Illinois farmland on the world market raises basic ideological questions
Buying America
by Louise S. Greenfield
Italians are purchasing Illinois farms, Arabs are buying Beverly Hills mansions, Canadians are collecting Florida condominiums, and Japanese are acquiring California fruit groves. A number of recent media reports suggest that nonresident foreigners are purchasing more and larger tracts of prime American farmland and urban property. Such reports often include predictions of the dire consequences of such investment and have insured several states, including Illinois, to consider the enactment of limitations or prohibitions upon alien ownership of real estate.
But what Saturday Review calls an "invasion of the American heartland" and "foreign investors . . . gobbling up choice U.S. farms," Time labels "the foreign land-grab scare" and "xenophobic overreaction to a bit of buying in the farm belt." The remarkable absence of reliable, comprehensive data on this phenomenon suggests that immediate implementation of restrictions on alien ownership would be premature at best.
The debate, however, goes far beyond differences over facts and figures. At the bottom is a real philosophical dilemma: are the traditional notions of American freedom of choice and action incompatible with steps to "keep America American?" So far, no clear answers to this question have emerged.
But concern over the ownership of American real estate by foreigners is only a small part of the much broader question of who actually owns America. The public's growing appetite for accountability and disclosure has generated investigation into charges that well over half of America's privately owned land is in the hands of a small number of corporations. This high concentration of control is alleged to impede a wide variety of initiatives, ranging from tax reform to urban redevelopment to expansion of energy alternatives. But whether due to latent xenophobia or because it is easier to get a handle on, most attention is still directed towards nonresident aliens in particular.
A combination of social unrest abroad and political stability here makes purchase of American land a wise financial move for wealthy foreigners, especially with the continuing devaluation of the dollar making the cost of American land, resources and labor attractive for citizens of countries with stronger currencies. In Europe, land ownership is the basis for most wealth, and unstable political conditions — "creeping socialism" — and increasing terrorism encourages the desire for new financial roots in America, the "last safe place." Moreover, the recognized importance of land ownership abroad discourages much transfer of ownership there, which forces foreign investors to look for new opportunities. Even with the more than doubling of American land prices in recent years, American property still looks like a bargain to these investors, particularly since prices in their home countries are at least twice as high. Nonresident aliens also get preferential tax treatment here — in the capital gains tax — and in the tax haven countries through which foreign investments are frequently routed.
The nationwide debate over foreign acquisition of American real estate is of particular concern to Illinois. Chicago's reputation as "The City that Works" makes property in the entire metropolitan area attractive to investors, one of whom is believed to be the Queen of England. But there is more concern about the acquisition of agricultural real estate. Illinois' position as an agricul-tural giant makes our farmland an especially attractive target for foreign investment. The 1976 purchase of the largest farm in Illinois — the 14,000-acre Norris farm in Fulton County - by the wealthy Italian Buitoni family is cited nationwide as an example of a growing trend. And recent action by several other midwestern states to prohibit or restrict alien ownership further increases the amount of atten-tion given to Illinois by foreign inves-tors. Most recently, the greatest activity is in the sunbelt states, but this does not seem to be a permanent trend away from Illinois and the rest of the Midwest.
Limit foreign investment?
Is the purchase of American land by foreigners — widespread or otherwise — necessarily bad for America and Americans? Those who favor foreign real estate purchases — or who at least oppose the imposition of restrictions on such activity — say the provable amount of activity is insignificant in the context of the broad picture of land ownership. They argue that, to the extent that land purchases are in fact being made, the influx of "new" money into the American economy is beneficial both domestically and internationally, They point to instances in which partic-ular purchases were accompanied by immediate benefits to the local commu-nities and individuals affected, and they argue that foreign land investments improve our balance of payments. They note that Americans own roughly four times as much foreign land, and these American investments could be jeopar-dized if America placed restrictions on foreign purchases here.
