Land Bank Powers Abused, Costly to Taxpayers

After the Kent County Land Bank Authority came under fire for buying more than 40 vacant, tax foreclosed properties to block developers and individuals from purchasing them, Kent County has set up a subcommittee to study the issue.

The committee will consist of four county commissioners, and will look at how other land banks choose to buy property. It remains to be seen whether they will give a critical look at the practice of government using taxpayer dollars to buy property. The committee may alternatively be nothing more than an attempt to placate Kent County residents upset with the land bank's actions.

If its members are serious, however, they should consider the following:

This power has been abused in Michigan and elsewhere. 
When defending the land bank's practices, Executive Director Ken Parrish said that part of its mission is to "partner with community stakeholders" to acquire and dispose of property. 

That can mean a lot of things, not all of them good for taxpayers. In one egregious example, the Wayne County Land Bank Corp. sold property to a "stakeholder" — a developer — for $1 in exchange for the promise of jobs from a proposed Pinnacle Race Track. The county spent $26 million on improvements, but the promised jobs never materialized, and the property is about to go back to the land bank again.

One of the oldest land banks in the United States, in St. Louis, has been bidding against private buyers for years. In a similar "partnership" effort, city aldermen request that blocks of properties be held from sale to someone "other than an approved developer." This practice has not led to revitalization; instead, it has helped the land bank amass more than 10,000 parcels.

Federal funding for land bank purchases is likely to dry up. 
In 2009, the federal government awarded Michigan more than $220 million to expand its land banking activities. A recent report on how this money was used shows that nearly 850 properties were acquired, including property in Grand Rapids (which is in Kent County).

Many land bank acquisitions have been made possible with one-time federal grants. In its own 54-page review of land banking, Oakland County noted that it does not expect similar funding in the future. Current funding is set to expire soon; according to the state's report, remaining federal projects are due to be complete in early 2013.

Vacant properties are expensive liabilities.
If commissioners aren't concerned about the potential for abuse, or a lack of funding, they may want to consider the risks of acquiring vacant property. A vacant lot owned by a land bank does not produce property tax revenue, and it comes with maintenance costs. Some land banks spend more than $1 million each year just to mow the grass on all the vacant property they've acquired.

Moreover, every vacant property acquired by the Kent County land bank represents uncertainty. When the land bank buys a parcel in the hopes of a better future deal, it is entering itself and taxpayers into the risky business of speculation. Deals with developers may fall through, and nonprofits may take on larger rehab projects than they are capable of, leaving taxpayers holding the bag — and another parcel that remains vacant. 

In light of the potential for abuse, a drying up of federal funds, and the fact that vacant land maintenance is expensive, the Kent County land bank should just get out of the expensive and risky land speculator game.


See also:

Land Banking: An Old Idea With A Poor Track Record

Kent County Taxpayers Question Land Bank

Analysis: Genesee County Land Bank Threatens Private Property Rights

Land Bank Loans Often Losers

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.