Even as the economy begins to recover from the greatest recession since the 1930s, the worst may be yet to come for state and local governments because their fiscal situations typically lag the general economy by two to three years. State budget deficits for FY2010 totaled more than 25 percent of general fund budgets—the largest budget gaps on record.

Making matters worse is the impending “stimulus cliff,” which arises because most of the roughly $135 billion in federal stimulus aid to state governments and school districts was used to help close state budget gaps in FY2010, leaving a small fraction of the aid for FY2011 (Lav, Johnson, and McNichol 2010). Even before the current recession, states faced substantial structural deficits. The U.S. Government Accountability Office (2007, 1) predicted state and local governments would face “large and growing fiscal challenges” within a few years time, and continuing through 2050.

These grim forecasts for state and local budgets have led some analysts and policy makers to call for reducing the size of state government, consolidating local governments, restructuring tax systems, and even changing state constitutions. According to Rob Gurwitt (2010, 18) of Governing magazine, the “fundamental assumptions about how state government operates need rewiring.”

Given the likelihood of a long-term state and local government fiscal crisis, property tax relief is an important state government function that is now more critical than ever. This article argues that most efforts to provide property tax relief, such as assessment limits and homestead exemptions, are inefficient and create substantial unintended consequences. Circuit breaker programs—a property tax relief mechanism first developed in the 1960s—deserve renewed attention in an era of streamlined state government because they target aid to those who need it most.

Alternative Approaches to Property Tax Relief

The property tax accounts for the largest share of own-source revenues for local governments, and is particularly suitable for funding local services for at least two reasons. First, it is a stable revenue source: property tax revenues do not fall dramatically during recessions as income tax and sales tax collections generally do. Second, property taxes are imposed on an immobile tax base: while people may have the option to buy the same goods in a nearby town with lower sales taxes, or move across state lines for lower incomes taxes, they cannot move their land across city lines to seek lower property taxes.

The property tax is not without problems, however. Chief among them are the disparities in property values across communities, an inexact relationship to taxpayers’ ability to pay, and the long-standing unpopularity of the tax. Its revenue importance means that improvement rather than elimination is the best way to address these problems.

Property tax relief can be provided in many ways, some of which are more effective and equitable than others. Wealth disparities among communities make locally funded property tax relief programs inherently problematic. Funding property tax relief at the state level is a better option, since communities with large concentrations of needy taxpayers are unlikely to have the resources to fund local-option tax relief programs. State funding also eliminates inequities in property tax relief among communities.

Assessment caps are used as a property tax relief measure in 20 states, and other states regularly examine proposals to employ such measures. A recent comprehensive study on assessment limits found, however, that “30 years of experience suggests that these limits are among the least effective, least equitable, and least efficient strategies available for providing property tax relief” (Haveman and Sexton 2008, 37). Assessment caps provide the greatest tax reductions to homeowners whose property values have increased the most. Even though such gains in housing wealth are not a liquid asset, tax relief should not be structured to provide the greatest benefit to those with the greatest increase in wealth.

Assessment limits also create horizontal inequities in cases where two homeowners with identical incomes and homes in the same community face dramatically different property tax bills solely because one owner has lived in the home longer. Fixed-dollar homestead exemptions are better, but still do a poor job of targeting homeowners with the highest property tax burdens, because they provide the same dollar value of property tax relief to all homeowners facing a particular tax rate, regardless of their income.

Residential property tax relief programs across the United States are seldom targeted by income—the best measure of a household’s ability to pay taxes. Of the 216 residential property tax relief programs in effect in 2006, only 81 took income into account when setting benefits by using an income ceiling, and only 37 programs set tax relief benefits that varied by income (Significant Features of the Property Tax 2010). Given the fiscal crisis, states should consider replacing untargeted property tax relief with circuit breaker programs that can provide relief to more households in need, without spending more money.

The Case for the Property Tax Circuit Breaker

When applied to property tax relief, the term circuit breaker is used to describe programs that provide benefits directly to taxpayers, with benefits increasing as claimants’ incomes decline. As an electrical circuit breaker stops the flow of electrical current to protect a circuit from overload, a property tax circuit breaker is a policy mechanism designed to stop property taxes from exceeding a claimant’s ability to pay, protecting the taxpayer from property tax overload.

A clear definition is critical since most states with true circuit breaker programs do not use that term to describe them. For example, Maine calls its circuit breaker program the Maine Property Tax and Rent Refund Program. Meanwhile, some states use the term to refer to property tax relief programs in which relief does not vary with income. In Indiana, a program is called a circuit breaker even though the program ties relief to property value, not to income.

Over the last 40 years, two-thirds of the states and the District of Columbia have adopted state-funded circuit breaker programs (see figure 1). Each of these programs satisfies the circuit breaker definition described above. However, the design of these programs, and consequently their effectiveness, varies considerably. Properly designed circuit breakers can target property tax relief more precisely and with less expense than broad-based mechanisms such as homestead exemptions and assessment caps.

Recommendations for a Circuit Breaker Program

We offer seven recommendations designed to obtain maximum benefit when creating or reforming a circuit breaker program. The New York case study presents the efforts of one state trying to reform its circuit breaker program (box 1).

Box 1: New York’s Effort to Provide Targeted Property Tax Relief

Policy makers in New York state are considering adopting a new, expanded circuit breaker program to provide more targeted property tax relief because the existing circuit breaker program does not provide adequate assistance. It currently excludes households with incomes above $18,000, and provides an average annual benefit of only $109 per claimant (Bowman et al. 2009).

The state’s primary means of providing direct property tax relief to households is the School Tax Relief program (STAR), which has three components. Basic STAR is available to all taxpayers on their primary residence, and exempts the first $30,000 in property value from school district taxes, with adjustments for municipalities where assessed values diverge from market values and for downstate counties with high real estate prices. Enhanced STAR exempts a higher value, and is available only to homeowners over age 65 with limited incomes. Middle Class STAR provided a rebate check that depended on households’ income and their other STAR benefits, but was repealed in 2009 for 2009–2010 and subsequent fiscal years.

STAR is an expensive program—the three property tax components cost about $3.9 billion in 2008–2009. However, because benefits are spread so widely, many homeowners still face excessive property tax burdens. According to the 2006 American Community Survey, even after accounting for reductions under the Basic and Enhanced STAR programs, 20.1 percent of New York homeowners paid more than 10 percent of their income in property taxes, while 52.6 percent paid less than 5 percent. By providing such generous relief to the second group, the state is not able to provide enough for the first. Also, by providing larger exemptions for counties with high house prices, STAR largely subsidizes households in property-wealthy communities, which makes the state’s property tax system more regressive (Duncombe and Yinger 2001).

To provide more targeted relief, several proposals have been introduced to establish a new circuit breaker program. During the 2005–2006 legislative session, Assemblywoman Sandy Galef and Senator Betty Little sponsored a plan with many desirable features: a multiple-threshold formula to make the distribution of tax relief more progressive; an income ceiling high enough to include all middle-income households; and a copayment requirement to discourage excessive spending by local governments. The cost would have been limited by making homeowners choose either circuit breaker benefits or Middle Class STAR.

The Omnibus Consortium put forward a proposal similar to the Galef–Little plan, but with two improvements. First, it includes renters. Second, it uses a graduated structure for the income brackets, so that a small income increase that moves a claimant from one bracket to the next does not result in a much larger decrease in circuit breaker benefits.

The consortium’s proposal was introduced in spring 2009 by Senator Liz Krueger and Assemblyman Steve Englebright; it is cosponsored by Galef, Little, and many other legislators. Once fully implemented this plan is estimated to cost $2.3 billion annually, which is 65 percent less than the cost of the 2008–2009 STAR property tax programs, even though the new plan would provide much more generous relief to households facing the largest property tax burdens.

Plans to pay for the circuit breaker have been clouded by the state’s repeal of the Middle Class STAR rebates in response to the 2009–2010 budget deficit. Governor David Paterson has also proposed a circuit breaker plan, which would tie circuit breaker benefits to a spending cap for state government. Annual spending growth would be restricted to inflation growth. When revenues exceed this limit, the surplus would be returned to homeowners via a circuit breaker. While this plan may seem attractive, it would accentuate budget cycles and result in unpredictable year-to-year fluctuations in tax relief for homeowners.

Given the state’s fiscal crisis, creating a new circuit breaker program now seems more difficult than when the Galef–Little bill was being actively debated in the 2006–2008 period. Still, it is a positive sign that many legislators and the governor are all advancing targeted and cost-effective circuit breaker proposals, and have repealed the expensive and untargeted Middle Class STAR program.

Provide property tax relief to owners and renters of all ages. Currently, more than two-thirds of state circuit breakers do not cover nonelderly households, and a quarter of programs do not cover renters. Restricting eligibility to seniors is based on the false assumption that age is a good proxy for property tax burden. In fact, while the elderly have higher property tax burdens on average, Census data show elderly and nonelderly homeowners both devote about 35 percent of their incomes to all home ownership costs combined (Bowman et al. 2009, 11).

Furthermore, circuit breakers eliminate the need to use age as a rough proxy for property tax burdens since they target relief based on each household’s income and property tax liability. States should also provide circuit breaker benefits for renters, because they pay property taxes indirectly as part of their rent and they generally have lower incomes than homeowners. States that cover renters typically estimate renter property tax payments by specifying a percentage of rent equivalent to property taxes, most commonly 20 percent.

Avoid low income ceilings and restrictions on maximum benefits.

Many circuit breakers fail to provide meaningful tax relief because they have low income ceilings that exclude middle-income households, or low limits on maximum benefits that result in inadequate relief. For example, Oklahoma’s circuit breaker program restricts eligibility to claimants with incomes below $12,000 and caps relief at $200. In 2008, almost three-quarters of state circuit breaker programs had income ceilings below the national median household income of $50,223. In the current fiscal crisis, states should take care to set appropriate limits to restrain the cost of circuit breaker programs without rendering these programs ineffective.

Use a multiple-threshold circuit breaker formula.

States use three basic types of circuit breaker formulas: threshold, sliding-scale, and quasi circuit breakers. Threshold circuit breakers are the only type that bases tax relief directly on property tax burdens—that is, the percentage of income spent on property taxes. Using multiple thresholds will result in a more progressive distribution of benefits.

Threshold formulas provide a benefit for the portion of a claimant’s property tax bill that exceeds set percentages of income. For example, the Massachusetts circuit breaker, which is limited to taxpayers over age 65, uses a 10 percent single-threshold formula. The taxpayer is responsible for the entire tax bill up to 10 percent of household income, while the circuit breaker benefit offsets the tax bill above this threshold, up to a maximum benefit of $960.

Multiple-threshold formulas set multiple threshold percentages that increase from the lowest income bracket to the highest, with these thresholds usually applied incrementally like a graduated income tax. Maryland uses four threshold percentages: the circuit breaker benefit offsets any property tax liability above 0 percent of income for the first $8,000 of income, above 4 percent for the next $4,000 of income, above 6.5 percent for the next $4,000 of income, and above 9 percent for income of $16,001–$60,000.

Sliding-scale formulas reduce property taxes by a set percentage for each income bracket, with lower relief percentages for higher income brackets. All claimants in a given income bracket receive the same percentage of relief regardless of their property tax bill.

Quasi circuit breakers use multiple income brackets to target benefits to low-income households; benefits are determined without reference to a claimant’s property tax bill, except that they cannot exceed the actual property tax paid. A few states use hybrid circuit breakers that employ elements of all three types of formulas.

Ensure reliable state funding.

Even generous circuit breakers can become ineffective without reliable state funding. Circuit breaker benefits should be treated as an entitlement, rather than relying on budget appropriations that can result in pro-rated benefits (as in Iowa), unpredictable annual changes in formulas (as in New Jersey), or elimination of benefits in some years (as in California). Unpredictable fluctuations in circuit breaker benefits are difficult for taxpayers to manage and can have potentially dire consequences on household budgets.

Given the disparities in property wealth across municipalities, it is important for circuit breakers to be funded by the state, rather than at the option of local governments. Because of differences in program design and participation levels, the costs to state governments of existing circuit breaker programs vary considerably, ranging from .004 percent to 6.3 percent of property tax collections among 14 states where program cost data are readily available (Bowman et al. 2009, 20).

Use copayment requirements with threshold circuit breakers.

States that use threshold formulas should relieve only a portion of property taxes exceeding the threshold. The remaining difference between the taxes exceeding the threshold and the circuit breaker benefit may be considered a copayment. Copayment requirements are important for avoiding inefficient increases in local spending. If a circuit breaker shields taxpayers from 100 percent of any property tax increase, they have no incentive to scrutinize increased local spending since they will benefit from better public services without any increase to their tax bill.

Deliver circuit breaker benefits in a timely and visible way.

States use three methods of distributing circuit breaker benefits: rebate checks, income tax credits, and property tax credits or exemptions. A property tax credit reduces the tax bill based on a property’s full assessed value, while an exemption reduces a property’s assessed value.

Providing benefits through a property tax credit or exemption has two key advantages over rebate checks or income tax credits. First, taxpayers receive an immediate reduction in their property tax bills instead of facing a delay between the date they pay their property taxes and the date their circuit breaker application can be processed. Second, taxpayers observe the benefit as property tax relief instead of mistaking an income tax credit for income tax relief. Since renters do not pay property taxes directly, their circuit breaker benefits can be dispersed through a rebate check.

Use a public outreach campaign.

Low participation is a common problem among existing circuit breaker programs. Taxpayers will not apply for benefits if they are not aware of the program, or if they do not believe they qualify for benefits. To increase awareness and participation, states may promote programs through print advertising, broadcast media, and/or speaking tours. The Internet is a particularly useful and low-cost tool for circulating up-to-date program details including deadlines, contact information, printable claim forms, or online applications. Some states are able to enlist the help of nonprofit organizations in promoting participation if the group views the circuit breaker program as supporting its mission. For example, the Gerontology Institute at the University of Massachusetts promotes that state’s program as part of its efforts on behalf of the elderly.

Conclusion

The current fiscal crisis may usher in a new era for state governments under intense pressure to redesign programs to “do more with less.” Property tax relief is a core function of state governments, and it can be made more fair and cost-effective by using a circuit breaker program. This policy tool is designed to stop the property tax from exceeding a taxpayer’s ability to pay by targeting tax relief to those who need it most.

A majority of the states currently employ circuit breakers, but most programs fall short of ideal leaving ample room for improvement. New York’s poorly targeted property tax relief system, for example, could be replaced with an expanded circuit breaker that provides more help to taxpayers overburdened by the property tax, but costs less than the current program. Circuit breaker programs can also help strengthen the property tax itself as a mainstay of local government finance.

About the Authors

Daphne A. Kenyon is principal of D.A. Kenyon & Associates, a public policy consulting firm in New Hampshire, and a visiting fellow at the Lincoln Institute of Land Policy.

Adam H. Langley is a research analyst at the Lincoln Institute of Land Policy and a graduate student in economics at Boston University.

Bethany P. Paquin is a research assistant for D. A. Kenyon & Associates and the Lincoln Institute.

The authors thank Frank Mauro of the Fiscal Policy Institute in New York State and Joan Youngman of the Lincoln Institute of Land Policy for helpful information and comments on previous drafts.

References

Bowman, John H., Daphne A. Kenyon, Adam Langley, and Bethany P. Paquin. 2009. Property tax circuit breakers: Fair and cost-effective relief for taxpayers. Cambridge, MA: Lincoln Institute of Land Policy.

Duncombe, William and John Yinger. 2001. Alternative paths to property tax relief. In Property taxation and local government finance, Wallace E. Oates, ed., 243–294. Cambridge, MA: Lincoln Institute of Land Policy.

Gurwitt, Rob. 2010. Broke and broken. Governing 23 (4): 18-23.

Haveman, Mark and Terri A. Sexton. 2008. Property tax assessment limits: Lessons from thirty years of experience. Cambridge, MA: Lincoln Institute of Land Policy.

Lav, Iris J., Nicholas Johnson, and Elizabeth McNichol. 2010. Additional federal fiscal relief needed to help states address recession’s impact. Washington, DC: Center on Budget and Policy Priorities, January 28. www.cbpp.org

Omnibus Consortium. 2010. Summary of Omnibus Bill Circuit Breaker. http://omnibustaxsolution.org/overview.html

Significant Features of the Property Tax. 2010. Residential property tax relief programs. www.lincolninst.edu/subcenters/significant-features-property-tax/Report_ResidentialRelief.aspx

U.S. Government Accountability Office. 2007. State and local governments: Persistent fiscal challenges will likely emerge within the next decade. July 18. GAO-07-1080SP.

A critical aspect of the property tax, but one that is rarely addressed in public debate, is its “economic incidence,” or who actually bears the burden of the tax, as opposed to its statutory incidence, or who literally pays the tax. For example, a landlord might pay a property tax bill, but if some of the tax is offset with a rent increase, then the tenant bears that part of the tax burden. Not surprisingly, estimates of the economic incidence of taxes depend on the relative responsiveness of supply and demand to tax-induced price changes—factors that explain the extent to which consumers and businesses can change their behavior to avoid the tax.

The economic incidence of a tax is also affected by the phenomenon of “capitalization”—changes in asset prices that reflect the discounted present values of the economic effects of future tax and/or public expenditure changes. For example, an increase in property taxes, holding expenditures constant, might be capitalized into land or house values. The prices of these assets might fall by the present value of the projected increase in future taxes, whereas increases in expenditures, holding property taxes constant, might have offsetting effects.

