INFORMATION TO USERS This was produced from a copy or a document sent to us for microfilming. While the most advanced technological means to photograph and reproduce this document have been used, the quality is heavily dependent upon the quality of the material submitted. The following explanation of techniques is provided to help you understand markings or notations which may appear on this reproduction. 1.Thc sign or "target'* for pages apparently lacking from the document photographed is “Missing Pagc{s)’\ If it was possible to obtain the missing pagc(s) or section, they arc spliced into the Him along with adjacent pages. This may have necessitated cutting through an image and duplicating adjacent pages to assure you of complete continuity. 2. When an image on the film is obliterated with a round black mark it is an indication that the film inspector noticed either blurred copy because of movement during exposure, or duplicate copy. Unless we meant to delete copyrighted materials that should not have been filmed, you will find a good image of the page in the adjacent frame. 3. When a map, drawing or chart, etc., is part of the material being photo­ graphed the photographer lias followed a definite method in “sectioning** the material. It is customary to begin filming at the upper left hand comer of a large sheet and to continue from left to right in equal sections with smatl overlaps. If necessary, sectioning is continued again-beginning below the first row and continuing on until complete. 4. For any illustrations that cannot be reproduced satisfactorily by xerography, photographic prints can be purchased at additional cost and tipped into your xerographic copy. Requests can be made to our Dissertations Customer Services Department. 5. Some pages in any document may have indistinct print. In all cases we have filmed the best available copy. University Micrcxilms International 300 N 2EEB ROAD. A N N A R B O R . Ml -18106 IS BEDEORD ROW. LO N DO N WC1 R 4EJ, ENG LAND 7937*13 TI MBERS, CYNTHIA PENNER AN ECONOMIC ANALYSIS OF AGRICULTURAL LAND USE POLI CI ES FOR SOUTHERN MI C H I GA N . MICHIGAN STATE U N I V E R S I T Y , University Microfilms InterrvafcmJ won / udhuau an* akbom, mi4bio& PH.O, 19 78 AN ECONOMIC ANALYSIS OF AGRICULTURAL LAND USE POLICIES FOR SOUTHERN MICHIGAN By Cynthia Penner Tinberg A DISSERTATION Submitted to Michigan State U niversity In p a r tia l f u lf illm e n t o f the requirements fo r the degree of DOCTOR OF PHILOSOPHY Department o f A g ricu ltu ral Economics 1978 ABSTRACT AN ECONOMIC ANALYSIS OF AGRICULTURAL LAND USE POLICIES FOR SOUTHERN MICHIGAN By Cynthia Penner Tinberg The ownership o f a g ric u ltu ra l land and the corresponding r ig h t to determine the use o f th a t land has never been as controversial an Issue as 1n the past few years. The market a llo c a tio n o f farm land, p a rtic u la r­ ly around rural-urban areas, no longer s a tis fie s the m a jo rity o f people affected by It s outcome. People who do not own land increasin g ly feel they have a r ig h t to determine the land 's use. A g ric u ltu ra l land 1s now viewed as a resource fo r which there are competing demands. Population growth and dispersion. Increased real income, technological change, and the a v a ila b ilit y o f tran sp o rtatio n has in e v ita b ly led to the conversion o f a g ric u ltu ra l land to developed uses. Although the loss o f farmland 1s s t i l l r e la tiv e ly small compared to the to ta l land base o f the United S tates, controversy stems from the fa c t th a t losses o f productive land are substantial 1n c e rta in geographic areas. Also 1t 1s often prime farmland th a t Is prone to conversion. In urbanizing areas the policy issue Is over how to m aintain a viab le a g ric u ltu ra l Industry w hile providing land fo r new homes rec re a tio n , fo r an expanding urban population. and The primary o b je c tiv e o f Cynthia Penner Tinberg th is study 1s to provide information p rio r to the form ulation and Imple­ mentation o f new land use p o lic ie s. Five d iffe r e n t and often competing s ta te land use policies are reviewed and evaluated. The res u lts are then used to make policy reconmendatlons fo r m aintaining a viab le a g ric u ltu ra l Industry In southern Michigan's rural-urban frin g e area. The Structure - Conduct - Performance model developed by Edward S. Mason 1s used to organize Information so th at the effectiveness o f land use po licies 1n retainin g land 1n a g ric u ltu ra l production can be tested. Two techniques were used to te s t fo r a program e ffe c t: Interrup ted time series with a comparison or control series and questionnaires sent to county extension agents 1n each te s t s tate . Four of the programs reviewed attempted to control the tra n s fe r of land out of a g ricu ltu re by Influencing the farmers decision to s e ll. In Maryland, C a lifo rn ia , and Hawaii, the regression tests Indicated that the programs do not a lte r the farmers behavior s u b s ta n tia lly from what 1 t was before the program. In the states o f Vermont and New York, te s t resu lts Indicated that the amount o f land tran sferred out o f a g ric u ltu ra l use was s ig n ific a n tly lower the year the program Introduced. However, there are several riv a l hypotheses which also explain the decrease 1n land tra n s fe r. The existence of strong a lte rn a tiv e explanations, as to why land was being retained 1s a g ric u ltu re , minimizes the e ffe c ts which can be a ttrib u te d to the programs. From the results o f th is study and supporting data 1t can be con­ cluded that there 1s no evidence to suggest th a t the programs reviewed showed the tra n sfe r of land out o f a g ric u ltu ra l use. However, In lim ite d circumstances they may have contributed to preferred patterns o f develop­ ment. Cynthia Penner Tinberg Most o f the land use programs to date have approached the issue o f re ta in in g a g ric u ltu ra l land 1n ru ral-urban frin g e areas as a supply problem. The programs which have resulted from th is perspective attempted to change factors which Influenced farmers decisions to s e l l. E ffe c tiv e land use programs must also be structured to a lt e r speculators decisions to buy land. This can be accomplished by s u b s ta n tia lly changing the stru ctu re o f benefits Inh eren t'1n process o f tra n s fe rrin g land out o f a g ric u ltu ra l production and in to developed uses. The program recommended fo r southern Michigan Involves: (1) a c a p ita l gains tax on the sale o f a g ric u ltu ra l land, (2) lim ite d provisions o f public services to a g ric u ltu ra l areas, (3 ) an educational program which would ass is t farmers In r e a l i s t i c a l l y estim ating th e ir fu tu re pos­ s i b i l i t i e s fo r an urban sale. ACKNOWLEDGMENTS I would lik e to thank Larry Connor and Larry Libby fo r t h e ir c o n tri­ bution o f time and Ideas to th is d is s e rta tio n . I would also lik e to thank R1ck and a l l o f ny fam ily fo r the emotional and fin a n c ia l support they provided throughout iqy graduate work. 11 TABLE OF CONTENTS Page Chapter I - INTRODUCTION .......................................................................................... 1 STUDY PERSPECTIVE .............................................................................................. 1 PROBLEM STATEMENT .............................................................................................. 1 Uncertainty and the Market fo r L a n d ............................................... 3 Property Tax Influence ............................................................... - . 5 PRESERVATION OF AGRICULTURAL LAND ........................................................... 6 Irre v e rs ib le Choices ........................................................................... 7 Fixed Supply o f Prime L a n d ....................................................................8 Foreign Demand fo r F o o d ........................................................................ 9 Environmental Amenities ..................................................................... 10 RESEARCH OBJECTIVES ......................................................................................... 11 REGION OF THE STUDY...........................................................................................12 FORMAT....................................................................................................................13 Chapter I I - THEORETICAL FOUNDATIONS FOR AGRICULTURAL LAND USE P O L IC Y ...........................................................................................14 INTRODUCTION ...................................................................................................... 14 PUBLIC GOODS ...................................................................................................... 14 Option Demand ......................................................................................... 17 AGRICULTURAL LAND, PUBLIC GOODS, AND OPTION DEMAND ..................... 18 THE POLICY SOLUTION.......................................................................................... 21 EXTERNALITIES: A TRADITIONAL V I E W ..........................................................23 111 Page THE PUBLIC CHOICE APPROACH AND LAND USEP O L IC IE S .............................. 24 Chapter I I I - A MODEL FOR LAND USE POLICY ANALYSIS.....................................28 INTRODUCTION ..................................................................................................... 28 A CONCEPT OF PROPERTY .................................................................................... 28 TYPES OF C H O IC ES............................................................................................... 31 STRUCTURE, CONDUCT, PERFORMANCE MODEL .................................................. 35 Basic C o n d itio n s .......................................................................................36 S t r u c t u r e ................................................................................................... 38 Type o f Transaction ................................................................... 38 I n c e n t i v e s ....................................................................................... 39 Transaction Costs ........................................................................ 41 Level o f Adm inistration ............................................................. 43 Major P a r t i c i p a n t s ...................................................................... 44 C o n d u c t....................................................................................................... 47 F a n n e rs ............................................................................................... 50 S p e c u la to rs ....................................................................................... 56 Administrators ............................................................................ 58 PERFORMANCE........................................................................................................... 59 Hypothesis 1 ............................................................................................... 60 Hypothesis 2 ............................................................................................... 60 Chapter IV - A REVIEW AND EVALUATION OF ALTERNATIVE LAND USE P O L IC IE S .......................................................................................61 INTRODUCTION ..................................................................................................... 61 A REVIEW OF LAND USE PROGRAMS...................................................................... 61 Basic Conditions: C a lifo rn ia ....................................................... 61 Structure o f the L a w ................. . .........................................................62 1v Page Basic Conditions: New Y o r k .............................................................64 Structure o f the L a w .............................................................................. 64 Basic Conditions: Maryland .......................................................... 70 Structure o f the L a w .............................................................................. 71 Basic Conditions: Vermont .............................................................. 71 Structure o f the L a w .............................................................................. 72 Basic Conditions: Hawaii .............................................................. 77 Structure o f the L a w .............................................................................. 78 PERFORMANCE EVALUATION OFLAND USEPROGRAMS............................................. 80 Hypothesis 1 ...............................................................................................80 Technique 1 ...............................................................................................80 R e s u l t s ....................................................................................................... 83 Technique 2 ............................................................................................... 91 R e s u l t s ....................................................................................................... 91 Hypothesis 2 ........................................................................................... . 9 6 R e s u l t s ....................................................................................................... 96 Chapter V - TRENDS IN AGRICULTURAL LANDUSEIN SOUTHERN MICHIGAN . . 99 INTRODUCTION.................................................................................................. ’. 9 9 AGRICULTURAL LAND U S E .......................................................................................99 FARM DATA..............................................................................................................101 POPULATION TRENDS.............................................................................................102 STATE LAWS AFFECTING AGRICULTURAL USEOF LAND IN MICHIGAN . . .103 FEDERAL LAWS AFFECTING AGRICULTURALUSEOF LAND .................................. 107 POLICY IMPLICATIONS OF MICHIGAN'S AGRICULTURAL LAND USE STRUCTURES..................................................................................................... 108 v Page Chapter VI - CONCLUSIONS AND POLICY RECOMMENDATIONS FOR MICHIGAN . .110 INTRODUCTION...................................................................................................110 PARTICIPANTS RESPONSE TO LAND USEPROGRAMS........................................ I l l URBAN DEMAND FOR AGRICULTURAL LAND IN SOUTHERN MICHIGAN . . . .114 IDENTIFYING POLICY INSTRUMENTS.............................................................. 115 POLICY SUGGESTIONS FOR MICHIGAN.............................................................. 116 LIMITATIONS OF THE STUDY AND SUGGESTIONSFOR FUTURE RESEARCH .119 APPENDIX A ................................................................................................................... 122 APPENDIX B ................................... 124 BIBLIOGRAPHY...............................................................................................................126 vi LIST OF TABLES TABLE Page 1. Trade B a l a n c e .................................................................................................... 10 2. Acreage Under Williamson Act Contract 3. Acreage Removed from Williamson Act Contract .................................. 65 4. Status of A g ric u ltu ra l D is t r ic t In New York 5. Vermont Tax Rates on C apital Gains from Land S a le s .........................76 6. Results o f Tests fo r Program E ffe cts on Land in Farms a t the 95% Significance LeYel ............................................................... 84 7. Percentage Change In th e Acres o f Land in Farms w ith the Land Use Program .................................................................................. 86 8. R elative Frequency o f Extension Agents' Responses to Program Effectiveness 1n Retaining Land 1n Farms ......................... 92 9. R elative Frequency o f Extension Agents' Responses to Program E ffects on New Farm Investment .............................................. 97 v ii ............................................... 65 ................................... 70 LIST OF FIGURES FIGURE Page 1. A Graphical Representation o f the Governmental Decision Making Process ........................................................................... 32 2. A Model to Id e n tify the Consequences o f A lte rn a tiv e Land Use P o l i c i e s ......................................................................................... 37 3. A Framework fo r Analyzing P articip an ts Land Use Decisions 4. Analysis o f Landowners W illingness to P a rtic ip a te 1n Land Use Programs ........................................................................................ 54 vi 11 . . 46 CHAPTER I INTRODUCTION STUDY PERSPECTIVE The ownership o f land and the corresponding rig h t to determine the use o f th a t land has never been as controversial an Issue as 1n the past few years. The market a llo c a tio n o f farm land, p a r tic u la rly around r u r a l- urban areas, no longer s a tis fie s the m ajo rity o f people a ffe c te d by I t ' s outcome. People who do not own land Increasing feel they have a rig h t to determine the lands' use. Land use p o lic ie s are 1n response to de­ mands fo r the preservation or orderly development of a g ric u ltu ra l land and open space. The primary purpose o f th is study 1s to provide Information to states p r io r to the form ulation and Implementation o f new land use p o li­ c ie s . A number o f d iffe r e n t and often competing land use p o lic ie s are reviewed and evaluated. The resu lts are then used to make po licy recom­ mendations fo r m aintaining a v iab le a g ric u ltu ra l Industry In southern Michigan's rural-urban frin g e areas. PROBLEM STATEMENT A g ric u ltu ra l land resources have always been considered a national asset. The n atio n 's productive farm land has provided p le n tifu l supplies o f food and fib e r commodities to meet growing national and In tern atio n al demands. However, 1n recent years, a g ric u ltu ra l land has been viewed 1 2 as a resource fo r which there are competing demands. Population growth and dispersion, Increased real Income, technologi­ cal change, and the a v a ila b ilit y o f tra n sp o rtatio n has In e v ita b ly led to the conversion of a g ric u ltu ra l land to developed uses. Although the loss 1n farm land 1s s t i l l r e la t iv e ly small compared to the to ta l land base o f the United S tates, controversy stems from the fa c t th a t losses o f productive land are substantial In c e rta in geographic areas, In many cases 1t 1s prime farm lan d --lan d th a t 1s best fo r long-term a g ric u ltu ra l production— th a t 1s prone to conversion, and often productive farmland Is Idled by speculation long before I t 1s a c tu a lly needed fo r develop­ ment. The m ajority o f land converted to urban uses Is w ith in standard m etropolitan s ta t is tic a l areas (SM SA's).1 In 90 percent o f the SMSA area there 1s only one person to each 16 acres. A considerable amount of a g ric u ltu ra l and much open space 1s found In SMSA's.2 Farms In SMSA's account fo r 14 percent o f a l l U.S. cropland harvested, 60 percent o f a ll vegetables sold, 43 percent o f a l l f r u it s and nuts sold, 27 percent o f dairy Income and 24 percent o f farm Income,* l The d e fin itio n of an SMSA Involves two considerations: f i r s t , a c ity o f specified population to c o n s titu te the central c ity ; and second, economic and social relatio n sh ip s w ith contiguous counties which are m etropolitan 1n character, so th a t the periphery o f s p e c ific m etropoli­ tan area may be Id e n tifie d . SMSA's may cross s ta te lin e s . SMSA's In ­ clude most or a ll the population and the labor force th at can properly be associated w ith an urban center. 2U.S. Department o f A g ric u ltu re , Economic Research Service, Our Land and Hater Resources. Miscellaneous P u blication No. 1290 (Washington, D.C.: Government P rin tin g O ffic e , 1974), p. 47. * Ib id . 3 In urbanizing areas the po licy Issue 1$ over how to m aintain a v ia b le a g ric u ltu ra l industry w hile providing land fo r new homes, recrea­ tio n , and open space fo r an expanding urban population. Most land use p o lic ie s are not designed to stop urban growth in ru ral areas of SMSA's but to control the pattern o f growth and re ta in a g ric u ltu ra l production on land th a t 1s years away from development. bute to the id lin g o f farmland Two major facto rs c o n tri­ before 1t has development p o te n tia l: im perfections 1n the land market, and the taxation p o lic ie s o f local governments. Uncertainty and the Market fo r Land The land market In urbanizing areas 1s characterized by uncertainty which res u lts in the In e f f ic ie n t a llo c a tio n o f resources." Although the use o f land 1s influenced by access, land q u a lity , and a v a rie ty o f other s p e c ific fa c to rs , 1t Is also Influenced by the expectations o f the p a rtic ip a n ts 1n the market under conditions o f u n certain ty. Expec­ ta tio n s may vary on two parcels o f land even though the q u a lity Is Id e n ti­ c a l. Such varied expectations are great In areas o f rural-urban tra n s i­ tio n , where land uses are undergoing d ra s tic change and where the market 1s q u ite " th in " , I . e . w ithout an adequate volume o f transactions to give c le a r guidance to expectatio n s.5 Anyone who owns land on the rural-urban frin g e is by force of "Howard E. Conklin, M aintaining V ia b le A g ricu ltu re in Areas o f Urban Expansion. (O ffic e o f Planning Services, New York, 1972), p. 30. Tfie findings o f the study 1n Syracuse and Rochester counties In d ica te th a t urban expansion has caused a declin e 1n farm p ro d u ctivity over a much la rg e r area o f land than has been ph ysically occupied by urban use. 5Ib id . , p. 5. 4 events speculating on expectations o f fu tu re Increases In land value. Expectations have a strong Influence on the use o f a g ric u ltu ra l land. Uses change as expectations Influence the price o f land and Influence farmers w illingness to undertake the heavy c a p ita l Investment needed fo r e f f ic ie n t land use. Speculation has caused large amounts of land to be held Id le * re ­ ducing the to ta l output to society. Farmers who suspect t h e ir land may be developed 1n a few years can often maximize th e ir f l e x i b i l i t y by holding I t out o f any u se .6 Because the future pattern o f urban growth 1s uncertain* the amount o f land subject to speculative Influ en ce 1s often many times the land area th a t w ill a c tu a lly be needed fo r urban expansion In the f u t u r e .7 I f land 1s not developed 1t 1s d i f f i c u l t to get I t back In to a g ric u ltu ra l production. The s u it a b ilit y of land fo r farming often 1s not obvious a fte r 1 t has la in Id le fo r several years. People w ith the In te re s t and a b i l i t y to farm declin e 1n number, the agribusiness In fra s tru c tu re d e te rio ra te s , and the p o lic ie s under which c re d it Is normally extended to farmers make i t d i f f i c u l t to r e h a b ilit a te run-down farms. The ownership patterns l e f t by a period of speculation also make 1t d i f f i c u l t to acquire land In s u ita b le units fo r farm ing. Any pattern o f urban expansion stim ulates some specu latio n, but scattered expansion g re a tly Increases speculation by In flu en cin g many peoples' expectations o f larg e w in d fall gains. Once speculation 1s 6Robert G. Healy, Land Use and the States, (Baltim ore and London: The John Hopkins U n iversity Press, 1£76), p. 23. 7Conklin, M aintaining Viable A g ric u ltu re , p. 27. 5 underway I t 1s very d i f f i c u l t to contain scattered development by any type o f local le g is la t iv e a c tio n .0 When the opportunity exis ts fo r large c a p ita l gains, land owners w ill b it t e r l y oppose action th at would remove these o p p o rtu n itie s . Property Tax Influence The property tax serves a dual purpose. I t is the primary source o f revenue fo r lo cal government and i t can be used to stim ulate or en­ courage more In ten sive use o f land resources.9 Assessments o f farmland which are based on th e ir p o ten tial as well as actual value, encourage intensive use o f land. Farmland w ith poten­ t i a l value fo r sub-d1v1s1on purposes can often be pressured In to th is higher use 1 f 1t 1s assessed a t it s going market value fo r re s id e n tia l rath er than fanning purposes. H is to r ic a lly property tax theories have assumed a rela tio n s h ip be­ tween property ownership and a b i l i t y to pay. However, in rap id ly urbanizing areas, w hile a farmers income w ill increase, i t often does not increase as fa s t as property taxes. A lack o f liq u id ity may then encourage land owners to convert land to developed uses to meet tax b ills w ithout reducing current Income.10 8Susan Morse, "Canton Hopes to Save Farmland" D e tro it Free Press, March 21, 1976, p. 3A. ’ Raleigh Barlowe, Land Resource Economics: The Economics o f Real Property, (New Jersey: Prentice H a ll, In c ., 1972), p. 593. 10Frederick D. Stocker, "The Impact o f Ad Valorem Assessment on the Preservation o f Open Space and the Pattern o f Urban Growth," Property Tax Incentives fo r Preservation: Use-Value Assessment and the Preserva tlo n o f Farmland, Open Space, and H is to ric Sites (Proceedings o f the 1975 Property Tax Forum, June 5 -6 , Washington, D .C .), p. 29. 6 Scattering patterns o f urban development re s u lt In higher tax levies on farm land. Local governments Increase tax rates fo r 1 t takes a la rg e r local budget to provide services to new ,residents. A non-agr1cultural population also demand b e tte r services than previously provided fo r a farm community. Taxes can pressure lands In to higher uses when s u ita b le demand exists fo r these uses and when the land 1n question q u a lifie s fo r th a t use. But when these conditions are not met taxes can have an In ju rio u s e ffe c t by fostering the waste th a t comes w ith premature development and Id le land. In summary, land use p o licie s are formulated 1n response to con­ f l i c t s over when and which a g ric u ltu ra l lands w i l l be developed around expanding urban centers. These c o n flic ts are exaggerated by uncertainty and res u ltin g speculation In the land market and by property tax pres­ sures on a g ric u ltu ra l lands. Both facto rs discourage a via b le a g ric u l­ tu ra l industry and re s u lt in land being prematurely taken out o f a g ric u ltu re . PRESERVATION OF AGRICULTURAL LAND A g ric u ltu ra l land Is a resource fo r which there are competing and growing demands. The o b jective o f public p o lic ie s to preserve or control development o f a g ric u ltu ra l lands are o ften m ultidim ensional. freq uently c ite d objectives o f such p o lic ie s Include: The most the ris k of I r ­ re v e rs ib le choices, a fixe d supply o f prime lan d , foreign demand and balance o f tra d e , and the environmental am enities associated w ith a g r i­ c u ltu ra l lands. 7 Irre v e rs ib le Choices Arguments can be made fo r and against p o lic ie s which would slow urban development o f a g ric u ltu ra l lands. Those opposed to such po licies point out th a t the nation has a p le n tifu l supply o f productive lands and th at resource development has contributed to high p rod uctivity and opportunities fo r a good standard o f liv in g . Groups supporting the protection o f a g ric u ltu ra l lands make a case fo r s e le c tiv e development on the grounds th a t s h iftin g land out o f a g ric u ltu re to more intensive uses 1s almost always an Irre v e rs ib le choice. Irre v e rs ib le uses o f land lim its opportunities of adaptation and narrows the po ten tial development of a s o c ie ty .11 Recent work by Fisher and K r u tilla conclude th a t a conservative policy with respect to Irre v e rs ib le m odification o f natural resources 1s Indicated because o f Inter-gen eration al considerations.12 That 1s, I f there could be a s h if t 1n the vantage point from which an Investment plan 1s evaluated, say from one generation to the next, the re s u lt might be a change 1n the "optimal" plan. The plan could not be Implemented, however, I f i t is In a d ire c tio n which has been foreclosed by e a r lie r a c tiv it y . Fisher and K r u tilla also found th a t I f the costs and benefits o f a lte rn a tiv e uses o f natural resources are not known with c e rta in ty and i f society 1s ris k averse, there w ill be value 1n retain in g an option to n S. V. Cirlacy-Wantrup, Resource Conservation Economics and P o licies (Berkeley: U niversity o f C a lifo rn ia Press, 1952), Chapter 16. I2Anthony Fisher and John K r u t illa , "Valuing Long Run Consequences and Ir r e v e r s ib ilit ie s ," Journal o f Environmental Economics and Manage­ ment, Vol. 1, No. 2 , (1974). 