The Big Picture of Financing
(Revised 30 August, 2012)
When the subject of building a $1 billion EcoVillage for 5,000 people comes up, financing it seems to be the primary issue in most people's minds. It's just not quite enough to say that the cost of an EcoVillage (EV), including a 10% profit for the Community Development Company (CDC), is much less than half the cost of one B2 bomber. (Wiki tells us - "The total program cost, which includes development, engineering and testing, averaged $2.1 billion per aircraft, in 1997 dollars!)
Many of the attempts at "intentional community" are relatively high in their financial requirements for anyone wanting to live there. (One SFIA student lives in New Zealand in a small community of 15-20 dwellings, and finds that the capital needed to live even a relatively simple rural life needs a fairly substantial up front investment, just to buy the land.)
This is why the first activity in establishing an EcoVillage should be to get the community's economic base founded solidly on those business and industries necessary for constructing the community and its infrastructure. Providing a means of well-paid local employment makes it is possible for the average blue-collar person to live there. In fact, I will go so far as to say that, we don't really need to exert ourselves to encourage the richer folks to live in the community, since the amenities and advantages will be very attractive, and the more wealthy, so-called middle class, will automatically flock to buy in. That's fine, if they are willing to share in the costs along with the benefits.
There are ways to sort out who will be attracted to a community, and to set things up so the type of people you want as neighbors will actually get there. One method is to put the idea of sharing in the community out front, so that all who are repulsed by such a notion can be warned away. This part of the reasoning behind having a community capital gains tax on the profit of all re-sale of homes or other buildings, included in the basic EcoVillage format. The tax would amount to about 45%, and would be levied on all profit, over and above the initial cost of a home, or business building, after an allowance for inflation (if any), and minus any verifiable and approved owner improvements. In addition to generating income for the community, this will weed out those only interested in real estate speculation, and anyone who don't understand that the reason property appreciates in value is primarily due to the community as a whole, and not just their own business acumen, and their own personal wonderfullness.
The philosophy of the EcoVillage concept, at least as proposed here, is that to a great extent it breaks from the standard corporate goals. It is evolutionary, and besides just building the EcoVillage project, the set up creates a "bifurcation" in the ways of doing corporate business. This change in business focus, intends to alter the future role and essential nature of development corporations, and corporations in general to better respond to the task of creating community as a "human-ecosystem". It is better to do this with the for-profit company, in order to inject a more forceful message of community-service from any corporate structure, into the public consciousness.
Another philosophical component of the EcoVillage is that, those who buy into the community, including renters who are also citizens, take on the community stand that it will "take care of its own". It has become apparent that, to depend on the federal government to provide of the well being of the citizens is reasonable, and that it will be much less costly if we just decide to do it for ourselves, and cut out all the middle men and women. This commitment means that from the beginning the community will have a strong orientation toward establishing a very complete and active medical component in the EcoVillage, including diagnostics, laboratories, clinics and practitioners with a wide range of skills. Magnificent and costly hospital buildings will not be constructed, and simplicity in diversity will be the guiding motto.
For our species to approach ecosystem quality, and to achieve true sustainability, the idea of a human community as just one more "natural" ecosystem, needs to be kept in the forefront as the goal. This means that the energy and material flows of the community, including all human-created technologies, will become interconnected loops, or cycles, for all activities essential to on-going human life. And, these cycles will be arranged so as to also be beneficial and "life-enhancing" for the other surrounding life. That life-enhancing quality is what Lewis Mumford meant in 1934, by coining the term "Biotechnic Era", to describe what he saw as the next all-embracing historical focus in human socio-economic development; a shift to the next paradigm, or world view.
The concept of community-as-ecosystem will serve as a powerful guiding force. It will require resolving or "closing the loops", and some of the more important of these cycles are:
- energy, in the form of unused heat from one process, becomes "food" for another industry or process,
- energy is generated renewably, as the sole source for a community,
- water is recycled, after any needed purification, back to the aquifer,
- human and animal garbage and sewage will recycle its nutrients back into food production of some sort, not golf courses or tree farms,
- solid waste recycles its paper, glass, metal and plastic as "feed-stock",
- most energy, food and materials for the community are derived locally.
This is the basic economics pattern required for any truly sustainable ecosystem.
