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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.
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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.
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.
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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.
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.
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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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Bellows, A., K. Brown, and J. Smit. 2004. “Health Benefits of Urban Agriculture.” Community Food Security Coalition’s North American Initiative on Urban Agriculture. http://community-wealth.org/content/health-benefits-urban-agriculture
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
Carroll, Deborah A. 2009. Diversifying municipal government revenue structures: Fiscal illusion or instability? Public Budgeting & Finance 29(1) (Spring): 27-48.
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).
Significant Features of the Property Tax. 2012. Cambridge, MA: Lincoln Institute of Land Policy. http://www.lincolninst.edu/subcenters/significantfeatures-property-tax
Sjoquist, David L., Mary Beth Walker, and Sally Wallace. 2005. Estimating differential responses to local fiscal conditions: A mixture model analysis. Public Finance Review 33(1) (January): 36-61.
U.S. Bureau of Labor Statistics. 2012. Current employment statistics survey. Seasonally adjusted employment. http://www.bls.gov/data
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The foreclosure crisis and its impact on the U.S. economy seem far from abating as mortgage delinquencies and foreclosure filings continue to climb. According to RealtyTrac, a total of 2.8 million properties had foreclosure filings during 2009, or one out of every 45 residences. That foreclosure rate was 21 percent higher than in 2008 and 120 percent higher than in 2007. Maintaining home ownership has proven to be a tenuous, if not impossible, proposition for many homeowners.
Some researchers, policy makers, and advocates are questioning whether conventional, market-oriented home ownership is the best form of housing for low-income households and communities. While others continue to extol the many benefits of home ownership, they question the way it is structured and suggest that alternative models of resale-restricted, owner-occupied housing may help low-income homeowners keep their homes more successfully.
Research on one of these alternative models, the community land trust (CLT), found delinquencies and foreclosures to be far lower among the owners of CLT homes than the owners of unrestricted, market-rate homes during the market downturn of 2007–2009. This article presents these findings and examines aspects of CLTs that may help to explain the sustainability and success of CLT home ownership.
Community Land Trusts
CLTs are nonprofit organizations that utilize public and private funds to provide affordable home ownership opportunities for low-income households (usually those with gross incomes less than 80 percent of the area median income). Traditionally, CLTs purchase and retain title to the land under detached houses, attached townhouses, or multi-unit condominiums. The land is leased to residents who hold a deed to their individual homes. Some CLTs use other legal mechanisms, including deed covenants, second mortgages, or cooperative housing models, to convey ownership and subsidize properties.
CLTs provide homeowners with pre-purchase and post-purchase stewardship services to protect them from high-cost or predatory mortgage lending. CLTs also intervene to cure delinquencies and prevent foreclosures. In exchange, homeowners accept limitations on the resale price and the equity they may remove from their homes. Through this arrangement, households unable to afford market-rate homes are able to realize most of the financial and social benefits of home ownership, while CLTs are able to maintain affordability of their homes for future buyers.
Reevaluating Low-Income and Minority Home Ownership
Cross-sectional investigations have found that home ownership is the most robust explanatory factor of wealth in low-income and minority households. Home equity made up 56 percent of the wealth in households within the bottom quintile on income in 2000 relative to 32 percent for all households (Herbert and Belsky 2008). Before the housing market crisis, home equity accounted for approximately 62 percent of wealth for African-Americans and 51 percent for Hispanics, but only 44 percent for whites (McCarthy, Van Zandt, and Rohe 2001).
The financial benefits of home ownership may only be realized if low-income households are able to enter and sustain it. Longer durations of tenure greatly increase the likelihood of financial returns. When studies have examined home ownership over time, they find that low-income households take longer to enter owner-occupied housing and are more likely to return to renting; indeed, roughly half of low-income households exit home ownership within five years of purchase (e.g., Reid 2005).
