HomeMy WebLinkAboutAgenda - 06-28-1994-IX-B }
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ORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: June 28, 1994
Agenda Abstract
Item# _$
SUBJECT: NOTICE OF INTENT-BOND REFERENDUM FOR PURCHASE OF DEVELOPMENT RIGHTS
DEPARTMENT: Planning PUBLIC HEARING: Yes X No
ATTACHMENTS: INFORMATION CONTACT:
Notice of Intent Planning Director X2592
6/30/94 Bond Attorney Letter - Recommended Calendar
Section 3 - Draft PDR Report (Background Material) PHONE NUMBERS:
Hillsborough 732-8181
Mebane 227-2031
Durham 688-7331
Chapel Hill 967-9251
PURPOSE: To consider legal requirements and proposed schedule for November 8, 1994 bond
referendum for farmland preservation program.
BACKGROUND: On May 19, 1994,the Agricultural Districts Advisory Board met jointly with the Board of
Commissioners to review the status of the Farmland Preservation Program proposals,
including a proposed purchase of development rights program.One point of discussion was
the financing of such a program and that it should be limited to bonds or annual
appropriations (pay-as-you-go) or some combination thereof. Impact fees and sales taxes
were not to be considered for purchase of development rights but limited to financing for
infrastructure; e.g., schools, etc. A suggested bond amount was$5.0 million for start-up,
with some type of continuation funding for long-term impact.
Subsequent to the meeting, Advisory Board members and Commissioners discussed the
proposals further while in attendance at other activities.Suggestions were made to move
the program forward in anticipation of the November 8, 1994 bond referendum.
Discussions with the Finance Director about such a referendum indicated two potential
concerns.The first concern involved the question of whether bond funds could be used to
purchase development rights. Upon checking with the County's bond attorney, such
purchases were deemed acceptable.
A second concern was the timing of actions related to implementation of a referendum.
A time table provided by the Bond Attorney is as follows:
August 10 Publication of Notice of Intent
August 23 Last day for receipt of written notice from the Local Government
Commission that the County's application for approval of bonds has been
filed and accepted for submission to the Commission
2
August 23 Introduction of bond order by Board of Commissioners at a regular
meeting
August 31 Publication of bond order as introduced and notice of public hearing
September 6 Holding of public hearing, adoption of bond order, and passage of
referendum resolution by Board of Commissioners at a regular meeting
September 14 Publication of bond order as adopted
September 14 Publication of notice of referendum
and September 23
September 19 Absentee ballots to be available
October 10 Last day for registration
November 8 Referendum
November 10 Canvassing of referendum returns by County Board of Elections
November 22 Declaration of result of referendum by Board of Commissioners at a
regular meeting
November 30 Publication of statement of result of referendum
The referendum timetable requires that the County publish a Notice of Intent by August
10, 1994 so that other required actions can be taken in the months leading to the
November referendum.
RECONINIENDATION: The Administration recommends that the Board approve the bond referendum
timetable and authorize the clerk to publish the Notice of Intent.
JUN-21-1994 15:51 FROM ORANGE COUNTY PERSONNEL TO 3002 P.02
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Mr. tammoth T. abaviaus
Finance Director
COURLT at *ran"
ft Cammai0e sheet
11111sbcm&gb, Hoeft CarciitM 77276
ft: County of oraAge, hoZ" Carolina
ICON" Im"
Dear X"I
in accordance with our ooaversation of today, I vish to
coalirs a revised anggested c43+ea10s of the various steps to be
tale in conneation rich the authorisation of the bonds described
above and the Wditg of a spacial bond retweadm tbereon:
AUq=t 10 Publication of Notice of intent.
August 13 Last day for receipt at written notice
fraa the Lo"i Goverment Commission that
the Cow ty'• appilmueft for a>approval at
bovAs has been tiled and accepted for
submission to the Commiasioa.
:lagast 2= - Intsoduation of bond order by Board or
Coanissione rs at a regular steel U q.
August 31 - Rzbliaation of bond order as introduced
arA notice of pUblio hearing.
Mptowbsr 6 - bolding of public hearing. adoption of
both order and passage of refervwt>dua
resolution bZ Board of Commissioners at a
regular tneetsug.
sapCe Der 14 Publication of bond order as adopted.
JUN-21-1994 15:52 FROM ORANGE COUNTY PERSONNEL TO 3002 P.03 '
4 !
sept�ber 14 - Publication of ratio* of referendus.
and "pteaber 11
9epteabw 29 - Aboantee baiiote to be available.
October 10 - Last day for registrations.
ltovo*ber 9 - Referen".
l�oo*wbes 10 - carm*"irq of rateaceasdua returns by
OouRty ward of Inectiom,
NOV010ber 22 - 9golMtion of rewlt of refuW4UN by
Board of camodosioness at a ra lar
aeetim.
November 70 Publication of staterut of remIlt of
refer eadme.
P1esN 'Lot ae knows Mether tee calendar set ffttb above is
satisfaatwy to the Board of commissioners mad the hoard Of
sleations and, if you haw any qusstiaos, P19aeecall se. I will
ode Yo* mhortly with a suggested fora of Notice of IntOUt.
9ely Yes,
dLWW
thusdats 7lperans
2
TOTAL P.03
JUN-22-1994 14:48 FROM ORRAGE COUNTY PERSMIEL TO 3002 P-02
1
5
$MCI or LIM ro
APPLY TO =2 LOS, WYMOGUIR CMWSBXON
rM APPAOM OF BONDS
NOncz ie hereby oven of the intention of the andessignea to
ails an application With the Local Government Coesniseion, Raleigh,
North Carolina, for its approval of the issuance of the following
proposed bands of the county of orange, North carolina, uhich boinds
shall be subject to the approval of the vatdt's of said County at a
refsz'sadwt:
$3,000,000 Op$N MACE P ---RRVATZON DOM for the purpose
Of ptavidiip funds, with any other available
funds, far implsmentim a program of open
spaex and area preservation, including the
acquisition by purchaa, lease or otherwise of '
Land or arty interests {imcludirq development
rigbts) thersin to mainlsin, protect, limit
the future we of or otherwise conserve
feraland, watershed and other open spaces and
areas*
MW citisen ar taxpaYer wbo objecto to said bowls in whole or
in part may file with the Local Government Commission a sUtssent
settin forth his objections and Containirq his name and address as
prov in section 159-50 of the General Statut" .of North
Carolina, in which event he shall also file a OW of such
statement with the undersigned, at nay time within sewn days from
the date of Publication of this Notice. 0409tiass set forth in
JLJN-22-1994 14:49 FROM ORANGE COUNTY PERSONNEL TO 3002 P.03
i
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said statement will be comidared by said Cm aission, along With
said applicat3aa, in detss•aininq whather to approve or disapprove
said application.
