Banking on Land Banks is Banking on Trouble

By Benita M. Dodd

The new Georgia Land Bank Act expands local governments’ abilities to create a land bank, an organization with sweeping authority to acquire and dispose of vacant, abandoned or delinquent properties. But communities that race to embrace this unfortunate move will see it come back to haunt, not help, them.

It sounds like a good idea at first: Get rid of the vacant properties and abandoned homes that attract crime and impact surrounding property values. The housing crisis has hit Georgia extraordinarily hard and many property owners find themselves unemployed and unable to meet tax and mortgage obligations. Citing “an overriding public need to confront the problems,” the law empowers local governments to join forces or act separately to establish land banks. They would “return properties, which are in nonrevenue-generating, nontax-producing status to an effective utilization status in order to provide affordable housing, new industry, and jobs for the citizens of this state.”

Spreading the idea of land banks across the nation is the Center for Community Progress, whose goal is “effective, sustainable solutions to turn vacant, abandoned and problem properties into vibrant places.” However noble the intention, the Georgia legislation authored by this organization will bring painful, unintended consequences in the unfettered powers granted to these land banks to obtain government control of private property.

The first problem is that it’s going to take a long time to turn around the housing and economic crisis. How much property will these Georgia land banks accumulate before then? Consider the mowing, maintaining, policing and demolishing that take another bite out of taxpayers’ pockets.

  •     The Genesee Land Bank in hard-hit Flint, Mich., reports it is responsible for about 9,000 properties, 4,700 of them vacant.
  •     Audrey Spalding of the Show-Me Institute of Missouri reports last year that St. Louis’ land bank, established in 1971, owns more than 10,000 parcels, making it the largest landholder in the city. And that even though there are offers to purchase many, most aren’t being sold. In fact, from 2003 to 2010, almost half the formal purchase offers were rejected. The most frequent reason cited was that it was “held for future development.”

The second, bigger problem with this predatory law is the land bank’s lack of accountability. Without answering to taxpayers and voters, the potential for abuse, conflicts of interest and the problems of government as landlord and property owner are apparent. The law allows a government land grab, gives a quasi-governmental organization authority to void taxes and liens then gives it the power to decide what the best use is for the land and who should receive and develop that land. It’s social engineering, plain and simple: another way for planners to work into “smart growth” ideals and pick winners and losers.

The third problem is the advantage government has in acquiring the properties, while taxpayers foot the bills. A land bank can enter into agreements with a local government for staffing services. It can finance operations through borrowing, investing and issuing bonds. It can buy insurance, set fees and rents on acquired properties, and lease, transfer, sell or otherwise dispose of properties.

Its properties would be exempt from taxation and the acquisition of property is not controlled by any governmental jurisdiction unless provided for by law or intergovernmental contract. If the bank is the sole or highest bidder in a court-ordered sale, it would pay no more than the liens, interest, penalties and costs. The bank can extinguish all liens on a property. It is entitled to proceeds of the property it sells and up to 75 percent of property tax revenues for five years after.

The bank is empowered to seek loans, grants and guarantees. About the only two things the bank is prohibited from doing is lending money – unless, that is, it obtains the money for the specific purposes of lending it. And it is prohibited from using eminent domain.

It might as well be eminent domain. Government was meant to be limited, not to grow to compete with the free market, to have a leg up on the private sector or manipulate the use of private property use with a selective definition of “public purpose.” Government should work with property owners on tax burdens: Offer installment options or defer payments. Facilitate purchases to a willing buyer.

William Blackstone, who helped inspire our nation’s Constitution, put it best: “So great moreover is the regard of the law for private property, that it will not authorize the least violation of it; no, not even for the general good of the whole community.” To put it simply, governments should avoid well-intentioned laws with unfortunate, unintended consequences. 

Benita M. Dodd is vice president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (December 10, 2010). Permission to reprint in whole or in part is hereby granted, provided the author and her affiliations are cited.

 

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