8 use the resource In a way th a t otherwise could be foreclosed. I f s o ciety's a ttitu d e o f one o f n e u tr a lity toward r is k , the same option value w ill e x is t i f inform ation about the costs and ben efits can be developed in an e a rly period, and used to improve the Investment decision in a la te r one. Even though absolute technical ir r e v e r s ib ilit ie s are ra re , once farmland is committed to urban and suburban uses i t is u n lik e ly th a t I t would ever be economically fe a s ib le to retu rn 1t to it s former s ta te . Hot investing to preserve a g ric u ltu ra l land is e s s e n tia lly irre v e rs ib le fo r each parcel developed. I f Investment is not made w ith in a ce rtain time period, preservation w ill not be possible and options fo r a lte rn a ­ tiv e use o f a g ric u ltu ra l land w ill be foreclosed. Fixed Supply o f Prime Land One o f the more convincing arguments fo r the protection o f prime lands is th a t the supply o f the n a tio n 's highly f e r t i l e , productive farm­ land 1s lim ite d . Prime farmland is the most e f f ic ie n t , energy conserv­ ing, environmentally s tab le land fo r meeting fu tu re food needs. The national loss o f prime farmland Is estimated to be approximately one m illio n acres per y e a r .15 Prime farmland 1s also prime land fo r development. The land 1s f l a t , the s o ils are deep, 1t is w ell drained, and fre e o f stones. If the land has been farmed i t Is fre e o f trees and other obstructions and can be purchased in larg e parcels. Not only does the development o f prime land c o n s titu te an ir r e v e r s i­ ble choice, i t is also an unnecessary one because most a lte rn a tiv e uses 13R. N eil Sampson, "Development on Prime Farmland," Environmental Comment, (January, 1978), p. 4 . 9 o f a g ric u ltu ra l lands can be accommodated on lands not well adapted fo r crop production. Preservations o f a g ric u ltu ra l land and p a rtic u la rly prime land may become synonymous with energy conservation in the near fu tu re . Given the scarc ity of fo s s il fuels and th e ir escalating p ric e , a g ric u ltu ra l land 1s an Increasingly via b le source o f energy. The methods o f ob­ tain in g fuel energy from land-harvesting biomass and solar c o lle c tio n are s t i l l r e la tiv e ly undeveloped, however, as the costs o f conventional energy sources Increase energy from a g ric u ltu ra l lands w ill become economically viable. Foreign Demand fo r Food Since 1972, increased foreign demand fo r food and fib e r plus sus­ tained domestic demand has exceeded production and reduced stocks to minimum le v e ls . To Increase output, much of the acreage set aside by federal programs was released in 1973 and 1974.^ New pressures on American a g ric u ltu re has come from Increasing world demands fo r food exports. Current expectations are th a t these pressures w ill p ers is t and the United States and Canada w ill provide primary sources o f food fo r many countries. Food export has helped tremendously to equalize the balance o f trade in 1974 and 1975. Exports o f a g ric u ltu ra l products brought In $64 b i l ­ lio n in foreign exchange during the 1970-74 period, this represented ‘ ‘•O rv ille Krause and Dwight H a ir, "Trends in Land Use and Competition fo r Land to Produce Food and F ib e r," in Perspectives in Prime Land (Washington, D.C.: Government P rinting O ffic e , July 1975), p. 14. 10 20.8 percent o f the nation 's e x p o rts .15 A p o s itiv e trade balance o f a g ric u ltu ra l products* 1n 1974 and 1975 of $11.7 and $12 m illio n respec­ t iv e ly o ffs e t a large negative trade balance o f n o n -ag rlcu ltu ral products (Table I ) . 16 Table 1 TRADE BALANCE A g ricu ltu ral Non-Agricultural Total m illio n d o lla rs m illio n d o llars m illio n d o lla rs 1970 + 1,125 + 1,714 + 2,839 1971 + 1,925 - + 1972 + 1,998 - 7,206 - 5,208 1973 + 5,578 - 9,152 - 3,574 1974 +11,744 - 9,323 + 2,421 1975 +12,007 -10,187 + 1,820 Year 986 939 With our growing dependence on other countries fo r o il and other raw m a te ria ls , Increased a g ric u ltu ra l production can provide exchange earnings fo r purchases abroad. Environmental Amenities Framing the Issues o f protectio n only 1n terms o f p ro d u c tiv ity misses an important consideration. A g ric u ltu re on the urban frin g e produces not l5 U.S. Department o f A g ric u ltu re , Economic Research Service, U.S. Foreign A g ric u ltu ra l Trade S ta tis tic a l Report, Fiscal Year, 1975 (Washington, D.C.: Government P rin tin g O ffic e , 1975J, p. 2. 16 Ib id . 11 only crops but also provides a valuable natural amenity. the scenery and open space provided by w ell tended farms. People enjoy In r e la t iv e ly high Income economies* as 1n the United S tates, the Income e la s t ic it y o f demand fo r commodities and services re la te d to sustenance 1s low and declines as Income continues to r is e , w hile the Income e la s t ic it y o f demand fo r environmental am enities 1s high and In c re a s in g .17 People en­ joy and demand the external b en e fits associated w ith a g ric u ltu ra l land and th is demand w ill Increase 1n the fu tu re — even I f 1 t Is based only on Increased population and expanded le is u re time. Many arguments are made fo r the preservation of a g ric u ltu ra l lands. The primary one, however, 1s th a t I t provides a type o f Insurance. At th is time there exists no way o f p redicting the f u ll extent o f our fu tu re dependence on th is resource. RESEARCH OBJECTIVES The objectives o f th is study are: (1) To review theories which can be used 1n land use research and to Incorporate these In to a model fo r land use po licy evaluation, (2) Apply the model to f iv e land use programs th a t vary 1n type and In s titu tio n a l s e ttin g , (3) Appraise the p o te n tia l e ffe c t o f the f iv e programs on selected per­ formance in d ic a to rs , (4) Specify the s tru ctu re o f a g ric u ltu re in Southern Michigan and Id e n ti­ fy a land use program which would control development on a g ric u ltu ra l land in the study area. 17Vernon W. Reuttan, “The Market Mechanism, E x te rn a litie s , and Land Economics," Journal o f Farm Economics, August, 1965. 12 REGION OF THE STUDY The p art o f Michigan under consideration Is the portion south o f Bay C ity across to Muskegon or south o f Town Line 16. Soil c la s s ific a ­ tions have shown th a t most o f Michigan's f i r s t and second class a g ri­ c u ltu ra l land (65 percent) lie s in the southern part o f the lower peninsula. In th is area 85 percent o f the land is of high to medium value fo r a g ric u ltu ra l use. Only about one-half is curren tly (1972) 1n production.18 Between 1940 and 1970 the population in Michigan increased 66 per­ cent, reaching 8 .9 m illio n people.18 The m ajority of th is Increase has taken place around existin g urban centers and along major highways. These urban centers are a ll located in the southern part o f the lower peninsula. Almost any expansion of an urban area w ill threaten farmland or open space. The Michigan Commission on Land Use In Its report to the governor plotted some a n ticip ated s h ifts In location and categories o f land between 1970 and 1990. The Commission members estimated th at about 80,000 acres per year would be diverted from farmland to other uses— an amount equivalent to nearly 3 1/2 townships.20 too high or low. This fig u re may be However, the general conclusions of the Commission l8 E. P. Whiteside and Don Schaner, Michigan A g ricu ltu re. A gricultural Trends and Future Needs fo r A g ricu ltu ral Lanas. (Mimeographed, Michigan State U n iv e rs ity , East Lansing, Michigan, A p ril, 1974), p. 3. 19U.S. Department o f Commerce, Census o f Population, (Washington, D.C.: Government P rinting O ffic e ), 1970. 20State o f Michigan, Governor's Special Commission on Land Use Report, (Executive O ffic e , Lansing, Michigan), Appendix A, p. 15. 13 were th a t there 1s enough space around urban centers to accomodate urban growth and a g ric u ltu re * but the pattern o f development should be directed away from good a g ric u ltu ra l lands. FORMAT Chapter I I develops the th e o re tic a l bases fo r government p a rtic ip a ­ tio n In market declslonslnvolvlng land a llo c a tio n . I t reviews public finance and w elfare economies lit e r a t u r e exploring the public good c h a ra c te ris tic s o f a g ric u ltu ra l land. The model used fo r land use po licy analysis 1s presented In Chapter I I I . A basic model fo r determin­ ing performance 1s modified to take in to account social and economic factors rele v a n t 1n analyzing variab les which Influence a g ric u ltu ra l use o f land. Hypothesis are then developed to te s t the performance o f land use programs. Chapter IV reviews f iv e land use p o lic ie s w ith in the framework specified by the model. The a n a ly tic a l techniques employed to te s t fo r program e ffe c ts and the em pirical resu lts are presented. Chapter V presents a discussion o f the stru ctu re o f a g ric u ltu ra l use o f land and the factors which Influences th is use 1n Southern Michigan. The con­ clusions o f th is study and the po licy recommendations fo r Southern Michigan are presented In Chapter V I. CHAPTER I I THEORETICAL FOUNDATIONS FOR AGRICULTURAL LAND USE POLICY INTRODUCTION Debates about po licies to control development on a g ric u ltu ra l land c u rren tly enjoy unprecedented po pu larity. This growing and sustained In te re s t 1n land use p o lic ie s suggests, th a t fo r a v a rie ty o f reasons, many people are not s a tis fie d with the market a llo c a tio n o f a g ric u ltu ra l land. Chapter I I develops the theo retical basis fo r government p a r t ic i­ pation In market decisions Involving land a llo c a tio n . I t reviews public finance and w elfare economics lite r a t u r e , exploring the public good c h a ra c te ristic s o f a g ric u ltu ra l land. A ll a llo c a tiv e decisions Involv­ ing public goods have external e ffe c ts . The ob jective o f land use po licies Is to d ire c t e x te rn a litie s or determine who gets to choose when there 1s c o n flic t over land use. PUBLIC GOODS The concept o f a public good received l i t t l e a tte n tio n from econo­ mists u n til I t was expanded by Paul Samuelson in 1954.1 A pure public good 1s on one end o f the continuum o f goods. prised o f p rivate consumption goods. The other bound 1s com­ P rivate consumption goods have been the tra d itio n a l objective o f economists' concern when refe rrin g l Paul A. Samuelson, "The Pure Theory o f Public Expenditure," Review of Economics and S ta tis tic s , Vol. 36, (1954), pp. 387-9. 14 15 to the a llo c a tio n o f scarce resources among competing demands. Samuelson defined p riv a te consumption goods to be those whose to ta l can be parcelled out among two or more persons, with one having more only 1f another has less. The demand schedules fo r p riv ate goods are summed h o riz o n ta lly , I . e . one person's use 1s the denial o f use by another. amount o f the goods a v a ila b le , and I f X] 1s the to ta l and Xjg are the respective p rivate consumption o f person one and person two, then the to ta l equals the sum o f the separate consumptions or X] = X ji + X i 2 * Public consumption goods, a t the extreme o f the continuum, are provided fo r a ll people to enjoy or not, according to one's taste s. For example an outdoor circus or national defense 1s a va ila b le to a l l , a person cannot be excluded from the enjoyment or b e n e fit o f these goods. S im ila rly a person cannot exclude themselves I f the quantity or q u a lity o f the good Is not what they would p re fer. The demand fo r public goods 1s summed v e r t ic a lly . I . e . , one person's use does not diminish the to ta l supply a v a ila b le to others. Public goods lik e p riv a te goods can be varied In quantity - X2 w ill represent the magnitude a v a ila b le . However, 1t d iffe rs from a p riva te good 1n th a t each person's consumption, X21 + X22 Is relate d to the to ta l by a condi­ tio n o f e q u a lity rath er than summation. Thus by d e fin itio n X21 = X2 . and X22 = ^2* There are many d iffe r e n t d e fin itio n s and terminologies used to de­ scribe public goods.2 In Peter S te in e r's d e fin itio n "c o lle c tiv e goods" 2Many o f these are discussed by Peter 0. S tein er, "The Public Sector and the Public In te re s t," Public Expenditure and Policy Analysis, edited by Robert Haveman and Julius M argolls, (Chicago: Markham Publishing Co., 1972), pp. 21-58. 16 a ris e whenever some segment o f the public c o lle c tiv e ly wants and 1s pre­ pared to pay fo r a d iffe r e n t bundle o f goods and services than the un­ hampered market w ill produce. This d e fin itio n emphasized the fa c t th a t public provision by I t s e l f does not create a public good. Economists' In te re s t In public goods stems from the fa c t th a t no decentralized p ricin g system can serve to determine the optional level o f public goods which should be provided. e x is t but the problem 1s to "find" i t . An optional solution does Some kind o f sign aling or voting could be t r ie d , however, 1 t 1s In the s e lfis h In te re s t o f each person to give fa ls e signals and to pretend to have less In te re s t In a c o lle c tiv e consumption a c t iv it y than he a c tu a lly has. Free rid ers w ill e x is t whenever I t is costly to p ro h ib it the enjoy­ ment o f a public good. They pay l i t t l e o r nothing toward the provision o f the good but are s t i l l able to derive u t i l i t y from it s production. When public goods are provided people often c a n 't be excluded; an a lte r n a tiv e view Is th a t they also cannot exclude themselves. level o f the good e x is ts , 1t may be co stly to avoid. Whatever While the same physical good can en ter two or more people's u t i l i t y , the s a tis fa c tio n derived may d if f e r g re a tly . bring d i s u t i l i t y to another. What brings p o s itiv e u t i l i t y to one may Non-opt1onal public goods are those which cannot be avoided, a person has no choice but to accept the good.5 sIb 1 d ., p. 22. "Samuelson, "The Pure Theory o f Public Expenditure," p. 387-9. 5E. 0. Mishan, "The Postwar L ite ra tu re on E x te rn a litie s : An In te r ­ p re ta tiv e Essay," Journal o f Economic L ite ra tu r e , Vol. 9. No. 1, March, 1971, p. 1-28. 17 Option Demand Many d is tin c tio n s have been made between private and public goods. Some o f these d is tin c tio n s Imply the goods represent polar cases. How­ ever. Burton Welsbrod points out th a t a number o f commodities e x is t which are apparently p rivate goods but which also possess ch ara cte ristic s o f public goods.6 When there Is (A) Infrequency and uncertainty in the purchase o f a p a rtic u la r commodity and (B) when the cost (1n time or resources) o f expanding production once I t has been c u rta ile d 1s proh ibi­ tiv e (1 .e .» the decision to c u rta il production 1s ir r e v e r s ib le ), the market provision o f such a good w ill be Inadequate. When purchases are Infrequent and uncertain, market provision may be less than optimal because o f option demand. This demand 1s charac­ te rize d as a w illingness to pay fo r retainin g an option to use an area or f a c i l i t y that would be d i f f ic u l t or Impossible to replace and fo r which there 1s no close s u b stitu te. Such a demand may e x is t even though there Is no current Intention to use the area In question and the option may never be exercised.7 When such an option e x is ts , there is no means fo r a p riv a te resource owner to appropriate the value o f th is option fo r I t does not enter his decision framework, and the resu ltin g resource a llo c a tio n may be questioned.6 6Burton A. Welsbrod, "Collectlve-Consumptlon Services o f In d iv ld u a lConsumptlon Goods" Q uarterly Journal of Economics, Vol. 78, (1964), p. 471-477. 7John K r u tllla , "Conservation Reconsidered," American Economic Review, Vol. 157, No. 4 , (Sept. 1967), p. 778-86. 8I b i d . 18 There Is no mechanism 1n the p riva te market which can be used to charge non-users fo r th e ir option. Option demand Is autom atically s a tis ­ fie d when the good e x is ts , th erefo re , 1t w ill pay potential users to mask preferences 1n order to minimize p riva te costs. The market price Is then an Inadequate guide to the to ta l value o f the good. As long as the resource exists 1n It s present s tate (Welsbrod's example Is a park) then the option 1s a pure public good. As a pure public good 1 t can enter two or more persons' u t i l i t y 1rreduc1bly and the marginal cost o f an additional user 1s zero. But when the resource Is to be used fo r other purposes (thus closing the park) the option 1s no longer a costless by-product. When a p riv a te good has public good c h a ra c te ris tic s , (A) the public good may be an external econon\y from current production, or (B) a p r i­ vately owned resource may be thought o f as producing two outputs: p r i­ vate goods to actual users and options to c o lle c tiv e consumption non­ users. Recognition of option demand may d ic ta te continued operation when market demand would Ind icate otherwise. Option demand Is Important fo r resource a llo c a tio n to the extent th a t when 1t Is added to user demand 1t would a ffe c t the amount o f the product or service supplied. AGRICULTURAL LAND. PUBLIC GOODS. AND OPTION DEMAND As Welsbrod pointed out, many p riv a te goods have public characteris­ tic s . These goods have ch ara cte ristic s which are enjoyed but not con­ sumed, and fo r which the marginal cost o f an additional user 1s zero. Public good c h a ra c te ristics w ill re s u lt 1n a market provision o f a good which 1s d iffe r e n t 1n quantity and/or q u a lity than some group wants and 19 is w illin g to pay fo r . This study explores the p o s s ib ility th a t land used fo r a g ric u ltu ra l production has public good c h a ra c te ris tic s . Land as a resource 1s const dered a p riv a te good; one person's use is the denial o f use by another. I f land is owned by one person and planted in wheat, another cannot plant corn or build a shopping center. He Is excluded and has less land a v a ila b le to him because o f exclusive ownership. A g ricu ltu ral land, however, has public good c h a ra c te ristic s which re s u lt from (1 ) external economies associated w ith a g ric u ltu ra l use o f land, and (2 ) the production o f two outputs: p riv a te goods to actual users and options to c o lle c tiv e consumption non-users. i External economies may take the form o f a pleasant ru ral country­ side fo r weekend trip s or the enjoyment derived from liv in g In an area with open space. Only h a lf o f the land in farms 1s a c tu a lly in a g ri­ c u ltu ra l production; acreage which 1s not farmed supports w i ld l if e , 1 t 1s often open fo r hunting, and some lim ite d recreational use. In addition to the external economics associated with p riv a te pro­ duction decisions, a g ric u ltu ra l land produces options on future uses of the land. There exists an option demand fo r a p le n tifu l food supply. Most people would be w illin g to pay a certa in amount to insure there would be an adequate supply o f land to meet fu tu re food needs. However, there is no way the farmer, a p riv a te resource owner, can appropriate the external benefits o f the option value when making decisions about retain in g land in a g ric u ltu re . When a g ric u ltu ra l land surrounding the c itie s was p le n tifu l the option demand on th is land was s a tis fie d a t no cost to the user. As urban growth has expanded in to a g ric u ltu ra l regions the option demand 20 o f many has gone u n satisfied . Markets 1n options e x is t fo r mapy conmodltles. However, a p riva te market In a g ric u ltu ra l land options w ill probably not be developed. This is a case where the mere provision of the good s a tis fie s the demand. Exclusion would be impossible. provided fo r many. I f the good 1s provided fo r a few 1t Is Potential purchasers o f options would be tempted not to reveal th e ir true perceived b e n efit o f the land 1n a g ric u ltu ra l pro­ duction. Where exclusion costs are high and the b e n e fit group la rg e, fre e rid e r behavior Is p re d ic ta b le .9 I f Individual preferences could be determined, a market 1n options s t i l l might not e x is t because o f contractual or transaction c o s ts .10 There 1s always some cost Involved 1n coming to an agreement with another In d iv id u a l. In some Instances the cost of obtaining the agreement may be higher than the value o f the good. A land owner curren tly has the rig h t to re ta in land in a g ric u ltu re , s e ll to a developer or make other a lte rn a tiv e uses o f the land. Around many urbanizing areas an option demand often exists to re ta in land 1n a g ric u ltu re to slow development and re ta in open space. Those who have the option demand w ill have to pay the land owner the differen ce between the a g ric u ltu ra l value and development value o f the land to keep I t 1n a g ric u ltu re . Actual payment may take several forms, such as preferen­ t i a l assessment and reduced taxation or actual purchase o f development rig hts to the land. 9Allan A. Schmid, Property, Power & Public Choice, unpublished manuscript, Michigan State U n ive rsity, East Lansing, Michigan, p. 91-94. 1°Ib 1 d ., p. 153. 21 The p rice o f re ta in in g the land 1n a g ric u ltu re could be q u ite high. In such a case an e ffe c tiv e bid would have to be made by a group. The cost o f organizing a group bid can be considerable when the group 1s larg e. The cost o f organization alone may o ffs e t the funds obtained. Then the land w ill not be maintained 1n a g ric u ltu ra l use even though each Ind ividu al option value exceeds the development value paid to the land owner. Ind ividu als w ith an option demand fo r land often are not s a tis fie d w ith the q u an tity or q u a lity o f land which is being provided through the market process. Pressure fo r s ta te and federal le g is la tio n to re ta in land 1n a g ric u ltu re represents an attempt to a ffe c t the market a llo c a ­ tio n o f land so as to consider option demand 1n land use decisions. THE POLICY SOLUTION Even the mere suggestion o f land use p o lic ie s delig h ts some and out­ rages oth ers. The arguments o f those opposed to controls range from a t t r i ­ buting objectives to a s o c ia lis t p lo t to pointing to the re s u ltin g Increased housing costs fo r lower Income fa m ilie s . Those 1n favor o f land use con­ tro ls believe they should have some Influence over how a g ric u ltu ra l land and open space 1s used even though they do not d ir e c tly use or own such land. Land use p o lic ie s a l t e r the a llo c a tio n o f rig h ts associated w ith ownership. They also In d ic a te a preference fo r one type o f use over another and, th e re fo re , those who b e n e fit from these uses. High trans­ actions or contractual costs are a r ig h t to those who favor the status quo. Some p o lic ie s s h if t the burden o f contractual costs from the group w ith option demand fo r a g ric u ltu re to those who wish to use the land fo r development purposes. I f land 1s zoned fo r an a g ric u ltu ra l region, the 22 developer roust Incur the costs o f obtaining rig h ts to an a lte rn a tiv e use o f the land. The existence o f contractual costs on both sides of the transaction means th at the location o f the I n i t i a l rig h ts a ffe cts the eventual use o f the resource even where market exchange 1s allowed. The d is trib u tio n o f Income w ill also be affected by the I n i t i a l location o f r ig h t s .11 While a g ric u ltu ra l land may enter two or more persons u t i l i t y func­ tio n , the s a tis fa c tio n derived may d if f e r g re a tly . When tastes d if f e r as to the amount or type o f land which should remain 1n a g ric u ltu ra l production and open space, there 1s c o n flic t. When tastes d if f e r over the provision o f a public good the disagreeing parties must deal with each oth er, fo r there Is no Independent producer. Land use po licies establish by law whose preferences w ill be re fle c te d 1n resource a llo c a ­ tio n . Mlshan has made the d is tin c tio n between optional and non-optlonal public goods.12 Optional goods are ones which although av a ila b le to a l l are r e la tiv e ly costless to avoid. One can re fra in from looking a t a neighbor's well-tended yard or choose not to v i s i t a public park. A non-opt1onal public good 1s one which cannot be avoided or 1s very costly to avoid. Land use p o lic ie s which are not voluntary are non-opt1onal. Avoid­ ance costs may be very high to owners o f farmland or th e ir neighbors who a n tltlp a te Increases in property values through development. When “ Ronald Coase, "The Problem o f Social Cost," Journal o f Law and Economics, (Oct. 1960), p. 1-44. 12E. G. Mlshan, "The Postwar L ite ra tu re on E x te rn a litie s : p re ta tiv e Essay," p. 1-28. An In te r ­ 23 avoidance costs are very high one person's good may be another's bad. The provision o f a public good fo r one group o f people can produce an external bad fo r others. The Issue then becomes who gets to choose what w ill be provided and upon whom w ill the external a ffe c ts f a l l . EXTERNALITIES: A TRADITIONAL VIEW The Idea o f external effe cts on firms was f i r s t presented by M arshall. However, the concept was given l i t t l e atte n tio n u n til Plgou In the "Economics o f Welfare" presents I t as one o f the c h ie f causes of divergencies between "private net product" and "social net product". E x te rn a litie s provide the standard exception to the equation o f o p tim a li­ ty w ith perfect competition. Assuming Fj stands fo r the level o f u t i l i t y o f person 1, and Xj 1 1 1 7 denotes amounts o f goods x j , xg . . . . x^,' u tiliz e d by 1, and xnS the amount o f some good xn u tiliz e d by person 2, then Fj *= f ( x ^ , x g * . . . , Xfl^s xn2) represents an external e ffe c t generated by person 2 on 1. External effects a ris e whenever the value o f a production or u t i l i t y function depends d ire c tly upon the a c tiv ity o f others. The essestial feature o f the concept o f an external e ffe c t is that the e ffe c t produced 1s not a d e lib erate creation but an Incidental by-product o f some other­ wise le g itim a te a c t i v i t y . 19 The lite r a tu r e makes a d is tin c tio n between two types o f e x te rn a li­ tie s : technological and pecuniary.1" A pecuniary e x te rn a lity exists l3 E. J. Mishan, "The Postwar L ite ra tu re on E x te rn a litie s : p re ta tiv e Essay," p. 1-28. An In te r ­ l "dames M. Buchanan and W illiam C, StubblebHne, "E x te rn a lity ," Economica, (Nov., 1962), p. 371-384. 24 when an In d iv id u a l's market decisions a ffe c t the price o f a corrmodlty. A ll other purchasers must bear the costs o r reap the benefits o f this price change. Pecuniary e x te rn a litie s are said to pose no problems fo r the market economy, fo r they Ind icate changing demand and are a re s u lt o f e f f ic ie n t resource a llo c a tio n . Technical e x te rn a litie s re fe r to more d ire c t e ffe c ts — other than price changes— th a t one decision u n it might Impose on another. cal e x te rn a litie s Involve physical e ffe c ts . Techni­ This second category o f e x te rn a litie s can prevent the market from operating e f f ic ie n t ly and I t w ill not re s u lt 1n a Pareto optimal a llo c a tio n . In such cases social w ell-belny can be Increased, because one person's welfare can be-Im­ proved while making no one else worse o f f . THE PUBLIC CHOICE APPROACH AND LAND USE POLICIES The concept o f e x te rn a litie s employed fo r the policy analysis o f th is study 1s more Inclusive than that developed by P1gou. E x te rn a li­ tie s comprise the In ju rie s and b e n efits, the costs and gains resu ltin g from choice. A ll choices Involving the use o f a g ric u ltu ra l lands In ­ volve some degree o f Interdependence. The objective o f land use policy 1s to d ire c t the a ffe c ts o f e x te r n a litie s . In the “General Paradigm o f Choice and Power," Samuels develops a conceptual model useful 1n c o n flic t situ atio ns fo r analyzing whose pre­ ferences w ill take p r io r ity and how th is Is decided.15 Samuels f i r s t l5Warren J. Samuels, “Welfare Economies, Power, and Property," reprinted In Perspectives o f Property, edited by the In s titu te fo r Research on Land and Water Resources. The Pennsylvania State U n iversity, (1972). 