BOA= or CwatisszobsRS DoR
THR COUX" ar oRAgcs
by Beverly Blythe
Clark to the Hoard of Comaissioners
8
TOTAL P.03
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QUESTIONS&ANSWERS ABOUT
PURCHASE OF DEVELOPMENT RIGHTS
Purchase of development rights is often referred to by its acronym, PDR. Regardless of the
terminology used, it has become a popular and effective tool for preserving farmland across the United
States. By acquiring the rights to develop land for nonfarm purposes, many states and local jurisdictions
have encouraged active farms to continue and assured that prime soils will remain available for future
agricultural use.
While purchase of development rights programs have grown in popularity elsewhere, local
implementation is something entirely new for Orange County. Many questions have arisen on the part of
decisionmakers and landowners alike about how a program would operate, how much would it cost, how
would it be funded, and what benefits would be derived. In this section, answers are provided to these
questions.
1. Why a Purchase of Development Rights Program?
Zoning is one of the tools which local government can use to direct the growth and development
of an area Unless a net residential density of at least one dwelling unit per 20 acres is achieved,however,
too much non-farm development will be allowed to encroach into rural areas. As a result, conflicts with
agricultural operations - manure odors, chemical spraying, equipment vandalism, traffic congestion - are
sure to occur.Proposals to limit development through large-lot zoning are opposed,primarily because such
restrictions are viewed by landowners as depriving them of substantial value.
A purchase of development rights program gives farmers a timely, financially competitive
alternative to selling their land for development. Such programs are voluntary, address concerns about
uncompensated restrictions, and permit landowners to decide whether or not to participate. The
compensation paid to landowners for permanently relinquishing their development rights can enable them
to expand their farming operations,pay off debts, distribute their assets equitably among children,and/or
provide for a comfortable retirement while retaining title and all other rights to their land.
2. What are development rights?
Fee simple ownership (the full ownership) of land may be defined as a"bundle" or set of rights,
including the following.
The right to keep others off the land;
The right to sell or bequeath an interest in or right to all or part of the land
to someone else;
The right to use the land for farming,forestry, and outdoor recreation; and
The right to build structures on or beneath the land.
The latter constitutes the"development rights"attached to a parcel of land.The extent or amount
of such rights is limited by restrictions embodied in health and building codes,and whatever zoning that
may exist. For example, a person may own a 100-acre farm. If his/her property was zoned to allow one
dwelling unit per acre, he/she would have development rights for 100 units.In rural areas without public
utilities available, the actual number of units or development rights might be even lower. Poor soils and
t
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insufficient area for septic fields may permit only 50 units or one dwelling unit per two acres.
The objectives of farmland preservation may be served by purchasing and removing the
development rights from the bundle of rights which comprise full-fee ownership of farm property. This is
equivalent acquiring an easement on the property and is also referred to as the acquisition of a
development or conservation easement. Known as a "negative" easement, it simply prevents the owner
from doing something with his/her land; e.g., developing it. Each easement can be tailored to the parcel
to which it applies, specifying what type of development will and will not be allowed.
Development rights apply to each specific parcel of property. Therefore, their removal must be
accomplished parcel-by-parcel and recorded with each deed. The resulting lien on the property typically
"runs with the land." It is binding on subsequent purchasers and can be enforced against them by the
agency or organization which holds the development rights.
3. How is the value of development rights determined?
One of the most difficult aspects of a PDR program is determining the value of development rights.
Generally,the cost of a development rights purchase for farmland preservation purposes is usually figured
on a per acre basis as follows:
Market Value -Agricultural Value = Development Rights Value
Market value is determined by an appraisal and is usually based on recent sales of comparable
land. It represents the amount for which the property with all rights intact would be sold. Agricultural
value is also based on an appraisal and based on the current and prospective net returns from agricultural
production. It represents the amount for which the property would be sold based on its income potential.
Shown graphically, the value relationship would be as shown on the following page.
Land values vary widely from one part of the country to another and even within a single county.
This feature makes it difficult, if not unwise, to draw conclusions about the cost of development rights in
other PDR programs.Nationally,however,the cost of purchasing development rights has averaged$1,500
per acre.
In Montgomery County, Maryland, a jurisdiction noted for its farmland preservation programs
(including PDR), $1,500 to$4,000 per acre has been paid for development rights. The average of$3,200
per acre is competitive with appraised PDR values elsewhere in Maryland.
Forsyth County, North Carolina has had a PDR program in effect since 1987. The average price
of development rights in that county has been$1,500 per acre.However,the former administrator of the
Forsyth County program indicated that recent appraisals show an increase in the average price to$2,500
per acre. He predicted that similar values would be found in the Research Triangle area.
Using tax appraisal data on land in Orange County,it is possible to make some assumptions about
the value of development rights.However,this information should be viewed as a generalization and should
not be presumed to apply to any specific property.
The per-acre value of agricultural land may be estimated using values assessed to property under
the Preferential Assessment/Deferred Taxation Program. Authorized by G.S. 105-277.2, the program
permits land to be assessed based on its actual use for farm or forest purposes. Values are based on
10-year production averages for corn and soybeans under a sound management program for each of five
major soil groups. Applied to parcels based on the types of soils present, the values are similar to those
derived by actual appraisals.
