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An Inheritance Neglected

Farmland, farm economy merit higher state priority

January 1, 2006 | By Keith Schneider
Great Lakes Bulletin News Service


Even though agriculture is, arguably, the healthiest major industry in the state, its farmland base is eroding. From 1997 to 2002, according to the U.S. Census of Agriculture, Michigan converted 300,000 acres of farmland to other uses.

HASTINGS — When all is said and done, there are just three ways to protect Michigan’s farmland and ensure the economic success of its diverse agricultural industry. The first is to encourage farms and farmers to take advantage of new technology, markets, and opportunity in order to increase their profitability. The second is to zone farmland to restrict its use to growing food and fiber. The last is to compensate producers, through tax breaks or grants, to permanently set aside their land for agriculture.  

Barry County, home to 57,000 people, 500 working farms, and 220,000 acres of agricultural land has tried all three, with mixed success. Its residents are partial to agriculture; after all, the county’s farmers are fourth in beef production in Michigan, eighth in milk production, and produce other crops that together contribute nearly $50 million to the economy each year. They also know that protecting fields and pastures from development will secure recreational, scenic, and quality of life benefits.

But translating that love of open land into formal policy is much harder here and in most other Michigan counties than advocates anticipated. There is not enough political support yet to establish zoning laws that protect farmland, and raising public funds to purchase land development rights in Barry County is difficult.

Barry County’s farmland protection struggle reflects a larger, statewide problem. Although blue ribbon studies have found that conserving the state’s farmland would curb expensive sprawl, and developing new farm business models would boost Michigan’s economy, there’s no political will to adequately fund such programs. Even when researchers, working at the behest of Michigan’s governor, suggest innovative ways of paying for such programs, the proposals are viewed as political non-starters. Meanwhile, as development pushes ever farther into rural agricultural areas, only a handful of farmland preservation programs across the state are making much progress.

In Barry County, they are stalled. In 2004, leading Barry County farmers, including Gordon Endsley, a well-respected cattle breeder, supported a small property tax increase that would pay farmers for their development rights. But the referendum lost, 54 percent to 46 percent. Late last year, the county failed to convince the state Agricultural Preservation Fund Board to approve a large grant to begin purchasing the development rights to land on several farms.

Barry County has also tried rezoning. County commissioners spent more than a year debating a new master land use plan that would establish new agricultural zones that preserve farmland by outlawing subdivisions and condominium developments. The commissioners approved the master plan in October, but only after a group of older farmers and property rights activists insisted on allowing any type of new housing to be built on farm acres, essentially eliminating what the commissioners hoped to accomplish.

Mr. Endsley was disappointed with that result, too. He supported the prohibitions in order to help safeguard his 700-acre farm from the sprawl heading Barry County’s way out of Lansing to the east, Grand Rapids to the north, and Battle Creek from the south.

“Residential housing, subdivisions, condos, and the increased traffic mix with farming little better than oil and water,” Mr. Endsley said. “A small, vocal minority should not compromise the welfare of the majority.”

Hey! Farms and Farmland Matter to Michigan
In the give and take that suffices for how Michigan manages its farming industry, the economic importance of agriculture does not attract nearly enough attention. This is true even though Michigan’s roughly 50,000 farmers produced more than 200 commodities that generated $4.3 billion in farm gate receipts in 2004, an all-time high. An analysis by the Michigan Department of Agriculture, made public in November, found that the farm industry’s overall contribution to the state’s economy—through products, processing, marketing, distribution, and other activities—is $59 billion annually and employs one million people. No other industry comes close except for manufacturing, according to the Michigan Economic Development Corporation.

But even though agriculture is, arguably, the healthiest major industry in the state, its farmland base is eroding. From 1997 to 2002, according to the U.S. Census of Agriculture, Michigan converted 300,000 acres of farmland to other uses, approximately 60,000 acres annually. A study by Lansing-based Public Sector Consultants found that, if the ever-outward movement of homes, businesses, roads, and malls persists, the state will lose an average of 30,000 acres a year through 2040.

A study in the late 1990s by American Farmland Trust, a respected Washington-based research and land conservation group, concluded that five critical agricultural regions in Michigan are imminently threatened by farmland loss. Those regions include the fruit belt near Traverse City, which produces more tart cherries than any place in the United States, and the Fruit Ridge, outside of Grand Rapids, a major producer of apples.

Just three years ago, the steady loss of farmland in Michigan was a top public interest priority. During her first gubernatorial campaign, in 2002, Governor Jennifer M. Granholm said sprawl and the state’s eroding land base were two problems she was determined to solve. In 2003, the 26-member Michigan Land Use Leadership Council, the bipartisan commission appointed by the Democratic governor and Republican legislative leaders, recommended three primary steps to ensure farm profitability and protect farmland.

First, the council said, Michigan should establish “agricultural production areas,” or designated zones, to be used principally for growing crops. Second, the council recommended public investment programs that provide farmers with economic incentives to keep land in agriculture. And last, the council called for a fund to help more farms and related businesses invest in new, more profitable technologies, marketing, and products.

