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PLAIN ECONOMIC SENSE
For release after November 9, 1998
Column 354
Purchase of Development Rights for Farmland Protection
By Mark A. Edelman
Extension Public Policy Economist
Iowa State University Extension to Communities
One program that some 20 states use to protect farmland from conversion to urban development is called Purchase of Development Rights (PDRs). How does it work? Here is a summary from presentations made at recent national conferences on the topic.
Pennsylvania is regarded as having one of the more successful programs of this type. In a nutshell, farmers are paid an average of $2,000 per acre in return for selling the development rights to their land for nonagricultural uses. The rights are attached to the title of the farmland in the form of a conservation easement, so the prohibition on development transfers with the farmland if it sold to someone else. The program was initially funded in 1989 by a $100 million bond approved by voters statewide.
Farmers apply for participation to a county farmland preservation board, which scores applications using land evaluation and site assessment criteria set up by each county and approved by a state board. The highest scoring farms are then appraised and the process of negotiation a final sale price and other details occurs. State and county funds are used for the purchase.
Since 1989, Pennsylvania has purchased the development rights on 950 farms and 120,486 acres -- about 190 square miles of land. For comparison, the last census shows that Boone County, Iowa, has 923 farms and 330,080 acres of land in farms. This indicates that such a program would cover a relatively small number of acres in relation to the total acreage of farmland statewide.
Second, farmers like the program. It is a voluntary program. Typically the farmer's potential revenue from the purchased development rights plus the sale price of restricted farmland is greater than the sale price of similar farmland that is unrestricted. Farmers can use the revenues to pay down debt, expand their agricultural enterprises, or anything they want. However, not every farmer can access the program. There are about six applications made by farmers for every one that is accepted. A limiting factor is the amount of public funds that are made available for making purchases.
States have become more interested in PDR programs during the last couple of years. Since passage of the 1996 Farm Bill, the U.S. Department of Agriculture has made a limited amount of matching funding available for states that purchase conservation easements. States that do not have PDR programs cannot access the federal funding.
A critical factor in the success of a PDR program is the criteria adopted by the county farmland preservation boards. The cost per acre is higher if the board purchases development rights on farmland that is already in a prime area for urban development. Fewer farmland acres next to existing developments can be purchased compared to prime farmland that may be a few miles away. In addition, if local developers become hemmed in by restricted farmland, they may be more likely to leap frog over the restricted farmland and develop further out.
So the goal of the Lancaster County, Penn., farmland preservation board is not to stop development, but to direct it away from prime agricultural areas. In this case, the preservation board recognizes that most cities have multiple directions for development. Each direction has varying qualities of agricultural land. This local board attempts to cluster its purchases to retain larger blocks of prime farmland so as to encourage the city to focus its developments away from the highest priority prime agricultural production areas.
Clustering the PDRs also creates a larger block of protected farmland. This reduces the "impermanence zone" for farmers in the area. Farmers know that there will be fewer problems related to residential areas locating next to farms, such as dust drift, youth sabotage, aerial spraying drift, pets harassing livestock, noise, flies, smells, etc. In addition, farmers know with more certainty that all of the farmland in their area cannot be developed. So, they are more likely to make longer term investments in their agricultural enterprises.
Finally, the creation of larger blocks of protected farmland helps to maintain the viability of agricultural supply and marketing industries. Serving farms that are in compact blocks of farmland is less costly than serving farms that are more dispersed and mixed in with urban uses. In the final analysis, the success of a program to purchase development rights depends on answers to two questions: How much public funding will be made available? Which farmland should be protected from development?
Edelman is a professor of economics and an extension public policy specialist at Iowa State University.
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