Our County Council has Asked Planning and Zoning Staff to form a Committee to Consider Purchase Development Rights (PDR’s)

What Does This Mean, What is the Potential Impact on Our Farmers and Our County Budget?

A Purchase of Development Right (PDR) program permits a landowner to voluntarily sell his development rights to a governmental agency or a land trust. The agency or trust pays the farmer the difference between the agricultural value of the land and the land’s potential development value. For example, if a farmer’s land is worth $2000 an acre for agricultural use and $5000 for development, the farmer can sell his development rights for $3000 an acre, assuming this is the agreed-to negotiated price. When the sale occurs, a legal document called a conservation easement is created. This easement restricts the use of the land to farming, open space, or wildlife habitat. The farmer retains private ownership of the land and can sell it, hold it or pass it on to heirs. There are several benefits and drawbacks to PDR programs:

Benefits—It is a volunteer program. No one is forced to sell his development rights. It permanently protects the land from development (Although some easements have clauses that allow the landowner to repurchase the development rights under specific circumstances). It converts land equity to cash. It helps keep farmland affordable for the next generation. Finally, protected farmland helps local governments balance their budgets by contributing more in tax revenue than it demands in community services.

Drawbacks— Since the program is voluntary, it is sometimes difficult to protect large contiguous blocks of land because a landowner surrounded by other protected farms may not want to sell his development rights. The program is expensive, and it cannot meet farmer demand; for every farmer who has participated in a PDR program, there are six more waiting to sell their development rights. Finally, property owners/farmers must pay taxes on the sale of development rights

A Transfer of Development Right (TDR) program is a market-based farmland protection program. Governmental agencies establish sending areas (land to be protected) and receiving areas (land to be developed). Landowners in areas known as “sending areas” sell their development rights to developers who use them in the receiving areas (incorporated towns and municipalities in Maryland) to build at higher densities than allowed under existing zoning. There are several benefits and drawbacks to TDR programs:

Benefits—TDR gives equity compensation to landowners whose land is zoned for agriculture. It promotes private financing of land protection rather than public financing. Finally, it ties farmland conservation to growth management, downtown revitalization and infrastructure efficiency by directing growth to appropriate areas (This promotes the idea of building what should be built and saving what should be saved).

Drawbacks—TDR programs are very complicated to develop and administer. It requires a great deal of "buy-in" from farmers; homeowners accepting increased density in their area; and, developers, who pay for TDRs. Finally, it relies on an active real estate market to maintain the balance between land protection and compensation. Without land to develop, a TDR program does not work.

As food for thought, a PDR program can complement and/or enhance a TDR program because it helps to establish a floor price for TDRs. If farmers do not get enough money from developers via the TDR process, they sell their development rights to the County instead.

Ways to Approach 11,000+ acres in our Countryside Preservation Areas:

Among options for Talbot is what I call an Installment Purchase Agreement (IPA). An IPA is an innovative payment plan offered by a handful of Maryland jurisdictions with active PDR or easement programs. By using IPAs, local governments can leverage preservation funding while lands are still available and offer landowners financial advantages that developers cannot duplicate. At settlement, the landowner grants the jurisdiction a permanent agricultural conservation easement in exchange for an IPA. IPAs spread out payments so that landowners receive semi-annual, tax- exempt interest over a term of years (typically 20 to 30). The principal is due at the end of the contract term. Jurisdictions can purchase zero-coupon U. S. Treasury bonds to cover the final balloon payments. “Zero Coupon Bonds” do not generate regular interest income. Instead, they yield a lump sum when the bond matures. Because zero coupon bonds cost a fraction of their face value, the public entity leverages available funds. Landowners also can sell or securitize IPA contracts at any point to realize the outstanding principal.

The advantages of an IPA program to the landowner are:
• Tax-exempt interest semiannually for up to 30 years on the full value of their sale. They pay no federal or state income taxes on such interest;
• Deferral of taxes on capital gains—landowners entering into IPAs may defer recognition of capital gains until they actually receive the principal amounts of such purchases;
• Better estate planning—by deferring recognition of capital gains indefinitely, selling landowners create the opportunity for IPAs to pass to their estates, where federal estate taxes paid may reduce or eliminate any capital gains taxes that would ultimately be due by the heirs;
• Charitable deduction—landowners can realize deductions that are equal to the difference between the appraised value of the lands or easements sold and the prices the county.

IPAs are an excellent way for Talbot County to increase its return on investment. By pushing implementation costs into the future, and at the same time realizing costs savings by acting immediately, the return on investment is increased, thereby improving the financial position of the County. I support the Committee studying possible use of PDR’s in Talbot and hope they will consider the IPA approach I have discussed above. We can and should preserve what lands we have IF we truly believe in the words most folks around Talbot say to me all the time: “we must retain our rural character and quality of life”. I believe our majority is committed to this solgan – I know I am and I know who we can do it. IPA’s is one tool we should consider using and soon.

Owen Wormser