The Community Development Company (CDC) mission, and its product, is building long-range viable (sustainable) EcoVillages. The CDC designs, builds and sells this product, that in addition to going for long term ecological sustainability, aims equally at economical sustainability. Human economics must now be consciously crafted to be part of human "ecology". The community is now considered as a totality, essentially a human-ecosystem, and is set up to create abundance and "wealth" for the entire community, rather than for specific individuals, although everyone benefits hugely. "Wealth" here is meant in the Bucky Fullerarian sense of, "The ability to forwardly organize life and life processes." This view of wealth transcends money, and acts as a psychological impulse to guide community-creation as ecosystem.
The way to address financing in terms of money requirements, is by recognizing that different, but complementary and interrelated, arrangements are required for the different categories.
- Community Development Company (CDC) (the design/ build co.)
- individual Citizens of the EcoVillage
- on-going EcoVillage community itself
We are currently in danger of "throwing the baby out with the bath water", when considering the corporate business form. Due to the many failings of corporate structure and management, they have gained a deservedly bad name. It is time for that basic form to undergo a transformation.
1) Monetizing the CDC stock, happens by the company paying up to 50% of employees' wages, or consultants' fees, with company stock. (A much smaller percentage is estimated to be accepted in payment for vendors' materials and equipment.) This equity, and the resulting employee ownership, gives the CDC a huge financial boost of up to 50% of its labor costs, and employees now have a strong interest in the well-being and success of the CDC. Since the CDC is willing to take back the stock as a down payment for up to approximately 25% of the value of a home, or business building, the stock is considered to be "monetized" as a local currency, the moment such a re-aceptance exchange takes place.
2) The CDC, from its investment capital or land sales, sets up a community-owned credit union, or small bank, to make no-interest home and other building loans to employees of the CDC, and later employees of the municipality itself. It will also get funding for loans from on-going sale of Development Rights, above the 500% markup to the CDC. Investors capital will be paid back to the CDC but without interest on the theory that since the CDC will make about 20% profit on the buildings, it need not "double dip" the buyers, and the averaged CDC profits from building sales will still exceed 10% overall.
Buyers will be charged a small fee to process the loans and pay the credit union overhead, which is estimated at $50 per month for a standard home loan, or slightly over three tenths of a percent of the building cost per year. (This is not to be confused with interest, or with compounded interest, as it is a flat fee, and amounts to about .32% per year X an average loan of $187,500, for a total of $9,000 handling fees over the entire 15 year projected loan time. (A total of 4.8% of the loan.) Accumulating the down payment will take different employees differing lengths of time, but if an employee decides to take $10 of a $20/hour wage in CDC stock it would take about 3 years for the down payment. They could choose to pay less or more if their spouse is also working.
With a down payment from wages monetized of 25% ($62,500) on a home costing $250,000, and paid at half of an average employee's income of $20/hr., at the rate of $10 per hour, it would take 37 months to make the down payment. If it were a couple, both getting the same wage, and paying at the rate of $20/hr., it would take 18.5 months for the down payment, it would be 4 more years and 7.633 months to pay off the home, including the 1.33 months for the handling fees for the entire loan. This would be a very dedicated couple, who were willing to concentrate wholeheartedly in order to own a home. In the same period they would have earned together an additional $187,950, or $40,540 per year.
3) Financing individuals takes many forms. One of the chief ways a community can benefit its members is by negotiating bulk purchases on everything from food to health insurance. Having access to the results of this bargaining power is a huge boon for reducing the individual's expenses for the essentials.
4) CDC sets a limit on their land-sales profit (let's say 500%), and then the entire land, is put into a land-trust belonging to the EcoVillage, or perhaps even more simply, just set up under ordinary condominium law, which amounts to about the same thing. As the town is developed, the land values rise. Upon the sale of any building, together with its land component, all appreciation of land value (over the original % markup for CDC profit), charged, goes into the community trust fund.
Example: A 5,000 acre ranch we looked at in the San Mateo Mountains, 50 miles from Socorro, NM sold for $300/acre, $1.5 million. The CDC would charge $1,500/ acre, and receive $7.5 million by build-out. This helps some with development costs, and is standard developer practice, but it is very modest return, with the majority of appreciated value going into the EV Trust.
