:an evaluation of the effectiveness of differential assessment of farms and open space/prepared for the Council on Environmental Quality. Keene, John C. Regional Science Research Institute. Council on Environmental Quality (U.S.) [Washington] :The Council,1976. Land value taxation United States. Farms Valuation United States. Ar MOR M-ou of the Effectiveness Pi Differential Assessment of 1--ld1w- and Open Space Coastal Zone Information Center -ROME Ww- 0 M- i ARMIS-Ma-MOMMEMM- It I i MMMIRM . .... ... ... . ..... . .. ............... .. . AM . ..... . ...... . . . . . . ..................... ....... . . . . . ............. . . . . . . ................ . .. ......... ......... . .. ...... Hi 4181 - U58 1976 Prepared tor ttw COLM01 011 Environnrental Qu;dity April 1976 -T ffl:@qff Melt of the Effectiveness Differential Assessment of ihdiw- and Open Space Coastal Zone Information Center Wl Meow" 4181 - U58 1976 Prepared for the Council on Environmental Quality i., April 1976 Other CEQ Land Use Publications Available at U.S. Government Printing Office: Recreation on Water Supply Reservoirs A Handbook for Increased Use The Delaware River Basin-An Environmental Assessment of Three Centuries of Change Land Use (Reprinted from the Fifth Annual Report of the Council on Environ, mental Quality), 1974 Potential Onshore Effects of Oil and Gas Production on the Atlantic and Gulf of Alaska Outer Continental Shelf, Volume IV of OCS Oil and Gas-An Environmental Assessment, by Resource Planning Associates, Inc., and David M. Dornbusch & Co., 1974 The Costs of Sprawl, Environmental and Economic Costs of Alternative De- velopment Patterns at the Urban Fringe Executive Summary Detailed Cost Analysis Literature Review and Bibliography prepared for CEQ, HUD, and EPA by Real Estate Research Corporation, 1974 The Taking Issue-An Analysis of the Constitutional Limits of Land Use Control, by Fred Bosselman, David Callies. and John Banta, 1973 The Quiet Rovolution in Land Use Control-Summary Report, by Fred Bossel- man and David Callies, 1971 Available at National Technical Information Service U.S. Department of Commerce: Interceptor Sewers and Suburban Sprawl Volume 1: Analysis Volume 2: Case Studies by Urban Systems Research and Engineering, Inc., 1974 Recreational Properties: An Analysis of the Markets for Privately Owned Recreational Lots and Leisure Homes, by Richard L. Ragatz Associates, Inc., 1974 Total Urban Water Pollution Loads: The Impact of Storm Water, by Enviro Con- trol, Inc., 1974 Potential Onshore Effects of Deepwater Oil Terminal-Related Industrial Development Volume 1: Executive Summary Volume II: Mid-Atlantic Region and Maine Volume III- Gulf Coast Region Volume IV: Appendices by Arthur D. Little, Inc., 1973 Land Use Change and Environmental Quality in Urban Areas: Some Corn- parative Studies (Denver, Los Angeles, Kansas City, Baltimore, River- side/San Bernardino), by Earth Satellite Corporation, 1973 In Preparation: Land use impacts of highway mass transit, and sewer investments Leisure homes and recreational properties Land use impacts of federal taxes Energy consumption and land use Land use inside cities 90qfd9<&qf04P*#LfP a** An Evaluation of the Effectiveness of Differential Assessment of Farms and Open Space property Of Csc Librawl Prepared for the Council on Environmental Quality April 1976 U S. DEPARTMENT OF COMMERCE NOAA COASTAL SERVICES CENTER 2234 SOUTH H06SON AVENUE CHARLESTON SC 29,405-2413 Q10 rl ZE z - -4-- p - -3717 7 40 -;nL@%: 4r mt 4@ -N -4- '7@ -17 N P For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price $5-A0 Stock Number 041-011-00031-9 PREFACE Rural land values and property taxes paid on farmland, and open space have been increasing in many areas of-the country. To an alarming degree, these changes are caused by expanding urban areas that increase pressures for develop- ment over a wide area at the metropolitan fringe. As this occurs, land increases in value far above its farm or forest value because of its potential for residential, commercial, or industrial use. At the same time tax rates increase . because new residents increase the demand for schools, water and sewer systems, roads, police protection and other public services. Caught in the double crunch of paying taxes at higher rates on -land whose market value is rising, farmers and other owners of undeveloped land have sought to have their land assessed for real property tax purposes at its current or farm use value rather than at its fait market value, which often includes a substantial element of develop- ment value. Since 1957, when Maryland enacted the first statute authorizing differential assessment of farmland, 41 state legislatures have passed laws which granted preferential treatment to farm or other types of undeveloped land. Most of the remaining states either have so-called classification laws which allow modest preferential treatment of agricultural land or are currently considering differential assessment legislation. These laws.were usually enacted to serve the dual purpose of easing tax burdens for farmers and preserving current farm and other open space uses. Underlying this rationale is the assumption that reducing the tax burden on such lands will reduce the rate at which they are con- verted to higher intensity uses. The purpose of this report is to examine the effectiveness of these laws in accomplishing these important environmental goals. As the conclusions of the report point out, differen- tial assessment laws in general work well to reduce the tax burden on farmers. Acting alone, however, they are not very effective at preserving current uses. It is only when such laws are combined with other effective land use mechanisms in rural areas that can contribute to successful long-term preservation of open lands. We realize that the analyses and conclusions of this report raise questions about some of the claims that have been made in the past about the benefits of differential assessment. Nonetheless, we hope the report will be seen as a positive contribution to understanding how these tax laws work and how they can be improved to serve both economic and environmental goals. Russell W. Peterson Chairman IV FOREWORD This study was prepared under contract with the council on Environmental Quality by the Regional'Science Research Institute in Philadelphia. The authors of the report are: John C. Keene, Principal Investigator David Berry Robert E. Coughlin James Farnam Eric Kelly Thomas Plaut Ann Louise Strong The Institute would like to acknowledge the assistance of Ken Bieri, Pat Cohen, Kathleen Cossin, Jackie Harmon, .Laura Kessler, Susan Kramer, Ernie'Leonardo, Linda Pignatiello, Lisa Rosenberg, and JoAnn Tana. The data, analyses, and opinions presented in this report do not necessarily reflect the official position of the Council. Table of Contents PART ONE I. Introduction ......................................................... 3 11. A Survey of Differential Assessment Legislation ...................... 10 A. Objectives of Differential Assessment Legislation ................ 10 B. -Characteristics of Differential,Assessment ....................... 11 1. General ....................................................... 11 2. Notes to Table I ............................................. 14 III. Effectiveness: Providing Tax Benefits to Farmers and other owners of Eligible Land .............................................. 22 A. General Considerations ........................................... 22 1. Land Market Factors and Property Tax Factors ................. 23 2. The Effect of Market and Property Tax Factors on Tax Savings . 26 B. Program Factors and the Provision of Tax Benefits ................ 31 1. Preferential Assessment ...................................... 31 2. Deferred Taxation ............................................ 39 3. Restrictive Agreements ....................................... 42 C. Conclusions ....... .... ......................................... 44 IV. Effectiveness: Achieving Land Use objectives ........................ 46 A. Introduction ..................................................... 46 B. Supply and Demand and the Decision to Sell ....................... 48 1. Introduction ................................................. 48 2. Supply Factors and the Farmer's Decision to Sell ............. 49 3. Research on Supply Factors ................................... 52 4. The Effect of Differential Assessment on the Agricultural Use Value of Land ............................... 56 5. Joint Effect of Supply and Demand Factors on the Conversion of Farmland ....................................... 59 6. An Estimate of the Percent of Sellers of Farmland who Might be Affected by Differential Assessment Programs ........ 63 C. An Evaluation of Alternative Types of Differential Assessment with Respect to Maintaining Current Use ............... 66 1. Preferential Assessment ...................................... 66 2. Deferred Taxation ............................................. 68 3. Restrictive Agreements ....................................... 76 D. Conclusions Concerning Achievement of Land use objectives ........ 77 V. Equity, Ease of Administration and Political Feasibility ............. 80 A. Equity ........................................................... 80 1. Introduction ................................................. 80 2. Estimating the Tax Shift ..................................... 82 3. Estimates of Actual Tax Shifts ............................... 90 4. Sanctions Reduce the Tax Shift ............................... 94 5. Long Term Adjustments Reduce the Tax Shift ................... 95 6. Subventions and State Tax Credits Compensate for Tax Shifts .. 95 7. Conclusions .................................................. 98 B. Ease of Administration ........................................... 99 1. Goals ........................................................ 99 2. Good Records ................................................. 100 3. Good Communications ......................................... 104 4. Administrative Costs ........................................ 106 C. Politicaf Feasibility ........................................... 106 1. General ..................................................... 106 2. Political issues ............................................ 107 3. More Extensive Efforts to Preserve Agricultural Land ........ 110 VI. conclusions and Recommendations ..................................... 113 A. Conclusions ..................................................... 113 1. Introduction ................................................ 113 2. Effectiveness in Providing Tax Savings ...................... 113 3. Effectiveness in Maintaining Current Land Use ............... 115 4. Equity ...................................................... 118 5. Ease of Administration ....................................... 120 6. Political Feasibility ........................................ 121 B. Recommendations ................................................. 121 Tables 1. Provisions of State Differential Assessment Laws ................ 13 2. Summary List of Programs, by Type ................................ 19 3. Legislative Citations: State Programs for the Differential Assessment of Agricultural and Open Lands ....................... 20 4. Real Estate Taxes Paid by an Individual owner in the Program as a Percent of Taxes Paid without Program .............. 28 5. Indiana: Grades and Suggested Values per Acre of Farmland ...... .37 6. Maryland: Guide to Valuating and Assessing Lands Devoted to Farm and Agricultural Use ............................ 38 7. Summary of the Effect of a Property Tax Reduction ............... 62 8. Provisions for Sanctions on Conversion Contained in Current State Laws ........................................... 69 9. Potential Tax Obligation as Percent of Market Value of Land, Assuming No Interest Charge ............................... 70 10. Rollback as Percent of Total Land Value ......................... 72 11. Rollback as Percent of Increase in Market Value of Land for Various Rates of Interest, Tax, and Application of Value ........ 75 12. Tax Expenditures by county Government in Florida Because of Differential Assessment ............................. 92 Figures 1. Taxes as a Proportion of Economic Surplus versus District Tax Rates ............................................. 25 2. Property Taxes Paid by an owner Whose Property Value Is 75% Eligible Land and 25% Ineligible Improvements .................. . 30 3. Schematic Diagram of Farmer's Decision to Sell His Farm ........ 50 4. Increase in Use Value Resulting from Reduction in Taxes ........ 58 5. Percent Change in Land in Farms as a Function of Property Taxes on Agricultural Land and Buildings and Increase in Population Density ............................. 61 6.. Tax Expenditures as a Percent of Tax Revenue, by Percent Reduction of Farm Assessments and Percent of Original Tax Base in Farm Property .......................... 88 7. Increase in Tax Rate Necessary to Compensate for Loss in Revenue due to Differential Assessment ...................... 89 Vill PART TWO I. State Case Studies of Differential Assessment ....................... 127 A. Pure Preferential Assessment .................................... 127 1. Indiana* .................................................... 127 Use Value Assessment of Farmland ............................ 127 Eligible Land ........................................... 127 Method of Assessment ..................................... 128 Evaluation of Indiana's Preferential Assessment Program ..... 130 Differential Assessment of Forestry Lands ................... 130 Eligibility ............................................. 130 Method of Assessment .................................... 131 Procedures ............................................... 131 Sanctions ............................................... 131 Evaluation of Forest Classification Law ..................... 131 B. Deferred Taxation -- Short Rollback ............................. 132 1. Maryland* ................................................... 132 Introduction ................................................ 132 The Programs ................................................ 132 Preferential Assessment of Farmland ..................... 132 Eligible Land ....................................... 132 Method of Assessment ................................ 133 Sanctions for Conversion ........................... 135 Administration and Availability of Data ............ 135 Preferential Assessment of Country Clubo ................ 136 Eligible Land ...................................... 136 Terms of Agreement ................................. 136 Method of Assessment ............................... 136 Sanctions for Conversion ........................... 136 Availability of Data ............................... 137 Planned Development Lands ............................... 137 Eligible Land ...................................... 137 Method of Assessment ............................... 137 Sanctions for Conversion ........................... 138 Availability of Data ............................... 13.8 Forest Conservation and Management ...................... 138 Eligible Land ...................................... 138 Method of Assessment ............................... 138 Sanctions for Conversion ........ ................... 139 Administration ..................................... 139 Open Space Easements ................................... ; 139 Recent Developments ..................................... 139 Evaluation of Maryland's Preferential Assessment Program .... 139 Effectiveness in Maintaining Current Use ................ 139 Findings of Prior Studies .......................... 139 Findings of This Study ............................. 140 Equity .................................................. 141 Ease of Administration .................................. 141 Political Feasibility ................................... 141 2. New Jersey . ................................................. 142 Introduction ................................................ 142 *Prepared by John C. Keene. tPrepared by Robert E. Coughlin. 1X Background on New Jersey .............................. 142 The Farmland Assessment Act of 1964 ................... 144 Eligibility and Participation .............................. 148 Eligibility ........................................... 148 Participation ......................................... 149 Benefits to Participants ................................... 152 Methods of Assessment ................................. 152 Relationship between Assessment at Farm Value and Assessment at Market Value ........................ 153 Tax Savings ........................................... 157 Sanctions on conversion .................................... 158 Effectiveness .............................................. 159 Equity ..................................................... 160 Cost of Administration ..................................... 161 Recommendations for Change ................................. 161 C. Deferred Taxation -- Long Rollback ............................. 164 1. Hawaii * .................................................... 164 Summary .................................................... 164 Background ................................................. 166 Geography ............................................. 166 Land Use .............................................. 168 Land ownership ........................................ 169 Population ............................................ 172 Economy ............................................... 173 Growth Planning ....................................... 175 The Land use commission .................................... 176 Statutory Authorization ............................... 177 Boundary Changes ...................................... 178 Future Portents ....................................... 180 The 1961 Dedication Law .................................... 181 The Statute and Amendments ............................ 181 Use of the Law ........................................ 182 Differential Assessment after 1973 .......................... 185 Dedication ............................................ 186 Deferral .............................................. 186 Experience with Dedication ............................ 187 Experience with Deferral .............................. 190 Equity ................................................ 191 Ease of Administration ................................ 191 Political Feasibility ................................. 192 Appendix ................................................... 193 2. Oregon . .................................................... 202 Description of Programs .................................... 202 The Special Farm-Use Assessment Program ............... 202 Eligibility Criteria for Zoned Land .............. 203 Eligibility Criteria for Land not Zoned for Farming ...................................... 203 Method of Assessment ............................. 204 The Capitalization of Income Approach ....... 204 Sanctions ........................................ 205 Zoned Land .................................. 205 Unzoned Land ................................ 205 Administration ................................... 206_ open Space Use Assessment Law ......................... 206 Eligibility Criteria ............................. 206 Method of Assessment ............................. 207 *Prepared by Ann L. Strong. +Prepared by John C. Keene. Sanctions for Conversion .......................... 207 The Western Oregon Ad Valorem Timber Tax ............... 207 Eligibility Criteria .............................. 208 Method of Assessment .............................. 208 Land ......................................... 208 Timber ....................................... 208 Sanctions ......................................... 209 The Eastern Oregon Severance Tax ....................... 211 Eligibility Criteria .............................. 211 method of Assessment .............................. 211 Land ......................................... 211 Timber ....................................... 211 Sanctions ......................................... 211 The Fores t Fee and Yield Tax ........................... 211 Eligible Land ..................................... 211 Method of Assessment .............................. 211 Land ......................................... 211 Timber ............................................ 212 Sanctions .................................... 212 The Western Oregon Small Tract Optional Tax ............ 212 Eligibility Criteria .............................. 212 Method of Assessment .............................. 212 Sanctions ......................................... 212 Tax Expenditures Relating to Timber and Timber Land .... 212 Evaluation of the Special Farm Use Assessment Program ....... 213 Ease of Entry .......................................... 213 magnitude of Tax ....................................... 213 Method of Assessment ................................... 214 Costs of Conversion .................................... 217 Relationship to Land Use Planning and Controls ......... 217 Effectiveness of Preferential Assessment for maintaining current Use ................................ 219 Land Market Data .................................. 219 Prior Studies ..................................... 219 opinions of Persons Interviewed ................... 220 Equity ................................................. 220 Ease of Administration ................................. 220 Political Feasibility .................................. 221 Evaluation with Respect to Goals of Securing Recreation Lands, Protecting Scenic Vistas and Controlling Urban Development ............................................ 221 Appendix .................................................... 222 3. Washington* ................................................. 236 Summary ..................................................... 236 Washington Background ....................................... 236 Land ................................................... 236 People ................................................. 239 Revenues ............................................... 239 The Open Space Taxation Act ................................. 240 Scope of Act ........................................... 240 Application and Classification ......................... 241 Removal from Classification ............................ 242 Other Related Legislation ................................... 243 The Forest Taxation Act ................................ 243 Assessment ............................................. 243 Special Levies ......................................... 244 Tax Relief for the Elderly ............................. 245 *Prepared by Ann L. Strong. X1 Impact of the Open Space Taxation Act ....................... 245 Fiscal Effects ......................................... 245 Land Use Effects ......................... ............. 250 Equity ................................................. 251 Ease of Administration ................................. 251 Political Feasibility .................................. 252 D. Restrictive Agreements .......................................... 271 1. California * ....... ......................................... 271 Description of Programs ..................................... 271 Eligible Land .......................................... 272 The Contract ........................................... 273 Method of Assessment .................................... 274 Procedures Upon Notice Non-Renewal ..................... 279 Sanctions .............................................. 284 Subventions ................... /......................... 286 Evaluation of the Land Conservation (Williamson) Act ........ 288 Ease of Entry .......................................... 288 Magnitude of Tax Benefit ............................... 288 Method of Assessment ................................... 290 Costs of Conversion .................................... 291 Relationships.with Land Use Planning and Controls ...... 291 Effectiveness in maintaining current Use ............... 293 Ease of Administration ................................. 294 Political Feasibility .................................. 294 Evaluation with Respect to Goals of Securing Recreation Lands, Protecting Scenic vistas, and Controlling Urban Development ............................................ 295 Appendix .................................................... 296 E. States with Special Provisions .................................. 303 1. Connecticut . ................................................ 303 Introduction ................................................ 303 The State .............................................. 303 The Tax System ......................................... 304 Description of Programs ..................................... 306 The 1913 Forest Act .................................... 306 Public Act 490, the open Spaces Act .................... 306 Eligibility ....................................... 307 Farm Land .................................... 307 Forest Land .................................. 307 Open Space Land .............................. 307 Methods of Assessment ............................. 308 Sanctions for Conversion .......................... 310 Evaluation of P.A. 490 ...................................... 311 Magnitude of Benefits .................................. 311 Participation Rate ..................................... 316 Methods of Assessment .................................. 320 Relationship to Land Use Planning and Control .......... 320 Effectiveness of P.A. 490 in Maintaining Current Use ... 321 Effectiveness in Controlling Urban Development ......... 323 Provision of Recreational opportunities ................ 324 Preservation of Scenic Vistas .......................... 324 Equity .................................................. 325 Ease and Cost of Administration ........................ 327 Political Feasibility .................................. 327 2. New York# ................................................... 330 *Prepared by John C. Keene. +Prepared by James Farnam. #Prepared by David Berry. X11 Introduction ................................................ 330 Description of Agricultural Districting Law ................. 332 Goals .................................................. 332 Benefits to Farmers ..................................... 332 Creation of Agricultural Districts ..................... 333 Other Features of the Law .............................. 335 Calculation of Agricultural Use Value .................. 335 Evaluation of the Agricultural Districting Law ............... 336 Improvements in the Law ..................................... 342 II. Technical Analysis of Supply and Demand Factors in the Conversion of Farmland* .............................................. 344 Technical Analysis of the Farm Show Survey ........................... 344 Underlying Reasons for Selling ................................... 344 Relations between Underlying Reasons for Selling and Other Factors .................................................... 347 Economic Dimension .......................................... 347 Demographic Dimension ....................................... 348 Transitional ................................................ 348 Technical Analysis of the Joint Effect of Supply and Demand Factors on the Conversion of Farmland* ........................ 349 Formulating a Model .............................................. 349 Description of the Data .......................................... 352 Regression Results ............................................... 353 Urban Counties .............................................. 353 Dairy Counties ........ w ...................................... 354 Corn-Soybean Counties ............................... I ........ 355 Analysis of Data from Wisconsin and New Jersey ................... 355 Analysis of Wisconsin Data .................................. 355 Analysis of New Jersey Data ................................. 357 III. Bibliography ......................................................... 361 *Prepared by David Berry and Thomas Plaut. X111 PART ONE Introduction Chapter I INTRODUCTION In the early days of the Republic, there were few attempts to regulate land use and land development. The primary means of regulating undesirable externalities from these activities were the sanctions of common law nuisance. The principles of this body of law were developed in the relatively stable context of English agrarian society. With .the advent of the Industrial Revolution they came to be less adequate for the job. The technological revolution did not begin to have its full impact on land development and use until after the Civil War. In rapid succession, a series of inventions changed the face of the countryside and sped up the rate at which rural land, was converted to urban use: the railroad,, the elevator, the street car, farm equipment of amazing variety, high-rise buildings, cheap-electricity, the automobile, bulldozer, and many others. Man achieved a new order of tech- nological power to harness nature and to convert natural re- sources into commodities of all.sorts. He also achieved a capacity to pollute the environment and to change the fade of the earth, which was inconceivable a century before. State and local governments sought to gain control of the myriad private activities affecting land use. They had three basic types of powers at their command with which to do this: the power of eminent domain, the police power, and the power to tax. To thesecould be added a fourth, the in- formal power to act affirmatively, either by constructing public facilities such as sewerage systems and highways, or by conferring or withholding benefits in return for concest- sions. The power of eminent domain was the most limited. For a price, "just compensation," the government could take a person's land and use it for public buildings, roads, park and schools. Railroads and utilities could use it to con- demn rights of way. After the Second World War, local govern- ments were granted the power, and the money to clear and re- develop obsolete and blighted areas in the cities, under the urban renewal program. The effects of the use of the power of eminent domain were far-reaching and controversial, but the power was es-sentially a limited, surgical one which involved, a specific decision and the selection of a specific site.for its application. It affected only a minute portion 3 598 -330 0 - 76 - 2 Introduction of the total stock of private land, although the impact of clearance was felt throughout the market. The second fundamental power, the police power, or the ability to regulate private activity to protect the health, safety., morals and general welfare, was used only sparingly before the Twentieth Century. After the First World War, zoning swept the country, and for the first time urban muni- cipalities exerted direct control over the location, pace and nature of land development and use. This process, sup- plemented by subdivision regulation, environmental controls and building and housing codes, was accelerated aftenthe Second World War during the housing boom of the fifties and in response to increasing awareness of environmental consid- erations of the last ten years. The power to regulate is now the principal tool used by local government to shape the product of the land development process. Until recently, the power of taxation was conceived of primarily as a means of generating revenue rather than as a tool for achieving other, more general, social objectives. Of course, there were many instances where non-revenue ob- jectives were important. The progressivity of the federal income tax served to redistribute income. Oil depletion allowances were designed to encourage exploration and the development of new reserves. The exemption from the property tax of real property owned by charitable organizations was designed to encourage private entities to carry on activi- ties which otherwise would become the responsibility of government, or not be carried on at all. The present study is an evaluation of one instance where the incidence of the real property tax has been manipulated with the intent of achieving non-revenue objectives. The logic is simple. All across the country, rural land values and tax rates have been rising as urbanization moves out from the city to undeveloped areas. As this occurs land ac- quires an increment in value over and above its farm use value because it can be used for residential, commercial, and industrial purposes or has a potential for such develop- ment. Tax rates rise because the new residents of the rural-urban fringe demand schools, water and sewer systems, roads, police protection, and other public services which were previously unnecessary. Caught in the double crunch of paying taxes at higher rates on land whose market value was rising, farmers and other owners of undeveloped land sought to bave their land assessed for real property tax purposes 4 Introduction at its current or farm use value rather than at its fair market value, which often included a substantial element of development value. Since 1957, when Maryland enacted the first statute authorizing differential assessment of farmland, 42 state legislatures have responded by passing laws which granted -preferential treatment to farm or other types of undeveloped land. Most of the remaining states have so-called classi- fication laws, which allow modest preferential treatment of agricultural land, or are currently considering differential assessment legislation. These laws were enacted under the banners of preserving open space and of easing the tax bur- dens of farmers. The purpose of this study has been to eval- uate the fundamental principle on which they were based: that, by reducing property taxes, the rate at which farmland was being converted to non-farm uses could be significantly decreased. In the course of this evaluation, many other aspects of differential assessment are also examined, and the results of this examination are also reported. In order to set the stage for the analysis which follows, it is necessary to review some of the basic contextual factors within which differential assessment operates. The first in- volves the agricultural industry. Farmers are producers of two entirely different classes of goods for two different markets: agricultural commodities and development sites. The common factor joining these two markets is the farmer's land. When treated as an input to the production of commodities, land has a value which is re- lated to its capitalized economic rent as a factor of pro- duction. Its economic rent is determined by such factors as soil quality, topography, distance from the market, access to transportation facilities, level of management including drainage, crop rotation, and soil conservation practices, general conditions in local, regional, national and inter- national commodity markets, natural conditions such as drought, and so on. The rate at which economic rent is capitalized is a function of property taxes, capitalization rates of com- peting investment, and investors' expectations concerning ap- preciation in land values. When land is used for residential, commercial or indus- trial facilities, its value is determined by its proximity to urban development, transportation facilities, areas of special scenic or recreational interest, etc., by conditions 5 Introduction in the mortgage markets, population growth and migration, and, generally, the demand for new facilities of all types. The individual farmer provides land for this market essentially on a.once-in-a-lifetime basis. In many farming areas, especially those on the rural- urban fringe, there are large differentials between the value of land as,an input to the production of agricultural commod- ities and its value as an input to development. These differ- entials have produced the crisis which has led most states to adopt some form of differential assessment law which per- mits agricultural land (and, in many states, land used for timber production, recreation and open space uses),to be assessed at values approximating its value as an input to agricultural production rather than as a site for development. These laws constitute explicit departures from the uniformity principle found in most state constitutions. Differential assessment laws are usually categorized as falling into one of three categories: Preferential assessment, deferred taxation, and restrictive agreement.1 Preferential assessment laws produce an abatement of taxes by authorizing assessors simply to assess eligible land on the basis of farm use value, rather than on market value, which in many locations is much higher because the demand for developable sites is strong. Deferred taxation laws add an additional feature, by imposing a sanction requiring owners of eligible land who convert land to non-eligible uses to pay some or all the taxes which they were excused from paying for a number of years prior to conversion. Restrictive agreement laws include both preferential assessment and, in all states except Vermont, a sanction in the form of a payment of back taxes. In addi- tion, they require the owner to sign a contract spelling out his rights and duties. In California, for instance, he must wait until the end of a 10 year run-out period after signify- ing his intention of nonrenewal before he can convert the land to noneligible uses as of right. Differential Assessment Laws Create Tax Expenditures All differential assessment laws are examples of what has come to be known as "tax expenditure," by means of which the tax bills of some taxpayers are reduced as a result of 1See, e.g., Hady and Sibold, Differential Assessment of Farm and Open Space Land (Washington, D.C.: Economic Research Service, U.S.D.A., 1974). 6 Introduction special tax treatment. In most cases, the cost of this re- duction is spread out over all the other taxpayers. Any ta x system can be viewed as consisting of two parts. The first establishes the normal structure of the tax by de- fining the tax base, whether it "be taxable income, property or some transaction such as a sale., and establishing the rate of, and procedures for collecting the tax. The second con- sists of a set of tax benefits which are conferred by the government by means of tax reductions for certain classes of taxpayers, with the objectives of providing incentives for certain kinds of socially desirable activities, easing hardships, or simply favoring politically powerful interest groups. The second part is not necessary to the proper work- ing of the tax structure. Tax expenditures take a variety of forms such as exclu- sions from the tax base, exemptions., deductions, tax credits, preferential tax rates,and tax deferral. For instance, home- ownersi exemptions-remove up to a certain maximum amo unt of assessed value from the tax base. While there are borderline cases in which opinions may differ as to whether a particular item is part of the normal structure of a tax expenditure, there is little question that differential assessment is a classic example of the latter. The effect of a tax expenditure.is precisely the same as if the taxpayer who receives the benefit were to pay taxes at the same rate as other, non-preferred taxpayers, and then, were to receive a simultaneous grant from the government in the amount of the tax benefit. Thus, there are two ways in which a government can make financial assistance available to a particular class of taxpayers. The first is to tax all ,. taxpayers on the same tax base at the same rate and then make grants in the desired amounts to preferred classes. The second is to structure the tax expenditure system so as to reduce the tax bills of the preferred classes by the same amount. In the first instance the governmental budget would be increased by the amount of the d"irect grants to beneficiaries, and the ap- propriations would be made for this purpose each year. In the second, the payments to them would be made through the tax ex- penditure structure, where they largely escape-annual legis- lative review. Where tax expenditures exist, they have the effect of shifting the tax burden away from the preferred class to all other taxpayers in an-amount equal to the benefits con- ferred on the preferred class. 7 Introduction Tax expenditures for the federal government must be esti- mated in the annual budget,l pursuant to the Congressional Budget and Impoundment Control Act of 1974, and state govern- ments are beginning to gather information on tax expenditures at the state and local level. Most state real property tax systems are riddled with tax expenditures of significant mag- nitude,, such as examptions for property belonging to govern- ment, charities, and educational institutions, exemptions for homeowners"'! and preferential assessment of agricultural land. Outline of this Report The report which follows is divided into two major parts. Part One consists of six chapters which present the general findings and conclusions of the study. In Chapter II, the history andicharacteristics of differential assessment laws are reviewed I. In the'next two chapters these-laws are eval- uated with respect to their effectiveness for achieving two major goals:1 the provision of tax benefits to -farmers and other owners of eligible undeveloped land, and their effec- tiveness as@tools for maintaining current use of such land. In Chapter V, differential assessment laws are evaluated with respect to t Iheir equity, ease of administration, and political feasibility.i Finally, the general conclusions and recommend- ations of the report are presented. Part T,@o consists of ten special analyses and a biblio- graphical report. Detailed studies are presented of the operations 8f differential assessment programs in nine states: California, Connecticut, Hawaii, Indiana, Maryland, New Jersey, New York, Oregon, and Washington. These states were chosen because the@, have had significant experience with differential assessment Ithey have been experiencing urbanization, and It is instructive to note that the U.S. Supreme Court has held that tax expenditures are to be considered the same as direct grants in determining their constitutionality. In Committee For Public Education and Religious Liberty v. Ny- quist 93 S.1 ct. 2955 (1973),, the Court held that a New York program whi ch provided both tuition grants and scaled in- come tax deductions with children in non-public elementary and secondd .ry schools, violated the Establishment Clause of the First Amendment. Thus, what started as a theoretical tool for better describing the fiscal impacts has been leg- itimated for purposes of judicial analysis of government programs. 8 Introduction their laws embodied representative approaches. Next is an analysis of the general relationships among supply and demand factors in the land market at the rural-urban fringe, in- cluding real property taxes. Part Two concludes with an annotated bibliography listing all the studies found con- cerning differential assessment and related topics. 9 Differential Assessment Legislation Chapter II A SURVEY OF DIFFERENTIAL ASSESSMENT LEGISLATION A. OBJECTIVES OF DIFFERENTIAL ASSESSMENT LEGISLATION As is true of any piece of complex legislation, differ- ential assessment laws have been enacted to achieve more than one objective. In the analysis in later sections of this re- port, we will examine the effectiveness of such statutes with respect to what appears to be the predominant legislative aims: to provide tax relief for farmers and to preserve open space. It is useful here, however, to review some of the public policies which different differential assessment laws have sought to advance. In some states, the objective appears to be help the family farmer. Texas, for instance, requires that the owner must be a natural person, not a corporation, that he be in agriculture for profit and that agriculture be his primary occupation and income source. In addition, the land must have been in agricultural use exclusively and continuously -for the three preceding years. In other states, the objective has been to give a tax benefit to all farmland, regardless of ownership, quality of soil or proximity to urban development. In Indiana, the legislature simply directed assessors to assess land in agricultural use as agricultural land and set no further eligibility criteria. This definition has been expanded -somewhat by the State Board of Tax Commissioners so that agricultural land is defined as "an area in open country used for producing crops and raising livestock, and whose principal value arises out of such use." All land classi- fied as agricultural by the assessor is automatically a- warded preferent.ial assessment. Some statutes seek to protect other kinds of open land. California's Williamson Act makes differential assessment available to qualifying land devoted to agricultural, rec- reational, scenic, wildlife habitat and open space uses. Still other states have established planning and zoning requirements which are designed to limit participation to those tracts of land which are in areas which have been designated for agricultural use in a municipal comprehensive plan. Again, California is an example. 10 Differential Assessment Legislation These examples serve to illustrate the variety of objec- tives which differential taxation laws have sought to achieve. Each state's statute must of course be evaluated in terms of its own set of goals. B. CHARACTERISTICS OF DIFFERENTIAL ASSESSMENT LEGISLATION 1. General Table 1, which follows, summarizes the pr ovisions of state laws granting differential assessment to agricultural and open lands which had been enacted as of May, 1975. These data were assembled from two excellent earlier studies,1 from information supplied by tax officials in the fifty stat 'es, and from staff research. The Hady study contains a detailed state- by-state review of statutes in effect as of the beginning of 1974., while the Gloudemans report emphasizes more the evalu- ation of the operation and impact.of these laws on the tax base and on land use. The state programs identified in Table 1 are listed al- phabetically under the classifications: pure preferential assessment, deferred taxation,, or restrictive agreement. Some states have more.than one program, and these are listed sep- arately. The table is accompanied by explanatory notes, given in section 2 below. They begin with general explana- tory notes on each of the program characteristics, and end with specific comments on selected 'state programs. A sum- mary list of programs by type is given in Table 2 and the legislative citations for each state program are given in Table 3. For the purposes of classification, we have adopted a strict definition of restrictive agreement. The programs in Hawaii, New York, Pennsylvania, and Washington are classified as deferred taxation programs even though they require the - landowner to commit his land to the eligible use for a spec- ified number of years. This is done because the agreements are not enforced. As long as the landowner in these states pays the rollback tax and any-other penalties, he may change the use of his land without petitioning for release from the agreement. 1Hady, Thomas F. and Ann Gordon Sibold, State Programs for the Assessment of Farm and Open_Space Land, Economic Research Service (U.S.D.A.) (Washington, D.'C.: U.S. Government Print- ing Office, 1974) and Gloudemans, Robert J., Use Value Farm- land Assessments: Theory, Practice, Impact (Chicago: Inter- national Association of Assessing Officers, 1974). Differential Assessment Legislation Table 1 specifically excludes three widespread forms of legislation which have the effect of reducing the tax burden on specified open lands: state open space easement enabling statutes, forest taxation laws, and classified property tax systems. Many states have enacted open space easement laws which authorize municipalities to acquire interests in open land for the purposes of preserving open space. Once an owner has conveyed such an interest, his property isassessed at its market value minus the value of the rights and interests sur- rendered. In practical effect, there is little difference between the conveyance of an open space easement for a term of years and entering into a restrictive agreement for a like term. Conceptually, however, there is no preferential assessment of land in the first case because the assessor is simply assessing the remaining property interests on the basis of their fair market value. Because of this fact, open space easement programs have not been included in this study. Forest and timber taxation laws generally set the annual assessment of eligible forest or timber lands at a very low level and provide for a yield tax at time of harvest. While the goals of these laws,.giving a tax break to the forest products industry and promoting conservation of forest re- sources, overlap somewhat with the goals of the use-value assessment statutes discussed here, they raise a set of issues which are outside the scope of this study.1 Seven states have enacted classified property tax systems which mandate different assessment-market price ratios for specified classes of real property. Generally agricultural and residential properties are assigned similar ratios, which are less than the ratios for industrial, commercial, and util- ity properties. While granting some preferential assessment for open land, these acts do not protect urban fringe land from higher taxes due to rising market values if the ad val- orem principle is maintained. The fact that residential and agricultural property are often given the same ratio indicates that agricultural use is not preferentially assessed.relative to its major competitor. Because these provisions are not aimed specifically at agricultural and open lands and involve different concepts than the laws discussed here, they have not been included in the table. See,, e_g., Klemper er, W. David, Evaluating Forest Tax Alternatives for Oregon (Salem, Oregon: 1975), and greavesP L.A. Jr., and Jones, Richard W., Forest Property Taxation. Report No. 29, Georgia Forest Research Council, 1972. 12 04 @gvwv, A 0 -0 a 0 " a 9- o 5: o RMOO 4"o 9. n r 0 0 .0 .0 0@ a 0 0 n 5; 0 0 M I I 1+ -1-1 Arizona m Arkansas H I I IIs, 1-1 . 0 0 0 0 Colors o' Delaware Is, 1-1 0 is Is[ IFlorida 1 Z Idaho W, 0. 0 101 Indiana 191 Iowa a Missouri 0 'a L 0 el - 1-1 0 0 0 lei I I I I New Mexico 101 0 North Dakota n 0100101 Oklahoma 101 South Dakota 0 Wyoming 0 Alaska 0 0 0 0 0 ecticut Com 0 Hawaii 1 0 Hawaii 2 0 Illinois o_ Yentucky 0 le 0*1 Z! Maine > 0 Iis is lol Maryland *1 10 .1 Massachusetts *1 le. 1. 0 0 1-1 Minnesota I Iis I I IMinne6Dta 2 Montana -1 Is, I Nebraska *I Nevada -3 41,1414,411 New Hampshire 0 New Jersey a 0 0 *a 0, 4, 0 '2t New York 1 0 -00 & J New York 2 0 Is, 0 a 0 10 0 North Carolina 0 1* ± 0 1 *, Ohio 0 10 1 -lz;l I II el o oregon is *I 1 01.1 *1* 1*Joe m. Pennsylvania 1 lei 91 o I Pennsylvania 2 101 0 Rhode Island 1-1 10 South Carolina 1-1 Texas 0 Utah Virginia 0 0 0 is 000, Washington so 0 California > E; Florida 2 Michigan 0 New Hampshire Vermont a Differential Assessment Legislation Table 1 and the accompanying notes cannot replace care- ful consideration of each individual statute. Since there do not appear to be widely-copied model or leading statutes in this area of the law, there are numerous small but impor- tant differences in the statutes. The simplification into tabular form has undoubtedly created distortions. The table should be useful in determining such facts as how many states have rollback penaltids or what the typical terms of restric- tive agreements are. However,, it should not be used to try to draw fine comparisions. 2. Notes to Table 1 a. Program Characteristics i. Eligible Uses Agriculture: The definition of qualifying agricultural uses varies across programs, but is generally quite broad, ranging from pasture to intensive 0 cultivation. Associated waste and wooded land usually is also eligible, but the improvements generally are not. Open Space, Environmental Protection: The definition of these lands is broad, but eligibility is usually contingent on approval by a public body Critical natural, scenic, and historical resources are usually included in the list of eligible lands. Timber or Forest: While 17 'states include this as an eligible use, many also have forest taxation laws which provide greater benefits to landowners. (See the Washington and Oregon case studies, injart Two). Within the statutes listed here, there may be different intent in the preferential taxation of forest land from that behind the preferential taxation of "timber" land, with the latter implying benefits to harvesters and the former a reward for resource conservation. However, such distinc- tions are not apparent on the face of most statutes and the words seem to have been used interchangeably to refer to land with large numbers of trees .growing on it. In several cases the eligibility of these lands hinges on the approval of a state official, such at the State Forester. Recreation: These provisions are designed to benefit country clubs, golf courses, ski areas,.hunting grounds, and other such recreational facilities., ii. Additional Eligibility Requirements Minimum Farm Income Required: This is typically worded in terms of a minimura required level of gross annual receipts, with an additional amount per acre in some cases. Two states require that the owner earn a mini- mum percent of his income from the land. In Minnesota, the owner must satisfy one or the other of these provisions, a requirement designed to make speculators'ineligible while including low-income subsistence farm- ers. Two states which merely require that land must be used for profit are not included in this category. 14 History of Eligible Use Required: In these programs, the land must have a been in the eligible use for a number of years prior to application, typi- cally two years. Minimum,L@th of Tenure within Family: Programs listed here require that the land has been owned by the applicant's family for a period of years. In North Carolina and Minnesota, this is seven years, unless, in the lat- ter, the applicant lives on the property. Land Must Be Planned or Zoned for the Eligible Use: These provisions, which link preferential assessment to the land use planning process, are rarely included. When included, their strictness and effectiveness vary greatly across states. In most of these programs, a use must be allowed under thezoning ordinance to be eligible, but there is no provision that other uses could not be allowed under the zo-Ang category. Five states terminate eligibility when the owner applies for a zoning change or files a subdivision plan. Connecticut and Washington have planning requirements for lands in the flopen spice" category but not for farmland. iii. Sanctions on Conversion While most penalties are assessed on conversion of the land to a non- qualifying use, a few states assess the penalty either then or at time of sale. Eleven programs specifically require notification of changes in use, and some provide additional penalties for failing to do so. Roll-back.Taxes Collected: These are usually calculated as the difference between the taxes-that would have been due at market value assessment and the taxes actually paid under the program, summed over the number ofspec- ified years. For administrative simplicity, several states have changed this to a multiple of the difference between -market and use-value taxes in the year of conversion. In a market with rising property values, this will produce a larger rollback. Interest on Deferred Taxes: The interest rates range from 5% to 10% and are usually not compounded. Michigan has compound interest for early ter- mination.- Penalty Based on Market Value in Year of Conversion: This is a specified percentage of sale price or market value at conversion. Other Penalty:' For withdrawal before a specified number of years, some states levy an additional penalty, such as a certain percentage of the deferred taxes. iv. Restrictive Agreements Minimum Length of Term: While the term is negotiable in most states, four out of the five states set a minimum length of term. V. Scope of Program A program is considered statewide if local assessors or governing bod- ies have no choice in the acceptance of applications from lands that meet the statutory eligibility requirements. In a very few cases, the laws apply only.to specified parts of the state. In the voluntary programs applications are required initially and in some cases annually. In the automatic programs assessment regulations 15 for all specified lands are state mandated. vi. State Subvention Payments State payments to offset the revenue loss attributable to prefErantial assessment are provided under only three programs. In California, these are tied either to the estimated tax loss or the acres of land in the program, whichever is the lesser amount. In New Nork, subventions are provided only when the state initiates an agricultural district, wl@ich. has not happened to date. b. Notes for Selected State Programs. i. Pure Preferential Assessment Arizona: The legislatively mandated a@praisal methods specify that when market data are u--,cd as an indication of market va'lue "the price paid for future anticipated property value increments shall be ex- cluded." This, in conjunction with Arizona's classification system granting preferential treatment to agricultural land, led us to in- clude the program in this category. While assessors are giver. wide latitude in transitional areas, use-value assessment is allowet4 by law. Florida 1: Agricultural land in the path of development may be reclass- ..ified non-agricultural by the board of county commissioners. There is a presumption of non-agricultural use if the land.sells, for great-., er thar three times its agricultural value. New Mexico: A new program, outlined in the revised property tax code, is described here. North Dakota: This limited program only applied to agricultural la=ds annexed by municipalities. Oklahoma: By statute, all real property is assessed on the basis of its value in its current use. When a lando,,mer applies for a zoning change, the assessment-basis-will change to the intended higher use. ii. Deferred Taxation Alaska: Farm proceeds must be at least 10% of income to qualify. Roll- back taxes up to the amount of the subvention paid by the stare go directly to the state. Connecticut: Open space lands must be designated on the local plan of development to be eligible. Forest land must be certified by the State Forester. A decreasing conveyance tax is levied on participating lands which are sold or converted.. It is 10% in the first year of ownership or classification, whichever is first, and declines 1% per year until it nolonger applies. Hawaii 1: Under this statute, owners can dedicate land to the qualifying use for 10 or 20 years. If the 20 year period is chosen, the assess- ment is cut to,,one-half agricultural use-value. 16 Hawaii 2: Land classified agricultural by the Department of Taxation and ui-ed for agriculture, whether dedicated or not, is to be assessed at agricultural use value and the taxes which otherwise would have been. payable are deferred. A rollback of up to 10 years plus a 10% per annum penalty are col- lected following a rezoning or subdivision upon petition of an owner or lessee. If rezoning or subdivision occur within five years of enactment of the law, the rollback and penalty are doubled. However, the owner may escape the rollback and penalty,by dedicating the land within one year of rezoning. Maine: The rollback is 10 years for agricultural land and 15 years for open space land. 0 'nly open space lands, including recreational lands, must be approved by the local planning boards. If there is no plan or the land is not classified open space, the assessor must determine eligibility in light of both statutory and Constitutional definitions. Massachusetts: The sanct ion on conversion is either the four year roll- back or a declining conveyance tax similar to the Connecticut pro- vision, whichever is greater. .Minnesota 1: For eligibility a landowner must earn a minimum gross farm income of $300 plus $10 per tillable acre or one-third of total fam- ily income. New Hampshire 1: The penalty for conversion is 10% of the assessed val- ue at time of conversion, without regard to tax deferral. New York 1: This applies to lands within Agricultural Districts. State subvention payments are made only when the state initiates the Dis- trict.. New York 2: This applies to land outside Agricultural Districts. The penalty for conversion is twice the total taxes due in the year of conversi@3n based an market value, assessment. North Carolina: if the.owner lives on the land, no minimum length of tenure is required. Oregon: Land zoned for farm use is automatically eligible, while land not zoned for farm use must hav e been devoted to agricultural use for the two previous' years. For zoned land, the roll-back is the deferred taxes of the previous y,@-.ar times thenumber of years in the program, up to ten years. Unzoned land is subject to a standard roll-back up to 10 years with 6% interest. Anadditional penalty is levied for failure to notify the assessor of a change in use. Pennsylvania 1: This is a local option program available only to certain classes of larger counties. Texas: Applicant must be a "natural person" and the land must constitute his principal occupation and source of income. Washington: If the land is converted before the initial seven years under classification, an additional penalty of 20 percent of the deferred tax is due., only land classified as open space requires approval of a planning body. 17 p iii. Restrictive Agreepic.nts California: Under the Williamson Act contract, there is a 10 year "run- out period" after notification of non-renewal, during which the as- sessment is gradually increased to market value and the owner cannot convert-Lhe land. If early te-n-,iination is granted by special excep- tion, there is a penalty of 12.YZ of niarket value at time of conver- sion or termination. Florida 2: There is no specified roll-back term, indicating a total roll- back, with 6% interest. Michigan: This program has two components: farmland development rights agreements and open space development rights easements. The appli- cation and review process for both is complex. An owner who enters a farmland development rights agreement is en- titled to a credit a-ainst his state income tax liability for the amount by which the property taxes on the land and structures used in the farming operation, including the homestead, exceeds 7% of household income. If'an early termination is granted upon petition by the owner,-the total amount of the tax credit; plus 6% per annum compounded interest, becomes a lien on the property. If termination is at the request of the state, there is no penalty or interest. Upon due course termination, the rollback is the total amount of the tax credit received by the owrier in the last seven years, withoat interest. Through this mechanism, the farm property tax burden is shifted to other income tax payers statewide rather than onto other classes of property within the same local taxing jurisdiction. An owner who enters an open space development rights easement is granted a current use assessment. For early termination, a total roll-back. plus 6% per annum compounded interest, falls due. Upon due course termination, there is a seven year rollback without in- terest. New Hampshire 2: Localities may ne.-otiate "discretionary easements" with owners OF-open space lands. The penalty for early termination, when allowed by the local governing body, is 12% of assessed value during the first half of the agreement and 6% of assessed value during the last half. Vermont: This statute enables the locality to negotiate with a farmer to fix either the assessment on his property, the tax rate to be applied, the actual amount of taxes to be paid, or the property's tax as a percentag.eof the total annual tax, for a term of years not to ex- ceed 10 years. 18 Table 2 SUk,k[ARY LIST OF PROGRAMS, BY TYPE PURE PREFERENTIAL ASSESSMENT (14 State Programs) Arizona Iowa Arkansas Missouri Colorado New 'Mpxico Delaware North Dakota Florida 1 Oklahoma Idaho South Dakota Indiana Wyoming DEFERRED TAXATION (25 States; 29 Programs) Years Rollback Years Rollback Alaska 7 New York 1 (inside dis- Connecticut (conveyance tax) trict) 5 Hawaii I (dedication) (total) New York 2 (outside dis- trict) (2x market value taxes) Hawaii 2 (deferral) 10 North Carolina 5 Illinois 3 Ohio 4 Kentucky 2 Oregon 10 Maine 10,15 Pennsylvania 1 (1966) 5 Maryland 2 Pennsylvania 2-(1974) 7 Massachusetts 4 Rhode Island 2 Minnesota I (agri.) 3 South Carolina 5 Minnesota 2 (recr.) 7 Texas 3 Montana 4 Utah 5 Nebraska 5 Virginia 5 Nevada 7 Washington 7 New Hampshire 1 (10 % of assessed value) New Jersey 2 RESTRICTIVE AGREEMENTS (5 State Programs) California 10 yrs. min. term; for sanctions, see notes by State. Florida 10 yrs. min. term; complete rollback. Michigan 10 yrs. min. term; 7 yr's. rollback. New Hampshire 2 10 yrs. min. term; sanction of 12% of assessed value if breached in first half of term; and 6% if breached in second half. Vermont See notes by State Program. NO PROGRAM Alabama* Mississippi District of Columbia Tennessee* Georgia West Virginia* Kansas Wisconsin Louisiana* *State with a classified property system. Arizona, Minnesota, and South Carolina also have such statutes. Louisiana and Wisconsin have amended their constitutions to permit differential assessment. Kansas is in the process of doing this. 19 598-330 0 - 76 - 3 D i fforonLia I A sse.-tsmont 1.oi, is I 4it i on Table 3 LEGISLATIVE CITATIONS: STATE PROGRAMS FOR THE DIFFERENTIAL ASSESSMENT OF AGRICULTURAL AND OPEN LANDS Alaska Alaska Stat. 29.53.035, as amended by Sen. C.S. for H.B. 827 (1974) Arizona Ariz. Rev. Stat. 426123, 42-136 (1974 Supp.). Arkansas Ark. Stat. Ann. 84-479 through 84-486 (1973 Supp.). California Govt. Code 51201 et seq. (1974 Supp.). Colorado 1963 Colo. Rev. StaL. 137-1-3 (5) and 1@7-1-3 (6). Connecticut Conn. Stat. Ann., Title 12, 107 (a) through 107 (e) and 504a.f (1974 Supp.). Delaware Del. Code, Title 9, Sect. 8330. Florida I Fla. Stat. Ann.. 193-461 LLL @!ea. (1974 Supp.) (Preferential Assessment for Agricultural Land). Florida 2 Fla. Stat. Ann. 193-501 e seq. (1974 Supp.) (Recreation Land Restrictive Agreement). Hawaii 1 Haw. Rev. Stat. 246-12 et seg. (1973 Supp.) (Dedication Program). Hawaii 2 Id, (Deferral Program).' Idaho Idaho Co Wde Ch. 2, 63-202 (1974 Suip.). Illinois Ill Rev. Stat. Chap. 120, Sect. 501 (a) (1) through 501 (a) (3) (1974 Supp.). Indiana Ind.,Code 6-1-26-2 et seq. (1974) Iowa Iowa Code 404.15, 441.21, 441.22@ Kentucky Ken. Rev. @;tat. 132010, 132.450 et seq.; Const. Sect. 172A. Maine Me. Rev. Stat. Ann. 36-585-593; Const. Art. IX, $8. Maryland Md. Code Ann. Art 81 §19 Massachusetts Mass. Session Laws, Chap. 1118, enacting Mass. Genl. La ws Chap. 61A. Michigan Acts of 1974, Act. No. 116. Minnesota 1. Minn. Stat. Ann. 273.111 (1974 Supp.) (Preferential Assessment for Agricultural Lands). Minnesota 2 Minn. Stat. Ann. 273-112 (1974 Supp.) (Colf,Course & Ski Area Program). - Missouri S.B. 203 (78th General Assembley, 1975) Montana Lawn of, Montana, '13-512, 74-56. R.C.M. (1974), Sect. 84-401, 84-1429.12, and 84-437.1 to 84-437.17. Nebraska -Laws of Nebraska, Legis. Bill 359 (1974). Nevada Ch 749 (S.B. 167 New Hampshire I N.H. Rev. Stat. Ann. 79A:1 through 26 (1973.Supp.); Const. Art. 5-B (Current Ilse Taxation) New Hampshire 2 N.11. Rev. Stat. Ann. 79A:15 through 21 (1973 Supp.). (Dis- cretionary Easements). 20 DiffrLil Asesmnt Legislation able 3 - continued New Jersey N.J. Stat. Ann. 54:4-23 et §eQ; Const. Art. 8, Sect. I Para. 1. New Mexico N.M. Stat. Ann. 72-2-14.1 (1973 Supp.) and 72-29-9 (1975) Specl. Supp.) (Agricultural Lands) and 72-6-8 (1973 Supp.) (Grazing Lands). New York 1 Agric. & Mkts. Law 2qWOO.to 307. (1974 Supp.). q(1nd in Agricultural Districts). New York 2 Id. (Other Agricultural Lands). North Carolina N.C. Genl. Stat. 105-277.2 through 105-277.7. North Dakota N.D. Stat. Code 57-02-27 (1973 Supp.). Ohio Ohio Code 5713.30--5713.37 (4q675 Supp.). Oklahoma Senate Bill. 237(1974). Oregon Ore.Rev. Stat. 308.345 et seq. (1974 Supp.1p Pennsylvania I Purdon's Stat. Ann. Title 16, Sect. 11941 et seq. Pennsylvania 2 Purdon's Stat.nn. Title 72, Sect. 5490.1 to 5490.13 (Laws of 1974, Act. 319). Rhode Island Cenl. Laws of R.I. 44-27-2. South Carolina Senate Bi11 209 (1975). South Dakota S.T), Ce)m, T-quis 10-6-31-33 (1974 Supp.) Texas Const., Art VIII, Sect. 1-d(a) et seq. Utah Utah Code 59-5-88 et seq. Vermont Vt. Stat. Ann. Title@24, 2741 (Development Rights Program). Virginia Va. Code Ann. 58-769.4 et seq. (1974 Supp.). Washington Rev. Code Wash. 84-34 et seq. (1974 Supp.); Const.rt. 8. Wyoming Wyo. Stat. Ann. 39-82 (1074 Supp.). 21 Effectiveness for Providing Tax Benefits Chapter III EFFECTIVENESS: PROVIDING TAX BENEFITS TO FARMERS AND OTHER OWNERS OF ELIGIBLE LAND A. GENERAL CONSIDERATIONS As has already been indicated, a primary goal of differential assessment is to reduce the real property taxes of farmers and other owners of eligible land. In .many states, this appears to have been the only, or at least, the overriding goal. In any case, the other goals, such as retarding the conversion of open land to urban uses, the securing of recreational benefits, the protect- ion of scenic resources, and the controlling of urban development, all depend on the magnitude of the tax be- nefit. The larger it is, the more likely it is, so the argument goes, that owners of undeveloped land will be induced to hold the land off the market and maintain it in its current use. It is, therefore, appropriate to begin our analysis of the effectiveness of differential assess- ment by examining the tax benefits which result and how they are affected by various types of programs. The analysis which follows will, for purposes of sim- plification, focus on farmers and farmland. These owners are the primary beneficiaries of most differential assess- ment laws, and in almost all cases factors affecting tax savings for them will be similar to factors affecting owners of timber, recreational, scenic and other typec of undeveloped land. Where different considerations come into play for these latter classes of land, they will be noted. The tax benefits which owners receive as a result of differential assessment of land are measured by the differ- ence between those taxes which they would pay if they did not participate in the program and those which they pay as participants. In evaluating the effectiveness of a par- ticular type of differential assessment program it is there- fore essential to understand the context within which it operates. This context can be best analyzed in terms of the interaction between rural land market factors and pro- perty tax factors. 22 Effectiveness for Providing Tax Benefits 1. Land Market Factors and Property Tax Factors As we have indicated in Chapter I, agricultural land is sold in two types of markets: the market for land to be used to produce agricultural products and the market for development sites. The first type exists in its purest form in rural areas remote from the pressures of urbaniza- tion, where agriculture is the highest bidding use. The second exists in suburban areas where little farming occurs. In between, in the rural-urban fringe, the two markets overlap, so that some land is sold for agricultural use, and some for development, but at intermediate prices. a. Remote Rural Areas In remote rural areas, land values are a function of the annual economic surplus which a reasonably able farmer estimates he can generate from the land, the capi- talization rate which reasonably prudent farmers will as assign to thi.s surplus (or to state it differently, the rate of return which they will demand from their invest- ment), and the effective property tax rate for the taxing jurisdiction in which the farm is located. In such areas the property tax-is based on agricul- tural use value and therefore is a percentage of net income (or more precisely surplus) from the land.1 As Figure 1 shows, in a typical state where the capitalization rate is around Where agriculture is the highest-bidding use (or the "highest ,and best use"), land value, V, will be a function of the annual economic surp us, S, the capitalization rate, C, and the effective property tax rate, R. This relationship is expressed as follows: V S C + R Three of these terms -- V, C, and R -- are in common use, but S, economic surplus, requires a brief discussion. The surplus is the dollar exchange value of farm output minus a) the dollar exchange value of farm inputs such as seeds, fertilizer, depreciation of machinery and equipment, etc., and b) the dollar exchange value of farmer's wages and management payments to himself and other labor. (Note that if the farmer's input costs are high, if farm prices are 23 Effectiveness for Providing Tax Benefits 7% and the effective property tax rate about 2%, the real property tax would constitute a 22% tax on economic surplus before property tax, if assessed values were based on farm use value. The impact of the tax is reduced because it is a deductible item for Federal income tax purposes. Thus, in the example above, for a typical taxpayer who is in the 30% Federal income tax bracketthe net cost of the real pro- perty tax would be approximately 15% of net income before taxes. 1footnote continued iow, or his expected wages to himself are too high, S could be negative, in which case the loss comes out of his own wages and management returns.) In areas where agriculture is the highest bidding use, the appraised values which property tax assessors use to establish the tax base should, in principle, be the agri- cultural use value, and in such casea, the dollar value of the tax on the land, T, is: T = R - V Substituting for V, T RS C + R We may now express T as a proportion of the surplus, S, to obtain the tax rate on the economic surplus of farming, P: P T S Substituting terms and simplifying, RS R P C + R S C + R Thus, for all levels of surplus, the tax rate on the surplus, P,, is determined by the magnitudes of the real property tax rate, R, and the capitalization rate, C. 24 Effectiveness for Providing Tax_Benefits Figure 1 TAXES AS A PROPORTION OF ECONOMIC SURPLUS VERSUS DISTRICT TAX RATES FOR VARIOUS CAPITALIZATION RATES :3 C=.02 @4 .60 -A S .50 0 0 U C=.05 W 40 44 0 .30 C=.10 U .20 loor .10 cc 1% 2% 3% 4% District Tax.Rate b. The Rural-Urban Fringe In the second type of market, where pressures from urban development are at work, land values are bid up by buyers who will pay more than the land is worth for agri- cultural use because they, in turn, can develop it and sell it at a higher price-to homebuyers and businesses. The difference between farm use value and fair market value for development is the development value of the land. In the absence of a differential assessment law or similar legisla- tion, property tax assessors are mandated to appraise land 25 Effectiveness for Providi ng Tax Benefits at its fair market value, including both agricultural use value and development value. As a result, assuming no de facto preferential assess- ment (where assessors improperly hold appraised values at agricultural use value levels), appraised values will rise as development values increase. The farmer's taxes increase correspondingly, even though his economic surplus from ag- ricultural activity remains at essentially the same level. The taxes, which are no longer related to the economic surplus attributable to farming, become a larger and larger component of his costs, sometimes rising to the point where they equal or exceed the economic surplus before property taxes. The farmer may then be caught in a classic income squeeze and may start to look for a buyer. Differential assessment laws are designed to alleviate this squeeze by authorizing assess- ors to re-appraise eligible land according to its agricul- tural value and thereby re-establish agriculturaleconomic surplus as the basis of the real property tax. 2. The Effect of Market and Property Tax Factors on Tax Savings There are three factors relating to the land market and the real property tax system in a particular landowner's taxing jurisdiction which influence the magnitude of the tax benefits he might receive from differential assessment: a. the difference between the assessed value of the land based on fair market value and its assessed value based on current-use or farm value. Obviously, farmers at the rural-urban fringe would, in principle, enjoy the largest reduction, although the fact that de facto preferential assess- assessment of farmland is widespread in these areas may, in practice, reduce the magnitude of the benefit. In these areas, differential assessment would protect the farmer against future increases in tax burden resulting from rising land values and reassessment. b. the percentage which the assessed value of farm land and associated real estate improvements, such as barns, is of the total assessed value tax base before the establishment of differential assessment. If all realty in the taxing jurisdiction is in eligible agricultural use, there would be no benefit to an individual farmer. The 26 Effectiveness for Providing Tax Benefits assessed value of his land would be reduced, but, since the tax revenue needs of the municipality would remain the same, his tax rate would go up by an amount sufficient,to produce the same tax revenue, and his tax bill would remain un- changed. At the other extreme, if there is a very small amount of eligible land in a jurisdiction, the tax saving for its owner would be proportional to the reduction in assessment. This matter is discussed fully in Chapter IV. C. the percentage which the improvements on a par- ticular farm are of its total.assessed value before dif- ferential assessment. The tax benefit usually involves only taxes on land,. and improvements continue to be assessed at fair market value. The effect of these three factors can be seen in Table 6. Note that the first two factors relate to community characteristics: the pressure for development on land prices (and therefore on the ratio between preferential and market value assessment) and the-portion of the tax base (before differential assessment) which is in farmland. The third factor is specific to the individual farm owner. The table indicates that many outcomes are possible given the levels of each of the factors. For example'. assume that the land price structure in the community is such that farmland is to be assessed differentially at 40% of market value, and that 50% of the original tax base (computed on fair market value) is in@property which is to be assessed preferentially. If an individual's farm property consists of nothing but land, his taxes will be 57% of what they would be without differential assessment. If, however, his property value (computed on fair market value) consists of 75% land and 25% buildings, his taxes will be 79% of the pre-differential assessment amount; if his property' value consists of 50% land and 50% buildings, his taxes will be unchanged from what they would have been wit1_- differential assessment. In general, ifan individual owner is to be better off after the institution of a differential assessment program--, the percentage of his farm's value.which is in eligible land must be at least as large as the percent of the en- tire tax' base which is in eligible land. Thus, not all farmers will enjoy a net benefit from a differential assess-. ment program. Those with a high proportion of improvement value to land value may see their tax bills rise, even though their land is assessed at a lower rate. 27 .Table 4 REAL ESTATE TAXES PAID BY AN INDIVIDUAL OWNER IN TH PROGRAM AS PERCENT OF TAXES PAID WITHOUT PROGRAM Differential Assessment,as Per Cent of Fair Market Percent of Tax Base- 100 90 80 70 60 50 40 30 20 to be Assessed Dif- ferentiallyl a) Individual whose property value is 100% land 100 100 100 100 100 100 100 100 100 100 90 100 99 98 96 94 91 87 81 71 80 100 98 96 92 88 84 77 68 56 70 100 .97 93 89 83 77 69 59 45 .60 100 95 91 85 79 72 62 52 38 50 100 95 89 83 75 67 57 46 33 00 40 100 94 87 80 71 63 53 42 29 30 100 93 85 77 68 59 49 38 26 20 100 92 83 74 65 56 46 35 24 10 100 91 82 72 62 53 42 32 22 b) Individual whose property value is 75% land, 100 100 100 100 100 100 100 100 100 100 90 100 102 104 106 110 114 129 129 142 80 100 101 102 102 103 105 106 108 112 70 100 100 99 99 97 97 95 93 91 60 100 98 97 95 92 90 86 82 77 50 100 97 95 92 87 83 79 73 67 40 100 96 92 90 83 78 73 67 59 Table 4 continued b) Individual whose property value is 75% land, Percent of Tax Base- to be Assessed Pre- ferentiallyl 100 90 80 70 60 50 40 30 20 30 100 96 91 86 80 74 68 61 53 20 100 95 88 83 76 70 64 55 48 10 100 93 87 80 73 66 59 51 44 c) Individual whose property value is 50% land, 100 100 100 100 100 100 100 100 100 100 90 100 105 110 116 125 137 152 175 214 80 100 104 108 112 118 126 135 148 167 70 100 103 105 108 111 116 121 128 136 60 100 101 103 104 106 108 109 112 115 50 100 100 100 100 100 100 100 100 100 40 100 99 98 97 95 94 93 91 88 30 100 98 96 94 91 88 86 83 79 20 100, 97 94 90 87 84 80 76 72 10 100 96 92 88 83 79 74 70 66 'Where entire tax base is assessed at market value. Figure 2 PROPERTY TAXES PAID BY AN OWNER WHOSE PROPERTY VALUE IS 75% ELIGIBLE LAND AND 25% INELIGIBLE IMPROVEMENTS 140 - 130 120 110 100 @4 to 0 $4 Q@ 90 41 0 0 .Z 80 4j 70-- @ke 60-- V .r4 PLI 50-- e6o 40 -- 30-- 20 -- 10 10 20 30 40 50 60 70 80 90 100 Percent of Tax Base to be Assessed Differentially Reduction in assessment due to differential assessment. 30 Effectiveness for Providing Tax Benefits B. PROGRAM.FACTORS AND THE PROVISION OF TAX BENEFITS For a given configuration of rural land marketand pro- perty tax factors, the tax benefits a landowner receives will be determined by a third set of variables. These are the "program factors" established by the relevant differen- tial assessment legislation and associated administrative regulations and practices which determine eligibility, method of assessment, sanctions, and so forth. The three principal forms of differential assessment, preferential assessment, deferred taxation, and restric- tive agreements, can be viewed most usefully as sets of progressively more restrictive provisions, variations of which have been used by different states. Thus, all differential assessment laws grant preferential assessment. We.will examine the major types of eligibility criteria, methods of assessment.and non-tax benefits which different states have included in their laws to see how they expand or contract eligibility and increase or decrease tax bene- fits. Most states have added rollback provisions to capture some or all of the taxes deferred. We will analyze how variations in rollback taxes affect the achievement of the goal of making tax benefits available to farmers. Finally, five states have added a legal sanction to the economic one of deferred taxation and have required eligible owners to sign long-term restrictive agreements which tie up their land for a spe'cified period. These provisions also will be examined in 1ight of their effect on the achievement of the above goals. In the analysis which follows,, we will start with pro- visions of differential assessment laws which provide the greatest tax benefits and the most attractive programs for farmers and see how other provisions successively narrow the class of eligible land and reduce the total tax bene- fits conferred on the class of eligible owners. 1. Preferential Assessment a. Eligibility Criteria The best example of a law with broad eligibility criteria.is Indiana, as has been already pointed out. There, all land which is devoted to agricultural use is to be assessed as agricultural land. The local assessor makes 31 Effectiveness for Providing Tax Benefits the determination as to whether land is in agricultural use, and once it is so classified) it automatically re- ceives preferential assessment. Thus, all farmland in the state receives preferential assessment. Several states have enacted additional criteria which limit eligibility. Their primary goal has been to exclude speculators and other non-farmers from the benefits of the program. For instance, Texas requires that the owner must be a natural person whose farm business is his prim 'ary occupation and source of income. North Carolina also re- quires that the owner be a natural person, and further that the land (1) be at least 10 acres in area, if farmland (20 acres, if forest land), (2) have produced agricultural and horticultural products producing an average gross income of $1,000 per year for the preceding 3 years,and (3) have been the owner's place of residence or have been owned by one family for the 7 years preceding. A few states require that the owner must receive a certain amount of gross income per acre or a minimum per- centage of his income from the land. For instance, Mon- tana's law provides that,, in order to be eligible, land must be exclusively devoted to agricultural use and must produce the equivalent of 15% or more of the owner's annual gross income. In Alaska, he must derive at least 10% (recently reduced from 25 %) of his income from such activities. In many states, it is necessary for the owner to apply for differential assessment. This may be a fairly simple procedure with automatic renewal from year to year, or it may involve the prepar-ation-of a survey, the submission of plat plans, and the payment of a substantial fee, as in- California. In some states,:such as North Carolina, it is necessary to review the application every year. Eligibility is further limited by some states which have prescribed planning and zoning requirements designed to limit participation to those properties which have been designated in a plan as open space or been zoned for that purpose. For instance, Pennsylvania's 1966 law requires that,, to be eligible, land must be "designated as farm, forest, water supply or open space land in a plan adopted following a public hearing by the planning commission of the municipality, county or region in which it is located." 32 Effectiveness for Providing Tax Benefits In California, land must be in an agricultural preserve so designated in a general plan and must be suitably're- stricted by zoning or some other means to permissible uses within two years thereafter. Florida's preferential assessment law has two in- teresting eligibility provisions. One allows a board of county commissioners to deny eligibility to lands which are contiguous to urban or metropolitan development where the board finds that'"the continued use of such lands for agricultural purposes will act as deterrent to the timely and orderly expansion of the community. to The second cre- ates a rebuttable presumption that land which sells for three or more times the agricultural assessment placed on the land is not used primarily for agricultural purposes. In some cases, eligibility has been tied to the pro- ductivity of soils. In California, the original Williamson Act differentiates between farms with.prime agricultural land and those with non-prime soils. A larger state sub- vention or subsidy to replace lost revenue is given for prime agricultural land. For several reasons,there is no way of determining empirically what percentage of otherwise eligible land in a given state will be excluded by a particular eligibili- ty criterion. First, most states do not have an accurate inventory of land in agricultural or other eligible uses, so that the universe of potentially eligible land is not well-defined. Second, owners may be receiving substantial de facto preferential assessment, so that they have little incentive to enroll., This appears to be the base in North Carolina where few have taken advantage of the state's new differential taxation law. Third, an owner who contem- plates development in the near future may not think it worthwhile to enroll. Fourth, no data are available-on an aggregate basis concerning such factors as.years in agri- cultural use, gross income per acre, length of ownership, acreage owned by corporations, or owner's income,which would allow one to determine how many acres of land were rendered ineligible because of failure to meet a particu- lar criterion. Thus, we are left with the simple argument based on reason that the more eligibility criteria there are, the smaller will be the percentage of farmers who ac- tually enroll in the program and receive tax benefits. 33 Effectiveness for Providing Tax Benefits b. Methods of Assessment: The Magnitude of the Tax Benefit In evaluating the effectiveness of differential assessment for conferring tax benefits, we must examine. not only the inclusiveness of eligibility criteria, but also the magnitude of the assessment differential which an eligible farmer is accorded. This, in turn,- is in- fluenced by the method used by assessors to re-establish agricultural economic surplus as the primary determinant of appraised value and,consequently, of assessed value and property tax burden. To determine agricultural use value assessors may use either of two basic methods. One is to estimate value directly based on data on comparable sales. A second is to estimate the capitalized value which is consistent with the agricultural productivity of the land and a commonly accepted capitalization rate. The methods used to de- termine the current use value on which differentially assessed values are based are often specified by statute or established by the state revenue agency. Some statutes such as those of Indiana and Arkansas provide only that land in agricultural use shall be assessed at its value for such use. Others are explicit about what methods c.an and cannot be used. The comparable sales method of appraisal (which de- rives the fair market value of one property from recent sales data of other properties with similar location, accessibility, pro uctivity, size,and so on) is often not appropriate for farm use value appraisal, because the other sales prices often contain significant components of development value. Most of the states studied in de- tail do not use comparable sales. California law forbids the use of this approach and requires assessors to use the capitalization of income approach. Oregon permits the use of comparable sales, but under conditions so restric- tive that assessors are forced to use the capitalization of income method. 34 Effectiveness for Providing Tax Benefits Where the capitalization of surplus approach (or more loosely the capitalization of net income) is usedi assess- ors normally attempt to determine surplus by look- ing at rental data to determine what rent a particular tract could be expected to. bring. However,, in many areas, such as New Jersey, rental values are distorted by the very existence of differentiallassessment. Investors and de-, velopers are willing to rent out land to a nearby farmer for little more than the real property taxes attributable to the land, so as to qualify it as agricultural land in order to obtain the benefits-of differential assessment. - Observed rents in such situations may bear little rela- tionship to the economic surplus attributable to the land in agricultural use. In cases where relevant rental data are not available, assessors look to the estimated economic surplus from the agricultural commodities which are, or could be, produced on the land and capitalize the surplus at a prescribed rate. Capitalization rates vary considerably. Maryland uses 5%, California, 7.25%, Oregon, 8%, Washington, 8.5%, and New Jersey, 10%. They also change from year to year within a particular state. Effective tax rates generally range between 1.5% and 2.75%, so that surplus from the land may be capitalized at a rate varying from 7 or 8% to 11 or 12%. Some states add further refinements. California, for in- stance, includes a risk component of from k of 1% to 3% and, in the case of perennials, such as orchards or avoca- do plants, an amortization element. Several analysts have noted that capitalization rates expected by buyers of agricultural land are lower than those demanded by investors in other markets, such as that of commercial realty. The typical expectedagricultural return is in the 2 to 4% range,1 largely:because there is good reason to expect rural land values to rise at the rate of 5% or more per year, so that net return from the land ranges between 7 and 9%. A method of assessment which uses a higher-than-agricultural-land-market capitali- ISee, e.g., Ferraro, Anthony G., "Valuation of Property Interests for Ad Valorem Taxation of Extractive Industry and Agricultural Realty," in Lynn, Arthur D., Jr., The Property Tax (Madison, Wis.: The University of Wisconsin Press, 1971). 598- 330 0 - 76 - 4 35 Effectiveness for Providing Tax Benefits zation rate produces a current use value which is lower than the "real" use value for which one farmer could sell his land to another. It thus amounts to a preference on top of a preference. Some states such as Indiana and Maryland, either by statute or by regulation, prescribe values based on soil productivity ratings. Local assessors determine the appropri'ate average productivity rating fora particular tract and then use the table provided to arrive at estimated true cash value for farm use. Examples of productivity rating tables from Maryland and Indiana follow. The appeal of productivity ratings lies, first, in the fact that all farmland of a given productivity rating will be treated the same throughout the state, and, second, in the fact that local assessors need not do the work in- volved in computing the income attributable to each tract of land. Ratings have been criticized because they fail to take into account many of the factors which affect farm land values, such as location, accessibility, and differen- tial suitability for different kinds of crops. In summary, then, the magnitude of the tax benefits which a particular program provides will be significantly influenced by the method of assessment used. If the comparable sales technique is used, as is possible in some states, it is likely that some development value will be included in fair market value. If it is, it raises the differentially assessed value and consequently reduces the tax benefit conferred. If productivity ratings are used, they may understate agricultural use value. In many states such as Indiana, farmer representatives play an important role in the establishment of such ratings, and it is obviously in their interest to have them set at con- servative levels. In addition, where such ratings are used across an entire state, they will not take into account locational differences, such as accessibility to markets and rainfall. Thus, they will underestimate agricultural use value in some areas, and overestimate it in others. Where the capitalization of surplus method is used, gene- rous estimates of surplus will result in higher agricul- tural use value, while niggardly estimates will lower it. Capitalization rates will also have a significant influence on the magnitude of tax benefits. We have seen that they 36 Effectiveness for Providing Tax Benefits Table 5 SOIL PRODUCTIVITY RATING TABLE PRESCRIBED BY INDIANA GRADES AND SUGGESTED VALUES PERACRE OF IFARM LAND TABLE Kind of Productivity Land and Capable o( Producing Rating Estimatedlt* :,lecommerided Gr"ide Average= 100 True Cash Value True Cash Value Crop Land Low Bigh A Ex-c-Ilent Over 75 bit. of corn or over 35 bit. of wheat or their equivalent 130 375 565 & tip 420 B Good 60 to 75 bit. corn or 30-35 bit. v.-lic,.at or their equivalent 105 315 375 320 C 45 to @O ljo. w-t,rn or ?2 1' o 30 bit. ,wheat or their equivalciit 75 190 315 210 N, t- 4 @, i,i, i (, i i k, , (, -"- L., Wheat oi- their equivalent 45 115 190 120 E, Poor Below 20 bit. corn or below 10 bit. wheat or their equivalent 20 40 115 75 Permanent Pasture A Excellent 45 90 190 150 B dood 35 65 90 85 C Average 25 50 65 60 D Fair 15 25 50 45 E Poor 5 15 25 20 Woods A Excellent Large saw timber 13 150 & tip 150 B Good Medium saw timber 10 100 150 110 C Average Medium to small saw timber 7 65 100 75 D Fair Small -econd giowth 5 25 65 55 E Pocr Badly vroded and cut over land 2 15 25 20 *Productivity factor of 100 represcrits a national standard for agricultitral prodLJCti-1'it.V Of 1121 aVerage year and undcr average farm management practiec of 50 bit. of corn per acrej 23 bit. of wheat per acre, 25 bu. of soybeans per acre, 2 tons of ri,ixcd. hay per aci-o, or their equivalents. 'Estirriated true cash value and average cash ValUCS Lre at 100cl*'c Assegsed valven will be at 331/3% of above. Source: Indiana Real Estate Property Appraisal Mannual State Board of Tax Cominissioners, Regulation 17, (1968). 37 Effectiveness for Providing Tax Benefits Table 6 SOIL PRODUCTIVITY RATING TABLE PRESCRIBED BY MARYLAND GUIDE TO VALUING AND ASSESSING LANDS DEVOTED TO FARM AND AGRICULTURAL USE Value ranges for land devoted to agricultural use; based upon soil productivity capability ratings. CLASS FULL VALUE ASSESSMENT VALUE USE CAPABILITY A $300-320 $150-160 Soil with high productivity rat',ri,- capable of produciiig, under average management, 50-70 bushels of corn per acre. B $240-260 $120-130 Soils with medium produc- tivity rating capable of producing, under average management, 30-50 bushels of corn per acr-. C $190-210 $ 95-105 Soils with low prodt:-@tivity rating capable of producing, under average management, 20-35 bushels of corn per acre. D $ 90-120 $ 45-60 Soils with severe limita- tions for cultivated crops; ma@, be used for pastureland. E $ 20-GO $ 10-30 Borrow pits, scrub land, marsh, spent quarries, stony land. (SPECIFY) Woodland $ 50-70 $ 25-35 Varies accor ag t- suitabii-ity for different species of trees. Source: Guide to Valuing and Assessing Lands Devoted to Farm and Agricultural Use, Maryland Dept. of Assessment and Taxation. 38 Effectiveness for Providing Tax Benefits vary from as low as 5% in Maryland to 10% in New Jersey. A New Jersey farm which is identical in ail other rele- vant respects to a Maryland farm would be appraised at approximately half the appraised value of the Maryland farm and receive correspondingly greater tax benefits. c. Other Considerations Several states have enacted special provisions which are designated to retard urbanization in predomi- nantly agricultural areas and to insulate farmers from speclal assessments,for-sewer, water or electrical fa- cilities. In New York' where agricultural districts are established, regulation which unreasonably restricts ,or regulates farm structures or practices is prohibited. Oregon has similar provisions for farmland in exclusive farm use zones. New York also requires the Commissioner of Environmental Conservation to review the local exer- cise of-the power of eminent domain to acquire land in agricultural districts and to determine whether there are any satisfactory alternatives. Finally, some states, such as New York, Oregon and Michigan, exempt eligible farmland from assessments by special sewer and water dis- tricts until the farmland owners want to use the improvements. The above examination shows the methods used by various states to expand or contract the amount of farm- land which is eligible for tax benefits under the concept of preferential assessment and to increase or decrease the magnitude of the tax benefits to which eligible owners become entitled. Clearly, subsidiary objectives, such as excluding speculators, or tying in preferential treatment to planning and zoning policies, serve to limit the achieve- ment of the overriding goal of providing tax relief to farmers. There are as many variations on the theme as there are state programs and few data by which to evaluate the actual effects of the provisions on the achievement of that goal. 2. Deferred Taxation Twenty-eight states (including three restrictive agreement states),with a total of 32 different differen- tial assessment programs, have included provisions de- signed to recapture s,ome or all of the taxes which farmers and other owners of undeveloped land were excused from 39 Effectiveness for Providing Tax Benefits paying pursuant.to the programs. These convert what, under pure preferrential assessment, is a tax abatement program into a full or partial tax deferral program. This creates an overhanging contingent liability for back taxes in the statutorily mandated amount which becomes-a legal obliga- tion when the land is converted to non-eligible uses, or, in some states, such as Oregon, when the owner initiates a rezoning to residential, commercial or industrial uses. Some states, such as Washington, impose an additional penalty in the form of a percentage of the taxes due, if the owner converts prematurely or without giving appro- priate notice. A few states,such as Connecticut and New Hampshire,impose a conveyance tax at the time of sale which has a similar economic.effect but is calculated with- out reference to taxes foregone. Massachusetts has both ,a rollback tax and a conveyance tax. The above examina- tion of eligibility criteria and methods of as-sessment under preferential assessment apply with equal force to programs with a deferred taxation feature. The new ele- ment, a rollback or conveyance tax, is analyzed in more detail below. The methods of computing these deferred, or rollback taxes are different for eachIstate. The smallest rollback is found in five states whichrequirea payment of two years' back taxes on untaxed development value without interest. Thirteen programs require rollbacks of from 3 to 5 years, with varying amounts of annual interest charges on taxes due. Five of the remaining programs recapture 7 years' worth of back taxes-and two, ten years' worth. Hawaii, under its dedication program, requires 10 or 20 years' rollback, depending on which term of dedication is chosen. Since in most cases the average effective proper- ty tax rate on farmland:is in the 1% to 2% range, a five year rollback of taxes would amount to at most 10% of the development value of the land (or the difference between fair market value and the current use value determined by assessors). In addition, rollback taxes are due only for those years during which the property received differen- tial assessment, so that land enrolled for less than the rollback period would not be liable for the full amount. It can be stated that as a general rulej deferred taxes will constitute between 2% and 15% of the fair mar- ket value of the land at the time of conversion depending on effective tax rates, rollback term, market value and 40 Effectiveness for Providing Tax Benefits current use value. (See Chapter IV.) Since these pay- ments are, in most cases, classified as taxes rather than penalties, they are deductible for Federal income tay. purposes (and also are not treated as capital expenses, which would require them to be treated only as reductions to cost basis for capital gains purposes). A few states have enacted provisions imposing a con- veyance tax on lands which have been enrolled in a differ- ential assessment program and then converted to a non- eligible use. New Hampshire, for instance, requires payment of a tax equal to 10% of the assessed value at the time of conversion. Connecticut has a declining conveyance tax on lands withdrawn from the program within the first ten years of classification or ownership, whichever is earlier. The tax liability starts at 10% of sale price in the first year and declines 1% annually to 1% in the tenth year, and none thereafter. By including ownership as well as -classification in counting the years, the act effectively exempts most of the land under the program from the tax. Only the short-term owner, often presumably a speculator or developer, would be liable. Massachusetts requires the payment of an amount computed in exactly the same way as Connecticut's conveyance tax or a four year rollback of deferred taxes, whichever is greater. These deferred taxation and conveyance tax provisions have two principal objectives. First, they are designed to capture some of the tax revenues lost because of the differential assessment program. The proportion of tax benefits captured of course depends on the length of the rollback term and the interest rates charged on the taxes deferred. The impact which the payment of deferred taxes would have on tax revenues and (as will be examined in the section on equity in Chapter V) tax expenditures with- in a local taxing jurisdiction may well be significant '- especially in an urbanizing county with a substantial amount of development pressure. At any rate, a deferred.taxation provision makes a-differential assessment program more acceptable politically to non-farm taxpayers and voters because it permits farmers to continue current use and re- ceive tax benefits, but then taxes them retroactively when their land is not in eligible uses. 41 Effectiveness for Providing Tax Benefits The second objective is to provide a deterrent which will make owners of land which has received tax benefits at least think twice before converting their land. Whether or not it has such an effect will be considered more fully in the next major chapter of this report. Suffice it to say here, with reference to the goal of providing tax benefits to farmers, that the inclusion of deferred tax liability or conveyance taxes conflicts with that goal. First, it will deter some farmers from entering the program because the mere deferral of taxes may not be a sufficient inducement to enroll, especially if the owner will have to pay interest on these amounts at rates as high as 10%, as in Washington. Thiswill @be especially true when there is currently de facto pre- ferential taxation*. Second, farmers who do enroll and later develop their land will obviously derive.lower tax benefits from the program than they would from pure pre- ferential assessment, although for the long-term farmer, the difference may not be important. 3. Restrictive Agreements Of the five programs which have been classified as bona fide restrictive agreement programs, only Califor- nia's has been used extensively and long enough to warrant analysis. Florida's relates only to recreational and park land. Michigan's, enacted in 1974, is too new. New Hampshire's is new, having been enacted in 1973, and re- lates only to open space land, and Vermont's, while it covers farmland, is a special case in that it authorizes land owners to contract with town governments to set assessed values and tax.rates for a period not to exceed ten years. The above examination of eligibility criteria, methods of assessment, and in three programs, deferred taxes, applies equally here. The new element is the legally en- forceable and enforced agreement. Under California's Williamson Act, an owner of eligible land may enter into a contract with the county.or city in which the land is located, under which he agrees to maintain the land in eligible uses. The contract is for a period of ten years and is automatically renewed each year for an additional year according to a complex statutory formula which is de- 42 Effectiveness for Providing Tax Benefits scribed in the case study on California in Part Two of this report. In the first year after non-renewal, taxes generally are at the level of approximately two-thirds what they would be if the land were assessed on the basis of fair market value. Each year for the rest of the run- out period they increase gradually until, at the end of ten years, they are at market value rates. The owner may also attempt to cancel the contract, but to do this he must obtain the approval of the city or county and pay a cancellation fee equal to 12.5% of the fair market value of the land. It is possible to have the cancellation fee waived,-but to do this, he must secure the approval of the Secretary of the State Resources Agency. The essential feature of a restrictive agreement approach which distinguishes it from other types of differential assessment programs is that the owner is reasonably certain that he will not be able to develop his land until the end of the run-out period. A farmer contemplating enrolling in this type of restrictive agreement program will be faced with the question of whether he wants to tie up his land for at, least ten years, realizing that if he decides to convert, he will be forced to pay taxes during the run-out period totaling at least 50% of what he would otherwise pay. The clear evidence in California is that only those owners who are certain that they will not convert their land within ten or fifteen.years have signed up under the Williamson Act. Thus, the restrictive agreement approach is clearly inconsistent with the general goal of providing tax benefits to farmers. Those farmers who are most in need of tax relief, because their land is located in urbani- zing areas with rising fair market values and tax rates, will be precisely the ones least likely, for economic reasons, to tie up their land for a number of years. Those who are in rural areas with the least development pressure will be the ones who enroll. The intended major beneficiaries of a differential assessment program, farm- ers in the rural-urban fringe, would not receive its benefits. 43 Effectiveness for Providing Tax Benefits C. CONCLUSIONS Differential assessment is a generally effective means for conferring tax benefits on participating landowners. The amount of the taxes saved by individual farmers will vary substantially, however, depending on a number of fac- tors. The greater the development value (exclusive of farm use value) of the land, the greater the reduction in assessment. In suburbanizing areas, a reduction,of over 90% is possible; in areas with little development pressure the reduction may be minimal. But in order to make up for the reduced total assessment in the taxing district, the general tax rate must be increased. This increase will be small if there is a large amount of non-participating property to share the burden of the loss in assessment. Therefore, the smaller the proportion of the total tax base (before differential assessment) accounted for by land in the program, the larger the savings to a partici- pating land owner. Thus, the few remaining farms in a generally built-up township will receive the highest tax savings: if the tax base was made up predominantly of par- ticipating land, tax savings would be small. If, however, the value of an individual participating property includes a large proportion of non-eligible build- ings and land, tax savings for that owner will be small, and in some situations such an owner may even pay more than before the differential assessment program. This,is because the increase in tax rate which is applied to non- eligible property (and also the differentially assessed landAs not significantly offset by a reduction in assess- ment of his eligible land. Also, if de facto differential assessment existed before the program, assessment itself might change little because of the program, and could even increase. To these market and basic tax factors must be added specific program considerations. A differential assessment law whose sole purpose was to maximize tax benefits for farmers would contain the following provisions: 1. All farmers would qualify. The only eligibility conditions would be that the owner is engaged primarily in agriculture for profit and the particular tract is being used for agricultural purposes, broadly defined. 44 Effectiveness for Providing Tax Benefits 2. Eligibility would be determined and granted auto- matically and with no expense or effort on the part of the farmer. 3. Assessment procedures would be designated to pro- duce a low assessed value; that is, they would maximize the reduction in assessed value resulting from the program. The various types of differential assessment pro- grams can be arranged ina very rough spectrum with respect to their effectiveness in making tax benefits available and attractive to land owners. Pure preferential assess- ment programs with few eligibility conditions and methods of assessment which produce a low assessed value based on current, agricultural use value, are most effective. They are easy for owners to enter and award full abatement of taxes on the development value of land. As eligibility criteria are multiplied and tightened, fewer will enroll and thereby receive tax benefits. Deferred or rollback tax payments reduce the economic attractiveness of the program for some farmers and thus deter some from enrolling their land. The longer the rollback and the higher the interest rate, the less in- centive there is for the farmer to enter his land in the program. The restrictive agreement approach is least effective for achieving the goal of awarding tax benefits to owners of eligible land,because the prospect of being locked in, unable to develop their.land but paying near market-value property taxes will deter many owners from putting their land under contract. Only those who are living in essen- tially rural areas or are wholly committed to agricultural activity, and who do not expect to develop their land .within the period of the contract, will be.likely to en- roll their land. The economic benefits of differential assessment are not likely to compensate for the costs result- ing from the forced postponement of conversion. 