In response to California's budget crisis, Governor Davis' budget proposes to eliminate the property tax breaks given to farmers and other landowners for not developing their land in accordance with the Williamson Act. This law, officially referred to as the California Land Conservation Act, was enacted to stop encroaching, sprawling development from swallowing valuable farmland and open space by reducing the financial temptation of farmers to develop their land. The law accomplishes this by reducing property taxes on property used for agriculture.
City planners, farmers, and environmentalists are opposed to the Davis proposal because they fear it will accelerate urban sprawl. But, California may be wise to replace the Williamson Act with a better policy that will assure valuable farmland and open space remain undeveloped forever. This can be done through a purchase of development rights (PDR) program.
PDRs offer cash to landowners and farmers who wish to continue to farm or keep their land undeveloped in exchange for the development rights. The formula works like this. Let's say the value of your land as agricultural use is $1,000 per acre and the market value of your land (at a developed use) is $5,000 per acre. The state or local government pays you the difference, $4,000 per acre in this case, for the development rights. This sale of rights effectively places a conservation easement on the property meaning the land will remain undeveloped forever even upon transfer. In addition, the property remains in private hands and the government can still collect property tax revenue.
PDRs are superior to property tax subsidies for a variety of reasons. The first reason being the situation we are in right now - a budget crisis. Granting a permanent conservation easement on a property will not subject it to the whims of state and local politicians who may deem it appropriate to eliminate the tax benefit during times of economic stagnation. The easement is a one-time cost. The second reason is that the value of development rights vary and on some open space and agricultural land, farming may be the most profitable use, therefore it is wasteful to offer tax benefits for landowners who can not profit in the market by developing their land. By definition, PDRs will cost just enough to entice the landowner out of development.
Finally, PDRs may prove to be more flexible. Land need not be agricultural in use or part of large tracts for its development rights to be sold. PDRs can be used for open spaces or environmentally-sensitive lands that communities deem valuable as undeveloped, whether they be in urban or rural areas.
Of course, many will argue that PDRs are great, but they are more costly up-front to the government and with state and local budget crunches, funding such programs will be difficult. But, consider what the State of California and local governments are proposing to spend to curb urban sprawl through costly development subsidy programs, ineffective rail transit subsidies, and other programs designed to reshape urban development patterns. The San Diego Association of Governments, for example, is planning to spend $25 million alone to promote a "smart growth linkage" between transportation and land use. This does not even consider more costly transit expenditures in the name of curbing urban sprawl and protecting open space. There are other California agencies as well spending millions to get people out of their cars and into transit in order to reduce sprawl and improve the environment.
It seems that instead of squandering taxpayer money on ineffective programs that try to reshape our sprawling landscape, we could institute a voluntary, market-based program like PDRs that protects valuable open space, agricultural and ranch lands.
Chris Fiscelli is a senior fellow in urban and land use policy at Reason Foundation