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CLB: A Vehicle for Political and Economic Empowerment of Individual Citizens at the Community Level

by Norman G. Kurland, Center for Economic and Social Justice

“The only way we as black people are going to get anything is through ownership, because ownership brings power. We don’t have enough power. That’s why we can’t change things.”

Earvin (Magic) Johnson,
responding to governmental initiatives following 1992 Los Angeles riots

Magic Johnson hits the mark. He understood, as did Daniel Webster and America’s other founders two centuries ago, that “power naturally and inevitably follows property.” Wages and welfare are not enough to solve the problems of economically vulnerable people who live from hand-to-mouth, who have no ownership stake in wealth-producing assets, and who have lost hope that they and their children will ever share in the American Dream. Without saying it, Johnson was speaking also for over 90% of all Americans. This explains why so many turned so eagerly to Ross Perot in search of an alternative to traditional politicians and their half-baked wage-and-welfare solutions.

What Perot’s disappointed volunteers learned, however, was that the solution is not to be found in The Man, but in The Plan. Perot had no plan for empowering people, and while he stated that Americans “own” their country, he had no vision or plan for enabling them to become owners.

What is needed is a new plan that would allow the poor in the inner cities (and in poor rural areas) to share in significant ownership opportunities flowing from development of these areas. There is a crying need for a massive infusion of new capital. But simply applying “tried and failed” strategies and concepts will merely result in continued exploitation and further concentration of wealth and power in the hands of the few. Simply giving people in the inner cities and other areas of crisis access to minimum wage jobs or additional welfare solves nothing. Neither does giving them access to additional consumer credit that will enable them to spend themselves into oblivion. Any solution must be real, and not a placebo that gives a “feeling of ownership.”

What is the Citizens Land Bank?

The Citizens Land Banks (CLBs) [previously referred to as Community Investment Corporations (CICs) or Citizens Land Cooperatives (CLCs)] is one of several innovative credit financing vehicles, practical components of a free-enterprise vision for re-humanizing the future of the American economy. The Citizens Land Bank is a keystone of a new private sector strategy for building livable and inspiring “new communities” in which every worker and resident would be afforded the right and the effective means to participate personally in capital ownership accumulations, in profits and in local decision-making. The CLB would function just as the Rouse Corporation did in building Columbia, Maryland or the Reston Corporation did in building Reston, Virginia-but with a difference. It would turn community residents into its principal shareholders.

While the CLB would create new private sector jobs and entrepreneurial opportunities, its main accent is on widespread participation, particularly in the ownership of land, technology, buildings and infrastructure that must be fabricated upon the community’s land for expanding the local economy. The Citizens Land Bank is designed to serve as a for-profit land planner and private sector developer geared to rational innovation and change at the community level.

Using the most advanced tools of the free enterprise system-especially innovative credit and financing tools-the CLB would create new owners of newly created assets, without taking existing property away from present owners. Just as the Homestead Act of 1862 enabled propertyless settlers to become owners of 160-acre homesteads in America’s land frontier following the Civil War, the CLB would decentralize ownership of America’s future new communities and land development. The industrial frontier, unlike land, has no known physical boundaries. This fact alone helps us to avoid the many inequities under the original Homestead Acts, particularly for Native Americans and African Americans.*

The CLB strategy and its institutional structure for mobilizing citizen action are easily adaptable to areas of virtually any size, such as land surrounding nodes of a mass transit system, a downtown renewal area, or an inner-city neighborhood. The CLB can even be adopted for an entire city, metropolitan area or natural region of the country.

The CLB would create new opportunities for corporate executives, real estate professionals and the best advisors that money can buy, but they would be accountable to the CLB’s lenders and shareholders through the CLB’s broadly representative board of directors. Local enterprises could then compete more dynamically in the global marketplace without special protections or subsidies.

