To the extent open space is valued, investors can be relied upon to supply it.
There is little empirical evidence that preservation tax credits and similar government initiatives actually slow the rate of agricultural conversions or preserve open space. Factors contributing to this apparent policy failure include insufficient incentives and overly restrictive eligibility or perpetuity requirements. Each of these shortcomings could be ameliorated through greater reliance on private property rights and market forces.
Were Michigan’s preservation initiatives truly effective, it is doubtful there would continue to be such political clamor for action. A 1986 study by researcher Sandra Hoffman found that P.A.116 failed to attract enrollment of farmland near urban areas. Concluded Hoffman: “It is difficult to say that P.A. 116 has been successful at slowing the conversion of Michigan farmlands and open space.”
Our analysis of more recent data spanning 1982 through 2001 also found that the majority of tax credits have been distributed to areas where development pressures are low, meaning that the $800 million in credits have not preserved farmland as intended.
The greatest development pressures exist in 17 Michigan counties classified as “collar communities” by the U.S. Census Bureau. These are suburban counties adjacent to central cities. They include: Allegan; Bay; Berrien; Clinton; Eaton; Jackson; Lapeer; Lenawee; Livingston; Macomb; Midland; Monroe; Muskegon; Oakland; Ottawa; St. Clair and Van Buren.
Our accounting of the state’s farmland preservation program yielded 10 major findings:
Between 1982 and 2001, only 28.5 percent of all tax credits awarded annually went to farms in high-growth counties. (See Appendix A)
Some 54 percent of these credits were allocated to farms in counties classified as “rural” by the U. S. Census Bureau, and thus distant from development pressure. (See Appendix A)
17.5 percent of credits were applied to farmland in “central city counties” where development pressure is low. (See Appendix A)
Five of the 17 high-growth counties – Livingston, Macomb, Midland, Oakland and St. Clair – had zero enrollments in the farmland preservation program in 1997, 1998 and 1999.
Five of the six counties with the highest levels of program participation – Huron, Tuscola, Saginaw, Sanilac and Gratiot – are located in low-growth areas as defined by the Census Bureau.
Huron County, which accounted for 8.5 percent of the tax credits overall – the largest number statewide – contains only 2.5 percent of the state’s farmland. Still, the credits did not prevent 10.6 percent of that county’s farmland from being converted to other uses between 1992 and 1997.
The Michigan Department of Agriculture does not monitor whether program participants are abiding by the covenant or maintaining the environmental integrity of the enrolled properties.
More covenants have expired than have been renewed in the past six years. (See Appendix B)
The Michigan Department of Treasury only estimates the number of credits issued annually, although the total value of credits is calculated.
The average price paid by the state to purchase permanent conservation easements – $3,260 per acre – far exceeds the national average of $1,789 per acre. Both the lowest and highest prices paid in Michigan – $1,939 per acre and $6,493 – were for farmland situated in the same county (Grand Traverse).
A variety of factors likely contribute to these program failures. Farmers with significant off-farm income – about half of all Michigan farmers – do not typically qualify for the tax credits. Also, the $5,000 cap on the maximum allowable tax credit is insufficient incentive to participate given the market value of property in rapidly developing counties. Moreover, because the covenants are not permanent, participants do not qualify for federal tax relief, further reducing the incentive to enroll.
Marginal improvement in the program might be achieved were the Legislature to increase the tax credits or restrict program enrollment to high-growth counties. But that’s politically unlikely given the widespread participation in the program. With tens of thousands of farmers currently benefiting from the credits, tighter eligibility standards would likely meet heavy resistance from the farm lobby.
A compelling case can be made that the tax code should not favor open land over developed land. Indeed, the Michigan Constitution calls for equity in taxing property at its highest and best use value. To the extent open space is valued, investors can be relied upon to supply it – in the absence of government interference.
But if policy-makers remain convinced that state intervention is justified, better results could be achieved by allowing private trusts to assume responsibility for the easement program.
Hundreds of private trusts now operate across the nation. Most are better equipped than state workers to assess the environmental value of various properties and oversee covenant compliance. As it now stands, the state awards tax credits without distinguishing the relative environmental values of farmland or whether the farmland is likely to be converted.
Private trusts would also likely be better positioned to customize covenants to attract landowners whose properties would maximize conservation goals. Steven J. Eagle, a professor of Law at George Mason University, notes that such flexibility would enhance program results.
“(T)he goals that conservation easements are to be consensual in nature and custom-tailored to individual circumstances and desires largely are vitiated in those states in which government (or government and one land trust) has a monopoly on holder status,” says Eagle. “In such a jurisdiction one could expect the full panoply of bureaucratic regulations and a ‘one-size-fits-all’ approach, resulting in fewer landowners entering into conservation easements than otherwise would be the case. The more freely non-profit (and for-profit) organizations are allowed to act as easement holders, the more likely landowners would be to participate.”
Relying on private organizations to achieve public policy objectives is a time-tested approach. The state awards millions of dollars in tax credits annually for private donations to thousands of charities serving the public interest. The tax credits serve as tacit recognition of the inability of the state to provide the multitude of services that citizens, generally speaking, consider worthy of support.
Some legislative action would be necessary to authorize private trusts to assume responsibility for the farmland preservation program. But major improvements would likely result, including greater accountability and effectiveness.
Nurturing more of a private market in outdoor recreation and other open-space amenities is also important to advancing conservation. But so long as government holds a virtual monopoly on open space, parks and wilderness areas, there is little chance that private property owners will forgo the value to be derived from development in favor of investing in open space. Given the state’s inability to sustain its current land inventory, it is reasonable to suggest that the Department of Natural Resources reduce its holdings and allow competition in outdoor recreation, including hunting, camping and other open-space enjoyments to take hold.