There has been much discussion regarding the use of Land Banks to assist in addressing the aftermath of the foreclosure crisis. Here is an excerpt from the Cleveland Plain Dealer discussing the County’s recently launched non-profit corporate land bank:
Formally launched by the county in April, the new, nonprofit land bank is the first of its kind in Ohio.It could soon turn Cleveland into the nation’s biggest urban laboratory on how a declining industrial city with a comatose real estate market can downsize gracefully — and prepare to rebound in the future. The impact on the city as a whole could be far greater than individual projects such as the proposed medical mart and revamped convention center downtown.
Ohio recently passed Senate Bill 353 which allows a two year trial period for Counties to create a separate county land reutilization corporation for purposes of acquiring abandoned and tax delinquent properties. By allowing creation of a separate corporation, the law addresses the issue of liability- a major short-coming of Ohio’s existing land banking law set forth in Ohio Revised Code 5722. The law also allows for an expedited foreclosure process. The Federal Reserve Bank of Cleveland released an good analysis of the new legislation titled "Understanding Ohio’s Land Bank Legislation."
Why create a land bank? Obviously, thousands of abandoned properties bring down property values across the board and create blight. Abandoned properties also present other risks. Here is a quote from a University of Michigan study of its Land Bank program:
The U.S. Fire Administration reports that over 12,000 vacant structure fires are reported each year in the U.S., which results in $73 million in property damage annually. In addition, abandoned properties tend to attract crime. A 1993 study of 59 abandoned properties in Austin, Texas, found that 34 percent were used for illegal activities and of the 41 percent that were unsecured, 83 percent were used for illegal activities.
While the focus of the recently enacted Land Bank Legislation has been as a tool for addressing abandoned residential properties, its utility should also be examined for application to brownfields. Land Banks can serve has effective means of addressing the complex legal and environmental issues that face brownfield properties.
As an example, the Franklin County Land Bank was used successfully to address tax liens on the former Bedford Landfill which overcame a significant barrier to redevelopment. The Bedford Landfill became a successful Clean Ohio project receiving a $3 million grant from the State of Ohio.
Today, I attended a presentation by members of the City of Cleveland’s Economic Development Department on the City’s Industrial Land Bank Program. Nate Hoelzel and David Ebersole provided an interesting overview of this unique effort by the City to address large brownfield’s for redevelopment.
The City of Cleveland’s Industrial/Commercial Land Bank was launched in 2005. The creation of the Cleveland Industrial Land Bank was preceded by an academic study by Cleveland State University. The purpose of the bank is to try an assemble large tracks of abandoned property in areas identified by the City for priority commercial/industrial development. Criteria include looking for properties of at least 20 acres in size and near key infrastructure.
In a relatively short time period (less than 4 years), the Land Bank has acquired 100 acres of brownfield property. Thirty-seven (37) acres are currently on the market for industrial or commercial redevelopment. The adjacent picture is from Economic Development Department’s web page shows the location of 3 tracks currently held by the Land Bank.
The industrial/commercial land bank is designed to overcome the unique aspects of contaminated urban property that prevents major development. Representatives for the City of Cleveland estimated it cost approximately $300,000 per acre to address urban brownfield property. Such a staggering costs often drives development to greenfields and promotes urban sprawl. The factors that drive such staggering costs include:
- liability for contamination
- assessment costs for investigating the extent of contamination
- demolition costs for vacant buildings
- property title issues including tax liens
Land Bank’s can overcome many of these barriers by providing public funds for costly environmental assessment, removing title issues and even potentially addressing liability through clean up of the property. A property returned to the market may be free of tax liens and have received a full release from the State of Ohio for environmental contamination.
While successful for its relatively short existence, Cleveland’s Industrial Land Bank could be improved if provided additional flexibility. The Land Bank relies upon the traditional legal framework for its activities. The legal authority for municipalities to purchase underutilized land exists at the State level in Ohio Revised Code 5722 and at authority for the Industrial Land Bank is located in Section 183.021 of the City of Cleveland Code. Under these authorities, no separate corporation can be created which means the City can face significant liability exposure under federal Superfund laws (CERCLA) for owning contaminated property.
During the presentation, the presenters mentioned the City’s effort to amend federal law during the effort in 2006 to reauthorize U.S. EPA’s brownfield program. While amendment of federal law to allow municipalities or counties to acquire property without fear of CERCLA liability makes sense, it may be an uphill climb. It may be more practical to allow for expansion of Ohio’s new Land Banking Legislation to specifically allow for political subdivisions to acquire brownfield properties through a separate corporation. This would provide City’s a layer of liability protection for being active in purchasing these complex properties.