One word of caution. The Citizens Land Bank is radically different from ownership schemes such as Community Development Corporations (CDCs), Community Foundations, and Community Land Trusts. These misguided tools of development, launched in the ill-fated “War on Poverty” of the 1960s, produced poorly-managed enterprises whose ownership and control were collectivized into the hands of the few who controlled the organizations and local jobs. These approaches failed to decentralize access to economic power and profits by widespread personal ownership of local enterprises. By centralizing ownership, CDCs empowered local leaders, not the people.

The CDC empowered a small political elite. The CLB is designed to empower the people.

Problems Addressed by the CLB

The Citizens Land Bank directly addresses a number of obstacles, both economic and political, faced by conventional real estate developers:

  1. It solves a major stumbling block to new development: how to finance pressing private and public needs for new capital and new technological advances, while enabling non-owning, low-income residents and workers to become new owners of this capital growth. The CLB incorporates at the community level the practical systems logic, unique tax incentives, and high-leverage financing innovations developed by the late Louis O. Kelso. Kelso’s financing innovation-the Employee Stock Ownership Plan or “ESOP,” has transformed over 11 million U.S. workers into worker-shareholders in over 10,000 U.S. corporations.
  2. It minimizes the drainage of appreciated land values and real estate profits that would normally flow outside the community to wealthy domestic or foreign investors and speculators, by providing a practical means through which community residents can share in equity growth and profits from development.
  3. It opens a “hidden door” for welding a wholly new, healthy, and mutually profitable coalition between major U. S. corporations, labor unions, private financial institutions, local government, and the residents of each new community. Labor unions could play a major role in shaping a “new social contract” and helping to educate and organize workers as well as community residents on issues of expanded ownership and profit sharing.
  4. It extends direct incentives for every individual affected by community development, through new ownership and job opportunities and by creating effective new institutional channels through which everyone can share power and become creatively involved in shaping his community.
  5. It offers a virtually limitless challenge with significant, heretofore untapped economic rewards for motivating all parties interested in the restoration of old cities or in the building of “frontier cities” of the future.
  6. It provides a vehicle for creating model “growth economies” within proposed “Free Enterprise Zones”, which can capture tax and credit incentives for zone investments in ways that maximize ownership opportunities for zone residents.

How would the CLB work?

As a financial device, the CLB would be a conduit for credit and other funds from various private and public sources for the acquisition and development of land and the capital infrastructure of the community. By design, such capital would be represented by CLB shares acquired by residents and other eligible persons at the lowest cost and generally with little or no down payment. The CLB would guaranty repayment of stock acquisition loans, pledging CLB assets (i.e., land, structures, equipment and receivables) as collateral. Credit for purchasing CLB shares would be repaid wholly with future CLB profits earned primarily from land sales and leasing. Residents would put up no personal savings to purchase CLB shares, and would not be personally obligated in the event of default on the share acquisition loans. The CLB would also serve as a community-based “stock exchange” for repurchasing CLB shares from outside investors or residents who move outside the community.

The CLB would also provide attractive discounts in the sale or leasing of land for commercial or industrial purposes to corporations adopting ESOP financing techniques for their employees or residents of the community. Profit-making subsidiaries of the CLB would be financed generally by loans which, when retired, would produce new capital estates for their employees and community residents. The following diagram describes graphically how the CLB and ESOPs build ownership into community residents and workers:

Who Will Be the Owners of a Citizens Land Bank?

The initial ownership structure of the CLB would be composed as follows:

  1. A portion of the initial equity would be held by a consortium of major corporations, developers, construction firms, unions, banks, insurance companies, foundations, and other private investors. They would form a partnership and provide cash in the form of a loan or investment to meet the CLB’s initial capital requirements, mainly for planning and start-up costs and to purchase the land from the local renewal agency. The CLB would hold repurchase options on equity held by the consortium.
  2. The majority of the initial equity would be divided on an equitable formula basis among:

(a) Employees and management of the CLB, based on funds borrowed and repaid through an Employee Stock Ownership Plan (ESOP) Trust set up by the CLB.

(b) Corporations leasing or purchasing CLB facilities, based on funds borrowed and repaid through an ESOP Trust set up by each of their employers.

(c) Employees and management of construction firms involved in building community facilities and infrastructure, based on funds borrowed and repaid through an ESOP Trust set up by their employers.

