to hard surfaces, Minneapolis is making prices tell the truth.

But that’s not the half of it.

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  • First, and perhaps least important, the very existence of a price for impervious surface is signal to property owners to design carefully for environmental (and infrastructure) impact. Adding a green roof or tearing up an concrete parking space could reduce your utility bills, just as you reduced your impact.

    Second, if the pricing is truly fair it will set the same rates for all zoning types. So a 10-story condo building would pay the same price per square foot for its impervious surface—a roof and maybe a patio—shared by 10 floors of homeowners. That would have the effect of making density cheaper than single family housing. And that would be fairer because density has much less impact.

    But there’s much more potential here. Utility bills are pretty minor expenses; property taxes are not. What if we decided to set property tax rates based partly on how much impervious surface a property has? With an impervious surface tax, folks who accounted for a large extent of high-impact building and pavement would pay higher taxes, precisely because of their high-impact preferences. Folks who prefer to take up less space and thereby strain our resources less, would pay less. And by making taxes and prices fairer, we would shift toward more density-friendly cities.

    It would be fairly easy to make a new impervious surface tax revenue-neutral so that, in aggregate, taxpayers would pay just what they do currently. That would (or should) alleviate charges that it’s a tax-raising scheme. Alternatively, it would be possible to allow for a small tax increase. Perhaps in Western Washington, that extra revenue could be dedicated to restoring Puget Sound or saving the local orcas from extinction. Both are principally threatened by the stormwater runoff that is a direct result of too much impervious surface. Better yet, in a recent poll Western Washington residents have said they’d be willing to pay extra to save the Sound.

    Ah, synergy.