Buying Back the Land: A Proposal for California

Working Papers For A New Society, Summer 1973

Open space in urban and suburban areas is fast disappearing.  The last major open space area in the Los Angeles basin—the Santa Monica Mountains—is threatened with imminent development.  The San Francisco Bay area is in better shape, but developers have marked large chunks of Marin, San Mateo, Santa Clara, Alameda and Contra Costa counties for sub­division.

As the cities lose breathing space, people fled to the countryside for relief.  But the unspoiled wilder­ness is also vanishing.  Over half a million acres of California’s mountain and desert land have been committed to second-home subdivisions within the past decade.  Farmland is being gobbled up at the rate of 134,000 acres per year.  And the oases set aside by the government for parks are being crowded to the burst­ing point.  The larger state parks now require reservations weeks in advance.  During 1968 and 1969, over 360,000 people were turned away from state parks and beaches.  Public parks are getting so crowded that a San Diego syndicate is buying land for private parks and selling memberships for $1,800 down plus $96 a year.

Degradation of farmland is also part of the prob­lem.  Intensively irrigated areas of the Imperial and Coachella valleys are becoming so saline that they may soon be im­possible to farm.  On the west side of the San Joaquin Valley, the “mining” of under­ground water by large corporate farms has caused the land to subside by several dozen feet.  Giant corporate and tax-loss feedlots are beginning to create sub­stantial waste disposal Problems in many parts of the state.  Perhaps the most serious threat to man and nature comes from a vicious ecological circle of toxic chem­icals.  Exten­sive use of single-crop cultivation, pesti­cides, and inorganic fertilizers depletes the soil and increases the variety and resistance of pests.  To overcome these problems large absentee-owned farms pour even more chemicals onto the land.  This leads to further depletion, more pests, and more chemicals.  Small resident farmers, while often trapped on the same chemical treadmill, are more inclined to hus­band their land.  They live and work on it, may want to pass it on to their children, and can’t afford to pour vast sums into the pockets of oil and chemical companies.

The concentration of land in a few hands also creates human problems.  Since the day in 1848 when gold was discovered in the Sierra Nevada foothills, California land has been a monumental source of wealth.  This wealth comes from assets that once were publicly owned but are now controlled by a relative few: the land itself, miner­als such as gold and petro­leum, surface and underground water (geothermal steam), and timber.  The story of how these assets passed from public to concentrated private ownership has been related elsewhere.  Today a few dozen families and cor­porations—mostly railroads, energy companies, timber companies, and corporate farms—control the state’s land and resources in a way that can only be described as feudal.  The recent Nader task force that investigated California land ownership found that the ten largest landowners in the state own more than 12 percent of the privately held land.  On a county-by-county basis, the Nader team found that the top 20 landowners in rural counties—a fraction of 1 percent of the population) generally own 25 to 50 percent of the land.  Even in a compact urban county such as San Fran­cisco, the ten biggest real estate owners (.0013 per­cent of the population) own about 8 percent of the assessed valuation.  And the trend toward concentra­tion continues.

The exodus from rural California intensifies the plight of the urban poor as well as that of the working and middle-class taxpayer.  The job and housing markets stay tight, and welfare rolls increase.  As poor people congregate in cities and suburbs, land values rise, in turn driving up the cost of housing.  James Davis, vice-president of the Real Estate Re­search Council of Northern California, calculates that, on the average, land acquisition costs account for 27 percent of the total cost of new single-family houses in San Francisco (and a slightly lower percentage in the suburbs).  Elliott Maltzman, a Los Angeles de­veloper who tried building federally subsidized single-family houses for less than $24,000, found that “with today’s land costs and the costs of quality materials, you could produce nothing but instant slums.”

What can be done to protect and share California’s land?  Environmentalists have approached the problem in three ways.  They’ve pushed for lower taxes on un­developed land, higher appropriations for open space acquisition, and adoption of land-use plans and reg­ulations.  All three approaches have serious limita­tions.

