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Ann Arbor, MI 48106 AGRICULTURAL LAND USE POLICY: THE MICHIGAN FARMLAND AND OPEN SPACE PRESERVATION ACT OF 1974 (PA 116) By Mevin Ndarusigiye A DISSERTATION Submitted to Michigan State University in Partial Fulfillment of the Requirements for the degree of DOCTOR OF PHILOSOPHY Department of Resource Development 1994 ABSTRACT AGRICULTURAL LAND USE POLICY: THE MICHIGAN FARMLAND AND OPEN SPACE PRESERVATION ACT OF 1974 (PA 116) By Mevin Ndarusigiye The Michigan Farmland and Open Space Preservation Act of 1974, or PA 116, provides property tax relief to protect farmland in urban fringe areas from being converted to nonagricultural use. After about the first 10 years of the program, enrollment declined. Overall, enrollment near urban areas never achieved expected levels. Analysis on the effectiveness of PA 116 in achieving its overall objectives has focused only on the number of acres enrolled and participating counties. This study defines the effectiveness of PA 116 in terms of the reduction of urban sprawl into agricultural areas. Effectiveness is measured by the rate of enrollment in the program in more urban counties. The research design consists of descriptive analysis. Correlations and a cumulative adoption model serve as techniques for the analysis. study are: The principal findings of this (1) The initial increase in enrollment tended to fade statewide after 1978. The average real values of land per acre, PA 116 credits, contracts and acres enrolled dropped before the first 10 year minimum length of a Mevin Ndarusigiye contract. (2) At the county level, the Thumb area and the southern part of Michigan led in enrollment. PA 116 credits have not been competitive with land market prices in urban counties. Early termination of contracts took place because of attractive land market prices, insufficient incentives, financial hardship, and the lack of information. The main conclusions of this study are: (1) PA 116 credits were not successfully used to reduce urban sprawl; (2) The rigid enforcement of the program leads to early termination of contracts in areas of potential economic growth; and (3) The continuation of urban sprawl is due to insufficient incentives and the lack of special treatment of farmers in urban fringe areas. Measures to revamp the program might include (1) give preferential treatment to farmers in urban areas and (2) reduce the minimum period farmers have to stay in the program. Future research needs include (1) the cost of the program to the State, and (2) the willingness of farmers to remain in farming activities. To my wife Marie Mayoya and to our children: - Diane Nancy Ngabire; - Juste Eric Munezero; and - Those to come. iv ACKNOWLEDGMENTS I wish to express my sincere appreciation to Dr. R. James Bingen, rny major professor, for the time, the continuous effort and encouragement he put on reading and correcting this dissertation. I am equally grateful to other committee members: Dr. Eckhart Dersch for his informative comments, especially on the background, Dr. Larry A. Leefers, Dr. Richard Bernsten, and Dr. Paul Nickel who assisted with various aspects of the dissertation. I am indebted to those who contributed to the understanding of Michigan agricultural policy, especially Dr. Kenneth Verburg (Department of Resource Development), Dr. Lynn R. Harvey and Dr. Myron Kelsey (Department of Agricultural Economics), Dr. Laura B. DeLind (Department of Anthropology), Richard Harlow (Michigan Department of Natural Resources (Farmland and Open Space Unit), Robert E. Smith (Former Senior Legislative Counsel, Michigan Farm Bureau), Virginia Zeeb (Administrative Assistant to Senator Nick Smith), and Mary Hayes (Legislative Aide to the Agricultural Committee for State Representative Tom Hickner). v I am also thankful to the Michigan Departments of Treasury and Transportation, the Michigan Farm Bureau, and other institutions which assisted me with useful information. I am equally indebted to those who contributed to my training at Michigan State University, especially the Faculty in the Department of Resource Development. My special thanks are due to the USAID/African-American Institute and the Government of Burundi which supported me financially. Last but not least, I am very thankful to members of my family for their permanent support and love. vi PREFACE In my country of Burundi, located in eastern-central Africa, about 90 percent of the total population is rural and agriculture accounts for almost 60 percent of the Gross Domestic Product. Coffee exports provide about 85 percent of the country's foreign exchange earnings (Strategies, 1992). The average farm size per household was 1.7 hectares in 1980 and it is projected to drop to 1.1 hectare in 1995 and 0.7 hectares by 2010 (n.d., 1982). With an annual population growth rate of 3.2 percent (Population Reference Bureau, 1990), the demand for agricultural land in Burundi is extremely high. Under these conditions, a consideration of measures such as property tax relief, as in the State of Michigan, to prevent farmland from conversion to non-agricultural uses would appear unnecessary. As the rate of urbanization increases, however, it is clear that government planners will confront a series of land use issues. This study, therefore, was undertaken to provide some analytic skills that might improve my ability to assist with the preservation and stewardship of scarce resources, such as land, in Burundi. vii TABLE OF CONTENTS Page List of Tables ....................................... xi List of Figures ...................................... xiii List of Charts ....................................... xiv List of Maps ......................................... xv CHAPTER I . INTRODUCTION .............................. 1 1.1. Problem Statement .......................... 2 1.2. Objectives of this Dissertation ............ 10 1.3. Organization of this Dissertation .......... 11 CHAPTER II. CONCEPTUAL FRAMEWORK ..................... 13 II. 1. The Concept of Land ....................... 13 II. 2. Framework for Land Use .................... 16 II.2.1. The Threefold Framework ............ 17 II. 2.2. The SSP Paradigm ................... 19 II. 2.3. The Framework of this Study ........ 22 CHAPTER III. LAND USE POLICY AND ISSUES IN THE U.S. 24 III.l. Overview of Land Use Policy in the U.S. 24 111.2. Policies and Programs to Protect Farmlands 32 111.3. Issues in Farmland Protection in the U.S 39 III. 4. Summary of the Chapter ................... 43 FARMLAND PROTECTION IN MICHIGAN ......... 44 IV. 1. Legislative History of PA 116 ............. 44 IV. 2. Eligibility in the Program ............... 51 CHAPTER IV. viii IV. 3. Enrollment and Withdrawal ................. 51 IV 4. Current Debate on PA 116 .................. 54 IV.5. Issues in Farmland Protection in Michigan 57 IV.6. Research Questions ........................ 59 IV.6.1. Incentives ......................... 60 IV.6.2. Enforceability ..................... 63 IV. 7. Summary of the Chapter .................... 64 CHAPTER V. METHODS FOR ANALYZING PA 116 .............. 66 V.l. Review of Previous Methods ................. 66 V.1.1. Surveys ............................. 66 V.l. 2. Interviews .......................... 67 V.l. 3. Secondary Data and Interviews ....... 68 V.l. 4. Strength and Weaknesses of Previous Methods ............................... 69 V.l. 5. The Methods Used in This Study ...... 70 V.2. Data Sources ............................... 71 V.3. Research Design ............................ 74 V.4. Summary of the Chapter ..................... .79 CHAPTER VI. PA 116: PATTERNS OF ENROLLMENT AND EARLY TERMINATION OF CONTRACTS .............. 80 V I .1. Enrollment ................................ 80 V I .1.1. At the State Level ................. 80 V I . 1. 2 . At the County Level ............... 93 V I . 2 . The Rate of Enrollment ................... 104 V I .2 .1. Adoption Behavior in Low Enrollment Counties .............................. ix 106 V I .2 .2. Adoption Behavior in High Enrollment Counties .............................. 110 V I .3. Characteristics of Enrollment ............. 113 V I .4. Contracts Termination ..................... 115 V I .5 . Summary of the Chapter .................... 120 CHAPTER VII. CONCLUDING SUMMARY, POLICY IMPLICATIONS AND FUTURE RESEARCH NEEDS ................. 121 VII. 1. Concluding Summary ....................... 121 VII. 1.1. At the State Level ................ 123 VII. 1.2. At the County Level .............. 124 VII. 2. Policy Implications ..................... 127 VII. 3. Future Research Needs ................... 13 0 POSTSCRIPT ........................................... 133 APPENDICES ........................................... 135 BIBLIOGRAPHY ......................................... 156 x Tables Page Table 1 Land Use (million of acres) and Percentage Change in Land Use in the USA, 1880-1974 .... Table 2 30 PA 116: Number of Contracts and Acres Enrolled and Percentage Change per Year, Michigan, 1975 - 1990 ...................... Table 3 Number of Contracts Signed per Year and percentage change, Michigan, 1975-1991 ..... Table 4 82 85 PA 116: Tax Credits and the Number of Recipients (in Thousands), and Percentage Change in Both Tax Credits and the Number of Recipients, Michigan, 1979-1989 ............ Table 5 88 Average Real Value of Farmland (rounded) per Acre ($), and Percentage Change, Michigan, 1977-1990 (1985=100) Table 6 Land in Farms (acres) and Acreage Enrolled (cumulative) per County for Selected Years Table 7 91 96 PA 116 Credits as a Percentage of Total Property Taxes by County, Southern Michigan, 1983-1985 and 1987 ......................... xi 99 Page Table 8 Average Real Value (rounded) of Land and Building per Acre per County, Southern Michigan, 1964-1987 (1985=100) and Percentage Change During the Periods 1964-1974 and 1974-1982 and 1982-1987 ...... Table 9 101 The Rate of Enrollment (%) for Selected Years, and Percentage Change 1978-1982 and 1982-1987, Southern Michigan ........... xii 105 FIGURES Page Figure 1 Land Use in the USA (million of acres), 1880-1974 .................................. Figure 2 PA 116: Percentage Change of Contracts and Acres Enrolled per Year, Michigan, 1975-1990 Figure 3 92 Adoption Behavior in Low Enrollment Counties (using the rate of enrollment).............. Figure 7 ......................... 108 Adoption Behavior in High Enrollment Counties (using the rate of enrollment) Figure 9 107 Adoption Behavior in Low Enrollment Counties (using agreements) Figure 8 89 Average Real Values of Farmland per Acre ($), Michigan, 1977-1990 (1985=100) Figure 6 86 PA 116: Percentage Change of Tax Credits and Recipients, Michigan, 1979-1989 ............ Figure 5 83 Number of Contracts Signed per Year, Michigan, 1975-1991 ........................ Figure 4 31 ............. Ill Adoption Behavior in High Enrollment Counties (using agreements) ......................... xiii 112 CHARTS Page Chart 1 PA 116: Institutions Involved in Enrollment or Termination of Contracts ................ xiv 8 MAPS Page Map 1 Trends in Urbanization in Southern Michigan, 1940-1990 .................................. Map 2 Area Covered and Types of Public Lands in Michigan ................................... Map 3 94 Michigan, 1990 .......... 97 Percentage Change in Farmland Real Values, Southern Michigan, Map 6 1990 ................... Percentage (Accumulated) of Farmland Enrolled, Southern Map 5 72 Counties Leading in Enrollment, Southern Michigan, 1976 and Map 4 4 1964-1974 and 1974-1982 103 Geographic Distribution of Early Termination of Contracts (Accumulated) by County and Township, Michigan, 1991 ................... xv 116 CHAPTER I . INTRODUCTION Land use policies are necessary for an orderly use of land resources. The extension of cities appreciates farmland values, which, in turn, increases property taxes, especially in urban fringe areas. The property tax burden on farmers accelerates agricultural land conversion to nonagricultural use. Real property taxes are assessed on the basis of highest and best use of the land. As such, land located near urban areas is subject to higher assessments than rural land. current income. Moreover, property taxes are paid out of Therefore, the increased property tax burden faced by farmers in urban fringe areas reduces their farm income. Higher property taxes, in turn, contribute to further urban sprawl, or to land conversion. Under these conditions, farmland protection programs are necessary to slow down land conversion. This chapter discusses the importance of examining farmland protection program in Michigan. Following a brief review of the background of PA 116, the main lines of the continuing debate over this legislation are identified. Given the continued significance of PA 116 in agricultural land use policy in Michigan, an analysis of PA 116 is proposed as a means of generating information which might inform State land use policy-makers and planners. 2 1.1. Problem Statement The Michigan Farmland and Open Space Preservation Act of 1974, or PA 116, provides property tax relief to protect farmland in urban fringe areas from being converted to nonagricultural uses. When PA 116 was passed, many were concerned that Michigan's agricultural and open space land was rapidly disappearing. Agricultural land in metropolitan fringe areas, also called interstitial rural areas, in MidMichigan, was being ever more pressed by metropolitan expansion in late 1970s (Dorow, M.G., 1983). Barlowe (1971) forecasted that farmland in southern Michigan would be islands by 1990 because of urbanization (see Map 1). The Bureau of Programs and Budget (1972) in the State of Michigan also projected that agricultural belt in southern Michigan will continue to shrink as the sprawl pattern associated with the Great Lakes megalopolis area and the area's transportation networks grew1. The Bureau predicted 1 Interstate highways, like 1-69, US-23, US-27 and US31, were to be built or expanded by mid 1980s. Some other local highways, such as M-24 (Lapeer and Tuscola), M-44 (Kent), M-45 (Ottawa), M-53 (Macomb), M-60 (Cass), and M-66 (Montcalm), were being built or expected to be built in 1970s. Two airports were projected to be built at Caseville (Huron) and Marshall (Calhoun) in mid 1980s. The capital city airport was expected to be expanded late 197 0s (Ayers, G. , 1992) . that a basic Detroit to Benton Harbor urban corridor with extensions north to Grand Rapids and Muskegon and to Midland / Bay and Saginaw would exist by 19902. The increase in agricultural property taxes, brought about by urban and suburban development pressure, was primarily responsible for the conversion of farmland to non­ farm uses. Gardner and Barlowe (1978) found that property taxes per acre of farmland in Michigan increased by 287 percent during the 14 year period from 1962 to 1976, or about 20 percent increase each year. As the Michigan Department of Natural Resources (n.d.) stated, some farmers who wished to maintain their land undeveloped could not afford to do so. At the same time, property taxes for non­ farmers were about one-fifth those of farmers. The Michigan Farmland and Open Space Preservation Act (PA 116) was therefore seen as a way to help ease the farm tax burden and thereby encourage farmers, especially those in or near urban areas, to preserve their land for agricultural use or as open space. 2 During the 197 8 Conference on Land Use Policy in Michigan, disorderly urban sprawl was seen as one of the main causes of land conversion to non-farm activities (Smith, R.E., 1978). Likewise, the President of the Developing Great Lakes Megalopolis Project predicted, around 1974, that farmland in the Great Lakes Basin would be a seaboard by year 2 000 because of urban sprawl; and the Governor's Land Use Commission said that the movement from urban to farming areas created new demands for farmland, leading to higher taxes on farm properties, and, thus, to more land conversion. Map 1 Trends in Urbanization in Southern Michigan, 1940- 1990. southern Michi9an U r b a n i z e d by; g | 1940 @ 1970 1990 Source; Barlowe, R.. 1971. The Governor's Task Force on the Future of Agriculture suggested passage of tax legislation to preserve farmland because of the toll of urban sprawl. It was expected that farms located in urban fringe areas, where property taxes were rising, would be most attracted to such a program3. After 18 years, PA 116 is still a topic of political debate in the State of Michigan. One of the concerns of the PA 116 Working Group4 is to alleviate frustrations encountered by farmers in both information dissemination and the enforcement of PA 116 (Hayes, M., 1992) . Many farmers have not been aware of the negative consequences of early termination from the program. Information passed to farmers was not probably well understood, or farmers thought they were going to stay in farming activities forever. Some farmers expected their children to continue farming. They therefore overlooked provisions of PA 116, especially those related to early termination of contracts (Smith, R.E., 1992). Other concerns by farmers deal with measures that were not included in the Act, such as the requirements for 3 The Governor's Land Use Commission also suggested that special taxation arrangements should be implemented to alleviate tax problems caused by urbanization. Similarly, a 1971 Michigan State University Seminar on Taxation of Agriculture and Other Open Land suggested tax policies as a means to slow down agricultural land conversion to nonagricultural uses. 4 The PA 116 Working Group comprises the Michigan Farm Bureau, a team led by Senator Nick Smith, and two other teams from the House of Representatives led by State Representatives Thomas Hickner and Margaret O'Connor. construction of a residence for new family members on agricultural land enrolled in PA 116 (Hayes, M. , 1992)5. The main problem of the farmland protection program in Michigan is, therefore, achieving the objective of preserving agricultural land, especially in urban fringe areas. Land use policy which protects agricultural land near urban areas from conversion remains an outstanding topic of political concern. If agricultural land market prices are more attractive than incentives offered by the program, farmers may look for alternative investments, such as selling the farmland (or part of it), giving farming a lower priority. If, on the contrary, farmers perceive the program as a farm property tax relief (accounting for a relatively high percentage of total property taxes), it is expected that they would increase their participation in the program. The magnitude of PA 116 credits, with respect to farmland values, is a variable that needs to be included in the analysis of the effectiveness of the program. Incentives, however, cannot be measured in terms of refunds to farmers alone. The exercise of property rights on the farmland is also part of the incentives to participate in the program. If farmers feel that their 5 Rural development which took place after PA 116 was enacted also encouraged developers to buy agricultural land for commercial, industrial, and residential purposes, creating thus further agricultural land conversion (Zeeb, V. , 1992) . property rights on agricultural land are lost, as a result of the enforcement of the program, they may not participate Strict control over the program (i.e., no adjustment to economic growth) can impede enrollment. Thus, the nature o the provisions of the program constitutes another variable to consider in analyzing enrollment in PA 116. Consequently, the administration of PA 116 constitutes a variable that influences enrollment in or withdrawal from PA 116. The Michigan Department of Natural Resources (DNR) alone cannot successfully administer the program without a concerted action of various services which have a stake in farming, such as local governments, interest groups (e.g., Farm Bureau), and extension services (e.g., Michigan State University Extension Services) (see Chart 1). Thus, the performance of the program depends not only on monetary compensation to farmers, but also on its administration. The coordination of PA 116 among several governmental agencies and levels (including the way farmers were informed) is part of the administration of the program. 8 Chart 1 PA 116: Institutions Involved in Enrollment or Termination of Contracts DNR LEGISLATURE TREASURY COURT EXTENSION SERVICES L O BBY GROUPS LENDING AGENCIES i 'r r LOCAL GOVERNMENT BODY jSOIL CONSERVATION | SERVICE 4 i ....... .......... ......... X LANDOWNER COUNTY/REGIONAL PLANNING COMMIS. ... F The geographic distribution of enrollment, along with agricultural land values, incentives and the control over PA 116 are some measures used to assess the effectiveness of the program. The potential rate of enrollment (the maximum acreage that can be enrolled with respect to land in farms in a given county) serves as an analytical technique to explain the patterns of enrollment, primarily in urban fringe areas. The effectiveness of PA 116 in attracting farmers in urban fringe areas is the major issue in this dissertation. Effectiveness consists of the reduction of urban sprawl into agricultural areas in the State of Michigan. It is measured by the rate of enrollment in the program in more urban counties, resulting from incentives offered to landowners, as well as from the enforcement of the program (the level of the control over the program). The rate of enrollment is the percentage of accumulated acreage enrolled with respect to the total acreage in farms (potential enrollment) per county in a given year. The rate of enrollment is also a result of incentives, such as PA 116 credits, that farmers get from the program. This rate is intended to be higher in more urban counties, where property taxes were a burden to farmers, than in more rural counties. Consequently, in order to be effective, PA 116 credits must 10 be competitive with farmland market prices and maintain farmers' freedom to exert property rights on their land. 1.2. Objectives of this Dissertation The first objective of this study is to generate information about the effectiveness of PA 116 which might inform land use policy-makers and planners. This policy relevant information will be obtained from indepth analysis of enrollment and contract termination. Specifically, the following research questions are explored at the state and county levels. State level: - Did accumulated contracts and acres enrolled increase? - Did the average acreage per contract increase? - Was enrollment affected by real farmland values? - When did enrollment reach the saturation point? County level: - Where did enrollment take place? - What was the rate of enrollment in more urban counties? - Have PA 116 credits been competitive with land market prices, especially in urban counties? - How have farmland values differed between counties? - Where did early termination of contracts take place? - Why did farmers terminate their contracts early? 