Academic journal article Texas Law Review

Property Taxes and Community Land Trusts: A Middle Ground*

Academic journal article Texas Law Review

Property Taxes and Community Land Trusts: A Middle Ground*

Article excerpt

When Robert Swann first articulated his new approach to land ownership in 1972, he described a system wherein the user owns any buildings or improvements he places on the land, but leases the land itself from a nonprofit entity. Swann and his associates labeled this arrangement a Community Land Trust (CLT).1 In exchange for the user paying a monthly rental fee for the land, Swann envisioned that the trust would pay the property taxes as well as any other costs associated with the land.2 Swann hoped this arrangement would allow young farmers to obtain land at a relatively low cost as well as afford them long-term security on the land even if property values rose.3

Although he initially created the model for rural communities, Swann and his colleagues eventually established a think tank-the Institute for Community Economics (ICE)-that applied the CLT model to affordable housing as well.4 Early CLT models associated with affordable housing aimed to control the resale price of homes situated on CLT land in order to preserve class diversity in spite of gentrification.5 While many communities strive to develop business, local amenities, and schools, these improvements result in higher property values and often displace the very people the improvements initially aimed to help.6 The leaders of ICE saw their CLT model as a way to combat this problem.7

Today, there are approximately 200 communities that operate CLTs and over 5,000 CLT homes in America.8 The presence of CLTs in America has rapidly expanded; indeed, "the number of CLTs nationwide has more than doubled in the last ten years."9 Each CLT has a different focus and most, although staying true to the most basic tenets of Swann's model, have diverged significantly from Swann's initial conception. Perhaps most notable are the low number of CLTs-roughly 45%-that pay the property taxes for the land they own.10 This omission almost always affects the affordability of housing located on CLT land and ultimately undermines one of the primary policies behind CLTs.11 On the opposite end of the spectrum, other CLTs benefit from state laws or municipal ordinances that allow them to utilize their 501(c)(3) tax-exempt status or other legal avenues to avoid paying property taxes for the land they own altogether.12 This arrangement decreases the tax revenue municipalities can spend on infrastructure and schools,13 essential services to which low-income families that occupy CLT homes desperately need access.

This Note explores the challenge of maintaining the affordability of homes situated on CLT land while ensuring that schools and other taxpayerfunded social services do not suffer in communities with a significant CLT presence. Part I outlines the typical features and goals of CLTs in the context of affordable housing. Part II elucidates the impact rising property taxes can have on the affordability of CLT land, especially in gentrifying areas. Part III examines the range of approaches states and municipalities take when assessing the value of CLT land and begins to explore the effects of these approaches on municipal revenue. Part IV proposes applying a new tax structure that will temper the negative ramifications of both extremes discussed in the preceding parts of the Note and briefly concludes.

I. An Introduction to the Community Land Trust Model

A. Structural Features

Although each CLT operates differently, most share certain core characteristics. 14 All CLTs are nonprofit, 15 community-based organizations. 16 These organizations acquire multiple parcels of land in a specific geographic area with the intention of owning the land in perpetuity.17 They then lease the land to private parties via transferable ninety-nine-year ground lease agreements. 18 A separate entity-usually the lessee-owns the structures that sit atop the land.19 Nevertheless, the ground lease enables the CLT to limit the purpose for which the lessee can use the land (i.e., the leases can stipulate that a house lot must remain a house lot) and to restrict the resale price of the home via a formula laid out in the lease. …

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