Experimenting with Land Value Capture on Western State Trust Land

The use of land value capture to finance investments in state trust land is another potential extension of the concept. Traditionally, state trust land has been leased to private companies and individuals for mining, forestry, and cattle grazing. In chapter 15, Susan K. Culp and Dan W. Hunting argue that in Arizona, where much state trust land is in close proximity to urban areas, significant revenue could be generated if potential land value increments created by the future conversion of agricultural land to urban uses could be captured. Using other examples from the Southwest, the authors illustrate the feasibility of applying varied land value capture mechanisms to these cases.

The first step for the Arizona State Land Department to take in capturing the potential financial benefits of land development would be to invest in transportation, energy, and water infrastructure. Such investment would facilitate the development of open land on the urban fringes in a timely manner. This approach would require changes in long-standing legislation that safeguards against unscrupulous land dealings. It also would entail changes in land managers’ attitudes, which are currently highly risk averse and sensitive to controversy.

Culp and Hunting identify three areas of reform. First, trusts should be allowed to issue bonds to finance infrastructure projects. In Arizona, the state constitution prohibits any liens on state property, thereby limiting the bond financing option. Second, state trusts have a lot of land, but lack the capital and expertise to develop their assets. Joint ventures with the private sector may solve these problems in Arizona if the state constitution, which prohibits public-private partnerships in state trust land development, could be amended. Third, better long-term planning within state trust land departments to encourage active collaboration with local governments would enable trust land managers and local officials to develop this land. Without these changes, state land trusts may not be able to share in the financial gains of future land development.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2011 and is Chapter 15 of the book Value Capture and Land Policies.