11 The second objective of this study is to suggest policy changes that might improve the effectiveness of PA 116. The provisions of the program related to contract termination still act as a desincentive on enrollment (Hayes, M., 1992). Current amendments to PA 116 focus mainly on improving landowners'understanding of the program, with little change in the enforcement component and incentives (see Appendix 1) ■ 1.3. Organization of this Dissertation Chapter Two presents the conceptual framework for examining land use policy, especially PA 116, in the State of Michigan. This chapter develops the concept of land and tries to understand it in the broader context a threefold framework and a situation - structure - performance paradigm. Chapter Three reviews some of the major land use policies in the U.S. This chapter overviews the history of land use policies in the U.S., the types of programs to protect farmland, and issues raised by farmland protection. Chapter Four discusses land use policy and specifically the background to farmland protection programs in the State of Michigan. It covers the legislative history of farmland protection and the current debate on PA 116. The principal research questions to be addressed in the dissertation are 12 also presented. Chapter Five discusses the methods of analysis used in this study. Methods used in previous studies of PA 116 are reviewed. The data used in this study and the research design are presented. Chapter Six analytically describes patterns of enrollment and contract termination. Chapter Seven summarizes the study. Policy implications and future research needs that could generate additional information to improve the effectiveness of the program are presented. A brief postscript describing some of the implications of this study for Burundi concludes the study. CHAPTER II. CONCEPTUAL FRAMEWORK II.1. The Concept of Land From a legal point of view, land can be defined as the portion of the earth's surface and things which are attached to it by nature, and to objects of values that lie either above or below the surface, over which ownership rights might be exercised (Barlowe, R., 1978) . As such, land includes the soil which can be used for crops, pasture, forest, wildlife, and so forth. and water. It also comprises minerals Land can be owned publicly and/or privately. Land therefore involves property rights, which refer to transaction. Transaction embodies the principles of, among others, transferability and enforceability. All property rights should be transferable from one landowner to another in a voluntary exchange. They also should be secure from involuntary seizure or encroachment by others (Tietenberg, T., 1992). Property rights also imply conflict that results from mutual coercion over land use. As defined, property rights raise the issue of the allocation of land among competing uses. From an economic point of view, land can be identified as a free good or as a scarce resource. The price of land is used as a criterion to differentiate the two attributes 13 14 of land. When land is considered abundant, meaning that everybody can get as much land as she/he wants, land could be considered as free. Therefore, no price or a very low price would be attached to it. undepletable resource. considered as infinite. Land would be taken as an Its physical supply would be Historically, land was considered as a free good in the USA. As Tietenberg (1992) puts it, land was too abundant for those who wanted to farm and had to clear it. Was it an illusion to think that land was a free good in the USA? In the early 1900s, there were 60 people per square mile in the USA (Clawson, M., et al., 1960). At the same time, a relatively high number of people were involved in farming activities. About 35 percent of the population were involved in farming activities in 1910, compared to about two percent of the population today (Ulrich, H., 1989). Therefore, as time went by, farming was not the main activity employing many people. Land is used for other purposes. Despite the supply of land, the economic supply of land, which is the portion of land useful for agriculture and other uses, is finite. Population increased. Subsequently, the demand for infrastructures increased. Good land was therefore used for agricultural, residential, commercial, industrial and recreational purposes. 15 Consequently, land can be viewed as space, nature, a factor of production, a consumption good, situation, property, and capital (Barlowe, R., 1978). As space, land provides physical support for all living beings. the supply of land is fixed. it be diminished. As such, It cannot be expanded nor can As nature, land is identified with the natural environment. The biological characteristics of land condition therefore the demand for land. As a factor of production, land, along with labor, capital and management, is a given-nature source of food, energy, and raw materials. As a consumption good, land is coveted by various users because it both adds to people's production and has value as a consumer's good, such as residential property, in its own right. As situation, the location of good land, with respect to markets, its geographic distribution and its accessibility determine the degree to which land will be coveted. As property, land involves real estate and has legal connotations. Land refers to institutional arrangements to regulate land use. As capital, land is something in which people invest. Land is no longer considered as a commodity, something that can be bought and sold to the highest bidder and which implies a limitless physical supply. Land is viewed as a resource with finite supply which has to be allocated among competing uses (Jackson, R.H., 1981). This allocation of 16 land has to reflect both the benefits and costs not only to its individual users, but also to the society as a whole because land plays roles other than just providing economic returns. Efforts to regulate land for externalities require therefore the public interest in land use. As such, market mechanisms to allocate land might not be completely effective. Government intervention is thus sometimes necessary for a sustainable land use, which implies that land use in one period should not create land scarcity in subsequent periods. II.2. Frameworks for Land Use Three types of frameworks for the analysis of land use are presented. The first framework, the Threefold framework, uses the physical and biological capability of land, its economic and technological feasibility and its institutional acceptability. The second framework, the situation-structure-performance (SSP) paradigm, deals with inherent characteristics of land, the rules of the game, and the performance of policies, given the choice made by decision-makers. The third framework for land use, which guides this study, is a combination of the preceding frameworks. It focuses on both factors affecting land use and the performance of policies. 17 II. 2.1. The Threefold Framework Land use can be understood as a series of physical, biological, economic and institutional factors that affect, condition, and control the use of land. Thus, the use of land takes place with what Barlowe (1978) calls a threefold framework. This framework involves an approach to understand the impacts various factors have on decisions to use land. The threefold framework can be summarized as follows: Physical and biological factors are concerned with land capability to generate production (agricultural and nonagricultural). On the one hand, a piece of land may not be suitable for agricultural production because of,say, its composition. On the other hand, land can be good for both types of production because of its physical and biological attributes (landscape, fertility, etc.). Consequently, land use policies are meant to preserve or improve land capability. Economic factors deal with the availability of land and its allocation between current and potential users. Thus, land use policies must focus on acceptable intertemporal and intergenerational distribution of land. The current level of land use has to secure sufficient land for future generations. From an economic point of view, the efficient 18 allocation of land ensures sustainability since it maximizes the present value of net benefits from land use to society without reducing the future value of land. Economic factors raise therefore the issues of conservation, or the wise use, and preservation (keep intact) of land as a resource. Institutional arrangements ensure that land use programs and policies are administratively workable. Some rules are therefore established to influence the behavior of land users. The distribution of land among competing users leads to conflicts over land use. These conflicts result from the scarcer economic supply of land, which, in turn, is due to the increasing demand for good land. are interpersonal and intertemporal. These conflicts They exist between and among private users, among uses, between public and private users, between and among different public users, and between current and future users (Ottoson, H.W., 1963). These conflicts can be resolved by bargaining between individuals as equal or by rationing transaction, which implies power (collective action against an individual). As a result, working rules have to be established and enforced to permanently resolve conflicts. The main question resides in who benefits from the competition in land use. The distribution of incentives among farmers who enrolled constitute one of the issues brought about by land use. Incentives given to farmers in areas experiencing a 19 property tax burden, like urban areas, might not be enough to make farming in those areas a profitable activity. As such, the current beneficiaries of a program or a policy may not be the ones who were initially targeted. The threefold framework indicates factors which affect efficient land use. The framework, however, describes more the situation (inherent characteristics of a good) and the structure (the choice made to deal with the situation) than the performance of an action. The analysis of the performance of any action is necessary in order to suggest changes. Performance is analyzed in the SSP paradigm. II. 2.2. The SSP Paradigm One approach to measure the performance of a policy, such as farmland protection programs, is to use the Situation-Structure-Performance paradigm, or the SSP Institutional-Impact theory, which focuses on human interdependencies (Schmid, A. A., 1987) . This approach describes the situation in which land is being used, indicates the rules of the game (e.g., measures taken to achieve the desired outcomes), and presents the performance of the policies. The situation involves attributes of individuals, like preferences, values and knowledge of the rules. These 20 attributes also refer to the community, the number of decision-makers and the degree to which individual characteristics are shared. goods. Finally, attributes include The characteristics of goods determine how one person's action can potentially affect the welfare of another person. As such, there exist incompatible use goods, exclusion cost, economies of scale, joint impact goods, transaction costs, and so forth. These situational features of a good, like land, are a matter of physical and biological factors and are inherent to the good. The structure is composed of institutional or rights alternatives, which are a matter of human choice. The structure includes, among other things, the boundary (the entry and exit conditions for participation in a program), procedural rules linking decisions together, information rules and sanctions and payoff rules. therefore chosen. The structure is The issue is the adequacy of the choice. The performance is a function of alternative rights given the situation. It consists for example of the distribution of income, and the number of people participating in a program. Further analysis might inquire whether a given performance will cause a change in the behavior of, say, landowners. 21 For example, the farmland is an incompatible use good because agricultural activities exclude urban development and vice-versa. Prior to PA 116, legislators in the State of Michigan believed that farmland was disappearing, especially near urban areas, as a result of urban sprawl. The rule of the game consisted of property tax credits, which were established as an incentive to keep land in farming activities. The performance of the policy would therefore be measured in terms of the number of acres enrolled in the program, especially in urban fringe areas. The paradigm explains the reactions of an individual to an opportunity set, which consists of available lines of action open to individual landowners at any given time. It also helps to identify the beneficiaries and losers of policies. However, the SSP paradigm does not cover all the aspects of land use. It focuses on intrinsic values of goods, the behavior people exhibit with respect to those goods, and institutional arrangements that establish the rules of the game, which condition the performance of chosen rules. As such, the SSP paradigm is not dynamic enough to show interactions between a linear relationship in land use, made of an inherent situation and a chosen rule, which yield a performance, and factoral effects that guide human interdependencies. 22 II. 2.3. The Framework of this Study The framework used in this study tries to make the analysis more complete. It takes into account the variables affecting land use contained in the preceding frameworks. It also specifies the context in which the effectiveness of PA 116 is assessed. This framework combines therefore the threefold framework and the SSP Paradigm. Land is presented as a factor of production which has physical, biological and economic attributes. It is also subject to institutional arrangements, which involve human interdependencies, working in a given situation and under some prescribed rules. These rules may lead to desired results (good performance), which constitute a sustainable land use scheme of keeping enough land for both agricultural and non agricultural activities. They may also result in conflicts in land use, given the physical and biological characteristics of land as well as its location with respect to economic infrastructure. Land can be used for many purposes. It serves as residential, industrial, commercial, and agricultural production areas. Consequently, each category of land use can be incompatible in use with another category. As a result, the choice of a structure, given a situation and factors affecting land use, leads to a dynamic system that 23 generates outcomes, which will, in turn, constitute a signal to policy change. The provisions of PA 116 for example may attract more or fewer participants. The attitude of landowners towards these provisions indicates the effectiveness of the farmland protection program. If more rural counties enroll in the program than urban counties, then PA 116 will not be effective in preventing farmland conversion to non agricultural activities. In other words, if PA 116 is more effective in areas which do not experience urban sprawl than those under rapid economic growth, then the choice of the structure is inappropriate. A change in the policy is needed to reach the target of slowing down farmland conversion in more urban counties. This study looks into the performance of the existing structure and formulates necessary policy changes to attract more landowners located especially in more urban counties. The study indicates that the Michigan farmland protection program has to sustain farming activities in a context of conflicting land use. CHAPTER III. LAND USE POLICY AND ISSUES IN THE U.S. In order to set the context for a more detailed examination of land use policy in Michigan in the following chapters, this chapter overviews the history of land use policy in the U.S. With special attention to farmland protection policies and programs. Some cases of farmland programs across the U.S. are used to illustrate the nature and the effectiveness of those programs. Issues raised by land use policy, and specifically farmland protection programs, such as free market and governmental intervention, are highlighted. III.l. Overview of Land Use Policy in the U.S. With about 60 people per square mile, nine times less than population density of some European countries, such as Belgium and Holland, agricultural land was still considered as an inexhaustible resource in the U.S. in early 1900s. (Clawson, M., et a l ., 1960). During this period, the federal government land use regulations were oriented toward the occupation and appropriate titling of land. The Settlement Act of 1841 gave preemptive rights to squatters, allowing them to buy up to 160 acres. The Homestead Act of 1862 allowed the government to allocate 160 24 25 acres, free of charge, to immigrants in the West who could not afford to buy land (Huemoeller, et a l ., 1976). Land at this time was not considered as a scarce resource. Toward the latter part of the nineteenth century, the increased conversion of public domain into private ownership (or family farm ownership) and private management started raising concerns of the depletion of good land (Salter Jr, L.A., 1948). In response, the Revision Act of 1891 was passed in order to counteract the effects of the earlier laissez-faire land use policy promoting free settlement. During this period, foresters, environmentalists and others raised the need for land conservation policy in order to preserve prime land for future generations. Greater government involvement in the sustainable management of land resources was requested (Timmons, J. F., 1978) . The period from the end of the 19th century until the early 1920s, was described by Salter (1948) as the conservation era in U.S. land use policy. Increased immigration, expanded industrialization, and World War I accentuated the fear of land resource disappearance and food scarcity. adopted. The practice of wise use of land resources was The constitution of national forest reserves in 1907 was an example of conservation of land resources. Following World War I, there was a turning point in land policy in the U.S. The newly created federal Committee 26 on Land Utilization reported that a shortage of agricultural land was not expected. The Committee then suggested that farmland development programs be slowed down. The only fear expressed by the Committee was a shortage of timber. As a result, the Clarke-McNary Act was enacted in 1924 to allow the federal government to purchase land for forestry purposes. The U.S. Chamber of Commerce suggested a reduction in farmland acreage in order to cut down the price depressing effects of crops in surplus. Due to the Great Depression of 1929, land investments were considered as a hedge on inflation. Research turned to problems associated with land values and property transfer. During the New Deal era, there was active public intervention in land resource management, such as the creation of commodity programs to influence prices of agricultural products and the purchase of private land to increase national reserves. Governmental intervention was meant to restore the purchasing power that farmers had in the prosperous years prior to Word War I. The intervention was embodied in the Agricultural Adjustment Act of 1933, whose main goal was to control the surplus in food production (Ulrich, H., 1989). In the post World War II era, land use policy was heavily influenced by several major trends. The demand for agricultural land for non-farm activities increased as 27 American cities expanded and industries located operations and facilities in rural areas {Woodruff and Frink, 1980; The American Farmland Trust, 1986). The construction of interstate highways encouraged the location of factories in rural areas, causing metropolitan areas to expand, and thereby increasing the conversion of agricultural land to non-agricultural uses (Healy, R.G., 1980). During the period 1967-1975 it was estimated that three million acres of agricultural land were converted each year nationwide, an average of about 60,000 acres annually per state (Coughlin et a l ., 1981). In Michigan, this would have meant an annual conversion of almost 0.2 percent of the area, or about 480,000 acres, the equivalent of one county, over the 1967-1975 period. Some estimates indicate that between 1964 and 1969, about 340,000 acres per year were diverted from farmland to other uses (Cochran and Libby, 1977)6. At the same time, in the early 1960s, there was a shift toward large farms as the family farm became less competitive in the production of agricultural commodities for export (Ulrich, H., 1989). The farm population, as a percentage of the total U.S. population, decreased by 45 percent during the 1960s. 6 Further reduction in available land was anticipated because an estimated 3.9 percent of the total state land was going to be used in the right-of-ways in 197 0 (Governor's Special Commission on Land Use Report, 1972). 28 During the 197 0s, suburbs grew as the population moved to smaller cities and towns surrounding major metropolitan areas (Plaut, 1982). This "rurban phenomenon", which took place in the 1970s, increased the demand for land. As a result, farmland values increased, especially in the Midwest7, because farmland was still considered as a hedge against inflation (Wirth and Penaranda, 1990). In the 1980s, two schools of thought on land use developed within the Department of Agriculture (Berg and Zitzmann, 1984; Tweeten, L., 1989). The conservative point of view, or the farm fundamentalism school, emphasized that farmland, particularly prime farmland, was a national asset to be protected. Those who held that farming was a way of living in America were concerned about the continued loss of agricultural land. The economic point of view, or the school of democratic capitalism, on the other hand, emphasized the primacy of free market as an efficient way of allocating land. From this perspective, the market should decide on the role of the farm sector in the national economy. Those who held this view point looked at the land as a factor of production, evaluated the productive capability of U.S. agriculture, estimated probable supply of 7 The percentage change in farmland values per acre was as following: Corn Belt States (289%), Lake States (258%), Northern Plains States (256%), Mountain States (243%), Pacific States (232%), Pacific Northwest States (228%). 29 and demand for land, and stated that U.S. had an abundance of good land for the long-run (Berg and Zitzmann, 1984) . Although there were changes in land use between years, the overall loss of agricultural land prior to the enactment of farmland protection programs was not very big. During the period 1880-1974® (94 years), cropland increased by 104 percent, or about one percent increase per year. Forest land increased by 14 percent during the same period, or an annual 0.2 percent increase. Other uses of land increased by 214 percent, or 2.3 percent annual increase. Other uses of land include land used for service, urban areas, wasteland, transportation, park and recreation. Pasture and grazing land, on the contrary, decreased by 26 percent, or an annual decrease of 0.3 percent. During the period 1950- 1959, however, there was a significant increase in land use for other uses of land (141 percent) and forest land (20 percent) (see Table 1 and Figure 1). 8 The year 1974 was chosen to illustrate land use in the US prior to the enactment of farmland protection programs. 30 Table 1 Land Use (million of acres) and Percentage Change in Land Use in the USA, 1880-1974. Pasture and ■grazing % 1880 188 - 935 - 1890 248 32 892 1900 319 27 1910 347 1920 % ocher uses % 628 - 153 - -5 604 -4 160 5 831 -7 579 -4 175 9 9 814 -2 562 -3 181 3 402 16 750 -8 567 1 185 2 1930 413 3 708 -6 607 7 176 -5 1940 399 -3 723 2 602 -1 180 2 1950 408 2 700 -3 606 1 189 5 1959 382 -6 699 I Crop o Year 728 20 455 141 1969 384 0 .5 692 -l 723 -1 465 2 1974 383 -0 .3 692 0 718 -1 481 3 . . % Source: Barlowe, R., 1978. Forest 31 Figure 1 Land Use in the USA (million of acres), 1880-1974 1.000 Acres (million) 800 600 400 200 1880 1890 1900 1910 1920 1930 1940 1950 Year ^ Cropland ~ l~ P u lii« . « n d 9 l* tin e ^ F o i» » B « .id ® Oth«i u u > Source: Barlowe, R , 1978. 1959 1969 32 III.2. Policies and Programs to Protect Farmlands Three groups of farm protection policies can be identified. The first group of policies is based on discouraging non-agricultural uses by levying capital gains taxes which are competitive with land market prices (Coughlin, et a l ., 1981). Those policies are designed to direct growth out of farming areas. The basis of this policy is comprehensive land use planning, which would exclude extension of facilities in agricultural areas, such as industries. The policies require identification of purely agricultural zones, where agriculture is the major source of the household earnings. Such policies are difficult to administer, however, because they require continual adjustments to changing land market prices. No state has adopted those policies. The second group of policies is based on regulations, such as right-to-farm and agricultural districts, in order to keep land in farming activities. Special treatments of farmers, consisting of property tax incentive programs, based on preferential assessment, deferred property taxes, and income tax credits are offered to make farming profitable. Preferential assessment of farmland consists of pure tax relief with no strings. Eligible agricultural land is assessed for its current use value rather than potential 33 market value. Eligibility conditions consist mainly of the requirement that the agricultural land be under production. In some instances, a minimum number of years that agricultural land has to be under production, and minimum farm income, are required. The program reduces agricultural property taxes by the difference between potential market value and current use value of agricultural land. About 35 percent of the states which have enacted farmland protection programs have adopted a preferential assessment program9. Preferential assessment programs are enacted on the assumption that in the absence of reduced taxes, it would be uneconomic for farmers in areas experiencing high property taxes, such as urban fringes, to continue farming. As such, lowering property taxes would be the primary effect of the program. Farmland preservation is a secondary effect. In addition, the program does not define land under production. Hence, it becomes difficult to administer such a program without a clear understanding of the magnitude of farming operations. Farmland can be purchased by developers to take advantage of reduced property taxes, by putting the land in minimal farming operations. converted The land will then be to non-agricultural uses when the value of the 9 The States which adopted the preferential assessment program are, Florida (1959), Indiana (1961), Iowa (1967), Colorado (1967), Arizona (1967), New Mexico (1967), South Dakota (1967), Delaware (1968), Idaho (1971), North Dakota (1973), Wyoming (1973), Oklahoma (1974), Missouri (1975), Louisiana (1976), West Virginia (1977), Arkansas (1980), and Mississippi (1980) (Coughlin, et al., 1981). 