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Voluntary Farmland Preservation Techniques
The following information was adapted from "Watershed Resource Papers" developed for the Dowagiac River Watershed Project by Langworthy, Strader, LeBlanc, & Associates, Inc.

Conservation Easements
Purchase of Development Rights (PDR)
Transfer of Development Rights (TDR)
Public Act 116

Conservation Easements

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A conservation easement is the voluntary donation of land to have restrictions placed on it for the protection of agriculture, open space, and natural resources. The landowner still owns the land and can use it for specific conditions that the landowner and the nonprofit easement holder have agreed upon. Agricultural easements are designed to benefit the landowner, to assist him in keeping agricultural lands productive and protected from development.

The easement is considered a charitable contribution for which the landowner does not receive direct income benefits from the donation of their land. The landowner benefits from the donation through federal and state income tax deduction, lower property taxes, and reduction in estate and inheritance taxes. The value of the conservation easement is the difference between the fair market value and the value of the land after restrictions have been imposed. These values are determined by a professional surveyor who considers the fair market value based on the development pressures of the land to determine how much the conservation easement is worth. The tax relief that the landowner receives can be used to keep the land productive without having to sell more land and ensure the property for future generations.

Conservation easements are flexible to the landowners needs and may have limited provisions for use and development. Certain rights to use the property can be held such as the right to grow crops, cut timber, construction of new farm buildings, careful location of house for family members, or subdivision of a lot for resale. Requesting to keep these rights will affect the value of what the conservation easement is worth. The easement holder assumes the responsibility to make sure that all the restrictions are enforced.

The length of the easement may be flexible from a few years to permanent preservation. However, federal tax benefits are only available on permanent easements. The conservation easement stays in effect if the property is bought, sold, given or transferred to another owner. The new owner than assumes all responsibility of the conservation easement. When the surrounding areas change to the extent that the restrictions of the conservation easement can no longer be met the easement may be changed or terminated by the courts.

Related Links: Marquette Conservancy

Purchase of Development Rights (PDR)

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The purchase of development rights has a similar setup and advantages as conservation easements. The landowner voluntarily sells the development right to his property, for compensation for not developing the land. Like conservation easements the landowner maintains full ownership of their land for agricultural uses and the land can be sold or transferred, but can never be used for non-farm development.

The value for the purchase of the development rights is the difference between the fair market value and the agricultural use value of the land. With the income from the sale of the development rights the landowner has money to expand the farm operation, pay off debt, college education, inheritance to non-farm related children, retirement, and much more. Besides extra income, the sale of development rights allows the land to be assessed at a lower tax rate, decreasing property tax and inheritance taxes of the land.

However, none of these programs are entirely permanent and may be designed to allow some way out by proving through stringent test that keeping the land open for productive agriculture is no longer possible in that area. Then most programs allow the landowners to buy back development rights.

One fundamental concern with PDR programs is funding the program. The funds may come from private agencies like American Farmland Trust, state bond referendums, grants, donations, P.A. 116 lien fund, or an increase in other local funding sources like a special tax on building permits. An example of alternative funding can be taken from the state of Pennsylvania who issued an extra 2% sales tax on cigarettes. These programs have passed voter approval and have been largely supported by non-farming communities and urban residents who have witnessed the loss of farmland and open space. Most people may not live in rural communities, but enjoy viewing them on occasion and knowing that they will always be there.

Transfer of Development Rights (TDR)

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Transfer of development rights is another voluntary preservation option that compensates the land owner for not developing their land by allowing the development rights to be transferred to a development district.

TDR requires that state enabling legislation, which is not currently (as of July, 2002) enacted in Michigan. For TDR to work properly two districts need to be established, a preservation, or "Sending" area, where no development will occur, and a "Receiving" area that uses the rights for higher development densities above communities zoning guidelines. The TDR then becomes a tool to redirect growth from one area of the community to another.

TDR has similar characteristics to PDR. Each has as its focus the protection of agricultural land while allowing the landowner to be compensated for not selling and developing their land. Compensation benefits include reduced tax assessments, the right to buy, sell, or transfer the property, and the knowledge that the land will be preserved for future generations to use and enjoy. TDR requires more planning and oversight by local government.

Public Act 116

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The Farmland and Open Space Preservation Act, P.A. 116, was established in the 1985 farm bill. P.A. 116 is a founding act for farmland and open space preservation programs which offered tax relief to landowners who enrolled farmland in the program for 10 years or more. Currently 45% of Michigan's farmland is in the P.A. 116 program. In 1996 Michigan's Governor approved amendments to P.A. 116 in H.B. 4325. These changes are designed to keep P.A. 116 a desirable program for landowners.

P.A. 116 provides the framework for three temporary easement programs and one permanent easement program. The ones that apply to farmland will be discussed here.

Temporary Easement

Farmland Development Rights Agreements

10-90 year agreements
a parcel of 5-39 acres in size with at least 51% devoted to agricultural use and that earns at least $200 per cleared and tillable acre
a parcel 40 acres or larger with at least 51% devoted to agricultural use
land may not be developed for any use other than agriculture
landowner is eligible for a property tax credit and special assessment exemption

An owner of farmland and related buildings may claim a credit against the state income tax liability. The credit is the amount by which the property taxes exceed 7% of the household income. (Note: This percentage will drop to 3.5 in tax year 2001).

For example:

1. The annual household income of Farmer "A" is $20,000. Seven percent of the annual household income equals $1,400.00.
2. The state income tax liability for Farmer "A" is $1,600.00, or $200.00 greater than the seven percent amount identified under Item 1.
3. Based on the above, Farmer "A" may take a credit of $200.00 against his/her state income tax liability.

In the P.A. 116 program the land is to be left in for the number of years stated in the agreement. However, if the landowner wishes to convert or develop farmland, before the agreement expires, then he/she must repay the past seven (7) years of taxes plus interest compounded annually from the time the credit was received.

Permanent Easement

The State Purchase of Development Rights Program was administered by the Michigan Department of Natural Resources Real Estate Division and authorized by P.A. 116. Landowners were required to submit applications to the State, upon approval of which, the State paid the landowner a cash payment for their development rights and a permanent easement on their property.

Recently, the State adopted Public Act 262, the State Agricultural Preservation Fund. This Fund, and all other farmland preservation programs, will now be housed and administered by the Michigan Department of Agriculture. This Fund replaces the Purchase of Development Rights Program.

The source of funding will remain the same. The program will continue to be funded by the recapture of P.A. 116 lien funds which are generated when property previously enrolled in a temporary easement through P.A. 116 is converted from farmland. However, the fund will now be used primarily for grants to local communities (probably counties) to receive and evaluate applications for the purchase of conservation easements from farmers.

Local communities may apply for a state grant if they have:

a development rights ordinance providing for a PDR program which contains an application procedure, the criteria for a scoring system for parcel selection, and a method to establish the price to be paid
a comprehensive land use plan, adopted within the past 10 years, that includes a plan for preserving farmland (or if included within a regional plan)
completed the State application form

In the event that there is at least $5 million remaining in the fund after providing grants for local communities, then the State Easement may be available.

The State Purchase of Development Rights Easement has the following characteristics:

in effect in perpetuity
can be placed on a parcel of any size with at least 51% devoted to agricultural use (the parcel must have the support of the local governing body)
land may not be developed for any use other than agriculture
landowner receives cash payment equal to their development rights value (maximum payment is capped at $5,000/acre)

This is a permanent preservation program. Note that this program is administered by the State of Michigan.
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