David Sucher
July 18, 1989
Several weeks ago I went flying with a friend to see the shape of the PugetSound region. What I saw is no nothing new but it was a shock to see itso clearly: that there is still much land to develop and that the spectraof urban sprawl from Puget Sound beaches to Cascade Crest in our lifetimeis not extravagant. I am hardly against development but I realized thatthe nightmare of wall-to-wall Aurora Avenue is not impossible.
This flight also suggested that we may be thinking too small and that weshould start dealing with our future by adopting perspectives suitableto the task at hand: a regional perspective stretching over 50 years.
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 interferencewith private property rights. Zoning is an inadequate tool with which tocontrol the quality, scale & timing of development.
To control and direct regional growth we must buy land.
We should make major purchases of outlying land in order to provide significantopen space for the region of ten, twenty & fifty years hence throughwhat we might call The Metropolitan Land Bank.
This Land Bank should buy undeveloped parcels at the urban fringe in thearea from, say, Enumclaw to Marysville. For a frame of reference, the LandBank might contemplate purchasing $2-3 billion of land. Such major purchasesare needed in order to get out front of development.
The Land Bank would be a public body with the powers of condemnation. (Asan alternative, this program could be organized by a non-profit group suchas the Nature Conservancy; of course then the powers of condemnation andtax-free status for bonds would be missing. But it might be easier to do.)
It's typical technique would be to buy large parcels through the use oftax-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 thereis no interest paid until redemption. For example, a zero-coupon bond witha value at maturity of $1000 in 2119 (30 years from now) might sell todayfor $99. (Assuming an 8% yield.) Interest accrues over the life of thebond 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 aspecific project. For example, revenue bonds used to finance a public facilitysuch as a Tennis Center can only be repaid out of the monies generatedby the Tennis Center. A family is not paying for the bonds in its propertytaxes--the homestead is not at risk. In the case of a Land Bank, the bondsholders could only claim for repayment would be from revenues generatedby the specific land or pool of sites.
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 thepublic interest;
--provide an excellent system of parks & open spaces in order to enhanceour 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 ratesof inflation are any indicator, it seems plausible that a parcel boughttoday will go up in value ahead of interest rates over ten or twenty yearsor thirty years. The public would be able to sell half or more of the landfor development--at a profit--and with precise and substantial controlson what is built but without the "private property" issues raisedby zoning, dedications, impact fees, etc. The public would keep the restfor parks and open space.
In essence, the public uses inflation and the increase in value createdby public investment to benefit itself.
Citizens concerned about growth would support a program designed to getout front of development.
Large land owners might welcome the opportunity to dispose of their holdingswithout the financial risk and political hassle of development.
Mortgage loan buyers (i.e. insurance companies, pension funds, etc.) shouldsupport such a plan because it will help to ensure maintenance of long-termvalue of their investment in the region.
On the negative side, withdrawal of significant amounts of land would increasepressure to develop in existing urbanized areas--exacerbating existingtensions--and prices for already developed properties would increase. Housingmight 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 thecollateral i.e. the land and we'd start the development/anti-developmenthassle all over again, though twenty years down the road.
--What is fiscal impact of withdrawal of the Land Bank Lands from the taxrolls (assuming public purchase);
--Who is to manage the lands during the holding period?
--Who will eventually choose which lands shall be developed and when andunder what development standards?
--Might the program be less threatening (and more successful) if it wasdone as voluntary program only i.e. without the power of condemnation?
--Are there Constitutional problems of equal protection and of social equitywhen the public both determines value through zoning and is also beneficiaryof that value through sale of its own lands?
The central question--beside the one of political will--is whether thefinancial markets will find the tax-exempt zero-coupon revenue bond anattractive instrument. Will bond buyers put aside the use of their moneyfor thirty years at a fixed rate (with non-recourse terms) so that we PugetSounders can bet on inflation and end up with some parks? Or will theyrequire some kind of "equity kicker" (a share of the gain oversome index) or will they want the bonds indexed in some way to return avariable yield? (In the course of organizing this program--at least 3-4years of political machinations unless the Nature Conservancy does it--couldnot a private investment group speculate in the same way and buy the landso 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 speculativefor anyone but the public.)
I certainly don't know but the bond people should be able to analyze theproblems and possibilities in short order.
Land Banking does not do away with the necessity of detailed planning butmerely delays and shifts the moment of commitment forward. But sometimesit is wise and valuable to simply buy time.
I invite your comments and critique. My purpose here is to stimulate discussionabout one element of comprehensive regional planning.