Risk factors associated with losing one’s home are more common among low-income and minority homeowners. They are more likely to obtain high-risk loans for purchase and refinance, and they are more vulnerable to trigger events, such as unemployment or health issues, which are associated with higher incidents of delinquencies and foreclosures (Immergluck 2009). Almost half of low-income households are severely cost-burdened by their housing expenses (Joint Center for Housing Studies 2008). Length of tenure, loan terms, affordability, and trigger events may impact sustaining home ownership and affect the likelihood that low-income and minority homeowners will accumulate wealth or debt.
Costs of Foreclosure to Communities
The costs of foreclosure extend well beyond the households that lose their homes, impacting the immediate neighborhood and surrounding municipality. Studies in Columbus (Ohio), Chicago, and New York City have shown that foreclosed properties significantly diminished nearby housing values, and that rates of depreciation were greater for lower-income than higher-income neighborhoods. Depreciation leaves remaining homeowners vulnerable to negative equity, default, and foreclosure. Foreclosures, which are associated with rises in vacant properties and crime, tend to cluster in low-income and minority neighborhoods (Immergluck 2009).
Foreclosures also impose costs on municipalities due to vacant property demolition, administrative fees, and outstanding or declining property taxes. Apgar and Duda (2005) modeled the costs of a foreclosure in Chicago and found that more than a dozen agencies could be involved in over two dozen activities, which were estimated to cost the city up to $34,199 per foreclosure. Moreno (1995) estimated the cost to Minneapolis and St. Paul for the foreclosure of houses with FHA mortgages and found that municipal losses were approximately $27,000 per foreclosure. Higher rates of delinquencies and foreclosure filings during 2009 portend continued losses for households, neighborhoods, and municipalities.
Overview of the CLT Study
In March 2010, the National Community Land Trust Network (the Network) designed and conducted the 2009 CLT Delinquency & Foreclosure Survey (Thaden 2010). All 229 CLTs in the Network’s database were invited to participate in the online survey, and 53 CLTs (23 percent) completed it. Eleven respondents did not have CLT homes with outstanding mortgages at the end of 2009, so they were not included in the final analysis. The remaining 42 CLTs in 22 states had 2,279 resale-restricted, owner-occupied homes in their portfolios, 2,173 of which had outstanding residential mortgages as of December 31, 2009. The median number of mortgaged homes for these CLTs was 30.
The primary purpose of the survey was to examine how many residential mortgages held by CLT homeowners (referred to as CLT loans) had been seriously delinquent, entered the foreclosure process, or completed the foreclosure process in 2009. Survey items were designed for comparison with results from the Network’s 2008 survey, as well as results from the 2008 and 2009 National Delinquency Surveys conducted by the Mortgage Bankers Association (MBA).
The Network’s survey replicated the definitions used by the MBA for loans that were (1) “In the Foreclosure Process,” which includes loans in the process of foreclosure regardless of the date the foreclosure procedure was initiated; and (2) “Seriously Delinquent,” which includes loans that were at least 90 days delinquent or in the process of foreclosure. The secondary purpose of the Network’s survey was to explore the practices and policies of CLTs that may help to explain the primary results.
Delinquencies, Foreclosures, and Cures
When comparing the performance of CLT loans to that of conventional mortgages for market-rate homes, it is important to emphasize that CLT loans are held by low-income households. MBA and Residential Mortgage-Backed Security (RMBS) loan samples are not limited to low-income borrowers. Considering that low-income homeowners in the market are more prone to delinquencies and foreclosures, the differential outcomes reported below may have been even greater if loans held by low-income borrowers could have been isolated for comparison in MBA and RMBS samples.
Serious Delinquencies and Foreclosure Filings in 2009
Figure 1 presents the percentages of CLT loans and MBA prime and subprime loans that were seriously delinquent or in the foreclosure process at the end of the fourth quarter of 2009. Only 0.56 percent of CLT mortgages were being foreclosed (12 out of 2,151 loans; CLT median = 0, range = 0–2), whereas the percentage of MBA loans in the foreclosure process was 3.31 percent for prime loans, 15.58 percent for subprime loans, 3.57 percent for FHA loans, and 2.46 percent for VA loans (MBA 2010). When all types of MBA loans were combined, the overall MBA percentage was 4.58 percent. Overall, MBA loans were 8.2 times more likely to be in the process of foreclosure than CLT mortgages.