25 assumes th a t each Individual has an opportunity set which 1s comprised o f a lte rn a tiv e lin es o f ac tio n . Each economic actor operates under conditions o f s c a rc ity to achieve a constrained maximization. Since society Is the t o t a lit y o f a ll Individuals 1t also operates under scarci­ ty and Interdependence. The conduct o f one group o f Individuals has an Impact on other groups, the choices o f one group changes the range and cost o f a lte rn a tiv e s open to others. Samuels d iffe r s from tra d itio n a l economic theory by assuming choices and opportunity sets are Interdependent. Social decisions are a func­ tio n o f the structure o f opportunity sets as well as o f the choices made by Ind ividu als from w ith in th e ir opportunity sets. Individuals or groups can a ffe c t others by changing the structure o f th e ir opportunity s e t. The impact o f the behavior and choices o f others upon the structure or array o f one's opportunity s e t, or upon the scope o f one's choice Is coercion. The economy 1s a system o f mutual coercion, fo r the choices o f each Individual eventually have an Impact upon the opportunity set and choices o f others. A fin a l term central to the paradigm Is power. This 1s defined as "the means or capacity w ith which to exercise choice, w ith which there­ fore to coerce." Power Is the wherewithal o f choice, but I t is r e la tiv e to the power o f others. The opportunity s e t, or the range o f an in d iv id u a l's choice, is a function o f the to ta l stru ctu re o f mutual coercion, grounded upon r e la ­ tiv e power. There is no absolute freedom o f choice, but choice 1s shaped by the actions o f others. F in a lly , Samuels' d e fin itio n o f e x te r n a litie s , as developed from th is paradigm, is considerably more inclu sive than th a t presented by 26 Plgou and others. E x te rn a litie s comprise the substance o f coercion, th a t Is , the In ju rie s and b e n e fits , the costs and gains, res u ltin g from choice,w ithin the opportunity s e t. In a world o f scarcity and In te r ­ dependence, e x te rn a litie s are In e v ita b le and ubiquitous. The s itu a tio n o f u t i l i t y and production functions dependent upon the a c tiv it y o f others is not a special case o f potential market fa ilu r e but Is the outcome In o f Individual and societal choice. th is paradigm no d is tin c tio n pecuniary e x te rn a litie s . 1s made between technical and They both a ffe c t opportunity sets; to Include one and not the other would be a purely subjective decision. In the most general terms, when In teres ts c o n flic t, one or more o f the in te re s ts are external and most go unmet. tr u ly ublquitious. E x te rn a litie s then are Decisions made with respect to the use o f a g ric u l­ tu ra l land have external e ffe c ts . The ob jective of land use po licies 1s to d ire c t or change the outcome o f e x te rn a litie s associated with Individual land use choices. Land use p o lic ie s d ire c t e x te r n a litie s , they Influence who gets to make a choice when 1t done by means foregone specifying or re d is trib u tin g opportunities to others. This 1s property rig h ts , fo r property rig h ts determine what effe cts must be taken Into consideration before change can be in it ia te d . As stated by Demsltz, "property rig hts specify how persons may be benefited, and harmed, and therefore who must pay whom to modify the actions taken by persons. The recognition o f th is leads e a s ily to the close relatio n sh ip between property rig hts and e x te r n a lit ie s .16 16Harold Demsltz, "Toward a Theory o f Property R ights," American Economic Review, Papers and Proceedings, Vol. 57, 1967, p. 3371 27 Land use policies change opportunity sets and In d iv id u a ls ' range o f choices. others. They order or give preference to some external a ffe c ts over Samuels presents several "main points" which are s ig n ific a n t when considering policy a lte rn a tiv e s to change the Impact o f external e ffects associated with Individual decisions regarding the use o f a g ri­ c u ltu ra l land. E x te rn a lity solutions: 1. Impose e x te rn a litie s of th e ir own, 2. Involve the use o f power, the restructuring o f power and the red ire c tio n o f the use o f power, 3. Involve the restructure o f opportunity sets and the re d is trib u ­ tio n o f costs and b e n e fits, 4. create a new decision making structure giving e ffe c ts to h ith e rto excluded in te re sts and/or p a rtic ip a n ts . Land use po licies to a lt e r the market a llo c a tio n of land w ill not elim inate e x te rn a litie s or resolve c o n flic t, but w ill establish who has the rig h t to impose external e ffec ts o f costs on others. n ity sets w ill be expanded, others contracted. Some opportu­ However, the level o f government intervention w ill not ben efit or please a ll In d iv id u als. CHAPTER I I I A MODEL FOR LAND USE POLICY ANALYSIS INTRODUCTION An analysis o f programs to re ta in land 1n a g ric u ltu re cannot proceed without a framework to Id e n tify differences 1n programs, and to evaluate th e ir e ffe c ts on the use o f a g ric u ltu ra l land. This chapter presents a model fo r analyzing land use program a lte rn a tiv e s . I t o ffe rs a method of organizing the Information needed to evaluate the e ffec ts o f govern­ ment choices on selected Ind icato rs. Before getting In to the model, the following sections provide an overview o f the concept of property employed 1n th is study and a theore­ tic a l review o f the type o f options a v a ila b le to government to change property rights o f land resources. A CONCEPT OF PROPERTY Land use programs specify and tra n s fe r property rig hts to land re ­ sources. The concept o f property and the rights associated with I t have con tin ually been redefined as d iffe r e n t aspects o f property obtain market value. One o f the most s ig n ific a n t cases 1n the evolutionary process of property d e fin itio n was 1n 1872 when the Supreme Court o f the United States was c a lle d upon In the Slaughter House Cases to In te rp re t the 28 29 meaning o f property as used 1n the c o n s titu tio n .1 In th is case, the le g is la tu re o f Louisiana had granted a monopoly to a corporation to main­ ta in slaughtering houses fo r stock In New Orleans, and had regulated the fees charged to other butchers who used these f a c i l i t i e s . Before the c o u rt, the butchers contended th a t the s ta tu te deprived them o f both th e ir property and lib e r ty without due process. d ivid ed . The Supreme Court Justice M ille r fo r the m ajo rity held th a t land retained I t ' s common law meaning o f physical things held exclusively fo r ones own use. Property, according to the Fourteenth Amendment meant use value, not exchange value. The m in ority o f the cou rt, however, contended th at a man's " c a llin g ," his "occupation," his "tra d e," his "la b o r," was pro­ p e rty , as w ell as the physical things he might own.2 The m in o rity d e fin itio n o f property began to creep In to the con­ s titu tio n a l d e fin itio n s given by the s ta te and federal co u rt. cases have used a double meaning o f p ro p e rty .9 Foregoing The old common law d e fi­ n itio n o f tan g ib le things owned has been supplemented w ith a d e fin itio n which Includes the expected a c t iv it ie s o f acqu irin g, using and disposing o f the physical ob jects. able assets. One Is m aterial possessions, the other market­ In a legal sense then, property consists not o f ob jects, but ra th e r o f ones rig h ts w ith respect to those objects. New property rig h ts come In to existence when two or more Ind ividu als compete fo r the possession and use o f an object and the need develops l John R. Commons, Legal Foundations o f Capitalism (The U n iversity o f Wisconsin Press, (1 9 6 8 ), p. 11. 2Ib1d, p. 11-12. 9Ib1d, p. 18. 30 fo r the a llo c a tio n o f recognized rig h ts between them." The concept o f property 1s not ju s t a re la tio n s h ip between people and things* but de­ scribes rela tio n s h ip s between In d ivid u als regarding th e ir rig h t to use property and exclude others from It s b e n e fits . As discussed by T a y lo r:5 "My r ig h t o f property 1n a thing depends not upon my claim to I t , but others readiness to admit tny claim as p rlv lle d g e d . I t 1s the rad ical sense 1n which a l l property Is a public f a c t , or I t Is no fa c t a t a l l . I t 1s always a reciprocal agreement." The existence o f property rig h ts presuppose two fa cto rs : (1 ) the a b i l i t y o f an In d ivid u al to possess or appropriate an ob ject to the exclusion o f others; and (2 ) a sovereign power th a t w ill I f necessary, protect the property rig h ts vested In In d ivid u als or groups. The ro le o f the s ta te w ith respect to property rig h ts Is described In some d e ta il by T a y lo r:6 "Property is an In s titu tio n o f the market, not o f the s ta te . The In s titu tio n o f property Is authorized In the h a b it and compartment o f the market even where there 1s no legal community to support 1 t, no c iv il sanction to defend 1 t, no p o litic a l arm to enforce 1 t. What the s tate In s titu te s and attempts 1n the In te re s t o f It s c itiz e n s Is not property, but a normative d is trib u tio n o f I t . The In s titu tio n o f property Is I t s e l f In v a ria b le assumed. The s ta te undertakes only to a r tic u la te and preserve 1 t, to regulate the procedure under which 1t 1s held and a lie n a te d ." In summary, the concept o f property Includes not ju s t the tan g ib le objects owned, but the re la tio n s h ip between two o r more people with respect to possession o f the rig h t to use th a t property or resource. "Raleigh Barlow, 1972), p. 376. 5John F.A. T a y lo r, Company, 1968), p. 109. 6Ib1d, p. 114. Land Resource Economics (P re n t1 c e -H a ll, In c ., The Masks o f Society (Mer1d1th Publishing 31 Property rig h ts can be exclusive but not absolute, fo r these rig h ts are subject to the controls and lim ita tio n s vested in the s ta te . TYPES OF CHOICES The ro le o f the s tate in the d is trib u tio n o f property 1s graphical­ ly presented in Figure 1. "Inputs" from the p o litic a l system shape government, Its actio ns, and p o lic ie s . In te re s t groups, p o litic a l p a rtie s , and d iffe r e n t bodies and o f f ic ia ls In government Influence governmental decisions by providing support, making demands, and e x e rt­ ing pressure. In th is model Inputs are brought to bear on government, which reacts and turns inputs Into "outputs" o f the system. The "government" In th is sense would Include a ll formal In s titu tio n s such as adm inistrative agencies, le g is la tu re , and the courts. In land use issues, where property rig h t transfers are the perogatlv e o f government, the pressure, demands and support fo r c e rta in types o f decisions come from farm organizations, planning agencies, conserva­ tio n groups and associations o f home builders and r e a lto r s .7 ment then transforms these "Inputs" in to a policy decision. The govern­ Depending upon the p o litic a l power o f the various groups, a s p e c ific land use program may be in it ia t e d , there may be changes in the property rights associated with land, or the existin g a llo c a tio n o f rig h ts may be confirm ed. When the output o f government resu lts in a decision to change land use patterns—a policy decision— there are many s p e cific programs which 7D e tro it Free Press, Committee Vote Crucial to Land Planning Needs, A p ril 1, 1976, p. 6A, Environment Environment I 0 Pressures Demands Policies Government Support Administrative Actions Other Decisions Feedback Loop Environment Environment Figure 1 - A Graphical Representation of the Governmental Decision Making Process Source: David Easton, A Framework fo r P o litic a l Analysis, (Englewood C liff s , N .J ., Prentice H a ll, 1965). 33 may be undertaken to achieve th a t o b jec tive . Such programs Involve a tra n sfe r o f rig h ts associated with land ownership. categories are b r ie fly described. Two major program These categories are Id e n tifie d by the type o f relatio n sh ip which exists between the two p arties entering Into the exchange or tra n sfer o f rig h ts . The program a lte rn a tiv e s presented 1n th is chapter are approached a t a conceptual level which allows one to understate the complexity o f the subject both th e o re tic a lly and p ra c tic a lly . This s im p lific a tio n is necessary to Id e n tify the exchange relationships which e x is t and the assumptions upon which they are based. The follow ing chapter describes sp ecific programs which l i e somewhere 1n between the extreme cases o f adm in istrative, and bargained tran sfers. The transfers o f in te re s t 1n th is study are not exchanges o f things, but o f rig h ts . An exchange, w ill consist o f a tra n s fe r o f t i t l e s , o f rights which are held, and are commonly admitted to be held by the two parties.® rig h ts . An adm inistrative tra n sfe r Involves a one-way movement o f The two trading p arties are not equal under law, but are related as superior to I n f e r i o r . 9 This type o f exchange has been referred to as nonmarket or Involuntary tra n s fe r. The ind ividu al 1n the in fe r io r posi­ tio n may or may not b e n e fit from the exchange. Such transfers are I n i ­ tia te d to b e n e fit some th ird individual or group.10 “John F. A. Taylor, The Masks o f Society, p. 108. “Allan A. Schmid, Property, Power and Public Choice, unpublished manuscript, Michigan State U n iv ers ity , East Lansing, Michigan, p. 24. l0 Ib1d, p. 26. 34 Examples o f adm inistrative transfers between the s tate and In d iv i­ duals fo r the b e n e fit o f a th ird group are extensive. C itie s and counties exercise planning* zoning, subdivision, building codes and s im ila r a c t i­ v itie s under the concept o f police power— the power to regulate individual a c tiv it y In the In te re s t o f the sa fe ty , health, morals and general w e ll­ being o f the e n tire population. Courts have generally upheld the exer­ cise o f such powers when the purposes to be served were reasonably c le a r, and the purposes and procedures are 1n accordance with due process.11 Hawaii's Land Use Law (Act 187) transfers use rig h ts to a g ric u ltu ra l land to a State Land Use Commission, the land owner retains exchangerlg h ts . Nuisance laws are also an example of an adm inistrative tra n sfe r o f rig h ts . A bargained transaction involves a tra n s fe r o f rig h ts between In d i­ viduals th a t are legal equals. An Important assumption fo r a bargained transaction 1s the a v a ila b ilit y o f a lte rn a tiv e s fo r both p a rtie s . Bar­ gaining power is affected by the number and type o f a lte rn a tiv e s facing each p a r ty .12 The re s u lt o f a bargained transaction Is an agreement to tran sfer rig h ts fo r some amount o f compensation. There would appear to be few pure bargained transactions between the state and an In d iv id u a l. The s ta te , 1n land use concerns, Is 1n a position to exercise coercion to obtain a tra n s fe r. Even though the power o f the two bargaining parties 1JMarion Clawson, Suburban Land Conversion In the United S tates: An Economics and Governmental Process, (Baltim ore: John Hopkins Press, 19?1), p. 66. 12Schm1d, Property, Power, and Public Choice, p. 22. 35 1s unequal* several o f the programs reviewed In the follow ing chapter possess elements o f bargained re la tio n s h ip s , 1n th a t each party acknow­ ledges the o th e r's property rig h ts and exchanges take place w ith the agreement o f both p a rtie s . In summary, the actual program course assumed by the s ta te , admini­ s tr a tiv e or bargained, w ill depend upon the p o litic a l strengths o f groups exerting pressure, demands, and giving support to the governmental deci­ sion process. The two options presented can be viewed as th e o re tic a lly polar extremes w ith the m ajo rity of programs lyin g somewhere In between. STRUCTURE, CONDUCT, PERFORMANCE MODEL The model to be used fo r analyzing the substantive consequences o f a lte rn a tiv e land use p o lic ie s was I n i t i a l l y developed by Edward S. Mason a t Harvard during the 1930's and extended by numerous s c h o la rs .13 The S tru ctu re, Conduct, Performance model organizes Inform ation so th a t sets o f variables which Influence economic performance can be id e n tifie d . Testable hypothesis can then be developed d e ta ilin g the nature o f the lin k between the variab les and performance. As used by Mason and others the model provides a means o f analyzing the e ffe c t o f market stru ctu re on the economic performance o f Industry. This basic marketing model has been adopted fo r public policy research .1** l3F. M. Sherer, In d u s tria l Market Structure and Economic Performance, (Rand McNally and Company, 1973), p. 4. l “James 0. S h a ffe r, and A. A llan Schmid, A Framework fo r Analysis o f Community Economic Problems, unpublished manuscript, Michigan State U n iv e rs ity , East Lansing, Michigan. 36 Using the framework* a model fo r analyzing land use po licies has been developed. The model 1s based on the hypothesis th a t there 1s a connection between the In s titu tio n a l rules o f property rig h ts * people's behavior and the substantive outputs o f the economy. The model 1s Illu s tra te d schematically 1n Figure 2. The performance of an In s titu tio n a l policy and/or ru le depends upon the conduct o f the particip ants affected by that ru le . the In s titu tio n a l s tru ctu re. Conduct* 1n turn 1s Influenced by Structure and conduct are also Influenced by various basic conditions. As the arrows In Figure 2 suggest* th is study Is concerned with the causal flow from In s titu tio n a l structure* to conduct* and performance. That 1s, we seek theories which w ill permit us to predict ultim ate policy performance from the observations o f stru ctu re, basic conditions* and conduct. Not a ll Influences flow from basic conditions or market structure toward performance. As with the Easton model, the performance or output in th is time period w ill be part o f the basic conditions 1n the next. Basic Conditions There are factors which are external to the study but exert an in ­ fluence on the outcome o f a stru ctu ral change. These basic conditions are the "given s itu a tio n " from which policy analysis must s t a r t . conditions Important 1n land use analysis are: Basic existin g laws and patterns o f land ownership, population trends, location o f urban centers, type and competitiveness o f the a g ric u ltu ra l Industry, quantity and q u a lity o f natural resources* and transportation systems. 37 BASIC C O N D IT IO N S Existing Laws and Patterns of Land Ownership, Population Trends, Location of Urban Centers, Type and Competitiveness of the Agricultural Industry, Land Classification. STRUCTURE Type of Transaction, Program Incentives, Level of Administration, Major Participants CONDUCT ASSUMPTIONS A ll Individuals Are Rational, A ll Participants Are Motivated By SelfInterest, A ll Participants Are Subject to Some Degree of Uncertainty Relative to the Decisions They Make PERFORMANCE INDICATORS A Change in the Amount of Land Being Taken Out of Agriculture, New Farm Investment Figure 2 - A Model to Id e n tify the Consequences o f A lte rn a tiv e Land Use Policies 38 Structure Structure constitutes a l l the predetermined ch arac teristics o f the game and It s players, th a t constrain the players choices.15 ture 1s the system o f organization and control of resources. The struc­ It establishes the opportunity set from which Individuals have v o litio n a l choice. Structure 1s a dynamic concept. I t Is constantly exerting force on the conduct o f the p a rticip an ts and the performance o f the system. I t In turn is also affected by the conduct o f those 1t in f lu ­ ences and by the resu ltin g performance. The dimensions o f structure to be considered fo r land use policy analysis are: 1. Type o f Transaction: Because o f the bargaining which takes place among the p a rticip an ts 1n the p o litic a l decision making process, the program outputs o f a government decision w ill not re s u lt 1n e ith e r a pure adm inistrative or bargained tra n s fe r. The output w ill be modi­ fie d by the strength and In terests o f each group o ffe rin g Inputs. The major d is tin c tio n , however, 1s the assumptions each approach makes about the rig h ts o f the Individual or group Involved 1n the tra n s fe r. T h e o re tic a lly , In a bargained tra n s fe r each party 1s free to jo in or abstain from the transaction. When a transaction does take place 1t Involves a twoway tra n s fe r o f rig h ts . However, the s tate and the Individual are unequal p articip an ts 1n an exchange. The state w ill recognize the landowners' option to p a rtic ip a te 1n or abstain from a program. The state also has the power to o ffe r a "bad" as well as a 15Schmid, Property Power, and Public Choice, p. 42, 39 "good" to Induce an exchange. For example, 1 f a landowner chooses not to p a rtic ip a te in a program which would dedicate his land fo r a g ric u ltu ra l purposes fo r a determined number o f years, he can be subject to higher property taxes, face zoning ordinances which would In te rfe re with farm practices, and Increase the ris k o f having land subject to eminent domain fo r roads and other public works. An adm inistrative transaction involves a one-way tran sfer o f rights from an individual in a p o lit ic a lly in fe r io r position to one in a superior position o f p o litic a l strength. However, in a l l cases groups who have found themselves In an In fe r io r position have had enough p o litic a l power to obtain some benefits in return fo r the tran sfer o f property rights to land. In the following chapter, fiv e land use programs are reviewed. Three o f these, the New York, C a lifo rn ia , and Maryland programs, can be c la s s ifie d as bargained tran sfe rs . The Vermont and Hawaii programs in ­ volve modified adm inistrative tran sfe r o f rig h ts . 2. Incentives: Program incentives d ire c t behavior in a manner consistent with program objectives. Specifying the "correct" Incentives 1s an Important part o f any public program. Research done by Charles Schultz emphasizes the importance o f incentives in a tta in in g e ffe c tiv e p o lic y :16 "Public program performance depends upon the behavior o f a large number o f "Independent" decision makers, public and p riv a te . Actions cannot be commanded. Careful 16Charles L. Schutz, "The Role o f Incentive, P e n a litie s , and Rewards 1n A ttaining E ffe c tiv e P o lic y ," Public Expenditure and Policy Analysis edited by Robert Haveman and Julius M argolis, (Markham Publishing Company, 1972), p. 146. 40 s p e c ific atio n o f plans and objectives by a public agency w ill not s u ffic e to guarantee e ffe c tiv e programs. The program must also be e x p lic it ly designed to provide in ­ centives or Inducements fo r the relevant decision makers outside the public agency to act 1n directions which are consistent w ith program o b je c tiv e s .'1 As was discussed In the second chapter, a g ric u ltu ra l land has cer­ ta in public good c h a ra c te ris tic s . P rivate decisions made with respect to the use o f a g ric u ltu ra l land have external e ffe c ts which are not considered by Individual land owners. Public programs seek to modify 1n q u a lity o f quantity the outcome o f p riva te production and Investment decisions. Most land use po licies Include a m odification o f the "signals" given and Incentives provided by the market so as to Induce p riv ate action consistent w ith program objectives. In a bargained transaction the Incentives or benefits must be strong enough to Induce both p arties to enter Into an exchange. To the land­ owner the cost o f giving up c e rta in rights to land must be less than or equal to the benefits received or the costs avoided. A d d itio n a lly , local governments w ill have l i t t l e In te re s t 1n providing p re fe re n tia l assess­ ment programs fo r farmlamd 1 f a ll 1t does is reduce th e ir tax base. Removing or modifying current Incentive structures can provide problems fo r bargained and adm inistrative programs. Zoning—an admini­ s tra tiv e transaction—can be rendered In e ffe c tiv e when there are large gains to be made fo r a few by rezoning. Where local government 1s weak zoning cannot stand up against the kind o f p o litic a l pressures th at a ris e 1n urbanizing a re a s .17 On the basis o f data on land prices and on estimates of the areas converted annually from rural to urban uses. l7 Clawson, Suburban Land Conversion in the United S tates, p. 68. 41 the appropriate to ta l annual gain In land prices from converting raw land to sububan re s id e n tia l use may be on the order o f $13.5 b illio n a n n u a lly .1® Obtaining these benefits often depend upon rezoning and a change 1n land use. As stated by Clawson, "with sums o f anything lik e th is magnitude a t stake, 1t would be miraculous 1f owners o f and dealers In th is land did not seek to Influence those public actions which a ffe c t the value o f th e ir la n d .19 These examples demonstrate the Importance o f Incentives w ithin the structure of the program as well as those external to I t . 3. Transaction Costs: Once the type o f rig h ts tra n s fe rs -- bargalned or adm tnlstrative--has been determined and the rules o f the tra n s fe r established, c e rta in costs w ill follow as a re s u lt o f these ru les. The rules determine what a decision maker takes Into account, or establishes who gains and loses from the tra n s fe r. Two types o f transaction costs w ill re s u lt from the rules established through a land use program; contractual and Inform ational. The place­ ment o f these costs are the costs Involved 1n coming to a decision with another in d iv id u a l.20 A buyer o f land must pay a contractual cost as w ell as the cost o f the property rig h t o f the resource. The more people th a t are Involved In a tra n s fe r, the higher the transaction costs.21 18Clawson, Suburban Land Conversion in the United States, p. 183. l9 Ib1d, p. 183. 20Schmid, Property, Power and Public Choice, p. 152. 21Ib id , p. 153. 42 For example, the m inority decision 1n the Slaughter House Cases established there are exchange as well as use rights to land. When a program fo r a bargain tra n s fe r o f land rig hts 1s In itia te d I t 1s Im p li­ c i t l y assumed by the s ta te th a t the Individual landowner posses both exchange and use rig h ts to the land In question. The ex is tin g rig h ts d is trib u tio n 1s accepted and a market type exchange w ill take place I f each party believes they w ill b e n e fit by entering Into the exchange. I f the objective o f the program Is to re ta in land in a g ric u ltu re , rules w ill be established which w ill allow fo r the tran sfe r o f use rights o f land from the Individual to the s ta te . The landowner Is com­ pensated or receives some benefits from the exchange. Where a ll rights to land are I n i t i a l l y vested with the landowner the state must pay the price o f the resource as well as the costs o f coming to an agreement on the terms of the exchange. The contractual costs o f coming to an agreement with a landowner might include, education programs aimed at Informing landowners o f program b e n e fits , a s t a f f to process applications and monitor enrollments, and perhaps program revision to appeal to a broader base o f landowners. I f an adm inistrative program Is the outcome o f a p o litic a l decision process, the a llo c a tio n o f property rig h ts and contractual costs are d iffe r e n t than 1n the f i r s t case. An example o f an adm inistrative type program is Hawaii's Land Use Law (Act 187). Under th is law a ll the land 1n the s tate 1s zoned in to four d is t r ic t s . Landowners In these d is tr ic ts have exchange rig h ts to the land but they cannot a lt e r It s use from th a t specified 1n the zoning law. When a landowner wants to make use o f the land In a manner which Is Inconsistent with the zoned use, he must incur the costs o f coming to an agreement with the s ta te about 43 a lte rin g the use rig h ts to the land. In th is caset where the state has use rig h ts , the landowner must pay the contractual costs o f an agreement. To the landowner these costs take the form o f public hearings, extending review by the land use com­ missions, and up to a y e a r's w a it fo r a decision. The assignment o f property rig h ts also has a great deal to do with who has to bear the costs o f acquiring Inform ation, how large the costs area, and the magnitude o f the m istakes.22 A land use plan may desig­ nate areas o f c r it ic a l concern fo r preservation. However, the outcome w ill be d iffe r e n t 1f the government has to prove land 1s c r it ic a l or 1f the landowner has to prove 1t 1s not. Acquiring Information 1s an ex­ pense to one party In an exchange and rig h t to another. 