9
RELATIONSHIP OF VALUE OF DEVELOPMENT RIGHTS
TO MARKET VALUE AND AGRICULTURAL VALUE
Total Market
Value
Total Market
Value of Value
Development
Rights
Value of
Development
Rights
............................................................ .............................................................................................
Agricultural Agricultural
Value Value
High Low
Development Development
Pressure Pressure
Shown on Table 3.1 are the average agricultural and forestry use values per acre, by township,
for parcels participating in the Preferential Assessment/Deferred Taxation Program.Combined,use values
for farm and forest vary from$452 per acre in Chapel Hill Township to$252 in Little River Township.The
average use value for the county as a whole is$306.
The assessed market value of properties participating in the Preferential Assessment/Deferred
Taxation Program is also shown on the table. The values are based on land sales in the county and are
adjusted every eight years as part of a re-valuation process. Such adjustments bring the"assessed"values
in line with the actual"market"value.
Since the last re-valuation occurred in 1993, the assessed values shown may not match the
prevailing market values of property in the county. Adjusting the assessed value may be accomplished
through application of an "assessment ratio" or the ratio of assessed value compared to the actual sales
price. As an example, if the assessed value of a parcel was $90,000, and it sold for $100,000, the
assessment ratio would be 0.90 ($90,000/$100,000).
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TABLE 3.1
CHARACTERISTICS OF PREFERENTIAL ASSESSMENT/DEFERRED TAXATION PROGRAM
ORANGE COUNTY,N.C. -APRIL, 1994
Acres Per Per Estimated Per Acre
Under Total Total Acre Acre Assessment Per Acre Development
Township Use Use Market Use Assessed Ratio Market Rights
Value Value Value Value Value Value Value
FARM USE
Cedar Grove 15599 : 54,531;225. $28x7S3�534 . $r290 $1,843 . 0.8741 $2,109 $1,818
Little River 30899 $7,799,679 $43,393,248 $252 $1,404 0.9084 $1,546 $1,294
Cheeks * t1745: ><>529 'I,Q 7: ;b28,077 $2"77. ' ':$2,106 0.8891: 52,369 $2,092
Hillsborough 3305 $1,052,441 $9,927,687 $318 $3,004 0.9489 $3,166 $2,847
Eno :.537: :`:`$1, r ; $148;Q47 `,.: : $314: ::: $2;772: 0.9005 $3,078 $2,764
.. ....... ... .
Bingham 18338 $5,322,422 $42087,111 $290 $2,295 0.8717 $2,633 $2,343
Chapel Hill $6,437 :.. $6,042
Total 92267 $26,540,660 $208,725,868 $288 1 $2,2621 0.90061 $3,0481 $2,761
Percent of Total Conn Land Area in Farm Use 37%
FOREST USE
Cedar Grove « :`:1464. 58 $3: $6QC1 =: :> .$Z 0:8741' ...: $2 54 $1 1
Little River 1538 $386,554 $2,728,278 $251 $1,774 0.9084 $1,953 $1,701
Cheeks 231"1`: ' ': :$913 19 2,394 $1998
Hillsborough 1254 $323,408 $4,508,181 $258 $3,595 0.9489 $3,789 $3,531
Eno :>: 51Al.-0L: :: ;$32E1 $2,559 ::><>a:9i0a5:. $2,842 $2,522
_..
Bingham 5389 $1,548,042 $12,311,304 $287 $2,285 0.8717 $2,621 $2,334
Chapel Hill 557-1-:: :;$2 17 2A0 .:.:::$33 53. _ '»:><> 5534,: 9116 $6;603 $6,068
Total 22566 $8,646,553 $74,162,447 $383 $3,2.86 0.9006 $3,2511 $2,867
Percent of Total County Land Area in Forest Use 9%
COMBINED FARM d1: FOREST
Cedar Grove 17)63 0:$7x1 .:.: S4147 $183(1
_ ..
Little River 32437 $8,186,233 $46,121,526 $252 $1,422 0.9084 $1,565 $1,313
Cheeks `0.8891 3 : $2075
. ...... ... , .. .......... $2,37
Hillsborough 4559 $1,375,849 $14,435,868 $302 $3,166 0.9489 $3,337 $3,035
Eno
>:;:.
67. ;:;: 744
:: :::..:...:::.. :s::A:»:..:. .....::...:...:...... .,.. ,129! :::::;<:':>;>.;$3�1? :, :..::$2,669> ;::.;<;..0 9005 :..:::: .$2,9"
Bingham 23727 $6,870,464 $54,398,415 $290 $2,293 0.8717 $2,630 $2,341
Chapel Hill < :i ':
Pe 'S�k..::.::.:.:�`i6:�'��' ..:.:�i�2(Is18� .:.:::::'..;::.5452: > '.:$5,43(3 ::;...;: $6,Q53
Total 114833 $35,187,213 PM,888,3151 $306 $2,463 1 0.90061 $3,0741 $2,768
Percent of Total Conn Land Area in Combined Farm do Forest Use 46%
NOTES: 1. Values given above are for land only and do not include buildings and structures.
2. Data for Cheeks Township(*)includes one horticultural operation.
3.4
11
In Table 3.1, assessment ratios for the rural portions of each township in Orange County were
calculated using data from the Orange County Land Records System.The ratios were applied to the"Per
Acre Assessed Value" of properties in the Preferential Assessment/Deferred Taxation Program to obtain
the "Estimated Per Acre Market Value".
As was the case with"use"values,the estimated market values per acre vary considerably.Values
range from$6,505 per acre in Chapel Hill Township to$1,565 per acre in Little River Township. For the
county as a whole, the estimated assessed market value is$3,074 per acre.
As indicated previously, the difference between market value and agricultural value is the value
of development rights. Using the estimates derived above, the average cost of development rights in
Orange County would be approximately$2,768 per acre.Considerable variation could be expected,though,
with values ranging from$1,300 to$1,800 in rural townships.In more urbanized townships,values would
be considerably higher,ranging from$3,000 to$6,000 per acre.Although the overall average is in line with
the predictions of the Forsyth County program administrator, the only reliable method for determining
the cost of development rights is through an appraisal.
