Land banks as a neighborhood recovery strategy: A conversation with Dan Kildee of Michigan's Genesee County Land Bank
Community Dividend speaks with Dan Kildee, Genesee County treasurer and board chair of the Genesee County Land Bank, to learn more about how land banking is contributing to redevelopment in Flint, Mich.
- Assistant Vice President, Community Development
Published May 1, 2009 | May 2009 issue
Land banks are tools by which local governments can acquire and hold surplus property and return it to the real estate market. Land banks often acquire properties through tax foreclosure, wherein owners lose their properties due to nonpayment of property taxes. Once it acquires a property, a land bank eliminates all liens and past claims on the property and clears the title, effectively preparing the property for sale to a new owner.
Interest in land banking has grown recently, especially as the widening and deepening foreclosure crisis has resulted in a large inventory of vacant and abandoned homes. In the Twin Cities region, which ranks seventeenth nationally in the number of bank-owned properties,1/ several municipalities are considering land banking as a strategy to aid in the recovery of some of their hardest-hit neighborhoods. To date, land banking organizations have been established in a small number of metropolitan areas, such as St. Louis; Cleveland; Louisville, Ky.; Atlanta; and Flint, Mich. Of these, the Genesee County Land Bank (GCLB) in Flint, which was founded in 2002, is often recognized as the most pioneering entity.
In 1999, the State of Michigan made reforms to its tax foreclosure laws in order to streamline the acquisition and resale of tax-delinquent properties. For example, the reforms allowed counties—not just the state—to become the owners of properties that are tax-delinquent. The reforms reduced the delinquency period, during which no action could be taken on the properties, from 46 months to 25 months. In addition, the 1999 reforms enabled counties to identify some properties as "abandoned property for accelerated forfeiture," which reduced the tax foreclosure process by an additional year.2/
Since its inception, the GCLB has applied the tools created under the reformed laws to stabilize neighborhoods and revitalize the city of Flint and surrounding areas. The land bank has facilitated the reuse of more than 4,000 residential, commercial, and industrial properties acquired through the tax foreclosure process. GCLB's work is accomplished through partnerships with public, private, and nonprofit entities. One factor that makes GCLB unique, and is another result of the 1999 reforms, is that the land bank receives much of its revenue from the penalties and delinquent tax payments made each year in Genesee County. Prior to the 1999 reforms, these revenue streams were often purchased by investors, who profited from the penalties and tax payments paid by the property owners.3/ Other sources of funding for the GCLB include sales and rental programs, grants, loans, and bonds.
Community Dividend spoke with Dan Kildee, Genesee County treasurer and board chair of the GCLB, to learn more about the land bank and the challenges involved in redeveloping the Flint area.
Community Dividend: Set the scene for us. Why was there a need for a land bank in Flint and the surrounding county?
Dan Kildee: Flint has a strong connection to General Motors and once was the center of the automotive universe. As of the late 1970s, there were 79,000 people in the area working for GM. What happened, along with typical urban sprawl and urban blight, was a meltdown in our economy. We lost 90 percent of those GM jobs over a 30-year period. With the jobs gone, the city of Flint was abandoned pretty quickly. We lost about 40 percent of the population between 1970 and 2000 and ended up with a significant oversupply of substandard, dilapidated, abandoned houses.
CD: What were Flint's neighborhoods like before the meltdown?
DK: They were great neighborhoods up through the 1960s and 1970s—diverse, high-density, fully functioning. Some of these neighborhoods only took half a decade to go from being great places to being essentially wasteland. To me, that demonstrates the risk to neighborhoods when blight is allowed to spread unchecked like a contagious disease. Particularly in communities like Flint that have relatively weak market demand in the first place, neighborhoods are at great risk. Just a sprinkling of vacant properties can quickly lead to wholesale abandonment. That's why I think the whole situation provides great lessons for communities that are struggling with the current mortgage crisis.
CD: What barriers did you face in getting the land bank off the ground?
DK: The initial barrier was state law. We had a tax foreclosure system designed for the nineteenth century. It was rooted in the idea that somehow the market will magically take care of the neighborhoods and the houses and restore them to productive use. And, of course, that wasn't the case. So the first big hurdle was to persuade the legislature, the political leadership, and the community that there was a legitimate government role in this and that we should step up to it. Beyond that, the really big hurdles are market issues. We don't have a lot of opposition to our initiative, but we're up against dire market conditions.
CD: How did the county deal with vacant and abandoned properties before the state law on foreclosures was changed and the land bank got started?
DK: The approach was similar to what most states have in place right now. It was essentially privatized tax sales, where the properties go through abandonment and the government's first interaction with them is through the collection of delinquent taxes. Before we came along in Michigan, the government would either auction title to the properties in very speculative auctions or sell the receivables to private investors in the form of a tax lien sale.
It's an approach that generally produces negative outcomes. If you treat land as a disposable commodity, if you price and sell property as if it's junk, then purchasers will treat the property like it's junk. If somebody can buy an abandoned house in Flint for a few hundred dollars of back taxes and rent it out for a few hundred dollars a month, there's no incentive for them to invest in any improvements to the property.
CD: What was your main focus in designing the land bank?