These capitalization effects should include the effects of other tax-induced price changes, such as changes in future housing or land rents. In principle, the economic incidence of all of these capitalization effects is on the owners of land and housing at the time of the imposition of the tax, when the effects are “capitalized” as one-time changes in the prices of these assets. These price changes also significantly affect the ultimate economic burden of the tax on subsequent purchasers.

Benefit Tax versus Capital Tax Views

The complexity of measuring all of these effects implies that determining the economic incidence of taxes is one of the most difficult problems in public finance, and the property tax is no exception. Indeed, the debate over the incidence of the residential property tax has raged for at least the last thirty years, and is still far from resolved. Professional opinion on the incidence of the tax is generally divided between the “benefit tax” view and the “new” or “capital tax” view (Zodrow 2001).

Under the benefit tax view, the property tax is considered a user charge for public services received. It thus serves the function of a local head tax or benefit tax as envisioned by Tiebout (1956) in his celebrated analysis of how interjurisdictional competition coupled with consumer mobility can lead to the efficient provision of local public services. The implications for taxpayers are threefold. First, as a benefit tax the property tax is simply a payment for public services received, analogous to purchases of goods and services for private markets. Second, because the property tax functions as a market price, its use implies that local public services are provided efficiently. Third, the property tax, like all benefit taxes, results in no redistribution of income across households and thus has no impact on the distribution of income.

By comparison, under the capital tax view derived by Mieszkowski (1972) and elaborated by Zodrow and Mieszkowski (1986b), the property tax is a tax on the use of capital and thus inefficiently distorts resource allocation by driving capital investment out of high tax jurisdictions and into low tax jurisdictions. The capital tax view divides the incidence of the property tax into two components. The national average tax burden is in effect a “profits tax” borne by all capital owners, including homeowners, businesses, and investors. The local or “excise tax” components of property tax rates that fall above or below the national average are borne locally through changes in land rents, wages, or housing prices.

The incidence effects of local taxes that are higher and lower than the national average tend to cancel one another in the aggregate. Therefore, the profits tax effect is the main factor determining the incidence and distributional effects of the property tax. From the perspective of any single taxing jurisdiction, however, the burden of local expenditures financed by the property tax tends to be borne primarily by local residents.

The capital tax view has different implications for taxpayers in all three of the areas noted above for the benefit tax view. First, the tax has some significant benefit aspects in that local tax increases tend to be borne by local residents. Second, the tax inefficiently distorts housing consumption decisions; moreover, use of the local property tax can also lead to inefficient underprovision of local public services if government officials, concerned about tax-induced loss of investment, then reduce the level of public services (Zodrow and Mieszkowski 1986a). Third, because the primary effect of nationwide use of the property tax is a reduction in after-tax returns to capital owners, it is a highly progressive tax. Nevertheless, from the perspective of a single taxing jurisdiction, the local tax is not borne by capital owners as a whole but rather by local residents and is a roughly proportional tax. (See Table 1 for a summary of these two views.)

Capitalization and the Incidence of the Property Tax

My recent research sponsored by the Lincoln Institute has focused on a single but critical aspect of this long-standing debate. Dating back to the seminal work of Oates (1969), empirical evidence of the interjurisdictional capitalization of the discounted values of local property taxes and public services into house prices has been interpreted as offering support for the idea that property taxes can be viewed as payments for local public services received, consistent with the benefit tax view.

This notion was extended to the case of intrajurisdictional capitalization in the pathbreaking work of Hamilton (1976). In this model, which is characterized by perfectly mobile households with heterogeneous demands for housing and fixed housing supplies, intrajurisdictional fiscal capitalization converts the local property tax into a pure benefit tax, even though all houses are not identical. Specifically, high-value homes sell at a discount that reflects the capitalized present value of their “fiscal differential”—the present value of the excess of future taxes paid relative to public services received.

Similarly, low-value homes should sell at a premium that reflects the capitalized present value of the extent to which future taxes paid are less than the value of public services received. As a result, all households “pay for what they get” in public services, and the property tax is an efficient benefit tax. Capitalization thus implies that it is futile to follow the conventional strategy of buying a low-value home in a high-value community in order to receive local services at relatively low cost.

In supporting the idea that the combination of strict zoning regulations and fiscal capitalization converts the property tax into a benefit tax, Fischel (2001) interprets the extensive literature on the capitalization of property taxes and public services as demonstrating that fiscal “capitalization is everywhere.” He concludes that empirical support of fiscal capitalization provides compelling evidence that the benefit tax view accurately describes the effects of the property tax. Fischel makes this argument in the context of a model in which local governments are analogous to municipal corporations that maximize the house values of “homeowner-voter shareholders” who strive to protect their housing investments.

The central result of my research is that even if empirical evidence of the phenomenon of fiscal capitalization implies that it is indeed “everywhere,” such evidence does not establish the validity of the benefit tax view. Rather, my model shows that if one adopts all of the admittedly stringent assumptions of the benefit tax view, complete intrajurisdictional land value fiscal capitalization is also entirely consistent with, and indeed predicted by, the capital tax view of the property tax.

When combined with earlier results that demonstrate that interjurisdictional capitalization is also consistent with the capital tax view, my research results imply that the widely observed phenomenon of property tax capitalization provides little if any grounds for distinguishing between the capital tax and benefit tax views. That is, capitalization does not tell us whether the property tax should be viewed primarily as a progressive tax on all capital that inefficiently distorts decisions regarding housing consumption (the capital tax view), or an efficient user charge that has no effects on the distribution of income (the benefit tax view).

A Reconstruction of the Benefit Tax View

My research begins by reconstructing the Tiebout-Hamilton benefit tax view within the context of a partial equilibrium version of the standard differential tax incidence model, which focuses on the effects of use of the property tax in a single taxing jurisdiction. This approach is necessary because the derivations of the benefit tax and capital tax views of the property tax are based on somewhat different theoretical approaches.

Hamilton’s benefit tax view model characterizes the properties of an economy in equilibrium, with local public services financed by residential property taxes rather than the head taxes assumed by Tiebout. In contrast, the derivations of the capital tax view, such as those in Mieszkowski (1972) and Zodrow and Mieszkowski (1986b), are based on the differential tax incidence analysis pioneered by Harberger (1962). Under this approach, the effects of the property tax are analyzed by first constructing an initial equilibrium with either no taxes or only nondistortionary lump-sum taxes, and then introducing property taxes and analyzing their effects.

To facilitate a comparison of the two views, my analysis begins by deriving all of the benefit tax view results obtained in Hamilton’s model of intrajurisdictional fiscal capitalization within the context of a differential tax incidence model, one that is typical of the capital tax view but nevertheless makes the essential—and admittedly rather stringent—assumptions characteristic of derivations of the benefit tax view. In particular, households are perfectly mobile across competing local jurisdictions with an exogenous source of income, and there are a sufficient number of jurisdictions to satisfy all tastes for local public services.

Following Hamilton, the model has two different types of households, one of which demands relatively larger houses. Initially, the local economy is assumed to be in a Tiebout equilibrium, with local public services as well as housing and the composite good provided at efficient levels, and with local public services being financed by uniform head taxes per household. The fixed supply of land within a jurisdiction is used either for large houses for “high demanders” or small houses for “low demanders.”

Property taxes on all land and capital within the jurisdiction are then introduced into the model, with the revenues used to reduce the level of head taxation while holding the level of public services per capita fixed. Zoning is also introduced, by assuming that the amounts of land used for large and small houses are fixed. This is a weak version of the approach followed by Hamilton, who assumes fully developed communities and thus precludes any change in land or capital allocated to the two types of housing. Indeed, some form of land use zoning is required for any capitalization to occur since, in the absence of zoning, all land within the jurisdiction would in the long run sell for the same price and there would be no capitalization (Ross and Yinger 1999). In this derivation of the benefit view, housing capital is also assumed to be fixed, as in Hamilton’s analysis.

The effects of introducing property taxes on both housing capital and land in this initial equilibrium are identical to those predicted by Hamilton. First, for large homes, which experience a disproportionately larger increase in property taxes, the resulting negative fiscal differential is fully capitalized into lower housing prices. Similarly, small houses sell at a premium that exactly reflects the negative fiscal differential between total property taxes paid and the associated benefits of the tax change as measured by the reduction in head taxes.

Second, the net change in land values due to capitalization in a heterogeneous jurisdiction is zero; that is, the aggregate amount of the discount in land prices for larger homes equals the aggregate amount of the premium in land prices for smaller homes. Third, the price of each type of housing rises by just enough to offset the cost of the public services that must be financed with property taxes.

To sum up, all of the benefit tax view results obtained by Hamilton are obtained within the context of a partial equilibrium differential tax incidence model of a single taxing jurisdiction that is comprised of households that are homogeneous with respect to demands for public services, but heterogeneous with respect to demands for housing. Once again, capitalization implies that the property tax is a benefit tax. Accordingly, the combination of property tax payments and capitalization effects implies that (1) taxpayers pay for all their local public services; (2) both housing and local public services are consumed at efficient levels; and (3) the property tax results in no redistribution of income.

Capitalization Under the Capital Tax View

Converting this model to accommodate a version of the capital tax view is straightforward. Recall, however, that this approach considers the effects of the property tax from the perspective of a single taxing jurisdiction, which is modeled as a small open economy that faces a perfectly elastic supply of capital. Since the net rate of return to capital is fixed by assumption, the effect of nationwide use of the property tax on the return to capital cannot be analyzed. Nevertheless, within the single taxing jurisdiction framework the effects of the property tax on the allocation of housing capital, as well as the effects of this tax-induced reallocation on all other variables, including the changes in land prices that are the focus of the analysis, can still be derived.

The key distinction between the benefit tax and capital tax views of the property tax is that under the latter approach the stocks of housing capital are not assumed to be fixed (although the zoning assumption of fixed land supplies for the two types of housing is maintained). That is, under the capital tax view, which clearly reflects a relatively long-run view of incidence, households can reduce their housing consumption in response to an increase in the property tax.

Given these assumptions, the implications of the capital tax version of the model are as follows. First, capital flows out of the production of large houses where property taxes are high relative to benefits received, and into the production of smaller homes where the property tax bill is low relative to benefits received. This reallocation of housing capital is an important factor in determining incidence—who ultimately pays the property tax. The analysis shows that land rents unambiguously increase for land used for small houses and decrease for land used for large houses, and it is these changes in land rents that are capitalized into land prices. The key result is that these land value capitalization effects under the capital tax view are precisely the same as those calculated previously under the benefit tax view. Thus, the existence of capitalization does not help resolve the critical issue of whether the benefit view or the capital tax view more accurately describes the incidence and economic effects of the property tax.

The other results derived in Hamilton’s model obtain in this capital tax model as well. The net effect of property tax capitalization on aggregate land value within the taxing jurisdiction is zero. Similarly, the effects of the property tax on housing prices—which rise by an amount just sufficient to offset the value of public services received—are also identical under the two models, implying that housing prices for smaller homes increase proportionately more than prices for larger homes.

Despite this distortion of the allocation of housing capital under the capital tax view, the local effects of use of the property tax still have some very important features that are characteristic of a benefit tax. For example, residents pay for net local public services received (those not financed with head taxes) in the form of higher housing prices. Simultaneously, fiscal differentials are capitalized into land values, so that the net effect of the property tax burden and land value capitalization is that future purchasers of both types of houses effectively pay for what they get in public services.

Thus, the essential difference between the two views of the property tax is that, under the capital tax view, land value capitalization occurs due to capital reallocations across housing types, implying inefficiency in the housing market. Under the benefit tax view, capitalization occurs with respect to fixed housing capital stocks, and there is no distortion of the allocation of housing capital. For example, if a local government finances an increase in public expenditures with additional property taxes, the resulting capitalization effects are the same under both views (and cause the same gains and losses at the time of implementation). However, the capital tax view implies that in the long run housing demands will decline, while housing consumption remains unchanged under the benefit tax view.

My model also shows that under the capital tax view per capita housing consumption declines unambiguously for both types of households, which is the standard result that the property tax causes an inefficient reduction in housing consumption. In addition, the number of households that purchase small houses unambiguously increases, while the net effect on the number of households that purchase large houses is theoretically ambiguous, and the total population in the jurisdiction increases.

Conclusion

This analysis shows that, within the context of a partial equilibrium analytical framework characterized by assumptions typical of the benefit view of the property tax, intrajurisdictional capitalization into land values of fiscal differentials is entirely consistent with, and indeed predicted by, the capital tax view of the property tax. Earlier results demonstrate that interjurisdictional capitalization is also consistent with the capital tax view (Kotlikoff and Summers 1987). Together, these results suggest, counter to the claims of benefit tax proponents, that empirical evidence supporting full capitalization of property taxes in land values—either within or across jurisdictions—provides little if any evidence that allows researchers to distinguish between the capital tax and benefit tax views.

Instead, the key issue is whether the zoning restrictions or other mechanisms stressed by proponents of the benefit tax view are sufficiently binding to preclude the long-run adjustments in housing capital predicted by the capital tax view. This issue promises to be a fertile topic for future research, which may help clarify the answer to the long-standing and critical question of who pays the residential property tax.

George R. Zodrow is professor of economics and Rice Scholar in the Tax and Expenditure Policy Program of the Baker Institute for Public Policy at Rice University in Houston, Texas.

References

Fischel, William A. 2001. Municipal corporations, homeowners and the benefit view of the property tax. In Property taxation and local government finance, Wallace E. Oates, ed., 33–77. Cambridge MA: Lincoln Institute of Land Policy.

Hamilton, Bruce W. 1976. Capitalization of intrajurisdictional differences in local tax prices. American Economic Review, 66 (5): 743–753.

Harberger, Arnold C. 1962. The incidence of the corporate income tax. Journal of Political Economy, 70 (3): 215–240.

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High land costs are an obstacle to developing and securing affordable housing for lower-income families. One way to address this issue is to purchase a house without the land, and a community land trust is one mechanism that allows this arrangement. This article reports on a roundtable attended by researchers, policy analysts, technical assistance providers, funders, and community land trust staff members to discuss the community land trust model and related research needs.

The community land trust model is an extremely attractive mechanism for maintaining and expanding the stock of affordable housing. Currently there are approximately 160 community land trusts operating in every region of the country. These community land trusts are nonprofit, community-based organizations whose mission is to provide affordable housing in perpetuity by owning land and leasing it to those who live in houses built on that land. In the classic community land trust model, membership is comprised of those who live in the leased housing (leaseholders); those who live in the targeted area (community members); and local representatives from government, funding agencies and the nonprofit sector (public interest) (Burlington Associates 2003).

A lease within a community land trust also includes a resale formula intended to balance the interests of present homeowners with the long-term goals of the community land trust—balancing the interest of homeowners and the interest of the community land trust to provide affordable housing for future homeowners.

This article addresses some of the questions surrounding the community land trust model;

• Do community land trusts provide long-term affordable housing?
• Do community land trusts contribute to individual asset building?
• How effective are public and nonprofit sector funds when used to produce community land trust housing?
• Do community land trusts provide access to urban services and/or regional opportunities for leaseholders?
• Do community land trusts contribute to community building?
• Why have some community land trusts excelled and others failed?

This article also examine the Sawmill Community Land Trust, located near downtown Albuquerque, New Mexico. In partnership with the City of Albuquerque, Sawmill Community Land Trust’s has created a permanent stock of affordable housing in the neighborhood with housing units as well as a plaza, park, community center, commercial space and open space connected with trails. The plan calls for expanding the Sawmill Community Land Trust model to other neighborhoods to ensure a permanent stock of affordable housing and a mixed-income community for the long term.

For many households experiencing lagging wages or underemployment, the purchase and financing of a house is increasingly difficult. High land costs are another obstacle to developing and securing affordable housing for lower-income families in some markets. One way to address this second issue is to purchase a house without the land, and a community land trust (CLT) is one mechanism that allows this arrangement. This article reports on a roundtable attended by approximately 25 researchers, policy analysts, technical assistance providers, funders and CLT staff members to discuss the CLT model and related research needs. The December 2004 program was sponsored by the Lincoln Institute in partnership with the Institute for Community Economics (ICE), based in Springfield, Massachusetts.

What are community land trusts and How Do They Function?

The community land trust model has evolved in the United States over the last 40 years (ICE 1991). Currently there are approximately 160 CLTs operating in every region of the country and in 38 out of the 50 states and the District of Columbia. These CLTs are nonprofit, community-based organizations whose mission is to provide affordable housing in perpetuity by owning land and leasing it to those who live in houses built on that land. Complementing their status as nonprofit corporations, as defined in the U.S. tax code, and their formal rights and responsibilities codified in the ground lease, CLTs are governed by a board of directors with membership from the community. In the classic CLT model, membership is comprised of adults who live in the leased housing (leaseholders); adults who live in the targeted area (community members); and local representatives from government, funding agencies and the nonprofit sector (public interest) (Burlington Associates 2003).

The community land trust and the homeowner agree to a long-term ground lease agreement (typically 99 years) that spells out the rights and responsibilities of both parties. Among the homeowner’s rights are the rights to privacy, the exclusive use of the property, and the right to bequeath the property and the lease. The CLT has the right to purchase the house when and if the owner wants to sell.