4. Level o f Administration: The re s p o n s ib ility fo r the adm inistra­ tio n and enforcement o f a state land use program may be a t the s ta te or local level o f government. In some cases th is re s p o n s ib ility 1s shared. The boundary must be geographically large enough to encompass the land area o f In te re s t and 1t should be determined by the program consti­ tuency. A program which depends upon the ac tiv e p a rtic ip a tio n and com­ mittment of a group o f people should design the ju ris d ic tio n a l u n it so as to enhance the sense o f comminlty w ith in th is group. Boundary place­ ment should also take In to consideration the external e ffe c ts o f deci­ sion making a t th a t le v e l. Land use programs work through transactions— the tra n s fe r o f rig h ts . Every transaction has e ffe c ts , which are e ith e r Intern al or external to 22Schm1d, Property, Power and Public Choice, p. 164. 44 the decision making u n it. An external e ffe c t 1s a consequence o f an act which cu rren tly 1s Irre le v a n t to the individual or organization making the decision, given the existin g ju ris d ic tio n a l boundaries.23 A county program to re ta in land 1n a g ric u ltu re may create external e ffe c ts by preserving farmland 1n th at county but creating additional developmental pressures 1n surrounding areas or contributing to a scattered pattern of urban development. In studying ju ris d ic tio n a l units consideration should also be given to the tax base or revenues o f the u n it, the professionalism of Its s ta ff and the existence o f supporting agencies. 5. Major P a rtic ip a n ts : Id e n tific a tio n o f the major participants Involves knowledge o f who Is affected by stru ctu ra l change and who 1n turn can a ffe c t or change the stru ctu re. Land use programs have s p e cific benefits and costs, or incentives and disincentives fo r certain types o f behavior. In po licy formation 1t 1s necessary to know whose actions can Influence the program outcome before a system o f Incentives can be devised. The conduct o f the major particip ants w ill exert a large influence on the performance of a land use program. The model presented In Figure 1 w ill serve as a basis fo r Id e n ti­ fying the major p a rtic ip a n ts . The emphasis o f th is study 1s on the out­ put side o f the decision process rath er than on determining which groups have Inputs to the decision process and the Impact o f th e ir Influences. The In te re s t 1s In determining the e ffe c t o f the decision or output of the p o litic a l process on selected In d icato rs. 23Shaffer and Schmid, A Framework fo r Analysis o f Community Economic Problems, p. 10. 45 The p articip ants o f In te re s t are those who w ill be affected by policy decision. They, 1n tu rn , w ill have access to the decision process and may modify the policy In time. In Figure 3 the Easton model has been extended to Incorporate an analysis o f program a ffe c ts . outcomes may re s u lt from a government decision: t1ve actions and other decisions. Three possible p o lic ie s , adm lnistra- For the purposes o f th is study, po licies are defined as a broad statement of In te n t or mandate which w ill stim ulate s p e c ific programs. Figure 3 s ta rts with the policy objectives of retain in g land 1n a g ric u ltu re . The s p e c ific program 1s then operationalIzed and admini­ stered by a bureacracy. Such po licies attempt to change market Incentives and the conduct o f those who buy and s e ll land. Most po licies attempt to Influence factors which enter Into a farmers decision to s e ll. A farmers opportunity set 1s comprised o f such factors as property taxes, expectations, land value, and Income, which are w ith in the scope o f land use p o lic ie s , as well as those external to Influence, such as, education, age and o ff-fa rm employment opportunities. Given his opportunity set or options the farmer makes decisions consistent with his goals. Other land use programs, such as Vermont's attempt to change factors which enter Into the speculators opportunity set and Influence his deci­ sion to buy a g ric u ltu ra l land. Again there are factors e x te rn a l, or factors beyond the scope o f land use programs which w ill also have an impact on his decision. In summary, the major p articip ants Include those who administer the program, fanners who o ffe rs a g ric u ltu ra l land fo r s a le , and speculators who buy rural land fo r development purposes. As Figure 3 points out, the decisions to buy and s e ll land are affected by many fa cto rs . Some 46 n Inputs 1 I I Policy Program Bureaucracy Expectation of Urban Growth Properly Taxes Expectations of Urban Development Ease of Land Purchase and Development Market Value of Agricultural Land Real Farm Income Anticipated Profit In Land Turn Over Farmors Opportunity Set Speculators Opportunity Set Education Age O ff-farm Employment Opportunities A vailability of Credit Market for New Homes J Figure 3 - A Framework fo r Analyzing P articipants Land Use Decisions 47 o f these, such as o ff-fa rm employment op portunities, age, and a v a ila b ilit y c re d it, are outside the realm of land use p o lic ie s . Other fa c to rs , especially property taxes, and expectations o f development tim e, are program targets which can be alte re d to change the decision o f farmers and speculators. Conduct Conduct 1s the c o lle c tio n o f choices, decisions, or strategies adopted by the particip an ts In the p o litic a l economy given the opportu­ n ity set established by the s tru c tu re .21* The performance consequence o f a change 1 n stru ctu re depends upon the conduct o f the p a rtic ip a n ts . Three assumptions are made about the conduct o f a ll the major p a r ti­ cipants. F ir s t , i t 1s assumed that a ll Individuals are ratio n a l 1n th e ir actions and decisions. The assumption o f r a tio n a lity 1s necessary I f any conclusions are to be made about the behavior o f the p a rticip an ts. By ratio n a l 1t Is meant th at the course o f action taken by any p a r t ic i­ pant w ill be an attempt to move closer to , rath er than fa rth e r away from the attainment of whatever goal the person has chosen. 25 For example, a landowner may have a goal o f Income maximization and a set o f options with respect to the use of her land; 1 t can be sold, rented, l e f t Id le , etc. Given a c e rta in set o f expectations as to the e ffe cts o f choosing each option, she w ill choose the one which she thinks w ill bring her closest to the goal. Due to uncertainty and a lack o f inform ation, an 2<*Shaffer and Schmid, A Framework fo r Analysis o f Community Economic Problems, p. 24. 25Randall B a r le tt, Economic Foundations o f P o litic a l Power, (The Free Press, 1973), p. 23. 48 Ind ividu al may make an "Inco rrect" choice; th a t 1 s, one which would lead them fu rth e r away from the desired goal. However, as long as the In d iv i­ dual expects the choice to be b e n e fic ia l, the a ct was r a tio n a l. This d e fin itio n Implies no normative connotations regarding the d e s ir a b ility o f a s p e c ific goal. The assumption o f r a t io n a lity refers to the strategy adopted by each p a rtic ip a n t In obtaining th e ir o b je c tiv e , I t does not apply to the o b jec tiv e I t s e l f . The second assumption Is th a t s e lf- in t e r e s t underlies a l l behavior. S e lf-In te r e s t Is the basis o f a market economy. I t res u lts 1n an a l lo ­ cation o f resources determined by e ffe c tiv e demand. An assumption o f s e lf- in t e r e s t does not ru le out c h a rita b le actio n s, undertaken to b e n e fit a frie n d or the community. I t does however, assume such actions w ill have nominal d is trib u tio n a l consequences, and the person performing the c h a rita b le act w ill receive some u t i l i t y from the a ctio n . The th ird assumption 1s th a t a l l p a rtic ip a n ts w ill s u ffe r from some degree o f uncertainty r e la tiv e to the decisions they make. w ill e x is t due to Inform ational shortages. c ie n t when I t is extremely costly to o b tain . Is a public good. Uncertainty Inform ation w ill be In s u f f i­ Inform ation 1n th is case The cost o f obtaining the inform ation exceeds the benefits I t would provide to an In d iv id u a l, and once 1 t Is obtained, 1 t Is a v a ila b le a t no add itio nal marginal cost to many. Uncertainly w ill also e x is t when Inform ation 1s d i f f i c u l t to understand and where Inco r­ re c t choices would have serious consequences. 26 2 6 0 tto A. Davis and Morton I . Kamlen, " E x te rn a litie s , Information and A lte rn a tiv e C o lle c tiv e A ction," Public Expenditure and Policy A n alysis, edited by Robert Haveman and Juliu s M argolIs, (Markham Publishing Company, 1972), Chapter 6 . 49 The existence o f uncertainty 1n the decision making structure has c e rta in costs associated with 1 t. The most obvious cost resu lts from a preference fo r sure bets which sets uncertain ones a t a discount. Placing a lower value on the chance o f a desirable re s u lt than on the re s u lt fo r sure 1s completely ra tio n a l. However, the choices o f the appropriate discount fo r uncertainty Is often d i f f i c u l t to determine. Other costs o f uncertainty more p ertin en t to th is study are those that Imply d e te rio ra tio n in decision behavior. sults from confusion and ex te rn a lize s . This d e te rio ra tio n re ­ As stated by Ruth Mack: 27 "The disagreement and confusion th a t can follow paucity o f relevant information deterio rates the a b ilit y o f the deci­ sion maker to deal w ith the problem even as he sees 1 t. He loses his cool. He suppresses the fa c t o f uncertainty or copes with I t Improperly." Uncertainty often narrows the l i s t o f a lte rn a tiv e s considered; the more uncertain ones may be discarded or not considered. An e f fo r t to avoid uncertainty may cause decisions to be made In the context o f a r e s tr ic tiv e framework. Those which are made may be badly executed due to In e ffe c tiv e follow through. Mack sums up th is e ffe c t o f un certainty : 28 "There is a tendency to overestimate and overreact to uncertainty. This Implies th a t less risky acts tend to be favored r e la tiv e to more ris ky ones, the status quo especially tends to pull more than It s proper weight. Uncertainty Im­ p arts, 1 n other words, a conservative bias to behavior." The th ird type o f uncertainty costs results from the tendency of uncertainty to exaggerate disadvantageous e x te r n a litie s . I t Is easier to Ignore the impact o f a decision to withdraw prime land from 27Ruth P. Mack, 1971), p. 5. 28Ib1d. Planning on U ncertainty, {John Wiley and Sons, In c ., 50 a g ric u ltu ra l use I f the Impact o f the action 1s unknown. the costs are borne by the Individual decision maker. In such cases However, the to ta l impact o f these Individual actions may be greater than th e ir simple sum. The follow ing section, using the assumptions o f s e lf- in t e r e s t , ra­ t io n a lit y and uncertainty 1 n decision making, fu rth e r explores the goals and conduct o f the p a rtic ip a n ts . 1. Farmers: Land use programs tra n sfe r property rig h ts associated w ith a g ric u ltu ra l land. Farm acceptance and p a rtic ip a tio n 1s an Impor­ ta n t fa c to r 1n the success achieved by the programs. Acceptance and cooperation 1 s determined by the c o m p atib ility o f these programs with the farmers decision framework. I t 1s assumed th a t the farmer 1s ratio n a l and his actions are charac­ te rize d by s e lf-in te r e s t. The assumption o f s e lf- in t e r e s t , broadly de­ fin e d , re fle c ts the fa c t th a t he Is a p r o f it or income maximizer. The p a rtic ip a n t has knowledge o f a lte rn a tiv e s but not perfect knowledge. Uncertainty prevents him from knowing fu tu re product and land prices. His actions are based on his expectation o f the fu tu re . Programs which involve acqu isitio n or control over land rights are assumed to a ffe c t farm er's goals o f Income generation, wealth assumulatlo n , firm growth, and r e la tiv e freedom o f decision making. 29 The goal o f Income generation takes In to consideration both: (1) the present needs o f income fo r the farm fam ily; and ( 2 ) the management 29Lee A, Christensen, "A Framework fo r Evaluating In s titu tio n a l and Socio-Economic Issues o f Land Treatment o f Waste Water," Journal of Environmental Q u ality, Vol. 4 , No. 2, Apr1l-June 1975, p. 149. 51 ob jective o f maximizing the returns to scare resources. Both the sho rt­ term (1 to 3 years) and the long-term {4 years or more) Income goals are Important. Long-term goals are based on discounted fu tu re returns to land resources. The discounted value 1s computed by a c a p ita liz a tio n formula: V * a /r where V 1s the value o f the property a the expected average annual land ren t r the c a p ita liz a tio n In te re s t r a te . 10 There Is a close c o rre la tio n between the concepts o f land rent and use-capacity . 11 Land w ith the highest use-capac1ty o r d in a rily has the highest value, the greatest production p o ten tia l and y ie ld s the most land re n t. In t h e ir choice o f e n te rp rise s, operators are In terested In comparisons o f the Income producing p o ten tial o f t h e ir various a lte rn a ­ tiv e s . Those uses producing the highest land ren t w ill have the f i r s t claim upon the areas w ith the highest use-capac1ty. able to compete w ith the more productive ones. Lower uses w ill not be They are crowded toward the o u ts k irts to those locations where they can compete successfully w ith other uses. At any one lo c a tio n , some use can always return a higher land ren t than other a lte rn a tiv e uses. From the economic S0This Is presented in d e ta il 1n Barlow, Land Resource Economics, Chapter 7. l l Land rent 1s the economic retu rn th a t accrues o r should accrue to land. Use-capac1ty is the cumulative Impact o f various facto rs Including lo catio n th a t a ffe c ts a c c e s s ib ility and Items such as s o il f e r t i l i t y and drainage th a t a ffe c ts land q u a lity . 52 standpoint o f the Individual farmer, the use which returns the greatest rent is the maximizing decision. The goals o f wealth accumulation and firm growth r e f le c t the d iv e r­ sion o f current Income from consumption to Investment, and the Impact o f ca p ita l appreciation . 32 Investment w ill only be forthcoming I f the operator can foresee a fu tu re in a g ric u ltu re . I f he expects to r e t ir e soon and s e ll the land, or i f more wealth can be obtained by the sale o f the land to a developer, Investment w ill not be undertaken. Appreciation o f land values is seen by farmers as an earned return to a g ric u ltu ra l production. Appreciation may occur because o f cap ital Improvements on the land or 1 t may be due to pressure on land from urban expansion. However, earned or acclden tlal the appreciation may be, any land use program which would prevent farmers from reaping the gains from appreciated land values w ill be strongly resis te d . 1s Appreciation 1n value c le a rly an important fa c to r 1 n the farmers' decision process. Freedom o f decision making Is highly valued in an a g ric u ltu ra l com- m unlty.3* In keeping with the paradigm developed 1n Chapter I I , no In ­ dividual has absolute freedom. Freedom o f choice exists only w ith in the opportunity set and 1s r e la tiv e to the freedom o f others. Land use programs Involve tra d e -o ffs 1 n freedom o f land use decisions fo r addi­ tio n a l real farm income. One o f the most valuable freedoms is the a b ilit y o f a farmer to s e ll land and gain through Its appreciation. Under ce rta in conditions, farmers 32 Christensen, "A Framework fo r Evaluating In s titu tio n a l and SocioEconomic Issues o f Land Treatment and Waste Water," p. 150. 33Dale E. Hathaway, "A gricultural Policy and Farmers' Freedom: Suggested Framework," Journal o f Farm Economics. Vol. XXXV, No. 4 , November 1953. A 53 w ill tra d e -o ff some o f th is freedom fo r increased farm Income. The suc­ cess o f a land use program w ill depend in p a rt, upon knowing when and to what extent these tra d e -o ffs w ill be made. An analysis Involving marginal rates o f su b stitu tio n between the goals o f Income generation and freedom o f decision making serve to ex­ p lain why people make d iffe r e n t choices a t d iffe r e n t t i m e s . T h e s e two goals may c o n flic t when considered 1 n an absolute sense but are compli­ mentary fo r c e rta in ranges in th e ir margins. In Figure 4 , the horlzonal axis represents freedom fo r the fanner, in land use decision, the v e rtic a l axis represents expected farm Income. At point CF, the farmer has complete freedom from government In te r fe r ­ ences 1n land use decisions, points R j, R2 * R3 and R4 represent succes­ s iv e ly greater levels o f governmental controls on the freedom o f the farmer In the use o f his land. A series o f In d iffe re n ce curves Ind icate the pattern o f the margi­ nal rates o f s u b stitu tio n that a farmer has between freedom 1 n land use decisions and Income. on Ig or I 3 . A higher level o f u t i l i t y 1s achieved on I j , than However, the level o f u t i l i t y which an Individual may a tta in 1 s determined p rim a rily by forces outside o f his control: product prices, the d ire c tio n o f urban development, and the policy decisions of government regarding land use. At point NP there 1s no program and the farmer has complete freedom 1n land use decisions, a t point P-j there are some re s tric tio n s and the ’ ‘'Hathaway, "A g ricultural Policy and Farmers' Freedom: Framework." A Suggested Expected Form Income 54 NP NP' Freedom of Use and Exchnage Decision to Land Figure 4 - Analysis o f Landowners W illingness to P a rtic ip a te in Land Use Programs 55 Income position 1 s higher, points P2 and would represent successively greater losses In freedom and higher Incomes. Given the lin e o f a t t a in ­ able combinations ju s t described the farmer would receive the most u t i l i t y with no government program since he could a tta in I j . An example o f th is s itu a tio n e x is t In ra p id ly urbanizing a g ric u ltu ra l areas, where a farmer may r ig h tly expect his land to s e ll fo r several times over Its farm value w ith in the next 5 years. Under such conditions no program offered could Induce farmers to give up the freedom to d e te r­ mine the use o f his land. For the Income he could receive from a non- farm sale would outweigh the p o ten tia l program ben efits o f Increased real y e a rly Income and job s e c u rity . Given these circumstances, a land use program which r e lie s on voluntary p a rtic ip a tio n w ill have a n e g lig ib le e ffe c t on the rete n tio n o f land In a g ric u ltu re . I f however, the farmer Is a t I 3 , a lower In d iffe re n c e curve, due to low product p rices, or no opportunities fo r an urban s a le , he would ac­ cept control P2 which would place him on an In d iffe re n c e curve I 2. Thus, a farmer may p a rtic ip a te in a program providing Increased farm Income to remain In farming, 1 n exchange fo r decreased freedom 1 n land use de­ cision s. W illin g p a rtic ip a tio n w ill depend upon In d ivid u al In d if f e r ­ ence curves and the position o f the lin e o f a tta in a b le combinations. Given the lin e o f combinations and the In d iffe re n c e curves fo r the Ind ividu al social values, farmers w ill p a rtic ip a te 1 n (o r desire) a land use program whenever the lin e o f a tta in a b le combinations 1 s tangent to a higher In d iffe re n c e curve fo r the m ajo rity o f the farm population than the in d iffe re n c e curve they might a tta in w ithout such a program. In summary, two conditions could bring about s h ifts 1n the farm ers' w illingness to p a rtic ip a te 1n, o r desire f o r , land use programs. One 56 would be due to a s h if t 1 n the a tta in a b le combinations lin e , a re s u lt of changing economic conditions, people's preferences fo r rural liv in g , or changing patterns o f urbanization. The second would be due to changes In the In d ifferen ce curves (marginal rates o f s u b s titu tio n ). The slope o f the Ind ifferen ce curve would change i f farmers expectations o f a land sale fo r urban use were a lte re d or 1 f th e ir a ttitu d es toward land use programs were changed by new or more complete Information. 2. Speculators: This 1s a purely descriptive term used to Id e n tify the Individual who buys land from the farmer. land but usually s e lls 1t in turn to a developer. farmers s e ll d ir e c tly to developers. A speculator may develop In few cases do This w ill only happen when the pace of suburbanization has been s w ift and farming 1 n th at area has been reasonally p ro fita b le . More commonly the genuine operating farmer has sold out long ago to someone who bought the land 1 n a n tic ip a tio n of future urban development. 15 There exists then, a spectrum o f land holders. farmers whose primary motive 1n an input 1n a production process. At one end are landownershlp Is the use o f the land as At the other end o f the spectrum are homeowners whose motive 1 n land and homeownershlp is p rim a rily the sa tisfactio n s th a t come from occupancy o f the home. Each o f these uses have speculative aspects, but the primary motive Is the flow o f goods and services from production or consumption processes 1 n which land 1 s a c r it ic a l p a rt. Between these two ends H e a number o f landowners whose primary purpose o f ownership is the p o s s ib ility o f p r o fit from a ris e In the price o f land. 35 Clawson, Suburban land Conversion in the United States, p. 62. 57 These Interm ediate landowners* as a group* perform a number o f use­ fu l functions, although few perform a ll o f the fo llo w in g :3® a. "They communicate demand signals* from production or consumption sectors which demand land, to present landowners. This 1s done by bidding up land prices. By bidding up the prices onfarm andother land, they f a c i l i t a t e it s conversion to other uses." b. "They help to ra tio n land (1n the economic sense o f the term) to It s highest and most valuable use. They do th is by making the land too costly fo r apyone to use 1 t fo r less valuable uses." c. "They may assemble several small tra c ts Into one larg er one or divide a large tra c t Into several smaller ones* 1 n each case tryin g to change an unsuitable landownershlp pattern In to one more su ita b le fo r the new use." d. "The land dealer may bear some risks or some uncertainties In ­ volved In suburban land development. The time a t which land w ill be taken Into Intensive use and the price a t which I t w ill be sold fo r that use are o r may be uncertain. The land dealers bid fo r land* or th e ir w illingness to s e ll can help determine the price." The speculator 1s both a buyer and a s e lle r o f land. As previously noted, holding land fo r la te r urban use In e v ita b ly Involves a consider­ able degree o f uncertainty as to future demand and p ric e. The greatest asset o f the speculator 1 s information which would reduce uncertainty. He w ill seek to be highly knowledgeable about urban plans and public programs such as sewer and road construction. The speculator w ill'p r o ­ f i t p rim a rily by his superior knowledge and by his a b ilit y to take advan­ tage o f th a t knowledge. 37 D irec t action can 1n many casessupplement or replace Information* as discussed by Clawson. 36 36 C1awson, 37 Ib 1d, 3 7 Ib 1d. Suburban Land Conversion 1n the United States, p. 135-136. p. 1 0 2 . 58 "Members o f the landowning group surely try to Influence public a c tio n . They do not q u ie tly w ait fo r zoning o r a new sewer lin e to drop a plum In th e ir lap but shake the tre e vigorously to help th a t decision drop where and when they want It. I t seems reasonable to suppose th a t they ex ert Influence upon elected public o f f ic ia ls through promises o f p o litic a l support* contributions to campaigns* or more d ire c t fin a n c ia l reward. Bribery o f elected county o f f ic ia ls In land zoning cases 1 s surely not unknown." Me can assume that a speculator w ill always act In a manner he sees consistent w ith his s e lf-in te r e s t. The speculator seeks p r o f it through the possession o f superior Information and the passage o f time. 3. Adm inistrators: s tate and county le v e l. Land use programs may be administered a t the The s p e c ific incentive fo r c e rta in types o f behavior may be d iffe r e n t a t each le v e l, but the basic conduct assump­ tions are the same. Administrators* as a ll other p a rtic ip a n ts , are motivated by s e lf-in te r e s t. S e lf-in te r e s t in th is case 1s defined as job security rath er than p r o f it maximization . * 9 According to B a r t le t t : 1*0 "Since these Individuals remain 1n the public employ, we must conclude th at such a position 1 s the best one a v a ila b le to them 1 n terms o f th e ir subjective evaluation o f options. I f the market offered a b e tte r p o sitio n , the postulate o f s e lf-in te r e s t would have led them to accept 1 t. Their continued presence 1 n the bureaucracy leads us to the conclusion th at a s h if t In position would Involve real costs from th e ir point of view." Administrators w i l l , th erefo re, act 1n the manner which w ill strengthen th e ir bureau and th e ir p a rtic u la r po sitio n. They desire to maximize th e ir own "bureaucractlc s e c u rity ." This desire w ill be re fle c te d In the view adm inistrators w ill have " W illia m A. Nlskanen, "The Peculiar Economics o f Bureaucracy," American Economic Review, Vol. L V II, May 1968, p. 293-305. **°B a rtle tt, Economic Foundations o f P o litic a l Power, p. 21. 59 toward budgeting a llo c a tio n s . " 1 A bureau's worth may e a s ily be deter­ mined by examining It s budget and ra te o f growth. A large Important bureau w ill provide job security fo r it s members. The actions o f admini­ strato rs w ill often r e f le c t an attempt to Increase both the size and growth o f the agency. I t may also be assumed th at public employees desire to do a "good job" as they define 1 t , to earn a reasonable Income* and to occupy a respectable place 1n the social hierarchy of the community. " 2 In many situ atio ns c e rta in employees, planners or zoning o f f ic ia ls may be under considerable pressure to give Into some Individual or group th a t wants some public action fo r It s own p r o f it . They w ill be faced w ith the tra d e -o ffs between doing a good job and the p o s itiv e or negative results o f In te re s t group pressure. PERFORMANCE Performance is the flow o f consequences from a p a rtic u la r s tru ctu re, given the conduct o f the p articip an ts in a system."* The consequences may be viewed a n a ly tic a lly as a set of benefits and costs. A useful policy analysis requires the comparison o f performance among a v a ila b le a lte rn a tiv e s . The follow ing chapter evaluates the per­ formance o f land use programs by comparing the consequences which re s u lt from one structure w ith those which re s u lt from an a lte rn a tiv e stru ctu re. " lAaron Wildausky, and Company, 1964). The P o litic s o f Budgetary Process ( L i t t l e , Brown, " 2 Clawson, Suburban Land Conversion in the United S tates, p. 108. "*S haffer and Schmid, A Framework fo r Analysis o f Community Economic Problems, p. 28. 60 Two hypotheses have been developed to te s t the performance conse­ quences o f land use programs. Both hypotheses te s t to determine 1 f the program had an a ffe c t on selected In d ic a to rs ; c u ltu ra l use and new farm investment. land taken out o f a g r i­ The hypotheses and b r ie f explana­ tions are enumerated below. Hypothesis 1: Less land w ill be taken out o f a g ric u ltu ra l produc­ tio n a f te r the land use program goes in to e f fe c t . The main o b je c tiv e o f land use programs 1s to slow and control the ra te a t which a g ric u ltu ra l land Is being developed. The hypothesis was tested to determine 1 f the programs had an e ffe c t on land conversion. Two techniques were used to te s t fo r a program a ffe c t; in terru p ted time series w ith a comparison or control series and questionnaires sent to county extension agents in each o f the fiv e s tate s . Hypothesis 2: The existence o f land use programs has encouraged new farm investment. I t 1s important to determine whether the program w ill have a long­ term e ffe c t on a g ric u ltu re in the s ta te . I f new farm Investment is being undertaken because o f the ad d itio n al s ecu rity the program provides, the s ta te 1 s more lik e ly to have v ia b le a g ric u ltu ra l Industry 1 n the fu tu re . Investment w ill not occur 1 f farmers a n tic ip a te a non-farm sale In the near fu tu re . The inform ation fo r th is hypothesis came from the question­ naires sent to county extension agents 1n each o f the f iv e s tate s . The hypothesis cannot be s t a t i s t ic a ll y accepted or re je c te d , but some con­ clusions can be made from the r e la tiv e frequency o f the type o f answers obtained from the extension agents. CHAPTER IV A REVIEW AND EVALUATION OF ALTERNATIVE LAND USE POLICIES INTRODUCTION This chapter is divided In to two sections, the f i r s t reviews fiv e land use p o lic ie s which employ d iffe r e n t stru ctu res— bargained or admini­ s tr a tiv e — to re ta in land 1n a g ric u ltu re . The second section o f the chapter tests the performance hypotheses to determine I f the d iffe r e n t land use p o lic ie s have been e ffe c tiv e In reducing a g ric u ltu ra l land transfers and promoting new farm Investment. A REVIEW OF THE LAND USE PROGRAMS Basic Conditions : C a lifo rn ia Discontiguous urban and suburban growth 1n C a lifo rn ia has had a s ig n ific a n t Impact upon land use 1 n rural as well as more urbanized areas. Inadequate land use planning a t the local level and an almost to ta l absence o f planning a t the state level have contributed to the conversion o f highly productive a g ric u ltu ra l land and open space In to sprawling re s id e n tia l and In d u s tria l developments. 