Preservation & The Willing Seller Syndrome
Land/Farmland Preservation/Willing Seller Syndrome
Farmland tax abuse solution: Raise rollback tax on builders
Asbury Park Press, December 13, 2007
In light of the Asbury Park Press' readers' poll showing the perceived unfairness of the New Jersey farmland assessment program, I have to point out it is not the $500 annual income required for eligibility but the lack of a meaningful rollback tax that is at the heart of any unfairness in the program.
The rollback tax is due when a farmland assessed property is converted to development. It's intended to offset the very low real-estate taxes paid for decades while it was used as a farm. In New Jersey, when a new house is b built on farmland, the owner owes the higher nonfarm tax rate that year and on the two preceding years. But, set at only two years, it makes the farmland assessment program look, and act, as if it's a tax shelter.
The state decided decades ago, and for good reasons, that it is in its interest to keep farms as farms. To achieve that goal, municipal taxes are low on farm-assessed properties. But a low rollback tax works against achievement of this goal, because it more readily turns farmers into land speculators.
Vermont has a rollback tax of 10 years. That is a reasonable base from which to start. Even a higher number of years would be further disincentive for speculators to develop farms, and at least towns that do lose farms would see some payback for years of low taxes.
A common misconception is that those benefiting from the farmland assessment program are a burden on other taxpayers. Farms are the best municipal ratable for taxes paid, compared with the cost of providing services to them. One big reason is that farms have comparatively few school-age children. The house on a farm-assessed property is appraised and taxed like any other dwelling in the township, not at any special rate.
The typical farmer as well as the bank president and rock star are paying full freight for the part of their properties that demand municipal or school services. Some farmers who have made their living off their land sell, in part, because of the high taxes they must pay. Some relief may be in order.
In some cases, farm-assessed landowners get a sweet deal in the exclusive use of farmland assessment, but development of these lands in no way would benefit the public. Losing farmland to development has a deficit impact on municipal budgets, which in turn may cause all current residents to pay more taxes.
Raising the $500 annual income threshold for farmland assessment eligibility to a higher level would have real consequences for lands in the program. Lands that no longer would produce enough to qualify would exit the farmland protection. That result is not desirable for other taxpayers.
Abuses of the program, such as by corporations using it for land surrounding their corporate headquarters, could be addressed by some kind of means test that would tie corporate eligibility to having less than, say, $10 million in assets.
Serious consideration of all these issues is needed to be sure legislative actions do not push farmland assessed properties toward development. For this reason, increasing the $500 eligibility threshold would be a mistake. Raising the rollback tax to at least 10 years would be a better option.
Farmers may need help to confront high real estate taxes on their homes. A means test for corporations may prevent many abuses, without risking loss of other open land.
Mike King is coordinator of REALsmart, the league for smart growth, in Phillipsburg.
THE WILLING SELLER SYNDROME
Of course, full price must be paid for land but that price depends on the number of units allowed by the zoning, as well as the acknowledgment of environmental constraints such as steep slopes, wetlands, or 300 foot buffers from Category 1 creeks (C-1), for example. In New Jersey, a town is free to legally change the zoning or density up until the time that a resolution of final approval is issued by the planning board. Such actions certainly can change appraised value and the size of the pay out to the "willing seller"
When the NJDEP was routinely allowing C-1 creek buffer reductions to 150 feet from 300 feet, on previously disturbed farmland, it increased the total amount of units and therefore value. When the 300 foot buffer was imposed, value was lost. When a C-1 tributary and its buffer is disqualified by the NJDEP, as is happening frequently, what was unbuildable, now will allow houses, greatly changing the value. In the real estate example I gave in my previous message, the owner didn't want to be appraised as farmland so he did percs, surveying and blueprints, to dramatically increase the impression of value of his farmland to the appraisers. It wasn't clear that he had actual approvals from the town (or a variance he requested for an undersize lot), probably because an actual application would have disqualified all the houses planned within 300 feet of the C-1 creek.
Manipulations of the facts surrounding approval status are common and justified by all involved because the alternative is to lose the willing seller to a developer's deeper pockets. Consider also, when we stopped 1000 houses on the Pohatcong Grasslands, I wondered why it mattered that the would be developer, still walked away with millions for the property. They had no approvals and were not going to get them for anything on a large scale, yet they were paid a huge amount. They had become "willing sellers". Over the years, it became clear to me that one problem with such giant pay outs, is that it diverts the finite amount available to just one parcel leaving many more unpreserved. There is a tremendous game being played with value, and for the most part land preservationist accept it deal by deal, often holding our noses, because it stinks so badly, yet knowing this may be our only way to get preservation under this "willing seller" system. We are settling for a very low return for the public's investment with relatively little land preserved and not even getting a chance at most pieces, except when we are able to use zoning or environmental law and public sentiment to show the owner the wisdom of becoming a "willing seller.
I'd like to suggest a different model that can dramatically improve the amount of land preserved.
When New Jersey passed the Highlands Act in 2004, it created a preservation core which imposed 88 acre zoning and seized the speculative value of the land. It provided several years for speculators to cash out by selling their development rights at 2004 values. (Many have not cashed out because they hope that a TDR program will return to them the speculative value that has been seized.) Maintaining farmland as farmland is in the public interest and so New Jersey has allowed a very low tax rate on farm assessed properties since WWII and since then these lands have greatly escalated in value, not because of some improvement made by the land owner/farmer but because of the public's investment in roads and other infrastructure.