The community land trust’s abiding interest, as the landowner, as the party with the option to purchase the improvement, and as a community-based organization, is to maintain a stake in the relationship long after the original house purchase and lease signing. For example, if buildings become deteriorated, the CLT can force repairs; if the homeowners are at risk for default the CLT can and does act to forestall the default.

The ground lease also includes a resale formula intended to balance the interests of present homeowners with the long-term goals of the community land trust. The intent of affordability in perpetuity is in conflict with the desire of most owner-occupants in the U.S. to reap real estate gains. Thus, the resale formula is designed to balance the interest of individual homeowners to benefit from the use of their home as a real estate investment and the interest of the CLT to provide affordable housing for future homeowners.

Research Agenda

The community land trust model is an extremely attractive mechanism for maintaining and expanding the stock of affordable housing. While the stories one hears from and about CLTs are encouraging and inspiring, little research exists regarding their effectiveness. Furthermore, despite their many attractive attributes, CLTs are neither well known nor extensively used in the U.S. During roundtable discussions, the participants exchanged perspectives and identified six clusters of questions that would constitute a short-term CLT research agenda to help inform future action.

Do community land trusts provide long-term affordable housing?

The separation of ownership of land and buildings is the mechanism by which long-term affordability is achieved. Much of the value in structures comes from their functionality, the materials used and the level of maintenance. These are the contributions of the builder and owner. Much of the value in land comes from its location with respect to natural elements, urban services such as transportation and public schools, and disamenities such as solid waste dumps or prisons. Many of the factors that contribute to land value increases are due to the economic expansion that occurs in metropolitan areas. In strong markets the pace of value increases in land exceeds that of structures. Thus, if the land is excluded from the price of housing, affordability ought to be assured over time. Research is needed to evaluate the effectiveness of the CLT tool in providing long-term housing affordability and to evaluate CLTs as compared to other affordable housing programs.

Do community land trusts contribute to individual asset building?

community land trust housing provides residents with shelter, security of tenure, access to credit and access to urban services, among other benefits. However, individual real estate profits are limited by the design of the resale formula, which varies among CLTs. Outcomes also will vary with real estate cycles in particular cities and regions. A second question, then, has to do with the degree to which the limitation on real estate profits limits individual asset building. It is possible, for example, that the security of tenure and the predictability in housing costs provided by the CLT allow individuals to pursue other, non-real estate strategies for asset accumulation.

How effective are public and nonprofit sector funds when used to produce community land trust housing?

In most cases, community land trust housing requires subsidies for the purchase of land and/or house construction. Grants typically come from government sources or private foundations. One of the premises of the CLT model is that these subsidies are recycled later to reclaim the value of the subsidies and to benefit future homebuyers. Public subsidies are no longer needed when a CLT house is sold under the resale formula. However, it is not known how efficient subsidies are when used to develop CLT housing and how the subsidy capture mechanisms work.

Do community land trusts provide access to urban services and/or regional opportunities for leaseholders?

Quality of housing in the U.S. is closely related to residential location. However, location influences more than simply house quality; it also affects the existence and quality of job opportunities and urban services such as access to transportation, health care, libraries and public schools, all of which have direct and indirect effects on quality of life and life chances.

Researchers looking at regional policy solutions are particularly interested in whether and how community land trusts influence this access to urban services. Economists use the term “spatial mismatch” to refer to the imbalance between the location of many employment opportunities in the suburbs and the location of unemployed jobseekers in the city centers. Many participants at the roundtable were interested in exploring the degree to which CLTs facilitate bridging this mismatch because of their specific location within a region, their connections to other organizations in the neighborhood and region, or employment and training programs offered to support CLT residents.

Do community land trusts contribute to community building?

Community land trusts are unique among U.S. community-based organizations in that their concerns are geographically focused and include economic relationships, the governance structure of the organization, and the provision of direct services. In some communities CLTs are connected to other organizations serving the same community or the same constituency. Much of the literature on neighborhood development and revitalization focuses on the importance of “social capital” to people and their community. Do CLTs contribute to this connective tissue of neighborhoods? How and why? Some CLTs operate across a number of communities and thus have a more regional focus. This difference among CLTs will lead us to consider questions of scale and community definition.

Why have some community land trusts excelled and others failed?

There is great variation in community land trusts across the country. The largest, Burlington Community Land Trust in Vermont, has 370 single-family homes and condominiums and 270 rental apartment leases; other CLTs may have just a handful of units available for lease. Some CLTs have been able to grow significantly while others have not, and some have ceased peration altogether. There are many possible reasons for this variation in success, including staff resources and skills; differences in mission; financing arrangements; ability to receive donations of land; and the strength or weakness of the local land and housing market.

Future Activities Regarding community land trusts

The Lincoln Institute is interested in community land trusts because they provide a window that encourages a deeper understanding of the significant role that land plays in social and economic development and the mechanisms by which it occurs. The roundtable participants hope that investigation into this research agenda would accomplish a number of objectives.

First, new research would spread knowledge of community land trusts to practitioners in fields ranging from urban development to housing policy, neighborhood planning, community organizing, regional sustainability and equity. Second, among policy analysts this research will improve our understanding of the strengths and weaknesses of the CLT model and the contexts in which it is most useful and successful. For CLT members, leaseholders, staff and board members, the findings will provide an understanding of their locally based work within a national context. For funders and lenders the investigations will provide an empirical base from which to make future funding decisions.

This work will be conducted by the Lincoln Institute, the Institute for Community Economics, representatives of organizations who attended the roundtable and others who become engaged in these issues. For example, the National Housing Institute already has begun a study of shared equity home ownership. We expect that documenting, investigating and analyzing the history of CLTs and individual experiences will provide a better understanding of the role of land in housing affordability.

Sawmill Community Land Trust

Sawmill Community Land Trust (SCLT) is located near downtown Albuquerque, New Mexico, adjacent to Historic Old Town, which has become a leading tourist attraction. Gentrification has increased the housing prices in the Sawmill neighborhood, and vacant industrial land has increased from $1.05 per square foot in 1996 to its current high of $4.10 per square foot. A home that sold for $26,500 in 1981 cost $125,000 in 2000 and $175,000 in 2004. From 2000 to 2004, real increases in a single-family home (land and housing) in the neighborhood increased by 31 percent.

Founded in 1996, SCLT evolved from existing community organizations that had been working for years to protect the character of the ethnically diverse Sawmill community and address environmental and pollution problems caused by a particleboard factory on the site. SCLT’s main focus has been to create a permanent stock of affordable housing in the neighborhood.

In partnership with the City of Albuquerque, which acquired the 27-acre former industrial site, SCLT developed plans for 196 housing units of various types (live-work lofts, single-family detached houses, townhouses, duplexes, senior apartments and condos) as well as a plaza, park, community center, commercial space and open space connected with trails. All of the 26 homes built in the first phase of development have been sold, and construction of a second housing phase will begin soon. SCLT has led a cooperative effort to develop a metropolitan redevelopment plan for the surrounding 510-acre Sawmill/Wells Park area. The plan calls for expanding the SCLT model to other neighborhoods to ensure a permanent stock of affordable housing and a mixed-income community for the long term.

Rosalind Greenstein is senior fellow and co-chair of the Lincoln Institute’s Department of Planning and Development. Yesim Sungu-Eryilmaz is a research assistant in the Lincoln Institute’s Department of Planning and Development.

References

Burlington Associates in Community Development, LLC. 2003. Key features of the “classic” community land trust. Burlington, VT: Burlington Associates.

Institute for Community Economics (ICE) 1991. The community land trust legal manual. Springfield, MA: ICE.

Resources

Burlington Community Land Trust

Fannie Mae Corporation (search for the link to CLTs)

Institute for Community Economics (ICE)

Policy Link. See Equitable Development Toolkit and link to CLT case studies.

National Housing Institute (NHI)

Public policy changes often have unintended consequences—side effects, feedback effects, benefits to individuals not in the target group, unexpected costs, perverse incentives, new opportunities to game the system, and the like. Early experiences with assessment limitation measures reveal an unanticipated result: some property owners seemingly targeted to benefit from lower assessments may be harmed instead.

Universities are involved in the development of their immediate neighborhoods for a variety of reasons. For some, it is a matter of self-preservation and marketing, as neighborhood deterioration and disinvestment can negatively affect student enrollments. Other institutions are driven primarily by the need for new or updated facilities, such as laboratories, classrooms, student housing or athletic fields, which require expansion beyond existing campus boundaries, or by a long-standing commitment to neighborhood redevelopment. However, in tight urban real estate markets, where renters and low-income households already feel the threat of displacement, university expansion plans can serve to intensify residents’ apprehensions and lead to complicated land use disputes.

Universities have responded to disinvestment and dilapidation in their neighborhoods by using a variety of strategies. These include the acquisition and rehabilitation of abandoned buildings or vacant properties; support of faculty and staff home ownership in the area; improvement of local public services, including public schools and public safety programs; redevelopment of key nonresidential and commercial properties; and, at times, the encouragement of community involvement in the redevelopment process. New development often requires a fresh approach to architecture and urban design, since historically many institutions deliberately cut themselves off from their neighbors. Steve Cottingham, of Marquette University in Milwaukee, refers to this new approach as “weaving in, rather than walling out.”

Even when universities succeed in securing new development sites, they have to balance many competing demands. For example, donors favor signature buildings; the city requires regulatory compliance; neighborhood activists call for input into the school’s expansion plans, as well as benefits from that expansion; parents want a safe environment for their children; and students desire retail and entertainment options, as well as housing and security. Meeting all of these demands is difficult and none of the possible responses speaks directly to furthering the core educational mission of a university.

Roles and Responsibilities of Urban Universities

Last February, the Lincoln Institute, the Great Cities Institute of the University of Illinois at Chicago and the Urban Land Institute convened a group of executive-level university administrators involved in real estate decision making to address these issues. The seminar participants discussed specific real estate development cases as well as general concerns, such as finance and taxation, internal organizational structures, working with developers, and community involvement. Participants were interested in the technical aspects of urban development, but also in the expectations and accompanying responsibilities placed on universities in an urban context.

Universities remain one of the few examples of long-established, place-based institutions in urban areas, and they typically have a significant physical presence in their communities. While their faculty, staff and students place many demands on local public and private services, from increased traffic and police protection to escalating housing costs, universities also provide considerable cultural, social, intellectual and economic benefits. The well-known identity of most universities contrasts with that of private-sector corporations that frequently merge and relocate to suit their changing needs and to respond to the highly competitive, globalized economy. Universities typically do not have this option, so they depend on (and contribute to) the health and vitality of their local communities to protect their vested interests. The quality of the surrounding environment directly affects the competitive advantage of a university, which is crucial to attracting and retaining the best students and faculty. In turn, communities increasingly look to universities to fill the gaps left by departed corporate leadership.

Broad Street Development in Columbus, Ohio, exemplifies this kind of university-community interdependence. Campus Partners, a nonprofit redevelopment corporation started by Ohio State University, has secured the purchase option for this 1,400-unit, scattered-site public housing project. Broad Street’s Section 8 contracts from the U.S. Department of Housing and Urban Development (HUD) have expired or are about to expire. Typically, when the federal government restructures or extends these contracts there is a significant reduction in the rent subsidy available to low-income households and little or no money available for rehabilitation of the properties. Campus Partners is working with local organizations to implement a better level of management and structural rehabilitation than is typical for Section 8 projects. Although this housing redevelopment is unrelated to Ohio State’s mission, and the university was initially reluctant to take on the responsibility, when faced with the likelihood of continued physical decline near the campus, the university decided there was no other option than to pursue the project.

As universities expend resources on local revitalization projects, they often set other forces in motion that may alter or threaten the cultural and demographic identity of the neighborhood. Real estate development can contribute to increases in the value of the land and community amenities, but it can also displace existing residents and businesses that cannot compete in tighter and more expensive land and housing markets. Seminar participants debated the responsibility of universities to address neighborhood gentrification and housing shortages due to rising land markets in the same way they previously responded to neighborhood decline. The University of Chicago, for example, has long invested in making its neighborhood an attractive residential community. Now, that strategy is being challenged because many long-term residents, both university employees and other urban dwellers, can no longer afford to live there.

Universities also face challenges from falling land markets. For example, some universities are surrounded by privately owned housing that caters to students, and those landlords often engage in short-term management practices to maximize their profits. Substandard property maintenance, coupled with high turnover of rental units, can lead to rapid deterioration in the housing stock. This behavior can either start or reinforce the process of declining property values and neighborhood deterioration-a process that fails to benefit either the university community or the neighborhood. Such a situation recently motivated the University of Pennsylvania to enter into a partnership with the Fannie Mae Corporation, First Union Bank and Trammell Crow Company to preserve and develop moderate-cost rental housing options for the broader community, and to provide high-quality management of the units.

Employer-assisted housing (EAH) strategies have also been used by the University of Pennsylvania and other universities to promote home ownership for their faculty and staff. Jim Gimpel, of the University of Illinois at Chicago, underscored the value of developing housing for staff, including the custodial, clerical and food service workers who are crucial to a university’s operation yet are among the lowest paid employees. With EAH, a university provides financial incentives, such as down-payment assistance, forgivable loans or a mortgage guarantee, to help employees purchase existing local homes. In some cases, a university may even develop the housing, but will rarely manage it. Sandra Lier, now at the University of Washington, drew on her experiences at the University of California at Irvine, which developed a faculty housing complex. After it was completed, an intermediary took over the management of the housing so that applications and complaints would be handled by the management firm rather than the university itself.

Town-Gown Tensions

Increasingly, communities are holding universities accountable for their development actions that affect the surrounding neighborhood. Historical town-gown antagonisms, coupled with the high expectations that communities hold for universities, mean that good will is more easily eroded than earned. For example, in the mid-1990s, without public input or consultation, Marquette University decided to close a major thoroughfare to traffic and create new green space for the campus. Although the plan was never carried out, the university lost much of the good will it had gained through earlier, highly successful development projects.

Openly discussing university plans with the community can help keep a project on track and avoid compromising situations when unforeseen obstacles arise, according to Terry Foegler of Campus Partners in Ohio. For example, the University of Minnesota, Twin Cities recently implemented a mandatory Neighborhood Impact Assessment that makes the university’s planning vision accessible to the public and requires the university to consider alternatives to its master plan, including the option to stop building in certain locations.. However, while community groups want universities to make their plans known, university real estate developers are generally averse to publicizing their acquisition plans, and they commonly establish a 501(c)(3) nonprofit corporation when purchasing land or properties. By buying “blind” (i.e., blind to the seller), the university is protected from the likely premium that sellers would demand were the buyer (and its presumed deep pockets) known. This is an example of how universities are often held to higher standards of development, and it is one area where the university and the community will likely continue to disagree, according to seminar participants.

The contentious issue of tax-exempt status for nonprofit educational institutions was addressed at the seminar by Joan Youngman, senior fellow and director of the Lincoln Institute’s taxation program, and Bill Stafford, finance director for the City of Evanston, Illinois, the home of Northwestern University. After churches, universities are in the strongest legal position with respect to their tax-exempt status. Still, the issue is confusing because vested interests are clear, yet are clearly in opposition. In practice, the property tax is a hybrid consisting of a user charge for services and a wealth charge based on the property’s value. Many municipalities favor user charges or fees-for-services, as opposed to property taxes, to obtain revenue from a university, and the race for revenue can lead municipalities to creative ideas. For example, one California city wanted to charge a university for its scenic view. Universities, on the other hand, feel there is some ambiguity with respect to what benefits they actually receive from municipalities, since universities provide many of their own services, such as street plowing and campus police protection.

Despite the controversial negotiations between universities and municipalities around property taxes and payments in lieu of taxes (PILOT), the actual payments may be relatively small, according to Youngman. Depending on the size of the city and the diversity of its local economy, the university payment may not be a meaningful share of local revenues, and several seminar participants confirmed this observation. Smaller cities tend to look to their universities as a more important source of revenue than do large cities, and controversy over tax-exempt status tends to escalate when universities expand their activities beyond their traditional and clearly academic roles. For example, when a university owns property that contains not only research offices and laboratories but also a bookstore, a Starbucks and a Kinko’s, should it be tax-exempt? Frank Mares, of DePaul University in Chicago, described a mixed-use project in which specific university uses are tax-exempt while the parking garage and retail spaces are taxed, essentially creating separate taxing districts.

Stafford of Evanston pointed out that there are legitimate public policy questions regarding the uses and abuses of nonprofit organizations. The nonprofit status of universities stems from the long-held belief that they contribute to the public good. However, this privileged status was based on an implicit understanding that the university did not make a profit on its activities. There are currently numerous examples of ways universities challenge this assumption. For example, when professors market themselves as consultants, working from their university-provided offices and capitalizing on the university’s “brand name,” are they acting in the public interest? Furthermore, the endowments of many universities exceed the operating budgets of the cities and towns in which they reside. Stafford concludes, “the university, at best, is a subsidized citizen.”

Yet, from the perspective of the university, increasing competition has forced universities to walk a fine line between remaining faithful to their missions and vying with other institutions to recruit and retain students and faculty, and to meet ever-growing demands for newer athletic and academic facilities, bigger and better dorm rooms, or more sophisticated telecommunications resources. The role played by universities in their communities has altered considerably over the past few decades and, at a minimum, further clarification of public policy intent and tax law regarding tax-exempt status needs to be revisited.

