Dairy Excel: Ohio inches forward on PDR plan

According to Peggy Kirk Hall, legal educator with OSU Extension, money will soon be available for purchase of development rights in Ohio. Legislation to allocate the $400 million approved on last fall’s ballot as State Issue 1 recently passed both the House and Senate. Upon the governor’s signature, the Office of Farmland Preservation will receive $25 million to be allocated to purchasing development rights.

The purchases made with the $25 million will be the first “purchases” of development rights in Ohio. Recent legislation made it legal for Ohio governmental entities to accept agricultural easements. Since that legislation, several farmland owners in Ohio have donated an agricultural easement to their farmland.

Now, some farmland owners, but not all of the farmland owners, in Ohio will be offered money in exchange for it being impossible to ever develop the land.

Ranking system. Because the Office of Farmland Preservation expects more people will wish to sell their development rights than they can buy with the $25 million, they are currently developing a ranking system.

It appears that the following will be the primary factors to determine who will be offered money:

1) agricultural productivity of the soils;

2) proximity to development (with lower points awarded to farms too far or too close to development);

3) proximity to other protected areas;

4) management plans in existence and followed on the farm (with farms able to produce and demonstrate compliance with plans such as Best Management Practices, conservation or other operation management plans);

5) existence of local planning and farmland protection programs; and

6) the amount of local matching funds, which it appears can be provided separately or in combination by local government, land trusts and/or the property owner(s).

It currently appears that the Office of Farmland Preservation can fund up to 75 percent of an agricultural easement purchase price. However, it also appears that in order to be ranked high enough to get any money, many, if not all, of those accepted for funding will have to personally or with the help of another entity “buy down” the state’s share well below the maximum of 75 percent.

What’s eligible. The Office of Farmland Preservation does not consider all Ohio farmland eligible for purchase of development rights.

First, land not currently enrolled in both the Current Agricultural Use Valuation and the agricultural district programs will not be considered. Second, the applicable local government (township or municipality) must support the sale of development rights.

Third, where there are multiple owners, all owners must agree to sell development rights.

Finally, where farmland has a mortgage or has been pledged as security for a loan, the owner may need the permission of the secured party in order to sell the development rights.

Is it right for you? So, should you consider offering up your development rights in exchange for the state’s money? Possible benefits include:

* Selling development rights is one of the most effective ways to assure the land will remain in agricultural production;

* One gets current income today in exchange for possible loss in the future, if and when development could take place;

* There are potential tax benefits: a) if all or a portion of easement is donated, even if a “buy down”, there is a possible income tax deduction, b) the value of the land is lowered, to an agricultural use value, so lower values will be used for estate or gift tax purposes c) Current Agricultural Use Values are “locked in” for property tax purposes.

Disadvantages. However, there are also disadvantages. First, once development rights are gone, the landowner and future landowners should consider them gone forever.

A person(s) selling development rights sells not only his and/or her rights to develop or sell to a developer during his and/or her lifetime, but that person has also sold the heirs’ rights. If one sells development rights to allow heirs to continue to farm, one should make darn sure that the heirs also think it is a good idea.

The only “out” for getting back development rights, is if conditions surrounding the land have changed to the extent that agricultural production is impossible or impracticable.

The Ohio Farmland Preservation Office has not yet revealed those “changed conditions” where they would “extinguish” an agricultural easement.

Even though an infusion of cash may be attractive to many farm families, the family should be very cautious about selling development rights because that money is needed in order to continue farming.

If a farming operation is not now financially viable without selling the development rights, that development rights windfall could be gone after a couple bad years. If the farm then has to be sold, it is likely it will be sold at a lower, agricultural price.

It is quite possible that the sum of the lower, agricultural sale price when added to the development rights receipts may be much less than the sale price for the farm with development rights retained.

Selling development rights is definitely not for every farmland owner. However, it is now an option for those few who qualify and whose farmland has those characteristics deemed most appropriate to be preserved by the Ohio Farmland Preservation Office.

(The author, an OSU Extension ag agent in Lorain County, is a member of OSU’s Dairy Excel team. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)

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