The first led to passage in 1965 of the California Land Conservation Act, more com­monly known as the Williamson Act, which permits assessment of undeveloped rural land at use value rather than at market value.  The act has given million-dollar prop­erty tax breaks to large landowners but has done little to deter development.  A study by the State Board of Equalization in 1972 found that more than 25 per­cent of the land assessed in accordance with the Williamson Act is owned by 12 large corpor­a­tions.  Together these corporations enjoyed reduced prop­erty tax assessments of more than $44 million.  All are actively involved in the development game.

The second approach—public acquisition of open space—has reached a fiscal dead end.  The legislature’s Joint Committee on Open Space Lands reported that the cost of purchasing imperiled open space land that cannot effectively be protected through zoning is about $4 billion at 1970 prices.  Given the competing demands on existing state and federal revenue sources, it is highly unlikely that anything near that amount will be allocated to open space acquisition.  The Nixon administration is already cutting back the miniscule (approximately $100 million in 1972) fed­eral Land and Water Conservation Fund, as well as the urban open space program.

The third approach—land-use planning and regula­tion—is limited by the fact that landowners have considerably more clout with planning departments and zoning boards than do environmentalists.  More­over, a landowner or developer has the advantage of staying power: he may lose a variance appeal two or three times, but sooner or later the zoning board will change and he’ll win.  The creation earlier this year of regional zoning commissions for the California coast­line was hailed as a great environmental victory, but it already appears that a substantial number of commis­sioners are hostile to the environmental viewpoint.

Limited as the approaches of environmentalists to the land problem are, they are well ahead of the approaches thus far developed by low-income groups.  Generally such groups have confined themselves to seeking small parcels of surplus federal land, or filing lawsuits to compel enforcement of decades-old law and treaties.  Thus, the Pit River Indians have sought the return of land they assert is theirs under a nineteenth-century treaty; landless farmworkers in the Imperial Valley have sued to compel en­forcement of the 160-acre limitation and residency requirement of the 1902 Recla­mation Act; a coalition of migrant farmworkers is seeking enforcement of the 1864 act granting land to the Southern Pacific railroad on the condition that it sell the land to settlers at no more than $1.25 per acre.  None of these legal efforts has much pros­pect of success.  Nor is there much hope among low-income groups that the land prob­lem can ever be resolved in a manner beneficial to them.  The history of govern­ment land giveaways—from the railroad grants of the 1860s to the urban renewal write-downs of the 1960s—is too one-sided to offer much encouragement.

Yet it is just within the realm of possibility that low-income groups, by joining with environmental­ists, labor and other progressive forces, could bring about a favorable distribution of land ownership in California.  The mechanism for doing this could be a state government trust fund which might be called the California Land Conserva­tion Fund (CLCF).  The CLCF would make land acquisition funds available to public agencies and others for uses consistent with environmental protec­tion and economic justice.  It would do so without imposing new levies on most taxpayers.  It would thus be a much stronger political device than presently is available for land acquisition and control.  With relatively minor modifications, the CLCF model—described below—could also be adopted in other states, or at the federal level.

Here’s how the CLCF would work.  Like the highway, social security, and other existing trust funds, the CLCF would be a separate government account into which money would pour from special taxes—in this case, taxes that fall not on the average taxpayer but on the wealthy few who profit most handsomely from land and resources.  Revenues from these taxes would be allocated for carefully specified purposes and to particular recipients: half would go to cities, towns, counties, and regional park districts for the purchase of open space land, while the remainder would be granted to low-income coopera­tives, community development corporations (CDCs), public utility districts and non-profit land trusts for the purchase of produc­tive land.  Like the other trust funds, the CLCF, once established (and especially if established by a ballot initiative) would be self-perpetuating and relatively immune to political sabotage.

A state severance tax would fall most heavily on the holders of working interests in oil, natural gas, cement, sand and gravel, other mineral properties, and timber—i.e., the major oil, timber, and land­owning companies.  Since these companies benefit from a wide variety of federal and state tax preferences—and since the resources they extract are a gift of nature to all, not to just a privileged few—a severance tax is a highly appropriate levy.  From an environmental standpoint, the severance tax is an excellent one because, unlike the ad valorem property tax, it encourages conservation rather than depletion of resources.  For added effect a differentially high rate might be applied to the severance of resources (such as virgin redwoods) deemed particu­larly worthy of conservation.  A basic rate of 7 percent would yield approximately $150 million annually.

