Getting caught between a bad economy and an effort to complete farmland conservation and/or preservation easements has really put the squeeze on some in the agricultural community.
On January 30, 2011, the Frederick News Post ran a front page story entitled Frederick County studies $824,000 option on family farm. It described the plight of the Blickenstaff family, and their struggle to sell a land preservation easement on their farm.
This article reveals some of the pitfalls to landowners and local governments in their efforts to preserve land.
In Frederick County the government funded programs used to preserve land include the Maryland Agricultural Land Preservation Foundation (“MALPF”), Rural Legacy, the Installment Purchase Program and the Critical Farms program. Typically, the landowner will sell the government an easement which restricts their right to subdivide, develop or use their land except for agricultural or similar uses.
Some land owners enter their property into a program such as the Maryland Historic Trust without receiving monetary compensation; instead a tax benefit is usually the incentive.
Governments fund these programs with transfer and recordation taxes collected from property sales, and with general funds. When times are good, properties sell and money flows into land preservation programs.
Unfortunately, times haven’t been good for several years now – tax collections are way down and all government budgets are extremely tight. As a result, land preservation efforts have stalled. For example, MALPF did not preserve any land in Frederick County in 2010 and is likely to purchase only one property in 2011.
The Blickenstaff case is complicated. The family purchased their farm in 2008 with a little over 50% of the price being funded via Frederick County’s “Critical Farm” preservation program. There are two aspects of this program that make it unique and important.
Cash for Experienced Farmers
First, Critical Farms provides cash for the purchase of farmland by experienced farmers. When a farm is “on the market” for sale, this program can subsidize the purchase price for buyers if they are experienced farmers and agree to preserve the farm.
The Critical farms program provides incentive to keep farms in production versus being sold for other uses. It also helps farmers obtain farmland at lower prices than the market will bear, giving them a chance to compete.
The other preservation programs tend to move more slowly and aren’t able to provide funding at the settlement table. Critical farms targets farms that are being sold – providing incentive to keep the farm in agricultural production instead of being sold for other uses.
A Revolving Fund
Secondly, Critical Farms is a county administered “revolving fund”. The county provides cash at settlement, reducing the purchase price to the farmer-purchaser. In exchange, the farmer agrees to apply for preservation funding from other programs, usually MALPF or Rural Legacy for a five year period.
If the farm is accepted into one of the programs then the county is ‘paid back’ the investment it made at settlement. This replenishes the revolving fund which can then be used to help another farmer purchase a farm.
If the funding received exceeds the county’s investment, the extra funds are kept by the farmer further reducing the net purchase price. If the farmer is not able to obtain funding from a preservation program within the five year period, then the county has the right to record its own preservation easement to prevent development of the farm. This is in keeping with the original intent of preserving the farm, but since ‘outside’ funding isn’t provided, the county’s revolving fund is not replenished.
Where’s the beef?
Due to the sour real estate market, MALPF and Rural Legacy don’t have sufficient funds to purchase an easement on the Blickenstaff farm. If at the end of the five year option period the Blickenstaff’s haven’t paid back the county, then a county preservation easement automatically takes effect.
Unfortunately the News Post article incorrectly indicated that the county would take ownership of the farm, similar to a foreclosure. In fact, the property owner will not suffer any additional loss – they were able to acquire the farm at a greatly reduced price due to the county’s subsidy.
The property owner agreed to preserve the farm when they entered into the program at settlement, and that’s exactly what will happen. It’s a shame that current economic conditions have emptied the government’s pockets for funding voluntary land preservation efforts. However we expect that this to shall pass, and conditions will improve.
MacRo, Ltd. has wealth of experience assisting landowners with land preservation. If you have any questions your land holdings and the potential for preservation please give us a call.
Dave Wilkinson has been a licensed Realtor and Vice President of MacRo, Ltd. since 1992. He specializes in commercial property and rural land sales. He also provides real estate consulting services for land conservation.