4. Where will the purchase of development rights most likely occur?
Table 3.2 shows the distribution, by township, of acreage under the Preferential
Assessment/Deferred Taxation Program in Orange County. Farm use participation is greatest in Little
River, Bingham, Cheeks, and Cedar Grove townships, while forest use participation is greatest in Eno,
Bingham, and Chapel Hill townships.
TABLE 3.2
ACREAGE IN PREFERENTIAL ASSESSMENT/DEFERRED TAXATION PROGRAM
ORANGE COUNTY, N.C. -APRIL, 1994
Farm Use Forest Use Combined Use
Total
Township Acres Acres Percent Acres Percent Acres Percen
Under of Under of Under t of
Use Total Use Total Use Total
Value Acres Value Acres Value Acres
Cedar Grove 51700 15599 . 30% 1464 3% 17063 33%
Little River 35620 30899 87% 1538 4% 32437 91%
Cheeks* 32700 10745 33% 2311 7% 13056 40%
Hillsborough 15100 3305 22% 1254 8% 4559 30%
Eno 24000 . 5357 22% 5039 21% 10396 43%
Bingham 48900 18338 38% 5389 11% 23727 49%
Chapel Hill 46700 8024 17% 5671 12% 13595 29%
Total 254720 92267 37% 22566 1 9% 1 114833 45%
NOTES: 1. Data for Cheeks Township (*) includes one horticultural operation.
2. Acreages are approximate, since some tracts are listed in one town-
ship for tax purposes but actually extend across township lines.
12
Another advantage is that development rights may cost less in these areas than close to urban
centers. Based on the values presented in Table 3.1, the average market value per acre would be lower
-$1,980 versus$2,826. With an average use value of$422 in these townships, development rights might
be expected to cost$1,558 or close to the national average.This would mean more benefit derived for the
expenditures made.
The purchase of development rights may also occur in these areas because of the presence of active
farms and good soils.The presence of a number of farms in close proximity to each other is beneficial from
an economic and management perspective. Farm equipment and products can be moved easier and less
expensively than in areas where farm lots are scattered. There is also less opportunity for residential
development and associated nuisances to occur.
5. How will the purchase of development rights be funded?
Nationally,purchase of development rights programs have been funded from a variety of sources:
Federal loans and grants, State matching funds, real estate transfer taxes, sales taxes, general tax
revenues, and bonds. Federal funds available under the U.S. Department of Agriculture "Farms for the
Future" Act have been earmarked almost exclusively for one "pilot" state - Vermont. In North Carolina,
State matching funds are not available,and specific legislative authority must be granted to use real estate
transfer and sales tax revenues.In the absence of such resources,general tax revenues and bonds appear
to be the most likely source of funding.
Bond Program: The advantage of a bond program, particularly if the amount is large enough,
is immediacy; e.g., more development rights can be acquired in a shorter period of time and at a lower
value.To illustrate how bond financing could be used to implement purchase of development rights,a$5.0
million program is analyzed.The amount of the bond package is based on discussions involving the Board
of Commissioners and Agricultural Districts Advisory Board. That amount is considered large enough to
have an immediate impact in terms of starting such a program but not so large that it would be greeted
with displeasure by Orange County citizens.
When North Carolina local governments pay for programs and projects through bond financing
today, the term of the bond is generally 20 years.The interest rate may vary with the jurisdiction's bond
rating, but for Orange County, it is six and one-half percent.To finance a$5.0 million PDR program, the
annual debt service payments and long-term cost to the County would be as shown on Table 3.3.The total
cost for the bond program would be$ 8,412,500, including principal and interest payments.
By selling all bonds in the first year, the debt service payment would be highest initially, then
decrease over the term of the bond. The impact on the tax rate would be similar, with an initial increase
of$0.01298 per$100 valuation. By the end of the bond term, the tax rate required to finance the debt
service payments would have decreased by almost two-thirds to$0.00376 per$100 valuation. Overall, the
average cost to the owner of a new home valued at $170,000 in 1993-94 would be approximately$16.55
per year.
As shown on Table 3.4, the cost of a$5.0 million bond package may be decreased somewhat by
selling the bonds in$1.0 million increments for five years. The overall savings resulting from staggered
sales amounts to $19,500 in interest. For the new home owner, however, the term savings ($0.77) are
negligible, since the repayment period is extended from 20 to 24 years. The principal advantage of
staggered sales is that the impact on the tax rate is gradual, increasing to a peak of$0.01110 per $100
valuation in the fifth year and declining thereafter. In either case, development rights on approximately
1,700 acres of farmland could be purchased, based on an average cost of$2,768 per acre (Table 3.1).
8 8 O N Qi N h A M G1 V1 W+ N GT �+? .•. [` M O� v N OQ en
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15
Pay-As-You-Go Program: In Forsyth County, the Board of Commissioners elected a
pay-as-you-go program. In the first year, the Board appropriated$1.0 million to fund the program but,in
subsequent years,appropriations have not exceeded$500,000. Since the first purchases in 1987, Forsyth
County has acquired development rights to 22 farms with a total of 1,303 acres.The County acquired these
rights through purchases and leases for a total of$1.97 million.
If Orange County were to employ a pay-as-you-go program, it might start "modestly" as Forsyth
County has done.Given that the level of participation is unknown,approximately one-half cent ($0.0046)
of the County tax rate might be earmarked for the PDR program. As shown on Table 3.5, this tag rate
would provide sufficient funds to purchase approximately the same amount of development rights as either
bond program option.Based on the current assessed property value and assuming a 98 percent collection
rate, the program would be funded during the first year (FY 1994-95) at a level of$203,713. If the value
of development rights averaged $2,837 per acre, this would mean that development rights could be
purchased on 72 acres.This would be roughly equivalent to purchasing the development rights on one farm
every two years, based on the average farm size (155 acres) in Orange County in 1987.
