FARMLAND AND OPEN SPACE PRESERVATION PROGRAM
STATE PURCHASE OF DEVELOPMENT RIGHTS PROGRAM
FARMLAND AND OPEN SPACE PRESERVATION PROGRAM: This program enables a farm owner to enter into a development rights Agreement with the State. The Agreement is designed to ensure that the land remains in an agricultural use and ensures that the land is not developed in a non-agricultural use. In return for maintaining the land in an agricultural use, the land owner is entitled to certain income tax benefits, and the land is not subject to special assessments for sanitary sewer, water, lights or non-farm drain projects. The law also provides owners of open space land the opportunity to enter into voluntary agreements with the State which limit the use and development of such land. In return for such agreements, or easements, these property owners also are given exemptions from various special assessments, as well as 1) a reduction in property taxes in the amount of the difference in the market value of the land with and without the limitations, and 2) a credit against income tax liability to the extent that such reduced property taxes exceed 7% of the household income. The development rights agreements must be for a minimum of 10 years and may extend for a maximum of 90 years. Agreements may be extended in 7 year increments.
Farmland eligibility is governed by the size of the farm and in two instances by the income of the farm. The following are the qualification requirements to enroll land in a Farmland Development Rights Agreement. A parcel may be enrolled if:
- it is 40 acres or more in size, and at least 51% of the land is in active agriculture.
- it is less than 40 acres in size but at least 5 acres in size, more than 51 % of the land is in active agriculture, and the agricultural land produces a gross annual income in excess of $200 per tillable acre.
- the farm has been designated as a specialty farm by the Michigan Department of Agriculture, is at least 15 acres in size, and has a gross annual income in excess of $2,000 per year.
The law also allows certain defined ‘specialty farms’ to enter such agreements and easements, including certain greenhouses, certain breeding and grazing operations, bee and bee product farms, mushrooms, “aquaculture” and other similar uses and activities. Open space land includes undeveloped sites included in a national registry of historic places or similarly designated sites, certain riverfront lands and shorelands, as well as lands approved by local government the preservation of which would conserve natural or scenic resources (examples given in the law.) Public access is not a requirement of enrollment in the program.
Specifically, there are two primary benefits for being enrolled in a Farmland Agreement:
Tax Credits: The benefits under a Farmland Agreement will depend upon the property tax assessed against the property and the income of the landowner. The landowner is entitled to claim as a Michigan Income Tax credit the amount by which the property taxes on the farmland covered by the Agreement exceed 7% of the household income. For example, if the owner had an income of $20,000 and property taxes against the farm of $2,000, they would subtract $1,400 (7% of $20,000) from the $2,000 property tax for an income tax credit of $600. This tax credit is in addition to the Homestead Property Tax Credit for which the landowner may already qualify.
Special Assessments: Lands that qualify and are enrolled in the program are exempted from special assessments for sanitary sewers, water, lights, or non-farm drainage unless the assessments were imposed prior to the recording of the Farmland Agreement. Land which is exempted from the special assessment will be denied use of the improvement unless and until that portion of the special assessment directly attributable to the actual use of the improvement is paid. When the Farmland Agreement is terminated, the local government may require payment of the special assessment, however, the amount of the assessment shall not exceed the amount the assessment would have been at the time of the exemption and shall not include any interest or penalty.
A landowner is free to sell his or her land. However, the Agreement remains with the land. Land in an Agreement may be transferred, as long as the new owner agrees to comply with the provisions in the Agreement and as long as all of the land described in the Agreement is conveyed to the new owner.
During the last year of a Farmland Development Rights Agreement, the Agreement holder will be sent a notice asking if they wish their Agreement to be extended or to expire.
Extension: After the initial 10 year agreement term, the Agreement may be extended in 7 year increments.
Expiration: If the Agreement holder chooses to let the Agreement expire, then repayment of tax credits received during the last seven years under the agreement is required. Michigan Department of Treasury will determine the amount of tax credits received during the last seven years. The landowner will be notified of the amount. If it is not paid within 30 days, a lien will be placed against the property. If credits were not taken during the last seven years, then no lien will be placed.
STATE PURCHASE OF DEVELOPMENT RIGHTS PROGRAM: Section 36111 b of the Act authorizes the State to protect valuable farmland and open space from future development by purchasing development rights. If a landowner’s property is selected, the State will pay that portion of the value of the property which represents the right to develop that property. After selling the development rights, various uses of the land are restricted and the land may not be developed in the future.
Development rights represent the right of a land owner to develop property to the extent allowed under law. All parcels of property have a variety of rights associated with them. For example, the ownership of a parcel may include mineral rights, easements for utilities or access, or the right to develop the land. Rights such as mineral rights, easement and development rights may be conveyed or sold off to other parties. In the case of purchasing development rights, the State would be buying the right to develop the property to keep the land from being developed and to permanently preserve it for future agricultural or open space use. The landowner would retain all other rights to the property. The land may be farmed, rented, sold or passed on to heirs and any agricultural buildings needed may still be built on the land. The State does not acquire development rights in order to develop the land and does not open the land to public access for hunting, fishing or other uses.
The Purchase of Development Rights (PDR) Fund comes from the repayment of tax credits when Farmland or Open Space Development Rights Agreements are terminated. (As of 6/1/96 there was approximately $12 million in the PDR Fund.)
The benefits to selling development rights to the State include:
- The landowner receives a cash payment for development rights.
- The landowner retains ownership of the land and can continue to farm or enjoy the land.
- Typically, property and estate taxes will be reduced because the development rights, which add value to property assessments, are held by the public and can no longer be used.
- Public access need not be granted to the property.
- A farmland or open space is preserved for future generations.