Voluntary Buyouts

Introduction to Voluntary Buyouts^{See footnote 1}  

When thinking about managed retreat, “voluntary” property buyouts — where people choose to accept a buyout offer — are often the first adaptation tool that comes to mind (compared to eminent domain or "involuntary" buyouts and acquisitions). While buyouts are a valuable tool to acquire properties in vulnerable coastal areas and remove existing structures, they should be coupled with other tools discussed in this toolkit to prohibit, regulate, and discourage future development or redevelopment as part of a comprehensive retreat strategy.

Most^{See footnote 2} state and local governments use the terms "buyout" and "acquisition" interchangeably to describe the set of actions whereby a government generally: purchases a property from a willing seller, demolishes existing structures on the property, and prohibits future development (i.e., through deed restrictions or a conservation easement) and allows the property to naturally revert to open space (or be restored to specific environmental conditions depending on varying degrees of human intervention) in perpetuity; post-buyout, property ownership can vary among different entities including the government (federal, state, or local) or nonprofit conservation or land trust organizations. Properties purchased through buyouts are generally acquired for hazard mitigation and passive recreational purposes and will already be developed (compared to open space acquisitions of undeveloped property with a high conservation value). For purposes of clarity in this toolkit, “buyouts” will be used distinctly to only describe the former compared to “open space acquisitions.” Buyout programs can be administered at the state (e.g., New Jersey Blue Acres Program) or local levels (e.g., Charlotte-Mecklenburg County, North Carolina, City of Austin and Harris County, Texas, New York City, New York).

Credit: Sandy Urgo, The Land Conservancy of New Jersey.

In regards to scale, buyouts can proceed on a parcel-by-parcel basis or more comprehensively either within a defined area (e.g., a neighborhood), or, where an entire community is relocated (e.g., Isle de Jean Charles, Louisiana). While the latter community-level relocations are an emerging concept in response to climate change and sea-level rise,^{See footnote 3} and likely to be rare in the foreseeable future, it may become increasingly common for governments to move beyond individual, standalone buyouts and evaluate the need for larger-scale buyouts in a jurisdiction’s most vulnerable coastal areas. Specifically, as the threats of sea-level rise, flooding, and erosion become more widespread over time, an increasing number of people, from residential homeowners to landlords and tenants, to commercial business owners, will have to weigh the costs of “staying in place” against the benefits of relocating to higher ground. Where enough consensus from residents can be generated, state and local governments can seek to work through community-based and -driven processes to facilitate larger areas for buyouts, whether the buyouts occur all-at-once or through a phased approach (e.g., to align with funding availability or when set regulatory requirements are triggered, such as like minimum beach width, are triggered). Larger bought-out areas can maximize the benefits that buyouts can offer, including flood reduction through the greater conversion of open space and minimized or eliminated government costs for providing services (e.g., emergency, infrastructure development and repair) to remaining hold-out residents. 

Buyouts in a Managed Retreat Context

Historically, buyouts in the U.S. have predominantly occurred post-disaster in riverine floodplain communities, particularly in the Midwest.^{See footnote 4} Moreover, buyouts have not traditionally been implemented as a part of proactive efforts to prepare for climate impacts, but are more often reactive responses to extreme storms or flooding events.^{See footnote 5} Riverine examples of state and local buyout programs, like those featured in this toolkit, can provide a longer-term lens and lessons learned to avoid “reinventing the wheel” for coastal decisionmakers increasingly encountering similar questions in response to climate change.^{See footnote 6}  