34 land appreciates because there is usually no penalty against withdrawal from the program. As a result, preferential assessment does not insure the long-term preservation of farms (Jackson, 1981; Dunford, 1984). The program also reduces tax revenues to local governments, which are comprised primarily of property taxes. Hence, a property tax burden is put on other property owners in order for local governments to compensate the loss in revenues. Consequently, preferential assessment program may result in further agricultural land conversion. Deferred taxation requires that a variable percentage of back taxes are due if farmland is converted to non-farm uses. Eligibility requirements vary from state to state. Some states, such as Texas prohibit corporate enrollment. Other states, like Nebraska, include minimum farm income per acre, and a minimum period of time for land to be under production. Nearly 57 percent of the states which enacted farmland protection programs have adopted this deferred taxation program10 (Coughlin, et a l ., 1981). 10 These states, in chronological order of adoption, are: Maryland (1956), Hawaii (1961), Connecticut (1963), Oregon (1963), New Jersey (1964), Texas (1966), Pennsylvania (1966), Alaska (1967), Minnesota (1967), Rhodes Island (1968), Utah (1969), Vermont (1969), Illinois (1970), Washington (1970), Maine (1971), New York (1971), Virginia (1971), New Hampshire (1972), Massachusetts (1973), Montana (1973), North Carolina (1973), Nebraska (1974), Ohio (1974), Nevada (1975), South Carolina (1975), Kentucky (1976), Tennessee (1976), and Alabama (1978). 35 Deferred taxation involves yearly assessment of enrolled farms at their use and market values since the rollback is due when land is converted. The use-value serves as a basis for current taxation. The potential value is used to compute the repayment when land is converted. Determining two values for each qualified farm can create administrative difficulties. Like the preferential assessment measure, deferred taxation programs lower local government tax revenues. The deferred taxation program was found to have little impact on preventing the conversion of farmland to non-agricultural use in many states. The penalty may have been too little to prevent land conversion. In Montana for example, Jackson (1981) found that a rollback tax of $111 per acre had to be paid, whereas the market value of the land was $2,000 per acre. In Texas, the 1966 program had also little impact on land use patterns in metropolitan and in urban fringe areas (Ozuna and Jones, 1986). In Oregon, with 84 percent of farmland enrolled in the 1963 program, this deferred taxation program was called a success (Brumback, 1989) . However, the program did not attract many landowners in urban areas. Only eleven percent of participants were in urban areas. In New Jersey, more weight is being put on the need for housing than for retaining farmland (Brumback, 1989). From 1986 to 1987, about 90,000 acres were converted 36 to urban uses. Once more, it appears that the property tax relief is used as a means of speculation rather than an incentive to protect farmland. With the circuit breaker tax credit, landowners receive property tax credit against their State income tax. As a "circuit breaker", the program interrupts agricultural property taxes deemed excessive with respect to farmers' household income. Eligibility requirements include minimum length contracts, farm size, and household income. The circuit breaker tax credit relieves landowners from additional real property taxes once a given percentage of their income is exceeded. Michigan (1974) and Wisconsin (1977) are the only states to have adopted the circuit breaker program. Agricultural land is assessed for tax purposes at its market value. The land is not exempted from local taxation, and the assessed market value is taxed at the local level. Tax benefits to the landowner are derived through the State and Federal income tax. For example, under the provisions of PA 116, landowners are entitled to claim as a credit on their Michigan Income Tax the amount by which property taxes on the farmland covered by the agreement exceed seven percent of their household income (DNR, 1992). For instance, if the household income of a farmer is $200,000 and the property tax against the farm is $24,000, the credit 37 will be computed as following: $24,000 - ($200,000*0.07)= $24,000 - $14,000 = $10,000. If the property tax against the farm were, say, $10,000, the farmer would not get any refund. The circuit breaker becomes therefore effective when farm property taxes exceed seven percent of the total household income (Marshall and Kerns, 1982) . Unlike preferential and deferred taxation programs which reduce local government tax revenues, the circuit breaker does not directly affect local governments financially. The circuit breaker also excludes landowners who have large non-farm income. In Wisconsin, on the one hand, findings by Jackson (1981) showed that the program targeted middle and low income farmers. Targeting the low income farm population, however, requires increased costs to the state because property tax credits are the difference between a given percentage of the household income and the amount of property taxes. On the other hand, the empowerment of local governments was found to be a key factor in the administration of the program in Wisconsin (Emelock, 1989) . Local governments were responsible for administering and enforcing the program. During the period of 1977-1987, 70 out of the 72 counties participated in the program. farmers enrolled. About 65 percent of Emelock, however, noticed that conversion of farmland increased because property tax credits were not 38 competitive with market prices of farmlands. The effectiveness of the program was measured by the landowner and county participation without looking at the geographic distribution of enrollment. A third group of policies prevents changes in the use of designated parcels of land from agriculture to nonagricultural uses by imposing restrictions on farmers, such as restrictive agreements, agricultural zoning, development permit systems, purchase of development rights, purchase and resale with restrictions and the transfer of development rights. Agricultural land is not easily converted to other uses because of the tight control over it. Restrictive agreements require that the landowner agrees to certain restrictions in return for tax relief (Relis, P., 1978). Landowners enter into enforceable agreements which permit release only under specified and • usually stringent criteria. California adopted the restrictive program in 1965, called the Williamson Act (Coughlin, et a l ., 1981) . Restrictive agreements as administered in California were found ineffective to keep land in farming. The Williamson Act of 1965 did not attract many landowners. By 1972, only one-tenth of privately owned land had enrolled. Beneficiaries of property tax relief were large farmers located far from urban centers (Relis, 1978; Jackson, 1981). 39 Moreover, acreage enrolled indicated that urban prime farmland represented only two percent of the total agricultural land, other prime farmland were 14 percent, and non-prime farmland represented 30 percent (Abrams, 1989). Non-prime land was the major component of enrollment. Hence, the program did not attract prime farmland. Abrams concluded that the difficulty in controlling urban sprawl, funding shortages, and the lack of coordination in administering and enforcing the program impeded the program from achieving wider success. III. 3. Issues in Farmland Protection in the U.S. The conversion of farmland to non-agricultural uses became a nationwide concern in the U.S. in the 1970s (Fletcher, 1984; Zitzmann, 1985; Grossi, 1987) but faded quickly in the 1980s. About 55 percent of the farmland protection programs were developed during the period 19691978. Nearly four percent of the states adopted those programs in 1980s (Coughlin, et al., 1981). There are four major issues raised by these programs which are of particular interest for this study. First, governmental intervention to regulate farmland conversion to non-agricultural uses, as opposed to free market forces in land use, is a key issue in farmland 40 protection. Market forces are the major influence in determining the use of land (McDonald and Rickson, 1987). In other words, the law of supply and demand, i.e., free land market, regulates land use. Farmland protection programs are not, thereby, one of the solutions to efficient land allocation because tax incentives restrict the supply of agricultural land, while the demand for it keeps increasing. Hence, governmental intervention in farmland protection constitutes a market failure because it allows inefficiencies, such as subsidies to farmers, which are negative tax revenues to the State. For people who believe in market forces as a regulatory mechanism of agricultural land use, farmland protection programs are unnecessary because the buyer of agricultural land pays what the latter would be worth in its best alternative. Land market would therefore be affected by the location of the agricultural land, the discount rate (interest rates), and, thus, the net present value that individuals put on the land. Short-run profit oriented farmers do not enroll in farmland protection programs because they expect higher prices per acre of land. With free market land regulation, farmers who would prefer to stay in farming activities, but whose farm income is eroded by increased property taxes, resulting from land value appreciation, would be obliged to 41 quit farming and sell the land to developers. The financial situation of farms in the Lake States, Corn Belt States, and Northern Plains States for instance indicates that about 70 percent of farmers were in financial stress, a situation where farmers cannot repay loans, and five percent were force to quit farming (Wallace, T. L., 1987). Farmers who face financial hardship might be protected against the burden of property taxes. Agricultural land policy, however, was not catching up with this financial crisis (McKinzie, et a l ., 1987). Second, the balance between control over farmland protection programs and incentives offered to landowners is another key issue in farmland protection. If the control is rigid (a lot of penalties to participants who violate any of the rules) and the incentives are too weak, participation is expected to be low. Conversely, if attractive incentives are offered to landowners, coupled with less rigid control, participation is likely to be high (Coughlin, et al., 1981). In addition to satisfactory monetary incentives, enforceability of programs has to be accompanied by the freedom to exercise property rights on land to increase participation. That is, farmers enrolled in such programs should be allowed to withdraw (exit) if they find that the conditions imposed on them are stricter than they expected. 42 Third, farmland assessment, which consists of comparing use-value to the fair market value, is also a major issue in deciding on the refunds and/or the repayments. The use- value assessment, or differential assessment, is intended to break what Dunford (1984) calls the urban sprawl cycle by not allowing relatively high market values to increase the assessed value of farmland. The urban sprawl cycle starts with the extension of cities. farmland values. This extension increases Subsequently, farmlands in the areas of extension have high assessed values, and increased property taxes. Farm income declines, resulting in a situation of farm financial stress, which accelerates agricultural land sales and furthers urban sprawl. In case property taxes on agricultural land exceed tax levels consistent with agricultural use of the land, farmers may prematurely sell their land (Gustafson, 1977). As such, use-value assessment may stimulate farmland conversion to non-agricultural uses. Fourth, comprehensive land planning is an important issue in farmland protection programs. Comprehensive land planning consists of a process leading to adoption of a set of policies regarding land use: crops, transportation, housing, public facilities, and economic and social issues (Coughlin, et a l ., 1981). That is, concerted action by institutions involved in land use is necessary for the success of the program. 43 III.4. Summary of the Chapter This chapter traced the history of land use policy in the U.S. As land use policy passed from a laissez-faire period to increased governmental intervention to regulate land use, several types of farmland protection programs were adopted to reduce the burden of property taxes on farmers, and subsequently, to reduce farmland conversion. Various policies and programs to protect farmlands were examined. Four main groups of issues related to farmland protection were presented. They were: (1) the intervention of the government in regulating land resources use; balance between incentives and enforceability of the program; planning. (3) farmland value assessment; and (4) land (2) the CHAPTER IV. FARMLAND PROTECTION IN MICHIGAN Eighteen years after the first state, Maryland (1956), adopted a farmland protection program, the State of Michigan enacted PA 116. This chapter discusses the legislative history of the Michigan Farmland and Open Space Preservation Act of 1974 and the principal issues in the current debate on PA 116. The discussion provides the basis for identifying the research questions which will guide the assessment of the effectiveness of PA 116 in the following chapters. IV.1. Legislative History of PA 116 In the State of Michigan, land use policies started to raise significant concerns in 1960s because of increased property taxes on farmers (Smith, R.E., 1992) . The State of Michigan took about 18 years after the State of Maryland first adopted the deferred taxation program in 1956 because it was still collecting information on experiences of other states in farmland protection, such as New Jersey (1964), California (1965), Washington (1970), and New York (1971). It also took time to convince State legislators and local governments of the benefits of the program to farmers (Smith, R.E., 1992) . 44 45 Prior to the enactment of PA 116, the State of Michigan did not have any farmland protection legislation. During the period of 1965-1967, legislation was proposed, but never implemented, to (1) amend the constitution to prevent the use of use-value assessment as a method of preserving farmland; (2) set a specific tax for agriculture, which would apply to agricultural land statewide; and (3) amend the state income tax to allow a special tax credit for agricultural land owners (DNR, 1991). Local governments, fearing revenue losses and land speculation, opposed these proposals. For about 10 years, preferential tax assessment legislation was widely discussed. Local governmental units also opposed this legislation since it meant reduced property tax revenues (Michigan Department of Transportation, n.d.). In addition, banks opposed the proposed legislation for its restrictions on the sale of land (Smith, R.E., 1992). Under the proposed Michigan land legislation (PA 116) advocating property tax credits, farmers agreeing to participate in the proposed program would be provided with a tax incentive not to convert their land into nonagricultural use. In addition to agricultural property tax credits, participants in PA 116 are exempt from special assessments for sanitary sewers, water, lights, or non-farm 46 drainage crossing their property, unless the assessments were made prior to the recording of the agreement or easement (Michigan Farmer, 1975) . Farmland would be assessed in terms of both its market and its use values. The difference between the two farmland value assessments would be the basis of the property tax incentive. The proposed legislation did not require a minimum length of contracts. The conversion of farmland to non-agricultural use would result in the repayment of property tax credits received for the last three years (Cochran, 1976) . During several legislative sessions, many amendments were added, such as the inclusion of farmer's income in the criteria of eligibility for incentives, payment of interest on tax credits to repay when land is converted to nonagricultural use, and an increase of the roll-back period from three to five years (Cochran, 1976). The proposed legislation passed the House of Representatives but it did not pass the Senate. The Senate argued that the proposed legislation was not constitutionally acceptable. The Senate (S.B. 130) also suggested that a minimum five year contract be established. The penalty for converting land would be reduced according to the time remaining in the program. A higher interest rate on property tax credits would be charged to farmers who withdrew from the program after one year (12.15 percent), whereas a lower interest rate on 47 property tax credits would be charged to farmers who remained longer in the program (2.43 percent the fifth year). Other opponents of the proposed legislation were local government units and assessors and the State Tax Commission. Local governments feared losing tax revenues. Assessors and the State Tax Commission were worried about the cost of handling two assessments for each qualifying farm. As originally drafted and introduced on February 22, 1973 (House Bill No 4244)11, the Michigan Farmland and Open Space Preservation Act provided for a specific tax on certain agricultural and horticultural lands; taxation on land improvements; and a rollback of taxes under certain conditions. The proposed legislation was specifically aimed at reducing the property tax burden on farmers located in urban fringe areas. The proposed bill provided for a specific tax schedule based on land use capability classes defined by the Soil Conservation Service. Several amendments were made to the bill, including (1) assessing land at standard values based on the Soil Conservation Service's capability classes and then applying the local property tax millage rates; (2) 11 The Act was introduced by 61 members (Appendix 2). About 60 percent of the sponsors were Republicans, and the remaining 40 percent were Democrats (Smith, R.E., 1992). 48 changing the penalty for each year the land remained in the agreement from 24.4 percent in the first year to 4.8 percent in the fifth year; and (3) imposing an interest rate on the roll-back taxes of six percent due when conversion of agricultural land occurs (Cochran, 1976) . The bill passed the House of Representatives but it did not pass the Senate because its proposed computation of tax credits was unacceptable. The Senate Tax Committee appointed a Special Committee to review the proposed HB 4244. The major recommendation by the Special Commission was to pay tax credits which were equivalent to the amount of farm property taxes exceeding seven percent of farmers' household income. Defenders of PA 116, like the Departments of Natural Resources and Agriculture, and the Michigan Farm Bureau12, argued that since agriculture and tourism were the state's second and the third most important industries, the State of Michigan should keep its agricultural land under production to respond to changing market conditions, despite overproduction (Journal of the House of Representatives of 12 Other supporters of PA 116 were: Soil Conservation Society of America, USDA Agricultural Stabilization and Conservation Service, Tri-County Regional Planning Commission, and USDA Soil Conservation Service (Michigan Farmer, 1973). The Michigan Milk Association, Livestock and Fruit Growers also supported the proposed legislation (Smith, R.E., 1992). 49 the State of Michigan, 1973 and 1974; Legislative Analysis on House Bill 4244, 1974; Public Sector Consultants, 1988). Various institutions opposed the proposed legislation. Some local government officials, such as Supervisors of the 48th District, argued that the long standing overproduction in Michigan agriculture offset the need to prevent the conversion of agricultural land to other uses. The extent of the loss of farmland was therefore a key issue in protecting agricultural land in Michigan. For example, the loss of prime and good land13 in southern Michigan, using aerial photography, was estimated at 365,191 acres (about 23,000 acres per year or 561 acres per county per year) between 1962 and 1978, or six percent of the prime and good land in the State of Michigan (Bennett, 1986) . These Supervisors added that any constraining provision would be contradictory to the voluntary nature of the program. The same group also argued that PA 116 would benefit large landowners with holdings away from urban fringe areas (Journal of the Senate of the State of Michigan, 1974; Journal of the House of Representatives of the State of Michigan, 1973 and 1974; Legislative Analysis on House Bill 4244, 1974; Public Sector Consultants, 1988). School District Unions also opposed the proposed legislation, fearing a reduction in local property tax revenues and support for school district budgets. 13 The equivalent of class I through class III. Likewise, 50 Federal Land Banks were concerned about the repayment of loans by farmers enrolled in the proposed program (Smith, R.E., 1992 )14. Parallel to the HB 4244 (1973-1974), the Michigan Department of Agriculture proposed another farmland protection program which does not allow any land conversion (Cochran, 1976; Smith, 1992). Under this proposal, the State would purchase development rights of selected farmland Once 80 percent of the rights were purchased in a given local government unit, such as a township, the State could exercise the power of eminent domain to acquire the remaining 20 percent. This proposal was not acted upon since it was considered too costly to implement. There was also a concern about a State agency having the power to condemn and to resell the development rights at any time without the consent of landowners. Farmland and Open Space Preservation House Bill 4244, Act, PA 116, was approved and signed by Governor Milliken on May 3, 1974. 14 County level representatives of the Farm Bureau did not support the program when it was enacted because they did not believe it was responding to an urgent problem (Smith, R.E., 1992) . The Michigan Farm Bureau operates as a lobby group. In addition to its contribution to the preparation of PA 116 by collecting information on farmland protection programs elsewhere in the U.S. (Smith, R.E., 1992), the Farm Bureau analyses problems of farmers and formulates actions to promote farmers' well-being, through education, and creation of economic and social opportunities (Michigan Farm Bureau, 1992). The Farm Bureau has county level representatives who are in permanent contact with farmers. 51 IV.2. Eligibility in the Program The criteria for eligibility are: the size, the gross annual income, the type of farm, and ownership. Three categories of farms are identified according to the size and the income from the farms: 40 acres or more in size, farms of five to 40 acres with a gross annual income of $200 per acre, and specialty farms of at least 15 acres with a gross annual income of at least $2,000 (see Appendix 1). Small farms and income were included in the criteria because vegetable farms for example are generally small, yet they generate income which is comparable, or even more than large farms (Smith, R.E., 1992). IV. 3. Enrollment and Withdrawal Enrollment and withdrawal from the program follow procedures that involve several institutions (see Chart 1). An enrollment application must be filed with the local governing body, such as village, city, township (if it has adopted its own zoning ordinance), or the county (for counties which have not adopted a zoning ordinance). The local governing body must notify the county (or regional) planning commission, and the Soil Conservation District agency. If the land lies within three miles of the boundary 52 of a city or one mile of a boundary of a town, village, township, or county, the governing body of such town or city must be notified. Thirty days are allowed for review, comments, and recommendations about the eligibility of the applicant. If the application is approved by local governing bodies (which do not have the final decision to approve or reject an application), it is forwarded to the Department of Natural Resources, where the administration of PA 116 is centralized. Afterward, the DNR forwards it to the State Tax Commission for its review, including a property description and value verification. The State Tax Commission submits its comments to the DNR, which has to give its final approval. If approved, the DNR prepares a farmland development rights agreement of at least 10 years. DNR indicates rules pertinent to administration of PA 116. It also reports and makes recommendations to the legislature. If the application is rejected by the local government bodies, the applicant may appeal the rejection to DNR, which can reject or approve the application (see Appendix 1)1&. Two applications out of 400 were rejected in 1992. Almost half of applications are returned to applicants because they are incomplete (DNR, 1992) . 