Grow-Power For Land Trusts

Lessons from Mondragon and Gandhi
could help land trusts buy up the continent

by Terry Mollner

One of the articles in Living With The Land (IC#8)
Winter 1984, Page 12
Copyright (c)1985, 1997 by Context Institute

Terry Mollner keeps looking for ways to bring the spirit of love into economic institutions. He is the founder of Trusteeship Institute, a group which mainly consults to firms converting to employee ownership based on the Mondragon model (Baker Road, Shutesbury, MA 01072, 413/253-7500). He has been actively involved with the Boards of The Calvert Social Investment Fund, the Association of Humanistic Psychology, and The Institute For Community Economics (among others).

Let's Stop Paying Banks For Dirt!

Every time a family buys a house, they also have to purchase the land underneath it. We treat the house and land as one package, but they are really very different. The house can deteriorate, especially without proper maintenance, so it is understandable that they should take full responsibility for it by paying the full cost of the building.

But the dirt under the house will remain just dirt. They will have done nothing to it and no maintenance is necessary. Why should they be paying a significant portion of their income each month not only to buy the dirt but also to pay for the interest on the money they borrowed to purchase it? If the land value was $10,000, the interest rate 13%, and the payment period 30 years, they would pay $110.70 a month, or a total of $39,852 over the 30 years. That is more than a year's salary for over 80% of Americans, and far more than that for most of the rest of the people around the world.

On top of that, usually long before the thirty years is up, the dirt is sold to the next family who begin the same process again. There are only two things which are consistent in this system - the dirt remains dirt and somebody is always paying interest to the bank for the right to live in a house on top of it.

This situation raises an obvious question: "Why not buy the land once and for all and be done with the interest to the bank forever?"

That was Mahatma Gandhi's idea in the early part of this century. It was an extension of his theory of economics which he called trusteeship.

Gandhi's theory of trusteeship has all social, political, and economic activities controlled democratically by those most affected by them and managed, in trust, for the health and welfare of society as a whole. He even went so far as to argue that no one really owned anything. People were only the "Trustees" of things. After all, sooner or later we all die yet all the things on the planet live on. A person's life is a short time compared to the history and potential future of the planet. So the proper relationship of the human being to anything is that of a trustee, using the life-giving resources of the planet in a way that does not diminish the life of the future.

Gandhi created cooperatives all over India because he believed in democracy. He then taught the way of trusteeship, or love. (We call it "non-violence," but the correct definition of the Hindu word ashima is " loving struggle to agreement.") He wanted a "democratic process" in combination with a freely chosen attitude of "trusteeship" or "stewardship." He believed that if people adopted an attitude of trusteeship, they would be responsible to each other and society without any decrease in individual freedom.

Land owned cooperatively with an attitude of trusteeship has come to be known in the United States as a Community Land Trust (CLT) largely as a result of one of the first books on the subject in this country, The Community Land Trust - A Guide To A New Model For Land Tenure In America, by Robert Swann, Shimon Gottschalk, Erick S. Hansch, and Edward Webster.

(Robert Swann is considered by many to be the "Father of the American CLT Movement," and was one of the founders, along with myself, of the Institute for Community Economics (ICE), now located in Greenfield, Massachusetts. His successor as Director of ICE is Chuck Matthei, whom I often refer to as the "Johnny Appleseed of the CLT Movement," hitchhiked his way around the country for many years helping rural and urban poor people to start their own CLTs. Today, the ICE staff will go anywhere to help poor people develop a CLT and cooperative housing. They also have a loan fund to assist in the process, and a new book, The Community Land Trust Handbook, to guide others.)

There are by now many successful CLTs, both rural and urban, based on this model, yet the CLT movement has not yet had much impact on the American mainstream. Two of the difficulties that have contributed to this are as follows:

1) Most CLT's to date have had difficulty raising capital. In our society, most capital is gathered either through investments (by for-profit businesses) or by tax-deductible donations (by non-profit organizations). CLTs normally fall in the space between these two as a service oriented community organization that nevertheless doesn't qualify for tax-exemption.

2) Some CLT's have become simply low-cost land cooperatives without a larger vision. Once a CLT is established, the current leaseholders have an economic interest in keeping costs to a minimum. Since purchasing new land requires more income for the trust, existing leaseholders can be tempted to oppose growth.

A New Approach For CLT's

To overcome these problems, we at Trusteeship Institute (TI) have developed a new model for community land trusts. This model has been used to establish the Flaming Arrow CLT in Walpole, New Hampshire, and we are currently using this model as a basis for organizing a CLT for our own greater community of Shutesbury, Massachusetts.