1 C a lifo rn ia 's land problem centers around population pressure and a decreasing supply o f and an Increasing demand fo r land. The value o f G regory C. Gustafson and L. T. Wallace, “D iffe r e n tia l Assessment as Land Use Policy: The C a lifo rn ia Case," Journal o f the American In s t i­ tu te o f Planners, V ol. 41, No. 6 , (November 1975), p. 379. 61 62 a l l a g ric u ltu ra l land (on a statewide average basis) has doubled 1 n the la s t decade. 2 In urbanizing counties the Increase 1n value has nearly tr ip le d fo r the same period . 3 I t Is expected th a t land w ill continue to appreciate 1 n value 1 n response to uncontrolled population pressures o f u rban izatio n. The C a lifo rn ia Land Conservation Act o f 1965 was designed to provide a more stab le and favorable economic environment fo r a g ric u ltu ra l land use 1n C a lifo rn ia . Structure o f the Law The Act enables farmers to en ter into contracts w ith th e ir c it y or county governments to r e s t r ic t , fo r a period o f a t le a s t 10 years, the use o f th e ir land to e lig ib le a g ric u ltu ra l and compatible open space uses. At the end o f each y e a r, another year 1s autom atically added to the contract term unless notice o f nonrenewal Is served by e ith e r the landowner or the local government. A g ric u ltu ra l preserves may be established by any c ity or county which has a general plan. The local government must hold a public hear­ ing on the issue and submit the proposal fo r the preserve to the c ity or county planning department o r planning commission. The planning de­ partment or commission then submits a report to the c it y or county board s ta tin g whether the preserve 1s consistent or Inconsistent with the general plan. Contracts are enforceable by both p artie s in cou rt. 2Herbert Snyder, "A New Program fo r A g ric u ltu ra l Land Use S t a b ili­ zatio n : The C a lifo rn ia Land Conservation Act o f 1965," Land Economics. (February 1966), p. 31. 9Ib i d. 63 Preserves may only contain e lig ib le land . H A ll noncontracted land w ith in a preserve must be re s tric te d by zoning or other means w ith in two years o f the e ffe c tiv e date o f the f i r s t contract w ith in the preserve. These re s tric tio n s need only prevent Incompatible use o f the noncontract land, w ith respect to the contract land. In retu rn fo r the temporary fo r fe itu r e o f the rig h t to develop th e ir land, landowners pay property taxes based upon the use-value, rath er than market value o f t h e ir land. A g ric u ltu ra l use value 1s derived from c a p ita liz a tio n o f a g ric u ltu ra l Income. The c a p ita liz a tio n ra te is d eter­ mined by adding an In te re s t component, a property tax component, a ris k component and a component fo r am orlzatlon o f Investment In perenn ials . 5 The a c t also places re s tric tio n s on the use o f eminent domain by the s ta te , c i t i e s , and counties to locate s ta te o r local Improvements and u t i l i t i e s 1 n a g ric u ltu ra l preserves. To cancel the contract a notice o f non-renewal Is given by the land­ owner. The contract continues fo r nine more years w ith the property tax Increasing immediately to about 60 percent o f th a t based on market value. The tax Increases each y ear u n til contract term in atio n, a t which time 1t "To be e lig ib le the land must meet several q u a lific a tio n s : (1 ) 1t must c u rre n tly produce an a g ric u ltu ra l commodity fo r commercial purposes; ( 2 ) i t must be located w ith in an area reserved fo r a g ric u ltu ra l and compatible uses (defined as an a g ric u ltu ra l preserve) created by local governments a f te r the needs fo r such a preserve have been established by local property owners and local government; and (3 ) 1t must be prime a g ric u ltu ra l land. 5A more d e ta ile d discussion o f the c a p ita liz a tio n ra te can be found 1n an a r t ic le by Schwartz, Hansen, and Fo1n, "P re fe re n tia l Taxation and the Control o f Urban Sprawl: An Analysis o f the C a lifo rn ia Land Conserva­ tio n A c t," Journal o f Environmental Economics and Management 2 , (197 5), p. 120-134. 64 1s computed from f u ll market value. Inmedlate cancellatio n Is allowed only 1 n special circumstances th at are judged by the county or c ity to be 1n the "best public In te re s t." The opportunity fo r a more p ro fita b le use o f the land 1 s s p e c ific a lly excluded as ground fo r contract cancella­ tio n . A penalty of 12.5 percent o f the market value o f time o f cancellation 1 s levied against the the land a t the owner unless the penalty Is waived by the local government and approved by the Secretary o f the State Resources Agency. The local governments receive compensation from the state government o f one d o lla r per acre per year fo r land under contract to pay fo r admini­ s tra tiv e and overhead costs o f supervising the program. The amount o f acreage enrolled In and removed from WllHamston Act contracts 1s presented In Tables 2 and 3. Basic Conditions : New York In 1971, New York’ s le g is la tu re passed the A g ricu ltu ral D is tric ts Law. The law Is designed to encourage and re ta in a strong a g ric u ltu ra l Industry. New York's a g ric u ltu ra l land has been subject to haphazard and speculative development. Urbanization combined with sprawling de­ velopment put pressures on a g ric u ltu ra l land which forced many people out o f a g ric u ltu re who wished to continue farming . 6 Structure o f the Law The ob jective o f the a g ric u ltu ra l D is tr ic t Law 1s to re ta in a g r i­ cu ltu re In the face o f growing urban pressure and speculation. It 6W1ll1am Bensley, "A gricultural D is tric ts In New York," Conference Proceedings: Toward an E ffe c tiv e Land Use Policy fo r Michigan. (May 1718, 1973), Michigan State U n iv ers ity , p. 46. 65 Table 2 ACREAGE UNDER WILLIAMSON ACT CONTRACT (M illio n s o f Acres) Urban Prime Other Prime Non-Prime Total 1972-73 0.709 2.719 8.012 11.440 1973-74 0.801 3.114 8.804 12.719 1974-75 0.852 3.287 9.602 13.741 1975-76 0.912 3.442 10.075 14.429 Fiscal Year Table 3 ACREAGE REMOVED FROM WILLIAMSON ACT CONTRACT Fiscal Year Urban Prime Other Prime Non-Prime Total 1972-73 1,450 633 10.925 13,008 1973-74 842 831 15,948 17,621 1974-75 998 890 4,860 6,748 1975-76 443 1,555 10,487 12,485 3,733 3,909 42,220 49,862 TOTALS 66 seeks to achieve th is goal by 1 ) o ffe rin g farmers an opportunity to pro­ te c t themselves from some o f the ris in g costs and governmental actions usually associated w ith urbanization* and 2 ) by discouraging re s id e n tia l* In d u s tria l* and commercial developments w ith in good a g ric u ltu ra l areas . 7 The process fo r creating a d is t r ic t 1s a lengthy one. D is tric ts s ta r t w ith local I n it ia t iv e * but must be reviewed and c e r t ifie d by local and s ta te agencies before they can be le g a lly formed. The following steps summarize the process: 1. Landowners prepare a d is t r ic t proposal and submit I t to the county le g is la tiv e botify. 2. A minimum o f 500 acres Is required. The county le g is la tu re appoints an a g ric u ltu ra l advisory com­ m ittee o f four farmers, four agribusinessmen, and one county le g is la to r . 3. The county le g is la tu re refers to proposal to the a g ric u ltu ra l advisory committee and the county planning board fo r th e ir recommendations. 4. The county le g is la tiv e body may modify the d is t r ic t proposal 1n a manner consistent with the recommendations o f the a g ric u ltu ra l advisory committee and the county planning board or It s own judgement. 5. The county le g is la tu re holds a public hearing on the proposal and subsequently may adopt i t as a plan. 6 . I f the proposal 1s adopted as a plan, the county le g is la tu re submits the plan to the State Commissioner o f Environmental 7W. R. Bryant and H. E. Conklin, Leg islatio n to Permit A g ricu ltu ral D is tric ts in New York, A.E. Ext. 75-24* Cornell U n iv ers ity , Ith aca, New York (1975), p. 1. 67 Conservation. 7. The Comnlssloner receives reports from the State A g ric u ltu ra l Resources Commission and the Secretary o f S ta te . State Inspec­ tors examine each proposed d is t r ic t In the f ie ld . 8 . The Commissioner may c e r t if y the plan or a m odification o f I t as e lig ib le fo r a d is t r ic t . 9. A fte r c e r t if ic a t io n , the county le g is la tu re may hold another public hearing on the plan. I f the plan was modified by the Commissioner, the county le g is la tu re 1s required to hold an­ other public hearing. 10. The county le g is la tu re may take fin a l action to approve or d is ­ approve the proposal. I f no actio n 1s taken w ith in 60 days, the d i s t r i c t is autom atically created. Every e ig h t years each a g ric u ltu ra l d is t r ic t must be reviewed. An­ oth er public hearing Is held and the d is t r ic t 1 s reexamined a t county and s ta te le v e ls . I f any portion o f the d is t r i c t Is In strong demand fo r nonfarm uses a t th is tim e, the d is t r ic t may be modified or term inated. Boundary changes, however, can be made only a t these e ig h t-y e a r In te rv a ls . As o f September 1975, the Commissioner o f Environmental Conservation may create a g ric u ltu ra l d is t r ic t s of 2 ,0 0 0 or more acres to encompass "unique and Irre p la c e a b le" a g ric u ltu ra l lands. The law requires the A g ric u ltu ra l Resources Commission to i n i t i a t e th is action by determining areas o f predominantly unique and Irre p la c e a b le a g ric u ltu re . To form these special s ta te d is t r ic t s , the Commissioner must be consistent w ith s ta te environmental and comprehensive plans and p o lic ie s and e l i c i t the cooperation o f local le g is la tiv e bodies, planning agencies, and a g r i­ c u ltu ra l groups. 68 Whether created by a county le g is la tu re or the Conrnissloner o f Environmental Conservation* a ll d is tr ic ts are affected by the provisions o f the law. 1. The provisions Include: Local governments cannot enact local laws or ordinances w ith in an a g ric u ltu ra l d is t r ic t th a t would unreasonably r e s t r ic t or resu late farm structure or farming p rac tice s, unless such re ­ s tric tio n s are necessary to protect the public health or safety. 2. I t shall be the policy o f a ll state agencies to encourage the maintenance o f viab le farming 1 n a g ric u ltu ra l d is tr ic ts and th e ir adm inistrative regulations and procedures shall be modi­ fie d to th is end. 3. The rig h t o f eminent domain 1s lim ite d In a d is t r ic t . Any agency th a t would take more than 10 acres from an a c tiv e ly operated farm o f more 100 acres w ith in the d is t r ic t must give p rio r n o tific a tio n o f 30 days to the Commission o f the State Department o f Environmental Conservation th a t they plan to take the land. I f . In the opinion o f the Commissioner, the taking should be Investigated, a public hearing 1 s held w ith in 60 days. The agency Involved would have to prove th a t a lte rn a tiv e s had been considered. 4. No public monies w ill be put In to the a g ric u ltu ra l d is tr ic ts to develop sewer or water lin e s . No special public service d is t r ic t fo r sewer, water, or lig h ts , or fo r nonfarm drainage may Impose b e n e fit assessments or special ad valorem levies on land uses fo r a g ric u ltu ra l production w ith in an a g ric u ltu ra l d i s t r i c t on the basis o f frontage, acreage, or value, except on a lo t not exceeding one-half acre surrounding any dwelling or 69 nonfarm structure located on said land. 5. Any owner w ith in a d is t r ic t q u a lifie s fo r use value assessment I f he has 10 or more acres o f land and has produced an average o f $10,000 worth o f farm products fo r the past two years. The owner has to apply and q u a lify fo r such assessment annually. I f the assessor Is s a tis fie d th a t the applicant 1s e n title d to an a g ric u ltu ra l value assessment, he w ill approve the applica­ tio n and the land w ill be assessed accordingly. I f the land In a d is t r ic t , or any part o f I t , 1s sold fo r a use other than a g ric u ltu re , the owner pays a rollback or the difference be­ tween the tax based on the a g ric u ltu ra l land use assessment and what would have been paid without I t fo r the previous fiv e years. Rollback taxes are levied and collected on the f i r s t assessment prepared a f te r the land Is converted. The s tate w ill provide assistance to each taxing ju ris d ic tio n 1n an amount equal to one-half o f the tax loss th at resu lts from the formation o f a g ric u ltu ra l d is t r ic t s . Any s tate payment w ill be reduced by one- h a lf the amount o f any rollback levied . There Is a special provision In the law fo r farm lands not 1n a d is t r ic t . The owner must have 10 or more acres o f land 1n a g ric u ltu ra l production with sales o f more than $ 1 0 ,0 0 0 In the preceedlng years. A g ric u ltu ra l land use assessment is granted 1n return fo r an eigh t-year agreement, renewed annually, to re ta in land 1n a g ric u ltu ra l use. I f part or a l l o f the land Is sold out o f a g ric u ltu re , the owner must pay twice the tax load o f his whole farm the year following the year o f the sale. This amount is added to the taxes levied fo r th a t year and w ill become a tax H en on the land. 70 The number o f farms and acreage In d is tr ic ts Is presented In Table 4. Table 4 STATUS OF AGRICULTURAL DISTRICTS IN NEW YORK Number o f Farms Acreage Year Number o f D is tric ts 1972 15 773 117,873 1973 90 2,843 717,835 1974 64 2,303 909,509 1975 75 3,273 1,351,269 1976 26 1,467 581,154- Basic Conditions : Maryland In 1956, the population o f Maryland was Increasing ra p id ly , more land was continuously being taken out o f a g ric u ltu re , and land values were climbing a t a rate previously unknown 1n the s ta te . The combination o f higher assessed values fo r farmland and ris in g tax rates had increased tax b i l l s to a point where they were seriously reducing p ro fits from farm lng.B Population growth 1n Maryland since 1930 has run well ahead o f that o f the nation as a whole. This trend was accelerated 1n the 1950's when Maryland gained a th ird In population between 1950 and 1960, compared w ith a national increase o f about 18 percent. This Increase 1n population ePeter House, P re fe re n tia l Assessment o f Farmland 1n the Rural-Urban Fringe o f Maryland, (Washington. D.C.: Government P rinting O ffic e , 1961}, p. 2 . 71 was not taking place 1 n the central c itie s but 1n the suburbs and country­ s id e .* Structure o f the Law Maryland's p re fe re n tia l assessment law as enacted 1n 1956 and amended 1n 1960 provides th a t lands which are a c tiv e ly devoted to farm or a g r i­ c u ltu ra l use w ill be assessed on the basis o f such use, and shall not be assessed as 1 f subdivided or on any other basis. D e fin itio n and e l i g i b i l i t y o f land Is determined by the state de­ partment o f assessment and taxatio n . The following c r it e r ia 1s used to determine whether lands which appears to be 1 n a g ric u ltu ra l use are bona fid e farms, ( 1 ) zoning applicable to the land, ( 2 ) review o f present and past use o f the land, and (3 ) p ro d u ctivity o f the land. A g ricu ltu ral lands which meet the e l i g i b i l i t y requirements w ill be assessed on the basis o f th e ir farm use and not as 1 f subdivided. Land which has been assessed on the basis o f a g ric u ltu ra l use may notbe developed fo r nonagrlcultural use fo r three years a f te r year 1t received p re fe re n tia l assessment. the la s t I f the land 1s developed, the owner must pay twice the d ifferen ce between the taxes based on a g ri­ c u ltu ra l value and the taxes based on f u ll value. Building permits are not Issued u n til the assessor c e r tifie s the conditions have been met. Basic Conditions : Vermont In the early 1960's the rural s tate o f Vermont was faced with a rapid expansion 1n ski resorts and second homes. The s ta te 's population *Peter House, P re fe re n tia l Assessment o f Farmland in the Rural-Urban Fringe o f Maryland, p. 3. 72 grew more In the 1960's - - 14.1 percent — than I t had during the p rev i­ ous 50 years . 10 Large recreational development near small communities placed new demands on local services. d ram atically. Land p rices, assessments, and taxes increased Farms th a t 10 years e a r lie r sold fo r 50 d o llars an acre brought $500 or more. 11 Property assessments rose 12 percent 1n 1968, 16 percent 1n 1969, and 9 percent In 1970.12 Many o f the developments created potential environmental problems. Septic tanks were placed over bed rock, and drainage and overflow re­ sulted 1n downhill contamination o f w ells and streams. Erosion, the diversion o f streams to create a r t i f i c i a l lakes, and t r a f f i c congestion were some o f the problems created by large developments. Local governments were 111-equipped to lim it development or regulate Its q u a lity . Vermont's Environmental Control Act was passed in 1970. Structure o f the Law The Vermont Environmental Control Act {Act 250) provides fo r d ire c t regional and state control o f specified types o f development. I t sets environmental and other c r it e r ia th at the developments must meet. Act 250 a c tu a lly involves three pieces o f le g is la tio n ; the o rig in a l enabling act passed 1n 1970; the Land C ap ab ility and Development Plan passed 1n 1973 which strengthened the land use controls and mandated a tax on c a p ita l gains from land speculation; and the fin a l portion o f Act 250, “ Robert G. Healy, Land Use and the S tates. (Baltim ore: U n iversity Press, 1976), p. 26. l l Ib 1d. 12Ib1d. John Hopkins 73 the Land Use Plan and Map—a state land use plan settin g density guide­ lin e s fo r development— has twice been rejected by the le g is la tu re . The Act created a State Environmental Board o f nine members appointed by the Governor with the advice and consent o f the Senate. mental Board Is an Independent regulatory body: time on a per diem basis. The Environ­ a ll members serve p a rt- Members o f the Board serve four-year terms w ith the exception o f the chairman who serves two years. No p a rtic u la r experience or expertise 1s required o f Board members by the law. The Board is charged with the res p o n s ib ility o f administering the Act and o f developing rules to In te rp re t and carry out Its provisions. The Board 1s assisted by seven d is t r ic t environmental comnlsslons, each having three members. The members are appointed by the Governor In the d is t r ic t which they serve; they serve on a per diem basis fo r four years. duration. The chairman 1s generally a f u ll-tim e position o f one year Again no q u a lific a tio n s fo r members are Imposed by the law. Most decisions are made by the d is t r ic t commissions, they receive a l l applications fo r development or subdivision and e ith e r permit or deny the development proposal. I f the applicant Is denied a permit to develop, he may submit a revised application w ith in six months. The applicant may appeal the d is t r ic t commission's decision to the State Environmental Board, and 1 f denied a permit by th at body, to the State Supreme Court. The law states th a t no person can s e ll or o ffe r fo r sale any in te re s t 1n any subdivision located In the s ta te , or commence construction on a subdivision or development without a permit. A subdivision 1s defined as any re s id e n tia l development (permanent or seasonal homes) Including mobile home parks, portioned Into 10 or more lo ts . Development means 74 the construction o f Improvements fo r commercial or In d u s tria l purposes on land o f 10 or more acres. I t also Includes Improvements fo r comner- c 1al or In d u s tria l purposes on more than one acre o f land w ith in a muni­ c ip a lit y which has not developed permanent zoning and subdivision laws. Municipal or s ta te Improvements, Including highway construction, also require permits. Development does not Include construction fo r farming or fo re s try below 2,500 fe e t elev atio n . Applicants seeking a permit to subdivide or undertake other develop­ ment subject to Act 250's ju r is d ic tio n must submit an app licatio n th at describes the property and the type o f improvement proposed. The d is t r ic t commission then evaluates the proposal 1n terms o f 10 c r it e r ia . Before a d i s t r i c t commission may grant a perm it. I t must fin d that the develop­ ment: 1. W ill not re s u lt In undue water o r a ir p o llu tio n . 2. Has s u ffic ie n t water fo r It s reasonably foreseeable needs. 3. W ill not cause an unreasonable burden on existin g water supplies, I f u t iliz e d . 4. W ill not cause unreasonable s o il erosion or reduce the capacity o f the land to hold water. 5. W ill not cause unreasonable highway congestion or unsafe high­ way conditions. 6. W ill not cause an unreasonable burden on the a b il it y o f the town to provide educational services. 7. 8 W ill not place an unreasonable burden on other town services. . W ill not have an undue adverse e ffe c t on the scenic or national beauty o f the area, ae sth etics, h is to ric s ite s , or rare and Irreplaceable natural areas. 75 9. Is In conformance with a duly adopted municipal development plan, land use plan, or land c a p a b ility plan. 10. Is 1n conformance with duly adopted regional plans. The burden o f proof Is on the applicant fo r 1 through 4 , and 9 and 10. Opposing p arties must prove th e ir case under c r it e r ia 5 through 8 . A permit may not be denied so lely because I t does not meet c r it e r ia 5, 6 , o r 7, however, the commission may Impose ce rta in conditions on a developer under these c r it e r ia . D is t r ic t commissions have the power to subponea witnesses and re ­ quire the production o f evidence. The Protection D ivision o f the Agency o f Environmental Conservation processes applications and prepares a position paper fo r the d is t r ic t commission. The Agency paper usually contains recommendations fo r conditions which the state fe els should be Imposed upon the development. Special In te re s t groups often provide Independent expert test1mof\y 1n hearings. Adjoining property owners are p arties as a m atter o f r ig h t. The law provides fo r penalties Including fines up to $500 per day and/or two years imprisonment fo r v io la tio n o f the provisions o f the law. However, 1t Is e s s e n tia lly s e lf-p o lIc in g , relying on p riva te Individuals to report developments which do not come to the a tte n tio n o f the state through ap p licatio ns. In 1973, Vermont also Imposed a special ca p ita l gains tax on the p ro fits from land sales. o r exchange o f land. The tax is to paid on a l l gains from the sale I t includes a ll land whether Improved (developed) o r not, but does not Include buildings or other structures. Exempt from the law are gains on up to fiv e acres o f land on which the taxpayer makes his p rin c ip le residence. Under th is exemption gains on vacation homes 76 are taxable* but those permanent homes o f Vermonters are not. The amount o f the tax 1s dependent upon the percentage gain received and upon the length o f time the s e lle r holds the land. Tax rates (Table 5) are between 60 percent* fo r s e lle rs who make gains o f more than 200 percent In less than one year, to zero fo r s e lle rs who hold th e ir land more than six years. The actual payment 1s made by the buyer who w ith ­ holds 10 percent o f the sale and transfers I t to the state a fte r the sale Is made. The s e lle r then applies to the state fo r a refund or makes an additional payment depending on his tax l i a b i l i t y . Table 5 VERMONT TAX RATE ON CAPITAL GAINS FROM LAND SALES Years Land Held by Transferrer Less than 1 year 0-99% ncrease In Value (%) 100-199% 200% or More 30 45 60 1 year* but less than 2 25 37.5 50 2 years, but less than 3 20 30 40 3 years, but less than 4 15 22.5 30 4 years, but less than 5 10 15 20 5 years, but less than 6 5 7.5 10 Taxes which are not paid con stitute a personal debt on the s e lle r . The State o f Vermont can take a H en upon a ll property and rights to property to obtain payment. 77 Basic Conditions : Hawaii In the e a rly 1960's, congress had approved statehood fo r Hawaii and j e t travel made the Islands an accessible to u ris t area. These factors stimu­ lated a booming economy 1 n the state which in turn created a concern th at development pressures must be kept under c o n tro l. The c ity o f Honolulu had been gradually expanding Into the prime a g ric u ltu ra l area o f the central v a lle y o f Oahu, and the boom threatened to accelerate th is growth ra p id ly . Although Hawaii contains eight Islands, more than fo u r -fifth s o f the population liv e s on Oahu. 13 Hawaii 1s a small s ta te , with a r e la tiv e ly small amount o f It s land suitable fo r c u ltiv a tio n . About one and on e-h alf m illio n o f the s ta te 's four m illio n acres are su itab le fo r a g ric u ltu ra l purposes, but approxi­ mately three-fourths o f th is a g ric u ltu ra l land 1 s dry land used fo r grazing, th is res u lts 1n less than 400,000 acres being s u ita b le fo r crops . lk Hawaii's Land-Use Law (Act 187) was adopted in 1961 p rim a rily to preserve the central v a lle y o f Oahu and other prime a g ric u ltu ra l land and to r e s t r ic t the growth o f the c ity o f Honolulu, avoiding urban sprawl into the a g ric u ltu ra l area o f the s ta te . A very large percentage o f Hawaii's land 1s owned by a few corporations and estates. These large land owners were In flu e n tia l 1 n persuading the le g is la tu re to take strong measures to preserve a g ric u ltu ra l lands. Th eir support along w ith the absence o f an In flu e n tia l group o f small farmers who usually re s is t such I# R. Robert Unowes and Don T. Allensworth, The States and Land-Use Controls, (Praeger Publishers, 1975), p. 63. 1*'Fred Bosselman and David C a llle s , The Quiet Revolution in Land Use C ontrol, prepared fo r The Council on Environmental Q uality (1 97 1), p. 5. * 78 regulations helped achieve passage o f Act 1 8 0 .15 Hawaii had been accus­ tomed to a strong c e n tra lize d t e r r it o r ia l government before statehood, so l i t t l e resistance was offered from local governments. Structure o f the Law Act 187 gives the s ta te the power to c la s s ify and d is t r ic t lands according to four major uses: urban, r u r a l, a g r ic u ltu r a l, and conserva­ tio n . 1. Urban d is tr ic ts Include land th at 1s developed, or land that can be expected to develop over the next 10 years. 2. Rural d is tr ic ts include land th at is In r e la tiv e ly low-density urban uses o r tfyat contains smaller farms and land holdings. No rural d is tr ic ts have been mapped on the Island o f Oahu and the c la s s ific a tio n has been used sparingly on the other Islands. 3. A g ric u ltu ra l d is tr ic ts include land under intensive c u ltiv a tio n or land th a t is suitable fo r such farming and that is developed or planned In re s id e n tia l uses of one acre or more. In includes crop and grazing land and processing operations associated with la rg e-scale a g ric u ltu re on the Islands. In ad d itio n , lava flows and other land not suitable fo r a g ric u ltu ra l use are Included in th is d i s t r ic t . Under the land use law, farmland may be decidated to speci­ f i c a g ric u ltu ra l uses, with assessment based on the dedicated use. The agreement can be cancelled by the owner on fiv e years' 15Fred Bosselman and David C a lle s, The Quiet Revolution in Land Use C o ntro l. prepared fo r The Council on Environmental Q u a lity , 01971), p. 6 . 79 notice a f te r fiv e years o f dedication. 