Regardless, the large cost of coastal development and its force as an economic driver can pose political and funding hurdles that are likely to be magnified in a coastal context. The high value of coastal properties and potential reductions in local tax bases can act as barriers for governments considering buying out homes even if they will result in post-disaster benefits and reduce risk. This latter barrier is especially challenging for local governments in states like Alaska, Florida, and New Hampshire where property taxes are a primary form of government revenues. Regardless, as sea levels rise and coastal impacts become more pronounced, real estate and insurance markets may begin to factor in increasing risks of flooding that affect property values in high-risk areas ahead of government action. Some communities have successfully mitigated the negative financial consequences of buyouts by: encouraging and facilitating relocation within the same jurisdiction (e.g., Lumberton, North Carolina, Minot, North Dakota); using buyouts to generate overall cost savings by phasing-out infrastructure and services (e.g., Charlotte-Mecklenburg County, North Carolina, Oakwood Beach, Staten Island, New York, Woodbridge, New Jersey); generating additional tax revenues by incorporating trails and other recreational amenities on bought-out properties for nearby homes (e..g, Charlotte-Mecklenburg County, North Carolina, Harris County, Texas, Woodbridge, New Jersey); and generating new sources of revenue from bought-out properties (e.g., leasebacks in Charlotte-Mecklenburg County, North Carolina and Wyoming County, West Virginia). State and local coastal governments could learn from these and other examples to support potential buyout strategies that can act in advance of disasters, increasing climate impacts, and negative-trending market forces and result in long-term economic, community, and environmental benefits. 

Policy Tradeoffs of Voluntary Buyouts

Practice Tips

When implementing buyouts in a managed retreat context, decisionmakers may consider the following practice tips to address and balance different policy tradeoffs:

• Develop sustainable sources of state and local funding: There is a lack of consistent or predictable sources of non-disaster-related funding to plan for and implement buyouts. Moreover, the amount of funding generally available is not comparable to the current needs of state and local governments, residents, businesses, and other important stakeholders in coastal communities. To minimize the administrative, economic, and social/equity costs of buyouts, the most successful examples of retreat will leverage state and/or local funding sources; however, many state and local governments struggle to identify viable ways to fund adaptation efforts on their own or without significant federal support. In order to implement buyouts in a non-disaster recovery context, state and local governments need to develop new, non-disaster-related sources of funding. Local programs in Austin, Texas (impervious surface cover fee), Charlotte-Mecklenburg County, North Carolina (stormwater fees), New York City, New York (water and sewer bills), and Harris County, Texas (property taxes) offer successful examples of governments implementing a phased-approach to buyouts supported by local funding. Dedicated local funding sources can also enable willing property owners who are otherwise ineligible for federal disaster-recovery dollars to be bought out. Charlotte-Mecklenburg Stormwater Services acquires homes that do not otherwise meet federal requirements through an “orphan” buyout program. States could consider enacting a comparable funding mechanism, loan program, or revolving fund to either support local buyouts or conduct buyouts at the state level. For example, New Jersey amended its constitution to annually appropriate a portion of its Corporate Business Tax for buyouts conducted through the New Jersey Blue Acres program. In addition, in 2019/2020, California and South Carolina proposed bills to create a state revolving loan fund that local governments could draw on for buyouts.^{See footnote 7}  Independent sources of state and local funding can also be used to provide the state match, as needed, for buyouts under federal grants.

• Restore and manage bought-out land: In institutionalizing managed retreat through buyouts, governments need to think beyond the purchase of a property and the demolition of existing structures to the long-term use, management, and maintenance and quality of the land left behind. To attain objectives of long-term risk reduction and coastal resilience, buyouts have to be about more than an exercise in “walking away.” In addition to environmental benefits to reduce flooding and conserve ecosystems, communities can be further enhanced by and should be engaged in the development of nature-based assets, such as parks and trails.
  
  Where possible, governments should pursue larger-scale buyouts and avoid checkerboarding to maximize these benefits. Governments should take a long-term or phased view of buyouts, especially for larger-scale areas comprising multiple contiguous or groups of properties. Often, residents are ready to move at different times due to various reasons like life events and for financial reasons. Returning over time to review if there is new interest in a buyout from remaining property owners can help reduce or eliminate checkerboarding. Other Acquisition Tools, such as leasebacks and life estates, can also help governments pursue larger-scale buyouts by working with property owners to balance their current needs with long-term risk reduction and managed retreat objectives. 