While the university must address the concerns of its local community, it also faces pressures to respond to broader regional goals. Local governments increasingly view universities as engines of economic development-both programmatically and physically-and as “economic anchors” in the city. Norma Grace, of the University of New Orleans, remarked on a common expectation that universities will create jobs and help local entrepreneurs, yet due to increasing budget demands universities have few resources to support this community goal. As one participant put it, the university cannot be only a real estate developer, because there are consequences to its actions; it needs to be a community developer as well. Hank Webber, of the University of Chicago, stated, “We’re not malevolent, we’re just wrong a lot of the time.”

Best Practices for the Future

Because most universities will remain in their current locations indefinitely, their futures will continue to be intertwined with their surrounding neighborhoods. However, the inevitability of future change and persistent development pressure highlights the differences between universities and the private real estate sector. Profit and speed motivate private developers-two qualities not usually associated with universities, particularly public institutions. Furthermore, given the broader mission of a university, short-term, market-oriented thinking is not always suitable. It is clear that future prospects for university expansion remain a complex challenge, especially in urban areas where land available for development is limited and expensive.

This seminar was intended to begin a dialogue among university officials responsible for campus development, and it will reconvene next year in an effort to add to our knowledge of the ways urban universities’ real estate development activities contribute to the revitalization of their cities. Many seminar participants expressed an interest in institutionalizing community and real estate development practices, and they stated a preference for examining cases in depth, with input from city officials, community leaders and university administrators, to uncover the complexities of an individual project. Seminar cochairs David Perry and Wim Wiewel, of the University of Illinois at Chicago, have begun collecting such cases to use in future seminars and to broaden the ongoing debate on this topic.

Allegra Calder is a research assistant and Rosalind Greenstein is a senior fellow and cochairman of the Planning and Development Department at the Lincoln Institute.

A las grandes instituciones, como universidades, hospitales y organizaciones sin fines de lucro, se les suele llamar “anclas”, debido a su permanencia y a los lazos estabilizadores que generan, tanto en lo físico como en lo social, con las comunidades circundantes. Más allá de cumplir con sus respectivas misiones de educar, sanar, cultivar las artes o brindar otros servicios, estas instituciones educativas y médicas han demostrado ser verdaderos motores económicos: emplean una gran cantidad de mano de obra, ocupan y administran inmuebles de grandes proporciones, compran grandes cantidades de bienes y servicios, atraen inversiones a través de proyectos de capital y actividades de investigación, y brindan a los residentes acceso a la comida, a los bienes minoristas y a otros servicios. En muchos casos, las instituciones “ancla” son los empleadores de mayor envergadura, fuera del ámbito público, en sus ciudades. De hecho, según estimaciones del Departamento de Vivienda y Desarrollo Urbano (HUD), las instituciones educativas y médicas dieron empleo a más de 7 millones de personas y generaron un billón de dólares en actividades económicas durante el año 2009 (Brophy y Godsil 2009).

En algunos casos, se genera una dinámica de beneficios mutuos entre la institución “ancla” y la comunidad en donde se encuentra, lo que da como resultado la creación de corredores comerciales económicamente sostenibles, calles llenas de vida y barrios con una población densa y diversa. Muchas de las grandes ciudades universitarias en los Estados Unidos muestran esta productiva interacción. Sin embargo, en muchos otros casos, especialmente en las áreas urbanas que carecen de servicios suficientes, el liderazgo institucional y civil debe ser más emprendedor, mediante el impulso activo de proyectos, programas y políticas con el fin de lograr estos objetivos. Dicho proceso, conocido como estrategia “ancla”, proporciona un marco guía para que las comunidades trabajen junto con las instituciones a fin de capitalizar y maximizar el impacto de su impronta.

En teoría, el valor de involucrar a las instituciones “ancla” para lograr resultados positivos en el barrio o la comunidad es evidente: todas las partes se benefician y, a la vez, es una forma inteligente de hacer negocios. No obstante, en la práctica, la comunidad y sus instituciones deben trabajar juntas para redefinir cómo alinear y apalancar sus objetivos, intereses económicos y actividades a fin de lograr un resultado que beneficie a todas las partes. En este artículo se analiza por qué resulta difícil llevar a cabo estrategias “ancla” significativas para lograr un cambio fundamental en la forma en que las instituciones “ancla” y sus comunidades se relacionan entre sí. También aprovechamos algunas de las lecciones aprendidas de medidas exitosas que se tomaron en lugares como Filadelfia, Detroit y Cleveland, en donde la participación civil integral se ha convertido en la norma a seguir de algunas de las instituciones médicas y educativas más importantes de la nación.

Parámetros para el éxito

Debe destacarse que las tácticas individuales son necesarias pero insuficientes para constituir una estrategia. Una estrategia implica una participación a largo plazo, que se implementa a través de tácticas que evolucionan a lo largo del tiempo. Además, las estrategias “ancla” implican asociarse con muchas organizaciones y personas en la comunidad circundante, y estas relaciones también deben evolucionar con el tiempo a fin de responder a las necesidades y objetivos de la comunidad diseñados para lograr que la zona sea más habitable.

Las estrategias “ancla” efectivas y transformadoras poseen tres características fundamentales: están basadas en el lugar, están incorporadas a las instituciones y son integrales.

La ventaja de los mediadores

Muchas estrategias “ancla” se ven beneficiadas con la posibilidad de tener socios en la comunidad que guíen su trabajo. Estos mediadores por lo general refuerzan la capacidad del personal de las instituciones “ancla” a fin de lograr una mayor participación de la comunidad y mayores beneficios para la misma. Algunos ejemplos de mediadores eficaces son las sociedades de desarrollo comunitario (CDC, por sus siglas en inglés) o las instituciones financieras de desarrollo comunitario (CDFI), que deben estar dirigidas por un representante de la comunidad.

Los mediadores son más ágiles que las grandes instituciones “ancla”, por lo que son capaces de negociar con diferentes socios y tomar medidas sin el peso de la burocracia. Los mediadores más exitosos son las organizaciones de la comunidad que poseen un extenso historial en la región, una credibilidad dentro de la comunidad (para que no sean consideradas como una herramienta manejada por la institución “ancla” o por las fuentes de financiación) y la capacidad de brindar un terreno neutral para debatir y llevar a cabo el trabajo “ancla”. Si la comunidad es escéptica ante un proyecto completamente impulsado por una institución “ancla”, trabajar en conjunto con un mediador de confianza puede proporcionar legitimidad a la tarea.

En Detroit podemos observar un buen ejemplo de la capacidad de una CDC de la comunidad para apalancar la iniciativa patrocinada por una institución “ancla”. Midtown Detroit Inc., o MDI, (midtowndetroitinc.org) administra Live Midtown (livemidtown.org), un programa de obtención de vivienda con apoyo de empleadores, que tiene el respaldo de la Universidad Estatal de Wayne, el Sistema de Salud Henry Ford y el Centro Médico de Detroit. Tal como señala Susan Mosey, presidente de MDI: “Es importante que haya gente de la comunidad que guíe este trabajo día a día. Esto genera familiaridad con las iniciativas, a la vez que produce credibilidad y aceptación para que las estrategias “ancla” tengan éxito”. De hecho, con la ayuda de MDI, el compromiso financiero de las instituciones “ancla”, que ascendió a 5 millones de dólares en cinco años, se vio igualado por fondos de contrapartida de fuentes de financiamiento de la comunidad, así como de la agencia estatal de financiamiento de la vivienda. Este éxito estimuló a los grandes empleadores del centro de la ciudad (Quicken Loans, DTE, Compuware y Blue Cross Blue Shield entre otros) a crear su propio programa Live Downtown de 5 millones de dólares. Entre ambos programas, más de 1.600 empleados se han mudado al centro y aledaños de la ciudad de Detroit, lo que ha reducido el índice de puestos vacantes en este corredor a menos del 3 por ciento (Welch 2014).

Basadas en el lugar

Las estrategias basadas en el lugar poseen una geografía específica y fácilmente identificable a la que la institución “ancla” afecta en forma directa, tales como edificios, espacios abiertos, entradas y redes viales que conectan una institución con la comunidad. Más allá de la orientación física de una institución, encontramos los lugares que las personas que forman parte de dicha institución (sean empleados, estudiantes, pacientes, clientes o visitantes) habitan y frecuentan. Los barrios que rodean a las instituciones y que presentan un alto nivel de usos múltiples son un apoyo al estilo de vida que define a todo distrito dinámico, promueven la actividad peatonal y generan la densidad residencial que, a su vez, crea comunidad.

Las actividades de placemaking de cualquier institución “ancla” (que dan forma a los espacios públicos de manera comunitaria a fin de intensificar su valor compartido) deben comprometer, desde el punto de vista táctico, a otras partes interesadas para poder ser consideradas como estratégicas. Estas tácticas pueden incluir: la reinversión en el barrio a través de la construcción y la rehabilitación de viviendas; el fomento del desarrollo comercial y minorista específicos; la mejora de los espacios públicos y la seguridad pública; y el fortalecimiento de los servicios locales, tales como escuelas, organizaciones sin fines de lucro y recursos comunitarios. Estas actividades benefician a la institución “ancla” de varias maneras y promueven un barrio más fortalecido, lo que aumenta el atractivo de la institución a posibles clientes (estudiantes, pacientes y personal) y genera un sentimiento de buena voluntad entre los residentes y los funcionarios municipales.

Incorporadas en las instituciones

La estrategia “ancla” debe formar parte del ADN de una institución. Dicha integración comienza cuando los líderes se comprometen con el papel que desempeña la organización a la que pertenecen como institución “ancla” y lo comunican a toda la organización. Luego, el liderazgo continúa cumpliendo esta tarea, dedicando importantes cantidades de tiempo y recursos en todas las funciones institucionales.

Para lograr la efectividad, el trabajo de una institución “ancla” requiere, por lo general, realizar ciertos cambios en la cultura de la organización, tales como modificar la estructura de recompensas, adoptar nuevas declaraciones de misión y mediciones del éxito, y examinar en forma crítica las comunicaciones, tanto internas como externas. Una vez que los programas internos, las unidades administrativas, el personal de gestión de las instalaciones y las juntas directivas logran trabajar juntos para alcanzar los objetivos colectivos, entonces la estrategia “ancla” puede comenzar a transformar la comunidad que rodea a la institución.

Integrales

Las instituciones educativas y médicas afectan a las comunidades que las rodean de muchas maneras: contratan a residentes del lugar, tienen una gran presencia física, educan o sanan a los miembros de la comunidad y producen desechos, entre otros impactos. Además de estar basada en el lugar, una estrategia “ancla” integral debe tratar los siguientes puntos de intersección:

Personal

En vista de que las instituciones “ancla” son, por lo general, el mayor empleador en una ciudad, las decisiones relativas a la contratación de personal y los beneficios de los empleados pueden tener un profundo impacto en la estructura social y económica de la comunidad. Al aumentar el porcentaje de trabajadores que provienen del lugar mismo donde la institución tiene presencia, esta puede, simultáneamente, elevar la economía de la comunidad, proporcionar empleos a aquellas personas desempleadas o subempleadas y generar un sentimiento de buena voluntad entre los vecinos. La posibilidad de conseguir viviendas con ayuda del empleador es otra inversión crucial tanto en el personal como en la comunidad circundante (Webber y Karlstrom 2009). Cuando los empleados pueden vivir cerca de la institución “ancla”, esta situación beneficia a todas las partes, ya que se reducen los costos de vivienda y transporte para los trabajadores y, a la vez, disminuye el nivel de absentismo laboral y de rotación de personal para los empleadores.

Adquisiciones

El poder de compra de las grandes instituciones “ancla” puede llegar a ser muy importante: por año, el gasto en concepto de bienes y servicios puede llegar a los cientos de millones de dólares. La captación por parte de las empresas locales de aunque sea una pequeña parte del flujo de compras puede tener un impacto significativo en la economía de la comunidad. Por ejemplo, la Universidad de Pensilvania inyectó 57 millones de dólares en la economía de la zona oeste de Filadelfia con sólo el 9 por ciento de sus compras anuales (ICIC y CEOs for Cities 2002).

Los beneficios derivados de las compras en la misma comunidad son evidentes; sin embargo, redirigir este proceso y reconocer dichos beneficios no es una tarea fácil. Por ejemplo, la institución “ancla” tal vez tenga que incurrir en costos indirectos significativos en concepto de sensibilización de la comunidad y capacitación para garantizar una continua disponibilidad de bienes y servicios producidos en el lugar. Por añadidura, nunca debe darse por sentada la existencia de proveedores confiables y competitivos en costos en la comunidad. Más aún, es posible que las instituciones de mayor envergadura tengan procesos de compra altamente descentralizados, por lo que lograr que cada departamento de la institución se adhiera a las nuevas políticas puede llevar tiempo y esfuerzo (ICIC y CEOs for Cities 2002). Es aquí cuando los mediadores de confianza de la comunidad pueden ayudar a facilitar la tendencia hacia los proveedores del lugar.

Políticas

La relación entre las instituciones “ancla” y los organismos gubernamentales municipales o regionales es, con frecuencia, complicada. En su calidad de organizaciones privadas, las instituciones “ancla” pueden creer que no necesitan responder ante el gobierno municipal. Aun más, es posible que consideren al gobierno municipal como un organismo ineficiente, ineficaz y generador de obstáculos a la hora de llevar a cabo sus óptimas estrategias de negocios. Por su parte, los gobiernos municipales y regionales pueden considerar a las instituciones “ancla” como oportunistas que consumen servicios públicos y otros beneficios públicos al tiempo que gozan de exenciones al impuesto sobre la propiedad (la mayor fuente de recaudación de los gobiernos municipales). A fin de aliviar estas tensiones, algunas instituciones han contribuido voluntariamente con “pagos en lugar de impuestos” (PILOT, por sus siglas en inglés) para compensar a los municipios por dicha pérdida de ingresos (Kenyon y Langley 2010). No obstante, una exitosa estrategia “ancla” puede establecer otras maneras de promover un trabajo mutuamente beneficioso que mejore el futuro de la institución y, a la vez, aborde problemas relacionados con las políticas municipales o regionales. Wim Wiewel, presidente de la Universidad Estatal de Portland, ha hecho especial hincapié en este sentido, al citar la adopción, por parte de la institución, de su lema “Que el conocimiento sirva a la ciudad” a principios de la década de los 90. Según sus palabras, “Servimos al área metropolitana y estamos orgullosos de ello”.

Planificación

Alguien debe coordinar estos elementos en una iniciativa coherente. Las grandes instituciones “ancla” poseen una gran capacidad de planificación interna y, con regularidad, se involucran en la planificación a largo plazo de sus emprendimientos. Cuando deciden llevar a cabo una estrategia, las instituciones “ancla” pueden utilizar esta capacidad para determinar cuál es la mejor forma de involucrarse en la comunidad y relacionarse con las partes interesadas, tanto del lugar como regionales. Además, trabajar en los procesos de planificación estratégica de las instituciones “ancla” es una forma de institucionalizar la estrategia “ancla” de manera que permanezca en el tiempo, aun después de que el presidente o director ejecutivo de la institución haya finalizado su gestión, y se convierta en la forma normal de hacer negocios.

Cómo funcionan las instituciones “ancla”

Una estrategia “ancla” exitosa ni se crea ni se implementa en un vacío. Para que cualquiera de las actividades mencionadas anteriormente sea parte de una genuina estrategia “ancla”, las instituciones “ancla” deben llevarlas a cabo de manera estratégica en sincronía con otras partes interesadas en el área. Por ejemplo, iniciar un programa de vivienda para trabajadores con ayuda del empleador o establecer objetivos de compra en el lugar puede beneficiar a los empleados o a los residentes de la comunidad, pero dichas medidas no se consideran parte de la estrategia “ancla” integral, a menos que estén conectadas a un enfoque general que abarca a toda la institución en cuanto a la participación e interacción comunitaria. Para lograr este tipo de interacción, es importante comprender cómo funcionan las instituciones “ancla”.

Las grandes instituciones sin fines de lucro, tales como las organizaciones educativas y médicas, son básicamente renuentes a correr riesgos y se toman su tiempo para realizar cambios o asumir nuevos roles. Por lo tanto, emprender una estrategia “ancla” implica un cambio fundamental en la forma en que los líderes de las instituciones “ancla” piensan y cómo funcionan sus organizaciones; esto puede llevar tiempo, implicar una serie de debates o negociaciones importantes y difíciles, y requerir un liderazgo sólido e incentivos, tanto internos como externos a la organización.

Las universidades y hospitales son instituciones “ancla” no sólo porque están enraizadas en el lugar y tienen un impacto crucial en la economía de la comunidad sino también porque son de gran envergadura. La cuestión del tamaño lleva implícita una serie de capas burocráticas, una gran cantidad de participantes que deben involucrarse en el trabajo derivado de las estrategias “ancla” y la incapacidad de moverse en forma ágil y rápida.

La figura 1 muestra la estructura típica de una universidad. En la parte superior se encuentra la junta directiva, formada por líderes del sector civil, industrial y científico, además de contar, en general, con exalumnos u otros afiliados académicos. Los miembros de esta junta interactúan con el campus de manera intermitente y se concentran en la gestión del riesgo financiero y de reputación de la universidad.

