RFC: Summary Analysis of Neualt Polity

For the purpose of helping my own understanding of how Neualtenburg is organized as a municipality I prepared the following summary analysis (for some reason, attachment was blocked). It does not focus on matters of esthetics but on the polity, how the governance and municipal finance works.

It is my plan to share this with the members of the Law Society of Second Life for their information and discussion as a model of one form of formal municipal government in SL. Before I did that, I wanted to get comments on it from those who know Neualtenburg best: its own residents and friends.

Thank you for any insights you wish to share.

Analysis: organization of an incorporated municipality in a virtual world
(Second Life's Neualtenburg Projekt)
By Frank Lardner (a Second Life Avatar). 12/3/05

Summary:

Note: The following is the author's understanding of documents publicly available on the website of the Neualtenburg Projekt and does not represent the position or views of Neualtenburg. The author is solely responsible for its content.

"Neualtenburg Projekt" (www.neualtenburg.org) is a private land cooperative occupying one entire simulator or "sim" of 64 virtual acres in Second Life (SL) acquired directly from Linden Lab in 2004. It attempts to simulate the look and feel of a functioning Bavarian city with residential, commercial and public spaces. The cooperative has a democratic republican government with three branches and a constitution. The simulated city is open to the public, but participation in the government requires the acquisition of virtual land in the city. Acquisition of land constitutes agreement to abide by various specific standards of building and activity in the city.

Title to the entire sim is actually "owned" (licensed from Linden Lab) by one resident as representative of the cooperative. In return for a one-time payment, residents acquire the right to use specific parcels of virtual land as long as they conform to the city's land use regulations and payment of monthly land use fees in the nature of property tax. Residents' rights may be terminated and their virtual property forfeited to the city for breach of the various covenants and agreements. Residents in good standing may sell their virtual land rights to third parties approved by the city.

A detailed set of documents on the cooperative's public website at www.neualtenburg.org includes a Constitution, Terms of Service modeled on those of SL, a Grant Deed that is electronically delivered, signed and publicly filed, a Declaration of Conditions, Covenants and Restrictions, regular financial statements and a public record of deliberations of the governing organs.

Selected government details:

The Constitution provides for three branches of government:
· a Representative Assembly composed of representatives of political factions that makes laws,
· a self-selected Scientific Council that reviews and enforces legislation and resolves disputes, and
· an Artisanal Collective representing a Guild of Master content creators and their apprentices.
The three branches each have limited powers over the others in the nature of checks and balances through procedures described in the Constitution.

Selected land details:

The virtual land is divided into several commercial, residential and mixed use zones. Each zone has different standards for allowed structures and usage, designed to achieve a particular "look and feel" for the resulting city. Those standards are subject to change through the governmental process and are specified in writing on the public website.

Residents receive a written Grant Deed reciting a consideration of a one-time payment plus the obligation to pay recurring Land Use fees as from time to time set by the municipal government. That Grant Deed incorporates a written Covenant that specfies compliance with the esthetic restrictions set by the municipal government on property structure and use.

Deed exection and delivery is accomplished using a Notecard containing the Grant Deed terms. A sample Grant Deed is on the public website.

Intended residents are required to create or nominate a group (possibly including alts of the resident). This Grantee's group will hold the virtual property.

An alternative avatar of the Treasurer delivers the Grant Deed to the Grantee in the form of a digital notecard containing its terms. The Grantee then electronically "signs" it by making a no-mod/no-copy copy of the document. This causes the Grantee's name to become the "owner" of the document and makes its alteration difficult and possibly unlawful.

The delivered and signed notecard is then deposited in an object near the entrance to the subject property as public notice of lawful possession and Grantee's acceptance of the terms of the Grant Deed.

The Grantee pays the one-time purchase price and first month's Land Use fee to the Treasurer , either in U.S. Dollars using PayPal or by in-world payment of Lindens.

Transfer of title is accomplished by the Grantee adding the Treasurer as an officer of the Grantee's group. The Treasurer performs the transfer then leaves the Grantee's group.

Selected Details of Municipal Finance

The Treasurer provides monthly financial reports including balance sheets and income statements denominated in U.S. Dollars and Lindens that are posted on the City's public website.

A 11/30/05 balance sheet shows, in part (US$):
· An initial land investment of $980
· Gain on sale of land of $236.
· No asset item is shown for unsold or public land
· Current assets of $458
· Bond debt outstanding of $277
· Current liabilities of $289 (current ratio: 1.5
· Retained earnings of $167.
· Equity of $169

A 11/30/05 income statement for eleven months shows, in part (US$):
· Property revenues of $1,312
· Other revenue of $431
· Land tier payment to Lindens $1,414
· Paypal transaction charges of $69
· Interest & bank charges of $33
· Other expense of $67
· Net income of $160
A note to the financials identifies a $123 item representing a 30,000 Linden gift by a founder as non-recurring income.

