How the Land Development Community can help to Preserve Farmland.
Last week the new Frederick County Board of County Commissioners wrapped up its strategic planning session and out of that they made farmland preservation one of their top priorities. Since then several questions have come my way regarding my thoughts on implementing a county-wide TDR program.
Over the years MacRo, Ltd. has actively participated in and transacted a vast number farmland preservation easements and is a strong believer that such efforts should be part of any county or jurisdiction’s planning and zoning tool box. So with a bit of experience under my belt, I thought I’d pontificate on this topic!
For those of you who don’t know, TDR stands for Transferable Development Rights. Simply put, these are typically programs that are designed by local government to allow for the free market transfer of subdivision or development rights from a rural (agricultural and/or conservation) zone to a designated development zone within a jurisdiction. These rights are purchased by a land developer at market value from a landowner in a rural area where there are often more development rights than are allowed to be used by zoning in that area. Referred to as a “Sending” zone, the rights are then legally separated from the farm or rural property in exchange for a land preservation easement. The rights can be held for investment or transferred into a “Receiving” zone, which is a designated growth area for real estate development. In these Receiving zones additional density is allowed to be added when the rights are acquired from the rural Sending zones.
For example, let’s say that Farmer Bob owns a 200 acre property with 30 development rights, and Land Developer Lennie has a property near the city that allows for 20 housing units. Bob’s farm is in a Sending zone, and Lennie’s land is located in a Receiving zone. Lennie bought the property because he knows that he can increase the density from 20 lots to 50 lots, if he can acquire 30 TDRs from a tract of real estate in the Sending zone of his community. Broker Earl connects the two, and Bob agrees that at a fair market price he will sell Lennie his 30 development rights. They enter into a contract and inform the county government that the transaction will take place. Bob then enters into a long term (often permanent) agreement with the County — known as an preservation easement — committing that the property will not be developed. Once completed Lennie is allowed to increase the density of his housing project to 50 units.
That’s a simple explanation of how it works. The benefit of a TDR program verses a government Purchase Development Rights (PDR) program is that the dollars for a PDR program is often funded through various forms of government taxation or financing guarantees, and the former is paid for through the private sector.
The more complex part of the TDR structure is the process of defining the Sending and Receiving areas, as well as establishing how the base development rights will be distributed. Through the many programs that I have studied over the years, it is clear that each program is always customized to fit the specific goals and objectives of the governmental jurisdiction. Some programs allow the real estate developer, who acquires the TDRs, to increase density only in residential areas. Other programs use TDRs to gain approvals for subdivision plats or building permits. There are also programs that use TDRs to increase the amount of square feet in commercial, office and/or industrial real estate projects.
Once the program is in place, the value of a development right should be a function of free market supply and demand. I say should be because there are several cases where the local government has to step in with price caps, floors or subsidies so as to stimulate or control the market. In those cases this usually means that the program was flawed from the inception, causing an increase in the cost of government to support the program. As a matter of fact one study that was conducted several years ago revealed that nearly 95% of the TDR programs that have been established by local governments throughout the country have been unsuccessful.
The key is to make sure the program is structured properly so that values will ebb and flow with the fluctuations if the real estate market, and the government does not have to use its funds in the farm and land preservation effort.
In Maryland there are active Transferable Development Right preservation programs in Charles, Calvert, Saint Mary’s, Queen Anne’s, Howard and Montgomery Counties. Many TDR purists do not include Howard’s successful preservation program on this list, but that is another story.
In the case of Montgomery County, over 30 years ago the county appointed a task force to look into idea on how to stem the rate of loss of farmland in its rural zone. The task force considered strengthening its zoning, funding a PDR program, and/or a TDR program. Interestingly, they also believed that the adoption of a more restrictive zoning would not provide a means of fairly compensating the landowners in those rural zone. In the end they concluded that PDR was too expensive. As a result, the group recommended a blend of the creation of an overlay agricultural protection zone (called the Rural Density Transfer – RDT – zone) that established transferable development rights for the landowners to sell in exchange for preservation easements. The program was adopted in 1980.
The Montgomery County TDR program has become a model that a number of jurisdictions across the county have followed, but in each case they have been customized.
In subsequent articles of this series, I’ll touch on the essential elements of a successful program and TDR values, as well as the many pitfalls found in unsuccessful transferable development right programs … so stay tuned!
The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com.