5) This land-ownership form also allows for a Henry George type of "land-tax" solution to ongoing community financing, which would be part of the usual "operational fees" paid by any condo owner into their common fund. The condominium is of the usual sort, where all land belongs to all the owners as a group, and no specific piece of land can be sold by anyone, and only what is called "an undivided interest of the whole" that goes with any sale of a home or business building.
In our adobe dwelling condo project of 32 units, in Santa Fe in the 1970s, some were single family, some duplex.
6) The CDC can sell unbuilt space as a Development Right (DR), whether on the ground, or up in three dimensional space, where it is simply described by set of x,y,z coordinates. If that DR is sold, it is subject to the same capital gains tax as if the building were built. As with any standard development, all design and construction is done by the CDC.
7) The individual citizens' costs of living can be reduced by the CDC (and as it develops the EcoVillage itself), negotiating the bulk-buying of necessities, such as food and vehicles, and all types of insurance. (See "Winning the Insurance Game" Ralph Nader and Wesley Smith)
Also of importance, are Jane Jacobs' economic ideas from her writings:
- “The Economy of Cities,” 1969-1970, Random House, Vintage Bk.
- “The Economy of Regions, ”The Annual E. F. Schumacher Lectures, Oct., 1983, Mt. Holyoak College, S. Hadley, MA.,
- “Cities and the Wealth of Nations,” 1984, Random House,
- “Dark Age Ahead,” 2003, Random Rouse.
8) Then there is a more subtle general income, shown in the" Wealth Generation for an Ecologically Sustainable Future" data, sent you 12 Dec., in the Evaluation on "Geometry of Design".
9) A community sales tax, for non-residents, (probably 3%) will apply to all products and services, whether retail or wholesale, entertainment or educational, provided to visitors to the EcoVillage community. There will also be other fees charged to non-residents, such as a hotel bed-tax, fuel taxes on hydrogen, gasoline, diesel fuel, and electricity (for RV’s), camping, and a special capital gains tax on profit from selling a home or business structure.
10) The following are the income vectors planned for the EcoVillage. They begin as CDC businesses, and are sold to the town, when and if the municipality so chooses. As each building is sold, ownership of its % of the land is transferred to the EcoVillage Trust, since any building sales will include a % of the total land in its purchase price.
(For example: If there are 2040 dwellings built, each one will bring with it a proportional % of the total community residential land, including all public open space and land area occupied by public buildings. This % is probably most fairly based on square footage sums of all Residential, Commercial, Office and Industrial uses, and will be allocated and charged upon sale of those buildings.)
EcoVillage Income Vectors
(An item's Gross Yearly Income X Allowable Net % of CDC Profit = Net Co. Income)
(RCOIP, as shown below = Residential, Commercial, Office, Industrial, Public)
Vegetables & Grains
c. Farmers' Market:
d. Conference Center
g. Tourist Events, & Tourist Sales
i. Building Leases:
j. Sale of a Residential Development Rights (DR)
k. Sale of DR, Commercial, Office, & Industrial (COI)
l. Building Sales
m. Sale of Start-up Businesses
Long-Term: (2-36 wks.)
Medium-Term: (3 -7 da)
Short-Term: 8 hrs./day
o. Utilities & Services
Public Bldgs (P)
3) Sewage Treatment:
4) Fiber Optics
6) Phone/TV/Internet Uplinks
8) Garbage & Biomass Composting
9) Solid Waste Control & Recycling:
10) Fire & Security
13) Bank & Credit Union:
Residential and Business Loans
14) Property Maintenance (Condo Fees):
15) Heating & Cooling
1) Estimated income for the CDC, averaged over the first 5 yrs. of the EcoVillage from startup = ($34,933,820/yr. X 5 yrs.) (j. thru m.)
2) The estimated overall net annual entrepreneurial income for the EcoVillage during the first five Post-Completion years is a. through h. = $6,727,000/yr. (With o.: Utilities and Services fees being an additional estimated $3,070,400/yr. (Total = $9,800,000)
3) To give a rough idea of the costs of operation and maintenance for a community of 5,100 population, figures from three towns of comparable size in Arizona were used. For 2005, these figures indicate about $5,000,000 per year to be an average cost that could be expected for a town of that size.