Protecting Farmland in Maryland: A Review of the Agricultural Land Preservation Program Craig Shollenberger Planning Intern (former) Anne Arundel County Maryland INTRODUCTION During the past ten to twelve years, we have witnessed an acceleration in the conversion of farmland to non-agricultural uses. The rate of conversion averaged approximately three million acres per year between 1970 and 1980. The loss of farmland has been more acute in some states than others. For example, New Hampshire and Rhode Island could lose all their prime farmland by the year 2000 if present rates continue. West Virginia could lose 73% of its prime farmland, Connecticut 70%, Massachusetts 51%, Maryland 44%, Vermont 43%, and Utah 35% if current trends continue.' Nearly every state and over two hundred counties have adopted measures to prevent or decrease this conversion rate. Most programs are in the form of special property tax breaks for farmers who keep their land in agricultural production. Other approaches have included creation of agricultural districts, several types of zoning, and the purchase of development rights. This article will examine farmland preservation efforts in Maryland. The state's program combines the establishment of agricultural districts and purchase of development rights. The ability to acquire these rights at low cost and cooperation between the state and county governments, makes Maryland's preservation program notable among others. DIFFERENTIAL TAX ASSESSMENT PROGRAMS Since 1957 most states have enacted some type of property tax differential assessment program. Un- 41
z der these laws a farmer's land is assessed on the basis of agricultural use as opposed to its value if it were subdivided. The rationale behind these tax programs is, that if a farm owner's property tax burden is reduced, he is less likely to convert his land to non-agricultural uses. Farmers whose lands are located in the urban/rural fringe, where development pressures are greatest, are the primary benefactors of these programs. Differential assessment laws have been very effective in reducing farmers' property taxes. However, they have been ineffective in slowing down conversion rates. According to a U.S. government report, "The burden of property taxes is only one of many factors affecting the farmer's decision to sell." 2 Other factors such as personal retirement, lack of potential heirs, nuisance law suits, and unreasonably low commodity prices are much more important to a farmer when making a decision to sell. Another major problem is the low penalty tax imposed on farmers who decide to withdraw from deferred tax assessment programs. In most cases, the profit margin for a farmer who sells his land for development will probably more than offset any penalty tax he will pay for withdrawing. In addition, if a farmer needs money to pay for a loan or for retirement, selling his land may be the only option he has to raise the amount of money needed. The weaknesses of programs with small penalty clauses can be seen in the failure of Maryland's 'Use Value Assessment Law' to prevent farm- 42 land conversion. Between 1967 and 1977, approximately 78,000 acres per year were converted to non-agricultural uses. Most of this loss was a result of continual growth in the Baltimore/Washington areas. However, the absence of an effective farmland retention program also contributed. The 'Use Value Assessment Law' is currently undergoing reevaluation by the state legislators. MARYLAND AGRICULTURAL LAND PRESERVATION PROGRAM Faced with a declining agricultural base, the legislators created the Maryland Agricultural Land Preservation Foundation in 1977. The Foundation's primary function is to preserve farmland through est?lblishment of agricultural districts and purchase of easements, i.e., development rights. The program is voluntary and administered primarily at the county level. An Agricultural District is established when the following criteria are met: 100 acres minimum size, which can be made up of more than one landowner; a predominance of U.S.DA soil classes I, II, and III, and woodland groups 1 and 2; and the area must be outside a county's ten year water and sewer service district. Once a District is created, owners of land adjacent to it need not meet the 100 acre minimum in order to participate. Other exceptions to the criteria are made for parcels that have unusual or outstanding agricultural value. Once land is included in a District, it cannot be removed for a period of five years. During that time, no subdivision of the land for commercial,
industrial, or residential purposes may occur. At the end of the five year period, the owner may withdraw from the District with no penalty provided no easements have been sold. As of January 1, 1982, "approximately 50,000 acres have been included in Districts in 18 counties.,,3 Most of the acreage is located in those counties that surround the city of Baltimore (Fig. 1). EASEMENT ACQUISITION Upon inclusion in an Agricultural District, the farmer has an option to sell a development easement to the Foundation. The maximum the Foundation pays for an easement is either the landowner's asking price, from an appraisal, or the difference between the agricultural use value and fair market value of the land, whichever is lower. In cases where the number of offers exceeds funds available, a ratio is utilized which allows for a comparison of different offers. The ratio value is determined by employment of the formula : fair market value - agricultural value - asking price Ratio = -------- fair market value - agricultural value 4 ACRES IN MARYLAND MILES o - - 30 100 AC RES MARYLAND AGRICULTURAL LAND PRESERVATION FOUNDATION. 1982 Figure 1. 43
