Homesteads for income

One US town is handing out city land now for future property tax revenues

(BEATRICE, Nebraska) GIVE away land to make money? It hardly sounds like a prudent scheme. But in a bit of deja vu, that is exactly what this small Nebraska city aims to do.

Beatrice was a starting point for the Homestead Act of 1862, the federal law that handed land to pioneering farmers. Back then, the goal was to settle the West. The goal of Beatrice's 'Homestead Act of 2010' is, in part, to replenish city coffers.

The calculus is simple, if counterintuitive: Hand out city land now to ensure property tax revenues in the future. 'There are only so many ball fields a place can build,' Tobias J Tempelmeyer, the city attorney, said the other day as he stared out at grassy lots, planted with lonely mailboxes, that the city is working to get rid of. 'It really hurts having all this stuff off the tax rolls.'

Around the nation, cities and towns facing grim budget circumstances are grasping at unlikely - some would say desperate - means to bolster their shrunken tax bases. Like Beatrice, places like Dayton, Ohio and Grafton, Illinois are giving away land for nominal fees or for nothing in the hope that it will boost the tax rolls and cut the lawn-mowing bills.

In Boca Raton, Florida, which faces a budget gap of more than US$7 million, leaders are thinking about expanding the city's size and annexing neighbourhoods as an antidote. Sure, more residents would cost more in services, but officials hope the added tax revenues will more than make up for it.

Non-profit organisations

And leaders in Manchester, New Hamshire and Concord, Massachusetts are taking an approach that might have once seemed politically unthinkable: they are re-examining whether their communities' non-profit organisations really deserve to be tax-free.

'The stress of the past couple of years is causing us to look absolutely everywhere,' said Anthony Logalbo, finance director in Concord, where officials realised that 15 per cent of the town's property value had become tax-exempt and sent letters to non-profit groups asking whether they would consider paying something to the town.

'Private schools and non-profit museums and community organisations benefit the town in lots of ways,' Mr Logalbo said, 'except that they don't contribute to the cost of running the town.'

Analysts say that this year and next, city budgets will reach their most dismal points of the recession, largely because of lag time inherent in the way taxes are collected and distributed. Despite signs of a recovery, if a slow one, in other elements of the economy, it may be years away for many municipalities. Between now and 2012, America's cities are likely to experience shortfalls totalling US$55-85 billion, according to a survey by the National League of Cities, because of slumping revenues from property taxes and sales taxes and reduced support from state governments. And even in places like Concord and Beatrice, where officials say budget strains are not severe enough to lead to layoffs or major cuts, a slow chafing has still taken a toll.

Beatrice (pronounced bee-AT-russ), which sits about 65 kilometres south of Lincoln down a highway called the Homestead Expressway, is recognised as home to the first Homestead Act application nearly 150 years ago. That law ultimately granted 270 million acres (109 million hectares) of land in 30 states to nearly anyone who could survive on it and pay a minimal fee.

Daniel Freeman, who came from Ohio, is said to have filed his claim for 160 acres near Beatrice just after midnight on Jan 1, 1863, the day the law took effect. There were others who filed claims in other places on the same day (some say they were actually first), but Freeman captured a place in history. The government paid to take back his Nebraska homestead decades later to turn it into a national monument that honours the Homestead Act and how it transformed the nation's population.

Beatrice's new Homestead Act is not the first to revive the land giveaway. Some tiny towns, particularly in the Great Plains, have made such offers before, mainly as a way to increase dwindling populations.

But disappearing is not the fear in Beatrice, which is home to several lawn-mowing equipment manufacturers and where the population has held steady at around 12,000 for decades. Instead, city officials are hoping to return some of the many lots the city has accumulated, because of unpaid taxes or flooding risks from the Big Blue River, and return them to the tax rolls. The city has not suffered gaping budget shortfalls or the property tax declines seen in some larger cities, but some large purchases and road reconstruction are on hold, waiting for a return to flusher times.

If the city were to give away just a few lots - and if people were to, as required by the law, build homes on them and stay for at least three years - Beatrice would secure annual real estate taxes on them, collect money for water, electric and sewer use, and no longer pay to mow the lawns. The arrival of new, improved homes might also have an infectious effect on existing neighbourhoods, said Neal Neidfeldt, the city administrator.

But the plan has its critics; at least one candidate for mayor here wonders what right the city has to give out public land to any non-taxpaying outsider who asks.

Officials acknowledge that the benefits sound modest, in the thousands of dollars annually, but say the revenue is needed. 'What is the value of a lot to us if it's empty?' said Tom Thompson, mayor of Grafton, where an offer of 32 city-owned lots, promoted with a television advertising campaign, has quickly led to eight takers so far. 'This is strictly financial - a way to go upstream from the trend.'

In Dayton, officials are offering thousands of vacant, foreclosed or abandoned properties under certain conditions for nominal fees - US$500, in many cases, to cover the cost of recording fees or US$1,200 if the city must initiate tax foreclosure proceedings. The prospect of city savings on mowing fees alone is enormous: each year, Dayton spends US$2 million to cut grass on the properties.

Daunting prospect

Back in Beatrice, though, the effort is only creeping along. Since the Homestead Act took effect in May, many people have called with inquiries, but no one has moved onto the lots along a gravel-covered road called Grace. Two families filled out an application - which seeks only a name, address and telephone number - but both have since put off plans.

One applicant, William Hendrix, 47, said the city's law requiring him to secure permits for a new home on the property within six months, then build within a year after that, was too daunting. What if he could not get loans? What if he could not pay for the construction? What if he built a home but could never sell it?

'Right now, giving away the land isn't going to be doing anybody favours,' Hendrix said. 'I realised that Beatrice will get the taxes they want, but it won't do me any good in this market.'

For their part, people in Beatrice sound patient. The peak of homesteading acres claimed under the federal act, they point out, came in 1913, some 50 years after the act's passage. -- NYT

Source: Business Times, 27 Jul 2010