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Maryland Agricultural Land Preservation Program

Maryland Agricultural Land Preservation Program. Presentation at the Washington County Commissioners March 21, 2006. Jim Conrad, Executive Director. The Maryland Agricultural Land Preservation Foundation (MALPF): History.

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Maryland Agricultural Land Preservation Program

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  1. Maryland AgriculturalLand Preservation Program Presentation at the Washington County Commissioners March 21, 2006 Jim Conrad, Executive Director

  2. The Maryland Agricultural Land Preservation Foundation (MALPF): History • Created in 1977 by the Maryland General Assembly as one of the first state farmland preservation programs in the county. • Governed by the Agricultural Article, §§ 2-501 through 2-515 of the Annotated Code of Maryland as part of the Maryland Department of Agriculture. • 25th year of purchasing easements (first easement purchased on October 11, 1980). • State-County partnership program.

  3. MALPF: Primary Statutory Objective • MALPF’s primary purpose is to preserve productive agricultural land and woodland in Maryland to provide for the continuing production of food and fiber for the citizens of Maryland. • In other words, its primary purpose is to preserve the central input on which Maryland’s agricultural and forestry industry depends: the land resource base.

  4. MALPF:Secondary Statutory Objectives • Help control the extent of urban expansion in the State. • Help curb the spread of urban blight and deterioration. • Help protect agricultural land and woodland as open space. • Help improve the water quality of the Chesapeake Bay (not a statutory goal).

  5. MALPF: Current Status • Including FY 2005 offers, MALPF has preserved 242,822 acres with 1,757 easements. • By the end of its 25th year of purchasing easements (October 2006), MALPF will have preserved over 250,000 acres on 1,800 properties. • MALPF has 320 easements in Carroll County on 38,638 acres, about 16% of all MALPF acreage.

  6. MALPF: Operations • Two-step program: five-year term easement is a precondition to be eligible to sell a perpetual easement to the Foundation. • County initiative in approving district and easement applications, ranking properties for easement purchase, and on-going program operation. • Governing structure is a twelve-member Board of Trustees with four ex-officio and eight Governor-appointed members. • Each county has a local appointed Agricultural Land Preservation Advisory Board.

  7. MALPF: Participation and Eligibility • Landowner participation is voluntary. • Property eligibility is based on three criteria: • Location – the property must be located outside of a ten-year water and sewer service area. • Size – the property must be 50 acres or larger or, if smaller than 50 acres, be located contiguous to already preserved property. • Productive Soils – the property must have 50% or more USA soils classification Class I, II, and/or III and/or Woodland Group 1 and/or 2.

  8. Recent Developments • Increased Funding Levels • Increased Easement Values • Better Use of State and County Resources • Farm Profitability • Participant Choice and Flexibility • County Choice and Flexibility

  9. Changes in Funding (1):Sources of Funding • Real Estate Transfer Taxes (½ of 1% of the value of the transaction). MALPF receives 17.05% of this dedicated revenue source. $15-25 million annually. • Agricultural Transfer Taxes (3-5% of the value of the land, depending on size and improvements). MALPF gets 66% and the county receives 33% of this tax unless the county is certified, in which case MALPF gets 25% and the county keeps 75% of this tax. $4-8 million annually. • Federal Farm and Ranch Land Preservation Program (FRPP) (grant program). $2-5 million annually. • MALPF’s Matching Funds Program and 100% County Funds. $6-13 million annually. • General Obligation Bonds. Temporary infusion of bond funds to replace a proportion of the Real Estate Transfer Tax revenues that were transferred to the General Fund between FY 2003-2005. $5 million in FY2004.

  10. Changes in Funding (2):Recent Funding for Easements • The amount spent on easements in the last five years has also varied greatly, from a high of $37.5 million in FY 2002 to about $7 million in FY 2004, composed of mostly local funding. • The MALPF Task Force calculated that MALPF and other State land preservation funding was $26 million short each year to meet its statutory goal of 1,030,000 acres by 2022.

  11. Changes in Funding (3):Impact on New MALPF Preserved Acreage The number of new acres preserved in the last five years has varied greatly, from almost 20,000 acres in FY 2002 to about 2,200 in FY 2004 when MALPF received almost no State funding.

  12. Changes in Funding (4):Current Developments • Funding will return to traditional POS real estate transfer tax in FY 2006. • Funds are projected to rise from a. $7 million in FY 2004 to a. $85 million in FY 2007 with the return to dedicated funds. This still needs General Assembly approval. • The Agriculture Stewardship Commission has recommended an additional $20 million to fund the installment purchase agreement program, the Critical Farms Program, and the Priority Preservation Areas Program.