The higher the ratio for the property, the higher it will appear on the purchase priority list. The following example shows how the ranking system would work for four hypothetical farmers: Fair Market Value Farmer A $3,000 Farmer B $2,500 Farmer C $1,500 Farmer D $6,500 Employment of the formula would give ratio values of.25 for A,.50 for B,.57 for C, and.68 for D. Thus Farmer D would be first in line for easement purchase followed by C, B, and A. By lowering his asking price, the farmer increases the ratio value and also raises his place on the purchase priority list. The average price paid for ease- Agricultural Asking Value Price $1,000 $1,500 $ 500 $1,000 $ 800 $ 300 $ 250 $2,000 ments has been declining since 1980 when the first easements were purchased (Fig. 2). This coincides with the decline of the average asking AVERAGE EASEMENT COST PER ACRE $ 16. 7 AVERAGE ASKING PRICE PER ACRE (IN HUNDREDS OF DO LLA RS) (IN HUNDREDS OF DO L LA RS) Figure 2. Figure 3. 44
price (Fig. 3). The increase in the number of landowners who want to participate, and the resulting competition for a limited amount of funds, may explain this decline in both areas. Another reason is due to the appraisal guidelines adopted by the Foundation. "Appraisals are based on the price at which similar farm parcels have sold on the open market, generally to other farmers."s This represents only 34% of the fair market value of the land for developmental purposes. After selling an easement, the landowner is required to use his land for agricultural purposes for a period of twenty-five years. The landowner may petition the Foundation to use one acre or less for the construction of a dwelling for a member of the immediate family. At the end of the twenty-five year period, the farmer may ask to have the easement terminated. This must be approved by the county's Foundation governing board, secretary of the state Foundation, and state treasurer. If approved, the farmer must pay the difference between fair market value and agricultural value at that time. Should he fail to do so within 180 days of notice of approval, he must wait another five years before reapplying for termination. In the last three years (1980-1982), easements have been acquired on approximately 15,000 acres in eleven of the state's twenty-three counties (Fig. 4). As with the locations of the Agricultural Districts, most of the easements have been acquired in those counties surrounding the city of Baltimore. FUNDING Acquisition of these easements between 1980 and 1982, has cost the state and the eleven counties involved approximately $13.4 million. So far revenues have exceeded demand and the majority of development rights offered for sale have been purchased. This could change however if, according to the Foundation's 1981 Annual Report, a level of between $10- $15 million per year is not maintained. Monies used to purchase easements are obtained from more than one source. Maryland's 'Program Open Space' is the primary source of funds. Begun in 1969, this plan's purpose is to purchase open spaces and recreational areas throughout the state. It is financed through a.5% property transfer tax. Since its inception, $271.6 million have been appropriated (through 1982) and over 76,000 acres of land for state parks, historic sites, forests, wildlife preserves, and other environmental areas have been secured. The Agricultural Land Preservation Foundation has received over $6 million from 'Program Open Space' since 1980. The yearly amount transferred from the open space fund to the Foundation is determined by the governor of the state. Another source of funding is derived from a 5% agricultural development transfer tax. Two-thirds of this tax goes directly to the Foundation and the other third is distributed among the counties. Approximately $7.3 million have been generated since 1980. The appropriation of Foundation money is divided in two ways. One- 45
EASEMENTS ACQUIRED (IN ACRES) MARYLAND MILES ~ "'0 100 ACRES MARYLAND AGRICULTURAL LAND PRESERVATION FOUNDATION. 1982 Figure 4. half of the fund is divided equally among Maryland's twenty-three counties. The other half is divided among those counties that have approved preservation programs. Total funds received in the second half are based on the amount of a county's allocated matching fund. Monies not used by the counties are returned to the Foundation where they are used when easement applications exceed funds available in the first round. When this occurs, a second round is initiated and easements are purchased on the basis of their ratio value on a statewide basis. Other sources of funding for continuance of easement acquisition are now under consideration. The appropriation the Foundation receives from 'Program Open Space' will be terminated in December 1983. FaIling property transfer tax revenues are behind this cutoff. Reliance on taxes for funds has been the program's main weak point. Fluctuations in Maryland's economy have lowered state revenues. This has forced the state government to reduce funding for nearly every program. A proposal to issue bonds to replace the 'Program Open Space' appropriation has been mentioned as a way to bring stability to the program. How much money could be generated under such a plan is uncertain at this point. 46