15 Other institutions involved directly or indirectly in PA 116 are the Michigan Farm Bureau, lending agencies, the Michigan State University Extension Service and the Court (see chart 1). 53 Any early withdrawal from the program is subject to penalty. If a landowner decides to terminate the contract prior to the agreed date, the total amount of all tax benefits granted by the program must be repaid at a compounded interest rate of six percent per annum. If the agreement runs its full period and the landowner decides not to re-enroll, the last seven years of tax benefits have to be repaid without interest (DNR, 1974). The lien applies therefore to both natural and early termination of agreements. Although the lien is imposed, 80 percent of landowners enrolled have stayed in the program less than 10 years (DNR, 19 91) . The remaining PA 116 provisions are (see Appendix 1): - non farm structures cannot be built on enrolled land; - improvements cannot be made or any interest in the land sold except for a scenic access or utility easements which would not change the character of the land without prior state approval; - tax benefits do not need to be repaid if the land is withdrawn from the agreement based upon a determination of public interest; - the lien is discharged if the landowner reenters the program or renews the agreement/easement. 54 IV.4. Current Debate on PA 116 Currently, the Michigan Farm Bureau, a working group led by Senator Nick Smith (Senate Bill 174), another led by Representative Thomas Hickner (House Bill 0000), and another by Representative Margaret O'Connor (House Bill 5314) are trying to propose changes to P.A. 116. These changes include the reduction of the length of contracts, the reduction of the lien, and the addition of conservation measures to PA 116 provisions. PA 116 is being revamped in order to respond to the prevailing socio-economic conditions of the State. During the 1970-1990 period, population migration increased in the agricultural areas in southern Michigan. Urban and other developed land grew from 4.2 percent of the statewide land in 1968 (Kimball and Bachman, 1969) to 6.3 percent in 1990 (DNR, 1990) . The population outside the standard metropolitan statistical areas in Michigan increased from 15.4 percent of the total population in Michigan to 17.2.percent during the period .1970-1980 (U.S. Department of Commerce, 1982). The demand for farmland increased, causing farmland values to appreciate. result, property taxes increased. As a Farm income eroded in about 7 0 percent of counties in southern Michigan (C.R.I.S., 1991), accelerating farmland conversion to non-agricultural 55 uses. The Senate Bill 174 suggests changes in the length of contracts, termination and repayment of lien. The House Bill 5314 proposes an amendment to the General Property Tax Act that requires local assessors to determine true cash value of all property enrolled in PA 116 as agricultural, regardless of its classification. The House Bill 0000 requires all new contract holders to develop and implement conservation plans (PA 116 Working Group, 1992). There is no consensus yet on the length of contracts. Some members of the group propose a minimum length of a contract of two years (Senate Bill 174) and five years (Michigan Farm Bureau). the lien reduction. The Working Group also disagrees on HB 0000 suggests that contract holders who implement a conservation plan have a reduction of 25 percent of lien on property. The Michigan Farm Bureau recommends a reduction of one-seventh of lien on property. The proposition by the House Bill 5314 may increase farmer participation in the program, but it raises the cost to State government. Landowners who wish to enroll in PA 116 would tend to overassess their land to get higher property tax credits. However, they would have to pay back a large amount of the lien when they terminate the contract. The Tax Commission, on the other hand, would lower farmland values of enrolled farmers because the refunds by the State 56 government are claims to the income revenue. Under this alternative assessment suggested by House Bill 5314, farm property taxes would increase if land appreciates, due to economic growth in the area. Consequently, farmers who are not enrolled in PA 116 may go bankrupt if the household income does not increase at least at the rate of property taxes. For example, farmland is lost to lenders in Michigan because some farmers cannot repay loans. About four percent of farmers quit farming activities in Michigan in 1987; five percent were in extreme financial stress, a situation where a farmer is unable to repay debts, and 18 percent were in serious financial stress (National Public Policy Education Committee, 1987; DeLind, 1989 and 1990) . Enrollment in PA 116 would therefore be one way to avoid bankruptcy since the state would refund farmers the amount by which the property taxes on the farmland enrolled exceed seven percent of the household income. Farmers who are enrolled in PA 116, would therefore enjoy higher refunds if property taxes increase faster than their household income. The State government, on the other hand, would bear an increased cost if land values continue to appreciate. House Bill 0000 provisions for conservation measures, on the contrary, might decrease farmer participation in the program. This proposed measure adds to the already 57 constraining provisions that farmers would like to see loosened. Moreover, stricter enforcement of PA 116, with a small discount on the lien, may also limit enrollment. Unlike the proposed House Bill 0000, the suggestion by Farm Bureau and the proposed provisions of Senate Bill 174 to relax several provisions of PA 116 may increase farmer's enrollment. Cutting the length of contracts along with the reduction of the lien could be seen by farmers as a way of keeping their property rights, which constitute an incentive to enroll. The proposed reduction of the lien, however, is still small, and may constitute a limiting factor in enrollment. IV.5. Issues in Farmland Protection in Michigan The main issues raised by farmland protection in the State of Michigan are similar to those of the US. They deal with land regulation, incentives, penalties and land assessment. These issues consist of: (1) farmland value assessment, (2) equity in the distribution of incentives, (3) the competitiveness of the program, and (4) its enforceability. Farmland value assessment (use and potential) to the State government worried government officials. Over and/or underassessment of agricultural land complicates taxation of 58 agricultural property because use-value of farmland is considered rather than potential values. For example, there was a 77.1 percent overassessment in Gratiot county and a 21.1 percent underassessment in Kent county in mid 1980 in Michigan (Harvey, et a l., 1987). Use-value assessment was proposed as a planning tool in Michigan (Proceedings of the Seminar on 1971). Taxation of Agricultural and other Open Land, Prior to PA 116, one of thegoals of the State of Michigan was to modify property tax law to reflect use-value rather than potential value assessment to encourage the retention of agricultural and open space land (Governor's Special Commission on Land Use Report, 1972) . The equity of incentives among participants (rural versus urban) and between participants and non-participants was one of the reasons for opposing the program. Farmers located in rural areasmay benefit more than those near urban areas because of the inadequate property tax credits with respect to market prices of land in urban areas. In addition, property tax credits are negative tax revenues to the State of Michigan. The State government has to compensate the loss in tax revenues by increasing taxes to other categories of the population. The competitiveness of PA 116 credits in urban fringe areas, with respect to market prices of land, is another issue. PA 116 credits may not rise as quickly as market 59 prices of land located in areas experiencing rapid economic growth. The amount of incentives to offer to farmers who participate in the program is therefore a major concern in farmland protection in Michigan. Enforceability of the program, consists of the type and the magnitude of the penalty to use against landowners who terminate their contracts early. As economic development takes place in southern Michigan, landowners may sell their land (or part of it) to take advantage of the resulting increased market price of land. That is, the lien imposed on contract termination might be too small to retain landowners in the program. IV.6. Research Questions An assessment of the effectiveness of farmland protection programs, such as the Michigan Farmland and Open Space Preservation Act of 1974, raises two main questions. First, do the property tax incentives offered to farmers, especially those in urban fringe areas, influence enrollment in the program? The assumption behind PA 116 is that farmers located in urban fringe areas, would respond to property tax relief as enough of an incentive. Second, does the enforceability of PA 116 lead to more retention of farmlands especially in areas of rapid economic development? 60 A lien is imposed on farms whose contract is terminated early. IV.6.1. Incentives Gardner and Bariowe (1978) tried to have a complete picture of the impact of tax policy by comparing land values and property taxes. They noticed that if taxes increased at the same or slower rate than land values, landowners would not quit farming. If taxes were increasing at rate of, say five percent and agricultural land values at a rate of 10 percent, farmers would be able to keep their farms in farming activities because the expected market price of their real estate would be higher than the cost of running farming activities. There have been debates over the effectiveness of agricultural property tax relief as a means to protect farmlands. Levin, Rose and Slavet (1974) stated that tax policies are often in direct conflict with land use objectives, which may create a desincentive to preserve farmlands. They suggested the adoption of corrective mechanisms, i.e., integration of taxation with planning to make tax policy an incentive. While Levin, Rose and Slavet looked at the effectiveness of property tax incentives on land use, the National Task Force on Research 61 Related to Land Use Planning and Policy (n.d.) focused on the consequences of the incentives on local government revenue, and, implicitly, on land use. The National Task Force on Research Related to Land Use Planning and Policy stated that reliance on property taxation created an incentive for local governments to compete for (rather than control) commercial development and expensive residential development because of their favorable fiscal impact. Property taxes constitute a major source of revenue to local governments and organizations, such as townships, cities, villages and schools16. In case the State refunds farmers, while local governments continue to collect property taxes, those institutions will not be directly affected by property tax credits to farmers, at least in the short-run. Property tax credits vary according to financial conditions that farmers experience. If farmers'household income is not high relative to the amount of agricultural property taxes, PA 116 refunds to farmers will be relatively high. Property tax credits were about $615,000 in 1975. They were nearly $78,000,000 in 1984, corresponding with the first phase of minimum time period of a contract. Property tax credits were about $54,000,000 in 1990 (Michigan Property taxes remained the single largest source of revenue at the local level in the U.S., amounting to $45.3 billion in 1973 (Gustafson, 1977). 62 Department of Treasury, 1990). That is, although PA 116 refunds are claims on income taxes, the administration of the program may oblige the State to cut some of the programs, therefore affecting indirectly local governments. As a result, local governments may encourage any development that can increase their revenues. Under these conditions, PA 116 credits might, in fact, increase, rather than discourage, agricultural land conversion. The high speculative land values compared to low-use value of farms near urban centers offer farmers incentives to sell their land (Angevin, 1986). Urbanization brings about the opportunity to reap a capital gain by selling off the farmland located mainly near urban centers where there is a competition between farming and urban-related services (residential, industrial and commercial sites). are expected to be a target. Small plots That is, the geographic distribution of enrollment becomes an important measure of the effectiveness of PA 116 in preserving agricultural land located near urban areas. Areas where property tax credits are higher than others would indicate a lower level of household income relative to property taxes. be a sign of higher enrollment rate. They may also Less property tax credits, on the other hand could result from higher household income of participants, or from a lower rate of enrollment. 63 IV.6.2. Enforceability Farmers think that they can terminate early the contract by repaying tax credits. voluntary program. To them, PA 116 is a Therefore, they think they can get out of the program whenever they want. Are farmers willing to preserve farmland under the conditions of economic development, especially near urban areas? Blocking exit from a voluntary program by imposing a lien may therefore result in more speculation on agricultural land, especially in urban fringe areas. The lien may not be a major constraint on contract termination as long as the market price for agricultural land can allow farmers to pay back the lien and still have net income. Consequently, as economic development continues to take place in southern Michigan, there might be an increased number of withdrawals from the program. Enforceability of PA 116 may be difficult as economic development takes place in southern Michigan, as a result of the increased access to rural areas via improved transportation systems. Subsequently, agricultural land values are expected to increase. According to Hanson and Kelsey (1991), some farms in southern Michigan were sold at about five times the State's average purchase price for prime farmland. Agricultural land market prices are 64 obviously higher than PA 116 credits, especially in more urban counties. Tight control over PA 116 in a context of increasing economic growth may thus limit participation in the program. Hence, assessing the effectiveness of PA 116 through its enforcement can help to understand future enrollment. IV.7. Summary of the Chapter This chapter reviewed farmland protection in the State of Michigan. The legislative history of PA 116 indicated that prior to the Act, no land use legislation was implemented. The burden of property taxes on farmers, which then forced farmers to sell their land, was the main motive to propose PA 116. Defenders of the program advocated the importance of Michigan agriculture in the statewide economy. There were opponents to the proposed legislation because of the fear of losing tax revenues to local governments and organizations. The bill underwent several amendments before its approval and enactment in May 1974. Enrollment and withdrawal from the program follow some procedures that involve several institutions. The current debate on PA 116 is directed toward adjusting the program to the prevailing economic conditions of the State of Michigan. There is still disagreement on ways to go about the adjustment. The main issues raised by farmland protection in the State of Michigan were: farmland value assessment, program, (1) (2) the beneficiaries of the (3) the attractiveness of the program, and (4) the enforceability of the program. this study were: Two research questions of (1) Do property tax incentives influence enrollment? (2) Does enforceability of the program lead to sustained enrollment? CHAPTER V. METHODS FOR ANALYZING PA 116 Several studies have examined the effectiveness of PA 116 by looking at the number of acres enrolled and the number of contracts signed. This chapter reviews the methods used by previous studies to analyze the effectiveness of PA 116. Based on the findings of this review, the methods used in this study are presented. This chapter finally presents the data sources used and the research design. V .1. Review of Previous Methods V .1.1. Surveys In the State of Michigan, research has described the magnitude of enrollment in PA 116, property tax refunds, number of recipients of property tax credits, land values, and the characteristics of farms. An evaluation of PA 116 was done by Cochran (1976), two years after the Act was enacted, to identify farmers enrolled in the program. study used a mail survey. percent. This The rate of response was 60 The main variables included in the study were age, size of farm own, operated, and enrolled, types of ownership, and distance of farm from a city. 67 The mail survey used by Cochran had an advantage of reaching many farmers at the same time at a low cost. study was, however, only farmer-focused. The The interaction between participants and the administration of the program was not analyzed to examine the behavior of participants. A study by Frankel and Connor (1988) used a survey of farmers who enrolled and those who did not enroll in PA 116 to test a series of hypotheses related to the perception of PA 116. This comparative analysis of enrollment and non­ enrollment indicates farmers' point of view on the program. However, the study does not address future enrollment. V. 1.2. Interviews A study by the DNR (1978) consisted of interviews with selected farmers. The results were compared and contrasted to Cochran's findings. The objective of the survey was to evaluate the program in terms of geographic and socio­ economic characteristics of farmers who enrolled. The topics covered were the following: size of farms operated, owned, and entered in the program; distance of the farm from urban areas; types of land ownership; age and education level of operators; household income; property taxes; and income tax credits. 68 The interview method used by the DNR, which consisted of selected farmers, was helpful to get the opinions of participants about the program. However, it was not specified if the selection was random or purposive. Moreover, the study did not concentrate on the central issue of patterns of enrollment near urban areas and elsewhere in the state, which are necessary to improve the administration and the enforcement of the program. V.1.3. Secondary Data and Interviews Hoffman (1986) used the township level comparison of enrollment with development pressure index values, as well as informal interviews with county officials to assess the effectiveness of PA 116. Effectiveness was defined in terms of enrollment in areas under development pressure. The development pressure index values used by Hoffman could be a possible explanation of the lower enrollment near urban areas. However, development pressure index requires comprehensive planning, which is a result of collaborative effort of institutions involved in economic growth of a given area. Hence, effectiveness as defined limits understanding of the impact of incentives and enforceability of the program on enrollment. 69 Harvey, Norgaard, and Walker (1991); Harvey and Trachtenberg (1990); and Harvey, et al, (1987) used property tax variation to explain enrollment in PA 116. The major tool to analyze the effectiveness of PA 116 was the magnitude of incentives to induce enrollment. This way of analyzing effectiveness shows the importance of property tax credits in the decision to enroll in PA 116. These property tax credits indicate a geographic distribution of enrollment. However, they do not inform on the magnitude of enrollment, given the total acreage in farm in different counties. A county which is predominantly urban may get relatively lower property tax credits than a rural county because there are not many farmers with large farms. In such a case, the program would be considered as effective because many farmers in urban counties would have slowed down farmland conversion by enrolling their small farms. V.1.4. Strength and Weaknesses of Previous Methods The survey and the interview techniques to assess the effectiveness of PA 116 identified landowners who enrolled in the program. research. They constituted a data bank for further The other techniques developed some indicators, like development pressure index values and property tax 70 variation, which led to an initial evaluation of the program in terms of absolute acreage enrollment. The previous methods, however, did not define effectiveness in terms of relative enrollment. They did not also focus on the patterns of enrollment to explain the expected enrollment rate, given the magnitude of farming activities in different counties. The previous studies do not also suggest policy measures to increase enrollment near urban areas. V.1.5. The Methods Used in this Study This study uses secondary data from various sources, as well as informal interviews with people who participated in the preparation of the program, current administrators of the program, and institutions affected by or influencing the program. The study also includes an analysis of the current debate on the program. Unlike other studies, this study expands the definition of effectiveness. Effectiveness includes not only the number of acres and contracts signed or early terminated statewide or per county, but it also consists of the relative rate of enrollment per county. This rate takes into account the variability in acreage in farm, farm size, and acreage enrolled across the counties in southern Michigan. 71 V.2. Data Sources The area covered by the study is southern Michigan. It encompasses 41 counties from the southern border to the State of Ohio to Oceana county (see Map 2). These counties include most of the state's farmland and are the most populated areas. They account for 81 percent of the state's farmland and 92 percent of its population (Gardner and Frazier, 1981). In addition, about 97 percent of the farmland enrolled in PA 116 and 72 percent of the agreements that have been terminated early are in these counties (DNR, 1991) . The study does not include data from northern Michigan. The latter is comprised largely of public land, especially forests (see Map 2). Moreover, the study does not discuss other types of tax benefits that affect land use, such as the homestead tax credit, nor does it discuss open spaces due to the lack of data on the latter and the complexity of analyzing the impact of several types of taxes on protecting farmland in the same study. 72 Hap 2 Area Covered and Types of Public Land in Michigan Notional Forest - Pork - lokeshore Notlonol Wildlife Refuge Side Forest L&J Stole Pork WM Stde Game — V/ildlife / Stole RecreolionalArea t ------------------------------------------ 1975 1976 1977 1976 1979 1960 1961 1962 1963 1964 1965 1966 Year Hv*t Source: Harvey and Trachtenberg, 1990; Harvey et aL, 1991. i.nr 1967 o 1066 i 1969 eJ 1990 84 Second, the average acreage per contract has decreased. The average number of acres per contract declined from 134 acres in 1975 to 111, 98 and 92 acres, respectively, in 1978, 1982 and 19 90 (Harvey and Trachtenberg, 19 90; Harvey, et a l ., 1991) . Hence, although the total number of acres of agricultural land enrolled has increased, many counties in Michigan still did not commit a relatively high percentage of their land to the program in 1990. For instance, 87 percent of all counties in the entire state of Michigan enrolled less than 50 percent of their total farmland in 19 90 (Harvey et al ., 19 91). Third, the number of contracts signed annually reached a peak in 1982 and dropped significantly by the mid 1980s. Up to 1977, these contracts increased at an increasing rate. There were variations in contracts signed between 1978 and 1984. Beginning 1985, the number of annual contracts decreased continuously (see Table 3 and Figure 3). 