45 Effectiveness: Achieving Land Use Objectives Chapter IV EFFECTIVENESS: ACHIEVING LAND USE OBJECTIVES A. INTRODUCTION A major objective of differential assessment legislation in many states has been to keep farm and other rural land in its current use, or at least to reduce its rate of conversion to urban uses. Primarily for this reason, such legislation has generally been supported by conservation groups, and these bills have been given popular names such as the Open Spaces Act (Connecticut), Greenbelting Laws (Florida and New Mexico), and the Clean and Green Bill (Pennsylvania). Planners and conservationists have argued that a sig- nificant percentage of sales of farmland for development occurred because of the profit squeeze felt by the farmers, especially in rural-urban fringe areas. They reasoned that a program which would lower or put a ceiling on one of the farmer's major cost components, the real property tax, would lessen the squeeze and therefore reduce the number of forced sales. In this chapter, we will evaluate the validity of this line of reasoning. We will explore the effectiveness of differential assessment legislation with respect to the primary goals of maintaining current, open use, and the sub- sidiary and the closely related goals of protecting scenic resources, securing recreational lands, and controlling urban development. . In Chapter III, the various provisions of preferential assessment, deferred taxation, and restrictive agreements were evaluated in termsof their effec'tiveness for making tax benefits both available to and economically attractive for owners of eligible land. That evaluation is directly related to the question of the extent to which differential assessment laws are effective tools for maintaining current use of undeveloped land. Whether or not they are effective for that purpose depends on how many farmers who are con- sidering conversion will enroll, and on how large an economic incentive they will receive if they refrain from converting. We will now analyze the factors involved in the decision to sell or develop and then examine whether the various forms of differential assessment attract a significant portion of the 46 Effectiveness: Achieving Land Use Objectives target population of land owners, and whether the tax incentives and ancillary inducements are strong enough to have a major impact on maintaining current use. Before beginning the more detailed analysis, we should note that differential assessment can influence the rate of conversion of farm and other open land in two principal ways. First,, by reducing a farmer's property taxes sub- stantially, the farmer's total costs of production may be lessened significantly and his land made more profitable. This effect,, which is often viewed as an attempt to lessen theincome squeeze which farmers in the rural-urban fringe experience, has been the principal focus of legislators when they speak of preventing forced conversions. The reduction in taxes may beespecially significant in metro- politan areas or areas with a large potential for second home development, since in such places the differences between current use value and fair market value may be large. In these areas, fair market value may be as much as 15 or 20 times current use value. In such cases,-assuming no de facto differential assessment, the establishment of a differential assessment program could mean that a landowner could enjoy reductions in taxes on his land of as high as 90%. Because property Iaxes consume an average of 10.4% of farmers-' net income., it is reasonable to suppose that tax reductions, or at least deferrals,, of this magnitude will enable some farmers to continue farming over the short term. The second way,in which differential Assessment could serve the'goal of maintaining current use is by making it possible for people wishing to buy land for farming to reduce their potential carrying cost sufficiently (by reducing taxes) so that they could pay more for the land and bid it away from potential developers. Unless the price farmers can afford to pay is close to that which developers can afford to pay, it is not a question of whether a property will be converted to more profitable uses., but when. -LAverag for 1969-1973 Economic Research Service, "Revised Estimates of Taxes Levied on Farm Real Property, 1960-73." Statistical Bulletin No. 538, Washington: U. S. Department of Agriculture, 1975. 47 Effectiveness: Achieving Land Use Objectives B. SUPPLY AND DEMAND AND THE DECISION TO SELL 1. Introduction As outlined above, differential assessment changes the carrying costs of land for farmers. Therefore, farmers would be under less financial pressure to sell their existing farms and farmers wishing to acquire land could afford to pay more in competition with a developer who cannot take advantage of differential assessment. Whether such changes result.in slowing down or stopping the rate at which land is converted to urban uses is another question. In order to help answer that question, we will examine the decision-making process which a farmer goes through when faced with a chance to sell his farm, giving special emphasis to the role which real property taxes play in that process. The purpose of this examination is to determine the extent to which, under varying conditions, a reduction in these taxes can be expected to induce him not to sell. Decisions to sell and convert are affected by both supply and demand considerations. The supply of farmland for con- version purposes is affected by the price offered for land, the farmer's costs of production including property taxes, his cash receipts, a number of demographic and personal factors, and possible externalities generated by other nearby activities. In addition, government programs and policies may indirectly contribute to a farmer's decision to sell. Estate and inheritance taxes may, for example, induce sale and conversion in some instances. The demand for farmland for conversion results from individuals or groups of people desiring to convert the land to such nonagricultural uses as suburban homes or businesses, second homes, strip mines, or even timber production. The relative strength.of the demand for farmland and the economic, demographic, personal and other factors affecting the supply of farmland for conversion will determine how much agricultural land disappears in any locality. It is important to keep in mind that reduction of agricultural property taxes is aimed primarily at one part of the supply of agricultural land for conversion, but that the effectiveness of such a reduction depends upon many other supply factors and upon demand factors of conversion as well. 48 Effectiveness: AchievingLand Use Objectives 2. Supply Factors and the Farmer's Decision to Sell 'In order to supply land for conversion to urban use, the farmer must sell his land to a developer or speculator, or convert it himself. On the basis of interviews with farmers and county agents and drawing upon previous research by others, we,have identified four major classes of factors in the farmer's decision to sell. These four factors are "economic," "demographic," "secondary or indirect" (such as externalities from nearby nonfarm activities), and "transitional," (such as-a desire for change in either type of work or place of work). Moreover, these four factors are, in general, all functions of the price of the land in the land market. We can imagine A farmer contemplating the reasons for selling his farmland in terms of these four factors according .to the flow chart of Figure 3. Of course,.no one really decides in such asequential manner and, more important, it should not be inferred from a literal reading of the chart that the decision to sell is always based on just one factor. For example, a.farmer may be convinced that the best decision is to attempt to sell his farm because of a combination of economic, transitional, and secondary factors, even though one of these factors by-itself is insufficient to induce him to sell. The demographic factor in the decision to sell is one of the most important. It is concerned with the farmer's stage of life cycle and the desire of any children to take over the farm. As a farmer nears the age of retirement, he is likely to consider selling his farm to a family member or, if there is no member of the family willing to take over the farm, he may be able to sell it to a neighbor who, by acquiring more land., can enlarge his farm. But if no such buyer exists, the farmer may putthe farm up for sale in the impersonal land market. Whether or not the land then remains in agriculture depends on the demaTid for alternative uses, as we shall dis- cuss later. Should the farmer die before the land can be transferred, the estate may be forced to liquidate its holdings in order to pay estate taxes or the heirs may wish to sell all or part of the farm. Economic factors are also among the most central in the farmer's decision to sell. These factors fall into two general groups: first, the price offered for the land may be so high 49 r*'-*'-*_--*__1 0: very high price offered :net 1. urns aft f (p) property taxes not sufficient to I young remain in farming or desire f(p) :middle age 0-i for change L land ................ suburban enrolled ................ intrusions f(PI in -no desire - - - - - - - - - - - Cfferentialj for .assessment. change no' suburban farmer Ir- intrusio__ begins ne re urns after @_j _j decision property taxes 0 making sufficient to p.rocess :remain in farming r @-e - no son, ot r relative F_ ."I I or neighbor willing to I nearing take over.farm U retirement L - - - - - - - - - I age r - - - - - - - - - L son, other relative or neighbor willing to take over farm L - - - - - - - - - Figure 3 SCHEMATIC DIAGRAM OF FARMER'S DECISION TO SELL HIS FARM Largely demographic factor largely economic factor Largely transitional faetor ........... Largely secondary factor Effectiveness: Achieving Land Use Objectives that it is most difficult not to sell. SecondY the net returns to the agricultural operation of the farm may be insufficient.over the long run to warrant continued farming. Poor net returns may be due to low prices for farm output, low yields of crops or. livestock products, high transport costs to the market for agricultural products, high costs of seeds, fertilizer, fuel, machinery and equipment, maintenance, labor, and so on., and burdensome property taxes and other taxes. The spatial pattern of low net returns may be quite spotty if most-famers are doing quite well, but it may dominate an area as large as several counties where only a few large scale commercial farmers are making sufficient profits, or it may even characterize a large region which has lost its competitive advantage due to low yields, high transport costs, and possibly locally high costs of inputs into production. Transitional and secondary factors are the remaining two major classes of factors influencing the supply of farm- land for conversion. The transitional factor includes desire for a different kind of work or a different place of residence, whether on a farm elsewhere or off the farm altogether. Under the term "secondary factors" we have lumped the exter- nalities generated by nearby nonagricultural activities which cause the farmer to sell. Among these are: 1) complaints about the restrictions on spreading fertilizer, use of pesticides, and on other noxious farm activities; 2) acid mine drainage or subsidence caused by nearby,strip or sub- surface mining activities; 3) air pollution from nearby industrial processors which damages crops; and 4) increased traffic on farm roads, and inadvertent or willful damage to crops by nearby urbanites. In general, each of the four major classes of factors influencing the decision to sell is a function of the market price of the land--the higher the price, the more likely the farmer is to sell. Hence, in-Figure 3, the notation f(p) is shown on all the arrows leading to the decision-to-sell box., indicating that the decision is a function of price, p. This function of price is@meant to imply an increasing desire to sell as the price offered for farmland increases, and conversely, a decreasing desire to sell as the price offered decreases. Finally, we have included a box in the flow chart labeled "change type of farming" to indicate that changes in nearby land uses, farm prices, costs of farm inputs, or the price of 598-330 0 - 76 - 5 51 Effectiveness: Achieving Land Use Objectives land, may induce a farmer to shift crops or livestock. One of the most noticeable shifts in farming activity occurs as one nears urban areas: field crops give way to dairying, nurseries, greenhouses, and vegetable growing even if soil and climate conditions remain constant. The consequence of this may be that policies for preservation of metropolitan agricultural land end up preserving nurseries and greenhouses instead of more aesthetically pleasing field crops or dairy ,farms. Within this universe of general factors affecting the farmer's decision*to sell, property taxes are one component of the economic factors. If a reduction of agricultural property taxes is to cause fewer farmers to sell out, it will do so by shifting some farmers from insufficient net returns to sufficient net returns as shown in Figure 3.- Whether this shift can occur or not also depends on long run trends of the other costs of production and on the prices of agricultural output. It should be apparent that, except for interdependencies among the reasons for selling, reduction of the agricultural'property tax will have little or no impact on the demographic, transitional, and secondary factors in the decision to sell. To conclude this overview of supply factors, we reiterate the warning above that the decision to sell will notin most instances,be predicated on only'one factor. A combination of factors may be required to induce a farmer to sell his land, whereas if only one of these factors were present the farmer might very well not feel the need to sell. 3. Research on Supply Factors The influence of the property tax on the farmer's decision to sell has, rather surprisingly, received only infrequent empirical attention even though forty-two states have differential assessment laws of,one type or another. Unfor- tunately, from the limited number of studies available, it is notpossible to draw any strong general conclusions about the effect of property taxes on the sale, conversion, or abandonment of farmland, since these studies present only a partially complete picture of the noneconomic factors on the supply side and of variation in the pressures for conversion on the demand side. Several studies, however, are particularly noteworthy. 52 Effectiveness: Achieving Land Use Objectives In a study of 40 sales of farmland in three New Jersey townships from 1966 to 1970, the following distribution of reasons given for selling was found:1 % of All Reasons Given* Economic Considerations. Taxes were too high 28.6% Land can no longer be rented at a profit 4.1% The price was right 18.4% Demographic Considerations Retirement 22.4% Transitional Considerations Desire to move to another area 6.1% Miscellaneous Considerations Decrease the size of current farm operation 10.2% .other 10.2% *Respondents could give more than one reason and several did so. The four supply-factor classifications were added by RSRI. Retirement, taxes, and price offered appear to have dominated the respondents' thinking. It is of interest to note that of the 14 sellers mentioning higher taxes as a reason for sale, nine were from urbanizing areas, five from urbanized areas, and none from rural areas. Data from a study.of land sales in Baltimore County, Maryland,2 underscore the importance of life cycle con- siderations in the decision to sell. Death or retirement accounted for 42 percent of all sales, title change within family for 11 percent, and moving to another area for an additional 13 percent. Economic considerations (inc.luding INagel, George R., Jr., and Donn A. Derr, A Preliminary Analysis of the Data on Participants in the New Jersey Farm Real Estate Market) 1966-1970, New Jersey Agricultural Experiment IStation., New Brunswick, Rutgers University, February 1972. 2Peterson, George E., "Tax Policy and Land Conversion at the Urban Fringe," Land Use Center Working Paper 0875-04, Washington: The Urban Institute, December 1974. 53 Effectiveness: Achieving Land Use Objectives good price, unavailability of farm labor, and unproductive farmland) totaled 31%. Land which was subsequently developed for residential use was especially likely to have been made available through life cycle reasons. Eighty-five percent of such land was sold because of death or retirement. This study also points out that use-value assessment laws enable farmland owners to avail themselves of the private timing incentives that are built into the Federal estate and capital gains tax structure, thus reinforcing the importance of life- cycle considerations in the decision to sell. An earlier study conducted in the Philadelphia metro- politan area found that in a sample of 50 parcels sold in urban-fringe Chester County in 1962, seven percent of the sellers responded that real property taxes were a major financial burden leading to their decision to sell.1 When asked directly about the effect of the New Jersey Farmland Assessment Act on their decisions, 56% of the buyers and 59% of the sellers questioned in the New Jersey study cited above said it-had no influence. In an earlier New Jersey study,2 60% of participants questioned stated that the Farmland AssessmentAct would not influence their decision to sell, while 40% stated that the Act had been a positive force in enabling them to continue to farm. A 1973 questionnaire survey of several hundred applicants for Washington's open space taxation program produced similar findings.3 One conclusion from this study was that most "...applicants do not feel that participation in the program and the associated penalties would have any effect upon their deciding to sell the land or change the land use." (p. 1). When asked if they would have to change land use within the next 5 years if denied current use assessment, only 14% of the respondents said 'yes'. The ,majority said 'no' (p. 11). However, the authors caution that few participants understood the penalties for withdrawal. from the program or the rollback penalties. I-Strong, Ann L. "Factors Affecting Land Tenure in the Urban Fringe," Philadelphia: Institute for Environmental Studies, University of Pennsylvania, 1968, p. 17. 2Koch, A. Robert, Harriet M. Morrill, and Arthur Hausamann., "Implementation and Early Effects of the New Jersey Farmland Assessment.Act," Rutgers Experiment Station Bulletin 830, 1967. 3Barron,.James C. and James W. Thompson, "Impacts of open Space Taxation in Washington," Bulletin 772, Washington Agricultural Experiment Station, College of Agriculture, Washington State University, Pullman, Washington, March 1973. 54 Effectiveness: Achieving Land Use Objectives The importance of the property tax burden and the desire of the farmer to reduce it are not in doubt, but it seems that, for the Washington sample, this burden is by itself a critical factor in the decision to sell in only a few cases. The landowner's decision to sell seems to be based primarily on other considerations. As part of the original research done for this project, a survey was carried out of farmers attending the 1975 Pennsylvania Farm Show. The results are summarized here. A more complete account of the study may be found in Part Two of this report. A questionnaire administered to 71 farmers yielded 69 usable responses. The questionnaire included a list of 11 reasons for selling one's farm that were to be rated on a scale of 0 to 100 to indicate the relative degree of impor- tance of that reason. In addition, a series of other questions concerning farming, taxes, and demographic and socioeconomic variables were asked. It should be noted that the farmers attending the exposition were primarily men and women commited to farming who were interested in new equipment, new methods, prize animals, and seeing old friends and were not marginal -farmers who might be more likely to sell. The typical respondent was in his forties, has a farm slightly under 200 acres and liked farming, preferring it to another kind of work, even one which paid more. His farm's major products included corn, beef cattle, dairy products, or feed for dairy cattle. He intended to apply under the newly-passed differential assessment law, but thought it would have little affect onhis decision to sell his farm. If he were to sell within the next few years, economic con- siderations in operating the farm would be the most compelling reasons. By analyzing the relative weights assigned to the 11 reasons for selling, we have identified four underlying factors which describe most of the variation in the answers. These underlying factors are familiar to the reader as those identified in Figure 3: economic, demographic, secondary, and transitional. Economic reasons are most important, secondary and demographic reasons are of about equal impor- tance and rank second., and transitional reas ons are least important. 55 Effectiveness: Achieving Land Use Objectives A number of statistically significant relationships were noted between the respondents' scores on each of the four underlying factors and their responses to other ques- tions. Two are particularly important here: 1) People placing greater importance on the economic reasons for selling tend to say that a 50% drop in property taxes would make it less likely that they would sell their farms, and conversely, people not placing much importance on the econ- omic reasons for selling tend to say that a 50% drop in property taxes would have little affect on their decision to sell. 2) Farmers placing relatively greater importance on the demographic reasons for selling tend to say that a 50% reduction in property taxes would have little affect on their decision to sell their farms, Conversely, farmers placing relatively little importance on the demographic reasons for selling tend to say that a 50% reduction in property taxes would make it -less likely that-they would sell their farms. A third finding is that farmers living inside a metro- politan county tend to place less emphasis on desire for change as a reason for selling than do farmers living out- side a metropolitan area. Perhaps this reflects the fact that those desiring another way of life have already sold out to urban uses or else to more dedicated farmers. People whose decision to stay in farming is strongly influenced by economic reasons are the ones most likely to be affected by a preferential tax program. But a satis- factory income is influenced by more than property taxes: 68% of the respondents gave a rating of 50 or more (on a 0 to 100 scale) to "value of farm products too low," .61% gave a rating of 50 or more to "property taxes too high," and 75% gave 50 or more to if cost-s of operation too high" as possible reasons for selling their farms. Very generally, then, we can expect a reduction in property taxes to be able to reduce the aggregate supply of farmland for conversion in at least some localities, but this shift is likely to be small. 4. The Effect of Differential Assessment on the Agricultural Use Value of Land Having looked at the factors which affect the supply of farmland for conversion, it is appropriate to look in more 56 Effectiveness: Achieving Land Use Objectives detail at how tax savings due to differential assessment will change the amount which a farmer can afford to pay for land, and still make a reasonable profit from farming it. The effect which a reduction in property taxes will have on current use value depends on the following considerations. The real property tax is a basic expense which a farmer must pay from his gross income before determining his net return per acre. Thus, reducing it would increase his profits and., therefore,.the profitability of his land. In principle, this increased profitability would be capitalized at the relevant rate of capitalization and his farm would be worth more if he and subsequent owners were assured of continued lower taxes. In turn, a purchaser could pay more for a farm which is preferentially assessed than for one which is not, and still get the same net return. Figure 4 shows how these variables would interact, based on computations using the formula given on page 23. V S C + R where V current use value C the capitalization rate applicable to return on land after property taxes S = annual agricultural surplus R = effective property tax rate. Tax rates of 1, 2 and 3 percent are used in Figure 4 as representative of the range actually encountered. The average effective tax rate for agricultural farmland for the United States as a whole in 1972 was 1.15%, with state averages as high as 2.8%, 2.3% and 2.3% reported in California, Massachusetts, and New York, respectively. Tax rates in rural-urban fringe areas can be expected to be higher, so that a tax rate of 3% or more would be found in many such areas. Capitalization rates for farmland must be imputed from data on income and land value. Since the rates can be expected to vary over.a considerable range, we have shown rates of 5, 10, and 15% on Figure 4. A rate of 5% would appear to be typical of many rural-urban fringe areas. Note on the graph that an 80% reduction in the tax rate on a property originally taxed at 3% and with a capitalization 57 Figure 4 INCREASES IN USE VALUE RESULTING FROM REDUCTION IN TAXES (for various capitalization rates and initial tax rates) 160- R=3, C=5 150- 140- Rz 2, C. 5 130- P, 3, C- 10 R=3, C= 15 120- R-- 1 Cz 5 R@ 2: C= 10 Rz 2. C=15 10 110 R@ 1. C Rz 1, C=15 100- no tax reduction 90- 80- 70 - bo- 50 CU > 40- 30- 2o- 10- 10 20 30 40 50 do 7'0 do A 1010 Per cent reduction in tax rate 58 Effectiveness: Achieving Land Use Objectives rate of 5%, would make it possible to pay 42% more for the property. If the original tax rate were lower, the potential increase in use value per acre would be less; if the capital-. ization rate were lower, the increase in use value would be greater. In.order to examine an extreme case,, assume the tax rate is 4%, and the capitalization rate is 4%. Without preferen- tial assessment, use value would be 12.25 times the annual agricultural surplus; with a tax saving of 90%, use value would be 22.73 times agricultural surplus. Thus, a farmer taking advantage of a preferential assessment law would be 22.73 able to pay 1.86 times as much (i.e., for the land. In such an extreme case, a farmer would be relatively com- petitive with a prospective buyer who could not take advantage of preferential assessment. However., most cases are not so extreme, and generally prospective developers can keep land in agricultural production and qualify for preferential assess- ment until they are ready to develop. Thus, the prospective farmer rarely enjoys any advantage over a developer when bidding for land. 5. Joint Effect of Supply and Demand Factors on the Conversion of Farmland The relative strength of aggregate supply factors, dis- cussed in the previous sections, and.demand factors--such as people desiring land for suburban houses, vacation houses, strip mining, etc.--will determine how much farmland will actually be converted to non-farm uses. No empirical studies were found which explored the joint effect of supply and demand factors. A major part of this project, therefore, was an effort to find appropriate data and to carry out such an analysis of supply and demand effects. The-principal findings are summarized here, and a more complete account can be found in Part Two of this report. To ascertain this joint e.,.kect of supply and demand factors, data for a sample of Ohio counties were assembled and analyzed. The object of the statistical analysis was to determine how percent change in land in farms between 1969 and 1973 is explained by a number of independent variables. These included a demand-related variable (increase in pop- ulation density between 1960 and 1970 in each county) and supply-related-variables (agricultural property tax per acre 59 Effectiveness: Achieving Land Use Objectives in 1973, gross cash receipts per acre in 1973, and per cent of farmers over 65 years of age in 1969). The counties wereclassified by predominant type of agriculture: a highly profitable soybean-cornbelt complex, a dairying complex where farming is not very profitable, and an urban complex, where nurseries, greenhouses and truck farming predominate. In the urban counties, higher taxes and higher increases in population density are associated with greater losses of farmland. This is suumarized in Figure 5, where each line refers to a given percent loss in farmland over the period 1969-1973. As the figure indicatesj a reduction in property taxes is likely to reduce the rate at which farmland is lost, but no matter how large this reduction in taxes is, it will not stop the loss of farmland. Pressure from increasing suburbanization will always cause some farmland to be lost. Thus, in rapidly growing metropolitan areas adjustment of taxes is likely to be effective in preserving farmland only over the very short run, and then only slightly. In the dairy counties, the impact of reducing property taxes appears to be the greatest. In these counties demand pressure is primarily for second home development and strip mining with some spotty urbanization demand. The demand pressures for conversion are generally weaker than in the urban counties, but supply pressures for conversion, such as low farm income and a relatively low percent of younger men undertaking farming, are quite strong here. The statistical analysis indicates that a reduction in taxes would decrease the loss rate of farmland. However, if younger men are not induced to stay in farming here, the long run effect of reduced taxes may be quite small. In contrast to the economically marginal dairy counties, the cornbelt-soybean counties were prosperous during the period 1969 to 1973 and experienced net gains in farmland. The analysis shows that, while increasing urban population may squeeze some corn and soybean farmers off the land, the high gross income of this type of farming counteracts this effect in locations farther from the major cities. In such prosperous agricultural counties, away from urban pres- sures,, the impact of agricultural property taxes on the percent change in farmland is not significant.1 lIt is important to note a qualification on these results: temporal variations in net farm income can have important effects on the loss rate of farmland in all farming regions. 60 Figure 5 PERCENT CHANGE IN LAND IN FARMS AS A FUNCTION OF-PROPERTY TAXES ON AGRICULTURAL LAND AND BUILDINGS AND INCREASE IN POPULATION DENSITY (Urban Counties in Ohio) ,['2 100 ON @4 A _8% a@ 75 @4 -6% @4 50 w rh 25 E 4% 50 100 150 200 250 300 350 4-00 Increase in Population Density 1960-1970 (persons per square mile) A -refers to percent change in land in farms.1969-1973. 61 Effectiveness: Achieving Land Use Objectives By way of general.conclusions from our analysis of Ohio data, the impact of the property tax on the loss of farmland appears to be greatest in areas of marginal farmland where the demand pressure for conversion is relatively weak. As demand pressure increases, as around growing cities, the impact of taxes on the loss rate of farmland becomes relatively smaller. However, it is dangerous to attempt to infer the relative importance of specific supply and demand. factors on the change in land in farms: these numbers are likely to be unstable over time, our sample is rather limited, and some variables, such as net farm income,.could not be specified. Table 7 summarizes these conclusions in a crude way re- garding only economic variables. It should be noted that strong demand pressures will usually be accompanied by secondary effects, and the percent of farmers over 65 (i.e., near retirement age) is influenced by the economic conditions of farming--younger men will tend not to go into uneconomical farming. Table 7 SUMMARY OF THE EFFECT OF A PROPERTY TAX REDUCTION GIVEN THE STRENGTH OF DEMAND FOR CONVERSION AND ECONOMIC CONDITIONS IN FARMING Effect of Property Tax Strength of Reduction on Demand for Economic Conditions Conversion of Conversion In Farming Farmland strong good weak strong poor weak weak good weak weak poor moderate 62 Effectiveness: Achieving Land Use Objectives Our general conclusion that differential assessment, by itself, is likely to be an ineffective deterrent to conversion of farmland is shared by other analysts.1 If preservation of agricultural activities is a legitimate social goal, intervention in both supply and demand processes must be undertaken. Preferential assessment addresses only a small part of the supply process. To be more effective, a comprehensive program should be designed to ameliorate economic and secondary disincentives to farming on the supply side and to channelize urban expansion to nonagricul- tural land on the rural-urban fringe on the demand side. 6. An Estimate of the Percent of Sellers of Farmland Who Might be Affected by Differential Assessment Programs Bearing in mind the detailed considerations of supply and demand factors, we now turn to making a rough estimate of the number of potential sellers of farmland who might be affected by differential programs. The purpose of making these esti- mates is to gain-an overall perspective. They should not be applied to any particularlocality with its particular types of fanning, age distribution of fan ners, and pressures for urban growth. However, they do provide an order-of-magnitude estimate of the target population of farmers who might be enabled to maintain agricultural use of their land by par- ticipating in A differential assessment program. If differential assessment of farmland has any efficacy in achieving the goal of maintaining current use. it is be- cause the tax reductions resulting from it serve to decrease the number of farms which are sold for purposes other than farming, forest and mineral use, recreation, or rural residence. House, Peter W., Farmland and Farmland Owners on the Edge of a Growing City, with-Special Emphasis on Tax Problems--A Case Study of Rochester, New York, unpublished Ph.D.-dissertation, Ithaca: Cornell University, 1968. Wisner, Kenneth E., Effects of Agricultural Use-Value Assess- ments in Washington County, Maryland, unpublished M.S. Thesis,.University of Maryland, 1971. Kolesar, John and Jaye Scholl, Misplaced Hopes, Misspent Millions: A Report on Farmland Assessment in New Jersey, Princeton, N. J.: Center for Analysis of Public Issues, 1972; and Saving Farmland, 1975. 63 Effectiveness: Achieving Land Use Objectives In 1974, title was transferred on 6,900 farms, re resent- ing approximately 5.5% of all farms in the NortheastY and some 892,000 acres. Two recent studies of sales of farmland in New Jersey and Baltimore County, Maryland, reported that between 55% and 60% of the sales took place between retire-. ment and death or as a part of an estate settlement.2 In such cases, the farmer has decided to sell for what can be called demographic or life-cycle reasons, reasons which will not be appreciably influenced by the economic benefits offered by differential assessment. If we assume that 60% of the sales are for life-cycle reasons, at most 40% remain which may be influenced by economic incentives. The Economic Research Service's data reveal that in the Northeast in 1974, 88% of the sales of farmland were to buyers whose probable@ use of the property for the next five years would be for agricultural, forest, mineral, recreation or rural residence purposes. Thus, only 12% were in fact converted to subdivision,, commercial, industrial or other uses. Therefore, of the 40% of sales which could be influ- enced by differential assessment, only 12%, or approximately 5% of total annual sales,, constituted conversions. The same lIt is appropriate for this analysis to consider the Northeast Region, rather than the nation as a whole, which covers large amounts of strictly rural land where little development pressure is felt. The Northeast Region includes New England, the Middle Atlantic States, Delaware, and Maryland. This area is characterized by some of the highest average values per acre for farmland, reflecting the pressures of urbaniza- tion on land value. Data are from Farm Real Estate Market Development (CD 79 Economic Research Service, U.S.D.A. (Washington, D. C.: U.S. Govt. Printing Office, 1974), Tables 13 and 14. The sales reported for Delaware were abnormally low in comparison to the 5.8% and 6.2% rates of 1972 and 1973, and were, therefore,, disregarded in computing the percentage. 2See Nagle, George E., Jr., and Donn A. Derr, A Preliminary Analysis of the Data on Participants in the New Jersey Farm Te-al Estate Market,, 1966-1970 (New Brunswick, N. J.: Rutgers University, 1972) and Peterson, George E., Tax Policy and Land Conversion at the Urban Fringe (Washington, D. C.: The Urban Institute, 1975). 64 Effectiveness: Achieving Land Use Objectives line of reasoning applies to other regions, with the qualifica- tion that the final percentage would be smaller, because a smaller percentage of sales resulted in conversions. The per- centages of sales resulting in conversions are shown below: Lake States 3% Corn Belt 3% Northern Plains 2% Appalachian 10% Southeast 8% Delta States 3% Southern Plains 7% Mountain 7% Pacific 4% An alternative rough computation results in a similar percent of sellers who might be affected by differential assessment: the Economic Research Service of the U. S. Department of Agriculture reports that the percentage which estate settlements (i.e., sales due to the life-cycle reason, death) constituted of all title transfers in the years 1960- 1974,, ranged from 14% in 1974 to 22% in 1962. If we take a median percentage of 18% and assume that at least another 18% were sold after retirement, but before death, then 36% of sales would be attributable to life cycle considerations, and 64% to other reasons. If only 12% of theseconstituted conversions (as in the Northeast), then only 8% of the total sales would be both for imminent conversion and non-life cycle reasons. Given the tentative nature of this line of reasoning, we estimate the target population for differential assessment as being no more than 10% of those selling farms in any particular year. This is in.the order of 1% of all existing farms. These estimates provide some perspective on the pro- portion of sales which might be affected by differential assessment. The actual percentage,however, will vary con- siderably since relevant considerations include not only the economic motivations of potential sellers, but the demand expressed by potential buyers. The central finding which emerges is that, while the cost' of a differential assessment program in a state is measured in terms of tax expenditures to the-great number of partici- pating owners, the effectiveness with respect to maintaining current use is measured only in terms of the small number of 65 Effectiveness: Achieving Land Use Objectives farmers who are contemplating sale in a given year and who are potentially susceptible to being influenced in their decision to sell by a reduction of their property taxes. Even these will be induced only to postpone sale until a time which fits more appropriately into their own life plans. C. AN EVALUATION OF ALTERNATIVE TYPES OF DIFFERENTIAL ASSESSMENT WITH RESPECT TO MAINTAINING CURRENT USE 1. Preferential Assessment Sufficient data are not available from states with pure preferential assessment, such as Indiana, to make possible r ..J a direct empirical analysis of the extent to which pure preferential taxation programs have been effective in slowing the loss of farm and other eligible land to urban develop- ment. Based on the analysis of the preceding section, how- ever, we feel safe in concluding the following. If an owner wants to keep his land in open uses, but finds this is financially difficult, the savings from preferential assessment may prove critical in enabling him to attain his desire. If the owner is indifferent, or actively looking for an opportunity to sell to a developer the tax savings from preferential assessment will not have much effect in deterring him from selling. If the owner has made his living by farming the land, he may wish to sell when he grows older so that he will be able to retire. Future tax savings then will be of little consideration to him. Also when the owner dies, and does not have an heir who wants to continue the property in its current use,, it will probably be sold on the market to the highest bidder. Whenever land is sold on the open market, the type of buyer will be determined primarily by the potential of the land for development and its suitability for agricul- tural production (and in more specialized instances its potential for strip or other mining). Urban uses nearly always can outbid agricultural uses, no matter how efficient and productive. Tax savings will not be enough to make a difference. 66 Effectiveness: Achieving Land Use Objectives The ability to continue farming could also be hampered by other factors, such as encroachment of urban activity. Therefore, preferential assessment is likely to make a difference in the rate of conversion to urban use primarily for land that is in the hands of relatively young owners who are either: 1) farmers who want to continue to farm, and are in a location where farming is not impeded by urban neighbors, or 2) people who want to maintain a country home. For these people, the tax saving may be large enough to play a significant role in their decision to sell. Preferential assessment has its principal effect on the supply of land which is put on themarket in that it reduces the carrying cost of land. It has no effect on the major factor which determines demand: accessibility to growing urban centers. But it does affect demand in that a potential buyer can bid more in the realization that for, as long as he keeps the land in approved open space uses, he, too, will enjoy lower carrying costs. In most cases, this additional amount will not be enough to enable the farmer to outbid the developer. In addition, if the deve-loper can take advantage of the preferential assess- ment law, as he can do in several states, the farmer's advantage will be nullified, and the result will be that the price of land is bid up and perhaps more land will be pur- chased by potential developers taking advantage of lower carrying costs. Pure preferential assessment, because it invokes no sanctions against participants who leave the program, should attract the maximum number of participants. However, the rMere fact that more participate probably will have little effect on the rate of conversion to other uses. -only those owners who have a strong incentive--in addition to the tax savings--to maintain their land in its current use are likely to use the tax saving to make it possible to main- .1-tain that use. Most of these would probably participate even in a.program with strong sanctions. The others will enjoy the financial advantages of the tax reduction and then sell when it is economically advantageous. 598-330 0 - 76 - 6 67 Effectiveness: Achieving Land Use Objectives Thus, except for certain circumstances, we conclude that preferential assessment is not very effective in maintaining current use in urban fringe areas even in the short run. In the long run, where death and retirement and the demand for land for other uses play the major roles in the decision process, it is of very little significance indeed. 2. Deferred Taxation a. General Provisions for deferred taxation in addition to pure preferential assessment provide some deterrent to changing use. The purpose of this section of the report is to evaluate how great a deterrent they can be expected to be. Deferred taxation or conveyance tax requirements are found in the 32 difterential taxation programs of 28 states. The rollback requirements in 14 programs simply require the payment of the difference between taxes.under preferential assessment and what taxes would have been under market assessment for the number of years stated in the rollback provision. In the remaining 14 programs, interest is also charged on the back taxes. In addition, several states have a conveyance tax which is determined by market value at time of sale. The rollback period is typically about five years, but .is as sh 'ort as two years in a number of states and as long as 15 years-for certain types of land in Maine (see Table 8). Stipulated interest rates are typically 6%, but are as high as 10% in the states of Washington and Hawaii. A number of states do not have any rollback provisions. These are nearly all predominantly rural states. b. Rollback without Interest The penalty imposed by rollback without interest charge is very minor. In fact, it simply allows an owner to post- pone paying certain taxes (in excess of those based on agricul- tural value) until his land is developed. This isequivalent to an interest-free loan to the,owner. Even the total amount of the rollback is not large in proportion to market value.. Tax rates are generally in the range of 1 to 3 percent of market value, and the rollback 68 Table 8 PROVISIONS FOR SANCTIONS ON CONVERSION CONTAINE-i IN CURRENT STATZ LAWS Rollback and interest No. Years Interest Rate Hawaii I (dedication) Indef. 10% Florida 2 Indef. 6% (applicable to@park and recreation lands only) Hawaii 2. (deferral) 10 6, 10% (golf courses - 6%; other uses - 10%) Maine 10, 15 8% (10 yrs. for farnlaad and 15 yrs. for open space land) Oregon 10 6% (total amt. limited to difference between farm value and market value in year of sale)' - Washington 7 10% (plus additionfl penalty for chaiige in u@e during Alaska 7 6% first 7.years) Nevada 7 6% Penns-ylvania 2 7 6% Pennsylvania 1 5 5% North Carolina 5 9% Virginia 5 6% Nebraska 5 6% Illinois 3 5%. P,ollback, but No Tntc-!:est No. Yo-ars Minnesota 2 7 (open space) F.--w York 1 5 South Carolina 5 Utah 5 Massachusetts 4 (or declining conveyance tax, whichever is greater) Montana 4 Ohio 4 Minnesota 1 3 (farmland) Texas 3 Rhode Island 2 Kentucky 2 Maryland 2 New Jersey 2 Rhode Island 2 Sanction bascd op. Market Value in Year of Conversion Conne.ticut (declining conveyance tax) New Haiopshire 1 (10% of assessed value in year of conversion) New Hampshire 2 (12% of assessed value is breachad in first half of agreement term, and 6Z if breached in second half) California (12% of mar@zct value when early withdrawal- is granted) Other Penalties New York 2 (twice the market-value taxes in year of conversion) California (phased increase in assessment during 10-year runout period after notification of non-renewal) Michigan No Sanctions Arizona Iowa Arkansas Missouri Colorado New Nexico Delaware North Dakota Florida 1 Oklahoma Idaho South Dakota Indiana Wyoming 69 Table 9 'POTENTIAL TAX OBLIGATION AS PERCENT OF MARKE OF LAND, ASSUMING.NO INTEREST CHARGE Farm Value Farm Value 80% Market 50% Market Value at Start Value at Start Land Value Tax rate of: Tax rate of: Appreciation Rate Year 1% 3% 1% 3% 2% 3 .66 1.98 1.51 4.53 5 1.18 3.54 2.54 7.62 7 1.74 5.22 3.57 10.71 10 2.63 7.89 5.09 15.27 5% 3 .79 2.37 1.58 4.74 5 1.41 4.23 2.59 7.77 7 2.13 6.39 3.63 10.89 10 3.38 10.14 5.03 15.09 10% 3 .90 2.70 1.58 7.74 5 1.68 5.04 2.61 7.83 7 2.47 7.41 3.55 10.65 10 3.67 11-01 4.83 14.49 15% 3 1.05 3.15 1.65 4.95 5 1.89 5.67 2.64 7.92 7 2.67 8.01 3.46 10.38 10 3.82 11.46 4.54 13.92 Effectiveness: Achieving Land Use Objectives taxes are computed only on the difference between farm value and market value. Therefore, even Oregon's ten-year rollback would amount to no more than 30% of the difference between .assessed and market value. Table 9 shows rollback taxes as a percent of market value for various land value appre- ciation rates, percentages of agricultural use value to market value at the start of the program, and tax rates. No interest charge is included in the computations of Table 9. Even at the end of a ten-year rollback period, with a tax rate of 2%, cumulative taxes payable would amount to only about 5-8% of market value for land whose farm value was 80% of market value at the start, and between 10 and 13% for land whose farm value was 30% of market value at the start. Tax bills of such small proportions would not seem to constitute a major psychological barrier to selling for development. c. Rollback with Interest Charge The requirement of an interest charge could create a true penalty, but only to the extent that the interest rate charged is higher than that which a land owner would have to pay were he to borrow from a commercial lending institution. Thus, the interest rate provisions in force have not con- stituted a true penalty for conversion over the past several years in-any state, except possibly Washington or Hawaii with their stipulated 10% charges. The tax rollback and interest charge, however, can con- stitute a substantial payment and, therefore, could have some psychological effect on the decision to develop, even if on strictly economic terms, it is of no consequence. Therefore,- it is of interest to examine the size of rollback ,charges including interest in-relation both to total market value and to increase in market value since the beginning of the rollback period. (Note that rollback plus interest would be (1) paid by the original owner if he developed his land or otherwise changed its use from the approved use, or (2) paid by the buyer of the land when he changed the use. In this case., the buyer would probably take this obligation into account in determining his bid for the land.) First, let us look at rollback taxes plus interest as a percent of total market value. Table 10 shows this per- centage for a variety of different appreciation rates, tax 71 Table 10 ROLLBACK AS PERCENT OF TOTAL LAND VALUE (Farm Value 50%*,of Market Value at Year 0) Interest @ 2% Interest @ 5% Interest @ 10% 1 Appreciation Taxes Taxes Tax es Taxes Taxes Taxes T Rate Year 1% 3% 1% 3% 1% 3% 2% 3 1.6 4.7 1.6 4.8 1.7 5.0 5 2.6 7.9 2.8 8.4 3.0 9.1 7 3.7 11.2 4.0 12.1 4.5 13.5 10 5.5 16.5 6.1 18.4 7.2 21.5 5% 3 1.6 4.8 1.6 4.9 1.7 5.1 5 2.7 8.0 2.8 8.4 3.0 9.0 7 3.8 11.3 4.1 12.2 4.5 13.6 10 5.4 16.3 6.0 18.0 7.0 20.9 10% 3 1.6 @4.9 1.7, 5.0 1.8 5.3 5 2.7 8.1 2.8 8.5 3.0 .9.1 7 3.7 11.1 3.9 11.8 4.3 12.9 10 5.2 15.5 5.7 16.9 6.5 19.4 15% 3 1.7 5.0 1.5 5.1 1.8 5.5 5 2.7 8.1 2.8 8.5 2.9 8.7 7 3.6 10.9 3.9 11.6 4.2 12.7 10 4.8 14.5 5.3 15.8 6.0 17.8 Effectiveness: Achieving Land Use Objectives rates., interest rates, and periods over which the rollback is applied. All figures in Table 10 refer to land whose use value was 50% of market value at the start of the roll- back period. Therefore, they may be compared directly with the middle columns of Table 9, which show results for 0% interest on land with use value 50% of market value. The payments range from 1.6% of market value for a three-year rollback with taxes at 1%, interest at 2%, and land appre- ciation at 2%,per year to as much as 24.7% of market value for a ten-year rollback with taxes at 3%, interest at 15%, and land appreciation at 2% per year.1 At typical rates of interest and rollback periods, the total rollback and interest amounts to less than 10-12% of market value. This would not appear to constitute a major psychological impedi-. ment to selling or developing.2 Studies by other researchers have also concluded that rollback even with-interest cannot offset the increased capital gain which is usually realized when land is con- verted to urban uses.3 Another way of lookingat the decision situation.is to say that the owner views his rollback costs not against total market value but against the.appreciation in value of his property during the period the-rollback covers. He might argue (other things being equal) that it was not advantageous to him to sell at the beginning of the period. He will con- sider selling or developing, therefore, only if the apprecia- tion in value during the period exceeds the total bill he will have to pay for rollback taxes and interest. IFor higher rates of interest, the total value of land appre- ciates faster than total interest. This is because much of the interest refers to taxes owed for earlier years when total value was substantially less, and because appreciation was computed using a compound growth rate, whereas interest costs were determined using a simple interest computation. 21f use value at the start was less than the 50% of market value shown in Table 10, then the tax saving under the pro- gram would have been greater and the rollback payment greater in total and relative to market value. 3See Holland, David M. "An Economic Analysis of Washington's Different ial Taxation Program," Circular 578, College of Agriculture Research Center, Washington State University, Pullman, Washington, December 1974, and Gloudemans, Robert J., Use-Value Assessment: Theory, Practice, -and Impact, Chicago: International Association of Assessing Officers, 1974. 73 Effectiveness: Achieving Land Use objectives Tablell presents total rollback payments (taxes plus interest) as a percent of increase in market value for various situations, all assuming that use value is 50% of market value in year 0. It is evident from Table 11 that such an owner should not be dissuaded from selling or developing in most situations. Only if the appreciation rate is 2% or less, the rollback period five years or more, the interest rate 5% or more, and the tax rate 3% or more would the payback exceed the appreciation in value. This is a very unlikely combination of circumstances. In most situations, the payback constitutes a relatively small percentage of the appreciation in value. The most sig- nificant variable affecting this percentage is the appreci- ation rate, since it determines the increase in value directly. Note that the percentage drops with increase in the rate of appreciation of land value. Thus, rollback including interest is less of a deterrent to selling in areas where the demand for land is growing rapidly. One may conclude, there- fore, that the rollback is less effective in precisely the areas where a deterrent to selling for development is desired. In areas of little or no growth, the rollback is a larger percent of total market value and of increase in value. In snch areas the demand for development is low and the rollback constitutes a relatively important deterrent to sale for development. This combination of circumstances should limit the probability of development, which may be desired. It could even "lock-in" land owners to a given agricultural or forestry use, which,,with changing economic conditions,, could be undesirable. Finally, some landowners may.be deterred from entering a deferred taxation program even if it might be in their economic interest to do so. For them the prospect of being required to pay a large amount of back taxes, possibly with interest, and the time and expense required to enroll their land, more than offset the advantages of a reduced assessment. A deferred taxation program will not be effective in influen- cing the decision of a1andowner who has refrained from entering into it. 74 Table 11 ROLLBACK AS PERCENT OF INCREASE IN MARKET VALUE OF LAND FOR VARIOUS RATES OF INTEREST) TAX) AND APPRECIATION OF VALUE (Farm Value 50% of Market Value at Start) interest at 2% Interest at 5% Interest at 10% Inter Appreciation Taxes Taxes Taxes Taxes Taxes Taxes Taxes Rate Year 1% 3% 1% 3% 1% 3% 1% 2% 3 27 81 29 83 29 .87 30 5 28 84 30 89 32 97 35 7 29 87 31 93 35 104 38 10 31 92 34 102 40 120 46 5% 3 12 35 12 36 12 38 13 Ln 5 @12 37 13 39 14 42 15 7 13 39, 14 42 16 47 17 10 14 42 16 47 18 54 21 10% 3 7 20, 7 20 7 21 7 5 7 21 7 22 8 24 9 7 8 23 8 24 8 26 10 10 8 25 9 28 11 32 12 15% 3 5 15 5 15 5 16 5 5 5 16 6 17 6 17 6 7 6 17 6 19 7 20 7 10 6 19 7 21 8 24 9 Effectiveness: Achieving Land Use objectives d. Conclusions Based on the above reasoning and computati Ions, it is probably safe to conclude that rollback requirements, even with substantial interest payments, are not likely to be an effective deterrent to development. This is particularly so in areas where development demand is strong.and land values are increasing rapidly. Although rollback provisions would not seem to add greatly to the effectiveness of preferential assessment in preventing the conversion of land to urban uses, nonethe- less, a sanction such as rollback is a necessary provision from the standpoint of equity. Without a rollback provision, preferential assessment laws provide a free ride for the speculator, at the cost of others whose taxes are increased to make up for the loss in revenue. It is only fair that this lost revenue be made up to the public when conversion occurs. In the interest of fairness, interest should be charged and at a rate equal to the rate which other taxpayers would have had to pay in order to provide the lost revenues. 3. Restrictive Agreements Restrictive agreements (under which an owner agrees not to develop his land for, say, ten years, knowing that the agreement will be enforced by a state or local agency) have considerable potential as a means of maintaining current use, at least over the term of the contract. They have not been particularly effective in maintaining current use in California primarily because they are voluntary, and an owner of eligible land may choose not to enroll his land. As is reported in the case study on California (in Part Two of this report) while some 30% of privately-owned land in the state is under contract, almost all of it is rural land not subject to near-term development pressure. The consensus of the literature and of those inter-viewed is that only owners who are committed to agriculture and have no expectations of developing their land within the next ten or 15 years will put their land under contract. Those whose land is ripe for development, or who expect that it will be within ten years have, by and large, declined to enter the California program. This should not be surprising. As we have seen, the tax savings arising from differential taxation. are small relative to other costs of farming and to the 76 Effectiveness Achieving Land Use Objectives potential capital gains to be derived from the sale of land on the rural-urban fringe. During the ten year work-out period after notice of non-renewal, the owner cannot develop, but he must pay roughly 65 to 100% of the taxes he would pay if he were not under contract. one aspect of California's prog ram may have a noticeable effect on conversion rates. The program creates agricultural districts within which contracts may be written. Participants have standing to protest cancellation. By creating a legal structure aimed at preserving agricultural use and vesting owners with an interest in maintaining the integrity of the district, the Act creates a new institution with a certain inertia which operates to retard change. This effect may be more significant for the preservation of current agricultural use than the simple economic incentive of preferential assess- ment. The potential usefulness of restrictive agreements, coupled with differential assessment, lies in their use as a mandatory device which is part of an overall conservation and development policy for metropolitan areas. This approach in transitional areas, together with acquisition of less- than-fee interests in lands designated for open space use and subject to heavy development pressure, on the one hand, and simple police power regulation of land not subject to heavy pressure, on the other, would provide a flexibility which is much needed. As it is, the usefulness of the restrictive agreement approach for maintenance of current use is effectively limited by its voluntary nature. D. CONCLUSIONS CONCERNING THE ACHIEVEMENT OF LAND USE OBJECTIVES Except for a few specific situations, which account for a small fraction of potential sales of farmland, differential assessment is not likely to be effective in achieving land use objectives. Whether or not a particular farm is sold and converted to a non-open use depends on three sets of considerations: supply factors, demand factors,and govern.- mental approval of the proposed development. Differential assessment operates primarily on one of the supply factors, by reducing the income squeeze which farmers in rural-urban fringe areas experience as a result of rising real property taxes. It has a secondary impact on the demand side because it permits farmer-buyers, speculators and developers either 77 Effectiveness: Achieving Land Use Objectives to offer somewhat more for the land or to buy more land at the same price because their carrying costs are reduced. This latter effect is difficult to appraise, but is likely to be marginal because the buyer will normally be simply exchanging tax costs on the land for interest costs on the money he has to borrow either to pay the higher pride or to buy additional land. It is clear, however, that all forms of differential assessment help to insulate the farmer from market pressures to sell which come to bear on him in the form of higher property taxes based on rising property values. They make it easier for him to schedule the sale of his land at a time, such as retirement, which fits into his estate planning. One of the central issues raised by differential assess- ment with respect to the goal of maintaining current use is which of the systems for timing the sale and conversion is best: 1. a system which keys the conversion of open land into the personal life cycle and estate planning considera- tions of individual farmers; 2. a system which relies on the push of rising property taxes and the pull of high offers to ease land into develop- ment; or 3 a system which relies more heavily on governmental resource and development planning to specify which land should be developed when. Numerous studies,of which the Real Estate Research Corporation's The Costs of Sprawll is the best known., have documented the additional economic, environmental and energy costs which are associated with low density, leap-frogging development, precisely the kind which Peterson found in his study of differential assessment in Maryland referred to above. We findthis study persuasive and conclude that differential assessment programs which are not part of a comprehensive land development regulationsystem are counter- productive in terms-of the broader goals of urban development. lWashington, D. C.: U. S. Government Printing Office, 1974. 78 Effectiveness: Achieving Land Use Objectives The benefits which they provide for individual farmers and by way of short-term postponement of some conversions are more than counterbalanced by the disadvantages they entail in creating special tax shelters in which owners of develop- able land may thrive until their personal economic plans coincide with those of the market generally. Such programs should either be amended or made a part of a larger system of resource management and development regulation. Such a system would entail the designation of agricultural and development districts, staging of capital facilities and development, compensation, and differential assessment. 79 Equity, Ease of Administration and Political Feasibility Chapter V EQUITY, EASE OF ADMINISTRATION AND POLITICAL FEASIBILITY In the preceding two chapters, differential assessment has been evaluated with respect to its effectiveness for achieving its two principal goals: conferring tax benefits on eligible owners and maintaining current use of unde- veloped land. In this chapter, other dimensions of the programs will be examined. First, the programs will be evaluated in light of their impacts on the tax base and the redistribution of tax incidence which results from them. Second, the various approaches will be assessed for their ease of administration and their political feasilibity. A. EQUITY 1. Introduction one of the major rationales for differential assess- ment arises out of the view that farmers pay an unfair share of the property tax.1 The fairness of a property tax is usually judged according to one of three criteria: consistency among assessed value fair market value ra- tios for all classes of properties which constitute-the tax base, ability to pay based on economic use of the land, and benefits received. The first criterion that assessment of all kinds of property should be in the same proportion to market value -- appears to be a basic and reasonable requirement. However, it is,often not met in practice, even when the criterion is agreed to in principle. First, while fair mar- ket value is usually the nominal standard, different methods of assessment, such as comparable sales and capitalization of income, can produce varying estimates of it. Second, the real property tax laws are filled with exemptions, exclusions, deductions, deferrals and credits which effectively reduce the share which various classes of property pay of total taxes, See, e.g., Hady, Thomas F. and Ann Gordon Sibold, State Programs for the Differential Assessment of Farmland, Washington,.D.C.: Economic Research Service, U.S.D.A., 1974, pp. 6-7. 80 Equity, E se of Administration and Political Feasibility If farmers are shown to have a higher percentage of total adjusted assessed value than of total value based on fair market value, they are paying an unfair share based on the first criterion. It is virtually impossible, however, to determine whether the complex system of exclusions, exemptions, deferrals,.tax credits, and varied assessment practices produces inequities in the effective tax rates which farmers pay. The data needed to make this evaluation are not available or are hidden in the assessment practices of local assessors. Even if the farmers' share is equitable by the fair market value standard, it may not be equitable on the basis of the second criterion, the ability to pay. It can be argued with plausibility that real property taxes based on fair market values impose an unfair burden on the farmer,, .since as compared with other economic activities, the net income of farming is low in relation to total value of assets, and the subject of the property tax, land, is often the major component of a farm's assets. The prope .rty tax burden is greatly increased when taxes are based on in- flated values-of land for urban development instead of on a value based on the agricultural use of the land. Differ-' ential assessment insulates the farmer from tax increases resulting from apppreciation in the value of the land, at least until he is ready to convert.1 With respect to the third criterion, benefits received, a farm receives many fewer services per acre than a'land intensive use like a subdivision yet, because the property It has been argued that the farmer's ability to pay taxes based on market value of his land would be increased suffi- ciently if it was made easier for him to obtain credit based on the appreciation value of his land. (See Frederick Stocker's remarks delivered at the Property Tax Forum of International Association of Assessing Officers, June 1975, and Henry J. Aaron, "Who Pays the-Property-Tax?," Washing- ton: The Brookings Foundation, 1975, pp. 85-87). Such an approach to the farmer's ability-to*-pay problem, assuming it is economically effective, seeks a solution for this equity problem in the conversion value of the land. The build-up of debt it implies would undoubtedly increase the probability of eventual sale-for non-farm use. 81 Equity, Ease of Administration and Political Feasibility tax is assessed on the basis of acreage and the concept of market value is applied to both farm and subdivision, he pays a relatively high tax. Differential assessment permits a farmer to be treated much like the owner of ren- tal property, because the methods of assessment derive assessed value from income from present, agricultural use and not from potential development value. Thus, it in- creases the probability that the farmer's taxes will be more closely related to the municipal services he actually uses. In summary, a major motivation for differential assess- ment programs is that they correct inequities which the farmer is believed to be burdened with. The result of such programs is to reduce that inequity by reducing the far- mer Is taxes, and shifting the tax burden to other classes of property. The magnitude of the tax shift from the prior pattern can be estimated. It is more diffiult to judge the extent to.which the shift results in a reduction of inequity to the farmer and a correspondingly more fair sharing of the tax load by owners of other types of property, and to what extent it shifts the tax burden unfairly from farm owners to other property owners. In-the analysis which follows, we will look first, at the tax shift impacts which occur upon the establishment of a differential assessment program before the real estate market adjusts to the new ground rules.created by the pro- gram, and second, at the long-term impacts, which are likely to occur once the adjustments have been made. In examining these two sets of phenomena, we will discuss first, the effects which preferential assessment will have on tax in- cidence. Then we will analyze the ways in which deferred taxation and restrictive agreements will modify or muffle the principal impacts. 2. Estimating the Tax Shift Since the real property tax is usually administered on a taxing jurisdiction by taxing jurisdiction basis, with local g6vernments and district -s setting tax rates annually, the primary impact of the introduction of differential assessment is to shift tax incidence within participating municipalities. State-wide impacts, which are important if the state has legislated to make up some or all of the 82 Equity, Ease of Administration and Political Feasibility losses in tax revenuescan often be estimated by aggregating the shifts experienced by every taxing jurisdiction. As a prelude to describing the methods of measuring tax shifts, it is appropriate to review the procedures used to set the property tax or millage rates in a taxing juris.- diction. The tax base is the total assessed value of tax- able property in the jurisdiction (AV). The taxing authority determines what tax revenues (T) will be needed for the following year and then sets the tax rate (R d at the level which will yield the necessary revenues. In other words, (1) R T AV If the assessed value of one type of property.is lowered because of preferential assessment,- the total tax base will be lowered by the same amount. We will assume here and throughout the discussion which follows that the taxing jurisdiction does not cut back on the services it.provides because of a reduction in part of its tax base .1 The tax revenues needed, T, will thus remain the same, and since AV is smaller, the tax rate after differential, assessment, R231 will be larger. Thus, (2) R T where p = the re- 2 AV-p duction in assessment due to differential assessment Since T continues at the same level, R2(AV-p) = R, (AV) It is, of course, possible that jurisdictions will cut back on services rather than raise tax rates. In that event, all taxpayers would suffer the cost in the form of a re- duction of services, rather than in the form of less spend- able income. For the purposes of this paper, it seems sufficient, and certainly simpler, to measure costs in the form of increased taxes. 598-330 0 - 76 - 7 83 Equity, Ease of Administration and Political Feasibility (3) R R AV 2 1 AV-p Because tax rates are computed in this manner, and assuming that budgets are not cut, a tax benefit program based on preferential assessment does not reduce total tax revenues, but rather shifts the incidence of the tax away from the favored class of property to all the rest. This is a form of "tax expenditure:" the tax bills of some tax- payers are increased so as to confer a benefit on others by reducing their taxes. Let us consider a simple example to illustrate how the property tax bills of farmers and non-farmers are affected by a simple preferential assessment program in a partizula-r taxing jurisdiction. First, we will separate taxable pro- perty into two classes: farm.property (land and improve- ments) and non-farm property (all the rest). Let us assume that the assessed value of farm property based on fair mar- ket value of land and improvements is $10 million ' that the assessed value of non-farm property (also based on fair market value) is $90 million, and that the municipality needs $10 million in tax revenue. The tax rate will be determined as follows: RI(AV) = T R1 ($10,000,000 + $90,000,000) $10,000,000 R Farmers will pay $1 million in taxes, part of which will be on their land and part on their buildings and other taxable improvements. Non-farmers will pay $9 million. Now, let us assume that a preferential assessment pro- gram is adopted, and all farmland is enrolled. Let us assume that land constituted 80% of the assessed value of farm property, or $8 million, and that as a result of pre- ferential assessment, its assessed value is.reduced 50% to $4 million. Assuming that the municipality needs the same revenue and that the assessed value of non-farm property remains the same, the new tax rate, R21 can be computed as follows: 84 Equity, Ease ofAdministration and Political Feasibility R2 ($6,000,000 + $90,000,000) = $10,000,000 10 R 2 96 104 Taxes on non-farm property will now be .104 x $90,000,000 or $9,375,000,and those on farm property will be $625,000. Non-farmers pay $375,000 or 4.17% more, and farmers pay $375,000 or 37.5% less. Parenthetically, this example reveals one reason why differential assessment programs have been popular with politicians. One interest group can obtain a sizeable tax benefit at a cost which is spread thinly among all other groups. The tax shift computation can be expressed.somewhat more formally as follows: Without preferential assessment: (4) RI (Farm AV +.R, (Non-Farm AV) = T With preferential assessment (assuming 100% partici- pation): (5) R2(Farm AV2) + R2 (Non-Farm AV) T Note that total assessment has gone down, and as a result it is necessary to increase the tax rate in order to obtain the same amount of revenue. The tax shift or the tax expenditure, E, resulting from preferential assessment of farmland is defined in either of two equivalent ways, as an increase of tax pay- ments by non-farm owners: (6) E =(R 2 - R,)(Non-Farm AV@, or as a decrease of tax payments by farm owners: (7) E R, (Farm AV I R2 (Farm AV2)' 85 Equity, Ease of Administration and Political Feasibility If we substitute for R I and R21 in equation (6), then 8) E = T Non-Farm AV Non-Farm AV Farm AV2 + Non-Farm AV Farm AVI + Non-Farm 771 Note that the term AV2 includes preferentially assessed , farmland and the nonpreferentially assessed farm buildings and other taxable assets on farms participating in the pre- ferential assessment program. In addition, if less than 100% of farmland is enrolled, the tax expenditures would, of course, be less. Another approach to estimating tax expenditure, and the one most frequently used because of the relatively great- er availability of data, is to determine the difference be- tween the assessed value of farmland in the program, based on fair market value, and the assessed value based on farm use value, and to multiply this difference (which represents@'the- oretically,, the development value) by the applicable tax rate. This gives a rough estimate of the tax expenditure in a taxing jurisdiction but fails to take into account the fact that if the development value were'included in the tax base, the tax rate would be lower. It also fails to account for the taxes attributable to farm improvements which would be taxed at a lower rate too. Finally, since,historically, most farmland has been given some form of de facto pre- ferential assessment, actual taxing jurisdiction data on pre-program farmland assessed values already reflect a re- duction from fair market value. As a result, the establish- ment of de jure preferential assessment will not produce a reduction in taxes which accurately reflects the full extent of tax expenditure resulting from the establishment of pre- ferential assessment. It is also not.possible to measure tax expenditure directly by comparing the taxes which farmers and non-farmers pay in the year before the establishment of differential assessment and in the year in which it is established. Such a measurement would be difficult because, first, tax rates in the second year will, in all probability, be set for a somewhat different level of municipal services from that of the first year. Second, tax rates reflect changes in the level of non-farm assessed values, which are likely to be disproportionate to changes in farm assessed values. The 86 Equity, Ease of Administration and Political Feasibility only reliable way to estimate tax expenditure is by using the equations presented above. It can be seen from equation (8) that the greater the reduction in the farm assessed value resulting from differ- ential assessment, the greater the tax expenditure of the jurisdiction. In addition, the ratio between non-farm assessed value and farm assessed value before differential assessment also affects the size of the tax expenditure in a complex and somewhat unexpected way. Figure 6 shows how total tax expenditures (as a percent of total revenues) are affected by variation in the percent of original tax base in farm property (both land and improvements) and by the per- cent reduction in.farm property assessments due to differential assessment. As the portion of the tax base which is to be assessed differentially increases, the compensating across-the-board tax rate increase also increases in size. Correspondingly, the remaining,portion of the tax base, which is not assessed differentiaily, decreases. The,tax shift, which is the pro- duct of the increase in tax rate times the non-preferentially- assessed value, rises to a maximum and then declines. This figure shows that if there is a 25% reduction in farm assessed value, the greatest tax expenditure, some 7.2% of tax revenues, will occur in jurisdictions in which 55% of the original total assessed value was in farm use. Similarly, if there is a 50% reduction in assessed value, there will be a maximum tax expenditure of 17.1% of tax revenues where 60% of the total assessed value is in farm properties. For a 75% reduction, the peak expenditure is 33.3%. The question of equity comes into sharper focus when one looks at the t 'ax burden on non-participating p roperty. Although the total tax expenditure peaks as shown in-Figure 6 and then decreases for communities with larger percents of their original tax base in participating property, the tax burden on non-participating property continues to in- crease the greater the proportion of the original tax base in participating property. The reason for this is that reductions in assessment for one class of property owners must be made up for by an increase in the overall tax rate. For participating property owners, the increased tax rate is offset by the reduced assessments, but it must be borne 87 Figure 6 TAX EXPENDITURES AS A PERCENT OF TAX REVENUES BY PERCENT REDUCTION OF FARM ASSESSMENTS AND PERCENT OF ORIGINAL TAX BASE IN FARM PROPERTY 5 > 85% Reduction in W I II 40-1 Farm Assessments Ca E-1 44 0 (D 00 30- 75% co 20- W cc 0) 50% $4 0 -r4 10- 25 Ca E-4 A 4'0 6,0 @0 100 Percent of Original Tax Base in Participating Farm Property 88 Figure 7 INCREASE IN TAX RATE NECESSARY TO COMPENSATE FOR LOSS IN REVENUE DUE TO DIFFERENTIAL ASSESMENT 300- 280-- 260-- 240-- 4j 220-- 200-- P4 180-- co 160-- z Cl Q) CO co 140-, 120-- 100-- C, Ca z 80-- 60-- 40-- .N00 4,001o 20 10 20 30 40 50 60 70 80 90 100 Percent of Original Tax Base in Participating Land 89 Equity, Ease of Administration and Political Feasibility without any compensating adjustment by non-participating owners. For them the increase in tax rate is equivalent to the-same percentage increase in their tax bills. The increase in tax rate necessary to collect the same revenue with differential assessment as without it can be seen in Figure 7. For most possible situations, the in- creases are substantial; for some situations they are as- tounding. Some combinations of conditions, however, are more likely than others. For example, jurisdictions with a large percent of their tax base in participating land are, by de- finition, largely undeveloped average market value is not much above farm value, and therefore, the percent reduction in farm assessments is likely to be small. On the other handl in developing communities farmland is likely to be a relatively small percentage of original tax base and market values are likely to be much higher than farm values, so percent reduction in assessment because of the differential program is likely to be great. Thus, the situations most likely to be encountered are those toward the bottom and toward the left side of Figure 7. The tax shifts of Figure 6 and the necessary percent increases in tax rates (and in actual taxes for non-partici- pating property) are real but are not always easily iden- tifiable in an actual situation. The reasons are many: often the total tax base includes tax sources other than .property and these may change in amount with business con- ditions) the property tax base may be growing as a result of new development, Federal and state aid varies from year to year, and the local government may choose to reduce reve- nues and services rather than compensate fully for the tax expenditures. But whether it is met by a reduction of ser- vices for some or all taxpayers or by an increase in tax payments by non-participants, the tax expenditures are real and are resolved by a change in the equity accorded different classes of taxpayers. 3. Estimates of Actual Tax Shifts The major barrier to making an accurate estimate of the impact of preferential assessment on a taxing-juris- diction by taxing-jurisdiction basis is the absence of the necessary data. First, most states have adopted preferen- tial assessment fairly recently. Only 18 programs are more than five years old.. Second, implementation has been gradual, 90 Equity, Ease of Administration and Political Feasibility so that impacts in any particular state are difficult to separate out from other annual changes. Third,-few states systematically collect information on the fair-market assessed value and current-use assessed value of farm pro- perty for their taxing jurisdictions. We have been able to obtain the necessary data to do a county-level estimate of tax shift in the State of Florida, which has had preferential assessment of agricultural lands since 1959. Data are regularly published by the Florida Department of Revenue on market value as well as use value of differentially assessed land. With these data and the total assessed valuation of each county for tax purposes, it is possible to compute the total assessed valuation of each county at market value. With this information and the reported total taxes levied for county-wide purposes, the tax shift computation can be performed. The results are given in Table 12. Although in more than half of'the counties the com- puted increase in tax rate was less than two mills, a number of counties experienced substantially higher rate increases to offset revenue losses due-to differential assessment (part A of Table 12). A non-farm population of about 1,190,000 bore increases of 2 or more mills without any com- pensating reduced assessment; over 140,000 were faced with rate increases,of over 5 mills. Tax savings went to the farmers. Seventy-eight percent of all farmers were in counties where the rate increase was less than I mills. Counties which experienced a rate increase of 3-4 mills, however, had the largest proportion of farmers. Tax rate increases as a percent 'of 1973 tax rates can be computed for only 39 of the 69 Florida counties, since the 1973 tax rates of the other counties include debt ser- vice,, or special district levies, and therefore are not strictly comparable. The computations for these 39 counties (Part B of Table 12) indicate that a 0-2 percent increase is typical, and a 2-8 percent increase is not uncommon. For one county, a 27% increase was computed. A non-farm population of over 500,000 (20% of all non-farm population in this sample) was faced with increases in property tax rate of over 4%. Farmers were most heavily concentrated, as a proportion of total.population, in counties which ex- perienced 6-10% increases in tax rate. 91 Table 12 TAX EXPENDITURES BY COWNTY GOVERNMENTS IN FLORIDA BECAUSE OF DIFFERENTIAL ASSESSMENI` A. lncr@@asc in County Tax Rite a Increase in County Faim Population Tax Rate Number Non-Farm % of Total (IMills) Counties Population Number Population 0 .999 18 3,921,363 11,455 .4 1.999 13 1,413,164 14,901 1.0 2 2.999 14 457,073 20,712 4.3 3 3.999 6 48,229 6,574 12.0 4 4.999 2- 542,163, 1,540 0.3 5 5.999 4 59,772 4,718 7.3 6 9.999 2 72,629 2,845 3.8 10.0+ 1 9,995 101 1.0 TOTALS 60 6,529,383 68,846 afor 60 out of Florida's 67 counties. Al I data not available for others. B. Per Cent Increase.in Tax Rate b Farm Population Percent Increase Number Non-Farm % of Total in Tax Rate Counties Population Numher Population 0 - 2% 13 2,506,767 9,906 0.4 2 - 4% 8 657,905 11,754 1.8 4 - 6% 9 424,321 13,846 3.2 6 - 8% 4 46,419 5,896 11.3 8 - 10% 2 10,506 7,571 41.9 10 - 25% 2 14,129 1,281 8.3 25 - 50% 1 9,995 101 1.0 50+7. 0 0 0 TOTALS 39 !@_,670,042 50,355 bfor only 39 out of Florida's 67 counties. C. Tax Shift Per Capita C Farm Population Tax Shift Per Capita Number Non-Farm % of Total -0) . Counties Population Number Population 0 - 4.99 15 3,536,294 13,777 0.4 5.00 - 9.99 -12 1,686,303 17,670. 1.0 10.00 -14.99 7 245,655 10,320 4.0 15.00 -19.99 13 329,'1@95 17,187 5.0 20.00 -24.99 4 581,026 4,675 0.8 25.00 -29.99 2 17,004 1,504 8 0 30.00 -40.00 4 108,004 3,111 2:8 40.00+ 3 - 25,807 602 2.3 TOTALS .60 6,529,388 68,846 Cfor 60 out of 67 counties. 92 Equity, Ease of Administration and Political Feasibility A third way of looking at the tax shift is on a per capita basis (Part C of Table 12). For most people the additional tax payment is less than $10 apiece. However, .over 1,300,000 non-farmers are faced with tax increases of over $10. The necessary data are, also, available to make possible an estimate of tax shift at the county level for California. As is described in the California Case Study in Part Two of this report, we estimate that as a result of that state's Williamson Act, Kings and Tulare Counties experienced a revenue loss of 21% and 11% respectively, six others lost between 3% and 9%, and the remaining 38 coun- ties lost below 3%, before receipt of state subventions. 9stimates of tax shift at the municipal level, ex- pressed as percent increase in tax rate, have been publish- ed for a sample of 151 New Jersey municipalities.1 Number of Increase in Tax Rate Municipalities 0 9.9% 48 10 19.9% 30 20 29.9% 35 30 39.9% 20 40 49.9% 11 5.0% and above 7 These municipal estimates for New Jersey are substan- tially higher than our estimates on a county-wide basis for Florida. A difference of this sort (though not ne- cessarily of this magnitude) is to be expected, since a county is likely to have more non-farmers to spread the tax expenditure among than are many rural townships where differentially assessed property could make up a large part of the tax base. It is evident from the above estimates that even though tax shifts often result,in only a small increase of the tax rate in most jurisdictions, in a few taxing jurisdictions the burden can be great on owners of property which is not differentially assessed. The-burden can be Kolesar, John and Jaye Scholl, Saving Farmland, Princeton: 'The Center for Analysis of Public Issues, Inc., March 1975. 93 Equity, E se of Administration and Political Feasibility substantial even for those who- own some participating land in addition to other non-eligible property (see Table 6 in Chapter III). Owners with no participating land must bear the increased tax rates with no offsetting reduction in assessment. These owners are often low and moderate income residents of rural towns. 4. Sanctions Reduce the Tax Shift The preceding analysis has dealt solely with the question of the impacts on the tax base of the establish- ment of a pure preferential assessment program which pro- vides for abatement of property taxes on the development value of land. Thirty-two states have added deferred taxation or conveyance tax provisions of one form or another which impose an economic sanction of varying severity upon the conversion of preferentially assessed farmland to non- eligible uses. One purpose of those economic sanctions is to offset the increased tax burden placed on non- farmers by differential assessment of farmland. By col- lecting some or all of the unpaid taxes on farmland at the time of conversion, a more equitable apportioning of pro- perty taxes falling on farmers and non-farmers can be achieved. With the conversion of farmland to non-farm uses, any public benefit of the differential assessment presumably evaporates. Any payments of deferred taxes or other sanctions by owners of hitherto preferentially assessed land go into the municipal till and serve to reduce the amount of tax expenditures occasioned by preferential assessment. In recent years, deferred tax payments do not seem to have been major sources of local revenue. In Oregon, $750,557, or about one-tenth of one percent of total state property taxes for the year, were paid in 1973-74. During the first ten years of Hawaii's differential assessment pro- gram, deferred taxes paid were also insignificant in re- lation to total tax revenues; however, few landowners- participated in that early program. One would anticipate that as time goes on and the farmers who took advantage of differential assessment programs approach retirement, there, would be an accele- 94 Equity, Ease of Administration and Political Feasibility rating rate of conversion, and therefore, of payment of deferred taxes.. Since, in many states, taxes due are rolled back for three, four, or five years, the payment of back taxes could add up to a significant total, especially as urban development pressures mount and more land owners sell for development. I The inclusion of rollback penalties for conversion to non-eligible uses is likely to dissuade some owners from enrolling.- The stronger sanctions included in restric- tive agreement programs will limit enrollment drastically. If enrollment is reduced,tax expenditures will be cor- respondingly reduced and issues of equity become less severe. 5. Long Term Adjustments Reduce the Tax Shift In principle, at least, the adoption of a differen- tial assessment program changes significantly some of the basic ground rules which guide farmers and other investors in undeveloped real estate. One of the basic costs of holding land, the property tax, is reduced, and this re- duction is capitalized into higher current use and fair market values. This effect was discussed in Chapter IV, where the percent increase in property values was display- ed in Figure 4. The same processes would be operating in the non- preferentially assessed sectors of the tax base, except in the opposite direction. Higher taxes would be capi- talized into lower market values, everything else being equal. Assessments of the non-farm and farm improvements sectors would presumably reflect this reduction.in value, and therefore negate some of the tax shifting which oc- curred in the early years of the program. Deferred taxation would not influence current use value of preferentially assessed land. The deferred taxes would, however, affect the value of the land for develop- ment purposes. 6. Subventions and State Tax Credits-Compensate for Tax Shifts The burden of the tax shiftlis borne by owners of non- participating property, both farm and non-farml in each 95 Equity, Ease of Administration and Political Feasibility taxing jurisdiction. The benefits of providing tax savings to farmers and of keeping land in agriculture and out of development, arguably, accrue to a wider public. Therefore, at least in states where the state requires local governments to participate in the program, the wider public should be required to compensate affected govern- ments for the lost taxes. California's Williamson Act has such a requirement, by which the state must make payments to counties to re- place part of the tax revenues lost because of the Act. The Department of Conservation reported that-tax revenues for the 1974-75 year were reduced by $18.5 million. In- formed officials estimate that this substantially under- states the tax expenditures involved. In 1973, Ronald Welch, Assistant Executive Secretary of the State Board of Equalization, estimated the tax shift at $45 to $50 million, or approximately three times the subventions paid in that year. Extrapolating, we estimate that the current figure would be in the neighborhood of $60,million, or approximately 6/10 of 1% of real property tax revenues in 1974-75. Starting in 1972-73, the amounts actually paid by the state to local agencies were as follows: 1974-75 1975-76 Local Agency 1972-73 1973-74 (estimated) (estimated) School Districts 7,171,452 7,719,269 4,0009000 5,000,000 Counties and - Cities 5,828,548 9116-8--3,840 11,000,000 11,000,000 13,000,000 17,403,109 15,000,000 16,000,00 Such subventions, of course, reduce the ax shift within a taxing jurisdiction and also make part of the burden state- wide rather than local. They raise the significant policy question of whether the interests of the state government are being advanced enough by a differential assessment pro- gram which is conditioned on a county decision to participate to warrant state expenditures of this magnitude. The Cali- fornia Legislative Analyst has taken the position that they are not, and in 1975 unsuccessfully recommended repeal of the subvention program. 96 Equity, Ease of A-dministration and Political Feasibility. It is also interesting to note that the existence of a state subvention program tied to tax shifts based on development value may induce local assessors to over- estimate,fair market value so as to increase the amoun-t of development value and, thereby, the size of the sub- vention. This further muddies up the ascertainment of tax expenditures. Although California is the only state which has actually appropriated state monies to local governments to compensate for lost taxes, other states have similar legislative provisions. The New York state government is mandated to provide financial assistance\to each taxing jurisdiction in an amount equal to one-haff the tax loss that results from agricultural value assessment in agri- cultural districts established by the state. Alaska's statute provides for full reimbursement by the state of tax losses suffered by municipalities as a result of differential assessment. Michigan permits eligible land owners to credit any property taxes in excess of 7% of their income against the state income tax. This has the effect of shifting the tax impact of the differential assessment program to the state level. No other states have subvention requirements. It is useful, however, to examine the potential magnitude of the state obligations which would be incurred if complete com- pensation were to be required from state treasuries. Available data have made it possible to make rough estimates for Oregon, Washington, and New jersey. Based on data which assessors in Oregon were required to keep on both market value and farm use value until 1971, we estimate that the loss in assessment-in 1974-75 was about $1.13 billion. Applying the median average county tax rate of 2.17% yields a tax expenditure of $24.9 million. This does not, of course take into account the fact that in many counties tax rates are higher than they would have been without differential assessment, so the figure is on the high side. The $24.9 million represented about 3.6% of the total gross ad valorem levy of $686,872,409 for 1974-75. In Washington, which enacted differential assessment in 1970, $265.5 million would be added to the tax rolls in 97 Equity, Ease of Administration and Political Feasibility 1974-75 if lands were not accorded differential taxation under the open space taxation program. The taxes attri- butable to this.amount are estimated at $2.7 million or approximately @2- of 1% of property tax revenues. In New Jersey, data are not available for a precis-e determination of tax expenditures. However, a rough es- timate can be, computed as follows: In 1.974, 1,049,560 acres of land receLved farm value assessment. The aver- age farm value assessment for land only (set at 100% of current use value) was $221 per acre. The Economic Re- search Service, U.S.D.A., reported that the average value peracre of farm real estate in New Jersey was $2,099 in 1974.2 Thus, assessed values for the 1 million acres would be raised an average of $1,880 per acre if they were assessed at fair market value. Based on these data, there was a tax shift of at least $40.million as a result of the Farmland Assessment Act, 3 or approximately 1.5% of total 1973 property tax revenues of $2,549,631,000. 7. Conclusions The tax shift resulting from differential.assessment will vary from local jurisdiction to local jurisdiction. Within some jurisdictions substantial tax shifts will occur. The burden of these shifts typically falls on residents of rural towns. Most differential assessment programs are state man- datedl and therefore, local governments are not in a posi- tion to decide whether or not to grant tax preferences of this sort. The policy issue which state governments must face is whether a differential assessment program is suffi- ciently effective in achieving the desired goals to warrant the imposition by- local governments of a tax shift of this magnitude on non-farm property owners. 111sixth Report of Data from FA-1 Forms for the 1974 Tax Year" N.J. Division of Taxation, and "New Jersey Agricultural Statistics-September 1974." 2Farm Real Estate Market Developments, CD 79 (Economic Re- search, U.S.D.A., July 1974). 3 Kolesar, John and Jaye Scholl, Saving Farmland (Princeton: The Center for Analysis of Public Issues, Inc., 1975). 98 Equity, Ease of Administration and Political Feasibility Deferred taxation and restrictive agreements of the California Williamson Act-type tend to reduce tax shifts as compared with those'under preferential assessment. .It seems clear that different public policies are being servedby pure preferential assessment, deferred taxation, and restrictive agreements. Pure preferential assessment must be viewed primarily as a program of tax abatement for the farmer and other eligible owners. Programs with a de- ferred taxation or conversion fee attempt to recoup some of. the tax expenditures made earlier. They reflect a some- what more refined approach, which seeks to design the pro- gram to achieve tax reduction without shifting all the resulting tax expenditures to non-eligible properties. B. EASE OF ADMINISTRATION I . Goals Any differential tax program should have the same two administrative goals: good records and good communica- tions. Both are essential to efficient operation of a differential tax program and to an understanding of the program's overall impact. Regrettably, a number of pro- grams have been launched with minimal thought for admini- strative design; while some may be cheap to operate in the short run, they promise to be inefficient and trouble- some over a longer perspective. The goal of good records requires establishment of a system which can speedily yield information about a single tract or about the*program's operation statewide. Con- sideration of what information will be needed as output must precede the specification of inputs. Such an obser- vation is elementary, yet few states have designed a'record system with desired outputs in mind. The goal of good communications is closely linked to that of good records, since the availability and accuracy of inputs is determined in large part by public agency data sources which are external to the department adminis- tering the tax program. Willingness to share data is likely to be fostered if there is comprehension of the objectives of differential taxation in relation to other government objectives. Good communications also includes achievement of a high level of understanding of the objec- 598 -330 0 - 76 - 8 99 Equity, Ease of Administration and Political Feasibility tives of the program by the general public and awareness of its provisions among those eligible for participation. Realization of this goal varies widely among the states. Some administrators have recognized these needs and moved vigorously to set up good communication links with other government agencies and with the public at large; others appear to have concluded that the less knowledge there is abroad about their programs, the easier their task will be. 2. Good Records Whatever the real objectives underlying enactment of a differential tax law, a state's legislative and admini- strative branches can be expected to want to know whether the law in fact advances those objectives. If the real objectives differ from the legislatively stated objectives, there may well be less enthusiasm for widespread distribution of evidence of the law's impact. Most typically, the purposes stated are preservation of farmland, open space, forests, and recreation areas, yet, in many states, legislators who voted for these laws and administrators who drafted them acknowledge freely that the real objective is to give tax relief to farmers. If the effect of a law is to lower significantly the real property tax paid by participating farmers while not im-- peding farmland conversion to any notable degree, propo- nents of the law might well prefer not to have this outcome generally known. Since this is the widely predicted effect of all types of differential taxation, there doubt- less are many whose interests are best served if good records are not kept. However, it is probable that lack of administrative forethought rather than governmental _4viousness underlies the widespread inadequacy of record- keeping. Record keeping considerations for the three basic variants of differential assessment legislations are out- lined below. i. Preferential Assessment Whatever the intent or nature of the program, it will be important to know, over time, how many farmers are participating, how big the farms are, where they are lo- cated in relation to development, what the farmland capa- 100 Equity, Ease of Administration and Political Feasibility bility and yield is, whether the land is being farmed, and how the program affects the farmers' real property tax. With a pure preferential assessment program, like that in Indiana, and even with the limited agenda of pro- viding a tax break to farmers, it is necessary to look at the trends which can be derived from these data in order to decide whether the tax differential provided is suffi- cient. In a pure preferential,tax state a dual set of re- cords showing farm and market value is not normally kept. Therefore,, calculation of the effect of the program on the farmers' real property tax can be arrived at only by approximation. In order to make a differential assessment, however, farm value must be established and the valuation updated. Comparable sales and capitalization of income are the methods commonly used; both present administrative as well as technical problems. From an administrative perspective only, both require considerable data and a means of sort- ing the data so that they are relevant to the properties being valued. Comparable sales: It is necessary to be able to determine in what locations, if any, sales occur at farm use value only,. what array of factors must be considered in treating such sales as comparable, and what systems must be set up to collect and record the sales informa- tion. If comparable sales are used to fix farm value, it is not necessary to know what type of farming-is ac- tually done by a farmer receiving preferential assessment. Capitalization of income: A substantial amount of information is needed for applying the capitalization of income method. Physical factors needed, including soil suitability, location, and climate, are largely stable so that the data, once collected, need little revision. Economic factors, particularly the cost of producing various farm goods and the price paid for them, will vary substantially over time, so that there must be a schedule for revising these factors. If the program specifies ac- tual yield rather than highest potential yield it is necessary to check each property annually. Capitalization and real property tax rates also change but can be obtained readily by the differential tax administrator. 101 Equity, Ease of Administration and Political Feasibility Eligibility requirements: If the preferential assess- ment program has any eligibility requirements, such as conformity with plans or minimum farm income, someone must check data pertinent to those requirements. Rather than undertake to collect these data directly, most administra- tors rely on others to certify with them as to compliance of a particular property. Although some of the require- ments are quite complex, they do not appear to be admini- stratively onerous in practice, largely because the tax program personnel tend not to accept primary responsibility for them. ii. Deferred Taxation Deferral programs, with or without penalties, require a much larger administrative commitment than pure preferential assessment programs. Most deferral programs require the administrator to calculate and record market value, as well as farm value, annually for each property in the program. As a basis for market value, there generally are comparable sales, but nonetheless, sales information must be transmitted to the administrator and a program developed to convert those sales so that they are helpful in making the market valua- tions for participating farmland. A large-scale operation, such as Hawaii's statewide programs, could do this effi- ciently and with a high level of automation. For a local government with one staff person, it is a burdensome task. One alternative has been used in Maryland and Oregon and recommended by the Washington assessors, namely switch- ing to a syst6m commonly used in forest taxation. Under that system, market value is calculated only in the year of sale, asis the difference in tax based on market and farm-use values. The difference then is multiplied by the number of years of tax deferral. Indisputably, this approach is simpler, but it has its shortcomings. The farm owner or a prospective purchaser has no way of estimating the accumulated deferred taxes before agreeing on a sales price, unless there is a record of market as well as farm use assessed value. The state or subsidiary tax district cannot calculate accurately the taxes foregone in order to determine either the savings enjoyed by participating farmers or the shift and redistribution of the.tax burden. If there is a state payment to subsidize local tax dis- 102 Equity, Ease of Administration and Political Feasibility tricts, as there has been in California, this calculation of taxes foregone is essential information. Elsewhere, if is highly desirable. In addition, of course, this simplified method may not be a good approximation of the actual year-by-year method. Depending on the sequence of the rate of increase in market value of land, this method may benefit either the taxpayer or the government. A tax deferral system calls for cancella tion of the deferral when the owner ceases to use the land for the purposes authorized. Unless the program administrator inspects the land regularly there is no way of knowing whether there is a violation of the terms of the deferral. This inspection can and generally does occur.as part of the farm use valuation; both should be annual events. Termination of the deferral,, whether by cancellation., timely notice, or other means provided in',the law, carries its administrative burden of record keeping. In Cali- fornia, where taxes rise each year following notice of withdrawal, the tax increase must be calculated. On cancellation,, deferred taxes and penalties, if any, mus-t be determined. All of this work should be highly auto- mated to be carried out efficiently but, as noted before, this demands a large-scale operation. iii. Restrictive Agreements Programs of restrictive agreements add other ad- ministrative requirements to those of deferred taxation. Governments must prepare and negotiate contracts with each eligible owner and insure that, he complies with.their pro- visions. If an administrator decides to seek to enforce farm use contracts, it is probable that the farm owner can be enjoined from converting to more intensive use. However, it is highly doubtful that specific performance of the , contract can be obtained, that is,that the farmer can be required to keep on farming. If the farmer already has breache.d, the the administrator has an action at law for damages. Whatever the remedy, enforcement will require legal action, or the threat of legal action a-noth-er ad- ministrative load. 103 Equity, Ease of Administration and Political Feasibility 3. Good Communications i. Inter-agency Effective administration'calls for minimal duplication of activities between government agencies and for continued pooling of information and resources. If this is to occur, either between state and local governments or among different agencies at the same level of government, there must be a sense of shared objectives. A state policy favoring farmers or owners of open space, or a policy calculated to keep land in farm use will be easier to administer if other government officials un- derstand the relation of the policy to other policies and priorities of state government. In Hawaii, for in- stance, the absence of a stated priority between provision for urban growth and preservation of prime farmland has made both the dedication program and state agricultural zoning less effective than@they might be. While it is possible for the Department of Planning and Economic De- velopment to comment on agricultural dedication applica- tions from the perspective of alternate uses for land, there has not been a means of resolving conflicts. In Hawaii, at least, this is likely to change in the near future, with a resolution favoring preservation of much prime agricultural land. If local government officials foresee political trouble from shifts in the tax base or onerous new admini- strative chores or both, they will resist participation in a program enacted by a state but delegated to local government for administration. This occurred in Washington until a combination of legislative pressure and improved communication by state administrators brought the hold-out counties into the program. The Pennsylvania program was stalled for some years for similar reasons. Locally-administered programs can benefit greatly from a well-coordinated state assistance program covering such matters as farm use valuation, capitalization of income, data storage and retrieval, and calculation of back taxes. The state stands to gain from insisting on use of a common system of administration; only through such a system is it possible to aggregate local data, for analysis. 104 Equity, Ease of Administration and Political Feasibility Either at the state or local level, agencies with different functions have a great deal to contribute to one another to ease administrative burdens. Use of common base maps, common systems of classifying land for agri- cultural suitability, and common key systems to locate properties seem the most basic of ideas, yet they fre- quently are not acted upon. In Pennsylvania, for instance, the Office of State Planning and Development, working on an agriculture plan, cannot find out from other agencies where prime agricultural land is being converted to urban, use. Inter-agency contributions can take a number-of forms. In many states the Department of Agriculture provides the Department of Taxation with information on agricultural capability as an input to determining probable income from given farm uses. Offices for the recording of conveyances can arrange to transmit, either to local assessors or state- Department of Taxation, selected data on sales. State con- servation and economic development agencies may be invited to comment on agricultural classification proposals. When a state or local tax agency has some discretion over what 1'and will be eligible for differential tax programs, inviting such outside-participation should lead to continued more effective communication with the related agencies. ii. Public Information Some states have done an outstanding job of pub- licizing their programs, both to the general public and to potential participants. Although the immediate impact of widespread public information may be, a deluge of inquiries, over the long run a well-informed public, and well-informed participants in. particular, should contribute to the smooth operation of programs. This is especially true of deferral programs. Farmers who do not understand the bargain that they have made may well balk when mailed a deferred tax bill. For those whose land is subject to tax deferral, there should be at least a written agreement specifying the terms of the deferral, public recording of the deferral, annual notice on the tax bill of both farm use and market value, and notice if and when eligibility provisions change. If the deferral is a matter of publicrecord, the potential purchasers of farmland will receive notices through a title search. All of this adds to the administrative costs but is warranted as a matter of fairness and good public rela- tions. 