Incentives

Create Incentives to Encourage Better State, Regional, and Local Growth Management

• Create incentives for local communities to regularly update General Plans and Community Plans

• Provide resources to analyze the economic, social, and environmental costs and benefits of local, regional, and state planning decisions

• Create incentives for Local Agency Formation Commission to regularly update plans for spheres of influence, annexation, and the extension of urban services

Purchase Development Rights

A purchase of development rights program (PDR) is a voluntary program whereby a landowner sells the development rights on their land to a land trust or other conservation agency. These programs are completely voluntary and allow for negotiation within the terms of the purchase. Once the land conservation organization purchases the development rights, the agreement is legally binding and the parcel will usually remain in its current, undeveloped state forever. The landowner, however, still owns the land and can use or sell it for purposes specified in the conservation agreement such as farming, timber production, or hunting. Flexible in nature, PDR program administrators can customize agreements to meet the objectives of both landowners and communities. For example, an agreement designed to preserve agricultural resources might allow the landowner to build an additional home or two as long as their placement does not limit the property's long-term agricultural potential.

Development rights reflect a portion of the land’s total value. To determine the value of development rights on a certain property, it is necessary to determine the difference between the fair market value of the land without the conservation agreement and the market price with the agreement.

PDR programs offer benefits to both landowners and communities alike. Landowners benefit by converting their land wealth into cash. Agricultural landowners have a great deal of equity in their land, but often take in relatively low incomes. Through the sale of their development rights, agricultural landowners can extract some of the wealth from their land without relinquishing ownership or productive capacity. Tax implications for PDR programs are twofold. The proceeds from the PDR land sale are taxable, but the taxable value of the land is minimized and possible future inheritance taxes are decreased as well.

Communities benefit from PDR programs because working farms and ranches remain in production and provide both resource amenities and economic diversification. Buying development rights from willing landowners provides a market-based approach to land preservation while augmenting other land management tools such as zoning.

PDR Case Study: Gallatin County, Montana

The Gallatin County, Montana Open Lands Program, established in June 1997, focuses on preserving working agricultural lands, keeping agricultural producers on their lands and providing an opportunity for economic development within the agricultural community. It seeks to accomplish this by purchasing development rights or placing conservation agreements on the family farms and ranches of the county.

Charged with finding solutions for the county’s disappearing active farm and ranch land, the Open Space Task Force determined that purchasing development rights was a powerful tool. Agriculturalists gained an infusion of cash in exchange for their development rights on their land. The sale appealed to farmers and ranchers because it allowed them to keep ownership of their land and continue their ranching and farming activities.

However, the only large scale financing option available to local governments in Montana requires borrowing money. Therefore, a bond measure financed by increased property tax assessments would have to be passed by the voters and would need an extensive public process to educate the community and gain positive support.

Two issues surrounded the passage of these bonds. First, the agricultural community was unwilling to support the bond if the money was going to be turned around and used to buy their land. To resolve this, a measure passed the state legislature exempting agricultural producers from the increase in property taxes. Second, the initial bond set aside zero dollars for administrative costs associated with the program. As a result, the county started up a special open lands license plate program to generate funding for administration expenses. The original $10 million bond received voter approval in November 2000 and another $10 million bond passed in 2004.

The Trust For Public Land, Gallatin Valley Land Trust, and Montana Land Reliance contributed assistance through community outreach efforts. Since passage of the bond, these organizations have stayed on board, working with willing landowners; locating matching funds and helping ranchers develop proposals for the Open Lands Board.

The PDR program is open to all landowners, but due to funding restrictions, a very specific quantitative system is used to determine who receives the money. A scoring system helps the Open Lands Board make their funding decisions based on the following criteria: parcel size, surrounding land use, agricultural value, natural resource value and length of time the land has been owned by the family.

Transfer Development Rights

Through the utilization of the transfer of development rights tool, local governments have the ability to redirect growth to appropriate areas within their communities. A TDR program allows higher densities on some parcels of land suitable for that type of development, in exchange for lower densities in more sensitive areas of the community. The TDR program delineates sites that could accept higher densities than currently exist while preserving valuable natural resources, waterways, scenic viewsheds, or historic districts that would be inappropriate for higher density development. Through this process, a “receiving” district (area designated for higher densities) and a “sending” district (area designated to be conserved) are established to facilitate the transfers. Once these districts are in place, landowners in the sending area receive development right credits they can sell in exchange for not developing their land.

Developers or local governments can purchase these credits and use them to increase existing or planned densities in the receiving areas. The amount of development rights credit reflect either the number of house lots a landowner could potentially build on their property under current zoning restrictions or a fair market value as compared with other properties in the conservation district.

TDR programs offer a market-based approach to natural area conservation. Most importantly, TDR protects significant resources with a minimum investment of government funds and encourages development in those areas where infrastructure can support increased development. Sending site owners permanently deed-restrict their properties because the TDR program makes it more profitable for them to sell their unused development rights than develop their land. Developers buy the development rights and use them to increase the density of receiving site projects; they do that because these larger projects are more profitable than the smaller projects allowed when development rights are not transferred.

TDR is not a taking of private property rights. The U.S. Supreme Court determined in Penn Central Transportation Company v New York City that zoning restrictions of some development rights on a property did not constitute a taking in violation of the fifth and fourteenth amendments.

Some essential elements to crafting a constitutional and effective TDR program with appropriate statutory language include:
    * A clear and valid public purpose for applying a TDR program, such as open space preservation, agricultural or forest preservation, or the protection of historic landmarks
    * Clear designation of the sending areas and the receiving areas, preferably on the zoning map
    * Consistency between the location of sending and receiving areas and the policies of the local comprehensive plan, including the future land-use plan map
    * Recording of the development rights as a conservation easement, which will inform future owners of the restrictions and make them enforceable by civil action
    * Sufficient pre-planning in the receiving area, including provisions for adequate public facilities
    * Sufficient allowable density in the receiving area to help ensure development is economically viable. If the receiving area is zoned to allow development at market capacity without the TDRs, there will be little demand for the TDRs and their market value will be diminished.

TDR Case Study:  Farmland Preservation through Down Zoning

    Montgomery County, Maryland adopted a plan for the preservation of agriculture and rural open space by “down zoning” more than 90,000 acres in a designated agricultural reserve area. Down zoning essentially reduces the permitted building density allowed by acreage.

    In order to preserve agricultural land, the county adopted a Rural Zone in the western and northern, primarily agricultural, regions of the county and set the minimum lot size at five acres. With Washington D.C. abutting the county’s southeast border, housing demand soared in Montgomery County, and the new zoning did not deflect large lot suburban building in the Rural Zone. The county lost more than 12,000 acres or roughly 18 percent of its agricultural land in the six years following the zoning change.

    In 1980, a county task force recommended another down zoning change. When adopting a new county master plan, a 93,000-acre Agricultural Reserve was created with an accompanying transfer of development rights program.

    The revised master plan increased the minimum lot size from five to 25 acres. To address concerns about property rights and protecting landowners’ equity, the council created transferable development rights (TDR), assigning one TDR per five acres of land. Although the new zoning only permits one housing unit per 25 acres, the landowners were given credit according to the old zoning, one house per five acres. The county has designated 14 communities identified in local master plans as receiving sites for transferred development rights. In order for a TDR market to thrive, the real estate economy needs to be vibrant, and the receiving areas need to be large enough that development rights from agricultural lands can be utilized.