On December 31, 2009, 1.62 percent of CLT mortgages were seriously delinquent (34 out of 2,099 loans; CLT median = 0, range = 0–6), while the MBA loan percentage was 7.01 percent for prime loans, 30.56 percent for subprime loans, 9.42 percent for FHA loans, and 5.42 percent for VA loans. A prime loan within the MBA sample was 4.3 times more likely to be seriously delinquent at the end of 2009 than a CLT mortgage.
2008 and 2009 Comparisons
The percentage of CLT mortgages in the foreclosure process at the end of 2008 was 0.52 percent (10 out of 1,930 loans), demonstrating a percentage point change of .04 over one year. For all MBA loans, the percentage in the foreclosure process at the end of 2008 was 3.30 percent, showing a percentage point increase of 1.28 by the end of 2009. The respective percentage point increases were 1.43 for prime loans, 1.87 for subprime loans, 1.14 for FHA loans, and 0.80 for VA loans.
The percentage of CLT mortgages that were seriously delinquent at the end of 2008 was 1.98 percent (36 out of 1,815 loans), demonstrating a percentage point decrease of -0.36 (figure 2). The percentage of MBA prime loans that were seriously delinquent at the end of 2008 was 3.74 percent, a percentage point increase of 3.27. The percentage point increases were 7.45 for subprime loans, 2.44 for FHA loans, and 1.30 for VA loans (MBA 2009).
In sum, the percentage of MBA loans that were in the foreclosure process or seriously delinquent increased from the end of 2008 to the end of 2009, while the percentages for CLT loans remained consistently lower.
The CLT Network’s surveys gathered additional information not collected by the MBA. During 2009, 0.42 percent of CLT loans completed foreclosure (9/2,160) compared to 0.26 percent during 2008 (5/1,928), which illustrates a percentage point change of 0.16. When homeowners are foreclosed upon, CLTs have a vested interest in recovering the property from the lender in order to minimize the loss of the public subsidy and preserve the affordability of the unit. No foreclosed CLT homes were lost from CLT portfolios during 2009.
2009 Cure Rates
The 2009 Network survey also gathered information on the number of serious delinquencies during the year and the total that were resolved. The percentage of CLT loans that had ever been seriously delinquent during 2009 was 2.80 percent (58/2,075). Respondents reported that 29 out of 57 were cured (51 percent).
CLTs have unique contractual rights to implement stewardship activities and intervene with homeowners and lenders in order to make mortgage payments current or preclude foreclosure completion. Respondents were asked to explain how they provided these cures, which included facilitating short-sales, offering financial counseling or referrals to foreclosure prevention programs, providing direct grants or loans to homeowners, arranging sales and purchases of a less expensive unit, and working with homeowners and lenders on permanent loan modifications.
Fitch Ratings, a global rating agency, reports cure rates for RMBS loans. They define cure as the percentage of delinquent loans returning to a current payment each month. The percentage of RMBS delinquent loans in August 2009 that had been cured was 6.6 percent for prime loans and 5.3 percent for subprime loans. Since CLTs define cures as resolving impractical financial situations for their homeowners, rather than solely as making mortgage payments current, RMBS and CLT rates are not comparable. However, these findings indicate that CLTs more often terminate serious delinquencies through a broader range of activities.
Stewardship Activities of CLTs
Intrinsic to the CLT model is a commitment to stewardship, which aims to promote positive outcomes and sustainable home ownership for residents long after they have purchased a CLT home. While stewardship is a core component of every CLT’s programming, its implementation can vary greatly. Therefore, the survey collected data on the prevalence and variety of stewardship activities in an effort to explain the low rates of delinquency and foreclosure among CLT homeowners.