105 Equity, Ease of Administration and Political Feasibility 4. Administrative Costs Costs turn upon the volume -of participation, the type of program, the level of record-keeping and public informa- tion, and the division of responsibility between state and local government. It would seem reasonable to set application fees so that they approximate administrative costs, but, to our knowledge, this has not been done. In California, for instance, it is estimated that it costs approximately $150. to process an application, yet many counties charge appli- cation fees of as little as $25. Furthermore, in such states as California and Washington, the application fee is part of general revenues, not earmarked for the assessor S office. The result of this has been an increased work load without an accompanying increase in staff. There is no doubt that a pure preferential assessment program is cheaper and easier to administer than a tax de- ferral or a restrictive agreement program. Whether that makes it more desirable depends on the objectives sought; if those objectives only include preservation of farmland, it is,questionable whether any form of deferred tax program has a sufficiently greater impact on keeping land in farming than preferential assessment so as to warrant the greater administrative cost. However, although achieving equity among taxpayers is not a specific objective of differential assessment.programs, it is an important argument in favor of deferred-taxation programs despite its greater administra- tive costs. C. POLITICAL FEASIBILITY 1. General Differential assessment shares with other forms of tax expenditure a basic political appeal: once enacted it is invisible and, except for those few states with some form of subvention, it is not subject to annual budgetary review. In addition, the potential revenue losses implied by dif- ferential assessment are felt at the local level rather than at the state level. This fact probably also helps account for the large numbers of state legislatures which have agreed to such legislation. 106 Equity, Ease of Administration and Political Feasibility It would seem evident that farmers, speculators, or other owners of eligible land would favor programs with the fewest sanctions. other taxpayers who must make up the potential loss in taxes, can be expected to, favor sanctions which reduce the tax expenditure. Con- servationists and others interested in open space preserv- ation will tend to favor provisions which will discourage conversion of land: rollbacks with interest, enforceable restrictive agreements, and planning and zoning require- ments. Thereare no clear-cut generalizations which one can make as to how state legislatures have weighed the desires of the various interest groups and chosen to enact either preferential assessment, deferred taxation, restrictive agreements, or no differential program at all. 2. Political I-ssues It is difficult to predict precisely what kind of differential assessment law a particular state legislature will enact. The kind of law enacted is generally the pro- duct of compromise, however. In New York, for example, the agricultural districting law, which enables farmers,in and out of agricultural districts to apply for differential @assessment., arose in the middle ground between unsuccessful alternative proposals.1 The Office of Planning Coordination (now Office of Planning Services) proposed zoning for cri- tical areas including agricultural areas, using the police power at the state level if lower level governments did not act. This concept met with strong opposition and was never even voted upon in the legislature. In.contrast, farm-value assessment bills were proposed-and passed by the legislature but vetoed by the governor. As Conklin and Bryant describe, the agricultural districts law which eventually emerged in- corporated some features of both of these opposite approaches. This law is described more fully in the case study of-New York in Part Two. In Pennsylvania, some differences between rural, sub- urban and urban attitudes emerged in several votes during IConklin, Howard and William Bryant, "A gricultural Districts: A Compromise Approach to Agricultural Preservation," Am-eri, can Journal of Agricultural Economics, Vol. 56, August 1974, pp. 607-613. 107 Equity, Ease of Administration and Political Feasibility the 1974 session of the legislature on a billl to amend the state's deferral law.2 The House passed the bill with a 10-year rollback at six percent interest and a 10-acre per year split-off provision by a vote of 154-31. The opposition came almost exclusively from the Philadelphia and Pittsburgh metropolitan areas and was directed to the split-off provision which allowed a farmer to sell off a small amount of land each year without disqualifying him- self from the program. In those areas 64 percent of the legislators voted against the bill. An earlier version of the bill with even more generous split-off rights had squeaked by with a vote of 98-86 and then the House voted 96-85 to reconsider this provision. The version finally accepted was proposed by a coalition of 40 conservation groups, organized by the Pennsylvania Environmental Council. The bill then went to the Senate where it was amended to cut the rollback to seven years and to reduce the split- off to a maximum of two acres per year and a total over time of 10 acres or 10 percent of the tract, whichever is less. This version passed the Senate 48-0 and was subse- quently accepted by the House. The conservation organizations were opposed to any form of split-off, believing that this would lead to both road- side development incompatible with farming and loss.of rural amenities. The Pennsylvania Grange sided with them. On the other side were the home builders, individual farmers, and the Pennsylvania Farmers Association, all interested in mini- mal impediments to real estate transfer. The final vote in the House by the Representatives from the four suburban Phila- delphia counties, where development pressures on farmland are strongest, reflects a rather close split in opinion on this question. For the four counties, the vote was 12 in favor of the split-off and 19 opposed. Many differential assessment laws have undergone some revision:or clarifization since their original enactment. IH. B. 1056.(Act 319). 2See Harnwell, Hugh T. "The Politics of Preferential Assess- ment," unpublished paper, (Department of City and Regional Planning, University of Pennsylvania, Philadelphia, 1975). 108 Equity, Ease of Administration and Political Feasibility These updatings have resulted from experience in admini- stration and have, for the most part, been designed.to improve efficiency rather than respond to political pre- sures. There are a few instances of changes or proposed changes which arose from difficulties between state and local governments. In Washington, there were some counties in which the assessors refused to accept or process dedi- cation applications. The law was amended to assure any applicant a fair consideration. Currently there is some problem with use of the prescribed capitalization of income method. In addition, property owners in tax dis,tricts with substantial shifts in the tax burden are complaining vo- ciferously. California is considering repeal of the state subsidy to local governments for a portion of their tax expenditures because some local governments have been in- flating these expenditures. The redistributional effect of preferential assessment caused some Connecticut assessors to refuse to accept some applications covered by the law until the courts made it clear that they must be accepted.1 Estates in Fairfield County, consisting partly of woods and partly of farmland, showed a drop of up to 95 percent in assessed value when granted preferential assessment. Since the county has much estate land, the assessor resisted granting preferential assessments and shifting the tax burden to other real pro- perty until ordered to do so. Also in Connecticut, an effort by the legislature to strengthen the penalty provisions of,the law met with stiff opposition and defeat. In the 1974 legislative session, there was A hearing on Bill 445, which would have relin- quished the declining conveyance tax for a rollback tax cal- culated as a percent of the uncollected tax for the previous ten years. Over 500 people appeared at the hearing to pro- test vociferously against any modification which would increase the'penalty. Farmers, sportsmen, and other land owners were the principal interest groups represented. Finally, in Hawaii, the 1973 revision in the dedica- tion law to permit 20-year dedication with the tax base set at 50 percent of farm value and the creation of a deferral Conversation with Peter Marsele, As sessor, Town of Bloom- field, Connecticut. 109 Equity, Ease of Administration and Political Feasibility program with the initiative lodged with the Department of Taxation reflects an increasingly strong executive and legislative commitment to preservation of agriculture. The 1974 legislative establishment of policy guidelines for the Land Use Commission which emphasize protection of farmland is another illustration of this commitment. Generally speaking, differential taxation of farmland by'one means or another has received widespread political support both prior to enactment and once in force. Some of those endorsing differential taxation because they favor preservation of farmland might view its tax consequences with less equanimity, however, if they were aware of the small deterrentito conversion the programs actually provide., 3. More Extensive Efforts to Preserve Agricultural Land Some states have had enough experience.with differen- tial assessment to conclude that it is an inadequate tool for preserving farmland. These are predominantly urban states which, from the start, were committed to preserving farmland as well as to giving farmers 4 tax break. Now they are looking to additional tools such as public pur- chase of development rights, public purchase of farmland with a 16ase-back to farmers, transfer of.development rights schemes, agricultural districting as in New York, and pos- sibly even agricultural toning. The nation's first large-scale program to acquire de- velopment rights to preserve farmland may be initiated in Suffolk County, Long Island, New York, in the fall of 1975 after the publication of this study. The County has under- taken an extensive planning study to determine both what lands it would be desirable to retain in farming and what procedures for acquisition of development rights would be fair for the county and the land owners. In 1974, the 18-member county legislature voted 45 million dollars for a program under which it was hoped that development.rights to 13,000 of the county's 65,000 acres of agricultural land could be acquired. By resolutionl of the county legislature, the County executive was authorized 1Resolution No. 573-1974, adopting local law No. 19-1974, signed June 25, 1974. 110 Equity, Ease of Administration and Political Feasibility to invite bids from farmland 'owners to sell development rights to the County. These bids were opened in February Iof 1975. In June5 the County sent letters to some of the bidders requesting a 60-day option for a price of $100. The County must hold a public hearing concerning acceptance of the bids and,, within 3.0 days of the hearing the County legislature must reach a decision.. As of August 1975, less than a majority of the County legislature favored exercising the options. The Connecticut legislature considered a bill similar to that of Suffolk County, but for the moment limited it- self to passage of a law calling for a Department of Agriculture survey of acreage suited to development rights acquisition. After this survey is submitted, prior to the January 1976 session of the legislature, it is expected that a bill will be drafted calling for a state bond issue to cover the cost of purchase of development rights. The New Jersey leg islature has before it a bill to,in- crease the real'property transfer tax, with the proceeds earmarked for development rights acquisition. The bill has passed the Assembly; its fate in the Senate is uncertain. If enacted., it will tax conveyances., though not necessarily all conversions, in order to finance permanent preservation of agricultural land. Many in California feel that the Williamson Act has proven inadequate to the task of keeping prime land in farm- ing, but no additional state measure has been adopted. The farmers and cattlemen, the prime beneficiaries of the Act, generally disagree with this viewpoint. A 1974 report to the Maryland Department of Agriculture recommended continuation of the farmland assessment law plus modification of Federal and state estate tax laws to permit valuation of farms at farm use value so long as farm- ing continues-. The report also recommended consideration of state legislation to permit farmers to form agricultural districts and to sell agricultural easements to the state. The Committee on Preservation of Agricultural Land, which prepared this report, held six hearings throughout the state and polled the 440 people attending as to their views. Of the 205 answers received,, almost all of which were from farmers, a majority supported anactment of additional mea- sures. However,, only 37 percent favored voluntary agri- culture districts andlonly 35 percent supported voluntary agriculture districts plus state purchase of easements. While Equity, Ease of Administration and Political Feasibility this is a very small sample of farmer opinion, it suggests that the recommendations of the Committee may not meet with total support from the farm community. Transfer of development rights is receiving more and more attention as a means of preserving farmland on the rural-urban fringe. In May 1975 the New Jersey legislature passed legislation enabling municipalities to establish such a method. The Senate, however, has yet to report the bill out of committee. Virginia and Maryland have also shown interest in creating a private market in which de- velopment rights could be transferred from farmland to other land.1 There is a continuing difference in concerns between those committed to preservation of agricultural land and those -- principally farmers -- committed to protection of their options to do as they choose with the land. In con- templating changes in differential tax laws or enactment of other measures to affect use of agricultural land, this difference should be faced rather than masked, as was often the case when the present laws were passed. Woodbury, Steven, "Transfer of Development Rights: A New Tool for Planning," Journal of the American Institute of Planners, Vol. 41, January 1975, pp. 3-14. 112 Conclusions and Recommendations Chapter VI CONCLUSIONS AND RECOMMENDATIONS A. CONCLUSIONS 1. Introduction Differential assessment laws have been passed for the purpose of achieving two major objectives: tax relief for farmers and other owners of open land, and the preserva- - tion of open space. The provisions and approaches embodied in these laws vary significantly from state to state since no one statute has served as a principal model for the rest. The findings of this study concerning the various forms of differential assessment and the evaluation of its effectiveness have been organized with reference to these two principal goals. 2. Effectiveness in Providing Tax Savings Essentially, differential assessment laws authorize assessors to assess certain types of land on the basis of their value for farming, forestry, or some other'approved use, instead of market value, which is affected by the land's potential for development, at least near growing urban centers. The tax saving to the owner of eligible land is me'asured by the difference between the taxes he would pay on his land and improvements if he did not participate in the pro- gram and those he would pay as a participant. This.dif- ference, in turn,, depends on several factors: a. the percentage which the development value of the land is of the fair market value. The larger it is, the larger his benefits will be. b. the percentage which the assessed value of participating agricultural land (based on fair market value) is of the total assessed value tax base in the taxing jurisdiction. The smaller this percentage, -the greater.the tax benefits to the individual, everything else being equal. 113 Conclusions and Recommendations c. the precentage which the value of ineligible improvements to the individual's land (such as barns) is to the total value of his property. The lower this is the greater the tax benefits. For him to benefit at all, this percentage must be less than the percentage of the tax base which is in participating land. d. the methods of assessment used to derive assessed value. Some produce a lower assessed value than others. e. the rate at which deferred taxes and con- veyance taxes are incurred and paid by others because of land conversion to ineligible use. These payments reduce, the amount which must be raised through the usual taxes. The greater these payments, the lower the tax rate, and the greater the tax saving to both participating and non- participating property owners. f. whether or not his eligible land not in the program is already assessed preferentially, de facto. If it is, his benefits will be smaller. The programs adopted by forty-two states differ from one another in many ways, but can be classified as pure preferential assessment, deferred taxation, and restrictive agreement programs. Pure preferential assessment programs simply provide for differential assessment. Deferred taxation programs require a payback or "rollback" of some or all tax savings, and many also charge interest on these back taxes. Restrictive agreement programs require the participating owner to commit himself to use his land only for eligible, non-urban uses for a stated period of years; these agreements are subject to public enforcement. Each type of program may have more or less restrictive eligibility requirements, and may employ assessment methods which result in relatively low or high use values. Pure preferential assessment programs with few eligibility conditions and methods of assessment which produce low assessed use values provide tax benefits for more farmers than other programs. As eligibility criteria are increased and tightened, fewer will enroll to receive tax benefits. Deferred taxation (rollbacks with or without 114 Conclusions and Recommendations interest charges) will reduce the economic attractiveness of the program and thus deter some farm owners from enrolling their land. However, because fewer are enrolled, the average benefit to the smaller number enrolled may be greater than under pure preferential assessment. A restrictive agreement program is least effective for Achieving the goal of awarding tax savings to large num- bers of owners of eligible land, because the prospect of being locked in and unable to develop their land deters many owners from putting their land under contract. The only ones likely toenroll are those in essentially rural areas or who are wholly committed to agricultural aztivity and do not expect to develop their land within theperiod of the contract. 3. Effectiveness in Maintaining Current Land Use With respect to the goal of retarding the conversion of- farm and other open land, differential assessment is marginally-effective and its cost in terms of tax expen- ditures is high, in most cases so high as to render it an undesirable tool for achieving this goal. It has its principal effect on the supply of land which is put on the market by reducing the farmer's costs of,production and thus increasing the profitability of farming. It has no effect on the decision to sell for non-economic reasons, such as retirement or death. It alsohas no effect on the major component of the demand for conversion of land-- accessibility to growing urban centers. It may even cause effective demand to increase, since developers will be willing to bid more for land, realizing that as long as they deep it in approved uses, their carrying costs will be lower. Taking these points in more detail, we note that if an owner wants to keep his land in open uses, but finds this is financially difficult, the savings from differential taxation may prove critical in enabling him to attainhis goal. But if the owner is indifferent, is influenced in his decision to sell by non-economic factors, or is actively looking for an opportunity to sell to a developer, the tax savings from differential assessment will not have much effect in deterring him@from selling. 598-330 0 - 76 - 9 115 Conclusions and Recommendations Moreover, if the owner has made his 'living by farming the land, he may wish to sell when he grows older so that he will be able to retire. Future tax savings then will be of little consideration to him. Also when the owner dies, and does not have an heir who wants to continue the property in its current use, it will probably be sold on, the market to the highest bidder. Whenever land is sold on the open market, the type of buyer will be determined primarily by the potential of the land for development and for agricultural production .(and in more specialized instances its potential for strip or other mining). Except in strongly rural areas, urban uses can almost always outbid agricultural uses, no matter how efficient and productive. Tax savings will not be enough to make a difference. In addition, the ability to continue farming in the face of expanding urbanization could also be hampered by other factors., such as encroach- ment of urban activity. Therefore, preferential assessment is likely to make a difference in the rate of conversi9n to urban use pri- marily for land that is in the hands of owners who either want to maintain a country home, or those relatively young farmers who want to continue to farm, and are in a location where farming is not impeded by urban neighbors. For these people the tax savings may be large enough to enable them to maintain their land in an eligible use. Such people in such situations constitute a small portion of all those who are likely to sell their land. Since, in addition., a small percent of all farm sales result in con- -version to urban uses anyway, we must conclude that dif- ferential assessment will change the outcome in a small number of cases -- certainly no higher than 10% of all potential sales. Thus, except in certain circumstances, we conclude that differential assessment is not very effective in main- taining current use in urban areas, even in the short run. In the long run, death and retirement will bring almost all properties on the open market, and, as a rule, the demand for land for urban uses will increase. In this longer run perspective, differential assessment is of little sig- nificance in maintaining farm or other open uses. 116 Conclusions and Recommendations Pure preferential assessment should attract the largest number of participants, but will have little effect on the rate of conversion of land to other uses. Only those who have a strong incentive--in addition to the tax savings-- will use that saving to maintain their land in its current use. A rollback without interest charges allows an owner to avoid paying certain taxes until his land is developed. This is equivalent to an interest-free loan to the owner. Even if rollback is required over a large numberof years, the total amount of deferred taxes is often not large in proportion to market value. The requirement of an interest charge constitutes a true penalty only to the extent that the interest rate charged is higher than what a land owner would have to pay were he to borrow from a commercial lending institution. Thus, the interest rate'provisions in force have not con- stituted a true penalty for conversion over the past several years in any state, except possibly Hawaii and Washington with their stipulated 10% charges. Rollback requirements, even with substantial interest payments, are not likely to be an effective deterrent to development. This is particularly so in areas where development demand is strong and land values are increasing rapidly. Restrictive agreement programs would appear to be relatively effective, but only to the extent that owners enroll in them. The prospect of being locked in for the agreement period, and under statutes like that of California, the additional prospect of paying increasing taxes during the run-out period after notice of non-renewal, limit participation. Owners such as these would not develop even in the absence of legislation. If restrictive agreement programs are to affect the rate of conversion of farmland, participation in them must be made mandatory. Differential assessment emerges from this analysis as essentially an estate planning measure for farmers whose land is under development pressure., It makes it easier for a small number of them to postpone the sale of their land until a time which suits their needs. Because it is volun- 117 Conclusions and Recommendations tary, only those who see,in it a significant positive economic benefit will enroll. While it may make it, easier for those who want to farm to do so, it will not deter significantly those who have concluded that they want to, sell as a result of other reasons such as a good offer, economic obsolescence of the farm, imminent retirement, or the encroachment of suburbia. Thus, one of the central issues raised by differential assessment is whether a system for influencing the sale and conversion of open land which is keyed into the personal life cycle and estate planning considerations of individual landowners is better thansystems which rely either on the push of rising taxes and the pull of high offers to ease land into development or on government re- source and development planning to specify which land should be developed when. We conclude that the development of new neighborhoods is too important a process to be left to the vagaries of the estate plans of individual owners and that- greater government regulation of the land development pro- cess is desirable. Furthermore ' we find that even if the marginal effectiveness of differential assessment were con- sidered to be sufficient as a short-term holding action, its expense in tax expenditures is so high as to render it an inefficient means for achieving such retardation of land conversion as it does. 4. Equity Tax shifts resulting from differential assessment raise the major issues concerning equity. Whether or-not farmers are paying excessive property taxes is initially, a political issue and, in any event, a factual question on which the evidence is not clear. It is evident, however,, that differential assessment programs work by'shifting some of the burden of the real property tax in a particular taxing jurisdiction from farmers and other owners of eli- gible land to all other taxpayers. The amount of this shift, or the tax expenditure, ranges from a very small percentage of total tax revenues where a small percent of the fair market value tax base is in eligiblefarmland, to a peak where about 60% of thetax base is in eligible farmland, and then declines to a small amount where virtually all the tax base is infarm- land. The magnitude of the tax expenditure also depends on the percentage of reduction in farm assessments re- 118 Conclusions and Recommendations sulting from the program. If they fall by 25%, tax expen- ditures will be at most about 7% of total revenues. If they fall by 50%,tax expenditures will be at most about 17% of total revenues. If public services are not to be reduced, these tax. expenditures must be compensated for by raising the tax rate. Iffor example, assessment on participating land is reduced by 50% and participating land made up 50% of the tax base (when assessed at market value) then the tax rate would have to be raised by 33%. All taxpayers would face this increase, but for owners of participating land it would be offset by the reduction in assessment. The full .increase of 33%.would be faced by non-participating land- owners, typically townspeople, businesses, and industries.. Analysis of data for 39 of.Florida's counties showed that over.half (21) experienced a tax rate increase of less than 4%.,and all but 3 had an increase of less than 10%. A study of 151 rural New Jersey townships revealed that over half had tax rate increases of under 20%, while another 40% had increases of 20% to 50%. . Analysis of California data showed that of the 46 counties under the Williamson Act ! 38 or 82% experienced revenue losses of less than 3%, s3-X,,, of 3% to 9% and only two, of more than 10%. The tax rollback or conveyance tax provisions which thirty-two states have enacted serve to mitigate the tax shifts discussed above, at least when farmers start selling- participating land for conversion to ineligible uses. These data indicate that, as would be expected, the tax shift in a small rural township may be-quite signifi- cant, whereas, in a large county with a significant non- farm tax base, it will normally be a much smaller percent- age. On a state-wide basis, summing up the individual taxing jurisdiction tax expenditures,- we found that in four of the states studied, the tax expenditures constituted less than 3.5% of total tax revenues. Four states have adopted provisions which seek to lessen the tax shift in municipalities. Under California's Williamson Act, the state.has made so-called "subvention" payments to participating county and city governments which, according to informed estimates ' amounted to about one-third of tax expenditures, statewide. New York's law provides for 119 Conclusions and Recommendations state reimbursement of one half of the tax losses result- ing if the state creates an agricultural district. Michigan shifts the tax expenditure burden to the state level by allowing eligible land owners to credit any property taxes in excess of 7% of their income against the state income tax. Alaska has legislative authorization for full state reimbursement of local tax losses. 5. Ease of Administration There is a pervasive need for more and better inform- ation about the operations of differential assessment. Most states have simply failed to establish data recording, collection and dissemination systems adequate to the job. And yet, as differential assessment programs mature, they involve a major reallocation of tax burden, and those who are paying higher tax bills have a right to accurate in- formation about the magnitude of the tax expenditure and the efficacy of the program for achieving legitimate pub- lic objectives. Preferential assessment programs are the simplest to administer because assessors need only compute current use value and police their jurisdictions to see that enrolled land remains in eligible use. Deferred taxation programs usually require assessors to determine both current use value and fair market value each year so that the deferred taxes may be computed. At the time of conversion, back taxes must be determined and collected.. On a per-farm basis, restrictive agreement programs require most atten- tion because ofthe work involved in preparing the contract, and if the program is like California's, in determining the taxes due during the run-out period. This will be some- what compensated for, because a smaller percentage of landowners will enroll their land than in the other types of programs. Costs can be reduced by state assistance covering such matters as assessment procedures, data storage and retriev- val and calculation of back taxes. Many of the programs examined charge application fees of sufficient magnitude to cover costs of processing, so that most, if not all, of the expenses are passed on to the beneficiaries of the pro- gram. Generally, expenses at the state level were minimal. 120 Conclusions and Recommendations. 6. Political Feasibility Differential assessment shares with other forms of tax expenditure a basic political appeal: once enacted, it is invisible and is not subject to annual budgetary review, except, of course, in the few states which have some form of subvention. There is no clear pattern among the states with differential assessment-laws which would explain why some adopted one approach,and others, a different one. The growing recognition that differential assessment is ineffective for preserving open space has led legis- lators in a growing number of states to consider stronger devices such as public purchase of development rights or privately transferable development rights. Bills to this effect have been introduced in Suffolk County, New York, (public purchase of development rights) and in New Jersey and Maryland (transferable development rights). The political climate has not yet been favorable for their passage. B. RECOMMENDATIONS 1. Existing differential legislation should be amended (and new legislation should be written) so as to contain the following provisions: a.. All differential assessment statutes should provide for deferred taxation in order to achieve greater equity among all taxpayers. The rollback period should be at least 10 years, and, preferably, the entire period during which tax savings were enjoyed. Interest should be charged on the deferred tax benefits at rates at leas.t as high as those charged by commercial lending institutions. b.. States which mandate differential assessment by units of local government should provide at least partial compensation for the tax expenditures which result. The reason for this is that the benefits in preserving agriculture and open space which may result from differen- tial assessment are enjoyed far beyond the boundaries of the local taxing jurisdiction in which the differentially assessed land is located. Therefore, the costs should be 121 Conclusions and Recommendations shared broadly, not borne solely by the non-eligible tax- payers of the local jurisdiction. This can be done either by a state subventi6n, as in California, or through the use of a state income tax credit as in Michigan. In any case, uniform assessment procedures should be set up and enforced by the state so that each taxing jurisdiction is treated equally. c. A statewide data system should be established and made part of the basic legislation. It should be designed to provide the following data: (1) an inventory of farm, forest, open space and other potentially eligible land (2) a record of participating lands (3) measures of current use value and fair market value of-enrolled land, by taxing jurisdiction (4) information on the fair market value and assessed value of improvements located on enrolled land (5) annual records of enrollment and removal of differentially assessed land, by taxing jurisdiction (6) tax rates and changes in tax rates by jurisdiction (7) information on deferred taxes paid where relevant (8) data on sales of farm and other eligible land, both enrolled and not enrolled, on conversions of such land to non-eligible uses; and the reasons for such sales and conversions (9) data which show to what extent farmland actually bears an unfair tax burden at any particular time. 122 Conclusions and Recommendations If such information were available,- it would be possible to assess the tax expenditures involved in the differential assessment programs and to determine more accurately the extent to which the program had any appreciable effect on rates on sale and conversion. This information would also be useful for general planning purposes. d. Application fees should be set at a level which is high enough to cover administrative costs and should be payable to the assessor's office. 2. By itself, differential assessment is an inadequate tool for achieving the goal of maintaining current use. It is, however, a useful component of a broader approach which,should have the following characteristics: a. Eligible land should be designated specific- ally following studies of its capability for agriculture, the need for farmland and land in other open uses, and the projected demand for land for urban development, vacation houses, strip mining, etc- It is especially important that the agricultural districts designated be large enough to be functionally and economically viable and located so that they will be relatively free from intrusion of urban and suburban activity. The designation of these areas will determine large scale land use patterns. Therefore, desig- nation should'be made by state, regional, or possibly by county government, rather than by local government. b. Strict controls should be placed on the development of designated land. If these controls exceed the limits of police power regulation, compensation should be paid to the owners, by such techniques as public purchase of development rights or the transfer of development rights. Funds for the public purchase of rights should be raised by the level of government which designates the eligible land, the major part of the funding coming from special levies on other land when it is developed. A capital gains tax covering at least a 15-year period would be one such levy. 123 Conclusions and Recommendations The foregoing measures should prove sufficient to keep specified land out of development, but they will not necessarily be sufficient to keep it in agricultural use. To do that., additional policies would have to be enacted, perhaps including special incentives and subsidies. The detailing of such policies, however, lies far beyond the scope of this report. 124 PART TWO STATE CASE STUDIES OF DIFFERENTIAL ASSESSMENT I.A.1 PURE PREFERENTIAL ASSESSMENT: INDIANA I. USE VALUE ASSESSMENT OF FARMLAND Indiana is one of t 'he major agricultural states in the nation with 17.5 million acres, or about.75% of its total area, in farmland in 1972. It ranks eighth in the nation in cash receipts from farming. In 1972, 3.4% of the work force was in agriculture. Its 1973 ranking in the production of major crops is indicated below.1 Soybeans - 3rd Hogs - 3rd Corn - 4th Eggs - 7th Tomatoes - 5th In 1963, the Indiana Legislature passed legislation directing assessors to assess land devoted to agricultural use as agricultural land, so long as such use continues.2 The Act also mandated the appointment of a five-person County Land Advisory Committee in each county, two of whose members were to be farmers, who were to advise assessors on values to be used in reassessing land used for agriculture.3 Public Law 43, enacted in 1973, provided, among other things, that United States Department of Agriculture Soil Survey Data shall be used as a guide- line to determine "true cash value"-of farmlands. These data consist of soil maps and interpretation thereof to identify soil associations and their capability for producing crops. At the date of writing soil surveys for the state had not been completed. In 1975, the General Assembly passed Public Law 75 which provided that agricultural lands platted or subdivided into lots shall not be reassessed until ownership of a particular lot changes. There are no other legislative provisions of significance relating to the program, such as those relating to methods of assessment, deferred taxes, planning requirements and so forth. As a result, the full burden of implementing it has been shifted to theState Board of Tax Commis- sioners (hereafter referred to as the Board) and locally elected assessors. Members of the Board take anambiguous position about the program. They argue.that Indiana does not have a preferential assessment program because the value of farmland is set by use as farmland and farmland is accordingly assessed on the basis of current use value until it is converted.4 And yet, residential, commercial and industrial lands are assessed on the basis of fair market value as reflected by comparable sales, which reflect po 'tential as well as current use values. As a result of this ambiguity, and the fact that recorded sales price data are not available in the state, it is,extremely difficult to evaluate the impact of use value assessment there. A. Eligible Land The basic guide to use value assessment is the Indiana Real Estate Property Appraisal Manual (hereafter referred to as the Appraisal Manual or the Manual) which was adopted as Regulation 17 by the Board on February 29, 1968. In it, agricultural land is defined as being "an area in open country used for producing Farm Income Situation (Sept.,1974), Economic Research Service, USDA), FIS 224 (Supplement) Table 1. 2Burns 64-711b 3Burns 64-712 4The principal source of information on the operations of agricultural assessment in Indiana is the Board of Tax Commissioners and their staff who generously de- voted a morning to an interview in connection with this study. 127 Indiana Case Study crops and raising livestock and whose principal value arises out of such use." The.local assessor makes the initial determination of eligibility and has wide discretion which can be overcome only through the appeals process. Woodlots are normally included in the agricultural category,-although timber is expressly exempt from taxation. Parenthetically, the Board serves primarily in an advisory capacity to local assessors. It issues and interprets the Manual. It can also correct abuses in cases which are appealed to it. All land which is classified agricultural receives use value assessment. B. Method of Assessment Comparalile sales are not used for assessment purposes. The Manual speaks of both the income approach, based on capitalization of net rental to a non-operating owner, and the "productivity approach," which ties value of the land loosely to the amount of crops that can be grown on it. The basic guideline used by local assessors, apparently with considerable latitude, is the Table of Grades and Suggested Values per Acre of Farmland, found on page F5 of the Manual. This Table is reproduced below. The true cash values (i.e., appraised value based on current use) were arrived at after considerable discussion and consultation with representatives of agri- cultural interests, assessors and academic experts in the field. They were de- rived from 1964 U.S. Census of agriculture values for farmland in Indiana. The objective which was,mentioned most often by the Board members was uniformity across the state within productivity classes of farmland, rather than careful estimation of the value of a particular tract. This table serves that objective well. It should be added here, that Indiana is on an eight-year schedule for re- assessment. Thus, the Manual established values for the 1968-69 reassessment. Reassessment was completed between January, 1968 and April, 1969, and farm assessment will not be changed again until the next reassessment which will take place in 1976. Thus, while average values per acre for farmland in Indiana have risen from $304 in 1964 to $710 in 1974, 1 there is less of a preference for farmers than might otherwise be the case, because most other unimproved land is similarly underassessed when compared to rising land values. Even in the case of improvements, assessors are required to relate current assessed values back. to 1967-68 prices, a process which challenges their ingenuity. The principal source of preference in assessing agricultural land lies in excluding elements of development value from true cash value. As one of the Board members said, fair market value is really irrelevant in determining true cash value. First, Indiana law prohibits the recording of the price paid for real property so that good data on market values are often not available. Second, the Board and staff expressed the belief that recent sales of farmland for investment or development purposes are not appropriate comparisions for use in appraising farmland. At the same time, the Manual spells out in some detail how the com- parable sales approach is to be used for valuing residential and commercial land. The appraiser appraises farmland according to its productivity, and farm improvements at depreciated replacement cost, arriving at true cash value. The assessed value is then set at 33-1/3% of true cash value. In 1973, farmland and buildings were assessed at $1,796,386,139 or 14.4% of the total real and personal 1Indiana Farm Real Estate, Feb. 3, 1975, Indiana Crop and Livestock Reporting Service, Lafayette, Indiana. 128 -5- Indiana Case Study Table I SOIL PRODUCTIVITY RATING TABLE PRESCRIBED BY*INDIANA GRADES AND SUGGESTED VALUES PERACRE OF rARM LA14D TABLE Kind of Productivity Estimated"* :@ecomniended Land and Capable ol' Producing Rating Grade Average= 1000 True Cash Value True Cash Value Crop Land Low fligh * Excellent Over 75 ))it. of co@n or over 35 bit. (if whent or their equivalent 130 375 565 & tip 420 * Good 60 to 75 bit. corn or 30-35 bit. wheal. or, their equivalent 105 315 375 320 C: Avvrnge 45 to 450 bo. @,orn.or ?@' io 30 bit. ,.N*heaL or, their equivalent 75 190 315 210 211 to 45 Wi. c.'a I) or It, ij, bi,. wheat or their equivalent 45 115 1,90 120 E Poor Below 20 bit. corn or below 10 bit. wheat or their equivalent 20 40 115 75 Permanent Pasture A Excellent 45 DO M 150 B dood 35 65 90 85 C Average 25 50 65 60 D Fair 15 25 50 45 E Poor 5 15 25 20 Woods A Excellent Large snw timber- 13 150 & lip 150 B Good Medhim saw timber 10 100 150 110 C Kvcrage ',%Tedium to small saw timber 7 65 100 75 D Fair Small . ecord growth 5 25 65 55 E Poor Badly croded ;in-] cut over- land 2 15 25 20 *Productivity factor of 100 represents -.I national standard for agricult'ural productivity of Pit average year and under average farm inanagement pr;@ctiee of 50 bit. of corn pet, Pere, 25 bit, of wheat per Peru, 25 bu. of soybuans per Pere, 2 tons of mixed hay pet- Pere, or their equivalents. *'Estirrinled true cash vnitte and average crish values are at 100% Assessed villuer will be nt 331/.tclo of above. .Source: Indiana Real Estate Pr02erty A2Rraisal Manual, State Board of Tax Combissioners, Regulation 172 (1968). 129 Indiana Case Study tax base.I The full cash value equivalent was three times the sum, or $5,389,000,000. The Economic Research Service reported that total farm real property values for Indiana in 1973 were $9,049,000,000.2 This would indicate that full cash values were about 40% below fair market value. However, we have no way of determining whether a preference exists or if it does, its extent, because we do not know whether other classes of property are similarly under-assessed. In fact, in the contemplation of Indiana assessors, true cash value is not synonymous with fair market value,3but represents a construct which is produced by the assessing procedures used in the state. II. EVALUATION OF INDIANA'S PREFERENTIAL ASSESSMENT PROGRAM Eligibility criteria are few and exclude no farmland, and since differential assessment is automatic, 100% of farms participate. There are no sanctions for conversion. No records are kept of the fair market value of differentially assessed land, so it is impossible to estimate the tax expenditures which result from the program or the magnitude of the benefits which individual farmers receive. Other than studies to determine assessed value/fair market value ratios for residential, agricultural, commercial and industrial property in each school.dis- trict for state tax equalization purposes, none of the several people interviewed knew of any prior studies of differential assessment in Indiana or of any attempts to measure its effectiveness with respect to the goal of maintaining current use. Because of the lack of data on the magnitude of tax benefits or on rates of con- version before and after the enactment of the program, no such evaluation is possible in this study. It thus appears accurate to conclude that Indiana's differential assessment program is designed solely to provide a tax benefit for farmers and that it is ad- ministered in a highly decentralized way with large discretion vested in the local assessor so as to accomplish this goal with as little fanfare as possible. There is no question but that it is highly successful. III. DIFFERENTIAL ASSESSMENT OF FORESTRY LANDS A. Eligibility Land classified as "forest plantations" or "native forest lands" is eligible for special classification. "Forest plantation" means any piece of cleared land which has growing on it timber-producing trees as that concept is understood by competent forestersA Land classified as "native forests" must contain at least 40 square feet of basal area per acre, or 1,000 timber-producing trees per acre.5 No grazing is permitted. The state forester determines eligibility. ITable of Total Assessed Values 1973, supplied by State Board of six commissioners. 2Farm Real Estate Market Developments.(CD79, Economic Research Service, U.S.D.A. 1974) Table 7. 3Interview with Wayne Pruett, April 29, 1975. 4Burns §§32-301, 32-302. 5Ibid 130 Indiana Case Study B. Method of Assessment All qualifying lands are assessed at the rate of $1 per acre. 1 Since real property is assessed at one-third of fair market value, this has,the effect of taxing participating land on the basis of a fair market value of $3 per acre. Trees are exempt from the real property tax except for nursery stock and Christmas trees.2 C. Procedures The landowner must apply for classification. As part of the application, his land must be surveyed and platted. The land is appraised at fair market value by the county appraiser, at the county's expense, and if the application is approved by the State Forester, it is recorded in the county.3 D. Sanctions Participating lands can be withdrawn at any time provided the landowner pays the lesser of either (1)'an increment tax which is equal to the difference be- tween its appraised fair market value at the time of withdrawal and its appraised value at the time of enrollment, less any increase in the last appraisal caused by the construction of any ditch or levee affecting the land, or (2) an amount equal to the real property taxes which would have been assessed on such land during the period in which it was so classified, if it had not been so classified, up to a maximum of 10 years, plus 5% interest per annum. IV. EVALUATION OF FOREST CLASSIFICATION LAW The State Forester reported that 265,000 acres were enrolled in the program in 1975,4 mostly in the southern part of the state. This comprised only- 6@% of the four million acres-of forest land, on which some 15% of the state's timber was harvested. The State Forester was enthusiastic about the law because it en- courages sound timber management practices and encourages the conservation of timberlands and watershed areas. The amount of enrolled land is increasing at a net rate of two to three thousand acres per year. The land is appraised for roll-back purposes according to the productivity index and current use value approach used for agricultural land, usually at $45- $100/acre. Thus, development value is not taken into account. On occasion, a county has appraised land being withdrawn at the same value at which it was appraised upon entry, thus saving the owner from paying roll-back taxes. The State Forester, backed by the Tax Board, has refused to permit this and has re- quired the county to use current use value. When asked why such a small percentage of eligible land was enrolled, in light of the very low assessed values which would be available, the State Forester gave three reasons: first, many owners were leery of government regulations; second, the taxes currently being paid are so low that the program is not sufficiently attractive; and, finally, many owners may not know about it. IBurns §32-303. 2Burns §32-306. 3Burns §§32-304, 32-306. 4Interview with John Datena, April 28, 1975. 598-330 0 - 76 - 10 131 I.B.1 DEFERRED TAXATION -- SHORT ROLLBACK: MARYLAND I. INTRODUCTION Maryland was the first state in the nation to enact a statute calling for preferential assessment of farmland. This law was passed and vetoed by Governor McKeldin in 1955 and enacted over the veto in 1956.1 It was repealed'and re- enacted in a somewhat amplified form in 1957,2 but then held unconstitutional in 1960.3 In the same year the state constitution was amended to permit current use assessment of agricultural land4 and the preferential assessment was re- pealed and re-enacted.4 Thus, preferential assessment in Maryland was not fully underway until 1961. II. THE PROGRAMS As of February 1975, Marylpnd had six separate programs in which differential assessment was the primary means of inducing certain types of action by landowners for the purpose of keeping land in non-urban uses. The programs involved pre- ferential assessment of 1. farmlands; 2. woodlands; 3. country clubs; 4. planned development lands; 5. lands over which a conservation easement has been given to the Maryland Agricultural Land Preservation Foundation; and 6. lands over which a conservation easement has been given to a unit of state, local or Federal govern- ment. A brief discussion of each of these follows: A. Preferential Assessment of Farmland The current version of Maryland's differential assessment of farmland statute 5 provides as follows: Eligible Land: In order to qualify for differential assessment a tract of land must meet the following criteria: 1. be actively devoted to farm or agricultural use (the bona-fide farm criterion).. 2. not have been zoned for industrial, commercial or multifamily residential use as of July 1, 1972 as a result of action by the owner or his predecessor in interest. 3. not have been rezoned after July 1, 1972 to a more intensive use than that permitted on that date, as a result of actions of the owner. 4. not have been subdivided after July 1, 1972 (either by recorded plot or known unrecorded plot), except where the subdivision is for the purpose of convey- ing a single lot to a member of the immediate family of the owner for his residen- tial purposes, or of dedicating land for public school or park purposes. 1956 Laws of Maryland; Ch. 9 2Chapter 680, Acts of 1959 3State Tax Comm. v. Gales, 222 Md. 543, 161 A.2d. 676 (1960) 4Chapter 52, Acts of 1960 5Ann. Code of Md., Art. 81 §19b 132 Maryland Case Study In 1967, pursuant to the statute, the State Department of Assessments and Taxation adopted Regulation 9 which contained the following criteria for de- termining whether lands which appear to be actively devoted to farm or agricul.-; tural use are in fact bona-fide farms: 1. Zoning applicable to the land. 2. Applications for, and grants of, zoning reclassification in the area. 3. General character of the neighborhood. 4. Use of adjacent properties. 5. Proximity of subject property to metropolitan area and services. 6. Submission of subdivision plan for subject or adjacent property. 7. Present and past use of the land. 8. Business activity of owner on and off the subject property. 9. Principal domicile of owner and family. 10. Date of acquisition. 11. Purchase price. 12. Whether farming operation is conducted by the owner or by another for owner. 13. If conducted by another for owner, the provisions of the arrangement, written or oral, including, but not limited to, the term, area let, consideration and provisions for termination. 14. Farming experience of owner or person conducting farming operations for owner. 15. Participation in governmental or private agricultural programs or ac- tivities. 16. Productivity of the land. 17. Acreage of crop land. 18. Acreage of other lands (wooded, idle). 19. Number of livestock or poultry (by type). 20. Acreage of each crop planted. 21. Amount of fertilizer and lime used. 22. Amount of last harvest of each crop. 23. Gross sales last year from crops, livestock and livestock products. 24. Amount of feed purchased last year. 25. Months of hired labor. 26. Uses other than farming operation, of the land. 27. Rati; of farm or agricultural use as against other uses of land. 28. Inventory of buildings, and condition of same. 29. Inventory of machinery and equipment, and condition of same. The Department never developed a method of weighting the various criteria but the general approach was rendered futile when the state supreme court held that land owned by a retired contractor, rented to one neighboring farmer as a pasture and kept up by another, qualified under the act.1 As a consequence, it is easy for an owner of open land used for farming to qualify for differential assessment. Method of Assessment Most, if not all, eligible farmland in Maryland would sell for mare than current use value. As a result, the comparable sales method of appraisal is not appropriate. Instead, the State Department of Assessments and Taxation, in co- operation with the U.S. Soil Conservation Service and the University of Maryland's School of Agriculture, developed a method which relies on a six-fold classifica- tion of soil types according to their productivity capability ratings for growing corn. Tax maps are over-layed with soil productivity maps and the number of acres Supervisor of Assessments v. Alsop Md. 192 A. 2d. 484 (19) 133 Maryland Case Study in each category for each farm is measured by planimeter. Income for each cate- gory is estimated using both net income from corn and typical rental values as reference points. The income.is then capitalized at 5 'per cent. The assessed value is set at 50% of the appraised value, in accordance with general state policy. The Guide which describes this process is set forth below: GUIDE TO VALUATING AND ASSESSING LANDS DEVOTED TO FARM AND AGRICULTURAL USE "Value ranges for land devoted to agricultural use; based upon soil pro- ductivity capability ratings. Class Full Value Assessment Value Use Capability A $300-320 $150-160 Soil with high productivity rating capable of producing, under average management, 50-70 bushels of corn per acre. B $240-260 $120-130 Soils with medium produc- tivity rating capable of producing, under average management, 30-50 bushels of corn per acre. C $190-210 $ 95-105 Soils with low productivity rating capable of producing, under average management, 20-35 bushels of corn per acre. D $ 90-120 $ 45-60 Soils with severe limita- tions for cultivated crops; may be used for pastureland. E $ 20-50 $ 10-30 Borrow pits, scrub land, marsh, spent quarries, stony land. (SPECIFY). Woodland $ 50-70 $ 25-35 Varies according to suit- ability for different species of trees. Above full value ranges are the result of considering rentals paid for the use of the land, opinions of experienced farmers and capitalizing the net return attributable to land for the sale of corn. Experience of farm management ex- perts indicate the net return to be sixteen to twenty percent of the cash re- ceived, which is capitalized at six percent.1 Generally, prices per bushel for corn are averaged for several years. Where market value according to sales indicates the value of land devoted to agricultural use is less than the values developed above, the market values will be the basis for appraisal and assess- ment. In cases where market value is greater than agricultural use value, the appraisal and assessment will be according to the use value figures above." William Riley, Director of the Maryland Department of Assessment and Taxation advised the writer that 5% is the current rate of capitalization. 134 Maryland Case Study Land which is not used for agricultural purposes is assessed at full cash value. Some commentators have suggested that the approach fails to take into account many of the factors which affect farm value, such as location ind suit- ability for crops which are more profitable than corn, and topography. Maryland assessment officials report that the method is preferable because it provides a uniform tool for appraising farm values across the state and that corn is a satisfactory proxy for most other crops .2 Sanctions for Conversion The original law contained no sanctions against converting differential assessed land. In 1969, however, a three-year roll-back provision was enacted pertaining to land that was rezoned to a more intensive use at the insistence of the owner, or subdivided. In such a case, the assessor would enter agricultural use value and full cash value on the assessment record. At the time the land was converted to a non-eligible use, the owner was liable for the difference between the tax actually paid (based on use value assessment), and the tax which would have been due if the land had been assessed on the basis of full cash value for the three years prior to conversion, subject to the limitation that the deferred ,tax could not exceed five percent of the full cash value assessment (which was set at 50% of full cash value) in effect at the time of the conversation. Since the 1970-71 tax rates per $100 assessed value for urbanizing counties such as 03 Baltimore, Howard, Prince Georges, Frederick and Montgomery were all over $2.5 this provided in effect a two year roll-back of taxes. In 1972, the roll-back provisions were amended, so that presently, if land is converted to non-agricultural use within three years of preferential assess- ment, its owner must pay an amount equal to "two times the difference between the tax applicable to the land if assessed on its full value in the year de- velopment is to commence, and the tax applicable to the land if assessed on the basis of the most recent agricultural use assessment.,,4 No building permit, other than for residential use by the owner or his immediate family can be issued without a certification by the Tax Department that the payment has been made. This Amendment simplifies the administration of the roll-back by rendering it uri- necessary to keep dual records of use and full cash values. In practical effect, it imposes a two-year roll-back. Administration and Availability of Data Before 1974, the preferential assessment program was run on a county basis. As of 1974, however, the county assessors' offices became part of the State De- partment of Assessments and Taxation. Thanks, in part, to this reorganization and to the computerization of records over the last few years, the state has, for all intents and purposes, annual assessments. One third of the properties are inspected each year and the rest are re-assessed after an analysis of comparable sales building cost indices and other relevant data. Largely because of the historical fact that assessment was a county respon- sibility until recently, there is a paucity of the kinds of data that would be useful in evaluating the operations and effectiveness of preferential assessment. 1See, e.g., House, Peter, Differential Assessment of Farmland Near Cities (Wash- ington, D.C.: U.S.G.P.O. 1967), pp. 27-29. 2Interview with William H. Riley, Director, State Department of Assessment and Taxation, February 11, 1975. 3Table of Maryland tax rates for 1970-71 supplied by Department of Assessment and Taxation. 4Ann. Code of Md. Cert. 81, 19(b) (2) (b) (i). 135 Maryland Case Study There is no record of the total number of acres of farmland in each county, so that the participation rate can not be determined. Each county does have a record of the number of acres of farmland which are differentially assessed, but this has not been aggregated for the state. No separate record of conversions or with- drawals from the program is kept. The county assessors maintain a record of the differential assessment for each farm and have tax maps showing the full cash value of land in different parts of their counties, but the number of acres are not aggregated for the state and no record is kept of the full cash value of each farm. It is not possible to de- termine the ratio between current use value and full cash value for each farm, for each county or for the state as a whole. Consequently, it is not possible to evaluate the "tax loss" occasioned by the program, the financial benefit derived by participating landowners, the magnitude of development value which a prospective purchaser would have to pay, or the total "tax expenditure" which is entailed in the program over the whole state. There is no information on the percentage of farmers in the state who participate or their location. B. Preferential Assessment of Country Clubs Maryland has adopted a somewhat different approach in its differential assess- ment of country club property. The statute provides that eligible country,clubs must enterinto a restrictive agreement if they want to derive the benefits of lower taxation.1 Eligible Land In order to qualify for differential assessment a country club must: 1. have an area of not less than 50 acres. 2. maintain on the land a regular.golf course of 9 holes or more and a golf house. 3. have a dues-paying membership of at least 100 persons who pay average dues of at least $50 per member, with the use of the club being restricted pri- marily to members. 4. not practice discrimination in the granting of membership or guest pri- vileges on the basis of race, color, creed, sex or national origin; except that if the Attorney General finds that the club's primary purpose is to benefit the members of a particular sex, it may qualify. Terms of Agreement The agreement must be for at-least ten years and can be extended from time to time. method of Assessment The property is to be assessed on the basis of its use as a country club. Sanctions for Conversion if the country club ceases to qualify under the act, if the land is sold to an owner who does not assume the obligations of the restrictive agreement, or if See Ann. Code of Md., Art. 81, §19(e). 136 Maryland Case Study the land is converted to anotheruse, all back taxes are due. During the term of the agreement, the assessor is required to record annually both the full cash value and the preferentially assessed value of the land, so it is a simple matter to compute the taxes which would have been owed but for the preferential assess- ment. The maximum roll-back period is 10 years. If within 10 years of the expiration of a restrictive agreement, the property is converted, the owner must pay whatever taxes were saved as a result of the agreement within the 10 year period. If there is a partial conversion, and the country club still qualifies, only those unpaid taxes attributable to the converted portion of the tract are due. Availability of Data In response to a request for data on acreage involved, use value assessment and market value assessment, several counties supplied such information but not enough to permit any conclusions to be drawn on the state-wide impact of the program. C. Planned Development Lands @ A third type of preferential assessment program is available to large scale developers to facilitate orderly and staged development pursuant to government plans, and to avoid premature or leap-frogging land conversion. Eligible Land In order to qualify for preferential assessment under the planned development lands provision of the Act,l land must: 1. be situated in an area shown on a current master plan, a general or re- gional plan, or otherwise designated as a new town, city or satellite city, adopted by the governmental authority having planning or zoning jurisdiction, and 2. be zoned in a zoning classification (i) permitting development only in compliance with plans referred to in sub-paragraph (2)-A above, (ii) requiring a land use plan, and a comprehensive site development or subdivision plan, both of which.shall consider land use, utility requirements, highway needs, water and sewers, industrial use, economic and job opportunities, recreation and civic life and be approved prior to development by a governmental agency exercising planning functions, and (iii) requiring the owner or owners thereof to pay for or provide streets, roads, walkways, open spaces, parks, school sites, and other property needed for public use which facilities are normally paid for or provided by the political subdivision or an agency thereof under other zoning classifications and, 3. consist of a tract of contiguous (except.for intervening rights-of way, easements, or grants for public or quasi-public uses) tracts of land comprising not less than five hundred (500 acres, in one or more ownerships, and 4., be primarily undeveloped at the time said land is placed in the said zoning classification. Method of Assessment Upon application by the owner and determination of eligibility, the property is assessed at full cash value and as a special assessment at a rate equal to that applicable to lands actively devoted to agricultural use, whether or not it would qualify for such agricultural use settlement. Both assessments are re- corded. ISee Ann. Code of Md. Art. 81, §19 (b) 137 Maryland Case Study Sanctions for Conversion Whenever a portion of the land is subdivided by recording a subdivision plat, or improved with buildings, the special assessment is terminated and that part of the property is assessed on the basis of full cash value. The rest continues to receive preferential assessment if it is still eligible, even though its area may be less than 500 acres. There is no roll-back under these circumstances. If however, the property is rezoned at the insistence of the owner to a zoning classification which does not meet the statutory criteria, the special assessment terminates, and the owner must pay the taxes which would have been due if the property had been assessed at full cash value, subject to the limitation that the roll-back cannot exceed 10% of the full cash value. Assessments are by directive set at approximately 50% of full cash value, whichresults in a maximum roll-back equal to 5% of full cash value. Availability of Data only a few counties have planned developments and not all of them supplied data requested concerning acreage, special assessment and market value assessment. Montgomery County provided the following information: PLANNED DEVELOPMENT LAND (Undeveloped Portion) Germantown Total Special Market Value Year Acres Assessment Assessment 1975 1,213 $182,000 $4,550,000 Montgomery Village 1975 643 81,240 11,670,300 This reveals that in 1975, one new town developer received a reduction in land value assessment of 96%, and the other, 99.3% D. Forest Conservation and Management still another form of differential assessment is available to owners of land which is appropriate for development as productive woodland. Eligible Land In order to qualify, land must comprise five or more contiguous acres and the owner must agree to place it in the program of forest conservation and manage- ment of the Department of Natural Resources.1 Method of Assessment Land is taken into the program at its current assessed value. While under agreement, its valuation may not be increased. Buildings and improvements are not covered by the section of the Act. At the end of the period of the contract (which is not limited in the statute), or when part or all of the timber is har- vested, the tract affected will be reassessed, based on full cash value. 1Ann. Code of Md., Natural Resources Code, §§5-301 to 5-308, and Ann. Code of Maryland, Art 81, 519 (d). 138 Maryland Case Study Sanctions for Conversion If the new assessment at the end of the contract period is greater than the original assessment, the difference is to be divided by the number of years be- tween the two and the tax due is computed by applying the tax rates applicable for each year of the contract period. The result is a full roll-back of all taxes not paid because of the freezing of the assessment level. Administration The Department of Natural Resources is responsible for determining eligi- bility for the program and must advise the county supervisor of assessments whenever land is placed under restrictive agreement. The program has been little used as of February 1975,1 and no separate data are available for it. E. Open Space Easements A fifth approach to preserving farm and other open space land is embodied in two other statutes.2 Under the first, land on which an easement has been con- veyed to the Nature Conservancy or to a governmental agency which limits the land so as to preserve open space shall be valued at its value as so restricted. Under the second, land is to be assessed in the same manner. In addition, the county in which the land is located may grant tax credits up to 100%, of the local taxes which would otherwise be imposed on it. These provisions have not been used extensively and will not be discussed further in this memorandum. The Maryland Environmental Trust has prepared an attractive, informative booklet, Conservation Easements, which explains how land- owners may take advantage of the first of the two programs described above. F. Recent Developments In January 1975, House Bill 18 was introduced, which would authorize the creation of Agricultural Districts in which the state could buy easements which would limit the uses of subject property. The money used to purchase these ease- ments would be raised by a 1.5% real estate transfer tax. III. EVALUATION OF MARYLAND'S PREFERENTIAL ASSESSMENT PROGRAM A. Effectiveness-in MaIntaining Current Use 1. Findings of Prior Studies Peter House, in his study, Differential Assessment of Farmland Near Cities,3 did not attempt to evaluate the effectiveness of differential assess- ment as a means of maintaining farmland in farm use, noting only that it is extremely difficult, if not impossible, to measure how much of the farmland is retained as farmland as a direct consequence of granting the owners a use-value assessment. 1Conversation with William H. Riley, February 11, 1975. 2Ann. Code of Md. Art 91, §19 (a) (8) and 1974 Laws of Maryland, Ch. 642. See also Art. 81, S§12E and 12E-1. 3Washington, D.C.: U.S. Government Printing Office, 1967. 139 Maryland Case Study Kenneth Wisner, in his unpublished M.S. thesis, "Effects of.Agricultural Use Value Assessments in Washington County," Maryland (University of Maryland,- (1971), concluded'that it was doubtful that the differential assessment law re- stricted net conversion to more intensive use in the county. He found further that non-farmer purchasers, who were buying approximately 70% of the farm land being transferred at the time of the study, were offering prices which were higher then a farmer would be willing to pay because the carrying costs were re- duced by differential assessment. Dr. Sidney Ishee, of the University of Maryland, a longtime student of differential assessment in the state is of the opinion that its principal effect is a temporary postponement of conversion in some instances. He finds that tax benefits are simply not strong enough to deter farmers from selling out at prices which may range up to 8 or 10 times the farm use value of their land. William Riley believes that it has been effective in allowing some existing farmers to keep farming but that a farmer often simply cannot refuse an offer to buy land which is at high, development value price levels. 2. Findings of This Study In an attempt to measure the magnitude of the tax benefits which farmers receive from differential assessment, Tax Supervisors in each county were asked to supply the following information: For farm land, by year: 1. number of property accounts 2. number of acres preferentially assessed 3. farm value assessment 4. the assessor's informed opinion of the average fair market value of farm land in his county. Only three counties supplied information on both the number of acres of farm land assessed at farm use value, and its assessed value. For 1974, the data are as follows: Assessed Average Value Assessed County Acres of Land Value per Acre Carroll 202,400 $28,958,950 $140 Montgomery 143,429 $18,962,720 $132 Talbot 119,000 $21,613,960. $200 Since assessed values were roughly 50% of current use appraised values, we see that the current use values in the three counties averaged $280, $264 and $400 respectively. In Montgomery County, the only county supplying fair market value estimates, the Tax Supervisor estimated that the average fair market value of farmland was about $3,000 per acre, with a wide range around that average. Thus, in Montgomery County, farmers received an average reduction of approximately 90% in the assessed value of their farmland. In the absence of data from other counties, we can only observe that, under values promulgated by the State Department of Assessments and Taxation, the maxi- mum full value per acre for preferentially assessed farmlands is $320, so that 140 Maryland Case Study the owners of land in the fringes of Washington, D.C., Baltimore and other urban centers, where land values are in the thousands of dollars per acre, enjoy sig- nificant tax benefits. Such benefits may allow farmers who are close to the margin of profitability and wish to continue farming to do so. B. Equity Data do not exist which enable us to determine how many acres of eligible farmland are not preferentially assessed or how much of a tax shift has occurred. Mr. Riley's opinion was that in Montgomery County, there would have been a 2% reduction in the county tax rate if farmland there had been assessed based on its fair market value. This would amount to five cents less per $100 of assessed value. C. Ease of Administration No separate records are kept for extra work done in connection with preferen- tial assessment. It shouldbenoted however, that the burden of maintaining dual records,of preferential assessments and fair market value assessment was sufficient to cause the amendment of the act in 1972 to make it no longer necessary. D. Political Feasibility There have been perennial efforts to have the preferential assessment pro- gram repealed, but they have had little support. At the other extreme the Committee on the Preservation of Agricultural Land reported to the Secretary of Agriculture that stronger steps were needed,1 and proposed a program for acquisition of farm easements along the lines embodied in H.B.,18 referred.to above. See Final Report,' submitted August 12, 1974. 141 I.B.2. DEFERRED TAXATION -- SHORT ROLLBACK: NEW JERSEY I. INTRODUCTION A. Background on New Jersey By the simple measure of persons per acre, New Jersey is the most densely populated state in the Union. Its 953 persons per square mile in 1970 compares with 905 for Rhode Island, the second most heavily populated state, and an aver- age of 300 for the Northeastern States, and 57 for the United States as a whole. Of the state's population, 88.9% lived in urban places as compared with 80.5% for the Northeastern States and 73.5 for the U.S. as a whole. Much of the state is suburban to the great metropolitan centers of New York and Philadelphia. New Jersey's population increased between 1960 and 1970 at 18.2%, a rate much faster than the average of 9.8% for the Northeastern States and somewhat faster than the average of 13.3% for the nation as a whole. Growth pressures were felt widely during the 1960's: only five counties grew-less than 10% in population, and three of these were highly urbanized counties in the core of the greater New York metropolitan area. Despite this picture of intense urbanization, much of southern.New Jersey is very lightly settled. Nine of New Jersey's 20 counties had less than 400 people per square mile in 1970, and 6 had less than 250 pyople per square mile. Of the state's total land area, 67% is in non-urban uses, and 24% is in farm- ing.2 The two most extensively farmed counties are Hunterdon County with 51.2% of its land in farms, and Salem County with 49.0%.2 New Jersey is known as the Garden State, in recognition of its many truck farms which have served and to a lesser extent continue to serve the needs of neighboring large metropolitan centers. It appeared during the 50's and 60's that the function of the State as the vegetable garden of New York and Phila- delphia would soon be drastically curtailed. Between 1954 and 1964, 400,000 acres (or 24% of the 1954 total) went out of agriculture; betwer 1964 and 1974 an additional 265,000 acres were retired from agriculture. Along with urbanization pressures, the tax pressures on agriculture in New Jersey have been extreme. New Jersey has always relied heavily on the property tax. Proposals to change the tax structure to include some form of state income tax have been a prime item on the legislative agenda for a number of years, but to date, no tax proposal has been found acceptable. As a result, taxes per acre on farm real estate have been higher in New Jersey over the past 20 years than in any other state.4 In 1972 they averaged $22.77 per acre, as compared with an average of $16.12 for the next highest state, Massachusetts. 1Economic Research Service, U.S. Department of Agriculture, Major Uses of Land in the United States, Summary for 1969, Agricultural Economic Report No. 247. 2Schneider, L.D., V. Kasper and D. A. Derr, Estimates of Land in Farms by Muni- cipality and County, New Jersey, 1971. Bulletin 840, Department of Agricultural Economics and Marketing, New Jersey Agricultural Experiment Station, College of Agriculture and Environmental Science, Rutgers, New Brunswick. 3New Jersey Agricultural Statistics, September 1974, Trenton: New Jersey Dept. of Agriculture - U.S-. Dept. //of Agriculture. 4Economic Research,Service, 11 Farm Real Estate Taxes, Recent Trends and Develop ment.s,U.S. Dept. of Agriculture, March 1974. 142 Figure SUSSEX REFERENCE MAP OF NEW JERSEY PASSAIC SHOWING COUNTIES AND MAJOR.- CITIES -BERGEN WARREN MORRIS ESSEX EWAPK H N 0 NEW YOAK UNION HUNTERDON SOMERSET MIDDLESEX MERGER MONMOUTH T RF; N -OCEAN PHILADELPHIA BURLINGTON GLOUCESTER CAMDEN SALEM ATLANTIC CUMBERLAND ATLANTIC CITY CAP E, MAY 143 New Jersey Case Study Real estate taxes as percent of both gross and net income in New Jersey have been among the highest in the nation. In 1972 they were the highest: 10.2% of gross income (compared with 8.6% for both Massachusetts and California, the next highest states) and 55.9% of net income (compared with 50% for Rhode Is- land, the second highest). Measured.by real estate taxes per $100 of full value New Jersey fared somewhat better, being exceeded by six st7ates. Figure 2, showing property taxes as percent of gross income from agricul- ture, indicates the generally high tax level, and the particularly high level in counties between New York City and Trenton. The tax structure of the state is summarized in Table 1. The importance of the property tax is evident. Table 1 PERCENTAGE DISTRIBUTION OF STATE AND LOCAL GENERAL REVENUE, 1971 Source New Jersey All States Federal Aid 15.0 18.0 Charges & Misc. 13.2 16.4 Taxes 71.8 65.5 Property 39.3 26.1 Individual Income 0.4 8.2 Corporation Income 2.2 2.4 General Sales 10.3 12.3 Selective Sales 13.3 10.6 Other 6.3 5.9 Source: Table 19, Advisory Commission on Intergovernmental Relations, Federal-State-Local Finances: Signifi- cant Features of Fiscal Federalism, M-79, Washington: GPO, 1974. During the 10 years since 1964 when New Jersey's Farmland Assessment law went into effect, the loss of farmland in the state slowed somewhat (Figure 3). According to estimates given by the New Jersey Crop Reporting Service (USDA) there has been virtually no loss for the past two or three years. This slowing in the loss of farmland is probably a result of many forces, most prominently changes in demand for developable land, changes in the price of available land, and changes in the costs of producing farm output, among which are changes in tax burden. During the same period, the rate of loss in number of farms has also slowed, though not as much. Correspondingly, the average size of farm has risen from 108 acres in 1964 to 128 acres in 1974. B. The Farmland Assessment Act of 1964 In 1963 the New Jersey Constitution was amended to authorize the legislature to enact laws permitting preferential assessment of lands devoted to agricultural or horticultural use (Article VIII, Section I, Paragraph l(b)). The constitu- tional provision defines the land eligible and the sanctions for conversion. Specifically it states that land is eligible if it is "not less than 5 acres, and is deter-mined by the assessing officer of the taxing jurisdiction to be actively devoted to agricultural or horticultural use and to have been so de- voted for at least the two successive years immediately preceding the tax year in issue." The constitutional amendment also limits roll back tax sanctions to the current year and each of two preceding years. 144 k I Figure 2 AGRICULTURAL PROPERTY TAX AS A PERCENT OF MARKET VALUE OF AGRICULTURAL ol PRODUCTION: NEW JERSEY 196 fit 11 0 10 20 30 iles 'N 20% or more 15% - 19.9% 10% - 14.9% 5% 9.9% No Farms 145 Figure 3 2.4 ACRES OF FARMLAND AND NUMBER OF FARMS, NEW JERSEY 2.2 1954-1974 "0 Fj-2. 0 P ca rX4 441.8 0 W 11.6 Acres ,4 of 44 Farms 01.4 1.0 0) .8 .6 .4 .2 Source: N.J. Agricultural Statistics, September 1974. 54 '56 '58 '60 162 '64 '66 '68 '70 New Jersey Case St udy In 1964, the following year, the New Jersey "Farmland Assessment Act of 1964" was enacted and became effective as Chapter 48, L. 1964. The Act has been amended several times (455 L. 1968, 237 L. 1970, 243 L. 1970, 400 L. 1971, and 99 L. 1973). The revisions, however, generally were concerned with minor technicalities concerning the time schedule and procedures for application. Regulations concerning the Farmland Assessment Act of 1964, as amended and supplemented, have been promulgated by the State Department of the Treasury, Division of Taxation, Local Property Tax Division, and are part of the New Jersey Administrative Code (N.J.A.C. 18:15). The Act does not contain any statement of purposes or goals. Instead, it simply states that land in agricultural or horticultural use shall be assessed at use value. 598 -3 30 0 - 76 - 11 147 New Jersey Case Study II. ELIGIBILITY AND PARTICIPATION A. Eligibility In order to be eligible for assessment at farm value, an owner must file an application with the local assessor. He must show (1) that he has a mini- mum of 5 acres devoted to agricultural or horticultural use, and (2) that it has been devoted to such use for at least 2 years previously. The five acres is exclusive of land devoted to the farmhouse itself and land such as gardens, swimming pools, etc. used in connection with the residence. He must also show (3) that gross sales of agricultural and horticultural products produced on the farm, together with any payments received under a soil conservation program must amount to at least $500 per year for the first 5 acres as a whole, and to $5.00 per acre for additional farmland, and at least $0.50 per acre for wood- land. Qua lification for preferential assessment must be established each year. The local assessor is required by law to send out an application form each year for this purpose to the owner of each property in the program.1 Administration of these requirements is generally carried out at the local municipal level. It is up to the local assessor to decide whether a farm qualifies. In the best- run jurisdictions this is done by a twice-yearly field inspection. In Vineland, for example, the assessor tours his area in May, noting whether each farm has been plowed or not. In late August he tours again to determine whether a crop has actually been planted. If the assessorsees insufficient evidence of farm production, he will classify the land "not qualified." If, however, the owner claims that he has a bona-fide farm and can submit evidence either in the form of sales slips for produce or in the form of a sworn affidavit, his evidence ,will be accepted. Most farmers who have contested a "non-qualified" classifi- cation, however, have withdrawn their protest when asked to produce such evi- dence. In jurisdictions with less staff, especially those which rely on part-time assessors, less systematic field checking is done, and more reliance is placed on the application forms and income statements submitted. Some counties (e.g., Hunterdon) have devised supplemental information forms to help in determining eligibility, and some individual assessors have made up their own supplemental information forms. Field checking in such jurisdictions is done on a trouble- shooting, rather than a comprehensive, basis. Keeping eligibility lists up to date is also done primarily from the applications submitted annually. Land lying fallow for a year, or in the soil bank, posed a problem since it was not earning the minimum required, but this has become less of a problem since farm- ers have gone to more fertilizer-intensive methods and the Federal soil bank program has been phased out. There is a feeling expressed by those interviewed that the requirements for eligibility are minimal and that they have made it too easy for speculators and other non-farmers to take advantage of the tax savings provided by the Act. (This evidently widespread concern seems to have arisen despite the fact that the Act and the Regulations both specify use, not ownership, as the criterion for eligibility.) Particular concern was expressed about extensive tracts of woodland (rather than woodlots incidential to agriculture) which have obtained qualification even though they are not under active management. Proposals are being discussed to tighten up the requirements: 1) increase the minimum requirement of $500 total farm-related income to $1,000, and 400 L. 1971 148 New Jersey Case Study 2) increase the required income for each additional acre from $5.00 to $25.00 per year. A state Farmland Assessment Advisory Committee has been appointed by Secretary Glazer, Director of the Division of Taxation,to advise him on matters pertain- ing to the Act. B. Participation In the early years of the program, relatively small proportions of all farmland were assessed under the Act. A 1967 survey reported that 80 per cent of the rural assessors and 72 per cent of the assessors in transitional areas indicated that thyy had some qualifiable land for which the owners had not re- quested coverage. The report stated that "Land owners did not apply for cov- erage especially in those districts where market value assessments and the proposed assessed values were at or near the same level. The impact on the tax bill in such cases would be negligible. Some land owners did not fully understand the Act and its roll-back feature." Evidently, all that has changed, because,as can be seen in Table 2,between 1969 and 1974 participation has risen from 55.8 per cent of all farmland to 93.5 per cent. Total acreage covered has risen from 653,000 acres to 1,050,000 acres.- Correspondingly, the per cent of total land in the state which is in the program has risen from 13.6 to 21.8; over one-fifth of the state's land area is now as- sessed at farm value. The high level of participation is an excellent indication of the value farm owners see in the program. It would appear that soon virtually all qualifiable farmland in the state will be assessed at farm value. Table 2 AREA UNDER FARMLAND (PREFERENTIAL) ASSESS14ENT IN NEW JERSEY: 1969-1974 Area Qualified Assessment at farm Value Farmland As % of All As %of ALL As % of Acres* Total* Per Acre* Farm Area** Land Area- All Land** 1969 653,013 $141,447,815 $217 55.8 13.6 24.3 1970 760,197 178,685,124 235 66.1 15.8 23.9 1971 856,442 187,928,505 219 75.2 17.8 23.7 1972 947,107 209,383,439 221 83.6 19.7 23.5 1973 1,009,759 226,601,770 224 90.0 21.0 23.3 1974 1,049,560 232,027,386 221 93.5 21.8 23.3 Sixth Report of Data from FA-1 Forms, for 1974 tax year, Division of Taxation Annual estimate farm area of NL,,, J Agricultural Statistics- September 1974, ulleti:r::y adjusted to total given by B 0 for 1971 and comarably for other years. lKoch, Robert, H. H. Morrill, and A. Hausamann, Implementation and Early Effects of the New Jersey Farmland Assessment Act, Rutgers Experiment Station Bulletin 830, Rutgers-The State University, 1968. 149 New Jersey Case Study As participation in the program has increased, the proportions of different types of farmland have shifted significantly (Table 3). The percentage of wood- land has increased during the 1969-1974 period, with a particularly large in- crease in the last year (1963-64). Over the same period the percentage account- ed for by every other category has decreased. Of these, the percentage account- ed for by cropland has dropped the most. (The absolute amount of cropland, how- ever, increased.) As will be seen below, the increase in woodland covered is cited by several officials as one of the major problems of the Act at present. Table 3 AREA UNDER FARMLAND ASSESSMENT, BY TYPE: NEW JERSEY, 1969-74 (Acres and percent of total acres)* Cropland Cropland Permanent Harvested Pastured Pasture Woodland Total 1969 395,045 43,132. 97,000 117,836 654,013 (60) (7) (15) (18) (lob) 1970 462,674 47,848 112,434 137,235 760,197 (61) (6) (15) (18) (100) 1971 502,521 51,208 121,927 180,787 856,442 (59) (6) (14) (21) (100) 1972 558,999 53)923 128,171 947,107 (59) (6) (14) (22) (100) 1973 594,079 57,903 133,880 223,898 1,009,759 (59) (6) (13) (22) (100) 1974 602,731 56,244 135,868 254,717 1,049,560 (57) (5) (13) (24) (100) percents given in parentheses. Source: Sixth Report of.,Data from FA-1 Forms, for 1974 tax year, Division of Taxation Participation in the Act varies from place to place. The participation rate by municipality can be determined only for 1973, since that is the only year for which data on total area of farmland in each municipality are avail- able. The pattern of participation can be seen in Figure 4. Although a high participation rate indicates that landowners find the program advantageous, it does not necessarily indicate that it is effective in slowing or halting loss of farmland. In fact, the concern expressed about woodland is that its owners are not farmers, and participate temporarily just to enjoy a tax advantage until they are ready to develop. Data are not readily available on the rate of urban development of land in the program as opposed to land not in the program. Therefore, effective- ness cannot be studied directly. 150 Figure 4 PARTICIPATION UTE IN FARMAND PREFERENTIAL ASSESSMENT PROGRAM; NEW JERSEY, 1971 Percent of All Farmland Participating go loo 70 89 50 69 r ''I under 50 L. J. no farms 4 y L . . . . . . jj STATE Of h9W 'ERSEY 01PARTMERT Of COVAWMTYVF,'MR% 4EOiOOA of STATE New Jersey Case Study A survey conducted in 1967 1 indicated that participants in the preferential assessment program were older, had larger farms, and were dependent to a great- er extent on farming for their income.than non-participants. III. BENEFITS TO PARTICIPANTS A. Methods of Assessment Assessment is based on the most profitable agricultural use, not necessar- ily on th6 actual agricultura 1 use. Under the Act, a,.State Farmland Evaluation Advisory Committee is set up. -(Membership: Director, Division of Taxation; Dean of College of Agriculture and Environmental Sciences, Rutgers - The State University; and the Secretary of Agriculture). This committee prepares a re- port each year which estimates,farm value per acre by county for each of four soil groups (ranging from "very productive farmland" t *o "land unsuitable for tillage") and each of four potential use classes (cropland harvested, cropland pastured, permanent pasture, and woodland). Farm use values are computed from annual estimates of farm income per county, assuming a capitalization ratio of 10., Value per acre is assigned to each of the four land use classes using a set of productivity ratings, and to the five soil groups using a set of soil ratings. An example of the farm use value per acre determined by the Advisory Committee is given below for Salem County.2 The valuesare based on the land's estimated productive capability when devoted to agricultural.or horticultural uses. Soil Cropland Cropland 'Permanent Group Harvestej-' Pastured Pasture Woodland A $336 $168 $62 $15 B 280 140 56 14 C 196, 98 45 13 D 112 56 39 11 E -29 14@ 34 10 Value per acre for a given soil group and type of farming can vary sub- stantially. Given below are the 1 '974.values for Ca *mden, a relatively urbanized county which had 9,600 acres farmed,'in 101. Soil Cropland Cropland Permanent Group Harveste@.@e Pastured Pasture-,,- Woodland, A $6007@ $110 $28 $300 B 500 250 lob. 25 C 350 175 '80 23 D 200 100 70 20 E 50 25 60 18 IKoch, A. Robert, H. H. Morrill, and A. Hausam anfi, Implementation and Early Effects of the.New Jersey Farmland Assessment Act, Rutgers Experiment Station Bulletin 830, Rutgers-The State UniversiEy, 1968. 2Eleventh Report of the State Farmland Evaluation Advis2r .L_@j@itte@e (1974). Trenton: Local Property and Public Utility Branch, Division of Taxation. 152 New J@I@Ca@se Study The local assessor is required to take these estimates into consideration in his assessment but he is not required to use them direcily. However, most assessors follow the Advisory Committee's estimates closely. The assessor has to classify a particular piece of land within the four land use classes. To help in this, the applicant is required to furnish a map, using the U.S. Soil Conservation Service soil map as a base, which shows what use is being made of the land. Since pasture land is taxed at a lower level than tilled land, there have been farmers who fenced tillable land, put steers on it,,and called it pasture. Such an attempt has been opposed by the assessor in at least one jurisdiction (Vineland) who argued that.the land could be put to more prof- itable agricultural use. According to assessors interviewed, the main problem with farm use assess- ment has been the need to educate local assessors in the known methods and dif- ficulties of assessing farm value. A course has been sponsored by the Local Tax Bureau, the Tax Assessors' Association, and the College of Agriculture and Environmental Sciences, Rutgers and given at various locations around the state. The course meets one night a week for six weeks, a total of twelve hours of in- struction. Although it has been taken by as many as 75% of the local assessors in some counties (e.g., Cumberland), state-wide less than 50% of the assessbrs concerned with farm properties have taken it. Some members of the State Farm- land Assessment Advisory Committee recommend that attendance in the course be made mandatory. In addition to more education, it has been recommended by some of the assessors interviewed that assessment practices would be improved if assessors were paid more and employed full-time. B. Relationship between Assessment at Farm Value and Assessment at Market Value The relationship between assessment at farm value and assessment at market value, along with the proportion of the tax base in qualified farms,determines the tax saving which is enjoyed.by participants in the program. Unfortunately, it is not possible to get all these important data directly. However, it is interesting to note from Table 2 that average assessment per acre of qualified farmland has remained relatively constant. During this period the average as- sessment of land based upon market value has undoubtedly risen substantially. As a result, the program now yields a substantially larger tax advantage to the farm owner than it did earlier. The increased participatio-n may be a reflec- tion of this change in tax advantage. Tax assessors in New Jersey are required to record assessment on the basis of both farm use and market exchange for all land in the preferential assess- ment program. However, they are required to report only the assessment at farm value, the assessment on which the tax is based. Assessors would have to be approached individually for market value assessments, and since some officials interviewed said it is not clear that these are public information, the data probably would be difficult to obtain. Because of the importance of the relationship between farm and market val- ues, we have felt it necessary to estimate the relationship, given the lack of direct assessment data. The estimates are given in Table 4. Since the estim- ation process required data from the Census of Agriculture, the most recent year for which estimates could be made is 1969 and the most detailed areal unit is the county. IKolesar, John.and Jaye Scholl, Saving Farmland, Princeton: The Center for Analysis of Public Issues, Inc., 1975. 153 New Jersey Case Study Table 4 ESTIMATED MARKET VALUE PER ACRE AND RELATIONSHIP TO FARM VALUE Farm value Market value per acre Farm Value Market value per acrel 2 3 divided by 4 minus 5 Incl. Bldgs. Excl. Bldgs. Market Value Farm value. 1969 1969 1969 % (1) (2) (3) (4) (5) Atlantic $ 257 $ 756 $ 488 53 $ 231 Bergen 802 2,865 2,380 34 1,578 Burlington 227 843 720 32 4:93 Camden 635 1,592 1,294 49 659 Cape May 522 501 361 144 Cumberland 422 541 387 .109 --- Essex 537 3,779 3,344 16 2,807 Gloucester 225 1,047 842 27 617 Hudson $34,513 $27,847 --- Hunterdon 166 1,125 944 18 778 Mercer 318 1,803 1,671 19 1,353 Middlesex 340 2,291 2,108 16 1,768 Monmouth 295 1,636 1,434 21 1,139 Morris 251 11788 1,566 16 1,315 Ocean 187 924 598 31 411 Passaic 840 5,372 4,582 18 3,742 Salem 132 527 394 34 262 Somerset 231 1,858 1,711 14 1,480 Sussex 122 836 731 17 609 Union 2,001 7,129 6,323 32 4,322 Warren 132 891 757 17 625 1) Summary of Data from FA-1 Forms for the 1969 Tax Year. (Col. 16 Col. 7) 2) 1969 Census of Agriculture, Vol. Area Reports (Part 8; New Jersey); Section 2, Table 1. 3) 1969 Census of Agriculture, ibid, less an assumed $20,000 of buildings & equipment per farm, 4) Column 1 + Column 3. 5) Column 3 minus column 1. In Table 4, col. 1, farm value per acre is computed directly from data on assessment and area for qualified farms reported in the annual report on the Farmland Assessment Act. Market value per acre (col. 2) is computed from Census of Agriculture data by dividing total value of land and buildings of all farms by the total number of acres of cropland. A second estimate (col. 3) was made after subtracting the estimated value of farm buildings from the total value of land and buildings. This estimation is open to question, since although farm houses, barns, and other structures have obvious value for operating a farm, in many cases the developer, who wants cleared land, may see them as having minimal or even negative value. Therefore, in doing the calculations, we have assumed a modest value of $20,000 per farm for buildings. The results of our calcula- tions given as the percent farm value is of market value assessment, and as market minus farm value are given in Figures 5 and 6. As expected, the largest differences are found near major metropolitan cen- ters. All the counties in the Trenton-New York area show average farm values at least $1000 per acre below market value. In several counties the difference is 154 Figure 5 ESTIMATED FARM VALUE AS PER CENT OF MARKET VALUE: NEW JERSEY 1969 0 0 .01 0 Loy'@=.330 m iles 10-1-9.9% 20-29.9% 30-39.9% 40+% no farms 155 Figure 6 ESTIMATED MARKET VALUE @O MINUS FARM VALUE PER ACRE: NEW JERSEY 1969 '0 I I MINIM-] 1: I IV I I L I I I I I I I I I 41 00 0 10 20 30 miles $2500+ 1000-2499 500-999 500- no farms 4 :H 156 New Jersey Case Study well over $2500. In remote counties of southern New Jersey, such as Cumberland, farm value is roughly equal to market value. The pattern is generally similar for farm value as a percent of market value. Near the large cities farm value is a small percent of market value. In the more remote areas demand for de- velopment is low, and so farm value is a substantial proportion of market value. C. Tax SavinRs The next logical question is: what is the average tax saving enjoyed by a qualified farm in each of the counties? A proper computationcannot be made easily, because once some properties are reassessed at farm value, the tax rate must be raised. Such a computation should be made at the level of the taxing authority, the minor civil division. We have market value assessment estimates for 1969 only at the county level, and, in addition, minor civil division data are not available on assessed farm value of qualified farms for 1969. There- fore, we have made a very simple computation which does not reflect the neces- sary readjustment of tax rate (Table 5). This computation must be interpreted as the maximum possible tax saving to a farm owner. In jurisdictions where farms make up a large portion of the tax base, the actual saving would be less than the estimate of Table 5, once the tax rate readjustment is taken into ac- count. Table 5 ESTIMATES OF AVERAGE UNADJUSTED TAX SAVING PER ACRE Market Value Tax Saving Gross2 Tax Saving as % of minus High Tax Medium Tax Income Gross Income Farm Value (4.1%) (3.4%) Per Acre -Per Acre3 (1) (2) (3) (4) (5) Atlantic 231 9 8 478 2 Bergen 1,578 65 54 713 9 Burlington 493 20 17 136 1 Camden 659 27 22 309 9 Cape May --- --- --- 122 Cumberland --- --- --- 270 --- Essex 2,807 115 95 278 40 Gloucester 617 25 21 328 8 Hudson --- --- --- 6,166 --- Hunterdon 778 32 26 129 25 Mercer 1,353 55 46 153 36 Middlesex 1,768 72 60 372 19 Monmouth 1,139 47 39 663 7 Morris 1,315 54 45 437 12 Ocean 411 17 14 437 4 Passaic 3,742 153 127 587 26 Salem 262 11 9 201 5 Somerset 1,480 61 50 112 54 Sussex 609 25 21 117 21 Union 4,322 177 147 2,523 5 Warren 625 26 21 143 18 1) From Table 3. 2) Computed from data in Table 4, 1969 Census of Agriculture. 3) 100 x Col 2 Col 4 157 New Jersey Case Study Unadjusted tax savings are computed for a medium tax rate (which is the median of the minor civil division rates for a sample of counties) and for a high rate (which_was found for the top 10 percent of the townships in the sampled counties). Savings based on the high tax rate range from $9 per acre for At- lantic County and $11 per acre for Salem County t 'o $153 for Passaic County and $177 for Union County. Savings based on the medium rate are proportionately lower. We have also computed tax savings as a percent of gross income from farm products (both per acre). These data, also given in Table 5, indicate that for the median county,.savings are 9 percent but for several counties, some of them important.agricultural counties, the savings are significantly larger. The counties with the highest percent savings are grouped between-New York and Trenton; relatively low tax savings are experienced in South Jersey. Tax savings as a percent of net income would be a more revealing figure, since costs of producing farm products vary substantially by type of crop, and the type crop grown is a function of closeness to cities and the effects that implies, such as high land values and alternate employment opportunities for the farmer. How- ever, reliable data on net income by county are not available. Finally, it is important to remember that in reality savings,must be computed over a taxing jurisdiction, such as a township, rather than over a county, and that in all jurisdictions some method must be found to compensate for the tax loss caused by a change in assessment of particular properties. IV. SANCTIONS ON CONVERSION If the use of land in the program is changed, the owner is subject to roll- back taxes. Cessation of farming is considered a change of use and is subject to rollback taxes, but assessors do not always levy rollback taxes in such a situation. When a change to urban use occurs, however, all assessors do levy rollback taxes. The rollback provision requires that the owner pay the current year's taxes based on assessment at market exchange value, and also, for the previous two years, the differences between taxes based on farm value assessment and taxes based on market value assessment. Effectively, this is a 3-year tax rollback. If an owner sells off a few lots, but continues to farm the rest of his holding, then the rollback applies only to the land sold off. The local assessor normally is alerted to a change in use by the local planning board when it gives preliminary approval to a subdivision plan. (Though the planning board is not required by law or regulation to pass on this inform- ation.) Notice of final approval is also sent to the assessor. When the Act first was administered, a number of buyers were caught unaware that they were*potentially liable for back taxes should they convert. Now, as part of the title search process, the tax collector is required by regulation to stamp "may be subject to rollback taxes" on reports on all properties in the program in addition to identifying the total taxes outstanding at the time of the search. Building permits are issued without noting the potential liability for rollback taxes. The local assessor is required to assess each qualified property at both farm and market value each year and to keep a record of each. Unless a change of use occurs, however, he must report only the farm value assessment, on which the tax is to be based. He must keep the market value assessment "on his card" so that rollback taxes can be computed, should a change in use occur. The prevalent opinion of those interviewed is that the rollback tax has little if any effect on the decision to sell. If there is a demand for land for urban expansion, the rollback tax expense is generally not an important factor in slowing sales. 158 New Jersey Case Study V. EFFECTIVENESS Nearly everyone interviewed stated that the preferential tax was beneficial for the farmer, and expressed a belief that without it a large proportion of farmers would have had to go out of business. Comments included "There wouldn't be a farm in New Jersey without it." (a state tax official); "It is the only law beneficial to agriculture which the legislature has passed in years" (a county agricultural extension agent); "One of the best things done for agriculture" (another county agricultural extension agent). Although all agreed that the preferential tax law may have been critical in enabling young farmers to keep farming., by reducing costs of operation, there was a general feeling that, if demand for land were strong enough, preferential taxation would not deter a farmer from selling, and, of course, when a farmer reaches retirement age and does not have an heir to carry on, he will sell any- way. A 1967 survey indicated that 16% of the participants in the program had children planning to farm,Ia small percentage but slightly larger than the 13% found for nonparticipants. one township assessor stated that tax considerations were minor once a sewer was installed and land was ripe for development. One county agent said that the program "probably had a slowing effect on development,but that it is hard to measure," another that "the program was one of the major considerations in slowing development of farmland." The Kolesar report, however, states that Ifthe law has been no more effective as a delaying mechanism than as an instru- ment of preservation," and that more effective mechanisms are municipal building moratoriums, Federal impoundment of sewer construction funds, and high interest rates.2 He agrees that it may have been helpful in preserving farming, "but preserving farming is not the same as preserving farmland. If there had been no Farmland Assessment Act, New Jersey might not have as much farming going on today, but it would have just as much land available for farming as it does now." An agriculture department official summed it up by stating the program is a "tax, not an open space, measure. It provides relief to farmers." All agricultural agents, however, agreed that the major problems forcing farmers out of business were labor difficulties and government regulation. "No one wants to work on farms, it is the bottom of the ladder" and the Govern- ment puts "unreasonable" requirements on housing for itinerant workers, and insists on "unreasonable" environmental safeguards. To many farmers (and agricultural extension agents) these government requirements appear to be "harrassment," and even when the requirement itself is not offensive, the accompanying voluminous paper work is. Although the preferential assessment program may help keep some farmers inbusiness, it probably has little effect in making it possible for young men to purchase land at a price at which they can afford to go into farming. It does not improve their competitive position with developers in the land mar- ket, since developers, too, can qualify for farmland assessment by renting their land for farming until'they are ready to develop. Kolesar3contends that the Act has encouraged speculation. He finds, on examining tax books, that "the amount of land owned by speculators far exceeded lKoch, et. al, op. cit. 2 Kolesar and Scholl, op. cit. 3Kolesar, op. cit., pp. 13-24. 159 New Jersey Case Study current assumptions," that land speculation under the Act occurred in virtually every part of the state, and that the most active areas were the rural-urban fringe townships of Burlington, Camden, Hunterdon, Mercer, Monmouth, Somerset, Sussex, and Warren Counties. The fact that buyers are less likely to be full- time farmers than sellers are is documented in a 1972 report by Nagle and Derr.1 Kolesar estimates that at a minimum one-tenth of all land under farmland assessment in the state is owned by "speculators, developers, and international conglomerates," and suggests that the proportion may be much higher. He also cites a forthcoming Cook College, Rutgers study which indicates that one half of the farms are being worked by tenant farmers. Many of these farms are owned by developers and land investors who have them farmed in order to keep their taxes low. The preferential tax program probably has resulted in putting more land on the farmland rental market. Generally, this has meant lower rents: in one county farmland which 10 years ago rented for $100 per acre, now rents for $15- $20 per acre, and some of it is available rent-free to farmers who would farm it and thereby make it eligible for farmland assessment while it is held for future development. A similar situation was reported in another county. VI. EQUITY The reduction in total assessed value due to preferential assessment must be made up by a higher tax rate on all property if a jurisdiction is to main- tain its public expenditure level. The increased rate results in a shift of tax burden to properties which do not enjoy the offsetting advantage of the re- duced (preferential) assessment. Most of this shift occurs locally, within the municipality or school district, since most of the property tax goes to support municipal government and local school districts. A substantial shift occurs among property owners within the wider context of a county, also, since a sub- stantial portion of property taxes supports county government. In 1973, pro- perty taxes in New Jersey were collected as follows: School Districts $1,518,784,000 Municipalities 526,004,000 Counties 504,843,000 $2,549,631,000 An additional minor shift occurs at the state level. State aid for schools is apportioned on the basis of taxable assessment. Therefore, when farmland in a municipality is assessed preferentially, assessment per capita goes down and as a result school aid to the municipality goes up. Corre- spondingly, urban areas which do not enjoy preferential assessment pay more taxes in order to provide for this shift. A 1972 study was made by Kolesar and Scholl of "the 151 municipalities which then experienced some measurable tax-impact from farm assessments."2 They estimated tax-rate increases resulting from preferential assessment to be as follows: 1George R. Nagle and Donn A. Derr, A Preliminary Analysis of the Data on Parti- cipants in the New Jersey Farm Real Estate Market, 1966-70, New Brunswick: N.J. Agricultural Experiment Station, Rutgers - The State University of N.J., 1972. 