(d) Employees and management of public utilities, transportation systems, waste management, public works, and other infrastructural facilities serving community residents, using ESOPs set up by separate enterprises or under a CLB umbrella management.

(e) Utility customers and regular mass transportation riders, based on funds borrowed by a Consumer Shareholders Association or a users’ cooperative, in a manner similar to an ESOP but repaid with patronage refunds from operating profits.

(f) All community residents, public sector employees, teachers and public safety employees, workers for non-profit groups, the aged and disabled and others designated by the community, who would begin to “earn” CLB shares repurchased from initial investors as well as new stock issuances of the CLB through a Community Shareholders Participation Plan (described below). Community shareholders would gain their equity in the form of CLB shares from publicly donated land and access to low-cost capital credit to meet CLC financing needs and repayable with future CLB profits. The CLB will require changes in Federal tax and credit laws similar to what is provided today for employees of ESOP companies and what was once provided through General Stock Ownership Corporations under the now-defunct Subchapter U of the Internal Revenue Act, allowing for all citizens of a state to become shareholders in such large-scale operations as the Alaskan oil and gas pipelines.

Where Will the Money Come From?

The key to future ownership opportunities is access to capital credit, which, like the ballot in politics, is a uniquely “social good” (i.e., both its existence and access to it are by-products of our legal system). The ultimate source of this particular social good is the Federal Reserve System, which Congress has given the power to create money and expand bank credit, presumably for productive rather than non-productive purposes. If access to capital credit for developing “new communities” and “free enterprise zones” is concentrated, as it has been in the past, future ownership power will be concentrated.

The principal lenders for building broadly-owned new communities through the Citizens Land Banks would be local commercial banks. The future and ultimate reservoir of low-cost credit for these banks would be the Section 13 discount mechanism of the Federal Reserve, which normally lies dormant except in emergency situations like the $3.5 billion bailout of the failing Continental Illinois Bank. All that is required for widespread use of CLBs is a minor amendment to Section 13 of the Federal Reserve Act designating CLB and ESOP loan paper as “eligible paper” at the discount window of the regional Federal Reserve Bank at a special discount rate of 0.5-1% (representing a “service charge” for this new credit facility). When the banks add their normal mark-up on their cost of money, the resulting prime rates to CLB and ESOP borrowers would drop to 3% or less, significantly reducing the cost of local capital and making local enterprises more competitive globally. More important, it would free these communities from continued unhealthy dependency on wealthy foreign and domestic outsiders, and greatly expand bank liquidity for building livable communities throughout America.

Advantages of the CLB Approach to Land Development

The most unique function of the CLB is to sell or lease improved land at cost for home buyers, and at the most favorable prices necessary to attract industry and to induce corporations to make maximum use of ESOP financing-but never below cost. From a financial standpoint, this would provide several advantages over conventional approaches to developing large tracts of land:

  1. Some profits from land development and appreciation that normally would be drained off by real estate speculators could be discounted from the sale or lease price to produce competitive advantages for attracting new industry to the area and thus create local jobs and ownership opportunities not available elsewhere. Additional discounts could be provided for companies which finance all or part of their capital requirements through ESOPs covering community residents.
  2. Significant additional tax advantages not normally enjoyed today would be available to corporations that use ESOP financing techniques for their capital requirements.
  3. Workers and residents would gain expanding equity interests in the land and the other productive capital developed in a community with a CLB; this would provide residents with expanding “second incomes” beyond wages and welfare, without increasing local production costs. This in turn would increase local marketing power for the housing and other consumer items that are locally produced.
  4. Assuming all other factors are comparable, improved local marketing conditions plus tax advantages, higher worker motivation, lower labor and construction costs, reduced land speculation, and other cost reductions inherent in the CLB approach, would provide substantial competitive advantages to corporations locating in a community with a CLB compared to locations elsewhere.
  5. Use of ESOP financing by local building contractors would reduce the costs of constructing homes and other structures in the community, further increasing local buying power.
  6. By purchasing equity in land at cost, residents would gain “instant equity” in the form of the appreciation in the value of developed land that normally flows to speculators. (In “frontier cities” located on free government land, land would be sold at the cost of improving the land.) Since such appreciated land values would result from the mere migration of people to the model community and from the normal development process, this “carrot” would provide an added economic inducement for workers and others to consider moving to a CLB planned community.