85 Table 3 Number of Contracts Signed per Year and Percentage Change, Michigan, 1975-1991 Year Contracts % Change 1975 362 1976 617 70 1977 3,467 462 1978 3 ,124 - 10 1979 5,210 67 1980 6,304 21 1981 5, 174 - 18 1982 8, 018 55 1983 6,456 - 19 1984 4, 595 - 29 1985 4, 076 - 11 1986 2, 816 - 31 1987 1,496 - 47 1988 908 - 39 1989 597 - 34 1990 491 - 18 1991 442 - 10 Source: DNR, 1992. 86 Figure 3 Number of Contracts Signed per Year, Michigan, 1975-1991 C o n tra c t! (T h o usa n d s) 10 8 6 4 2 0 — 1 : 1075 1076 1077 1076 1676 1860 1681 1682 1883 1864 18SS 1686 1667 1686 1666 1800 1681 Yaar Source: DNR, 1992 87 Fourth, both PA 116 credits and the number of recipients increased rapidly from 1979 to 1981 and declined significantly afterwards (Department of Treasury 1991). The percentage change shows that PA 116 credits decreased beginning 1986, while the number of recipients decreased the following year. In 1986, the number of recipients was still increasing, while the total amount of tax credits decreased. This reflects a time lag between the time when farmers decided to withdraw from the program and when they realized that incentives were fading (see Table 4 and Figure 4). 88 Table 4 PA 116: Tax Credits, the Number of Recipients (in thousands), and Percentage Change in Both Tax Credits and the Number of Recipients, Michigan, 1979-1989. Year Total Amount 1979 15,577 .2 1980 24,271.7 56 8.3 54 1981 37,950.3 56 12 .0 45 1982 53,638.1 41 14 .8 23 1983 62,981.3 17 15 .1 2 1984 71,674 .6 14 17 .0 13 1985 77,568 .3 8 18 .2 7 1986 71,464 .8 - 8 19.6 8 1987 58,215.7 -19 17 .3 -12 1988 54,932 .5 - 6 17 .1 - 1 1989 54,294 .9 - 1 16 .7 - 2 Source: % Change Recipients % Change 5.4 Department of Treasury, 1991. 89 Figure 4 PA 116: Percentage Change of Tax Credits and Recipients. Michigan. 1979-19B9 Percantaga 60 40 20 •20 •40 1980 1961 1B62 1963 1964 1965 1966 1067 1966 1969 Year Source: Department of "Treasury, 1991. 90 Fifth, attractive prices for land may have contributed to reduced enrollment, especially in urban fringe areas. Increased land prices were partly due to population migration to rural areas (the rurban phenomenon) which increased demand for farmland. Rural population represented 26 percent of the total population in Michigan in 1970. By 1980, rural population represented 29 percent of the total population in Michigan (Michigan Department of Management and Budget, 19 91) . As one farmer put it, land values, at the individual farm level, were showing signs of increasing faster than the income level to support the purchases (Hanson and Kelsey, 1991). While the state's average purchase price per acre was $97519 for higher quality land (prime farmland) in 1991, some parcels of less than 20 acres were selling in the range of $2000 to $5000 ($1570 to $3920 in real values) per acre. Woods and stream or ponds pushed sales over $10,000 ($7840 in real value) per acre in the same year (Hanson and Kelsey, 1991). In general, however, the statewide average real values of land per acre decreased during the period 1978-1990. They dropped significantly since 1982 (USDA, 1985; Michigan Agricultural Statistics Service, 1990; Table 5; Figure 5). 19 $975 are equal to $7.6 in real values (1985 = 100). Real value = (nominal value/consumer price index)*100 (Appendices 4 & 5). The purchase price per acre (gross sale price per acre) is equal to sale price/total acres. 91 Table 5 Average real Values of Farmland (rounded) per Acre ($), and Percentage Change, Michigan, 1977-1990 (1985 = 100) Year Real Values 1977 1400 1978 1450 4 1979 1450 0 1980 1450 0 1981 1500 3 1982 1400 - 7 1983 1300 - 7 1984 1300 . 1985 1100 -15 1986 1000 - 9 1987 900 -10 1988 880 - 2 1989 870 - 1 1990 870 0 % Change 0 Source: USDA, 1985. Michigan Agricultural Statistics Service, 1990. 92 Figure 5 Average Real Values of Farmland per Acre (S). Michigan. 1977*1990 (1965-100) Real values 1,600 1,400 1.200 ■ 1,000 600 600 400 200 1977 197 8 1 979 1 980 1981 1982 1983 1984 1985 1986 1967 19BB 19B9 1990 Year Source: USDA. 1985: Michigan Agricultural Siatislles Service. 1990. 93 In brief, the statewide number of contracts, the acreage enrolled, and tax credits decreased sharply after 1982, corresponding to about the first 10 year minimum length of time of a contract (see Tables 2, 3, 4, and Figures 2, 3,4). At the same time, farmland values decreased (see Table 5 and Figure 5). It looks like the year of 1982 was a saturation point for enrollment at the state level. V I .1. 2 . At the County Level First, the counties with the largest number of acres enrolled in 1976 were, in decreasing order: Ingham, Clinton, Lenawee, Saginaw, Washtenaw, Jackson, Eaton, Iosco, Ottawa and Barry (Cochran, J.M., 1976; Map 3). In 1990, the counties with the highest percentage of farmland enrolled were: Huron, Gratiot, Tuscola, Saginaw, Bay, Sanilac, and Midland, in the Thumb area, and Lenawee, Saint Joseph, and Branch in the southern part of Michigan (Harvey et al., 1991; Map 3). 94 Map 3 Counties Leading in Enrollment, Southern Michigan, 1976 and 1990 Southern Michigan Source: - Cochran, J . » 1976 - Harvey, L.R. at al., 1991 95 The total acreage in farms, one the one hand, increased from 1974 to 1982. It decreased from 1982 to 1987, except for Ionia, Midland and Oceana. The acreage enrolled, on the other hand, increased at an increasing rate from 1978 to 1982, and increased at a decreasing rate from 1982 to 1987 statewide (see Table 6). Thirty four percent of the counties in southern Michigan experienced a cumulative enrollment of at least 50 percent of land in farms in 1990. The remaining 66 percent had an enrollment of less than 50 percent. Among the last category, Ingham, Isabella, Shiawassee, and Ottawa counties had the highest enrollment. More urban counties, located in Detroit area, Battle Creek area, Flint area, Muskegon and Benton-Harbor areas enrolled less than 45 percent of their land in farms. county (10%). county. The lowest enrollment was observed in Wayne The highest enrollment was observed in Huron (DNR, 1990; Map 4). 96 Table 6 Land in Parma (acres) and Acreage Enrolled (cumulative) per County for Selected Years County 1974 Land in farms (a) 1979 1982 1987 Acreage enrolled (b) 1978 1982 1987 Allegan 260, 000 261. 000 267, 000 254, 000 4,319 63, 171 97 ,090 Barry 185, 000 181, 000 188, 000 168, 000 13 .573 36, 083 48 ,456 102 ,910 Bay 167, 000 184, 000 180, 000 177, 000 6,431 71, 702 Berrien 196, 000 197, 000 190, 000 180, 000 1.986 28, 000 49 ,772 Branch 216, 000 242. 000 243, 000 227, 000 15,388 86. 312 121 ,143 123 .900 Calhoun 271, 000 256, 000 267, 000 253, 000 14 ,439 75, 886 Cass 196, 000 199, 000 199, 000 194, 000 11,151 56, 980 92 .521 Clinton 262, 000 260, 000 267, 000 253, 000 39,681 109, 425 132 .900 74 .668 Eaton 239, 000 239, 000 245, 000 234, 000 13 ,056 50, 065 Genesee 149, 000 157, 000 161, 000 145, 000 6,531 29. 305 42 ,935 Gratiot 282, 000 280, 000 289, 000 282, 000 39.261 168, 539 208 ,949 Hillsdale 267, 000 264 .000 265, 000 242, 000 10,668 84, 556 119 ,843 Huron 410, 000 405, 000 435, ooo 424, 000 74,591 254, 963 318 ,498 Ingham 227, 000 226, 000 223 ,000 208, 000 37,162 80, 956 92 ,457 Ionia 251. 000 244 ,000 243 .000 254 .000 9 .583 64 ,152 103 ,112 Isabella 204, 000 202. 000 201. 000 195, 000 5,476 40, 339 86 .753 Jackson 245, 000 242. 000 235, 000 218, 000 11,899 59, 130 75 .520 60 ,498 Kalamazoo 171, 000 175, 000 177, 000 168, 000 2,847 41, 057 Kent 226, 000 230, 000 223, ooo 204, 000 11,450 43 ,962 64 ,379 Lapeer 224, 000 233, 000 226, 000 219, 000 5,395 40 ,476 66 .166 Lenawee 373 ,000 374, 000 376, 000 ' 345. 000 52, 189 183, 966 223 .675 Livingst. 141, 000 136, 000 138, 000 129, 000 2,660 21, 683 31 .157 89, 000 89, 000 91, 000 80, 000 215 5, 235 8 ,614 126, 000 140, 000 136, 000 127, 000 4,876 26, 647 32 ,148 Macomb Mecosta 88. 000 94, 000 93 ,000 94, 000 9,056 32, 418 50 ,473 Monroe 232, 000 232, 000 242, 000 220, 000 3 ,867 66, 456 86 ,568 Montcalm 240, 000 243. 000 241 ,000 238 ,000 3,811 49, 267 87 ,895 Muskegon 82, 000 87 ,000 85. 000 82, 000 6,269 23, 174 29 , 150 Newaygo 127, 000 133, 000 129, 000 116, 000 730 27, 315 Oakland 87, 000 77 ,000 69. 000 60, 000 3 ,354 4 ,830 Midland 42 .686 7.;288 Oceana 126, 000 126. 000 130, 000 133, 000 6,262 26, 021 52 ,972 Ottawa 174, 000 191. 000 183, 000 178, 000 10,287 62, 349 80 ,964 Saginaw 333 ,000 335, 000 32 3 .000 308, 00Q 51,320 146, 398 195 ,082 stclair 202, 000 206, 000 206, 000 177, 000 1.875 16, 075 30 ,075 StJoseph 226, 000 223, 000 221, 000 214, 000 3.713 80, 745 112 ,069 251 ,263 Sanilac 421, 000 448, 000 444, 000 431. 000 19,469 166, 772 Shiawass. 242, 000 252, 000 244, 000 240, 000 9,815 76, 528 103 ,296 Tuscola 335, 000 345, 000 344, 000 329, 000 72,696 172. 004 220 .931 Van Buren 213, 000 206, 000 197, 000 190, 000 9,643 46, 451 75 ,837 Washtenaw 226, 000 235, 000 224, 000 205, 000 8, 801 56, 276 76 ,360 37 ,000 33 .000 37 ,000 22, ooc 470 1 , 216 2 .209 Wayne Source: (a) Census of Agriculture 1974, 1978, 1982 and ,^37. (b) Harvey and Trachtenberg, 1990. 97 Map 4 Percentage (accumulated) of Farmland Enrolled, Southern Michigan, 1990. I I Southern Michigan Source: DNR, 1990 98 Second, farmland agreements increased between the period of 1975 to 1982 and decreased sharply afterward in most counties. About 25% of counties continued to have an increase in agreements up to 1983. These were: Calhoun, Hillsdale, Ingham, Ionia, Kalamazoo, Kent, Mecosta, Midland, Oakland and Oceana. After 1985, enrollment in the program was weaker than before in all the counties (see Appendix 3). Third, PA 116 credits as a percentage of the total agricultural property taxes followed the same pattern of enrollment. Western counties such as Kent, Ottawa, Muskegon and Oceana, along with those located in the Thumb area and in the southern part of Michigan, received a relatively higher percentage of property tax refunds than other counties. Counties with the lowest percentage of PA 116 with respect to total property taxes are in Detroit area: Wayne, Oakland, Macomb, Livingston, and Saint Clair (see Table 7). 99 Table 7 PA 11< Credits. and as a Percentage of Total Property Taxes by County, Southern Hichigan, 1 9 D - 1 M 5 and 1987 PA 116 Credits County ion Percentage 1Qfii 1G(1 Allegan 740,400 1,065,000 1.206,700 1,294,000 10 14 IS 17 Barry 312,700 493,300 370,000 404,200 1 11 8 11 Bay 2,539,000 2.794.000 2.735.000 1,441,000 31 34 34 24 Berrien 1.215.000 1.039,000 946,700 867,300 19 17 16 19 Branch 1.230.000 1.039,000 1,345,000 1,216,000 21 17 23 21 Calhoun 1,309,000 1.084,000 1,261,000 1,067.000 20 17 23 21 971.400 1,183,000 977.600 1,129,000 18 23 18 23 27 Cass 1.531.000 1.924.000 2,623,000 1,769,000 19 24 31 Eaton 967,900 1,337,000 1,396,000 1,180,000 15 21 21 19 Canaaao 892.500 946,800 916,900 846,500 14 15 15 14 Gratiot 4.300.000 4,565.000 5.447.000 2,367,000 46 49 58 38 Hillsdale 1,293,000 1,660,000 1.213.000 811.200 20 26 23 26 Huron 5,209.000 6,475.000 6,795,000 5,078,000 40 50 50 45 Inghan Clinton 2,269,000 1,921,000 1,780,000 1,936,000 30 26 23 26 Ionia 959,700 1,211,000 1,377,000 1,044,000 18 22 25 20 laaballa 560.900 715,800 879,500 624,600 11 14 18 15 Jackson 829,200 769,800 867,500 779,800 11 10 11 11 Kalaaazoo Kant Lapaar Lenawee Livingston Macoab 989,400 1.315,000 1,063,000 1.108,000 20 27 22 25 1,139.000 1,178,000 1.527,000 1,366,000 28 29 37 33 650,500 825.800 667,400 544,200 9 12 9 8 4.756,000 5.080.000 6.037,000 4,202.000 35 38 46 39 265.700 425.300 504,800 213,600 5 8 10 5 77,000 197,000 181,100 311,800 1 3 3 6 Mecosta 135,600 275.800 266.700 138,300 6 12 12 6 Midland 519,300 395,000 388.500 473,200 19 15 14 24 Monroa Montcaln 1,683,000 1.604,000 1,266,000 1,284,000 17 18 13 15 892,300 1.062,000 1,086,000 1,317,000 18 21 21 27 Muskagon 636,700 663,600 655,200 297,500 30 31 32 15 Newaygo 383,000 528,000 661.000 348,500 13 18 23 12 Oakland 286,800 208.500 436,700 280,200 3 2 2 4 Oceana 344.300 597,700 525,800 791,200 16 28 24 33 Ottawa 1.576.000 1,456,000 1.662,000 1,848,000 24 22 24 25 Saginaw 5,455,000 5,662,000 5,854,000 3,810,000 37 38 39 33 StClair 219.000 187,100 215,900 370,100 2 2 2 4 StJoseph 1,747,000 1,939,000 2,321,000 1.280,000 29 33 39 25 Sanilac 2.460.000 2.435,000 3,645,000 2.454,000 24 24 35 29 Shiawaasea 1,468,000 1.392.000 1.928.000 1,550.000 21 20 28 23 Tuacola 5,196,000 5,935,000 6,549,000 3,784,000 40 46 47 40 Van Burtn 1,203,000 746,000 858.500 511,000 22 14 IS 11 Washtenaw 1,624,000 2,157,000 2,002,000 1,369,000 16 21 19 14 364.900 498.900 84 500 26 24 32 6 Mavng--- __ I S O M _ Note: Numbers are rounded. Source: Michigan Department of Treasury: Taxation and Economic Policy Office, 1985, 1986, 1986-87 and 1990. 100 Fourth, the average real values of farmland per acre increased during the period 1964-1978 and decreased during the period 1982 - 1987, except for Wayne county. Bay, Newaygo and Saginaw counties continued to experience an increase in real values of land until 1982 (see Table 8). The percentage change indicates that the real values of farmland increased in more rural counties, located especially in the Thumb area, during the period 1974-1982. At the same time, more urban counties, located mainly in Detroit area, experienced a decrease in real farmland values. During the period 1982-1987, the real values of farmland decreased in all the counties (except Wayne county), especially in the Thumb area. Major increase of real values of land prior to PA 116 occurred in the following counties: Livingston (109%), StClair (106%), Lapeer (86%), Mecosta (83%), Newaygo (80%), Oakland (66%), Oceana (66%), Sanilac (65%), Cass (62%) and Washtenaw (62%) (see Table 8 and Map 5). Apart from Washtenaw county, none of these counties was leading in enrollment in 1976 (Map 3). During the period 1974-1982, corresponding to about the first 10 year of the minimum length of contracts, there was moderate land appreciation and a geographic change in land values. Major increase in real farmland values took place especially in the Thumb area: Gratiot (52%), Huron (51%), Bay (48%), and Midland 101 Avarag* Aaal valuaa (roundad) *t Land and Building par Aer* par County, southern Michigan, 1944 - 1987 (1915*100) and Bareantag* Chang* During tha 9*rioda 1944-1974, 1974-1912. and 1912-1997 ))» 1974 County 1.340 1.700 1.440 (4-74 m 74-92 (%) 18 49 - 49 2 - 14 1,100 430 710 970 1,290 990 940 49 54 Bay 1.210 1.300 1.470 3.030 2.110 1.120 7 B«rrl«n Al 1*011) Barry 920 920 12-17 M) - 25 3 0 12 - 1.440 1.530 1.440 2,010 1.470 1,100 Branch 740 770 990 1.330 1.120 740 24 12 - 24 Calhoun 720 770 940 1.290 1.090 490 22 19 - 27 14 - 23 Caaa 710 890 1.150 1.670 1.330 900 Clinton 850 970 1.170 1.500 1.210 890 42 28 12 - Baton •10 910 1.150 1.490 1,210 920 42 14 - 27 44 C*n«a«a 1,200 1.590 1,730 2.040 1.420 2.140 Cratiot 1,090 1.010 1,170 1,630 1.790 710 I 22 It - II 52 - 54 Milled*. 440 910 1.050 1,550 1.200 790 59 24 - 29 Huron Inghan 140 910 1,140 2.030 1.750 950 28 51 - 44 - 29 1.040 1.170 1.440 1,740 1.490 1.050 29 2 lonla 470 820 1.000 1.390 1.140 810 49 14 - 29 Isabella 470 720 930 1.230 1.100 440 24 21 - 43 Jack* on 710 940 1.110 1,410 1.190 820 54 Kalanat. 990 1.310 1.490 1,870 1.450 1.170 51 Kant Laptir 900 1.100 1.340 1.750 1.610 2,210 51 18 840 1.250 1,550 3.040 3.510 2.040 94 - 20 1.100 1.210 1.500 3.170 2.450 -2 1.120 24 10 - 22 920 1.290 1.930 3.130 1.550 1.240 109 -19 - 19 -II - 13 Lenawee Living*. 1,800 2,400 2,440 3.060 2.190 3.910 Mecosta Maccab 250 440 440 l.OSO 800 440 48 82 Midland 750 950 1.150 1.770 1.590 900 Honroa 7 - 19 - 35 28 - 37 52 28 - 42 - 23 1.520 1.470 1.980 2,410 2,900 1.290 29 - 4 Montcals 550 590 790 1.330 990 700 44 32 Muskegon 820 910 1,050 1.450 2.290 950 28 20 Newaygo 510 400 920 1.060 1,220 740 80 Oakland 1.840 2,940 3.060 3.590 2.890 2,280 44 - « 520 710 980 1.190 1.250 940 44 42 Ocaana 21 - -5 22 - 27 20 - - 28 - 21 - 25 Ottawa 1.200 1,180 1.420 2.000 2.920 2.440 25 19 - 14 Baginaw 1.170 1,200 1,510 1.810 2.820 990 29 21 - 44 StClair 790 1.140 1,630 1.830 1.290 1.040 104 21 - 19 StJoaeph Sanilac 740 790 1,010 1.640 3.420 990 22 41 - 490 780 1.140 1.540 2.220 720 45 Shiawas. Tuscola 920 1,140 1.260 1.440 1.240 820 27 1.300 1.330 1,480 3,330 1.920 950 22 1.710 2.420 1.940 1.040 1.440 -9-J70 -71- VanBuran 1.090 950 1.140 Vashtea. 3.470 1.140 1,810 _M*una i *>ia % am i Mft Source* Census el Agriculture 3987, 1983, and 1974. 3,390 i 15ft 8 8 21 - 41 - 28 20 - 51 41 21 53 - 1 - 25 - 32 dS__ -14 102 (38%). Elsewhere in southern Michigan, Oceana (42%), St Joseph (41%), and Montcalm (38%) were the counties which experienced a major increase in real farmland values. On the contrary, land depreciated in urban counties during the same period. Real farmland values decreased mainly in Wayne (35%), Livingston (19%), Genesee (18%), and Macomb (18%). During the period 1982-1987, major decrease in real farmland values took place in the following counties: Gratiot (56%), Tuscola (51%), Bay (49%), Huron (46%), Saginaw (46%), Midland (43%), Isabella (42%), and Sanilac (41%) (Table 8 and Map 5). One of the explanations of the decrease in real farmland values in more agricultural counties may be the fact that land, which was considered as a hedge against inflation in early 1970s, was no longer a major means of investment in the 1980s. On the other hand, cheaper land would attract urbanites who would convert it into nonagricultural activities. Therefore, a decrease in real farmland values may lead to increased farmland conversion to non-farm activities. Another observation is the positive correlation between the real farmland values and incentives. PA 116 credits increased or decreased when the real farmland values increased or decreased. That is, a decrease in real farmland values results in a decrease in enrollment. More 103 Map 5 Percentage Change In Farmland Real Values, Southern Michigan, 1964-1974 and 1974-1982. Southern Michigan 49 13 25 WflBOl 1J „. 41- 21 Note: Source: S 51 -3 The number on the cop represents the change during the period 1964-1974. The second number represents the change during the period 1974-1982. The third number represents the change during the period 1982-1987. Census of Agriculture 1987, 1982, and 1974. 104 urban counties experienced higher farmland values prior to 1974 (Table 8 and Map 5). These land values have dropped since then. V I .2. The Rate of Enrollment The rate of enrollment increased from 1978 to 1982 and started to decrease afterwards in all counties, except Wayne county, where the rate of enrollment increased more during 1982-1987 period than during 1978-1982 period (see Table 9). The percentage change shows also that the rate of enrollment in 1987 was high in the eastern and in the western coasts of Michigan, as well as in counties bordering the State of Ohio, the northern part of southern Michigan, and in three counties neighboring Detroit area. The counties presenting the lowest rate enrollment by 1987 were Wayne (10%), Macomb (11%), Oakland (12%) and StClair (17%). They represent the low enrollment counties. The counties that presented the highest rate of enrollment in the same period were Huron (75%), Gratiot (74%), Tuscola (67%) and Lenawee (65%). counties. They represent the high enrollment ( »W»X nH0 i! S. H 9 *»N 2 2 M M. SS WWoU * U M M Vt w t* Al At «H *. 10} O It) H M I I M O }o •»»« 65 V« * O g M A m ^ < 4 ij fjB u W M W W U U W M “ U VI A u w w uJ»t*o ■> W OAWOAOM 0 * o S I « » ! 8 » t l S o 2 i W ....... * VI to » inS|M3|M 4 MW S U M M viu v* u '(tCt-CKt |»» w VI u M u V A Id N A Am *g»iu»l«4 P“» ‘h m * • 106 V I .2 .1. Adoption Behavior in Low Enrollment Counties By plotting the rate of enrollment, it is seen that, overall, low enrollment counties experienced growing enrollment at a decreasing rate between 1978 and 1982. Enrollment was increasing at a higher rate since then (see Figure 6). That is, the first stage of enrollment, the period of slow increase in adopting the program, went up to 1982 in low enrollment counties. Landowners were not motivated enough to widely adopt the program. The annual agreements indicate that the turning point was in 1981 (see Figure 7). 107 Figure 6 Adoption Behavibr in Low Enrollment Counties (using the rate ol enrollment) Percentage 20 10 1S7B 1982 Year a _I_ \'r ju Wqma aaunij I » — «■>» — unry /TCOaUaft* Munly aChai county Source: Census of Agriculture. 1978, 1982 and 1987; Harvey and Traehtenbarg, 1990 108 Figure 7 Adoption Behavior in Low Enrollment Counties (using egreements) Agreements (thousands) 1875 1976 1977 1976 1979 1960 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Year . Wqma — MMy " I M asoa* a w V ’7t€ o « tti> i* a w n y ® SSSkir anmgr Source: Miehigen Oepanment ot Natural Resources, Farmland and Open Space Unit, 1992. 109 The second stage, the period of extensive adoption of the program, corresponding to the portion from the turning point to the saturation point, where enrollment is stagnant, consists of growing enrollment at an increasing rate. turning point was in 1982 . after 1987. The The saturation point occurred The annual agreements, however, show that this stage was between 1981 and 1983 . reached in 1982. The saturation point was Landowners may have enrolled larger portions of their land up to 1982 and started to enroll smaller plots since then. The third stage corresponds to the period where the curve starts to decline. After the saturation point in 1982, enrollment in the program started to decreased. In low enrollment counties, in general, the turning point occurred early 1980. It took landowners about five years to enroll more land in PA 116. The saturation point, however, was reached in a very short time. The year of 1982 represents a maximum land enrollment in most low enrollment counties, which are mainly urban. PA 116 credits were relatively low in those counties (Table 7). The year of 1982 is also a period where real farmland values and land in farms started to decrease (Tables 6 and 8). 110 V I .2.2. Adoption Behavior in High Enrollment Counties The rate of enrollment in high enrollment counties indicates that the turning point in the adoption of the program took place prior to 1978 (Figure 8). The annual agreements show that the turning point was in 197 6 (Figure 9). It took landowners a very short time to decide to enroll their land. The year of 197 6 corresponds to the period where the Thumb area started to lead in enrollment. The saturation point was reached before 1982 . Both the rate of enrollment and annual agreements indicate that enrollment grew at an increasing rate up to 1979 and started to increase at a declining rate up to 1982. declined since 1982 (Figure 9). Enrollment The rate of enrollment, however, shows that enrollment grew at a decreasing rate until 1987 (Figure 8). Once more, farmers may have enrolled smaller portions of their land after 1982. The third stage in high enrollment counties occurred around 1982. In high enrollment counties, in general, farmers adopted the program early. The extensive adoption of the program slowed down after the first 10 year minimum time required for enrollment. High enrollment counties are mainly rural. PA 116 credits were still relatively high until 1985 (Table 7). Real farmland values and land in farms, however, started to decrease in 1982 (Tables 6 and 8) . I l l Figure 6 Adoption Behavior in High Enrollment Counties (using the rate oi enrollment) Percentage 1978 •o-H utm eeumy —I Q ratlet •eunry TtM ^ utODia muntf m Imm w w unry Source: Census ol Agriculture. 1978, 1982 and 1987; Harvey and Trachtenberg. 1990 112 Figure 9 Adoption Behavior in High Enrollment Countiei (using agreements) Agreements (thousands) 100 60 60 40 20 1975 1976 1977 1978 1979 1680 1981 1662 1968 1984 1685 1986 1987 1988 1989 1990 1991 Year hwaneaumy T Crakai n u m r ^ I w a u a eaunijr ® l m » w asum y Source: Michigan Oepanment ol Natural Resources, Farmland and Open Space Unit, 1692. 113 V I .3. Characteristics of Enrollment The following were the characteristics of enrollment in PA 116. The Thumb area and counties at the border with the State of Ohio, which constitute the more rural counties, had a high rate of enrollment, whereas more urban counties had the lowest rate of enrollment (see Table 9). Prior to the enactment of PA 116, farmland values increased in more urban counties. They continued to increase until 1982 in more rural counties. PA 116 credits were the lowest in more urban counties. Therefore, PA 116 credits have not been competitive with land market prices in more urban counties. According to Wright (1985), Huron, Sanilac, Tuscola, Gratiot, and Lenawee experienced the most increase in the number of farms of 500 acres or more during the period 19741982. Along with Saginaw county, they also had more acreage in farms than other counties in southern Michigan during the period 1974-1987 (see Table 6). These counties received a higher percentage of incentives offered by the program than others. Therefore, more rural counties benefitted the most from the program. In addition to the amount of tax credits offered to farmers, the fear of building sites for waste disposal in some counties, like Lenawee, may have increased their enrollment (Michigan Farm Bureau, 1991; DNR, 1992). 