2Kolesar, John and Jaye Scholl, Misplaced Hopes, Miss2ent Millions, Princeton: The Center for Analysis of Public Issues, 1972, p. 11. 160 New Jersey Case Study 0 - 9.9% 48 municipalities 10 - 19.9% 30 20 - 29.9% 35 30 - 39.9% 20 40 - 49.9% 11 50% and above 7 As a group the 151 municipalities had an effective tax rate of 3.41 per- cent, slightly lower than the state average, but much higher than would be expected given the rural character of the municipalities. The report concludes that if they had not lost 1.7 billion dollars in ratables to the farmland assess- ment law, their tax rates would have dropped to an effective average of 2.87 percent. The 1975 Kolesar and Scholl report estimates that in 1974 non-farm owners paid a minimum of $41 million to compensate for the loss of ratables on farm- land, an average of $40 for every farm acre, most of it paid by therural non- farm property owner. VII. COST OF ADMINISTRATION Most of the administration of the program is carried out at the local level by the municipal assessor.. The assessor mails out an application each year to each land owner already qualified under the program. When he receives the com- pleted application, the assessor must determine whether each is qualified, and must assess each qualified property at farm value as well as in the normal manner, at market value. Determining eligibility would seem to take the most time -- the most careful assessors make two field surveys a year to determine whether each property is actually being farmed. Even though the state provides guideline figures, the estimation of farm value is time consuming for an assessor. One assessor estimated that the process added a couple of weeks work per year for him. Another, who has eight assessors under his supervision,estimated a total additional cost of $500 per year for his staff to administer the farmland assessment pro- gram. A third estimates that it takes more than twice as much time per farm to assess at both market value and at farm value as to assess at market value alone. Little or no administrative cost is experienced at the county level. At the state level, a farm value guideline study 1 is prepared each year for the Farmland Evaluation Advisory Committee by Rutgers, at a cost of $10,000. The State Division of Taxation also promulgates regulations from time to time, pub- lishes an annual report of data on the program, and from time to time gives help to assessors. An additional $10,000 is estimated by a tax official for these activities. Therefore, the State's cost of administration is estimated to be in the order of $20,000 per year. VIII. RECOMMENDATIONS FOR CHANGE The major concern expressed about the program is that it is relatively easy for people who are not farmers (i.e., speculators, developers, large cor- porations) to enjoy its benefits simply by renting their land to farmers. Even though this keeps land in farming in the short run, it probably increases e.g., Eleventh Report of the State Farmland Evaluation Advisory Committee (1974). Local Property and Public Utility Branch, Division of Taxation. 161 New Jersey Case Study the amount of land held by speculators and, therefore, increases the probability of development in the long run. The feeling was also expressed frequently that the law was meant to benefit only the farmer (a particular class of persons) as well as to keep land in agriculture. Recommendations for change, therefore, are aimed at making it more diffi- cult to qualify for preferential assessment. A bill now in committee (sponsored by Senator John Fay) calls for an increase in the rollback period from 2 to 5 years, and an increase in the minimum value of farm products produced. Evi- dently no thought has been given to charging interest on rollback taxes. A second recommendation is to institute a conveyance tax which would be a maximum of 10% of the sales price for land held a year or less, and would be re- duced by 10% for each year the land had been held. This recommendation is aimed particularly at the speculator. Kolesar and Scholl recommend that to patch up inequities, the law should be amended to restrict its benefits to designated agricultural districts, to demand a commitment to keep land in farming for a 10-year period, and to charge large financial penalities when the land is developed.1 Better education of assessors and more complete guidelines from the State Division of Taxation were also mentioned as needed improvements by those inter- viewed. The Director of the Division of Taxation is now working on such com- prehensive guidelines. He is also considering guidelines for the assessment of all land on which development restrictions may be placed in addition to land under farm assessment. Of particular concern are wetlands, over which the state exercises certain environmental regulations. In the absence of such guidelines, these are often assessed at a value based on ordinary development potential, i.e., market exchange value. Such an approach, combining controls and assess- ment which reflects the loss in development potential because of the controls, constitutes an alternative to preferential assessment. Since the controls re- main in force after sale, it probably would be more effective than preferential assessment as now practiced in New Jersey. This alternative implies, however, that New Jersey courts would sustain agricultural zoning, a conclusion for which there isas yet no evidence. List of Persons Interviewed State Government Harris Adams, Senior Field Representative, Local Property and Public Utility Branch, New Jersey Division of Taxation James Arnold, Chief, Research Section, New Jersey Division of Taxation Richard D. Chumney, Director, Division of Rural Resources, New Jersey De- partment of Agriculture Sidney Glazer, Director, New Jersey Division of Taxation Robert S. Johnston, Chief, Sales Ratio Section, Local Property and Public Utility Branch, New Jersey Division of Taxation Warren Mann, Chie f, Appraisal Section, Local Property and Public Utility Branch, New Jersey Division of Taxation John Van Zandt, Coordinator of Vital Resources, Division of Rural Resources, New Jersey Department of Agriculture 1Kolesar and Scholl, 1975, op. cit., p. 28. 162 New Jersey Case Study Local Assessors Charles Grayson, Montgomery Township,.Somerset County Marriott Haynes, Vineland, Cumberland County Fred McCoy, Morris County Vincent McGuire, Clinton Township, Hunterdon County County Agricultural Extension Agents Robert Gardiner, Salem County Robert Langloise, Gloucester County M. Ruizzo, Camden County Norman Smith, Cumberland County Rutgers University William Park, Chairman, Department of Agricultural Economics and Marketing, College of Agriculture and Environmental Science George Luke, College of Agriculture and Environmental Science 598 -330 0 - 76 - 12 163 I.C.l. DEFERRED TAXATION -- LONG ROLLBACK: HAWAII1 1. SUMMARY Hawaii is perhaps the most fascinating state to study for anyone concerned with the implementation of differential assessment in the context of a broad policy commitment to preservation ofagricultural land. It shares many common elements with other states in the vanguard of differential taxation experiments. Much of its best agricultural land lies directly in the path of strong urbanization pressures; Honolulu is one of the nation's fastest growing urban areas and shows every sign of continued, rapid expansion. Land value for agriculture, even for truck gardens, doesn't approach development value. Last, like Maryland, New Jersey, and California, among others, Hawaii recognized this conflict over a decade ago and moved to alter its tax laws in an effort to encourage farmers to stay on the land. Hawaii did more, however. Most important, and unlike any other state, it en- acted statewide zoning districts, including one district exclusively for agricul- ture. Winning political support for such a measure and sustaining it over the. years suggests that public attitudes and the political base in Hawaii are different than elsewhere.. A history of public land ownership, current land ownership and economic dominance by a handful of corporations, and concern with a too great-re- liance on imports all have been signifcant factors. All distinguish Hawaii from other states. Even given these differences, Hawaii's experiences since the early 1960's with both differential taxation and statewide zoning make it an essential locus for study. Hawaii now has entered a new phase of planning and legislation which further differentiates it from the other states. The Governor has proposed that the legis- lature enact a growth limitation and growth direction policy, to be accompanied by a commitment to preserve agricultural lands. Since this proposal follows close upon revision of the differential taxation laws and review and revision of the state zoning district boundaries, it suggests an implicit recognition that the tax and regulatory measures in effect for the prior decade did not prove sufficient in and of themselves to achieve the state's agricultural or quality-of-life goals. The legislature has directed the state administration to submit a state plan to it for adoption in 1977, so there will be early specification of the state's position on agriculture and growth. Given Hawaii's unique situation, it is essential to evaluate the experience with the differential tax laws in the context of local conditions, state zoning, and state growth control proposals. While the differential tax laws and state zoning are applicable throughout Hawaii, the focus of discussion will be the island of Oahu, since it is there that the conflict between agriculture and urbanization exists. The first period of experimentation extended from 1961 to 1974. One law -- the Land Use Law of 1961 -- launched both state zoning, under the aegis of the Land Use Commission, and agricultural land dedication. The Land Use Commission has established four zoning districts -- urban, rural, conservation, and agriculture. The urban district is supposed to include a 10- year development reserve. Regrettably the enabling act fails to provide policy 'Many people cooperated in providing the information on which this case study is based. They are listed in the Appendix, and their help is gratefully acknow- ledged. Special thanks is due to Herbert Welder, Property Technical Office, Department of Taxation for his unstinting commitment of time, resources, and ideas. 164 Hawaii Case-Study direction to the Commission as to whether preservation of prime agricultural land should or should not be given preference over urbanization. In fact, the Commission@ has approved 77 percent of the redistricting requests submitted to it, and the bulk of these have been for changes to urban use. The Commission also makes dis- trict boundary revisions on its own initiative. In 1974, the amount of land zoned for agriculture statewide was 48 percent, and on Oahu 37 percent. For Oahu, this was a decline since 1964 of 3.7 percent. Agricultural land dedication under the 1961 law was for 10 years, renewable indefinitely. Withdrawal required five years' notice. Violation of the dedica- tion provisions led to an obligation to.pay past taxes which would have been due plus a five percent penalty. Largely because farm assessments were low, except` on the urban fringe, there was little incentive for farmers to dedicate land. Between 1961 and-1973, only three percent of the land zoned for agriculture was dedicated. For dedications effective through 1969, there was .a .reduction in the agricultural land tax base of 5.1 percent statewide and of 9.2 percent for Oahu. This reflects a concentration of dedications near the urban fringe where assess- ments had been raised, reflecting the market's judgment that the zoning would be changed. Farmers dedicating land enjoyed a 61.7 percent reduction in their tax liability statewide; on Oahu the figure was 36.7 percent. A study limited to Oahu showed that 10 percent of the dedications between 1963 and 1972 were can- celled, almost All on the initiative of'the Department of Taxation for failure of the farmers to conform to the terms of the dedication. In 1973, the law was amended so that there are now two preferential tax pro- grams for agricultural land: a dedication program and a deferral program. The dedication program continues, revised to permit either a 20-year dedication in the agriculture district only with assessment at 50 percent of farm value or the pre-existing 10 year dedication with assessment at farm value. Notice of with- drawal may be given in the 19th or 9th years, respectively. Under the new deferral program, the Department of Taxation may classify land in the agriculture zone as agricultural for tax purposes and then defer taxes on land so classified which is used for farming. Under deferral, the farmer takes no initiative and may not even be aware that the land is subject to deferred taxes until successful petition to the Land Use Commission-for redistricting to urban or rural or upon subdivision into lots of five acres or less. Under dedication, a farmer can withdraw after giving proper notice and not be subject to rollback and the new 10 percent penalty taxes. It is not possible to withdraw under deferral, since the farmers did not apply in the first place. During 1973, the first year of the revised dedication program, area dedicated increased dramatically. During that year 360,625 acres were dedicated. 'Assuming, based on the Oahu data, that 90 percent of the land dedicated under the earlier program still is dedicated, this means that 414,355 acres, or 10 percent of the state, now is dedicated for farm use. Data on acreage for which taxes were de- ferred were not available. The Department of Taxation estimates that,-under both programs, between 10,- and 15 million dollars of taxes were foregone in 1974, in comparison to total real property taxes for land and improvements of 129 million dollars. In the two tax districts of Oahu, which include the farming areas of Ewa and Wahiawa farmlands, the assessment for dedicated farmland dropped 95 and 94 percent respectively.- While these figures would suggest that at substantial shift in the tax*burden has occurred, this probably is not so in that 1974 also was the first year of new, far higher farm tax assessments. Thus, the increased share of taxes which would have been borne by agricultural land has been avoided by those farmers in either the dedication or deferral programs. 165 Hawaii Case Study .Itis too soon to say what impact the two new programs will have on preserva- tion of farmland. While raised assessments provide an incentive to dedicate land, this does not mean that the dedications will not be cancelled when development opportunities appear. Whether those opportunities in fact appear depends in large part on the Land Use Commission. II. BACKGROUND Hawaii's need for and problems with preservation of agricu ltural land are unique. Geographic isolation, limited cultivable land, rapidly growing population, and a narrow and unpredictable economic base all have combined to generate a growing desire for greater agricultural self-sufficiency. Governor George Ariyoshi has called for two related legislative commitments, one to diversify agriculture and increase self-sufficiency and the other to limit growth and direct much of it away from Oahu to the Neighbor Islands.1 To understand better the justification for the Governor's requests, a brief review of conditions in Hawaii today follows. A. Geography The state of Hawaii consists of eight large islands -- Niihau, Kauai, Oahu, Molokai, Lanai, Kahoolawe, Maui, and Hawaii -- and 124 small islands. Together, these islands have a combined area of 6,425 square miles, or over four million acres. The "Big Island," Hawaii, is larger than all of the others combined. Table 1 ACREAGE BY COUNTY a Acres Percent Kauai 404,936 .10.0 Hawaii 2,501,132 62.0 Honolulu 381,934 9.5 Maui 747,561 18.5 All 4,035,563 100.0 aThe county of Kauai includes the islands of Kauai and Niihau; the city and county of Honolulu includes the island of Oahu and the Northwestern Hawaiian Islands; and the county of Maui includes the islands of Maui, Kahoolawe, Lanai, and Molokai. Since the islands are volcanic in origin, the topography is rugged. The high peaks and ridges affect precipitation so that portions of the island of Kauai, for example, have over 450 inches of rain yearly while much other land is a virtual desert. Areas of good soil on gentle to moderate slopes with ade- quate rainfall are limited. The state, working with Dr. Howard Baker of the University of Hawaii, has defined and mapped five classes of agricultural land. Class A is the best land, Class E the poorest. Both Class A and B lands are described as prime agricul- tural land. 1A term used to refer to the seven major islands other than Oahu. 1616 KAUAI OAHU rttOLOKAI HONOLMU @ @vl LAINAI KA1100LANVE Figure I HAWAII: PRINCIPAL ISLANDS & COUNTY BOUNDARIES Hawaii Case Study Oahu, with 10 percent of the state's land area, has 54 percent of the Class A land and 10 percent of the Class B land. Two-thirds of the Class A land is in holdings of 5,000 acres or more. Furthermore, the Class A and B lands are con- centrated in the two districts most subject to urban pressures; Ewa's 38,000 acres are 45 percent Class A and 36 percent Class B, while Waialua's 28,000 acres are 40 percent Class A and 43 percent Class B. Hawaii, with 62 percent of the state's land area, has only one percent of the Class A land but 50 percent of the Class B land. B. Land Use Steep slopes and either excessive or deficient rainfall combine to limit the agricultural utility of substantial portions of the islands. For the state as a whole, vacant land, grazing land, and forest reserves are the major use categories, together constituting 70 percent of the land. While sugar and pineapples are the major agricultural products exported from Hawaii,,only 6.4 percent and 1.7 percent, respectively, pf the land is cultivated for these crops. Other fruit, vegetables, and specialty crops are grown on small amounts of good quality land. Table 2 PRINCIPAL LAND USES, BY PERCENT OF ACREAGE Land Use Kauai Hawaii Honolulu Maui All Agriculture Livestock 25.0 19.9 16.9 28.4 Sugar 20.1 10.5 Forest Reserve 32.5 24.3 30.5 17.4 29.4 Private Vacant 33.3 27.2 12.4 Urban 14.6 7-7.6- T7-.5 55.6 @T_5 70.2 Sources: Land Inventory Reports for Kauai, Hawaii., and Maui Counties for 1972; Data Book for Honolulu, 1968 data. Only uses in excess of 10 percent shown. Only the island of Oahu has a substantial amount of land in urban uses and only there does competition between urban and agricultural uses exist. -The next table shows the mix and amount of urban uses, by acreage, on Oahu in comparison with that on all of the Neighbor Islands. . Given approximately 100 '000 acres of good agricultural land on Oahu, if ur- banization there continues at a rate of between 2.5 percent and 3 percent annually, Robert Way, Director of the Department of General Planning, City and County of Honolulu, predicts that 10,000 acres of this land will be urbanized over the next 20 to 30 years. 168 Hawaii Case Study Table 3 LAND USE, OAHU AND NEIGHBOR ISLANDS a Oahu, 1969 Neighbor Islands, 1971, 1972 Acres Percent Acres Percent Residential 22,676 5.9 40,814 i.1 Industrial 6,305 1.7 10,045 .2 Commercial 1,645 ..4 784 --- Hotel 98 --- (category not included) Services (category not included) 64,559 1.8 Public Facilities 5,226 1.4 2,711 .1 Transportation 8,495 2.2 .14,570 .4 Urban Subtotal 441445 11.6 133,483 3.6 Military 47,650 12.5 --- --- Public Open Space 7,795 2.0 89,003 2.4 Agriculture, 88,740 23.2 1,144,195 31.3 Unused Open Space 193,304 50.6 2,287,079 62.6 Non-Urban Subtotal 337,489 88.3 3,520,277 96.3 TOTAL 381,934 99.9 3,653,760 99.9 aThe "Urban" total in this table consists of some different compone nts than those in Table 2. The forest reserve is included as part of "Unused open space" in this table. As there will be other inconsistencies in the data presented in this report, it is necessary to note that the state has no common base map and that various agencies collect, map, and classify data in various ways. Source: "Hawaii County Land Inventory Report: 1972." C. Land Ownership The islands of Hawaii were brought together under a common government by King Kamehameha I in the late 18th century. The land at that time was all in possession of the Crown. Later, in the 19th century, some land was given to in- dividuals to own privately, but the bulk continued to be held by the Crown. Many Hawaiians attribute current public support for extensive state regulation of land use to this history of public ownership of land. The United States annexed Hawaii as a territory in 1898,. and statehood was approved by Congress in 1959.. Even today, state ownership of land is high, at 38 percent, in comparison with other states. However, Federal ownership, at 9-percent, is low, particular- ly in comparison with the western states. The pattern of ownership of the 53 percent of Hawaii which is in private hands contrasts sharply with that prevailing in the rest of the United States. Individuals or corporations owning 1,000 acres or more hold 47 percent of the state's land. Detailed data, only available for Kauai and Maui, show the concen- tration of land ownership in those counties. 169 Hawaii Case Study Table 4 LAND OWNERSHIP BY PERCENT OF ACREAGE Kauai Hawaii Honolulu Maui All Private Tracts of 1000 ac. 61.6 52.8 68.8 68.1 53 or more Gay & Robinsona 25.4 Amfac 2.4 Grove Farm 5.6 Alexander & Baldwin 5.3 7.4 Castle & Cookeb 11.9 Molokai Ranch 9.1 Other private 17.9 39.7 State 33.2 39.2 15.4 20.7 33.8 Hawaiian Home Landsc 4.3 1.3 5.4 4.6 Federal .6 8.0 14.5 5.7 8.6 County .3 --- .1 --- 100.0 100.0 100.0 100.0 100.0 Data on large private holdings not available for Hawaii or Honolulu. The state's largest private owner is the Bishop Estate, which holds nine per- cent of the state. aGay and Robinson owns 98.9% of the 47,217 acre island of Niihau. bCastle and Cooke owns 99.5% of the 89,071-acre island of Lanai. Along with Amfac and Alexander & Baldwin, C. Brewer & Company, and Theo. H. Davies, these are the dominant sugar companies which exert tremendous economic power on Hawaii. c Restricted to persons of at least 50 percent Hawaiian extraction. Sources: Land Inventory Reports for Kauai, Hawaii, and Maui Counties, data as of 1972; "The State of Hawaii Data Book 1974," for Honolulu and the state as a whole, data as of 1968. Farm acreage and size statistics also reveal this concentration of land hold- ings. Ninety-six percent of farm acreage, or nearly two million acres, is held by 202 farm operators. This is only five percent of all farms. Conversely, eighty- five percent of farms are under 50 acres, while 52 percent are under 10 acres. Thus, the overwhelming number of farmers in Hawaii have small farms, while farm acreage is almost wholly in large holdings. Trends since 1946 show a very gradual decline in farm acreage but a drop from 5,500 to 4,900 farms, with most of the decline due to small farmers selling out. There is a great disparity in the interests of the small farmers and of the giant corporations which control most of the land. There also is a disparity in the treatment each group receives from agencies of the state. Of particular concern here is differing treatment under the tax and land use laws. 170 Hawaii Case Study Table 5 NUMBER OF FARMS, BY SIZE, 1969 Size (Acres) Kauai Hawaii Honolulu Maui All % 1-9 185 1,066 555 218 2,024 52 10-49 125 832 153 171 1,281 33 50-259 47 227 32 83 38.9 10 260 and over 18 116 28 40 202 5 Total 375 2,241 768 512 3,896 100 Table 6 FARM ACREAGE BY TYPE OF FARM, 1969 1 (Thousands of Acres) Farm Type Kauai Hawaii Honolulu Maui All % 260 ac. and over 265 1,158 138 420 1,982 96 Harvested Cropland 29 64 31 55 179 9 Irrigated 42 9 41 53 146 7 All Acreage 273 1,203 147 435 2,058 This table shows two different types of information: farm acreage in large tracts and farm acreage in two types of farm use. For comparison total farm acreage is given. Since the categories overlap, the entries in the table sum to amounts greater than the "All Acreage" total. Source of Tables 5 and 6: "The State of Hawaii Data Book 1974." Although private leasing of public land, particularly for grazing and forestry, occurs frequently in other states, leasehold interests are more common in Hawaii than elsewhere. There one finds large-scale leasing of private land to private lessees, typically to sugar and pineapple growers, but also often to residential developers. In the agricultural context, leasing is an acceptable form of land tenure. However, the practice has been challenged by home owner-lessees who, in 1967, won passage of state enabling legislation authorizing state condemnation of the fee to their tracts followed by resale to them. The law has yet to be tested. Former Governor Burns was reputed to have been concerned that the courts would hold such a condemnation not to be for a public purpose. In 1975, the legislature has before it a bill appropriating funds for a test condemnation under the Act. Governor Ariyoshi has announced that the state will move in a different direction, namely to assure continuation of agricultural use on leased lands. The state plans to condemn some leasehold rights on Kauai so as to re-lease the land for agricul- tural use at a low rent. 171 Hawaii Case Study Table 7 LAND TENURE BY PERCENT OF LAND Tenure Kauai Hawaii Maui Fee simple 83.2 77.1 83.1 Private 57.0 40.8 60.0 Public 26.2 36.3 23.1 Leasehold 16.8 22.9 16.9 From Private Owners 5.0 12.1 8.2 From Public Owners 11.8 10.8 8.7 Total 100.0 1001.0 100.0 Sources: Land Inventory Reports for Kauai's, Hawaii, and Maui Counties. Similar data were not available for.Honolulu and for the state as a whole. .D. Population Hawaii's salubrious climate and aloha spirit have been most res ponsible for the rapid growth of both resident population and tourists. Not to be ignored is the 15 percent of the population stationed there by the U.S. Department of Defense. The 1974 population of 847,000, up from 500,000 in 1950, is concentrated on the island of Oahu, principally in the Honolulu metropolitan area. Of all the islands, only Oahu is densely populated, with 1,225 people per square mile. Table 8 POPULATION, 1974a Resident Population Area Density County (Number) Percent (Square Mile) (Square Mile) Kauaia 31,600 3.8 619.1 57.8 Hawaii 72,200 8.5 4,037.0 19.3 Honolulub 691,200 81.6 595.7 1,224.9 Mauic 51,900 6.1 1,173.6 50.2 846,900 100.'U T,425.4 140.4 aIncludes 240 people on Niihau. bIncludes 55,000 military people and 68,000 military dependents, and 51 people on the Northwestern Hawaiian Islands. cIncludes 2,200 people on Lanai and 5,200 on Molokai. Source: "The Population of Hawaii, 1974." 172 Hawaii Case Study Honolulu District, with a 1974 population of 342,300, is the only large city. The largest urban concentrations on the other islands, as of 1970, were Hilo, on Hawaii, with,a population of 26,353; Kahului, on Maui, with 8,280 people; and Kapaa, on Kauai with 3,794 people. The state has been growing at a rate of 2.2 percent per year, since 19632 1and the Honolulu suburbs have been absorbing most of that growth. Between 1970 and 1974, the city grew 5.4 percent, while the suburbs grew 14.2 percent. The Ewa District, consisting mostly of prime agricultural land, grew 19 percent. 'By 1974, the suburbs exceeded the city in total population. E. Economy Hawaii has been and continues to be heavily dependent on the rest of the United States and on foreign countries. Eighty percent of the goods and services purchased in Hawaii are imported. Exports--Federal defense spending, tourism, and crops--are the State's principal income sources. Tourism was number one in 1973, bringing in 890 million dollars. Federal defense spending was a close second at 840 million dollars. Sugar, at 222 million dollars,3 and pineapples, at 145 million,dollars,3 were next in order of importance. Although Federal defense spending and tourism have increased rapidly in the past decade, the state ad- ministration is aware that both are sources of income beyond the control of the state. Pineapple production has been declining ag pineapples produced more cheap- ly in Southeast Asia compete successfully for an increasing share of the market. Often it is the same companies growing pineapples in Hawaii who have bought land for pineapples an Formosa, the Phillipines, or elsewhere, and who now wish to convert their Hawaii land to other uses. The state government's response to these economic realities has been to encourage greater diversification of agriculture, both to make the islands more self-sufficient and to increase exports of other crops. This effort is meeting with some success; however, as the accompanying table shows, sugar and pineapples remain dominant. Most meat and vegetables still are imported. Per capita income rose 106 percent from 1963 to 1973 when it reached $5,435. It is $1,500 higher on Oahu than on the Neighbor Islands.4 During the same de- cade, per capita taxes rose 169 percent, to $688. Taxes, in 1973, were 13.7 percent of income, placing Hawaii ninth in the United States in this respect. The state collects the bulk of the taxes, relying on the excise and income taxes for most of its revenues. The real property tax is a county tax, which, in 1973, accounted for 17.9 percent of state and county tax collections5 and 51.4 percent of county tax revenues. There is no legal government other than the counties, so there are no other districts which levy and collect taxes. 1The term "City and County of Honolulu" refers to the island of Oahu, while Honolulu District is the urban concentration which elsewhere would be called a city. 2The United States growth rate during that period was 1.1 percent. 3Processed value. 4Dinell, Tom, "Filling the Calabash: How Much Is Too Much?" Pacific Library Studies and Planning Program, University of Hawaii, Honolulu, December 1974. 5In 1967 and 1968, Hawaii was 49th in the percent which the property tax was of all state and county taxes. For the United States, the average was 43 percent. At that time, California derived 50 percent of state and county taxes from realty, Oregon 47 percent, and Washington 31 percent. See "Taxation As A Tool of Planning." 173 Hawaii Case Study Table 9 VALUE OF CROPS AND LIVESTOCK, 1973 (Millions of $) Crops & Livestock Kauai Hawaii Honolulu Maui All Sugar Cane 30.8 52.9 24.3 33.9 141.9 Pineapples ---- ---- 13.5 26.1 39.6 Vegetables & Melons .5 2.5 4.0 2.1 9.1 Horticultural Specialities ---- 2.5 3.2 .6 6.3 Other Fruits .3 3.9 .9 .4 5.5 Other Crops .8 4.5 .6 1.0 6.9 All Crops 32.4 616.3 46.5 @4-.l 209.3 Cattle 1.5 12.1 1.6 4.6 19.8 Milk 3.Oa 13.5 16.5 Effs 1.0b 1.4 8.9 11.3 Hogs .2 .7 3.0 .8 Other Livestock ---- .4a 2.6 3.0 All Livestock 2.7 17.6 29.6 5.4 55.3 Total 35.-l 83.9 76.1 69.5 264.6 aIncludes Kauai and Maui. bIncludes Maui. Source: "Statistics of Hawaiian Agriculture, 1973." Table 10 STATE AND COUNTY TAX COLLECTIONS, 1973 Type of Tax Amount ($ Millions) Percent State General Funds 'General excise 211 35.6 Specific excise and others 49 8.4 Personal income 135 22.8 Corporate income 17 2.8 412 State Special Funds State fuel 20 3.3 Unemployment compensation and licenses 24 4.1 44 County Funds Real property 106 County fuel and motor vehicle -30 5.1 136 source: "Government in Hawaii." Tax Foundation of Hawaii, 1974. 174 Hawaii Case Study Table 11 COUNTY TAX REVENUES, 1973 Percent Distribution Amount State Federal County (millions) Real Property Grants Grants Other Kauai 10 36 31 14 19 Hawaii 25 47 17 19 17 Honolulu 156 54 5 18 23 Maui 15 42 23 12 23 206 Source: "Government in Hawaii," Tax Foundation of Hawaii, 1974. Real property is supposed to be assessed at 70 percent of market value. The 1973-1974 net taxable value of agricultural land was 395 million dollarsl or 6 percent of the total net taxable va'lue of all real property in Hawaii. Farm land accounts for 85 percent of the total net taxable value of farm land and improvements. Taxes derived from farm lands also constituted six percent of all state and county.estimated tax collections.2 The 1974 tax rate on realty averaged $17.44 per $1,000 assessed value, ranging from $15 for Maui to $17.90 for Hawaii. F. Growth Planning The state's Department of Planning and Economic Development has published "State of Hawaii Growth Policies Plan: 1974-1984," which predicts that, without controls, growth is likely to be 2.8 percent per year, with the population reaching 1.1 million by 1985. The plan notes that, although state policy is supposed to be to divert growth to the Neighbor Islands, the proposed development of a second University of Hawaii campus at Ewa and the proposed construction of two more free- ways on Oahu would be public investment growth generators directly in conflict with this policy. The plan recommends limiting state growth to 1 2/3 percent per year and limiting Oahu's growth to 1.4 percent per year. The Neighbor Islands I would be allowed to grow between two and three percent annually. Some of the means to implement these recommendations would be: (1) reduce in-migration by publicizing "...the very real lack of jobs, cost of housing, and isolation from the mainland..."; (2) limit amount of Oahu land reclassified from agriculture to urban; (3) develop state parks and agricultural parks to block urban expansion into prime agriculture land; and (4) issue licenses for new hotel rooms. Governor Ariyoshi asked the 1975 session of the legislature to endorse a slightly modified version of this proposal.. His "Selected Growth Policies Plan" calls for an overall annual growth rate of 1.7 percent, with Oahu limited to 1.5 percent. Hotel growth on Oahu would be held to 3 percent per year, while a 9 per- 111Government in Hawaii," Tax Foundation of Hawaii: $33 million for Kauai; 225 million for Hawaii, $72 million for Honolulu, and $65 million for Maui. For the 1974-1975 fiscal year, the total net taxable value of all real property rose to $8.3 billion; the net taxable value of farmland rose to $954 million. Department of Taxation data. 2Estimated agricultural collection, $8 million, x 85% 4- estimated total collection, $119 million. 175 Hawaii Case Study cent rate would be sought for the Neighbor Islands. More aid would be pro- vided to diversified agriculture,and to low and.moderate income housing. Inter- island water transportation would be encouraged. The legislature did not act on this proposal. The administration also sought and received a legislative mandatel for a state plan to be submitted for approval to the legislature in 1977. The Director of the Department of Planning and Economic Development is responsible for the -development of the plan, subject to the advice of a policy council consisting of the county planning directors and the directors or chairmen of a number of state agencies, all serving ex officio. Within two years of legislative adoption of a state plan, county plans are to be amended to conform to it. The City and County of Honolulu has a large and competent planning staff which has devoted considerable effort to development of a general plan. As Robert Way, Chief Planning Officer, of the Department of General Planning, ex- presses it, while the state debates growth limitation, people keep moving to the Honolulu metropolitan area, placing more and more pressure on the limited bousing stock. Until the -re are effective state growth controls, the county government must zone sufficient land to accommodate the newcomers. This presents a direct conflict with the goal of preserving agricultural lands. As the General Plan says,: "Urban uses have been competing successfully with agricultural uses. At the present time, a large portion of the lands best suited for agriculture is located in the metropolitan area. As anticipated, it is not the marginal farm lands but the best lands that are most attractive for urban development. There can be no doubt that one of the serious planning problems on Oahu today is the situation created by sprawling and scattered housing subdivisions, depleting our best agricultural lands and requiring the extension of expensive community facilities ... One of the principal objectives of the General Plan is to further our agricultural economy. Not only is there a need to make Oahu self-sustaining but there is a need also to curb urban sprawl which encroaches upon agricultural lands." Three development pattern alternatives are explored in the General Plan: (1) intensive development, which would cause no loss of agricultural lands; (2) moderate expansion, in which low and moderate income housing would be located, in.parts of the Ewa and Windward districts on good agricultural land; and (3) directed growth, in which there would be a high density development corridor reaching out from Honolulu past Pearl City toencompass much of Ewa. The last alternative is the one favored by the Department of General Planning, even though it would lead to considerable furtherencroachment on prime agricultural lands. III. THE LAND USE COMMISSION A discussion of the City and County of Honolulu's plans for development on Oahu leads necessarily to consideration of the policies and powers of the state Land Use Commission, since the Commission determines the ambit of-the county's jurisdiction.. IAct 189, 1975. 176 Hawaii Case Study A. Statutory Authorization The law creating the Land Use Commission was enacted in 1961. 1 It provided for a nine-member commission, seven of whom are appointed by the Governor, one from each senatorial district and one at large. The two other members, who serve ex officio, are the Director of the Department of Planning and Economic Develop- ment and the Chairman of the Board of Land and Natural Resources. The Commission is located within the Department of Planning and Economic Development. The law directed.the Commission to establish three land use districts-- agriculture, conservation, and urban--encompassing all lands within the state. The law was amended in 1963 to provide for a rural district, with a minimum lot size of one-half acre. The law further specified that the Department of Land and Natural Resources would regulate land use within the conservation district. While the counties may zone within the other three districts, the zoning in the agri- culture and rural districts may not permit uses contrary to those specified by statute. For the agriculture district, the statute lists .crops, grazing, forestry, animal husbandry, accessory uses, and open air recreation facilities as permitted uses. Therefore, while the City and County of Honolulu may plan for all of Oahu, it has freedom to implement its plans only in those areas which the Land Use Commission has designated as urban. The county administration may, of course, attempt to persuade the Commission that its plans for Oahu should serve as a guide for Commission action in,altering district boundaries. However,,the Commission is equally free to.reject such recommendations. There has been, and continues to be, disagreement between.the Commission, and the City and County of Honolulu. Regret- tably,-the Land Use Law failed to,provide policy guidance for the Commission as to priorities between,urbanization and agriculture, either for the state as a whole orfor specific locations. Therefore, the Commission has relied on its own best judgment in setting district boundaries. As Tom Dinell, Director of the University of Hawaii's Pacific.Urban Studies and-Planning Pro .gram, has said: Hawaii might well have suffered rampant urban sprawl without state land use classification and control, but it would be incorrect to conclude that state intervention has come any- where near resolving conflicts,over land use or has led to the formulation of a clear, statewide land use policy. Dis- putes between the Land Use Commission and the four counties .have been frequent. In recent years citizen protests against proposals f6r'rec 'lassification,and the manner in which the Land Use Commission conducts its affairs have.increased vast- ly.2 One indicator of disagreement is that there are areas on Oahu restricted to agricultural or conservation use by the Commission'which the General Plan of the City and County of Honolulu envisions as urban and, conversely, substantial areas in the Commission's urban district which the County has planned for agriculture. For instance, 1,700 acres shown on the Honolulu plan as agricultural was re- districted urban during the 1974 boundary review.3 Not surprisingly, given this context, Mr. Way, the Chief Planning Officer for Honolulu, does not share Mr. Dinell's views about the Land Use Commission. 1Act 187, Land Use Law, formally titled "An Act Relating to the Zoning Powers of the State and the Assessment of Real Property Based Upon Zones Established by the State..." 2lf Filling the Calabash: How Much is Too Much?" 3Conversation with Robert Way. 177 Hawaii Case Study I believe that the Land Use Law provided some protection and guidance to the Neighbor Islands. My view is that the Land 'Use Commission is, and historically has been, more of a hin- drance than a help on Oahu.1 The Commissionis 1975 Rules2 do provide criteria for setting district boundaries. The urban district is to include a reserve sufficient for ten years' growth, with lands contiguous to existing urban areas to be favored, particularly when a county or state plan shows them to be suited to urban use. The rules per- taining to the agriculture district state that: Lands in intensive agricultural use,or lands with a high capa- city for intensive agricultural use should not be taken out of this District unless the'Commission finds either that: (1) such action will not substantially impair actual or potential agricultural production in the vicinity of such lands, and/or (2) such action is reasonably necessary for urban growth. This wording suggests some preference for urban use over agriculture. A review of the Commission's actions over the past decade supports such an inference. B. Boundary Changes The Land Use Commission established interim district boundaries in 1962 and final boundaries in 1964. There are two ways in which changes in these boundaries occur: (1) a landowner, lessee, or government agency may petition the Commission or the Commission may initiate action, and, after a public hearing and advice from the county, the Commission may order a revision; and (2) the Commission itself is required to conduct a review every five years and make such changes as it deems advisable. The acreage and percent in each district initially, after completion of the 1969 review, and in 1974, prior to approval of the second boundary review recommendations, is shown for Oahu and the Neighbor Islands in the Table 12. Since the state has but 410,000 acres of prime agricultural land, obviously much that is not prime also is classified agricultural. For Oahu, however, with 205,000 acres of prime agricultural land, only 144,000 acres are classified ag- ricultural. Between 1964 and 1974, there was a 3.7 percent decline in the amount of Oahu land classified agricultural, a 1.4 percent increase in the conservation classification, and a 2.4 percent increase in the urban classification. The most significant figure to note here is the net change from agriculture to urban of 1,409 acres, most of which is located in the large, fertile valley extending from Ewa to Wahiawa. It is said by many that the Commission has been too free with interim boundary changes, particularly in response to requests from large estate owners. Edward ,Tangen, Chairman of the Commission, says that this was true but that policy has changed since 1970, when he became Chairman. He notes that since 1973, the Commiss- ion has been attaching conditions to many of the interim changes. Letter from Robert Way, dated June 18, 1975. 2Rules of Practice and Procedure," Land Use Commission, State of Hawaii, January 5, 1975. 178 Hawaii Case Study Table 12 AREA IN STATE LAND USE DISTRICTS, 1964, 1969 AND 1974 Oahu Neighbor Islands Total District Acres Percent Acres Percent Acres Percent Urban 1964 75,700 19.6 42,100 1.1 117,800 2.9 1969 82,593 21.4 57,569 1.5 140,163 3.4 1974 84,093 21.9 63,379 1.7 147,472 3.6 Rural 1964 ---- ---- 6,700 .2 6,700 .2 1969 6,375 .2 6,375 .2 1974 ---- ---- 8,872 .2 8,872 .2 Agriculture 1964 158,200 41.1 1,966,200 52.8 2,124,400 51.7 1969 145,906 37.9 1,809,969 48.6 1,955,875 48.3 1974 144,286 37.4 1,824,441 48.9 1,968,727 47.9 Conservation 1964 1512400 .39.3 1 711,200 45.9 1,862,600 45.3 1969 156,801 40.7 1:852,286 49.7 2,009,087 48.9 1974 156,921 40.7 1,829,508 49.1 1,985,429 48.3 Total 385,300 100.0, 32726,200 100.0 4,111,500 100.0 There were 21 boundary changes totalling 5,280 acres approved by the Commission for Oahu as part of the 1974 boundary review. These changes were as.follows, To a less intensive classification: Urban to Agriculture 349.7 Urban to Conservation 339.2 688.9 To a more intensive classification: Agriculture to Urban 1,758.3 Conservation to Urban 23.7 1,782.0 Retained in low intensity classification: Agriculture to Conservation 240.0 Conservation to Agriculture 2,568.8 2,808.8 Kem Lowry of the University of Hawaii's Pacific Urban Studies and Planning Program is studying the interim boundary decisions between 1964 and 1974. Of 257 petitions, he reports that 59.5 percent were approved in full and 17.5 percent in part for a total of 77 percent. Two hundred and fifty of the 257 requests were for more intensive use. Petitions by owners of parcels of 150 acres or more were approved 83.9 percent of the time. Lowry found no change in the rate of approvals over the decade. He also found that high agricultural productivity of land has not deterred the Commission from approving red istricting to urban uses. 598-330 0 - 76 - 13 179 Hawaii Case Study A review of the Land Use Commission's records pertaining to interim boundaries changes for Oahu shows that, between 1962 and January 1975, 52 request to redistrict from agriculture to urban were acted upon. Of these, 43, or 83 percent, were approved in whole or in part. These data lead to the conclusion that the Land Use Law, as applied by the Land Use Commission, has been but a modest impediment to those landowners wishing to convert from agricultural to urban uses. Of course, it is possible that the existence of the Land Use Commission districts has deterred some land owners from seeking to develop. C. Future Portents The 1975 legislative session enacted several changes in the Land Use Law. 1 One authorizes the Commission to create agricultural parks. These would be areas for intensive cultivation surrounded by buffers to assure separation of offensive agricultural activities from nearby urban uses. The Commission already has taken the initiative to establish the first such district. Kunia consists of a 500- acre area for raising pigs, poultry, and feed grains surrounded by a 200-acre buffer. Another change adopted is to alter the type of hearings held by the Commission to quasi-judicial adversary proceedings. A third debate foc 'ussed on the current lack of a state plan and the resulting absence of policy guidelines for the Commission. Pending legislative adoption of a plan, likely to occur in 1977, two possibilities were considered. One would have required the Commission to conform to county plans, the other--the one adopted-- sets interim state guidelines. The interim guidelines include the following pro-' visions: "(1) Land use amendments shall be approved only as reasonably necessary to accomodate growth and development, provided there are no significant adverse effeets upon agricultural ... resources...' (4) Urban districts shall be contiguous to an existing urban district or shall constitute all or a part of a self-contained urban center; ... (6) ... the Commission shall give consideration to the general plan of the county; (7) Insofar as practicable conservation lands shall not be reclassi- fied as urban lands.'12 Those favoring the latter alternative, including Senator Jean King, who chairs the Committee on Ecology, Environment and Recreation, believe that tying Commission decisions to the Oahu plan would lead to too many reclassi- fications from agriculture to urban. Commission Chairman Tangen also opposed the county plan alternative on the ground that some of the county plans are incomplete and therefore offer inadequate guidance. Given the present administration's commitment to agriculture and to state planning, it is highly probable that within a couple of years the Commission will receive more explicit policy directives from the legislature supporting preserva- tion of prime agricultural lands. Act 193, 1975. 2Act 193, 1975, amending Ch. 205, H.R.S. by adding §205. 180 Hawaii Case Study IV. THE 1961 DEDICATION LAW Act 187, the Land Use Law of 1961, not only mandated state zoning but also provided for dedication of land for agricultural use. The purpose of the Act is: "...to preserve, protect and encourage the development of the lands in the State for those uses to which they are best suited for the public welfare and to create a complementary assessment basis according to the contribution of the lands in those uses to which they are best suited." This statement of purpose was ampli- fied by dedication authorization. The Land Use Law contains one further, hortatory provision with regard to assessments. The Department of Taxation is directed to "...give consideration to the use or uses that may be made ..." of land in a given district. Thus, pre- sumably, if land were zoned exclusively for agricultural use, this fact would be taken into account by the Department in making assessments. If -the assessor had reason to assume that the zoning would remain in force indefinitely, then the assessment should be at farm use value. Under these circumstances, there would be no incentive for farmers to dedicate their land. However, if, on the contrary, the assessor observed that the Land Use Commission readily granted petitions for redistricting, then proper assessment practice would dictate use of market value as the assessment basis. In this latter case, farmers wishing to retain their land in farm use (and obtain tax reductions) would have reason to express their commitment by dedicating their land. of course, the same conditions would not be expected to prevail statewide. In some locations, farm use value and market value would be the same regardless of zoning. Near urban development, the pressure for redistricting could be ex- pected to be great and, given the directive of the Land Use Law that incremental urbanization should @e preferred over spot zoning, the willingness of the Land Use Commission to r,-:@district might be expected to be greater there than elsewhere. - In fact, there was little use of the dedication provisions of the Land Use Law. In many parts of the state, assessments had been low, and continued to be, so few farmers dedicated land. Near urban areas, the Department of Taxation, as well as the land market, calculated that the Land Use Commission would be quite free with redistricting and therefore market value reflected development value. Even though assessments rose on the urban fringe, few farmers there dedicated land, reflecting a preference for flexibility over reduced assessments. After the law had been in effect for seven years, dedicated land statewide was valued, prior to dedication, at 5.1 percent of the total 1969 assessed value of all farmland; for Oahu the comparable figure was 9.2 percent. Assessment at this period were supposed to be at 70 percent of highest and best use value, although there is evidence that much farm land was assessed at as low as 10 per- cent of highest and best use value. A. The Statute and Amendments Act 187 authorized landowners, or lessees with remaining lease terms of at least 10 years,1 to dedicate land in the agricultural or conservation zones for agricultural uses for a term of 10 years. In 1963, the law was amended to author- ize dedication in urban districts. The urban district provisions require that land have been in farm use for the five years immediately preceding the petition for dedication. In Hawaii, the lessee customarily pays the real property tax. 181 Hawaii Case Study Two other dedication provisions were enacted in 1965 and 1967. Act 201 of 1965 authorized dedication in urban areas for "...landscaping, open spaces, public re- creation and other similar uses." Act 296 of 1967 extended dedication rights for re- sidential use in the urban district. To dedicate land for agricultural use, the owner or lessee had to petition the Department of Taxation, specifying the type(s) of agricultural use intended. The De- partment of Planning and Research (now the Department of Planning and Economic Develop- ment) was responsible for commenting as to whether the intended use was compatible with state planning, and,the (now defunct) Land Study Bureau was responsible for determining site suitability for the intended use. An appraiser from the Department of Taxation made two appraisals, one of market value, one of farm use value. If the Department of Planning and Research and the Land Study Bureau reported favorably, the Director of Taxation was required to approve the petition for dedication. The dedication was automatically renewed*indefinitely unless the farmer or the Director of Taxation gave five years' notice of an intent to cancel. However, if the Land Use Commission rezones the land to urban, the farmer and the Director of Taxation may agree to cancellation within 60 days of the change. If the land was not used for over one year, for the purpose described in the de- dication petition, the difference between taxes paid and taxes that would have been payable absent the dedication, retroactive to the time of the petition, became payable. There also was a 5 percent per annum penalty from the date of each of the retroactive taxes due. As of 1967, portions of a tract dedicated to agricultural.use could be withdrawn and retroactive taxes and a penalty paid prorated to the portion withdrawn. B. Use of the Law The dedication provisions of the Land Use Law were in effect for the tax years 1963@1973. During this period 1,083 petitions to dedicate were approved, covering 59,700 acres. This acreage is 1.5 percent of the total area of the state, and 3 percent of the land zoned agricultural. seventy-seven percent of the land dedicated was on Hawaii, where there is little urban pressure. on Oahu, only 3,900 acres were dedicated--I percent of that island's land area and 2.7 percent of the land zoned agricultural. Between 1963 and 1969, 214 of the 272 Oahu dedication petitions in the agriculture and conservation districts were.approved. Be- tween 1966 and 1969, 40 petitions were filed requesting dedication for agriculture in Oahu's urban district; only 16 of the petitions, covering 65.6 acres, were approved. Also between 1966 and 1969, there were 19 petitions for open space dedication in Oahu's urban district; seven petitions, covering 8.4 acres, were approved. Department of Taxation figures on reductions in assessments and taxes following dedication are available only for the years 1963-1969. They show markedly greater per- centage reductions for the state as a whole than for Oahu. The reduction in the total agricultural land tax base was 5.1 percent for the state and, for Oahu, 9.2 percent. 182 Hawaii Case Study Table 13 ASSESSED VALUES BEFORE AND AFTER DEDICATION, 1963-19691 (in thousand $) Agriculture and Con- servation Districts -Oahu State Total Acres dedicated 2,749 17,713 Value before dedication $6,360 $11,703 Value after dedication 4,199 6,044 Difference in value 2,161 5,659 % Recuction in valuation 34.0 48.4 % Reduction in tax liability 36.7 61.7 Total Assessed value of land in agriculture, 1969 482,199 1,389,051 Value before dedication as % of total assessed Value of land in agriculture 9.2 5.1 Urban Districta Acres dedicated 54 131 Value before dedication $686 $827 Value after dedication 196 269 Difference in value 490 558 % Reduction in valuation 71.5 67.5 % Reduction in tax liability 71.5 67.5 aOahu and Maui only. Source: "A Summary of Lands Dedicated for Agricultural Use; Assessed Land Values Before and After Dedication," Department of Taxation, State of Hawaii, 1969. Mr. Co's doctoral dissertation will be the first detailed study of cancellations on Oahu under the dedication program for agriculture zone land. Preliminary informa- tion, generously contributed by Mr. Co for this report, shows that, of 251 dedications approved for the years 1963-1972, 26 were cancelled at some point. During this decade, a total of 3,725 acres were dedicated, 461,acres were withdrawn. The 26 dedications cancelled had an average area of 18 acres; this was in compari- son to an average area of 15 acres for the 225 dedications not cancelled. Twenty-two of the areas cancelled were under 10 acres, and only one--a tract of 197 acres--exceeded 100 acres in size. Some applications failed to show soil productivity; all except one of those which did were concerned with either Class A or B land. Of the cancellations, two were partial, one was a Department of Taxation cancella- tion without a rollback tax, and the remaining 23 were Department of Taxation cancella- tions with rollback tax, all but one with a 5 percent penalty as well. These last 23 183 Ch Figure 2 OAHU AGRICULTURAL LAND VALUES: DEDICATED LANDS, 1963-19721 Cq M C") - - to Highest and Best Use Val .'4 -d 00 P. > 00 CO cli- - Agricultural Use Value 1963 1964 1965 1966 1967 1968 1969 1970 1 Year L/ Graph prepared by Mr. Howard Cc Hawaii Case Study cancellations all resulted from the farmerls failure for over one year to use the land for the purpose for which it was dedicated.- The remaining three cancellations were due to subdivision, sale of part of the dedicated land, and change in use of part of the land. The picture that emerges from this study of Oahu cancellations is that farmers did not enter the program unless they intended to continue farming; only two out of 251'dedications were cancelled because of sale or subdivision. Since Mr. Co's data do not cover tax year 1973, the first year in which farmers could have withdrawn after five years' notice, it is not possible to say how many participants in the program may have calculated that 10 years' participation, terminated by timely notice, would have been to their financial advantage. Participants were almost exclusively small farmers. Other information suggests that large tracts carried low assessments anyway, giving such owners or lessees little reason to dedicate. V. DIFFERENTIAL ASSESSMENT AFTER 1973 The farm tax picture until the early 1970's has just been described: very low assessments except on the urban fringe and very small participation in the dedication program. Then, in 1972, the Department of Taxation began reconsidering its low assess- ment policy. The Director of the Property Technical Office, Stanley Ooka, made a re- view of agricultural assessments on Oahu and the.Neighbor Islands and found a number of instances of assessment at 10 percent of market value. Mr. Ooka reported: ,"The present assessment of these lands indicate a sales-assessment ratio of less than 10 percent which is far less than the 60 per- cent ratio maintained for residential properties'. And since the achievement of uniform ratio is probably the most important factor in property taxation we should make every possible effort to equal- ize the assessment."i Mr. Ooka's specific suggestions were for farm assessment at 70 percent of market value, or $7,000 per acre in the Pearl City, Ewa, Mililani New Town area, $5,250 per acre from Mililani New Town to Wahiawa, and $3,500 per acre in the Kahuku, Waialua, and Waianae areas. For the Neighbor Islands, he recommended assessed values of $3,500 per acre near the urban areas and $1,750 per acre elsewhere. Given a number of sales of large tracts--50 to 500 acres--in the agriculture district for prices ranging from $6,700 to $40,600 per acre, these assessment recommendations seem moderate. The Department of Taxation did in fact raise assessments of farm land markedly, effective in 1974. Knowledge that this was about to happen led to an outcry from farmers for preferential tax treatment. There was a simulataneous concern among the state's planners and members of the Land Use Commission that land zoned for agriculture not be driven from agricultural use by high taxes. The ensuing debate led, in 1973, to two legislative actions; one was an amendement of the 1961 dedication law and the other was a new approach called deferral. These provisions became effective for tax year 1974. In that year alone, 360,625 acres were dedicated, in comparison to 59,700 acres for the years 1963-1973. No figures are available for acreage in the deferral program. The dedication and deferral provisions combined had an impact in terms of taxes foregone in the 1974-75 fiscal year estimated by Mr. Ooka at between 10 and 15 million dollars. The total tax base for agricultural land, at 70 percent of either market or farm value, depending on tax treatment of the land, was 454 million dollars. This was imemorandum from Stanley T. Ooka to Ralph W. Kondo, Director of Taxation, dated Augu..st 11, 1972. It may be noted that, on other occasions, the Department has stated that assessments are at 70 percent of market value. 185 Hawaii Case Study 9.8 percent of the 4.6 billion dollar total tax base for all land in the state and 5.5 percent of the total real property tax base. Agricultural land and improvements were expected to yield nine million dollars in taxes, or 7 percent of the 129 million dollars to be raised from the real property tax. According to Mr. Ooka's estimate, use of the new differential tax provisions cut the agricultural land tax yield by well over 50 percent, and this in the first year of the new program.1 Since agricultural land assessments previously had been very low, the shift in the overall split between agriculture and other uses doubtless bears no resemblance to this figure. It is farmers who did not receive deferral who have been subjected to the greatest impact. A. Dedication The dedication provisions of the 1961 law were altered in 1973 in the following significant ways: (1) Dedicated land in the urban district must be used for "...the cul- tivation of crops such as sugar cane, pineapple, truck crops, orchard crops, ornamental crops, or the like..." This provision was added to avoid farm uses offensive to near- by urban residents. However, it is accompanied by another provision permitting live- stock uses if compatible with surrounding uses. (2) Dedicated land in the urban district must be found by the Director of Taxation to be economically feasible for the proposed use.2 This finding is in addition to the previously required findings by the Department of Agriculture as to productivity and by the Department of Planning and Economic Development as to compatibility with the state's development plan required for all dedications. (3) Land in an agricultural district may be dedicated either for 10 or for 20 years. If dedicated for 20 years, the tax base will be at 50 percent of farm use value. (4) Notice of cancellation may be given in the ninth year under a 10-year dedication and in the nineteenth year under a 20-year dedication. (5) The dedication continues in effect following changes in ownership. (6) Failure to use the land for the dedicated purpose for one year or an overt change in use for any period cancels the dedication and causes the rollback plus a 10 percent penalty to fall due. B. Deferral The Director of Taxation is required to classify all land according to its highest and best use. The law provides for seven classes,3 one of which is agricultural. In establishing its classes, the Department of Taxation is to "...give major consideration to..." the Land Use Commission's districts, county zoning, and state plans, as well as any other factors bearing upon highest and best use, but is bound by none of them. 1Land and improvements together, after exemptions, were valued for tax rate purposes at 8.3 billion dollars. For agricultural use, land constituted 83 percent of the base, improvements 17 percent. 2See Appendix for a copy of the form used for the Report on Findings. 3Land in four classes--unimproved residential, hotel and apartment, commercial, and industrial--is taxed at a higher rate than buildings. 186 Hawaii Case Study Land classified agricultural by the Department of Taxation and used for agriculture, whether dedicated or not, is to be assessed at agricultural use value and the taxes which otherwise would have been payable are deferred. Land value is determined by considering rent, productivity, actual use, location, and the opinions of people knowledgeable about land values. If the zoning is changed from agricultural to rural (i.e., minimum lot size of5 acres)or urban by the Land Use Commission upon petition of an owner or lessee, or if the land is subdivided into parcels of five acres or less, a roll- back tax and 10 percent penalty are due retroactive to the time of the agricul- tural use value assessment, but in no case for a period greater than 10 years. If the rezoning or subdivision occur within five years of enactment of the law, the rollback and penalty are doubled. However, the owner may escape the rollback and penalty by dedicating the land within one year of the rezoning. The Department of Taxation has proposed regulations1for implementing both the dedication and deferral provisions of the law but, as of June 1975, had not adopted them. Within the next two months, the Department proposes to hold public hearings and move toward adoption. Among the provisions proposed are the following: (1) to be eligible for either dedication or deferral, there shall be a minimum gross sale per year per farm of $200. (2) to be classified by the Department of Taxation as agricultural, land must be located in the Land Use.Commission's agriculture district or it must have been dedicated; (3) the assessor shall estimate annually both fair market and agricultural use value; (4) the assessor shall show the classification and the assessed value on land appraisal cards and also shall indicate if there is a deferred assessment; (5) income shall be capitalized at the prevailing market rate or at 6 percent in the absence of market data, to estimate agricultural use value. C. Experience with Dedication Farmers have flocked to dedicate land, particularly under the new 20-year dedication provisions. Approximately six times as much land was dedicated in the first year of the new program as in the entire life of the prior program. On Oahu many big estate owners and lessees cultivating sugar and pineapple dedicated for 20 years. However, there is much prime agricultural land which has not been dedicated. The Campbell Estate, for instance, which owns 20,000 acres in the agricultural district, encouraged its lessees, Oahu Sugar and Del Monte, to dedicate 8,000 acres under the 20 year program. Another 3,000 acres'will be dedicated, but not the land which the Estate hopes to have redistricted for urban use.2 Average per acre reductions in assessed value in the tax districts which 1Draft No. 3, "Proposed Rules and Regulations Relating to the Assessment of Ag- ricultural Lands and to the Imposition of a Deferred Tax," Department of Taxation, December 1974. 2Conservation with Fred Trotter, Trustee of the Campbell Estate, and Robert Johnson, staff member for the Estate. 187 tL6T '6Z AM OOT;JO TeOTUL10a.L AliadOld UOT:@exe.L jo :@Uaw:@xeda(j *sov gzclozv 68t" I TL:P1 97,9'09E q0t7 VL6T *SOV OOL."69 CBO'T CL-C961 (saaos) ED-IV peAoTddv *ON *TV101 :10 dVO3H 00 00 :)v C@@,qloqs 90t? ov ogz:ltcc 96Z OV 9LV96 TIT OV OOL'69 S80'T a lp:@s 099 SE TT oogl8e T17 09 9 q7,819 Ivz 9@;8'6t,Z L62: Ooqlgz@; LOZ 9ZO'17@; 06 096'gt7 T?,3 TTemelq ODBIgg 9c 007,18g vz 009 ZI gzoll, 09E n e ,,q =,'CT 9z O9/.TT T@ OOL'T tr 006'C TL7, nq?o (S-3,102)2al-V PaAoiddy *oR (saa5e) eeiv PaAoiddv *oR (saxoe) 5 5xv -p-5-735-adTv --oil -------- 7L6T -10J T?-@Ol ---- ---- uOll.PoTpOCI aeaA-03 ---- ---- UO-CZPOTPaCj XeaA-OT ---- (SnXO2)eeiv paAoTddy *om - ---------------- ------------------------------------- :Uotleolpaa t7L61 ------------- ls'@Ol CL61 1-15noxlq,@ C961 JOTXIST(i xel 17L61 RMI C961 SUUA XVI IdOi NOUVOI(EG CNV'l '1VIdi'llUMEOV 10 '7T 3'19Vl Hawaii Case Study include Ewa and.Wahiawa have been considerable. In District 9, which includes Ewa, the 1973-74 agricultural use value was $431 per acre while highest and best use value was $8,621, giving a 95 percent reduction. In District 7, the reduction was 94 percent, from $7,625 to $455 per acre. One omission in the language of the revised petition to dedicate may have been a significant factor in encouraging farmers to dedicate. The pre-1973 form included the language: "I am also aware that it is the policy of the Department of Taxation to enforce by injunction, if necessary, the continued dedicated uses of the dedicated land during the effective period of the dedication." (There is no evidence that the Department ever did@) This version was dropped in 1973, according to Mr. Ooka, so as not to discourage people from applying. There are problems yet to be worked out. The Department of Agriculture had only one staff person to make the field visits and findings of fact as to agricul- tural suitability. Now, in 1975, staff has been increased, and the Department hopes to be able to make more extensive comments, including a judgment as to what would be the most productive agricultural use of a given tract. Also, the De- partment of Agriculture has not had sufficient staff to develop a state agriculture plan, although a start has been made.1 Such a plan would enable the Department to respond more accurately to Department of Taxation requests for findings on -dedication petitions. There is a problem with the frequency of assessments. The 1973 amendment clearly states that assessments are to occur annually, yet the Department of Tax- ation is reassessing urban uses only every four years and other uses less fre- quently. The Concerned Taxpayers Association is challenging the assessment of all land because of the Department of Taxation's failure to conform with the statute. The frequency of reassessment will affect the amount of taxes deferred and, con- sequently, the amount of rollback taxes which can be collected. The Department of Taxation dealt with the sudden influx of dedication petitions by using current assessments as farm use value, except on the urban fringe and for sites near highways and served by public utilities. In the future the Department proposes to use capitalized rent. The assessors did have to make determinations of highest and best use value for all dedications effective for the 1974 tax year; the values developed by Mr. Ooka in 1972 were used for this purpose. Using these figures, Mr. Ooka reports that the Department of Taxation has been put to very little extra work and has not increased its staff as a result of the law's new pro- visions. Mr. Ooka sees no need for the Department of Taxation to undertake to inform people about the law. "We aren't beating the bush to tell people what iCs all about. 'If farmers request a petition form, they receive one but with no accompanying information. The Farm Bureau has had a different view of the desirability of pub- licity; it distributes widely a leaflet prepared by the Cooperative Extension Service at the University of Hawaii. It seems likely that the past lack of interest of the Department of Taxation in publicizing its program means that many small farmers are unaware of the possibility of dedication. Currently, there is a new attitude emerging in the Department, one favoring an effort to educate the public about opportunities available under the program. Partly due to the past failure to provide adequate information and partly due to an apparent insufficiency of staff to make yearly field. visits for assessment purposes, there have been widespread inequities among small farmers. The case of 1Conversation with Yukio Kitagawa, Deputy Director, Department of Agriculture. 189 Hawaii Case Study Oliver Kupau, a small farmer from Waiahole, may be illustrative of current problems. Mr. Kupau or members of his family own several less-than-one-acre parcels of land at Waiahole, some 20 miles from downtown Honolulu on the windward side of Oahu. Most of these parcels of land are in farm use. They are located along Waiahole Valley Road, an unimproved dirt road. Some of these small tracts on either side of the road are in the urban district, some in the agriculture district. The large estate holdings surrounding them are in the agriculture district. Illustrative figures.on three parcels show that assessments jumped substantially in 1974 on both the parcels in the urban and agriculture districts. Mr. Kupa'u be- lieves that the assessor had no basis in fact for the new assessments. Assessment on Land Presumed Market Parcel No. District Size _(70% of Market) Value/Acre 1970 1974-75 1974-75 4-8-8-14 U .62A. $6,944 $29,925 $68,950 4-12-12-16 A .25A. 263 3,518 20,100 4-8-12-17 A .25A. 263 5,285 30,200 Mr. Kupau, in testimony before the Finance Committee of the Hawaii House of Re- presentatives on March 3, 1975, said concerning these assessments: "I find the small property owner's property has gone sky high and yet I find the big land owners, like McCandless Estate, in some areas dropping all the way down, over ONE THOUSAND percent cut, down to one dollar...We are getting slowly crushed out by these large land owners ... I accuse and charge the Real Property Tax Division here in the State of Hawaii of unequal, unfair and discriminatory manner in which our real property is assessed..." D. Experience with Deferral To the best of our knowledge, Hawaii's deferral program is unique. It also has some serious problems, in addition to those described above, common to it and the dedication program. It is the Department ofTaxation which decides unilaterally whether or not to place farm land in the deferred category. Although the law does not so specify, the Department has decided to apply the program solely in the Land Use Commission's agricultural district and, within that district, to make its own classification of land whose highest and best use is agriculture. Given the small staff in the Department, this classification often is done without a field visit. Following classification and presuming that the land actually is in farm use, it will be placed in the deferral program. As of July, 1975, the Department has no record of how much land is classified deferred. Since farmers do not apply for deferral, and since their annual tax notice shows only current assessed value, they receive no notice of having been placed in the program. The Department of Taxation does not record any notice of proper- ties placed in the deferral program at the Bureau of Conveyances, so title searches cannot pick up the information. Thus, sellers and buyers both can be ignorant that taxes are being deferred on a piece of property. Further, there is no public re- cord of the market value of property assessed at farm value. Therefore, it would be quite possible for a farmer to seek a Land Use Commission boundary change to urban, and on obtaining the rezoning, receive a bill for double the rollback taxes and 10 percent penalty, all without ever having known that the land was in the deferral program. 190 Hawaii Case Study The law is silent as to the effect of a reclassification out of agricuiture by the Department of Taxation or a change in use by the owner other than sub- division into parcels of five acres or less. The Department's view of this is that if the owner ceases to farm the land, the deferral would cease. They then would assess the land at fair market value but not impose a rollback. With this alternative, there is little incentive for any farmer in the agriculture zone to dedicate for 10 years. The program being a new one, hopefully the Department of Taxation will under- take measures to give adequate notice to farmers of affected land. While the in- tent of the law is to offer the state an initiatory role in trying to keep land suited to farming in farm use, the possible advantage this leverage offers is at present outweighed by the lack of notice and resulting unfairness to farmers. E. Equity The equity problems of the deferral program as it affects participating farmers just have been discussed. Aside from these problems, the combined intent of the 1973 law and of the markedly increased assessments on agricultural land is to retain preferential treatment for two often overlapping groups of farmers-- those whose land the state believes should be farmed and those who wish to make, some commitment fo farming. This would exclude and subject to higher assessments that land judged more suited to other uses, placing pressure on its owners to con- vert. The assessment at 50 percent of farm value of land dedicated for 20 years is compatible with the state's commitment to preservation of agriculture. Unfortunately, adequate data are not available from which to calculate the shift in the tax burden from the 1961 program to the 1973 programs. It is fair to say that it is commonly believed that the large estate owners formerly received very favorable tax treatment in comparison to the small farmers and continue to do so. No assessment study was found either to substantiate or refute this. Whatever the shift in the real property tax burden occasioned by the new pro- grams, either as between large and small farmers or between all farmers and others, it-will be broadly distributed. Since Hawaii's real property tax is distributed by the state to the counties in proportion to the amount collected from each coun- ty, and since the counties are the lowest level of government, there will be no problem of small tax district inequities. F. Ease of Administration Essentially the programs are not easy to administer. The fact that the Department of Taxation finds that they are suggests that the present administra- tion is inadequate. Assessments are to be updated annually according to the law, but they have not been. The Department of Taxation's classifications need to be checked fre- quently, although the law does not specify a required timetable. Field checks as to actual use to see whether land is being farmed in conformity with the de- dication or deferral programs should occur annually. Some public recording to give notice of participation in the program is vital. A modern, detailed record- keeping system is needed within the Department so that incorne capitalization, calculation of rollback and penalty taxes, and.overall analysis of the operation of the programs can be carried out efficiently. Development of common base maps and common methods of data collection and classification with other departments of state government would be another important step forward. 191 Hawaii Case Study The law, but for portions of the deferral provisions, is quite explicit and calls for a fairly sophisticated means of enforcement. There is evidence that the Department of Taxation has recognized the need to update its operation, now that it is obvious that there will be extensive participation in the programs and that the old, handicraft methods won't suffice. G. Political Feasibility There is broad political support for the preservation of agricultural land and for greater self-sufficiency in food production. There also is widespread awareness that urban and resort growth are outbidding agriculture for prime farm- land. Hawaiians seek preservation of agriculture as a proper activity of state government, based on the public interest. The 1961 enactment of state level ag- ricultural zoning, and the absence over the years of a challenge to it on taking grounds, is ample testimony to a different attitude toward public regulation of land use than that which prevails in much of the rest of the United States. It seems likely that Hawaii will move soon to development and adoption of a s,tate plan which emphasizes diversity and greater self-sufficiency in agricul- ture as well as efforts to limit and direct growth. By the time that this plan is adopted, the 1973 dedication and deferral programs whould have been in effect long enough for a judgment to be made as to their efficacy, in combination with state zoning, at maintaining farm use. If too much land or inappropriate land is being converted to urban use, one can anticipate that the legislature would be quite prepared to enact more stringent measures. 192 VI. APPENDIX TO HAWAII CASE STUDY L11tervicw,L11u, 3/10-14175 State OficiaI Governor's Office: Edward Greaney, Press Secy. Dept. of Taxation: Herbert Welder, Property Technical- Office, Stanley Ocka, Dir., Property Techni cal Office & Asst. Dir., Dept. of Taxation; Gordon Wong, Dir., Dept. of Taxation (met but no intervew) Dept. of Agrqiiculture: Yukio Kitagawa, Dep. Dir. Dept. of and & Natural Resources: Gordon Soh, planner Dept. of Planning & Economic Development: Nancy Fowler, HUPIC; Land Use Commission: Edward Tangen, Chm; Tatsuo Fujimoto, Dir, Sen.Jean King, Chm. Coittee on Ecology, Environment & Recreation Count Official City & County of Honolulu: Robe rt ay, Chief Planning Officer, Dept.of General Planning Establiment Oahu Development Confeence: Aaron Levine, Dir. & Bill Grant, Asst. Dir. 193 Est a Estate of James Campbell: Fred Trotter, Trustee & Robert Johnson Uniyers.i_LL7 Dept. of Agricultural Economics: Prof. Harold B@Lker (former Dir. of defunct Land Study Bureau); Howard Co , Ph.D candidate Pacific Urban Studies & Planning Prograla: Tori, Dinell, Dir.; Kem Lowry Land-Owner. Sr-all, Farmer Oliver Napau, Waiahole 194 BIBLIOGRAPHY Bartlet, WiiLian W., "Planning for Oahu: Technical REport #3, Land Use Alternatives, . Dept. of Central Planning City and County of Honolulu, Honolulu, Hawaii, March 1974, Carbart, LesLie as a Tool of Planning in State of avrii Lan I Use District, Eckbo, Dean, Austin, and Williams, August 1969. Ching, Calvin K., "Planning for Oahu: Tecnical Report #9, Agriculture,Recreation and Resdential Alternatives," Departent of General Planing, City and County of Honolulu, Honolulu, awaii, March 1974 Commerce Clearing House, Inc., "Hawaii Tax Laws as Administered by the Dpartfrnt of Taxation January 1, 1975," Chicago, I11 1975. Departmnt of Planning and Economic Developmnet, "The State of Hawaii Data Look 1974," Honilulu, hawaii, November 1974. Dinell, Tom, "Filling the Calabash How Much is Too uch?", Pacific Library Studies and, Planning Program, University of Hawaii, Honolulu, Hawaii, December 1974. Doue, Stephen M., "Some questions and answers on Act 187 or the State Planning law, "Public Affairs series #9 cooperative Extension Service, nivesiy of Hawaii, march 1962 Doue, Stephen M., "Facts About Act 205," Public Affairs Series Cooperatv TXt Servic, Universiv of Hawaii, no date. ckho, Dn, Austin & Williams, "State, of avaii Land Use Districts and regulation, evie,, Honolulu, llawaii, August 1969. Fowlcr, Nncy, "Hawaiis Expriene With a Statewide Land Use Dat Bank," Hawaii Urban Planning Information center of Deartment of Plan- ning and Economic Development, Honolulu,Haiwii 1974. Hawaii urban, Planing Informiation Center, "Hawaii County Land Inventory Report: 1972, " state of hawaii Department of Planning and Economic Devolpment, Honolulu, 1974. 195 Hawaii Crop and Livestock Reporting Sevice, Statistics of Hawaiin agriculture 1973, " Department of Agriclture Honolulu, Hawaii, June 1974. Hawaii urban Planning Information Center, "Kauai County Land Inventory Report 1972," State of Hawaii Department of Planning and Economic Development, Honolulu, 1974. Hawaii Urban Planning information Center, "Maui County Land Inventory Report.- 1972," State of Hawaii Department of Planning and Economic Development, Honolulu, 1974. Lum David T.E., Samuel G. Camp, III, and Karl Gertel, "Hawaii's Experience in Zoning," Research Report #172, Hawaii Agricultural perment Station, University of Havaii, Honolulu, 1969. Mark, Shelley, "Property Tax administration and 1lawaii's Land Use Law," in The,Propertv Tax Arthur D. Lynn, Ed., 1967. State Land Use Comission, "Report to the People, " Second Five- Year District Boundaries and Regulations Review; Technical Report #l, "An Evaluation of Hawaii's Land Use Laws, " prepared by Daniel Mandelker Techinical Report #2, "Hawaii's Vulnerable Environ- ments, " prepared by Marshall Kaplan, Gans, Kahn and Yamamoto, Honolulu, Hawaii, February 1975. Tax Foundation of Hawaii, "Government in Hawaii, " Honolulu, Hawaii, 1974. U.S. Bureau of the Census, Hawaii State Department of Health, and Hawaii State Department of Planning and Economic Development, "The Population of Hawaii, 1974, " Statistical Report #106, Re- search and Economic Analysis Division, Department of Planning and Economic Development, State of Hawaii, 1975. 196 HAWAII DEPARTMENT OF TAXATION FORM P-41A STATE OF HAWAII (REV. 1974) LAND DEDICATION - REPORT ON FINDINGS TAX KEY Petition z S Plat Par No.. Specific Agriculture TO: Director of Taxation or Ranching Use FROM: Department of Agriculture El The land is reasonably well suited for the intended commercial use. F@ Only - acres are reasonably well suited for the intended commercial use. f-1 The land is not reasonably well suited for the intended commercial use. The productivity rating is for use. Size of operating units Tenure Present use of surrounding similar lands FOR URBAN LAND USE DISTRICT ONLY Has the land been substantially and continuously used for the cultivation of crops such as sugar cane, pineapple, truck crops, orchard crops, ornamental crops, or the like for the five-year period immediately preceding the dedicated request? Specific livestock use has been in operation for --years. Cultivation of crop use has been in operation for - years. Chairman, Board of Agriculture Date (For Department of Taxation use only) For lands in Urban districts: The intended agricultural use of petitioner's land is economically feasible. The intended agricultural use of petitioner's land is not economically feasible. Additional information is submitted as attached, including evidence, i.e. General Excise License No., on cultivation of crop or specific livestock use. PTO Memo 2 District Property Assessor Date Exhibit No. 3 197 elAWA I I DEPARTMENT OF TAXATION FORM P-41A STATE OF HAWAII (REV. 1974) LAND DEDICATION - REPORT ON FINDINGS TAX KEY Petit on S ---------- F_ z piat par No@ Specific Agriculture TO: Director of Taxation or Ranching Use FROM: Director, Department of Planning and Economic Development Designated Land Use District by LUC The intended use of petitioner's land is not in conflict; is partly in conflict; is in conflict; with tile overall development plans of the State. The specific livestock use is compatible with the surrounding urban uses. Reasor)(s) for Conflict: The dedication of this land together with other similar lands proposed to be dedicated and possible future dedications adversely affects the total size of the affected Urban District with respect to the provision of the Land Use Law that re- quires that adequate area be designated for the foreseeable urban growth. The projected future development is estimated to be The use proposed is incompatible with uses normally associated within an Urban District. Other remarks Director, Department of Planning and Economic Development Date 198 HAWAII STATE OVIIAWAII DO NOTWRlIL' HERE FOW-P. P-41 DEPARTMENT OFTAXATION PETITION NO. C.:,y K3. IREV. 197N_ PET ITION TO DEDICATE LAND FOR ACRI CU LXL1 RA L U S E (see cw,@ Prepare 4 copies of this petition (carbor. copies acceptable). Copies must be signed by all parties having a legal interest in the petitioned land (for example, husband and wife). The petition inay be for seveial land parcels e s or parcels in urban district Which Shall e by sep3r2te petition. A cop), of this petition shall be returned to the petitioner. St,binit all petitions to the Assessor of !Ixzt; - -E-1r;', k@ 't-, ". Y J.J1. 1. Petitioner's na me and"or names: STATE LAND USE DISTRIC f: 4wm , e 4. Taxkeys: 5yroTta"A"ea: 2. Mailing address of Assessment Notice 3. Tel, no.: 6. Total area to be Res. dedicated by this petition: Bus. 7. Island 8. -Ifonly Portion of parcels is to be dedicated, 9. Prc;cat uses ofparcels: state intended use of the remainder: NON-DE4)'ICATED AREA: IOA dedicate my land to the following agricultural uses: (Be specific-such as growing pineapple, growing vegetable crops, raising POL11try. posbr;,j e4flle, etc. If the intendcO dedicated use differs, in any way from the existing use, the owner shill submit a copy ofthe proposed plan ofuse or uses. Please deliticate the homesite area which sliall be excluded from dedication) ACRK-5 SPECIFIC AGRICULT`Ulb@L OR [UNCHING USE OR USES: TOT,'. L _f0 /n5-- Dr@- CICA rc-D Tra% ri V I IRENTARKS: AZRI ka___ e@_' I--- ...-------- _Z@ I I IV a12 t@ic Ro( 4,s c e2,;j liz 7ay N@y6 _vh@Vzl je-t 7- Items 12 t@rti` 17 a,"e to @e filled in only ifpctitioner s land is leased. Ifit is, or. e cop of the lease d ocurne nt must be attached hereto. (only one copy of lease document need accompany a set. of the petition.) 12. Lessor's name and mailing address: 13. Lease rental schedule: 14. Term ofie:ise (yIS) lease: 16. Lease document is attached: Ich-k one) 0 YF@s ONO 17. Lease is recorded at the Bureau of Conveyances: a. book No-- Page No--- b. Land Court Document no-- c. Certificate no - d. Other: F,ich lease document maybe returned if satisf3ct(,,Y information is furnished and maae availablc, To facilitate- statute-requircil investigation of this petition, I hereby grant right of entry to land described above as well as access to existing soil survey information and to interpretive data compiled frorn this source. I hereby declare that my land can be best used for the foregoing 1)_!@rp S@e,an_ @_-hi-s-y itianis approved-1willuse my land for such purpose, and in aaeci-cfa ne c-, Ad 1IRS, DO NOT WRITE HERE Signature Of peliti.-, or g-t. Date Received: (tiate) Signature of petilioner or agent Date A-- Signature Of 11-11 01 3&lAt' Date -SI-1 IT. I g e n fit Date 2 rx bi e V& uh-ri -hi- p,Of fqg,ncy to --. P 199 [continuation of Hawaii Form P-411 For owners who petition to change or am end the dedicated use 1. Check F-I change at top left. Submit tax map or facsimile showing changes. 2. Complete items 1, 2, 3, 4, 5, 7, 11. a. For item 11 write in the petition number and effective tax year as noted on the Notice of Approval. Check applicable block and complete appropriately. All parties having legal interest shall sign and date the petition. 200 v!AWAII STATE OF HAWAII DO NOT WRITE HERE FORM PAl (REV. 19701 DEPARTMEN I OF TAXATION PETITION NO. @ Copy No. PTO III EN11O 2 L Exhibit No. I PETITION TO DEDICATE LAND MR AGRICULTURAL USE Prepak.5. 4 c@o IqL-of rO tItJ R@ __.t _Ze__1Qji (carbon copies acceptable). Copies must be signed by all parties having a legal interest in th petitioned land (for example, husband and wife). The petition.may be for several land parcels except areas or parcels in urban district which shall be by separate petition, A copy of this petition s@.all be retuned to the petitioner. Submit all petitions to tile Assessor of your taxation district @04;01,j - 1. Petitioner*s name and/or names: STATE LAND USE DISTRICT: 4. Tax keys: 5. Total Area: 2. Mailing address ofZ_sessmentNoticc 3. Tel. no.: 6. Total area to be Res. dedicated by this petition: Bus. 7. Island 8. If only portion tf parcels is to be dedicated, 9. I'vesent us,s of parcels: state intended use of the remainder: NON-DEDICATED AREA: 10. 1 dedicate my land to the following agricultural uses: (Be specific-such as growing piticapr4c, growing vegetable crops, raising poultry, grazing cattle, etc. if the intended dedicated use differs, in any way from the existing use, the owner shall submi: a copy of the proposed plan of use or Lises. P!ease delineate the homesite area which shall be excluded from dedication.) ACREA6E SPECIFIC AGfOCULIMRAL OR RANCHING USE OR USES: T01 AL AREA TO BE'DEDICATED: Ii6,,'AFSlTL. REMARKS: 11. A print or fa,!simile of the above tax key maps must accompany eacil copy of the petition. The :,inps must show the approximate location of the honi-te -u Lite ttueticuteu portion, iaDeled as to acreage and intended uses. Itcms 12 thru I' are to be filled in only ifitelitioner's land is leased. If it is, one copy ofthe lease document must be attached hereto. (Only one copy of lease document need accompany. a set of the petition.) If lessee has less than 10 years remaining on lease, but !wishes to dedicate land in an urban land use district, the lessor must agree to extend the dedicated usage to 10 years and also sign this petition. 12. Lessor's name and mailing address: 13. Lease rental schedule: T!Ua@-docwncnt is attached: 14. Term of Ieae_ kyr.;) xpiration date of lease: (check one; UYES [!NO 17. Lease is recorded at the Bureau of Conveyances: a. Dook No- __ Page No.--- b. Land Court Docinnent no-- c. Certificate no.____7@= ___ d. Other: !-Ailease dounient maybe returned ifsatisf,,ctory information is furnishedand rnaae available. To facilitate statute-required investigation of this petkion, I hereby grant right of entry to land describcd above as well as acccss to existing soil survoy information and to interpretive data compiled front this source. I hereby declare that my land can be best used for the foregoing purpose and if this petition i5 approved I will use my land for such purpose. I am also aware theifit is the policy of the Department of Taxation t- enforce by injanction, if necessary, the continued dedicated uses or the dedicated land during the effective period of the dedication. I shall inform the Peal Property Tax Assessor, in writing, orally changes that are niade or become necessary. DO NOT WRITE HERE Signature of petitioner or agent' Date Received: Signature of petitioner OF Rgant' Date Assesso;__ Signature of lessor or agent- Date Signature of [-., or tige.e. Vat. -4. age.) .1111L9 .1, the beh.lfof. j,,jj1j-, tesso, -f sr,b,rdl p-ffg,-y waru, to -tuor, 201 I.C.2. DEFERRED TAXATION -- LONG ROLLBACK: OREGON I. DESCRIPTION OF PROGRAMS Oregon's preferential assessment programs are of special interest for several reasons. First, the program for the deferred taxation of agricultural land has been in effect in one form or another since 1961 (although few farmers partici- pated before 1968) and has resulted in the exemption of approximately one-half of the appraised value of farmland.1 Second, four special tax laws apply to some 8,870,000 acres of timber and timberland which result in lower rates of taxation than if the timber and land had been taxed on a straight ad valorem basis as other non-preferred classes of property are.2 The state also has a deferred taxation program for open space lands, and has exempted other segments such as deciduous trees and nursery stock, valued in 1973 at $398,352,000 and $47,500,000 respec- tively.3 Thus, the state is a laboratory for experiments with different approaches to using tax programs to achieve broader public policy objectives. The various programs to be analyzed below, are as follows: 1. Special Farm-Use Assessment Program 2. Special Assessment of Open-Space Lands 3. Western Oregon Ad Valorem Tax 4. Eastern Oregon Severance Tax 5. Forest Fee and Yield Tax 6. Western Oregon Small Tract Option Tax A. The Special Farm-Use Assessment Program The special Farm-Use Assessment Program has been in existence since 1961, during which time it has been changed substantially b4 the State Legislature. The details of these changes need not detain us here, but suffice it to say that they appear to have reflected the tug of war between farm and urban interests in the Legislature. There are several bills now under consideration, but none would make a major change in the program. The statute creates two variations of the program, one for zoned land and one for unzoned land, with slightly different eligibility criteria and sanctions for conversion. In 1973, about one-fifth of the land was in the zoned category, and as more counties have adopted zoning ordinances, this percentage has probably in- creased. 11F Supplemental Report on Income and Property Exemptions and Exclusions," Legisla- tive Interim Committee on Revenue (Dec., 1974) (Hereinafter referred to as LICR Report on Exemptions), p. 114, confirmed by Richard Munn, staff economist, Le- gislative Research Office, on March 14, 1975. 2Klemperer, W. David, "Evaluating Forest Tax Alternatives for Oregon" (Salem, Oregon: 1975) (Hereinafter referred to as The Klemperer Report), pp. 2-3. 3LICR Report on Exemptions, p. 102. 4For excellent review of the history of the Program, see Roberts, Carlisle B., "The Taxation of Farmland in Oregon," 4 Willamette L. J. 431(1967), Sullivan, Edward J., "The Greening of the Taxpayer," 9 Willamette L.J. 1 (1973), Henke, Joseph T., "Pre- ferential Property Tax Treatment for Farmland," 53 Oreg. )L. Rev. 117 (1974) and LICR Report on Exemptions, pp. 12-17. 202 Oregon Case Study 1. Eligibility Criteria for Zoned Land Any land other than farm home sites which is located within a qualifying farm use zone under a county zoning ordinance and which is used exclusively for farm use or one of the permitted non-farm usesl shall be assessed at its true cash value for farm use.2 The zones must be consistent with the overall plan of de- velopment of the county. Farm use is defined as "the current employment of land including that portion of such lands under buildings supporting accepted farming practices for the-purpose of obtaining a profit in money by raising, harvesting and selling crops," or by raising and selling of livestock, poultry, fur-bearing animals., or honeybees or for dairying, or any other agricultural or horticultural use or animal husbandry or any combination thereof, and farm woodlots up to 20 acres in size.3 Farm use "includes the preparation and storage of the products raised on such land for man's use and animal use and disposal by marketing." It does not include growing timber or the construction and use of dwellings custom- arily provided in conjunction with the farm use. "Current employment" of land includes lands which are planted in orchards or other perennials and land which is fallowed for one year under regular crop rotation programs. A variety of non-farm uses are permitted such as churches and schools, with- out destroying the zone, and other uses, such as commercial activities in con- junction with farm use, private parks and playgrounds and golf courses may be permitted with the approval of the county governing body. State and local govern- ments are prohibited from enacting regulations which would unreasonably regulate farm structures or accepted farm practices because of noise, dust or odor or other airborne matter, if these conditions do not extend beyond the boundaries of the exclusive farm use zone. Land divisions of less than 10 acres must be approved by the county governing body as being in conformity with the legislative intent of the Act. Counties are authorized, but not required, to regulate larger land divisions. Zoned land is also to be valued at farm use value for state inheri- tance tax purposes,5 and is exempt from levies by sanitary and water supply dis- tricts and authorities.6 2. Eligibility Criteria for Land not Zoned for Farming Any land which is not within a farm use zone but which is being used, and has been used for the preceding two years, exclusively for "farm use" as defined by ORS 215.203 quoted above, is, upon application by the owner and satisfaction of the county assessor as to its eligibility, to be assessed at its true cash value for farm use. Thus, the principal tests for eligibility are actual farm use and subjective intent to engage in that use for the purpose of making money. 1ORS.215.203, 215.213 2ORS 308.370 3ORS 215.203 (2); 5B 262 (1975 Session) 4ORS 215.213 5LICR Report on Exemptions, p. 22 6ORS 308.401 7ORS 308.370 (2), 308.375 203 Oregon Case Study 3. Method of Assessment Qualifying farm land, whether zoned or unzoned, is to be assessed accord- ing,to its farm use values according to fairly specific procedures which are set out in ORS 308.345. First, county assessors may not use comparable sales as evidence of market value unless they are satisfied that the sales represent sales for bona fide farm use. These, in turn, are defined as those which are made under conditions which justify the purchase of such agricultural land by "a prudent investor for farm use," given accepted agricultural accounting procedures and typical agricultural practices and land use in the county. A "prudent investor for farm use" is de- fined as one who buys farm lands with "the reasonable expectation that he will be able to realize an average annual return on his capital not less than the current rate of interest charged by the Federal Land Bank on first mortgages of farmland in the county in which the agricultural lands are located." These interest rates are certified by the Department of Revenue each year, and have been as follows: 1968 - 6.75% 1972 - 7.75% 1969 - 7.0 % 1973 - 7.75% 1970 - 8.5 % 1974 - 8.0 % 1971 - 8.5 % 1975 - 9.0 %l They run about one-half of one percent below prime rates for first mortgages. Since few farm investors in Oregon receive a return on investment of over 4%, these legislative provisions have effectively prohibited county assessors from using comparable sales,2 and forced them to use the capitalization of income approach described below. The Capitalization of Income Approach. Under amendments adopted in 1975, the Department of Revenue is required by ORS 308.345 (3) to determine and specify annually the "rate of interest charged by the farm credit administration and other large financial institutions regularly making loans secured by farm and agricul- tural lands through mortgages or similar legal instruments, averaged over the past five years, plus a component for the local tax rate." Prior to this change, when the criterion was "the typical capitalization rate used for non-agricultural com- mercial land in the area," the Department followed the practice of setting one rate for the entire state as of January 1, each year. These rates have been as follows: 1968 - 6.75% 1972 - 7.25% 1969 - 7.0 % 1973 - 7.25% 1970 - 7.5 % 1974 - 7.75% 11971 - 7.5 % 1975 - 8. 0% Following the guidelines promulgated by the State Department of Revenue, county assessors must next determine the net income applicable to land for different types of farming, and then, in some cases, make adjustments for the particular tract. To do this, assessors will normally look first to rental data because it is a simpler and more easily ascertainable measure of economic rent. If these data are not available, the assessor must determine the owner-operator's net income from land. ILarry Michael, Assistant Administrator, Assessment and Appraisal Division, Dept. of Revenue, Interview March 13, 1975. 2LICR Report on Exemptions (1974), p. 22; Henke, Joseph T., op. cit. n.4, p. 122. 204 Oregon Case Study Once net income (economic rent) is determined, it is capitalized according to the following formula: FUV Y C + R where, FUV = farm use value Y = net income to land before property taxes C = capitalization rate for commercial properties R = tax rate for district in which the property is located In 1974-75, the median average county tax rate was 2.17%, 1 with the range of average county rates running from 1.45% to <.76%. Thus, if we use the 1975 11cap" rate and the median county tax rate, the, total capitalization divisor is 10.17% and assessed value will be approximately ten times net income. It should be noted that Oregon assesses taxable property at 100% of true cash value. A copy of the Department of Revenue's instructions is attached hereto as Appendix A. They give a complete picture of how the capitalization of income method is used. 4. Sanctions Zoned land. When land which is zoned and used for farm use is no longer used as farm land or is removed from an exclusive farm-use zone at the request of the owner, it is no longer assessed at farm use value and must be assessed at its highest and best use market value.2 in addition, the owner must pay a penalty equal to the total amount by which the taxes assessed against the land would have been increased if it had not been preferentially assessed during the last year prior to disqualification in which such farm use assessment was in effect, times the number of years during which farm zoning was applicable to the property, up to a maximum of ten.3 This approximates a 10 year roll-back of deferred taxes, and obviates the necessity of keeping dual assessments for all preferentially assessed properties. -No penalty is due if the land is condemned or if it is re- zoned by the county on its own initiative. Unzoned Land. Unzoned land assessed at its farm use value becomes dis- qualified upon the occurrence of the following events: 1. notification of the assessor by the taxpayer to remove it. 2. sale or transfer of the land to exempt ownership such as a charity. 3. removal of the special assessment by the assessor upon discovery that the land is no Ion er being used as farmland. 4. platting of the land.t At that time, the owner is liable for a sum equal to the amounts by which the taxes would have been increased in each of the years during which the land was 1Dept. of Revenue, Assessment and Appraisal Division, 1974-7-5 Tax Year Statistics (January 1975). 2ORS 308.397 3ORS 3M399 4ORS 308.390 205 orkon case Study preferentially assessed, had it been assessed at its market value (up to a maximum of 10 years), plus 6% from the respective dates on which such taxes would have been payable each year. In June 1975, the Governor vetoed HB 2478 which would have shortened the roll back to five years. If the owner converts to a non-farm use without notifying the assessor, he is liable for an additional penalty equal to 20% of the tax savings he received in the years from the time when he converted to the time of discovery of such conversion.1 If the land is placed in an ex- clusive agricultural use zone, deferred taxes are cancelled up to the date of re- zoning. Deferred taxes and penalties are allocated to tax districts pro rats. 5. Administration The responsibility for administering the program is split among the county government, the county assessor and the State Department of Revenue. The County must decide whether or not to create farm use zones and to accept a reduction in tax base. The County assessor must ascertain whether farm land is eligible and then must assess all qualifying land, zoned or unzoned, according to the statutory criteria. The Department supervises the assessment activities and has the power to order re-valuations if it finds as a result of assessed value/sales ratio studies, that the assessed values vary more than 10% from the standard which the Department considers to be controlling. It did this recently when it ordered Umatilla County in northeastern Oregon to raise its asslessments by about 10%. Data on market value of unzoned preferentially assessed land were available until 1972 when the act was amended to make this unnecessary. This was done pri- marily at the insistence of agricultural interests who preferred not to have the precise magnitude of their tax benefits a matter of readily accessible public record. No data are available concerning the acreage under the program or the number of conversions and amount of deferred taxes paid. B. Open Space Use Assessment Law In 1971, the Oregon Legislature enacted the Open Space Use Assessment Law, 2 which was modeled after similar laws passed in Connecticut and Washington. 1. Eligibility Criteria Open space land is defined as: i. any land area so designated by an official comprehensive land use plan adopted by a city or county, or ii. any land area, the preservation of which in its present use would: a. conserve and enhance natural or scenic resources b. protect air or streams or water supply C. promote conservation of soils, wetlands, beaches, or tidal marshes, d. conserved landscaped areas such as public or private golf courses, which reduce air pollution and enhance the value of abutting and neighboring property, 1ORS 308.395 2ORS 308.740 308.790 206 Oregon Case Study e. enhance the value to the public of abutting or neighboring parks, forests, wildlife preserves, nature reservations or sanctuaries and other open space, f.. enhance recreation opportunities, g. preserve historic sites h. promote orderly urban or suburban development i. retain in their natural state tracts of land, on such con- ditions as may be reasonably required by the legislative body granting the open space classification. If the owner of such land wishes to obtain open space use assessment, he applies to his county assessor for such a classification. The application is referred to the local governing body and planning commission. The application can be approved only after notice and a public hearing. The principal beneficiaries of this sta- tute have been golf courses, as shown in the following table: PROPERTY RECEIVING OPEN SPACE ASSESSMENT, 1974 Area value ($1000) Use Acres % Market Open Space Difference Golf course 3500.16 80.8 $10,266 $7,653 -2,613 Conservation 279.68 6.5 573 190 -383 other Recreation 535.64 12.1 587 346 r241 Historic Site 27.04 0.6 96 7 -89 Total 4332.52 100.0 $11,521 $8,196 -3,326 2. Method of Assessment The assessor is required to assess the value of classified open space land both at its full cash value, as if it were not so classified, and at its true cash value at its current open spade use. Improvements on the land are assessed at market value. He can use the comparable sales or capitalization of income approaches. The assessor notes both values on the record and computes annually the deferred taxes due. 3. Sanctions for Conversion The owner may seek permission to withdraw his property from open space use assessment. If he gets it, he must pay all deferred taxes plus interest at the rate of 8% per year, subject to the limitation that such amount due shall not exceed the difference between unrestricted true cash value in the year of with- drawal and restricted open space value in the last year of preferential classifi- cation. If the owner converts the land and then gives notice within 60 days, he must pay a penalty of 20% of the deferred taxes. If he converts and fails to give notice, he must pay another 20% penalty on the total due. No data are available on the number of conversions to date under this relatively new program. C. The Western Oregon Ad Valorem Timber Tax (ORS 321.605 - 321.680) The timber industry is the largest in Oregon, accounting in 1970 for 45% of the value added by manufacturing and 44% of the state's manufacturing employees.1 The characteristic which distinguishes timber and forest land from most other real property with reference to the real property tax is that, while timber is IThe Klemperer Report, p. 11. 207 Ore on Case Study considered legally to be real property and therefore subject to annual taxation, it does not produce any income until it is harvested. Oregon's property tax exemptions for timber are designed to address this mismatch between tax liability and cash flow. The timber tax laws also reflect the dramatic climactic difference between the western third of the state with its rain-drenched coastal areas and west-facing slopes of the Cascade Mountains, and the eastern two-thirds, whose arid, often inhospitable lands lie to the east of the Cascades. The dividing line recognized by statute is the ridge line of the Cascandes which runs almost exactly in a north-south direction through Crater Lake about 110 to 125 miles from the Pacific Coast. The principal commercial species are Douglas fir in western Oregon and Ponderosa pine in eastern Oregon. The Western Oregon Ad Valorem Tax applies to all eligible land and timber west of the ridge line of the Cascades (except that classified under the Forest Fee and Yield Tax and the Western Oregon Small Tract Optional Tax, to be discussed below). In 1973, it applied to 5,150,000 acres (out of a total of 28,225,000 acres of privately owned land in the state) and produced $23,965,000 in tax re- venue. 1. Eligibility Criteria . Eligible land is defined as that located in Western Oregon which is being held or used for the predominant purpose of growing and harvesting trees of a marketable species. There are other minor eligibility criteria with which we need not concern ourselves here. 2. Method of Assessment Land. If the highest and best use of the land is as forest land, it is appraised by the State Department of Revenue at its true cash value on this basis. If there is a higher and better use the owner may apply to the county assessor to have it "designated" as forest land. If the land is so designated (and about one million of the five million acres covered by this Act have been), the land will be appraised by the Department on the basis of its market value as forest land. Timber. Western Oregon timber is divided into three categories for appraisal purposes: 1. old growth (trees over 104 years old in 1975) 2. young growth (trees over 12 inches diameter breast height outside bark (dbh ob) and under 104 years old in 1975. 