Maintaining farmland without houses is more than ever in the public interest and allowing conversion from farmland is not in the public interest. Because of its long term investment in keeping taxes low on farmland and investment in infrastructure, that has sent values soaring, New Jersey can justify claiming some of the development rights of farmland assessed properties. Even claiming a lien of only one dollar of the development rights, would prevent the sale of these lands without New Jersey's permission. Those wanting to develop their farms would have to sell the development or speculative value to the state just as in the Highlands Act.
The cost of buying such development rights can be roughly calculated because it will be free of the giant run ups in price that are necessary when we are trying to entice "the willing seller" to chose preservation over development. Therefore, we could approximate how much to raise, unlike the current system where there will never be enough money, and it will always be sucked up by developers playing the system. Often, the public is paying for the speculative value in the conversion of farmland that, ironically, as I have pointed out, has been created by public investment. As the supply of available land dwindles, this competition and the attendant cost run ups will worsen, risking the public's support for preservation funding.
Stopping the conversion of farmland is in the public's interest both as a source of food and as an economic engine for the region. Also, wood lots that are farm land assessed, have value in combating global warming that has not yet been calculated and should not be lost. Our endangered and threatened species' current dismal prospects for survival, would be much improved under this habitat saving model. We wonder why the peoples in far away lands cannot act to save the tiger or gorilla etc, yet have given over the survival of our own native species to dishonest or disingenuous claims of speculative value. And the agencies meant to protect the environment have devised methods that systematically dismantle it, as part of the speculative game, and as a result of the pressure brought by those that speciously claim that they own the speculative value.
After all, contrary to the claims of developers who are trying to redefine smart growth, real smart growth is not merely clustering houses in the woods, or on former farm fields to which residents commute several hours. Real smart growth is keeping growth in the environs to a minimum, sending all growth to existing cities, thereby preserving farms and the rural environment.
NO MORE HOUSES ON FARMLAND. Mike King, Coordinator REALsmart, the league for real smart growth
ANOTHER INCONVENIENT TRUTH
The inconvenient truth about land preservation in New Jersey is the undeniable fact that there will never be enough money, even if there was a new dedicated source to fund the Garden State Trust, if we continue to use a system completely dependent on finding a willing seller.
"Consequently, if we do not face this reality, we will be lucky if 25% of these farms are preserved at the end of 20 years." That quote is from my comments to the Highlands Council about the RMP of which an excerpt is posted below. Preserving only 25%, in my view, would be a failure.
Wilma, how about for you or anyone reading? Perhaps you believe we are on target to preserve 25% of the farms and 30% of the available, undeveloped land in the planning area. If that is all we are aiming for, it will partially explain the general complacently of so called activists in the Coalition. If we are aiming higher, than let's confront the inconvenient truth with solutions. Other wise individuals, like myself, that are working so hard for a better result, face a sad disappointment but it will be too late to do anything about it.
As land preservationists vie with developers for the remaining land, this inconvenient truth- the price tag of preserving land, when we do find a willing seller- will become abundantly clear. I know this topic is uncomfortable for those in the Coalition, whose bread and butter comes from the current willing seller programs, and they should excuse themselves for conflict of interest, instead of arguing the issue as if they were not conflicted. New ideas are needed from those dedicated to improved results in percentage of land preserved or simply a recycling of old ideas: Grow REALsmart in the cities; no more houses on farmland!
Excerpted comments, pasted below. Complete comments with a suggestion and justification for preserving farmland assessed properties can be found at www.proriverview.org under Highlands RMP comments
COMMENTS to HIGHLANDS COUNCIL, RE: REGIONAL MASTER PLAN
from REALsmart, The League for Real Smart Growth, Phillipsburg, New Jersey, 08865
A view of the farmland resource in just one town:
Franklin Twsp, Warren County has 11,000 tillable acres. Almost all of this farmland is in the planning area and zoned for growth. The town is counting on it along route 57. We need something to catapult this resource in its entirety out of the reach of the developers and into permanent status as farmland. It can be justified simply by the economic benefits this world class farmland can offer as the economic basis for Warren County. Are we just going to sit by as it is divided piece by piece? Preserving a piece here or there as funds are available for those willing to settle for $45,000 an acre. * (see below, the most recent town purchase went for this if you exclude the 300 foot buffer from the C1)
The piece by piece development of farmland, has unfolded across the state and no rules currently in place in the Highland's planning area will break this pattern. We need an action plan to preserve these lands or face their continued loss. I have proposed a few ideas here which justify a plan for action and propose a method.
11,000 tillable acres (you can't believe you're still in Jersey, when you see it) blows the doors out of the existing preservation programs. These programs have worked for towns with just a few properties remaining undeveloped, sometimes, depending again on the willing seller needed to be eligible for state funds, but not for preservation of agriculture at this scale. Consequently, if we do not face this reality, we will be lucky if 25% of these farms are preserved at the end of 20 years.
Mike King, Coordinator, for REALSMART the League for Real Smart Growth 68 S. Main Street Phillipsburg, New Jersey phone and fax: 908-454-4141 www.proriverview.org
*And it should be noted that just this one purchase, (of the property across from the Franklin Twsp school) nearly wiped out the entire township open space fund, that is six cents on the hundred, they've been collecting for years. The guy up the hill wants the same money in exchange for not building 17 houses but town folks call it extortion, because it is not across from the school, I guess, even though, it is zoned the same and allows the same amount of houses acre per acre, as the property across from the school.
They're even going to name the new open space park, across from the school, after the former farmer/owner, since at $45,000 an acre, he could have done even better financially, developing the land. And it has to be mentioned, that Green Acres allows appraisals to include the land from the creek to 300 feet, as if, houses could be built in the 300 foot buffer of a C1. The program does this to encourage a willing seller, because, it must have a willing seller. Problem is that at these prices, we cannot preserve the development rights of even a fraction of the land available for development.