To some extent a severance tax could be passed on by oil, cement, and timber com­panies to consumers in the form of higher prices.  However, since California compa­nies would be competing against out-of-state producers who would not be affected by the tax, it is doubtful that a significant portion of the tax could be shifted.

The unearned increment tax, if universally applied, would be borne by all owners of land that is appreciating in value.  It would be politically wise, however, to exempt land immediately related to most residential property, small farms, and small busi­nesses.  The tax would then be borne almost entirely by large landowning corpor­a­tions and real estate speculators.  Its impact would be greatest on large owners of urban and urban fringe land.

In practice, an unearned increment tax could take a variety of forms.  The National Commission on Urban Problems, chaired by former Senator Paul Douglas, described several, ranging from a total shift to site value taxation to a transaction tax on land value increments.  I favor tacking on an annual land gains tax to the state income tax.  This would be similar to the ordinary capital gains tax except that it would be pay­able while gains accrue, rather than at time of realization—a necessary difference since one objective of the tax is to induce large absentee landowners to sell.

Collection of an annual land gains tax would be relatively simple.  Local assessors, when mailing out their annual property tax bills, would make two extra carbon copies; one would be mailed to the property owner, the other to the State Franchise Tax Board for verification purposes.  Each non-exempt property owner would then submit a self-declaratory land gains schedule along with his state income tax return. His tax liability would be calculated in the following fashion: from the total assessed value of his nonexempt California real estate as of a given date in the current year he would subtract the total assessed value of his nonexempt California real estate as of the same date in the preceding year.  The difference, representing the total gain in assessed value of land and improvements, would be multiplied by four to obtain the total gain in fair market value (assessed valuation in California is set by law at 25 per­cent of fair market value).  Then the property owner would subtract the amount expended on capital improvements during the preceding year, and add the deprecia­tion (if any) claimed elsewhere in his return.  This would yield the land value incre­ment for the previous year—i.e., the increase in value not attributable to the owner’s own improvements—which would then be taxed at an appropriate rate.

Exemptions might be structured as follows: the first $40,000 worth ($10,000 in asses­sed value) of a taxpayer’s owner-occupied home, plus the first $40,000 worth of owner-operated farm or business property, plus the first 1,000 acres of owner-oper­ated farmland covered by the Williamson Act, plus an equivalent value for each rental unit owned, would be excluded in computing the land gain.  In addition, the first $1,000 in gain would be exempt.  Californians who owned no property (or only owner-occupied homes worth less than $40,000) would not even have to file a land gains schedule.  Over 95 percent of households would thus be spared direct contact with the tax, while the rental exemption would avoid a shifting of its burden onto tenants.

Besides raising money to buy back the land, an annual land gains tax would, by itself, have several desirable consequences.  By diminishing the tax advantages of investing in land, it would encourage the wealthy to put their money elsewhere, and perhaps prompt present large owners of land to begin selling.  This would create a downward impact on land prices—downward enough (if the tax rate were reasonable) to slow the, natural rate of increase but not to depress land values below their current level.  To some extent this downward pressure would diminish the revenues raised by the tax, but it would also make buying land cheaper for CLCF recipients.

Another consequence of a land gains tax would be the creation of jobs and housing; This would occur because the tax would fall only on the rise in land values, not on improvements.  Since the supply of land doesn’t diminish, a tax on land gains does not discourage productive investment.  In fact, it en­courages construction of income-producing improve­ments on land, especially in the central city and on the urban fringe.  Because of the exemption for low and middle-income homes and rental units, the greatest incentive would be to build low and middle-income housing, as opposed to luxury high-rises, shopping centers, and office buildings.  If a differentially high rate were applied to land rezoned for higher use, the incentive would be to construct new housing in areas already zoned for it, rather than to sprawl into still-unspoiled areas.  If the housing were built by low-income co-ops^. or CDCs, total costs could be cut by as much as 25 or 30 percent.