With property values appreciating approximately two-and-one-half percent annually, one might
expect revenues from a one-half cent tax increase to rise as well, enabling more development rights to be
acquired.This situation would not occur,however,since the value of development rights would appreciate
at the same rate as property values. Shown on Table 3.5 are the revenues to be received over a 24-year
period assuming an annual two-and-one-half percent appreciation rate. Slightly more than $6.5 million
would be received and expended to acquire 1,723 acres worth of development rights.Over the same period,
the total cost to a family with a home valued at$170,000 would be$259 or an average of$10.80 per year.
Although a pay-as-you-go program may cost less and provide program continuity,its principal disadvantage
is the lack of immediate impact. Over the course of two decades, some of the most productive farm land
may be lost if sufficient funds are not available and property is converted to non-farm use.
Combined Program: By way of comparison, and to give some idea of what a combined
pay-as-you-go/bond financing program would cost,'Table 3.6 combines the tax rate required for debt service
payments on a$5.0 million bond issue (Table 3.5) with that required for a pay-as-you-go program (Table
3.5). In this manner, funds remaining after debt service payments are made could be used to purchase
more development rights. If such a combined program were implemented, the total cost of the program
would be almost$20.0 million,result in the acquisition of development rights on 3,402 acres of farmland,
and cost the owner of a$170,000 home approximately$590 (average of$25 per year). The advantage of
this approach is that it provides the means for immediate impact at the beginning of the program while
assuring long-term continuity.
Table 3.7 summarizes the amount of acquisition funding available for each of the options as well
as the amount of development rights acquired through each.Regardless of which funding method is chosen,
the acquisition of development rights is expensive. The advantage of the program over purchase in fee
simple is the land remains in the hands of the owner and is taxable.In contrast, even with expenditures
on the order of$20.0 million,development rights could only be acquired on four percent of the 92,267 acres
under agricultural use (Table 3.1). If, however, the program focused on the acquisition of development
rights in portions of the county with costs of$1,500 per acre, development rights could be acquired on
twice that amount (Table 3.8).
6. Who pays for a Purchase of Development Rights Program?
Shown on Table 3.9 is the assessed value of property in Orange County by location. If the peak
tax rate ($0.01110 per $100 valuation) required to pay the debt service payment on a$5.0 million bond
issue(Table 3.4)were assessed today,approximately 55 percent of all revenues would come from property
16
TABLE 35
CALCULATION OF REVENUES RECEIVED AND DEVELOPMENT RIGHTS ACQUIRED
FROM PAY-AS-YOU-GO PDR, PROGRAM
Appreciation
Assessed Revenue of Per Acre Annual Appreciation Annual
Valuation from Development Development of Average Cost to New
Growth $.0046 Tax Rights Cost Rights New Home Home for
Fiscal @ 25% Earmarked @ 25% Acquisition @ 25% PDR
Year Per Annum for PDR Per Annum (Acres) Per Annum Program
93. gq .... ,408,10 ,951 .. fA $2768 1WT/A $170,t100 N/A
94-95 $4,518,927,700 $203,713 $2,837 72 $174,250 $8.02
$2t1$ 52. 72 $I78;b06 $8.22
. ... ............ .......
96-97 $4,747,698,415 $214,026 $2,981 72 $183,071 $8.42
5. 19 72 :;: : ::..: : 18T .63
98-99 $4,88,050,647 $224,861 $3,132 72 $192,339 $8.85
_......
$3'. .0;:::: ::::;.: ; .'<:72 $197148..... $9.07
.. . . .. .
00-01 $5,240,570,711 $236,245 $3,290 72 $202,077 $930
....... ..... .. .. .............................................................. ... ........ .. ........... .. . ....... .
_ .. . . . ............ _._....... ......
01:42: :::;::>:::>. 2' ::»»:;« 953
7 84E ':.........:... .:.... `.....�1� . ,;::,::,,:.;:;:.;:.:;:; 3 ..;::::::.:...:::.: 2 3 ,1�8� $
02-03 $5,505,874,603 $248,205 $3,457 72 $212,307 $9.77
.94:.:*:.....:;... A3,52 254x41A 1 4 :.: 72 $217.61
04-05 $5,784,609,505 $260,770 $3,632 72 $223,055 $1026
Z.:.;:: .... 9 .;;:::::<.::: 5 ,77 .:,;; .;.: ;..:: . . ' ?.28,631: $10 2
06-07 $6,077,455,361 $273,972 $3,816 72 $234,347 $10.78
.;:>::::
.. . .:::: 1.05
.........:... ,$1 31 1. 72 ? $1
08-09 $6,385,126,539 $287,842 $4,009 72 $246,211 $1133
.72: S252;366
10-11 $6,708,373,570 $302,413 $4,212 72 $258,675 $1190
I1-12 6; 16,081,x : '4:;<; >:.>::.:::::;.;>::..5. 7 _.. 72: : $265 !2 : . $1220
. ..... ..... .................... ... _......:.....::..::::... :.. ..:..:.
12-13 $7,047,984,982 $317,713 $4,425 72 $271,771 $1250
...::.: ::::: >;::: .:;:::;:::54,536: ;::'.'72 $278,Sb5 : :: $128I
14-15 $7,404,789,221 $333,808 $4,649 72 $285,529 $13.13
15�16 5'Zx589 :..:. LT3:: $4 'TL ::' ;: .: ..::::::$292 7...:<:<: $13.46
. ..:.. .................. ....... ......: .....:...........• .:.:.:.::.. :.:. .::.. . . .fib.
16-17 $7,719,656,676 $350,707 $4,884 72 $299,984 $13.80
17-i8. :.:<.:$'T ..41 <:<>::: g'' : : $14.14
. : 48,093 . . $35..,47 .:... ...:... .:..:55,007 .. .. .
Totals $6,58928 NIA 1723 N/A $259.29
Averages $274,5901 S3,8241 72 $234,867 $10.80
3.10
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20
within municipalities.The next largest share would come from residential and non-residential development
in rural portions of the county.Properties participating in the Preferential Assessment/Deferred Taxation
Program; e.g., farms and managed forest, would only contribute two percent of the total cost.