  13. Changes in Funding (5):What Now? • During times of funding shortage, potential participants are unwilling to commit to 5-year district agreement. • There can be a lag in the number of applications as funding returns. • When funding returns, MALPF must market the Program. • County matching fund commitments must be renewed. County can receive $6 in State matching funds for every $4 committed up to a total of $1,000,000 of State funds ($666,666 of County funds).

  14. Changes in Funding (6):Response • We are strenuously marketing the Program between now and the end of March. • We will expand staffing levels over the next year to help meet increased funding. • Efforts are underway to reduce barriers to potential applicants to the Program (with leadership from Carroll County). • Eliminate 5-year District Agreement eligibility requirement. • No waiting period if an offer is rejected. • We are seeking to create more choices for potential Program participants. • Critical Farms Program • Installment Purchase Agreement Programs (expand to 25- and 30-year agreements from already approved 15-year agreement). • We are seeking to raise limits on matching fund commitments that the State can make to counties willing to participate in the Matching Funds Program from a maximum of $1,000,000 to $2,000,000 ($666,666 in County funds to $1,333,333). • Longer-term Objective: Encourage predictable and adequate funding for the Program to efficiently reach statutory objectives.

  15. Changes in Funding (7):Response • Even though the funding levels for MALPF will be increasing, the amount paid for acquiring easements will also go up • Increased value of farmland • Reduced importance of discounting in new rankings systems • The next chart shows that expected acreage acquisition tracks the changes in expected funding, but the increase in acreage is not as dramatic as the increase in funding because of the higher costs that MALPF expects to pay to acquire easements.

  16. Make Better Use of State andCounty Resources (1) • Select better properties. • Pay more equitable and reasonable sums for easements. • Provide installment purchase agreements as an option to installment payments and the traditional lump-sum payment • Helps with capital gains taxes • Provides tax-free income stream.

  17. Make Better Use of State and County Resources (2): Easement Acquisition Costs (per acre) • Per acre acquisition costs are expected to continue to rise for the next two easement acquisition cycles (FY 2006-7) • Statewide easement acquisition costs were a. $2,000 per acre in FY 2001-2 and are expected to be a. $3,500 in FY 2007.

  18. Land Values - MALPF dollars per acre fiscal year

  19. Make Better Use of State and County Resources (3): Easement Acquisition Costs (per acre) • For Washington County, note the following relationships. • The Easement Value (EV) is the most a landowner can receive for his or her easement . • Washington County’s Fair Market Value (FMV) of farmland was approximately $4,690 per acre for FY 2005. • Washington County’s Easement Value (the maximum the Foundation can pay for an easement) was approximately $3,890 per acre for FY 2005. • The EV (maximum the Foundation can offer) in Washington County has been between 62-71% of the FMV. .

  20. Make Better Use of State and County Resources (4): Easement Acquisition Costs (per acre) • The costs of easement acquisition in recent years statewide have been approximately 60% of FMV, showing the importance that discounting has played in purchasing easements in Dorchester County where it was 40% of FMV.(Washington County does not discount) • The actual easement acquisition costs in Dorchester County in FY 2005 were $1,331 per acre (up from $783 in FY 2001) versus $2,624 per acre statewide (up from $1,943). Thus, per acre acquisition costs have grown by 42% in Dorchester County during this period vs. 26% statewide. • Discounting has a declining importance in determining whether or not a landowner receives an offer. Discounting has a reduced, though still important, role to play in Dorchester County and applies to those who do not get an offer first round restricted to county competition and who then are considered in the second statewide round where properties are ranked based on discounting.

  21. Changes to Make Better Use of State andCounty Resources (5) • New State Guidelines for County Ranking Systems: • Reduces or eliminates discounting in first round as the basis for county ranking. • Stresses the quality of the property in terms of its strategic location and productivity. • Critical Farms Program: • Address the problem of the loss of the most strategic land resources under threat of development. • Goal is to be able to move quickly to purchase an easement option. • Under extreme circumstances, a farm can be purchased directly by MALPF for resale at auction. • In conjunction with MARBIDCO, can help put young farmers on productive farmland. • Installment Purchase Agreement Program: • Beneficial to particular landowners who wish a tax-advantaged income stream and/or to address capital gains issues. • Beneficial to government as it allows leveraging existing funding against future revenues. • Better limit undesirable development on prime farmland: • Fewer potential residences (maximum goes from 10 to 3 houses). • Stricter acreage limits on agricultural subdivision. • More limits on development on adjacent parcels: • For example, Proposed Priority Preservation Areas Program to encourage better supporting policies.