Twin Trusts The TI-CLT model addresses the problem of raising capital by including two corporations. A tax- exempt, non-profit conservation trust receives tax deductible contributions of capital or land. A cooperative corporation, which is the CLT itself, owns any land which is leased for non-tax-exempt purposes.

The tax-exempt trust could do all the normal fund raising drives which conservation organizations do, not the least of which would be arranging for people to bequeath their land to the trust. Portions of this land could then be separated out for conservation, recreation, education, or other public purposes and held by the conservation trust. The rest of the land could be sold, either directly to the CLT or to raise capital to purchase more suitable land that could then be sold to the CLT. The tax-exempt trust is required by law to follow market rates in selling to the CLT, but it can offer the best terms within that range, such as long-term mortgages. This enables the CLT to obtain land at a monthly cost significantly lower than otherwise possible.

At the same time, the CLT can raise its own capital by issuing shares of "non-voting preferred stock," backed by the land it owns. These preferred shares operate basically like a loan from the shareholder to the CLT, except for one important technical difference. Banks and other commercial lenders will not allow borrowed capital to be used as a down payment on mortgaged land, but preferred shares are considered equity and the capital from these shares can be used.

Who will purchase these shares? Being secure (backed by land) and offering a reasonable rate of return, they should be quite attractive, even to those who are not ideologically committed to the land trust movement. At the same time, they can also be purchased by tax-exempt conservation trusts, which will need to do something with the funds they gain by selling land to CLTs.

What is important is that we now have two ways of solving the main problem for CLTs to date: raising capital to purchase land. Donations can be raised through the conservation organization and equity capital can be borrowed through an attractive investment opportunity at a reasonable cost.

In addition, conservation land is being provided to the community, which should generate community support, and the "trusteeship" option for land and capital is being made available to both community and non-community members.

Community Trusteeship We have also taken steps to deal with the second problem: lack of vision and resistance to growth. Let's start with the question of potential membership. We live in an area known as Hearthstone Village, a small community that includes a number of intentional communities, families, individuals, and businesses along a rural road in Shutesbury, Massachusetts, near Amherst. There are a total of 23 adults and 15 children in Hearthstone Village, with many friends and associates beyond us. This makes it tempting to set up a CLT based on these friendships alone. However, this identifies the CLT mainly with our group rather than with the people of Shutesbury. Our interest is not to create an alternative structure but to sell the idea to our neighbors in Shutesbury and people everywhere.

Therefore, we have decided to call the CLT the "Shutesbury Community Land Trust (SCLT) and to call the tax-exempt conservation organization the "Shutesbury Conservation Association" (SCA). Only people who live in the township of Shutesbury (1300 people over a large land area), can become members of these two organizations. Our purpose here is to identify ourselves with the customary boundaries and to keep control within the community of people who already have a community identity and know that their lives affect one another. (One of the early CLTs was the Maine Community Land Trust. It was very difficult to have a sense of identity with a "community" as large as Maine. It folded before having more than a few acres of land, but after much expense and raised hopes.) If we are successful, we would assist other local areas to organize the same way and join in association with all other CLTs to further the idea.

The next question is, "How should these trusts be controlled?" Early CLTs were concerned that the people on the trust-owned land would be tempted to slow the growth of the CLT to make their own lease fees lower. If ten families on ten pieces of land get it paid off in full in twenty years through their lease fees and contributions, there will be no additional need for lease fees. If additional land is continually being purchased and the lease fees are distributed among everyone - old timers and new timers alike - the old timers will be paying lease fees forever, fees which may not go down at all if the people committed to growth keep purchasing more land.

The first solution to this problem was to write by-laws of the CLT so it was divided in thirds: residents on the trust- owned land, local community members, and nonlocal community members (such as public officials, members of other CLTs, activists in the CLT movement, etc.) The problem with this model is its paternalistic approach which locks in outside people to prevent the inside and invested people from being selfish. This, as we all know, often becomes a self-fulfilling prophecy.

We prefer the solution of the Mondragon Cooperatives in the Basque region of Northern Spain (see IN CONTEXT, #2, p44). There an elaborate cooperative society involving hundreds of thousands of people has been developed without paternalistic structures. The structures are such that they reinforce trusteeship behavior while allowing the freedom to go against it.

Applying this system to the CLT, the first thing is to escape the for-profit/non-profit dichotomy. We encourage people to organize their CLTs as "cooperative corporations" rather than as "for profit" or "non-profit" corporations. The purpose of a trusteeship organization is not to do one or the other of this usual split, but to do both as appropriate.

Secondly, each member needs to make a significant commitment to the organization to have him or her feel at risk if the enterprise is not successful, to cement a sense of personal responsibility for success. In the worker-owned and controlled businesses of Mondragon, each worker commits an investment of from half to a full year's salary.