DK: I went at this with the idea that it had to be sustainable. I started by looking at the economics of the tax foreclosure and tax collection system and found that people were making money on the process. For a modest sum, speculators or tax lien purchasers could turn their investment into a fairly significant return. Rather than just focusing on a land assembly mechanism, I reengineered the process as an economic model that delivers a sustainable revenue stream. I replaced the tax lien speculators with me, the county treasurer. The delinquent tax revenue we receive is dedicated to the cleanup and improvement of the foreclosed properties. In short, that means we get title to all of these abandoned properties, but we also get a relatively significant amount of revenue. I generate between $1.5 million and $2 million a year in delinquent tax fees that used to go to speculators.
To those who consider our work innovative, I'd say the primary innovation is not that we figured out how to create a land bank authority, but that we figured out a way to connect the economics of tax foreclosure and tax collection to the responsibilities of property management and disposition.
CD: The GCLB has a number of programs in addition to its core property acquisition function. Why was there a need to add those programs?
DK: We developed those programs because we have a relatively weak nonprofit sector. When I conceptualized the land bank, I thought we'd simply assemble land and put it out on the real estate market, and then good things would happen with it. My calculations didn't acknowledge that since our nonprofit sector is weak, good things wouldn't happen without further intervention from us. So we've extended ourselves and, to a degree, we've adopted the role of a community development corporation.
We do a number of things in addition to property acquisition. For example, we sometimes engage in catalytic development activities. If we think we can make something happen on a piece of property, but can't find a private partner to do it, we'll go ahead and do new development. Also, if we can't sell the delinquent properties we get, we "clean" them through rehab or demolition. After a demolition, we maintain the lot. We make sure that instead of looking like part of an abandoned landscape, it actually takes on some natural beauty and becomes integrated into a lower-density neighborhood. We call that program Clean and Green. We do a significant amount of property maintenance by partnering with neighborhood organizations.
What these programs have helped us understand is that a land bank's role is not just to hold property, but to provide a set of pathways to bring properties back to public use. Rather than putting all of the properties on a single path—the public auction—we provide multiple paths to increase the likelihood of a positive outcome.
CD: A recent piece of federal legislation called the Neighborhood Stabilization Program, or NSP, encourages and funds land banking activities. What advice do you have for localities that are considering establishing land banks?
DK: First, don't create a land bank just because you can get NSP money. Think about the whole range of programs and the whole range of functions that a land bank could engage in, and don't just do it for NSP funds. Second, examine the entire framework of how the government interacts with weak-market properties. Look at the whole range of governmental systems, including things like code enforcement, and attempt to put together an initiative that is beyond the life of this crisis that we are in, beyond the NSP funding. Finally, create optimistic, but reasonable, expectations for the land bank, given the market conditions in your community.
CD: You seem to be suggesting that land banking needs to be customized to the community, depending on local conditions.
DK: Definitely. In our case, we developed a model to deal with weak market conditions and weak nonprofit capacity. The land banks we've created elsewhere have a different purpose and a different range of programs based on the local conditions. For example, we helped form a land bank authority in Traverse City, a resort community in northern Michigan that has a strong, growing market. The land bank there is used as a tool to support work force housing. We helped Little Rock, Ark., develop a land bank to focus on targeted neighborhood development goals, such as the Central High School area. There are different ways a community can customize this concept to address its particular challenges.
CD: Where does the GCLB go from here?
DK: We've been operational for seven years now and we continue to evolve. My hope is that more and more of the development work we do will be picked up by private investors. We had to do our first few big deals all by ourselves. Since that time, we've been able to improve the market enough so that now private developers are stepping up.
CD: In your opinion, how has the land bank changed Genesee County and Flint?
DK: Specifically, it's allowed us to be a catalyst for development that creates a more sustainable community. It allows us as the landowner to pursue the kind of sustainable land-use policies that, typically, only the government can impose on other owners. Also, when we create open, green lots or community gardens in a neighborhood, the value of the surrounding lots goes up, and their equity may be restored. We take empty houses off the tax rolls and out of the marketplace and have a positive effect on property values. A recent Michigan State University study supports that conclusion.4/
In the abstract, I think the land bank has led to a feeling of optimism in the community. We've found a good way to manage our land, so that just because we're becoming smaller doesn't mean we have to become a less desirable place to live. Gaining control of the land gives us a chance to improve economic conditions. That's led to a measurable improvement in the psyche of the community.
For more information on the GCLB, visit www.thelandbank.org.
1/ Dan Immergluck, The Accumulation of Foreclosed Properties: Trajectories of Metropolitan Inventories During the 2007–2008 Mortgage Crisis, Community Affairs Discussion Paper, Federal Reserve Bank of Atlanta, December 2008. Available at www.frbatlanta.org.
2/ Nigel G. Griswold and Patricia E. Norris, Economic Impacts of Residential Property Abandonment and the Genesee County Land Bank in Flint, Michigan, Michigan State University Land Policy Institute, Report #2007-05, April 2007, p. 16. Available at www.landpolicy.msu.edu.
3/ Ibid, p. 17.
4/ This study is referenced in the two previous footnotes.