3. reproduction trees (trees under 12 inches dbh ob). It is usually asserted that it takes about 30 years for Douglas fir to,reach this diameter. Reproduction timber is exempt from annual taxation. Young growth timber is appraised at its "immediate harvest value" (IHV), (the apparent value which stand- ing timber would have currently if sold for harvest) and assessed at 30% of its IHV. Old growth timber is assessed at 30% of its IHV, except that tracts having a harvest period of longer than 30 years are assessed at 25% of IHV. At the time of harvesting, the Department of Revenue determines the timber's harvest value, and the owrier must pay an additional tax based on the 'complement of the assessed value for annual taxation. Thus, in most cases, where the owner was 1Report of the Legislative Interim Committee on Revenue (December 1974) (here- after referred to as the LICR Report), p. 27. 208 Oregon Case Study paying real property taxes based on 30% of IHV of the timber, in the year of harvesting, he would pay an additional tax on 70% of IHV as of January of the year in which it was harvested. all these taxes are, of course, at the same rate as the levy applied to similarly located real property in the tax district. These rates are typically about 2% of assessed value in Western Oregon.1 In summary, the Western Oregon Ad Valorem Timber Tax gives the following tax preferences to eligible land and timber. a. land, if designated, will be taxed at its market value for forest use if lower than its highest and best use market value, subject to a five year roll-back of deferred taxes, to be discussed below. b. timber is exempt from taxation until it is 12" dbh or roughly the-first 30 years of its life, assessed at 30% of its IHV for the rest of its economic life, assessed at 30% of its IHV for the rest of its economic life (for all intents and purposes, because most trees will be harvested before age 104, and the 25% standard expires January 1, 1976),and then assessed at 100% of IHV in the year immediately prior to harvest. The magnitude of the tax preference varies with many factors such as the rate of change in land value, the rate of change in timber value, tax rates, personal income tax status of owner and so on. An impression of its magnitude is given by the accompanying graph, "Douglas Fir Young Growth Even-Aged Forest Value per Acre over Time," which was prepared by Klemperer from a computer run of low management site III (intermediate quality) Douglas fir tract model, assuming stumpage price increased at a conservative rate of 2% annually, corporate income tax rates, a 2% real property tax on 60% of forest market.value and 6% real return all in con- stant 1975 dollars.2 Under the Western Oregon Tax, the forest assessed value is represented by the curve a b c d. Klemperer concludes, again on the basis of reasonable assump- tions which are set out at length in his report, that in 1971, property taxes on land and timber constituted 14.46% of net income before deducting real pro- perty taxes, or 17% of net income after all taxes.3 By comparison, he finds that property taxes averaged 27% of net after-tax income from Oregon agriculture in the years 1971-734 (and during those years the assessed value of farmland had been reduced approximately 50% of preferential assessment.5 3. Sanctions The only sanction imposed by this tax for conversion is the five year rollback of deferred taxes plus 6% per annum, on land which has been designated 1Klemperer Report, p. 57. 2Klemperer Report, pp. 28-29. 3Ibid, pp. 63-65. 4Ibid, p. 59. 51t should be noted that timber industry consultant testified that taxes were about 33% of net income after taxes in 1971. He did not show how he derived that figure. LICR "Supplemental Report on Timber Taxation" (Salem, Oregon: 1974) pp. 120-121. 209 Figure 1 DOUGLAS FIR YOUNG GROWTH EVEN AGED FOREST VALUE PER ACRE OVER TIME $3500 3000 2500 Final har%est 34 2000 0 e P4 Land value plus immediate harvest v alue of timber -4 0 1500 d 1000 Forest market value 500 C b Refore a Ian value tationsi- I. I - cost + 1975 1985 1995 2005 2015 land value Year Source: Klemperer, W. David, Evaluating Forest Tax Alternatives for Oregon, A Study Prepared tor the Oregon Legislative Ynterim Committee on Revenue. January 1975. 210 Oregon Case Study as forest land for assessment purposes, because its market value is higher than its forest use value. Otherwise the tax embodies a straightforward preferential assessment. D. The Eastern Oregon Severance Tax (ORS 321.405 - 321.605) The Eastern Oregon Severance Tax applies to all eligible land and timber east of the ridge line of the Cascades (except that classified under the Forest Fee and Yield Tax Act, to be discussed below). In 1973, it applied to 2,630,000 acres and produced $1,601,474 in revenue.1 An additional $800,000 was collected through taxes on covered forest land.2 1. Eligibility Criteria Criteria for eligibility are exactly the same as for the Western Oregon Ad Valorem Tax, except that the locus must be in eastern Oregon. 2. Method of Assessment Land. Land is assessed in the same way as it is under the Western Oregon Av Valorem Tax, and may also be designated as forest use land to secure a lower assessed value. Timber. Timber is exempted from the tax, and a severance tax of 5% of the immediate harvest value of timber harvested is imposed each year, as determined by the Department of Revenue. The tax is paid to the Department which distributes it pro rata to eastern counties.in proportion to the ratio which the value of each county's timber bore to the total value of eastern Oregon in 1964. Klemperer estimates that severance and land taxes amounted to 12.5% of after tax net income.3 3. Sanctions The same five year rollback applies to designated lands which are converted. E. The Forest Fee and Yield Tax (ORS 321.255 - 321.260) This is an alternative tax, adopted in 1929, which applies across the entire state. It was designated to encourage reforestation and sound timber management. Almost one million acres are covered by it. 1. Eligible Land Land must be denuded by logging, fire, insects or other cause, and have a minimum forest tree growth on it. The Department of Revenue must determine that it is suitable for reforestation and so classify it. It must issue a permit be- fore any timber can be harvested. 2. Method of Assessment Land. Land is not assessed in the customary way. Instead, it is subject to a flat fee of ten cents per acre in western Oregon and five cents per acre in IDepartment of Revenue, Third Biennial Report, 1972-1974, p. 48. 2Klemperer Report, p. 66. 3Ibid. 598-330 0 - 76 - 15 211 Oregon Case Study eastern Oregon. At the 2% levy rate which is typical in western Oregon, this represents the equivalent of an ad valorem tax on $5 of assessed value, while with a typical eastern Oregon rate of 1.5%, it represents the equivalent of a tax on $3.30 of assessed value. Klemperer indicates that in western Oregon, Douglas fir land prices range from $25 to $105 per acre depending on quality.1 3. Sanctions Timber. Timber is exempt from the real property tax. At the time of harvest, forest products are subject to a 12@2% yield tax on their value, Klemperer states that, under reasonable assumptions, a 1.5% to 2.0% ad valorem property tax on growing timber would be equivalent to a 30% to 40% yield tax. F. The Western Oregon Small Tract Optional Tax (ORS 321.705 - 321.765) 1. Eligibility Criteria This tax is of relatively minor importance and is included here only for the sake of completeness. It applies only to owners with less than 1,000 acres of total ownership. Some 91,000 acres are covered by it and it produced approxi- mately $100,000 in revenue in 1973. 2. Methods of Assessment The Department of Forestry classifies eligible land into one of five quality classes and the Department of Revenue establishes annually the value for each,class by capitalizing profit from timber sales at the rate of 12%. 3. Sanctions When the property ceases to qualify for this classification, the owners become liable for payment of a five-year rollback in deferred taxes, plus 6% per annum interest. G. Tax Expenditures Relating to Timber and Timber Land The tax expenditures relating to preferential assessment of timber and timber land are elusive. Interestingly enough, the LICR Report on Exemptions does not even mention timber preferences, even though it purports to be a complete de- scription of all of Oregon's income and property exemptions and exclusions, and analyzes some 60 of them. Klemperer suggests the aggregate effect of tax preferences for private timber and timberlands in western Oregon was to reduce their tax liability to about 17% of net income after taxes, or below the 27% they would have been if they had been taxed on an unmodified ad valorem basis. He estimates that eastern Oregon timber and land received an aggregate tax reduction of about 40%.2 1Klemperer Report, p. 82. 2Klemperer Report, pp. 59, 63-65, 66, 112. 212 Oregon Case Study II. EVALUATION OF THE SPECIAL FARM USE ASSESSMENT PROGRAM The major focus of this part of the Oregon case study will be on the Special Farm Use Assessment Program. The Open Space Lands Program involves so little land (4,330 acres) and most of that is devoted to a single use, golf courses, that it is not a significant factor in the land development process. The timber taxes have been conceived of and administered as an industrial tax and very little information is available on their significance to the workings of the land market generally. They do provide an important element of the overall real property tax context within which preferential assessment of farm land must be viewed. A. Ease of Entry It is fairly simple and straightforward for a farmer to qualify for farm use value assessment. If this land is in an exclusive farm use zone and devoted to farm use for profit, it is automatically specially assessed. If it is not so zoned, it is eligible if it has been for the previous two years and is now being used for farm- ing for profit. No data were found revealing the percentage of eligible farmland actually re- ceiving preferential assessment (although one knowledgeable appraiser estimated that 75%-90% of eligible farm acreage was covered),l its location or other charac- teristics. B. Magnitude of Tax Until 1971, assessors were required to keep records of both farm and full cash value of unzoned farmland which was granted preferential assessment. In that year, largely as a result of political pressures from farmers, this requirement was de- leted. As a result of the deletion, no data are available on the amount and location of preferentially assessed land, and the actual level of tax expenditures resulting from farmland assessment can only be estimated by extrapolating the 1971-72 tax year data. Working from various sources, according to the procedure outlined in the foot- note12 the author estimated that a tax expenditure of about $24,000,000 occurred in the 1974-75 tax year in connection with the preferential assessment of farmland program. It should also be noted that in 1973, the total assessed value of land out- side corporate limits was $3,892,530,467.3 If we add to this, $1.1 billion, the amount of the exempt value, we get a total close to $5 billion. The reduction occasioned by preferential assessment thus amounts to about 22% of land values in 1Robert Fielder, Department of Revenue, interview, March 13, 1975. 2The Department of Revenue estimated that in 1972-73, the assessed value of both zoned and unzoned preferentially taxed farmland was reduced by $800 million dollars. (LICR Report on Exemptions, p. 115), or 3.6% of the total assessed value of property in the state subject to the property tax. The total assessed value in 1974-75 was $28,274,471,804 (1974-75 Tax Year Statistics, Department of Revenue 1-30-75 mimeo- graphed). If we apply the same percentage to it (3.6%), we estimate $1,018,000,000 in assessed values would be exempt. If we apply a more probable multiple of 4% (be- cause more land is now preferentially assessed) we estimate that $1,131,000,000 of value is exempt. If we multiply this latter figure by thelmedian average county tax rate of 2.171%, we get $24,400,900 in tax expenditures. 3Summary of the 1973 Assessment Roll, Department of Revenue (June 1974), p. 6. 213 Oregon Cas Study areas outside incorporated cities. Finally, the Department of Revenue estimated in 1973 that the assessed value for unzoned farmland in 1971-72 was reduced about 50% by the farmland preferential assessment program.1 The total tax base of real, personal and ut ility property for the entire state in 1974-75 was $28,274,471,804. Assuming that residual assessed values did not rise as a result of diverted development pressure, the total tax base was reduced by about $3.7% from what it would have been but for the program. No information is available on a county by county basis concerning the disaggregated impact of this reduction, nor were instances discovered where tax rates were raised to com-. pensate for significantly lower assessed values. C. Method of Assessment As we have indicated, the ground rules set by the Oregon Legislature for de- termining current use value effectively eliminate the comparable sales technique of assessment and mandate the use of the capitalization of income method. The practical effect of this is to convert the property tax from an ad valorem tax to an income tax on net income from farming. Let us illustrate. Under the guidelines of the Department of Revenue, the assessed value for the property per acre is determined by the formula, FAV Y C + R where, Y ='net rent (or income from farming) per acre, before property taxes C = the capitalization rate for commercial properties set each year for the state by the Department of Revenue R = tax rate for district where property is located. The tax, T, on the property is T R(FAV) Y R (C + R) The percentage P, which T is of Y, is, P T Y Y R(C + R) Y 1LICR Report on Exemptions, p. 114. 214 Oregon Case Study Thus, for a given net rent or income from farming, the tax will be a per- centage which is a function of the capitalization rate and the tax rate. For 1975, when C has been set at 8%, the percentage, P, will vary with the tax rate in a given district in accordance with the formula, see Figure 2. Since average county tax rates vary from 1.45% to 2.76% the real property tax ranges from 15.5% to 25.5% of net income. Figure 2 TAXES AS A PERCENTAGE OF NET RENT OR INCOME FROM FARMING OREGON, 1975 40%- 0 @4 Z 30%- 44 0 a) $4 Q 20%- ca 4J U 10%_ P R -.08-+R 1% 2% 3% 41/. R (District Tax Rate) 215 Oregon Case Study Generalizing for differing capitalization rates, we see from Figure 3, below, the percentages of farm income which the real property tax constitutes, given different assumptions for C and R. Figure 3 TAXES AS A PERCENTAGE OF NET RENT OR INCOME FROM FARMING 20% 15% 0 .1 4J -@4 -4 cc 4.J CU L) 10% U 5% -P C R PR A 2-@ 3% R (District Tax Rate) 216 Oregon Case Study D. Costs of Conversion In 1972-73, and 1973-74, $555,383 and $750,5571 were collected from persons. converting unzoned farmland Ior about one-tenth of one percent of total levies for the year. If the statutory provisions are not amended, we would expect this figure to increase over the next few years as more land which has been enjoying deferred taxation for a longer period of time is put to non-farm uses. E. Relationship to Land Use Planning and Controls Zoning is a relatively recent arrival in Oregon and many counties have adopted zoning ordinances only in recent years. In 1973, 80% of preferentially assessed farmland was unzoned. The statute requires that exclusive farm use zones be con- sistent with the overall development plan of the county, but no specific data are available at the state level concerning the patterns and location of such zones. There are no legislative attempts to identify and protect prime agricul- tural land. This situation may be changing. In 1973, the legislature approved the Land Use Act (S.B. 100)2 which asserted the state's interest in strengthening land use con- trols, and created the Land Conservation and Development Commission (LCDC), and its related department. The Act is a modification of the American Law Institute's Model Land Development Code and calls for the establishment of a statewide planning process and the identification of areas of critical concern and activities of statewide significance. The LCDC adopted Statewide Planning Goals and Guidelines, which became effective on January 1, 1975 and dealt with 14 different areas of policy concern, ranging from citizen participation to energy conservation and housing. County and city comprehensive plans and implementing ordinances must comply with the statewide goals by January 1, 1976. Goals are deemed to be regulations and the basis of all land use decisions relating to that subject, while guidelines are only suggested directions.3 The Goals and Guidelines for Agricultural Lands Are as follows: "Goal: To preserve and maintain agricultural lands. "Agricultural lands shall be preserved and maintained for farm use, con- sistent with existing and future needs for agricultural products, forest and open space. These lands shall be inventoried and preserved by adopting ex- clusive farm use zones pursuant to ORS Chapter 215. Such minimum lot sizes as are utilized for any farm use zones shall be appropriate for the con- tinuation of the existing commercial agricultural enterprise within the area. Conversion of rural agricultural land to urbanizable land shall be based upon consideration of the following factors: (1) environmental, energy, social and economic consequences; (2) demonstrated need consistent with LCDC goals; (3) unavailability of an alternative suitable location for the re- quested use; (4) compatibility of the proposed use with related agricultural land; and (5.) the retention of Class I, II, III and IV soils in farm use. Department of Revenue, Summary of 1973 Assessment Roll and Tax Roll, p. 12. 2ORS Chapter 197. 3LCDC Statewide Planning Goals and Guidelines, p. 1. 217 Oregon Case Study A governing body proposing to convert rural agricultural land to urbanizable land shall follow the procedures and requirements set forth in the Land Use Planning goal (Goal 2) for goal exceptions. "Agricultural Land - in western Oregon is land of predominantly Class I, II, III and IV soils as identified in the Soil Capability Classifica- tion System of the United States Soil Conservation Service, and other lands which are suitable for farm use taking into consideration soil fertility, suitability for grazing, climatic conditions, existing and future avail- ability of water for farm irrigation purposes, existing land use patterns, technological and energy inputs required, or accepted farming practices. Lands in other classes which are necessary to permit farm practices to be undertaken on adjacent or nearby lands, shall be included as agricultural land in any event. "More detailed soil data to define agricultural land may be utilized by local.government if such data permits achievement of this goal. "Farm Use - is as set forth in ORS 215.203 and includes the non-farm uses authorized by ORS 215.213. "Guidelines: "A. Planning, 1. Urban growth should be separated from agricultural lands by buffer or transitional areas of open space. 2. Plans providing for the preservation and maintenance of farm land for farm use, should consider as a major determinant the carrying capacity of the air, land and water resources of the planning area. The land conservation and development actions provided for by such plans should not exceed the carrying capacity of such resources. "B. Implementation 1. Non-farm uses permitted within farm use zones under ORS 215.213 (2) and (3) should be minimized to allow for maximum agricul- tural productivity. 2. Extension of services, such as sewer and water supplies into rural areas should be appropriate for the needs of agriculture, farm use and non-farm uses established under ORS 215.213. 3. Services that need to pass through agricultural.lands should not be connected with any use that is not allowed under ORS 213.203 and 215.213, should not be assessed as part of the farm unit and should be limited in capacity to serve specific service areas and iden- tified needs. 4. Forest and open space uses should be permitted on agricul- tural land that is being preserved for future agricultural growth. The interchange of such lands should not be subject to tax penalties. "If these goals are in fact implemented as the act provides, the re- sult could well be a slowing down of the rate of conversion of farmlands in many parts of the state. It should be noted that if a governmental 218 Oregon Case Study J-_ body proposes to convert rural agricultural land to urbanizable land it must follow specified procedures involving an assessment of the environmen- tal impact of the change and a demonstration that no other locations in the area are suitable."I F. Effectiveness of'Preferential Assessment for Maintaining Current Use 1. Land Market Data As has been indicated, no data exist on overall participation rates, or variations in conversion rates between preferentially assessed and non-pre- ferentially assessed farmlands. Since the Oregon Legislature repealed the re- quirement that market value of preferentially assessed properties be maintained annually, we can only estimate the size of the annual tax deferral. Conse- quently, we were unable to obtain any data from the workings of the land market which would tend to prove or disprove the proposition that preferential assess- ment of farmland is effective for maintaining the current use thereof. 2. Prior Studies Carlisle B. Roberts, former Chief Counsel to the State Tax Commission, in his lengthy study of the history of Oregon's Special Farm Use Assessment Program,2 concluded as follows: 1. He found no studies which verified in detail the oft-repeated generali- zations that tax relief for farmers is needed; 2. the state's effort to mitigate the impact of taxation in farm lands followed no overall plan and its basis as a matter of tax policy was not well-defined; 3. preferential assessment would not effectually.preserve prime agri- cultural land from conversion to other uses and the overall impact of the statutes was uneven and in equitable.3 Writing seven years later, Professor Joseph T. Henke reached similar con- clusions.4 He found that the only effects of tax concessions were (1) possibly a prolonged pre-development or speculative period when the land need not be currently producing income;that is, developable land probably passes out of ac- tive agricultural use sooner under preferential assessment; and (2) a slight delay in final conversion, probably amounting to no more than one and one-half years.5 He also noted that in many cases, non-prime land will receive more of a IGoal 3, LCDC Statewide Planning Goals and Guidelines. 2Roberts, Carlisle B., "The Taxation of Farm Land in Oregion," 4 Willamette Law J. 431 (1967). 3Ibid, p. 455. 4Henke, Joseph T., "Preferential Property Tax Treatment for Farmland." 53 Oregon L. Rev. 117 (1974). 5Ibid, at p. 124, citing the Washington Center for Metropolitan Studies' Report, Taxation and Development (1968). 219 Oregon Case Study tax break than prime land because its current use value is a smaller percentage of its market value, with the result that preferential assessment based on current use provides less incentive for the preservation of good farmland. 3. Opinions of Persons Interviewed Of the eight people interview-ad in person or by telephone, only Howard Fujii, lobbyist for the Farm Bureau, thought that preferential assessment was effective in maintaining current use. He asserted that without it, many farmers, especially those on the urban fringe, would have been forced to sell-out by es- calating property taxes. Otherwise, the concensus I was that while it might delay the inevitable con- version in the case of marginal farmers, the deferral of taxes would not be enough in and of itself to inhibit a farmer who was ready to sell from completing an otherwise profitable sale. In most cases, increases in other costs such as machinery, fertilizer and fuel were more significant than tax increases as fac- tors which influenced conversion rates. Two of those interviewed*believed that preferential assessment might actually accelerate sales from farmers to speculators in the rural-urban fringe because the latter could now afford to offer more since it would be less costly to carry the land in agricultural use until it was ripe for development. Several pointed out that the poorest land often gets the greatest percentage reduction in assessed value because of its low current use value. This has the effect of pushing development toward the better land. G. Equity There are not enough data to evaluate with precision the various tax shifts which have occurred as a result of tax deferral in Oregon. At the aggregate level, the fact that the assessed value of farm land has decreased about 50% as a result of preferential assessment whereas the overall tax base has been reduced less than 4% would suggest that a certain amount of shifting has occurred. However, without knowing the percentage which preferentially assessed land constitutes in a particular tax district, whether tax rates have been increased or whether services have been reduced, it is not possible to assess accurately the nature of these shifts. Furthermore, there are major barriers confronting any effort to determine whether or not farmers are paying their "fair share" of local government revenues. First, many other classes of property are fully or partially exempt such as young growth trees, deciduous plants, nursery stock, charitable and governmental pro- perties, veterans' properties and so on, so that the benchmark should certainly be lower than the full ad valorem value of the property. Second, deferred taxes will be capitalized in lower Land values than would have existed if there were no tax deferral program. Third, farmers often receive fewer municipal services per tax dollar than other classes of taxpayers. Finally, as already indicated, it is always possible that services will be reduced with falling revenues. H. Ease of Administration Our research and interviews did not uncover any particular problems in the administration of Oregon's Special Farm Use Assessment Act. Eligibility require- ments are now simple and few in number. Assessors are required to use the IOther individuals interviewed included officials at the State Department of Re- venue, Governor's Counsel and a representative of the Association of Oregon Industries. 220 Oregon Case Study capitalization of income method which requires somewhat more time than comparable sales, but state Department of Revenue Guidelines and the development of standards for different types of farming operations have simplified and regularized these procedures. Conversions have been so few to date that the computation of back taxes has not been a major undertaking. 1. Political Feasibility The evolution of Oregon's preferential assessment laws has been marked--some might say, scarred-- by a series of legislative compromises in which farmers, environmentalists and urban interests have traded back and forth. The details of this history through 1972 are recounted by Edward Sullivan in his 1973 article which was referred to above in the footnote. What was initially a tax abatement program for lands in exclusive farm use zones was converted into a ten year tax deferral program for all lands in farm use. In 1973, farmers exchanged abatement for deferral in zoned areas and a longer deferral period in all areas, for protec- tion against local regulation of farm activities, more non-farming uses in exclusive farm use zones, easier large scale subdivision and a tax break in the inheritance tax laws. At the time of writing, the 1975 Legislature had not completed action on a dozen or so bills amending the preferential assessment act. J. -Evaluation with Respect to Goals of Securing Recreation Lands, Protecting Scenic Vistas and Controlling Urban Development These three goals are not given much emphasis in Oregon. The Open Space Lands program does make preferential taxation available to golf courses and other types of recreational land, but it has not been used widely. The larger scale programs for timber and farmlands do not embrace open space or scenic goals and have only the most tenuous relationship to land use planning and control, by virtue of the requirement that exclusive farm use zones must be consistent with the county com- prehensive plan. 221 III. APPENDIX TO OREGON CASE STUDY INSTRUCTIONS TO ASSESSORS FOR DETERIIINING VALUE OF LANDS ELIGIBLE FOR FAM-USr ASSFSRIENT December 1974 The special assessment provided by ORS 308.345 pertains to only two categories of farmland (1) land located in a qualifying farm-use zone and (2) unzoned farmland which is specially assessed because the owneres application for the special assessment (deferral) is approved. Both categories of farmland must be exclusively devoted to farm-use as provided by ORS 215.203 (farm-use) to qualify for the special assess- ment. Therefore, if a farm is not within a farm-use zone and the owner does not file an application for deferral, the appraisal, for assess- ment purposes, must be at market value for highest and best use as provided by ORS 308.205. The dwelling and other buildings customarily provided in conjunction with the farm@use and the land used for the homesite shall be appraised at market value as provided by ORS 308.205. COMPARABLE SALES APPROACH TO FAR11-USE VALUE When sufficient sales of farmland that justify the purchase of such farmland by a prudent investor are available, they shall be used to appraise such farmland at farm-use value. A "prudent Investor" as defined in ORS 308.345 is a "person who purchases agricultural lands with the reasonable expectation that he will be able to realize an average annual return on his capital not less than the current rate of interest charged by the Federal Land Bank on first mortgages of farm land in the county in which the agricultural lands are located." The Federal Land Bank uses a single rate statewide. The rate was 8.00 percent as of January 1, 1974. In appraising farm-use land the following steps must be taken in processing sales: (1) The initial step consists of collecting sales of farmland and verifying the sales to determine if they are valid transactions. Property Tax Rule OAR 150-309.028-(c)(4) and the Department of Revenue supplement 602.04 will be helpful in determining if a transaction can be utilized. The sales which meet this requirement are then prepared for the "prudent investor test" required by ORS 308.345. Source: Oregon Department of Revenue, 1975. 222 (2) The second step consists of developing a gross average annual return to capital (land) for each farm sale and reducing the gross to net income by allowing typical expenses. The same income and expenses tha-t are used to compute -the farm-use values will be used in developing the net income for the 11prudent investor test." After the typical net rent has been developed for the farmland, the appraiser is ready to undertake the tbird step in the process. (3) The third step, which is the "prudent investor test," consists of dividing the typical net income by the sales price of the land involved in the farm sale to obtain the rate of return (interest rate). This rate expresses the percentage relationship of the typical net income to the purchase price of the land. This is the rate of return to the investment in land. The following example expresses the "prudent investor test" mathematically. Typical Net Rent Rate of Return to Capital Purchase Price $ 5,000 5% Rate of Return to Capital (land) $100,000 If the rate, as in the example, is less than the Land Bank mortgage rate, the sale does not meet the "prudent investor test" an d cannot be used as a comparable in arriving it a farm-use value. If a sufficient number of sales meet the requirement of a prudent investor, they shall be used in farm-use value appraisals. Sales utilized in arriving at farm-use value shall be submitted by the county assessor to the county board of review. BOARD OF' RFVIE14 ORS 308.350 provides for a board of review which is advisory in nature and restricted to the review of the sales or the income and expense factors being utilized by the assessor in the appraisal of farm-use land. The sales submitted are those the assessor has determined can be used because they have met the requirements of the "prudent investor test." Although the.board's function is a very limited one, the assessor,is urged, (because of the nature of the appraisal process and the limited time the board has in which to do its work,) to provide the board with all market value transactions that are being subjected to the prudent investor test requirement and.all the'data that he has considered in arriving at the typical income and expenses. 223 The board of review is subject to the "Public Neetings Law." Therefor the meetings are open to the general public and a notice of the time and place of the meetings must be given. Written minutes of all meetings must be kept and made available to the public. INCOME APPROACH TO FAMI-USE VALUE When comparable sales cannot be utilized in arriving at farm-use values for zoned and unzoned (deferred) land by reason of an insufficient number of qualifying sales meeting the "prudent investor test," the assessor shall determine farm-use value by using the special type of "income approach" set forth in ORS 308.345. The application of this statutory income approach requires the develop- ment of two basic components; a capitalization rate and net income. The capitalization rate is to be determined annually by the Department of Revenue and certified to the county assessor. The capitalization rate certified shall be the typical capitalization rate used for appraising nonagricultural commercial land in the area in which the agricultural land is located. The assessor has the responsibility of developing the net income of the farmland to be valued at farm-use value. A problem in valuing farmland by the income method is how to segregate the income applicable to the farmland from that applicable to management. The accepted approach to this problem is the use of typical yields, typical commodity prices, typical rental agreements and typical expenses from the area.under appraisal. For instance, better than typical crup yields may be obtained by good management whereas poor yields may be due to poor management. In developing the farmland's net income, rental data, (either cash or crop share,) if available in sufficient quantity should be used in preference to gross income and operating expense data developed from owner-operator statements because of the difficulties in estimating all the many owner-operator expenses@' It is essential that rents be based on typical landlord - tenant arrangements. Local inquiry will usually indicate a fairly definite pattern of rental terms prevalent in most areas. The assessor shall determine if the same rental terms prevail countywide. If the rental terms and amounts arenot typical countywide, the typical rent for each area will be determined. When owner-operator statements are used, only those typical expenses required to produce the annual gross income attributed to the farm- land are subtracted from the gross income from the land involved. When utilizing the cash rent method for computing the farm-use values, the typical income and expenses for the previous year will be used.. 224 When utilizing the crop-share or' owner-operator method the counties will be responsible for establishing yields of each crop. grown in their county for the various land classes. The yields will need to be for a sufficient length of time to level out any variation in production due to fluctuations in the weather. The cultural practices and crop varities will need to be similar for whatever period of time selected. The income to the land will consider the typical yields, as determined above, and a commodity price, which will be the average of the previous two years. Since the commodity price is the average of the two preceding years, the expense period to use will be the average of the sane two years. The Department of Revenue will determine annually the wheat price that the counties will usefor computing the gross income of wheat land, where the price of wheat is one of the factors for determining net income to the land. The wheat price determined by,the Department of Revenue will be based on the two preceding August 1 through December 31 periods. The net income before an allowance for property taxes will be used for determining the farm-use values. This net income is divided by a rate which is composed of the rate certified by the Department of Revenue and the current tax rate for the tax code in which the property is located,. SOURCES OF ITIPOPI-TATION Data in respect to landrents, comodity prices, yields, and expenses may be obtained from persons familiar with the farm operations in the county. Such individuals may be, but are not restricted to: county extension agents, banhers, ap praisers, realtors, and cannery managers. The various offices of the U.S. Department of Agriculture located in the county can also be valuable sources of information. Determining farm-use value is the assessor's responsibility and therefore he must always assure himself of the reliability of any data used as the basis for such determination. The use of a questionnaire by the assessor will help in obtaining rental data. The questionnaire shall be developed by -the assessor assisted by the Department of Revenue to obtain the information needed to establish the farm-use values in his county. The information received by the assessor from his questionnaires must be verified. These verified questionnaires will also be important in respect to the assessor's ratio study pertaining to land assessed at farm-use value. This is an additional reason why the assessor must carefully verify the rental information received from questionnaires or any other source. The primary sources of rental data are tenants and landlords. 225 LAND CLASS IFICATION AND APPRAISAL RECORDS The land classification systems which most counties now have in use recognize the productivity concept of value inherent in the income approach required by ORS 308.345. To utilize the land classes the assessor needs to develop the net income to be capitalized for each of the land classes. Once this has been done, he can proceed to capitalize the net incomes to obtain the farm-use values of the various land classes. An appraisal card (A&A-A-1 or other approved card) must be completed by extending the farm-use 'Value of each land class against the number of acres of the class in the tax lot. This procedure is the same as that followed in respect to completing market value farmland appraisal cards (A&A-A-2) in the past. The homesite value and any other land not qualifying for farm-use assessment, even though appraised at market value, should be carried on the farm-use appraisal card. It should be noted that the recomputation of the farm-use value does not in itself meet the requirements of ORS 308.234 (six-year appraisal cycle). To be considered as a current appraisal, meeting the requirement of the six-year cycle, the property must be inspected to consider any changes that have occurred since the last physical appraisal. In addition to changes in the specially assessed portions of the property, a current market value appraisal must be made on the portions not subject to farm- use assessment. The current farm use card shall show the date the last physical appraisal of the property was made and the appraiser making the appraisal. The assessor shall keep carefully assembled all data and the computations which he has used in developing farm-use values on a land-class basis. This shall be done annually in respect to each assessment roll. RATIO STUDIES FOR FAMfWTD Two separate ratio studies will be required to measure the assessment level. (1) To measure the assessment level of farms appraised at market value for highest and best use, all arms length sales will be used. (2) To measure.the assessment level of farmland appraised at farm-use value where sufficient qualified "prudent investor" sales are available, these will be used. Where insufficient qualified 91prudent investor" sales are not available, net income data will be used. EXMfPLES OF ITICOHE DATA USE The following are examples of how income data can be used to estimate farm-use value for the land involved. The examples illustrate the three methods that can be used. The custom in the area and the availability of data will determine which method can best be utilized. The yields, 226 prices, and other data used in the examples are only for the purpose of illustrating the income technique and the development of farm-use value on the basis of the assessor's land classification. GENERAL FAF11 AREA EXAUTLES The typical rental agreement in the general farm area is a cash-rent lease. Cash rents should be used for analyzing land income in these areas. However, if you have exhausted the possibility of sufficient information for cash rental dataP it may be necessary to resort to the crop-share method. Rental data obtained may indicate a different rate based on whether the land is irrigated or not irrigated. In some instances, rent includes an amount for the irrigation system as well as for the land involved. In such cases the rent for the irrigation equipment must be extracted so not to be included as income to the bare land. ASSESSOR'S CLASS I LAND IN WILLMETTE VALLEY Basic Data: 1. Assessors' Class I land typical rent is $80 per irrigated acre. Comparable Class I nonirrigated land rents for $55 per acre. 2. I-Rien irrigation equipment is furnished by the landlord an additional rent is charged per acre. 3. Rents are for bare land, therefore no deduction is required for ORS 307.320 (deciduous trees, etc.) 4. Landlord typical expenses for both irrigated and non- irrigated land are property taxes, liability insurance and management of investment (tenant manages the operations on the land.) A. Valuation of Class I irrigaied land: Landlord Gross Income $80..00 Landlord Expenses Management at 4% $3.20 Insurance 50 3.70 Landlord Net Income to land before property taxes 76.30 227 598- 330 0 - 76 - 16 Capitalization Rate 7.75% Certified by D. of R. (1974) Tax Rate 2,47% Rate for the district in which the property is located TOTAL RATE 10.22% $76.30 t 10.22% = $747 (Rounded $750) Farm-use value per acre for Assessor's Class I irrigated land B. Valuation of Class I nonirrigated land: Landlord Gross Income $55.00 Landlord Expenses Management at 4% $2.20 Insurance .40 2.60 Landlord Net Income to Land Before Property taxes $52.40 Capitalization Rate 7.75% Certified by D. of R. (1974) Tax Rate 2.47% Rate for the district in which the property is located TOTAL RATE 10.22% $52.40 + 10.22% = $513 (Rounded $510) Farm-use value per acre for Assessor's Class I non- irrigated land ASSESSOR'S CLASS I MM IN A ROW CROP AREA OF CENTRAL OREGON EXAMPLE Basic Data: 1. Assessor's Class I irrigated land rents for different ariounts depending on the crops raised. The crops grown are fitted to a rotation pattern. Two years of potatoes are followed by one year of grain and then five years of alfalfa. After alfalfa the land is put back in potatoes. In determining the typical rent consideration must be given .to the crops grown. An example is: 228 2 years rented for potatoes at $100 per acre $200 1 year rented for grain at $45 per acre 45 5 years rented for alfalfa hay at $40 per acre 200 8 years @744-5 $445 * 8 years = $55.62 per year typical rent 2. The land is flood irrigated with the tenent responsible for upkeep and cleaning of the ditches. If irrigation equipment is included, an extra amount is charged per acre. 3. The landlord is responsible for furnishing the alfalfa seed when the stand*is established. The landlord alfalfa stand costs and allowance per year is: Cost of seed $15.00 Establishment Risk (1) .6.00 Interest on Stand Cost (2) 7.00 $28.00 t 8 years $3.50 per year (1) one out of ten seedings will fail resulting in the loss of income for one year,and the additional cost of $15.00 for seed. Loss of Income $42.90 Seed 15.00 $57.90 + 10 years $5.79 say $6.00 (2) Interest on Investment of Alfalfa Stand $21.00 Stand cost at 8 percent for average of 4 years @21.00 x 8% = $1.68 x 4 years = $6.72 say $7.00 4. The landlord's other typical expenses include property taxes, liability insurance, management, material for upkeep of fences, and water charge. The expense for water is the operation and maintance charge (0 & 11), any payments for debt retirement and interest, of-the irrigation district is not to be deducted. Valuation of Class I irrigated land: Landlord Gross Income $55.62 Landlord Expenses Management at 4% $2.22 Insurance .50 Fencing materi al .50 Water (0 & M) 5.00 Alfalfa stand 3.50 11.72 Landlord net income to land before property taxes $43.90 229 Capitalization Rate @7..75% Certified by D. of R. (1974) Tax Rate 1.93% Rate for the district in which the property is located 9.68% $43.90 + 9.68% $454 (Rounded $450) Farm"use value per acre for Assessorts Class I irrigated land. WHEAT AREA EXMIPLE The crop-share rental, is the usual rental agreement in the wheat counties. For many years the,typical crop-share allocation was one- third to the landlord and two-thirds to the tenent. However, this allocation of the crophas been changing in recent years as leases are renewed and one will now find many variations. Some, but not necessarily all of those variations are as follows: 1. Landlord receives one-third of the crop, pays one-third of the fertilizer, 2-4-D material, and all of the real property taxes. 2. Landlord receives,one-third of the crop; and the tenent pays for all of the fertilizer, 2-4-D and property taxes. 3. Landlord receives 40 percent of the crop and pays only the property taxes. Because of variations, it is important that the rental data be obtained from the individual county as it is essential that rents be based on typical landlord - tenant arrangement for the area involved. The government wheat program affects prices received for wheat and the number of acres that can be planted to wheat. Program, controls vary from year to year and from county to county, requiring that this data be obtained from the individual county Agricultural Stabilization and Conservation Service (ASCS) office. The present program allows the planting of wheat on all the acres and must be considered in determining the cropping program. Under the 1965 and 1970 farm programs, when a certain number of acres had to be set - aside wheat growers were paid certificate payments for the part of the crop that went for domestic consumption. The certificate payment was added to the market price the grower received for wheat to arrive at the total wheat income. The program now in effect does away with these certificate payments and is replaced by a target price for wheat. As long as the market price of wheat (five month average - July- November) is above the target price, no payments will normally be.received by the grower from the government. 230 To insure that all the counties are using a similar base on which they compute farm-use values for wheat land, the wheat price will be determined annually by the Department of Revenue and the expense period as shown in the following example will be used. ASSESSOR'S CLASS III DRYLAND wimAT LAND EWIPLE (Sumer Fallow Area) Basic Data: 1. The typical rental agreement is a crop-share rent with the landlord receiving one-third of the crop and paying one-third of the cost of fertilizer, spray material, and the fire and hail crop insurance. In addition the landlord pays all the property taxes and has liability insurance. The current program for the past two years,has allowed the planting of wheat on all the crop side acres and has been used as the cropping program. .3. The price of wheat determined by the Department of Revenue and issued to the assessor is $4.76 per bushel (for illustration purpose only). This price is the average of the two preceding August I through December 31 dates, for No. I soft white wheat at Portland, Oregon. The average marketing cost the past two years has been $.20 per bushel (based on tenant delivering the grain to the local elevator). $4.76 less $.20 $4.56 net to grower. .4. The average price of fertilizer was $.20 per pound and for spray material $2.80 per acre for the past two years. One pound of fertilizer is applied for each bushel of production. .5. Crop insurance has been running $1.60 for each $100.00 of insured value. Liability insurance based on the typical operation size has been $.05 per tillable acre per year. 6. The typical wheat farm.in the county is not fenced. For those that are fenced only about one-third of the landlords pay any of the fencing cost. (Tenant does not pay extra for any grazing.) VALUATION OF CLASSIII DRYLAND: Income 32 bushels per acre yield at $4456 $145.92 Landlord receives 1/3 of the crop every other year from each acre 'Annual landlord.gross income $145.92 x 1/6 $24.32 231 Expenses Management 24.32 x 4% $ 97 Liability insurance .05 Fertilizer 32 pounds x-$.20 $6.40 Weed spray @2.80 -Crop insurance $145.92 x $1.60 per $100 2.33 $11.53 x 1/6 1.92 -2,94 Landlord Net Income $21.38 Capitalization Rate 7.75% Certified by-D. of R. (1974) Tax Rate 1.83% Rate for the Districtin which the property is located Total Rate 9.58% $21.38 + 9.58% =.$223 (Rounded $220),Fam use value per acre for Assessor's Class III Dryland LIVESTOCK AREA EKAMPLES The major rental data available in a livestock area will be in the form of pasture rentals. Landlords rent pasture on an animal-unit-month (AUM) basis (for this example). An animal-unit-month (AU11) is the total amount of feed needed by one mature beef cow for one-month. It furnishes about 400 pounds of total digestible nutrients (TDN) and is equivalent in feed value to about 800 pounds of hay. Types of pasture will vary in carrying capacity and in rental rates from rangeland to irrigated meadows. The rental rates may vary from county to.county and may vary within a county depending on location and type of pasture available. Use the rental rate that is typical for the area and type of pasture. It may be that rental data is too scarce on hay land to be utilized for arriving at farm-use value. In such instances it will be necessary to use the owner-operators' income. The "Enterprise Data Sheets," put out by the Cooperative Extension Service, Oregon State University, will be helpful in analyzing the income and expenses of an owner-operator property. 232 ASSESSOR'S CLASS VII RANGEWTD EXMIPLE Usually it requires more than one acre of rangeland to provide the forage for one animal-unit-month. The number of acres required to provide an AUM may affect the rental rate. Basic Data: .1. Four acres required to furnish one AU11 of feed. .2. An AUM rents for $4.50. @3. The,landlord expenses are management, fence maintenance and liability insurance. Valuation of Class VII Rangeland: Landlord.Gross Income $4.50 per AUM * 4 acres per AUM $1.12 Landlord Expenses Management at 4% $0.04 'Fence maintenance .20 Insurance .03 .27 Landlord net income before taxes $0.85 Capitalization Rate 7.75% Certified by D. of R. (1974) Tax Rate 1.71% Rate for the district in which the property is located Total Rate 9.46% $.85 * 9.46% = $8.99 per acre (includes ORS 307.320) Less value of growing crop .90 (10% of value) $8.09 ($8 Rounded) Farm use value per acre for Assessorts Class VII Rangeland 233 ASSESSOR'S CLASS III MEADOW HAYLAND EXAMPLE The following is an example using an owner-operator setup. The costs are for illustration only. Local costs and cultural practices must be used. Normally this method for computation of farm-use values will be used only when there is no rental data available. gasic Data: 1. 300 a cres of flood irrigated meadow hayland on a 10,000 acre ranch. 2, Hay yield is 2.5 tons per acre and is valued at $40 per ton. 3. Two AU11 per acre of aftermath grazing having a value of $5.00 per ALT11. 4. The owner's labor is charged at $5.00 per hour. 50 Hired labor is charged at $3.00 per hour. 6. 50 H.P. tractor at $5.00 per hour. 7. Self-propelled swather at $15.00 per hour. 8. PTO Twine baler at $7.00 per hour. Valuation of Class III Meadow hayland: Income Hay 2.5 tons at $40.00 $100,00 Aftermath grazing - 2 ALJM at $5 10.00 Total Gross Income $110,00 234 Expenses: Labor Total Operation Hrs. Value Machinery Other Cost Harrow .2, $1,00 $1.50 $ 2,50 Fertilize Custom $15.00 1 15.00 Irrigate 2.0 6.00 2.00 8..00 Swathing .25 1,25 3.75 5.00 Baling 5 2.50 Twine 4.00 12.50 Stacking 1.5 4.50 4.00 8150 Fences .5 1,150 Material .50 2.00 Interest on operating capital 1.50 General overhead 3.00 Management at 8% of gross (1) 8.80 Total Expense $66.80 Gross Income $110.00 Total Expenses 66.80 Net Income $43.20 (Before Property Taxes) Capitalization Rate 7.75% Certified by D. of R. (1974) Tax Rate 1.71% Rate for the.8istrict in which the property is located Total Rate 5.46% $43.20 9.46 $457 per acre (includes ORS 307.320) 46 Value of plants (@10% of value based on sales) $411 (Rounded $410) Farm use value per acre for Assessors Class-III meadow hayland Footnote: (1) Includes management.of the ranch operation and management of the investment. 235 I.C.3. DEFERRED TAXATION -- LONG ROLLBACK: WASHINGTON 1 1. SUMMARY Washington's differential assessment laws are widely used, and participating land enjoys substantial reductions in current property taxes. However, although it is too soon to make a definitive judgment, key officials do not expect the laws to deter urbanization. At the very best, a few farmers on the urban fringe who wish to continue farming may resist lucrative offers for several years more than they otherwise would have done. Mary Ellen McCaffree, Director of the Department of Revenue and former chair- person of the House Revenue Committee, notes that, while differential taxation was promoted under the slogan, "Save our open spaces," preservation of open space was not the real concern of the farm and timber interests who were the major forces seeking legislation. She concurs with James Dolliver, Executive Assistant to Governor Daniel Evans, that open space can be retained on the urban fringe only through public purchase. Currently, Washington's farm and timber interests are enjoying a real property tax break which results in a considerable shifting of the tax load in some tax districts. The impact statewide is modest at present. For the 1975 tax year, 9.5 percent of the eligible agricultural land in the state was classified under the Open Space Taxation Act. Acreage and percentage figures on participating open space and forest lands are not available, but together they constitute but a small percentage of participating lands. The tax reductions under this program totalled 2.7 million dollars, or roughly .5 percent of the state's yield from the real pro- perty tax. Comparable data on the impact of the Forest Taxation Act are not available. However, since both programs are quite recent, it seems reasonable to predict that participation will grow rapidly and that their joint impact will be- come much more substantial, both locally and statewide. Whether this outcome is what the public intended and whether there will be substantial legislative changes is too early to predict. II. WASHINGTON BACKGROUND Before describing the differential tax laws and their operation, a brief to- pographic, demographic, and fiscal picture of the state of Washington may clarify the underlying rationale of the laws. A. Land There are three principal land types: mountains, alluvial soils, and plateau. Proceeding from the Pacific Ocean inland, first there is the humid, densely fores- ted Olympic range; then Puget Sound with both rich alluvial soils and intensive urbanization along its eastern borders; then the rugged, timbered Cascade range; and then the partly irrigated, partly dry eastern plateau, fringed with more moun- tains.in the northeast and southeast corners. As in many other states, therichest farmland is also under the greatest pressure from urbanization. of the state's 42,605,000 acres, 53.7 percent are in forest and alpine use, 24.4 percent in open range, unirrigated, 19.3 percent in crops, and 2.6 percent in urban use. IThe people interviewed are listed at the end of this case study; they were uni- formly cooperative and well-informed. Particular thanks are due to Charles Roe for special help in arranging meetings with key officials and to William Parten and Trevor Thompson for their patient, detailed response to our questionnaire. 236 Figure 1 SELECTED PHYSIOGRAPHIC FEATURES: WASHINGTON z 0 co L . w YA K R v R CO %.U M at 4 R1 Alluvi Irw 10 0 10 20 30 40 Miles Forest Steep Figure 2 URBA NIZED AREAS: WASHINGTON BELLINGHAM ...... ...... qt EVERETT SEATTLE N) i-MIRTO BELLEVUE w 7 co L. TACOMA OLYMPIA r YAKIMA H L A H D j LONGVIE VANCOUVER Places of 25 10 0 10 20 30 40 Miles Urban areas Washington Case Study There are extensive Federal holdings, mostly in National Forest and National Park use, which constitute 29.4 percent of the land area. The state owns 3,673,000 acres, or 9 percent, of the total land area. Sixty percent of this state land is leased for timbering, 18 percent for grazing, and 5 percent for farming. Most of the land leased for farming consists of sections 16 and 36 of each of the original townships and is land which may not be sold by the state. Income from these leases is payable to the Superintendent of Public Instruction for support of the schools. B. People Washington's population rose 19.6 percent between 1960 and 1970, to a total of 3.4 million. It was not increased since then, due to an early, high level of unemployment. In 1971, statewide unemployment was 10.9 percent; the rate in Seattle, the largest city, ran as high as 15 percent. King, Kitsap, Pierce, and Snohomish Counties, all located in the Puget Sound area, had 56 percent of all the population as of 1974. Large portions of the state are unincorporated, and, in 1970, 43 percent of the population lived in unincorporated areas. Annexation is common. There are two types of markets outbidding agriculture. Dispersed urbaniza- tion along the Vancouver, British Columbia-Seattle-Tacoma-Olympia-Vancouver, Washington corridor spreads over the alluvial valleys of Puget Sound tributaries; because these valleys are small and are separated by rather steep hills, the com- petition for the land is intense. In the eastern half of the state, speculation is rife. Land without water sells for two or three times its grazing value to investors who either hope for new Federal dam projects which will bring water or anticipate a handsome profit from quick subdivision and resale to smaller spe- culators. C. Revenues 1 Washington state and local governments had a combined revenue in 1973 of $3.5 billion. Of this, 57 percent or $2 billion came from taxes, 23 percent or $.8 billion from Federal grants, and 20 percent or $.7 billion from charges and miscellany.2 Unlike most states, Washington does not have an income tax. However, it is sales taxes rather than property taxes which compensate for this lack of a revenue source. In total state and local taxes, Washington ranks 16th at $575 Table I PERCENTAGE RELIANCE'ON SELECTED STATE-LOCAL TAXES,_1971 3 Tax Source Washington All States Property taxes 34.7 39.8 Sale taxes 57.4 35.0 Net income taxes --- 16.2 Other taxes 7.9 9.0 Total State-Local taxes 100.0 100.0 ISee 1975 Tax Reference Manual, Washington State Department of Revenue, Olympia, Washington, 1975, for full details. 21, Government Finances in 1972-73," Bureau of the Census, U.S. Dept. of Commerce. 3Federal-State-Local Finances, ACIR, February 1974. 239 Washington Case Study per capita and 19th at $128 per $1,000 of personal income. In property taxes, Washington ranks 25th per capita and 26th per $1,000 of personal income. The property tax base consists of real and personal property. The split in county assessments between realty and personalty is 87 percent realty, 13 percent personalty. In 1967, 57 percent of the real property base consisted of residential sites, 17 percent of farms and large tracts, 14 percent of commercial sites, 8 percent of industrial sites, and 4 percent of vacant lots and miscellaneous land. Under a 1973 law, leases of public land have been added to the real property base.1 Property tax levies in 1973 totalled $674 million, or 34 percent of all taxes and 19 percent of all revenues. III. THE OPEN SPACE TAXATION ACT Three forces combined to work for enactment of differential taxation. The environmentalists, many of whom lived in the urban area bordering Puget Sound, had dual, compatible goals -- to save open space on the urban fringe and to save the prime agricultural land which also was located on the urban fringe. The farmers and the timber industry both wanted a tax break. Given the extent and quality of timber in the state of Washington, it is hardly surprising that the timber industry is one of the most powerful forces in government. For instance, in 1973, incorne from the forest products industry was 2.2 million dollars, in comparison to income from agriculture of 1.7 million dollars. Since the Washington Constitution barred classification of real property for purposes of taxation, a constitutional amendment authorizing preferential assessment of farmland, timber, timber land, and open space was the first step. The legislature proposed the'amendment in 1967 and the voters approved it in 1968. in 1970, the legislature enacted the Open Space Taxation Act.2 The Act was amended in 1973, in response to problems which emerged as soon as it went into effect. Because the Act remained largely the same, the following discus- sion will describe the 1970 provisions and, for each of them, specific problems and 1973 amendments. A. Scope of the Act The purpose of the Act is to preserve open space lands for food, fiber and forest crops, and to assure the use and enjoyment of natural re- sources and scenic beauty for the economic and social well-being of the state and its citizens."3 Three types of open space were eligible for classification under the act: (1) open space land, meaning land designated on an adopted county or city plan and zoned for such use, or any land whose continued open space use would enhance natural or scenic resources, protect water resources, conserve soils or marshes, enhance the public value of abutting public open space, enhance recreation opportunities, preserve historic sites, or retain in its natural character urban tracts of five or more acres open to some form of public use; (2) farm land, defined as tracts of 20 or more acres ". . . de- voted primarily to agricultural uses . . . 1,;4 tracts of five to 20 acres with a Pier 67 v. King County, 78 Wn 2d 48, 1970 (Sup. Ct.) held leaseholds not to b.e_exempt-f_@om the real property tax. 2RCW 84.34. 3RCW 84.34.-10. 4RCW 84.34.020. 240 Washington Case Study gross income from agriculture of at least $100/acre for three of the five years preceding application for classification; tracts of less than five acres with a gross income from agriculture of at least $1,000/per year for three of the five years preceding application for classification; or certain woodlots, lands with related activities, and small, non-contiguous parcels; and (3) timber areas of 20 or more acres. Essentially, almost any land could qualify as open space. The fact that little land actually had been classified as open space is a problem of politi- cal choices, not definitions. This section of the Act did not undergo modifi- cation in 1973. One portion of the farm land section was revised. The provision concern- ing tracts of 20 acres or more was alteredito read ". . . devoted primarily to the production of livestock or agricultural commodities for commercial pur- poses. . ." The intent of this change was to make it harder for land specu- lators to qualify. The dollar qualifying limits for the smaller tracts have worked satisfactorily. The timber tract requirement was lowered to five or more acres. The tim- ber industry obtained passage, in 1971, of the Forest Taxation Act, which was more attractive to timber land owners than the Open Space Taxation Act. Mini- mum tract size under that Act is 20 acres. By lowering the minimum under the Open.Space Taxation Act to five acres, some owners of smaller tracts of timber land became eligible for classification. B. Application and Classification The state Department of Revenue prepared the application forms (see Ap- pendix) and distributes them to the county assessors' offices. The Department also conducts training sessions for county personnel in administration of the Act. Whether the training programs are as effective as they could be is ques- tioned by some observers. Publicity about the Act is the responsibility of each county. Under the 1970 Act, applications for all types of classification were made to the county assessor, who then forwarded them to thE appropriate city or county legislative body. After discovering that assessors in a number of coun- ties either had refused to participate in the program or had dragged their feet, the legislature launched an extensive review of the Act and changed the appli- cation procedures. open space and timber classification 6pplications now are filed with and acted upon by the county legislative body. In incorporated areas, three mem- bers each from the county and city legislative bodies make the decision. Agricultural classification applications still are made to and approved by the county assessor. However, there are new requirements so that the assessor must act on the application or find it automatically approved. Also, the applicant may appeal a denial to the county'legislative body. Classifi- cation is for at least a 10 year term, automatically renewed annually. Applications under the 1970 Act also were discouraged in some counties by sett-ing non-refundable application fees of up to $120. The 1973 legisla- ture terminated this practice by setting a $30 maximum fee, refundable if the application is rejected. If land is approved for classification, the assessor's office must set up and maintain records showing a dual set of values -- use value and market value (the purported price a willing buyer pays a willing seller) -- on both the 241 Washington Case Study assessment list and the tax rolls. The assessor also notifies the county trea- surer who records the values in the same manner as for delinauent taxes. The information is a matter of public record and, further, each participating land owner is notified of both values placed on the land. When either value is changed, the owner again is notified. In contrast to market value, use value for open space and timber land is market value for the particular use to which the land currently is devoted. However, no open space use value may be lower than the value which the same tract would carry for agricultural use. Agricultural use value initially was to be determined in the same manner. To achieve greater'clarity and uniformity, the Department of Revenue proposed a formula which was incorporated in the 1973 amendments. Now agricultural use value is determined by establishing productive capacity of the land. This is done in the following manner: The county commissioners appoint a five person committee, consisting of people actively engaged in farming, which works with the assessor to decide what constitutes net cash rental for characteristic land types used for typical crops, averaged over five or more years. The Department of Revenue annually sends to each county assessor a capitalization rate to be used in calculating use value. This rate is that interest charged by large institutions making farm loans, averaged over the past five years. For 1975 assessments, the rate.is 8.5 percent, up .2 percent from 1974. Added to the capitalization rate is a property tax component which is a ". . . percentage equal to the estimated millage rate times the legal assessment ratio."l For reasons to be discussed later, there is much current debate as to whether this method of calculating use value should be retained. C. emoval from Classification .Either the assessor or the owner may initiate action to remove land from open space classification. The most common circumstances leading to removal are the following: (1) the owner wishes to change use of the land and, at any time eight2 or more years after classification, notifies the assessor of the desire to withdraw some or all of the land, with the withdrawal becoming effective.twol years thereafter; (2) there is a sale of classified land and the new owner fails to notify the assessor, within 60 days of purchase, of the intent to comply with the terms of the classification; (3) the assessor discovers that the land no longer is used as classified; or (4) the owner changes use of the land so that it is no longer eligible and so notifies the assessor. In the first instance upon removal the assessor computes the back taxes due as the difference each year for up to seven years between taxes paid and taxes which would have been payable based on market(highest and best use) valuation multiplied by the statutory interest rate on delinauent taxes from the dates on which such additional taxes would have been payable. In the other three instances, the assessor follows this procedure and then adds a 20 percent penalty.3 ICh. 212, 1973 Ist Sess., §10. 2Seven years and three years, respectively, in the 1970 Act. 3The 1970 Act included a 20'year rollback for withdrawal from timber class- ification and a 14 year rollback when an owner changed the use of land classified for agriculture and open space. 242 Washington Case Study There is one problem with the removal provisions. New owners often do not know that they must reapply. The Department of Revenue would like to see the assessor's offices required to notify new owners and to have the 60 day period run from time of notification. It also would be desirable for the Department of Revenue to be notified of withdrawals. IV. OTHER RELATED LEGISLATION The early 100's have seen enactment of.several other laws which have a strong influence on the use and impact of the open space Taxation Act. In sum, they encourage farmers to apply and discourage timber owners from a@_ plying for classification under the Act, and they marginally reduce the local impact of shifting of the tax burden. A. The Forest Taxation Act Few owners of timber land ever applied for classification under the Open Space Taxation Act, because timber interests won passage in 1971 of a bill more favorable to them. This law was amended in 1973 and 1974. Standing timber was exempt from property.tax and subject instead to a yield tax at times of harvest.1 The yield tax is administered by the Depart- ment of Revenue. The rate set by the legislature for 1974-1978 is 6.5 percent. Land used for growing timber remains subject to the property tax; tracts of 20 or more acres are eligible for differential tax treatment. Either the county assessor may classify land as forest land or owners may apply for des- ignation of their land. If the assessor takes the initiative, the owner may decline classification. As of 1974, 5.4 million acres had been classified and .6 million acres designated under the Forest Taxation Act. The Department of Revenue establishes the- true and fair value of forest land and publishes a schedule of values annually. The Department also sets rules by which the county assessors grade forest land to determine current use value. Factors to be included in grading are productivity of the land for timber and accessibility. Initially, there was no.rollback tax for classified forest land on change of land use; this was changed in 1973. When land so designated or classified is removed from timber use, the county assessor must compute a compensatory tax by (1) calculating the difference between the tax last levied for timber use, and a levy established by multiplying the new assessed value by the last levy rate, and (2) multiplying this figure by the number of years up to and including 10 that the land has been designated or classified for timber use.2 B. Assessment During the 1950's and 1960's, assessments of real property tended to be at 20 percent of market value, and the effective tax rate under the regular levy was about one percent of full value. Reassessment occurred at eight to 10 year intervals at best.3 Court decisions, a constitutional amendment, and new legislation have brought about several significant changes,. IRCW 84.33.040. 2RCW` 84.33.140. 3, 'Washington's Property Taxes" is the source of much of this information. 243 598-330 0 - 76 - 17 Washington Case Study In 1955, the legislature passed the Revaluation Act, ordering assessors to get out in the field and look at all property once every four years in order to revalue it. For some years the act was ignored in many counties. Part of the problem was that the county assessors' offices lacked the funds to hire enough staff to do the job. Recognizing this, the legislature, in 1969, began appro- priating funds for grants to the counties for revaluation. Thirty-five of 39 counties cooperated with the Department of Revenue in the program and, by com- pletion of revaluation in 1974, had raised their tax base by 57.5 percent.1 The other principal results of the revaluation were that assessments became much more uniform and that farm land assessment rose considerably since the 'se lands had been reassessed even less frequently than other lands. This last fact spurred farmers to participate in the Open Space Taxation Act Program. As a result of a 1971 court decision, one-quarter of all realty must be revalued in each year of the'four year cycle. Also in 1971, the legislature authorized counties to adjust values at intervals within the four year cycle provided that they have adequate data to warrant this. A 1972 constitutional amendment set one percent of full true and fair value as the maximum regular tax levy. The legislature, in 1974, voted to express this maximum as $10 per $1,000 of true and fair value. The legisla- ture also voted to set the regular levy limit for 1975 taxes at $9.15 per $1,000 for areas outside of cities -- $3.60 levied by the state for schools, $1.80 by the counties, $2.25 for roads, and $1.50 by junior districts for other purposes. The limit within cities is $9 plus $.15 for junior dis- tricts. Both figures are less, of course, than the $10 allowed under the Constitution. Even so, there is expected to be a slight increase over 1974 levies for schools because of yet another legislative change effective for 1975 taxes. Now the state, rather than local school districts, will levy and collect taxes for public schools. School revenues will be distributed on the basis of student enrollment, thus effecting some redistribution. The Department of Revenue sets an equalized value for county real property assess- ments, and this is expected to be 10 percent higher than the sum of all county assessments since counties still have not assessed at a full 100 percent of market value. In 1974, county assessments ranged from 56.5 percent of market value in Whatcom County to 94.3 percent in Asotin County, with a state average of 85.9 percent. A 1971 law2 set a maximum yearly increase of 6 percent in regular levy revenues for all local taxing districts except port and school districts. New assessments are@outside this maximum increase. The increase is measured from a base consisting of the highest regular tax levy in the three preceding years. 1974, the first year in which this law affected collections, saw a drop of $16.5 million in revenues attributable to the 6 percent increase limitation. C. Special Levies There are complex procedures by which voters of tax districts canapprove special levies. In districts in which the tax base is reduced significantly because of participation in the differential tax programs, special levies are the only recourse for maintaining revenue levels. Combining these levies with the regular levy, the effective tax rate for the state between 1970 and 1974 has been 1.6 percent. The national average is 1.98 percent. l"Washington's Property Taxes." 2SHB 283. 244 Washington Case Study D. Tax Relief for the Elderly To the extent that participation in differential tax programs causes a shift in the tax burden, either within the regular levy or from regular to special levies, disabled or elderly homeowners are spared in whole or part. As of 1974, the provisions apply to retired homeowners aged 62 or older and relate to income as follows: Income* Regular levy Special levy $4,000 or less Exempt on $5,000 Exempt of residential valuation over $4,000 but Exempt less than $5,000 $5,000 to $6,000 50% exempt *One-third of social security, federal civil service, and railroad pensions excluded. V. IMPACT OF THE OPEN SPACE TAXATION ACT Since the Open Space Taxation Act is but one of a panoply of laws recently enacted to change the distribution of the real property tax load in the state of Washington, it is impossible to state unequi 'vocally what its impact has been. There are data on participation in the program since its inception in 1971. Those data, combined with inter-views with knowledgeable officials, do yield an impression which should be reasonably accurate. That impression is that the Act functions as a tax relief measure for farmers which is benefitting urban fringe farmers about as anticipated but which also is shifting the.tax burden in non-urban tax districts in a wholly unexpected manner. Because of the paucity of data, it is difficult to comment on the impact of the Forest Taxation Act. Where there is information, it is included here along with information concerning the Open Space Taxation Act. A. Fiscal Effects For the 1975 tax year, the reduction in regular levy taxes on property classified under the Open Space Taxation Act will be $2,655,369. Property classified at current use value carried a total valuation equal to 60 per- cent of fair market value. The Act got off to a slow start. The first tax year in which reductions. were effective was 1972. To be eligible, people had to apply prior to Decem- ber 31, 1970, for differential assessment during 1971. Twenty-one counties received a total of 1,199 applications, but only about 900 of these applica- tions were accepted. Some counties refused to accept any applications, some failed to act on those received, and some rejected all applications., Reasons for the negative response varied; they included concern over loss of r evenues, opposition to giving some groups a tax break, and resentment over the added work load. 1"The Open Space Act: History and Impact of Current Use Assessment in Wash- ington State" is the source of much of this information. It provides con- siderable detail about the impact of the Act. 245 Washington Case Study Despite efforts by the Department of Revenue to stimulate interest among land owners and to promote a more receptive attitude by county assessors, 1971 saw 30 percent fewer applications.than 1970. As in 1970, most of the applica- tions were from the western part of the state. In 1972, applications were down.to 575. Even those counties which had encouraged participation had a decline in applicants. By 1973, there was a significant turn around, attributed to two factors: amendment of the Act and revaluation of farm land. Table 2 gives a condensed picture of changing participation in the Act. Table 2 IMPACT OF THE OPEN SPACE TAXATION ACT, 1972-1975 TAX YEARS No. of Market in Counties Highest Tax Partici- and Best Current Tax Year pating Use Value Use Value Difference Reduction ($ millions) ($ millio7i-s) T@"-millions T@-millions) 1972 15 - - 10.7 .4 1973 18 57.4 23.0 34.4 1.3 1974 19 90.5 41.0 49.5 .1.7 1975 35 660.4 394.9 265.5 2.7 All but four counties are participating in the program, and its impact var- ies enormously from county to county, as shown in Table 3 and Figure:3. The fiscal effects turn upon the relationship between the total valuation of land in a county or tax district and the valuation of classified land. Even if a large percentage of the acreage in a district participates, if this acreage constitutes only a modest portion of the total value of real property in that district, tax reduction through classification will not result in a substantial shifting of the tax burden. Work by the Washington State Research Councill provides some information about these relationships in 14 counties for the 1974 tax year. The tax shift- ing in these counties per $1,000 of assessed value ranged from an amount so small as to be deemed insignificant in seven counties to a high of $.84 in Skagit County. Skagit County had over 92,000 acres of high quality agricul- tural land, or 17 percent of the private-land in the county, in the program. The total reductions in value in King and Pierce Counties, the most highly urbanized of Washington's counties, are not surprising given their very high market values for farm land. However, many seemingly rural coun- ties Also show substantial dollar reductions in value, accompanied by large percentage reductions as well. Whitman County is the most extreme example. A brief look at the figures for both Pierce and Whitman Counties illuminates the nature of the Act's impact in two very different areas of the state. 11IThe Open Space Act: History and Impact of Current Use Assessments In Washington State." 246 Figure 3 .,jHINGTON: USE VALUE AS PERCENT OF MARKET VALUE, BY COUNTY, 1975 TAX YEAR 111111 fill 4B V04 9; - EL I 1 11 n. a. n.a. 0-19% 00. - 20-39% - 40-59% 60-79% Ej - F-1 - 80-1'00% data not available 10 0 10 20 30 40 mil6s Table 3 PtPACT OF OPEN SPACE ACT, 1975 TAX YEAR Market or Highest and Current Use 1975 1974 County Best Use Value Values 1974 Difference Savings Savings Adam ............. $ 5,655,820 $ 3,062,855@ $ 2,592,965 25,930 $ None Motin ........... 337,965 163,825 174,140 1,741 None Benton ........... 14,568,330 7,045,540 7,522,790 75,2?9 None Cbelan ........... 239,'490 138,320 101,170 1,012 Voine Clallam .......... 4,225,450 2,083,080 2,142,370 21,424 4,947 Clark ............ 22,183,245 16,470,600 5,712,645 57,126 101,095 Columbia .......... --- --- --- --- --- Cowlitz .......... 5,070,11 10 2,599,255 2,470,755 24,708 None Douglas .......... ---- --- --- --- Ferry ............ 481,500 335,910 145,590 1,456 128 Fr5-,nklin .......... 3,325,650 2,167,450 1,158,200 11,562 None Garlield ......... 52,570 42,401 10,169 102 N,one Grant ............ --- --- --- Grays Harbor ..... 782,296 52,7,868 254 428 2,544 11,263 Island ........... 8,090,1, 1, 2 3,214,990 4,875,452 48,754 1,0,871 Jefferson ........ 272,985 98,338 174,647 1.746 105 YING. . I .......... 33,903,376 15,641,244 1.8,262,132 182,621 63,493 -Kitsap ........... 2,876,886 1,580,996 1,295,89() 12,959 2,170 Kittitas ......... 3,706,060 1,951,910 1,754,150 17,541 124 Klickitat ......... 2,193,820 1,854,345 339,475 :,,395 None Lewis ............ 12,83j,150 7,582,550 5,252,600 52,526 Nolle L-incoln'. . . . . . . . .-. 29 469 , -!,,) 22,218,465, 7,251,075 72,511 None Hasoll ............ 2,027,440 1,057,580 969,660 9,699 8,585 OL-tnopan .......... 1,974,005 774,203 1,199,802 11,998 Nonc Pacific .......... 3,781,010 2,98S,625 795,335 7,95/4 3'ofiq Pend Oreille..... 762,337 470,A34 291,903 2,919 Fone Pierce ........... 27,692,370 @15,524,1.30 12,168,240 121,682 101,205 Sai, juall ......... 4,403,650 1,128,340 3,275,310 32,753 None SkR-it ........... 101,306,814 53,033,)P-') 48,273,632 482,736 493,145 Sk@;nania ......... 562,430 227,650 334,780 3 , 3 1. 8 1 n e Snohomish ........ 23,051:,365 13, 314 3, 14 0 103,082 96,208 S-pokane .......... 43,504,660 28,278,110 15,226,550 152,266 632 Stevens .......... --- --- --- --- --- Thurston ......... 16,634,930 8,101,032 8,533,898 85,339 41, 446 Wahkizikun ........ 80,000 .10,000 7(),000 700 400 Walla Walla ...... 1,136,224 689,655 446,569 4,466 NOT142 Whatcom .......... 1,500,610 1,176,260 .@324,356 3,244 3,287 Whitman .......... 257,482,090 163,608,945 93,873,145 @38,731 Vone Yakima ............ 23,631,400 15,676,840 7,954,560 79 546 35,249 TOTALS $660,401,920 $394,865,068 $265,536,852 $2,655,369 $996.402 .Savings reflect regular levy reductions only for tile tax years listed -"Washirigton's Property Taxes. 248 Washington Case Study 1. Pierce County: Pierce County, whose county seat is Tacoma, had-a 1973 population of 404,300 and a 1973 assessed valuation of $1,782,582,777. Without the Open Space Taxation Act, assessed valuation would have been $1,787,643,042, or a difference of over $5 million, a large sum but only .003 percent of the total tax base. The tax shifting for the county, via special levy, amounted to only $.05 per $1,000of assessed value in 1973. However, now using 1974 assessments, the shifts by school district special levies show more variation, ranging from zero to $.21 per $1,000 assessed value. These districts had from 18 to 6,817 acres classified. Only 3.1.percent of the private land in the county was classified under the program in 1974. However, this constituted between 40 and 45 percent of the com- mercial agricultural land. Land participating had an average estimated market value of $1,356 per acre, while much of the non-participating prime farm land had a market value ranging between $15,000 and $30,000 per acre. While the richness of the soil makes this a key location for truck crops, the huge gap between farm and market value has dissuaded owners of much of the choice development land from applying for classification. Unless Pierce County enacts other measures to retain this farm land, its owners are unlikely to seek classification. The Forest Taxation Act had a cumulative impact in the county of $1,028,000 over the 1973-1975 tax years. With this Act also the extent of shifting of the tax burden varies from district to district. One district--Eatonville--lost $34,000, or 7.37 percent of its base, in 1973, and $44,000 in 1974. 2. Whitman County: Whitman County, a largely undeveloped county with a 1973 population of 38,700, did not participate in the program until the 1974 assess- ment year. In one year, it accepted for classification 60.8 percent of all private land located.outside of incorporated areas. The Washington State Research Council estimates that as much as 600,000 acres of wheat land may-have been classified. Although it was widely assumed in the early 1970's that land such as this would show no difference between highest and best use value and current use value, the Whitman County figures show a reduction of 54.5 percent, or from a range of $500 $600 per acre to $258 per acre. Various explanations of this difference in values have been offered. Some say that the statutorily mandated advisory committee of five farmers exerted undue influence on the county assessor in establishing these figures. Some say that Whitman County has a generally poor assessment record, citing high coefficients of dispersion in recent years. Others say that the Whitman County figures exemplify what can be anticipated from use of the capilatization method of establishing current use value. They claim that some development value already has settled in all farm land and that, in-the arid eastern part of the state, all land can be sold for between two and three times its current use value. Purchasers include investors looking for a tax loss, people planning to subdivide for second home development, and speculators hoping that new irrigation projects will bring new value to the land. The Whitman County assessed value for realty in 1974 was $401.5 million; without the Act it would have been $495.4 million. Therefore, the county lost 19 percent of its tax base, or $93.9 million. This will affect the state's levy of school taxes as well as the amount of the regular local levies. How much of the loss through reduction in assessed value will be picked up by special levies is not yet apparent. What is apparent is that if there is in fact a disparity throughout eastern Washington between current use and market value comparable to that claimed to exist in Whitman County, most farmers are likely to seek classification and the overall reductionsunder the program are likely to rocket upward. During the 1975 legislative session, hearings are being held on the current status of the Open Space Taxation Act, particularly on the effect of use of the capitalization method prescribed in 1973. There is growing concern that potential reductions in the tax base of rural counties may be far greater than anticipated .and that this may lead to an unacceptable shift in the tax burden. 249 Washington Case Study A theoretical study by David Hollandl concludes that the reduction in present value of tax revenues from classified lands over the 10 year contract period will be 55 percent. The study further shows'that even assuming as low a growth rate in land values as six percent per year, a land owner intending to sell will come out ahead financially by participating in the program for eight or more years. B. Land Use Effects The original implications of the Act's backers were that it was only the urban fringe farmers who would benefit from the Act and that the quid pro quo of their benefit would be their commitment not to convert to a non-farm use for at least 10 years. General opinion that the farmers will enjoy the tax break and sell when a good price is offered is reinforced by the Holland study. Although this is now the sixth year in which applications for classification have been accepted, it is a bit-early for statistical evidence on the impact of tI-eAct as a conversion deterrent. Also, as of 1975, the Department of Revenue has not been collecting data statewide on land removed from,classification. Some early data on participating and landowners! stated intentions are available from an excellent survey by James Barron and James Thompson.2 For 1970 and 1971, the first two years in which applications were accepted, 81.7 percent of the participating acreage was agricultural, 14.3 percent was timber, and 4 per- cent was open space. However, only 35 percent of the applicants listed their occupation as farmer or forester. Another 21 percent were retired, and the remain- ing 44 percent listed a range of occupations. Only one applicant out of three derived over 40 percent of income from the land. Queried about their future intentions, 69 percent said that they intended to continue their present use for more than 10 years, and 44 percent intended to continue the use for more than 20 years. Answers-about participation in the Open Space Taxation Act program and its deterrent effect on conversion were discounted by the authors of the study, because they felt that respondents did not understand the rollback and penalty provisions. As of the 1975 tax year, there were 1,772,027 acres of agricultural land classified under the Open Space Taxation Act.3 This is 9.5 percent of all of the crop and unirrigated grazing land in the state. Data.for timber and open space acreage are not available, but neither category has substantial land classified under this Act. As previously explained, timber land owners prefer the Forest Taxation.Act. Open space applicants could be expected to be concentrated in the more urban parts of the state. There, particularly in King County, the counties have chosen to regulate rather strictly what lands will be accepted and to insist onsome-form. of public access. Their concern has been to exclude wealthy gentry seeking a tax break for county estates. Carl Hansen, of Pierce County, believes that all types of withdrawal will increase as urban pressures continue to mount. No one interviewed thought other- wise. James Dolliver, Governor Evans' Executive Assistanti believes that the law ". . . is better than nothing at all and serves.some symbolic purpose." However, he thinks that most farmers are potential developers and.that, if they aren't, their sons will be. Eleanor Brand, Research Analyst for the Senate Ways and Means Committee, views the law as serving solely as a holding action until planning and land use controls for agricultural lands become acceptable. Douglas Pullen of the Washington State Research Council thinks that the responses l"An Economic Analysis of Washington's Differential Taxation Program." 21tImpacts of Open Space Taxation in Washington." 3The Department of Revenue had no,report from three participating counties so the actual acreage is somewhat h gher than this. 250 Washington Case Study given by participants to the Barron Poll have been proven faulty already by the number of withdrawals when a good price has been offered. Representative Joseph Haussler, Chairman of the Local Government Committee says that there is "no way" the Act is going to keep people from selling for development. These are people who have been intimately involved with the open Space Taxation Act; their intuition about its impact on land use should be as accurate as anyone's could be. Pierce County: Some detailed data on participation and withdrawal are available from Pierce County.1 The county has a total of 1,073,000 acres, 25.6 percent of which is in federal or state ownership. There are 24,000 acres of private, prime agricultural land, of which 8,000 acres already has been developed. People are concerned about further incursions; 16,000 names are on a petition seeking a development moratorium in the Puyallup River valley until a plan can be devised to save remaining farm land. Meanwhile, much eligible farm land is classified under the Open Space Taxation Act. A total of 25,000 acres is classified, including 4,000 acres of small timber holdings and 21,000 acres of mostly farm but some open space uses. The open spaces accepted for classification include estuaries, rifle and archery clubs, private airfields, four golf courses in private ownership but open for public use, and three and one-third private golf courses with public bike trail rights of way. The explanation for the one-third golf course is that three holes in the unincorporated part of the county were accepted while the city of Puyallup never has acted on the application for the six holes in its jurisdiction. Much more land--219,000 acres--is benefitting from the Forest Taxation Act; 159,000 acres have been classified by the county assessor and 60,000 acres have been designated by their owners. Withdrawals in Pierce County have occurred as a result of public action, as well as through the giving of notice and by breach. Twelve parcels of,prime agricultural land have been acquired under threat of eminent domain by the Port of Tacoma and the Burlington Northern Railroad. A few breaches have resulted from the failure of new owners to reregister within 60 days of their purchase, on occasion because title searches have failed to pick up the existence o.f the classification. It is relevant to note that in 1973 alone there were 45 withdrawals from the Forest Taxation Act program, suggesting that its rollback is little deterrent. C. Equity If neither the open Space Taxation Act nor the Forest Taxation Act sig- nificantly increases the likelihood that land will remain in open space, agriculture, or timber uses, and if use of these acts does result in a shifting of the tax burden, it seems evident that the equity of this shift is question- able. If there is a sentiment that farmers and timber producers have borne an unfair share of the tax burden, much more evidence should be adduced to support such a proposition. D. Ease of Administration The Department of Revenue appears to have done and be doing an admirable job in terms of formal quidelines and informal advice to the counties. The staff of the Department are thoroughly familiar with the Act and with the experience of each county in administering it. Theirs is a thoroughly professional operation, and the Act has not caused them any serious administrative problems. lInterview with Carl Hansen. 251 Washington Case Study Things are different at the county level and vary from county to county depending largely on the prior size and competence of staff in the county assessor's offices. It is important to realize that fees paid by applicants go to the county general fund and not the assessor's office. In Pierce County, for instance, there has in fact been a drop in staff since the Act came into effect. The cost of the program to the Pierce County's assessor's office since 1971 was estimated at around $40,000, no part of which has been paid through receipt of fees. The increased administrative burden accounts in part for the cold shoulder the program received from some county assessors. The statewide assessors' association recommended, in 1973, that the open Space Taxation Act be altered to simplify their tasks. They favor use of the system of record-keeping and calculation of back taxes mandated under the Forest Taxation Act. Carl Hansen has developed an illustration to establish that the collections would not be substantially less (in the range of 20 percent) than under the current system. The author wonders how much this would reduce the assessor's task. In heavily populated counties like Pierce, the assessor's offices are moving to computerization of their data. This will enable them to revalue annually, as in Mr. Hansen's Example No. 1, and it also will enable them to calculate the roll- back and penalty instantly. It is granted that this is unlikely to be possible soon in the more rural counties. However, there is an advantage to the landowner. in being notified annually not only of the current use but also of the market valuation so that it is always possible to calculate accumulated rollback and penalty taxes then due. E. Political Feasibility Both the Open Space Taxation Act and the Forest Taxation Act were politically acceptable because they continued the past practice of giving favorable treatment to land in farm and timber use. It is said that far more revenue will accrue to taxing authorities under the new timber provisions than under the old, which taxed timber land in eastern Washington at $2.00 per acre and timber land in western Washington at $4.00 per acre. While this may well be true, the absence of com- parisons of yields under the new provisions to yields at market value tends to raise the suspicion that the gap remains substantial. Several versions of a measure requiring local planning and plan implemen- tation have been introduced in the legislature. Rep. Joseph Haussler's bill specifically directs local governments to designate and protect important agricul- tural, forest, and mineral resource lands.1 These bills have met violent opposi- tion from a large segment of the populace adamantly opposed to being told what to do with their land. Rep. Haussler, elected from a district where ". . . it takes five acres of grazing land to support one cow . . ." has been 100,000 acres of dry land in Okanogan County cut up into 30 acre lots and sold virtually overnight. Thousands of acres in the county valued at $3.00 per acre for farming were sub- divided and sold for about $120 per acre. Rep. Haussler has been pilloried by many of his constituents for proposing local land use controls to try to keep land in farming. Neither his nor any of the several other land use bills are given any chance of passage in the current session because of this opposition. The taking issue is a hot issue, and most observers believe that the state Supreme Court would not sustain agricultural zoning. ISubstitute H. B. 168. 252 Tab'-@ 4 ALTERNATIVE CA1,CULATIONS OF BACK TAXES V EXAMPLE: #1 TAX RA:ZB 2%; MARKET VALUE INCREASE 6%/YEAR; ANNUAL VALUATION; CURRENT USE VALUE IS CONSTANT; COMPENSATING PERIOD 7 YEARS. (Per Acre Computation) ADDITIONAL TAX, PENI, rl: A INTEREST COMPUTATION No. 1 2 3 4 1 5 6 7 of Tax Year True and Current Difference @-linq.Tax Tax PenaltyjTotal Tax Years Latest Fair Use Between 'Interest Differenc@ (20% of Penalty - Year Firs Value.Ta) T- --@@@__Co_j _4 & Interest Col.6) Interest 1980 24.48 6.00 15.48 18.48 i 3.70 22.18 2 1979 23.40 6.00 17. 0 .39 1 18.79 3.76 22.55 R - 9 3 1978 22.32 6.00 1-16-:32 -.79 4 1977 21.24 6.00 15.24 3.66 18.90 3.78 5 1976 20.16 6.00 14.16 4.53 1 -09 3. 4 22.43 6 1975 19.08 6.00 13.08 5.23 18.31 3.66 21.97 7 1974 18.00 6.0 55 21.31 $106.68 $129.86 $155.84 Total amount of additional tax, panalty and intp-st- A- nPA pmynhio 1% plus 1% special levy. EXAMPLE: #2 TAX RATE 2%; MARKET VALUE INCREASE 6%1YEAR; 4 YEAR CYCLICAL UPDATE; CURRENT USE VALUE IS CONSTANT; COMPENSATING PERIOD IS 7 YEARS. (Bar Acre Comput-tim) AD1)rrT0NA--- TAX PENALTY ANn TNTRRRqT CQTMTrATIQN__ No. 1 2 3 4 5 6 7 of Tax Year True andi Current Difference bl-linq.Taxi Tax Penalty, Total8Tax Yeara Latest Fair I use I Between Interes,'Differe.c. (20% of & Penalty Year Firsi Value. Tax' Tax C.1.2 & 3 Ion Col-4 !&-Interest Cgl.6) & interest! 1980 $ 21.24 6.00 15.24 IS 15.24 $ 3.05 $ 18.29 2 1979 21.24 6.00 15.24 1.22 5.46 3.29 1 19.75 411@1--.--.- 3 1978 10 15.24 2.44 17.68 F-3--.54 21.22 4 1977 18.00 6.00 12.00 2.88 14.88 2.98 17.86 5 1976 18.00 6.00 12.00 3.84 15.84 3.17 19.01 6 --i-975--T8-.00-6.00 12.00 -4.80 --T6-.80 3.36 20.16 7 1974 1 18.00 6.00 12.00 5.76 17.76 3.55 21.31 $93.72 $114.66 $137.60 Total arnount of additional tax enalt- and interest due and payable EXAMPLE: #3 COMPENSATING TAX - FOREST TAX ACT - FORMAT (RCW 84.33) COMP. TAX -(MARKET VALUE TAX) - (CURRENT USE TAX) X (NO. YEARS) .(@24.48 - $6.00) X (7 YEARS) . 18.48 X 7 YEARS -$129.36 OR (t2l 24 - $6.00) X (7 YEARS) 15:24 X 7 $106.68 Source: Carl N. Hansen, Pierce County Assessor's Office 253 Washington Case Study Mary Ellen McCaffree, Director of the Department of Revenue, believes that few people, either at the time of passage of the Open.Space Taxation Act or now, are concerned about the loss of farmland. The dairy farmers, she saysare the worst speculators, selling out and resettling 50 miles away. Her department, at the request of the administration, drafted a capital gains billl modeled on the Vermont law. Under this bill sales would be subject to a capital gains tax at a rate declining from 50 percent for sales in the first year after purchase to zero in the sixth year after purchase. While the adminis- tration strongly favors the bill, informed opinion is that it may pass the House but not the Senate, a more conservative body. It thus does not seem that bills which would have some additional deterrent effect on conversion of agriculture and timber land are politically acceptable. Probably part of the acceptance of the current legislation lies in the fact that the conversion deterrent is so minimal. rH. B. 502. 254 Washington Case Study BIBLIOGRAPHY Barron, James C. and James W. Thompson, "Impacts of Open Space Taxation in Washington," Bulletin 772, Washington Agricultural Experiment Station, Washington State UniversityPullman, Washington, March 1973. Burrows, Donald R., "Washington's Property Taxes," State of Washington Depart- ment of Revenue, Olympia, Washington, October 1974. Holland, David M., "An Economic Analysis of Washington's Differential Taxation Program," Circular 578, College of Agriculture Research Center, Washington State University, Pullman, Washington, December 1974. Pullen, Douglas R., "The Open Space Act: History and Impact of Current Use Assessment in Washington State," Washington State Research Council, Olympia, Washington, December 1974. Washington State Department of Revenue, 1975 Tax Reference Manual, Olympia, Washington, 1975. 255 Washington Case Study WASHINGTON INTERVIEWS, MARCH 17-19, 1975 State: Governor;s Office James Dolliver, Exec. Asst.; Jay Fredericksen, Press Secy. Department of Revenue: Mary Ellen McCaffree, Dir., former chairperson, House Revenue Committee; Clyde Rose, Dir., Property Taxes; Donald Burrows, Asst. Dir., Research and Statistics; William Parten and Trevor Thompson, Property T axation Division. Department of Ecology: Charles Roe, Jr., Senior Asst. Atty. Gen. Senate: Eleanor Brand, Senior Research Analyst, Senate Ways and Means Committee. House: Rep. Joseph Haussler, D., 0mak, Chmn. Local Govt.; Rep. Helen Sommers, D., Revenue Committee, Seattle. Board of Tax Appeals: Joan Thomas, Board Member. County: Pierce County Assessor's Office: Private: Washington State Research Council: Douglas Pullen. 256 APPENDIX Washington APPLICATION FOR CLASSIFICATION AS FARM AND AGRICULTURAL LAND FOR CURRENT USE ASSESSMENT UNDER RCW 84.34 FILE WITH TEE COUNTY ASRESWRI Nameof Applicant phone Address Property Location 1. Interest in Property: Fee Owner Contract Purchaser Other (Describe Interest) 2. legal description of land to be classified: Assessor's Parcel or Account Numbers 3. Total.acres in application 4. Total acres in cultivation 5. Total acres of grazing land 6. Is grazing land cultivated ? 7. Total acres in farm woodlot 8. List property rented to others which is not affiliated with agricultural use and show the location on the map. 9. Is land subject to lease or agreement which permits any other use than its present use? Yes No _ (If yes, attach copy of lease or agreement.) 10. Describe the present current use ofeach parcel of land that is the subject of this application: 11. Describe the present improvements on this property (buildings, etc.) 12. Attach a map of the property or use the map on page 4 to show an outline of the current use of each area of the property such as: livestock (type), row,crops, hay land, pasture, wasteland, woodlots, etc, Include on the map, if available, the soil qualities and capabilites also indicate the location of buildings. PTF 86 (7/73) 257 13- NOTE: To qualify for agricultural classification, an application on land of less than 20 acres must meet certain minimu income standards (see definition of agricultural land. (b) and (c). Please supply the following or any other pertinent data to show that the land will qualify for classification. 14. What is the yield per acre for last five (5) years (bushels, pounds, tons, etc.) 15. List the annual gross income per acre for the last five (5) years 4 per acre. 16. If land is rented or leased list the annual gross rental fee for the last five (5) yearsi FARM AND AGRICULTURAL LAND MEANS EITM: (a) Land in any contiguous ownership of twenty or more acres devoted primarily to the production of livestock or agricultural commodities for commercial purposes; r (b) Any parcel of land five acres or more but less than twenty acres devoted prima rily to agricultural uses, which has produced a gross income from az--icultural uses equivalent to one hundred dollars or more per acre j2@r year for three of the five calendar years preceding the date of application for classification under this chapter; or (c) Any parcel of land of less than five acres devoted primarily to agricultural Us*$ which has produced a gross income of one thousand dollars or marepezyear for three of the five calendar years preceding the date of application for classification under this chapter.- (d) lands 3hall also include any parcel of land of one to five acres, which NiVt =guous, but which otherwise constitutes an integral -cart of farming operations being conducted on land qualifying under this section as "farm and agricultural lands.11 (e) Agricultural lands shall also include farm woodlots of less than twenty and more than five acres and the land on which appur7tenances necessary to the prod=opn, r roF ucwtion or sale of the agricultural products exist in conjunction with the ing isuch products. NOTICE: The assessor may require the owners to submit pertinent data regarding the use of the classified land, productivity of typical crops, income, etc. -2- STATEMENT OF ADDITIONAL TAX, INTEREST AND PENALTY DUE. UPON REMOVAL FROM CLASSIFICATION UNDER RCW 84A4 1. Upon removal, an additional tax shall be imposed which shall be due and payable to the county treasurer on or before April 30 of the following year. The amount of such additional tax shall be equal to: (a) The difference between the property tax paid as "Farm and Agricultural Land" and the amount of property tax otherwise due and payable for the seven years last past had the land not been so classified; plus (b) Interest upon the amounts of the difference (a), paid at the same statutory rate charged on the delinquent property taxes. A penalty of 20% shall be applied to the additional tax if the classified land is applied to some other use, except through compliance with the property owner s request for removal process, or except as a result of those conditions listed in (2) below. 2. The additional tax, interest and penalty specified in (1) above, shall not be imposed if the removal resulted solely from: (a) Transfer to a government entity in exchange for other land located 'Within the State of Washington; (b) A taking through the exercise of the power of eminent domain,'or sale or transfer to an entity having the power of eminent domain in.anticipation of the exercise of such power; (c) Sale or transfer of land within two years after the death of the owner of .least a fifty percent interest in such land. (d) A natural disaster such as a flood, windstorm, earthquake, or other such calamity rather than by virtue of the act of the landowner changing the use of such property. (e) Official action by an agency of the State of Washington or by the county or city within which the land is lop@ad which disallows the present use of such land. (f) Transfer to a church and such land would qualify for property tax exemption pursuant to RCW 84.36.020. AFFIRMATION As owner(s) of the land described in this application, I hereby indicate by my signature that I am aware of the potential tax liability involved when the land ceases to be classified under the provisions of RCW 84.34. 1 also declare under the penalties for false swearing that this application and any accompanying documents have been examined by me and to the best of my knowledge it is a true, correct, and complete statement. Subscribed and sworn to before me this OWNER(S) or CONTRACT PURCHASER(S) day of 19 Notary Public in and for the State of Residing at (All owners & purchasers must sign) FOR ASSESSOR'S USE ONLY: Date application received By Amount of fee collected $ Date application approved Approved in part Denied Owner notified on Fee returned on Auditor's File Number -3- 259 598-330 0 - 76 - 18 A. Show boundary of land which application a:@plies to and outline the current uses of the property. B. Show buildings as house E@ barn, etc. also sketch in roads and rivers. INDICATE WHICH WAY IS NORTH -4- 260 hOTICE OF APPROVAL OR DENIAL OF APPLICATION FOR CLASSIFICATION AS FAR24 AN) AGRICULTURAL LAND RCW 84.34 TO: Your application has been IZI Approved in whole M Approved in part M Denied in whole APPROVAL: The following land has been approved for classification as farm and agricultural land. Assessor's parcel or account number; Legal description: DENIAL: The following land has been denied classification as farm and . agricultural land. Assessor's parcel or account number: Legal description: APPEAL: A denial of an application for classification as farm and agricultural land may be appealed to the Board of Countv Commissioners or other county legislative authority. ASSESSOR: In accordance with the provisions of RCW 84.34.035 "...the assessor shall submit notification of such approval to the county auditor for recording in the place and manner provided for the public recording of state tax liens on real property.-, Prepare in duplicate. If denial, send original to land owner. If approval, file original with auditor and have auditor return original to land owner. Duplicate is to be retained by the assessor. Assessor or Deputy County FORM REV 64 0020 (4/74) (Formerly PTF 88) 261 APPLICATION FOR CLASSIFICATION AS OPEN SPACE LAND OR TIMBER LAND FOR CURRENT USE ASSESSMENT UNDER RCW 84-34 17ILE WITH THE COUNTY LEGISLATIVE AUTHORITY] Name or Applicant Phone Address Property Location 1. Interest in Property: MFee Owner [= Contract Purchaser MOther (Describe) 2. Assessor's Parcel or Account; Number: Legal description of land to be classified: 3. What land classification is being applied for? [=Open Space MTImber Land NOTE: A single application may be made on Open S-ate and Timber Land but a legal description must be furhished for the area of each different classification. 4. Total acres In application: 5. OPEN SPACE CLASSIFICATION Number of Acras 6. Indicate what category of Open Space this land will qualify for: (See back for definitions) r-1 Open Space Zoning Conserve and enhance natural or scenic resources Protect streams or water supply r--1 Promote conservation of soils, wetlands, beaches or tidal @rshes F-1 Enhance value to public of abutting or neighboring parks, forests, wildlife preserves, nature reservations or sanctuaries or other Open Space Preserve historic 2 . r--1 Retain in -na tural tate tracts of five (5) or more acres In urban areas and open to public use as reasonably required by granting authority 7. TIMBER LAND CLASSIFICATION Number of Acres B. Do you have a timber management plan on this property? [:::IYes F-INO (If yes, submit a copy of that plan .1th this application.) 9. If you have no timber management plan, specifically detail the use of this property to show that It "is devoted primarily to the growth and harvest of forest crops." 10. Describe the present current use of each parcel of land that is the subject of this application 11. Describe the present improvements on this property (building, etc.) 12. Attach a map of the property to show an outline of the current uses of the property and indicate the location of all buildings. 