Big Bucks for Factories, Pennies for Farms
To their credit, the governor and the Republican-led Legislature acted on the last one. Last month Ms. Granholm and lawmakers agreed to a $1 billion jobs and industry investment package containing $10 million to fund new farm-based enterprises.

But the council’s other two recommendations are languishing. Twice since he was elected in 2002, Representative Howard Walker, a Republican from Traverse City, has proposed reducing agricultural property taxes in order to conserve one million acres of farmland, an idea favored by the Michigan Land Use Leadership Council. Twice the House approved Representative Walker’s proposal, most recently in October. But the Senate declined to take up the measure. 

The state Treasury opposes Mr. Walker’s proposal because it would reduce tax payments to the general fund by $15 million annually. Yet, in a sharp and revealing contrast, the governor and the Legislature just agreed to reduce business taxes by $1.1 billion over the next six years, according to a summary provided by Republican Senator Majority Leader Ken Sikkema.

Such decisions, which fail to treat farms as viable and valuable business assets, leave growers and the economy they embody in a very vulnerable position. All that is standing between the state’s irreplaceable farmland and the sprawling development that threatens it are two state land conservation programs, a smattering of local government programs, and purchases made by non-profit land conservancies.

And, when it comes to the state, there isn’t much money to go around. This year the state Agricultural Preservation Board had just $1.3 million to invest in farmland protection projects in three counties and seven townships that have eligible programs. That was enough to protect perhaps 1,100 acres.

The other state program, which since 1974 has provided farmers with tax credits in exchange for temporarily conserving land for agriculture, is losing popularity because the credits do not provide enough financial incentive, said Rich Harlow, who oversees the state Agriculture Department’s Farmland and Open Space Protection Program.

At the local level, 23 townships in 14 counties, according to the department, have established the legal authority to purchase farmland development rights, which, nationally, is perhaps the most popular way of protecting farmland. But voters in only six townships in Grand Traverse, Kent, and Washtenaw counties have actually approved property tax increases that pay for buying land development rights.

MSU’s Far-Reaching Ideas
More, obviously, is needed. One of the places where much thought is given to preserving farmland is the Land Policy Program at Michigan State University, which advocates establishing a $50 million-a-year farmland preservation fund, enough to protect 25,000 acres or more annually.

But, during an era of deep budget deficits, the question is how to finance such an investment?

A team of researchers led by Soji Adelaja, the John A. Hannah Distinguished Professor in Land Policy and director of MSU’s Land Policy Program, recently completed a study for the Granholm administration that analyzed traditional and non-traditional taxes and new revenue sources that could be used to preserve farmland.

The study considered many scenarios. One would boost the personal income tax from 3.9 percent to 3.93 percent, which would meet the $50 million goal. Raising the state sales tax from 6 percent to 6.045 percent—less than a 1 percent increase—also would generate $50 million for farmland conservation. An increase in the Real Estate Transfer Tax, a charge for buying or selling real estate, from 0.75% to 0.87% is another potential revenue source.

These three sources are stable, rising, and related to the benefits that agriculture provides to Michigan residents, the MSU study group found. A small increase would be enough to achieve farmland preservation goals now and in the future.

The team brainstormed other new potential sources of revenue for farmland preservation, including an impact fee for new residential development. Since farmland tends to cost local governments less than residential development—cows don’t need ambulances—impact fees could help offset the costs of keeping some land in agriculture. A surcharge of $1,200 on new homes could generate $50 million annually, based on the estimated 42,000 new building permits issued each year in Michigan.

Another, highly innovative economic incentive for preserving farmland has received almost no attention in Lansing. It would establish what Dr. Adelaja calls “equity insurance” and “equity mortgage” programs for farmland preservation. Under the insurance proposal, the state would make a down payment to a farmer for the development rights to his land and simultaneously buy an insurance policy for the balance, similar to a term life insurance policy. The farmer collects when he retires or transfers his assets to a son or daughter, and could avoid a capital gains tax.

With the equity mortgage proposal the state could provide assistance to local governments to purchase development rights from farmers with borrowed money. Farmers receive the full value for their development rights immediately, when the purchase is closed. The state saves money and eases its cash flow problems by enabling local governments to buy development rights at current values and paying for them over time.

MSU says that equity insurance programs could cost 40 percent less than conventional purchase of development rights programs, and equity mortgage programs could save 47 percent. For example, preserving 1,100 acres this year through the existing preservation program will cost about $2.2 million in state and local funds. Using an equity mortgage program, the immediate cost would be $1.4 million.

Dr. Adelaja is candid about the political chances for any of these proposals. They all are novel, untested, and involve large amounts of money, to say the least. But using insurance and mortgage programs to protect farmland is just the sort of original thinking that Michigan requires in a new century that is testing all of the old ways of doing business.

“They are proposals designed to get people thinking,” said Dr. Adelaja in an interview. “In order to be successful, in order to protect our farmland, we have to change and we have to think big.”

Keith Schneider, a journalist, is editor and director of program development at the Michigan Land Use Institute. Reach him at keith@mlui.org. This is the last of four articles on farmland conservation and Michigan’s agriculture industry. Michigan State University’s Land Policy Program commissioned the series.

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