114 Construction of economic infrastructure as well as projected construction of landfills may have contributed to increased enrollment in some counties because farmers would lose part of their agricultural land. Low enrollment occurred in more urban counties, where farmland values are relatively high (Table 8) and where farms are divided into small plots. Small farmers predominate in the inner ring, while large farmers increase with increasing distance from the city (Mather, 1986). More urban counties experienced the most increase in the number of farms of less than 50 acres, especially Washtenaw, Oakland, Livingston, Ingham, and Lapeer during the period 1974-1982 (Wright, K. T., 1985). Petykiewicz (1987) also mentioned that in Jackson county, only 10 percent of the farmland located in areas where urban sprawl is a real problem, urban fringe areas, were enrolled in PA 116. Incentives offered by the program did not constitute much of a relief from farm property taxes, at least in urban counties. The Department of Treasury (1985) noticed that PA 116 does not attract much land located at urban fringes. Farmers near cities would be keeping their options open for future economic opportunities (Misseldine, 1986). 115 V I .4. Contract Termination The main counties where early termination of contracts took place (10 cases or more) were : Ottawa, Ionia, Monroe, Allegan, Calhoun, Genesee, Kent, Washtenaw, Saginaw, Lenawee, Sanilac, Hillsdale, Huron, Gratiot, Clinton and Berrien (see Map 6 and Appendix 4). Cases of early termination of the contract could be an indicator of development pressure which is occurring in almost all the southern Michigan20. 20 The number of cases of early termination per county as well as the length of contract of farmers who terminated and did not pay the lien are indicated in Appendices 4 and 5. 116 Map 6 Geographic Distribution of Early Teraination of Contracts (accumulated) by County and Township, Michigan, 1991. Township Highway T Southern Michigan Source: DNR, IS 1991 117 In 80 percent of the cases of early termination, the length of the contract was less than 10 years (see Appendix 5) Nearly 60 percent of these counties had moderate real farmland values (increase in land values around 3 0 percent). Half of them had an increase in population density during the period of 1974-1987 (Verway, 1978 and Appendices 9 and 10). Most of these counties were expecting some development to take place in 1990s (see Map 1). About 70 percent of these counties received PA 116 credits ranging from 15 to 30 percent of total farm property taxes during the period 19831987 (see Table 7). A review of files of cases of early termination of contracts indicated that 83 percent of such cases were due to attractive land market prices. Insufficient information on the provisions of the program accounted for 17 percent. Farmers terminated their contracts thinking they could do so without any penalty. Cases of termination appear to have affected marginal farmers. percent. Financial crisis represented 17 Farmers had to sell their agricultural land to pay back their mortgage. According to the Farmers Home Administration (1991), 60 percent of cases of foreclosures each year21 involve participants in PA 116 because of financial hardship. Hence, PA 116 credits alone do not secure farm profitability. 21 There are about 30 cases of foreclosures in the State of Michigan each year. 118 The same review of files indicated that nearly three percent of early termination of contracts took place in 1987, 12 percent in 1988, 30 percent in 1989, 52 percent in 1990, and three percent in 1991. In addition, 95 percent of early termination consists of participants whose enrollment started in the 1980s (DNR, 1991) . Early termination of contracts happened because of the attractiveness of land market prices brought about by urbanrural migration, which depreciated land in urban areas and appreciated farmland in rural areas. Most cases of early termination are found in counties expecting economic growth. Those counties also received relatively low PA 116 credits. About 30 percent of these counties had a relatively high percentage of PA 116 credits (at least 30 percent of total farm property taxes). Nearly 40 percent of these counties are urban or urbanizing counties. Consequently, the closeness of farms to urban areas does not necessary imply early withdrawal of farms. However, the more economic growth is expected in a given county, the more likely farmers are going to terminate their contracts. Thirty nine percent of participants expected economic development to occur in more than 20 years (Frankel and Connor, 1988). As such, early termination is related more to expected economic infrastructure than to the current location of farms. In other words, cases of early 119 termination occur where potential land market prices are expected to be higher than PA 116 credits. Therefore, the retention of enrollment will take place if PA 116 credits increase to offset the impact of land market prices on the decision to sell agricultural land. Subsequently, the future of enrollment in PA 116 in more urban or urbanizing counties is not guaranteed. According to Frankel and Connor (1988), sales of enrolled farms were about 17 percent of the total farmland enrolled in 1988. Sales by non-participants in PA 116 represented 24 percent in the same year. The reasons for enrollment were mainly property tax relief (68.8%), protection of farmland (43.3%), and love of farming (43.2%) (Frankel and Connor , 1988). Love of farming was questioned earlier by Relis (1978), who argued that today's farmer is basically a businessperson who is satisfied to abandon farmlands for a good price. He added that property tax relief measures can help the farmer to get that good price. Farmers might stay in farming until urban pressure forces the land values to a lucrative point. then sell land (or part of it) to developers. They 120 V I .5. Summary of the Chapter This chapter described the patterns of enrollment and early termination of contracts. The main conclusions from the descriptive analysis of the effectiveness of PA 116 are: About 73 percent of counties in southern Michigan enrolled less than 50 percent of the land in farms during the period 1978-1987. The enthusiasm brought about by the program faded statewide after three years of its enactment. Attractive land prices, with respect to property tax credits, especially in urban areas, may have slowed down enrollment. It was found that enrollment was positively correlated with PA 116 credits. correlated with farmland values. It was negatively More urban counties did not enroll in PA 116 because of attractive farmland values. Enrollment in the program reached a saturation point around the 10 year minimum length of a contract. Termination of contract, on the other hand, occurred in counties expecting economic growth. Low PA 116 credits and the poor quality of information about the program contributed to early termination. The closeness of farms to urban areas does not necessary lead to contract termination. CHAPTER VII. CONCLUDING SUMMARY, POLICY IMPLICATIONS AND FUTURE RESEARCH NEEDS This chapter presents the major conclusions of the study. Suggestions for improving the effectiveness of PA 116, and future research needs to help inform policy making are made. VII. 1. Concluding Summary There was a shift in land use policy in the U.S. in the early 1900s. There was a passage from a laissez-faire policy to governmental intervention for a sustainable land use. Farmland was converted to non-agricultural uses as a result of property tax burden on farmers, which was due to suburbanization and improved transportation systems. The main issues raised by farmland protection programs were the intervention of the government in regulating land use, incentives and enforceability of the program, farmland value assessment, and land planning. Two schools of thought developed. adopted a conservation point of view. The first school It was for governmental involvement in protecting farmland. school was oriented to free enterprise. The second This school argued that market forces should regulate land use. Farmland protection programs were enacted nationwide in the 1960s to 121 122 slow down farmland conversion, because there was a rapid growth in industrial and infrastructural development. Four main types of programs were enacted in different states. These were preferential assessment, deferred taxation, restrictive agreements, and circuit breaker programs. The Michigan Farmland and Open Space Preservation Act of 1974, a circuit case. breaker program, was not therefore an isolated It was following the national trend to protect farmland from conversion to non-agricultural activities. The research questions were based on the effectiveness of PA 116 in sustaining enrollment, especially in urban fringe areas. The effectiveness of farmland protection programs nationwide was measured by the number of acres enrolled and the number of counties participating. Weak monetary incentives, with respect to farmland market prices, were found to be a major constraint on increased participation in farmland protection programs. In this study, the rate of enrollment was added to the definition of effectiveness. It was used to analyze the behavior of landowners in the adoption of PA 116. The current enrollment (acres) was compared to the potential enrollment (total acreage in farms) to determine the rate of adoption (enrollment) in each county. 123 The principal findings of this study are: VII. 1. At the State Level First, accumulated contracts and acres enrolled increased. Following an initial increase in enrollment, enthusiasm tended to fade after 1978. Farmers continued to enroll in the program but did not bring in as many acres as before. Farms were divided into small plots, which were gradually enrolled. Second, the average acreage per contract has decreased. Hence, although the total number of acres of agricultural land enrolled has increased, many counties in Michigan still did not commit a relatively high percentage of their land to the program in 1990. Acreage enrolled represented only 44 percent of the total land in farms in 1991. Only 37 percent of farmers participated in the program up to 1991. Third, attractive prices for individual farmland may have contributed to reduced enrollment, especially in urban fringe areas. In general, however, the average real values of land per acre decreased during the period 1978-1990, especially since 1982. Fourth, PA 116 credits, contracts and acres enrolled dropped before the first 10 year minimum length of a contract. The year of 1982 was a saturation point for 124 enrollment at the state level. V I . 1.2. At the County Level First, the Thumb area and the southern part of Michigan led in enrollment after 1976. The total acreage in farms increased from 1974 to 1982 and decreased from 1982 to 1987. The acreage enrolled increased at a growing rate from 1978 to 1982 and increased at a declining rate from 1982 to 1987. Second, about one third of counties in southern Michigan experienced a cumulative enrollment of at least 50 percent of land in farms in 1990. The remaining two third had an enrollment of less than 50 percent. More urban counties enrolled less than 45 percent of their land in farms. Third, PA 116 credits as a percentage of the total agricultural property taxes followed the same pattern of enrollment. Western counties, along with those located in the Thumb area and in the southern part of Michigan, received a relatively higher percentage of property tax refunds than more urban counties. However, PA 116 credits have not been competitive with land.market prices in more urban counties. Low enrollment occurred in more urban counties, where farmland values are relatively high. 125 Fourth, the average real values of farmland per acre increased during the period 1964-1978, especially in urban counties. The real values of farmland increased in more rural counties, located especially in the Thumb area, during the period 1974-1982. Overall, these values decreased during the period 1982 - 1987. Fifth, the Thumb area and counties at the border with the State of Ohio, which constitute the more rural counties, had the highest rates of enrollment, whereas more urban counties had the lowest rate of enrollment. The fear of building sites for waste disposal and the construction of economic infrastructures in some counties may have increased their enrollment. Sixth, early termination of contracts took place because of attractive land market prices, insufficient incentives, financial hardship of participants, and the lack of information. In most cases of early termination, the length of the contract was less than 10 years. Most of cases of early termination occurred in counties which were expecting some development to take place by 1990. Cases of early termination occurred where potential land market prices were expected to be higher than PA 116 credits. Moreover, most cases of early termination consisted of participants whose enrollment started in the 1980s. 126 Overall, the enthusiasm that participants had at the beginning of the program faded after the first 10 year minimum length time of a contract. Also, the more economic growth is expected in a given county, the more likely farmers are going to terminate their contracts. Therefore, the future of enrollment in PA 116 in more urban or urbanizing counties is not guaranteed. The retention of enrollment will not take place if PA 116 credits do not increase to offset the impact of land market prices on the decision to sell agricultural land. Enrollment is positively correlated with PA 116 credits. correlated with farmland values. It is negatively Therefore, more rural counties benefitted the most from the program. The principal conclusions of this study are: (1) PA 116 credits have to be more competitive with farmland prices to sustain enrollment, especially in urban fringe areas. They were not successfully used as a tool to reduce urban sprawl in urban counties; (2) The rigid enforcement of the program cannot stop early termination of contracts in areas of potential economic growth, unless it is coupled with adequate incentives. As long as farmers do not have enough freedom to exert their rights on the property they own, the rigid enforcement of PA 116 will continue to be a constraint on enrollment; (3) PA 116 is not effective in protecting farmland in more urban or urbanizing counties. Even in more 127 rural counties, where enrollment has been significant, many farmers did not commit their entire land to the program. The continuation of urban sprawl was due to insufficient incentives and the lack of special treatment of farmers in urban fringe areas. VII. 2. Policy Implications Property tax relief was decided to be part of the solution to the problem of losing agricultural land around urban areas in the State of Michigan. It is important for the State of Michigan to maintain its agricultural industry as one of the major contributors to the statewide economy. As such, the Michigan Farmland and Open Space Preservation Act of 1974 is justified. It is also equally important to guarantee economic growth based on non-farming activities related directly or indirectly to agriculture. So far, very few farmers, especially in urban fringe areas, enrolled their land because land market prices are more attractive than PA 116 credits, increasing thereby opportunities to invest in non-farm activities. However, if the provisions related to the lien and the minimum length time of a contract are still a handicap, even in counties which have a relatively higher rate of enrollment, an effort 128 should be put in revising the provisions to make PA 116 less rigid. The provisions of PA 116 should be adjusted to economic conditions prevailing in the State because changes occurred in Michigan since 1974. Moreover, the use-value assessment of farmland may be a misleading strategy, since farmland values keep changing as economic growth takes place even in areas originally reserved primarily for agricultural activities. Thus, strategies have to be found to increase and to retain enrollment in PA 116. Given the low competitiveness of PA 116 with respect to market prices of farmlands, the concentration of PA 116 credits in more agricultural counties (larger farms) relative to the more urban counties (smaller farms), and the importance of both agricultural and non-agricultural activities in the State of Michigan, the following are some of the measures that can be implemented to improve the effectiveness of the program: Give a sustained preferential treatment to farmers in urban fringe areas, such that PA 116 credits represent a real relief of property taxes. PA 116 credits were found to be a key variable determining both enrollment and withdrawal from the program. They should therefore be more competitive than land market prices, especially in more urban counties. 129 Urban counties need more monetary incentives in order to increase and to retain enrollment. Land market prices continue to attract farmers, increasing therefore the opportunity cost of keeping land in farming. In other words, it costs more to farmers to stay in farming activities than converting it into non-farm uses. The incentives offered to farmers should be at least equal to the opportunity cost of keeping land in farming. Currently, rural counties, which would continue farming without much property tax relief, are treated as urban counties, where property taxes constitute a constraint to the profitability of farms. As the program was designed to reduce farmland conversion to non-farming uses, especially in urban fringe areas, more resources should be concentrated in those areas; Reduce the minimum period farmers have to stay in the program, since most cases of termination of contracts occurred before 10 years. Farmers have to feel free to enroll in PA 116 and to exit after a relatively short period if they think they cannot stay in it longer. Flexibility in the enforcement of PA 116 is therefore required in revamping the program. One of the reasons to enroll was the desire to protect family farms as a way of living. As such, farmers intend to keep their property 130 rights on land. Relaxation of the control over PA 116 would thereby preserve farmers' property rights. A relatively loose control over the program coupled with an increase in PA 116 credits may increase enrollment in urban fringe areas. If farmers want to get out of the program, it may mean that keeping land in farming activities is no longer a priority to them. Forcing them to remain in the program would not be a solution, because investment in non-farm activities would be perceived as more profitable than in agriculture. At the same, time, farmers who decide to remain in the program should be encouraged. The amount of the lien should decrease as farmers decide to remain longer in the program after the period of trial. In other words, the more farmers stay in PA 116, the less penalty applies to them; VII. 3. Future Research Needs The performance of a program like PA 116 requires an understanding of its contribution to the society as a whole. Farmers are the primary target. However, as long as land is a multi-purpose factor of production, it is a concern of the entire community. Therefore, PA 116 should be designed to accommodate conflicting uses. The following are some of the 131 further investigations the study of the effectiveness of PA 116 needs to be more complete: - It is necessary to analyze the cost of the program to the State of Michigan to run the program under both the current and the proposed policies. Although landowners enrolled in PA 116 pay taxes at the local level, like any other citizen, the tax credits they receive as an incentive constitute a type of subsidy. The subsidy to farmers, or the negative revenue to the State of Michigan, reduces therefore the statewide treasury, forcing the State to cut funds on some programs to compensate the negative revenue. In addition, a benefit/cost analysis of making PA 116 competitive with opportunities offered by the market prices of land, especially in urban fringe areas, would indicate the opportunity cost of keeping land in farming. Since early termination of contracts was found to be more positively correlated with expected economic growth than the distance from the city, it would be useful to identify zones of potential increase in economic growth prior to deciding to increase PA 116 credits in these zones. Increasing incentives in the targeted area results in increased costs to run the program. It can equally lead to increased state revenues, via indirect taxes that come from increased agricultural production. Consequently, the 132 effectiveness of the program on the state side gives a broader view of the performance of the Michigan farmland protection program; - On the other hand, it is important to assess the willingness of farmers to remain in farming, given the attractiveness of land market prices and options they have to invest the money they would get from selling off the land. Farming in areas with fewer alternatives does not constitute a threat to land conversion in the short run. The probability that farmers will not quit farming is high. Farmers located in more urban or urbanizing areas, however, have many options and are more likely to invest in non­ farming activities. Therefore, it is essential for the State of Michigan to know preferences of farmers before any amendment of PA 116 can be done. 133 POSTSCRIPT The essence of protecting agricultural land in the State of Michigan is applicable in Burundi. The main goal of PA 116 is to reduce urban sprawl in agricultural areas, and subsequently, to increase or maintain agricultural production. Property tax relief is used as a policy instrument that the State of Michigan has adopted to reach the goal. Likewise, there is a conflict in allocating land between food crops and cash crops on individual farms in Burundi. Farmers have to use the already small plots for the subsistence of the family and for income generation. The pressure on land, resulting from land resource scarcity, leads to farmland overuse, which, in turn, brings about land degradation. Hence, environmental problems constitute one of the major issues in Burundi. The question is the following: what types of incentives can be offered to farmers to protect farmland from degrading? At the country level, Burundi faces a problem of allocating land between agricultural production and non-farm activities. On the one hand, Burundi has to rely on agricultural production to develop its infant industry, whose main inputs come from agriculture. On the other hand, the population of Burundi is growing rapidly. Therefore, 134 feeding the increasing population and improving its standard of living are other major issues in Burundi. The question is the following: how much land is needed in Burundi for self-sufficiency in food production as well as for other essential activities for the economic growth of the country? As such, farmland protection programs are justified in Burundi. Thus, in the absence of technological improvements, farmland conversion to non-agricultural activities would jeopardize food production in Burundi. On the other hand, while people move from urban to rural areas to avoid prohibitive property taxes in the State of Michigan, people in Burundi, especially unskilled labor, move from rural to urban areas to seek wage employment. This rural out migration brings about the growth of urban slums, which often infringe on good agricultural land around cities. The types of incentives to give to landowners in urban areas to prevent urban sprawl in Burundi constitute another issue. Research in land planning is therefore needed in Burundi to prevent the disorderly growth of slums, and thus, uncontrolled urban sprawl. As such, this study is a useful tool to identify some of the difficulties various states which enacted farmland protection programs, like the State of Michigan, experienced in designing and implementing those programs in order to improve land use policy in Burundi. APPENDICES 1. The Michigan Farmland and Open Space Preservation Act; 2. Representatives Who Introduced PA 116; 3. Farmland Agreements per County; 4. Cases of Termination of Contracts; 5. Length of Contracts; 6. Nominal Values of Farmlands per Acre ($), Michigan, 1977-1990; 7. Nominal Values of Farmland per Acre ($), per County, Southern Michigan, 1974-1987; 8. Consumer Price Index; 9. Data on Enrollment in PA 116, 1982; 10. Data on Enrollment in PA 116, 1987. Appendix 1. The Michigan Farmland and Open Space Preservation Act Aci No. 116 Public Acts or 1974 Approved by Governor May 23. 