El presidente es, normalmente, un académico que puede o no tener formación en temas de administración. Los presidentes se centran en la recaudación de fondos y en la gestión de la reputación de la universidad. Los académicos, por lo general, consideran a las universidades como lugares donde reina el libre pensamiento, aislados de las fuerzas del mercado y de capital. Con frecuencia, su visión del sector administrativo es recelosa o escéptica. Por su lado, los administradores tienen, generalmente, formación en contabilidad o gestión y priorizan la seguridad del empleo. Todas estas prioridades y actitudes se combinan de manera tal que crean una cultura en la que el riesgo no se recompensa y los fracasos se castigan.

Los hospitales presentan, de manera similar, grandes estructuras burocráticas. Los organismos principales que toman decisiones son, por lo general, la junta directiva y el director ejecutivo, que se concentran en minimizar el riesgo institucional y gestionar las finanzas de manera responsable y rentable. Los administradores priorizan el hecho de cumplir con los requisitos de sus puestos y garantizar la seguridad del empleo a través de la protección institucional, mientras que es más probable que los profesionales de la salud, como médicos y enfermeros, se centren en atender a los pacientes o llevar a cabo investigaciones, sin mirar más allá de los límites de las instalaciones del hospital.

Estas culturas generan decisiones que pueden parecer lógicas para las instituciones en sí, pero que, con frecuencia, no se encuentran alineadas con los objetivos de la comunidad. Por ejemplo, la universidad puede construir zonas de estacionamiento alrededor de sus instalaciones, generalmente en los límites del campus, a fin de facilitar el acceso a la institución del cuerpo docente, el personal y los estudiantes. Sin embargo, con esta medida se incentiva a los empleados y a los estudiantes a ir a la universidad en automóvil, lo que reduce la probabilidad de que estas personas vivan en barrios desde los que se pueda llegar a pie y que visiten los comercios cercanos. Las zonas de estacionamiento generan, también, una barrera de asfalto que aísla al campus de la comunidad. De manera similar, las políticas de compra de la institución pueden fundamentarse en obtener el precio más bajo para obtener los resultados más predecibles, lo que significa que, para obtener los bienes y servicios que necesitan, recurren a los proveedores más grandes (que, por lo general, son de alcance nacional), en lugar de contratar a los proveedores del lugar. Finalmente, una universidad generalmente ubica el espacio abierto, las instalaciones destinadas a la recreación y otros servicios dentro de sus límites, lo que permite sólo una interacción limitada con los miembros de la comunidad. Para cambiar la forma en que se toman estas decisiones, resulta esencial modificar la visión que el liderazgo de las instituciones “ancla” tiene acerca de dichas instituciones en relación con su comunidad, así como también comprender la manera en que pueden cambiarse los hábitos y actitudes arraigadas.

Promover la participación de la comunidad

Existen varias maneras en las que los líderes de la comunidad, filántropos, grupos comunitarios y otras partes interesadas pueden movilizar a la institución “ancla” a asumir un nuevo rol en el barrio.

Identificar a los líderes

El liderazgo es, por lo general, un aspecto clave para una estrategia “ancla” exitosa. La filosofía y el enfoque que tenga el rector, el presidente o el director ejecutivo pueden determinar si una institución se ve a sí misma como un “ancla” y cómo actúa una vez que se define como tal, y si dichas acciones perdurarán en el tiempo. Tal como lo aconseja Benjamin Kennedy, de la Fundación Kresge: “¡Aprovechen la oportunidad! No es necesario que cada una de las personas que forma parte de la institución esté de acuerdo; sólo las personas clave. Los líderes son los que transformarán la institución y transmitirán la idea de las estrategias “ancla” a los demás”.

Un líder sólido comprometido con una estrategia “ancla” puede poner el fundamento para una participación comunitaria y un impacto más significativos. El abordaje debe estar arraigado en los niveles altos de la administración, para luego filtrarse en toda la institución, a fin de que el personal directamente responsable de llevar a cabo partes específicas de la estrategia, como el personal de recursos humanos, funcionarios encargados de las compras y profesores involucrados en los proyectos de investigación en la comunidad, comprenda sus nuevas prioridades. Dicha transición puede lograrse, en parte, cambiando la estructura de recompensas y llevando a cabo una comunicación estratégica, modificando la declaración de visión y describiendo regularmente el trabajo y los logros de la estrategia “ancla” mediante mensajes de circulación interna.

Una estrategia “ancla” tiene mayores probabilidades de obtener el éxito si muchas partes interesadas expresan su apoyo a la misma. Dentro de la institución “ancla”, puede resultar muy útil identificar al personal que apoya la idea de participación comunitaria y trabaja con los grupos del lugar para definir estrategias que beneficien a todos. Fuera de la institución “ancla”, es útil contratar líderes de la comunidad que empujen a la institución a asumir un nuevo rol. Por ejemplo, la filantropía de la comunidad, tanto en Cleveland como en Detroit, desempeñó un papel significativo a la hora de persuadir a las instituciones a unirse para formular estrategias “ancla” destinadas a las comunidades que las rodean.

Analizar las oportunidades de participación de varias instituciones “ancla”

Si en un barrio existe más de una institución “ancla”, muchas organizaciones pueden participar en los proyectos. Este abordaje ha tenido mucho éxito en Cleveland, donde diferentes hospitales, universidades y organizaciones culturales, junto con organizaciones filantrópicas del lugar, instituciones financieras y el municipio de Cleveland, han aunado esfuerzos con el fin de implementar la Iniciativa del Gran Círculo Universitario.

Aunque una estrategia en la que participan muchas instituciones “ancla” implica cierto nivel de complejidad, en vista de que aumenta la cantidad de personas y organizaciones que deben estar de acuerdo con el trabajo, igualmente puede incrementar el impacto de la iniciativa, ya que se suman muchos otros recursos y se aumenta la cantidad de líderes. Asimismo, los líderes de cada institución “ancla” pueden animarse mutuamente y reforzar el trabajo de unos y otros, a la vez que distribuyen el peso de cualquier riesgo percibido.

Identificar el interés propio

En un nivel básico, un hospital o una universidad puede emprender una estrategia “ancla” porque sus líderes creen que las mejoras que se producirán en la comunidad circundante beneficiarían a la institución. Por ejemplo, el Dr. Wallace D. Loh, presidente de la Universidad de Maryland, en College Park, se ha centrado en mejorar la calidad de vida en el barrio porque estaba preocupado de que las condiciones del lugar restaban valor a la capacidad de la universidad de atraer y retener a docentes y personal.

Las estrategias “ancla” tienen otros beneficios más indirectos. Aunque una universidad u hospital puede tomar decisiones unilaterales sobre lo que ocurre en su propio terreno, también puede enfrentar problemas que requieren el apoyo de fuerzas externas a la institución, tales como el gobierno municipal y los residentes de la comunidad. Crear relaciones sólidas y perdurables con los líderes del lugar a través del trabajo en estrategias “ancla” puede ayudar a la organización a obtener apoyo para futuros planes. Al pensar en forma holística acerca de sus relaciones con la comunidad circundante, los líderes de las instituciones “ancla” por lo general tienen el incentivo de reconceptualizar sus objetivos básicos de educación y salud. La Dra. Lucy Kerman, vicerrectora de University and Community Partnerships, en la Universidad de Drexel, lo resume de la siguiente manera: “El trabajo en estrategias “ancla” debe estar alineado con los intereses propios de la universidad y estar cimentado en el rol apropiado que desempeña la institución. Tal vez no estemos generando viviendas económicas o dirigiendo una escuela en forma directa, pero somos socios en un sistema que crea oportunidades de ingresos mixtos y ofrece la posibilidad de una educación sólida”.

Aportar recursos

Por supuesto que todo puede resumirse en la disponibilidad de recursos. Los incentivos financieros animan a las instituciones y a sus socios a llevar a cabo trabajos “ancla”, desarrollar estrategias acerca del papel que desempeñan en la comunidad, reunirse con las partes interesadas regularmente e invertir en actividades “ancla”. Por su parte, las partes interesadas de la comunidad pueden ver la oportunidad de involucrar a la institución “ancla” pero carecen de la capacidad o las herramientas para participar si no tienen nuevos fondos.

En Detroit, por ejemplo, las instituciones “ancla” se sentaron a la mesa de negociaciones por muchas razones, pero uno de los factores principales fueron los recursos financieros que ofrecieron los dos socios convocantes, las fundaciones Hudson-Webber y Kresge. Este incentivo de capital permitió el inicio de las conversaciones y, al día de hoy, continúa apoyando el trabajo. Al ofrecer fondos de contrapartida destinados a tácticas específicas, las fundaciones incentivaron a las instituciones “ancla” a comprometer sus propios fondos. Hoy en día, las instituciones “ancla” no sólo apoyan iniciativas específicas sino que también proporcionan recursos operativos a Midtown Detroit Inc., la organización de planificación y desarrollo de la comunidad que apoya y brinda personal destinado a la mayor parte del trabajo “ancla”. De esta manera, los recursos provenientes de fuentes filantrópicas plantaron la semilla de la iniciativa, a la vez que ayudaron a crear la infraestructura necesaria para una implementación y una sostenibilidad exitosas.

Cómo conectar la estrategia con la comunidad

A primera vista, las necesidades y los objetivos de la comunidad, tales como buenas escuelas, calles seguras, servicios y comodidades, oportunidades de empleo, espacios públicos y vivienda, no guardan una correlación directa con los resultados de una institución “ancla”. De hecho, si una institución genera graduados exitosos, una atención médica de gran calidad y un alto nivel de investigaciones, concluirá que ha cumplido con su tarea como ciudadana, tanto de la comunidad como del mundo.

No obstante, al alinear los objetivos de la comunidad con los aportes de una institución (docentes, personal, pacientes, estudiantes, visitantes, inmuebles, bienes y servicios), las estrategias “ancla” pueden conectar la misión de la institución con las aspiraciones de la comunidad. La contratación de residentes de la comunidad para los empleos institucionales mejora el impacto económico de una institución “ancla” dentro de la comunidad y ayuda no sólo a las familias del lugar sino también al área en general. Cuando el personal de la institución hace las compras, vive y come en el barrio, estimula la economía de la comunidad. Utilizando el marco guía de las 5 Pes, el compromiso entre la comunidad y la institución “ancla” puede lograr que las aspiraciones de la comunidad pasen de ser objetivos a convertirse en resultados.

• Placemaking. Tanto la comunidad como la institución pueden beneficiarse de la implementación cuidadosa de un programa de bienes raíces de la institución, mediante el cual puede promover un campus abierto con límites activos y limitar ciertos usos, como el estacionamiento o almacenamiento. Mejorar el estado de las manzanas que rodean la universidad o el hospital, abrir el acceso a los espacios públicos y enfocarse en cuestiones como el alumbrado público o las mejoras en las fachadas de los comercios hace que el entorno sea más seguro y saludable para los residentes, los posibles estudiantes y los pacientes. Los participantes que podrían desempeñar un papel en este proceso con sus aportes son los docentes, el personal, los estudiantes, los pacientes, los visitantes y el sector inmobiliario. Los objetivos comunitarios que pueden lograrse son, por ejemplo, calles seguras, servicios y comodidades, oportunidades de empleo, espacios públicos y variedad de viviendas.
• Personal. Al contratar personal de la comunidad, la estrategia “ancla” brinda oportunidades de empleo para los residentes del área. A medida que aumenta la tasa de empleo, la comunidad se vuelve más segura, lo que beneficia tanto a los residentes como a la institución “ancla”. En este caso, el aporte principal es el personal.
• Proveedores. La institución “ancla” puede fortalecer la economía de la comunidad contratando proveedores del lugar, lo que genera oportunidades de empleo, calles más seguras y más servicios y comodidades. La institución “ancla” también puede generar relaciones públicas positivas en cuanto a su alcance en la comunidad. En este caso, el aporte principal también es el personal.
• Políticas. Al dirigir su destreza en el campo de la investigación y la educación hacia las cuestiones de la comunidad, la institución “ancla” puede ayudar a cumplir las aspiraciones de la comunidad de tener buenas escuelas, una mayor seguridad pública, oportunidades de empleo y atención médica, lo que, a su vez, fortalece su propia reputación en la región. Para lograr este objetivo, la institución “ancla” puede reclutar a docentes, personal, estudiantes y visitantes para llevar a cabo actividades tales como el aprendizaje-servicio, la promoción de la atención médica y la enseñanza vivencial.
• Planificación. Unir todos estos esfuerzos en una misión coherente requiere que los líderes de las instituciones “ancla” conecten cada aporte con las aspiraciones de la comunidad. Una institución “ancla” puede también aportar personas con talento para la planificación a fin de lograr una correlación entre sus propios planes y los del barrio o municipio. El principal aporte en este caso es el de personal: los empleados de la institución “ancla” trabajan en conjunto para identificar de qué manera las diferentes estrategias pueden alinearse con los objetivos de la comunidad a fin de crear propuestas que beneficien a todos.

Conclusión

Una estrategia “ancla” integral, basada en el lugar e incorporada en la institución puede tener un impacto significativo en la economía, tanto municipal como regional. Sin embargo, desarrollar e implementar este tipo de estrategia focalizada requiere grandes dosis de tiempo y paciencia. Para poder unir todos los elementos necesarios (lograr la participación de los socios, convencerlos de que existe un interés propio al llevar a cabo el trabajo “ancla”, identificar a los líderes sólidos y utilizarlos para modificar los valores de sus instituciones, identificar a los mediadores y garantizar que estos poseen la capacidad para desempeñar su papel, y establecer incentivos financieros) debe existir el compromiso y la coordinación de muchas piezas móviles.

En muchos casos, el trabajo “ancla” se fundamenta en la confianza entre grupos que, con frecuencia, nunca han trabajado juntos anteriormente. Desarrollar estas relaciones implica el contacto personal y la construcción de alianzas sólidas. Además, estos esfuerzos deben darse dentro del contexto de un trabajo en conjunto con grandes instituciones “ancla”. Aquellos que desean trabajar con instituciones “ancla” para cambiar la forma en que hacen negocios deberán comprender de qué manera y por qué razón las instituciones actúan de la forma en que lo hacen, y cuál es el modo en que toman decisiones. Cuando se unen todos estos componentes, las estrategias “ancla” pueden transformar a la comunidad, a la región y a la misma institución “ancla”.

Sobre los autores

Beth Dever es una consultora independiente que trabaja para la Fundación Ford. Omar Blaik es director ejecutivo y George Smith es vicepresidente de U3 Advisors. George W. McCarthy es presidente y director ejecutivo del Instituto Lincoln de Políticas de Suelo.

Referencias

Brophy, P. y R. Godsil. 2009. “Retooling HUD for a Catalytic Government: A Report to Secretary Shaun Donovan.” Filadelfia: Penn Institute for Urban Research.

Initiative for a Competitive Inner City (ICIC) y CEOs for Cities. 2002. “Leveraging Colleges and Universities for Urban Economic Revitalization: An Action Agenda.” Boston: ICIC y CEOs for Cities.

Kenyon, Daphne A. y Adam H. Langley. 2010. Payments in Lieu of Taxes: Balancing Municipal and Nonprofit Interests. Cambridge: Instituto Lincoln de Políticas de Suelo.

Webber, H. y Mikael Karlström. 2009. “Why Community Investment is Good for Nonprofit Anchor Institutions: Understanding Costs, Benefits, and the Range of Strategic Options.” Chicago: Chapin Hall en la Universidad de Chicago.

Welch, Sherri. 2014. “Midtown Detroit Expands Boundaries for Housing Incentives.” Crain’s Detroit Business. 28 de abril.

Large institutions—universities, hospitals, and nonprofit organizations—are referred to as anchors because of their permanence and their stabilizing physical and social ties to surrounding communities. Beyond fulfilling their respective missions to educate, heal, cultivate the arts, or provide other services, these “eds and meds” are proven economic engines. They employ large workforces, occupy and manage big pieces of real estate, purchase vast quantities of goods and services, attract investment through capital projects and research activities, and provide local constituents access to food, retail, and other amenities. In many instances, anchor institutions are the largest nonpublic employers in their cities. Indeed, HUD estimated that eds and meds employed more than 7 million people and generated $1 trillion in economic activity in 2009 (Brophy and Godsil 2009).

In some instances, a mutually beneficial dynamic evolves between an anchor institution and its community, creating economically sustainable commercial corridors, vibrant streets, and dense, diverse neighborhoods. Plenty of great college towns across America showcase this productive interplay. But in many other cases, especially in underserved urban areas, institutional and civic leadership must be more entrepreneurial, actively championing projects, programs, and policies to achieve these outcomes. This process, known as an anchor strategy, provides the framework that guides local efforts to work with institutions to capitalize on and maximize the impact of their presence.

In theory, the value of engaging anchor institutions to achieve positive neighborhood or community outcomes is self-evident: all parties benefit, and it’s a smart way to do business. But in practice, the community and its institutions must work together to redefine how to align and leverage their goals, economic interests, and activities to achieve a win-win outcome. This article explores why it is difficult to undertake meaningful anchor strategies that fundamentally change how the anchor and its community relate to one other. We also draw on some of the lessons learned from successful efforts in areas such as Philadelphia, Detroit, and Cleveland, where comprehensive civic engagement has become the norm at some of the country’s leading medical and educational institutions.

Parameters for Success

The important thing to stress is that individual tactics are necessary but insufficient to constitute a strategy. A strategy is a long-term engagement, implemented through tactics that evolve over time. In addition, anchor strategies involve partnerships with multiple organizations and people in the surrounding community—relationships that must also evolve over time to respond to community needs and goals designed to make the area more livable.