There might also be serious constitu-tional problems with such restrictions, A series of U.S. Supreme Court cases
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has established the rule that alienage is a suspect classification, and that differentiation between treatment of citizensand of aliens can be justified only by proof of a compelling state interest in the classification. It is unlikely that such an interest can be demonstrated with respect to aliens in general. A number of legal experts, however, have argued that restrictions on non resident speculation could withstand strict constitutional scrutiny. These Supreme Court deciscions have all prohibited discriminatory treatment of aliens with respect to rights and privilages that affect the quality of life in the United States, such as eligibility for welfare benefits or the ability to practice particular professions arguable, however, that the right of non-residents to own property for purely financial purposes may not merit similar constitutional protection. Another possible basis for constitutionally justifiable classification is the distinction between farmland and urban property. America's agricultural resources - and Illinois play a major role in our international standing, and it has been suggested that this role may become increasingly important in our dealings with other nations with resources which we must import. Federal law already restricts or prohibits foreign activity in the aviation, shipping,communications, nuclear and defense industries and agriculture is arguably no less needy of protection from potential foreign control. Similar reasoning might also justify special protection of mineral and timberlands, and of important urban areas.
Perhaps the most convincing philosophical argument against restricting alien ownership of American land is that such a measure simply conflicts with the"American way." One Illinois legislator,speaking against a proposal to prohibit future alien acquisition of Illinois farmland, described the measure as something one might expect from a"banana republic" and reminded his colleagues that Americans strongly resent similar restrictions imposed byt he Mexican government. Those who argue for restrictions against aliens are motivated not so much pure anti-foreigner sentiments as by concern about the negative effects of substantial land acquisition by nonresident aliens. (Recent legislative proposals to limit alien ownership of Illinois farmland would not have affected resident aliens.) Partly because of the condition of the dollar and partly because of favorable tax treatment by this country, well-to-do foreigners are willing to pay higher prices for lower rates of return. This is thought to raise all land prices, putting purchase of land beyond the means of most Americans. Fears are strongest with respect to farmland; it is argued that substantial increases in farmland prices prevent young farmers from acquiring their own farms, thereby encouraging concentration of ownership in the hands of a few wealthy persons and organizations.
The family farm
The future of the family farm is the primary concern of former State Rep. David L. Robinson (D., Springfield), sponsor of a bill last session to restrict alien and corporate ownership of Illinois farmland, and of Harold Dodd, president of the Illinois Farmers Union, which vigorously supports such legislation. Robinson and Dodd both argue that the continued expansion of ownership by persons and entities other than the farmers who actually live on and work the land will help to squeeze such farmers — the most efficient users of agricultural resources — out of the market, resulting in monopolistic control of the agricultural sector. And this, they contend, would have an ultimately disastrous effect upon American agriculture and the entire American economy. Moreover, they believe that the nonresident aliens and corporations who purchase farmland for purely investment purposes will have little interest in the affairs of surrounding rural communities and, to economize, will bring their related business to big-city banks and suppliers, to the severe detriment of the small town way of life. (Ironically, the loss of business by small town banks throughout the Midwest is resulting in increased business for the big Chicago banks and trust companies to which foreign investors bring their affairs.) Dodd also expresses concern that, in the event of food shortages, the allegiance of the nonresident alien owner and the output of his farmland, would be directed to his own country rather than America.
Robinson, Dodd and other proponents of limits upon nonresident alien ownership of farmland agree that available statistics do not indicate a present crisis. They argue, however, that trends and conditions favor the continued expansion of such ownership and that now is the time to act if serious future problems are to be averted.
More than half of the states, including Illinois, already have laws which restrict alien ownership of real estate. Some, but not all, apply only to nonresidents, and some regulate acquisition of agricultural land only. Many, however, are generally thought to be ineffective in stemming the present wave of foreign investment, and a number of states have recently enacted or are now considering more effective provisions for such regulation.
The present Illinois law, in effect since 1897, limits alien ownership of any real estate to a period of six years, after which, if the alien has not become a citizen of the United States, the county state's attorney must proceed to compel sale of the land. This law has not been enforced, however, and Rep. Robert M. Terzich (D., Chicago) has introduced House Bill 78, which would repeal it. Harry G. Fins, counsel to the Illinois Law Revision Commission, the source of the bill, explains that the law is easily — and legally — evaded by the formation of a corporation or a land trust to hold the property. Moreover, he notes, it is of questionable constitutionality, particularly as applied to resident aliens.