1n F a ilu re to re ta in land the agreed upon use resu lts 1 n c an ce lla tio n o f reduced assess ment, re tro a c tiv e to the date o f dedication w ith 5 percent In ­ te re s t. 4. The conservation d is t r ic t was o r ig in a lly designated fo r s ta te owned fo re s t and water reserve d is t r ic t s . However, power was granted to modify and expand the boundaries o f these d is tr ic ts and subsequently added a substantial amount o f p riv ate land. A nine-member s ta te Land Use Commission 1s responsible fo r adm inistering the Act. Seven members are appointed by the governor, one from each o f the s ix senatorial d is t r ic t s , plus one member a t la rg e . The D irec to r o f the Department o f Land and Natural Resources and the D irec to r o f the Department o f Planning and Economic Development also serve as members, a l l have voting p riv ile g e s . The seven c itiz e n members o f the Commission receive no salary and are assisted by a s t a f f consisting only o f an execu t1ve d ire c to r and one s t a f f planner. The Commissioners meet from two to four times a month a t various locations throughout the s ta te . In 1964, the Land Use Commission adopted the I n i t i a l boundaries o f the d is t r ic t s . The use o f lands in the ru ral and a g ric u ltu ra l d is tr ic ts 1s governed s o le ly by the regulations adopted by the Commission. Special permits can be issued fo r other uses In a g ric u ltu ra l or rural d is t r ic t s upon the approval o f the county planning commission and the Land Use Commission. Counties exert more Influence over urban d is t r ic t s . County zoning regulations determine which uses are permitted 1n urban d is t r ic t s . In e ffe c t both s ta te and county approval are required fo r development o f most urban uses. I f the Land Use Commission rezones land fo r urban use, 80 the counties can r e s t r ic t I t to an a g ric u ltu ra l c la s s ific a tio n . An Individual or any department or any agency o f the state or local government may p e titio n the Land Use Cotimlssion fo r changes 1n d is t r ic t boundaries or use reg ulations. A copy o f the p e titio n 1s forwarded to the appropriate county planning commission fo r It s suggestions. The Land Use Commission then holds a public hearing 1n the county 1n which the land 1s located. Six a ffirm a tiv e votes by the Conmlsslon are necessary to approve any change In the d is t r ic t boundaries. In addition to acting on Individual ap p licatio n s, the Land Use Commission 1s required to undertake a comprehensive review o f d is t r ic t boundaries every fiv e years. Land 1n the conservation d is t r ic t is sub­ je c t to regulation only by the Department of Land and Natural Resources. The Commission determines the d is t r ic t s . prise the s ta te 's land use plan. 1n the plan. These d is tr ic ts then com­ Changes In the d is tr ic ts are changes The Comnlsslon, however, has a very small s t a f f and v ir t u ­ a lly no planning c a p a b ilitie s . PERFORMANCE EVALUATION OF LAND USE PROGRAMS Hypothesis 1 The f i r s t hypothesis tests to determine i f the land use programs had an e ffe c t on the amount o f land retained fo r a g ric u ltu ra l use. Technique 1 The experimental design employed 1s an Interrupted time series with a comparison or control s eries . Controls were chosen on the basis of prelaw s im ila r ity to the te s t s ta te . A control series strengthens the confidence one can have In the te s ts , 1 n that 1 t controls fo r riv a l 81 hypothesis th a t threaten the Intern al v a lid ity o f the experimental de­ sign . 16 M u ltip le regression w ith binary variables was used to determine i f there was a program e ffe c t on the acres o f land In farms. To perform the te s ts , four equations were estimated. (1 ) Lt = B, + B 2 Tt + E where L represents acres o f land in farms, and T is a proxy variab le incorporating the influence o f property taxes, the value o f farmland and farm Income. The proxy establishes the causal lin k between the program and farm er's decision to re ta in land In a g ric u ltu re . The second equa­ tio n Is o f the form: ( 2) = B j + 8 2 Tj. + oZj. + E The variables are defined as before, and Z is a binary variab le such that: Z = 1 Z * 0 1f t is 1n the period a fte r the land use program was In e ffe c t. otherwise. Therefore, we have: Lt = (B<| + 0 ) + B2 Tt + E Lt = B-j + B2 Tt + E The In tercep t measures ponding to {existence o f program), (no program). the estimated mean value of land In farms corres­ a tax level equal to the mean o f a ll taxes In the data series. l6 Donald T. Campbell and Julian C. Stanley, Experimental and QuasiExperimental Designs fo r Research, (Rand McNally College Publishing Comparvy, Chicago, 19^3), p. 5. 82 A change In In te rc e p t 1s tested by the hypothesis: Ho: o=0 Ha: o^O The th ird estim ating equation is used to te s t fo r a slope e ffe c t. The slope measures the ra te o f change 1n land 1n farms before and a fte r the law. The regression model 1s: (3) Lt = B] + B2 Tt + yTt Zt + E where the variables are defined as before. In th is case* we have: Lt = Bj +(B2 + y) Tt + E (existence of program), Lt = B-j + (no program). B2 Tt + E Again, the hypothesis tested 1s th a t y 1s zero. The th ird p o s s ib ility 1s land use programs had both an In te rc ep t and slope e ffe c t on land 1n farms. (4 ) The regression equation would become: Lj. = B^ + &2 Tj. + oZf. + yTj- Zj. + E The re s u ltin g equations are: Lt = ^B1 + ° ) + ( B2 + t ) + E Lt = Bj + B2 Tt + E (existence o f program), (no program). An F te s t was used to te s t the hypotheses th a t o and d iffe r e n t from zero. F = y a»*e s ig n ific a n tly I t was calculated according to the follow ing form: SSR - SSR,. Q K SSEq N - Q Q- K where SSRq and SSEq are the sum o f squares o f the regression and e rro r fo r the binary equations, and SSR^ is the sum o f squares o f the regression 83 fo r the f i r s t equation estimated. N 1s the number o f observations 1n the time s e rie s , and Q and K are the number o f B c o e ffic ie n ts In the binary and non-binary equations. I f the law did have an e ffe c t on the slope or In te rc e p t, the variance 1 n equation one w ill be higher than 1 n two, three, or fo u r, fo r the amount o f v a ria tio n explained 1 n the depen­ dent v a ria b le w ill be higher when the binary variab le Is Included 1 n the equation. The outlined technique provides more accurate resu lts than a t - t e s t applied to pre- and post-law data. The a ttrib u tio n o f an e ffe c t to an Intervention is not ju s t a m atter o f comparing pre- and p o s t- 1 nterventlon means. A time series which d r if t s s te a d ily upward but shows neither change In level nor 1 n d ire c tio n o f d r i f t coincident with an Intervention w ill show d iffe r e n t pre- and po st-interven tio n means. A s ig n ific a n t t - te s t between the two means 1 s Irre le v a n t to the assessment o f an In te r ­ vention e ffe c t. The F -te s t 1s used to determine I f there was an In terce p t and/or slope e ffe c t as a re s u lt o f the land use laws. A s ig n ific a n t F score on the In tercep t te s t 1 s a stronger te s t o f a program e ffe c t than evalu­ ating a slope change. The slope o f a time series w ill be affected by many factors and i t ' s d i f f i c u l t not to confound the effec ts o f the pro­ gram with other events occurring through time. Results The results from the F -te s ts , presented In Table 6 , f a l l into three categories. In New York and Vermont, the results o f the in terce p t tests were s ig n ific a n t and p o s itiv e. The states o f Maryland and Hawaii also had s ig n ific a n t F scores fo r the in tercep t te s t, but the computed F Table 6 RESULTS OF TESTS FOR PROGRAM EFFECTS OH LAND IN FARMS AT THE95X SIGNIFICANCE LEVEL State Test Ho: a = 0 F S ta tis tic Computed F Test Ho: Y = 0 Computed F F S ta tis tic Test Ho: o 3 0 Computed F F S ta tis tic 4.45 3.57 4.45 .870 3.63 2.97 4.45 2.60 .97 .80 4.45 6.72 .006 .95 3.63 36.53 3.94 .447 4.45 6.63 4.45 15.85 3.63 35.08 4.45 22.08 4.45 28.76 3.63 27.31 Maryland - 1956 4.30 37.69 4.30 31.28 3.47 21.53 Control: 4.30 1.32 4.30 1.13 3.47 Maryland - 1960 4.30 16.66 4.30 3.77 3.47 54.03 Control: 4.30 2.24 4.30 .88 3.47 1.48 4.45 9.79 4.45 16.73 3.63 9.36 4.45 15.08 4.45 19.86 3.63 13.49 4.75 16.54 4.75 16.15 3.98 8.48 C alifornia Control: Washington Nevada Arizona New York Control: Pennsylvania New Jersey New Jersey Vermont Control: Hawai i New Hampshire .071 85 s ta tis tic s were negative. In the th ird case, C a lifo rn ia , the resu lts o f the F -te s t were In s ig n ific a n t a t the 95 percent le v e l. The equations estimated to te s t fo r an in terce p t and slope e ffe c t fo r New York 1n 1971 using ordinary lea s t squares estimation and u t iliz in g 20 observations are: (1 ) L = 18.646 - 1,533 T + 2,256 Z, (856) (246) (875) (2 ) L = 19,500 - 1,794 T + 495 Z, (788) (229) (124) where Z 1s the binary. R2 = .7871 = .8468 An F value fo r the In tercep t te s t o f +6.63 In d i­ cates th a t there was a decrease in the amount o f land going out o f a g ri­ culture In th a t year compared to previous years. Given the estimated equation, the size o f the decrease can be determined. In 1971, the tax ra te was $5.51 per acre, the estimated acres o f land In farm (L) without the program In te rc e p t binary Is 10,200,000 acres, w hile the estimated L with the program 1s 12,456,000 acres. Therefore, the estimated acres of land 1 n farms 1 s 22 percent greater with the program variables included In the equation than would have been without 1t (Table 7 ). The F value computed fo r a slope e ffe c t 1n New York was also highly s ig n ific a n t and had a negative sign. 1t From the second estimated equation, can be determined th a t the ra te a t which land was being transferred out o f a g ric u ltu re decreased 27 percent with the Introduction o f th e. program v a ria b le 1 n the equation. S im ilar results were obtained fo r Vermont. The estimated equations fo r In tercep t and slope e ffe cts using 20 observations are: (1 ) L * 3,837 - 501 T + 474 I , (93) (45) (151) K2 = .9328 66 (2 ) L = 3,888 - 530 T + 119 Z, (86) (42) (29) ft2 = .9502 Table 7 PERCENTAGE CHANGE IN THE ACRES OF LAND IN FARMS WITH THE LAND USE PROGRAM Percent Change in Intercep t Percent Change in Slope New York +2 2 % - 27% Maryland - 1956 - 4% +164% Maryland - 1960 - 4% Vermont +26% Hawaii - 5% State where Z Is the binary. - 22% The F value fo r the In te rc e p t te s t o f +9.79 In d i­ cates th a t the average tendency to withdraw land from a g ric u ltu ra l use 1n 1970 has decreased. Given the tax rate o f $4.04 per acre, the e s ti­ mated acres o f land In farms without the program 1s 1,813,000 acres w hile with the program 2,287,000 acres o f land were retained 1n a g ric u l­ tu re, This represents a 26 percent Increase In the year o f the program. From the slope equation estimated fo r Vermont the value o f the binary Is +119,000 acres. This modifies or slows the rate a t which land is being withdrawn from a g ric u ltu re by 22 percent. The conclusions which can be drawn from the F tests about the e ffe c ­ tiveness o f the land use programs In New York and Vermont are modified by the Information obtained on the control states . Both Pennsylvania and New Hampshire, the controls the New York and Vermont, resp ectively, 87 showed highly s ig n ific a n t F scores fo r both In te rc e p t and slope changes, even though no land use programs fo r a g ric u ltu ra l land were In it ia t e d 1n those states 1n 1971 and 1970. Assuming the controls do account fo r a ll other changes 1 n a g ric u ltu ra l land except those re s u ltin g from the laws in question. I t must be concluded th a t some external fa c to r has Influenced land a llo c a tio n decisions In the four s ta te s . Given the s ig n ific a n t F tests 1n a l l four s ta te s , one must look to r iv a l or a lte rn a tiv e hypotheses to explain the land use changes which have taken place. The enactment o f a land use program 1s not 1n I t s e l f an adequate explanation o f the behavioral changes In land use decisions. One possible a lte r n a tiv e hypothesis fo r the decrease 1n land tran s­ fers would be the r e s t r ic t iv e national monetary po licy which was I n i ­ tia te d 1n 1969 and carrie d through 1971. The o b je c tiv e o f the policy was to slow demand and ris in g prices by creating tig h t c re d it conditions. During the 1970-71 period In te re s t rates on farm real e s ta te loans reached a record high and the demand fo r land dropped sh arp ly . 17 In general, the supply o f farms offered fo r sale reamlned constant or Increased s lig h t ly , but there were fewer people buying farms . 16 According to the reporters fo r the Farm Real Estate Market Developments S itu a tio n , there seemed to be a general b e lie f th a t farm prices would hold steady or decrease. Fewer people were looking a t farm land in 1970 than 1 n previous years . 19 17 U,S. Department of A g ric u ltu re , Economic Research Service, Farm Real Estate Market Developments, (Washington, D.C.: Government P rin tin g O ffic e , March 1971J. l 6 Ib id . l 9 U.S. Department of A g ric u ltu re , Economic Research Service, Farm Real Estate Market Developments (Washington, D .C .: Government P rin tin g O ffic e , March 1 9 /0 ). 88 The New York law went in to e ffe c t a t a time when the population o f the s ta te was decreasing, and travel and building costs were r is in g . 20 Much o f the urban pressure on farm land was lessening a t the time the A g ricu ltu ral D is tr ic t Law was passed. 21 These factors along with high c re d it present a serious th re a t to a ttrib u tin g a decrease In land transfers to the a g ric u ltu ra l land use programs. The results in Maryland and Hawaii both d if f e r from the previous two states in th a t the in terce p t c o e ffic ie n ts are negative and the slope p o s itiv e , which is the opposite o f the effec ts stated or expected in the hypotheses. The Maryland law was tested fo r 1956 when the f i r s t p re fere n tia l assessment law was passed and in 1960 when a con stitution al amendment was approved a fte r the courts declared sections o f the law un constitutional. The estimated equations using (1 ) L • 4,448 (23) (8 ) (2) L = 4,265 - 85 T (33) (31) OLS 225 T (30) 140 Z, (25) and 25 observations a re , fo r 1956: 189 Z, R2 I2 ■ .9482 R2 = .9782 =.9589 and fo r 1960: (1 ) L » 4,377 - 215 T - 173 Z, (27) (12) (42) (2 ) L - 4,310 - 177 T - 58 Z, (60) (41) (30) R2 = .9673 where 2 again is the binary. 2 0 Conversat1ons 2 l Ib id . with Howard Conklin, Cornell U n iversity. 89 The s ig n ific a n t F score on the In tercep t tests and the negative binary v a ria b le Ind icate th at the amount o f land In farms decreased s ig n i­ fic a n tly In 1956 and 1960. With a tax ra te o f $1.73 per acre 1n 1956 and $2.32 per acre 1n I960, the decrease was 4 percent in each year. The F score on the slope te s t was s ig n ific a n t 1n 1956 and In s ig n i­ fic a n t a t the 95 percent level 1n 1960. A negative binary slope v aria b le suggests the rate a t which land 1 s being transferred out of a g ric u ltu re has Increased. This Increase 1s 1n addition to the downward trend pro­ jected before the law. The Hawaii land use program, due to a shortage o f data, was only tested fo r the 1963 revisio n In the State Zoning Law (Act 250). Using OLS and 15 observations, the estimated equations: (1 ) L " 2,711 - 130 T - 139 2, (56) (90) (34) R2 = .8007 (2) L = 2,572 - 18 T - 112 2, (70) (60) (28) R2 = .7980 The results are s im ila r to those obtained fo r Maryland. A high F score and a negative c o e ffic ie n t on the in terce p t binary again suggest the average tendency to tra n sfe r land out o f a g ric u ltu re has Increased 5 percent In 1963 over previous years. The binary slope c o e ffic ie n t was also s ig n ific a n t and negative, Ind icatin g th at the rate a t which land was being taken out o f a g ric u ltu re Increased a f te r 1963. However, the stan­ dard e rro r on the slope c o e ffic ie n t {18 T) Is too high to have any confidence In the percentage rate o f Increase. We can only note the d ire c tio n o f the change. New Jersey, the control state fo r Maryland, did not show s ig n ific a n t Intercep t or slope changes in 1956 or 1960 a t the 95 percent le v e l. 90 Rather than concluding the Maryland law encouraged transfers o f land out o f a g ric u ltu re , fu rth e r tests o f the state Indicates th a t s t a t is t ic a lly s ig n ific a n t amounts o f land were being taken out o f a g ric u ltu ra l use every year over a several year period. The p re fe re n tia l assessment law did not a lt e r the rapid conversion process which had been underway since the e a rly 1 9 5 0 's .22 No control was a v a ila b le fo r Hawaii, and the data base was lim ite d ; however, on the basis o f the res u lts obtained, 1 t appears th a t the average tendency to tra n s fe r land out o f a g ric u ltu re was not alte re d by Act 250. The State Zoning Law does not remove the Incentives which e x is t fo r developing a g ric u ltu ra l lands . 22 The fin a l state to be reviewed Is C a lifo rn ia . The res u lts o f the F tests fo r In tercep t and slope changes were both in s ig n ific a n t a t the 95 percent le v e l. From these results 1t can be concluded th a t the Williamson A ct, as Introduced In 1965, was In e ffe c tiv e In reta in in g land 1n a g r ic u ltu r e .2'* Tax Incentives were not s u ffic ie n t to Induce owners to re ta in land In a g ric u ltu ra l production and forego the p ro fits o f land “ These conclusions were also reached by Peter House, P re fe re n tial Assessment o f Farmland, p. 19. “ A summary o f the land pressures 1n Hawaii and the p ro fits to be made from development can be found In an a r t ic le by Leroy F. Aarons, "Hawaii: A Paradise Lost?," The Washington Post. December 29, 1972. “ These conclusions are supported by Gustafson and Wallance, D iffe r e n tia l Assessment as Land Use P o licy, p. 387. They concluded, "There Is no evidence to in d ic ate th a t the Act has affected the a llo c a ­ tio n o f land between uses 1n the rural-urban frin g e . I f one views growth management in the rural-urban frin g e as the p rin c ip le objective o f the C a lifo rn ia Land Conservation Act, the arguments fo r it s continued existence are not compelling. 91 development. 25 Technique 2 As a second method o f te stin g the f i r s t hypothesis, a questionnaire was sent to a l l the county extension agents In each o f the fiv e states. The questionnaire was pre-tested by extension people In the State o f Michigan. A copy o f the questionnaire Is Included 1n Appendix 1, Ques­ tio n 2A provides Information relevant to the f i r s t hypothesis. Results I t was expected th a t the Information obtained from the questionnaires would lend additional support to the resu lts o f the F te sts . However, i from Table 8 , which presents the r e la tiv e frequency o f each response, 1t can be seen th a t most county extension agents believe the land use pro­ gram In th e ir state has reduced the amount o f land being transferred out o f a g ric u ltu re . I t should be emphasized that the question asked fo r th e ir opinion and there Is no way o f knowing how much Information this opinion was based upon. Z5Dav1d Hansen and S. I . Schwartz, in a study o f urban frin g e counties, found th a t no CLCA contracts were accepted by owners expecting develop­ ment w ith in 10 years, and th a t only 4 out o f 21 who expected development w ith in 10 to 20 years were w illin g to accept a contract. Where 20-year contracts were o ffe re d , more than h a lf o f those who would not have accepted a 20-year contract did not expect development before 25 years. Hansen and Schwartz concluded th a t "these ind ividuals do not appear w illin g to ris k having a CLCA contract r e s t r ic t th e ir a b i lit y to s e ll th e ir land fo r development." The study "Landowner Behavior 1n the RuralUrban Fringe in Response to P re fe re n tia l Property Taxation" 1s found In Land Economics, L14, November 1975, p. 341. 92 Table 8 RELATIVE FREQUENCY OF EXTENSION AGENTS' RESPONSES TO PROGRAM EFFECTIVENESS IN RETAINING LAND IN FARMS State Yes No No Answer Questionnaire Response Rate -(% )-— ■ C a lifo rn ia 68.6 25.7 5.7 66% New York 47.8 41.4 10.8 82% Maryland 60.0 40.0 0 62% Vermont 50.0 50.0 0 71% Hawal1 80.0 20.0 0 41% In a l l s ta te s , w ith the exception o f Hawaii, the response rate was quite high, well over 50 percent o f the agents returned the questionnaire. Responses th at the programs had no e ffe c t on retain in g land In a g ric u ltu re were highest, around 50 percent, 1n New York, Maryland, and Vermont. In C a lifo rn ia and Hawaii only about 20 percent o f the extension agents f e l t the program had no e ffe c ts on land tra n sfe rs . Some o f the most In te re s tin g Inform ation, p a rtic u la rly from C a lifo rn ia , was In le tte rs the agents returned with the questionnaires. Eighty per­ cent o f those who wrote le tte r s f e l t the program was In e ffe c tiv e . The extension agents who wrote provided additional information about the program and farmers' responses to the benefits i t provides. Excerpts from two C a lifo rn ia le tte rs r e fle c t the opinions expressed 1n most o f the agents' le tte rs : 93 "The Williamson Act has been the best tool a v a ila b le to prevent h e lte r s k e lte r development and i t has helped provide fo r more orderly development. In a d d itio n , the Williamson Act has helped farmers be taxed on the basis o f the value o f th e ir land fo r fanning rath er than on Its po ten tial development value. However, the Williamson Act has not been an e ffe c tiv e tool fo r long-term preservation o f farmland in our area. Because of our excellen t clim ate and nearness to the Los Angeles megalopolis, development pressure 1s intense. Our best farmland, some o f the most unique in the country, is being developed 1 n s p ite o f the owner's p a rtic ip a tio n in the Williamson Act. Prime irrig a te d farmland is worth about $20,000 to $30,000 per acre i f developed (housing and shopping centers, e t c .) with some land worth up to $80,000 to $ 1 0 0 , 0 0 0 fo r these purposes. Obviously, a farmer can make more money be s e llin g the land and putting the money In a savings account than the expected earnings on keeping the land 1n farming. Thus farmers have used the Williamson Act as a holding a ctio n , w aiting u n til development is approaching th e ir doorstep and then opting to withdraw th e ir land from Williamson tax ra te s , so they can reap the benefits from land sales. The growers don't mind paying the higher taxes fo r a 1 0 -year period follow ing th e ir notice o f withdrawal due to the high land values." An economist from Riverside gave e s s e n tia lly the same view: "Amoung the counties implementing the A ct, only a minimum amount o f acreage— perhaps a few thousand acres— has been precluded from e a rly conversion to nonagrlcultural use. Most o f the acreage— nearly 15 m illio n — is under contract in order to receive use value rath er than f a i r market assessment, pressure to urbanize was not a major fa c to r. For the land under urban pressure with concomitant values, the Incentives were apparently not s u ffic ie n t to landowners to prompt signing r e s tr ic tiv e contracts under the A ct." Although I t is d i f f i c u l t to draw precise conclusions on the e ffe c ­ tiveness o f these programs in retain in g land in a g ric u ltu ra l use, the m ajo rity o f the evidence indicated that they have had l i t t l e or no e ffe c t in slowing the tra n s fe r o f farmland to developed uses. To draw conclusions as to why these laws have not been e ffe c tiv e in reducing the tra n sfe r o f land out o f a g ric u ltu re , i t is necessary to reconsider the assumptions upon which the laws are based and the 94 pressures on a g ric u ltu ra l land In these s ta te s . The Maryland and C a lifo rn ia programs, according to the c la s s ific a ­ tions developed 1n Chapter I I I , are bargained transactions. Each acknow­ ledges the rig h t o f the land owner to jo in o r abstain from a transaction. Both programs provide p re fe re n tia l assessment ben efits to farmers 1n retu rn fo r re ta in in g land In a g ric u ltu re . The res u lts obtained from testin g hypothesis 1 would suggest th a t the ben efits a v a ila b le through the programs are not strong enough to a lt e r farmers' decisions to tra n s fe r land out o f a g ric u ltu re , when pre­ sented w ith an opportunity fo r a nonfarm s a le . Other facto rs have a more s ig n ific a n t Impact on farmers' decision making than the ben efits provided by these two programs. A landowner's response or decision can be analyzed In the context o f Figure 4 presented In Chapter I I I . Since the programs have not slowed the tra n s fe r o f land out o f a g ric u ltu re , i t can be assumed th at a land­ owner w ill reach a higher in d iffe re n c e curve 1 ^, by s e llin g land to a developer rath er than re ta in in g 1 t 1 n a g ric u ltu ra l use and obtaining the program b e n e fits . Landowners who even a n tic ip a te a sale are u n lik e ly to give up rig h ts to s e ll land fo r the program b e n e fits . A ll o f the programs considered have attempted to a lt e r the land­ owner's conduct regarding decisions to s e ll land. From the res u lts ob­ tained 1n the New York and Vermont an a ly s is , factors which Influenced buyers' decisions to purchase land did have an Impact on the amount o f land tran sferred out o f a g ric u ltu re . When the cost o f obtaining a g r i­ c u ltu ra l land fo r the buyer was Increased by higher In te re s t ra te s , and higher tran sp ortation and bu ildin g costs, the demand f o r , and consequent­ ly the amount o f, land going out o f a g ric u ltu re decreased. 95 The fiv e land use laws analyzed approach retain in g land as a supply problem. A ctually the amount o f land offered fo r sale is f a ir ly consis­ te n t from year to y e a r . 26 A farm is normally offered fo r sale when the owner is in poor health or reaching retirem ent age . 27 In general, th is is the only case in which a farmer w ill a c tiv e ly seek a sale. Other farmland sales are a re s u lt o f demand pressures on land . 28 Demand pressure on land is a re s u lt o f several facto rs . these is th a t farmland is a good investment. One o f Its value has been ris in g s ig n ific a n tly fa s te r than the stock market or most other forms o f real e s ta te . 29 A productive farm can provide both an annual Income and ca p ita l appreciation. I f 1t loses money, i t can become a tax s h e lte r. Reducing the demand pressure on land would involve id e n tify in g and changing factors which encourage Investor to buy land. Investors and speculators are obviously only interested 1 n purchasing farmland when 1t provides a b e tte r ra te o f return than they could obtain from an a lte rn a ­ tiv e Investment. The ra te o f return on farmland speculation could be decreased by cap ital gains tax on land tran sfers . The attractiveness o f farmland fo r development would also be reduced I f services such as water and sewer lin e s , and roads were not provided by the c ity or county, thereby increasing the costs to the developer. 26 U.S. Department o f A g ric u ltu re , Economic Research Service, Farm Real Estate Market Developments, March 1970. 2 7 Ib id . 26This 1s not to say th a t farmers do not a n tic ip a te and plan on a sale fo r development prices, however, they do not a c tiv e ly seek such a sale but w ait u n til an o ffe r is made. 29Morton C. Paulson, "P ro fits From Plowshares," National Observer, September 12, 1976. . 