Effective and transformative anchor strategies have three fundamental features: they are place-based, institutionally embedded, and comprehensive.

The Advantage of Intermediaries

Many anchor strategies benefit from having strong local partners to shepherd the work. These intermediaries often buttress anchor staff capacity to pursue broader local engagement and benefits. A properly funded community development corporation (CDC) or community development financial institution (CDFI) with a local representative at its helm can be an effective intermediary.

Intermediaries are more nimble than large anchor institutions and thus able to negotiate among numerous partners and take actions unencumbered by bureaucracy. Most successful intermediaries are local organizations with long histories in the region, credibility within the community so that they are not seen as tools of the anchor or funders, and the ability to provide neutral ground for discussing and pursuing the anchor work. If the community is skeptical of a fully anchor-driven effort, a partnership with a local, trusted intermediary can provide legitimacy.

A local CDC’s ability to leverage an anchor-sponsored initiative in Detroit provides a good example. Midtown Detroit Inc. (midtowndetroitinc.org) manages Live Midtown (livemidtown.org), an employer-assisted housing program supported by Wayne State University, Henry Ford Medical System, and Detroit Medical Center. As MDI’s President Susan Mosey notes, “It is important to have local people shepherding this work on a day-to-day basis. This builds familiarity with the initiatives and creates the credibility and buy-in that the anchor strategies need to be successful.” Indeed, with MDI’s help, the anchor institutions’ financial commitment of $5 million over five years was matched by contributions from local funders and the state housing finance agency. This success spurred major downtown employers—including Quicken Loans, DTE, Compuware, and Blue Cross Blue Shield—to create their own $5 million Live Downtown program. Between the two programs, more than 1,600 employees have moved to midtown and downtown Detroit, reducing vacancy rates in the corridor to less than 3 percent (Welch 2014).

Place-Based

Place-based strategies have a specific and easily identified geography that the anchor directly affects, including the buildings, open spaces, gateways, and street networks that connect an institution to its community. Beyond the physical orientation of an institution are the places that its constituents—its employees, students, patients, clients, or visitors—live in and patronize. Strong mixed-use neighborhoods surrounding institutions support the street life that defines a vibrant district, encourage pedestrian activity, and create the residential density that in turn creates community.

An anchor’s “placemaking” activities—communally shaping public spaces to heighten their shared value—must engage tactically with other stakeholders to be considered strategic. Such tactics may include reinvesting in the neighborhood through housing construction and rehabilitation; supporting targeted commercial and retail development; improving public spaces and public safety; and strengthening local services such as schools, nonprofits, and community resources. These activities benefit the anchor in a number of ways and create a stronger neighborhood, thus increasing the institution’s attractiveness to potential clients (students, patients, and staff) and generating goodwill among residents and local officials.

Institutionally Embedded

An anchor strategy must be part of an institution’s DNA. This integration starts when leaders commit to their organization’s role as an anchor and communicate it throughout the entire organization. Leadership then follows through by committing significant amounts of time and resources across all institutional functions.

To be effective, anchor work usually requires changes in the organizational culture, such as altering the reward structure, adopting new mission statements and success metrics, and critically examining internal and external communications. Once internal programs, administrative units, facilities management personnel, and governing boards are all working together toward collective goals, an anchor strategy can begin to transform the surrounding community.

Comprehensive

Eds and meds touch their surrounding communities in a multitude of ways—by employing local residents, occupying vast physical footprints, educating or healing community members, and producing waste, among other impacts. In addition to placemaking, a comprehensive anchor strategy must address the following intersections.

Personnel

Given that anchor institutions are often a city’s largest employer, hiring decisions and the provision of employee benefits can have a profound impact on the social and economic fabric of the community. By increasing the percentage of workers drawn from within its footprint, the institution can simultaneously lift the neighborhood economy, provide jobs to those who may be un- or under-employed, and create goodwill among its neighbors. Employer-assisted housing is another critical investment in both personnel and the surrounding neighborhood (Webber and Karlstrom 2009). When employees can live closer to the anchor institution, it’s a win-win, reducing housing and transportation costs for workers while lowering turnover and absenteeism for employers.

Procurement

The purchasing power of large anchor institutions can be vast, with annual outlays for goods and services in the hundreds of millions of dollars. Capturing even a portion of the procurement stream for local companies can have a significant impact on the local economy. For example, the University of Pennsylvania was able to inject $57 million into the West Philadelphia economy with only 9 percent of its annual purchasing (ICIC and CEOs for Cities 2002).

The benefits of local procurement are obvious, but redirecting that process and realizing the benefits is not a trivial undertaking. For example, the anchor may incur substantial indirect costs for community outreach as well as training to ensure reliable supplies of locally produced goods and services. In addition, the existence of reliable, cost-competitive local providers is not a given. Moreover, large institutions may have highly decentralized purchasing processes, and getting each department to adhere to new policies can take time and effort (ICIC and CEOs for Cities 2002). Again, trusted local intermediaries can help to facilitate the shift to local suppliers.

Policy

The relationship between anchor institutions and local or regional governing bodies is often complicated. As private institutions, anchors may feel that they do not need to answer to local government. Indeed, they may see local government as ineffective, inefficient, or obtrusive to executing their optimal business strategies. For their part, local and regional governments may view anchor institutions as free riders that consume public services and other public benefits while enjoying exemptions from property taxes—the main revenue source for local governments. To ease these tensions, some institutions have voluntarily provided “payments in lieu of taxes” (PILOTs) to compensate municipalities for this lost revenue (Kenyon and Langley 2010). But a successful anchor strategy will determine additional ways to promote mutually beneficial work that enhances the future of the institution while addressing local/regional policy issues. Wim Wiewel, president of Portland State University, has been especially clear on this point, citing his institution’s adoption of “Let Knowledge Serve the City” as its motto in the early 1990s. In his words, “We serve the metro area and we are proud of it.”

Planning

Someone has to coordinate these elements into a cohesive initiative. Large anchors have a great deal of in-house planning skill and regularly engage in long-term planning for their enterprises. When they decide to take on a strategy, anchors can utilize this skill to determine the best ways to engage with the community and local and regional stakeholders. In addition, working through the anchors’ strategic planning processes is a way to institutionalize the anchor strategy so that it outlasts the term of a president or CEO and becomes the normal way of doing business.

Understanding Anchor Institutions

A successful anchor strategy is neither created nor implemented in a vacuum. For any of the above activities to be part of a genuine anchor strategy, anchors must undertake them in strategic concert with other stakeholders in the area. For example, initiating an employer-assisted housing program or setting local purchasing goals can benefit employees or community residents, but these efforts are not part of a comprehensive anchor strategy unless they are connected to an overall, institution-wide approach to local engagement and interaction. To achieve this type of interaction, it is important to understand how anchor institutions work.

Large, nonprofit institutions such as eds and meds are fundamentally risk-averse and slow to change or take on new roles. Embarking on an anchor strategy thus entails a fundamental shift in the way anchor leaders think and how their organizations operate—something that may take time, involve important and difficult discussions or negotiations, and require strong leadership and incentives from both inside and outside the organization.

Universities and hospitals are anchor institutions not only because they are rooted in place and have a critical impact on the local economy, but also because they are big. With size come layers of bureaucracy, multiple players who need to participate in anchor work, and an inability to make quick, nimble moves.

Figure 1 depicts the typical structure of a university. At the top is the board of trustees, drawn from civic, industrial, and scientific leadership and generally composed of alumni or other school affiliates. Trustees interact with the campus intermittently and focus on managing the university’s reputational and financial risk. The president is typically an academic who may or may not have a background in management. Presidents concentrate on fundraising and managing the university’s reputation. Academics usually see universities as places for free thought, insulated from market and capital forces. They often view the administration with suspicion or skepticism. Administrators typically have accounting or management backgrounds and prioritize job security. These priorities and attitudes combine to create a culture that does not reward risk and punishes failure.

Hospitals have similarly large bureaucratic structures. The main decision-making bodies are generally the board and the CEO, both of which focus on minimizing institutional risk and handling finances responsibly and profitably. Administrators prioritize meeting the requirements of their positions and ensuring job security through institutional protection, while healthcare professionals such as doctors and nurses may focus on treating patients or conducting research while looking no farther than the borders of the hospital campus.

These cultures produce decisions that may seem logical for the institutions themselves, but they often do not align with community goals. For example, the university may build parking lots around the school, often at the edges of campus, to provide easy access for faculty, staff, and students. But doing so incentivizes employees and students to drive, curbing the chance that they will live in neighborhoods within walking distance and visit nearby shops. Parking lots also create an asphalt barrier that insulates the campus from the community. Similarly, the institution’s procurement policies may be based on getting the lowest price for the most predictable outcomes, meaning that they contract with large, often national vendors for their goods and services rather than with local providers. Finally, a university often locates open space, recreational facilities, and other amenities within its confines, allowing only limited interaction with community members. To change how these types of decisions are made, it is essential to alter the anchor leadership’s view of the institution in relation to its community and understand how to change ingrained habits and mindsets.

Promoting Community Engagement

There are a number of ways that local leaders, philanthropists, community groups, and other stakeholders can move an anchor institution toward a new role in the neighborhood.

Identify Champions

Leadership is often the key to a successful anchor strategy. The philosophy and approach of the chancellor, president, or CEO can determine whether an institution sees itself as an anchor, how it acts once it defines itself as such, and whether those actions are enduring. As Benjamin Kennedy of The Kresge Foundation advises, “Be opportunistic! Every single person at an institution doesn’t have to buy in—only the key people do. Your champions are the ones who will transform the institution and instill the anchor outlook.”

A strong leader committed to an anchor strategy can lay the foundation for meaningful community engagement and impact. The approach must be embedded within the senior administration and trickle down throughout the institution, so that staff members who are directly responsible for particular pieces of the strategy—such as human resources staff, procurement officers, and professors engaged in community research projects—understand their new priorities. This transition can be achieved in part through changing the reward structure and communicating strategically, by amending the vision statement, and regularly describing anchor work and accomplishments in internal messaging.

An anchor strategy has a greater chance of success if multiple parties actively echo support for it. Within the anchor institution, it can be immensely helpful to identify staff members who champion the idea of community engagement and work with local groups to devise mutually beneficial strategies. Outside the anchor, it is useful to recruit local leaders to push the institution to take on a new role. For example, local philanthropy in Cleveland and Detroit played a large part in coaxing institutions to come together to devise anchor strategies for their surrounding communities.

Explore Multi-Anchor Opportunities

If a neighborhood houses more than one anchor institution, multiple organizations can participate in the effort. This approach has proven highly successful in Cleveland, where hospitals, universities, and cultural organizations, along with local philanthropies, financial institutions, and the City of Cleveland, have joined together to implement the Greater University Circle Initiative.

Although a multi-anchor strategy adds complexity by increasing the number of people and organizations that must buy into the work, it can also magnify the initiative’s impact by bringing additional resources to the table and expanding the number of champions. Furthermore, the leaders of each anchor institution can encourage and reinforce each other’s work, while distributing perceived risk.

Identify Self-Interest

At a basic level, a hospital or university may undertake an anchor strategy because its leaders believe that improvements to the surrounding community would benefit the institution. For example, Dr. Wallace D. Loh, president of the University of Maryland, College Park, has focused on improving quality of life in the neighborhood because he was concerned that local conditions detracted from the university’s ability to attract and retain faculty and staff.

Anchor strategies have other, more indirect benefits. While a university or hospital may make unilateral decisions about what happens on its own land, it can also face issues that require support from outside forces, including local government and community residents. Creating strong and longstanding relationships with local leaders through anchor work can help the organization win support for future plans. By thinking holistically about their relationship with the surrounding community, anchor leaders are often encouraged to reconceptualize their basic goals of educating or healing. Dr. Lucy Kerman, vice provost, University and Community Partnerships at Drexel University, sums it up this way: “Anchor work must be aligned with the university’s self-interest, and be rooted in the appropriate role of the institution. We may not be directly creating affordable housing or running a school, but we are partners in a system that creates mixed-income opportunities and provides strong educational opportunity.”

Bring Resources to the Table

Of course, it may all come down to resources. Financial incentives encourage institutions and their partners to take on anchor work, strategize about their role in the community, meet regularly with stakeholders, and invest in anchor activities. For their part, local stakeholders may see the opportunity to engage the anchor institution but lack the ability or tools to get involved without new funding.

In Detroit, for example, the anchors came to the table for many reasons, but one key factor was the financial resources offered by the two partners that brought them together: the Hudson-Webber and Kresge Foundations. Their capital kick started the conversation and continues to undergird the work today. By offering matching money for specific tactics, the foundations incentivized the anchors to commit their own funds. Today, the anchors not only support specific initiatives but also provide operating resources to Midtown Detroit Inc., the neighborhood planning and development organization that supports and staffs much of the anchor work. In this way, philanthropic resources seeded the initiative while helping to create the infrastructure necessary for its successful implementation and sustainability.

Connecting Strategy to the Community

At first glance, community needs and goals—good schools, safe streets, amenities and services, job opportunities, public spaces, and housing—do not correlate directly with an anchor’s outputs. Indeed, if an institution generates successful graduates, high-quality health care, and top-notch research, it concludes that it has done its job as both a local and a global citizen.

But by aligning community goals with an institution’s inputs—faculty, staff, patients, students, visitors, real estate, goods and services—anchor strategies can connect the institution’s mission to community aspirations. Hiring local residents for institutional jobs enhances an anchor’s economic impact within the community, aiding local households as well as the overall area. When institution staff members shop, live, and dine in the neighborhood, it stimulates the local economy. Using the framework of the five Ps, anchor/community engagement can advance community aspirations from goals to outcomes.

• Placemaking. Both the community and institution can benefit from thoughtful implementation of an institution’s real estate programming, which can promote an open campus with active edges and limit uses such as parking or storage. Improving the condition of blocks surrounding the university or hospital, opening up access to public spaces, and focusing on issues such as street lighting or storefront improvements all make for a safer and healthier environment for residents, prospective students and patients. The inputs that could play a role in this process are faculty, staff, students, patients, visitors, and real estate. The community goals that can be affected include safe streets, amenities and services, job opportunities, public spaces, and housing variety.
• Personnel. By hiring locally, an anchor strategy provides job opportunities for area residents. As the employment rate rises, the community will become safer, benefiting both residents and the anchor institution. The main input in this case is staff.
• Procurement. The anchor institution can bolster the local economy by contracting with local vendors, creating job opportunities, safer streets, and more amenities and services. The anchor can also generate positive public relations regarding its local outreach. Again, staff is the main input.
• Policy. By directing its research and teaching prowess toward local issues, the anchor can help to meet community aspirations for good schools, improved public safety, job opportunities, and health care, thus bolstering its own reputation in the region. To accomplish this, the anchor can tap staff, faculty, students, and visitors for activities such as service learning, health care outreach, and experiential teaching.
• Planning. Crafting all of these efforts into a cohesive mission requires that leaders of anchor institutions link each input with community aspirations. An anchor can also provide planning talent to help build concurrence between its own plans and the plans of the neighborhood or municipality. The lead input in this case is staff, with anchor employees working together to identify how various strategies align with community goals in order to create win-win propositions.

Conclusion

A place-based, institutionally embedded, and comprehensive anchor strategy can have significant impacts on a local and regional economy. But building and implementing such a focused strategy takes a great deal of time and patience. Putting all the elements together—getting the partners involved, convincing them of their self-interest in undertaking anchor work, identifying strong leaders and using them to change the ethos of their institutions, identifying intermediaries and ensuring they have the capacity to play their roles, lining up financial incentives—requires the commitment and coordination of many moving parts.

In many cases, the anchor work is based on trust, often among groups that have not worked together in the past. Building these relationships involves in-person contact and the development of strong alliances. Furthermore, this effort must occur within the context of working with large anchor institutions. Those who wish to work with anchors to change the way they do business must understand how and why institutions act the way they do, and how they make decisions. When all these components come together, anchor strategies can transform the community, the region, and the anchor itself.

About the Authors

Beth Dever is an independent consultant working for the Ford Foundation. Omar Blaik is CEO and George Smith is vice president of U3 Advisors. George W. McCarthy is president and CEO of the Lincoln Institute of Land Policy.

References

Brophy, P., and R. Godsil. 2009. “Retooling HUD for a Catalytic Government: A Report to Secretary Shaun Donovan.” Philadelphia: Penn Institute for Urban Research.

Initiative for a Competitive Inner City (ICIC) and CEOs for Cities. 2002. “Leveraging Colleges and Universities for Urban Economic Revitalization: An Action Agenda.” Boston: ICIC and CEOs for Cities.

Kenyon, Daphne A., and Adam H. Langley. 2010. Payments in Lieu of Taxes: Balancing Municipal and Nonprofit Interests. Cambridge: Lincoln Institute of Land Policy.

Webber, H., and Mikael Karlström. 2009. “Why Community Investment is Good for Nonprofit Anchor Institutions: Understanding Costs, Benefits, and the Range of Strategic Options.” Chicago: Chapin Hall at the University of Chicago.

Welch, Sherri. 2014. “Midtown Detroit Expands Boundaries for Housing Incentives.” Crain’s Detroit Business. April 28.