1974 STATE OF M IC H IG A N 27TH LEGISLATURE REGULAR SESSION OF 1974 ENROLLED HOUSE BILL No. 4244 A N A C T to provide /or farmland development rights agreements and open space development rights easements; to prescribe the duties of the state land use agency; to prescribe the duties of local governing bodies; to prescribe the powers and duties of certain state departments; and to prescribe penalties. The People of the State of Michigan enact: See. 1. This act shall be known and may be died as the "farmland and open space preservation act". Sec. 2. (1) “Agricultural use” means substantially undeveloped land devoted to 'he production of plants and animals useful to man, including forages and sod crops; grains and feed crops; ddry and dairy products; livestock, including breeding and grazing; fruits; vegetables; and other similar uses and activities. (2) "Development" means an activity which materially alters or affects the existing conditions or use of any land. (3) "Development rights” means the right to construct a building or structure, to improve land, or the extraction of minerals iaddenteJ to a permitted use or as shall be set forth in an instrument recorded pursuant to this act. (4) "Development rights agreement” means a restrictive covenant, evidenced by an instrument whereby the owner and the state, for a term of years, agree to jointly hold the.right to develop the land as m a y be expressly reserved in the instrument, and which contains a covenant running with the land, for a term of years, not to develop, except as this right is expressly reserved in the instrument (5) "Development rights easement” means a grant by an instrument, whereby the owner relinquishes to the public in perpetuity or for a term of years, the right to develop the land as may be expressly reserved in the instrument and which contains a covenant running with the land, not to develop, except as this right is express!y reserved in the instrument (6) "Farmland" means: (a) A farm of 49 or m ote acres, in one ownership which has been devoted primarily to an agricultural use. (b) A farm of 5 acres or more in one ownership, but less than 40 acres, devoted primarily to an agricultural use, which has produced a gross annual income from agriculture of 9200.00 per year or more per acre of cleared and tillable land. (c) A farm designated by the department of agriculture as a specialty farm in one ownership which has produced a gross annual income from an agricultural use of $2,000.00 or more. 136 137 (d) Parcels of land in one ownership which arc not contiguous but which constitute un integral part of farming operation being conducted on land otherwise qualifying as farmland m a y be included in an application under this act. (7) "Local governing body" means: (a) The legislative body of a city or village. (b) The township board of a township having a zoning ordinance in effect as provided by law. (c) The county board of commissioners in all other areas. (8) "Open space land" means: (a) lands defined as: (f) Any undeveloped site included in a national registry of historic places or designated as an historic site pursuant to state or federal law. (ii) Riverfront ownership subject to designation under Act No. 231 of the Public Acts of 1970, being sections 231.761 to 231.776 of the Michigan Compiled Laws, to the extent that full legal descriptions may be declared open space under the meaning of this act. if the undeveloped parcel or government lot parcel or portions thereof as assessed and owned is affected by such act and lies within 1/4 m d e of the river. (iff) Undeveloped lands designated as environmental areas under Act No. 245 of the Public Acts of 1970, being sections 231.631 to 231.645 of the Michigan Compiled Laws, including unregulated portions thereof. (b) Any other area approved by the local governing body, die preservation of which In its present condition would conserve natural or scenic resources, including: the promotion of the conservation of soils, wetlands, and beaches; the enhancement of recreation opportunities; the preservation of historic sites; and idle potential farmland of not less than 40 acres which is substantially undeveloped and which because of its soil, terrain, and location is capable of being devoted to agricultural uses as identified by the department of agriculture. (9) "Owner” means a person haring a freehold estate in land coupled with possession and enjoyment. However, where land is subject to a land contract, ft means die vendor ia agreement with the vendee. (10) “Permitted use” means aay use contained within a development rights agreement or a development rights easement essential to the farming operation or which does not alter the open space character of the land. (11) “Person” includes an individual, corporation, business trust, estate, trust, partnership, or association, or 2 or more persons having a Joint or common interest in the land. (12) “Property taxes” means general ad valorem taxes levied after January I, 1974, on lands and structures in this state, including collection fees, but not including special assessments, penalties, or interest. (13) "Regional planning commission" means a regional planning commission created pursuant to Act No. 231 of the Public Acts of 1945, as amended, being sections 125.11 to 125.25 of the Michigan Compiled Laws. (14) “Regional planning district" means the pfenning and development regions as established by executive directive 1368-1, as amended, whose organizational structure is approved by the regional council (15) “Sod conservation district" means a district created pursuant to Act No. 297 of the Public Acts of 1937, as amended, being sections 232.1 to 282.16 of the Michigan Compiled Laws. (16) “State income tax act" means Act No. 231 of the Public Acts of 1967,'as amended, being sections 206.1 to 208532 of the Michigan Compiled Laws, and in effect during the particular year of the reference to the act. (17) "State fend use agency" means the fend use agency within the department of natural resources. (18) “Substantially undeveloped" means any parcel or area of land essentially unimproved except for a dwelling, budding, structure, road, and other improvement that is incidental to agricultural and open space uses. (19) "Unique or critical fend area" means agricultural or open space lands identified by the fend use agency as an area which should be preserved in its natural condition. Sec. 3. (1) The state fend use agency may execute a development rights agreement or easement on behalf of the state. 138 (2) The-provisions of a development rights agreement or casement shall be consistent with the purposes of this act and shall not permit an action which will materially impair the character of the land involved. Sec. -I. (1) The execution and acceptance of a development rights agreement or easement by the state or local governing body and the owner shall constitute a dedication to the public of the development rights in the land for (he term specified in the instrument. A development rights agreement or easement shall be for a term of not less than 10 years. (2) The state or local governing body shall not sell, transfer, convey, relinquish, vacate, or otherwise dispose of a development rights agreement or easement except with the mutual agreement of the owner as provided in sections 12, 13, and 1-1. (3) An agreement or easement shall not supersede any prior lien, lease, or interest which is properly recorded with the county register of deeds. Sec. 5. (ljvAn owner of land desiring a farmland development rights agreement may apply by filing an application with the local governing body having jurisdiction under this act The application shall Be made on a form prescribed by the state land use agency. The application shall contain information reasonably necessary to properly classify the land as farmland. This information shall include a land survey or a legal description of the land, and a m a p showing the significant natural features and all structures and physical Improvements located on the land. The application shall include the soil classification of the land if known. (2) Upon receipt of the application, the local governing body shall notify the county planning commission or the regional planning commission and the soil conservation district agency. If the county has jurisdiction, it shall also notify the township board of the township in which the land issituated. If the land Is within 3 miles of the boundary of a city or within I mile of the boundary of a village, the county or township governing body having jurisdiction shall notify the governing body of the city or village. (3) An agency or local governing body receiving notice shall have 30 days to review, comment, and make recommendations to the local governing body with whom the application is filed. (4) After considering the comments and recommendations of the reviewing agencies and local governing bodies, the local governing body holding the application shall approve or reject the application within 45 days after the application h received unless time is extended by mutual agreement of the parties involved. The local governing body's approval or rejection of the application shall be based upon, and consistent with, rules promulgated by the state land use agency pursuant to section 1/. (5) If an application for a farmland development rights agreement is approved b y the local governing body having jurisdiction, a copy, along with the comments and recommendations of the reviewing bodies, shall be forwarded to the state land use agency. If no action is taken by the local governing body within the time prescribed or agreed upon, the applicant may proceed as provided in subsection (3) as if the application was rejected. (6) If the application for a farmland development rights agreement is rejected by the local governing body, it shall return the application to the applicant with a written statement regarding the reasons for rejection. Within 30 days after receipt of the rejected application, the applicant m a y appeal the rejection to the state land use agency. The state land use agency shall have 60 days to approve or reject the application pursuant to subsection (7). (7) The state land use agency, within 60 days after the farmland development rights agreement application has been received, shall approve or reject the application. A rejection of an application for a farmland development rights easement which has been approved bv & local governing body by the state land use agency shall be lo r nonconformance with section 2 (6) only. If approved by the state land use agency, it shall prepare a farmland development rights agreement which shall include the following provisions: (a) A structure shall not be built on the land except for use consistent with farm operations or with the approval of the local governing body and the state land use agency. (b) Land improvements shall not be made except for use consistent with farm operations or with the approval of the local governing body and the state land use agency. (c) Any interest in the land shall not be sold except a scenic, access, or utility easement which does not substantially hinder farm operations. (d) Public access shall not be permitted on the land unless agreed to by the owner. 139 (e) Any other condition and reitrlctlon on the land a> agreed to by the parties that is deemed necessary to preserve the land or appropriate portions of it as farmland. Upon receipt of the application, the state land use agency shall notify the state tax commission. Upon notification, the state tax commission shall within 60 days make an on-site appraisal of the land and structures in compliance with the agricultural section of the Michigan state tax commission assessors manual. The approved application shall contain a statement specifying the current fair market value of the land as determined by the state tax commission. A copy of the approved application and the farmland development rights agreement shall be forwarded to the applicant for execution. (&) If the owner executes the farmland development rights agreement, he shall return it to the state land use agency for execution on behalf of the state. The stale land use agency shall record the executed development rights agreement with the register of deeds of the county in which the land is situated and shall notify the applicant, the local governing body and its assessing office, all reviewing agencies, and the department of treasury. (9) If an application for a farmland development rights agreement ft rejected by the state land use. agency, it shall notify the affected local governing body, all reviewing agencies concerned, and the applicant with a written statement containing the reasons for rejection. An applicant receiving a rejection from the state Sand use agency m a y appeal the rejection pursuant to Act No, 306 of the Public Acts of 1969, as amended, being sections 24.201 to 24.315 of the Michigan Compiled Law*. (10) An applicant may reapply for a farmland development rights agreement following a 3-year waiting period. (11) The value of the Jointly owned development rights as expressed in a farmland development rights agreement shall not be exempt from ad valorem taxation and shall be assessed to the owner of the land as part of the value of that land. Sec. & (1) If an owner of open space land desires an open space development right* easement, and the land Is subject to the provision* of section 2 (8) (a), the procedures for filing an application provided b y the state land use agency shall fellow as provided in section 5, except subsections (7) and (11). (2) The state land me ageeey, within days after the open space development rights easement application has been received, shall approve or reject the application. If approved by the state land use agency, it shall prepare an opea space development rights easement which shall Include the following provisions: (a) A structure shah not be built on the land without the approval of the state land use agency. (b) Improvement to the land shall M l be made without the approval of the state had use agency. (c) Any interest in the land shall be sold only for a scenic, access, or utility easement which does not substantially hinder die character of the open space hod. (d) Access to the ©pea space land may be provided if agreed upon by the owner and will not Jeopardhce the condition* of the land. (e) Any other condition or restriction on the land as agreed to by the parties that isdeemed necessary to preserve the land or appropriate portions of it as open space land. Upon receipt of the application, the state land use ageaey shall notify the state tax commission. Upon notification, the state tax commission shall within SO days make en on-site appraisal of the land in compliance with the Michigan state tax commission assessors manual The application shall contain a statement specifying the current fair market value of the land and the current f a t market value of the development rights. The state land use agency shall submit each application for an open space development rights easement and an analysis of itscost to the state to the legislature. The application shall be approved in both house* by a resolution concurred in by a majority of the members elected and serving in each house. The amount of the cost shall be returned to the local governing body where lost revenues are indicated. A copy of the approved application and the open space development rights easement shall be forwarded by the state land use agency to the applicant for execution and to the local assessing office where the land is situated. (3) The development rights held by the state as expressed In an open space development rights easement under this section shall be exempt from ad valorem taxation. Sec. 7. (1) An owner of open space land desiring an open space development rights easement whose land is subject to the provisions of section 2 (6) (b), m a y apply by filing an application with the local governing body having Jurisdiction under this act. The application shall be jnsde on a form prescribed by the state land use agency. The application shall contain information reasonably necessary to properly identify the land as open space. This information shall include a land survey or a legal description of the 140 lan d , and a m a n show ing the significant natural features and ail structures and physical improvements lo ca te d o n the lan d . T h e m ap shall include the soil classification o f the land If know n. (£) Upon receipt of an application, the local governing body shall notify the county planning commission, the regional planning commission, and the soil conservation district agency. If the county has furisdiction. It shall also notify the township board of the township In which the landI is situated. If the land is within 3 miles of the boundary of o city or within 1 mile of the boundary of a village, the county shall notify the governing body of the city or .village. (3) A n agency or local governing body receiving notice shall have 30 days to review, comment, and ma k e recommendations to the local governing body with w h o m the application was filed. (4) After considering the comments and recommendations of the reviewing agencies, the local governing body shall approve or reject the application within 45 days after the application has been received by it unless time is extended by mutual agreement of the parties involved. The local governing body’s approval or rejection of the application shall be based upon, and consistent with, rules promulgated by the state land use agency pursuant to section I f . If the local governing body does not act within the time prescribed or agreed upon, the applicant m a y proceed as provided in subsection (8) as if the application w as rejected. (5) If the application is approved by the local governing body or the state land use agency on appeal, the local governing body shall prepare m appropriate easement which shall indude She following prevfefang; (a) A structure shall asst be built on the land without the approval of the local governing body. (b) A® improvement to the land shall not be made without the approval o f the foci! governing body. (c) Any interest in the land A afl not fee sold except for scaafe, access, or utility ease®eats which do not substantially U n d er she character of the open space land. (d) Public em s to t ie open space land may be provided if agreed upon by the owner and wfll not jeopardise the randitibns ©f the Sand (s) A ay other eoaditioa ©? restefeSssa m the land as ajpned to b y both parties that Is deemed necessary to preserve the land ©r appropriate psrM om o f it m ©pea space land. U p o n receipt ©f the application, the local governing body shall direct either the local assessing officer ®r a® Independent e tr tffe s assessor i s ®a&® §a ea-rite appraisal within 30 days o f the land in compliance with the Michigan state tm commission assessors manual The approved application shall contain a statement s p & d m a g the gw reai fair market value ©f the b a d and tbs current fair m arket value of the development rigate, if assy. A copy o f tbs approved application aad the development rights easement shall be forwarded 8© the applicant for his execution. C§) I f the ©was? ®f tfea land gxm stes tbs approved easement, ItA d ! be re t o e d to the local governing body for Its ssesutlon. Tfes local governing body (hall record A® ©pen space development rights easement with the register ©f deeds of the county. A copy of the approved easement shall fee forwarded to the iocs! assessing office and to the state Sand m e agency for their Information. The state land use agency shall submit to the legislature sad the department of management and budget a listing of all easements in effect by O ctober 31 of each year. (7) T he deeW ea of the local g o w n in g b ody having jurisdiction under this set m a y be appealed to the state land-use agency, pursuant to subsection (8). (8) If as application for s a ©pen space development rights easement is rejected by the b ea t governing body, St shall ratify the applicant and ell reviewing agencies rancemed with a written statement regarding the reasons for rejection. W ithin® days after receipt of the rejected application, the applicant m a y appeal the rejection to the state hand use agency. The state land uss agency shall have S3 days to approve or reject the application. The state land use agency shall submit each approved application for an open space development rights easement and m analysis of its cost to the legislature. The application shall be approved in both houses bv a resolution concurred in by a majority of the members elected and serving in each house. The amount of the cost shall be returned to the local governing body where lost revenues are indicated. A copy of the approved application and an appropriate easement shall be forwarded by the stale land use agency to the applicant for execution and to the local governing body where the land is situated. (9\ A n applicant m ay reapply for an open space development rights easement following a 1-year w aiting period. (10) The development rights held by the local governing body as expressed in an open space development riyhts easement shall be exempt from ad valorem taxation. 