Municipal Bonds have been issued and recent legislative proposals have started the process of establishing terms of future bonds in contemplation of expansion to add a second simulator. Proposed bonds would be issued at a discount with monthly fixed coupon payments coinciding with due dates of land use fees. A monthly put feature would allow the routine application of part of the principal and all of the coupon to pay the holder's land use fee. Proposed bonds would be non-callable and have a six-month maturity date.

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Yes, although it might be worthwhile to point out this is an SL limitation, not one Neualtenburg imposes.



Technically, no bonds have yet been issued; there was a proposal to convert the initial loans that started the city to bonds. Chances are we will issue some soon to finance expansion.

Very interesting!

Here are a few more "details" notes.

While the Neualtenburg Projekt itself was formed back in 2004, the private sim "Neualtenburg" was acquired in May 2005.

Technically, from the Linden's point of view, the sim is owned by the Treasurer's alt. The role is entitled "Estate Owner". The "Estate Owner", by virtue of the LL procedures for private sim ownership, holds the right to "Deed Land To" ownership groups, and to "Reclaim Land From" them. Accordingly, it's this alt, currently Rudeen Edo, who performs these duties.

Since these are the essential means by which the city exercises its authority and compels comliance with its rules, there is a difference between the roles of the "Estate Owner" and the "Treasurer", even though these duties are assumed by the same RL person. The "Estate Owner" is simply a function of the "state", a sort of pro-active bank account. The Treasurer is an ordinary official entrusted with responsibility for the financial transactions. It is simply the details of LL ownership structure which have caused the two functions to be most conveniently vested in one person.

This was a great idea which did not get implemented. In fact, the deeds are all deposited in the "Central Deed Repository" located at one end of the Rathhaus, the City Hall/RA meeting place, located on the Marketplatz. Every deed is accessible by clicking on the named "DeedKey" located nearby the "Repository".


Sudane

I'm interested in what's described here about the Estate Owner role. On our website we talk about the sim being 'owned collectively', and also about our setup 'allowing the project to live on beyong the participation of any single member'.

Yet from LL's perspective the entire sim is owned by the Estate Owner. Doesn't this also mean the Estate Owner has the power (from LL's perspective) to reclaim all the land from Neualtenburg members and the city, or ultimately to sell the sim? It seems citizens must be able to trust the Estate Owner completely.

I also wondered what would happen should the person acting as Estate Owner vanish from SL. Would LL allow another person to take over sim ownership to allow the project to continue?


Aaron

I would comment, but this is just a summary of available information.

What kind of comments were you looking for? Do you have a thesis or a point of view on this re-iteration/derivation of existing documents you wish to share first?

The reason for the purchaser to form a group makes more sense now. Before, I did not know that the purchaser of a private sim has a power of reclamation. That is similar to that of a government that has police power to seize land for nonpayment of taxes or as a penalty for crimes or unpaid civil judgments.

I second the caution that the Treasurer has a significant power to abuse her trust. That is the nature of a trustee relationship. As we know from first life, sometimes the treasurer abuses that trust, and may flee the jurisdiction. In first life, that risk may be passed to another (such as one who agrees to stand as surety for the treasurer) for a fee, or self-insured by the municipality. In SL, a municipality would have the same choices to protect against the treasurer's defalcation.

As for a thesis, my thesis is that the form of government used by Neualtenburg is a model for others to use in setting up land cooperatives, either for residential or for commercial purposes. My attempt is to summarize and encapsulate into one shorter document information scattered in about 8 or 10 documents in many more pages, and to separate the esthetic and zoning details in order to focus on the organizational structure. This makes the organizational model easier for someone to see and understand.

This is all part of the ongoing effort to prepare case studies and to examine theoretical materials in furtherance of the Law Society's goals of better understanding the present and future of governance, contracting and dispute resolution in Second Life.

Any other corrections or additions?

Yes and no.

Strictly speaking, this is true, but LL is well aware of Neualtenburg's status, too, and we've done our best to keep the deed agreements to be as "legally binding" as we can, given this is basically untried ground.

If Sudane went crazy-go-nuts and tried to sell the sim, there would be a reckoning.

Aaron, you're right on both accounts. Sadly, the way SL works right now, the Estate Owner has to be a single account. Worse than that, password sharing is not allowed. However, LL will easily transfer the "ownership" of the land towards another person, if that's what we wish. The transfer has costs associated to it. We have taken that into account when we change the Treasurer in the future, and this is budgeted for.

We tried to do a different approach during the many discussions on Neualtenburg's private island. One alternative was to get Neualtenburg being run by a RL international company, with a bank account, tied to a PayPal account (that could be verified by company board members), and ultimately with a single SL account being "run" by the company (so, in case of any problems, the company could replace the SL account). We also felt at the time that to do all this setup and overhead (in costs) just to pay a US$ 195 bill every month was way too much. Also, it also meant getting rid of all privacy — we would all need to exchange RL data, and for the non-US members of Neualtenburg, this would mean going to an US notary inside an US embassy to get our RL data properly verified.