13. Is this lanZ subject to a leas I or agreement which per=!ts any other use than its present use? = Yes No f yes. att ch a copy of the 1 a. or agreement.) a e e NOTICE: The assessor may require owners to submit pertinent data regarding the use of classified land. 262 OPEN SPACE LAND MEANS: lal Any la,,d a a d"ignat.d by an official COMDrehensive land use plan adopted by any city or county and zoned (b) Any lard area, the preservation of which in Its present use would (I) conserve and enharce ratural or scenic Ui) i!rotect streams or later C'I" 'o t' -erntion of @.Jl. wetlands, beaches or 0;, or I tidal or ennance the vaT!ue @ONNF-,t;,- of ib.tflng' ne zhbor ng ar-<s, lo Ee2.R@- wildlife reserves. nature reservations or sanctuaries 1, -,,,r pen 3 or (y) enhance recreazi 5n cpp@rln_-Ma or or tvil) reta tr cts 0', land not less @Sa@ I've acres .ral a situated in an urban area ana open to p511c use on such conditions as may be reasonably re@ulred b_y_-he legislative body granting the Op TIMBER LAND KEANS; Land in any c on tI_,tIu5 onersh!p of five or more acres which is devoted orimarily to the -raw andbarvest of fo .. t No's an I, which I. no,. 'assirlea as relorestation land-pursuant to Chapter '84.213 ;C9 as orest Land n =er_T1_.pt_er 84.33. Timber land means the land only. STATE ENT OF ADDITIONAL TAX, INTEREST AND PENALTY DUE UPO?M4 REMOVAL FROM CLASSIFICATION UNDER RCW 84-34 1. Up on reInoyal a' additi0nal tax shall be imposed which shall be due and payable to the county treasurer on or before April 30 of the following year. The amount of such additional tax shall be equal to: (a) The.dirference between th: pro party tax paid as "Open Space Land" or "Timber Lanl" and the amount of pro_ erty tax otherwise du and payable for the -seven years last past had the land not been so classified; PI (b) Interest upon the amounts of the difference (a), paid at the same statutory rate charged on the delinquent property taxes ' (c) A pens Ity of 20% shall be applied to the additional tax If the classified land is applied to some other use, exc sptthrough topIia.ce with the property owrier's request for removal process, or except as a result of thos e conditions listed in (2) below. 2. The additional tax, interest and penalty specified in (1) above, shall not be imposed if the remo-ial resulted so le ly from- Is) Transfer to a go vernmiententity in exchange 'or other land located within the State of Washington; ) u c r 0 b A thro gh the exer Ise of t po.e -eminent domain, or sale or transfer to an entity having the power of eminent domain in anticipation of t-- exercise of such power. (c) Sale or transfer of land within two years af@ e,the death of the owner of at least a fifty percent interest in such land . (d) A nat ural disast:rlsuch as a flood, windstorm, earthquake, or other such calamity rather than by virtue 0r th sactafth , andow ner changing the use of such property. (c) Official action by an agency of the Stat e of Washington or by the county or city within which the land is located which disal lows the pre ., nt use Of such land. (f) Transfer to a church and such land would qualify for property tax, exemption - pu@rsuant to RCW 84-36.020. K21 IRIL.11011 As owne-(s) of the land described in this application, I hereby indicate by my signature that I a. aware of the potenti aletax liability involved,when the land ceases to b e classified under the provisions of RCW 84.34. 1 also d Icare under the penalt es for false swear ng tha t this application and any accompanying documents have been examined by me and to the best of my knowledg! I t is a true, correct, and complete statement. Subscribed and sworn to before me this OWNER(S) or CONTRACT PURCFASEER(S) day of 19 Notary Public in and for the State of IResiding (All owrers and purchasers must si-) FOR LEGISLAT17-1 AUTHORITY'S USE ONLY: Date applicatlon received: By Amount of fee collected $ Tran-itt@d to Date FOR GRANTING AUTHORITY USE ONLY: Date Received By Appli.atl.n Approved in Part Denied Owner Notified of Derilal on Date Fee Returned Arreement Exec-ited on Mailed on FORM REV 64-C!021 0/74) (For ... ly PTF 80) 263 TO ALL OWNERS OF LAND CLASSIFIED UNDER Vzir- 'VEN SPACF TAXATION ACT" Any land that has been classified under the provisions of RCW 84.34 (Open Space Taxation Act) prior to Yp--? 1, 1973, may have their land reclassified as farm and agricultural land i! it meets the definitions set forth in chapter 212, laws of 1973, Ist Extraordinary session. Those definitions are: "Farm and Agricultural Land" means either: (a) land in any contiguous ownership of twenty or more acres devoted primarily to the production of live- stock or agricultural commodities "or commercial purposes or, (b) land of five to twenty acres devoted primarily to agricultural uses with a gross income from such uses equivalent to one hundred dollars or more per acre per year for three of the five calendar years preceding the date of application, or (c) land of less than five acres devoted primarily to agricultural uses which has produced a gross income of one thousand dollars or more per year for three of the five calendar years preceding the date of application. Agricultural lands sball also include farm wood lots less than twenty acres and r-ore than five acres, land on which additions necessary to the production or sale of agricultural products exist, and land of one to five acres, which isnot contiguous but which constitutes an integral part of farming operations as conducted on land qualifying as "farm and agricultural lands." Any land that has been classified as timber land under the provisions of RCW 84.34 and meets the defi-mitioa of forest land as defined in RCW 84.33 may be designated as forest land. Any reclassification or designation =ust be requested by the owner on form PTF 90 and accompanied by an "Application for Classification PTF 86" or an "Application for Designation, PTF 150". The designation or reclassification will be made without any additional fee, tax, interest or penalty. 264 APPLICATION FOR CHANGE OF CLASSIFICATION For reclassification as either Farm & Agricultural Land under RCW 84-34 or Forest Land under RCw 84-33 CCX',PLME & FILE ALONG WITH THE CORRESPONDING CLASSIFICATION FORM WITH THE COUNTY ASSESSOR Nc.me of Applicant Phone Address Land to be reclassified (legal description) 1,s@;eGsor'n; Parcel or Account Numbers: Current classification Auditor's File No. CHLCK APPROPRIATE BOX: =3 Land is currently classified timber land under the provisiom.; of Rcw 84-34 and I request reclassification as forest land ar provided for under Chapter 84.33 RCW (Attach completed form - PTY 150). Land was previously classified under RCV 84-34 and meets Lhe definition of farm & agricultural land under the provirionr of RCW 84.34 as amended by Chapter 212 Laws of 1973 Ist E'x. Sess. and I request reclassification as farm & agricultural land under these provisions. (Attach completed form - PTf 86 i1OTE TO ASSESSOR: No additional tax, fee, or penalty accrues from these reclassifications under sections 15 & 19 Chapter 212 law of 1973 Ist Ex. Sess. Date Applicant(s) Signature Dopaxtncnt of Revenue PTF 90 (9/73) 265 PROPERTY OWNER'3 NOTICE OY RNUEST FOR WITHDRAWAL FROM CLASSIFICATION UNDER RCw 84.34 TO: County Assessor do hereby request withdrawal of my land, herein described, from the pr.V15101s 7f RGw 84-34. This land was classified as - land and filed @der county auditor's record no. L,gal description of la@nd to be withdrawn from classification: Asscssor's Parcel or Account Numbers: This request for withdrawal includes -(enter a-" or Part of the land originally classified. I d"l-C tl,.t I - -re of the liability of withd rawal of this land fr= -he agreement to the following extent: 1. Land @der agreement for a minimum of 10 years shall pay an amount equal to the difference between the tax computed on the banisof "current use" and the tax computed on the basis of true and fair value plus interest at the same statutory rate charged on property taxes. The additional taxes and interest shall be paid for the seven years last past. 2. Land withdrawn because of a change to a non-conforming use or land withdrawn prior to the minizium 10 years period or failure to comply to two your notice of withdrawal shall be liable to pay the additional tax -s shown in 1. above plus a penalty of 20% of the additional tax and interest. 'The additional tax, interest and penalty shall be paid for a maximum of seven years. 3. The additional tax, interest and penalty on the affected land shall not be imposed if the removal of designation iesulted solely from: a. Transfer to a rovernment entity in exchange for other land located within the State of Washington; b. A taking through the exercise of the power of eminent domain, or sale or t. ansfer to an entity having the power of eminent domain in anticipation of the exercise of ich power; c. SaIE or transfer of land within two @vars after the death of tne owner of at least a fifty percent interest in such land. d. A natural disaster such as a flood, windstorm, earthquake, or other such calamity rather than by virtue of the act of the land- owner changing the us@ oi such property. e. Official actio-by an agency of the State of Washington or by the county or City Witl;rL which the land is located which disallows the present use of cuch land. f. Transfer to a church and such land would qualify for property tax exemption p-suant to hCW 84.36.020. TCTIET:__@@is request for withdrawal must be made to the co"ty assessor IY2_z@arL prior to the date the land is to be r-;oved from classification by the c-ty assessor. request for withdrawLl_ j a Date: Property Owner Add@... Subscribed to before me this _,_ day NOTICE: Within seven days the assessor shall transmit a copy of this request for withdrawall to the granting authority which originally approved the pplic.ti.- Notary Public D1,TtLRTMEKT OF REVENVE r@fF 82 (9/73) 266 COUNTY TREASURER'S STATEVENT OF TAXES, PENALTY AND INTEREST DUE ON LAND REMOVED FROM CLASSIFICATION UNDER RCW 84.34 COUNTY (Property Owner) Address Description of land removed from classification: Ass,cssor's Parc@l or Account N-bers- The additional taxes, penalty (if applicable) aud interest extended here and apply- ing to the,land herein described, is extended in accordance with Sec. 12 Chapter 212 Laws of 1973 Ist Ex. Sess. This amount shall be due and payable in full on or before April 30th of the year following the removal from classification. Lien date Date taxes due and payable APT) _Qj; L_LCA @ P @u IT - _D__AM i_U1az_Q_(JZ1 No. 2 2 3 4 5 6 7 IT.1-11 Of Tax Year rue&air Carrent ;,fference Dolinq T- Tax Pe-ItY Ts" Year. Latest U a-It, value so 'between Int@r@st4 fference (20- of 9, Pen y e 0" 6, Interest C,,j n 2__ P, The 20% pe-ll@y .1-11 not apply if the --.1 if; 'e.'lt of r"@ 'f the f.11-ing: (1) The land is withdrawn upon request o! the owner and in c,mpliance v.-4th Rew 84.3J:. o7o; (2) The tax chall not be imposed on the land if the removal resulted colely from: (a) T-fti to a government entity ii, u=hange for othei 1-d located 'itl@in the State of V.@hinjstoi (b) A@t'k i.g thro u8h exercise of the power of eminent domain, or sale or trans for to an entity having the power of emirsnt domain in anti cipation of the exercise of such power; (c) Sale or transfer of land v,ithin two years afte- ' the death of the o@ner of at least a fifty percent interest in such land; (d) A natural disaster such as a flood, windstorm, earthquake, or other such calamity rather than by virtue of the act of the landowner chnnging the use of such pz-operty. Offi ' cial action by an agency of the State of Washingt- or by the county or city within which the land is located w@@--h dis- allows the present use of such land; Transfer to a church and such land would qualify for property tax exemption pursuant to RCW 84.36.020. Date County Trea6ure: Department of Revenue PTF 85 (9173) Y-a' I.- Difference (20. 6 lnje@.st 267 ASSESSOR'3 NOTICE OF RF.MOVAL OR WITHDRAWAL OF CLASSIFICATION OF "OPEN SPACE." "FAR11 AND AGRICULTURAL" OR "TIMBER LAND" TO: Property Owner Address You are hereby notified that tne following property:(Legal description of land to be removed from classification) Kssessor's Parcel or Account Numbers: which has been previously classified as land and record" in the county auditor's office under recording no. , does not CO-ly with t1e !,rovisions for classificati.- at,d is 1@ereby declared null and void and - longer -ts the provisions of RCW 84.34 and has been removed from cl@siffcation as of (Date or R--I) This land has been removed from classification for the following reason: Ovners Request for Withdrawal Dated 1. Upon removal of classification as land an additi ... I tax shall be imposed which shall be equal to the a= of @_he a. The difference.betwee, t@eipropcrty tax paid as "open space land", :f..- and .8ricul rural I nd., , and t mber land" and the amount of property to tl,.r wise due and pa yable for the seven years last past had -the land not ,een c. Ila:sified;oplus b. Int rest up n the amounts of such additional tax paid at the Same stator ry rate charged on delinqu-t property taxes from the dates on which such ad- ditional tax co. Id have been paid wi th,ut pen alty if the land has been as- w c t sessed at a value ,th,.t r",ard . current - as-s-an 2. A penalty of 20Z shall be applied to the additional tax :L the classified land i. ap P1 ied to ..me other use, except through compliance with the proper ty o"1_ er's r.q.' Itfor r proceas, or except as a result of t hose conditions listed in 3. below. 3. The additional, tax specified in 1, above shall not be impo!;,--d if the remo-I of classification resulted solely from: a. Transfer to a goverment eatity in c-hange for other lend I@cojrd within 'he 5 tate of Washington; b. A taking through the exercise of the power of eminert domain, or sale or transfer to an entity having the power of eminent domain in anticipation of the exercise of such power; c. Sale or transfer of 'I'd within two years after the death of the owner of .t leas tafifty per ent interest in such land. d. A natural disaster such as a flood, windstorm, earthquake, or oth@r such calamity rather than by virtue of the act of the landowner changing the .. of such propert y. e. Of ficial action by an agency of the state of Washington or by the county or ci ty within which the land is locatdwhich disallows the present use of such I nd. f. Tran .for to a church and such land would qualify for property tax exemption pursu ant to RCW 84.36.020. NOTE: The property owner may appeal the assessor's Removal of Classificati;n o @the next July County Board of Equalization following date of removal. Department of,R"enuePTF 87 '(10/73) 268 OPEN SPACE TAXATION AGREEMENT Prepare in Triplicate with on completed copy to each of the following: (To be used for "Open Space or "Timber Land" Classification, Applicant only) Legislative Body County Assessor This Agreement between hereinafter called the owner, and (granting authority) Whereas the owner of the following desribed real property having made applications for classification of that property under the provisions of ROW 84-34. And whereas, both the owner and legislative authority desire to limit the use of said property, recognizing that such land has substantial public value as open space and that the preservation of such land constitutes an, important physical, social, esthetic and economic asset to the public, and both parties agree that the classfication of the property during the life of this Agreement shall be for: (Open Space and Timber Land) Now, therefore, the parties, in consideration of the mutual covenants and conditions set forth herein, do agree as follows; (1) During the term of this Agreement, the land shall, only be used in accordance with the preservation of its classified use. (2) No structures shall be erected upon such land except those directly related to, and conipatible with the classified use of the land. (3) This Agreement shall be effective commencing on the date the legis- lative body receives the signed Agreement from the property owner, and shall remain in effect for a period of at least ten (10) years. (4) This Agreement shall run with the land described herein and shall be binding upon the heirs, successors and assigns of the parties hereto. (5) Withdrawal: The land owner may withdraw from this Agreement if after a period of eight years the land owner makes a withdrawal request, which request is irrevorable, to the assessor. Two years from the date of that request the assesor shall with,draw the land from the classification, and the applicable tax- and intcrest shall be im- posed as provided in ROW 84.34.o7a. (6) Breach: After land has been classified and an Agreement executed, any change of the use of the lead, except through compliance with items (5) or (7) of this Agreement, shall be considered a breach of this Agreament and subject to applicablu taxes, penalties and intcrest is provided in Sections 9 and 12 Chapter 212 Lava of 1973 Ist F Sess. (7) A breech of Agreement shall act ,"tnr and the additional tax shall act be imposed if the removal of designation resulted solely from: (a) Transfer to a goverment entity in exchange for other land located within the state of Washington; (b) A taking through the exercise of the power of eminent domain, or sale or transfer to an entity having the power of eminent domain in anticipation of the exercise of such power; (c) Sale or transfer of land within two years after the death of the owner of at least fifty percent interest in such land. (d) A natural disaster such as a flood, windstorm, earthquake, or other such calimity rather than by virtue of the act of the landowner changing the use of such property. Department of Revenue PTF 81 (9/73) to A 269 (a) Official action by an agency of the state of Washington or by the county or city within which the land is located which dis- allows the present use of such land. M Transfer to a church and such land would qualify for property tax exemption pursuant to RCW 84.36.020. (8) The county assessor may require classified I@d owners to submit pertinent data regarding the use of the land, productivity of typical crops, and such similar information pertinent to continued classification and appraisal of the land. Legal Descriptio2, of Classified Land: Assessor's Parcel or Account Numbers: This Agree.cnt shall be subject to the following conditions: It is declared that this Agreement contains the c'assification and coadit@i@cns provided for in RCW 84.34 and the conditions impo,,ed by this Granting Auth.rity. Dated Granting Authority: City or C.-ty BY Title As owner(s) of the herein described land I (@) indicate by my (our) siEnsture(o) th@t I (we) are aware of the potential tax liability and hereby accept the classification and conditions of this Agreement. Dated Owmer(.) T-M-st be signed by all C-cr,,T__ Subscribed and sworn to before me this _ day of _,199 Notary Public Date signed Agreement received by Legislative Authority 270 I.D.1 RESTRICTIVE AGREEMENTS: CALIFORNIA I. DESCRIPTION OF PROGRAMS The differential assessment programs of California are of special interest and importance because they have been widely implemented - some 14,250,000 acres or approximately 30% of the privately owned non-urban land in the state is sub- ject to contract under the state's Land Conservation Act of 1965 (the William- son Act) - and because the state is one of the few to use the restrictive agree- ment approach under which owIners are required to keep their land in eligible use for 10 yearsafter entering into a contract or nine years after giving notice of their intent to withdraw. The State Legislature first addressed the problem of stemming the loss of agricultural land in the 1950's with the enactment of The Scenic Easement Deed Act of 1959.1 This was not effective and the Legislature responded by passing the Williamson Act in 1965, which sought to protect agricultural land by allow- ing differential taxation for eligible properties. The Constitution was amended in 1966 to permit land which was defined as open space, subject to enforceable restrictions and used for recreation, enjoyment of natural beauty, or the pro- duction of food or fiber to be assessed at current use value.2 The Williamson Act was amended in 1969 to require, among other things, that counties have a general plan and restrict agricultural preserves by zoning or other suitable means in order for lands.within their boundaries to be eligible. The amendment also added wildlife habitat, scenic highway corridors, salt ponds, managed wet- lands, and submerged areas as eligible lands. It was amended again in 1970 to make recreation land eligible.. In 1971, a program of subventions to partici- p4ting local governments -was established to reimburse them for some of the rev- enue lost because of preferential assessment under the Act. Further technical changes were made in 1974. The above touches only the highlights of the leg- islative history of the Williamson Act.3 4 In 1969, the Legislature passed an Open Space Easement Act which author- ized cities and counties to accept grants of open space easements of at least 20 years duration. These easements were "enforceable restrictions" within the meaning of Article XXVIII of the Constitution, so that the underlying fee could be assessed at its restricted value. The act has been used only sparingly, primarily around Point Lobos near Monterey and on Catalina Island. It was superseded by the Open Space Easement Act of 19745 which authorized counties and cities to accept 10 year open space easements@ which are automatically renewed each year for another year unless notice of non-renewal is given by ,either party. The easement is an "enforceable restriction" permitting as- sessment of the remaining fee at its restricted value. The Williamson Act is by far the most important differ ential taxation pro- gram in California, covering, as already indicated, some 30% of privately owned 1Cal. Gov't Code, §§6950-6954. 2Cal. Const. Article XXVIII,.rewritten and renumbered in 1974 as Article XIII, Sect. 8. 3See, "The Property Tax and Open Space Preservation in California: A Study of the Williamson Act," by the Stanford Environmental Law Society (1974). 4Cal. Gov't Code, §§51050-51065. 5Cal. Gov't Code, §§51070-51095. 271 California Case Study non-urban lands. Its major provisions are analyzed below. A. Eligible Land . The procedures for establishing eligibility are complex. First the county or city must have a general plan with its mandatory open space elemenL2 The normal practice is to await requests for designation as an agricultural preserve @from interested property owners and then refer the request to the local agency formation commission (LAFCO) and the county or city planning commission for re- view and comment within 30 days, hold a public hearing and, if necessary, amend the general plan. Within two years after designation, the county or city must restrict all land in the preserve under the Williamson Act, by zoning or other suitable means, to uses which are compatible with the uses to which lands under the Act are lim-ited.3 In order to be eligible, land must be in an agricultural preserve and de- voted to one of the following: 1. agricultural use, defined as, "use of land for the purpose of pro- ducing plant and animal products for commercial purposes.1% 2. recreational use, defined as "the use of land by the public, with or without charge, for any of the following: -walking, hiking, picnicking, camping, swimming, boating, fishing, hunting, or other outdoor games or sports for which facilities are provided for public participation.115 3. open space use, defined as the use or maintenance of land in a manner so as to preserve its natural characteristics, beauty or openness for the bene- fit or enjoyment of the public, to provide essential habitat for wildlife, or for the solar evaporation of sea water in the course of salt production for commercial purposes, if the land is within: a. a scenic highway corridor (as defined in §512,01 (i)) b. a wildlife habitat area (as defined in §51201 (j)) c. a saltpond (as defined in §51201 (k))' d. a managed wetland area (as defined in §51201 (1)) e. a submerged area (as defined in §51201 (m)) 4. uses compatible with the above, as desi nated by a county or city and established by resolution after a public hearing.9 @ It should be noted that 30 counties (out of the total of 46 who participated in the Williamson Act Program) responded to an Assembly Task Force 1975 question- naire that Williamson Act contracts were in effect in 1974, for the following open space uses: 1 The Assembly Task Force on the Preferential Assessment of Property, (hereafter referred to as the Assembly Task Force) has prepared extensive analyses and recommendations concerning the Williamson Act. See Preferential Assessment of Agriculture and Open-Space Lands, June 1975. 2 Cal. Gov't Code, §51230. All cities and counties must have general plans. Cal. Gov't Code, §65300. 3 Ibid. 4 Cal. Gov't Code, §51201 (b) and (c). 5 Cal. Gov't Code, §51201 (n). 6 Cal. Gov't Code, §51201 (d) and (e). 272 California Case Study No. of No. of Counties Contracts Acres Scenic Highway Corridor 1 (Monterey) 250 68,000 Wildlife Habitat Area 2 59 16,150 Saltponds 1 1 1,108 Managed Wetland Area 2 5 5,285 Submerged Area 0 0 0 Wildlife Habitat Managed and Wetland Areas Combined 1 65 24,734 Total 115,277 Thus, "open space uses" comprise less than one percent of all land under the Williamson Act, and are only recognized as such by a handful of counties. The statute provides that agricultural preserves must be at least 100 acres in area but this minimum can be lowered by a city or county if it finds it nec- essary.i Many counties have done so. Within the general statutory guidelines, the counties and cities have a fair amount of discretion to define eligible land by resolution, especially in the area of compatible uses. For instance, Kern County permits labor camps, breeding barns and milk processing facilities, among other uses,2 and other counties have permitted the conduct of such things as fertilizer businesses. B. The Contract 3 Owners of eligible land must then enter into a contract with the county or city. The owner must agree to use the property only for the purposes set forth therein for a period of at least 10 years. Only two of the 30 counties respond- ing to the Assembly Task Force 1975 questionnaire have contracts with initial terms of more than 10 years. The contract is automatically renewed each year for another year unless one of the parties gives notice of non-renewal. The con- tracts are binding on successors in interest, although if a city annexes the subject property, it has the option of terminating the contract immediately, under certain conditions. The contracts are enforceable by either party by an action for specific performance- and constitute an "enforceable restriction" within Section 8 of ICal. Gov't Code, §51230. 2Kern County Zoning Ordinance, Art. 17.2, §7159.11. 3Cal. Gov't Codei §§51240-51285. 4i.e., the municipality would be entitled to issue an injunction against conver- sion of use. 273 California Case Study Article XIII of the Constitution, so that land subject to them can be assessed at restricted use value. At the request of the landowner only, the county or city may cancel the con- tract if it finds that the cancellation is in the public interest and is not in- consistent with the purposes of the Williamson Act. Two further statutory pro- visions are important to note. First, the mere existence of an opportunity for another use of the land involved is not sufficient reason for cancellation. Second, thE county or city must make a finding that there is no proximate, non- contracted land suitable for the use to which it is proposed to put the contracted land before it approves cancellation. A public hearing must be held and notice given to all owners of land within the affected agricultural preserve and within one mile of the subject land. Recipients of notice may protest cancellation. A copy of the contract form used by Santa Clara County is attached in the Appendix to this case study. C. Method of Assessment The assessment procedures to be used in determining the value of land sub- ject to contract (hereafter called restricted value) are set out in detail in the California Revenue and Taxation Code. Assessors are forbidden from using sales of comparable land to appraise the value of land subject to contract, unless they can show by convincing evidence that the restrictions will be removed or substan- tially modified in the predictable future because of past history of the treat- ment of similar restrictions in the taxing jurisdiction or because of some other- similar reason.1 As a matter of practice, comparable sales evidence is not used and assessors rely on the statutorily mandated procedure for capitalization of income. One highly respected property tax adminis 'trator with long governmental experience, Ron Welch, recently retired Assistant Executive Secretary for Prop- erty Taxes of the State Board of Equalization, believes that it.is.undesirable to tie the assessor's hands in this way because there are situations such as where land cannot produce income because of its barrenness, where-the comparable sales approach would be appropriate.2 The statutory'procedure, in outline, is as follows: 3 1. determine the fair rent which can be imputed to the land based on rent actually received and typical rentals in the area for similar land in similar use, where the owner pays the property tax. 2. if sufficient rental information is not available, the income shall be that which the land can reasonably be expected to yield under prudent management and subject to applicable enforceable restrictions. a. revenue is the average amount of money or its equivalent which the land can be expected to yield from any use permissible under the contract including that received from growing typical crops during a typical rotation period over the past few years and the next five years. This fleconomic rent" can range from 0 to as much as $2,000 per acre for some vineyards, and averages around $50 to $60 per acre for row crops, although yields of up to $150 per acre have been noted. Grazing re- ,turns $4 to $10 per acre, and dry land farming, $10 to $30 per acre.4 I Cal. Rev. and Tax. Code, §423. 2 Interview, March 6, 1975. 3 Cal. Rev. and Tax. Code, §423. 4 Interview with William Jackson, State Board of Equalization, March 6, 1975. 274 California Case Study b. expenditures which can be fairly charged against the income are cal- culated. They do not include depletion charges, debt retirement, interest on money invested in the land, property taxes or corporation franchise and income taxes. C. capital charges in an amount sufficient to provide a fair return on capital investments other than land, such as drainage or irrigation systems, are deducted from revenue. d. where the land is not producing or cannot produce income, the asses- sor is directed to impute income to it. 3. having arrived at net income attributable to the land the assessor then determines the rate at which it is to be capitalized, the so-called "cap rate," which is comprised of the following components: a. an interest component, which is the yield rate for long-term U.S. gov- ernment bonds as most recently published by the Federal Reserve Board, rounded off to the nearest one-quarter percent as determined by the State Board of Equalization by September 1 of each year for the fol- lowing year. The rates for the past few years were: September 1, 1974 7.25% September 1, 1973 6.75% September 1, 1972 5.50% September 1, 1971 5.75% September 1, 1970 6.75% b. a risk component, which is determined on the basis of the location and characteristics of the land, the crops to be grown thereon and the pro- visions of any lease or rental agreement to which the land is subject. This varies from 1/4 of 1% to 3% and has been criticized as being ex- cessively judgmental. Its effect on total assessed value can be seen from the following example. Assume an interest component of 7.25% (1), a tax component (to be discussed below) of 2.5% (R) and an economic rent of $200 (Y) per acre. If the risk component is 1/2 of 1% (RC), the farm use value (FUV) is: FUV Y 200 200 $1,951 I + R + RC .0725 + .025 + .005 .1025 If the risk component is 3%, FUV 200 200' $1570, 0725 + .025 + .03 .1275 or reduction of some 20%. c. a property tax component, which is a percentage equal to the estimated total tax rate applicable to the land for the assessment year times the assessment ratio. This is the same as the effective tax rate,(the per- centage which real property taxes are of fair market value). In 1974, it was 2.66% for the state as a whole, but varied considerably across counties with a significant amounts of land under preferential assess- ment. For instance, in Colusa County it was about 1.7% in 1974, while in Sacramento County it was 3.3%. 275 598-330 0 - 76 - 19 California Case Study d. a component for amortization of perennials, such as vines or trees, o- ver their estimated economic life when the total income from land and perennials other than timber exceeds the yield from other typical crops in the area. The average capitalization rates used in 1971 in Ventura County are reproduced in Table I which follows. Table I COMPONENTS OF CAPITALIZATION RATE FOR VACANT LAND IN VENTURA COUNTY Yield Components Amortization Crop Interest Risk Total Component Row Crop & Grazing .0575 .0025 .0600 0 Avocados .0575 .1150 .1725 TO--Yr. Life = .100 Lemons .0575 .1150 .1725 15-Yr. Life = .067 Oranges .0575 .0775 .1350 25-Yr. Life = .040 Grapefruit .0575 .0850 .1425 25-Yr. Life = .040 Walnuts .0575 .0775 .1350 50-Yr.' Life = .020 Apricots .0575 .0775 .1350 40-Yr. Life = .025 Above are average capitalization rates only. The yield rate selected must be adjusted in many areas for climate, flood hazards, etc. The amortization rate must be adjusted to reflect variations in tree ages (in most cases, an adjustment to the amortization rate requires an adjustment to estimated production.) Source: Ventura County Assessor's Guide (1971) Thus, for land which does not have perennials, the capitalization rates have varied from 7.75% to 13.25% while for land with perennials, they may vary from 8% to 23.25%. 4. the appraised value is determined by dividing the economic rent by the capitalization rate. 5. the assessed value is computed by multiplying the appraised value by the ratio set out in Section 401 of the Revenue and Taxation Code which is.the mandatory assessed value / appraised value ratio. This ratio is now set at 25% by statute. - An example from Kern County is reproduced in Table 2 and from Santa Clara County in Table 3 which follow. As a practical matter, county appraisers are responsible for determining as- sessed value, subject to guidelines from and periodic review by the State Board of Equalization. Because of the magnitude of the job, many counties have dev- eloped schedules for general use. Those of Ventura County are reproduced in Table 4 which follows. The value of the preferential assessment, of course, depends on the per- centage reduction from full cash value assessment to restricted use assessment. Because California does not keep dual records showing full cash value and cur- rent use value, these data are not available. 276 California Case Study Table 2 EXAMPLE: DETERMINATION OF ASSESSED VALUE OF ROW CROP LAND, KERN COUNTY Limiting Assumptions: 1. Economic unit, 160 acres 2. Interest, -tax & risk = 9% 3. Expenses of tax, pump maintenance and irrigation system to lessor 4. Gross rent for raw crop land $60.00/acre Estimation of Income: Economic Gross Rent per acre $ 60.00 Less: Management 5% = 3.00 Pump & Pipe Maintenance 5% = 3.00 6.00 Effective Gross Income per acre --5T-.OU Less: Income per acre imputable to improvements Pump = 9.50 Irrigation System = 6.80 16.30 Income per acre imputable to land 37.70 Capitalization Process: Land in Program Land: $37.70 -:- .09 = 420.00 Pump & Irrigation System Value $30,000 -' 160 acres = 180.00 Indicated Per Acre Value = 600.00 Assessed Value per acre (25%) $150 Market Value of Comparable Row Crop Land $1,000.00 Assessed value per acre (25%) $250 Loss of Assessed Value $100 Source: Kern County Assessor,s Guide 277 California Case Study Table 3 EXAMPLES OF DETERMINATION OF ASSESSED VALUES, SANTA CLARA COUNTY A. ROW CROPLAND Market Value Average Market Value $4000 per acre Assessed Value (25%) $1000 per ac ,re Value under Williamson Act Capitalization rate Interest component .0675 Tax component .0250 Risk component .0075 .1000 Typical rent per acre $120 Capitalization value ($120 .10) $1200 per acre Assessed value (25%) $ 300 per acre Tax Difference (assume 10% tax rate) Tax based on market value $1000 x .10 $ 100 per acre Tax under Williamson Act 300 x .10 $ 30 per acre Difference $ 70 per acre B. RANGE LAND Market Value Average Market Value $100 per acre Assessed Value (25%) $ 25 per acre Value under Williamson Act Capitalization rate (see above) .10 Typical rent per acre $3.00 $3.00 .10 Capitalization value $ 30.00 per acre Assessed value (25%) $ 7.50 per acre Tax Difference (assume 10% tax.rate) Tax based on market value ($25 x .10) $2.50 Tax under Williamson Act ($7.50 x .10) .75 Difference $1.75 Source: Santa Clara County Assessor's Guide. 278 California Case Study Table 4 ECONOMIC RENTS - ROW CROPS As of March 1, 1974 VENTURA COUNTY Per Acre Per Acre Area Rent Rent Wpst Oxnard $275 Tierra Rejada $135 East Oxnard 250 Fillmore 135 Rio 225 Piru 125 Brigggs 225 Upper Ojai 25 Guadalasca and Conejo Wheller Canyon 25 Mountain 200 Entire South One-half Las Posas 150 of County Graze Land 1.00-3.50 Santa Rosa 135 Entire South One-half Rincon 135 of County Grain Land 10-20 Mupu 150 Cuyama Valley Alfalfa -- Good 20 Ojai 135 Average 15 Fairview 135 Graze .50-1.00 Moorpark 150 The rentals are averages only, and may vary considerably in a given area. Rents are negotiated for, and in many instances the amount paid depends directly upon the rentee's bargaining ability. Such items as soil, water, et cetera, must be analyzed prior to establishing an economic rent. Source: Ventura County Assessor's Guide It should perhaps be noted here that the formula used for determining sub- vention entitlement for counties and cities uses the assessment based on full cash value for the year immediately prior to the year the land went under con- tract as the amount from which its restricted value assessment is subtracted, to determine tax loss. Because many of these assessments were based on appraisals made several years before the contract year and land values had been rising at an average rate of 5% per year, this figure consistently understates the actual tax loss suffered by counties as a result of preferential assessment. It is adjusted each year by the aggregate percentage by which assessed values of land outside in municipalities in the county change. (Cal. Gov't. Code, §16152) D. Procedures Upon Notice Non-Renewal When an owner or county gives notice of non-renewal of the contract, a statutorily mandated procedure for adjusting the assessed value over the re- maining term of the contract must be followed.1 It applies immediately when the owner gives notice and, if the county or city gives notice, when less than six years remain until the termination of the enforceable restriction. At the time, the assessor must: 1Cal. Rev. and Tax. Code §426. 279 California Case Study Step_j: Determine the full cash value of the land as if it were not sub- ject to enforceable restriction. Step 2: Determine the present restricted use value under the contract. Step 3: Subtract the value determined in Step 2 from that determined in Step 1. Step 4: Using the interest component rate set by the State Equalization Board for computing the capitalization rate, discount the amount obtained in Step 3 for the years remaining until the termination of the enforceable restriction. This produces the development value of the land. SteR 5: Determine the value of the land by adding the value determined in Step 2 and the value obtained in Step 4. Step 6: Apply the statutorily set ratio of 25% to the appraised value derived in Step 4. The assessed value for each year (FAVi) is therefore computed each year according to the following equation 1: FAVi = .25 @-VAGi) (l + 11) T-i + VAGi] r where, MV = predicted value based on full cash value at the end of the run- out period if the land were not subject to enforceable restrictions. VAGi = the value of the land if subj@ct to the-contractual restrictions and calculated as required by the Williamson Act. Ir = the discount rate for the run-out calculation which is the same as the interest component used for computing capitalization rate (as described above). It is set each year by the State Equalization Board. i = number of years since commencement of the run-out period. T = the total number of years in the contract period. (T-i) is thus the number of years left until contract expiration. This equation adds the present worth as of year i of the development value at the end of the run-out period to the present value for restricted uses. An example prepared by the Santa Clara County Assessor will show how this works. Following it, is Figure 1 which shows the relationship between assessed value based on full cash value (and assuming that full cash value in the present year, i, is $3,000, somewhat lower than full cash value 10 years hence, con- sistent with the fact that land values in California have historically risen over the years), and assessed value based on these computations over a 9-year run- out period. It should be remembered that assessed value is pegged at 25% of appraised value. It can be seen that the landowner's benefits in the form of tax savings decrease drastically upon non-renewal. See Schwartz, S.I., Measures for Strengthening the California Land Conservation Act, a report prepared for the Assembly Select Committee on Open Space Lands (Davis, Calif. 1974) p. 44. 280 California Case Study EXAMPLE: DETERMINATION OF ASSESSED VALUE DURING RUN-OUT PERIOD AFTER NON-RENEWAL OF CONTRACT STATE BOARD OF EQUALIZATION APPRAISAL POLICY NO. 8 FOR R. & T. CODE SEC. 426 EXAMPLE: Land has a market value of $4000 per acre and economic rent of $120 per year per acre. MARKET VALUE $4000 (b)(1) (Unrestricted) RESTRICTED USE VALUE -1200 (b)(2) (Econ. Rent $120 4- 10% Cap. Rate) $2800 (b)(3) Difference to be discounted x.5550 *PW for 9.years @ 6 3/4% 1554 (b)(4) P.W. of Difference + 1200 (b)(2) Restricted Value 2754 (b)(5) Restricted Value + P.W. Difference x .25 Assessment Ratio Sec. 401 689 (b)(6) Assessed Value A.V. Full Ten-Year Restriction = 300 ($1200 Restricted Value x 25%) 9year factor .5550 = 689 8year factor .5930 = 715 7year factor .6330 = 743 6year factor .6757 = 773 5year factor .7214 = 805 4year factor .7700 = 839 3year factor .8220 = 875 2year factor .8775 = 914 1year factor .9368 = 931 No further restriction 1000 ($4000 Market Value x 25%) *P.W. Present Worth of One Dollar Discounted Source: Santa Clara Assessor's Guide Professor Schwartz and his associates at the University of California, Davis have analyzed the benefits which a landowner receives during the run-out period. They found they are a function of seven parameters.1 Schwartz, S.I., 22. cit., p. 45. See also, Mix, Averill Q., "Restricted Use Assessment in California," 11 Santa Clara Lawyer 259, 268-273 (1971), reaching similar conclusions. 281 Figure 1 ASSESSED VALUES DURING WORK-OUT PERIOD: CALIFORNIA 10 9 Based on Market Value co 8 0 ,a 7 \Based on Non-Renewal Value t4-4 0 N) co a m 5 4 > 3 \Based on Restrictive Use Value 2 0 2 3 4 5 6 7 8 Years After Notice of Non-Renewal California Case Study 1. rate of land value appreciation 2. future agricultural income 3. length of run-out period 4. property tax rate 5. income tax'rate landowner 6. discount rate 7. assessment time lag. To this should be added the imponderable of legislative amendment of the applicable statutes. Using various assumptions for these parameters, they computed the present value of different fair market values. For rice land in Sacramento County with an initial fair market (unrestricted) value of $1,017 per acre, assuming a 10 year run-out period and a combined state and federal income tax rate for the owner of 40%, they found the present value per acre of these benefits under varlous assumptions to be as shown in Table 5. Table 5 PRESENT VALUE PER ACRE OF PROJECTED TAX BENEFITS DURING RUN-OUT PERIOD Agricultural Annual Price Constant Income Appreciation Agricultural increasing of Land Income 3% per year 3% per year $33.09 $32.05 6% per year $35.20 $34.15 10% per year $38.34 $37.29 Assumptions: Discount rate: 8% Run-out period: 10 years. Initial fair market value of land: $1,017. Property tax rate: present level (not specified) but probably approximately 10% of assessed value. Combined state and federal income tax rate of owner over period of analysis: 40% Assessment time lag: 3 years. Source: Schwartz, S., op. cit., n. 20 The key finding form this analysis of a fairly typical situation is that tax benefits ranged around 3.5% of initial fair market value. Schwartz found that if various of the limiting assumptions are modified, the following con- sequences result, assuming no changes in other parameters: 283 California Case Study 1. The percentage savings for land with a lower initial value increases modestly. For land worth $359 per acre, tax benefits averaged around 4% of fair market value. The converse would be true for land with higher value. 2. Benefits are greater for owners with lower income tax rates (about 5% of fair market value for those with a 25% rate) and lower for those with higher tax rates (about 2.9% for those with 56% rates). E. Sanctions There are three types of sanctions: 1. An action for damages or specific.performance to enforce the contract which may be brought by the county, city or landowner.1 one analyst has concluded, somewhat tentatively, that other landowners under contract in the same agricultural preserve or within one mile of the non-conforming land probably would not have the right to enforce the contract (as donee third party beneficiaries) even if the violation substantially interfered with their vested rights.2 2. The increased assessments which follow notice of non-renewal which' have been discussed above, and, of course the 10 years run-out period itself. 3. A cancellation fee amounting to 50% of the full cash value assessment at the time of cancellation is changed. Since assessment is set at 25% of full cash value the cancellation fee amounts to 12-1/2 of full cash value.3 The deferred taxes paid as a cancellation fee are roughly the equivalent of a five year roll-back, and are transmitted by the county to the State controller who deposits them in the general fund. of course, if the owner is successful in having the cancellation fee waived, he gets out scot free. This can be done only with the approval of the secretary of the State Resources Agency, and of the local government after review and comment by the planning commission and a public hearing. The record shows surprisingly few non-renewals and can- cellations,4 and even fewer fee waivers. None of the people interviewed was aware of any actions to secure specific enforcement of contracts. Alex Henson, Esq., of the State Attorney General's Office, pointed that this should not be surprising because incompatible uses would normally require a building or other type of permit and a county or city would prevent a given undesired change of land use by denying the permit rather than issuing it and then suing for specific performance. When one considers that over 14,000,000 acres are currently under contract, the 79,686 acres involved (about half of 1%) are startingly insignificant, especially in view of the fact that many of the withdrawals, such as a 6,000 acre cancellation by the Tejon Ranch Co., were made because of mistakes, and not because more profitable development opportunities were available. 1Cal. Gov't Code, §51185. 2See Schwartz, S.I., 22. cit., p. 105 - 121, 130. 3Cal. Gov't Code, §51283. 4Schwartz, S.I., op. cit., p. 66, taken from a local Government Survey, Assembly Select Committee on Open Lands (July, 1973). 284 California Case Study Both Averill Mix and Professor Schwartz have demonstrated that usually can- cellation is much more attractive economically than non-renewal., Only if the farmer expects significantly greater rates of increase in the full cash value of land than has been historically the fact does non-renewal emerge as the preferable action. There are no economic incentives for local government to enforce cancellation procedures strictly, because it produces an immediate JUMP assessed value to the full cash value basis; and the Secretary of Resources has veto power only when the cancellation fee is waived. Of course, most gov- ernments are committed politically to the agricultural preserve and must face the possible opposition of other landowners in the affected area. Table 6 SUMMARY OF WILLIAMSON ACT CONTRACT TERMINATION BY NON-RENEWAL AND CANCELLATION, 1967-1973 Termination by Non-Re-newal Termination by Cancellation Number of Number of Number of Number of Year Contracts Acres Contracts Acres 1967 0 0 12 211 1968 2 2,645 0 0 1969 6 478 0 0 1970 16 5,979 7 1,331 1971 17 10,537 17 4,626 1972 112 33,776 13 6,378* 1973 21 3,576 3 49 Totals 174 56,990 52 12,595 1974** 18 7,097 13 4,004 6000 acres in Tejon ranch - allegedly a mistake. Incomplete data reported by 30 counties (out of 46 participating in the Williamson Act) to Task Force 1975. Fees were waived in three cases in 1974. Source: Schwartz, S.I., op. cit., n. 20. IMix, op. Si p. 21, supra, pp. 264-273. 285 California Case Study F. Subventions In 1971, the Williams on Act was amended to permit participating local governments to receive subventions from the state to replace some of the tax revenue which was lost as a result of restricted value assessment.1 The subventions are calculated for e.@ch city and county as described below and then summed over the entire state. The amount due is continuously appropriated. Each county is required to report to the state the number of acres under contract of (1) urban prime land (defined by §51201 and §16142 of the Code, to include among other specified types of land Class I and Class II farmland) ,which is (a) within an incorporated city, (b) within three miles of the boundaries of an incorporated city with 1,500, or more registered voters, or (c) within one mile of an incorporated city with less than 1,500 registered voters); (2) other prime land; and (3) non-prime land whether "urban" or not.2 The city or county is entitled to a subvention of $3.00 per acre of urban prime land, $1.50-per acre, of other prime land, and $.50 per acre of non-prime land, unless the "tax revenue difference" for the county or city is less than the above entitlement. The "tax revenue difference" is computed by deter- mining the unrestricted assessed value for each tract under contract for the year immediately prior to the one in which the contract was signed, adjusting for the change in land values as a whole since the start of the Program, and subtracting from it the current year's restricted assessed value. All these differences are summed, multiplied by the current tax rate, and if the in- dicated tax revenue is less than the figure calculated above, it is the max- imum amount the county can receive. Table 7 shows the computations for the 1974-75 tax year. In addition, school districts receive subventions com- puted by a different formula. As has been pointed out, this method of computation insures that counties and cities will receive less than the tax revenue lost as a result of the Williamson Act. In principle, a payment of $3 per acre compensates on the average for a reduction of approximately $30/acre in assessed value or $120 in fair market value. One official estimated in 1973 that the taxe; fore- gone and the taxes shifted to other property totalled somewhere in the neigh- borhood of $45 to $50 million in the 1973 fiscal year. He pointed out that it was probably impossible to determine the actual "tax loss" for several reasons.3 First, the method of computing restricted assessed value, espec- ially the risk component of its capitalization rate, is so indeterminate that these values cannot be set exactly. Second, local governments would be in- clined to over-estimate unrestricted full cash value so as to increase their entitlement. Third, development which does not occur on restricted land will be shifted elsewhere so that other values will increase. There would be a tax loss only if the total land value did not rise as fast as it otherwise would have, and this is more a function of demand, especially given the fact (to be discussed later) that few owners of land which was ripe for development have entered into Williamson Act contracts.4 Thus, even if an 1Cal. Gov't Code, §§16100-16170. 2Alan Post, Legislative Analyst, estimated in 1974 that about 18% of the non- prime land was urban, and 82% non-urban. Statement to California Chamber of Commerce, Statewide Legislative Committee, Mar. 1, 1974. 3Ron Welch in testimony before the Assembly Select Committee on Open-space Lands, March 23, 1973. 4A. Allen Post, 22. cit.,,p. 29. 286 LE Vw6cs'Oks I L Z6C'9CV'9 L@ 06 R1,60'Us ZO 9OO'2VL'CL el 18VIO910% to'sWaN6 eeswom" LB 9LZ,Lgze 99(CZD'LGS'Z$ LO LK,m lV101 OL 95cce C6 669,69L vs SZ9,Cc 9z WOW K OWL L LW9L I've -0- -0- @1 L99,9k 69 ZZTG .-Wo 1-4-1 LIS LZL,9OS,OIl OL z9s,9w 9 IS 90 009'SSZ*ZIs 91 99VZOLEk ELL ZE I'M VS LC III 99G'6 6C 9 WOU'" L6 SLZ'LSZ'C 89 SS*'OK'Z$ 818,9pa sellunoo Blol DO UtTOG 00 RVE99 OD LL VCM 00 ZOV'CCV OOOV9 I I L 00 6LO'CZZ 00 PSE'6cz 00 699'69L OO*LLZ'Z9t 00 69L'OS OlOA cc 9L tal 99 6 1 L'991 CC 9LZ,LZL W 99i,60L MERV vo 999'91 UVOL R Z90 I OffWaL 96 NOV -IUSA f 60 96COM 09 LZZ'96 00 Coo Z6L 09 LZZ'96 00 C"LZ6L OS If' 96 -01 -0- -0- -0- outunlonj 00 6L .66 L' 1 68 99LEZO,z 00 6 1 V 66 L'L OD ON S" 09 969'SV2 DO L6 L LI' 09 9*L'69V 00 660*90C 00 ZL94% 00 VZZ'991 -J@j 09t* ' t 09 CL9, I OG:m I DO L9fV 09 COE .1 00 LgL'V -0, -0- -D- -01 Auupl OS GOL' I I I D9@60L "1 99 1" LOC 6c 6CL "S L6 9"'Gsz CR C69 LtS M GCO Oc 96 C6O'QZ Mtgg*gL k9 1119 ...4.1 00 90 L.LVG OOOOG ISL 00 9*1 LK 00 RE 9% OD PCs 96L 00 PLO Lee w"I'M 00 960'OL i OOIs9v,c9L 00 ss I L9 snelsiuelS 00@06 'SIL qV6L9eGz OuO6 Got OD 99C'LCZ 00 LEVia 00 zwzzz OUOZL'6 00 OQV'9 Do 6E9,tz DO C LIP Wouos ZL 9L: VOE PC Lot :., zz 9t'6 .POE 89 LOB .OVZ A06L .89 OL 09S*LCI L9 VSSTL K 9CD'6V O9`tLS'Z9k WOOL K U.Is SE@QL' E9 Be PLO 19 SL 9S I OSL at 9" "1 99 90,601 DE CLO'92 06 990'BC 09 OLE sz 09 c9o'c OZ LZOl -A!N,.S SL 6DL 9 t 6OLE it OZV 91 MOV9 ze I& OZV 91 Lie OVO'ZE -D- _O_ 0- e-js 00 LqL' 9C 00 LgL,gc OD evVes 00 6K 98 00 UP 9c 00 LgZ'Ll 00 9C6 Zt 00 GZ9 9 00 1 LEI 00 Is* .1..qs 00 gwIa 00 CZ9,99 00 ft6o OID UVOL 00 LEV V 00 GL9'9 00 M 1 00 L91 1 00 OU'? 00016 zn,o aluvS 00 Lee toz DO CEV'ru 00 LOU LOZ 00 L9O'L LE 00 VL9'6*L 00 Ott 66Z 00 OK 1 00 96Z* 1 00 699,6v 00 CZ9 OIL -13 .,..s Oc 9zacc 08 Z" 9Z I Oc ge ax OL 999'M* 60 Z6 I WE 9L VOC'ZOV 9S 9LZ to Ot I LTR 99 6GZ .19 8z CGL Oz vfiq@s e,us 00 LOL Vz DOZ.? 00 IOLL'VZ 9t 111," 00 OLE IF lz,OZ9 IV W Zj,L 1 99 L06 00 6j6'L IS 699 _j.V4 ..s wts 9te 06 60Z,99E I OO:VGq PIE 00 60L L09 09 99 1 Rz 00 c I c 99V 09 06V 09 00 Lee Do OU LOZ LZ 006906 od@q Z6 PLO 0% 96 ZWELO . 0 @!lj us 00. Z6 9LV 9% lQ9zV9Lt It LOO'ti SCVLO*M MLL'916 ?VIOL I LZ I I 969'LL I to ZCZ'69 uftw u-s 00 "M ZL 00 L6TOR 00 voc U 00 6"'90L 00 66Z .GV 00 L69,06 00 OLV Oz 00 LV9'C 1 00 9 t9,9 00 gota .6.10 UVS 00 Zvi OC L9 PC I 69C CS IV4'OC OZ LM'LL 69 C66 LE 4R6 1 06 Let C6 L9 V6 9 L9'6Z 96 LLB'6 ouipa-e U.S 001*9 961 00 LtS'96L OD ZGE'SIC )0 1 Lg'g IS 00 969 PEI DO L6L 69P OORK'99 00 ME 00 POPE 1 00 ZZ9 , 01'.8 .0s 99 09L 90? 00 VC6 .PIP 00 CgL*GDZ 00 96Z'ZLZ 00 1 L6 C9 00 NO LZI 00 L99 90t 00 91C ZL 00 We PC 00 960 11 1.......S DO 99VV96 OTL" tLL OL SU 69 V99% It 90 LIP a EL 06p,9E SL 4ZC'VZ to 996 Z9 It 696 OZ w"-!8 61-OZO'CZ 6V MIR Oc ISO 9V 09 VOL 06 DE ISO So DO VOL 06 -0- -0- -a- '0- -Id -0. _O, LO SIP ." a qco@qz, DZ Z96,9G to P96 ILL LL OIL SL OL 6LS'ZL 91 090's U 096 1 1-1d 60 to 99 DMCPCE 60 1 to R9 8V OIL CL K OLVZE 9z OV6 09 99 1 Le OL qvq OCEZI'VZ OL LVZ'9 b-0 FwL 1 00 L91,z 00 9VL 1 00 CPU 00 9V I 1 00 CR 1 -0- -0- -0- -0- IP-@ON 6t 9K'6L 6V 9K'6t W SK IV 39 999 L9 ZZ D99'LZ cil OZE 99 OZ LZL'g V19T L9 COCO W III I d-N 00 9LZgc DO OLZ'gC 00 IN 9% 00 1 1 V'9D9 00 SZL'6LZ 00 LSV 6GS 00 K6'09 00 z6Z,EV 00 VOO* I 1 00 POPE Aqu.luOV4 ,zV LZ 09 1 It 1? 69 EWEN '38 Ltg POO t 60 UE mv U qV9,V66 Is 9z9 9L K m It 6L 999'L CL LZS'Z 00 Gov" 00 9LL 1961 00 gov199 00 89 1 OR 00 s Le PC 00 Leg 6L 00 910'ZI 00 1 LO'S 00 SLTV OOGZS I ulAeVj sz Z19 LIE SZ ZL9'LZE 09 WTOK 00 699 LZV 00 99"Ovi 00 9cs,ow 09 CCL'LOZ 00 69V,KL 00 Z09,9C 00 0*.*g'Z I - VY z,9LOOZ LL LST92L Z* 9 1 O'OZ K NO Ov I* 9LOV to UO Op 0- _O_ -0- -0- @,J. -0, 996 90, U Los 9L 6690 C 6L @IL 69 szz I 6L M 1 00 0 to I OOM luv 9,60, 0PEE 1 6 PEP .. :01 Ot Let zz P61 9L I'EL'ZZ 61 1tz@Lz , It II PC 98 6S L*t VZIELL I ZZ Z06 VL ODE OOOCYM 00 9SL'LZV 1 00 9co Z99 01D 91" ESS OD VZO ffi 00 600*9 11 00 LL I EL9 009111 00 LEO 6Vz 00 61z,cs g6u, 09 6C9 IIL I OD 069 ILE I ogyq@ @zri 00 ESq'i k9L 1 00 POO GZV OU PC 1 099 09 M 900* 1 Oom C...!19 00 ZWOR 00 POP 96 .,.)4 WSW9, 00 606 9L 009 11 09 9cz Z9 00 9 1 LL te 09 9cz,zg -D- -0- -1 -0- W".q wnH sz sz V11 se 9ZI ZL V6 LLZ'99L 99 LRL'LSZ ZE 9W'60L 99 9C6 a LZ LO 9Z6*6E K.I Lq,qz 19 C99,9k I@ LZ9'9 uu.IE) Zvi' t SE 6Zc'SV9'L OD VWZoL I Oozes LwjI 00 OIL' @Vz 00 OtsEQV 00 E99,Ovz, 1 00 ggz,Lzg 00 1 LZ'M 00 LCL'99 Quse,j 0. .0. SZ 6OL,99 zz SWS9L 09 V L6' 9 69 PIP C9L 9V V69'I SO R Ll OO*OOt*z 00 DOL -P--() 13 00 BDZ'LC 00 9Z L'KL 00 6OTLE 00 .t I' '9' 00 96L'tC 00 D69IC9 00 M'V DO ME 00 "A 00 99a .1.00 2-3 .0. -01 09 eqfte 00 06,98 1 Og Z'V '* 00906891 -0' -0- -0- -0- nloo vo@ac,It tvatz, ZZ LOZ'09 SL PIZ 'Ott ZS*BLC,Lg 90 LGL't I I Or 699'1 09 6CO, 1 Oc 69Z, 1 Ok M -.A.1.0 U 6L6:VL 6L 6L67VL SL@OWOO 09 LZt:LLL 99.Ut .SO OL 6LZ.96 06.999'LE cgvvo:@z Oe.VR Ot.96 03 ESE to OL Vat'S 09 c6c," 00 080 ce 0099900 00 OL L'LS 09 Lot 1 00 too 00 LEL . L 00 Us K 6XV6$ StWEVE S *9 6LE46 S 69 M,091 LZ1.90'U S vs Z9L VSL 88 WE S MKO'e 69KZ,VL s cz 9VL,t P...Iv lu---404-3 --wa 4.0.6m P. lul l-Lu-o -Pun -y .d 09 05 w@v od 09 LS -w -V 1W 00 el .-V Alunoo -.011V .6.-V .5.-V lepi 1-tu-N1113 IWW"IIIU3 'u_Illlu3 :qn.,..Vv puq ..!,du.N Puel OW!Jd J0410 Pu-l --!Id u-q,n SL-VL6 @lu.--IIIW3 wi@-qnS ...IS ..do u0jjulAj9:uoo jo imw1j.doo A_ BV .--w quawasiag aovds-uado ue oq qoaCqnS jo qaaiquoo iapufl spu-erj- L OlqLJ, California Case Study assessor was not attempting to qualify his county for larger subventions, the comparable sales values he would have to use for appraising unrestricted lands would have been forced up by the very operation of the Act itself, at least in counties with large-scale participation. Despite an unfavorable recommendation by the Legislative Analyst in 1975, the legislature continued the subvention program and authorized $16,000,000 in payments under it. 11. EVALUATION OF THE LAND.CONSERVATION (WILLIAMSON) ACT A. Ease of Entry Forty-six of California's 58 counties have implemented the Williamson Act. Of the 12 which have not, six have more than two-thirds of their land area in government ownership (Alpine - 91%; Del Norte - 75.2%; Modoc - 66%; Mono - 79.2%; Ingo - 79.5%; and Imperial 66.7%), one is urbanized (San Francisco), and one is lightly populated and the location of Yosemite National Park (Mariposa - which is 52.2% governmentally owned). of those which are left, Los Angeles, Yuba, Merced and Sutter, only Merced and Sutter counties have rich agricultural lands. The Merced County Planner, Hal Colwell, advised the author that the principal reason the County Board has not implemented the Act is its belief that there is no need for it because none of the agricultural land in the county is in danger of being developed. In summary, then, the government of all but one of the counties with significant amounts of agricultural land have taken the first step and have implemented the Williamson Act. The statutory definition of eligible use is broad, including agricultural use, recreational use, open space use, and a rubbery catch-all category, com- patible uses. It does not appear that a significant amount was kept out for failure to meet the eligibility criteria. Table 8, which follows, gives an idea of the extent to which owners have taken advantage of the Act by showing the percent of privately owned land in each county which is under Williamson Act contract. In the remaining 26 counties, less than 30% of privately owned land is under contract. The counties with very high participation rates are, by and large, lo- cated in the Central Valley, running from Yolo County in the north down to Kern County in the south and from San Benito on the west to Tuolumne on the east. The major reason for not entering the program does not, therefore, lie in the provisions of the Act or the failure of county governments to implement it. Instead, it appears that it involves the landowner's expectations concern- ing the imminence of development for his land. This will be discussed below in the section on Effectiveness for Maintaining Current Use. B. Magnitude of Tax Benefit As we have already stated, California assessors are not required to keep annual records of full cash value for land under contract. A record is made of full cash value the year before the land comes under contract and this amount, adjusted annually for rises in county land values, is used as one of the inputs for determining eligibility for subvention payments. None of those inter-viewed had much confidence that the so-called "Tax Revenue Difference" reported for each county actually reflected the taxes which would have been received if Williamson Act land had been assessed at full cash value. Ron Welch estimated 288 California Case Study .in 1973 that the reported figure was about one third of the real figure, al- though he hedged this estimate with numerous qualifications which have been described earlier in this paper. Table 8 LAND UNDER WILLIAMSON ACT CONTRACT BY SELECTED COUNTIES Percent of Privately., Acres -Owned Land Under County Under Contract Contract - 1973-74 Yolo @447,727 821.2 San Benito 535,286 1 79.3 Kings 583,446 69.5 Stanislaus 592,175 65.5 Tulare 945,420 63.5 Fresno 1,397,532 61.5 Kern 1,617,653 60.5 Tuolumne 192,443 60.5 Mendocino 1,009,518 54.5 Madera 458,390 54.0 San Joaquin 458,796 52.8 Solano 452,535 48.5 Santa Barbara 453,822 47.5 Tehama 641,708 46.0 Alameda 160,949 45.2 Santa Clara. 317,067 44.5 Monterrey 606,411 42.5 Glenn 251,182 41.6 Sacramento 212,295 35.8 Marin 89,168 35.2 Coluss 188,905 32.7 El Dorado 166,659 30.7 Source: State Board of Equalization The extent of tax benefits for individual landowners varies tremendously, depending on the percentage of the total appraised value of their real property which is allocated to development value, the percentage of total taxable as- sessed value in the municipality allocated to non-farm real property, and the role which farm improvements play in the farmer's assessed value picture. No data were available on the range of individual benefits. On a county-wide basis, it is possible to make rough estimates of the percentage of total revenue which is lost as a. result of Williamson Act en- rollments. The procedure is as follows: Starting with the reported estimated revenue loss for 1973-74, compute the percentage which this estimated revenue loss was of 1972-73 levies, the latest year available. Multiply this percentage by three to take into account the probable underestimation to tax loss embedded in the reported estimated revenue loss figures. Subtract subvention payments from estimated revenue loss and recompute the above percentages. The results are shown in Table 9. 289 California Case Study Table 9 ESTIMATION OF PERCENT REVENUE LOSS FOR SELECTED COUNTIES Gross Revenue Loss as % of Net Revenue Loss as Total Levies % of Total Levies Loss 1973-74 1972-73 Less Est. Rev. Total Unad- Adjusted Sub- Adjusted County Loss Levies justed % x 3 vention Unadjusted % x 3 (1) (2) (3) (4) (5) @(6) (7) Kings $1,218,131 $17,062,000 7.139% 21.4% $342,237 2.0 6.0 Tulare 1,934,397 52,208,000 3.7 11.1 835,544 1.6 4.8 San Benito 168,047 5,799,000 2.9 8.7 0 - - Kern 2,592,682 121,033,000 2.14 6.42 1,009,194 0.8 2.4 Madera 262,281 13,009,000 2.01 6.03 0 - - Marin 170,050 86,539,000 1.96 5.88 114)837 0.13 0.39 Yolo 490,952 29,060,000 1.69 5.0 12,339 0.04 0.12 Fresno 1,971,947 127,005,000 1.55 4.6 249,073 0.2 0.6 In all the other counties, the estimated revenue loss was less than 1% of total levies. The data show that, on the assumption that the reported revenue loss under- states the actual loss pursuant to preferential assessment by two-thirds, only seven counties have suffered a reduction of 4% or more because of the Williamson Act, before subventions. In the rest, che loss was below 3%. This emphasizes the fact that most of the land under contract was not under development pres- sure. After subvention payments, only two had more than 3% reduction in net revenues. C. Method of Assessment In general, the approach mandated by the Williamson Act for assessing eligible land has worked satisfactorily. As has been noted elsewhere, it probably understates the current use value, because the capitalization rate of 7.25% exceeds the capitalization rate normally used by investors, which is closer to 4% and 5%. The Assembly Task Force has proposed the following modifications which should simplify it and reduce some of its year-to-year fluctuations. First, the risk component should no longer be used. Instead, the economic rent should be adjusted to take risk into account. Second, the method of com- puting the interest component should be changed to reduce the year-to-year changes in assessed value which result from the present method. For in- stance, it may be preferable to use a three-year moving average of U.S. 290 California Case Study bond rates rather than the rate on a particular date. Third, the general prop- erty tax rate should be used rather than the total property tax rate, because in some areas which have irrigation district levies, the tax component becomes too high. These changes would not significantly change the capitalization rate, which would remain in the 9% to 11% range where there were no perennials on the land. D. Costs of Conversion The most significant aspect of California's apparently unique restric tive agreement approach is that the costs of conversion are so great that they ap- pear to deter most owners who envision the possibility of converting their land within ten or fifteen years from enrolling. Figure 2 presents the re- sults of a random survey conducted by Schwartz at University of California (Davis) of owners of land under Williamson Act contract in Yolo County. The total number of respondents is only 74 but they account for ownership of 25% of the land under contract.1 The respondents were asked whether they would have accepted a Williamson Act contract if the enrollment period were 15, 20, or 25 years. The major cost to the land owner is, of course, the carrying costs and postponed income involved in waiting 10 years while locked in under the con- tract. As has already been pointed out, it is possible, if county policy permits, to secure county approval for cancellation of the contract accom- .panied by payment of a cancellation fee equal to 12-1/2% of fair market ,value. In most cases, this alternative would be more profitable than non- renewal. In fact, Schwartz calculated that the fee would have to be doubled to reduce substantially the economic incentive to cancel.2 The 1975 Assembly Task Force has proposed that state approval of can- cellations be required, after a hearing, and that the method of calculation be reviewed so as to make it less attractive a route than cancellation. E. Relationships with Land Use Planning-and Controls Although, by statutory requirement, the award 'ing of differential assess- ment involves planning actions, the Williamson Act has not been a significant tool in controlling land use in developing areas because of the fact that landowners there have not enrolled much land under it. The problem presented by these so-called "transitional lands" --lands between built-up areas and rural dis- tricts--has been thE subject of considerable commentary and study in Calif- ornia. There is a recognized need for a firmer, more clearly articulated state policy which would deal concurrently with the joint problems of locating and controlling development and maintaining prime agriucltural scenic and recreational land.3 At the time of writing, the 1975 Assembly Task Force was developing what promised.to be exceptionally perceptive, practical and comprehensive policy 1See Schwartz, S.I., et al, Measures for Strengthening the California Land Conservation Act, op. cit., pp. 55-60. 2Ibid, p. 73. 3This view is emphasized by John Williamson, primary sponsor and namesake for for the Act. Interview, March 11, 1975. 291 598-330 0 - i6 - 20 Figure 2 RATE OF PARTICIPATION AND CONTRACT TERM: CALIFORNIA 100- 90- TAL W @4 80- \71 0 Ca @4 70- 0 MORE THA U bo 60, - 20 1 C TO D .r4 4 Cd 50-- M .r4 Q 40-- $4 P., %H 30- 20 OR LESS YEARS 0 W TO DEVELOP U 20- IN, 54 to- 5 10 15 20 25 30 Contract Term (years) 292 California Case Study recommendations for transitional lands. While these proposals are not in final form and while they are too complex for discussion here at'length it is worth noting of a few of their highlights. First, it is proposed that a clear de- marcation be made between rural and urban areas, with transitional lands being classified as urban because they are urban-impacted. Second, the State should prepare and adopt comprehensive resource management and development plans which would bridge the gaps among the many single purpose functions now the respon- sibility of various state agencies. Such plans would identify renewable re- sources, such as agricultural and timber land, and non-renewable resources, such as minerals. They would attempt to balance conservation and environmental con- cerns with development and management of urban facilities, and would serve as a catalyst for coordinating private land and land owned by different levels of government. Fourth, the plans would relate development to carrying capacities both of the natural system and of urban infrastructure. Considerable attention would be paid to an equitable allocation of the costs, both of development and non-development, with special consideration being given to the "taking" problem. The Task Force recommended that special attention be paid to the creative use of the powers of government to control development. Such techniques as interim development, moratoria, traditional police power techniques, and environmental impact assessment. Two proposals are of special relevance to this study. The first is the use of a contractual approach to land use restrictions which would be an elaboration of the Williamson Act restrictive agreement. This would per- mit land use controls and, in appropriate situations, compensation to be tailored to the specific circumstances of the tract concerned. Using this approach, a local government, the owner, and probably the state can agree as to the precise restric- tions and to the nature of compensation such as the lease or short term acquisi- tions of development rights. The second proposal covered the use of tax expenditures and subventions as component parts of a transitional lands policy. There is considerable support in California for the view that, while differential assessment is not a strong enough tool in and of itself to influence the maintenance of current uses, it is a legitimate part of any comprehensive land policy package. Simply put, if the policy of a municipality is to preserve a particular tract or district in agricultural or other open use it is not fair to the owners affected to tax their land on the basis of value it would have if it were to be developed. F. Effectiveness,in Maintaining Current Use As has already been indicated, owners of land on the rural-urban fringe which was ripe for development within ten years or less have declined to enter the Williamson Act program. Large scale developers such as the Irvine Company who plan decades ahead have used the Act for land which is not scheduled for immedi- ate development. This general conclusion has been voiced by many commentators on the Act. In 1973, Ron Welch asserted that there was no way to tell whether less land was converted to non-agricultural uses because of the subsidies made available by the Act.1 He speculated that the observed reduction in conversion rate was the result of such factors as higher density development and a slowing of the state's population growth. Don Benedict,.the Legislative Analyst's staff member responsible for re- viewing Williamson Act amendments and appropriations, stated that the Act was not effective, for several reasons. First, tax reduction is too-weak a device to control the development or non-development of land.2 Second, this essentially IPaper delivered at the Annual Conference of the Northern Regional Assessors' Association, February 5, 1973. 2Interview, March 11, 1975. 293 California Case Study county and city program is not based on a careful determination of what is the best use for various tracts of land and which lands should be preserved. This observation,is also made by the Assembly Task Force, which has recom- mended, among many other things, that the state develop policies for agricul- tural land and that preservation 'of such land be made a part of the comprehensive planning process, together with planning for urban.development. As it is now, there is little effective state or local policy for preserving "transitional lands.11 At the time of this writing, the Task Force's recommendations for transitional lands had not been completed. In summary, there is little evidence that the Act has prevented conversion of any farmland, first because few owners of land which is ripe for development have enrolled it, and second because the tax abatement offered in the years be- fore the work-out period,after non-renewal is -not large enough to influence owners... G. Ease of Administration No attempt has been made to estimate the state-wide costs of the William- son Act.in California. One official estimated that at the State level,, the Resources Department spent about $30,000, the Controller, $5,000, the Board of Equalization $15,000 and the Board of Education, $5,000.1 In 1970-71 with some 1.3 million acres under contract in the county, the Kern County Assessor estimated that his office incurred costs of $70,500 in connection with the Act. It appears that most counties charge application fees which range from $25 to over $200. The Planning Director for Yolo County has determined that it cost $162 per contract, and has set the fee at that level.2 Owners have additional costs in the form of trtle reports, legal fees, securing the consents of en- cumbrance holders and the preparation of maps.. In total these tend tobe larger than the costs which the government incurs in .processing the applica- tion. In summary it appears that state government administrative costs are negligible, and that most counties recoup all or.a major part of their costs through application fees. H. Political Feasibility The restrictive agreement approach to differential assessment is well- established in California and is supported by the California Farm Bureau. While some critics view it as a tax giveaway to large landholders,3 and other critics, such as th(= Legislative Analyst, question the use of state funds in the subvent4on program because of.the Act's failure to serve state-wide, as opposed to county interests, there is remarkably little effective opposition to the program in the Legislature. The Act creates agricultural enclaves which work to deter conversion because of the lengthy work-out periods after notice of.non-renewal and the fact that owners within the agricultural dis- trict can object to cancellation. Ron Welch, interview, March 11, 1975. 2Robert Peterson, interview, March 7, 1975. 3 See, e.g. Fellmeth.' Robert C., Politics of Land (New York Grossman Publishers, 1973). 294 California Case Study I. Evaluation with Respect to Goals of Securing Recreation Lands, Protecting Scenic Vistas, and Controlling Urban Development The main focus of the WilliamsonAct has been on agricultural land. No separate data exist concerning the amount of recreational land under contract. While the Act has been used to a limited extent to protect scenic areas a- round Monterey and the Open Space Lands Act which relies on conservation ease- ments have been used in Catalina Island, neither have been attractive else- where. As has already been indicated in many places in this study, there is general consensus that the Act is not an effective tool, by itself, for con- trolling urban development. As John Williamson pointed out, the primary ob- jective of the Act was to lessen the income squeeze on agriculturalists who were seriously committed to farming, but who were in areas where some develop- ment pressures were at work. It was not conceived of originally as a way of keeping land open in suburban areas where land was ripe for development. 295 III APPENDIX TO CALIFORNTA CASE STUDY LAND CONSERVATION CONTRACT This is an agreement between the County of Santa Clara, State of California (hereinafter called "County"), and (hereinafter called "Owner"). PLEASE PRINT OR TYPE NAMES. WHEREAS, Owner possesses certain real property located within the County of Santa Clara, State of California, which is presently devoted to agricultural use and is described in Exhibit B attached hereto and made a part hereof; and WHEREAS, the property is located in an agricultural preserve heretofore established by County; and WHEREAS, both Owner and County desire to limit the use of the property to agricultural and compatible uses; and WHEREAS, the parties have determined that the highest and best use for the property during the term of this contract, or any renewal thereof, shall be for agricultural purposes. NOW, THEREFORE, County and Owner agree as follows: 1. CONTRACT SUBJECT TO CALIFORNIA LAND CONSERVATION ACT OF 1965 This contract is entered into pursuant to Chapter 7 (commencing with Section 51200) of Part 1, Division 1, Title 5 of the Government Code, which is known as the California Land Conservation Act of 1965. This contract is subject to all of the provisions of this Act including any amendments thereto which may hereafter be enacted. 2. RESTRICTION ON USE OF PROPERTY During the term of this contract, and any and all renewals thereof, the property described in Exhibit B shall not be used by Owner, or Owner's successors in interest, for any purpose other than the production of agricultural commodities for commercial purposes and uses compatible thereto. A list of all such com- patible uses is set forth in Exhibit A, attached hereto and by this reference incorporated herein. County, by uniform rule adopted by the Board of Supervisors of County, may from time Source: Santa Clara County Board of 2103 REV 10f72 Supervisors 296 to time during the term of this contract and all renewals thereof, add to the list of compatible uses which shall be uniform through- out the agricultural preserve in which the property in Exhibit 8 is located; provided, however, County may not during the term of this contract or any renewal thereof, without the prior written consent of Owner, remove any of the compatible uses for the -zubject property which are set forth in Exhibit A. The provisions of this contract and any uniform rule supplementing the list of compatible uses are not intended to limit or super- sede the planning and zoning powers of County. 3. TERM OF CONTRACT This contract shall become effective on the date of execution and shall remain in full force an4 effect for an initial term of ten years. The initial term of ten years shall be measured commencing as of the first day of January next succeeding the date of execution if the date of execution is between March 2 and December 31. The initial term of ten years shall be measured commencing as of the first day of January of the year of execution if the date of execution is between January 1 and March 1. Each succeeding first day of January shall be deemed to be the annual renewal date of this contract. This contract shall be renewed on each succeeding January 1 and one additional year shall be added automatically to the initial term unless notice of nonrenewal is given as provided in Paraqraph 4. 4. NOTICE OF NONRENEWAL (a) If either party desires in any year not to renew this contract, that party shall serve written notice of non- renewal upon the other party in advance of the annual renewal date of this contract. Unless such written notice of nonrenewal ii served by Owner at least 90 days prior to the renewal date, or by County at least 60 days prior to the renewal date, this contract shall be considered renewed as provided in Paragraph 3 above. (b) If either party serves written notice of nonrenewal in any year within the time limits of (a) above, this contract -2- 297 shall remain in effect for the balance of the period remaining since the original execution or the last renewal of this contract, as the case may be. 5. NO COMPENSATION Owner shall not receive any payment from County in consider- ation of-the obligations imposed under this contract, it being recognized And agreed that the consideration for the execution of this contract is the substantial benefit to be derived there- from,.and the advantage that may accrue to Owner as a result of the effect upon the assessed value of the property on account of the restrictions on the use of the property contained herein. 6. SUCCESSORS IN INTEREST 'This contract and the restrictions imposed hereunder shall, be binding upon, and inure to the benefit of, the successors in interest of the Owner. Whenever any of the property described in Exhibit B is divided, the owner of any parcel may exercise, independent of any other owner of a portion of the divided property, any of the rights of the owner in this contract, including the right to g-ve notice of nonrenewal and to petition for cancellation. The effect of any such action by the owner of a parcel created by the division of land described in Exhibit B shall not be imputed to the owners of the remaining parcels and shall have no effect on this contract as it applies to the remaining parcels of the divided property, On the completion of annexation proceedings by a city of any portion of the property described in Exhibit B, the ci -iy shall succeed to all rights, duties and powers of County under this contract as to the portion being annexed. None of the territory described in Exhibit B is within one mile of an incor- porated city in the County of Santa Clara on the date of execution of this contract. (The territory described-in Exhibit B is within one mile of the City of on the date of execution of this contract. The City of did not protest the execution of this contract.) -3- 298 7. CANCELLATI ON This contract may be cancelled and a cancellation fee imposed pursuant to the provisions of the Land Conservation Act of 1965. 8. NOTICES All notices required or permitted by this contract, Vncluding notice of a change of address, shall be in writing and given by personal delivery or sent by United Stat@s Mail addressed to the party intended to be notified. Notice shall be deemed given as of the date of delivery in person or as of the date when deposited i n any pos t of fi ce or any pos t of f i ce box regul arly mai ntai ned by the United States Government. Notice to the County shall be addressed: Clerk of the Board of Suvervi'sors County of Santa Clara, 70 W. Hedding St. San Jose, California 95110 Notice to Owner shall be addressed: Name: Address City and State IN WITNESS WHEREOF the parties hereto have caused this contract to be executed: by Owner on and by County on COUNTY OF SANTA CLARA Chairman, Board of Supervisors ATTEST: DONALD M. RAINS, Clerk Board of Supervisors (Owner) Signatures must be identical to the manner in which property i's vested. 2919 EXHIBIT A LAND CONSERVATION CONTRACT COMPATIBLE USES The following is a list of land uses determined to be com- patible with the agricultural use of the land subject to this agreement: 1. The drying, packing or other processing of an agricultural commodity usually performed on the premises where it is produced but not including s I augh ter houses, ferti I izer yards, bone yards or plants for the reduction of animal or vegetable matter. 2. Structures necessary and incidental to the agricultural use of the land. 3. The holding of nonproducing land for future agricultural use. 4. The holding of nonproducing mineral resource areas for future use. 5. The maintenance of land in its natural state for the purpose of preserving open space for recreation or plant or animal preserves. 6. Single family dwellings incidental to the agricultural use of the land for the residence of the owner, and the family of the owner. Single family dwellings incidental to the agricultural use of the land for the residence of the lessee of the land and the family of the lessee. Owner or lessee shall be construed to include: (a) stockholders in family corporations (b) beneficiaries of family trusts and estates (c) owners of undivided partial interests in the fee (d) joint tenants 7. Dwellings for persons employed by owner or lessee in the agricultural use of the land. 8. Temporary farm labor camps incidental and necessary to the gathering of the crops grown on the land. 300 9. The construction and maintenance of a stand or shelter for the sale of agricultural commodities produced on the land. 1.0. An aircraft landing strip incidental to the agricultural use of the land. 11. The. erection, construction, alteration or maintenance of gas, electric, water or communication utility facilities. 12. The erection, construction, a I te rat ion or maintenance of radio, television or microwave antennas, transmitters and related facilities. 13.''Public or private hunting of wildlife or fishing. 14. Pub I ic or private hunting c I ubs and acces so ry structures. 15. Public or private rifle and pistol practice range, trap or skeet field, archery range or other similar use. 16. Public or private riding or hiking tr;iils. 17. Riding academy, stables and the boarding of horses or other livestock but not including an animal hospital or kennel. 18.- Oil and gas well drilling, including the installation and use of such equipment, structure and facilities as are necessary or convenient for oil and gas drilling and producing opetations customarily required or incidental to usual oil field practice, including the initial separation of oil, gas and water and the storage, handling, recycling and transportation of such oil, gas and water from the premises. 301 STATE OF CALIFORNIA ss. COUNTY OF SANTA CLARA On this day of before me, the undersigne-d-,a Notary Public in and for the State of California with principal office in the County of Santa Clara, residing therein, duly commissioned and sworn, personally appeared known to me to be the of the corporation that executed the within instrument, an_@ known to me to be the person who executed the within instrument on behalf of the corporation therein named, and acknowledged to me that such corporation executed the same pursuant to its By-Laws or a resolution of the Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand'ind affixed my official seal the day and year in this Certificate first above eiritten. Notary Public in and for the State of California STATE OF CALIFORNIA ss. COUNTY OF SANTA CLARA On this- day of before me, a Notary Public ir and for said County and State, residing therein, duly commissioned.and sworn, personally appeared known to me to be the person(s) described in and whose name(s) is/are subscribed to the attached instrument, and acknowledged to me that executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal, the day and year in this certificate first above written. Notary Public in and for the County of Santa Clara, State of California 2193 302 I.E.1- STATES WITH SPECIAL PROVISIONS: CONNECTICUT 1. INTRODUCTION In 1963, a Democratic Governor's commitment to natural resources coincided with the interests of a strong Republican farm block in the state legislature to ensure passage of Connecticut's Public Act 490, the fourth use-value assessment statute in the United States.1 An earlier version had passed in the legislature in 1957, but was vetoed by the governor when it became enmeshed in partisan politics. While a governor's report on Connecticut's natural resources written by conservationist William H. Whyte in 1962 played a central role in passage of P.A. 490, the tax recapture provisi,ns and the strong planning component recommended by Whyte were left out.2 The statute, often called the "Open Space Act," was an archetypal pure@preferential assessment act until 1972 when a con- veyance tax on the sale of certain participating lands was enacted.3 For 12 years, P.A. 490 has survived opposition, primarily from local assessors, to become a firmly established element of local tax policy. As more of Connecticut's 169 towns undergo reassessment in the next few years, partici- pation under the act and the aggregate loss of tax revenue will increase. A. The State Connecticut is in the heart of the Northeastern coastal megalopolis, with development concentrated in a corridor extending from the southwestern panhandle, along the coast to New Haven, then north through Hartford along Interstate 91. Several other urban concentrations have also developed. Due to an extensive highway network, no area of tbe state is free from urban influence either for rural-residential or recreational development. The Connecticut population of approximately 3.0 mi 'llion people has one of the highest per capita incomes and education levels of any state. These characteristics have contributed to the high demand for land for residential and recreational development over the last 15 years. In recent years, land use has been the focus of increasing interest in Connecticut state and local politics. The fourth most densely populated state, with 62-9 persons per square mile, Connecticut has 62% of its 3.1 million acres in forests, 17% in farms, and 21% in urban, suburban and institutional uses.4 The Governor's Commission on Tax Reform estimates that of the 2.1 million acres of taxable undeveloped land in the state, roughly half is eligible under P.A. 490. The other half is underassessed in aggregate by an estimated 50%.5 lConnecticut Stat. Ann., Title 12, 55107a-e. 2"Connecticut Resources--A Proposal for Action," Hartford, 1962, mimeo. 3p.A. 152, 1972 became Conn. Stat. Ann. 504a-f, amended in 1974 by P.A. 74-343. 4Sherman, Roger, et al. "Open Land Policy in Connecticut," New Haven: School of Forestry and Environmental Studies, Yale University, 1974, mimeo. 5Connecticut, Report of the Governor's Connission on Tax Reformi Vol. 2 (Hartford, 1972) p. 113. 303 Connecticut Case Study As in other urbanized Northeastern states, the number of active farms has declined rapidly in the last 16 years, from 8,300 in 1959 to approximately 3500-4000 at present. About 350,000 acres of open land remain in direct agri- cultural use.1 From 1960 to 1970, while population increased 19.6% (by 496,983), the residential acreage increased 53% and the total built-up acres increased 63% (by 198,653). Agricultural and forest plantation areas decreased by 23%, with the greatest reductions occurring in the central valley region around Hartford. The state 'Plan of Conservation and Development, drawn up by the Office of State Planning in 1973, recommended policies encouraging denser development pat- terns, citing the environmental and economic costs of scattered low-density development. The development of the 1960's, which was at much lower densities than in previous periods,2 converted 6% of the state's land to urban uses. The Plan divides the state into three categories on the basis of natural constraints on development and desirable patterns of development: 25% suited for urban development, to be served by municipal sewer and water systems; 50% suited for limited development only, including areas which can effectively and permanently be served by on-lot sewer and water systems without impairing water quality standards; and 25% for permanent open space, including areas determined 11to have critical and/or unique natural resources with scenic, historical, eco- logical or other environmental qualities worth preserving."3 The Plan urged that new suburban development be directed to the first category through use of the police power and the location of public improvements, such as sewer and water supply lines. Although the revised Plan became official state policy after extensive public discussion, under Executive Order No. 28 (Sept. 1974), a new administration has ordered a reconsideration of important parts of it. B. The Tax System Connecticut state and local governments had combined revenues in 1971-72 of $2.84 billion. Of this, 75% came form taxes, 14% from the Federal Govern- ment, and 11% from other charges and miscellaneous sources.4 Property taxes accounted for 37% of Connecticut state and local revenues, the third highest percentage of all states.5 In Connecticut, the lack of a general personal income tax has led to high sales and property taxes. (see Table 1). In 1971-72, Connecticut ranked fourth both in state and local taxes per capita, $638, and in property taxes per cap- ita, $316.6 From a statewide grand list of assessed values of $21.2 billion, approxi- mately $1.04 billion in property taxes were levied in 1973. Dwelling houses and lots accounted 57% of the tax base, open land for 5.8%, commercial for 11.5%, 1 Connecticut, Governor's Task Force on the Preservation of Agricultural Land, draft report, 1974. 2 Ibid. 3 Ibid., p. 10. 4 U.S. Bureau of the Census, 1972 Census of Governments, Vol. 5, No. 4, "Compen- dium of Government Finances," Table 21, p. 41. 5 Ibid. 6 Ibid., Table 27, p. 41. 304 Connecticut Case Study manufacturing property for 4.8%, and personal property for 20%.1 Table 1 PERCENT DISTRIBUTION OF TAX REVENUE OF STATE AND LOCAL GOVERNMENTS, BY TYPE OF TAX, 1971-72 Connecticut United States Property 49.4% 39.1% Sales 34.9 34.2 Income 9.3 17.9 other 6.3 8.7 Source: U.S. Bureau of the Census, 1972 Census of Govern- ments, Vol. 4, No. 5, "Compendium of Government Finances," Table 26. Property tax administration in Connecticut is the responsibility of the 169 towns and cities, each with a strong New England tradition of home rule. Minimal state supervision and assistance is provided to local assessors and part time boards of assessment in a system which has "widely varying assess- ments due to careless procedures, extended time for physical revaluations, and the valuation complexity of many properties," according to the 1972 Governor's Commission on Tax Reform. The Commission concluded that "the state badly-needs uniform procedures, improved data processing, and more professional assessors.2 Historically, the State Tax Department has not had the staff or the as- sertiveness to lead the way in improving local tax administration. Acting to correct this situation, the legislature created a State Board of Assessment Advisors within the Tax Department in 1974.3 The Board has a mandate to im- prove local assessment practices, establish guidelines, and certify mass ap- praisal companies doing business in the state. In a compromise move, the Commission on Tax Reform's recommendation for a Board of Assessment Supervisors with full legal authority over local assessment functions was-translated into a bill creating an advisory body. As part of their duties, the advisors are charged with the ongoing determination of recommended use-values for assess- ment under P.A. 490. With wide variations among localities and little statewide collection of data, the decentralized nature of the property tax system has rendered state- wide evaluation of P.A. 490 difficult. Aside from several small scale studies, legislators have relied on local feedback and expert opinion in their continu- ation and modification of the program. Data on the participation rate and ex- tent of tax loss are incomplete and open to varied interpretation, and assump- tions made by advocates and opponents are not easily tested. While available data have been employed in measuring program costs and effects, the final judgment necessarily involves value judgments based on imperfect knowledge. 1Connecticut, Public Document No. 48, Information Relative to the Assessment and Collection of Taxes, 1973, Hartford, 1974. 2Report of the Governor's Commission on Tax Reform, Vol. 2, p. 93. 3Public Act 74-275. 305 Connecticut Case Study II. DESCRIPTION OF PROGRAMS P.A. 490 and the 1913 Forest Actl are the only statutorily allowed devia- tions from the principle of market value assessment in Connecticut, although widespread de facto preferential assessment of underdeveloped lands exists. Sec. 12-63 of the Connecticut General Statutes allows the assessment of farm, forest, and open space land as defined in Sec. 12-107a-e, on the basis of "current use without regard to neighborhood land use of a more intensive nature," provided that the valuation of open space land shall not "be less than it would be if such open space land comprised a part of a tract or tracts of land classified as farm land pursuant to Sec. 12-107c.,,2 A. The 1913 Forest Act The 1913 Forest Act, limited to tracts over 25 acres on which the value of the land alone is under $100 per acre, provides for a freeze on the as- sessment at time of classification with a revaluation 50 years after initial classification. Annual taxes may not exceed 10 mills upon the true value as fixed, and any material removed is subject to a graduated yield tax of up to 7%, depending on period of classification. With cancellation of classification, a rollback tax of 5mills per annum on the difference between the fixed assess- ment and market value at cancellation is collected for each year the land was classified.3 Wile conferring major tax benefits on some forest owners, this law has had limited application, especially near urban areas, due to the maximum al- lowed land value of $100 per acre. Maximum tax savings accrue to long term forest land holders in once-rural areas. Approximately 37,000 acres are clas- sified under the act, but most of the parcels have been classified since P.A. 490 was enacted. In fiscal year 1973, 16 certificates were issued for a total increase of 1665 acres.4 In 1971, the legislature amended the law to allow transfer to the forest land classification of P.A. 490 without penalty.5 This report will concentrate on P.A. 490 because of the limited application of the 1913 Forest Law and the probability that its use will dwindle because of the low maximum allowable land value. B. Public Act 490, the Open Spaces Act The declaration of policy included in P.A. 490 clearly states the legisla- ture's intent with regard to open land taxation: "It is in the public interest to prevent the forced conversion of farm land, forest land, and open space land to more intensive uses as the result of economic pressures caused by the assessment thereof for purposes of property taxation at values incompatible with their preservation as such farm land, forest land, and open space land."6 CGS 12-96 through 12-101 2CGS 12-63 3CGS .12-96 through 12-101 4Records, Connecticut Department of Environmental Protection. 5P.A. 71-697, 5.1 6CGS 12-107a 306 Connecticut Case Study 1. Eligibility Each land use category has separate eligibility requirements which have been tested and interpreted in repeated court decisions. a. Farm land. The term "farm land" is defined as "any tract or tracts of land, including woodland and wasteland, constituting a farm unit."I The assessor is directed to take into account such factors as the total acre- age, the portion in actual use for farming, the productivity of the land, the gross income derived therefrom, the nature and value of equipment used in con- nection therewith, and the extent to which the tracts comprising the unit are contiguous. Eligibility is automatic once a tract qualifies as a farm unit, regard- less of zoning, subdivision plans, or owner's instigation of zoning changes.2 The courts have interpreted the "farm unit" provision broadly to include any open space land (and in one decision, buildings as well) committed to agri- cultural use.3' Owner's income from other sources is not a criterion4 and nor is low productivity or'intensity of use.5 Rented land is eligible if ,used as part of a qualifying farm unit.6 This unrestrictive interpretation has opened the program to virtually any land suitable for agricultural use regardless of location in a non-compatible zone or intent to develop on the part of the owner. b. Forest land. To qualify for use-value assessment, a forest land holding must comprise at least 25 acres, though it may be in several tracts, "bearing tree growth in such quantity and so spaced as to constitute in the opinion of the state forester a forest area and maintained in the opinion of the state forester in a state of proper forest condition."7 The owner must file an application with the state forester for the land's desig- nation as forest land, indicating exact boundaries on appropriate maps or aerial photographs and signed by both the landowners and the local-assessor. If the landowner and assessor do not agree, the landowner must employ a pri- vate forester to determine forest acreage. In this event, issuance of a certificate will be based upon the private forester's written report.8 C. Open space land. Open space land is defined as any area of land that enhances certain publicly defined goals such as consexrtion of natural and scenic resources, or preservation of historic sites. Land must be designated as open space in the plan of development prepared by the local planning agency in order to qualify for classification. Any owner of land ICGS 12-107b 2Marshall v. Town of Newington, 156 Conn. 107, 113, A 119 (1968). 3Halloway Bros.,-Inc., v. Town of Avon, 26 Conn. Sup. 160, 214 A.2d 699 (1965). 4Ibid. and Marsha 11 v. Town of Newington, supra. 5Scheer v. Town of Berlin, Hartford Co. Court of Common Pleas (1969); and Waldron v. Town of South Windsor, Hartford Co. Court of Common Pleas (1967). 6Hill and Brooks v. Town of Redding, Fairfield Co. Court of Common Pleas (1969).' 7CGS 12-107b 8Application procedures for forest land, Conn. Dept. of Environmental Protection. 9See CGS 12-107b(c) for complete categories. 598- 330 0 - 76 - 2 1 307 Connecticut Case Study so designated cannot be denied classification unless there has been aphysical change "which adversely affects its essential character as an area of open space land."I 2. Methods of Assessment The local assessors in Connecticut's 169 cities and towns must deter- mine equitable use-values under P.A. 490, subject to appeal to the local Boards of Tax Review and ultimately the courts. The State Tax Department has never issued official guidelines or recommended procedures of use-value assessment to the towns, although the newly created Board of Assessment Advisors at the State level has been-charged with developing uniform use-values.2 The most widely accepted estimates of use-value are those developed by Dr. Irving Fellows and his colleagues at the University of Connecticut. The figures were calculated by capitalizing average rents observed in a large sample survey of rental rates for various types of land. The total capital- ization rate of 10% was arrived at by combining a 6% interest charge, 3% for taxes, and 1% for maintenance, such as investment in fencing. While these components as well as the observed rents have changed since the latest survey in 1969, Dr. Fellows believes the figures are still basically correct. Higher costs and interest rates have offset any rise in rents.3 The suggested use values per acre are: Tillable A $500 Untillable, Tillable B 250 Permanent Pasture $50 Tillable C 125 Weed and Sprout 25 orchard 200 Swamp and Waste 10 The observed rents upon which these use values are based are given in Table 2 below. Table 2 SURVEY OF FARM LAND RENTALS, CONNECTICUT FARMERS, FOR 1968 CROP YEAR Weighted Average Gross Rent Paid per Acre (State totals - 724 Respondents) Tillable A 1,183 acres $50.01 Tillable B 1,028 acres 28.66 Tillable C 10,684 acres 9.69 Permanent Pasture 7,371 acres 3.17 Source: Dr. Irving F. Fellows, Department of Agricul- tural Economics, University of Connecticut Higher values were suggested for certain particularly fertile areas. 1CGS 12-107e 2public Act 74-275; Conversation with Richard Prendergast, interim head of Board of Assessment Advisors, Muniqipal Tax Division, Connecticut State Tax Department. 3Conversation with Dr. Irving Fellows, Storrs, Conn.; du Pont v. Board of Tax Review of Town of Fairfield, Fairfield Co. Court of Common Pleas (1974). 308 Connecticut Case Study Several local assessors have developed their own formulas with higher es- timates of use-value, but the courts have mandated the use of the capitalized rental values as true use values.: "Whether the rent is a share of the crop or a sum of money, both parties have agreed upon an amount which represents the use value of the farm for an annual period."I This opinion invalidated a tech- nique of using market values scaled down by an estimated factor for urban in- fluence.2 The accepted method of determining the use value of forestland, according to John Hibbard, Secretary-Forester of the Connecticut Forest and Parks Assoc- iation, is to capitalize the value of the annual growth of the timber on such land.3 While the recommended and most widely used assessment for forest land is $25 per acre ($2.50 worth of incremental growth capitalized at 10%), many assessors set the value at $50 per acre (see Table 3). At the 1972 average full value tax rate of 27 mills, the difference on tax yield per acre is $.68, or about $60 on the average classified tract of 88 acres. This small differ@ ence may account for the fact that $50 is assessed without apparent challenge. Much of the timber on land classifie4 as forest is not grown for commercial sale in any case. Table 3 ASSESSMENT PRACTICES UNDER P.A. 490, BY LAND TYPE Tillable A Tillable B Forest Land No. of Use Value No. of Use Value No. of Use Value Towns Per Acre Towns Per Acre Towns Per Acre 2 $ 100-175 4 $ 100-125 13 $ 25 3 176-250 1 150 4 30-40 2 300 5 200 9 50 400 17 250 1 75 20 500 3 300 7 100 800 3 400 2 120-123 2 1000 0 500 1 150 13 No tillable A 2 1000 land listed 7 No tillable B land listed Source: Armando Carbonell, Joseph Laforte, John Breakel, Steve Scheinberg, "A Survey of P.A. 490's Application," Connecticut Department of Environmental Protection, April i975. 1Bussa v. Town of Glastonbury, 28 Conn. Sup. 97, Hartford Co. Court of Common Pleas (1968). 2See also Hambleton v. Town of East Windsor, Hartford Co. Court of Common Pleas (1967). 3duPont v. Board of Tax Review of Town of Fairfield, Fairfield County Court of Common Pleas (1974). 309 Connecticut Case Study Open space land creates problems in that many of the benefits are not eval- uated in the market. The suggested values developed at the University of Con- necticut have been used in most cases, but this provision has been used little outside of several towns. Assessors admit the practical difficulty of deter- mining the "use" value of general open space unless it earns some sort of in- come (such as a golf course). While strict state regulation of development involving tidal wetlands may severely reduce value, assessment criteria forthese properties are up to the local assessor. A similar reduction in value could result from state mandated local management of inland wetlands. Theoretically, unless the wetlands are included as open space land in the official plan of development, the basis of assessment must be market value. It appears that assessors will not alter their current practices unless there is a clear.reduction in value. Because the in- land wetlands act does not.prohibit development, centrally located wetlands may still be assessed at development values while remote wetlands will carry a low valuation. As a rule, the assessment of tidal wetlands has been very low anyway until they are actually filled for development.1 3. Sanctions for Conversion In response to growing controversy over the lack of any recapture provisions, the Land Use Review Committee set up in 1969 to examine the effects of the act recommended a conveyance tax on lands sold out of the program. In 1972, the legislature finally enacted a special conveyance tax on lands with- drawn from the program through sale or change in use @ithin the first ten years of classification or ownership, whichever is earlier . The tax liability starts at 10% of sale price or market Value in the first year and declines 1% annually to 1% in the tenth year and none thereafter. By including ownership as well as classification in counting the years, the act effectively exempts most of the land under the program from the conveyance tax, eliminating it as a de- terrent to conversion in most cases. This wording served to defuse much of the opposition to the conveyance tax. Revisions in 1974 clarify who is responsible for the conveyance tax and when it must be paid.3 The loophole under which an owner could drop the class- ification in one year to avoid paying the tax on sale the next year was closed by making payment of the conveyance tax the only way a landowner could leave the program unless the 10-year period had passed. In a significant difference from other state programs, the change made it clear that "classification of land shall be deemed personal to the,pairticular owner who requests such class- ification and shall not run with the land."4 An interesting consequence is that if the new owner seeks reclassification under the act, the conveyance tax begins again at 10%. This Approach discourages short term speculation more effectively than the more common roll-back tax provision used in other states. The Commission on Tax Reform and others have recommended that the law base conveyance tax liability on years of classification alone rather than ownership, and that the decline in tax be halted in the fifth year, at 5%, to provide some minimum recapture of benefits conferred. While strongly op- posed by farm groups, these provisions have a chance of being enacted within five years according to some observers. Resistance to the change stems partly from the fact that a number of farmers in more rural towns have not signed up Conversation with Peter Marsele, Assessor, Town of Bloomfield. 2CGS 12-504a-f (P.A. 152, 1972; amended in 1974 by P.A. 74-343.) 3P.A. 74-343 4Ibid. 310 Connecticut Case Study for a P.A. 490 yet,due to the negligible tax advantage or possible higher taxes in some cases, while many farmers have been in the program longer than ten years. Several hundred farmers, accompanied by the sportsman's lobby, showed up for a 1974 hearing to protest a proposed stiffening of the act. Designed to discourage short term speculation, the conveyance tax provides little disincentive to conversion even when it applies. Depending on the dif- ference between market and use-value, the point-at which the tax savings out- weighs the conveyance tax could come as soon as three years after classification. A built-in failing is that as market values rise, the increase in potential tax savings undercuts the disincentive of a larger absolute conveyance tax. The land- owner is free to invest the tax savings each year while the recapture is levied at a future sale date.' Furthermore, depending on the market situation, the convey- ance tax burden could be shifted to the purchaser. The graduated declin 'e in the conveyance tax due can be contrasted to the accumulating burden of a long rollback provision. There is no doubt that this provides some incentive to hold the land longer, but other factors such as the price offered are undoubtedly more important determinants of landowner decisions. The structure does indicate, however, that discouragement of conversion rather than recapture of tax benefits seems to be the goal. A rationale given for declining rollback is that the public benefit increases with the length of time the land will be held. The reform proposals seek to provide at least a minimum recapture of the tax loss. An advantage of conveyance tax in this regard is that a lump sum of money accrues to the town when the development takes place and municipal services are needed. With the recent changes, it is relatively easy to administer. Though some conveyance taxes have been collected, there is no statewide compilation of these. Under the reforms proposed by the Commission on Tax Re 'form, the tax would generate an estimated annual collection of $2.5 million by fiscal year 1977.1 III. EVALUATION OF P.A. 490 P.A. 490 has definitely been an important factor in preventing the forced conversion of open land due to tax pressures. The consensus of Connecticut agri- cultural economists is that a great many more farms would have been forced out of business if it were not for P.A. 490.2 However, the act provides little or no control over the ultimate use of the land or the timing of development. While the act has slowed development, it is impossible to isolate the relative effect of the tax incentives. A. Magnitude of@Benefits The act has provided dramatic reductions in valuation for participating lands in urbanizing suburbs. A 1971 study including four such towns which main- tained records on both use-value and market value revealed an average reduction of from 43% to 76% (see Table 4). However, within each town there was a wide range of reductions. In one town, reductions in valuations ranged from an lReport of the Governor's Commission on Tax Reform, Vol. 2, p. 6. 