96 In sunmary, the resu lts o f th is section Ind icate th at the land use programs reviewed have had l i t t l e or no success In reta in in g land In a g ric u ltu re . In a l l cases, the Incentives which Influence farm er's decisions to s e ll or speculators' decisions to buy have not been s u f f i­ c ie n tly a lte re d . To re ta in land In a g ric u ltu re 1n developing areas e ith e r ( 1 ) la rg e r benefits w ill have to be paid to farmers so th at the decision to continue farming land w ill be as p ro fita b le as the decision to s e l l , or ( 2 ) the Incentives which determine the buyer's decision to purchase land must be a lte re d . Hypothesis 2 The ob jective o f the second hypothesis was to obtain Information which would In d icate I f new farm Investment has been encouraged as a re s u lt o f the land use program. I f the existence o f the program has encouraged new Investment, the state Is more lik e ly to re ta in a viable a g ric u ltu ra l industry 1n the fu tu re . The Information on new farm In ­ vestment Is taken from the questionnaire sent to the county extension agents 1 n the fiv e s tates. Results The results from the questionnaires cannot confirm or re je c t the hypothesis th a t land use programs encourage new farm investment. they "probe" the hypothesis. Rather, Varying degrees o f "confirmation" may then be conferred upon the theory. The results o f the questionnaires are presented in Table 9. I t can be seen th at Vermont 1s the only s tate 1n which extension agents f e l t the existence o f the program had not Increased farm Investment. In a ll the other states well over 50 percent o f those who responded f e l t the 97 program had encouraged Investment. Again i t must be recognized th at these are opinions, there are no figures a v a ila b le on new farm Investment a t the county or state le v e l. This survey assumes the county agents are knowledgeable o f the new Investment taking place 1 n th e ir county and also know what percentage o f th is Investment to a ttr ib u te to the land use program. Table 9 RELATIVE FREQUENCY OF EXTENSION AGENTS' RESPONSES TO PROGRAM EFFECTS ON NEW FARM INVESTMENT State Yes No No Answer ______ ___________ ------- -------------------- C a lifo rn ia 68.6 20.0 11.4 New York 68.9 26.7 4.4 Maryland 80.0 13.3 6 .7 Vermont 20.0 80.0 0 Hawaii 80.0 20.0 0 I t 1s assumed th a t investment w ill not take place when farmers anti clpate a sale fo r nonagrlcultural purposes in the near fu tu re . ment in fixed assets Implies a long-term commitment to farming. Invest­ I f new investment is taking place, the land use program may have some long-term e ffe c ts on the v ia b ilit y o f a g ric u ltu re in the s ta te . New investment may re s u lt from a program 1f i t reduces the amount o f speculative pressure on the land. Reducing the demand pressure on 98 land would lower farmers' expectations o f a nonfarm sale and encourage Investment to re ta in a p ro fita b le e n terp ris e. Decreased taxes may also provide Incentives to In vest, according to one C a lifo rn ia extension agent: "Since the land is being assessed on It s production value rath er than some higher and b e tte r use, the owners can ju s t if y making an Investment In some a g ric u ltu ra l p u rs u it." CHAPTER V TRENDS IN AGRICULTURAL LAND USE IN SOUTHERN MICHIGAN INTRODUCTION The changing structure of a g ric u ltu ra l land use in Michigan is documented in th is chapter. Current land use issues are a re s u lt o f s tru ctu ral change in the a g ric u ltu ra l resources o f the s ta te and land owners responses to these changes. Indications o f fu tu re as well as current land use problems can be Id e n tifie d from Information on the stru ctu re. AGRICULTURAL LAND USE* In 1969 the a g ric u ltu ra l census reported there were about 12 m illio n acres o f land in farms In Michigan. Out of that to ta l 9.5 m illio n acres are located in the southern part o f the s ta te . Ten counties located In the Thumb, Saginaw V a lle y , and 1n the central and southern parts o f the s ta te contain 29 percent o f the s ta te 's to ta l farmland. Each county has from 279 to 461 thousand acres of land in farms. The land in farms 1n the s ta te has decreased stea d ily from 14.8 to 12.4 m illio n acres or 16 percent during the time 1961-63 to 1971-73.1 There was a s im ila r decrease o f 16 percent in the preceding decade. ♦Refer to Appendix 2. l K. T. Wright, Michigan's A g ric u ltu re , Extension B u lle tin 785, (October 1974), p. 99 100 From 1964 to 1969 there was a decrease of 1.7 m illio n acres or 12 per­ cent, th is was fa s te r than in the three previous 5-year periods. The average rate o f decrease in the southern p art o f the s tate was 10 percent, although there was considerable va ria tio n among counties. Six o f the nine counties showing the greatest acreage decrease were in the D e tro it frin g e area, S t. C la ir 62,000 acres, Sanilac 58,000 acres, Lapeer 47,000 acres, Macomb 39,000 acres, Livingston 39,000 acres, and Washtenaw 36,000 acres. Two counties In central Michigan also showed substantial decreases, Eaton 38,000 acres, and Isa b e lla 44,000 acres. Of the 12 m illio n acres o f land In farms reported in the census only 8 . 6 m illio n was cropland. Approximately one h a lf o f the cropland, 4 .8 m illio n acres, Is located 1n the southern part o f the s ta te . Ten counties located 1n the Thumb, Saginaw Valley and Southeastern region contain 37 percent o f the to ta l cropland. From 1964 to 1969 cropland harvested declined 18 percent, or nearly three times as fa s t as 1n the previous three 5-year periods. The greatest acreage decrease, one-fourth o f to ta l decrease, was 1 n the southeast d is t r ic t . Southern Michigan has l i t t l e class I land, the Conservation Needs Inventory o f 1968 reported a to ta l o f 104,000 acres . 2 The largest 2Class I s o ils have few lim ita tio n s th a t r e s t r ic t th e ir use. Soils th is class are suited to a wide range o f plants and may be used safely fo r c u ltiv a te d crops, pasture, woodland or w ild lif e . These soils are productive and suited to Intensive cropping. The local clim ate must be favorable fo r growing many o f the common f ie ld crops. The soils are nearly level and erosion hazard 1s low. They are deep, generally well drained, and e a s ily worked. 1n Class I I s o ils have some lim ita tio n s th a t reduce the choice o f plants or require moderate conservation practices. Soils In Class I I require careful s o il management, Including conservation practices to 101 sections o f class I land are found In three counties, Sanilac 18,000 acres, Livingston 16,00 acres, and Lenawee 13,000 acres. Most o f the land In farms 1s o f class I I or I I I . In every region but the southeast the Conservation Inventory acres o f class I- IV land are less than the land 1n farms reported by the census. The lands harvested, however, are less than the land found 1n classes I IV fo r every region. The southeastern region contained 2,116,000 acres o f class I- IV lands, 1,975,000 acres are 1n farms and 141,000 acres can be cu ltiv a te d but are not 1n a g ric u ltu ra l use. In every county but th re e , Genesee, Lapeer, and Lenawee, the Inventoried acres exceed the acres 1n farms. FARM OATA The average rate o f tenancy fo r southern Michigan Is 5.9 percent, th is 1s s lig h tly higher than the state average o f 5.4 percent. The ra te o f tenancy varies considerably amoung d is tr ic ts and counties. The southeastern region has the highest average o f 8 .3 percent, w hile the prevent d e te rio ra tio n or to Improve a ir and water relatio n s when the s o ils are c u ltiv a te d . The lim ita tio n s are few and the practices are easy to apply. Class I I I have severe lim ita tio n s th a t reduce the choice o f plants or require special conservation practices, or both. Lim itations o f s o ils 1n Class I I I r e s t r ic t the amount o f clean c u ltiv a tio n ; timing of p la n tin g , t illa g e , and harvesting; choice o f crops or some combination o f these lim ita tio n s . Conservation practices fo r Class I I I s o ils are more d i f f i c u l t to apply and to maintain than those specified fo r Class I I s o ils . Class IV s o ils have very severe lim ita tio n s th at re s tric ts the choice o f plan ts, require very careful management or both. When these s o ils are c u ltiv a te d , more careful management 1 s required and conserva­ tio n practices are more d i f f ic u l t to m aintain. Soils In Class IV may be well suited to only two or three o f the common crops or the harvest pro­ duced may be low 1 n re la tio n to Inputs over a long period o f time. 102 southern region 1s r e la tiv e ly low a t 4 .2 percent. County v a ria tio n 1s even g re a te r, In Monroe County 13.2 percent of the farmers are tenants and 1n Mecosta the rate 1s 2.5 percent. The ra te o f tenancy Indicates what percent o f the to ta l amount of farmers rent a ll the land they farm. According to the census d e fin itio n a part time farmer also rents some o f the land he farms. The percent o f farmers who rent land would then be higher than is Indicated by these fig u re s . The value o f farm land and bu ildings, and machinery 1s calculated on a per acre basis fo r farms with sales o f $2,500 and over (economic classes I- V ) . Wayne County has the highest value 1n land and building per acre, fo r th is fig u re also re fle c ts the market value o f land. Mecosta County has the lowest value per acre In land and buildings. Almost 25 percent o f a ll the land 1n farms 1n the state 1s not 1n class I-V farms; 1.8 m illio n acres are 1n part-tim e farms, . 6 m illio n acres are held by re tire d farmers whose average age 1s 72, and 14 m illio n acres are 1n class VI farms. In southern Michigan 2,091,000 acres, a l ­ most one-fourth o f the land In farms, 1 s also in one o f these three categories. The southern region has the highest per county average of land held by other than class I-V farms, or 67,000 acres, the south­ eastern region had the lowest average a t 45,000 acres per county. POPULATION TRENDS There are 16 counties In Southern Michigan with more than 200 per­ sons per square m ile , these counties are c la s s ifie d by the census as urban. Twenty-one counties can be described as densely s e ttle d a g ri­ c u ltu ra l areas w ith 50-200 persons per square m ile . There are two 103 moderately s e ttle d a g ric u ltu ra l acres, Huron and Sanilac, the population density 1s between 25 to 50 people per square m ile. T h irty percent o f a ll fanners are in the 16 urban counties and 45 percent 1n the 21 densely populated a g ric u ltu ra l counties. The average size o f a farm Is Inversely rela ted to population den sity, with the average s ize 1 n the sparsely populated counties almost double th a t In urban counties . 3 STATE LAWS AFFECTING AGRICULTURAL USE OF LAND IN MICHIGAN The Farmland and Open Space Preservation Act was signed Into law by the governor on May 23, 1974. The act enables a land owner to enter In to a development rig h ts agreement (fo r farmland) or a development rights easement (fo r open space) with the s ta te . These agreements or easements are designed to ensure th a t the land remains 1 n a p a rtic u la r use or uses fo r a minimum time o f ten years. In return fo r maintaining the land 1 n a p a rtic u la r use, the land owner Is e n title d to ce rtain Income or tax ben efits. There are two general classes o f land e l i g i b i l i t y established by the Act: farmland and open space. the size o f the farm and 1 n Farmland e l i g i b i l i t y 1s governed by two cases by the Income from the farm; a farm o f 40 or more acres, a farm o f from 5 to 40 acres with a minimum per acre Income o f $ 2 0 0 per year or a s p e c ia lity farm w ith gross annual Income o f $ 2 , 0 0 0 or more. Open space land has been divided Into two categories under the Act. 3 K. T. Wright, Michigan's A g ric u ltu re , p. 48-49, 104 The f i r s t category deals with h is to r ic , riv e rfro n t and shoreland areas. These lands must be recognized o r designated by law to be e lig ib le . The second category o f open space land Is more general In d e fin itio n and Includes lands which conserve natural o r scenic resources, enhance recreation op portunities, preserve h is to ric s ite s and Id le potential farmland o f not less than 40 acres. The designation o f open space Is p rim a rily the re s p o n s ib ility o f the local governing body. The exact benefits o f the program, under a farmland development rights agreement, would depend upon the property tax assessed against the property and the Income o f the land owner. The land owner 1s en­ t it l e d to claim as a c re d it on his Michigan Income Tax the amount by i which the property taxes on the farmland covered by the agreement exceed 7 percent o f his Income. For lands under an open space easement the b e n e fit 1s 1n the form o f lower taxes a c tu a lly paid by the owner. lands th at q u a lity are also exempt from special assessment. A ll There are penalties associated with the e a rly term ination o f an agreement or ease­ ment. The main purpose o f the Soil Erosion and Sedimentation Control Act 347 o f 1972 is to provide fo r the "control o f soil erosion and to pro­ te c t the waters o f the state from sedimentation." The State Department o f A g riculture 1s responsible fo r Id e n tify in g lands governed by the act and fo r establishing guidelines and specification s fo r these lands which w ill help prevent sedimentation o f state waters. Normal a g ric u ltu ra l practices are exempt from th is law u n til 1979. The adm inistration and enforcement o f the law Is a t the county le v e l. A designated county agency 1s responsible fo r approving s o il conservation plans and issuing permits fo r earth changes. Any earth 105 change, other than those exempt by the act must be conducted 1n such a manner which w ill " e ffe c tiv e ly reduce accelerated soil erosion and resu ltin g sedimentation." To ensure these standards are met a "soil erosion and sedimentation control plan" must be submitted to the Water Resource Commission o f the Department o f Natural Resources or with Its local enforcing agency. The A1r P o llu tio n Act 384 o f 1965 creates an a i r p o llu tio n control commission w ith in the Department o f Natural Resources. The Commission 1s responsible fo r establishing standards fo r ambient a ir q u a lity and fo r emissions. The act s p e c ific a lly states th a t "ordinary" animal odors associated w ith a g ric u ltu ra l pursuits and located In zoned a g ri­ c u ltu ra l areas shall not be considered a i r p o llu tio n 1 f the "number o f animals and method o f operation are In keeping with normal animal husbandry practices fo r the area." The Commission w ill Investigate husbandry operations I f 1t receives a w ritte n complaint or believes there is a v io la tio n o f the a c t. A fte r an in vestig atio n the Commission has the re s p o n s ib ility o f determining I f the method and size o f operation em itting the odors are "normal" fo r the area. I f a v io la tio n 1s found to e x is t the Commission attempts to enter In to a voluntary agreement or performance contract with those in ­ volved. When the terms o f the contract or agreement are not met volun­ t a r i l y the Commission can enforce the contract or agreement by a court order. There have been no legal charges brought against a farmer fo r non-compliance w ith the a c t. Voluntary agreements have been e ffe c tiv e 1n correcting subnormal practices. Public Act No. 250 was also passed in 1965; 1t provides fo r the exemption o f a ir p o llu tio n control f a c i l i t i e s from c e rta in taxes. A 106 c e r t ific a t e o f tax exemption Is Issued 1 f a f a c i l i t y Is designed and operated p rim a rily fo r the co n tro l, capture and removal o f pollutants from the a i r , and 1s s u ita b le , reasonably adequate, and meets the In te n t and purposes o f Act. No. 384. The S tate o f Michigan has delegated zoning power to counties and townships as well as c itie s and v illa g e s . Counties and townships can develop and adopt an a g ric u ltu ra l zoning ordinance. A g ricu ltu ral zoning refers to land use regulations which r e s t r ic t land to a g ric u ltu ra l and relate d uses, e ith e r through exclusive use lim ita tio n s or large acreage requirements fo r fam ily homes (10 acres or more). Only lands which are located In the unincorporated areas o f a county or township can be affe c ted by a g ric u ltu ra l zoning. The use o f a g ric u ltu ra l land can also be regulated by "nuisance" law s.* The existence o f a "nuisance" 1s based on the premise th at a ll persons have the basic rig h t th at they are not to be In te rfe rre d with 1n the reasonable enjoyment o f th e ir property. Any unreasonable In te r ­ ference with such enjoyment 1s le g a lly a "nuisance." P la in tif fs may seek several courses o f action when an a g ric u ltu ra l operation 1s considered to be a nuisance. The complaining party may seek (1 ) an Inju nction ; (2 ) damages (actual and/or p u n itiv e ), or (3) both an Injunction and damages. The specifics o f each case determine what type o f legal action a p l a i n t i f f brings as well as the outcone of a s u it. "Cooperative Extension Service, Michigan State U n iversity, Environmental Q uality Legal Consideration. Extension B u lle tin E-732, Farm Science Service, (December 1971), p. 6. 107 When f il i n g fo r "actual damages,'1 the p l a i n t i f f seeks to be re ln bursed fo r expenses and property losses Incurred as a re s u lt o f the ac­ tions o f the defendant. to the p l a i n t i f f . This Includes health problems and discomforts The main legal Issue In actual damages 1s whether the p o llu te r caused the damages alleged ly suffered by the p l a i n t i f f . I t Is not necessary to determine whether in te n t or negligence was Involved In order to establish l i a b i l i t y . Proof o f causation 1s s u ffic ie n t. FEDERAL LAWS AFFECTING AGRICULTURAL USE OF LAND On October 18, 1972, the Congress o f the United States passed the Federal Water P o llu tio n Control Act, Public Law 92-500. The primary aim o f the act 1s to "restore and maintain the chemical, physical, and bio­ log ical In te g rity o f the nation's waters." The Environmental Protection Agency established e fflu e n t lim ita tio n s to be achieved by "point" sources o f waste discharge In to navigable waters and trib u ta r ie s . Feedlots are Included in the point source category making them subject to the National P o llution Discharge Elim ination System (NPDES). The NPDES Is the mechanism used to achieve control o f discharge from a ll point sources. Point sources must obtain a permit. The permit re c ip ie n t Is Issued a compliance schedule which requires a step-by-step reduction In pollutants over a sp ec ific time In te rv a l. A two level program o f e fflu e n t lim ita tio n fo r ex istin g point sources was adopted. The f i r s t level is Id e n tifie d as a technology re ­ ferred to as the "best practicable technology currently av a ilab le " to be in s titu te d by July 1, 1977. The second level 1s some technology Id e n tifie d as the "best av a ilab le technology economically achievable" to be enforced by July 1, 1983 fo r industry. 108 Feedlots subject to th is law are those with one-time capacity 1n excess o f 1,000 head. The Federal In s e c tic id e , Fungicide, and Rodentlclde Act (FIFRA) of 1947 was s u b s ta n tia lly amended on October 21, 1972 by the Federal Environmental Pesticide Control Act (FIPCA). The FIFRA as amended, strengthens and expands the au th o rity provided by the old law. I t extends federal re g is tra tio n and regulation to a ll pesticides Including those d is trib u te d or used w ith a single s ta te . I t requires the proper a p p licatio n o f pesticides to ensure greater protection of man and the environment. The use o f any registered p e s ti­ cide 1n a manner Inconsistent with la b e llin g 1s prohibited. I t authorizes c la s s ific a tio n o f pesticides Into "general use" or "re s tric te d use" categories by October 1, 1976. Federal standards are specified fo r c e r tific a tio n o f Individuals who are permitted to use "re s tric te d use" pesticides. These standards w ill serve as guidelines fo r the development o f state programs fo r the tra in in g and c e r tific a tio n o f pesticide ap p lic atio n . must be completed by 1978. State standards People using the "re s tric te d use" pesticides must "show competence" before being c e r t ifie d . The Pesticide Control Act also requires th at pesticide manufactur­ ing plants must be registered with the Environmental Protection Agency 1f they produce pesticides fo r in te rs ta te commerce, or export, or I f they Import pesticides s o le ly fo r In tra -s ta te commerce. POLICY IMPLICATIONS OF MICHIGAN1S AGRICULTURAL LAND USE STRUCTURE In summary, the study area, the southern part o f Michigan, includes 80 percent o f a l l the land in farms In the s ta te . Seventy-five percent 109 o f a l l the fanners In the study area are located 1n urban or urban-fringe counties. The highest rates o f decrease in land in farms are in these urbanizing counties. The urban and densely s e ttle d a g ric u ltu ra l counties have the highest rate o f tenancy. This represents land which may go out o f a g ricu ltu re in the near fu tu re . Speculators often buy farmland and ren t I t to neigh­ boring farmers and re tire d farmers may rent out th e ir land while w aiting fo r a non-farm sale. For a land use program to be e ffe c tiv e in retain in g land 1n a g ri­ culture in Michigan, 1t must be directed toward maintaining a viable a g ric u ltu ra l industry in the urban-fringe areas. CHAPTER VI CONCLUSIONS AND POLICY RECOMMENDATIONS FOR MICHIGAN INTRODUCTION The ob jective o f reviewing land use laws In other states was to evaluate th e ir effectiveness in retain in g land 1n a g ric u ltu re and pro­ moting a v ia b le a g ric u ltu ra l Industry in southern Michigan. The pro­ grams chosen fo r review represent a spectrum o f policy a lte rn a tiv e s open to s ta te and local governments to control development o f a g ric u l­ tural land. Examples o f both bargained and adm inistrative transfers o f property rig hts were Included In the fiv e programs. The results o f the evaluation are then used to make policy suggestions fo r maintaining a viab le a g ric u ltu ra l Industry 1n southern Michigan. M u ltip le regression analysis with binary variables was used to te s t fo r a program e ffe c t on the amount o f land In farms in fiv e states. Program effe c ts were indicated by s ig n ific a n t changes 1n in te rc e p t or slope binaries 1n the year the program was Introduced. A s ig n ific a n t change in the Intercep t was a stronger te s t o f a program e ffe c t than a slope change. Questionnaires were also sent to county extension agents In each s ta te to obtain th e ir opinion o f the effectiveness o f the land use program In retainin g land In a g ric u ltu re and encouraging new farm development. 110 Ill PARTICIPANTS RESPONSE TO LAND USE PROGRAMS As shown 1n Figure 3 there are two major particip an ts Involved In the tra n s fe r of land out o f a g ric u ltu ra l use: or developer. the fanner and speculator Each makes the decision to s e ll or buy and on the basis o f th e ir opportunity s e t. The farmers' opportunity set 1s Influenced by many factors Including: property taxes, expectations o f urban de­ velopment, market value o f a g ric u ltu ra l land, real farm Income, and o f f farm employment opportunities. prised o f such factors as: A speculators opportunity set Is com­ anticipated p r o f it In land turn over, ease o f land purchase and development, expectation or urban growth, a v a il­ a b i l i t y o f c re d it, and the market fo r new homes. The programs reviewed attempted to control the tra n s fe r o f land out o f a g ric u ltu re by a lte rin g the farmers opportunity set and In f lu ­ encing his decision to s e ll. In Maryland, C a lifo rn ia , and Hawaii, the regression tests Indicated th a t the programs do not a lt e r the farmers behavior s u b s ta n tia lly from what 1 t was before the program. In the states o f Vermont and New York, results o f tests Indicated th a t the amount o f land transferred out o f a g ric u ltu re was s ig n ific a n tly lower the year the program was Introduced. However, there are several riv a l hypotheses which also can explain the decrease 1n land tra n s fe r. The land use programs In both states were introduced when In te re s t rates were high, lim ite d funds were a v a ilab le fo r new home loans, building and transportation costs were Increasing, and the population In New York was decreasing. The existence o f such strong a lte rn a tiv e explanations, as to why land was being retained In a g ric u ltu re , minimizes the e ffe cts which can be a ttrib u te d to the programs. 112 A ll o f the programs w ith the exception o f Vermont, provide d iffe re n ­ t i a l or use value assessment o f a g ric u ltu ra l land. These laws are based on the p rin c ip le th a t farmland should be valued fo r property tax pur­ poses according to It s value 1n current use, rath er than It s market value. Also Im p lic it In the le g is la tio n 1s the assumption th at Increased property tax reductions w ill Increase landowners p a rtic ip a tio n . Thus, given the opportunity, farmers facing sharply Increasing property taxes would re a d ily p a rtic ip a te 1n such programs. The results o f this study do not support th a t assumption. S im ila r conclusions were also reached 1n a recent study o f the C a lifo rn ia program by Hoy F. Carmen.1 His analysis states: "Counties w ith the larg est per acre tax reductions tended, other things being equal, to have lower rates and levels o f acceptance o f use value assessment. I t 1s lik e ly th at land­ owners 1n these counties view nonagrlcultural development as o ffe rin g s ig n ific a n t opportunities fo r re a liz in g large capital gains. Reduced assessed values and taxes are necessary to Induce landowners to tem porarily f o r f e i t nonagrlcultural development opportunities. I t appears, however, th at the overriding considerations 1n the enrollment decision 1s the landowner's development expectations. Mary C a lifo rn ia landowners, given a choice, p refer to speculate on conversion o f th e ir land to nonagrlcultural use." From the results o f th is study and with supporting data I t can be concluded th a t there 1s no evidence to suggest the programs reviewed had ar\y overall e ffe c t In Influencing farmers' decisions to s e ll land and th e refo re , had no e ffe c t In slowing the tran sfe r o f land out o f a g ric u ltu ra l use. In lim ite d circumstances the programs may have con­ trib u ted to a preferred pattern o f development but they did not meet JHoy F. Carmen, "C a lifo rn ia Landowner's Adoption o f a Use-Value Assessment Program," Land Economics, Vol. 53, No. 3, (August 1977), p. 286. 113 the objectives o f having a no tlcable Impact on farm ers' decisions to s e ll land. The programs are p rim a rily an income tra n s fe r to farmers. The addi­ tio n a l real Income and other ben efits provided by the land use programs may help some farmers who want to keep th e ir land 1n a g ric u ltu ra l pro­ duction do so. However, the benefits o f the programs are not substantial enough to compensate a farmer fo r not s e llin g . Property tax breaks to farmers may be ju s t if ie d on the basis o f comparing the amount o f taxes they pay to the services they receive. However, I t Is not j u s t if ie d as a method o f Inducing farmers to re ta in land 1n a g ric u ltu ra l production. The Incentives 1n the programs, regardless o f the stru ctu re o f the rig h ts tra n s fe r o f the law, are not b e n e fic ia l enough to farmers to change th e ir expectations or plans fo r a non-farm s a le . The land use Issue 1n Michigan, as 1n C a lifo rn ia , New York, Maryland and Hawaii, Is the development o f farmland 1n the ruran-urban frin g e areas. Most o f the land use programs to date have approached the Issue o f re ta in in g a g ric u ltu re In these areas as a supply problem. The programs which have resulted from th is perspective attempt to change facto rs which Influence farmers decisions to s e ll. Few o f the programs attempted to Influence the behavior o f In d iv i­ duals buying farmland. The demand aspect o f land tran sfers has been Ignored as a policy instrument. As was noted 1n Chapter IV , the supply o f a g ric u ltu ra l land offered fo r sale Is f a ir l y constant from year to y e a r. The resu lts o f th is study in d ic a te th at demand pressure on a g r i­ c u ltu ra l land 1s a s ig n ific a n t fa c to r In determining which and how much 114 a g ric u ltu ra l land 1s developed.2 E ffe c tiv e land use programs must be structured to a lt e r the buyers or speculators decisions. A speculator buys a g ric u ltu ra l land because I t Is a superior investment. A g ricultural land yie ld s a high return because o f the urban demand fo r th a t land. URBAN DEMAND FOR AGRICULTURAL LAND IN SOUTHERN MICHIGAN N atio n ally since World War I there has been an In flu x o f people to c itie s from rural areas. As c itie s developed Into large m etropolitan areas they have expanded outward or dlsaggreated. This process o f urban growth and expansion generates an urban demand fo r a g ric u ltu ra l land. In Michigan the rural non-farm population has been s te a d ily r is in g .3 Around the urban areas o f the s ta te the c itie s and country physically blend as the urban population moves from the center o f the c itie s to the periphery. Future growth 1n Michigan w ill take place as 1t has 1n the past 1n the c itie s and suburbs. The urban demand fo r a g ric u ltu ra l land in the s ta te Is Influenced by this process o f population growth 1n cen tralized locations and dispersion. The urban demand fo r a g ric u ltu ra l land 1s a derived demand resu ltin g from population growth and re d is trib u tio n . Major components Include the demand fo r housing and commercial building s ite s , recreation f a c i l i t i e s , and tran sp ortation . Only a very small percentage o f urban land 1s actu a lly 2Th1s was also the conclusion o f the study done by Howard Conklin and Richard Dymsza on Syracuse and Rochester counties In New York. Conklin and Dymsza, "Maintaining Viable A g riculture in Areas o f Urban Expansion," p. 8. D.D.: sU.S. Department o f Commerce, Census o f Population, (Washington, Government Printing O ffice (1974). 