LL is definitely aware of this issue. Yes, it's bothersome. One slightly simpler alternative would be to have a "shared" PayPal account. Again, this means forfeiting anonymity. Rest assured, we tried several alternatives to work with PayPal, and there is simply no way we can assure a) anonymity; b) people getting access to each other's credit card data, even if in a "masked" mode. All this is quite complex...

So, while we wait for LL to give us better Estate Tools (the ones you get when owning a private island), we have tried to work it around with a "social" statement instead of a "technological" one. The private island (and the future ones that are added to the current one) are owned by the City of Neualtenburg, and the City embodies all its citizens (the ones living inside it and paying for their land deeds). That's what we have as a body of law. Enforceability of this very bold statement, in case something goes wrong, is not an easy task.

Rest assured that LL is aware of all these issues — we have been in touch with them quite often about the difficulties we have. In a sense, Neualtenburg is a pioneer project that is pushing SL towards yet unchartered territory. LL also knows that, and, while they strictly remain as neutral as they can — giving us the burden and the responsability to figure out a way for ourselves — I believe that they also have some interest that the project doesn't "die" due to limitations in their technical interface.

What this all means is that we need a certain degree of trust to make this work. No, unlike sometimes it looks like, we're not all very close friends of each other, and I'd say, most of us — not all, though — haven't ever meet in RL. Many among us disagree in essential points. Still, in the democratic process of "getting together", we have learned to compromise, even if often this means that some personal opinions have to be settled down in order for the group to go on.

So far, we've "survived" for about 18 months or so, and over 10 in our private sim. As Neualtenburg grows, I also expect that LL, being aware of these issues, will give us better tools. Some organisations in SL have successfully tied their "Estate Owner" to the organisation itself and not to a single person inside that organisation; and there are plans to have the groups work better (like having access to some or even all of the Estate Tools).

I'd say, however, that the risk of Sudane as Treasurer "running away and selling the sim" is about as high as of Linden Lab shutting down the grid and disappearing the next day Still, both risks exist and we just have to believe that they are negligible. After all, we never have 100% assurances. A meteorite may strike the Earth; an earthquake may swallow LL's colocation facility; the Internet may be outlawed; President Bush may decree that US citizens talking to foreigners in virtual realities is un-patriotic and forbid things like Neualtenburg to exist I sleep well every night in the confidence that none of these things are very likely to happen. Well, perhaps except the last one

In the end, we control the risks we can, and limit our potential loss.

With the set up you have made, you have the limited liability of a corporation, so that the stakeholders have each a minority stake in an unlikely loss. So if the very worst happens, each stakeholder is out their investment, but its a relatively small amount in the global scheme of things.

Your experiment is extremely valuable, not just as a potential model for others, but also as a test bed to uncover loopholes that LL may wish to plug with changes to the tool set.

Thanks for your very kind words, Frank!

I fully agree on your assessment of "low risk" in Neualtenburg, and well, to be honest, that's a reason why I'm part of it since the beginning Not to mention, of course, that while nothing in Neualtenburg is "perfect", we definetely have a way to all participate to make it better — all the time.

I've also joined (at least for a while) the Law Society. From what I could understand, the major problem your group is facing is the difficulty in establishing "controls". While, as said, Neualtenburg has some flaws and loopholes (which we're always trying to "legally patch" as best as we try), at least it has a measure of "control" between the various branches of Government. Striving for balance among all branches is a difficult task — but not an impossible one.

However, I also feel that Neualtenburg's model works best for isolated communities. It's really much more akin to "city councils" than to "countries" (or "city federations/leagues". Some people have explained to me that the structure of Neualtenburg works well for small groups (ie. around 30 people or so, perhaps a bit more) because these are manageable to a degree. Although, to be honest, we envisioned that the same overall base system could expand to much larger communities — of about thousand people or so. This is something we may take years to explore, since Neualtenburg grows very slowly, compared to other communities (like Dreamland, for instance). Still, even in a larger group, encompassing perhaps several communities and perhaps a few thousand users, the notion of "control" and "balance" among different branches, all of them having a saying in the governmental entities, is crucial for success. Quid custodiet ipsos custodes? In Neualtenburg we have an answer for that — every branch "watches" over the other two, and all together are necessary for government to function.

Simpler systems, that depend on "willingness" to submit to a single set of rules emanating from a single body, are much harder to implement. Either people lose that "willingness" after a while, or the single body, aggregates too much power without truly being "bounded". That's something that is harder to happen in Neualtenburg. It's not by chance that the three branches are so different in their respective genesis — one is elected and serves just for a term (limited in scope), another is free to join but has to submit to the authority of its head (but membership is for life), and a third one is a meritocracy who appoints its own members (but needs approval from the elected branch). This also means that, depending on your particular style, you may join the overall government through either of the branches. Choices are important

Still, the biggest disadvantage is — bureaucracy Ah well. So far we have lived with it but I understand that it's often confuising and a nuisance to some.