Despite the growing popularity of urban agriculture, many city farms continue to face the challenge of insecure land tenure and overly restrictive public policies. Some researchers and policy makers have identified the need for an updated framework for the movement that would support urban farmers as they navigate land use, zoning, and property tax regulations. Community land trusts (CLTs) are contributing to this structure, providing a locally controlled approach to land use that fosters community activism and engagement while responding to evolving market conditions and neighborhood needs.

The State of Urban Agriculture

“Urban agriculture” refers to both commercial and noncommercial activities, within or near a city center, that produce food and non-food items to serve an urban area (Mougeot 2000). While city farms and community gardens are often the public face of urban agriculture, small-scale backyard growing spaces and edible landscapes also yield a significant portion of production.

Urban agriculture has afforded communities diverse environmental, economic, and social benefits, including improved nutrition, heightened food security, ecological restoration, the creation of open spaces, and opportunities for education and job skills training (Bellows, Brown, and Smit 2004; Kaufman and Bailkey 2000; Smit, Ratta, and Nasr 1996). City farming also has the unique ability to bring together diverse populations, build social capital, and promote empowerment through community building (Staeheli et al. 2002). In legacy cities—older industrial centers that have suffered from sustained job and population losses and ensuing financial, social, and political changes—urban agriculture has been extensively used as both an interim and a permanent development tool to strengthen social cohesion and catalyze progress in disinvested neighborhoods. The process of repurposing vacant and abandoned lots into growing spaces can be a relatively quick and inexpensive strategy that yields highly visible impacts and improves public safety.

Given these wide-ranging benefits, urban agriculture has enjoyed a renaissance as a social movement. In recent years, some cities and local governments have updated public policies to make them more supportive of urban agricultural practices. The movement is not without its challenges, however, including environmental safety concerns and insecure land tenure (Brown et al. 2002). Land insecurity in particular is frequently cited as the greatest barrier to the implementation and sustainability of city farming (Lawson 2004; Yuen 2012). A 1998 national survey of more than 6,000 urban agriculture sites found that 99.9 percent of gardeners saw land tenure as both a challenge and a vital element to the future success of the movement (ACGA 1998).

In these instances, land insecurity occurs when the cost of market-rate land exceeds the income generated from agricultural activities. Ultimately, the hidden hand of the market presses for the allocation of land according to its highest and best use. Due to this dominant conceptualization, planners and policy makers have historically viewed urban agriculture as an interim measure to keep a site active until higher and better uses can be developed. Scholars note, however, that urban agriculture sites can produce many positive spillover effects related to public health and community wellness, and these benefits are difficult to monetize (Schmelzkopf 1995). Traditional exchange valuations of land rarely reflect a community garden’s contributions to healthy food education and the physical wellness of residents. This disconnect between social worth and market values has been the impetus for both public and private interventions.

Local governments typically respond by purchasing tracts of urban agricultural land, effectively insulating them from speculative market forces while also holding them off the tax rolls. While this public sector approach has been critical, it sometimes fails to provide long-term security, especially when administrative changes in local governments lead to shifts in priorities and strategies, as when New York Mayor Rudy Giuliani proposed to auction off 850 community gardens across the city in 1999. Therefore, researchers have focused on the need for alternative strategies that can complement public sector efforts to support the security of land for urban agriculture.

CLTs as a Framework for Urban Agriculture

A CLT is a nonprofit, community-based corporation with a place-based membership, a democratically elected board, and a charitable commitment to the use and stewardship of land on behalf of the local population. CLTs typically retain permanent ownership of land and lease it to individuals or organizations that own the improvements upon the land, such as residences, commercial buildings, and agricultural or recreational facilities. The CLT model offers a way to retain ownership of land stewarded by and for the community, so that the highest or best use of property can remain community-defined, community-controlled, and adaptable to changing conditions.

Although CLTs have focused on the development and stewardship of affordable housing in recent decades, the movement originated in response to agricultural land issues in rural Georgia during the 1960s. Even earlier agricultural influences included the kibbutzim in Israel, the Gramdan villages in India, and the Garden Cities of Ebenezer Howard (Davis 2010). The strength of the CLT model lies in its ability to balance local land control and long-term, stewarded development that addresses changing community needs. Thus, CLTs are well positioned to tackle a diversity of land uses through comprehensive development strategies. Legacy cities may be especially ripe for CLT engagement, as the widespread availability of vacant land has spawned a flourishing urban agriculture movement, but with less emphasis on long-term land security.

Our research found that CLTs have supported urban agriculture projects in three distinct ways: by securing access to agricultural land, providing programmatic support, and engaging directly in food production.

Box 1: 2012 Survey of U.S. CLTs

In the fall of 2012, the National Community Land Trust Network (NCLTN), in partnership with the Lincoln Institute of Land Policy, commissioned a study of urban agricultural and commercial projects conducted by U.S. CLTs (Rosenberg and Yuen 2012). The inquiry examined the role of CLTs in implementing nonresidential projects and assessed the benefits and challenges of such ventures. Researchers distributed a web-based survey to the 224 organizations in the NCLTN database; 56 CLTs (25 percent) completed the questionnaire, and 37 CLTs reported agriculture activities. Twelve CLTs were selected for in-depth data collection, which captured a diversity of projects with varying levels of success in different locations. A case study approach was used for data collection, which included gathering organizational documents and secondary sources as well as interviewing CLT staff. The final working paper is supported by an additional project directory resource that highlights the projects and organizations in the study (Yuen and Rosenberg 2012).

This article draws on that research to examine the benefits, challenges, and considerations for urban agriculture activities by CLTs. It also explores how such interventions can support comprehensive community development efforts, particularly in legacy cities.

Securing Access to Agricultural Land

The core competencies of CLTs best lend themselves to the task of securing growing space. A central mission of CLTs is to secure land for community development opportunities. To carry out this role, CLTs have utilized diverse tenure arrangements, including fee-simple ownership, ground leases, easements, and deed restrictions (table 1). These arrangements are not mutually exclusive; organizations can employ multiple techniques to secure land both within and across agricultural projects.

Fee-Simple Ownership

Fee-simple ownership allows a CLT to hold the greatest number of sticks in the bundle of ownership rights and provides a high level of land security, as long as it meets all mortgage payments and tax obligations. For example, Dudley Neighbors Incorporated (DNI), a CLT in Roxbury, Massachusetts, redeveloped the contaminated site of a former auto garage into the 10,000-square-foot Dudley Greenhouse, which functions both as a commercial farm and a community growing space. DNI secured the land through fee-simple ownership and leases the greenhouse structure at a nominal charge to a food-based nonprofit that handles all agricultural programming and maintenance. Harry Smith, Director of Sustainability and Economic Development at DNI, notes, “Growing food is a whole different thing, and we are not looking to take that role.”

Ground Leases

While fee-simple ownership is an uncomplicated, highly secure tool, it is often prohibitively expensive for CLTs to purchase urban land outright for food production. Given this challenge, some CLTs have utilized ground leases to secure growing land. The Southside CLT (SCLT), for instance, has a 10-year ground lease with the State of Rhode Island on a 20-acre farm in Cranston. In turn, the Southside CLT manages the farm as the master tenant and subleases plots to seven start-up farmers at nominal rates. The affordability and security of the ground lease creates opportunities for young farmers to incubate new businesses and participate in the local food system. A strong ground lease, with rigorous standards for performance and conditions for renewal, can provide comparable or greater security than fee-simple ownership. However, longer-term ground leases can be challenging to draft and implement, especially when the title-holding entity desires long-term flexibility.

Conservation Easements

CLTs have also secured access to land through conservation easements, or voluntary restrictions that permanently limit the uses of the land. Most commonly, the CLT holds an easement donated by a private owner. The private owner retains title and can even sell the grounds to another party without compromising land security, as the conservation easement ensures long-term access to the agricultural space. Easements can also reduce the management burden on the titleholder, as the recipient of the easement often provides land stewardship services as part of the exchange. This strategy can financially benefit titleholders, who receive local and federal tax benefits for donating conservation easements. While easements can effectively sustain access to growing space, the relatively high legal cost may be expensive, especially for smaller tracts.

Deed Restrictions

Deed restrictions can effectively place limitations on the uses of land and are often tied to specific funding sources. While a deed restriction can ensure that land is reserved for a specific use, it does not necessarily offer secure tenure for a specific grower or farmer. Further, deed restrictions are effective only when all parties and external agents choose to enforce the contract. Each tenure arrangement has relative strengths and weaknesses and is best utilized when tailored to a project-specific context. In Wisconsin, for instance, the Madison Area CLT was required to grant a deed restriction to the City of Madison as a condition for funding the Troy Gardens mixed-use development site. A deed restriction was placed over a portion of the site, limiting uses to agricultural and conservation projects. The CLT’s failure to abide by the terms of the deed restriction, however, would trigger immediate repayment of all subsidy funds provided by the city.

Programmatic Support

As the task of securing agricultural land can be very challenging, it may not be a suitable undertaking for every organization or community. Some CLTs have supported urban agricultural efforts through other means, such as program management, technical assistance, and other agricultural services. In Georgia, for example, the Athens Land Trust is a dual-mission housing and open space land trust that has engaged in urban agriculture exclusively through program assistance. Athens Land Trust chose to take on this role because of the high holding costs associated with property taxation policies in Georgia, which assesses CLT land at the unrestricted market value. The Athens Land Trust partners with public- and private-sector landowners to provide support for local agricultural projects. For instance, the Athens Land Trust staff worked with the Hill Chapel Baptist Church congregation to design a community garden on church-owned land and provided support services, such as testing and tilling of the soil, organizing workdays, and providing plant materials and instructional gardening workshops.

Agricultural Production

Finally, some CLTs have participated in agricultural production, directly and actively farming land. For example, the Southside CLT operates a three-quarter-acre commercial farm in Providence, Rhode Island, growing greens and selling produce directly to local restaurants. Many CLTs support agricultural production indirectly as well, by providing residential properties where the residents themselves grow food in backyard gardens. Hence, many CLTs have unknowingly supported urban agriculture for years, simply by offering affordable and secure access to tillable land in cities. Some groups, such as DNI, specifically design larger home ownership lots to enable opportunities for backyard urban gardening. Harry Smith of DNI explained, “As we did our community planning, people were very clear that they wanted to see open spaces and attention paid to the residents’ quality of life. We are trying to build [agriculture] into the housing itself.” In this way, the scope of CLT agricultural production can also include innovative design features, such as edible landscapes, food forests, and other permaculture concepts that are intentionally and systematically incorporated into a development plan.

Benefits of CLT-Supported Urban Agriculture

Ultimately, the study found mutual benefits between urban agriculture and CLTs. City farms enhance the value of CLTs by helping organizations expand their development vision to include a more comprehensive set of neighborhood needs and priorities. All communities have a variety of needs beyond affordable housing, and agricultural projects can create linkages to other key issues, including food security, health education, vacant land remediation, and neighborhood safety. Agricultural projects can even be seen as neighborhood amenities, potentially increasing demand for nearby CLT properties or residences in the conventional market. For example, the Church Community Housing Corporation (CCHC) developed the Sandywoods Farm project in Tiverton, Rhode Island, to include a mix of residential, agricultural, and arts-related programming. The CCHC initially marketed the development solely as an arts community, but prospective residents expressed strong interest in the community garden and in farmland preservation. Consequently, CCHC rebranded the project as an “art and agriculture” development. Brigid Ryan, senior project manager of CCHC, explained, “The agriculture has taken off much more than we ever thought it would. The garden is actually drawing some people [to the rental housing units]. They never thought their kids would be able to grow their own food.”

Beneficial connections between agriculture and housing were also present at DNI’s Dudley Greenhouse. Harry Smith of DNI notes, “The project certainly helps the marketability of our homes. People are not just getting a house, they are getting a community, and it’s based on fresh, locally grown food.”

Challenges for CLT-Supported Urban Agriculture

Despite the benefits, CLTs implementing agricultural projects still face many challenges. In particular, financial profitability continues to be a major struggle across the entire urban agriculture sector, as revenues generated from produce sales are relatively modest, even in commercial operations. The Southside CLT covers only 8 percent of its operating expenses through commercial produce sales to local restaurants. Additional revenue sources, such as membership fees and seedling sales, bring the CLT’s earned income to only 20 percent of its expenses. CLTs continue to rely heavily on grant funding to make up the difference.

A second potential challenge is that some projects require a high level of agricultural knowledge and may test the capacity and experience of CLT staff. Even Athens Land Trust, which has staff experienced in agricultural land preservation and growing techniques, acknowledged the initial difficulties in learning the nuances of local zoning codes related to commercial agriculture. As a result, some of the CLT’s pipeline projects were delayed until workable zoning solutions could be found. The risk is compounded for commercial agricultural projects that require significant understanding of processing and distribution systems and local market conditions. At Sandywoods Farm, for example, the CCHC initially planned to use preserved farmland for livestock and cattle grazing, only to discover that the sole Rhode Island butchering facility had closed. The nearest facility was across the state line in Massachusetts, making it prohibitively expensive to process meat. Brigid Ryan, senior project manager at CCHC, noted, “When you end up having to learn these specialty niches, it becomes so important to find partners who know what they are talking about.” Given the challenges and potential pitfalls, CLTs need to consider the following issues to improve the feasibility and sustainability of agricultural projects.

Community Engagement

As community-based organizations, CLTs should always be driven by neighborhood needs and concerns. However, strong community planning processes are particularly vital to the success of urban agriculture, where CLTs often rely on local residents and partners to carry out agricultural production. Harry Smith of DNI emphasizes this point: “I would say the work of a CLT is not just to manage the properties and get more land into the trust, but to really engage the community in what they want besides housing—whether that’s commercial operations, or a greenhouse, or agricultural land.” Further, CLT engagement around agricultural projects can catalyze broader community organizing efforts and help residents push for more supportive public policies.

Organizational Assessment

CLTs can support nonresidential projects in a variety of ways, and organizations should systematically assess internal capacities as well as local stakeholders who could serve as potential partners on projects. In this way, CLTs can develop complementary collaborations and build on existing assets and capacities in the community. A CLT that lacks growing experience can support urban agriculture in alternate ways to better align with local partners, by securing land, helping to develop urban agriculture zoning codes, or serving as a fiscal agent for grant funding.

Managing Risk

CLTs should minimize their financial risk in agricultural projects, especially given the modest revenues and future uncertainties associated with food-related grant funding. In response, some CLTs have front-loaded anticipated capital expenses owing to agriculture projects. Similarly, CLTs can manage risk exposure by avoiding debt financing on agricultural projects. Several CLTs have found debt service to be extremely challenging, given the modest revenues from produce sales and the nominal lease fees that CLTs typically charge for agricultural land. For instance, DNI was able to acquire land and construct the Dudley Greenhouse without incurring long-term debt, while its local property tax–exempt status allowed for minimal holding costs. The resulting low-risk financial structure became critically important when DNI was unable to secure its initial greenhouse tenant. Even though the greenhouse was subsequently vacant for nearly five years, DNI was well positioned to absorb the unexpected vacancy loss.

Conclusion

While the urban agriculture movement has gained much momentum in recent years, it still needs coherent, long-term strategies to protect growing spaces against speculative market forces. The fundamental relationship between land and community is at stake. Within the urban agriculture movement, land insecurity highlights the pressing need for a reconceptualization of land as a finite, shared resource that should be held in stewardship to meet the requirements of present and future communities. Further, the notion of the highest and best use needs to be expanded to include nonfinancial outcomes and avenues for substantive community engagement. CLTs are ideally suited to tackle these critical issues and, in doing so, can help community development processes become more inclusive, equitable, and responsive to changing local conditions.

About the Author

Jeffrey Yuen, M.S., is a CLT researcher, practitioner, and enthusiast who serves on the board of the Essex Community Land Trust. He works as the Impact Assessment Manager at New Jersey Community Capital, in New Brunswick, New Jersey.

Resources

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Brown, K., M. Bailkey, A. Meares-Cohen, J. Nasr, and P. Mann (eds.). 2002. “Urban Agriculture and Community Food Security in the United States: Farming from the City Center to the Urban Fringe.” Urban Agriculture Committee of the Community Food Security Coalition.

Davis, J. E. 2010. “Origins and Evolution of the Community Land Trust in the United States.” In The Community Land Trust Reader, edited by J. E. Davis, 3–47. Cambridge, MA: Lincoln Institute of Land Policy.

Kaufman, J., and M. Bailkey. 2000. “Farming Inside Cities: Entrepreneurial Urban Agriculture in the United States.” Working paper. Cambridge, MA: Lincoln Institute of Land Policy.

Lawson, L. 2004. “The Planner in the Garden: A Historical View of the Relationship of Planning to Community Garden Programs.” Journal of Planning History 3(2): 151–176.

Mougeot, L. 2000. “Urban Agriculture: Definition, Presence, Potentials and Risks.” In Growing Cities, Growing Food, Urban Agriculture on the Policy Agenda, edited by N. Bakker, M. Dubbeling, S. Guendel, U. Sabel Koschella, and H. de Zeeuw. DSE, Feldafing.

Rosenberg, G., and J. Yuen. 2012. “Beyond Housing: Urban Agriculture and Commercial Development by Community Land Trusts.” Working paper. Cambridge, MA: Lincoln Institute of Land Policy.

Schmelzkopf, K. 1995. “Urban Community Gardens as Contested Space.” Geographical Review 85(3): 364–381.