In contrast, House Bill 288, introduced by Rep. Webber Borchers (R., Decatur), would maintain the present six-year time limit and, additionally, add the requirement that, in cases of land transfers to or for the benefit of aliens, that fact be indicated on the transfer document, under penalty of reversion of the land to the county.
There have also been a number of previous attempts to provide Illinois with more effective control over alien land ownership. Of these efforts, Robin-
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on's House Bill 1357 of the 80th jeneral Assembly received the greatest mount of legislative attention. Intro-uced in March 1977 to restrict corpor-te ownership of farmland, the bill volved through more than a year's /orth of hearings and amendments into measure which would have controlled oth corporate and alien ownership nd, in addition, would mandate the sporting of the extent and nature of irmland holdings by such entities. The ill passed the House in May 1978 on 106-to-28 vote, but only after the Drporate restrictions were eliminated, ven this weakened form of the bill, owever, was found unacceptable by the teasure's powerful opponents, and it as delayed in the Senate Rules Com-ittee, emerging only when time re-jirements prohibited its consideration
by the Senate. Rep. Harlan Rigney (R., Freeport), cosponsor of the Robinson bill and new Republican spokesman on the House Agriculture Committee, intends to reintroduce the bill in some form in the 81 st General Assembly, and Dodd reports that some other legislators have also expressed continued interest in such a measure.
Land trusts
The lack of data as to who owns American real estate is in large part merely due to the absence of any comprehensive system under which ownership data is collected. In Illinois, however, the difficulty of collecting such data s substantially compounded by extensive use of the land trust, sometimes referred to as the "secret land trust" or, in other states, due to its origin and predominance n Illinois, the "Illinois land trust."
The land trust is a legal device by which nominal ownership and apparent control of land are separated from beneficial >wnership and real control. The beneficiary of a land trust controls the property through an unrecorded contract with the trustee and retains all of the profits and benefits which normally arise rom ownership. The beneficiary's interest is considered to be personal property, rather than real property. The trustee is titled as the owner of record, with the trust identified only by a number, but the trustee may act only in accordance with the contract with the eneficial owner.
A product of clever draftsmanship and courts, rather than statutory law although recognized in a number of dated statutory provisions, the land is most heavily used in the Chicago rea; it is estimated that four out of five ircels of Cook County real estate are or ive at one time been held in land trust, he device is widely proclaimed by trust companies, realtors and real estate attorneys for its utility in facilitating joint ownership and the transfer of property, and in estate planning. However, its most well-known characteristic is its ability to hide from all but the trustee the actual owner of real estate held in trust.
Supporters of the land trust defend its secrecy on the grounds that all financial matters are entitled to confidential treatment. They note that information, and the ability to keep information private, are frequently valuable business assets. Abuse of the secrecy feature, however, has attracted much unfavorable media attention. Slumlords have used land trusts to avoid responsibility for ordinance violations. Public officials have combined inside information and secret ownership to produce windfall profits in land deals involving the proposed Chicago Crosstown Expressway and Southern Illinois University. Land trust ties to a corporation with an O'Hare Airport parking contract contributed to the downfall of former Chicago Alderman Thomas Keane. Unpaid taxes on Cook County property held in land trusts exceed $30 million.
A number of serious attempts have been made in the last 10 years to deal with the abuses which secrecy breeds. Several bills in the state legislature sought to eliminate the land trust device entirely, while others — some successful — would penetrate the secrecy to varying degrees. Disclosure of beneficiaries is now required in connection with uncorrected municipal building code violations, sale of trust property to government units or agencies, sale of residential property by installment contract, requests for related permits, licenses and other authorizations, and redemption of property from tax sale. Failed bills would have also required disclosure in connection with Torrens registration, eminent domain condemnation awards, rezoning and variation applications, property insurance, and doing business with a government agency. Additionally, the Chicago and Illinois State Bar associations have in the past promoted legislation which would mandate indentification of trust beneficiaries to any government official or agency which requests the informaton.