The greater affordability and lower loan-to-value ratio found in CLT homes may explain part of the difference between CLT and MBA loans. However, stewardship is almost certainly a contributing factor. Without the protective shield of the CLT, low-income CLT homeowners would be prey to the same economic pressures and circumstantial factors that threaten home ownership sustainability among their market-rate counterparts. Survey results indicate that CLTs are implementing stewardship policies and practices in the following five areas, which may help to explain why CLT loans have outperformed the market.
Pre-Purchase Education
Homebuyer education enables sound mortgage decisions and prepares individuals for the responsibilities of home ownership. Because owning a CLT home entails unique contractual rights, responsibilities, and resale restrictions, supplemental education is offered frequently. The study found that 85 percent of CLTs required general homebuyer education and 95 percent required CLT-specific education prior to purchase.
Pre- and Post-Purchase Stewardship
Pre-purchase stewardship also included referrals to CLT-trained lawyers and lenders, an activity reported by 83 percent of the respondents. A one-on-one meeting of prospective homebuyers with a financial counselor was required by 71 percent of CLTs. Approximately 50 percent of all CLTs offered such post-purchase stewardship services as ongoing financial literacy training; staff outreach to homeowners; formal communications to remind them of policies; referrals for contractors or repairs; and mandatory meetings with defaulting homeowners.
Prevention of High-Risk Loans
Research finds that subprime and predatory lending have occurred more often during acquisition of refinance and home equity loans than during purchase (Immergluck 2009). Eighty-three percent of CLTs required their homeowners to seek the CLT’s permission to refinance or take out home equity loans, thus ensuring that the loan terms will not compromise affordability or home ownership sustainability and that homeowners comprehend the loan’s impact on their equity.
Detection of Delinquencies
CLTs also adopted policies and practices to monitor and detect homeowners who may be headed toward serious delinquency. Most CLTs charge a monthly ground lease fee (typically $10–50) to offset their costs. According to 90 percent of respondents, late payment of these fees was used as an indicator that a homeowner may be late paying their mortgage. Further, 69 percent of CLTs reported that they detected delinquencies through informal interactions with homeowners, and 55 percent of CLTs reported that 80–100 percent of seriously delinquent homeowners contacted the CLT on their own volition. Close to 50 percent of CLTs reported that lenders were legally obligated to notify the CLT of delinquencies or foreclosure proceedings.
Intervention with Delinquent Homeowners
CLTs reported an array of interventions with homeowners at risk of foreclosure. Two activities that are instrumental components of federally sanctioned foreclosure prevention programs were also implemented by CLTs: 71 percent contacted lenders as soon as they became aware of delinquencies; and 57 percent provided homeowners with direct financial counseling. Over half of CLTs reported other activities that enable residents to keep their homes, such as providing rescue funds for outstanding mortgage payments. For homeowners unable to keep their homes, 49 percent of CLTs reported activities to prevent completed foreclosures, such as facilitating sales to low-income buyers or directly purchasing the homes.
Discussion and Conclusions
The prevalence of stewardship activities among the nation’s CLTs may help to explain why CLT loans are outperforming most market-rate loans in terms of delinquencies and foreclosures. It may also explain the high cure rates among CLT mortgages that become seriously delinquent, as CLTs intervene to arrest the slide toward foreclosure. In this respect, CLT home ownership appears more sustainable than private market options for low-income homeowners, suggesting that CLTs may provide a less speculative and more reliable avenue to wealth accumulation for low-income and minority homeowners.
Low-income households can only enjoy the economic benefits of home ownership if they are able to remain homeowners for a number of years. If they lose their homes to foreclosure—or simply return to renting after discovering that the costs and burdens of home ownership are too difficult—low-income households cannot build wealth. The findings of the Network’s survey make clear, however, that few CLT homeowners are losing their homes to foreclosure. Moreover, other research on CLT homeowners has found that they far exceed the 50 percent home ownership retention rate reported among conventional market, low-income homeowners. Preliminary results from a study by The Urban Institute, which includes three CLTs, found that over 91 percent of low-income households remained homeowners five years after buying a CLT home. They either continued to occupy their CLT home or resold it to purchase a market-rate home (Temkin, Theodos, and Price, forthcoming).