OTHER EASEMENT PURCHASE PROGRAMS In addition to Maryland, in the northeastern part of the country, the states of Connecticut, Massachusetts, and New Hampshire and Suffolk County, New York, have active easement acquisition programs. Legislation which would permit counties to finance their own programs has been passed in Pennsylvania, New Jersey, and Maine. The current status of these active programs is as follows: Connecticut-In operation since 1978, easements on 2,350 acres (9 farms) have been acquired. Sale of state bonds is used to finance the program. Twelve applications are now undergoing appraisal. However, any additional easement purchases must await retirement of obligations on the first bonds sold. New Hampshire-This is a pilot program begun in 1979. An initial appropriation of $3 million (from general revenue funds) has yielded the acquisition of easements on 1,000 acres. Purchases were purposely made on various types of soils and locations to give the program maximum exposure. Additional funding is undergoing legislative review. Massachusetts-Begun in 1977, easements have been acquired in nearly every section of the state. Approximately 7,500 acres have been acquired. With the sale of $40 million in bonds, additional acreage is certain to be added. Local governments also have the authority to purchase easements. Suffolk County-Through the sale of 30 year municipal New York bonds since 1978, easements have been acquired on approximately 3,300 acres. An additional 1,000 acres will be protected if applicants and the county can agree on easement price. 47
With the exception of New Hampshire, all the programs cited have utilized the sale of bonds to finance their easement acquisitions. As previously mentioned, reliance on the use of property transfer taxes can cause funding problems when revenues received fall short of expectations. The sale of bonds can avoid this situation. Uncertainties associated with political changes are also avoided. Funds received from bond sales can only be used for the purpose they were sold and not as a way to make up revenue shortfalls in other programs. Despite the funding dilemma, Maryland's success at securing easements exceeds the other four active programs. Acreage under Maryland's program is nearly double that of the next highest state, viz., Massachusetts. A comparison of easement cost per acre figures shows the price paid in Maryland is less than three-fifths the price paid in Connecticut and Massachusetts (Table 1). Higher land values caused by greater developmental pressures in the other states is a partial explanation. In addition, because of the competition among a large number of participants in Maryland, asking prices are lower and thus easement acquisition costs are lower. CONCLUSION The increasing awareness of the loss and conversion of agricultural land has been demonstrated by the enactment of some type of farmland protection program in nearly every state. The utilization of differential assessment is the method most often employed. However, a number of states and counties have adopted more comprehensive programs to reduce conversion rates. At least four states and one county are currently using easement acquisition to protect their agricultural land. Among the easement acquisition programs, the state of Maryland's efforts must be considered the most successful. Development rights on over 15,000 acres have been acquired since 1980. This amount exceeds acreage secured in all other programs combined. The ability of the Maryland Agricultural Land Preservation Foundation to secure the easements can be attributed to TABLE 1 Easement Acquisition Programs Program Maryland Massachusetts Suffolk County Connecticut New hampshire Total Allocation' $13,300,000 $ 5,000,000 $10,000,000 $ 4,200,000 $ 3,000,000 'Approximate figures. 2As of December 1982. 3Average of 1980, 1981, 1982 figures. Easement Acreage 2 Cost/ Acre' 15,000 $ 920 3 7,436 $1,600 3,300 $3,030 2,585 $1,600 1,000 $3,000 48
their relative low cost. Competition among applicants for limited funds partially explains this ability. Higher land costs caused by more intensive developmental pressures in the four other programs have kept their acquisition prices high. Funding remains the major area of concern among Foundation administrators. The elimination of its major source of appropriations and a shortfall in agricultural transfer tax revenues wrll result in the need to develop other funding methods. A proposal to issue state bonds is currently undergoing review. The financial commitment of participating counties will also be affected by funding difficulties. FOOTNOTES 1. Fields, Shirley F. Where Have The Farmlands Gone? National Agricultural Lands Study (Washington, D.C. 1980) p. 14. 2. Keene, John C.. Untaxing Open Space: An Evaluation of the Effectiveness of Differential Assessment of Farms and Open Space: Executive Summary. U.S. Government Printing Office (Washington, D.C. 1976) p. 7. 3. Maryland Agricultural Land Preservation Foundation : Annual Repon 1981. Maryland Department of Agriculture (Annapolis, 1981) p. 8. 4. Maryland Agricultural Land Preservation Foundation : A Summary. Leaflet 88, Cooperative Extension Service, University of Maryland (College Park, 1977) p. 9. 5. Thompson, Edward, Jr.. Disappearing Farmlands-A Citizen 's Guide to Agricultural Land Preservation. National Association of Counties Research Foundation (Washington, D.C., 1979) p. 14. 49