2Conversations with Dr. Irving Fello ws, University of Connecticut, and Dr. Paul Waggoner, Director, Connecticut Agricultural Experiment Station, New Haven. 311 Table 4 VARIATIONS IN PERCENTAGE VALUATIONREDUCTION FOR OUR PARTICIPATING LANDS IN FOUR TOWNS., 1,971 Reduction in Valuation4 Compens Evolving Population Average, Average, Increas Suburban Densit Mean Standard Lowest- Highest MilRa Towns 1970T % Deviation 10% 10% (1971 mil Enfield 1044 70.11 20.91 27.97 93.84 2.53 (T- Glastonbury 399 75.66 22.44 28.29 99.02 1.83 (5! Bolton 24.3 60.76 23.97 28.10 87.19 0.14 (5( Windham 7032 43.34 16-73 21.20 68-97 0.08 (43 1Persons per square mile, U.S. Census of Population, 1970. 2Density is higher due to'City of Willimantic. . 3From Connecticut,, Public Document No. 48, Information Relative to the AssesSME Collection of Taxes, 1971, Hartford, 1972. 4Data on valuation reductions from Schoeplin, Robert N. and Justine Dakin Schoe ','A Second Look at the Impact of Differential Assessment of Farmland and Conseq Tax Shifting: Comment," American Journal of A&ricultural Economics, 54 (Nove 1972), p. 68. Connecticut Case Study average 28% in the lowest ten percent to 99% in the highest 10%.1 This wide range of tax reductions indicates that some tax burden is shifted from the most valuable lands to the less valuable lands within the program. Theoretically, agricultural land in an area with low development pressure could experience a net rise in taxes due to large reductions in other areas of the same taxing jurisdiction. These findings are supported by aggregate data from other sources. Given the U. S. Department of Agriculture reported average valueof agricultural land in Connecticut, $1546 per acre in 1974,. the reduction in valuation for Tillable A farmland and permanent pasture would be 68% and 97%, respectively, at the recom- mended use values.2 The Connecticut Department of Agriculture has estimated the cost of development rights for Connecticut farmland at $1500 per acre based on Farm Credit System data. This would indicate a 75% reduction in valuation on Tillable A land under use-value assessment.3 Given a certain reduction in value, the actual tax burden will be determined by the town's assessment ratio and mill rate. An unequal distribution of tax ratables and the inequities associated with heavy reliance on the property tax to fund public education and other services produce varying pressures on open land. Distributions of tax yield per acre for given types of land were compiled from the Department of Environmental Protection survey referred to earlier. (See Figure 1). Tax yield per acre varies considerably across towns according to these data. If land rents are accepted as an indication of the income attribu- table to the land input (see Table 2), the average tax burden is 20-30% of this income. The DEP survey data are comparable to the U. S. Department of Agriculture estimate of $15.21 per acre in farm real estate property taxes in Connecticut in 1973.4 This is one of the highest rates in the nation. While this has risen from $5.91 per acre in 1960, the property taxes as a percent of gross farm income has increased from 3.0% in 1960 to 4.6% in 1972. In 1973, this dropped back to 3.5%.5 These tax yields and percentages would be considerably higher under market value assessment in many towns. The present statewide cost of P.A. 490 in terms of taxes shifted off of open land cannot be measured because no aggregate data are collected and the provisions do not require assessors to record both use-value and market value. The measurement of tax loss is further complicated by the fact that local assessors have rarely assessed undeveloped land on the basis of full market value. Other categories of real property, notably industrial and comm 9rcial properties, are also underassessed relative to dwelling houses and lots. lSchoeplin, Robert N., and Schoeplin, Justine Dakin, "A Second Look at the Impact of Differential Assessment of Farmland and Consequent Tax Shifting: Comment," American Journal of Agricultural Economics 54 (Nov 1972), pp. 679-68. 2U. S. Dept. of Agriculture, Economic Research Service, Farm Real Estate Market Developments, CD 79, July 1974. 3Conversation with Joseph Ruwet, Deputy Commissioner, Conn. Dept. of Agriculture. 4U. S. Dept. of Agriculture, Economic Research Service, Farm Real Estate Taxes RET-12, February 1973. 51dem, Revised Estimates of Taxes Levied on Farm Real Proper ty, 1960-73, Statistical Bulletin No. 538, April 1975. 6Report of the Governor's Commission on Tax Reform, Vol 2., p. 99. 313 Figure I AVERAGE TAX YIELD PER ACRE BY NUMBER OF TOWNS 6-- 0 E-4 - A. TILLABLE "A" LANDS tw 4-- 0 2- z i i @ 1-1 0 - 5.0 10 15 20 25 30 Tax Yield Per Acre (dollars) 8-- M 9 6-- 0 E-4 - B. TILLABLE "B" LANDS 44 4-- 0 j 2-- z 4 1 AAAA@ 1 2 3 4 5 6 7 8 9 10 11 12 13 16-26 Tax Yield Per Acre (dollars) 14-- 12 -- 44 0 8 C. FOREST LAND @4 w @Q 6 S 4 2 2 3 4 5 6 Tax Yield Per Acre (dollars) Source: Conn. Dept. of Environmental Protection Survey (1974). LE 314 Connecticut Case Study Furthermore, supporters of P.A. 490 assert that if full market value is used as the benchmark in computing tax loss, a complete evaluation of the tax impact of preferential assessment must consider the tax impact of the develop- ment that would occur under full value assessment. These issues will be dis- cussed in the section on equity. Hypothetical calculations of tax shift can be made. The potential tax shift due to P.A. 490 under certain assumptions can be estimated very roughly from available data. Statewide, 2.1 million acres of land were listed on local grand lists with an aggregate value of $1.26,billion or an average assessment of $599 per acre .1 This average masks wide variations among counties such as Windham and Fairfield which report average land valuations of $54 and $3268 per acre, respectively. It is not to-tally clear what this definition of land acreage includes because the Office of State Planning inventory of open land shows 2.64 million acres (which includes water bodies).2 For the purposes of this calculation, the acres actually listed.on the town grand lists are the most relevant. The Governor's Commission on Tax Reform estimated that about half the 2.1 million acres on local grand lists is eligible for P.A. 4 0 and that the aggregate assessment would be about one half of market value.3 The potential amount of tax shifted from open land under P.A. 490 to other categories of real estate can be estimated as follows: If we assume that 1) all open land is reassessed at market value ' 2) half the open land area is put under the act, 3) the use-value assessments average one half the market value assessments, and 4) the governmental revenue needs remain the same, the tax shifted off of P.A. 490 lands would be $27.6 million given the 1973 grand list and revenue.needs. Table 5 gives the calculation in detail. Table 5 CALCULATION OF POTENTIAL TAX SHIFT UNDER P.A. 490 (millions of dollars) Assessed Value Mill Rate* 1973 Grand List $21,242 49.0 Land Portion, 1973 1,259 Land Portion, Uniformly Assessed 2,517 Adjusted Grand List 22,502 46.2 Value of Land Eligible for P.A. 490 1,259 Reduction in Valuation under P.A. 490 629 Final Adjusted Grand List 21,873 47.5 Tax shifted off P.A.490 lands is obtained by finding the difference between Adjusted Grand List mill rate and the Final Grand List mill rate (47.5-46.2), 1.3 mills, and applying this to the Final Grand List minus the aggregate value of P.A. 490 lands. Potential Tax Shift = .0013 (21,873 - 629) = $27.6 million (2.6% of Grand Levy) *Mill rate assumes constant revenue need of $1,039 million. SOURCE: Assessment data from Connecticut Public Document No. 48, 1974, p. 43. lConnecticut, Public Document No. 48, 1974, p. 85. 2Plan of Conservation and Development, p. 43 3Report, Vol. 2, p. 113. 315 Connecticut Case Study While the sensitivity of this estimate to the assumptions listed must be examined, the tax shift would most probably fall in the $20-40 million range. The implementation of other property tax reforms aside from the uniform valuation of open land could alter this estimated range. The tax shift associated with agricultural land alone can be estimated roughly with other data. Based on market data, the U. S. Department of Agricul- ture estimated the average value of Connecticut farmland to be $1316 per acre with a total statewide value of $447 million in 1973.1 At the statewide average assessment ratio of 64%, the uniform assessed value would be $268 million. At the state average mill rate of 49.0, the tax revenue from farmland would be $14.1 million, without making the adjustments done in Table 5. If the reduction in value averaged 50%, the tax shifted off of agricultural land would be approximately $7 million, or about .7 of 1% of the statewide property tax levy. Because farmland would only be 10% of the uniformly assessed open land value in Table 5, the adjust- ments required there in calculating tax shift are less important for agricultural land alone. It must be emphasized that these are very rough estimates of potential tax shifts on a statewide basis. Because these figures obscure wide local variations, the impact in a particular town cannot be determined. The intent is to give a general indication of the order of magnitude. B. Participation Rate The major impetus for application under P.A. 490 has been townwide revaluations bringing open land assessments up to market value. The typical pattern of a flood of applications following revaluation has been repeated through- out Fairfield County and in the Central Valley towns.2 For example, after the 1966 revaluation in Hamden, a highly urbanized suburb, landowners applied for and received exemptions of about $1 million in assessed value.3 Of 169 towns, an estimated 130 have land classified under the act.4 In many suburban and urbanized places, all eligible land has been placed under the program while on the outer edges of the urban fringe, where de facto pre-_ ferential assessment is more widespread, participation drops off7. rs-the cycle of reassessments continues and the state takes a more active role in assessment administration, participation will increase. A 1972 survey conducted by students at the Yale School of Forestry, com- pleted by 91 assessors (a 54% response), found that 130,207 acres of farmland, 132,207 acres o4 forestland, and 23,004 acres of "open space land" were classified under P.A. 490. In the DEP survey cited above, 32 towns reported a total of 140,998 acres under the act, 33% of the 422,329 acres of undeveloped land on the grand lists of these towns. Ten towns had over 37% of their taxable undeveloped land under the act, and seven had over 50%.5 lFarm Real Estate Market Developments, CD 78, July 1973. 2Conversation with Peter Marsele, Assessor, Town of Bloomfield. 3Conversation with Charles Sweeney, Assessor, Town of Hamden. 4Brown, Lauren, et al., "Connecticut Public Act 490: Interpretation, Application, - -5aiversity School of Forestry, New Haven, 1972. and Effects," Yale 5Carbo-nell, et al., op. cit.; Connecticut, Public Document No. 48, 1974. 316 Connecticut Case Study - of the three categories of eligible land, statewide data on participation are available only for the forest land which must be certified by the State Forester prior to classification. As of March 1973, 322,408 acres of forest land, representing 3764 applications and approximately 17% of the forest land in the state, were certified by the State Forester, though landowners had not necessarily requested classification by assessors on the basis of these certifi- cates. About 500 to 600 new applications are made each year.1 Roughly 500,000 acres of land are in farm units as defined under P.A. 490 Of this 163,000 acres are harvested croplands and 125,000 are in pasture.2 Due to the decentralized administration of P.A. 490, no statewide participation figures are available. Estimates that 60 to 80 percent of all farmland is enrolled have been suggested.3 Dr. Fellows states that almost all commercial farms are under the act. The participation rate among agricultural landowners varies with the degree of urbanization in the town and the local assessment practices. Because of the ease of entry into and withdrawal from the program, all farmland owners who stand to benefit would enroll if they were aware of it. Very few lands have been classified as open space for several reasons: 1) lack of open space provisions in local plans of development, 2) fear of the fiscal impact, and 3) lack of knowledge of the program. Thirty-six of forty- eight towns responding to the DEP survey in 1974 reported no land under the open s ace classification, five reported under 200 acres, and four had over 2000 acres.@ The 23,004 acres reported by 18 towns in the 1972 Yale School of Forestry survey represents a small percentage of the potentially eligible land.5 Of 13 towns in Tolland County, only one had implemented the open space provision to any degree in 1974.6 A growth of local interest in the open space provision has paralleled increasing concern over uncontrolled growth. In a move not intended by the act's authors, four towns have designated all undeveloped tracts exceeding a given minimum acreage as open space. others have designated extensive areas of the town. in 1969, the town of Durham placed under the open space provision of P.A. 490 all undeveloped land of one acre or more not eligible for forest or farmland clas- sification. In 1971, a committee appointed by the Board of Selectmen to review this policy found that the additional tax shift due to the inclusion of this open land under the act was $64,816. This resulted from an assessment reduction of $1,246,450 covering 295 arcels of land, representing an average valuation reduction of 93% or $700 per acre.@ lRecords, Department of Environmental Protection. 2"Report of the Governor's Task Force on the Preservation of Agricultural Land," Draft Report, Dec. 1974, Photocopy. 3Conversation with George Simpson, Executive Secretary, Connecticut Farm Bureau. 4Carbonell et al., op. cit. 5Brown et al., 6 . Correspondence with John E. Wraight, Jr. 7Durham Open Spaces Study Committee, "A Study of the Effect of Public Act 490 on Durham's Tax Structure and Growth Rate," Durham, Connecticut, December 1971. 317 Connecticut Case Study The Governor's Commission on Tax Reform critized this practice for not following the intent of the law. The Commission concluded that it is detrimental to the'best interests of the public because "it prevents land from being properly developed and relieves the individual property owner from a tax burden which is justifiably his."l Assessor Peter Marsele, a longtime advocate of P.A. 490, suggests that towns only use the open space classification for lands designated for permanent open space.2 A 1974 sample survey of Tolland County open land owners by John E. Wraight, Jr., of the University of Arizona produced some interesting data on land tenure patterns and participation in P.A. 490.3 Questionnaires were mailed to 1000 randomly selected individual landholders (out of a total of 4400 landowners with holdings of greater than three acres) in the 14 towns. A total of 296 responded, creating a sample of 6.7% of all individual landowners. Of these, 26.3% had their land classified under P.A. 490. Information was collected about the owner, the land, and the town in which it was located. A limitation in the data for present purposes is that there is no indication of what percentage of the land in the survey is, in fact, eligible for P.A. 490. These participation rates reflect the percentages of all open land owners who have been-granted classification under P.A. 490. So while it is possible to derive some useful information about the characteristics of the participants and participating lands, we do not know to what degree non-partici- pation results from ineligibility. In regression analysis, five town characteristics were found to account for almost 95% of the variance in participation rates among towns (measured by sample landowners in the program as a percent of all sample landowners): miles to a satellite city (population greater than 20,000 but less than 100,000), percent increase in population (1960-1973), population density (1973), years since the last revaluation, and percent increase in grand levy, 1971-1974. The owner and land variables for which there was a significant difference between participants and non-participants and these five town characteristics were analyzed through the procedure of discriminant analysis to find the variables that could predict participation with least chance of error. The four optimal pre- dictors, producing correct classification in 80% of the cases, were: total acreage in the tract, miles to a satellite city, number of publications received which would be likely to provide information on use-value assessment, and years since the town's last revaluation. These same factors gave an optimal prediction for the landowners owning more than 25 acres. For those owning less than 25 acres, five completely different variables, more closely related to the production characteristics of the land, were optimal predictors: amount of agricultural land, whether or not others worked the land, harvest value, income from the land, and years lived on the land. While definitive interpretation would require a more detailed knowledge of the situation in Tolland County, these data suggest that for smaller tracts, agricultural variables are more important in determining participation. 1Governor's Commission on Tax Reform, Report, Vol. 2, p. 112. 2CO nversation with Peter Marsele, Assessor, Town of Bloomfield. 3The following data on the use of P.A. 490 in Tolland County were co llected by John E. Wraight, Jr. of the University of Arizona for his Master's Thesis and generously made available for use in the present study. 318 Connecticut Case Study Viewed by size of landholding, the participation rate reached 65% for holdings between 50 and 100 acres and 74% for holdings over 100 acres. Fifty- nine percent of the participants held over 50 acres: No. of No. of % of All % Participation % of All Acres in Respondents Respondents in P.A. 490 Participants Holding <10 74 26.0% 13.5% 12.8% 10-24 85 29.8 5.9 6.4 25-49 46 16.1 37.0 21.8 50-99 48 16.8 64.6 39.7 100+ 32 11.2 46.9 19.2 The majority of the landholders and participants worked in white collar occupations, but the participation rate was significantly higher among farmers: Occupation of No. of % of All % Participation % of All Respondents. Respondents Respondents in P.A. 490 participants White Collar 156 56.3% 21.8% 45.3% Blue Collar 65 23.5 21.5 18.7 Farm 25 9.0 76.0 25.3 Service 31 11.2 25.8 10.7 Participation rates were higher among landowners with reported annual incomes below $5,000 (46%) or above $30,000 (55%), but only 20% of the respondents fell 'in these groups. However, when the Chi Squared test was applied, the participation rates were not found to be significantly different across income groups. Income of No. of % of All % Participation % of All Respondent Respondents Respondents in P.A. 490 Participants < $5,000 22 8.3% 45.5% 13.5% 5,000- 9,999 44 15.5 22.0 12.2 10,000-14,999 66 25.0 25.8 23.0 15,000-19,999 48 18.2 25.0 16.2 20,000-29,999 56 21.2 16.1 12.2 301000+ 31 11.8 54.8 23.0 While 93% of respondents earned less than 10% of their income from the land (with a participation rate of 25%), 13 of the 16 owners earning greater than 10% of their income from the land were enrolled under P.A. 490. When non-participants were asked why they were not under P.A. 490, a surprising 55% indicated that they were not aware of the 11 year old act. The percentage was high across all sizes of holding. This indicates a need for a greater effort at publicizing the programs. Nineteen percent, mostly owning smaller parcels, said they were ineligible, and for 13% the tax savings would be insignificant. These data show that in this sample, while farmers have a higher parti- cipation rate, they make up a small portion of the beneficiaries of P.A. 490. White collar occupations were held by 45.3% of the participants, and 51.4% reported over $15,000 in annual income. Most landowners do not depend on the land for their livelihood. While this sample was carefully constructed, caution must be exercised in generalizing the results. 319 Connecticut Case Study C. Methods of Assessment In the absence of any statutory rules for the determination of use value, the unofficial values suggested by Dr. Fellows have gained widespread acceptance, with local variations (see Table 3, page 207). Dr. Fellows is confident thati these are accurate estimates of use value as reflected in the rental market. The degree of judgment involved renders any particular use value estimate an arbitrary figure, so the.general attitude is that the present ones will suffice. This unofficial, infrequent adjustment of use values contrasts with states such as New Jersey which issue annual suggested use values by county and land type. The Connecticut practice is a result of the low relative importance of open land in the tax base and the small role played by the state in property tax administration. The acceptance of the recommended use values has reduced the burden on local assessors. The higher use values assessed on forest and open space land in some towns appear to be set arbitrarily as a way to limit the erosion of'the tax base rather than to approximate a true use value. In any event, the determina- tion of the true use value of swamp or other open space land is problematic. There is no clear way the aesthetic and recreational benefits to the landowner can be measured. The Board of Assessment Advisors should bring more uniformity in the assess- ment of use values as well as more frequent adjustment of use values to reflect changes in agricultural market conditions and the use of open land. D. Relationship to Land Use Planning and Control Connecticut has a wide range of planning activities related to land use. While most power over land use rests with local governments, in keeping with a strong tradition of home-rule, the state government is gradually assuming a greater role in planning and regulatory activities which influence land use.2 State regulation of several specific functions and geographic areas has been authorized in recent years, and a statewide plan of conservation and development for land and water resources has been promulgated. Current state regulations cover flood plains, inland wetlands and water courses, tidal wetlands, and soil and water conservation districts. The Department of Environmental Pro- tection is also engaged in coastal zone management planning. other state.responsibilities with an impact on land use include environ- mental review of state actions, power facilities evaluation, regulation of noise pollution and indirect sources of air pollution, and the regulation of septic tanks and solid waste disposal. open space programs have not been widely implemented. Few towns use their power to purchase fee or less-than-fee interests in open land. At present the Department of Environmental Protection owns and manages 187,000 acres of lConversation with Dr. Irving Fellows, University of Connecticut. 2For an overview of land use.laws and issues in Connecticut see: Connecticut, General Assembly, office of Legislative Research, "Land Use: Laws and Proposals," prepared by Janis R. Latham, Hartford, December 1974. 320 Connecticut Case Study recreational land, and has announced plans to purchase an additional 34,825 acres over the next few years as part of the 1974 Statewide Comprehensive Outdoor Recreation Plan.1 While the Plan of Conservation and Development cited above represents a significant step toward coordination of resource policies, its only implemen- tation has been through executive order without the force of law. otherwise, it remains an advisory document. The present administration is reconsidering the plan. The form of a stronger state role in land use planning is currently under debate in the legislature. The proposals of the Governor's Task Force on the Preservation of Agricultural Land now under consideration, have significant implications for land use in the state.2 Similar to the proposed New Jersey plan, the proposal calls for the eventual purchase of development rights of approximately 325,000 acres of agricultural and related lands, to be funded through a bond issue financed by a 1% conveyance tax on all real estate transactions. The effect of this would be to establish a permanent agricultural land base which would complement open space goals and enable entry of new farmers into the industry. It would also constitute a most dramatic and significant act of exclusionary land development regulation. The Department of Agriculture and many farm interests are supporting the proposals heavily. A major emphasis of the Task Force report is the importance of maintaining nearby areas of basic food production. While legislators are hesitating, because of the large cost, estimated at $500 million, the proposal has brought widespread public attention to the need for action to preserve agricul- tural land. The Task Force also argued for the continued necessity of P.A. 490 as a critical force in slowing the depletion of farmland. P.A. 490 is generally cited as an important component of the Connecticut land use planning system. While.there is a recognition by planners and farm interests that P.A. 490 alone is not a land use control measure or an adequate open space program, the evolving Ep-proach in Connecticut is not toward refining property taxation asa tool. Rather it is toward: 1) increased statewide regulation in specific functional and physical areas, 2) some form of statewide input to land use planning, and 3) building local planning capacity with state assistance and minimal challenge to local autonomy. E. Effectiveness of P.A. 490 in Maintaining Current Use P.A. 490 was enacted to end the cycle in which rising taxes forced intensive development which would lead in turn to still higher taxes. The high participation rates and large reductions in tax burden cited above indicate that P.A. 490 has reduced the cost of holding open land considerably. While this could be the incentive needed to.maintain current use in some cases, land had continued to pass into the hands of developers as farmers retire and market prices rise. lConnecticut, Department of Environmental Protection, "Statewide Comprehensive Outdoor Recreation Plan, Citizens' Summary," Hartford, 1975. 2Governor's Task Force for the Preservation of Agricultural Land, Final Report, Hartford, December 1974. 321 Connecticut Case Study While P.A. 490 may be necessary to maintain current use in many cases, it is not sufficient. There is widespread agreement among proponents that the benefits of P.A. 490 cannot outweigh a developer's offer when an owner is thinking of selling. As such, it is seen as providing a necessary "breathing space" during which more effective, permanent approaches can be developed.1 This has been recognized by the Governor's Task Force for the Preservation of Agricultural Land in its proposal for state purchase of the development rights of up to 325,000 acres of farmland. However, concern is expressed that speculators use the program to lower holding costs in waiting for development. In doing this, the program facilitates more extensive speculative investment in land. A study written for the Connecticut Citizen Action Group found that in several suburbanized towns developers own large portions of the land classified under P.A. 490. Many parcels were found to be on the market or awaiting the right price.2 It is impossible to obtain an accurate estimate of the percentage of enrolled lands held for speculation. Most assessors responding to the 1972 Yale Forestry School survey approved of P.A. 490, but qualified their support by citing instances of abuse by investors. Many shared the view that the act does prevent forced conversion due to'tax burden, while one assessor estimated that more than half the participating lands would remain open without the act because the owners could afford to pay for the privacy and aesthetic benefits of owning land.3 In the 1974 sample survey of Tolland County open land owners, cited above, 74% of participants felt that P.A. 490 had helped them hold their land. This result was fairly constant across income and occupation of owner and the size of holding.4 However, this does not necessarily mean that the respondent would not sell at the right price. t in the same survey, only 9% of respondents who had purchased their land did so for investment or speculative purposes. of these, 30% participated in P.A. 490. of the 17% who purchased their land for farming or timber production possibly indicating a longer term commitment, 58% were enrolled in the prograO In Durham, Connecticut, the Open Spaces Study Committee concluded that granting wholesale open space classification to all undeveloped land helped to preserve the "rural-residential character" of the town. After extensive study of land development patterns and taxation policies in the town, they decided that the increased risk of rapid and uncontrolled development under market value taxation justified the additional tax shift caused by the local open space taxation policy.6 lFellows, Irving, "The Impact of Public Act 490 on Agriculture and Open Space in Connecticut," in Proceedings of the-Seminar on Taxation of Agricultural and Other Open Land, Lansing: Michigan State University, April 1971. 2Sirico, Louis, and Charles Kahn, "Public Act 490: Environmental Benefit or Property Tax Loophole?," Connecticut Citizen Action Group, Hartford, May 1974. 3Brown et al., op. cit. 4Correspondence with John E. Wraight, Jr. 5Ibid. 6Report, December 1971. 322 Connecticut Case Study The rate of withdrawl of land from under P.A. 490 has not been great. One interpretation is that, as intended, the act has benefitie those interested in maintaning the current use of their land. However, a great deal of land has only come under the act in recent years as town revaluations have been conducted. In the 1972 survey of 91 towns, assessors in 33 towns reported withdrawas if 5289 acres, or about 2% of participating lands, an underestimate not including towns which indicated a loss but did not report a figure. This total loss rep- resents only about 2.6% of the 204,000 acre decline in agricultural and undeveloped lands in the 1960-1970 period, incicating that much of this land was never covered by the act.1 Clearly, however, much of the land undr the act is available for develop- ment at the right price, and some is even advertised as such. Assessors generally know their towns and the patterns of sale and ownership: in one city the assessor estimated that 46% of the 940 acres of forest land and 45% of the 1082 acres of farmland under the act were held by speculators.2 The extent of the reported withdrawals per town were generally small: Acres Withdrawn No. of Towns 500 2 201-350 9 101-200 8 51-100 7 1-50 7 Data for the 11 towns reporting withdrawals of over 200 acres are given below (Table 6). The greatest withdrawals are concentrated in urbaniizing surburbs. There is no way of determininig what would have happened without P.A. 490. Available evidence and informed opinion suggest that is it has helped maintain current use, but that is not a strong enough incentive to prevent conversion of land to more intensive use for other reasons than tax burden F. Effectieness in Controlling Urban Development Because only the open space classification is granted at the descretion of the towns, P.A. 490 does not exert any control over the pattern of urban actually increase the pressure on more remote non-elegible lands. In practice, some farm and forest land now recives tax benefits in areas which would not con- form to open space goals, including industrial zones. P.A. 490 is not viewed by most observes in terms of a control measure, and it certanily cannot fulfill this goal in its present form. As noted above, several towns have designated all undeveloped land as open space to prevent forcing any development of land not covered by farm and forest provisions. While this does place a manditory review on any development proposal, effective planning. These measures reflect a no-growth sentiment, but have exclusionary overtones. In two cases, a central rarionale for the open space zoning was that residential development was felt to produce an increase in the net tax burden on the town.3 __________ 1Plan of Conservation and Development, p. 34. 2 Brown et al., op. cit. 3Durham Opens Spaces Study Comittee, Report, op. cit. Connecticut Case Study The rate of withdrawal of land from under P.A. 490 has not been great. One interpretation is that, as intended, the act has benefited those interested in maintaining the current use of their land. However, a great deal of land has only come under the act in recent years as town revaluations have been conducted. In the 1972 survey of 91 towns, assessors in 33 town reported withdrawals of 5289 acres, or about 2% of participating lands, an understimate not including towns in which indicatd a loss but did not report a figure. This total loss rep- resents only agbout 2.6% of the 204,000 acre decline in agricultural and undeveloped lands in the 1960-1970 period, indicating that much of this land was never covered by the act.1 Clearly, however, much of the land under the act is available for develop- ment at the right price, and some is even advertised as such. Assessors generally know their towns and the patterns of sale and ownership: in one city the assessor farmland under the act were held by speculators.2 The extent of reported withdrawals per town were generally small Acres Withdrawn No. of Towns 500 2 201-350 9 101-200 8 51-100 1-50 Connecticut Case Study Table 6 LANDS REPORTED WITHDRAWN AS A PERCENT OF LANDS EVER ENROLLED IN P.A. 490, 1972 % Population Population Increase Total Acres No. Acres % Town Density 196-70 Ever Enroll. Withdrawn Withdrawn Clinton 629.9 146.4% 1881 222 11.8% Coventry 222.4 28.1 4485 500 11.2 Cromwell 601.6 9.1 1800 300 16.7 Danbury 1209.1 28.9 3406 207 6.1 Enfield 1043.9 46.8 7783 500 6.8 Fairfield 1895.5 22.3 1098 342 31.3 Guilford 258.2 52.1 9543 300 3.1 Madison 271.3 113.9 12224 300 2.4 Meriden 2361.1 7.9 2328 300 12.9 Newington 1972.5 47.4 567 300 52.9 Stratford 2877.2 10.6 393 270 68.7 Source: Brown, Lauren, et al., "Connecticut Public Act 490: Interpretation, Application, ar@d__E_Jffects," Yale School of Forestry, New Haven, May 1972. G. Provision of Recreational Opportunities The reduction of tax pressure on open lands will ultimately contribute to increasing options for recreational use, but there is no apparent direct link of P.A. 490 with provision of recreational opportunities aside from isolated examples. In one town, one golf course is granted use-value assess- ment because it is on the plan of development as open space, but another one is assessed at market Ivaluebecause it is not. No consistent statewide trends could be detected. H. Preservation of Scenic Vistas While P.A. 490 undoubtedly aids in this goal, and it is specifically mentioned in the statute, scenic preservation has not been a central motivation for classification except in isolated instances. A State program is underway to buy $5 million worth of scenic easements along the lower Connecticut River, but there is not an announced policy on how these lands will be taxed. Pre- sumably much of the land is either under P.A. 490 or preferentially assessed already although assessors may have to be petitioned to reduce assessments to the land value as restricted. TC--onversation with Charles Sweeney, Assessor, Town of Hamden. 324 Connecticut Case Study I. Equity The aggregate tax shift resulting from use-value assessment is less dramatic in Connecticut than elsewhere because land comprises a smaller portion of the state's grand list (5.8%) than in many other states.1 (At market value assessment, land might increase to 10%.) However, on the local level, the shift is significant in particular areas. Discussions with assessors indicate that, historically, un developed land has been assessed considerably below market value, because this was seen as in the best interests of the community. The continuation of this practice accounts for the fact that some rural towns have no land under P.A. 490, even though market values are high enough to warrant it. While P.A. 490 legitimized this practice for certain lands, the question is whether or not tax shift should be calculated on the basis of a market value that was never used or on the basis of de facto public policy as expressed in assessment practices and condoned for dez@_adj_s by the State and localities. Dr. Fellows calculated the tax impact for three categories of towns, finding that use-value assessment would cause a negligible shift when compared to historical practice. He maintains that it would be dis- honest to judge tax shift on the basis of a hypothetical ideal that never was achieved.2 (See Table 7) Table 7 PERCENYOF TOTAL TAX REVENUE DERIVED FROM EXISTING OR POTENTIAL FARM, FOREST AND OPEN-SPACE LAND Degree of Assessment at Re-evaluation Re-evaluation Urbanization in Existing at 1968 Market and Use-Value Sample Towns Values Values Application Rural 7.0 45.0 9.1 Rurban 2.9 9.8 4.4 Urban 2.1 2.5 1.7 SOURCE: Fellows, "The Impact of Public Act 490," op. cit. The Governorls Commission an Tax Reform called for the revaluation of all undeveloped land not eligible for P.A. 490. This would force all eligible lands into the program and theoretically shift the development pressure to the land that is of a lower preservation priority. In a detailed assessment-sales ratio study of six towns, the Commission found that the ratio for undeveloped land is about one-third the ratio for other real estate.3 lConnecticut, Public Document No. 48, 1974. 2Fellows, "The Impact of Public Act 490," op. cit. 3Report of the Governor's Commission on Tax Reform, op. cit., v. 2, p. 113. 325 Connecticut Case Study The spatial pattern of tax shift has been debated. Based on data collected in a sample of 12 towns, Robert and Justine Schoeplin found that the tax shifted away from P.A. 490 lands and the corresponding mill rate increases were greatest in urbanizing suburbs.1 (See Table 4 above, p. 2101 Accepting these data for Enfield, an owner of a $30,000 house there would have paid an additional $24 in 1971 on top of a tax bill of $677 (this is a conservative estimate because the base 'tax has not been adjusted downward for the effect of a lack of P.A. 490. It could be argued that the development which would occur in the absence of P.A. 490 would increase the tax bill). The greater difference between use-value and market value in rapidly developing areas with a large supply of land would account for this larger shift. one problem with these data is that Enfield and Glastonbury have particularly large amounts of land under P.A. 490. There are also indications that remote areas with large areas of forest have been hit with revenue problems.2 The lack of any visible or organized public outcry has been cited as proof enough that the shift is not overly burdensome. Indeed, in towns with large open space programs, there seems to be strong support for the program. It is hard to tell whether the lack of opposition is due to a combination of ignorance of the extent of shift-and overestimation of the actual guarantees provided by the pro- gram or to a knowing acceptance of the costs. A further policy issue which the act presents is whether or not it bestows undeserved benefits on developers and speculators who have no intentions of keeping the land open. On the one hand, it can be argued that the public benefit of keeping the land open for one year can be measured by the tax on the difference between market and use value. This approach denies the need for any recapture while eliminating concern that speculators will benefit. Although this view has been espoused by farm interests and some State level analysts, the per- vasiveness of recapture provisions in state laws across the country indicates it is an unpopular principle. On the other hand, it can be argued that, in return for the tax benefits, land should be held out of development for a longer period of time. In this case, early sale should be penalized by recapture of the tax subsidy, and the need for some minimum time guarantee is suggested. While it is probably true that the majority of landowners under the act do not intend to change the use of their land soon, glaring abuses of the law do occur, especially in more urbanized suburbs. A famer in an industrial zone can sell off two acre portions at $15,000 per acre and still benefit from use-value on the remaining 30 acres, but Dr. Fellows and others have recommended complete termination of P.A. 490 availability in this situation.3 Under some interpreta- tions, forest landowners would continue to receive tax benefits even if a develop- ment plan had been filed and approved by the town, although Dr. Fellows recommended termination in this case, too. 1Schoeplin and Schoeplin, op. cit. 2Conversation with George Simpson, Executive Secretary, Connecticut Farm Bureau. 3Marshall v. Town of Newington, op. cit.; Correspondence with Dr. Irving Fellows. 326 Connecticut Case Study J. Ease and Cost of Administration In most situations, P.A, 490 imposes little additional burden on local assessment administration.1 The use of standard or arbitrary value guidelines, the broad court interpretation of "farm unit," and theautomatic eligibility of state-certified forestland and locally designated open space land all contribute to ease of administration. While the process involves some negotiation with land- owners, this is not necessarily greater than in conventional assessment. The dropping of the annual application requirement in 1974 cut down on the paperwork for participants and assessors but also requires increased watchfulness on the part of the assessor for violations and changes in use. Now, once lands are classified, they do not leave the program until sale or change in use. For the purposes of calculating the conveyance tax, this change has cleared up con- siderable uncertainty over when it applies. The land records are now marked upon initial classification rather than each year. The conveyance tax approach to recapture obviates the necessity of dual assessments. Several towns do keep dual assessments, partly to keep politicians informed of the tax loss involved. However, the market values are never chal- lenged because they are never used. Towns that employ consultants for revaluation generally obtain assessments for the entire town at market value, and the assessor then applies use-values to classified lands. The burden of keeping track of change in use is theoretically no greater than in the absence of P.A. 490 though the stakes are higher. most assessors, particularly in areas of active development, have a good idea of the status of particular tracts of land.2 As the number of forest land applications has grown, the burden of certification has shifted in part to the local level which is where there is self-interested incentive to be thorough. Though the state initially performed field checks on all applications, this was not required and is no longer feasible with 500 to 600 applications annually. Now the landowner andlocal assessor must agree on all technicalities, implying field checks by the assessor if necessary. The State Forestry Office has received complaints from assessors about added administrative work ever since the act was passed in 1963.3 K. Political Feasibility P.A. 490 has gained widespread political acceptance over its lifetime. Aside from imposition of the conveyance tax in 1972, legislators have resisted any but minor changes in the original law. The strong opposition of certain assessors has been overcome by the courts to thepoint that they have generally accepted the law as state policy. However, some still attempt to @hittle away at benefits to participating lands, in the opinion of farm groups. Public opposition has not been widespread due either to a general acceptance of the use-value assessment principle or to lack of awareness of the full costs and benefits. lConversation with Peter Marsele, Assessor, Town of Bloomfield. 21bid. 3Department of Environmental Protection records. 4Conversation with George Simpson, Executive Secretary, Connecticut Farm Bureau Fed. 327 Connecticut Case Study Awareness of the value of preserving open lands has grown in Connecticut as elsewhere, and the legislature has felt pressure to take definitive action in land use. In this atmosphere the imputed benefits of P.A. 490 are generally held to outweigh the particular drawbacks involved. The principle of use value taxation is firmly entrenched, and any attempts to tamper with the presentlaw meet with strong resistance from both farm interests and sportsmen's groups, as well as some urban-oriented conservationists. The Commission on Tax Reform proposals appear to be the strongest change that could be expected, but even these have met with stiff opposition. The present com- promise conveyance tax served to pacify opponents somewhat, while exempting most participating landowners by basing the penalty on time since initial classifica- tion or acquisition, whicheveris first. Although P.A. 490 is seen as imperfect, use-value assessment is considered necessary, and there seems to be a strong resistance to substantial changes in the law either to tighten up the eligibility requirements or strengthen the conveyance tax. 328 Connecticut Case Study PERSONS INTERVIEWED Connecticut Department of Environmental Protection Armando Carbonell, Senior Environmental Analyst, office of Planning and Research Joseph Laforte, Chief Environmental Analyst, Office of Planning and Research State Tax Department Robert Prendergast, Interim Head, State Board of Assessment Advisors John Tarrent, Director of Research Department of A4riculture Joseph Ruwet, Deputy Commissioner Donald Tuttle, Secretary, State Board of Agriculture Local Assessors Peter Marsele, Assessor, Town of Bloomfield Charles Sweeney, Assessor, Town of Hamden Agriculture Dr. Irving Fellows, Department of Agriculture ardNatural Resources, University of Connecticut Dr. Paul Waggoner, Director, Connecticut Agricultural Experiment Station George Simpson, Executive Secretary, Connecticut Farm Bureau Federation Organizations John Hibbard, Forester, Connecticut Forest and Park Association Katherine Preston, Connecticut Citizen Action Group 329 I.E.2. STATES WITH SPECIAL PROVISIONS: NEW YORK1 I. INTRODUCTION Over the past 125 years, land in farms in New York State has risen to and fallen from a high of almost 24 million acres in 1880 to about 10 million acres in 1969. (See Figure 1). The number of farms has declined as well, from a high of 241,000 in 1880 to 52 '000 in 1969. Much of this decline can be attributed to the retirement of marginal land which could not maintain a competitive advantage over farmland elsewhere. In addition, many farmers sought other kinds of work and still others were forced from farming near the state's cities by expanding urbanization. With regard to the process of urbanization, land speculation has caused some farmers or other land owners who rent to farmers to cease capital investments in their farms in anticipation of large profits from development which may or may not ever occur (Conklin and Dymsza, 1972). Moreover, leap- frogging and strip development leaves much farmland amidst suburban development thereby imposing difficulties on farm operations, such as ordinances restricting use of pesticides and fertilizers, or increases in property taxes, or water and sewer district taxes. As a result many farmers are forced to stop production in these areas or to sell out. A series of state planning or zoning ideas and farm-value assessment bills ,.7ere proposed in the 1960's to protect farmland primarily from urban pressures, but these failed to win approval (Conklin, 1974). A five year exemption from real property taxes on improvements in construction of farm buildings, drainage systems, and so forth has been in effect since 1968, however (Linton, and Conklin and Bryant). The law of interest in this report, the Agricultural Districts Law passed in 1971,2 is a compromise on past proposals (conversation with Howard Conklin). Specifically, the straight preferential assessment advocated by farmers, the executive branch's desire for zoning crItical areas in order to reserve agricultural regions, and the legislature's opposition to such critical area zoning, resulted in the current agricultural districting law. The offspring of this governmental union, the "agricultural districts," are a set of regions in primarily agricultural use with legally specified boundaries in which there are certain benefits accruing to farmers actively engaged in agricultural activ- ities and, in some cases, to owners of all land in the district. These benefits are designed to encourage continued farming for at least several years by soft- ening or eliminating some pressures of expanding development. In Section II, the main features of this law are described in detail, and in Section III per- ceptions of the purposes of the law, participation rates in agricultural dis- tricts, and other aspects of effectiveness and equity are discussed. 'Many helpful comments on an earlier draft were provided by William Bryant at the New York State College of Agriculture and Life Science; he is in no way responsible for any shortcomings, however. 2Ch 479,SLNY 1971; Chs 700, 712, SLNY 1972; Chs 232, 390, SLNY 1973; and Chs 169, 552, 864, SLNY 1974; or see W. R. Bryant and H. E. Conklin, "Legislation to Permit Agricultural Districts in New York as Amended through 1974,"Depart- ment of Agricultural Economics Report A. E. Ext. 74-17, New York State College of Agriculture, Cornell University, 1974. 330 NEW YORK STATE: LAND IN FARMS AND NUMBER OF FARMS, 1850 1969 31 - 260 'kTotal Area o.f State - 29 - 240 27 220 No. of Farms 25 200 Farm Area 180 23 co 44 fX4 21 160 44 0 @4 ca Q 44 19 140 c'*n a ;j 0 0 -4 17 120 -r4 15 100 13 80 11 60 1850 1870 1890 1910 1930 1950 1970 Years 331 New York Case Study II. DESCRIPTION OF THE AGRICULTURAL DISTRICTING LAW A. Goals The goals of New York's Agricultural Districts Law are to "conserve and protect and to encourage the development and improvement of (the State's) agricultural lands for the production of food and other agricultural products ... (and) to conserve and protect agricultural lands as valued natural and ecological resources which provide needed open spaces for clean air sheds, as well as for aesthetic purposes." The goals of the law are especially oriented toward "viable" and "unique and irreplaceable'12 farmland near metropolitan areas which are sub- ject to speculation, rising farm taxes, ordinances restricting farming activities, and use of eminent domain in converting farmland to uses which serve nearby urban areas. B. Benefits to Farmers The law provides for two alternative sets of benefits for farmers, one for those participating in agricultural districts, the other for farmers outside agricultural districts. For agricultural districts, the law specifies five types of benefits: 1. The option to apply for differential (i.e., agricultural use value) assessment, subject to a five year rollback penalty on land (including split-offs) that is converted to nonagricultural uses. The requirements for differential assessment, which must be applied for annually, are that the land be at least ten acres in area and have been used for the two preceding years for production and sale of a gross average of at least $10,000 of agricultural products (barring drought, flood, or other natural disasters). Calculation of the agricultural use value of farmland to farmers and soil capabilities are described in some detail below in Section II.E. 2. Prohibition of local regulation in agricultural districts "which would unreasonably restrict or regulate farm structures or farming practices...unless such restrictions or regulations bear a direct relationship to the public health or safety." 3. Encouragement of state policies oriented toward "maintenance of viable farming in agricultural districts...". 4. Review by the state Commissioner of Environmental Conservation of a) local exercise of eminent domain which would acquire land or interest in land in agricultural districts, and b) the intention to advance public funds "for the construction of dwellings, commercial or industrial facilities, (or) water or sewer facilities to serve nonfarm structures..." in agricultural districts. This does notgive the Commissioner power to veto such acts; it only attempts to ensure that alternatives are fully explored. 'All quotations are from the law (Amendment to the Agriculture and Markets Law, Article 25-AA) unless otherwise specified. 2The law defines viable agricultural land to be "land highly suitable for agricultural production and which will continue to be economically feasible for such use" if speculative tax, and other restrictive actions are limited. Unique and irreplaceable agricultural land is that which is "uniquely suited for the pro- duction of high value crops..." 332 New York Case Study 5. Prohibition of assessments or taxes on land used primarily for agricul- tural production in agricultural districts for " ... special districts for sewer, water or lights or for non-farm drainage," except on land on which a farm dwelling or nonfarm structure is located. Thus within agricultural districts a fanner is protected from taxes due to expanding urbanization, and from some aspects of the police power and eminent domain which could be used to aid urbanization. In addition, the expansion of urbanization is discouraged to some extent by features 2, 3, 4, and 5. Outside agricultural districts, a fanner may make an annually renewable eight-year commitment-to keep his land in agriculture in return for a differential assessment. To qualify, the land must be at least ten acres in area and have had a gross average production of at least $10,000 per year over the preceding two years. The penalty for breach of commitment is payment of twice the (nondifferen- tial) taxes on all the land committed (whether converted or not) in the year after the breach of commitment plus, of course, the regular (nondifferential) taxes on the land in the year after the breach of commitment. There are no sanctions on conversion of land within an agricultural district to nonagricultural uses except the rollback penalty on differentially assessed land that was converted, if differ 'ential assessment was applied for and granted. (If the farmer vishes to develop his own land the hindrances on development des- cribed as benefits 2 through 5 may be considered as sanctions of a sort). Con- sequently, the law is far weaker than zoning for agriculture but slightly more powerful than just differential assessments in encouraging agriculture. C. Creation of Agricultural Districts Creation of agricultural districts can occur by two means. The first is initiated by interested farmers who must file a proposal with the county legis- lature complete with maps showing the boundaries of the proposed district. The minimum size of such a district is 500 acres, thus guaranteeing that most dis- .tricts are continuous blocks of several farms rather than isolated farms (see Bryant). Thus, the idea is to protect districts whose area exceeds a "critical mass." The county legislature then becomes the focus of activities which usually take from six months to a year to complete before a district becomes effective. Public hearings are required, recommendations are solicited from the County Planning Board and from the Agricultural Districting Advisory Committee (con- sisting of four active farmers, four agribusinessmen residing in the county, and a member of the county legislature). Certification of the plan is approved or disapproved by the Commissioner of Environmental Conservation after receiving recommendations from the State Agricultural Resources Commission and the Director of the Office of Planning Services. The process is outlined in Figure 2. It attempts to incorporate a variety of opinions on the viability of active fanning within the proposed dis- trict and adjacent areas, the agricultural viability of land in the proposed district or*adjacent areas not in agriculture, the extent and nature of land not in agriculture in the proposed district and adjacent areas, and county develop- ment patterns and needs. The second process for creating agricultural districts is state-initiated. Starting in September 1975 (although this may be delayed) the Commissioner of Enviroranental Conservation may create agricultural districts of 2,000 or more acres if the land delineated by the Agricultural Resources Commission is pre- dominantly unique and irreplaceable agricultural land and if agricultural use is consistent with state plans. This procedure requires recommendations from the Agricultural Resources Commission, the office of Planning Services, the Director of the Division of the Budget, "local elected officials, planning bodies, agricul@ ture and agribusiness interests, community leaders, and other interested groups." Public hearings are also required. 333 THE PUBLIC THE COUNTY LEGISLATURE COUNTY AM STATE AGENCI County Agric. Adv. Com County nakes recommendations Legislature 1. receive-; proposals County Planning Board: Farmers i -2. receives proposed recommendations lFroposal modifications 3. sets up public _-JAg-Fr. Dist. Adv. Commit hearings endations lic hearing on pro- makes recomm posals and proposed modifications & recommenda- tions County Legislature A Adopts or rejects Commissioner C proposed agric. dist. of Environ. t and/or modifications Conservation: v @fodifies, if a "plan" certifies, D adopted or Rejects 0 W r W s c Certification by State J, Public hearings, County Legislature (optional it no new Approves or rejects modifications) district after public hearing Figure 2 PROCESS FOR FORMING AG DISTRICTS W Agricultural rLstrict Becomes Effective. nty lat-r. e prop sa I s p e: ed ic. r-p tYn pubI @.c @nd@.- 'g. e New York Case Study Under either process of creation of agricultural districts, a review of the boundaries of the agricultural district takes place eight years after the district was created (and every eight years thereafter) and modifications can be made only at that time. For those districts formed by the first (farmer-initiated) method, the county legislature undertakes the review, asking for recommendations from the county planning board and the agricultural advisory committee and holding a public hearing. The Commissioner of Environmental Conservation may terminate a district at that time. For those districts formed by the second (state- initiated) methodthe Commissioner of Environmental Conservation, in consulation with the Agricultural Resources Commission, the Office of Planning Services, and the Division of the Budget,undertakes the review. Consultation with "local elected officials, planning bodies, agricultural and agribusiness interests, community leaders, and other interested groups" is required, as is a public hearing. A more detailed discussion of the required procedures may be'found in sections 303 and 304 of the law. D. Other Features of the Law In order to forestall possible inequities in the relative tax burden borne by nonfarmers under a preferential taxation scheme in agricultural districts created by the state-initiated method only, the state "shall provide assistance to each taxing jurisdiction in amount equal to one-half of the tax loss that results from requests for agricultural value assessment in the district." Since no state-initiated districts have been created, it is not possible to report on experience with such a state subvention. E. Calculation of Agricultural Use Value The State Board of Equilization and Assessment calculates agricultural use value '@factors" per acre for various types of farmland, for each county. These "factors," measured in dollars per acre, are "indicative of an agricultural market value unencumbered by urban pressures."l They are to be used by the local assessor in computing agricultural value assessment and "are absolute to the extent that they may not be raised or lowered by the assessor."1,2 Agricultural use value factors are updated annually on the basis of recent sales of farmland for farm purposes and on the basis of type of agricultural activity occurring on the specific parcel of land in question. 'Public hearings are also held to establish the factors. No information on the exact methodology of computation of agricultural use value factors was available as of this writing. To give an idea of the detail involved, the agricultural use value factors per acre are determined for the following kinds-,of farm uses:3 I'Annual Certification of Agricultural Value Factors," Memorandum, State of New York, State Board of Equilization and Assessment, April 18, 1975. 2There has been disagreement in interpreting just what these use value factors are. William Bryant (personal communication) has pointed out that originally they were intended to serve as ceilings below which a local assessor must operate. Later, however, the factors took on an absolute value from which local assessors could not deviate. 3Source: Adapted from Memorandum-of April 18, 1975 from State Board of Equalization and Assessment; Subject: Annual Certification of Agricultural Value Factors. 335 New York Case Study I. Cropland E. suited to the production of high value vegetable crops A. suited to the production of some grains, grasses, and lower value vegetable crops B. suited to the production of corn silage, hay, and small grains C. "tillable pasture" II. Orchard A. with a yield of 550 bu. or more of apples per acre, 6 tons of cherries or more per acre, etc. B. with a yield of 400 bu. or more of apples per acre, 4 tans of cherries or more per acre, etc. C. with lower yields than B. III. Vineyards A. yielding 5 tons of grapes per acre or more B. yielding 4-5 tons of grapes per acre C. yielding less than 4 tons of grapes per acre IV. Muck A. suited for onions and lettuce; depth of muck at least 6 feet, good drainage and guaranteed irrigation B. suited for various vegetables, depth of muck 3 feet to 6 feet, some flooding damage, and occasional lack of irrigation water C. suited for potatoes, sweetcorn; depth of muck less than 3 feet; regular flooding. V. Pasture VI. Other Farmland For 1975, "Other Farmland" is generally of the lowest value per acre in most counties (e.g., a factor of $25 per acre), whereas the factor for vineyards often exceeds $1000 per acre in value in counties where grapes are grown. Highly urbanized counties such as Suffolk on Long Island contain cropland whose agricul- tural use value factor exceeds $1000 per acre as well.1 Table 1 shows the agricul- tural value factors as of April 18, 1975. III. EVALUATION OF THE AGRICULTURAL DISTRICTING LAW By way of introduction, it is helpful to summarize some of the main points concerning the purposes of the law made by several observers2 who are familiar lSee Memorandum cited in previous footnote. Whether this higher value in urban areas excludes all development value is subject to debate. 2Specifically, Howard Conklin, Professor of Land Economics, New York State College of Agriculture at Cornell University, H. Ira Blixt, Tom Johnson, Eric Kresse, and Bill Pendergast, of the Cooperative Extension Service in Cortland County, Oswego County, Oneida County, and Orange County, respectively. 336 TABLE I AGRICULTURAL VALUE FACTORS PER ACRE CR PLAND ORCHARD VINEYARD MUCK Other -Incl. Farm County illable Pasturc Ind E A B Pasture A B C A B C A JB C P 1`0 Albany 4,50 520 1/-@ 1 1UU 450 275 60 2.5 Alleg ny 22 115 60 35 25 Broome 425 275 165 90 !550 375 190 1 55 35 Cattaraugus i 425 275 115 55 1000 725 500 35 25 @gayug 275 175 90 475 325 1 200 700 .50 25 0 300 5@5 Chautauqua 425 32.5 17.5 100 67.1) 479 '10n 1095; 7.Sn 47.1; 49 - 25 Chemung 4 9S 975 51 90 - 35 Chenango 4501 60. 2.5 Clinton 2501 175 12,5! 65 5 7,5 375 300 45 2.5 11,50 60 Columbia 575 375 2,501 150 @700 525 350 1050 7,50 525 Cortland 4501 300 2.5 60 Delaware 450 300 175! 90 60 25 Dutchess 600 400 300: 17,5- 825 625 3,50 1050 750 525 1 150 60 Erie 950 400 225! 115 1 67,5 500 32,5 1050 775 500 90 @50 Essex 175 1001 60 525 @.5 0 27.5 35 2.5 Franklin 325 175 tOO! 60 3.5 25 Fulton 2501 175 12,51 70 35 25 Gencsce 4501 325 200, 113- 525 330 IT5_ 1700 1200 300 70 2,5 Greene 300 1751, 90 - 525 3,50 175 60 2.5 I [a milton 175 100 60 3.5 2.5 Herkimer 425 275 165- 90 .5.5 25 Jefferson 330 225 150 70 3,5 25 Lewis 225 150 80 '50 25 Living ton 4,50 1 300 1751 100 tQ00 700 450 700 500 3001 60 25 Madison 425 1 300 175 100 450 325 175 700 500 3001 60 25 Monroe 175 100 723 525 350 1000 700 4,50 60 25 Montgomery 150 75 5,50 400 200 .55 25 Incl. Ilable B Pas 'ure @ @60 IVineyard Factors as listed do not include value of trellis. 337 Table I Continued AGRICULTURAL VALUE FACTORS PER ACRE CROPLAND ORCHARD VINEYARD I MUCK Other Incl. Farm illable Pasture I-and County E A B rpasture- A B C A B C A B C- P 0 Nassau 1400 1100 825 325 Niagara 700 300 175 100 625 450 275 1000 700 450 60 25 Oneida 425 275 163 90 5501375 200 1 1 700 50 .01300 55 33 Onondaga 450 300 1 175 1 100 625 450- 275 700 5001300 60 25 Ontario 450 300 175 100 623 450 275 1000 700 475 700 500 300 60 25 Orange 600 400 300 175 825 625 350 1000 700 300 130 60 Orleans 450 300 175 100 623 4,50 275 1700 1200 300 60 25 Oswego 350 225 150 so 625 450 275 1200 800 300 50 25 Otsego 425 300 175 90 60 25 Putnam 1600 4004 300 175 825 625 350 150 60 Rensselaer 475 300 200 123 6501475 275 1 70 35 Rockland i600 400 300 175 825 625 350 10,50 7501 525 1 1,50 60 St. Lawrence 175 125 70 35 25 Saratoga 1430 300 200 123 6,50 475 275 70 35 Schenectady @450 325 173 100 1 60 25 25 Schoharie :375 300 175 100 625 450 275 1 60 1 Schuyler 275 165 90 1475 275 200 1000 725 500 55 3.5 Seneca 225 175 90 450 275 17,5 1000 7001 4,50 700. 500 300 60 25 Steuben @423 275 165 90 1000, 725 500 1200 800. 300 .5.5 33 Suffolk 1400 1100 825 525 1625 t 275 925 1875 1475 t07,5 too Sullivan 300 175 too 60 25 Tioga @425 275 165 90 55 :35 Tompkins 450 300 175 90 1050 7.50 525 60 25 ulster 600 400 300 L75 825 3501 1050 7,50 52,5 150 60 Warren 1300 200 125 70 35 Washington 1473 300 200 125 6,50 475 275 70 3.5 Wavne 450 300 175 too 723 5 25 350 1000 700 450 700 500 300 60 25 Westchester 600 400 300 175 6 2,@) oz@ 3.',) 1.50 60 Wyoming 4,50 275 175 90 675 475 275 55 3.5 Yates 4,50 300 173 100 625 4-57OT27-5 10,50 7,50 1 525 1 700 5001300 60 2.5 d Vineyard Factors as listed do not inclu c value of trellis. Source: Memorandum of April 18, 1975, from State Board of Equalization and Assessment: Annual Certification Of Agricultural Value Factors. 338 Capability Ratings are defined as follows: Cropland E - Suited to the production of high value vegetable crops including fresh grown tomatoe 's, carrots, beets, broccoli, peppers, celery, strawberries, melons, spinach and lettuce. Availability of irrigation water is assured. A - Suited to the production of corn for grain, alfalfa, wheat and lower value vegetable crops, such as cabbage, potatoes, sweetcorn, snapbeans, processing tomatoes and dry beans. Capable of yielding over 100 bushels of corn, 3 1/2 tons of *alfalfa, and 50 bushels of wheat per acre. For vegetable crops, minimum yield capabilities per acre are: cabbage, 25 tons; potatoes, 300 hundred weight; sweetcorn, 6 tons; snap- beans, 3 tons; processing tomatoes, 20 tons; and dry beans, I ton. B - Most commonly used for corn silage, hay and small grains, though lower value vege- table -crops may be grown. Corn silage yield capability is 15 tons or more per acre; alfalfa grass mixtures yield 2 tons or more per acre. Yields for vegetable crops are below those for "A" rated cropland. C - Most commonly used for dairying. Corn is mostly for silage and yields are under 15 tons per acre. A high proportion is hay with some grass, alfalfa and clover, and yields may fall under 2 tons per acre. Oats are sometimes grown, and oat yields are usually under 60 bushels. Vegetables are seldom produced commercially. When land is used for pasture, yields are comparable to yields for hay. Orchards A - Orchard will yield 550 bushels or more of apples per acre, 6 tons of cherries per acre or equivalent yields of less common fruits. B - Orchard will yield 400 bushels of apples per acre, 4 tons of cherries per acre or equivalent yields of less common fruits. C - Orchards which yield less than the amounts indicated in "B" above. *Fruit orchards not capable of yielding 300 bushels of apples per acre, or 2 1/2 tons of cherries pe Ir acre should be considered as cropland with a "B" rating. Vineyards A - Vineyard yielding 5 tons of grapes per acre and above. B - Vineyard yielding between 4 and 5 tons of grapes per acre. C - Vineyards yielding less than 4 tons of grapes per acre. Muck A - Suited for growing onions and lettuce. Yields 750 bushels or more of onions per acre. Depth of muck is greater than 6 feet. Drainage-is good enough to preclude flood damage to crops. Irrigation water rights are assured. B - Suited for growing onions, lettuce, celery, spinach, and carrots. Onion yields are generally 600 bushels per acre. Deprh of muck is between 3 to 6 feet. Occasional damage from flooding, and irrigation water may be-scant in some years. C - Limited to growing potatoes, sweetcorn, and other moderate intensity crops. Depth of muck is under 3 feet. Legal rights to water for irrigation may be questionable. Spring and fall flooding may restrict use. P -Pasture - Land used as permanent pasture which has not been plowed within 5 years. Consists predominantly of native grasses. 0 - Other Farmland - Nontillable lands with severe limitations; may be swampy, rocky, or over-grown with nonmarketable trees, but is an integral part of the farm and is not used for any nonfarm purpose. Source: State Board of Equalization and Assessment 339 598-3 30 0 - 76 - 23 New York Case Study with the creation of agricultural districts. Perception of the goals of agricul- tural districts varied depending upon the observer's viewpoint. In Orange County where agricultural and nonagricultural rural land has been assessed at a fairly high exchange value in anticipation of suburban development, the law is seen to be advantageous to farmers primarily because of its differential tax provision, rather than for the other benefits to farmers discussed in the previous section By way of contrast, in a county where farm real estate taxes are low and there is little to be gained from differential assessment (a category which includes most counties) farmers have not applied for agricultural use value assessments. The benefit of the law in these cases is seen to be the reduction of the pressures of suburbanization and other development such as large scale improvements or highway construction and their attendant special taxes. Thus the "premature retirement" of farmland is curtailed. Taking a larger view of the philosophy behind the law, there is still some divergence of opinion. Some see agricultural districts as encouraging orderly development of rural areas so that leapfrogging and strip development are averted and better planned expansion of the suburbs accomplished. Alternatively, but perhaps as the other side of the same coin, others see the law as a means for establishing agricultural reserves where land can be set aside on which agricul- ture has priority over other uses. Which view, if either of these, squares best with the actual results can be determined only after further experience with the law. With respect to farm real estate taxes, most observers agree that, as Howard Conklin put it, "farm value assessment cannot keep land in farming but high assessments can drive farmers out." Participation in the agricultural district program is summarized in Table 2; as of February 14, 1975 participation ranged from no acreage-in some counties to virtually 100% of all farmland in others. The table shows that agricultural districts are not concentrated in large urban areas (those counties classified as being in a Standard Metropolitan Statistical Area--SMSA--inl970)1. This perhaps surprising result may be due to several factors. First, much of the urban farm- land may be preferentially assessed already, in fact if not in law, so there is little incentive to form a district on this count. Second, many farmers in these urban areas may be intent upon selling out to land speculators or developers in the near future. Third, small urban areas not in SMSA's, may put considerable pressure on some farmers to form districts. Fourth, assessments outside SMSA's may be relatively high as in orange Courity thus inducing farmers to form districts. And, fifth, nonurban-area farmers may be better able to plan over a longer time horizon than those under potential pressure to sell to urban developers or speculators and so are more apt to form districts. There is, after all, a lot of effort reqyired to form a district and one wants to be sure the effort is worth his while. Concerning differential assessment per se, the general impression of those people interviewed is that although formation of agricultural districts has pro- ceeded rapidly, applications for differf@ntial assessment'have been few except in cases such as orange County. However, as rural land assessments rise, more farmers can be expected to seek agricultural use value assessments. Finally, very little application for differential assessments outside agricultural dis- tricts has taken place anywhere in the state. iThe reader should keep in mind that the denominator of the concentration index is 1969 acreage in agriculture which may have substantially changed in the period 1969-1975. The agricultural district data in the numerator of the index are for 1973, 1974, or 1975. 2See also Nelson Bills (n.d.) 340 Table 2 SUMMARY OF STATISTICS ON AGRICULTURAL DISTRICTS IN NEW YORK STATE* A. Participation Over Time No. Acres (Index % of 1969 No. of Concentration Farm Acreagc Date Districts in SMSAs)** No. Farms in Districu By Aug. 22, 1973 Total formed or in process*** 78 612,496 (0.66) 2923 6.0% By Jan. 15, 1974 Total formed or in process*** 120 1,079,054 (0.70) 4296 10.6% 'By-Feb. 14, 1975 Total 210 2,436,547 (0.70) 8073 24.0% Formed 174 1,813,171 6075 17.9% In process*** 36 623,376 1998 6.1% B. Number of Districts Rejected, 3 - C. Largest District as of Feb. 14, 1975 159,760 acres (250 square miles) Smallest District as of Feb. 14, 1975 700 acres (1.1 square miles) Source: Agricultural Resources Commission: "Agricultural Districts Status Reports" and 31; and "Agricultural District Information." Index of Concentration in SMSAs = x/y where x = (acreage in districts in SMSAs/total z districts in the state) and y = (acreage of farmland in SMSAs/-1-otal acreage in farmla state); if index is less than 1.0, SMSAs are receiving less than their "share" of Ian( (acreage in farmland is for 1969, data from 1969 Census of Agriculture) "In process" means certified, under review or being reviewed by Agricultural Resource New York Case Study Because of limited experience with the differential assessment aspects of the program, the tax shift from farmers to others is not evaluated here. The orange County experience may even yield spurious resultssince the conversion value of land appears to have been overestimated by the assessors in many,people's opinion. Conversions of agricultural land to nonagricultural uses within the districts has been spotty and no pattern is yet discernible. Opposition to the agricultural districting law is weak and seems to be associated primarily with individual situations. There are some community leaders who favor unrestrained suburban development and see-the limitations imposed by the law as a hindrance. Others are skeptical of the effectiveness of the law in retaining land in agriculture as there are few sanctions for con- verting land to nonfarm uses within a district (essentially none if the land is not differentially assessed). IV. INPROVEMENTS IN THE 1AW Improvements in the law may be required in several areas,according to the cooperative extension service agents interviewed. Among their suggestions are: a) shortening the time and paperwork procedures for creating a district, especially for the farmers who initiate proposals for districts; b) clarification of the procedure used to calculate the gross income from rented land--is it the exchange value of the products grown on that land (e.g., hay) or is it to be included as part of the exchange value of the final farm output (e.g., milk from cows which ate the hay but whose barn is on other land?); c) lowering the requirement of $10,000 average gross income so that retired farmers are not forced to sell out immediately; d) combining the gross income from land owned separately by husband and wife so that the minimum income requirement can be met; and e)permitting farmland to be valued at farm value for state inheritance tax purposes. 342 New York Case Study REFERENCES FOR NEW YORK STATE Bills, Nelson, "Extent of Local Efforts to Form Agricultural Districts in New York State," Natural Resource Economics Division, USDA-ERS, Cornell University, no date. Bryant, William R Farmland Preservation Alternatives in Semi-Suburban Areas," Department of Agricultural Economics Paper A.E. Ext. 75-5, New York State College of Agriculture, Cornell University, 1975. Conklin, H. E. and W. R. Bryant, "Agricultural Districts: A Compromise'Approach to Agricultural Preservation," American Journal of Agricultural Economics, Vol. 56 (1974), pp. 607-613. Conklin, H. E. and R. Dymsza, "Maintaining Viable Agriculture in Areas of Urban Expansion," N. Y. State Office of Planning Services, Albany, 1972. Linton, Robert E., "Five Year Tax Exemptions for Improvements in Farm Real Estate," Department of Agricultural Economics Research Paper 73-17, New York State College of Agriculture, Cornell University, 1973. New York State Commission on the Preservation of Agricultural Land, Preserving Agricultural Land in New York State, Albany, 1968. 343 Technical Analyses -- Supply and Demand Studies II. TECHNICAL ANALYSES -- SUPPLY AND DEMAND STUDIES A. TECHNICAL ANALYSIS OF THE FARM SHOW SURVEY This section is intended to present a technical discussion of the materials in Chapter IV of Part One concerning the supply side of the market for conver- sion of land. Specifically, it is concerned with a survey of farmers visiting the Pennsylvania Farm Show in January 1975. This survey was undertaken to iden- tify major trends in farmers' thinking about reasons for selling their farms.and to shed light on the variations in importance ascribed to these reasons. A to- tal of 69 useable responses was obtained from 71 sample farmers. The question- naire itself is reproduced at the end of Section II with a summary of the responses. It should be noted that the farmers are not a random sample of all Pennsylvania farmers, as people most likely to attend the Show were those strong- ly committed to farming. 1. Underlying Reasons for Selling Two types of analysis were performed. First we wished to identify the major dimensions of reasons for selling which underlie the responses given to the question asking the farmers to rate the importance of each of eleven reasons for selling on a scale of 0 to 100. To do this the eigenvectors of the 11 by 11 correlation matrix of ratings given to these reasons were extracted. See Table 1. Four underlying dimensions, each corresponding to one of the eigenvectors, summarize the reasons for selling: economic, demographic, secondary, and transitional reasons. Because many readers may not be familiar with this technique, we offer a S3-mplified discussion of it. The extraction of the eigenvectors of a correla- tion matrix (which is the standardized covariance matrix) constitutes a rigid rotation of the axes of the original eleven dimensional space of reasons for selling, where each original dimension corresponds to one of the eleven reasons. By rotating the axes it is possible to combine several of the original dimen- sions which are highly correlated into just one new dimension without losing much of the original variance. For example, in two dimensions, suppose vari- able a and variable b are highly correlated as shown in the correlation matrix below. Theupper graph in Figure 1 shows the original (standardized) data a b 1.00 .82 b .82 1.00 plotted in the two dimensional space with dimensions a and b. From the scatter of observed data points, it is evident that we can rigidly rotate the original axes through angle ry so that the new axes or dimensions y and z are still per- pendicular and so that most of variation in the data is reflected in axis or. dimension y. See Figure 1, lower graph. Thus, the rotation through angle 0@ allows us to consider only one new dimension, y, which represents most of the information originally contained in the two dimensional space described by coordinates along a and b. (To capture all the original variation it would be necessary to consider dimension z as well, but there is little reason to rotate the axes if the number of original dimensions cannot be reduced.) The coordinates of the original data on the new dimension y are obtained by e- recting perpendicular lines from the observation points to the y axis. Notice that the angle of rotation, v, can be interpreted as a weighted combination of the original dimensions, a and b. In this case, the weights (or, as they are usually called, loadings) of a and b on the new dimension are equal. Furthermore, the angle of rotation can be specifically defined 344 Table I FIRST FOUR EIGENVECTORS OF THE CORRELATION MATRIX OF REASONS FOR SELL EIGENVECTOR Ii III IV A Economic Demographic Secondary Transitional Rating Reason Dimension Dimension Dimension Dimension 100 a. value of farm pro- ducts too low -.39* -.24 .21 .14 b. inheritance tax too large -.32* -.07 .18 -.36 c. price offered attrac- tive -.34* .27 -.07 .03 d. death in family -.21 .46* .35 .12 W e. property taxes too -P. high -.32* -.35 .27 .14 f. all nearby landbeing developed -.14 .14 -.70* .30 g. difficult to hire good labor -.36* -.08 .27 .30 h. desire to move else- where -.27 .04 -.38 -.46* i. ready to retire -.14 .66* -.10 .17 j. costs of operation too high -.44* -.18 .03 .17 k. desire for different kind of work -.24 .21 .00 -.61* 1The eigenvalues are 3.57, 1.44, 1.19, and 1.12 respectively. Note: asterisks indicate the variables with the largest loadings on each eigenvecto Figure 1 EXAMPLE SHOWING EXTRACTION OF EIGENVECTORS b respondent I respondent 2 respondent 3 respondent 4 a respondent 5 respondent 6 lb respondent 1 respondent 2 respondent 3 a respondent 4 respondent 5 respaAent 6 346 Technical Analyses -- Supply and Demand Studies by requiring that the first@,new dimension, y, be chosen so as to maximize the variance of the original standardized variables (a and b) accounted for by the new dimension. Under these conditions, the new dimension is called an "eigen- vector" and, in the example, y is an eigenvector. In general, the process of extracting eigenvectors can be extended to n dimensions and up to n-l new dimen- sions or eigenvectors can be extracted perpendicular to the first eigenvector (and perpendicular to all previously extracted eigenvectors). By looking at which of the original eleven reasons have the largest load- ings (in absolute value) on each of the four eigenvectors we extracted, we can interpret the eigenvectors. Thus, eigenvector I is an economic dimension (largest loadings on reasons a, b. c. e, g, and j), eigenvector II is a demo- graphic dimension (largest loadings.on reasons d and i), eigenvector III is a secondary dimension (largest loading on reason f), and eigenvector IV is a transitional dimension (largest loadings on reasons h and k). See Table 1. The four underlying dimensions can each be ranked in importance by calcu- lating the average of the average ratL@gs of those reasons in question 3 on the questionnaire which are designated by asterisks in Table 1. Economic reasons are the most important, secondary and demographic reasons have nearly equal scores and rank second, and transitional reasons are least important. 2. Relations between Underlying Reasons for Selling and Other Factors The second kind of analysis concerned the statistical relationships between people's "scores" on each of the eigenvectors and their responses to other questions on the questionnaire. To obtain the scores on each eigenvector we multiply each respondent's rating on each of the eleven reasons by the cor- responding element of that eigenvector and sum the products. Given the scores of each respondent on each dimension we can then check for statistically sig- nificant relationships between the answers to the other questions on the ques- tionnaire and the importance placed upon each of the economic, demographic, secondary, and transitional dimensions of the reasons for selling one's farm. The major statistically significant findings are described below. a. Economic Dimension i. People placing greater importance on the economic reasons for selling (a high negative score on Dimension I) tend to say that a 507 drop in property taxes would make it less likely that they would sell their farms. Conversely, people not placing much im- portance on the economic reasons for selling (a high positive score on Dimension I) tend to say that a 50% drop in property taxes would have little affect on their decision to sell. (This relationship is significant at the .005 level using the Kruskal- Wallis test with question 2 on the questionnaire.) ii. People for whom a no-n-farm job might be acceptable tend to.place greater importance on the economic reasons for selling (a high negative score on Dimension I), and, conversely, people for whom farming is very important and who would not consider another line of work even if it paid more tend to place less importance on the economic reasons for selling their farms (a high positive score on iTo test for significance the Mann-Whitney U test was applied to the ranks of the scores on each dimension where respondents could answer a question in one of two categories (excluding "don't know" or "no answer") such as question 1. Where the respondents could and did select from 3 or more choices, such as question 2, the Kruskal-Wallis test was applied to the ranks on each dimension. 347 Technical Analyses -- Supply and Demand Studies Dimension I). (This relationship is significant at the .005 level using the Mann-Whitney U test with question 4 on the questionnaire after having eliminated the one respondent who said he would like to give up fanning if he could-get a job elsewhere.) b. Demographic Dimension i. Farmers placing relatively greater importance on the demographic reasons for selling (a high positive score on Dimension II) tend to say that a 50% reduction in property taxes would have little effect on their decisions to sell their farms. Conversely, farmers placing relatively little importance on the demographic reasons for selling (a high negative score on Dimension II) tend to say that a 50% reduction in property taxes would make it less likely that they would sell their farms. (This relation- ship is significant at the .01 level using the Kruskal@Wallis test with question 2 on the questionnaire.) ii. Farmers who do not have a son or other close relative interested in continuing to farm tend to place either a great deal of impor- tance on the demographic reasons for selling or very little im- portance on the demographic reasons for selling (a high positive score or a high negative score on Dimension II). Those farmers placing greater importance on demographic considerations are probably near retirement and their sons, if any, have long since left the farm for employment elsewhere. Young farmers with no children or very young children probably cannot say whether their sons (if they ever have any) would wish to continue farming, and they themselves can probably give little definite thought to re- tirement 25 or 30 years in the future. (This relationship is significant at the .02 level using the Mann-Whitney U test with question 5 on the questionnaire. Because we need to test for bunching of scores from one population in the middle of the dis- tribution and the scores from the other population at the ex- tremes of the distribution, it was necessary to rank the scores on Dimension II as follows: highest score = rank 1, lowest score = rank 2, second highest score = rank 3, second lowest score = rank 4, etc.) C. Transitional Dimension Farmers placing greater importance on a desire for change (tran- sitional factors) as a reason for selling their farms (a high negative score on Dimension IV) tend to say that, if the oppor- tunity arose, they would be tempted by another kind of work. Conversely, farmers placing very little importance on a desire for change as a reason for selling their farms (a high positive score on Dimension IV) tend to say that farming is very important to them and that they would not consider going into any other line of work, even if it paid more. (This relationship is signif- icant at the .06 level using the Mann-Whitney U test with question 4 on the questionnaire, after having eliminated the one respon- dent who said he would like to give up farming if he could get a good job elsewhere.) ii. Farmers living inside a metropolitan county tend to place less emphasis on a desire for change as a reason for selling (a high positive score on Dimension IV) than farmers living outside a metropolitan county. (This relationship is significant at the 348 Technical Analyses Supply and Demand Studies .005 level using the Mann-Whitney U test.) This can possibly be explained by a combination of two reasons: one is that those who remain in farming in metropolitan areas despite urbanization pres- sures are those who are especially attached to farming. Those who place less importance on farming inside the metropolitan areas may have already sold out either to urban uses or to more dedica- ted farmers. The second reason is that while farmers outside of the metropolitan areas may enjoy farming as a way of life, they may also desire the amenities of urban areas which they cannot obtain where they live. No other strong relationships between the scores on the four dimensions representing-reasons for selling and answers to the other questions on the questionnaire were apparent. The only dimension not highly correlated with answers to other questions was the one reflecting secondary factors as ex- emplified by development pressure, Dimension III. B. TECHNICAL ANALYSIS OF THE JOINT EFFECT OF SUPPLY AND DEMAND FACTORS ON THE CONVERSION OF FARMLAND 1. Formulating a Model In order to analyze statistically the effect of property taxes on the conversion of farmland it is necessary to account for measurable supply and de- mand factors. Constrained by the availability of data, the following variables constitute the focus of our research: A = percent change in land in farms over a specified time period T = agricultural property tax (on land and buildings) per acre in a speci- fied year Y = gross farm income (dollars per acre). Because of lack of data on farm investment, net farm income could not be estimated. P = increase in population density (persons per square mile) over a speci- fied time period A = percent of farmers over 65 in a specified year (i.e., near retirement age) X = agricultural property taxes as a proportion of gross farm income (X = T/Y) Specifically, we model A as a function of the other variables using two al- ternate regression analyses: a) L o@o + C,1T + ae2 Y +Q!3 P + 'y4A b) A 80 + SIP + 82A + 83X In the equations the values of the regression coefficients cyior 8i are to be estimated and these estimates indicate how much A would change if any single variable were to change by one unit, while holding the other variables in the equation constant. The variables on the right hand side of either equation are called independent variables and A is called the dependent variable. No- tice that in each model, the independent variables include both a demand-related variable, P, and supply-related variables, T, Y, and A, or else X and A. Finally, the form of the variables was chosen to eliminate the effect of the area of the observations (counties) on the regression coefficients by using percent changes 349 Technical Analyses -- Supply and Demand Studies in land in farms and changes in population density. As just remarked, the observational unit for all variables is the county. This is largely for convenience: the county is the smallest areal unit for which Census of Agriculture data, state agricultural data, and state tax data are published. Occasionally, data by minor civil division can be obtained, but a full complement of agricultural and tax statistics at that level of dis- aggregation could not be found. Area of land in farms, gross farm income, and percent of farmers over 65 can be obtained from the U.S. Census of Agriculture for years 1964 and 1969. In order to study years after 1969, areas of land in farms and gross farm in- come must be obtained from state (or county) figures as the 1974 Census of Agriculture is not yet available. Changes in population density can be easily obtained from the U.S. Census of Population for the years 1960 to 1970. Agri- cultural property taxes are, of course, most crucial for our analysis, but these data were the most difficult to obtain. (Taxes paid by farmers can be calculated by multiplying county agricultural assessments times the average nominal tax rate in the county if it is not actually recorded on a county ba- sis.) Finally, it is important that any area we study experience a sufficient degree of urbanization so that loss of agricultural land to urban uses can be studied. To obtain tax and agricultural data twelve states were contacted by phone: Florida, Georgia, Illinois, Indiana, Michigan, New Jersey, New York, North Car- olina, Ohio, Pennsylvania, Washington, and Wisconsin. Inicial contacts were us- ually made with the Property Tax Division of the State Tax Commission in the state capital. Other useful sources included agricultural economists in the ag- ricultural extension service of the state university and the state statistician in the State Department of Agriculture. Property taxes paid by farmers could be easily obtained by county for the years 1974 or 1973 only from New Jersey, Ohio, and Wisconsin; they could also be obtained for Florida for the years 1971 and 1972. However, other important data, particularly land in farms and gross farm income, could not be obtained for 1971 and 1972 for Florida, thus making an analysis of this state impossible. The ability to determine an unambiguous relationship between the percent change in land in farms over some time period and increases in population den- sity, farm income, agricultural property taxes, and demographic features of the farm population is, to a large extent, dependent upon fortuitous circumstances. Given that spatially disaggregated data are available for all these variables it is still critical that the independent variables -- changes in population density, farm income, property taxes, and demographic information -- be corre- lated only slightly with each other. Otherwise it is difficult if not impos- sible to sort out which factors are likely to be causing declines in land in farms. The State of Ohio fits these statistical requirements rather well, one rea- son for this being the lack of an implemented statewide uniform use-value tax on agricultural land and buildings prior to 1974. Thus agricultural property taxes have not been strongly correlated with the other independent variables in recent years. Unfortunately, reliable data on net farm income do not exist for each Ohio county, so we are forced to substitute gross income (cash receipts) as a measure of the economic welfare of the average farm. Obviously, this overlooks spatial variation in costs of farm production (other than property taxes). The independent variables in Wisconsin and New Jersey are highly correlated and therefore we were unable to pursue the analysis of these states to a conclusion. This is further explained later in this section. 350 Technical Analyses -- Supply and Demand Studies Table 2 SUMMARY OF DATA FOR SAMPLE COUNTIES IN OHIO Counties Statistic T A Y A X P 49 counties mean 16.57 -.33 182.45 17.22 0.11 51.51 (one deleted because of standard missing data) deviation 26.21 4.58 204.27 4.15 0.07 100.17 16 Dairy mean 14.49 -2.04 116.31 17.89 0.14 17.25 counties standard deviation 7.74 2.71 46.90 4.04 0.07 22.27 19 Corn- mean 9.14 3.43 145.74 14.71 0.07 21.00 soybean standard counties deviation 3.06 2.50 31.19 3.07 0.05 20.82 8 Urban mean 40.87 -5.55 449.00 20.52 0.11 196.25 agricul- ture standard counties deviation 60.74 3.83 423.11 4.64 0.11 183.15 Definitions of Variables T = property taxes per acre in 1973 (dollars) A = change in farmland 1969-1973 as a percent of farmland in 1969 Y = cash receipts per acre in 1973 (dollars) A = percent of farmers over 65 years of age in 1969 X = (Property Taxes/Cash Receipts) in 1973 = T/Y P = change in population density 1960-1970 (persons per square mile) Note: Six sample counties were not classified in any of the three agricul- tural regions 1Sources of data in Table 2. Y, A: Ohio Agricultural Research and Development Center (Wooster), Ohio Farm Income, 1969 and 1973. A: U.S. Census of Agriculture, 1969 T: Ohio Department of Taxation: "Property Taxes: Real Estate and Public Utility," 1973, and "Assessed Valuation of Real Property in 88 Counties of Ohio by Class and Population Group," 1973. P: U.S. Bureau of the Census, County and City Data Book, 1967 and 1972. 351 Technical Analyses -- Supply and Demand Studies As our primary concern is not with Ohio per se, but with causes of the loss of land in farms, we have considered only 50 of the 88 counties in Ohio. Expand- ing urbanization is one of the most important causes of loss of farmlandso all 1970 SMSA counties except one in the Huntington-Ashland metropolitan area and ail counties (except one) containing a city of at least 25,000 people in 1970 are in- cluded in the study. Preliminary inspection of data also revealed large losses of farmland in nonurban areas of eastern Ohio and so several of these counties not containing major cities were also included. Finally, to lend some perspec- tive to the analysis, several agriculturally prosperous cornbelt counties in the state were included. 2. Description of the Data The fifty sample counties can be classified into three agricultural complexes based on the value of those farm commodities accounting for 10% or more of the total dollar value of farm output from each county in 1973: a soybean-cornbelt complex, a dairying complex, and an urban agriculture complex, viz, nurseries and greenhouses and vegetables. However, a few counties had to be classified under two or three complexes since leading agricultural activities do not fall neatly into just one category. Much can be learned about the agricultural regions of the state by examin- ing the means and standard deviations of certain key variables as shown in Table 2. The dairy belt had the lowest cash receipts per acre in 1973 (Y), the high- est proportion of agricultural property taxes to cash receipts in 1973 (X), and the lowest increase in population density from 1960 to 1970 (P). The relatively high loss rate of farmland and lack of extensive urbaniza- tion in much of the dairy belt indicates conversion to nonurban uses, such as strip mining and second homes, and possible abandonment of marginal agricultural land. If we define subsistence farms as farms whose gross income was less than $2500 in 1969, then we note that forty-five percent of all farms in the dairy belt earned under $2500 in 1969 as compared with only thirty-five percent in the urban agricultural and cornbelt areas (Census of Agriculture, 1969). Approxi@ mately 400,000 acres of land in Eastern Ohio is strip mined and the 1972 and 1965 Minerals Yearbooks show that for 13 of our sample dairy belt counties, pro- duction of bituminous coal from strip mines increased from 16 million tons in 1965 to nearly 27 million tons in 1972., The corn-soybean region had the lowest agricultural property taxes per acre in 1973 (T), the most positive percent change in farmland from 1969 to 1973 (A), the lowest percentage of farmers over 65 in 1969 (A), which indicates that many younger men wish to engage in farming in the area, and the smallest proportion of agricultural property taxes to cash receipts in 1973 (X). Finally, the urban agricultural counties had the highest agricultural prop- erty taxes per acre in 1973 (T), the most negative percent change in farmland from 1969 to f973 (A), the highest cash receipts per acre in 1973 (Y), the high- est percentage of farmers over 65 in 1969 (A), and the largest increase in pop- ulation density from 1960 to 1970 (P). Each variable (T, A, Y, A, X, and P) was found to vary significantly among the three agricultural regions at the .01 level using the Kruskal-Wallis non- parametric analysis of variance. Hence, the observed regional differences in the means of the six variables reflect the tendency of counties in one region to bunch at -the high or low end of the overall distribution of that variable among all three regions (corn-soybean area, dairy belt, or urban agriculture). 352 Technical Analyses Supply and Demand Studies 3. Regression Results The regression models described previously were applied to 49 of the 50 sample Ohio counties (some data were lacking for one) as well as for the dairy belt, corn-soybean region, and urban agricultural areas separately. Table 3 summarizes the regression results, where the numbers in parentheses are the ratios of the coefficients to their standard errors., Coefficients written as "0" are such that this ratio is less than 1.5, except where noted. Table 3 SUMMARY OF REGRESSION MODELS- DEPENDENT VARIABLE: PERCENT CHANGE IN FARMLAND 1969-1973 Agricul- tural Coefficients of Independent Variables 2 Model Region Constant A X P T Y R b 49 sample 7.636 -.245 -26.012 -.019 .53 counties (1.70) (3.57) (3.44) b 19 corn- soybean 5.095 0 0 -.079 ---- ---- .44 counties (3.63) b 16 dairy 4.235 -.180 -25.868 0.032 ---- ---- .69 counties (1.50) (3.76) (1.57) b 8 urban -0.718 0 -16.898 -.015 ---- .53 counties (1.46) (2.23) a 49 sample 8.640 -.433 ---- -.012 -.055 .49 counties (3.24) (2.13) (2.90) a 19 corn- soybean 1.779 7--- -.085 0 .024 .52 counties (4.05) (1.68) a 16 dairy -5.472 ---- 0 -.123 .045 .62 counties (2.03) '(4.47) a 8 urban -.860 0 ---- -.015 -.042 .75 counties (3.15) (2.93) Strong effects of multicollinearity exist due to correlation of Y and P (r > .80), so Y is eliminated from model a. Strong effects of multicollinearity exist due to correlation of Y and A (r < -.60), so A is eliminated from model a. Note: Six sample counties were not classed in any of the three agricultural regions. Variables are the same as those in Table 2. a. Urban Counties In the urban counties we find that increases in population density P, and taxes, T, or taxes as a proportion of gross income, X, both are negatively related to percent change inland in agriculture from 1969 to 1973, A. That is, higher taxes (or taxes as a proportion of gross income) and higher increases in population density are associated with greater losses of farmland in these eight urban counties. All the regression coefficients are at least 1.5 times their standard errors except that of X. 353 Technical Analyses -- Supply and Demand Studies The graph in Figure 5 in Part One, Chapter IV and the regression equation in Table 3 from which it is derived indicate that although a reduction in agri- cultural property taxes is likely to reduce the loss rate of farmland, this re- duction will not stop the loss of farms no matter how large it is. Pressure from increasing suburban population will always cause some farmland to be lost. Thus, in rapidly growing metropolitan areas, tinkering with taxes is likely to be only slightly effective in preserving farmland. There is good reason to believe that the regression coefficients we have estimated for the urban counties are not very stable over time. This would imply that the slopes of the lines representing values of A in Figure 5 of Part One and the spacing between the lines representing levels of A in that figure are unstable. In the period 1964 to 1969, the five years immediately preceding the time span of the regression analysis presented above, loss rates of farmland were generally greater due in large part to relatively low farm product prices. The average change was -20.00% from 1964-1969, but only -5.55% from 1969 to 1973 in these eight urban counties; even considering the fact that the earlier time period is one year longer, this contrast is re- markable. In periods of very rapid losses of farmland, lowered agricultural property taxes may have no effect at slowingthese losses and, in fact, our regression analysis of the eight urban counties from 1964 to 1969 yielded a regression coefficient of T which was not significantly different from zero. b. Dairy Counties The impact of reducing property taxes appears to be greatest in the dairy belt, where the demand pressures for conversion are generally weaker than in the urban counties, but where the supply pressures, such as low farm income and a relatively low percent of younger men undertaking farming, are quite strong. In both models Ila" and "b" the coefficients of X and I respectively are greater for the dairy belt counties than for any other class of counties. See Table 3. Much of this marginal farming area is losing population, and so the positive sign of the coefficient of P in model "a" is not surprising. To interpret the nature of land conversion in these dairy belt counties, where there are some moderate sized cities such as Youngstown but where much of the land is relatively far from urban pressures, we relied on information supplied by six county agricultural agents in eastern Ohio and the Ohio Agri- cultural Resources Center at Caldwell. The conversion process includes some suburbanization near the major cities of the region but is dominated by the selling of land for second homes to individual investors who live in places such as Clevelan , Akron, and Canton, and by the leasing or selling of land to strip miners.@ With regard to second homes, there is little evidence that large spec- ulators are heavily involved in the land market in this area of the state. Land in this area is of marginal value for agriculture, and, with a few ex- ceptions, very little urbanization pressure exists. Despite this, land that was selling for $35 to $50 per acre 16 years ago is today selling for $150 to $300 per acre. In short, there is a demand pressure for conversion to second homes exerted by potential absentee landlords who are not like ly to develop the land intensively and an ample supply of marginal farmland made available by a population of low income farmers with a large proportion of older men in it. Strip mining for coal is of considerable importance in much of the dairy belt. Approximately 400,000 acres in this area have been or are being strip 1The state of Ohio has been active\ in acquiring agricultural land for recre- ational purposes in central Trumbul, County as well. 354 Technical Analyses -- Supply and Demand Studies mined. Often strip mining companies do not actually buy land from farmers for their mining operations, but rather, lease the land from farmers. After the lease has been signed the land usually stands idle for a period while the min- ing company moves in and sets up its equipment. Today, after the land has been strip mined it must be reclaimed in accordance with Ohio law. The land is re- seeded and usually is converted into pasture land. However, the laws requiring reclamation are relatively recent and so, in this area, there exist many thou- sands of acres of unreclaimed strip mined land,some of it owned by the mining companies, the rest by various absentee landlords. In conclusion, a reduction in property taxes in the dairy belt counties may very well reduce the need to sell farmland by reducing costs of operation and hence increasing net returns. As a result, the loss rate of farmland should decrease. However, if younger mEn are still not induced to stay in farming here the long run effect of reduced taxes may be quite small. C. Corn-soybean Counties The corn-soybean counties experienced net gains in farmland from 1969 to 1973, which is probably due more to increases in soybean prices than to any- thing else. indeed, the regression analysis shows that while increasing urban populations may squeeze corn belt farmers off the land, the high gross income of this type of farming counteracts this effect in many counties by causing farmers to bring land back into production farther from the major cities. The impact of agricultural property taxes on the percent change of land in farms is not significant in these prosperous agricultural counties. 4. Analysis of Data from Wisconsin and New Jersey As noted above, we explored data from twelve states in order to per- form a statistical analysis of loss rates of farmland. In only three states, however, were sufficient data available to carry out such an analysis and of these three, only Ohio was not beset by problems of multicollinearity among the independent variables. Because of this statistical difficulty, Wisconsin and New Jersey data did not lead to any substantive conclusions about the po- tential effectiveness of reducing property taxes to save farmland. In this section we summarize what analysis was possible given the extent of the multi- collinearity problem. a. Analysis of Wisconsin Data Paralleling the Ohio analysis, the following regression models were explored first for the counties located in an SMSA and then for all other coun- ties in the state of Wisconsin. (a) A a0+ a1A + a2X + a 3P (b) b0+ b1A + b2 P + b3T + b4Y where for each county, A =percent change in land in farms from 1964 to 1969 (data from Census of Agriculture, 1964 and 1969) A =percent of farmers over 65 years of age in 1964 (data from Census of Agriculture, 1964) P =change in population density (persons per square mile) from 1960 to 1970 (data from County and City Data Book, 1973 and 1967). Y =gross farm income per acre in 1969 (data from Census of Agriculture, 1969) 598-330 0 - 76 - 24 355 Technical Analyses -- Supply and Demand Studies T = property tax per acre on agricultural land and improvements in 1969 (tax data from Wisconsin Department of Revenue, "Property Tax 1969," Table V for taxes levied; and acreage data from Census of Agriculture, 1969) X = property taxes on agricultural land and improvements in 1969 divided by gross farm income in 1969 = T/Y. Generally speaking, the period 1964 to 1969 was one of relatively low re- turns to agricultural activity and large losses of farmland. This can be seen in Table 4, which shows the means and standard deviations of n, A, P, Y, T and X for the SMSA counties (except Milwaukee County, which is unusually urbanized for Wisconsin, and Douglas County, which is part of the Duluth, Minnesota SMSA but largely rural), Milwaukee County, and all other counties, called "rural," (except Menominee, Shawano, and Oconto, fo-r which data are incomplete.) Unfortunately, it was not possible to separate out the effects of popula- tion increase (as measured by P) and taxes (as measured by T or X) while hold- ing the other variables constant in either the urban (SMSA) or rural counties. This difficulty arises because of the high degree of correlation between P and T, or P and X. See Tables 5 and 6. As a result of this multicollinearity a reliable estimate cannot be made of the effects of P and T on A, the percent change in land in farms from 1964 to 1969. An ambiguous result can only be misleading, so we have decided not to report. theestimated regression equations. (For the rural counties model b is not beset by multicollinearity problems, but R2 is less than .25.) Table 4 SUn4ARY OF DATA FOR WISCONSIN COUNTIES Counties Statistic A P Y T X SMSA except Milwaukee mean -8.25 13.90 57.18 106.42 10.71 0.099 and Douglas std. dev. 4.89 3.28 33.06 18.20 3.95 0.033 (11 counties) Milwaukee observed -32.20 22.20 113.00 260.18 57.28 0.220 value Rural mean -13.38 14.54 3.53 69.04 4.56 0.066 (57 counties) std. dev. 7.97 2.76 6.06 26.83 2.21 0.014 Definitions of Variables A = Dercent change in land in farms from 1964 to 1969 A =percent of farmers over 65 years of age in 1964 P =change in population density from 1960 to 1970 (persons per square mile) Y =gross farm income per acre in 1969 T =property tax per acre on agricultural land and improvements in 1969 X =T/Y 356 Technical Analyses Supply and Demand Studies Table 5 CORRELATION OF VARIABLES IN ELEVEN SMSA COUNTIES IN WISCONSIN (excluding Milwaukee and Douglas Counties) 1@ P A T Y X 1.00 -.56 -.35 -.25 .38 -.56 P 1.00 .80 .75 .19 .83 A 1.00 .65 .09 .75 T 1.00 .60 Y 1.00 --- X 1.00 Table 6 CORRELATION OF VARIABLES IN 57 RURAL COUNTIES IN WISCONSIN P A T Y X A 1.00 .30 .38 .51 .66 -.06 P 1.00 -.01 .74 .55 .41 A 1.00 -.23 -.32 .19 T 1.00 .82 --- Y X 1.00 Looking at Table 5, we can observe that in urban areas percent change in land in farms is negatively correlated with P and rather weakly correlated with A, T, and Y, and negatively correlated with X. In the rural counties, Table 6 reveals that strong simple correlations occur between percent change in land in farms and T (a positive correlation!) and Y. However, as noted above, these simple correlations relating A and P and T cannot be tempered by holding P or T constant to investigate the partial correlation of A and T or A and P re- spectively. Finally, a graphical inspection of the rural and urban data did not lead to any improvements in the condition of the data, such as transform- ations to account for nonlinearities or deletion of outliers. b. Analysis of New Jersey Data For New Jersey as for Wisconsin and Ohio, we attempted a regression analysis in which percent change inland in farms from 1964 to 1969 was the dependent variable and in which the independent variables included agricultural property taxes per acre in 1969 and increases inpopulation density from 1960 357 Technical Analyses -- Supply and Demand Studies to 1970 (in persons per square mile). 