Selling the Rights
State and local governments can employ a variety of tools to encourage agriculture and discourage development, including zoning restrictions, preferential tax treatment, or subsidy programs. Many states and localities also have enacted PDR programs, in which the owner of an agricultural property places a permanent deed restriction, known as an agricultural easement, on the land. The easement prohibits any nonagricultural use of the land, such as industrial or residential development. The owner can continue to live and work on the land, and can sell it or will it to heirs, but future owners also are prohibited from future development. In exchange for the development rights, the owner is compensated for the fair market value of the land, which is based on the difference between what it could be sold for on the open market with no deed restrictions and what it’s worth as farmland.
PDR programs were developed as a more market-friendly alternative to traditional conservation tools; unlike zoning regulations, for example, a PDR program is voluntary and does not deprive the landowner of the full economic value of the land. (An agricultural zoning restriction reduces the land’s market value without compensating the landowner; in essence, farmers bear the costs of the benefits that accrue to the community as a whole.) Advocates of PDR programs also note that they provide farmers with working capital to keep their farms operating and decrease the property taxes since removing the development potential lowers the property’s market value. The lower property value also makes it easier to pass farmland on to the next generation by lowering the potential estate tax.
That isn’t necessarily a great deal for the next generation, though, which might find it more difficult to make a living as the economics of farming change. “As efficiencies improve and the requirements to be a viable farm increase, land that was profitable when the easement was placed on it might age out of its ability to be profitable,” Groover says. In addition, if easement programs aren’t part of a comprehensive planning effort, there is the potential for a “checkerboard” of preserved and developed land, which can make it difficult for farmers to access the services they need or lead to conflict with neighbors who don’t want to share the roads with slow-moving tractors.
“We’re surrounded by development,” says Wade Butler, who owns Butler’s Orchard in Germantown, Md., with his brother and sister. Butler’s parents started farming in 1950, just a few years before the construction of what is now I-270 a few miles to the west of their land connected Germantown to Washington, D.C. Today, their farm abuts one of the region’s busiest suburbs. “Some of the services have certainly left the area. And agriculture has a certain amount of noise and dust and odors, which becomes more of a concern as we get more neighbors.”
At the federal level, agricultural easement programs are supported by the Natural Resources Conservation Service (NRCS) within the U.S. Department of Agriculture. The NRCS provides funding and technical assistance to state and local governments, Indian tribes, and nongovernmental organizations to help them purchase development rights. These funds were first appropriated through the 1996 farm bill; about $1.2 billion was allocated nationwide between 1996 and 2012.
States operate PDR programs by purchasing the development rights themselves, offering matching funds to localities, or both. Maryland and Massachusetts were the first states to start purchasing development rights, in 1977. Today, 28 states operate PDR programs, but not all of them are fully funded, particularly since the 2007-2009 recession. The programs are most prevalent in the Northeast and mid-Atlantic and on the West Coast, where the population is most concentrated and where there has been the most exurban growth. Although some Midwestern states do have PDR programs, the relatively large amount of tillable land in that region has historically made preservation a less pressing issue, Wagner says. In many states, there are also nonprofit organizations that purchase agricultural easements, either alone or in cooperation with the state or local government.
As of January 2013, states had spent $3.6 billion (not including any federal or nonprofit funding) to purchase the development rights on 2.3 million acres of farmland. Maryland ranks third in the country in terms of both dollars spent, $672 million, and acres protected, 361,000. New Jersey has spent the most, nearly $1 billion, while Colorado has protected the most acres, 590,000. Elsewhere in the Fifth District, Virginia, North Carolina, and South Carolina have spent an average of $11 million each to protect about 12,500 acres of farmland in each state. West Virginia has purchased the rights to 2,800 acres at a cost of $1.7 million.
Rocks vs. Hammers
In real estate, land value is determined according to a concept known as “highest and best use,” defined as the most probable use of land or improved property that is legally permissible, physically possible, financially feasible, and which results in maximum profitability. According to this definition, agriculture is unlikely to be the highest and best use: Farm production expenses average more than $100,000 annually, yet fewer than one-quarter of the farms in the United States gross more than $50,000 per year, according to USDA data. Certainly, the market would seem to value development over agriculture; in Charles County, Md., for example, farmland sells for about $5,000 per acre if it’s going to be used for crops and up to $200,000 per acre if it’s sold to a developer for homes or businesses.
Farmland preservation efforts, however, are based on the idea that there is a failure in the market for agricultural land. This failure stems from the presence of positive externalities — benefits such as the aesthetic value of open space or the stability of a rural community’s economy — that aren’t reflected in the price of that land. In other words, the highest or most profitable use of the land is not the same as the “best” use. In theory, when such a market failure exists, the government can play a role to correct it, in this case by compensating farmers for the development rights to their land.
But is there actually a market failure? While there might be real benefits to preserving farmland, there is room for debate about how large they are and how they should be weighed against valid competing interests.
Advocates of farmland preservation, for example, point to the many environmental benefits of preserving farmland. But it’s also the case that there can be environmental costs. Agricultural runoff — water contaminated with fertilizer and pesticides, among other pollutants — is the number-one source of nitrogen and phosphorous in the Chesapeake Bay, which create algae blooms and dead zones that kill fish. Agricultural runoff is also the leading source of pollution in rivers and lakes, according to the Environmental Protection Agency.
Another major rationale for preserving farmland is to halt urban sprawl. But sprawl isn’t necessarily a concern in some states that have enacted easement programs. Two of the stated goals of West Virginia’s Voluntary Farmland Protection Act (VFPA), enacted in 2000, for example, are to “control the urban expansion which is consuming the agricultural land, topsoil and woodland of the state” and to “curb the spread of urban blight and deterioration.” But eight of the 19 counties with operational VFPA programs have no connection to any metropolitan area (having a population of 50,000 or more), or even to a micropolitan area (having a population of 10,000 to 50,000), according to research by Odd Stalebrink of Penn State Harrisburg and Samuel Wilkinson of West Virginia University. And none of the counties in West Virginia with a population density high enough to be considered an urban area by the Census Bureau has established a VFPA board; the closest is Berkeley County, with 324 persons per square mile, still far from the 1,000 persons per square mile required for urban area status. Stalebrink and Wilkinson conclude that “based on measures of sprawl … the VFPA appears to be directed at solving a problem that does not exist.”
In many areas, there also might be a conflict between the need for affordable housing and the desire to preserve farmland. All else equal, development restrictions could lead to higher costs for housing and might also encourage higher-end housing than would otherwise be built. It’s a conflict illustrated at the extremes by Hawaii, which prides itself on its agricultural heritage and the beauty of its views, yet also has a shortage of affordable housing: A single person can earn nearly $55,000 per year and still qualify for housing assistance, and the state has the highest homelessness rate in the country. Despite the lack of housing supply, however, it took a decade to win approval for a 3,500-home development on the island of Oahu; it required the Honolulu City Council to convert around 600 acres of land from an agricultural district to an urban district. Approval was finally granted at the end of 2013. (Hawaii has strict agricultural zoning but has not yet implemented a PDR program.)
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