TABLE 3.9
DISTRIBUTION OF PURCHASE OF DEVELOPMENT RIGHTS PROGRAM COST
Percent of Peak Tax Rate
Total FY 1993.94 for Debt
Assessed Assessed Service Estimated
Location Valuation Valuation Payment Revenue
All Property 100% $4,408,709,951 $0.01110 $479,579
Municipalities 55% $2,424,790,473 $0.01110 $263,769
Town of Carrboro 10% $440,870,995 $0.01110 $47,958
Town of 41% $1,807,571,080 $0.01110 $196,628
Chapel Hill
Torn of 4% $176,348,398 $0.01110 $19,183
Hillsborough
Use Value 2% $88,174,199 $0.01110 $9,592
Property
Remainder* 43% $1,895,745,279 1 $0.01110 1 $236,219
NOTE: * "Remainder" includes residential and non-residential properties located in unincorporated
portions of county.
7. Given the cost of a Purchase of Development Rights Program, does farmland
preservation pay?
In communities across the country,a common claim is that residential development increases the
local tax base, thereby lowering the tax rate. Other assertions are that resource conservation is too
expensive, and farmland does not make a significant contribution to the tax base.
Studies conducted by the American Farmland Trust (AFT), a private, national conservation
organization, show that although residential development increases the local tax base,it does not pay for
itself. On the other hand, while farm lands do not raise nearly as much gross income, their need for
services is so modest, their net effect on the tax base is a surplus.
Shown on Table 3.10 below are the results of six AFT studies in the Northeast. The figures
represent the ratio of dollars generated by various types of land uses to the services required. For
example,for every dollar of revenue raised by residential development in Hebron,Connecticut,the locality
spent an extra six cents in direct services (1 : 1.06). For farm, forest, and open land, the ratio was $1 to
36 cents; e.g., for every dollar raised after the locality provided services, 64 cents remained.
To determine if similar ratios existed in Orange County, a spreadsheet template developed to
conduct fiscal impact analyses of residential development was used to examine the effects of converting
21
a 125-acre farm to residential use. Under the farm scenario, the"family"was considered to consist of the
farmer and his/her spouse.The rationale for this assumption is that the average age of an Orange County
farmer is approximately 55 years, according to the 1987 Census of Agriculture. A related assumption is
that the farmer's children would have completed their education and chosen another occupation.In terms
of farm value, a survey of similar sized farms participating in the Preferential Assessment/Deferred
Taxation Program indicated that the assessed value would be approximately$103,000,including land and
buildings.
For the "residential" scenario, the farm was developed into 58 two-acre lots after deducting land
area required for street rights-of-way. Based on 1990 Census of Population, the "family" was considered
to consist of a married couple with one child.The home value was set at$170,000, the average cost of a
new home according to 1993-94 building permit records.
TABLE 3.10
COMPARISON OF COST OF COMMUNITY SERVICES
IN NORTHEASTERN UNITED STATES
Land Use
State Locality Commercial&
Residential Industrial Farm/Open
Connecticut Hebron 1 : 1.06 1 : 0.42 1 : 0.36
Agawam 1 : 1.05 1 : 0.44 1 : 0.31
Massachusetts Deerfield 1 : 1.16 1 : 0.38 1 : 0.29
Gill 1 : 1.15 1 : 0.43 1 : 0.38
Beekman 1 : 1.12 1 : 0.18 1 : 0.48
New York
North East 1 : 1.36 1 : 0.29 1 : 0.21
North Carolina Orange County 1 1.34 N/A 1 : 0.61
As highlighted above,this abbreviated analysis indicates that for every dollar of revenue raised by
the 58-lot residential development,Orange County spent an extra 34 cents in direct services(1: 1.34).For
the 125-acre farm,the ratio was$1 to 61 cents;e.g.,for every dollar raised after Orange County provided
services, 39 cents remained.While the results should not be construed as equivalent to the in-depth AFT
studies, they may, in fact, be verifying (as the AFT studies have) that it is fiscally more responsible to
preserve farmland.
8. How would a Purchase of Development Rights (PDR) Program operate and who
would administer it?
Six basic steps are proposed for the PDR Program. Based loosely on the Forsyth County model,
the steps are described below and illustrated on the accompanying page.
Step 1 -Submission of Application:To initiate the PDR process, an advertisement would be
published in all newspapers having general circulation in the county. Interested farmland owners would
22
then have 60 days from the date of the advertisement in which to complete and submit a PDR application
form to the Planning&Inspections Department.Interested landowners are not required to offer all their
property to be considered for acquisition of development rights. They may offer all or a part of their
property.
PURCHASE OF DEVELOPMENT RIGHTS PROGRAM PROCEDURES
STEP 1 SUBMISSION OF APPLICATION
(Land owner has 60 days from public notice date to submit application)
STEP 2 RANKING OF APPLICATIONS
Mmking by Agricultural Districts Advisory Board using LESA
system/recommended purchases sent.to Board of Commissioners)
STEP 3 ACQUISITION AUTHORIZATION
(Acquisition approved by Board of Commissionerslappraisals conducted to
establish market/use values)
STEP 4 OFFER TO PURCHASE/SELL
(Appraisals sent to land owner/30 days for owner to submit offer to sell)
STEP 5 ACCEPTANCE OF OFFER
(Board of Commissioners accepts offer to sell/authorizes closing)
STEP 6 CLOSING
(Title work conducted/closing heki/development rights conveyed)
Applications would be reviewed and any additions or corrections requested within 30 days following
submission.Two application cycles would take place each year, so a property owner who missed one cycle
would be able to take advantage of the next and not have to wait an entire year.
Step 2 - Ranking of Applications: Upon receipt of all applications, the Agricultural Districts
Advisory Board would review and rank each of the agricultural land tracts for which an application has
been submitted. Site visits would be conducted as part of the review procedure to insure familiarity with
the property and its setting.