It is not necessary to have this on the first day of work. A note can be signed making the worker liable for it. Then it is taken out of his or her salary without interest until it is paid, usually over a three to five-year period. This solidifies each worker both physically and psychologically as both a worker and an owner, or participant and trustee, right from day one. Thus the trade-offs which always exist in the physical world are fully accepted by both sides of an individual's (and the group's) mind.

To do the same in a CLT is not as easy. The members are not working in the CLT daily, and they have not in the past shared in any of the profits.

The TI-model solves this by having each member commit a significant amount compared to other membership organizations. It is our belief at TI that this cements the commitment "relative" to other membership organizations, which is adequate. So each member's share of common stock is $100, $500, $1,000 or more depending on the situation. As in Mondragon, the capital is not allowed to be a barrier to membership. Each potential member may sign a note and pay the membership fee over time at no interest. As with Mondragon, this restricts the open membership to those who are willing to make a commitment to take responsibility as trustees.

Remember, the purpose is not to get everyone in the community to become a member. We are not suggesting a consumer cooperative model but a worker cooperative model. Consumer cooperatives are notorious for low attendance at membership meetings, often allowing immature and irresponsible forces to achieve control and destroy the cooperative. The purpose of our model is to assure that those who do become members will be at risk to a significant degree to assure that they will manage the business to prevent the loss of their capital as well as to serve the land trusteeship needs of the community.

Just as with a Mondragon Cooperative, the share of stock in the CLT has a par value of $10. The Membership Fee is the balance, $100 to $1,000 or more depending on the community. This goes into an internal account in the member's name. It is treated as a loan from which the member gets interest in cash each year. We suggest that the interest rate be the rate of inflation so that the member does not lose purchasing power.

Should a member move out of the community, or choose to cease membership in the CLT for any other reason, the CLT will buy back his/her share and return the balance in the internal account.

Also, as in the Mondragon model, two-thirds of the Board of Directors are people who live on trust-owned land and one-third are members who do not. The reason for this is to eliminate paternalism (parent-child patterns) from the organization and base it on adult-adult patterns. Restraining people through outside forces is not constructive. As Mondragon and Gandhi both learned, people are constructive and creative when they are free and join together for good purposes. So the TI-model does not fear that members living on trust-owned land will necessarily be against growth or be unable to constructively balance their own interests with those of liberating land from the speculative market for others in their community and around the world. In fact, it is believed that this spirit of serving others and one's self at the same time (cooperative, not for-profit or non-profit) is the lifeblood of the organization.

(The conservation trust (SCA) would be structured the same way, with two-thirds of the Board being people who live on trust-owned land (but not necessarily SCLT land), and one-third from Shutesbury in general. The membership fee for the SCA would be minimal, $10, with only residents of Shutesbury eligible for membership. Legally the same people could be the Board of Directors of both organizations. However, we encourage groups to have different people be on each Board to get more focused work from everyone.)

At the end of each year, SCLT could have profits, especially as it approaches outright ownership of a substantial portion of the land in Shutesbury. Of course, it could arrange the lease fees to assure that there aren't profits, but that would foreclose some important opportunities.

If there are profits, TI-model by-laws call for no more than 10% to be distributed to the internal accounts of the members. This is because the concept of trusteeship allows for income only to those who do work, and members need to do no more than attend a few membership meetings a year. The capital does not go to them in cash, but rather to their internal accounts to be used to buy more land. Each year the member continues to receive the interest, however, in cash unless s/he requests that it remain in the internal account.

Of the remaining 90% of net profits, 30% can be loaned or donated to the local community to meet any social needs, 30% is loaned to (or used to purchase preferred shares from) other communities to begin their own CLT, and 30% is loaned to CLTs in other nations.

The purpose of these provisions is to give the SCLT a clear commitment, from day one, to the health and welfare of the entire community of Shutesbury and to the CLT movement throughout the world. Once most of the land in Shutesbury is owned outright by the SCLT, its lease fees could be low yet a substantial amount of net profit could be accumulated after expenses. Of course, the SCA, which will have accumulated substantial capital, will also purchase preferred shares in other CLTs to assist global land trusteeship.

The hope is that this model will allow committed people to band together in a responsible way to further the liberation of land from the speculative market in a way that is growth oriented not only for the benefit of their own community but also for people around the world. Such programs in the private sector have far greater hope of bringing about a return to peace than anything our governments can do because these governments are so easily manipulated by the current economic power centers in the community. Only when the economic centers in the community are dominated by the attitude of trusteeship will trusteeship be the way of the government. This was Gandhi's belief, and we at Trusteeship Institute agree.

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