Current-Use Assessment of Rural Land in New England: Equity Effects

and Reform Proposals

Richard W. England Professor of Economics, University of

New Hampshire Visiting Fellow, Lincoln Institute of Land Policy

April 8, 2016

A Brief Look at Bedford, New Hampshire

Property Taxation in Bedford, NH

Striking differences in 2013 assessments of undeveloped land zoned for residential use: Parcel 1 assessed at $10,047 per acre. Parcel 2 assessed at $127 per acre.

Nearly 13 percent of towns land area with average assessment of $155 per acre.

Discriminatory assessment practices? Not at all. Parcel 2 enrolled in Granite States current-use assessment program.

Use Value Assessment

Use value assessment (UVA) = assessment of undeveloped land for tax purposes as though permanently undeveloped.

No recognition of development potential of parcels by local assessor.

Almost universal adoption of UVA by state governments during sixties and seventies.

Origins of UVA

Rapid suburbanization of U.S. cities after WWII (interstate highways, cheap gasoline, mortgage subsidies, etc.).

Developed area in U.S. grew from 25.5 to 65.5 million acres (1960 - 1997).

Earliest adoption of UVA of agricultural land by Maryland in 1957.

Rationale for UVA Programs?

Rationale for UVA offered by IAAO (1974):

Assessments below market value 1. To preserve family farmers, and 2. To protect rural landscapes from

urban development.

Design Features of UVA Programs (a)

Simple application process: One page application common. Little or no supporting documentation required.

Eligible land uses: farm or ranch typical, forested parcel less common, open space rare.

Modest sales or income from rural use often required. At least $500 of annual sales from farming activity in MA.

Design Features of UVA Programs (b)

Small minimum acreage requirement typical. Only 3 acres in Louisiana! At least 5 acres of farmland in Massachusetts. Ten acres in NH. Minimum of 25 acres in Vermont.

No development penalty in 21 states.

Rollback or conveyance tax in 28 states.

UVA and Rural Land Protection

Studies of impact of UVA on preservation of rural land surveyed in Anderson & England (2014).

Morris (1998) on effect of UVA on retention of farmland in nearly three thousand counties: The policy [resulted in] 10 percent more of the land in a county being retained in farming [after twenty years].

Thoughts About Protecting the Small Family Farmer

Property taxes only one reason for leaving farming. UVA unable to save family farmer?

Farms with fewer than 600 acres common in the early 1980s. Today most cropland is on farms with at least 1,100 acres (USDA).

Todays land-rich farmers deserving of property tax break?

Ten-Acre Farms near Lexington, KY (2016)

Thoughts about Preserving New England Forests

30 40 percent of New England remained forested in mid-1800s after two centuries of European settlement.

80 percent of New England covered by forest or thick woods today.

New England is now the most heavily forested region in the United States . (Boston Globe, 2013)

Swift River Valley (MA), 1880s

Swift River Valley (MA), 2010

Distributional Effects of UVA (a)

Preferential assessment of rural land pressure on local government to raise property tax rate and/or cut local expenditures.

Shift in property tax burden from UVA beneficiaries to other property owners within taxing jurisdiction.

Distributional Effects of UVA (b)

Early recognition by Presidents Council on Environmental Quality (1976) of tax expenditures associated with adoption of UVA programs.

California as unique example of state government compensating localities for revenue loss (until 2008).

Distributional Effects of UVA (c)

Anderson and Griffing (2000) on tax expenditures in two Nebraska counties: 1. Tax expenditure large near CBD and

declines with distance in both counties.

2. Average tax expenditure = 36 percent in one county and 75 percent of revenue in other county.

Cities, Suburbs and Current Use in NH

Pct. Acres in CU (2014)

Average CU Parcel Size

(Acres) Bedford 12.6 14.9 Concord 38.2 32.2

Manchester 5.8 26.7 Salem 10.1 13.6

Assessed Values in NH and Selected Counties (2014)

Assessed Value per

Current Use Acre (Dollars)

Assessed Value per

Residential & Commercial

Acre (Dollars) New

Hampshire 67.18 37,522

Coos 35.23 15,268 Hillsborough 90.15 49,031 Rockingham 93.87 60,867

Academic Criticisms of UVA

High tax expenditure per acre temporarily preserved by UVA program. Superiority of purchase-of-development-rights programs or outright public acquisition.

Tax relief granted to all rural land in eligible categories, not just to ecologically valuable acres threatened by development.

Flawed formulas used to estimate use values of farm and forest parcels.

Editorial Cartoon from Kentucky

Two Hypothetical UVA Parcels in New Hampshire

Parcel Description Assessed Use Value Market Value

100 acres of unproductive (barren) land at interstate highway ramp one hour north of Boston.

$1,000

$2 million

100 acres of white pine forest adjacent to White Mountain National Forest and not on road.

$15,000

$20,000

Some Thoughts about UVA Reform

Current practice: Biggest tax breaks (per acre) go to owners of undeveloped parcels with biggest difference between fair market value and capitalized net income to parcel owner from continued rural use.

Reform proposal: Biggest tax breaks (per acre) go to owners of parcels with highest capitalized value of public goods generated annually by undeveloped parcel.

Relevance of ecosystem services research literature.

Examples of Ecosystem Services Produced by Rural Parcels

Flood control and water storage

Filtration of air and water pollutants

Nitrogen fixation and nutrient cycles

Carbon sequestration and climate change

Wildlife habitat (including pollinators)

Soil erosion prevention

Option value of preserved genetic codes

Soil formation via rock weathering and accumulation of organic materials

Scenic vistas Etc.

Conclusions

Need to evaluate half century of experience with UVA and to identify possible reforms that could improve the effectiveness and fairness of UVA.

Need to balance social benefits of rural land preservation against social costs of higher tax bills for all homeowners and higher prices of land for new housing and other urban uses.

Current-Use Assessment of Rural Land in New England: Equity Effects and Reform Proposals A Brief Look at Bedford, New HampshireProperty Taxation in Bedford, NHUse Value AssessmentOrigins of UVARationale for UVA Programs?Design Features of UVA Programs (a)Design Features of UVA Programs (b)Slide Number 9UVA and Rural Land Protection Thoughts About Protecting the Small Family FarmerTen-Acre Farms near Lexington, KY (2016)Thoughts about Preserving New England ForestsSwift River Valley (MA), 1880sSwift River Valley (MA), 2010Distributional Effects of UVA (a)Distributional Effects of UVA (b)Distributional Effects of UVA (c)Cities, Suburbs and Current Use in NHAssessed Values in NH and Selected Counties (2014)Academic Criticisms of UVAEditorial Cartoon from KentuckyTwo Hypothetical UVA Parcels in New HampshireSome Thoughts about UVA ReformExamples of Ecosystem Services Produced by Rural ParcelsConclusionsSlide Number 27