Friday, April 21, 2006

Subsidize farms and you get more "farmers" ...

   “You have meddled with the primal forces of nature!” warned a capitalist in Paddy Chayevsky’s screenplay for the classic film Network 30 years ago.  Today, libertarians warn us that if law meddles with market forces, it is likely to create unintended, and unhappy, consequences.
   If law subsidizes something, we not only help those who get the assistance, economists tell us; we also encourage more people to do the things that get subsidized.  This may be good for subsidizing solar-power generators, but bad for subsidizing the unemployed.   
   Consider Florida’s venerable Greenbelt law, which gives tax breaks to owners of “agricultural land.”  The law is touted as helping farmers stay farmers and to slow the transformation of farms into built-up land.  But for land speculators, it is also a way to reap tax benefits while waiting for development.  The Disney Corp., which owns many acres of land in central Florida, reportedly leases land to farmers and gets more than $1 million in tax breaks.  Other “farmers” may be even cleverer in taking advantage of the law.  A member of the Florida legislature introduced a bill last month to revamp the law, asserting that some speculators in effect use a “rent-a-cow” service to fulfill the loose requirements of "agricultural land."  Not surprisingly, the bill seems to have died for this term.
   If the idea is to help the traditional farmer, a law surely could be crafted more tightly so as to subsidize only resident farmers who make most of their income from farming.  Drawn as broadly as it is leads to the suspicion that the motivation may be less about helping farmers and more about simply slowing development.  If so, subsidizing "agricultural land" seems like a rather arbitrary and costly way of limiting new construction.         

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The following comment is derived from a law review note that I authored. It is currently under consideration for publication during the 2006-2007 academic year.

Commentators criticize the effectiveness of preferential tax assessment programs like the Florida law mentioned in your posting. Robert E. Coughlin and John C. Keene recognized long ago that “[t]he benefits of reduced taxation . . . are conferred broadly, with no assurance from recipients that the public policy of protecting farmland will be promoted.” Robert E. Coughlin & John C. Keene, The Protection of Farmland: An Analysis of Various State and Local Approaches, 33 LAND USE L. & ZONING DIG. 6, 6 (June 1981). To ensure that preferential tax assessment programs preserve agricultural land and do not encourage speculators to hold agricultural land to reap tax benefits, policymakers should consider:

(1) imposing meaningful penalties on landowners when a parcel is removed from preferential tax assessment, and

(2) providing the municipality or county with a right of first refusal option to purchase a parcel when the landowner seeks to convert or sell the parcel for a non-agricultural use.

Meaningful Penalties

Most states simply require a landowner to pay the difference between the market rate tax assessment and the agricultural land tax assessment for a certain number of years as a penalty for removing a parcel out of preferential tax assessment. New Hampshire and Vermont, however, “base the tax penalty on a percentage of the converted land’s sales price rather than merely ‘rolling back’ taxes.” Sam Sheronick, The Accretion of Cement and Steel onto Prime Iowa Farmland: A Proposal for a Comprehensive State Agricultural Zoning Plan, 76 IOWA L. REV. 583, 593 (1991). The percentage should be high enough to discourage speculators from abusing the law. For those who would argue that such a policy hurts farmers, one must consider that most farmers do not sell their farms for non-agricultural development.

Right of First Refusal

Massachusetts law provides a municipality with a right of first refusal option when a landowner seeks to convert agricultural land enrolled in the state preferential tax program to a non-agricultural use, or sell such land for a non-agricultural use. The right of first refusal (RFR) provides an opportunity for residents to preserve agricultural land. The landowner, for the most part, is in the same position (in the case of a sale, he receives the sale price from the municipality; in the case of a conversion, he receives the full and fair market value of the parcel). The RFR further the policy of agricultural preservation that is at the root [pun intended] of preferential tax assessment.

Posted by: Dominic Santos | Apr 21, 2006 2:31:05 PM

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