The ranking method recommended by the Agricultural Districts Advisory Board is through
evaluation of farms using the Soil Conservation Service's LESA system. The LESA system refers to the
Land Evaluation and Site Assessment system developed by the Soil Conservation Service in the mid-1980's.
The system has been used extensively and focuses on the quality or productivity of a given site; e.g., land
evaluation, and its continued economic viability; e.g., site assessment. The major advantage of such a
system is that the most productive and economically viable farmlands are preserved. The LESA System
was discussed in detail in Section 2,but a summary of the land evaluation and site assessment factors,and
the maximum number of points awarded for each is presented on the following page.
23
LAND EVALUATION& SITE ASSESSMENT (LESA) SYSTEM
Evaluation/Assessment Factor Ma3dmum Possible Points
AGRICULTURAL SIGNIFICANCE
Cropland Productivity 100
Forest Land Productivity 100
Site Assessment
Farm Characteristics
Size of Farm 15
Percentage of Site Farmed 20
Conservation Plan Implementation 15
Use Compatibility
Percentage of Area in Farm Use 20
Land Use Adjacent to Site 10
Distance to Urban Area 20
Total Possible Points 300
.. NATURAL/CULTURAL SIGNIFICANCE
Site Assessment
Natural Areas/Wildlife Habitats 60
Wildlife Corridors 60
Wetlands 60
Scenic Roads & Viewsheds 60
Historic Sites & Structures 60
Total Points Possible 300
OVERALL SIGNIFICANCE
Total Points Possible 600
Following completion of the ranking of applications,the Agricultural Advisory Board would prepare
and forward a recommendation to the Board of Commissioners.The recommendation would specify which
properties to purchase development rights from and the priority of each for acquisition.
Step 3-Acquisition Authorization:Following receipt of the Advisory Board recommendation,
the Board of Commissioners would authorize the Purchasing Director to obtain appraisals of the market
and agricultural value of the properties selected for development rights acquisition. Upon receipt of the
appraisals,the Purchasing Director would forward them to the County Attorney.All costs associated with
the appraisals would be borne by the County.
Step 4 - Offer to Purchase/Sell: Upon receipt of the appraisals, the County Attorney would
prepare and send to the property owner an offer to purchase. The property owner would then have 30
days within which to submit a written offer to sell his/her development rights. The property owner could
base his/her offer on the values as determined by the appraisals or could offer to sell for more or less than
the appraisal values. Failure to respond within the required time could constitute a waiver of the
opportunity.
24
Step 5 - Acceptance of Offer. Upon receipt of an offer to sell, the County Attorney would
present the offer to the Board of Commissioners to accept, reject or authorize further negotiation. Upon
acceptance of an offer, the Board of Commissioners would authorize the County Attorney to conduct the
necessary title examinations and close on the property.
Step 6 - Closing: Upon preparation of the appropriate legal documents covering titles, deeds,
surveys, and subordination agreements, a closing would be scheduled between the landowner and the
County Attorney. At the closing, the owner would execute appropriate warranty documents conveying
development rights to the County in perpetuity. After proper recordation of the necessary instruments,
the landowner would be presented with a check.The County would bear all closing and related costs,and
would be responsible for securely storing all pertinent records of the transaction.
8. Which land owners would be eligible?
Landowners with parcels at least 25 acres in size and in agricultural,forestry or similar open space
use would be eligible for participation in the program.This threshold is consistent with the minimum sized
parcel needed for participation in the Preferential Assessment/Deferred Taxation Program as an
agricultural use (20 acres). Smaller parcels would be considered if they were contiguous to land on which
development rights had already been acquired.
10. What restrictions would be placed on land in the Purchase of Development Rights
Program?
Since the purpose of a PDR Program is to preserve agricultural land,restrictions on property use
after acquisition of development rights should be carefully crafted Restrictions of the Forsyth County
program include the following. '
a. Only pre-existing dwellings or their replacements are permitted on land from which
development rights have been conveyed. However, a dwelling or dwellings intended for
occupancy by an employee or tenant of the farm who earns a substantial part of his/her
livelihood from the farm operation, or by a child or children of the landowner, are
permitted. For employees, one dwelling per 100 acres may be constructed. For children,
one dwelling per child up to a maximum of five dwellings is allowable.
b. Where feasible,all permitted nonfarm structures must be located in the immediate vicinity
of existing structures,e.g., the homestead or curtilege, or on the area(s)of the property of
least productive capability. Such structures must utilize existing driveways, lanes or
rights-of-way when feasible. .
C. The extraction of minerals by surface mining, and the extraction and removal of topsoil
frrom the property are prohibited. The extraction of subsurface or deep-mined minerals is
permitted,provided the removal activity does not significantly diminish the agricultural
potential of the land.
d. The dumping, storage, processing or landfill of non-agricultural solid waste generated
off-site and hazardous or nuclear waste is prohibited.
e. Signs,billboards, and outdoor advertising structures cannot be displayed on the property
except those which display the name and address of the property and occupant, those
which advertise a permitted on-site activity, and those which advertise the property for
sale or rent.
25
f. Agricultural land must be managed in accordance with sound soil and water
conservation practices in a manner which does not destroy or substantially or irretrievably
diminish the productive capability of the property.
To insure that these restrictions are being followed, Forsyth County officials have the right, at
reasonable times,to enter the property and make compliance inspections.The restrictions may be enforced
by injunction and all other appropriate proceedings allowable by law.
All of the restrictions cited above are appropriate in view of the purpose of the PDR Program.
However, rather than limit the number of dwellings according to the standards contained in"a"above, a
more flexible approach would be to allow one building lot per 25 acres, with the building lot subject to a
maximum size of two acres.This approach is used by Lancaster County,Pennsylvania, well-known for its
Amish and Mennonite people, and a major producer of milk, poultry, hogs, and tobacco. If this standard
were applied to a 300-acre farm,the owner would be allowed to subdivide up to 12 two-acre lots,retaining
276 acres for farming.