115 used fo r transportation. However, it s a v a ila b ilit y leads to the develop ment o f an area fo r recreation and housing. Transportation f a c ilit ie s Influences urban growth and responds to 1 t. The single larg est user o f urban land 1s housing. th ird o f the to ta l area 1s devoted to re s id e n tia l use.1* In a c it y , oneMajor factors which Influence the demand fo r housing are fam ily s iz e , Income, and the a v a ila b ilit y o f c r e d it .5 As Income and le is u re time have Increased so has the demand fo r recreational f a c i l i t i e s and It s Importance on the rural-urban landscape. Recreational f a c i l i t i e s are varied 1n the amount o f land they req u ire. These f a c i l i t i e s , may be in the form o f g o lf courses, swimming pools, and summer houses, or more resource based f a c i lit ie s such as woods and lakes. In summary the urban demand fo r rural land Is determined p rim arily by three factors: the pattern and rate o f urban growth th a t accompanies population Increases, Increasing Income and c re d it a v a ila b ility fo r new homes and recreatio n, and transportation f a c ilit ie s from the c ity to rural areas. IDENTIFYING POLICY INSTRUMENTS From this b r ie f review o f factors which contribute to the urban demand fo r a g ric u ltu ra l land, policy Instruments can be id e n tifie d and used to reduce demand pressure on farmland 1n the ruran-urban frin g e “Clawson, Suburban Land Conversion in the United S tates, p. 79. 5For a more detailed discussion o f the urban demand fo r land see Clawson, Suburban land Conversion in the United S tates, Chapter 7. 116 areas o f Michigan. Many o f the factors o f primary Importance to urban expansion such as population growth, and fam ily Income are beyond the scope o f Influence o f land use po licies and w ill be determined by national and regional socioeconomic conditions. However, several policy variables can be Id e n tifie d and used to control the pattern and rate o f farmland develop­ ment. The m ajority o f land taken out o f a g ric u ltu re fo r urban development w ill be used fo r housing. The tra n s itio n from farmland to a subdivision usually takes place over several years and Involves numerous land owners. This tra n s itio n a l process Is In itia te d by a speculators decision to buy farmland. To curb urban demand pressures on a g ric u ltu ra l land, factors which comprise the speculators opportunity set and re s u lt 1n his decision to buy land must be a lte re d . The Incentives 1n the land conversion process are prim arily the tremendous gains th a t can be made by a fe w .6 I t was previously assumed th a t speculators actions are characterized by s e lf-in te r e s t, or p r o f it maximization. His decision by buy land 1s based on Its p r o f it potential In a future sale. Policy Instruments a v a ila b le to reduce demand pressure on farmland are those which w ill re s u lt In g re a tly reduced p ro fits fo r speculators. POLICY SUGGESTIONS FOR MICHIGAN For a land use program to be e ffe c tiv e 1n reta in in g land in a g ri­ culture in the rural-urban frin g e areas o f Michigan I t must s u b stan tially eFor a more d etailed discussion o f the urban demand fo r land see Clawson, Suburban Land Conversion in the United States, Chapter 7. 117 change the structure o f benefits Inherent 1n the process o f tra n sfe rrin g land out o f a g ric u ltu ra l production and in to developed uses. Programs th at only make marginal changes In the Incentives to convert land out o f a g ric u ltu re w ill have a very n eg llb le to ta l e ffe c t. In making policy recommendations there are numerous a lte rn a tiv e s from which to choose. Rather than discussion a ll o f these options, one s p e c ific three part program 1s presented. The ob jective o f the program suggested fo r Michigan 1s to discourage both the sale o f and speculative Investment 1n a g ric u ltu ra l land. The three components o f the recommend program are (1 ) a cap ital gains tax on the sale o f a g ric u ltu ra l land, (2) lim ite d provision of public services to a g ric u ltu ra l areas, and (3) an educational program which would a s s is t farmers In r e a lis t ic a lly estimating th e ir future p o s s ib ilitie s fo r an urban sale. This program takes In to consideration both demand and supply components o f land sales, but the emphasis Is on curbing speculative demand pressure. The c a p ita l gains tax would be administered by the s ta te . The tax could take two forms, the f i r s t , s im ila r to th a t In Vermont, would be based on the amount o f time the land 1s held and the percentage o f gain received from a sale. The second form o f the tax would be a f l a t per­ cent o f a l l gains from a g ric u ltu ra l land sales Irre s p e c tiv e o f the amount o f gain or the length o f ownership. Both forms o f the tax would decrease speculators p ro fits and the attractiveness o f a g ric u ltu ra l land as an Investment. also have d iffe r e n t im plications fo r farmers. Each type would In the second case farmers and speculators would be taxes equally a t the time o f a sa le . 118 The f i r s t form o f the tax suggested would be a decreasing function o f the amount o f time over which the land was held and the amount o f gain. Under th is system speculators would usually be taxed more than an actual farmer. A person who had farmed fo r many years and was approaching re ­ tirem ent would pay very l i t t l e or no additional tax fo r the sale under th is system. This f i r s t form o f the tax would be p o lit ic a lly more acceptable than the f l a t rate tax. fo r a g ric u ltu ra l uses. I t also would not discourage the sale o f land The farmers' conduct would not be alte re d by the tax 1f he does not a c tiv e ly seek a sale. However, his opportunity fo r a sale a t development prices 1s g re a tly reduced. A decreasing c a p ita l gains tax would p rim a rily e ffe c t speculators decisions to purchase a g ric u ltu ra l land. I t would reduce Its p r o f it ­ a b i l i t y as an Investment and decrease demand pressure on rural land. The second p art o f the suggested program would lim it the amount o f new water and sewer lin e s , and roads provided to a g ric u ltu ra l areas. The areas could be defined by the state and the provision o f services supervised by counties and c it ie s . would Increase development costs. Limited provision o f public services This would decrease the speculators p ro fits and possibly discourage fu tu re homeowners or developers from buying 1n the area. The provision o f new roads and u t i l i t i e s , as with zoning changes, can mean w in d fa ll gains to some. could be q u ite high. The po ten tial fo r bribery and coercion The approach would not be e ffe c tiv e 1n retainin g land In ag ric u ltu re unless I t ' s combined with the cap ital gains tax and a provision fo r review o f decisions, a t the county and c ity le v e l, to expand services. 119 The f i r s t two components o f the program are aimed a t reducing specu­ la tiv e demand pressure in the ru ral-urban frin g e areas o f Michigan. The th ird p a rt o f the program deals d ir e c tly w ith farm ers' plans fo r and expectations o f a sale a t development prices. Lack o f knowledge on the p a rt o f farmers contributes to speculative demand. Few landowners can accurately p re d ic t the ra te and d ire c tio n o f fu tu re urban expansion. Where there are expectations o f farmland sales fo r developed uses the Investment in permanent improvements th a t are necessary fo r v ia b le farm businesses is discouraged. These improvements seldom Increase the sale p ric e o f a farm fo r urban purposes, and w ill not be undertaken I f the owner believes a sale is Imminent. To Increase farm ers' knowledge about the actual demand fo r rural land, Inform ation re la tin g to prospective demands fo r land could be p u b lic iz e d .7 ab le. Reports on current land transactions could be made a v a il­ Educational programs, c a rrie d out by local units o f government, could aid farmers 1n estim ating whether or not they w ill be able to s e ll t h e ir land f o r urban uses a t prices above t h e ir value fo r farming. An educational program In conjunction w ith the programs to reduce demand pressure w ill help m aintain the v i a b i lit y o f a g ric u ltu re produc­ tio n on land th a t is many years away from being developed. LIMITATIONS OF THE STUDY AND SUGGESTIONS FOR FUTURE RESEARCH One o f the major lim ita tio n s o f the study Is the inform ation which was used to te s t fo r program e ffe c ts . The data on the acres o f land In 7Conkl1n and Dymsza, M aintaining V iab le A g ric u ltu re in Areas o f Urban Expansion, p. 70. 120 farms 1s from the U.S. Census o f A g riculture and I t may be too Insensi­ tiv e to pick up s lig h t changes in land use trends. Data on new farm investment 1s needed to determine the success o f the program 1n encouraging ca p ita l Investment. Investment w ill only take place 1f farmers have a long-term commitment to farming. A viable a g ric u ltu ra l Industry In rural-urban areas 1s dependent upon continued Investment to update and maintain ca p ita l f a c i l i t i e s . The study Indicates many areas o f future research which would lead to the design and Implementation o f more e ffe c tiv e land use laws. The results o f the study In d icate th a t Influencing speculators deci­ sions to buy a g ric u ltu ra l land w i l l have a stronger Impact on retainin g land 1n a g ric u ltu re than attempting to a lt e r farmers decisions to s e ll land. However, there has been very l i t t l e Ind ividuals who buy land from farmers. descriptive work done on those For b e tte r policy design 1 t Is necessary to d e s c rip tiv e ly Id e n tify th is group o f land purchasers and determine what shapes th e ir opportunity set and Influences th e ir decisions to buy land. The results of the study point out the need fo r educational programs. Such programs may be carried out by the extension service or the county level o f government. Research needs to be undertaken which would develop a method which could be used by farmers to e a s ily determine the actual development o f th e ir land so that r e a lis t ic decisions could be made about future farm Investments. The type of land use laws which results from a governmental decision determined by the support, demands, and pressures d iffe re n t groups can bring to bear on the p o litic a l system. Future research should also be directed toward exploring which groups have Input to the p o litic a l system, 121 how th is access is determined and what e ffe c t 1t has on the fin a l policy outcome. APPENDIX A Questionnaire Used fo r the Survey o f County Extension Agents to Determine the Effectiveness o f Land Use Legislation 1. 2. How would you categorize th is county? (a ) Rural. Few urban pressures, farming and other exten­ sive a c tlv lte s are the primary uses o f land. Farmland seldom s e lls fo r nonfarm purposes. (b) Sem i-rural. Urban pressures are an Important part o f the physical s e ttin g . The nonfarm population out num­ bers the farm population by more than 10 to 1. Some farmland w ill s e ll fo r nonfarm uses, with much land speculation present. Many landowners hope to s e ll th e ir farmland fo r nonfarm uses, but most w ill be unable to do so w ith in the next 5 years. (c) Semi-suburban. The nonfarm population out numbers the the farm population by more than 30 to 1. Farmland often s e lls fo r nonfarm uses, and landowners have high expecta­ tions about the p o s s ib ility o f s e llin g farmland fo r nonfarm use. There 1s a good p o s s ib ility th a t much o f the farmland w ill be taken out o f a g ric u ltu ra l uses w ith in the next 7 years. (d) Suburban. Mostly r e s id e n tia l, few fu lltim e commercial farms. P ra c tic a lly no land sold fo r farm purposes. (e) Other. (Please define) In your opinion, has more land been retained In a g ric u ltu ra l uses than would have been without th is le g is la tio n ? (a) Yes (b) No I f yes, has the act: (a) d e fin ite ly been e ffe c tiv e In retain in g land 1n agriculture? (b) had somedegree (c) had a very small effe ct? o f effectiveness? 122 123 3. Has the a v a ila b ilit y o f th is program encouraged fanners to make needed Investments In th e ir a g ric u ltu ra l enterprises? (a) Yes (b) No I f yes, then has the a v a ila b ilit y o f the program: 4. 5. (a) d e fin ite ly encouraged Investment where needed to re ta in a viab le enterprise? (b) made some contribution to encouraging investment? (c ) had a very small e ffe c t on Investment decisions? In terms o f number o f class one and two farms, and a g ric u ltu ra l sales, rank th is county compared to other counties in the s ta te . (a) would be In the top th ird . (b) middle th ird . (c) lowerth ird . From the most current data, please In d ica te the: (a ) number o f acres enrolled 1n the program. ___________ (b) number o f acres e lig ib le fo r enrollment. ___________ (c ) number o f farms e n ro lle d .____ APPENDIX B APPENDIX B AGRICULTURAL TRENDS IN SOUTHERN MICHIGAN BY MAJOR REGIONS Land In Farms (thous A .) I. 2. 3. Central Region G ratiot Esabella Mecosta Midland • Montcalm Cropland Harvested (thous A .) Percent o f Tenancy Value per acre o f Land i Buildings Machinery Land in Class VI (thous A .} Persons/ Sq. Mile Land by Capability Class Class I Class I I Class I I I Class IV (thous A .) 1033 302 209 151 101 270 517 192 103 50 51 121 AV. 5.2 -7 .3 -4 .8 -2 .5 -6.1 -3 .4 AV. 258 351 248 161 328 202 AV. 60 64 61 46 66 64 228 41 44 43 26 74 69.3 78.0 50.0 123.0 55.7 2 0 0 2 0 0 497 202 111 39 55 90 364 51 63 64 42 144 76 5 13 36 9 13 E. Centra] Region Arenac Bay Huron Saginaw Sanilac Tuscola 1871 92 185 426 348 461 359 1184 42 128 274 238 263 239 AV. 6 .8 -2 .5 +9.6 -7 .5 +8.0 -4 .8 ♦8.6 AV. 363 236 453 315 451 267 439 AV. 76 65 99 69 79 72 77 336 21 27 49 52 79 54 30.0 262.0 41.6 270.0 36.3 59.6 17 1 0 3 1 12 0 950 33 137 313 207 5 255 294 37 42 70 12 62 71 70 10 3 8 24 9 16 Southwest Region Allegan Berrien Cass Kalamazoo Kent Ottawa Van Buren Muskegon 1598 276 216 206 185 241 177 225 72 739 133 112 89 83 111 85 95 31 AV. 4.2 +3.7 -4 .4 +7.8 -4 .0 -4 .0 -3 .2 +3.6 +3.2 AV. 372 323 498 280 388 379 401 377 331 AV. 80 74 99 54 55 79 95 86 82 383 43 44 44 46 61 40 54 21 80.6 222.0 88.2 35.9 480.0 228.0 93.2 314.0 12 3 4 0 0 4 0 1 0 677 108 89 97 111 102 55 87 28 556 103 68 67 52 95 84 92 15 280 71 57 20 15 35 16 51 15 APPENDIX B CONTINUED 4. 5. Land 1n Farms (thous A .) Cropland Harvested (thous A .) Southern Region Barty Branch Calhoun Clinton Eaton H illsd ale Ingham Ionia Jackson S t. Joseph Shiawassee 2840 19B 263 289 287 260 279 231 280 258 237 258 1298 79 120 120 146 109 127 101 139 101 114 142 Southeast Region Genesee Lapeer Lenawee Livingston Macomb Monroe Oakland St. C la ir Washenaw Wayne 1976 171 246 404 174 97 254 102 218 260 50 999 83 111 241 72 47 163 33 97 126 26 Percent of Tenancy Value per acre o f Land 4 Buildings Machinery Land 1n Class VI (thous A .) Persons/ Sq. Mile Land by Capability Class Class I Class I I Class I I I Class IV (thous A.) AV. 4.9 -4 .2 -5 .6 ' -4 .0 -5.1 -4 .3 -5 .8 -5 .2 -4 .5 -3 .4 -6 .5 -5 .9 ‘ AV. 295 239 258 255 317 287 271 390 275 285 265 453 AV. 59 54 52 55 64 56 56 71 63 58 48 66 690 56 59 75 63 68 79 68 49 77 46 56 68.9 75.9 200.0 84.8 121.0 62.0 467.0 79.7 265.0 93.7 117.0 16 0 0 0 3 4 1 2 5 0 0 1 1552 68 157 164 192 161 122 139 144 131 80 194 732 52 61 86 57 56 65 75 67 56 103 54 174 34 1 10 12 16 26 10 12 22 24 7 AV. 8.3 -7 .7 -4 .9 -10.4 -4 .0 -6 .6 -13 .2 -8.1 -6 .6 -8 .5 +12.5 AV. 533 527 421 441 451 917 561 966 388 481 1396 AV. 72 66 80 65 64 108 93 70 75 68 96 448 49 67 55 45 25 44 29 18 52 14 692.0 79.5 108.0 103.0 1303.0 213.0 1047.0 164.0 329.0 4408.0 48 1 3 13 16 2 2 2 4 5 0 1345 118 161 222 90 76 214 66 221 134 43 597 30 67 101 68 36 32 47 82 108 8 145 8 18 18 17 19 16 17 11 20 3 BIBLIOGRAPHY BIBLIOGRAPHY Aarons, Leroy F ., "Hawaii: December 29, 1972. A Paradise Lost?" The Washington Post. Arrow, Kenneth, "The Organization o f Economic A c tiv ity : Issues Pertinent to the Choice o f Market Versus Nonmarket A llo c a tio n ," Public Expendi­ ture and Policy Analysis, edited by Robert H. Haveman and Julius Margol1s, Chicago: Markham Publishing Company, 1970. Atkinson, Glen W., "The Effectiveness o f D iffe r e n tia l Assessment o f A g ric u ltu ra l and Open Space Land," American Journal o f Economics and Sociology, Vol. 36, No. 2, A pril 1977. Bariowe, Raleigh, Land Resource Economics: The Economics o f Real Property, second e d itio n , New Jersey: P rent1ce-H all, In c ., 1972. Barlowe, Raleigh, Preservation o f A g ric u ltu ra l Land—An Overview, un­ published paper, Michigan State U n iv e rs ity , East Lansing, Michigan, 1975. Barlowe, Raleigh, James G. Ahl, and Gordon Bachman, "Use Value Assessment L eg islatio n In the United S tates ," Land Economics, Vol. XLIX, No. 2, 1973. B a r tle tt, Randall, Economic Foundations o f P o litic a l Power, New York: The Macmillan Publishing Company. 1973. Bosselman, Fred and David C a llle s , The Quiet Revolution In Land Use C ontrol, prepared fo r the Council on Environmental Q u ality, Washington, D.C.: Government P rinting O ffic e , 1971. Bensley, W illiam , "A gricultural D is tric ts 1n New York," Conference Pro­ ceedings: Toward an E ffe ctiv e Land Use Policy fo r Michigan. East Lansing, Michigan, May 1973. Bryant, W. A. and H. E. Conklin, Leg islation to Permit A g ricu ltu ral D is tric ts in New York, A. E. Ext. 75-24, Department o f A g ricu ltu ral Economics, Cornell U n iv ers ity , Ithaca, New York, 1975. Buchanan, James M. and W illiam C. Stubblebllne, " E x te rn a lity ," Economics, Vol. XXIX, No. 116, November 1962. 126 127 Cambell* Donald T . , and Ju lian C. Stanley, Experimental and QuasiExperimental Design fo r Research, Chicago: Rand McNally College Publishing Company, 1973. Carmen, Hoy F ., "C a lifo rn ia Landowners' Adoption o f a Use-Value Assess­ ment Program," Land Economics, Vol. 53, No. 3, August 1977. Christensen, Lee A ., "A Framework fo r Evaluating In s titu tio n a l and Socio-Economic Issues o f Land Treatment o f Waste W ater," Journal o f Environmental Q u ality , Vol. 4 , No. 2, Aprll-June 1975. Clawson, Marlon, Suburban Land Conversion In the United States: An Economic and Governmental Process, Baltimore: JoYnHopkins Press, T97T Clrlacy-Wantrup, S. V ., Resource Conservation Economics and P o lic ie s , Berkeley: U niversity o f C a lifo rn ia Press, 1952. Coase, Ronald, "The Problem o f Social Cost," Journal o f Law and Economics, Vol. 3, October 1960. Commons, John R ., Legal Foundations o f C apitalism , Madison: U niversity o f Wisconsin Press, 1968. The Conklin, Howard E. and Richard Dymsza, Maintaining Viable A griculture In Areas o f Urban Expansion, prepared fo r the State o f New York, O ffic e o f Planning Services, 1972. Conklin, H. E ., "Property Tax Incentives to Preserve Farming in Areas o f Urban Pressure," Property Tax Incentives fo r Preservation: Use Value Assessment and" the Preservation of Farmland, Open Space am P H is to ric S ite s , proceedings o f the 1975 Property Tax Forum In te r ­ national Association o f Assessing O ffice rs Research and Technical Services Department. Connor, L. J . , R. L. Maddex, and L. L. Lelghty, Environmental Q uality Legal Considerations fo r Michigan Livestock Producers. Extension B u lle tin F-732, Farm Science S eries, Michigan State U n iv e rs ity , December 1971. Cooperative Extension Service, Michigan State U n iv e rs ity , Environmental Q uality Legal Consideration, Extension B u lle tin E-732, Farm Science Service, 1971. Davis, Otto A. and Morton I . Kamlen, " E x te rn a litie s , Information and A lte rn a tiv e C o lle c tiv e A ction," Public Expenditures and Policy A nalysis, edited by Robert H. Havanan and Julius Margolls, Chicago: Markham Publishing Company, 1970. Demsltz, Harold, "Toward A Theory o f Property Rights," American Economic Review, Papers and Proceedings. Vol. 57, 1967. 128 Easton, David, A Framework fo r P o litic a l Analysis, New Jersey: H a ll, 1965. Prentlce- Ervin, David E ., James B. F itc h , Kenneth R. Godwin, Bruce U. Shepard, and Herbert H. Stoevener, Land Use Control: Evaluating Economic and P o litic a l E ffe cts , Cambridge: B allin g er Publishing Company, 1977: Fisher, Anthony C. and John V. K r u t llla , "Valuing Long Run Ecological Consequences and Ir r e v e r s ib ilit ie s ," Journal o f Environmental Economics and Management, Vol. 1, No. 2 , 1974. Gustafson, Gregory C. and L. T. Wallace, " D iffe re n tia l Assessment as Land Use Policy: The C a lifo rn ia Case," Journal o f the American In s titu te o f Planners, Vol. 41, No. 6, November 1975. Hasen, David E. and S. I . Schwartz, "Landowner Behavior a t the RuralUrban Fringe 1n Response to P re fere n tial Property Taxation," Land Economlcs. Vol. L I, No. 4, November 1975. Hathaway, Dale E ., "A gricultural Policy and Farmers' Freedom: A Sug­ gested Framework." Journal o f Farm Economics. Vol. XXXV, No. 4 , November 1953. Healy, Robert G .t Land Use and the S tates. Baltimore and London: John Hopkins U n iversity Press, 1976. The House, Peter, P re fe re n tia l Assessment o f Farmland In the Rural-Urban Fringe o f Maryland. Washington D.C.: Government P rinting O ffic e . T55T7 Kamenta, Jan. Elements o f Econometrics. New York: 1971. The Macmillan Company. K r u t llla , John V ., "Conservation Reconsidered," American Economic Review, Vol. LVIX, No. 4 , September 1967. Krause, O rv ille and Dwight H a ir, "Trends 1n Land Use and Competition fo r Land to Produce Food and F ib e r," Perspectives In Prime Land, Washington, D.C.: Government P rinting O ffic e , 1975. Libby, Lawrence L ., "Land Use Policy: Im plications fo r Commercial A g ric u ltu re ," American Journal o f A g ricu ltu ral Economics, Vol. 56. No. 2 , May 197?: Llnowes, Robert R. and Don T. Allensworth, The States and Land-Use Con­ t r o ls , New York: Prague Publishers, 1975. Mack, Ruth P ., Planning on U ncertainty. New York: In c ., 1971. John Wiley and Sons, •Michigan Department o f Natural Resources, O ffic e o f Land Use, Michigan's Future Was Today, Lansing, Michigan, 1974. 129 M iner, D allas D ., "Emerging Trends 1n A g ric u ltu ra l Retention and Open Space P res e rv a tio n ,” Property Tax Incentives fo r Preservation: Use Value Assessment and the Preservation o f Farmland, Open Space and H ls t o r lc S lt e s , proceedings o f the 1975 Property Tax Forum In te rn a tio n a l Association o f Assessing O ffic e rs Research and Technical Services Department. Mlshan, E. J . , "The Postwar L ite ra tu re on E x te rn a litie s : An In te rp re ta ­ tiv e Essay," Journal o f Economic L ite ra tu r e , V o l. IX , No. 1, March 1971. Morse, Susan, "Canton Hopes to Save Farmland," D e tro it Free Press, March 21. 1976. Nlskanen, W illiam A ., "The P ecu liar Economics o f Bureaucracy," American Economic Review. Vol. L V II, May 1968. Northam, Ray M ., "Vacant Urban Land 1n the American C ity ," Land Economics, Vol. XLVII, No. 4 , November 1971. Paulson, Morton C .," P r o f it from Plowshares," National Observer, September 1976. Peterson, George E. and Harvey Yampolsky, Urban Development and the Protection o f M etropolitan Farmland, The Urban In s titu te : Washington, D .C ., 1975. Reuttan, Vernon W., "Market Mechanism, E x te rn a litie s , and Land Economics," Journal o f Farm Economics, August 1965. Sampson, Nell R ., "Development on Prime Farmland," Environmental Comment, January 1978. Samuels, Warren J . , "Welfare Economics, Power, and Property," Perspectives o f Power, edited by Gene Wunderlich and W. L. Gibson, J r . , In s t itu te on Research on Land and Water Resources, The Pennsylvania State U n iv e rs ity , 1972. Samuelson, P. A ., "Diagrammatic Exposition o f a Public Good," Review o f Economics and S t a t is t ic s , V o l. 27, 1955. Samuelson, P. A ., "The Pure Theory o f Public Expenditure," Review o f Economics and S t a t is t ic s , V o l. 36, 1954. Schwartz, S. I . , D. E. Hansen, and T. C. Fo1n, "P re fe re n tia l Taxation and the Control o f Urban Sprawl: An Analysis o f the C a lifo rn ia Land Conservation A c t," Journal o f Environmental Economics and Management, 2 , 1975. Schmid, A lla n Problems American Vol. 54, A ., "A nalytical In s titu tio n a l Economics; Challenging 1n the Economics o f Resources fo r a New Environment," Journal o f A g ric u ltu ra l Economics: Proceedings Issue, No. 5 , December 1972. 130 Schmid, A llan A ., Converting Land From Rural to Urban Uses, Baltimore: John Hopkins Press, 1968. Schmid, A llan A ., Property, Power and Public Choice, unpublished manu­ s c r ip t, East Lansing: Michigan State U n iv e rs ity , 1975. Schultze, Charles L ., "The Role o f In cen tives, P e n a litie s , and Rewards 1n A tta in in g E ffe c tiv e P o lic y ," Public Expenditures and Policy A nalysis, edited by Robert H. Haveman and Julius M argolls, Chicago: Markham Publishing Company, 1970. S h a ffe r, James D. and A llan A. Schmid, A Framework fo r Analysis o f Community Economic Problems, unpublished paper, Michigan State U n iv e rs ity , East Lansing, Michigan. Sherer, F. M ., In d u s tria l Market Structure and Economic Performance. Chicago: Rand McNally and Company, 1973. Snyder, Herbert J . , "A New Program fo r A g ric u ltu ra l Land Use S ta b iliz a ­ tio n : The C a lifo rn ia Land Conservation Act o f 1965," Land Economics, Vol. L X II, No. 1, February 1966. S te in e r, Peter 0 . , "The Public Sector and the Public In te re s t," Public Expenditures and Policy A nalysis, edited by Robert H. Haveman and Julius M argolls, Chicago: Markham Publishing Company, 1970. Stocker, Frederick, D ., "The Impact o f Ad Valorem Assessment on the Preservation o f Open Space and the Pattern o f Urban Growth," Property Tax Incentives fo r Preservation: Use-Value Assessment and the Preservation o f Farmland, Open Space, and H is to ric S ite s , June T a y lo r, John F. A ., The Masks o f Society, New York: Company, 1966. Meredith Publishing Turvey, Ralph, "On Divergences between Social Cost and P riv ate Cost," Economica, August 1963. U.S. Department o f A g ric u ltu re , Economic Research S ervice, Cropland fo r Today and Tomorrow, by H. Thomas Frey and Robert C. O tte , A g ric u ltu ra l Economic Report No. 291, Washington, D.C. U.S. Department o f A g ric u ltu re , Economic Research S ervice, Dynamics o f Land Use in Fast Growth Areas, by Kathryn A. Zelm etz, Elizabeth D illo n , Ernest E. Hardy* and Robert C. O tte , A g ric u ltu ra l Economics Report No. 325, Washington, D.C. U.S. Department o f A g ric u ltu re , Economic Research Service, Farm Income State Estimates 1949-73. FIS 224 Supplement, September 1974. U.S. Department o f A g ric u ltu re , Economic Research Service, Farm Real Estate Market Developments, Supplement No. 2, June 1973. 131 U.S. Department o f A g ric u ltu re , S ta tis tic a l Reporting Service, Farms, Revised Estimates. 1959-70, S ta tis tic a l B u lle tin No. 507, Washington, D .C .: Government P rin tin g O ffic e , January 1973. U.S. Department o f A g ric u ltu re , Economic Research Service, U.S. Foreign A g ric u ltu ra l Trade S ta tis tic a l Report, Fiscal Year 1975, Washington, D .C .: Government P rin tin g O ffic e , 1975. U.S. Department o f A g ric u ltu re , Economic Research Service, P re fe re n tia l Assessment ofFarm land in the Rural-Urban Fringe o f Maryland, by Peter House, Washington, D.C.: Government P rin tin g O ffic e , 1961. U.S. Department o f A g ric u ltu re , Economic Research Service, Revised E s ti­ mates o f Taxes Levied on Farm Real Property, by Jerome M. Stam and Eleanor L. Courtney, S ta tis tic a l B u lle tin No. 538, Washington, D.C. U.S. Department o f A g ric u ltu re , Economic Research Service, State Programs fo r the D iffe r e n tia l Assessment o f Farm and Open Space Land, by thomas F. Hady and Ann Gordon Slbold, A g ric u ltu ra l Economics Report No. 256, Washington, D .C .: Government P rin tin g O ffic e , A p ril 1974. U.S. Department o f A g ric u ltu re , Trends in Land Use and Competition fo r Land to Produce Food and F iE e r, by O r v ille Krause anciDwlght H a ir, Background Paper fo r the Seminar on the Retention o f Prime Lands, Washington, D .C .: Government P rin tin g O ffic e , 1975. U.S. Department o f A g ric u ltu re , Economic Research Service, U.S. Foreign A g ric u ltu ra l Trade S t a tis tic a l Report. Fiscal Year. 1975, Washington, b .C .: Government P rin tin g O ffic e , 19r t . U.S. Department o f Census, Census o f Population, Washington, D.C.: Government P rin tin g O ffic e , 1970. Weisbrod, Burton A ., "Collectlve-Consumption Services o f In d iv id u a lConsumptlon Goods," Q uarterly Journal o f Economics, Vol. 78, 1964. W hiteside, E. P. and Don Schaner, Michigan A g ric u ltu re . A g ric u ltu ra l Trends and Future Needs fo r A g ric u ltu ra l Lands, unpublished paper, Michigan State U n iv e rs ity , A p ril 1972. Wildausky, Aaron, The P o litic s o f Budgetary Process. Boston: Brown, and Company, 1964. L ittle , W right, K. T ., Michigan's A g ric u ltu re . Extension B u lle tin 785, Michigan State U n iv e rs ity , East Lansfng, Michigan, 1974.