A measure recently introduced by Rep. Jacob J. Wolf (R., Chicago) attempts to close up some of the evasion opportunities afforded by the present patchwork of disclosure requirements. Under his House Bill 241, disclosure of land trust beneficiaries and their interests would be a prerequisite to the sale or lease of any property held in a land trust. Further efforts to reform or eliminate the land trust device may be expected later in the new legislative session.
Land trusts are also in jeopardy in the judicial arena. In a pending case, the Illinois Supreme Court has been asked to decide whether a land trustee may be held liable for tax payments due on land which is the subject of a trust. The Cook County state's attorney charges that the trustee banks are so liable, but the banks respond that the trust beneficiaries' power of control is coupled with responsibility for the tax payments. It is believed by some that a decision against the banks would in effect destroy the viability of the land trust concept, because banks and other potential trustees would not be willing to accept such liabilities. {People v. Chicago Title and Trust Co., Supreme Court No. 50870.)
Federal or state policy?
Some observers, while not philosophically opposed to the notion of limiting nonresident alien purchase of real estate, argue that the decision to establish such a measure should be made on the federal level. They consider the matter to be primarily one of foreign policy, which is the sole responsibility of the federal government. But land law has traditionally been made on the stall level. Moreover, President Cartel during his visit to Springfield last year, said that the difficulty of finding consensus on the federal level makes it more appropriate for the individual states to make decisions to restrict all land ownership. Nevertheless, even Congress does decline to go any further than the new disclosure law, all state regulations are subject to being super ceded by conflicting provisions of international treaties. While most of America's treaties expressly leave open the issue of land ownership or only assure "most favored" treatment, the citizens of at least one country -Argentina — are afforded land owner ship rights equal to those of American citizens.
Perhaps the most widely expresses
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legislative attitude, as evidenced in Congress, and supported by a number of Illinois legislators as well, is that more information on the true scope of the problem is necessary before substantive restrictions on land ownership can be justified. This moderate view is typically articulated by Rep. John F. Dunn(D., Decatur), chairman of the House agriculture subcommittee which heard Robinson's bill last year. Emphasizing the fundamental nature of the right to buy and sell property without government interference, he believes, "Before action is taken to restrain alienation of property, the evidence that the need is great certainly ought to be clear and convincing. We do not yet have that kind of information."
The most common estimate of the amount of American farmland owned by nonresident aliens is something under 1 per cent; the same figure predominates the estimates for Illinois. Some sources, however, calculate that the correct percentage is higher and rapidly rising. The American Real Estate Exchange, the largest organization dealing with foreign clients, estimated that foreign buyers were behind about 40 per cent of American land sales in 1977, with perhaps 50 percent of farm sales going to foreigners in some parts of the midwest. But a recent U.S. Department of Agriculture study showed less than 3 per cent of all agricultural land sold between Janaury 1977 and June 1978 was bought by foreigners. At this rate the study concludeds, it would take almost 30 years for foreigners to acquire an additional 1 percent of America's billion acres of farm and ranchland. All calculations, however, are accompanied by warnings that they are not much more than estimates.
Why so little data?
Why is there so little firm data on the foreign ownership of domestic state? First, no organized efforts to ire or collect such data have been until quite recently; several states, including Iowa, have adopted data action programs, and a similar sure on farmland passed the Illinois, but not the Senate, last year, did the federal government have effective mechanism for the collec-of this information until the pas-and enactment, in October 1978, of Agricultural Foreign Investment Disclosure Act of 1978. It is generally agreed that county records are useless in ascertaining state or national trends; these records are organized for recovery on a single-transaction basis.
Any attempts to monitor the ownership patterns of Illinois land have been further thwarted by the extensive use of the land trust, a legal device which provides anonymity for the true owners of property; the trustee, usually a large trust company, is the only owner on public record (see box for more information on land trusts). This uncertainty creates an atmosphere in which the most dire but unfounded estimates might seem believable; it also, however, does shield a substantial amount of activity from public and official scrutiny and, at least in Illinois, may well promote gross underestimates of the true level of alien land ownership.