Three objections to the land gains tax might be that (1) it does not allow for appreci­ation attribut­able to inflation; (2) it taxes unrealized gains; and (3) it constitutes double taxation, since gains would be taxed by the CLCF while accruing, then again by the state and federal governments when realized.  These objections are readily answered.  (1) No correction for inflation is allowed in taxing inflation-induced in­creases in wages, dividends, interest, or ordinary capital gains, and there is no reason that landowners should be entitled to special treatment.  (2) Concern with taxing un­realized gains might be valid if low and middle-income homeowners and small busi­nesses were not exempt from the tax.  Any large landowner who did not have suffi­cient cash to pay the land gains tax could easily sell a portion of his holdings without hardship.  In any case, the ordinary ad valorem property tax, which constitutes a heavier burden than would a land gains tax, is worse than an unrealized gains tax because it taxes property values annually even when gains are not accrued.  (3) The double tax argument is unconvincing because the “double tax” is no more than a higher rate of taxation on capital gains, a rate that in toto would still not equal the rate of taxation on wages (barring significant reform of the federal tax code).  Moreover, taxes paid to the CLCF would be deductible from federal income taxes.

Assuming the CLCF generated annual revenues of $500 million to $700 million (which could be increased further by giving it bonding authority), it could finance the outright purchase of several hundred thousand acres per year.  Who would get the money to buy land, and how would allocations be made

The remaining 50 percent of CLCF revenues would be divided among the following types of recipients:

• Cooperatives of low-income families, for the acquisition of land for agriculture, related enter­prises, and housing—for example, farmworkers might wish to buy out a corporate farm and run it cooperatively;
• Community development corporations in rural and urban areas, for the acquisition of land for housing and nonpolluting industries—for example, a chain of CDCs might buy back the west side of the San Joaquin Valley, now almost wholly owned by a handful of absentee corporations;
• Public utility districts, for the acquisition of land, water, or energy resources—for example, a district in the Imperial Valley might acquire geothermal energy sites;
• Non-profit land trusts, similar to the Jewish National Fund in Israel, for the acqui­sition of land for lease to family farmers and rural cooperatives, or of common land for Indian tribes and Mexican-American communities (ejidos).

As with open space funds, grants to private recipients could cover up to 100 percent of land costs.  Recipients would thus be free of debt burden on their land, and could use their land as collateral to borrow money for farm equipment, housing supplies, and other capital outlays.  The debt-free gift of land would be in the tradition of the Homestead Act.  It would, of course, be a subsidy, but one that would barely match the subsidies and tax breaks given to railroads, cattle barons, timber companies, energy corporations, wealthy tax-loss farmers, real estate developers, defense con­tractors and the like.

Grants by the CLCF to private recipients would be subject to a number of restric­tions and conditions.  First, carefully drafted language in the law would assure that recipient corporations, cooperatives, and land trusts would either be genuinely non-profit or owned in major part by persons of low or moderate income who lived and worked in or near the enterprises involved.  (In other words, the Irvine Foundation, the Southern Pacific in its various guises, et al., would be ineligible to receive grants.) Second, non-profit trusts receiving grants would be permitted to lease only to resi­dent family farmers and coopera­tives.  In no event could a trust lease farmland to an absentee operator, nor could it lease more than 320 acres of irrigated farmland, or 1,000 acres of unirrigated farmland, to the same family, or double that amount to the same cooperative.  In leasing farmland the trust would give preference to people with farm work experience and low incomes.  Viola­tion of any of these conditions would be cause for revocation of all grants, with grant money repayable (with interest plus a penalty) to the CLCF.  Co-ops and CDCs would be subject to similar restrictions.  Third, all recipients would be barred from resale of CLCF-funded land for at least 15 years.  After that time the CLCF would retain first option to purchase at a price not greater than its initial grant.

