The Metropolitan Land Bank

A Proposal For Ensuring
Regional Open Space

Discussion Paper

The idea presented here is designed
to ensure that 30-40 years
hence we are living amidst
a wonderful system of parks and open space.

Introduction

Several weeks ago I went flying with a friend to see the shape of the Puget Sound region. What I saw is no nothing new but it was a shock to see it so clearly: that there is still much land to develop and that the spectra of urban sprawl from Puget Sound beaches to Cascade Crest in our lifetime is not extravagant. I am hardly against development but I realized that the nightmare of wall-to-wall Aurora Avenue is not impossible.

Looking east over I-90 towards the town
of Issaquah, Washington and the Cascade Mountains

This flight also suggested that we may be thinking too small and that we should start dealing with our future by adopting perspectives suitable to the task at hand: a regional perspective stretching over 50 years.

Zoning Inadequate By Itself

There is tremendous pressure on local government to control development. But local government persists in using zoning and SEPA as its major tools; these are hemmed in by significant (and wise!) restrictions on public interference with private property rights. Zoning is an inadequate tool with which to control the quality, scale & timing of development.

Lands Should be Bought

To control and direct regional growth we must buy land.

We should make major purchases of outlying land in order to provide significant open space for the region of ten, twenty & fifty years hence through what we might call The Metropolitan Land Bank.

This Land Bank should buy undeveloped parcels at the urban fringe in the area from, say, Enumclaw to Marysville. For a frame of reference, the Land Bank might contemplate purchasing $2-3 billion of land. Such major purchases are needed in order to get out front of development.

The Land Bank would be a public body with the powers of condemnation. (As an alternative, this program could be organized by a non-profit group such as the Nature Conservancy; of course then the powers of condemnation and tax-free status for bonds would be missing. But it might be easier to do.)

Financing Method

It's typical technique would be to buy large parcels through the use of tax-exempt zero-coupon revenue bonds.

The advantages are several.

Tax-exempt status for the bonds allows a lower interest rate.

Zero-coupon bonds are bought at a discount from their face value and there is no interest paid until redemption. For example, a zero-coupon bond with a value at maturity of $1000 in 2119 (30 years from now) might sell today for $99. (Assuming an 8% yield.) Interest accrues over the life of the bond and is paid only at maturity. Since the debt has no "real-time" carry, this type of bond makes the political cost of a Land Bank more palatable.

Revenue bonds are bonds which can only be repaid out of revenues from a specific project. For example, revenue bonds used to finance a public facility such as a Tennis Center can only be repaid out of the monies generated by the Tennis Center. A family is not paying for the bonds in its property taxes--the homestead is not at risk. In the case of a Land Bank, the bonds holders could only claim for repayment would be from revenues generated by the specific land or pool of sites.

Eventual Sale & Development

One asks: "What revenues?".

The purpose of the Land Bank is not to stop development but to
--ensure that the quality, scale & timing of development is in the public interest;
--provide an excellent system of parks & open spaces in order to enhance our quality of life and the long-term value of our investments.

Over the life of the program, the Land Bank would sell land. And it would, presumably, sell it at a substantial profit.

But it would sell only enough land to retire the bonds. If historic rates of inflation are any indicator, it seems plausible that a parcel bought today will go up in value ahead of interest rates over ten or twenty years or thirty years. The public would be able to sell half or more of the land for development--at a profit--and with precise and substantial controls on what is built but without the "private property" issues raised by zoning, dedications, impact fees, etc. The public would keep the rest for parks and open space.

In essence, the public uses inflation and the increase in value created by public investment to benefit itself.

Constituencies Benefited

Citizens concerned about growth would support a program designed to get out front of development.

Large land owners might welcome the opportunity to dispose of their holdings without the financial risk and political hassle of development.

Mortgage loan buyers (i.e. insurance companies, pension funds, etc.) should support such a plan because it will help to ensure maintenance of long-term value of their investment in the region.

Possible Problems

On the negative side, withdrawal of significant amounts of land would increase pressure to develop in existing urbanized areas--exacerbating existing tensions--and prices for already developed properties would increase. Housing might become increasingly expensive.

Further, lands in the Bank would in some sense be committed to development; the bonds must be repaid or the bond holders would be able to claim the collateral i.e. the land and we'd start the development/anti-development hassle all over again, though twenty years down the road.

Some other critical questions

--What is fiscal impact of withdrawal of the Land Bank Lands from the tax rolls (assuming public purchase);
--Who is to manage the lands during the holding period?
--Who will eventually choose which lands shall be developed and when and under what development standards?
--Might the program be less threatening (and more successful) if it was done as voluntary program only i.e. without the power of condemnation?
--Are there Constitutional problems of equal protection and of social equity when the public both determines value through zoning and is also beneficiary of that value through sale of its own lands?

The central question--beside the one of political will--is whether the financial markets will find the tax-exempt zero-coupon revenue bond an attractive instrument. Will bond buyers put aside the use of their money for thirty years at a fixed rate (with non-recourse terms) so that we Puget Sounders can bet on inflation and end up with some parks? Or will they require some kind of "equity kicker" (a share of the gain over some index) or will they want the bonds indexed in some way to return a variable yield? (In the course of organizing this program--at least 3-4 years of political machinations unless the Nature Conservancy does it--could not a private investment group speculate in the same way and buy the land so that it could gain the profit for itself? But to answer my own question, perhaps the public's power over zoning might make it simply too speculative for anyone but the public.)

I certainly don't know but the bond people should be able to analyze the problems and possibilities in short order.

Conclusion

Land Banking does not do away with the necessity of detailed planning but merely delays and shifts the moment of commitment forward. But sometimes it is wise and valuable to simply buy time.

I invite your comments and critique. My purpose here is to stimulate discussion about one element of comprehensive regional planning.