The CLB in its role as economic developer, would promote balanced and carefully coordinated economic growth and diversification, a climate favorable to investment, and a community setting of unusual attractiveness to all corporate employees.

Moreover, a community serviced by a CLB would enable a firm considering a new location to deal with a single agency. This would avoid the frustrations the firm might anticipate in most situations in attempting to communicate and negotiate with a multitude of city officials, planning commissions, zoning boards, utility companies, transportation companies, Realtors, and other agencies. The CLB would also serve as central broker if the enterprise decided to move or exchange his location within the community.

A CLB development plan would provide innovative “invisible tools” for breaking through today’s barriers to better transportation systems, more advanced utility and waste management systems, and innovative industrial housing:

  1. Transportation Systems. The land use plan would allow for a coordinated and comprehensive transportation system (including highways, airport development, waterways, walkways, etc.) integrated with the urban growth policy of the surrounding region and providing for maximum use of advanced transportation technology. The transportation company might be a wholly owned profit-making subsidiary of the CLB, owned jointly by its employees and resident-users, and financed through ESOP techniques.
  2. Utility and Waste Management Systems. The CLB would also plan and develop all utilities and community waste management systems as part of the capital infrastructure of the community. These could be operated and owned similar to the CLB subsidiaries for transportation services. ESOP financing would allow the CLBto install the most advanced, “integrated systems” technology for recycling solid waste and waste water and for controlling thermal and air pollution. This would permit all normally wasted or misplaced resources to be efficiently conserved for new productive purposes by the local economy, thus avoiding in advance ecological damage from normal community and economic activities that could easily be avoided by more extensive use of available technology.
  3. Innovative Industrial Housing Demonstrations. The CLB offers a unique setting for developers of new housing technologies such as those promoted by the U.S. Department of Housing and Urban Development. Mass production of low-cost housing would enjoy optimum conditions in our model community. Land provided at improvement cost would significantly lower total housing costs for any structure. Coordinated and planned transportation connections in the model community would also offer production and marketing advantages for industrial housing developers seeking a planned site to demonstrate their models, as well as a ready-made consumer market in the highly motivated labor pool that would be attracted to a CLB-designed community. In addition, the costs for construction and industrial labor in our model community would tend to stabilize and even become reduced as workers, with the support of their labor representatives, gained higher incomes through equity ownership and profits in corporations employing America’s most advanced types of industrial capital. Further, the CLB would serve as central broker and marketer for the industrial housing developer as it promoted the expansion of the model community, and would protect a developer’s investment from unplanned development of surrounding lands.

As the community was completed, the CLB would shift its function from that of central planner-developer-promoter to a community service organization, promoting privatized and competitive delivery of many services traditionally provided by public sector monopolies. To the extent the private sector fails to deliver services demanded by community residents, the CLB can “contract out” for these services.

As a planner, coordinator and facilitator of community services, the CLB would become a catalyst for providing market-oriented solutions for the delivery of quality community and housekeeping services, from community-based police to health and educational services. For example, local schools could operate on a competitive rather than monopolistic basis, assuming that parents could receive educational vouchers in such amounts that would enable them to choose among a variety of accredited public and private schools for the quality and type of education the parents feel would be best for their children.

The CLB would remain permanently in the position of maintaining and renewing, whenever necessary, the community’s capital infrastructure. The CLB’s charter would be designed to clearly define its various and changing functions and allow for orderly modifications of its ownership structure, from one partly owned by outside investors to one entirely in the hands of residents and CLB employees.