Particular care must be taken in siting the dwellings on the farm tract. Dwellings clustered
together on one section of the farm, away from public roads, would be preferable in terms of preserving
scenic views as well as large land areas for farming. Another option would be to allow the owner to
subdivide the farm into 25-acre tracts;e.g.,into small"truck"farms,with dwellings located to preserve the
rural character of the area.
These options illustrate how important the application process is, for it is the point at which the
landowner's intentions must be considered and a decision made as to whether his/her plans depart from
the Program goals. If development rights are acquired, and the restrictions are found to create extreme
hardship or are clearly at odds with changing conditions in the area, provision may be made for a waiver
of restrictions, but only with the approval of the Board of Commissioners.
11. What would happen if the landowner sold his/her development rights and then
decided to change the type of farming or quit farming altogether?
Nothing in a purchase of development rights program requires the landowner to farm his/her
property. Selling development rights simply restricts the landowner or anyone else from developing the
property for nonfarm purposes. If the landowner wished to change the type of farming, he/she would be
perfectly free to do so.If he/she did not want to farm the property,he/she would be free to lease it or sell
it to someone else to farm. The only restriction on the landowner or any subsequent owner is that the
property cannot be developed for nonfarm purposes-the restriction against development continues with
the land.
12. What if the landowner didn't sell his/her development rights?Would the County stop
him/her from developing the land?
If the landowner did not sell his/her development rights, he/she would retain all the rights to
development subject to the same zoning, subdivision, building, and health code restrictions as other
landowners.
13. Could the County build on the acquired property or sell the development rights to
someone else to build on the acquired property?
No.Once the County paid for the development rights,the rights would be held in public trust and
could not be used by anyone without the owner's consent.
t
26
14. Would this mean the public has a right to come on the land-owners property?
No. Even though the landowner sells the development rights to his/her land, it does not become
public property.It is still the landowner's private property and subject to the laws of trespass.The general
public cannot enter the property without the landowner's permission.
16. Could the property owner elect to lease his/her development rights instead of selling
them?
Yes.As part of the application process,a landowner may offer to lease his/her development rights.
Such offers would be handled in the same manner as offers to sell. However, compensation for
development rights leases would be based on a determination of cash rent values of comparable land. The
term of any lease should be consistent with the program objective of long-term farmland protection. In
Forsyth County, this period is generally 25 years. The lease should also include an option to purchase the
development rights at a future date.
16. Could the property owner re-purchase his/her development rights?
Yes. The purchase of development rights is intended to create areas with sufficient amounts of
contiguous agricultural land to facilitate the permanent agricultural use of the land.While program activity
will be directed to that goal, success is dependent on the voluntary participation of landowners. If a
landowner or several owners of small tracts are the only participants in an area, the goal may not be
achieved.The landowners could become landlocked by development, and agricultural activity may become
impractical.
In such situations, it would be in the best interest of the landowner and the public to allow
re-purchase of the development rights.However,repurchase of development rights by a landowner would
be considered as an unusual occurrence and would be in the sole discretion of the Board of Commissioners.
To qualify for re-purchase, the original purchase must have occurred at least 25 years before the
date of the re-purchase request.In addition,the development rights must have been purchased by and not
donated to the County.Appraisals necessary to establish market and agricultural use values would be the
responsibility of the landowner as well as all expenses associated with closing.
17. How would selling development rights affect the landowner's standing in the
Preferential Assessment/Deferred Taxation Program?
If the property is already enrolled in the Preferential Assessment/Deferred Taxation Program,
selling the development rights will not affect the landowner's standing in the program. Neither would it
change the tax assessment the landowner pays under that program, since he/she is already being taxed
on what the State considers to be the"current use"or agricultural value of the property. If the landowner
is not now in the program, selling the development rights would not change his/her ability to enter.
If a landowner sold the development rights on his/her property and elected to leave the
Preferential Assessment/Deferred Taxation Program, caution should be observed. Since the tax penalty
for leaving the program is based on the current year taxes plus the three prior years,the landowner would
want to wait at least four years. In so doing, any penalty would be based on the market value of the
property less its development rights and should be equivalent to the use value.
18. What taxes would a landowner have to pay on the money he/she received for the
development rights?
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The sale of a landowner's development rights would be viewed as a normal capital gains
transaction. However, arrangements could be made to spread the payments over time, thus reducing the
impact of the capital gains tax. Because of its ability to accept gifts, grants, and bequests, the Board of
Commissioners could also provide the opportunity for a landowner to tailor the sale to his/her specific tax
situation, including inheritance taxes.
18. If a landowner sold the development rights,could the land still be taken by eminent
domain (condemnation)for something like a reservoir or landfill site?
Yes. As part of its agricultural preservation efforts, Orange County has adopted a Voluntary
Farmland Preservation Ordinance under the provisions of G.S. 106-740. If the farm has been designated
as a voluntary agricultural district by the Board of Commissioners, the Ordinance provides for a public
hearing on the proposed condemnation and the opportunity to submit written findings and
recommendations to the decision-making body.
20. If development rights were sold, could the property still be annexed?
Yes. The sale of development rights would not affect whether or not the property were annexed.
However,if a number of adjoining farmland owners all joined the program,annexation would become less
likely, since the statutory requirements in the annexation law would become difficult to meet.
21. If a landowner is buying his/her property on contract or has a mortgage,could he/she
still enter the program?
Yes. However, the type of contract or mortgage that the landowner holds would determine the
terms of his/her transaction with the County. In any event, a subordination agreement or waiver would
have to be secured from the mortgage or lien holder prior to closing on the property.
22. What has been the experience of farmers who try to obtain a loan once the
development rights have been sold?
In other locations with PDR programs,this has not been a problem.Whether or not a bank makes
a loan is based on the ability of the farm to pay off the loan and that, in turn, is based on the farm's
income. If the value is there, the bank will make the loan. In many cases, the money acquired from the
sale of development rights is used to improve the farming operation. This enhances the farm's value and
thus the ability to obtain more loans.