• Provide relocation assistance: To minimize the social/equity costs of buyouts, governments can offer bought-out residents money in addition to the (pre-storm) fair market value they receive for their old homes to enable them to purchase quality new homes in less risky coastal areas or outside of 100- or 500-year floodplains. To facilitate buyouts, most governments offer participants the (pre-storm) fair market value of their homes; however, that amount can often create a barrier if it is not sufficient to acquire a new home outside flood hazard areas within the same jurisdiction, particularly in coastal areas with historically strong real estate markets. That barrier can be exacerbated for frontline populations, like the elderly and economically disadvantaged, and even younger generations who cannot afford or do not want to take out a large mortgage to purchase a new home over a decades-long time horizon. To mitigate or remove this barrier, state and local governments can look at examples from other jurisdictions, like Austin, Texas and the State of New York, who offer/have offered different types of financial incentives above the (pre-storm) fair market value of their homes to encourage participation in buyout programs and facilitate better transitions to higher value, lower risk properties within their jurisdiction. Moreover, proper financial incentives can also help people to relocate within their same state or municipality to maintain community cohesion and prevent the loss of different tax revenues.
  
  When evaluating the amount of and types of potential relocation incentives for homeowners, governments do not have to “reinvent the wheel” and can draw from existing resources. The Uniform Relocation Assistance and Real Property Acquisition Act of 1970 (URA) is a federal law enacted to provide standard and predictable real property acquisition and relocation expenses for homeowners and tenants of land acquired through eminent domain. URA ensures consistent treatment for people displaced through federal programs or with federal funding. In accordance with URA, states have developed relocation assistance laws and guidance for properties acquired through eminent domain for transportation (e.g., rights-of-way, road improvements) and other public works projects. States or local governments can replicate or build on this already-established work and adapt it for institutionalizing voluntary buyouts in a coastal context. For example, in Austin, Texas, the city’s Watershed Protection Department has exceeded federal and state requirements and adopted URA's relocation assistance model for voluntary, in addition to involuntary, buyouts for flood risk reduction projects. Austin utilizes an existing system to provide relocation assistance (in the form of payments above a buyout offer to enable people to purchase a “comparable home” in Austin) and does not need to dedicate limited city resources to develop new relocation assistance policies from scratch.

• Coordinate buyouts with investments in receiving communities: To minimize the economic and social/equity costs of buyouts, it is important that governments remember getting people out of harm’s way is only a part of, and not the entire, objective of managed retreat. Retreat also necessitates facilitating meaningful transitions for people to safer, higher ground locations or “receiving areas or communities” where they can, at a minimum, have their basic needs met for affordable, comparable housing and necessary infrastructure and community services (e.g., Minot, North Dakota, Lumberton, North Carolina). Governments can, for example, minimize losses in property tax revenues if people relocate locally by moving into homes within their current jurisdiction (For more discussion about receiving communities, see other sections in this toolkit). 

• Build public-private partnerships: Governments can build different types of public-private partnerships to maximize environmental and social/equity benefits and minimize administrative, environmental, and social/equity costs. Depending on the purpose of a given partnership, nongovernmental partners can include a host of entities like environmental nonprofits, universities, local industries, community development or community-based organizations, religious charities, and land trusts. Public-private partnerships have led to successful post-buyout restoration projects and supported on-going stewardship. For example, environmental nonprofits, universities, and conservation land trusts can lend governments scientific expertise, volunteers, and funding support or supplement limited government staff and funding resources to restore and monitor bought-out land. Moreover, these organizations could potentially be given title to and management responsibilities over bought-out land (barring any legal restrictions on title transfers, for example, through the Federal Emergency Management Agency’s Hazard Mitigation Grant Program regulatory requirements). In addition, public-private partnerships with community-based organizations can facilitate better engagement with residents to educate them about the tradeoffs of participating in a buyout and empower them with accurate information to make informed decisions. These types of relationships can also help governments overcome community engagement barriers due to fears of government mistrust or eminent domain, particularly in historically marginalized or underserved communities. Partners like religious charities can also provide bought-out residents with relocation assistance or “gap” funding above the price they received for their homes to ease transitions to a new area (e.g., moving costs).
  
  To sustain buyout programs and justify the expenditure of public funds, governments will likely need to demonstrate the benefits of buyouts, including their returns on investment (e.g., Charlotte-Mecklenburg Storm Water Services, North Carolina) or potential to offset lost property tax revenues, through comprehensive benefit-cost analyses and other tools (e.g., Harris County, Texas Flood Control District’s use of GIS technology to show avoided flood damages in bought-out areas). Governments could consider developing public-private partnerships with universities or nonprofits that specialize in data collection and analysis to evaluate the benefits and costs of buyouts and potential increases in properties that surround bought-out areas that may offset property tax losses, at least to some extent.