Smit, J., A. Ratta, and J. Nasr. 1996. Urban Agriculture: Food, Jobs and Sustainable Cities. New York: United Nations Development Programme. http://jacsmit.com/book.html

Staeheli, L., D. Mitchell, and K. Gibson. 2002. “Conflicting Rights to the City in New York’s Community Gardens.” Geojournal 58(2–3): 197–205.

Yuen, J. 2012. “Hybrid Vigor: An Analysis of Land Tenure Arrangements in Addressing Land Security for Urban Community Gardens.” Masters’ Thesis, Columbia University. http://academiccommons.columbia.edu/catalog/ac:147036

Yuen, J., and G. Rosenberg. 2012. National Community Land Trust Network. Non-Residential Project Directory. National Community Land Trust Network http://www.cltnetwork.org/doc_library/FINAL%20Non-residential%20project%20directory%204-26-13.pdf

The Great Recession of 2007–2009 and the sluggish recovery since then have produced extraordinarily large state budget gaps. Even as the fiscal condition of most state governments is slowly improving, many central cities have only recently begun to feel the full impacts of the economic slowdown and the disruptions to the housing market.

A number of indicators have been flashing signs of local government fiscal distress. From its peak in 2008 through May 2012, local government employment has fallen by 528,000, or 3.6 percent (U.S. Bureau of Labor Statistics 2012). The media has also been reporting large cuts in public services in some cities. Newark, New Jersey, has been forced to make substantial cuts in municipal employment, as well as imposing significant increases in taxes and fees. Stockton, California, is reportedly on the verge of bankruptcy. A number of counties in New York State are either in or close to fiscal receivership, and the school district of Providence, Rhode Island, which comprises half the city’s total budget, is facing a nearly $40 million shortfall for the coming academic year.

The most recent comprehensive data on central city finances are from the U.S. Census Bureau for the year 2009. In the absence of more recent data, we have developed a forecasting model of the revenues of the nation’s largest central cities, based on a specially constructed multiyear database. We focus on large cities not only for their sheer size, but also because they are crucial to the economic success of their surrounding regions.

The prosperity of cities depends on effective public services, provided at competitive tax rates. The deep recession, reinforced by the decline in housing prices and extensive housing foreclosures, has put pressure on local tax revenues and local public services. Deep cuts in state aid to many local governments have only added to the fiscal pain. Given the ongoing sluggishness of the U.S. economy, the prospects for a robust recovery in revenues over the next few years are highly uncertain.

The Difficulty of Comparing City Revenues

The U.S. Census Bureau provides the only comprehensive source of fiscal data for cities. Information is collected separately for each type of governmental unit–general-purpose municipal governments, which include cities and towns; independent school districts; county governments; and special districts. Because the delivery of public services is organized in very different ways in different cities, direct comparisons of revenues across cities by source can be highly misleading.

While some municipal governments are responsible for financing a full array of public services for their residents, others share this responsibility with a variety of overlying governments. For example, Boston, Baltimore, and Nashville have neither independent school districts nor county governments serving local residents. Each of those municipal governments is responsible for providing core municipal services, plus education, public health, and other social services. By contrast, municipal governments in El Paso, Las Vegas, Miami, and Wichita collect only about one-quarter of the revenues that finance the delivery of public services within their boundaries. The remaining three-quarters are the responsibility of one or more independent governments serving city residents, and in some cases people who live beyond the city boundaries as well.

To illustrate the difficulty in making revenue comparisons, census data indicate that in 2009, the City of Tucson, Arizona, which relies heavily on a local sales tax, collected only 14 percent of its total tax revenue from the property tax, while Buffalo, New York, collected 88 percent of its tax revenue from the property tax. However, when we take account of the revenues paid by city residents to their overlying school districts and county governments, the situation is reversed. Property taxes accounted for 68 percent of the total local tax revenue paid by Tucson residents, but only 50 percent of tax revenue paid by the residents of Buffalo. In the latter case, the county government relies heavily on sales tax revenue.

Our approach to dealing with the variation in the organizational structure of local governments across the country is to account for all local government revenues received by governmental entities that provide services to city residents and businesses. The basic idea is to include all revenues collected by a central city municipal government and by that portion of independent school districts and county governments that overlay municipal boundaries. We refer to the result of this calculation as a “constructed city” government.

To create constructed cities we take the following steps. For cities with independent school districts that are coterminous to city boundaries, we combine the school district and municipal values of all revenue variables. For school districts that cover a geographical area larger than the city, and for cities served by multiple school districts, we use data on the spatial distribution of enrollments to allocate a pro-rata share of total school revenues to the constructed city. For each school district serving a portion of the central city, we draw on geographical information system (GIS) analysis of census block group level data from the 1980-2000 decennial censuses to determine the number of students in each school district that live in the central city.

For counties, we allocate the portion of revenues associated with city residents on the basis of the city’s share of county population. Because geographic boundaries are not readily available, and fiscal data is intermittent, our calculations do not take account of special districts. For the country as a whole, special districts are relatively unimportant, and failing to include them should do little to distort fiscal comparisons among central cities.

Constructed city revenues are calculated for the nation’s largest central cities for the years 1988 through 2009. The source for the data is the quinquennial Census of Governments, and, for noncensus years, the Annual Survey of State and Local Government Finances. The sample includes all cities with 2007 populations over 200,000, except those with 1980 populations below 100,000, and all cities with 1980 populations over 150,000 even if their 2007 population was below 200,000. In 2009, the population of the 109 central cities in our sample was 58.9 million, equaling 60.3 percent of the population of all principal cities within U.S. metropolitan statistical areas.

While prior studies have recognized the importance of overlying jurisdictions, they have been less systematic in taking account of the variations in governmental structure. Carroll (2009) ignores overlying jurisdictions, while Inman (1979) and Sjoquist, Walker, and Wallace (2005) use dummy variables as a partial adjustment. Ladd and Yinger (1989) focus on the revenue capacity of municipal governments by adjusting for the capacity “used up” by overlying governments.

Constructed City Revenues

Figure 1 displays the average share of total general revenues that came from each revenue source in the 109 constructed cities in 2009. The most important sources are state aid (34 percent) and property taxes (27 percent). User fees and charges contributed 16 percent, while taxes other than the property tax contributed 13 percent.

Sources of revenue vary enormously among constructed cities. For example, 60 percent or more of general revenue came from state and federal aid in Springfield (Massachusetts), Fresno, and Rochester, while aid contributed less than 20 percent of revenues in Atlanta, Dallas, and Seattle. The reliance on the property tax also varies across cities, with over 90 percent of tax revenue coming from the property tax in Providence, Boston, and Milwaukee, but less than 30 percent in Philadelphia, Birmingham, and Mobile.

Because the importance of counties and independent school districts varies enormously, revenue comparisons that rely only on data from municipal governments are highly misleading. For example, in 2009 per capita general revenue of the city government of Pittsburgh was $1,958, while the per capita revenue for Baltimore was $5,306. However, per capita revenues in the two constructed cities were nearly identical. This pattern is not atypical among cities.

Comparing per capita revenues across central city municipal governments overstates the differences across cities because it forces us to compare city governments that have very different sets of public service responsibilities. Utilizing the concept of constructed cities provides the basis for more accurate intercity comparisons, and allows us to generate comprehensive revenue forecasts for the cities in our sample.

Forecasting Revenues for Constructed Cities

To forecast general revenues for 109 constructed cities for the four years from 2010 to 2013, we sum projections for five separate revenue streams: property taxes; nonproperty tax revenues; nontax own-source revenues; state aid; and federal aid (Chernick, Langley, and Reschovsky 2012). We use econometric models fitted with actual and projected metropolitan area–level data to forecast the three sources of own-raised revenue. We then make a range of projections about intergovernmental revenues based on information from surveys and published revenue estimates.

Property Tax Revenues

Predicting the exact relationship between changes in tax revenues and changes in the size of the tax base is particularly difficult in the case of the property tax. Property tax rates are adjusted much more frequently than sales or income tax rates to reflect changes in assessed values and revenue needs. Predicting the revenue impact is further complicated by the existence in some states of legislatively or constitutionally imposed limits on tax rates, changes in tax levies, or changes in assessed values. Major changes in the fiscal relationships between state and local governments, such as school funding reforms, are often motivated by the goal of reducing reliance on the property tax.

Although property taxes are generally levied on all real property, comprehensive data on property values over time and across states do not exist. Thus, researchers have had to focus on changes in housing prices. Data collected on the Lincoln Institute’s website, Significant Features of the Property Tax (2012), indicate that in the large majority of states where data are available residential property accounts for well over half of total property value.

Figure 2 demonstrates the relationship since 1988 between housing prices in the United States and per capita local government property tax revenues. Inflation-adjusted housing prices rose steadily from 1998 until 2006, but by 2011 they had fallen by 25 percent. Per capita property tax revenues followed a similar pattern, with sharp growth beginning in 2001 and continuing until 2009, three years after housing prices peaked.

The lag between changes in housing prices and changes in property tax revenues occurs because changes in assessed values, on which property taxes are levied, typically lag behind changes in market values. The lag may be as little as a year, in cities with annual reassessments, or longer in cities that reassess less frequently or have explicit policies to phase in changes in market value.

The housing price indices for our 109 constructed cities indicate very different patterns of boom and bust in different parts of the country. Willingness of city residents to support increases in property taxes may reflect both changes in the value of their homes and changes in their income. Furthermore, as property tax rates are often adjusted in response to changes in other revenue sources, changes in state aid are likely to affect changes in property tax rates and revenues. To capture these various factors, we estimated a statistical relationship between annual changes in per capita property tax revenues and lagged changes in housing prices, metropolitan area personal incomes, and per capita state aid. Data on property tax revenues are for the years 1988 through 2009. Our statistical model also accounts for city-specific factors that remain constant over time.

The results of our analysis indicate a statistically significant relationship between changes in property tax revenues and changes in housing prices, lagged three years. Our results also indicate that changes in personal income two years ago lead to current year changes in property taxes revenues. This suggests that the impact of the decline in housing prices from 2006 to 2012 and reductions in personal income during the recession will exert negative pressure on property tax revenues from 2009 until at least 2015. Changes in state aid were found to be statistically insignificant.

We estimate that, on average, a 10 percent change in housing prices in our constructed cities results in a 2.5 percent change in tax revenues. This implies that the average city will offset about three-quarters of the revenue effect of falling market values by raising effective tax rates.

To forecast changes in per capita property tax revenues, our coefficient estimates are combined with actual and projected values of metropolitan housing prices, personal income, and state aid, which are then added to actual 2009 property tax revenues to calculate annual per capita revenue for each year between 2010 and 2013. Adjusting for inflation we find that per capita property tax revenue in the average constructed city will decline by $40 or 3.1 percent over the period from 2009 through 2013. Predicted changes range from increases of about 14 percent in the Texas cities of Lubbock and San Antonio to declines of 20 percent in some cities in California, Arizona, and Michigan, where the bursting of the housing bubble was most severe.

Other Locally Raised Revenues

As demonstrated in figure 1, revenue raised from local sources other than the property tax in the average constructed city accounts for a little over one-third of total revenues. These revenues come from local government sales taxes, income taxes, user charges, fees, licenses, and other miscellaneous sources. The importance of these revenue sources varies tremendously across cities, ranging from 6 percent of general revenues in Springfield (Massachusetts) to 60 percent in Colorado Springs.

As we did in forecasting property tax revenues, we started by estimating the statistical relationship between annual changes in revenues and changes in metropolitan area personal income, lagged one year. We estimate separate equations for tax revenue from taxes other than the property tax and for local-source revenue from nontax sources. Using the coefficients from our estimated equations and actual and forecast data on metropolitan area per capita personal income, we forecast a $20 per capita (2.1 percent) increase in tax revenue from sources other than the property tax and a $29 (1.2 percent) increase in nontax locally raised revenues over the four-year period between 2009 and 2013.

State Aid to Cities

Over the past few years, most state governments have faced large budget shortfalls. Budget adjustments have occurred mainly on the spending side, and in many states there have been large reductions in state aid to local governments. To forecast reductions in state aid through 2013, we draw on a survey of changes in state education aid between 2008 and 2012 by the Center on Budget and Policy Priorities (Oliff and Leachman 2011). We assume that the reported percentage change in each state’s education aid applies to the school districts in every constructed city in that state, and that the same percentage change in aid applies to noneducation aid as well.

Given the uncertainty over future legislative actions, we make three alternative predictions. The base case assumes that state aid stays constant in real terms from 2012 to 2013. Our best case assumption is that state aid increases in each city by 3 percent in that period, while our worst case is that state aid changes by the same amount in real terms as in 2011–2012, i.e., an average reduction of about 6 percent. Under our base case, per capita state aid is forecast to decline by $153 (9.5 percent) between 2009 and 2013.

Federal Aid to Cities

Cites receive federal grants through a myriad of different programs. In the past few years, fiscal pressure at the federal level has led to a number of proposals to sharply reduce such spending. President Obama’s FY2013 budget calls for large cuts in a wide range of programs that provide revenue to cities. Based on alternative assumptions about Congressional actions, we take as a base case assumption a 15 percent reduction in federal aid between 2009 and 2013, a worst case of a 37.7 percent reduction in federal grants between 2009 and 2013 (the current budget proposal), and a best case of a 9.5 percent cut.

Total General Revenues

General revenues are defined as the sum of the five sources of revenues discussed above. Adding up the forecasts, we predict that on average inflation-adjusted per capita general revenues will decline between 2009 and 2013 by 3.5 percent ($169). Though the variation in revenue forecasts across the nation is substantial, nearly three-quarters of central cities face some level of reductions (figure 3). The largest projected revenue declines are in California and Arizona, where 11 cities have declines of greater than 10 percent. There is no particular regional pattern to the cities where we forecast growth in revenues. For example, per capita revenue growth in excess of 3 percent is predicted for such diverse cities as Atlanta, Cincinnati, and Lubbock.

Figure 4 groups constructed cities by their census division. Above-average revenue declines are forecast in the Pacific, Mountain, and South Atlantic divisions. Revenues are declining in the central cities in these regions because they are facing a combination of reduced property tax revenues and sharp reductions in state aid. By contrast, in the East and West South Central divisions, real general revenues remain largely unchanged because declines in state aid are offset by increases in property taxes. The opposite is true in New England, where property tax reductions are offset by state aid increases.

Forecasting future levels of state and federal aid to central cities is extraordinarily difficult. Our approach is to choose a range of estimates for 2012–2013 changes in intergovernmental aid. From the cities’ perspective, our worst case calls for steep cuts in both state and federal aid, while our best case calls for smaller cuts in federal aid and modest increases in state aid. When combined with cities’ own sources of revenue, under the worst case scenario, real general revenues will decline by $295 per capita (6.1 percent) between 2009 and 2013. This decline is $126 per capita more than our base case forecast. Even under our best case, we forecast that on average general revenues will decline by $116 per capita or 2.4 percent over the four-year period.

Conclusions

These predicted reductions in revenue place many of the nation’s largest central cities in uncharted territory. While these revenue declines may appear modest, they contrast quite sharply with the resiliency of city revenues following the previous three recessions. For example, real per capita revenues grew by a robust 17 percent in our 109 constructed cities during the four years following the recession of 1981–1982. Given the severity of that recession, the current revenue declines highlight the unprecedented magnitude and duration of fiscal pressure on cities that has resulted from the housing market collapse and the Great Recession in 2007–2009.

Demographic and economic trends, such as the aging of the population and the persistence of high poverty rates, contribute to the rising costs of providing government services in central cities. In many cities legally binding pension and health care benefits for retirees constitute a large and growing component of total compensation. Facing both rising costs and reduced revenues, many central cities have no choice but to implement substantial cuts in locally provided public services. There is little question that these reductions, when combined with projected cuts in federal and state government programs that provide direct assistance to city residents, such as Food Stamps, Medicaid, and unemployment insurance, will cause substantial harm to central city economies.

While the governments serving central city residents must continue to search for ways to reduce costs without harming service quality and to explore potential new sources of revenue, it is also critically important that the federal government and state governments take an active partnership role in mitigating the adverse impact of the recession on the nation’s central cities.

About the Authors

Howard Chernick is professor of economics at Hunter College and the Graduate Center of the City University of New York. He specializes in the public finances of state and local governments, both in the U.S. and abroad.

Adam H. Langley is a research analyst in the Department of Valuation and Taxation at the Lincoln Institute of Land Policy, where he has coauthored papers on property tax incentives and relief programs, nonprofit payments in lieu of taxes, and state-local government fiscal relationships.

Andrew Reschovsky is a professor of public affairs and applied economics in the Robert M. La Follette School of Public Affairs of the University of Wisconsin-Madison and a visiting fellow at the Lincoln Institute of Land Policy. He conducts research on property taxation and other aspects of state and local public finance.

Note: This article is a condensed and updated version of the article published in Publius in 2012.

References

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Chernick, Howard, Adam Langley, and Andrew Reschovsky. 2012. Predicting the impact of the U.S. housing crisis and “Great Recession” on central city revenues. Publius: The Journal of Federalism 42(3).

Inman, Robert. 1979. Subsidies, regulation, and taxation of property in large U.S. cities. National Tax Journal. June.

Ladd, Helen F., and John Yinger. 1989. America’s ailing cities: Fiscal health and the design of urban policy. Baltimore: The Johns Hopkins University Press.

Oliff, Phil, and Michael Leachman, 2011. New school year brings steep cuts in state funding for schools. Washington, DC: Center on Budget and Policy Priorities (October 7).

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