A particular danger stemming from CLCF grants is that valuable pieces of land (e.g., in the Santa Monica Mountains) would rapidly rise in price once it was known that funds were available to buy them.  This might result in windfall profits for a few land­owners, as has happened in many public park and urban renewal projects.  The problem is probably not as acute as it might seem.  The land gains tax would recap­ture at least a portion of any unearned windfalls, while exerting a downward pressure on land prices generally.  Where publicly designated open space areas were involved, legislation could be adopted that would fix payment at full market value as of the date of designation.  (Language to this effect was contained in the recent Redwood Na­tion­al Park Act.)  With regard to land sought for its economic rather than its scenic potential, there would be enough of it on the market to prevent price-gouging by owners of more valuable parcels.  Pressure to enforce the 160-acre limitation and resi­dency require­ment in federal irrigation areas could help hold down prices in the Central and Imperial valleys.

What would happen if something like the CLCF were adopted today? Would co-ops, CDCs, and non-profit land trusts be able to handle half a million acres if they received them, free of debt burden, next week or next year?  Sadly, I suspect that the answer is no.  There is an immediate, desperate need to improve the manage­ment capabilities of community and coopera­tively owned enterprises, and to increase the readiness of low-income families to participate meaningfully in such undertak­ings.  Government, university, founda­tion, and other private resources should be poured into this task.

Politically, however, I think we are much further along than many people realize.  Voters in California, their sensitivities heightened by smog, sprawl, and environ­mental activism, approved a statewide coastal zoning initiative last year as well as numerous local open space bond issues.  (School bond issues, mean­while, were generally going down to defeat.)  In the legislature, a bill to create an open space trust fund financed by a transaction tax on land value incre­ments has been intro­duced by Assemblyman John Dunlap and co-sponsored by Speaker Bob Moretti.  The California Tomorrow plan, supported by a cross-section of business and political leaders, en­visions a substantial amount of public land owner­ship.  In other parts of the country, interest in open space preservation and land reform of a conservative sort has been growing.  The Republican county executive of Suffolk County, New York, recently proposed that the county buy up farmland threat­ened with subdivi­sion and lease it back to the farmers who are using it.  A 1972 report financed by Laurance Rockefeller recommended creation of “public corpor­ations” to acquire land for new town development.  Robert Wood, former secretary of Housing and Urban Development and now president of the University of Massachusetts, has said that “public ownership and public planning are probably the essential compo­nents for a genuine land reform program. “

Many if not most of these “land reformers” see public land ownership as beneficial primarily to profit-seeking new town developers, bankers, and well-to-do farmers, rather than low-income groups, as Geoffrey Faux points out.  In my view, public land ownership is not a very promising device for helping poor people, although it’s fine for open space preservation.  Helping the poor requires that they have more direct access to the land than public ownership per se has provided or can provide.  The point, however, is that people are ready, or almost ready, to accept the notion of buying back sizable quantities of land from its present owners.  The political task is to make sure that “buy back the land” programs are not used solely for parks and commercial developers, but are also designed to benefit low-income and com­munity groups.

What is necessary over the next few years, it seems to me, is a two-front strategy.  On the political front, we must deal with the fact that voters are prepared to spend public money to purchase land for migratory birds, but not yet prepared to do the same for migratory workers.  While lamenting and fighting this reality we might as well take advantage of it; there are no other sources of large-scale money for community economic development on the horizon.

I said earlier that a land transfer mechanism such as the CLCF would be politically salable, especially as a ballot initiative.  I believe it would be salable because it could be supported by a coalition of low-income minority groups, middle and upper-income people interested in parks and open space, and labor.  Its appeal would lie in the fact that it would preserve and create jobs and protect the environment—all without adding a single penny to the sales tax, property tax, or income tax on wages.

The second front involves developing the psycho­logical and managerial capabilities necessary for running new economic structures such as coopera­tives, CDCs and land trusts.  This is a much more difficult front than the political one, and a persistent prob­lem over the next few years will be that of timing—how to develop social struc­tures fast enough to keep up with the political gains I believe are possible.

It would be wrong to conclude on too optimistic a note.  The forces opposed to gen­uine land reform are powerful—in Sacramento, in Washington, and in the market­place.  If locally owned economic institutions are to survive, much less to flourish, there must be more than a redistribution of land.  There must also be far-reaching changes in federal tax, subsidy, and anti-trust policies.  Such changes will be ex­treme­ly difficult to bring about.  It can only be said at this time that the possibilities are there.  It is up to us to work strenuously for their attainment.