Dollars and sense: The search for sustainable land bank funding

Frank Alexander, in his newly released second edition of Land Banks and Land Banking, talks about well-run land banks as nimble, flexible tools. No two land banks are exactly the same, as each is adapted to its own particular local conditions.

If there is one common challenge that binds together nearly all of the estimated 120 land banks nationwide, however, it would probably be the question of how to sustainably fund land banking for the long-term.

We spoke with Frank Alexander, the Sam Nunn Professor of Law at Emory University and co-founder/senior advisor to Community Progress, for his insights on the topic. Read the transcript below — and then download a free copy of Land Banks and Land Banking, 2nd Ed., for more information.

Why haven’t land banks typically been able to sustain themselves through property sale revenue?

Frank Alexander: In most communities, land banks are given the responsibility for the rehabilitation, demolition, or clean-up of the abandoned properties. Historically this function was done, if at all, by the local government itself. The sale of land bank properties will rarely, if ever, generate income sufficient to offset these remediation costs, and local governments which create land banks need to be quite clear about this challenge. It is also critical to realize that land bank inventory usually has little to no economic value – otherwise the private market would have moved to protect or capture that value. Finally, when a local government determines that the highest priorities for future use of land bank inventory are public parks and bike paths, or subsidies for affordable housing, such decisions themselves run contrary to maximizing revenues through property sales.

Why has securing stable, sufficient funding proven to be such a challenge for so many land banks?

F.A.: The core challenge for funding land bank operations lies in the recognition that the costs of neglect will only increase and be borne by neighborhoods and communities. These costs to society must either be imposed on the owners who abandon the properties or factored into ongoing local government budgets. The best options are efficient, effective, and equitable systems of housing and building code enforcement, and property tax collection. Vacancy and abandonment occur and costs increase because these systems are broken. Land banking will not function unless the local government has a commitment to stopping abandonment.

What do you see as one of the most promising potential funding sources for land banks?

F.A.: One of the exciting things about this field of work is the opportunity to learn from the creativity of the multitude of land banks now operating at the local level. Many of the land banks have been recipients of targeted federal grants, or settlements with the banking and mortgage industries, as a result of the Great Recession. In some states land banks are able to receive funding through a restructuring of the property tax collection systems. In others there is the possibility of cross-subsidizing operations through housing and building code enforcement systems. Future reforms in mortgage foreclosure systems and real estate transfer systems also hold potential.