141 Sec. 8. All participant* owning land contained under a development right* agreement or easement shall notify, on a form provided by the itate land uie agency for informational purposes only, the state or the local governing body holding the development right* 2 year* prior to the natural termination date of the development right* agreement or eatement of the owner*' intention* regarding future plan* with respect to the land. Sec. 9. A city, village, township, county, or other governmental agency may not impose special assessments for sanitary sewers, water, lights, or nonfarm drainage on land for which a development rights agreement or easement has been recorded except as to a dwelling or a nonfarm structure located on the land unless the assessments were imposed prior to the recording of the development rights agreement or casement. Land covered by this exemption shall be denied use of an improvement created by the special assessment until it has paid an amount not more than the amount that would have been paid had the land not been excluded. The land exempted from the assessment shall be denied use of the improvement as long as the owner of the land has a recorded development rights agreement or easement. Sec. 10. (I) (a) The owner of farmland and related building* covered by a development rights agreement meeting the requirements of this act and w ho is required or eligible to file a return as an individual or a claimant under the income tax act of 1957, shall be eligible for a credit against the state income tax liability for the amount by which the property taxes on the land and structures used in the farming operation, including the homestead, restricted by such development rights agreement exceeds 75 of the household income as defined in chapter 9 of Act No, 281 of the Public Acts of 1987, as amended, being sections 206.501 to £03.532 of the Michigan Compiled Laws, excluding any deduction if taken under section 613 of the interna! revenue code of 1954,-as amended. (b) Other owners of farmland and related buildings covered by a development rights agreement meeting the requirements of this act shall be eligible for a credit against the state income tax liability for the amount by which the property taxes on the land and structures used in farming operators restricted by such development rights agreement exceeds I I o f the taxable income o f the owner as defined in chapter 1 of Act No. 281 of the Public Acts of 1887, as amended, being sections £03.1 to 206.33 of the Michigan Compiled Laws, excluding any deductions if taken under section 613 of the internal revenue code of 12M, as amended (c) The beneficiaries of an estate or trust, a p a r t e in a partnership, or a participant in a corporation which has filed & proper election under subehapter S o f the internal revenue code is entitled to the same percentage o f the -redit provided in this section as that person's percentage of all other distributions by the entity. (£) A person applying for an income tax credit for property taxes paid under subsection (1) m a y apply for credit under chapter 8 of Act No. 281 of the Public Acts of 1867, being sections £06.501 to £06.532 of the Michigan C om p lied Laws. (3) If the allowable amount of the credit claimed exceeds the state income tax otherwise due for the tax year or if there is no state income tax dug for the tax year, the amount of the claim not used as an offset against the stats income tax shall, after examination and review, be approved for payment, without interest, to the claimant (4) For purposes of audit, review, determination, appeals, hearings, notices, assessments, and administration, the provisions of Act No. 28| of the Public Acts of 1967, as amended, shall apply. (5) The department of treasury shell account separately for payments under this act and not combine them with other credit programs. Sec. 11. (1) Land subject to a development rights agreement or easement may be sold without penalty under sections 12, 13, and 14, if the use of the land by the successor in title complies with the provision* contained in the development rights agreement or easement. The seller shall notify the governmental authority having jurisdiction over the development rights of the change in ownership. (2) W h e n the owner of land subject to a development rights agreement or easement dies or is totally and permanently disabled, the land may be released from the program under this act and shall be subject to a proration pursuant to sections 12(7), 13(7) and 14(7). Sec. 12. (1) A development rights agreement shall be relinquished by the stale at the expiration of the term of the agreement unless renewed with the consent of the owner of the land. (2) A development rights agreement may be relinquished by the state prior to a termination date contained in the Instrument as follows: 142 (a) At any (fine the stale determine* that the development of the land is in the public interest and in agreement with the owner of the land. (b) The owner of the land may submit an application to the local governing body having jurisdiction under this act requesting that the development rights agreement be relinquished. The application shall be made on a form prescribed by the slate land use agency. The request for relinquishment shall be processed and shall be subject to the same provisions as provided for in section 5 for review and approval. (3) If the request for relinquishment of the development rights agreement is approved, the state land use agency shall prepare an Instrument, subject to subsections (4), (5), (6), and {•), and shall record it with the register of deeds of the county in which the land is situated. (4) At the time a development rights agreement is to be relinquished pursuant to subsection (2) (b). the stale land use agency shall cause to be prepared and recorded a lien against the property formerly subject to the development rights agreement for the total amount of the credit in the state income tax received by the owner under section 10. The lien shall pro\dde that interest at the rate of §S per annum compounded shall be added to the credit from the time the credit was received until it is paid. (5) The lien may be paid and discharged at any time and shall become payable to the state by the owner of record at the time the land or any portion of it is sold by the owner of record, or if the Land is converted to a use prohibited by the former development rights agreement. The lien shall be discharged upon renewal or reentry in a development rights ajpeement, except that a subsequent lien shall not be less than the lien discharged. The proceeds from the payment shall be used to purchase development rights on land which Is deemed by the state land use agency to be a unique or critical land area that should be reserved in its natural character, but which does not necessitate direct purchase of the fee interest in the md. K (6) Upon termination of the development rights agreement pursuant to subsection (2) (a), the development rights shall revert back to Use owner without penalty or interest (7) Upon the natural termination of the development rights agreement pursuant to subsection (1), the state land are agency shall cam e to be prepared and recorded a lien against the property formerly subject to the development rights agreement for the total amount of the credit in the state income tax of the last 7 years reed vee by ths owner under section I d Tb« Be® shall be without interest or penalty and shall be payable subject So subsection (5). (8) Upon termination, tb@ state land use agency shall notify the department of treasury h r their records. Sec. 13. fl) A n open space development rights easement pursuant to section 8 shall be relinquished by the state at the expiration of the term of the easement unless renewed with the consent of the owner of the land. (2) An ©pen space development rights easement m ay b® relinquished by the state prior to & termination date contained la the instrument as fellows; (a) At any time th@ state determines chat the development of the land is in the public interest and in agreement with the owner of tbs land. (b) The owner of the land m a y submit an application to the local governing body where the original application for m open space development rights easement requesting that the development rights easement bo relinquished. T b s application shall he made on a form prescribed by the state land use agency. The request for relinquishment shall be processed and shall be subject to the provisions as provided in sections 5 and § for review aad approval (3) If the request for relinquishment of the development rights easement is approved, the state land 'bse agency shall prepare m Imteumeat providing for the relinquishment of the open space development rights easement, subject to subsections {4), (5), (8), and (7), and shall record itwith the register of deeds of the county in which the Land is situated. (4) At the time a development rights easement is to be relinquished pursuant to subsection (2) (b), the state land use agency shall cause to be prepared and recorded a lien against the property formerly subject to the development rights easement ter the tots] amount of the ad valorem taxes not paid on the development rights during the period it was held by the state, if any. The lien shall provide that interest at the rale of 6S per annum compounded shall be added to the ad valorem taxes not paid from the time the exemption was received until it is paid. (5) The lien shall,become payable to the state by the owner of record at the time the land or any portion of it is sold by the owner of record, or if the land is converted to a use prohibited by the former open space development rights casement. 143 (8) Upon the termination of the open jpace development rights easement pursuant to subsection (2) (а), the development rights shall revert back to the owner without penalty or interest. (!) Upon the natural termination of the open space development rights easement pursuant to subsection (I), the state land use agency shall cause to be prepared and recorded a lien against the property formerly subject to th e open space development rights easem ent. The am ount of the lien shall b e the total amount o f the last 7 years ad valorem taxes not paid on the development rights during the period it was held by the state, if any. The lien shall be without penalty or Interest and shall be payable subject to subsection (5). (b) A copy o f the relinquishment of an open space development rights easement shall be sent to the local governing body's assessing office. See. 14. (1) A n open space development rights easement pursuant to section 7 shall be relinquished by the local governing body at the expiration of the term of the easement unless ren ew ed w ith the consent of the owner of the land. (2) An open space development rights easement may be relinquished by the local governing body prior to a termination date contained in the instrument as follows: (a) At any time the local governing body determines that the development interest and fa agreement with the owner of the land. of the land Is In the public (b) The owner o f the land m ay submit an application to the local governing body having jurisdiction requesting that the development rights easement be relinquished The application shall be made on a form prescribed by the state land m e agency. The request for relinquishment shall be processed and shall be subject to the provisions as provided to section 7 for review and approval. (3) If the request for relinquishment o f the open space development rights easement Is approved, the local governing body shall prepare an instrument providing for the relinquishment of the open space development rights easement, subject to subsections (4), (5), (6), and (7), and shall record it with the register o f d eeds o f the county in which the land is.rituated. (4) At the time an open space development rights easement Is to be relinquished pursuant to subsection (I) (b), the load governing body shall cause to have prepared and recorded a lien against the property formerly subject to the open space development rights easement. The amount of the lien shall be the total amount of the ad valorem taxes not paid ea tho development rights during the period itwas held by the local governing body, if aay» The Ilea shall provide mat M erest at the rate of 88 per annum compounded shall be added to th® ad valorem taxes exemption from the time granted until the lien is paid. . <5j The lien shall beeoro® payable te the local governing body by the owner of record at the time the land or any portion o f itis sold by the owner of record, or if the land is converted to a use prohibited by the former open spaeo development rights g&semeafc. (б) Upon the termination of the opes space development rights easement pursuant to subsection (2) (a), the development rights shall revert back to the owner without penalty or interest and the development rights easement up©a the land shall expire. (!) Upon the natural termination o f the open space development rights easement pursuant to subsection (I), the local governing body shall cause to be prepared and recorded a lien against the property form erly subject to the open space development rights easement The amount of the lien shall be the total amount of tbs last 7 years ad valorem taxes not paid on the development rights during the period it was held by the local governing body, If any. The lien shall be without penalty or interest and will be payable subject to subrectioa (5). (8) A copy of the relinquishment of an open space development rights easement shall be sent to the local assessing office. Sec. 15. If she owner or a successor in title of the land upon which a development rights agreement or easement has been recorded pursuant to this act shall change to a prohibited use the use of the land or knowingly sell the land for a use other than those permitted in the development rights agreement or easement without first pursuing the provisions In sections 11 (2), 12,13, and 14, or receiving permission o f the state land use agency, he m a y be enjoined by the state, acting through the attorney general, or by the local governing body, acting through its attorney, and is subject to a civil penalty for actual damages, but In no case to exceed double th e value of the land as established at the time the application for the development righ ts agreement or easement was approved. 144 Sec. 16. All departments and agencies of state government shall cooperate with the state land use agency In the exchange of Information concerning projects and activities which might jeopardize the preservation of land contemplated by this act The state land use agency shall periodically advise the departments and agencies of state government of the location and description of land upon which there exists development rights agreements or casements and the departments and agencies shall harmonize their planning and projects consistent with the purposes of this act. Sec. 17. The state land use agency may promulgate rules pursuant to Act No. 306 of the Public Acts of 1969, as amended, for the administration of this act. Sec. 18. The state land use agency shall prepare a report and make recommendations to the legislature not later than January 30, 1976, for a state plan for preserving open space lands, agricultural and horticultural lands, unique or critical land areas, recreational lands and historic'lands. Sec. 19. This act shall become effective July 1, 197-1... This act is ordered to take immediate effect. Clerk of the House of Representatives. Approved Covemor. 145 APPENDIX 2 Representatives Who Introduced PA 116 NAMES Warner Traxler Sackett Mastin Powell Fitzgerald Geerlings Montgomery Van Singel Kirby Holmes Strang Mowat Bryant Damman Armbruster Kennedy Smith Cramton Gast Trezise Defebaugh Angel Larsen Richard D. Buth Prescott Elliot Ferguson Novak Forbes Brennan Ziegler Dively Loren D. Anderson Cawthorne Destigter Sharpe Spenser Hoffman Ostling Engler Martin D. Buth Brown Bullard Stallworth Ogonowski Nelson Gingrass Thomas J . Anderson O'Neill smit Hunsinger Vaughn Raymond Wood CO-SPONSORS Farnsworth Robert D. Young Varnum Jacobetti Heilman Welborn Source: Guastello Mahalak Journal of the House of Representatives of the State of Michigan, 1973. 146 APPENDIX 3 Farmland Agreements per County per Year, Southern Michigan, 1975 - 1991 County Year 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Allegan Barry 0 281 2674 2703 8353 18385 14065 17981 12622 10354 10150 n .a . 1159 1183 n .a . 1187 1189 2465 4146 2232 5543 5929 4156 4484 9183 4332 6890 3222 n .a . 414 424 n.a. 439 442 Clinton 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 .1987 1988 1989 1990 1991 8212 6851 17983 8116 12539 20622 14345 20305 14386 7629 6758 n .a . 1292 1324 n .a . 1416 1417 E aton 3010 1270 6357 5017 3637 8901 5597 15986 11420 4945 5027 n .a . 866 898 n .a . 959 961 Bay 0 1097 3987 3219 8494 22823 13597 17983 17490 10224 6453 n .a . 1752 1785 n .a . 1821 1830 Berrien 0 304 1183 1749 613 8163 6325 8476 7782 5554 7063 n .a . 582 603 n .a . 626 630 Branch Calhoun 0 1211 8534 8014 17249 33810 9438 19081 17024 8698 9981 n .a . 954 978 n .a . 1019 1033 786 1446 7149 13253 9305 14805 11663 19011 24722 11435 6545 n .a . 977 1003 n .a . 1021 1024 Ge n e s e e Gratiot. Hi l l s d . H uron 1735 2165 2341 329 2853 6246 6367 7670 6463 2878 3860 n .a 469 482 n .a 508 501 1162 1991 25821 26986 43421 32866 23062 21281 18413 10684 7452 n .a . 2794 2837 n .a . 2857 2859 0 504 6377 13569 12924 22625 12168 16568 19507 9558 7127 n .a . 1179 1197 n .a . 1261 1270 280 1673 59862 30174 80433 34450 17586 30809 25535 20442 11618 n .a . 3766 3849 n .a . 3903 3914 Cass 1934 1323 6166 7682 6999 18113 6344 12559 12098 9848 10163 n .a . 764 786 n.a. 810 813 Ingham 9626 5167 16410 10233 5102 10783 8689 15371 86366 4913 5210 n.a. 858 871 n.a. 922 925 147 APPENDIX 3 (continued) Farmland Agreements per Year, Southern Michigan, 1975 - 1991 Isabe ll a Jackson 1416 1865 5041 2918 13787 15157 9573 17389 17650 10060 7592 n.a. 1036 1056 n.a. 1080 1082 0 847 3551 2126 8459 9445 7355 9434 9160 14749 13466 n.a. 962 1010 n.a. 1051 1054 4445 1780 4420 3100 14981 6880 9448 13115 8663 7525 5086 n.a. 596 625 n.a. 639 628 Living. Macomb Mecosta Ionia 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1937 1988 1989 1990 1991 380 667 949 415 444 4308 4196 6334 5192 4397 1945 n.a. 340 345 n.a. 350 352 155 0 60 0 0 270 781 2909 1126 1946 582 n.a. 89 92 n.a. 94 92 270 1148 1962 2234 2297 2195 1223 3315 4914 6204 3917 n.a. 232 260 n.a. 293 297 Kalam. 324 1606 150 1609 4722 10561 9411 12174 13907 4641 2853 n.a. 620 638 n.a. 658 658 Midland 985 1129 6248 3961 4759 4866 3735 8501 8607 5063 2242 n.a. 650 668 n.a. 676 680 Kent 1257 1419 4033 8168 4830 6168 8918 8684 14015 5382 4044 n.a. 666 676 n.a. 686 686 Monroe 590 803 1525 1507 16285 22794 10305 13658 8283 4747 4489 n.a. 1155 1191 n.a. 1236 1239 L a p e e r Lenawei 514 331 1745 5134 0 7003 6572 14338 10343 7145 7666 n.a. 736 769 n.a. 799 799 Monte. 0 0 569 4630 4985 14843 8129 17089 13877 8817 11481 n.a. 914 967 n.a. 1023 1026 8267 1165 8251 51216 4206 32888 21261 21060 18448 11282 14008 n.a. 2428 2487 n .a 2597 2602 Muskeg. 797 860 1239 4122 2887 4186 5221 3665 1904 2302 1964 n.a. 319 343 n .a 358 359 148 APPENDIX 3 (continued) Farmland Agreement per Year, Southern Michigan, 1975 - 1991 C o u n t y Ne w a y g o O a k l a n d O c e a n a Ot t a w a S a g i n a w S a n il ac S h i a w a s s e e Year 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 0 40 40 1442 2716 6543 7332 9725 7681 4489 2045 n.a. 406 417 n.a. 445 448 1171 299 1224 200 692 191 794 964 1099 371 1372 n.a. 76 78 n.a. 83 84 547 2299 0 2920 916 5639 8158 5208 11196 6276 7338 n.a. 648 676 n.a. 705 712 782 3185 3652 6142 11563 16168 9992 12797 6635 5216 4348 n.a 953 966 n.a 974 974 St C l a i r St J o s e p h T u s c o l a 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Source: 112 141 319 1334 1933 2670 3000 6888 3808 6175 2979 n.a. 306 314 n.a. 325 327 0 154 0 9112 13072 25000 12751 23440 9119 10159 7341 n.a. 975 1009 n.a. 1042 1042 494 4918 58181 15851 39116 22560 13776 18437 14925 11688 15514 n.a. 2812 2873 n.a. 2914 2923 4645 4993 33526 12574 23730 16853 17456 34279 25315 12410 10847 n.a. 2642 2699 n.a. 2800 2800 0 1178 10268 21041 35756 28220 26320 43184 41459 20102 19399 n.a. 2704 2785 n.a. 2829 2839 Va n Buren W a s h t e n a w 0 576 6243 4239 3585 10140 10121 16173 12000 8114 4222 n.a. 804 819 n.a. 834 842 3678 1469 1402 4161 10304 11274 11746 12562 9910 7095 2942 n.a. 649 664 n.a. 707 710 M i c h i g a n D e p a r t m e n t of N a t u r a l Resources, O p e n S p a ce Unit, 1992. 1421 2722 3666 5023 8844 14165 21433 19213 13531 6587 6139 n.a. 1033 1086 n.a. 1141 1145 Wayne 304 0 0 215 107 63 266 310 684 454 69 n.a. 34 34 n.a. 31 31 F a r m l a n d an d 149 APPENDIX 4 Cases of Termination of the Contract in PA 116, Southern Michigan, 1991 County Cases Leading Townships Ottawa Ionia Allegan Monroe Clinton Saginaw Lenawee I ng ha m Ken t Tuscola H u r on S a n i la c Washtenaw Berrien Calhoun Genesee Gratiot Hillsdale Ja c k s o n Montcalm Branch E at on Shiawassee V a n Bu ren Barry Bay Kalamazoo L ap e e r Cass Midland Mecosta Muskegon Oakland Wayne I s a be ll a Macomb Saint J o s e p h Saint C la ir 32 30 22 22 21 21 20 18 16 14 13 13 12 11 11 11 10 10 9 9 8 8 8 8 6 6 5 5 4 4 3 3 3 3 2 2 2 1 Zeeland, H o l l a n d , A l l e n d a l e Easton, Ionia, O t i s c o Casco, Overisel, Ga n g e s Milan, Dundee, S u m m e r f i e l d Bingham Albea, S w a n C r e e k , L a k e f i e l d Riga, Dover, A d r i a n LeRoy, A u r e l i u s Alpine, G r a t t a n B r i d g e Hampton, Saline Elk Albion Columbia Venice P or te r Maple Grove Merritt, G a r f i e l d Charleston Al m o n t H omer B ig R a p i d s Sumpter 406 Source: DNR, Farmland and Open Space Unit, 19 91 150 APPENDIX 5 Length of Contracts Length Cases Percentage 7 2 2 to 5 years 32 10 6 to 9 years 212 68 62 20 A year or less 10 to 13 years More than 13 years 1 314 0.0 100 Source: DNR, Farmland and Open Space Unit, 1991. Note: The total number of cases of termination of contracts was 566. Only 314 cases had complete information. The files of the remaining 252 cases were either missing or had incomplete information. 151 APPENDIX 6 Nominal Value of Farmland per Acre ($), Michigan, 1977-1990 Year Values Year Values 77 778 78 79 80 81 82 83 877 975 1111 1289 1278 1223 88 89 90 1000 1060 85 86 1052 1012 87 924 971 Source: USDA, 1985. Michigan Agricultural Statistics Service, 1990. 84 1223 152 Appendix 7 Nominal Farmland Values per Acres($), per County, Southern Michigan, 1974-1987. County 1974 Allegan Barry Bay Berrien Branch Calhoun Cass Clinton Eaton Genesee Gratiot Hillsdal Huron Ingham Ionia Isabella Jackson Kalamaz. Kent Lapeer Lenawee Livingst Macomb Mecosta Midland Monroe Montcalm Muskegon Newaygo Oakland Oceana Ottawa Saginaw St Clair StJoseph Sanilac Shiawas. Tuscola VanBuren Washten. Wayne 568 443 676 750 453 441 52e 535 529 794 536 402 534 662 457 415 507 63 5 622 713 689 880 1218 294 527 909 360 483 424 1401 404 744 692 746 462 S23 576 680 612 861 2067 1978 1028 782 1230 1221 804 783 1010 911 902 1238 9 91 940 1233 1054 843 745 852 1.13 4 1061 1237 1318 1293 1857 656 1071 1583 743 877 645 2170 723 1210 1095 1104 993 931 875 1354 1039 1391 2519 1982 1313 885 1954 1501 1000 970 1193 1176 1178 1277 1592 1169 1566 1323 1025 982 1068 1297 1441 1351 1479 1392 1952 788 1427 1701 863 1217 1096 2592 1121 1735 1639 1151 1275 1107 1198 1721 1454 1669 2647 1987 1162 909 1184 1167 786 717 948 937 867 1225 825 835 1003 1107 857 680 871 1235 1274 1121 1190 1329 2017 677 953 1363 743 1001 802 2405 991 1754 1050 1099 1039 764 873 1000 1121 1523 3560 Source: Michigan Census of Agriculture, 1974, 1982, 1987; 153 APPENDIX Consumer Year Price Index (CPI) 8 USA, Index 1970 - 1990 (1985 = 100) . Year I n de x 1970 36.09 1980 76.58 1971 37.62 1981 84 .48 1972 38 .87 1982 89.68 1973 41.28 1983 92.57 1974 45.84 1984 96.56 1975 50.03 1985 100.00 1976 52.90 1986 101.86 1977 56.33 1987 105.67 1978 60.63 1988 109.91 1979 67.47 1989 115.21 1990 121.43 Source: IMF, 1991. : : 154 Appendix 9 County Data on Enrollment in PA 116, Southern Michigan, 1982 . : #farms: Acres : : : enrolled: : : (cumul.): Allegan :1S31 Barry :1061 Bay :1072 Berrien :1777 Branch :1170 Calhoun :1281 Cass :1022 Clinton :1518 Eaton :1372 Genesee :990 Gratiot :1215 Hillsdal:1354 Huron :1655 Ingham :1105 Ionia :1187 Isabel la:1016 Jackson :1242 Kalamaz.:961 Kent :1524 Lapeer :1361 Lenawee :1619 Livingst:884 Macomb :819 Mecosta :684 Midland :502 Monroe :1458 Montcalm:1132 Muskegon:481 Newaygo :7 84 Oakland :688 Oceana :7 3 5 Ottawa :1573 Saginaw :1702 St Clair:1302 StJoseph:1033 Sanilac :1846 Shiawas.:13 86 Tuscola :1483 VanBuren:1464 Washten.:1347 Wayne :4 39 63171 36083 71702 28000 863 12 75886 56980 109425 50065 29305 168539 84556 254963 80856 64152 40839 59130 41057 43962 40476 183966 21683 5235 2C647 3241 8 66456 49267 23174 273 15 4830 26021 62349 146398 16075 80745 166772 76528 172004 46451 56276 1216 146 177 168 107 208 208 194 176 178 162 233 195 263 202 205 198 189 184 146 16 6 232 156 111 199 186 166 213 177 164 100 177 116 190 158 214 241 176 232 135 166 85 Average: Cropland: Average Land in : size o f : 1 land: real values: farm (% farms :in farms): of farmland: county : (acres): : (S) : area) 81 73 89 SO 77 76 77 83 79 83 86 77 88 83 81 80 73 79 77 79 37 75 85 68 79 90 76 70 69 73 65 80 88 86 82 88 83 88 76 90 82 15 10 22 17 11 U 13 13 13 14 18 13 18 15 11 11 12 15 16 15 17 16 22 9 16 19 10 14 12 29 13 19 13 13 14 12 13 19 16 19 30 50 53 63 52 75 59 63 73 66 39 79 69 82 62 66 54 52 49 41 54 78 38 30 38 28 68 53 26 24 12 38 51 62 44 69 72 71 66 50 49 10 Part-time: fanners (% total : farmers) 43 47 40 42 46 45 43 49 49 49 37 45 20 50 45 43 48 48 47 46 43 48 41 42 47 47 39 45 45 52 38 46 44 47 42 28 43 36 44 45 45 Source: Michigan Census of Agriculture, 1982, 1987; U.S. Department of Commerce, 1990; Michigan Department of Treasury, 1985, 1986, 1986-87 and 1990. Density {pop./sqmile) 100 82 264 287 77 196 98 97 152 686 69 60 43 485 93 93 211 381 524 106 118 174 1424 66 141 237 68 307 42 1143 40 282 274 188 114 41 129 69 109 367 3648 PA116 credits (% property taxes) 10 3 31 19 21 20 18 19 15 14 46 20 40 30 18 11 11 20 28 9 35 5 1 6 19 17 18 30 13 3 16 24 37 2 29 24 21 40 22 16 26 1988 and 1989; Harvey and Trachtenberg, 155 Appendix 10 County Data on Enrollment in PA 116, Southern Michigan, 1987 : #farms: Acres : : enrolled: : (cumul .> : Allegan :1634 Barry :908 Bay :922 Berrien :1479 Branch :1034 Calhoun :116 Cass -.93 9 Clinton :1333 Eaton :1219 Genesee :951 Gratiot •.1011 Hi 1lsdal:1142 Huron :1390 Ingham :960 Ionia :1084 Isabella:912 Jackson :1103 Kalamaz.:842 Kent :13 68 Lapeer :1228 Lenawee :1387 Livingst:7 0 9 Macomb :667 Mecosta :6 3 9 Midland :459 Monroe :1258 Montcalm:980 Muskegon:460 Newaygo :6 87 Oakland :596 Oceana :686 Ottawa :14 71 Saginaw :1424 St Clair:1092 StJoseph:880 Sanilac ;1559 Shiawas.:1160 Tuscola :1207 VanBuren:1278 Washten.:1222 Wayne :3 34 9709 48456 102910 49772 121143 123900 92521 132900 74668 42935 208949 118843 318498 92457 103112 86753 75520 60498 64379 6616 6 223675 31157 8614 32148 50473 86568 87895 29150 42686 7288 52972 80964 195082 30075 112069 251269 103296 220931 75837 76360 2209 155 186 192 121 220 217 232 193 192 171 279 212 305 216 233 214 198 200 149 178 249 163 119 199 206 175 243 179 169 101 194 121 216 162 243 277 207 272 149 167 66 Average Cropland: Average : Land in size of {% land: real values: farm {$ farms in farms): of farmland: county (acres) ($) : area) 81 76 91 84 79 76 78 86 91 07 se 81 90 83 82 82 74 79 80 80 90 78 86 70 79 93 78 69 73 79 65 82 90 84 84 91 84 99 78 84 86 11 9 11 11 7 7 9 9 0 12 8 8 10 11 8 6 8 12 12 11 11 13 19 6 9 13 7 10 8 23 9 17 10 10 10 7 8 10 11 14 34 48 47 62 49 70 56 61 70 63 35 77 63 80 58 69 S3 48 47 37 52 72 35 26 35 28 62 52 25 21 11 38 49 59 38 66 70 69 63 49 45 6 Part-time : fanners (% total farmers) : 42 42 40 41 41 43 42 45 44 43 40 42 36 44 43 41 43 43 43 43 42 43 42 42 43 42 41 43 42 42 37 42 42 43 42 39 43 42 41 43 43 Source: Michigan Cerisus of Agriculture, 1987; U.S. Department of Commerce, Michigan Department of Treasury. 1990. 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