  22. Recent Changes to Maintain or Improve Farm Profitability • Create a more flexible “use” policy at State level. • Re-emphasize “right-to-farm” and rational ordinances at local level. • Encourage on-going support for agricultural industries. • Develop installment payment agreement option to improve share of easement payment retained after taxes. • Forestry stewardship plan required on parcels with 25 acres or more of contiguous forested land.

  23. Changes to Increase Program ParticipantChoice and Flexibility • Choose family lots or unrestricted lot. • Choose lump-sum settlement, installment purchase agreement, or installment payments option. • Moreflexible“use”policy. • Choose regular easement acquisition cycle or critical farms program, if property and circumstances qualify.

  24. Changes to Increase CountyChoice and Flexibility • Choice in ranking criteria. • Choice in determining any Priority Preservation Areas. • Choice in determining maximum amount paid for easements in a County (either limiting total or supplementing State offer). • Choice to tap into the State’s IPA grants program. • Choice in determining Critical Farms criteria and sponsorship. • Choice in determining mix of MALPF allocation going to Critical Farms, IPA, and regular Program expenditures.

  25. FAQ 1:A developer has offered me three times as much per acre as what I could get from MALPF. • Developer offers typically include the value of any residences you have on the property which significantly inflates the price relative to the MALPF value. MALPF values are set only on the development value of the land. You retain the value of your residences with MALPF because you still own them. If you sell your farm to a developer, you are also, usually, also selling the residences on the property. • Such offers are not usually cash on the barrelhead, but are based on stringent contingencies concerning such issues as unit yields and site plan approvals. You may never see that price, or if you do, you may have to wait for five years not being able to do anything else with your property. Thus, your price is actually not in 2006 dollars, but in devalued 2011 dollars. And you assume the risk of keeping it off the market, not the developer. • With MALPF, you can go to settlement in twelve months with a per acre offer much closer to the time of settlement than with a developer. • You still own the entire property and can continue to earn income from farming it.

  26. FAQ 2:If I sell for less than full value, I’m leaving money on the table. • If you sell for less than the full value to a developer, you ARE leaving money on the table. • If you sell for less than the full easement value to MALPF, you can regain some portion of that value through claiming that value as a charitable deduction. It becomes a tax deduction on your federal income tax and a tax credit on your state income tax. • Because you still own the property, you can pocket the easement payment and still sell your property. • Studies done with the help of Farm Credit suggest that the easement payment plus what you could get for your preserved property by selling it on the open market is typically going to give you more money than if just selling your unpreserved farm on the open market.

  27. FAQ 3:If I apply to sell an easement, I have to make a five-year commitment not to develop the property. I am not willing to tie up my property for that long. • If you sell to a developer, you will likely tie up your property from alternative uses for a long period of time. • If you put a 5-year district agreement on your property, you can still sell the property at any point, though the district remains in effect until the 5-year commitment has been fulfilled. • Under a contract of sale to a developer, you will probably not be able to sell your property to an alternative buyer, yet the commitment to the developer can easily last as long or longer than the district commitment to MALPF. • MALPF is in discussion to consider eliminating the requirement for a 5-year district commitment to apply to sell an easement. There is currently pending legislation to this end.

  28. FAQ 4:My retirement is in my land. I plan on selling it when I retire to fund my retirement. Why should I sell the easement? • The recent rapid escalation in the value of land is the exception rather the rule in the long run. • Despite the evidence of the last few years, over the long term, historical experience suggests that you would do better to sell your easement and invest the proceeds for retirement than to rely on funding your retirement solely based on your investment in your land. • Such a retirement strategy can actually be seen as reducing risk by allowing greater diversification. You retain a significant investment in your land, and you can diversify by investing your easement proceeds in non-real estate investments. • You can also choose to address capital gains issues by reinvesting the proceeds of the easement sale in a “like-kind exchange,” acquiring new property or other real estate investment strategies. While not necessarily diversifying your investments, it could allow you to expand your farming operation while minimizing tax consequences. For more information on this strategy, please consult a lawyer who understands such transactions and their implications.

  29. Jim Conrad, Executive DirectorMaryland Agricultural Land Preservation FoundationMaryland Department of Agriculture, Room 10450 Harry S. Truman ParkwayAnnapolis, Maryland 21401410-841-5860conradja@mda.state.md.us

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