Philadelphia City Council is currently grappling with important legislation that could finally unlock the door to developing the acres of vacant land and abandoned buildings that plague our city. The formation of a land bank and reducing the time it takes to move long-time tax delinquent properties to sheriff sale are valuable ideas that warrant prompt attention.  The time has long passed for proposals like these to be realized.  

While an important debate remains to be had about the details, allowing the opportunity to slip would be a flagrant mistake.  Philadelphia’s neighborhoods have suffered for too long within the ever-tightening noose of blighted land.  As these ideas move forward however, one revision to the current land bank legislation draft – allowing negligent property owners to donate delinquent properties directly to proven community development corporations (CDC), for redevelopment purposes – could substantially increase the speed and efficiency by which blighted land is redeveloped in Philadelphia.

Changing Landscape

There are two constants within Philadelphia’s development landscape – land is expensive and development costs are high.  Meanwhile, the rent/sale price the market commands is often too low for developers to make the financial model work.  Accordingly, over the last several decades, the only development to take root within the city is activity driven by public subsidy.  In wealthier sections of the city, that subsidy appeared in the form of property tax relief on the improvements thereby improving the project operating margins.  In less well off areas, that subsidy has traditionally appeared in the form of direct government grants or low-interest loans.

 

In the last two years, the imbalance in this equation has only become more difficult to manage.  While land and development costs remain high, the availability of subsidy (at least for development in less well off areas) has all but disappeared.  Substantial federal and state cuts have led to commensurate funding reductions for development programs by the Nutter administration.  The only way to keep community development activity alive is to develop a subsidy source that does not further deplete the cash poor city coffers.

Quickening the Process

The City of Philadelphia is currently owed an estimated $472 million by tax delinquent property owners.  That sum alone could cure the school district’s immediate budget woes.  The City stands little chance of collecting much beyond a nominal portion of that amount however.  The reasons are numerous and varied, including: poor or no ownership records, inter-departmental information systems that cannot communicate with one another, a heavy reliance on manual processes and a simple lack of sufficient staff in many departments.  Councilman Bill Green’s legislation to shorten the time for tax lien sales to move forward provides an important imperative to start moving delinquent properties towards productive use.  This legislation may be sufficient to entice long delinquent property owners to donate their tax lien encumbered properties, in return for which the liens will be extinguished.

 

However, the disposition process could be much faster and efficient if CDCs could negotiate with delinquent property owners directly rather than wait for the land bank to obtain the property and then administer a process for disposition.  Inserting city government as a middleman in the process will ensure that the process is substantially delayed and becomes more costly (simply getting an executable contract from city departments can often take six or more months).  

By improving the process efficiency, the City would allow vacant property to put into productive service faster.  In a city where more than 20,000 vacant parcels pose significant costs on neighborhoods, there is little time to waste.  This idea would also eliminate the state authorized nine-month right of redemption that makes it infeasible for CDCs to currently pursue tax delinquent properties by making the transaction a voluntary conveyance.  Finally, this idea would reduce the administrative costs ultimately borne by taxpayers and, most importantly, it would allow community redevelopment to continue in a high-cost environment without direct cash outlays by city government.  The outcome would be redeveloping neighborhoods, safer streets and a broader tax base.

Creating Oversight

To reduce the risk of impropriety or the occasion in which a negligent property owner establishes a non-profit to simply deed the property to, the new Land Bank organization proposed by City Council could serve as a watchdog. The Land Bank could ensure that clear title was conveyed and vet the recipient non-profit to ensure that it has the capacity for development and will develop the parcel in a manner consistent with community plans.  Meanwhile, the note holder would be protected as the conveyance would include an assignment of the mortgage or other encumbrances.

 

Similar processes have been used with success in Atlanta and Louisville where land banks have been long established to administer a transparent and sensible vacant land disposition process.  Philadelphians have grappled with the burden of blighted land for too long.  With some changes, the pending land bank legislation and tax lien sale reform should be passed and signed by the Mayor.