In addition, the CLB could assume the responsibility for:

  1. Coordinating with the local government on public activities that might improve the attractiveness of the community for residents and industry.
  2. Acting as a land bank, maintaining parks, greenbelts, and unused land for the common good.
  3.  Developing and maintaining public roadways, coordinated closely with the planning for broadly owned private corporation to operate the transportation systems. (This could be a subsidiary of the CLB.)
  4. Stimulating corporate and citizen participation in the development of educational, cultural, recreational, and other leisure activities of the community. (These could be non-profit subsidiaries of the CLB.)
  5.  Maintain (or assisting local banks to establish) a revolving loan fund to assist in the financing of new residential and commercial development.
  6.  Providing maintenance, repair and landscaping service for the general community.
  7.  Inducing capital-intensive private corporations having “natural monopolies” (e.g. telephone, utilities, waste collection and waste management, mass transit, cable television, etc.) to finance their development so that users can share in ownership with employees. (Such businesses could be wholly-owned subsidiaries of the CLB.)
  8.  Enabling civil servants to gain equity shares in a special real estate development corporation which would build all authorized public facilities and lease them to government agencies at sufficient long-term rentals to cover expenses and amortize bonded indebtedness, eventually creating significant capital estates in real property for all civil servants.
  9.  Distributing to residents CLB shares and full dividend payouts from all income-producing assets of the CLB.
  10.  Creating non-profit or limited profit subsidiaries to receive government housing, renewal, or other available funds that cannot flow directly to the CLB or into planned development generally.
  11.  Establishing a “Neighborhood Congress” or a non-profit Community Development Corporation to receive donations and government and foundation funds for developing community policies and programs and for meeting the community’s transitional “safety net” needs, particularly for those unable to work or meet their basic housing and other needs.

Other Functions of the CLB

By its nature, the Citizens Land Bank would function as a buffer for scrupulously maintaining a separation between the political and economic development of the community. Consistent with Louis Kelso’s theory of political economy, this clear-cut separation of functions between the public sector and the private sector would promote maximum empowerment and participation of each individual in both the political and the economic life of the community. It would also provide the business community with the opportunity to restore its “social face” in the eyes of the media and government regulators. Corporations could thus be insulated from excessive political pressures while maximizing profits and operating efficiencies for the benefit of their new owner-constituents. History offers overwhelming evidence that business and politics do not mix well.

Under the ideal scenario, the Citizens Land Bank would be the initial owner of all the land in the community to be developed. In its planning capacity, the CLB would provide a unified and professional management structure to determine the most appropriate land use of each parcel (subject, of course, to community and local government review and master plans). The CLB would also serve as the prime contractor for developing the land and physical infrastructure (including utilities and transportation) to the point where businesses and home buyers could start building. If necessary, the CLB could even develop its own construction subsidiary.

Community Shareholder Participation Plans: Options on How to Distribute Non-Employee Shares to Community Residents

In the case of shares acquired on credit through leveraged ESOPs, employees “earn” their shares generally on the basis of their relative compensation in the company, up to a salary ceiling of $200,000 (as allowed under federal tax law). Thus, if a worker earns 1% of total payroll (not counting incomes above $200,000), he gets 1% of shares allocated that year. Present tax laws offer attractive incentives for building significant employee ownership stakes for companies with ESOPs.

Assuming a CLC is feasible, the problem remains on how to spread whatever “new capital pie” could be created for community residents who now live in or will be attracted to move into the “new communities” to be financed and developed through CLB financing. One possible solution is to provide residents within the defined geographical area which the CLB defines as its “community”, with meaningful opportunities to earn their capital ownership stakes through voluntary participation under a plan developed by their “Neighborhood Congress”, non-profit community services corporation or local government. In this way, goals of “self-help” and local self-government under the Community Shareholders Participation Plan could be reinforced by a financing plan to turn residents into CLB shareholders on borrowed money.

Since leveraged purchases of shares through ESOPs and CLBs depend on guaranteed loans from normal private channels repayable wholly from future corporate earnings, cash from residents would not necessarily be required.