CLT home ownership not only lessens foreclosures and increases the chances of success among the population most at-risk of losing their homes, but it also indirectly prevents costs of foreclosure for neighbors, municipalities, and lenders. Such exemplary performance implies that greater investment in this model, including its stewardship activities, is both warranted and overdue.
Only one-third of CLTs reported receiving any funding for foreclosure prevention activities during 2009, while many reported increasing stewardship activities to buffer homeowners from the economic downturn and foreclosure crisis. The study also found that only one-third of CLTs received funding to create new CLT units from foreclosed and vacant housing stocks during 2009. Hence, CLTs are not adequately resourced to create home ownership opportunities from the crisis, which could help to preclude negative outcomes associated with unsustainable home ownership in the future.
Jacobus and Abromowitz (2010) call for a reevaluation of the ways that the federal government encourages home ownership. They recommend targeting existing resources to purchase-subsidy programs like CLTs in order to more efficiently use public dollars and expand and maintain home ownership opportunities. This study provides further support for that policy recommendation.
About the Authors
Emily Thaden, M.S., is a doctoral candidate in the Community Research and Action Program at Vanderbilt University and is employed as the Shared Equity Development Specialist at The Housing Fund in Nashville, Tennessee.
Greg Rosenberg, J.D., is director of the CLT Academy of the National Community Land Trust Network and the former executive director of the Madison Area Community Land Trust. He was a contributing author to The Community Land Trust Reader (Lincoln Institute, 2010), and is a graduate of the University of Wisconsin Law School.
References
Apgar, W. C., and M. Duda. 2005. Collateral damage: The municipal impact of today’s mortgage foreclosure boom. Minneapolis, MN: Homeownership Preservation Foundation.
Herbert, C.E., and E.S. Belsky. 2008. The homeownership experience of low-income and minority households: A review and synthesis of the literature. Cityscape: A Journal of Policy Development and Research, 10(2): 5–60.
Immergluck, D. 2009. Foreclosed: High-risk lending, deregulation, and the undermining of America’s mortgage market. Ithaca, NY: Cornell University Press.
Jacobus, R., and D.M. Abromowitz. 2010. A path to homeownership: Building a more sustainable strategy for expanding homeownership. Washington, DC: Center for American Progress (February).
Joint Center for Housing Studies. 2008. State of the nation’s housing 2008. Cambridge, MA: Harvard University, Joint Center for Housing Studies.
McCarthy, G.W., S. Van Zandt, and W.M. Rohe. 2001. The economic benefits and costs of homeownership: A critical assessment of the literature (Working Paper No. 01-02). Washington, DC: Research Institute for Housing America.
Moreno, A. 1995. The cost-effectiveness of mortgage foreclosure prevention. Minneapolis, MN: Family Housing Fund.
Mortgage Bankers Association. 2009. Delinquencies continue to climb in latest MBA National Delinquency Survey. Washington, DC (March 5).
–––—. 2010. Delinquencies, foreclosure starts fall in latest MBA National Delinquency Survey. Washington, DC (February 19).
Reid, C.K. 2005. Achieving the American dream? A longitudinal analysis of the homeownership experiences of low-income households (CSD Working Paper 05-20). St. Louis, MO: Washington University, Center for Social Development.
Temkin, K., B. Theodos, and D. Price. Forthcoming. Balancing affordability and opportunity: An evaluation of affordable homeownership programs with long-term affordability controls. Washington, DC: The Urban Institute.
Thaden, E. 2010. Outperforming the market: Making sense of the low rates of delinquencies and foreclosures in community land trusts. Portland, OR: National Community Land Trust Network. (This report is also available as a working paper on the Lincoln Institute Web site.)