1 only sixteen counties had appreciable agricultural activity in 1964 and 1969, and so the analysis was restricted to just these counties. However, there is some difficulty using county data-in New Jersey because of the heterogeneity of the counties. For example, Burling- ton County contains suburban development near Philadelphia plus part of the New Jersey Pinelands 20 or more miles from Philadelphia. County-wide changes in land use may be quite deceptive, as the causes for these changes may be different in different parts of the same county. Even worse, though, the high correlation between taxes and population increase, 0.71, makes it nearly impossible to se- parate causes of the loss of farmland and attribute proportions of that loss to taxes and population pressures. The causes are indistinguishable, and hence the effect of reducing property taxes is difficult to assess. For the sixteen New Jersey Counties 2means and standard deviations are pre- sented below for: percent change inland in farms from 1964 to 1969 (A), agri- cultural property tax per acre in 1969 (T), and increase in population density (persons per square mile) from 1960 to 1970 (p).3 Table 7 SUMMARY OF DATA FOR NEW JERSEY COUNTIES Statistic A T P Mean -13.34 30.07 147.06 Standard deviation 11.38 14.06 138.97 Definition of Variables A = percent change in land in farms from 1964 to 1969 T = agricultural property taxes per acre in 1969 P = increase in population density from 19.60 to 1970 (persons per square mile) 1 The tax data were computed by multiplying the assessed value of farmland in a county as a proportion of the assessed value of all property in a county (taken from columns 26 and 27 in the Farmland Assessment Act of 1964 Summary for 1969) by total property taxes paid in 1969 (taken from columns 12DIII and 15C of Appendix 2--Abstracts of Ratables and Tables of Equalized Valuations in the 1969 Annual Report of the Division of Taxation. 2 The counties are: Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Salem, Somerset, Sussex, and Warren. 3 The data on percent change in land in farms are from the 1964 and 1969 Census of Agriculture and increase in population density from the County and City Data Books for 1973 and 1967. 358 QUESTIONNAIRE AND SUMARY OF RESPONSES Are you a farm owner? I'm from the Regional Science Research Institute, a non-profit organization. If you have a few minutes, 0 I'd like to ask you some questions about the economic pressures on the farmer these days. 1) Pennsylvania has recently passed a law which m 'akes it possible for county and municipal tax assessors to assess farmland at its value for farming instead of the higher value it might bring if sold. Do you intend to apply? ±2.87, es 24.67,no y 11.6% no answer 2) Assume that your taxes would be only 50% of the present dollar amount if.you participate in the new Pennsylvania preferential assessment law. Would this reduction in property taxes have an effect on any intention you might have to sell your farm? (Check one) It would make it much less likely that I would sell 23.2% It would make it somewhat less likely that I would sell 15.9% It would have no effect 58.0% It would make it somewhat more likely that I would sell 1.4% It would make it much more likely that I would sell 1 0% no answer 1. 4% 3) If you were to sell your farm (or a large portion of it) in the next few years, what would be the major reasons for doing so? Please rate each of the following reasons, on a scale from 0 to 100. Key points on the rating scale are identified as follows. How- ever-, don't restrict yourself to these five key ratings. Use any numbers between 0 and 100. Rating Meaning 100 the most important 75 very important 50 a major consideration 25 a minor consideration 0 not important at all Average Reason Rating a. value of farm products is too low 54.7 b. inheritance tax is too large 19.2 C. price-offered attractive 36-2 d. death infamily 26.1 e. property taxes too high 48.7. f. all nearby land is being developed 24.7 g. difficult t o hire good farm labor 29-9 h. desire to move elsewhere 14-1 1. ready to retire 22.0 j. costs of operation too high 99.7 k. desire for different kind of work 9.3 1. other (please specify) 359 4) Aside from personal reasons (such as ill health, advancing age, etc.), how important is it to you to remain in farming? (Check- one). 72.5% Very important to me. I would not consider going into any other line of work, even if it paid more. 23.2% If opportunity arose, I might be tempted by another kind of work. 1.4% 1 would like to give up farming if I could get a good enough job elsewhere 2.9% no answer 5) Approximately how old are you (ask owner)?/(-= 44.62, 07= 12.57 Do you have a son or close relative who is interested in continuing to farm? 4Z_Ll yes a3_31no no answer 1 18.8% If so, approximately how old is he don't knowi 6) How large is your farm? - - -acres/@ = 179.710, 6-= 89.297 What are the major crops or products? corn, dairy, beef. hay most c on 7) What county is it in? SMSA yes 44, no 25 8) How close is it to a major city? What city is it 360 III. BIBLIOGRAPHY* INTRODUCTION In evaluating differential assessment programs, information and theory must be drawn from many areas of knowledge including land economics, agriculture, and property taxation. Reflecting this situation, references listed in this bibliography have been classified by their primary subject matter under one of the 12 categories explained below. The categories were chosen to assist in sorting out the wide literature that is relevant to the questions addressed in this report. There is some unavoidable overlap among them because many references cover more than one topic, especially in the areas of differential assessment programs, the land market, and agricultural policy. The central focus of the bibliography is on the assessment of open land and .differential assessment programs, the land market and the land conversion process, and agricultural land policy. These listings are quite comprehensive, while related categories of background topics include a few central works. Brief annotations accompany many works. The categories used are: A. Property Taxation, General These references present a general background in the theory and practice of property taxation. Jensen's is the classic study, including a history of property taxation. Netzer provides a comprehensive introduction to the central issues and the societal context of property taxation. B. Property Tax Reform and Relief As local revenue needs have soared, attention has been-focussed on the need both to reform the administration of the property tax and to provide relief for groups hit particularly hard by the increasing tax burden. The collection of articles in Property Tax Reform, edited by George Peterson, provides a detailed discussion of the range of issues in this area. Useful publications by the Advisory Commission on Intergovernmental Relations ha@ie monitored progress toward property tax reform and assessed the need for property tax relief. The "circuit-breaker" concept, which has gained widespread application in the states, is covered in several references. Several articles on site-value taxation have been included because of continued interest in this area among tax theorists. C. Property Taxation and Land Use These works contain general theoretical and empirical discussions of a topic that has interested city planners and land economists for many years: the general relationship between property taxation and land use. While earlier optimism that the force of property taxation could be harnessed to promote desired development patterns has dampened, considerable discussion continues. Articles in the sections on the land market and on differential assessment also encompass extensive discussions of this relationship in a more specific context. D. Ad Valorem Assessment Concerned with the practices and problems of ad valorem, or market value, assessment, these references present the context and the practices that have led states to pass differential assessment laws. Prepared by James Farnam 361 Bibliography: Introduction E. Tax Incidence and Equity The technical question of tax incidence, or exactly who bears the final burden of the property tax, is the subject of heated debate among economists. The regressivity or progressivity of the property tax depends on one's definition of income as current or lifelong, on whether capital gains are counted in annual income while they accrue, and on the local administration of the tax, which can be very different from theoretical models. Netzer's 1973 article, "Incidence of the Property Tax Reconsidered," presents a good outline of the major arguments in the debate. The literature under Property Tax Reform and Relief also considers questions of incidence, especially Property Tax Reform, edited by George Peterson, and Financing Schools and Property Tax Relief from the Advisory Commission on Inter- governmental Relations. F. Assessment of Agricultural and Open Lands This section includes references on the problems and practices of agricultural and open space land assessment. This includes studies of assessment levels, tax burdens, and general issues involved in assessing these lands, as well as guide- lines and handbooks for making the assessments of land under the differential assessment laws. While this section contains some treatment of differential assessment programs, primarily it elaborates on the situations which have precipitated differential assessment legislation and some of the mechanics of use-value assessment. Numerous references in the next section also discuss these subjects i:n the context of the differential assessment legislation. Also included in this section are data on farm real estate taxes, the most useful and comprehensive source being Farm Real Estate Taxes: Recent Trends and Developments issued annually by the U. S. Department of Agriculture, Economic Research Service, and the statistical bulletins from the same source. G. Differential Assessment: Programs and Issues This section is a comprehensive listing of works about differential assessment programs in theory and practice. The range of issues covered includes the necessity of differential assessment, the magnitude and distribution of benefits under the programs, the shift in tax burden from participating lands to other classes of property, the land use effects, the legal questions, particular program provisions, administrative problems, political analyses, and related questions. The two most recent and comprehensive studies of differential assessment are: State Programs for the Differential Assessment of Farm and Open Space Lands by Thomas F. Hady and A. G. Sibold and Use-Value Farmland Assessments: Theory, Practice, and Impact by the International Association of Assessing Officers (IAAO). Hady and Sibold describe state statutes in detail after a discussion of the issues involved. The IAAO study, by Richard Gloudemans, does this and also looks at the impact on the tax base and on land use in detail. 362 Bibliography: Introduction H. Forest and Timber Taxation A number of states, particularly those with extensive forest products indus- tries such as Maine, Oregon, and Washington, have enacted laws for the differential assessment of forest land and timber. Usually these substitute a yield tax at harvest time for the annual ad valorem tax levy. These references outline the major issues and provide details of state legislation. I. The Land Market and the Land Conversion Process A central goal expressed in much of the differential assessment legislation is the preservation of agricultural and open space lands. Evaluation of the pro- grams by this criterion requires an understanding of the dynamics of the land market, particularly on the rural-urban fringe, and the land conversion process. The references in this section cover a range of topics in these areas in- cluding land market imperfections, determinants of market value, the divergence between market and use-value, the causes and nature of urb an sprawl, the motiva- tions of participants in the land market, and the public stake in the land market. Many works present data on transfers and market values of open land. J. Agriculture: Data, Policy, and Preservation Legislatures have enacted differential assessment laws in an effort to sup- port the agricultural sector and the "family farmer" in particular. Numerous states, particularly in the Northeast, have moved toward developing more compre- hensive policies for "agricultural preservation" which encompass not only land policy but a range of measures designed to pro-mote a healthy and permanent agri- cultural sector. These references present the environment in which differential assessment and other agricultural policy measures must be considered: the farm income situation, problems of farming in urbanized areas, changes in technology, farm tenure patterns, and policy statements of state commissions created to study the situation. References in the section on differential assessment programs also consider questions of agricultural policy at some length. K. Open Space Selected references from the extensive literature on the preservation of open space which are particularly relevant'to our interests are presented here. L. Miscellaneous State Documents State government documents referred to in our investigation but not coming under the categories above are listed here for reference. A. PROPERTY TAXATION, GENERAL Benson, George C.S., et al. The American Property Tax: Its History, Adminis- tration, and Economic Impact. Claremont, Ca.: Claremont MenTs -College, 1965. Bird, Frederick. The General Property Tax: Findings of the 1957 Census of Governments.' Chicago: Public Administration Service, 1960. 363 Bibliography: A. Property Taxation, General Jensen, Jens P. Property Taxation in the-United States. Chicago: University of Chicago Press, 1931. Lewis, Henry C. The Property Tax: An Introduction. Chapel Hill, N.C.: University of North Carolina, 1972. .Lindholm, R.W., ed. Property Taxation, U.S.A. Proceedings of a Symposium Sponsored by the Committee on Taxation, Resources, and Economic Development at the Univ- ersity of Wisconsin, Milwaukee, 1965. Madison: University of Wisconsin Press, 1967. Musgrave, Richard, and Shoup, Carl, eds. Readings in the Economics of Taxation. Homewood, Ill.: R.D. Irwin, 1959. Netzer, Dick. Economics of the Property Tax. Washington, D.C.: The Brookings Institution, 1966. Raup, Philip M. "The Historical Raeionale for the Property Tax." Staff Paper. St. Paul, Minn.: Department of Agriculture and Applied Economics, Institute of Agriculture, University of Minnesota, October 1973. Tax Institute of America. The Property Tax: Problems and Potentials. Princeton, N.J., 1967. Stokes, Charles. "The Property Tax Reconsidered." American Journal of Economics and Sociology 22 (October 1963): 47342. U.S. Congress. Senate. Committee on Government Operations. Subcommittee on Inter- governmental Relations. Status of Property Tax Administration in the States: Responses to a Survey. 9Td -Cong., lst sess., Committee Print, 1973. Washington State, Department of Revenue. Washington's Property Taxes: An Histor- ical Review with Particular Reference to Recent Changes. By Donald R. Bur- roughs, Director of Research and Information. Olympia, 1974. B. PROPERTY TAX REFORM AND RELIEF Advisory Commission on Intergovernmental.Relations, Financing Schools and Property Tax Relief: A State Responsibility. A-40. Washington, D.C.: Advisory Com- mission on Intergovernmental Relations, January, 1973. Broad study outlining issues of property tax relief. Extensive data and well-developed arguments. Concludes that the Federal government should not act to relieve property tax burdens. . The Property Tax in a Changin@ Environment: Selected State Studies. M-83. Washington, D.C.: U.S. Government Printing Office, March 1974. Monitors continued progress toward property tax and assessment reform in the states. Summarizes selected state property tax studies. The Role of the States in Strengthening the Property Tax. 2 vols. Washington, D.C.: Advisory Commission on Intergovernmental Relations, 1963. Extensive recommendations for state action on property tax reform. Describes property tax laws and practices in each state. Bails, Dale. "An Alternative: The Land Value Tax; The Argument for Continued Use of Part of the General Property Tax." American Journal of Economics and Sociology 32 (July 1973): 283-94. 364 Bibliography: B. Property Tax Reform and Relief Bendick, M., Jr. "Designing Circuit Breaker Property Tax Relief." National Tax Journal 27 (March 1974): 19-28. Browning, Clyde E. "Land Value Taxation: Promise and Problems." Journal of the American Institute of Planners 29 (November 1965) : 301-9. California. Legislature. Assembly Interim Committee on Revenue and Taxation. Taxation of Property in California, A Major Tax Study. Sacramento, 1964. Connecticut. Report of the Governor's Commission on Tax Reform. 3 vols. Hartford, December 1972. Comprehensive study of state and local finance and taxation in Connecti- cut. Recommends changes in school financing system. Calls for basic reforms in property tax administration with a greater state role. Dowd, M.J. "Kansas Property Taxpayer Remedies." Washburn Law Journal 11 (Fall 1971)- 65. Fryman, Richard., "Property Tax Relief: Circuit Breakers for the Elderly and Dis- abled." Illinois Business Review 30 (October 1973): 6-8. Fusfeld, D.R., and Kowalski, J.R. "Reforming the Michigan Property Tax." Michigan State Bar Journal 49 (July 1970): 13. Gaffney..Mason. "What is Property Tax Reform?" American Journal of Economics and Sociology 31 (April, 1972). Greenfield, Margaret. Property Tax Exemptions f2r Senior Citizens. Berkeley: Institute of Governmental Studies, University of California, 1966. Harris, C. Lowell. "Land Value Increment Taxation: Demise of the British Better- ment Levy." National Tax Journal 25 (December 1972): 567-71. Analyzes repeal of British land value increment taxation for its impli- cations for American use of land value taxation. Concludes that the failure of the act does not cast doubt on desirability of heavier reliance on land value taxation. Harris., C. Lowell. "Property Taxation: What's Good and What's Bad; How to Use Property Taxes More Rationally and Effectively." Challenge 16 (September/ October, 1973): 16-21. Kiefer, Donald W. "The 1973 Tax Package." Indiana Business Review. Special Tax Issue 49 (October 1974). Lockner, H.J. "Circuit-Breakers on Farm Property-Tax-Overload: A Case Study." National Tax Journal 26 (June 1973): 233. Estimates imipact of property taxes on South Dakota farm firms and explores circuit-breakers as a relief measure. Policy considerations discussed. . "Circuit-Breakers on Farm Property-Tax-Overload in South Dakota." In Property Taxes and the Circuit-Breaker. Edited by Calvin A. Kent and Allyn 0. Lockner. Vermillion, S.D.: InsFi-tute of Public Affairs, University of South Dakota, September 1971. Peterson, George E., and Solomon, Arthur. "Property Taxes and Populist Reform." Public Interest (Winter 1973): 60-75. Peterson, George E., ed. Property Tax Reform. Washington, D.C.: The Urban Institute, 1973. Good collection of articles by experts in property taxation debating issues of property tax reform. 365 Bibliography: B. Property Tax Reform and Relief Pickard, Jerome. "Adapting the Property Tax to Social and Economic Change." Urban Land 24 (December 1965). Popp, Dean, and Sebold, Fred. "Redistribution of Tax Liabilities Under Site- Value Taxation: A Survey of San Diego County." American Journal of Economics and Sociology 31 (October 1972): 413-26. "Property Tax Equalization and Assessment: A Proposal for Reform." -Nebraska Law Review 50 (Fall 1970): 103. "Property Tax Relief Reappraised." Tax Law Review 27 (Winter 1974): 341-6. Quindery, Kenneth and Cook, B. "Humanization of the Property Tax for Low Income Households." National Tax Journal 22 (September 1969): 357-67. Rader, R.D. "New Hope for the Property Tax." Assessor's Journal 8 (July, 1973): 37-50. "Real Property Tax Relief for the Elderly." University of Michigan Journal of Law Reform 7 (Winter 1974): 388-404. Reischauer, Robert D., and Hartman, Robert W. Reforming School Finance. Washington, D.C.: The Brookings Institution, 1973. Called by Dick Netzer the "most succinct summary of the revisionist ap- proach." Excludes all excise tax effects of the property tax. Schoettle, Ferdinand P. "Judicial Requirements for School Finance and Property Tax Redesign: The Rapidly Evolving Case Law." National Tax Journal 25 (1972): 455. Smith, Annick. "The Need for Property Tax Reform: A Report on Administration and Assessment of Property Taxes in Montana." Montana Business Quarterly 11 (Winter 1973): 36-54. Surrey, Stanley S. Pathways to Tax Reform. Cambridge, Mass.: Harvard University Press, 1973. Discusses concept of tax "expenditure". "Tax Assessments of Real Property: A Proposal for Legislative Reform." Yale Law Journal 68 (1958): 335-86. A statement of the general problems of assessing real property, with proposals for reform. Texas Research League. The Texas Pr2perty Tax: Background for Reform. Austin, 1973. U.S. Congress. Senate. Committee on Governmental Operations. Subcommittee on Intergovernmental Relations. Hearings on the Impact and Administration of the Property Tax, May 4 - August 22, 1972, 92d Cong., 2d sess., 1972. U.S. Congress. Senate. Committee on Government Operations. Subcommittee on Intergovernmental Relations. Hearings on the Property Tax Relief Act of 1973, May 2-4, 1973, 93d Cong., lat sess., 1973. Virginia. Reforming the Virginia Property Tax: Governorts Property Tax Reform study. 2 vols. Richmond, 1974. 1 Includes a paper by Rountrey and Associates, "Real Property Tax Exemp- tions and Relief: A Study of Policies, Practices, and Impact",which dis- cusses the application of use-value assessment in two Virginia counties. 366 Bibliography: B. Pro2erty Tax Reform and Relief Washington. Department of Revenue. Division of Research and Information. Property Tax Relief in Washington: A Comparative Analysis of Alternative Proposals to Provide Assistance for Selected Groups of Taxpayers. Olympia, 1972. Chiefly concerned with assistance to elderly taxpayers. C. PROPERTY TAXATION AND LAND USE Barnes, R.M., et al. "The Fiscal Approach to Land Use Planning." Journal of the American Institute of Planners 21 (1955) : 71-75. Beek, Morris. Property Taxation and Urban Land Use In Northeastern New Jersey. Washington, D.C.: Urban Land Institute, 1963. Discusses differentials in assessed values between the city and the suburbs. Beeman, William J., The Property Tax and the Spatial Pattern of Growth Within Urban Areas. Research Mbnograph4sl6. Washington, D.C.: Urban Land Insti- tute, 1969. Bowden, G.D. "Town Planner Meets Tax Man." Victoria University of Wellington Law Review 6 (February 1972) : 121. Case, Fred E. Property Taxes and Land Uses: A Case Study of Los Angeles County, 1960. Los Angeles: Graduate School of Business Administration, University of California, 1965. Clark, W.A.V. The Impact of Property Taxation on Urban Spatial Development. Los Angeles: Institute of Governmental and Public Affairs, University of Cali- fornia, 1974. In a study comparing three modes of property taxation in New Zealand, Clark finds that the taxing system has no identifiable impact on urban development. Includes review of literature on the relationship between property taxation and land use. Delogu, Orlando E. "The Taxing Power as a Land Use Control Device." Denver Law Journal 45 (1968). Speculative article suggesting several ways in which taxing power could be used to control land use. Does not contain much new insight. Due, John. "studies of State-Local Tax Influence on location of Industry." National Tax Journal 14 (June 1961) : 163-73. Discusses controversy over property tax incentives designed to attract industry. Environment West Research and Planning, Inc. Property Tax Methods--Land Use Con- trols. Idaho: Environment West Research and Planning, Inc., 1973. Findley, Roger W., and Latcham, Franklin C. "Influences of Taxation and Assess- ment Policies on Open Space." in Open Space and the Law, pp. 53-72. Edited by Frances W. Herring. Berkeley: Ins titute 0t Governmental Studies, Univ- ersity of California, 1965. Gaffney,.Mason. "Coordinating Tax Incentives and Public Policy: The Treatment of Land Income." Paper presented at the Brookings Institution, May 1969. Gillespie, J.R. "Urban Affairs: The Property Tax and Urbanization." Adminis- trative Law Review 21 (April 1969) 319. 367 Bibliography: C. Property Taxation and Land Use Goldsmith, Martha, and Quigley, Steve. The Impact of Property Taxation on Land Use in Washington State. Bellevue, Wa.: Washington State Land Planning Commission, 1972. Hagman, Donald G. "The Single Tax and Land Use Planning: Henry George Updated." UCLA Law Review 12 (1965). Critique of site value taxation. Heilbrun, James. Real Estate Taxes and Urban Housing. New York: Columbia Univ- ersity Press, 1966. Keene, John C., ed. Policy implications of the Real Property Tax. Philadelphia: Institute for Environmental Studies, University of Pennsylvania, 1972. Papers exploring equity and land use effects of the real property tax. Includes "The Real Property Tax and the Conversion of Farmland to Urban Use", discussing differential assessment. Land, Allen. "Toward Optimal Land Use: Property Tax Policy and Land Use Planning." California Law Review 55 (August 1967) : 856-97. General discussion of interrelation of land use and taxation. Proposes remedies affecting tax, base and structure of tax. Legler, John B. "Alternative Forms of Property Taxation." 1971 Land Use Annual. Chicago: American Society of Planning Officials, 1971. Netzer, Dick. "The Property Tax and Alternatives in Urban Development." Papers and Proceedings of the Regional Science Association 9 (1963) : 193. Pickard, Jerome. Taxation and Land Use in Metropolitan and Urban America. Wash- ington, D.C.: Urban Land Institute, 1966. . Changing Urban Land Uses as Affected by Taxation. Washington, D.C.: Urban Land Institute, 1962. . "On Finding Out the Tax Impact on Land Use." Urban Land 22 (January 1963). Rickert, John E. "The Present and Potential Role of State and Local Taxation in the Preservation or Development of Open Space Land in Urban Fringe Areas." Washington, D.C.: Urban Land Institute, 1965. Siegman, Bernard H. Land Use Without Zoning. Lexington, Mass.: D.C. Heath and Co., 1972. "Site Value Taxation: Economic Incentives and Land Use Planning." Harvard Journal of Legislation 9 (November 1971): 115. Southern Land Economics Research Committee and Interregional Resource Economics Committee. Property Taxation, Public Finance, and Land Use: Joint Seminar Proceedings. n.p.: Southern Land Economics Research Committee, April 1972. Stiles, Lynn A. "Local Tax Structure and Metropolitan Area Land Use." Urban Land 22 (January 1963). "Toward Optimal Land Use: Property Tax Policy and Land Use Planning." California Law Review 55 (August 1967) : 856. U.S. Congress. Senate. Committee on Government. Operations. Property Taxation: Effects on Land Use and Local Government Revenues. Washington, D.C.: U.S. Government Printing office, 1971.__ Not very helpful. 368 Bibliography: C. Property Taxation and Land Use Walker, Mable. "Land Use and Local Finance." Tax Policy 29 (July-September 1962). "Impact of Taxing Practices on Land-use Problems." Proceedings of ih-esouthwestem Legal Foundation 1962 Institute on Planning and Zoning. Albany: Matthew Bender and Co., Inc., 1963. Woodruff, A. "How Changing Tax Laws Affect Land Development." Urban Land 20 (June 1961). Zimmerman, E.A. "Tax Planning for Land Use Control." Urban Law 5 (Fall 1973): 639-78. D. AD VALOREM ASSESSMENT Bureau of Government Research. Local Government Property Tax Assessment. Kingston, R. I.: University of Rhode Island, 1973. Cheng, Pao Lun. "Common Level of Assessment in Property Taxation." National Tax Journal 23 (1970): 50. Holland, Daniel M., ed. The Assessment of Land Value. Proceedings of a Symposium Sponsored by the Committee on Taxation, Resources, and Economic Development. Madison: University of Wisconsin Press, 1970. Papers focusing on issues of site value taxation and the problems of assessing land. Indiana. State Board of Tax Commissioners. Indiana Real Property Appraisal Manual. Indianapolis, 1968. Keith, John H. Property Tax Assessment Practices. Monterey Park, Ca.: Highland Publishing Company, 1966. Newhouse. Constitutional Uniformity and Equality in State Taxation. 1959. "Real Property Tax Assessment: A Look at Its Administration Practices and Procedures." Albany Law Review 38 (1974): 498-523. "Recent Developments in Ad Valorem Taxation.11 University of Florida Law Review 20 (Summer 1967). Ring, Alfred A. The Valuation of Real Estate. Englewood Cliffs, N. J.: Prentice-Hall, 1965. Santemma, J. N. "Review of Real Estate Tax Assessments." Real Estate Law Journal 2 (Winter 1974): 685-693. Karl "Inadequacy of Actual Selling Price of Real Estate as Evidence Scholz, of Fair Present Value for Purposes of Taxation." Annals of the American Acadea of Political and Social sciences 148 (March 1930): 157-64. Critical view of land market data for assessment purposes. Smith, E. S. "Issues and Problems in the Valuation of Real Estate." New York University Institute of Federal Taxation 30 (1972): 209. "Value for Tax Purposes." Assessor's Journal I (January 1967): 1-4. Wershow, James. "Ad Valorem Assessment in Florida--Whither Now?" University of Florida Law Review 17 (Summer 1965). 369 Bibliography: E. Tax Incidence and Equity E, TAX INCIDENCE AND EQUITY Brown, J. Bruce. "The Incidence of'Property Taxes Under Three Alternative Systems in Urban Areas in New Zealand." National Tax Journal 21 (1968): 237. "A Comparison of the Regressiveness of a Sales and a Property Tax." Agricultural Finance Review 24 (June 1963): 34-39. Iowa and Nebraska data used to show property tax bears more heavily on lower income farmers. Gaffney, Mason. "In Praise of the Property Tax." Washington Monthly 4 (February 1973): 2-6. Maintains that property tax is progressive. Mieszkowski, Peter. "The Property Tax: An Excise Tax or a Profits Tax?" Journal of Public Economics 1 (April 1972): 73-76. Mieszkowski, Peter. "Tax Incidence Theory: The Effects of Taxes on the Distribu- tion of Income." Journal of Economic Literature 7 (December 1969): 1103-1124. Good listing of relevant literature. Mitchell, William. "Equity Effects of Property Tax Relief for the Aged: The Circuit Breaker Legislation." American Journal of Economics and Sociology 32 (October 1973): 367-78. Netzer, Dick. "Incidence of the Property Tax Reconsidered." National Tax Journal 26 (December 1973): 515-35. Discussion pulling together debate over incidence. Argues that due to great diversity among taxing jurisdictions, there is no substitute for site specific studies. Paglin, Morton, and Fogarty, Michael. "Equity and the Property Tax: A New Conceptual Focus." National Tax Journal 25 (1972): 557. Rosett, Richard N. "Inequity in the Real Property Tax of New York State and the Aggravating Effects of Litigation." National Tax Journal 23 (1970): 23. "Real Property Taxes in Maine and the Impoverished: An Expose?" Maine Law Review 22 (1970): 437. F. ASSESSMENT OF AGRICULTURAL AND OPEN LANDS Admed, Modammed M.A., and L. A. Parcher. Assessing Farmland in Metropolitan Areas. Stillwater, Okla.: Department of Agriculture, Oklahoma State University, 1965. Andrews, John B. "Farm and open Space Assessment." Maine Townsman (April 1972): 4-6. Arkansas. Legislative Council. Research Department. How other States Assess Land and Timber for Ad Valorem Tax Purposes. Memorandum 179. Little Rock, Arkansas, 1973. 370 Bibliography: F. Assessment of Agricultural and Open Lands Barlowe, Raleigh. "Taxation of Agriculture." In Pro perty Taxation - U.S.A., pp. 83-102. Edited by R. W. Lindholm. Madison:- University of Wisconsin Press, 1969. Barron, James C., and Bruce Flores. Open Space Taxation: Guidelines for Assessing Open Space Property Values. E. M. 2426 (rev.). Pullman, Wa.: Cooperative Extension Services, College of Agriculture, Washington State University, 1971. Suggests methods for assessment under Washington Open Space Taxation Act. Includes definitions of terms and instruction in use of Soil Capability Class information. Barrows, Richard L. and Rick Dunford. Land Use and Taxation in Wisconsin. Madison: Dept. of Agricultural Economics, University of Wisconsin; March 1974. Bird, Richard M. Taxing Agricultural Land in Developing Countries. Cambridge: Harvard University Press, 1974. Comprehensive treatment of theory and practice of agricultural land taxation, concentrating on developing countries. Collin, Don V. Open Space Land Assessment Procedures (Revised Edition). Berkeley: California Farm Bureau Federation, 1968, Dopson, F.; Miller, F.; Stocker, F.; and Hady, T. F. Assessment and Taxation of Real Estate in the Florissant Area of St. Louis, Missouri. Columbia, Mb.: Department of Agricultural Economics, University of Missouri, 1969. Downing, Roger H. Real Estate Assessment by Type of Land Use for Counties in Pennsylvania. University Park, Pa.: Department of Agricultural Economics and Rural Sociology, Pennsylvania State University, 1973. Duvall, Garner W. "Appraisal of Farmland in an Urbanized Area." Assessor's Newsletter (June 1964): 67-8. Englebert, Ernest A. "Political Aspects of Real Estate Taxation in Relation to Metropolitan Growth and Planning." In Land and Building Taxes: Their Effect on Economic Development. Edited by Arthur P. Becker. Madison: University of Wisconsin Press, 1969. Epp, Donald J., Peter H. B. Norton, and William M. Carroll. "The Agricultural Land Tax Issue." Farm Economics, University Park, Pa.: Cooperative Extension Service, Pennsylvania State University, April 1973. Evans, Barry. "The Assessment of Farm Real Estate for the Purpose of Taxation." M.B.A, Thesis, University of Pennsylvania, 1955. Gard, Gerald B. "Assessment of Open ISpace.Lands." Assessorls;Outlook (May 1968): 28-34. Hack, S. F., and M. T. Sullivan. "Taxation of Undeveloped R6al-Property in Wisconsin." Wisconsin Bar Bulletin 47 (February 1974): 37-42. Hady, Thomas. Rural Property Taxes--Where Are We Headed? Washington: U. S. Dept. of Agriculture, Economic Research Service, T9-72. 598 -330 0 - 76 - 2 5 371 Bibliography: F. Assessment of Agriculturalaid-Open Lands .Assessor and Rural-Urban Fringe." Assessment Administration, 1966, pp. 79-83. Chicago: International Assoc. of Assessing Officers, 1966. . "Assessment of Farmland in Rural-Urban Fringe." Agricultural Finance Review 22 (Septi 1960): 43-57. Criteria for Classifying Properties as Farmland. Washington: U. S. Dept. of Agriculture, Economic Research Service, 1961.. "Farmland Assessment in Rural-Urban Fringe." Appraisal Journal 29 _____T_January 1961): 57-62. Farm Taxes on the Rural-Urban Fringe: A Case Study of Fairfax County, Virginia. ERS-102, Washington, D. C.: U. S. Government Printing office, 1963. Hulse, F. E., and W. P. Walker, Property Tax Problems in Rural Fringe Areas.' Misc. Publ. No. 135. College Park, Md.: Agricultural Experiment Station, University of Maryland, 1952. Hulton, John J. "Hawaii's Modified Property Tax Base Law." Assessor's Journal (October 1970). Kinney, Robert R. "Use of Soil Surveys in the Equalization of Tax Assessments." In Soil Surveys and Land Use Planning, pp. 132-36, Edited by L. J. Bartelli. Madison: Soil Sciences Society of America, 1966. Brief discussion with several examples of soil survey use. Suggests use in deriving capitalization rates. Lewis, Henry W. IlTaxing Farmland.: Market Value Dilemma." Popular Government 34 (April/May 1968): 1-4. Lewis, Stephen R., Jr. "Taxation of Agriculture and Economic Development." In Readingscn Taxation in Develol2ing Countries. Edited by R. M. Bird and 0. Oldman. Baltimore:. Johns Hopkins University Press, 1967. Massachusetts Agricultural Experiment Station. University of Massachusetts. Farm Real Estate Tax Assessments in Nine Massachusetts Towns. Bulletin No. 545. Amherst, Mass., June 1964. Study considered average assessment-sales ratios for five types of properties. Found farms underassessed.in four suburban towns and over- assessed in four of five rural towns, in comparison to other types of property. Matson, Arthur J., and Norman E. Zischke. "Estimating Market Values of Farmland on Basis of Soil Ratings in Brookings County, South, Dakota." Journal of the American Society of Farm Managers and Rural Appraisers (October 1963). Michigan. Department of Natural Resources. Office of Land Use. Land Taxation and Michigan.. A Working Paper, Lansing, 1974. Paper written for legislators considering new land conservation act. General treatment of issues.in-Michigan. Miller, Martin D. "Appraisal of Urban-Rural Fringe Land for Assessment Purposes." Proceedings of the 4th Annual Conference for South Dakota Assessing Officers. Special Program No. 14, Vermillion, S. D.: Governmental Research Bureau, State University of South Dakota, 1961.. 372 Bibliography: F. Assessment of Agricultural and open Lands Minnesota. Department of Taxation. "Introduction to the Farm Market Value Rate." Minnesota Property Tax Bulletin 6 (February 1973). Murray, William G. "Six Fundamentals in Rural Assessment Program." Proceedings of the 3rd Annual Conference of South Dakota Assessing Officers.-S-pe-Ma= Program No, 13, Vermillion, S, D,: Governmental Research Bureau@ State University of South Dakota, 1961. Murray, William G. Farm Appraisal and Valuation..,4th Edition. Ames, Iowa: Iowa State University Press, 1961. New Jersey. Department of the Treasury, Division of.Taxation.'- Local Property Tax Bureau. Demonstration of Farm Appraisal under the Farmland Assessment Act of 1964. T.renton, 1965. Oregon. Department of Revenue. Explantion of Farm-Use Assessment with the Incorporation of 1973 Legislation. Research Report R-1, No. 78-73. Salem, Oregon, 1973. Sets capitalization rate to be used in calculating use-value at 7.25% for 1973. Oregon. Legislature. Report of the Legislative Tax Study Committee to.the 54th Legislative Assembly. Salem, Oregon, January 1967. Discusses taxation of farmland. States that approximately 27% of net farm income is paid for property taxes in Oregon. Partridge, Arthur L., Jr. "Utah's Agricultural LandAdvisory Committee." Proceedings of the 36th International Conference of the IAAO. 1970. Chicago: International Association of Assessing Officers, 1970. Pasour, E. C. Real Property Taxes and 'FarmReal Estate Values in North Carolina. Economics Research Report No. 25. Raleigh, N. C.: Department of Economics, North Carolina State University,-August 1973. Regressed average values of farm real estate on effective tax rate for county and other variables. Property taxes found to be capitalized.into lower land values. Effects of use-value assessment will vary widely in terms of both impact on individual farms and on local tax rates., Pasour, E. C,, Jr, Market and Tax Values of Farm Real Estate in-North Carolina4 Economics Research Report No. 28. -Raleigh,.N. C.: Department of Economics, North Carolina State Uhiversity,.July 1974. Analyzes parcel data. Found significant underasses6ment.of-famland, especially near cities. No incentive to join program until taxes equalized. Pasour, E. C. Jr, "Real Property Taxes and.Farm Real Estate Values: Incidence and Implications." American Journal of Agricultural Economics 55 (November 1973): 547-56. Condensed form of August 1973 report listed above. Phillips, Joseph Allen. Use of Soil Surveys in Land Valuation for Tax Assessment. - Ph.D. dissertation, Iowa State University, 1968. Pierce County (Washington@'Operr Space Advisory Com Imittee. Report to the Pierce County Assessor. Open Space Current Use Tax Appraisal Guidelines for Farm and Agricultural Lands under Provisions of Chapter 84.34 RCW. December 1973. 373 Bibliography: F. Assessment of Agricultural and Open Lands Prium, James Gordon. "Soil Surveys." International Property Assessment Administration. Vol. 2. Chicago: International Association of Assessing officers, 1970. St. Amour, Merle R. "Market Value vs. In-Use Value for-Assessment Purposes." Assessor's Journal (July 1969). Scruggs, David C. "Ad Valorem Taxation of Agricultural Land in Tennessee." Memphis State University Law Review 4 (Fall 1973): 127-37. Discussion of recently enacted classification system in Tennessee. No consideration should be given to "speculative value" or potential use, says law. Reports administrative ruling setting aside appraisals. Also, discusses case based on 1967,law prohibiting "undue" consideration of speculative value. State ex rel. Gasser v. Cole-Layer-Trunbl.6 Co. Judge said "another approach to value (aside from sales) is critically needed" in the-case of fa rmland Spears, McGehee H. "Taxes on Farmland in Metropolitan Areas." Agricultural Finance Review 23 (April 1962): 22-26. Spitze, R.G.F., and Heneberry, W. H. "Burden of Property Taxes on Illinois Agriculture." Report. Springfield: Illinois-Commission on Revenue, 1963. Stalcup; H. E "Economic, Governmental, and Social Influences on Rural Properti;s." Proceedings of the 10th Annual Conference for South Dakota Assessing Ofticers: 1968. Pierre, S. D.: South Dakota Department of Revenue, 1969. Stinson, Thomas F., Courtney, Eleanor L., and Bird, Ronald. Revised Estimates of Taxes Levied on Farm Real Estate Property,,1950-67. Statistical E-ulletin No. 441. Washington, D. C.: U. S. Department of Agriculture, Economic Research Service, 1969. Stocker, Frederick D. "Assessing Farmland in Rural-Urban Fringe." Assessor's Newsletter 28, January 1962, 5-9. "Assessment of Land in Urban-Rural Fringe Areas." in The Property Tax and Its Administration, pp. 141-52. Edited by A. D. Lynn, Jr., Madison: University 6 consin Press, 1969. Discussion of practical problems of farmland assessment-on the urban fringe. Considers data probleds. Warns-that tax abatement in itself "can contribute little or nothing to a socially desirable pattern of land use." in end, no escaping ad valorem taxation of some form. "How Should We Tax Farmland*on the Rural-Urban Fringe?" National Tax Association Proceedings, 1962, pp. 463-471. . "Taxing Farmland in the-Urban Fringe." Journal of Farm Economics 45 (Dee 1963): 1131-37. I'Valuation of Agricultural Land in Urban Fringe Areas." Proceedings of the 7th Institute for Tax Assessors, 1965. Austin, Texas: Institute of Public Affairs, University of Texas, 1966. 374 Bibliography: F. Assessment of Agricultural and Open Lands U. S. Department of Agriculture. Economic Research Service.. Farm'Real Estate Taxes: Recent Trends and Developments. Annual. Washington, D. C. Data on property taxes paid by farmland owners, taxes in relation to farm income and sales. Based on nationwide sample, reported by state and region. Revised Estimates of Taxes Levied on Farm Real Property, 1960-73.,. Statistical Bulletin No. 538. Washington, D. C., April 1975. "Taxes Levied on Farm Real Estate and Farm Personal Property, U. S., Specified Years, 1925-67." Agricultural Finance Review. Supplement 29 (April 1969): 52-63. Virginia, State Land Evaluation Advisory Committee. Classification, @Assess-. ment, and Taxation According to Use of Real Estate Devoted to Agricultural, Horticultural, Forest, and Open Space Purposes. Richmond, Virginia, December 1974. Official manual containing standards for qualification of land under- the Virginia use-value assessment law and procedures for determining use value of eligible lands. Walker, William P. Farm Ownership,Valuation and Takation-in-.Rural-Urban Maryland. Misc. Publication No. 639. College Park, Md.: Agricultural Experiment Station, Department of Agricultural Economics, University of Maryland, June 1965. Walker, William P. '.'Taxing Farmland on the Use-Value Basis." Maryland Agri- Economics, College Park, Md.: Agricultural Extension Service, University of Maryland, 1966. Walker, William Paul, and Gardner, Weyland. Assessing Farmland under Maryland's Use-Value Assessment Law. Misc. Publication-No.-522. -College Park, Md.:. Agricultural ExperimenE-Station, Department of Agricultural Economics, University of Maryland, June 1964. Walker, William Paul, and Gardner, Weyland. Improving Farmland Tax Assessments in Maryland under Non-Farm Use Pressures. Misc. Plubl 'ication No. 553. College Park, Md.: Agricultural Experiment Station,rDepartment of Agricultural Economics, University of Maryland, 1965.- , -. ; Analyzes sales data, 1961-64. Discusses pressures driving values above use-value and different bases for taxation at use-value. Welch, Ronald B. "Agricultural Zoning and Assessment of Farmland." Assessor's,@ Newsletter 31 (August 1965): 123. "Assessment of Farm Land at Agricultural Use-VAlue.11 Paper pFesented .at 40th Annual Meeting of the National Association of Tax Administrators, St. Paul, Minn., June 1972. Short discussion of different techniques for use-value assessment, and their difficulties. Woodruff, A. M. "Valuation of Open Space." Paper presented at the 58th Annual Conference on Taxation of the New England State Tax Officials Association, Whitefield, New Hampshire, September 1970. 375 Bibliography: G. Differential Assessment: Programs and Issues G. DIFFERENTIAL ASSESSMENT: PROGRAMS AND ISSUES Alden, R. F., and M. J.-Shockro. "Preferential Assessment of Agricultural Lands: Preservation or Discrimination?" So. Calif. Law Review 42 (Fall 1968): 59. Good discussion of Williamson Act, but a bit dated due to change in the law. Alston, Farnum, Preferential Taxation of Agricultural and Open Space Lands: A Proposal for Wisconsin. Working Paper BF. Madison: Institute for Environmental Studies, University of Wisconsin, December 1972, Traces experience of proposed programs in Wisconsin. Lists issues which he feels should be addressed in an act. Emphasizes statutory specificity. Barlowe, Raleigh. "Use-Value Assessment in Retrospect." occasional Paper. East Lansing, Mich.: Department of Resource Development, Michigan State University, 1973. Barlowe, Raleigh, et al. "Use-Value Assessment Legislation in the United States." Land Economics 49 (May 1973): 206-12. Summary of state activity and.of issues. Barron, James C. and Thompson, F. Impacts of open Space Taxation in Washington. Bulletin No. 772. Pullman, Wash.: Washington Agricultural Experiment Station, March 1973. Important study of participants in program with large sample question- naire. Also discusses acceptance by tax officials. Finds little impact on land use decisions of landowners. Barron, James C. ','Land Use Impacts.of Preferential Assessment." Paper presented at the Annual Meeting.of the International Association of Assessing officers, November 1973. Discusses economic theory behind use-value assessment. Simulates landowner position under varying market conditions. Barrows, Rich ard L. Use-Vvalue Taxation: The Experience of Other States. Staff Paper Series No. 73, Madison, Wise.: Department of Agricultural Economics, University of Wisconsin, March 1974. Bierlein, James G. "The Economic Effects of Use-Value Assessment on Land Use Patterns in a Selected Community in New Jersey (1966-1969)." Masters Thesis, Rutgers University, 1971. Bowden, Gerald D. "Article XXVIII--opening the Door to Open Space Control." Pacific Law Journal I (July 1970): 461-531. Lengthy consideration of California.Constitutional Amendment which enabled use-value assessment. Brown, Lauren, et al. "Connecticut Public Act 490: Interpretation, Application, and Effects." New Haven, Ct.: School of Forestry, Yale University, May 1972. Survey of 91 Connecticut town assessors. Data an parti&ipation, discussion of issues raised byact. 376 Bibliography: G. Differential Assessment: Programs and Issues Brownell, Jonathan N, "Tax Manipulations as a Method of Open Space Preservation: General Considerations." In Preserving open Space in Expanding Urban Areas. Northeast Regional Resource Economics Committee Report No. 2. Bulletin No. 567, Amherst, Mass,: Massachusetts Agricultural Experiment Station, University of Massachusetts, 1968. Calabrese, Alfred, and Marsele, Peter R. "Taxation of Open Space: Its Pro a and Cons." Assessor's Newsletter (January 1965): 3-7. Two assessors debate Connecticut Public Act 490, an early use-value assessment law. California. Legislature.. Assembly Committee on Planning and Land Use. Special Hearings on the California Land Conservation Act. November 19, 1971. California. Legislature. Joint Committee on Open Space Lands. Final Report. Sacramento, February 1970. California. Legislature. Joint Committee on Open Space Lands. Hearings. Sacramento, March 12, 1968. California. Legislature. Joint Committee on Open Space Lands. Hearings in San Diego. San Diego, September 15-16, 1969. California. Legislature. Joint Committee on Open Space Lands. Preliminary Report. Sacramento, March 1969. Carbonell, Armando; Laforte, Joseph; Breakel, John; and Scheinberg, Steve. "A Survey of P.A. 490's Application." Hartford, Ct.: Connecticut Dept.. of Environmental Protection, April 1975. Survey data on land enrolled under P.A. 490, the use-value assessment statute. Includes assessment levels and tax yield per acre,.. by type of land, by town. Carmen, H. F., and J. G. Polson. "Tax Shifts Occurring as a Result of Differential Assessment of Farmland: California, 1968-69.11 National Tax Journal 24 (December 1971): 449. Data on tax shift due to California's Williamson Act is reported. Average tax reduction from $2.75 down to $1.58 per acre. Ching, C. T. K., and George Frick. "Simulated Effect of Use Value Assessment on Property Tax Rates." Southern journal of Agricultural Economics 2 (December 1970): 121-9. Simulates effect of use-value assessment on tax rates in New Hampshire, develops impact model. Found easier absorption of impact in urbanized areas. Conklin, H. E., and Bryant, W. R. "Agricultural Districts: A Compromise Approach to Agricultural Preservation." American Journal of Agricultural Economics 56 (August 1974)*:- 607-13. Cooke, J. P., and F. B. Power. "Preferential Assessment of Agricultural Land." Florida Bar Journal 47 (Nov 1973): 636-642. Economl-st-s-'--critique of preferential assessment. Claims it upsets neutrality of property tax. Cooke, J. P., and F. B. Power. "Why Florida's Greenbelt Law Won't Work." Real Estate Review (Spring 1972): 84-88. 377 Bibliography: G. Differential Assessment: Programs and Issues Coordinating Committee to, Save Open Space in New Jersey. "The Farmland Assessment Program in New@Jersey: A.'Record of Outstanding Success." Trenton. Januiry'16, 1973. Agricul tur6'lobby defense of act. Council of State Governments, with cooperation of the International Association of Assessing Officers.. Farmland Assessment Practices in the United States.'. August, 1966. Danielson, G. H. "California's Open Space Land Program: Facts Relating to the Impact of the Open,Space Land Program on the Tax Base of Local Government." Recommendations-submitted to the Rules Committee of the California Senate, January 1971 Estimates tax,loss due to Williamson Act at $20 million, based on a survey of assessors.'' Davies, Race D. Preserving Agicultural and Open Space Lands: Legislative Policymaking in California. Environmental Quality Series No. 10. Davis, Calif.: Institute of Governmental Affairs, University of California, June 1972. Legislative histories of land policy bills. Durham (Ct.) open Spaces Study Committee. "A Study of the Effect of Public Act 490 on Durham's Tax Structure and Growth Rate." Durham, Connecticut,@ December, 1971. Short report analyzing shift in tax burden due to including all undeveloped land under the preferential assessmefit program. Eckbo, Dean, Austin, and Williams. State of Hawaii Land Use Districts and Regulations Review., Prepared J@o_rthe State of Hawaii, Land Use Conmission. Honolulu: August, 1969. Describes legislative intent of tax acts. Discusses interaction between land use and tax laws. Criticizesvagueness of law, raising questions about each provision. Eisenlauer, Jack F. "California's, Open Space Law." International Property Assessment Administration. Vol. 2. Chicago: IAAO, 1970. Engel, N. Eugene. ImEact of Farmland Use-Value Assessment on Selected Massachusetts Towns. -Research Bull. No. 599. Amherst, Mass.: Massachusetti--Agricultural Experiment Station, University of Massachusetts, July 1972. Estimates simulated impact of use-value assessment on tax base and tax rates in 22 towns. Also consideres changes in dollars paid per acre of farmland. Finds negligible changes in tax rate. Epp, Donald J., "Assessment of Farmland According to Use.' Farm Economics. University Park, Pa.: Cooperative Extension Service, Pennsylvania State University, October 1972. "Some Effects of Use-Value Assessment of Agricultural Land in, Pennsylvania." University Park, Pa.- Pennsylvania State University, February 1973. 378 Bibliography: G. Differential Assessment: Pro&rams and Issues Fellmuth, Robert C. Politics of Land: Ralph Nader's Study Group ReRort on Land Use in California. New York: Grossman, 1973. Discusses legislative action an land regulation. Very critical of Williamson Act. Outlines flaws and suggests revisions. Ganley, Joseph H. 'Assessing Farmland under Maryland's Use-Value Assessment Law." Assessor's Newsletter (January 1967): 4-6. Griffin, James G. "Land Use Planning--New Mexico's Green Belt Law." Natural Resources Journal 8 (January 1968): 190. General discussion of New Mexico law and implementation. But law has been substantially amended since publication. Hady, Thomas F. "Differential Assessment of Farmland on the Rur'al-Urban Fringe." American Journal of Agricultural Economics 52 (February 1970): 25-!32. standard general discussion of issues, cited by numerous authors. Hady, T. F., and Sibold, A. C. State Programs for the Differential Assessment of Farm and Open Space Lands. Agricultural Economics Report No. 256, Washington, D. C.: U. S. GovarL ent Printing Office, April 1974. Short discussion of issues followed by complete listing and description of state statutes as of late 1973. Haines, Marriott G. "Farmland Assessment Amendment." New Jersey Assessor's Bulletin 4 (March 1965): 5-8. Halprin, Mike, "How Can We Save Open Space?" People and Taxes 2 (July 1974). Partisan review of i.ssues.of open space taxation. Henke, J, T, "Preferential Property Tax Treatment for Farmland." Oregon Law Review 53 (Winter 1974): 117-30. Good general evaluation of issues, bringing together existing studies, with emphasis on Oregon statutes. Considers problems of determining values, preserving farmland, impact on local.revenues, and public benefits. Holland, David M. An Economic Analysis of Washington's Differential Taxation Program. Circular 578. Pullman, Wa.: College of Agriculture Research Center, Washington State University, December 1974. Simulation of effect of differential taxation on landowner decisions, using representative data from land market. While property tax reductions on urban fringe are substantial, potential capital gains far outweigh tax savings after a few years in areas of growth. Holmes, Dallas. "Assessment of Farmland under the California Land Conservation Act and the Breathing Space Amendment.". California Law Review 55 (1967): 273. Analyzes constitutional, statutory, and judicial standards for ,assessment in California as of 1967. House, Peter W. Differential Assessment of Farmland Near Cities ... @@erience in Maryland through 1965. ERS-358. Washington, D. C.: U. S. Department of Agriculture, Economic Research service, October 1967. Compares market and use values of Maryland farmland, calculates tax loss resulting from differential assessment. Tax loss diminishes with distance from the city. 598-330 0 - 76 - 2 6 379 Bibliography: G. Differential Assessment: Programs and Issues . "Farmland and Farmland Owners on the Edge of a Growing City with Special Emphasis on Tax Problems--A Case Study of Rochester, New York." Ph.D. dissertation, Cornell University, 1968. Data and analysis of farming and taxes in five towns. Interviews with landowners show great variation in attitudes and motivations. Finds no evidence that property tax is a crucial factor in sales of farmland. Advocates more direct and effective means of retaining open space land. Opposing Views on Taxation of Land Near Cities. Washington, D. C.: U. S. Dept. of Agriculture, Economic Research Service, 1968. . "Partial Tax Exemption for Farmland Properties in Rural-Urban Fringe." Appraisal Journal 36 (July 1968): 393-407. Preferential Assessment of Farmland in the Rural-Urban Fringe in Maryl d. ERS-8. Washington, D. C.: U. S. Dept. of Agriculture, Economic TesearMc Service, 1961. Similar to ERS-358 above, though earlier and less extensive. Reaches similar conclusions. State Action Relating to Farmland on the Rural-Urban Fringe. Washington, D. C.: U. S. Dept. of Agriculture, 1961. An early version of the 1974 report by T. Hady and A. G. Sibold describing state programs. . Taxation of Farmland on the Rural-Urban'Fringe. ERS-13 Washington: U. S. Government Printing Office, 1961. "How the States Fight to Save Farmlands." Land Use Planning Reports I (November 1973): 5-9. Hyde, Leslie C. State Land Use Laws in the Northeast: A Compendium and Classification of Selected Statutes. Northeast Center for Rural Develop- ment Publication No. 7. Ithaca, New York: Cornell University, April 1975. Includes differential assessment laws in comprehensive listing of land- use laws. International Association of Assessing officers. "Estimating the Probable Impact of Preferential Farmland Assessment in Illinois." Chicago: Inter- national Association of Assessing Officers, February 1974. Found that changes in the agricultural production f-,mction explain two-thirds of the increase in farm real estate values between 1950 and 1969. . Farmland Assessment Practices in the United States. Chicago: IAA02 1969. Updated by 1974 study listed below. Use-Value Farmland Assessments: Theory, Practice, and Impact. Chicago: Research and Technical Services Department, L4AO, 1974. Important source of information and theory. Analyzes arguments for use-value assessment, its effect on the tax base and land use, and its various forms. Keith, John. "The Assessor and ACA-4." Appraisal Journal 30 (July 1962): 395-6. Concerns California constitutional amendment proposition which failed passage. 380 Bibliography: G. Differential Assessment: Programs and Issues Koch, A. R., Morrill, H. H., and Hausaman, A. Implementation and Early Effects of the New Jersey Farmland Assessment Act. Bulletin No. 830. New Brunswick, N. J.: College of Agricultural Economics and Marketing, Rutgers, The State University of New Jersey, 1968. Results of questionnaire to 449 farmland owners, 311 participants and 149 non-participants in Farmland Assessment Act. Krausz, N. G. P., and Pink, F. G. Agricul ral Assessing P actices: Legislative Action to Control Rural Land Assessing in reas Subject to Urbanization. Report No. 26. Washington, D. C.: National Association of Counties Research Foundation, 1963. Yolesar, John, and Scholl, Jaye. Misplaced Hopes, Misspent Millions: A Report on Farmland Assessment in New Jersey. Princeton: Center for Analysis of Public Issues, 1972. Highly critical of use-value assessment. Estimates tax loss of $48 million per year with no return. Estimates that outright speculators control 10% of land in program. Land, Alan. "Unraveling the Rurban Fringe: A Proposal for Implementation of Proposition Three." Hastings Law Journal 19 (1968): 421. Land Use Research Group, University of California, Davis. The California Land Conservation Act in Sacramento County: Implementation and Effectiveness. A Report to the Select Committee on open Space Lands, California Legislature, October 1972. Based on interviews with landowners and analysis of spatial pattern of enrolled lands. Found that lands with higher development potential, closer.to city, were withheld from program. Legislative Analyst. State of California. "Report on Open Space Taxation." Sacramento: December 22, 1971. Discussion of Williamson Act and other measures. Considers assessment methods, easements. Cites problems: 1) different effects on different uses, 2) increased workload on assessors. Livermore, N. B., Jr., Secretary for Resources. Report to the California Legislature on Fiscal Requirements for Open Space Subventions. April 1973. Estimates required payments to localities and school districts under program to compensate for tax revenue loss due to Land Conservation Act contracts. Marshall, J. Paxton. Use-Value Assessment: A Public Interest. Blacksburg: Virginia Polytechnic Institute. 1971. Massachusetts. Legislative Research Council. Report Relative to Assessment of Agricultural Land. Boston, 1970. Information on legal aspects of assessment in Massachusetts with a general discussion of agricultural assessment. Released during debate of use-value assessment in Massachusetts. Mecray, Pat. "Easing the Farmer's Burden or Burdening other Taxpayers?" Region: A Journal of Public Policy in the Delaware Valley I (March 1975), P. 1. Short article on Pennsylvania experience with differential assessment. 381 Bibliography: G. Differential Assessment: Programs and Issues Mix, Averill. "Restricted Use Assessment- Can It Fulfill Its Objectives?" Santa Clara Lawyer ll,(1971): 254-79. Analyzes provisions of Williamson Act in detail with hypothetical examples. Cites need for middle ground between effective deterrent to conversion and provisions so high as to discourage participation. Criticizes California non-renewal provisions as overly'punitive. Mize, Rita M. Interest Group Opinion and California Land Use Legislation. Environmental Quality Series No. 13. Davis, Calif.: Institute of Govern- mental Affairs, University of California, June 1972. History of government involvement in agricultural land use in California. Concludes: it is widely conceded that Williamson Act is not the answer to the landproblem. The act is the product of interest group pressure, not foresight. Meyers, Carol S. Taxation and Development: The Ilse of Tax Policies for Pre- serving Open Space and Improving Development in the Bi-count Raim- Washington: Center for Metropolitan Studies, November 1968. Discusses conditions under which tax will affect decisions on land use. Pessimistic about effectiveness of tax policies alone.in attaining goals. Moff, George. "Administration of Property Taxes on Land Under the Agricultural Use Amendment." Proceedings of the 12th Institute for Tax Assessors. Austin, Tex.: Institute of Public Affairs, University of Texas, 1970. An assessor advises strict construction of use-value provisions in Texas. New Jersey. State Farmland Advisory Committee. Annual Report. Trenton: 'Local Property Tax Bureau. Annually. Contains suggested range of farmland values to be used by local assessors. Describes four land-use groups and five soil groups. Northeastern Regional Resource Economics Research Committee. Seminar on the Impact of Use-Value Assessment on Farmland. NE-67. December 1970. Oregon. Department of Revenue. "Summary of Change in Value Due to Farm Deferral for 1970-71 Tax Year." Bulletin 6 (January 1971). Reports $444.6 million gap between market value and use-value for lands in Oregon program, 1970-71. Oregon. Legislature. Report of the Legislative Interim COLL ittee on Revenue. Supplemental Report on Income and Property Exemptions and Exclusions. Salem, Oregon, December 1974. Contains information on extent of tax base loss due to differential assessment of agricultural lands. Poole, A. Travis, Jr., et al. Use-Value Assessment: A Study Based on Loudoun County Virginia. Research Division Bulletin 55, Blacksburg, Va.: Virginia Polytechnic Institute, July, 1970. Analyzes potential effect of use-value assessment. Reviews methods of use-value assessment and estimates tax revenue costs. Determines relation- ship of taxes to net farm income on a sample of farms in county. 382 Bibliography: G. Differential Assessment: Programs and Issues Portello, W. Les. California Land Conservation Act,of 1965: A Guide to Under- standing and Implementing a Program for Conserving Agricultural Land in California. Sacramento: California Department of Agriculture, 1967. Proceedings of the Conference on Rural Land-Use Policy in the Northeast, October 2-4. 1974. Northeast Center for Rural Development Publication No. 5 Ithaca, N. Y.: Cornell University, 1975. Comprehensive overview of rural land-use issues and controls, Contains section on tax policies as land use control measures. Proceedings of the Seminar on Taxation of Agricultural and Other Open Lands. East Lansing: Michigan State University, 1971. Conferenceheld to inform Michigan legislative efforts. Articles on experience in other states: Calif., Conn., Maryland, New Jersey. Discussion of techniques and problems: assessment methods, legal issues, questions of equity. Proceedings, 1975-Property Tax Forum: Use Value Assessment and the Preservation of Open Lands and Historic Sites. Chicago: International Association of Assessing Officers, Fall 1975. Pullen, Douglas R. The Open Space Act: History and Impact of Current Use Assessment in Washington State. Olympia: Washington State Research Council, December 1974. Riley, William H. "Maryland's Farm Law." international Property Assessment Administration, pp. 246-59. Chicago: IAAO, 1971. Roberts, Herbert E, "Agricultural Preserves and Some of Their Effects on Kern Countyts Government." Submitted to the Board of Supervisors of 'Kern County. -October 26, 1971. Details the impact of Williamson Act contracts on the tax base and on the assessor's office. Roberts, C. B. "Taxation of Farm Landlin Oregon." Willamette Law Journal 4 (Fall 1967): 431. Good discussion of issues. Reviews Oregon legislative history relating to taxation of farmland. Finds constant demand for ad valorem tax relief for farms, back to 1923, but finds no definitive studies supporting demands. Sees market value as fairest assessment standard, with variable ratios used if tax relief desired. Robinson, Douglas G. Assessment of Farmland for Tax Purp oses in Washington and Other States. Olympia: Washington State Legislative Council, 1965. Rountrey and Associates. A Study of Use-Value Assessments: Implementation and Impact. Report to St Land Evaluation Advisory Committee, Commonwealth of Virginia. Richmond: Rountrey and Assoc., 1973. Extensive study of Goochland County, Va., which develops procedures to measure use-value, evaluates proposed standards, analyzes net revenue effects, and appraises 309 parcels at use-value. Use-value found to be 20% of market value generally. questions advisability of dependence on soil data in assess- ment. It is often unrelated to actual use. 383 Bibliography: G. Differential Assessment: Programs and Issues Schoeplin, Robert, and Justine Schoeplin. "A Second Look at the Impact of Differential Assessment of Farmland and Consequent Tax Shifting: Comment." American Journal of Agricultural Economics 54 (November 1972): 679-82. Data on tax shift due to differential assessment in four Connecticut towns. Schoeplin, Robert N, "The Initial Decade of PA 490: Connecticut's Open Spaces Act." Connecticut Government 26 (Winter 1972). Schwartz, S. I., Hansen, 0. E., and Foin, T. C. "An Economic Analysis of the Benefits of Use-Value Assessment under the California Land Conservation Act." Paper -dresented at the American Agricultural Economics AssociatLon Annual Meeting, August 1973. Schwartz, s. I.@ et al. Measures for Strengthening the California Land Conservation Act: An Economic and Legal Analysis. Report to the California Legislature, Assembly Select Committee on Open Space Lands. Davis, Ca.: Land Use Reseamh Group, Division of Environmental Studies, University of California, December 1974. Working memoranda prepared for use by the committee in drafting proposed legislative changes in Williamson Act. Shipp, Harry S., Jr. "State of Maryland Preferential Assessment of Farmlands." International Property Assessment Administration, v. 6. Chicago: IAAO, 1974. Sirico, Louis, and Kahn, Charles. Public Act 490: Environmental Benefit or Property Tax Loophole? Hartford: Connecticut Citizen's Action Group, May 1974. A highly critical analysis of Connecticut's differential assessment law, Public Act 490. Snyder, J. Herbert. "A New Program for Agricultural Land Use Stabilization: The California Land Conservation Act of 1965." Land Economics 42 (February 1966) 29. "A Program for Agricultural Land Use in Urbanizing Areas." Journal of Farm Economics 48 (December 1966): 1306-13. General discussion of act, not including amendments. "The California Land Conservation Act of 1965." Journal of Farm -fc--onomics 48, (February 1965). . "Toward Land-Use Stability by Contract." Natural Resources Journal 6 (1966): 406-23. Standord Environmental Law Society. The Property Tax and Preservation of Open Space Land in California: A Study of the Williamson Act. Palo Alto, Ca.: Stanford University, February 1974. Legislative history, critique, and evaluation of act. starrs, James E. "Res Nova in Illinois Land Use Planning." De Paul Law Review 12 (Winter 1962): 44. State Tax Task Force. Taxation of Land According to Its Current Agricultural Use Value. Columbus, Ohio: Cooperative Extension Service, Ohio State UFIN-ersity, December 1974. 384 Bibliography: G. Differential Assessment: Progmms and Issues Stocker, Frederick D. "Preferential Assessment of Agricultural Land: An Economist's Viewpoint." Revenue Administration 1968: Proceedings of the 36th Annual Conference. Chicago: Federation of Tax Administrators, 1969. . "Property Tax Exemptions for Farmers and the Aged." In The Property Tax: Problems and Potentials. Tax Institute of America, 1967. Stocker says that we should not expect preferential assessment alone to contribute much to the preservation of open lands. He calls use-value assessment essentially an "equitable form of tax relief in transition zones." Sullivan, E. J. "Greening of the Taxpayers: The Relationship of Farm Zone Taxation in Oregon to Land Use." Willamette Law Journal 9 (March 1973): 1-25 History and description of Oregon farm taxation system, citing statutes and case law. Concludes that it "works badly" near cities. "Taxation Affecting Agricultural Land Use." Iowa Law Review (Winter 1965): 600-618. Discusses constitutionality issues, with some consideration of land use impacts. "Taxation of Agricultural Property--When is a Farm Not a Farm?" University 2f Miami Law Review 26, Fall 1971, 26. Discussion of court case involving definition of farm under Florida use-value assessment act. Assessor directed to consider land, not owner. Tyler, J. B., and G. N. Valentine. "1972 Open Space Conveyance Tax--Recapture or Reaction?" Connecticut Bar Journal 47 (September 1973), 332-53. Description and discussion of Connecticut differential assessment act, Public Act 490, and the later addition, Public Act 152, the conveyance tax on lands leaving the program. Subsequent amendments have corrected some of the defects noted. U. S. Department of the Interior. Bureau of Outdoor Recreation. Pacific Southwest Region. Private Lands for Public Recreation Use: Preliminary Report. San Francisco, California, February 1974. Summarizes and analyzes state programs, including preferential assess- ment and California's Williamson Act, which promote greater use of private lands for public recreation. Property tax incentives alone were held to be inadequate for this purpose. Wagenseil, Harris. "Property Taxation of Agricultural and Open Space Lands." Harvard Journal of Legislation 8 (November 1970) 158-196. An analysis of state laws, concentrating on California. Welch, Ronald B. "The Williamson Act: Success or Failure?" Paper delivered at the Annual Converence of the Northern Regional Assessor's Association in Sonora, California, February 5, 1973. Wershow, James. "Ad Valorem Taxation and Its Relation to Agricultural Land Taxation Problems in Florida 'Green Belt Law? Interpretations." University of Florida Law Review (Spring 1964): 521-39. Discusses Florida court cases. Whyte, William H. Connecticut's Resources: A Proposal for Action. Report to the Governor. Hartford, 1962. 385 Bibliography: G. Differential Assessment: Programs and Issues The Last Landscape. Garden City, L. I.: Doubleday, 1968. Includes discussion of preferential assessment as a tool for open space preservation. "Memorandum Concerning Open Space Assessment Proposal." January 1963. "Tax Techniques of Open Space." Timber Tax Journal 4 (1968): 81-94. Wisner, Kenneth E. "Effects of Agricultural Use-Value Assessments in Washington County, Maryland." M.S. thesis, University of Maryland, 1971. Studies program's effects on land use, tax revenue, and tax incidence. Analyzes land parcel data (376 transfers over four years). Demonstrates methods of use-value assessment. H. FOREST AND TIMBER TAXATION Cooper, Diana S,, and Worrell, Albert C. "Forest Land as Taxable Property." Journal of Forestry 69 (July 1971): 400-406. Hargreaves, L. A., Jr. and Jones, Richard W. Forest Property Taxation. Report No. 29. Georgia Forest Research Council, 1972. Klemperer, W. David. Evaluating Forest Tax Alternatives for Oregon. A Study prepared for the Oregon Legislative Interim Committee on Revenue. Salem, Oregon, January 1975. Recommends a yield tax on timber as way to greater equity and higher long term wood output. Reviews literature and theory of forest taxation. Klemperer, W. David. "Forests and the Property Tax--A Re-examination." National Tax Journal 27 (December 1974): 645-51. Illustrates that ad valorem property tax is likely to bear more heavily on forestry than on many other land uses. Manning, G. H., and Thompson, E. F. "Forest Property Taxation: Another Look." Journal of Forestry 67 (August 1969): 556-9. Minor, Charles 0. "Forester's Approach to the Value of Forest Products." Appraisal Journal, October 1956. Oregon. Legislature. Report of the LeSislative Interim Committee on Revenue. Supplemental Report on Timber Taxation. December 1974.. A comprehensive look at Oregon timber taxes (431 pp.). Rader, Terry D. "A Study of Suburban Forest, Suburban Forest Landowners and Aesthetic Values." Ph.D. dissertation, Cornell University, 1971. Survey of owners of forest land: reasons for owning, future plans, knowledge of forests and wildlife. Trestrail, Richard W. "Forests and Property Tax--Unsound Accepted Theory." National Tax Journal 22 (September 1969): 347-56. Suggests that ad valorem taxation is as equitable for forests as for other enterprises. U. S. Department of Agriculture. Forest Service. Assessing Forest Land and Timber. Misc. Publication No. 1061. Washington, D. C.: U. S. Government Printing Office, 1967. 386 Bibliography: H. Forest and Timber Taxation Williams, Ellis T. "Emerging Patterns of Forest Tax Legislation." Agricultural Finance Review 32 (August 1971): 15-21. Forest Taxation and Preservation of Rural Values in New York. Agricultural Economics Report No. 150.. Washington, D. C.: U. S. Govt. Printing Office,.1969. Williams, Ellis T., and.Canham, Hugh. "The Productivity Concept in Forest Taxation." Forest Science 18 (1972): 3-20. I. THE LAND MARKET AND THE LAND CONVERSION PROCESS Ackerman, J., Clawson, M., and Harris, M., ed. Land Economics Research. Washington: Resources for the Future, 1962. Mason Gaffney in "Land-and Rent in Welfare economics" (pp. 141-167) discusses the conc*ept of the conversion point. Allee, David J. "Changing Use of Rural Resources." Journal of Farm Economics 48 (December 1966):. 1297-1305. Archer, R. W. "Land Speculation and Scattered Development: Failures in the Urban Fringe Land Market." Prepared for the Maryland-National Capital Park and Planning Commission, Washington, D. C., 1972. Case study of 200 acre Gainesway subdivision near Lexington,.Kentucky. Bahl, Roy A. A Bluegrass Leapfrog. Lexington, Ky.: College of Commerce, Bureau of Business Research, University of Kentucky, 1963. Bahl, Roy A. "Land Speculation Model: Role of Property Tax as Constraint to Urban Sprawl.` Journal of Regional Science 8 (Winter 1968): @199-208. Examines effect of.property tax on timing and spatial pattern of land conversion. Bastresser, Betty. Non-Urban Patterns of Land Utilization, 1963-68. Washington, D..C.: U. S. Department of Agriculture, 1968. Agricultural Economics Bulletin No. 86. Brown, Bernard. A Case Study of Urban Expansion and Annexation; Harris County, Texas. Washington, D. C.: U. S. Department of Agriculture, Economic Research Service, September 1965. Bryant, William R. The Ranch Land Market: Wayne County, New York, Ithaca: Cornell University Agricultural Experiment Station, New York Station, College of Agriculture and Life Sciences, August 1974. California Legislature. Assembly Interim Committees on Agriculture and Revenue and Taxation. Hearings: Problems of Agricultural Land. Fresno, January 30, 1964. Chapin, F. Stuart, and Weiss, Shirley. Factors'. InfluenciU Land Development Evaluation of_Inputs for a Forecast Model. Chapel Hill, N. C.: Institute for Research in Social Science, University of North Carolina, 1962. Chapin, F. Stuart, and Weiss, Shirley. Urban Growth Dynamics, New York: Wiley Publishing Company, 1962. 387 Bibliography: I. The Land Market and the Land Conversion Process Barlowe, Raleigh. Land Resource Economics. Englewood Cliffs, N. J.: Prentice Hall, 1958. Chapter 18 (531-568) deals with property taxation. Ciriacy-Wantrup, S. V. "The 'New' Competition for Land and Some Implications for Public Policy." Natural Resources Journal 4 (October 1964): 252-267. Ciriacy-Wantrup, S. V. Resource Conservation Economics and Policies. Berkeley: University of California Press, 1952. Chapter 3, Section 13 (168-188) deals with taxation. Clawson, Marion. Suburban Land Conversion in the United States: An Economic and Governmental Process. Baltimore: Johns Hopkins University Press, 101. Detailed discussion of land conversion process and analysis of present land use situation. "Urban Sprawl and Speculation in Suburban Land." Land Economics 38 (May 1962): 99-111. Discussions imperfections in the land market. Clonts, Howard A., Jr,, and Gibson, W, L. Farming in the National Capital Region: Maximum Land Values that Complement Open Space. Bulletin No. 570. Blacksburg, Va.: Virginia Polytechnical Institute, Agricultural Experiment Station, January 1966. Clonts, Howard. "Influence of Urbanization on Land Values at the Urban Periphery." Land Economics 46 (1970): 489-497. Clonts, Howard A., Jr. "Land Values in the Rural Urban Fringe of Northern Virginia." Ph.D. dissertation, Virginia Polytechnical Institute, 1969. Colyer, Dale, and Templeton, Mary. -Land Transfers, Values, and Assessments. Resource Management Series No. 49. Wheeling, W. Va.: West Virginia University, April 1974. Corty, Floyd L. The Impact of Land Clearing and Development on theEconomy of a Rural Area in Louisiana. Baton Rouge, La.: Louisiana Agricultural Experiment Station, 1972. Crowley, William D., Jr. Farmland Use Values Versus Market Prices in Three Oregon Land Markets. ERS-550. Wrsh-ington, D. C.: U. S. Department of Agriculture, Economic Research Service, September 1974. Analysis of 339 sales of farmland. Looks at net rent-to-value ratios and factors affecting land values. Crowley, William David. "The Influence of Net Real Estate Income and other Property Characteristics on Prices of Agricultural Properties within and among Areas of Oregon, 1965-69." Ph.D. dissertation, Oregon State University, 1972. Davis, Adan. Social Areas of Wake County, North Carolina: A Study in the Process of Urbanization. Raleigh, N. C.: North Carolina Agricultural Experiment Station, 1968. Davis, Irving F. A Statistical Approach to Farmland Values: Interim Report and Findings. Fresno, Calif.: Bureau of Business Research, Division of Business, Fresno State College, 1963. 388 Bibliography: I. The Land Market and the Land Conversion Process Derr, Donn A. The New Jersey Farm Real Estate Market, 1950-1970. Agricultural Economics Report;P330. New Brunswick, N.J.: New Jersey Agricultural Experiment Station, Rutgers University, July 1971. Dill, H.C., Jr., and Otte, R.C. Urbanization of Land in the Northeastern United. States. ERS-485. Washington, D.C.: U.S. Government Printing Office, August 1971. Urbanization of Land in the Western States. ERS-428. Washington, D.C.: U.S. Government Printing Office, January 1970. Dopson, Frederick C., and Miller, Frank. Effects of Urban Expansion on Owner- shi2, Use, and Taxation of Agricultural Land. Research Bulletin e907. Columbia: College of Agriculture, Missouri Agricultural Experiment Station, University of Missouri, 1966. Drachman, Roy P. "High Cost of Holding Land." Urban Land 27 (October 1968) Dunn, Edgar S. "The Equilibrium of Land Use Patterns in Agriculture", In Spatial Economic Theory, pp. 233-50. Edited by R. Dean. New York: Free Press, 1970. Ely, Richard T., and Wehrein, George S. Land Economics. Madison: University of Wisconsin Press, 1964. Frey, H. Thomas, and Dill, Henry W., Jr. Land Use Changes in the Southern Mississippi Alluvial Valley, 1950-69: An Analysis Based on Remote Sensing. Agricultural Economics Report;0215. Washington, D.C.: U.S. Government Printing Office, October 1971. Frey, H. Thomas Major Uses of Land in the United States: Summary for 1969. Agricultural Economic Report-0247. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, December 1973. Gaffney, Mason. "The Unweildy Time Dimension of Space." American Journal of Economics and Sociology 20 (October 1961): 465-40_. Discusses reasons for misallocations-of land. Gaffney, Mason. "Urban Expansion -- Will It Ever Stop?" in Land: Yearbook of Agriculture, 1958. Washington, D.C.: U.S. Government Printing office, 1958. Geyer, William H., and Hanauer, Peter. "Preserving Agricultural Land in Areas of Urban Growth: A Look at the Record." Report prepared for the Assembly Interim Committee on Agriculture and the Advisory Com- mittee on Agricultural Land Problems. Sacramento, May 1964. Goode, Frank M. "An Economic Analysis of the Supply of Land for Urban Expansion." Ph.D. dissertation, University of Minnesota, 1971. Develops a theoretical model of the land market. Identifies factors that influence land conversion and tests hypotheses empirically. Greer, James D. Land Sales, Prices, and Assessed Values in Nebraska, 1930-1968. S.B. 504. Lincoln: Nebraska Agricultural Experiment Station, University of Nebraska, ri.,d. Hammill, A.E. "Variables Related to Farm Real.Estate Values in Minnesota Counties." Agricultural Economics Research 21 (April 1969): 45-50. 389 Bibliography: I. The Land Market and the Land Conversion Process Harrell, F. Vincent, Jr., and Hoover, Dale M. 1964 Farm Real Estate Values in North Carolina: A Study of the Importance-of Farm and Non-farm Factors. Economics Research Report,017. Raleigh: Dept. of Economics, North Carolina State University, Octobe'r, 1971. Harris, Curtis C., and Allee, David J. Urbanization and its Effects on Agriculture in Sacramento County, California: 2. Prices and Taxes of Agricultural Land. Giannini Foundation Research Report AQ70. Berkeley: California Agricultural Experiment Station, University of California, 1963. Hart, John Fraser. "Loss and Abandonment of Cleared Farmland in the Eastern United States." Annals of the Association of American Geographers 58 (1968): 417-440. Longitudinal analysis (1910-1959) of patterns of change in acres actively farmed, using Census of Agriculture data. Urbanization accounted for about 20% of the loss. other f f t rs cited were changes in agricultural technology and compar:ctivoe advantage, strip mining, and the government Land Bank program. Harvey, Robert 0., and Clark, W.A.V. "The Nature and Economics of Urban Sprawl." Land Economics 41 (February 1965): 1-9. Hurlburt, Virgil L. "Theory of Supply of Farm Land." Land Economics 34 (May 1958) 161-167. Jensen, Clarence W. "The Effects of Urbanization on Agricultural Land Use in Lower Michigan." Ph.D. dissertation, Michigan State University, 1958. Johnson, Bruce B. "An Active Land Market in Perspective." Farm Real Estate Market Developments. U.S. Dept. of Agriculture, December, 1968, p. 27. Kaiser, Edward J., et al. "Predicting the Behavior of Predevelopment Land- owners on the Urban Fringe." Journal of the American Institute of Planners 34 (September 1968): 328-335.. Klinefelter, D.A. "Factors Affecting Farmland Values in Illinois." Illinois Agricultural Economics 13 (January 1973): 27-33. Larocca, Prue, and Maidenberg, David. The Effect of Federal Tax Policy on Land Conversion: A Case Study of Baltimore County. Land Use Center Working Paper: 5031-01. Washington, D.C.: The Urban Institute, September 1974. Examines factors which active participants in land conversion process consider important in their decisionmaking. Lee, Deane. Urban Growth and A&ricultural Change in the Connecticut Valley Counties of Massachusetts. Amherst, Mass.: Department of Agriculture and Food Economics, College of Agriculture, University of Massachusetts, 1969. Longitudinal study. Estimates that agricultural decline begins when population density reaches 700 persons per square mile in a county. Leone, Philip A., Chief Planner. A Staff Re searLholReport: Agricultural Land in the Richmond Region. Richmond, Va Ric Id Regional Planning District Commission, July 1974. McArthur, Robert E. Impact of City/County Consolidation of the Rural Urban Fringe: . Nashville-Davidson County, Tennessee. Agricultural Economics Report 0206. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, June 1971. 390 Bibliography: I- The'Land Market and the Land Conversion Process Mandale, Maurice, and Raup, Philip. The Minnesota Rural Real Estate Market. 1972. Economics Report* S73-1. St. Paul, Minn.: Department of Agriculture and Applied Economics, Institute of Agriculture, University of Minnesota ' 1973. The Minnesota Rural Real Estate Market, 1973. ER74-1. St. Paul, Minn.- Department of Agriculture and Applied Econom3-cs, Institute of Agriculture, University of Minnesota, 1974. Maryland. State Department of Planning. "The Conversion of Agricu -Itural Land." Preliminary draft. Baltimore: State Department of Planning, 1974. Studies conversion process including the sources and types of demand. Includes aggregate data on land by soil type, by location in relation to sewered areas. Large acreages held by speculators, usually not available for serious agricultural development. Milgram, Grace. The City Expands: A Study of the Conversion of Land from Rural to Urban Use, Philadelphia 1945-62. Philadelphia: Institute for Environmental Studies, University of Pennsylvania, 1967. Data and discussion on land conversion in Northeast Philadelphia. Estimated that land value increased 13% annually in real dollars, with improvements held constant. Public improvements and higher density zoning were capitalized into higher land values. Moncreiff, P.M., and Phillips, W.E. "Rural-Urban Interface Acreage Developments." Canadian Journal of Agricultural Economics 20 (Fall 1972): 80-W-. Morrill, Richard L. "Expansion of the Urban Fringe: A Simulation Experiment." Regional Science Association Papers 15 (1965): 185-199. Murray, Ray A., and Cissel, Edwin 1. The Transfer of Farm and Open Country Real Estate in Maryland 1964 and 1965. Misc. Publication 753. College Park, Md.: University of Maryland, Agricultural Experiment Station, March 1970. Murray, Ray A., and Reinsel, Robert D. The Transfer of Farm and Open Country Real Estate in Six Maryland Counties, 1962. Misc. Publication 0557. College Park, Md.: Agricultural Experiment Station, University of Maryland, June 1965. Nagle, George, Jr., and Derr, Donn A. A Preliminary Analysis of the Data on Participants in the New Jersey Farm Real Estate Market, f960-1970. Special Report Series;P15. New Brunswick, N.J.: New Jersey Agricultural Experiment Station, Rutgers University, 1972. Questionnaire survey of 118 buyers and sellers of farmland in three townships, 35% of all farm sales for the period. National Academy of Sciences/National Association of Engineers. Advisory Committee to the Department of Housing and Urban Development. Land Use Subcommittee. Urban Growth and Land Development, The Land Conversion Process, A Report. Washington, D.C.: National Academy of Sciences, 1972. Description of problem, recommendations for research and action. Very generaltreatment. 391 Bibliography: I. The Land Market and the Land Conversion Process New England Regional Resource Economics Committe e. A Preview of Resource Economics Problems in the'Northeast. Report;0@1. April, 1965 * includes Allee, David J., "Changing Land from Rural to Urban Use -- Process and Problems", which explores the conflicts between land uses as farm areas are developed. Pearson, Norman. "The Effects of Urbanization on Agricultural.Land." Appraisal Institute Magazine 16 (Autumn 1972): 25-34. Peterson, George. Tax Policy and Land Conversion at the Urban Fringe. Land Use Center Working Paper: 0875-04. Washington, D.C.: The Urban Institute, December 1974. In a survey of land market participants, finds that timing of sale of farmland on the urban fringe is linked more to the life cycle considerations of the owner than to property taxes. Post, Rosalyn. Research in Land Development and Urban Expansion. Chapel Hill, N.C.: Institute for Research in Social Science, University of North Carolina, 1961. Press, Charles, and Rice, Rodger. Rural Residents and Urban Expansion. ERS-12. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, 1963. Pressly, T.P. Farm Real Estate Values in the U.S. by Counties, 1850-1959. Seattle: University of Washington Press, 1965. Rancich, Michael T. "Land Values in an Area Undergoing Urbanization." Land Economics 46 (1970): 32-40. Ray, William W., The Rural-Urban Fringe. Exchange Bibliography-0133. Monticello, Ill.: Council of Planning Librarians, June 1970. Real Estate Research Corporation. The Costs of Sprawl: Detailed Cost Analysis. Washington, D.C.: U.S. Government Printing Office, April, 1974. Examination of environmental and economic costs of alternative residential development patterns at the urban fringe. Costs out several alternative patterns in detail. The Costs of Sprawl: Literature Review and Bibliography. Washington, D.C.: U.S. Government Printing Office, April 1974. Summarizes existing knowledge relevant to development decision- making and presents extensive bibliographies pertaining to that knowledge. Reiss, Franklin J. "Is $900 per Acre too Much for Farmland?" Illinois Agricultural Economics 8 (July 1968). Reynolds, J.E., and Timmons, J.F. Factors Affecting Farmland Values in the United States. Research Bulletin #566. Ames, Iowa: Agricultural and Home Economics Experiment Station, 1969. Includes discussion of capitalization of government program benefits into higher land values. Rural-Urban Fringe Conference -- Proceedings. Urbana, Ill.: Department of Agricultural Economics, University of Illinois, 1967. Ruttan, Vernon W. "The Impact of Local Population Pressure on Farm Real Estate Values in California." Land Economics 37 (1961): 125-131. 392 Bibliography: 1. The Land Market and the Land Conversion Process Scharlach, Wesley C., and Schuh, G. Edward. "The Land Market as a Link Between the Rural and Urban Sectors of the Economy." Journal of Farm Economics 44 (1962): 1406-1411. Schmidt, A. Allan. Converting Land from Rural to Urban Uses. Washington,-D.C.: Resources for the Future, 1968. Discussion of process; includes data on changes in land values during development. Schuh, G.E., and Scharlach, W.C. Quantitative Analysis of Some Farm and Nonfarm Determinants of Agricultural Land Values: Impact of Economic Development. Research Bulletin#t821. Fayette, Ind.: Indiana Agricultural Experiment Station, n.d. Found that increases in property taxes are associated with decreases in farm real estate values. Scofield, William H. "Economic Forces Affecting Farmland Values." In Assessment Administration, 1967. Chicago: International Association of Assessing Officers, 1967. Scofield, William H., and Stocker, Frederick D. "Tax Considerations in Farm Real Estate Transfers." Agricultural Finance Journal 21 (July 1959): 7-17. Considers owners at retirement age and the effects of estate taxes. Shoup, Donald. The Optimal Timing of Land Development. Los Angeles, Ca.: Institute of Government and Public Affairs, University of California, January, 1969. Sokolow, Alvin D. Government Response to Urbanization-3 Towns on the Rural-Urban Gradient. Agricultural Economics Report #132. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, May 1968. Stansberry, Robert R. The Rural Fringe and Urban Expansion: A Case Study of Prince Georges and Montgomery Counties, Maryland. Agricultural Economics Report,043. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, 1963. Stephens, David. Land Values and Land Use within an Urban Environment: A Review of Theory and @Mpirical Findings. Staff Paperpt-17. Lincoln, Neb.: Department of Agricultural Economics, University of Nebraska, 1971. Stocker@ Fred D. "How Taxes Affect the Land and Farmers." In Land: Yearbook of Agriculture, 1958, pp. 240-253. Washington, D.C.: U.S. Government Printing Office, 1958. Discusses effect of taxes on farm prices and output, land development. Strong, Ann L. Factors Affecting Land Tenure on the Urban Fringe,. Philadelphia: Institute for Environmental Studies, 1968. Sussna, Stephen. "Remedying Premature Subdivision." New York Legal Forum 17 (1972): 1050. Tweeten, Luther G., and Nelson, Ted R. Sources and Repercussions of Changing U.S. Farm Real Estate Values. Technical Bulletin T-120. Stillwater, Okla.: Agricultural Experiment Station, Oklahoma State University, April 1966. 393 Bibliography: I- The Land Market and the Land Conversion Process U.S. Department of Agriculture. Economic Research Service. Capitalization of Farm Program Benefits into Land Values. ERS-506. Washington, D.C., 1972. U.S. Department of Agriculture. Economic Research Service. Farm Real Estate Historical Series.Data, 1850-1970. ERS-520. Washington, D.C., 1973. U.S. Department of Agriculture. Economic Research Service. Farm Real Estate Market Developments. Annual. Annual compilation of data on farm real estate values and transfers, with analysis of major trends. Listed by state and region. U.S. Department of Agriculture. Land Tenure in the United States.. Agricultural Information Bulletin:0338. Washington, D.C., June 1969. Vaughn, Gerald F., and Moore, Edward C. Idle Land in an Urbanizing Area: The Delaware Experience. Bulletin4&349. Newark Del.: Division of Urban Affairs and Delaware Agricultural Experiment Sta tion, University of Delaware, 1963. Wells, W.H. "Negotiating the Sale of a Farm to a Speculator." Practical Lawyer 19 (October 1973): 37-43. Wenzlick, "The Future of Raw Land." Assessor's Newsletter 27 (1961): 79. Survey revealing underassessment of vacant land. Wingo, Lowdon, ed. Cities and Space: The Future Uses of Urban Land. Baltimore: John Hopkins University Press, 1966. Wolf, Lawrence. "The Metropolitan Tidal Wave in Ohio, 1900-2000." Economic Geography 45 (1969): 133-54. Wright, Phillip A. "Discussion: Agriculture and Urban Development." Journal of Farm Economics 48 (December 1966): 1316-1318. Wyckoff, J.B. "Rural to Urban Land Conversion and Environmental Quality." The Massachusetts Heritage 7 (December 1969). Study of land conversion in the Springfileld, Mass., area. Wyckoff, J.B.; Nelson, A. Gene; Wood, James H.; and Becker, Manning H. Determining Agricultural Land Rents: A Case Study of Malheur County Special Report 145. Cooperative Extension Service, Oregon State University, August 1974. Analysis of data on a sample of rented land parcels to discover factors determining rent. J. AGRICULTURE: DATA, POLICY, AND PRESERVATION Arnold, Max P., "The Impact of Property Taxes as a Fixed Charge Against Agricultural Land." Journal of the American Society of Farm Managers and Rural Appraisers. 1973 Proceedings Issue. pp. 74-80. Banks, Vera, and Beale, Calvin. Farm Population Estimates, 1910-70. Statistical Bulletindt-523. Washington, D.C.: U.S. Department of Agriculture, Rural Development Service, 1972. Berk, Metin, "Changing Structure of Iowa Farmland ownership." Ph.D. dissertation, Iowa State University, 1972. Bjergo, Allen Clifford. "A Study of Decisionmaking in Twenty-one New York Farm Families." Ph.D. dissertation, Cornell University, 1971. 394 Bibliography: J. Agriculture: Data, Policy, and Preservation California. Legislature. Assembly Interim Committee on Revenue and Taxation. Hearings on Problems of Agricultural Land. January 30, 1964. Carlin, Thomas. "Economic Position of Farm Families When Money Income and Net Worth Combined." Agricultural Economics Research 25 (July 1973): 61-70. Caudill, Harry. My Land is Dying. New York: Dutton, 1973. Christianson, Ronda A., Davis, Lynn H., and Richards, Stuart H., Enterprise Budgets for Farm and Ranch Planning in.Utah. Research Report:4@5. Agricultural Experiment Station, Utah State University, 1973. Clawson, Marion. "Aging Farmers and Agricultural Policy." Journal of Farm Economics 45 (February 1963). Relates number of farms to age structure of operators. "A New Policy Direction for American Agriculture." Journal of Soil and Water Conservation 25 (January 1970): 3-8. Clawson, Marion. Policy Directions for U.S. Agriculture: Long-Range Choices in Fanning and Rural Living. Baltimore: Johns Hopkins University Press for Resources for the Future, 1968. Conklin, Howard, and Dymsza, Richard. Maintaining Viable Agriculture in Areas of Urban Expansion. Albany: Office of Planning Services, State of New York, June 1972. Explores pressures on agriculture within a 20 mile radius of two cities. Discusses problems created by a speculative land market in which expectations of gain exceed real opportunities: disinvest- ment in farming operations, idled farmland. Connecticut. Governor's Task Force on the Preservation of Agricultural Land. Final Report. Hartford, December 1974. Brief report calling for the purchase of development rights to 325,000 acres of farmland by the state. Proposes financing by a conveyance tax on real estate transfers. Cummins, David E., Effects of Urban Expansion on Dairying in the Lake States. Agricultural Economics Report.*196. Washington, D.C.: U.S. Department of Agriculture. Economic Research.Service. December, 1970. Dexter, W.H. Michigan Farm Business Analysis Summary--1972 Data. Agricultural Economics Report-0254. East Lansing, Mich.: Department of Agricultural Economics, Michigan State University, 1973. Detailed data on farm costs and returns. Dhillon, P.S., Economics of Size on Fresh Market Vegetable Farms in Cumberland County. AE 348. New Brunswick; N.J.: New Jersey Agricultural Experiment Station, Rutgers University-, December, 1973. Costs and returns data. Finds diseconomy of large size in this type of agriculture. Elsner, Gary, and Hoch, Irving. Analysis of California Farm Income Relationships. Berkeley: Giannini Foundation of Agricultural Economics, University of California, 1968. "Family Farm Protection Act: What Does It Accomplish?" Saskatchewan Law Review 36 (1971-72) 169. 395 Bibliography: J. Agriculture: Data, Policy, and Preservation "Family: How Are You Going to Keep Them Down on the Farm?" Montana Law Review 35 (Winter 1974): 88-102. Fick, Alvin S, "New York's Farmland: A Program to Help Save Vanishing Rural Life." The Conservationist (1972). Goodsell, Wylie Daniel. Costs and Returns on Commercial Farms; Long Term Study, 1954-63. Statistical Bulletln--.@@368. @Washington, D.C.: U.S. Deaprtment of Agriculture, Economic Research Service, 1966. Gregor, Howard F. "The Large Industrialized American Crop Farm." Geographical Review. 60 (1970): 151-75. Headley, J.C. "Agricultural Productivity, Technology, and Environmental Quality." American Journal of Agricultural Economics 54 (December 1972): 749-56. Ishee, Sidney. "Effects of Rising Farm Real Estate Prices on Farm Output in Maryland."' Agri-Economics, College Park, Md.: University of Maryland, 1971. Kimball, Solon T. "Rural Social Organization and Cooperative Labor.1' American Journal of Sociology 55 (1949): 38-49. Kolesar, John, and Scholl, Jaye. Saving Farmland. Princeton, N.J.: Center for the Analysis of Public Issues, 1975. Reexamines techniques for the preservation of agricultural land. Criticizes plan to purchase development rights of farmland. Discusses alternatives such as transfer of development rights. Kottke, Marvin. "Changes in Farm Density in Areas of Urban Expansion." Journal of Farm Economics 48 (December 1966): 1290-96. Examines exit and entry behavior of farm operators in Connecticut. Lack of capital resources identified as a dominant cause of of pre- retirement exit. Most of exiting farmers retained land and buildings. Krause, Kenneth R., and Shapiro, Harvey. "Tax Induced Investments in, Agriculture: Gaps in Research." Agricultural Economics Research 26 (January 1974): 13-21. Maryland. Committee on the Preservation of Agricultural Land. Final Report. Baltimore: Maryland Department of Agriculture, August 1974. Recommendations for preserving farmland. Calls for purchase of development rights, improved planning. Michigan. Department of Agriculture. Agricultural Land Requirements: A Projection to 2000 A.D. Lansing, Mich.: Michigan Department of Agriculture, February 1973. Miner, Dallas. "Agricultural Preservation: A New Issue in Open Space Preservation" in Management and Control of Growth: Issues-Techniques Problems-Trends. Washington, D.C.: Urban Land Institute, 1974. New Jersey. Department of Agriculture. Crop Reporting Service. New Jersey Agricultural Statistics. Annual. New Jersey. Report of the Blueprint Commission on the Future of New Jersey Agriculture. Trenton, April 1973. Recommends actions to reinforce agricultural industry in New Jersey. Wide range, from land policy to educational programs. 396 Bibliography: J. Agriculture: Data, Policy, and Preservation New York. State Commission on Preservation of Agricultural Lands. Preserving Agricultural Land in New York State. Albany, 1968. General discussion designed for wide distribution. Pre-dates current Agricultural Districting law. Otte, Robert C. Farming in the City's Shadow: Urbanization of Land and Changes in Farm Output in SMSAs, 1960-70. Agricultural Economics Report41-250. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, February 1974. Piedmont Environmental Council. Farming in the Piedmont. September, 1973. Rhine, Shirley. "Down on the Farm." Conference Board Record 10 (May 1973): 12-17. Schneider, Lee, et al. Estimates of Land in Farms by Municipality and County, New Jersey, 1971. Special Report 018. New Brunswick, N.J.: Department of Agricultural Economics and Marketing, Rutgers University, 1973. Schneider, Lee Kasper, Victor- Derr, Donn; et al. Issues in Agricultural Land Use Aanagement in New' Jersey. Special Report$pl7. New Brunswick, N.J.: Department of Agricultural Economics and Marketing, Rutgers University, 1973. Review of issues of agricultural land use and techniques for pre- serving agricultural land. Includes short working papers on each technique. Sitterly, J.H. "Future Land Use in the Appalachian Plateau and Its Relation to Strip-Mine Reclamation." Ohio Journal of Science 64 (March 1964): 106-111. U.S. Congress. House. Committee on the Judiciary. Antitrust Subcommittee. Family Farm Act: Hearings March 22-23, 1972 on HR 11654 to Amend the Clayton Act, 92d Cong., 2d sess., 1972. U.S. Congress. House. Committee on Ways and Means. General Tax Reform: Panel Discussion February 5-28, 1973. Part 5, February 20, 1973, Farm. Operations, pp. 615-94, 93d Cong., lst sess., 1973. U.S. Congress. House. Committee on Ways and Means. Prepared Statements Submitted by Witnesses Invited to Appear before the Committee on Ways and Means to Participate in Panel Discussions on Farm Operations, Committee Print, 93d Cong., Ist sess., 1973. U.S. Congress. Senate. Committee on Labor and Public Welfare. Subcommittee on Migratory Labor. Farmworkers in Rural America, 1971-2: Hearings. Part 2, Who Owns the Land?, pp. 299-664, 92d Cong., lst sess., 1971. U.S. Department of Agriculture. The Balance Sheet of the Farming Sector. Agricultural Information Bulletin;@-350. January, 1971. Communities of Tomorrow: Agriculture 2000. 1967. U.S. Department of Agriculture. Economic Research Service. Agricultural Finance Outlook. Annual. . Corporations with Farming Operations. Agricultural Economics Report 3#209. Farm Costs and Returns. Annual. Bibliography: J. Agriculture: Data, Policy, and.Preservation The Farm Cost Situation. Farm.Index. Monthly. Includes bibliography of recent Economic Research Service publications. The Farm Income Situation. Annual, with Supplements. Data by state on cash receipts, gross and net income, production expenses, government payments. Farm Income: State Estimates, 1959-72. FIS-222 Sup. August 1973. U.S. Department of Agriculture. Yearbook of Agriculture. Annual. U.S. Department of Agriculture. Statistical Reporting Service. Crop Reporting Board. Farms: Revised Estimates 1959-70. Statistical Bulletinl#507. January 1973. Number of farms and acreage in farms is estimated. U.S. Department of Commerce. Bureau of the Census. 1969 Census of Agriculture. Washington, D.C. Vlasin, R.D. "Some Key Issues and Challenges Posed by Nonagricultural Demaids for Rural Environments.." American Journal of Agricultural Economics 53 (May 1971): 235-243. Vogel, Ronald J., and Hahn, Alan J. "On the Preservation of Agricultural Land." Land Economics 48 (May 1972): 190-92. Wiggins, N.A. "Estate Problems of Farm Families." Trusts and Estates. 109 (November 1971): 918. Winfield, George. "The Impact of Urbanization on Agriculture." Annals of the American Academy 405 (January 1973): 65-74. Woods, W. Fred. Increasing Impact.of Federal Estate and Gift Taxes on the Farm Sector: Present Law and Proposed Changes. Agricultural Economics Report;;*TM2. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, July 1973. Zimmer, John Mj, Farm Operator Level-of-living Indexes for Counties in the U.S., 1950, 1959, 1964. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, 1967. K. OPEN SPACE Berry, David, "The Image of Urban Open Space." Presented at Northeastern Anthropological Association Meetings, Potsdam, N.Y., April 1975. Berry, David, "Preservation of Open Space and the Concept of Value." American Journal of Economics and Sociology (forthcoming). The two papers above discuss perception of open space landscapes and classification of values ascribed to open space. Berry, David and Gene Steiker, "An Economic Analysis of Transfer of Development Rights," RSRI Discussion Paper Series No. 81. Philadelphia: Regional Science Research Institute. Nov. 1975. 398 Bibliography: K. Open Space Berry, David, et al. The Preservation of open Space in the New Jersey Pinelands. RSRI Discussion Paper Series: No. 73. Philadelphia: Regional Science Research Institute, May 1974. Considers "Environmental Rights and Open Space" and "The Role of Government in Open Space Management." Bosselman, Fred T. Alternatives to Urban Sprawl: Legal Guidelines for Governmental Action. Washington, D.C.: U.S. Government Printing Office, 1968. California. Legislature. Joint Committee on Open Space Lands. State Open Space and Resource Conservation Proaram for California. Prepared by Eckbo, Dean, Austin, and Williams. April 1972. California. State Office of Planning. Urban-Metropolitan Open Space Study. Prepared by Eckbo, Dean, Austin, and Williams. 1965. Cotton, Donald A. "Land Use: Open Space, Its Values and.Conservation in the Urban Environment." Southern California Law Revi Iew.37 (1964): 304-31. Coughlin, Robert E. and Thomas R. Hammer, Stream Quality Preservation through Planned Urban Development, EPA-R5-73-019, Washington: Government Printing Office, May 1973. Cunningham, "Scenic Easements in the Highway Beautification Program." Denver Law Journal 45 :@169-266. Examines concept of scenic easement; history, application, legal questions. Davis, Jeanne M., and House, Peter W. Open Space: Its Use and Preservation. Misc. Publ.;9@1121. Washington, D.C.: U.S. Department of Agriculture, Economic Research Service, 1968. "Easements to Preserve Open Space Land." Ecology Law Quarterly 1 (Fall 1971): 728. Eveleth, Peter A. "An Appraisal of Techniques to Preserve Open Space." Villanova Law Review 9 (1964): 559-592. Hagman, Donald G. "Open Space Planning and Property Taxation - Some Suggestions." Wisconsin Law Review 1964 (July 1964) : 628-659. Looks at history and alternative approaches to preferential tax treatment for open land. Considers constitutional questions. Hagman, Donald G. "Windfalls for Wipeouts.11 In The Good Earth of America: Planning Our Land Use. Edited by C. Lowell Harriss. New York: The American Assembly, 1974. Explains his recommended land use planning system in which those who suffer losses (wipeouts) due to public regulation, would be compensated by those who derive windfall benefits from public,regulation. Hunter, J.W. "Preserving Rural Land Resources on the CA Westside." Ecology Law Quarterly I (Spring 1971): 330-73. Krasnowiecki, Jan Z., and Paul, C.N. "The Preservation of Open Space in Metropolitan Areas." University of Pennsylvania Law Review 110 (December 1961): 179-239. @399 Bibliography: K. Open Space Kurtz, W. Gary. "Dilemma of Preserving Open Space Land - How to Make Calif- ornians an Offer They Can't Refuse." Santa Clara Lawyer 13 (Winter 1972) : 284-303. Luken, Ralph. "Preservation of Wetlands: The Case of San Francisco Bay." Natural Resources Journal 14 (1974): 139-52. Brief discussion of taxation. Lundberg, W. "Restrictive Covenants and Land Use Control: Private Zoning." Montana Law Review 34 (Summer 1973): 199. McMillan, Melville. "Land Use Control for Preservation of Open Space on the Rural-Urban Fringe: An Alternative Policy." Working Paper W7. Madison: Center for Resource Policy Studies, School of Natural Resources, University of Wisconsin, December 1973. landelker, Daniel R. "Controlling Land Values in Areas of Rapid Urban Expansion." UCLA Law Review 12 (1965): 734-61. Discusses allowing public agency to capture the increase in land value attributable to public initiative. Mitchell, J.T. "Use of Special Districts in Financing and Facilitating Urban Growth." Urban Lawyer 5 (Spring 1973): 185-227. Noble, Jack. A Proposed System for Regulating Land Use in Urbanizing Counties. Chicago: American Society of Planning officials, 1967. Northeast Regional Resource Economics Committee. Preserving Open Space in Expanding Urban Areas. Bulletin,*567. Amherst, Mass.: Massachusetts Agricultural Experiment Station, University of Massachusetts, January 1968. Olpin, 0. "Preserving Utah's Open Spaces." Utah Law Review 1973 (Summer 1973): 164-205. Rickert, John E., and Pickard, J.P. Open Space Land, Planning, and Taxation: A Selected Bibliography. Washington, D.C.: U.S. Government Printing office, 1965. Useful, annotated listing of literature up to 1965. "Scenic Easements." Idaho Law Review 8 (Fall 1971): 131. Schneider, Lee. New Jersey Land Use Planning Techniques and Legislation. A.E. Series #338. New Brunswick, N.J.: Department of Agricultural Economics and Marketing, Rutgers University, 1972. Sherman, Roger L. ; Shropshire, Neil C.; Wilson, Paul S.; and Worrell, Albert C. open Land Policy in Connecticut. New Haven: School of Forestry and Environmental Studies, Yale University, 1974. Analysis of Connecticut's official and de facto open land policy, divided into functional areas (e.g. agriculture, minerals, recreation, wildlife, etc.) Siegal, Shirley A. The Law of Open Space. New York: Regional Plan Association, 1960. Stevens, Benjamin H. and Mary Johnston, Economic and Fiscal Characteristics and Implications of Restricted and G-restricted Growth in the South Fork (Long Island) Region. Philadelphia: Regional Science Research Institute. June 1974. 400 Bibliography: K. Open Space "Techniques for Preserving Open Space." Harvard Law Review 75 (June 1962): 1622-44. L. MISCELLANEOUS STATE DOCUMENTS California. Resources Agency. Department of Conservation. Environmental Impact of Urbanization on the Foothill and Mountainous Lands of California. Sacramento, 1971. Connecticut, General Assembly. Office of Legislative Research. Land Use Laws and Proposals. Prepared by Janis R. Latham. Hartford, December 1974. @ Comprehensive overview of land use planning mechanisms and environmental controls with an impact on land use currently in effect and proposed for Connecticut. Fowler, Nancy. "Hawaii's Experience with a Statewide Land Use Data Bank." Honolulu, Hawaii: Hawaii Urban Planning Information Center, Department of Planning and Economic Development, 1974. Hawaii. Department of Planning and Economic Development. State of Hawaii Growth Policies Plan: 104-1984. General Plan Revision Program. 1974. Hawaii. State Land Use Commission. Report to the People. Second Five-Year District Boundaries and Regulations Review. Technical Reportvv:l: "An Evaluation of Hawaii's Land Use Laws." Prepared by Daniel R. Mandelker. Technical Report;0-2: "Hawaii's Vulnerable Environments." Prepared by Marchall Kaplan, Gans, Kahn and Yamamoto. Honolulu, Hawaii, February 1975. Lum, David T.E.; Camp, Samuel G., III; and Gertel, Karl. Hawaii's Experience in Zoning. Research Report*tl72. Hawaii: Hawaii Agri- cultural Experiment Station, University of Hawaii, June 1969. Factual account of provisions and operations of Hawaii's land use law. Oregon. Executive Department. Local Government Relations Division. Oregon Land Use Legislation, vol. 1, Analysis. Salem, Oregon, April 1974. Analysis of 10 land use bills enacted in 1973. Washington. Department of Revenue. Research and Information Division. 1975 Tax Reference Manual. Olympia, Wa., 1975. 401 u. s. GOVERNMENT PRINTING OFFICE 1976 0 - 598-330 .T7 W-AwAy 0 smviftalv 7.;'.7 7@ 3 6668 00001 3567 kk