Every community would structure its own participation plan, developed in a democratic manner. Ownership eligibility for non-employees could be based solely on community participation or on residency alone or on a two- or three-level point system, using the per capita income of a household to determine the maximum “reward” it could earn. For example, a household whose annual per capita income was $5,000 or less might earn up to, say, 100 points, while the maximum for higher-income families would be proportionately less, sort of the reverse of a graduated or progressive income tax. The actual award of eligibility points, however, would not be automatic but might depend on significant participation in community affairs. Such participation could include active membership in the community corporation, involvement in neighborhood elections, voluntary participation in approved classes (e.g. capital ownership and how to preserve it), community improvement projects, and, perhaps, bonus points in special programs for addicts and alcoholics.

Every year or so, each household (by knowing the cumulative total of points earned by all households) could determine its earned “slice” of the “new capital pie” which was channeled through the Citizens Land Bank for that time period. Legal title to the shares would be held in trust until the capital loans they represent were repaid. Subsequently, the shares could be distributed or left in individual or family accounts set up within the Citizens Land Bank for community shareholders. Voting power would be passed to the new owners as their rights became “vested.” Each year new shares could be earned in a similar manner, thus generating concrete opportunities for residents to participate in their community through a “vested interest” in its economic future as well as in its political development.

Mobilizing Existing Institutions

In our view, all groups concerned with community economic development should begin to study alternative strategies for mobilizing, rather than fighting, the strengths of major corporations, major unions, and major financial institutions, and redirecting those strengths toward addressing the issue of structural maldistribution of ownership and control of wealth-producing enterprises. Major institutions have long been criticized as the enemies of social justice. In many respects, however, they have also been the victims of obsolete or inadequate paradigms of thought. These institutions need to be transformed into instruments of social and economic justice. The ESOP and CLB are useful tools for achieving such transformation within the framework of free enterprise.

How Politically Realistic is the CLB?

The Citizens Land Bank was first introduced under a 1971 contract with the U.S. Office of Economic Opportunity for application in the New England region. In 1983, the CLB was re-introduced as a “General Stock Ownership Corporation” by Senator Gary Hart and Congressman Parren Mitchell in their proposed “Community Assistance and Revitalization Act of 1983.” Several communities and high Federal officials who have studied the Citizens Land Cooperative recognize it as a major financial and organizational breakthrough in the design of the “invisible structures” underlying physical development.

Unlike most Enterprise Zone strategies, which some critics have described as “trickle-down capitalism”, the CLB would not rest ultimately on taxpayer support in the form of rent, interest, or other subsidies in order to be viable financially. The CLB approach would also avoid making the rich richer and the poor poorer. Resistance from most taxpayers to more tax shelters and more tax subsidies, most of which are structured to make the rich even richer at the taxpayer’s expense, is already close to its breaking point. Rather, a CLB could be organized on a regional, or local project basis to conform to the rigid business logic inherent in Kelsonian economics and broadened capital ownership, which the Joint Economic Committee of Congress declared in 1976 as a new national economic goal.

While the CLB does not yet enjoy the tax and credit incentives available to workers through ESOPs, new political leadership is emerging in Washington who have promised to back the CLB concept. Congressman Mike Espy (D-Miss.), the House Majority Whip At-Large and a leader in the Congressional Black Caucus and the moderate Democratic Leadership Council, has endorsed this plan for more more equitable sharing of America’s growth. He recently wrote:

“Clearly, many of the well-intentioned programs designed to assist those who are locked out of the benefits of the economy haven’t worked. . . . That is why I support legislation to promote expanded ownership by promoting ESOPs through enterprise zones. . . . In the long run, I believe your proposal to restructure our tax system and Federal Reserve policies . . . also has tremendous potential to expand ownership in our economy.”


In conclusion, the Citizens Land Bank offers Americans a new opportunity to rebuild community life, from the ground up. Hopefully, this new private sector vehicle for community development will be part of a new national ownership strategy aimed at re-industrializing and re-people-izing the American economy so that we can again compete more effectively in the global marketplace. Inspired by the original American Dream, the CLB allows us to revive the original free enterprise spirit of America. It offers all Americans, living and working in their local communities, a chance to share real power and their own “piece of the action.”

July 24, 1992, Updated 2010