The need to collect comprehensive data and to put the results in the proper context has already been recognized by Congress. Under the Agricultural Foreign Investment Disclosure Act of 1978 and related regulations, nonresident aliens, foreign business entities and domestic entities in which either of these directly or indirectly holds 5 per cent or more ownership must report their agricultural land interests to the U.S. secretary of agriculture by August 6, 1979; interests acquired on or after February 7, 1979, must be reported within 90 days. Reports will disclose the name and nationality of the person or entity, the nature of the interest held, and the price, size and original and intended use of the land. Additionally, an American business must identify foreign interests in the business itself, thus revealing stockholders and other second-tier owners of land interests. All reports will be available for public inspection, and the secretary is given investigative authority to determine the accuracy and completeness of reports. The penalty for failure to report, or for submitting false information, is a fine of up to 25 per cent of the fair market value of the property involved. The secretary is mandated to analyze the collected information and its effects, with special attention to the effect on family farms and rural communities; this information will be submitted regularly to Congress and the president.
Additionally, the filed reports are to be distributed to the respective states in which reported property is located. Illinois can expect the first reports in late 1979, which is earlier than results could be expected from any state inquiry which has not yet begun. Thus, there may not be a need for passage of any broad Illinois reporting requirements. Still troublesome, however, is the question of whether the federal disclosure law can penetrate the extensive use of land trusts and other secrecy mechanisms in Illinois. The major trust companies in the state have a reputation for jealously protecting the identities of their beneficiaries, and it seems unlikely that they will willingly breach their existing fiduciary relationships without a strong fight. Continued efforts to open up the secret land trusts may be expected, but the prospect of an accurate survey of alien-owned Illinois farmland in the near future is at least unlikely.
There might be a similar problem with respect to Rep. Borchers' House Bill 288, which would require each county recorder to keep a current list of alien-owned real estate (farmland and other land). This information would come from the transfer instruments filed with the recorder, which, under H.B. 288, would have to indicate alien transferees and beneficiaries. Although the penalty for failure to so indicate would be escheat of the land, there are no specific enforcement provisions in the bill, and a similar penalty for failure to dispose of alien-owned property after six years has not been effective. Moreover, Borchers' bill makes no provision for either disclosure of currently-owned property — only new transfers — or for collection or analysis statewide.
The collection of data on alien ownership — or on land ownership in general is a highly challenging endeavor which will not be easily accomplished in the space of a few months or even, probably, a few years. Nevertheless, it is an attainable goal
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with respect to every acre of land in this country, there is a definite, discoverable answer to the question: who owns this? But however difficult it might prove to establish accurate, comprehensive data on land ownership, the policy issues which must then be addressed are considerably more challenging. The tension between two conflicting notions of the "American way" must be resolved in any efforts to settle the issue of alien ownership of American land. The traditional American respect for free enterprise and opportunity for all, on the one hand, is in conflict with the traditional "America first" philosophy that says the benefits of living in America are coupled with parallel responsibilities.
The commonly articulated arguments for and against restrictions on alien land ownership offer the extremes on each side. One side depicts a time in which a substantial portion of America will literally be owned by outsiders, and our business climate, our food supply, and even our sovereignty will be threatened to the extent that the only recourse will be to nationalize foreign holdings — a repugnant and damaging move. At the other extreme is an isolationist stance which would place America and Americans outside of the world mainstream.
Difficult questions
Reasoned, informed and openminded analysis should suggest that neither of these extremes is imminent. Sufficient time is available to thoroughly evaluate the present situation, future trends and our alternatives and their implications — both national and international. We can develop policy in the context of America's role in the changing world order. And, closer to home, we can take stock of our attitudes towards the ownership of land, the most enduring American resource.
The new federal disclosure law and the continued consideration of related measures in the Illinois General Assembly are indications that the widely expressed concerns about alien ownership of Illinois real estate will indeed be given the attention that they merit. There are difficult questions which will take time to answer thoughtfully. But the reasonable conclusion that at this time there is no apparent crisis should not be allowed to foster the complacency in which true crises develop.
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