Preserving the Land: PDRs in Wisconsin

By Michael Bayer

In many ways, geography has blessed the city of Mequon.

Crossed by country roads that connect farms and subdivisions to Lake Michigan and the city of Milwaukee, Mequon offers the convenience of a city in a peaceful rural setting.

Today, despite years of suburban growth, Mequon retains 13,000 acres of undeveloped land, mostly in northern and western areas not served by city sewer lines.

Yet, as development pressures increase, city leaders sense a growing threat to Mequon's rural character. In response, the city is examining a tool being used by a growing number of communities across the United States: the purchase of development rights.

In December, the Economic Development Board is expected to propose an ordinance that would make Mequon the second municipality in Wisconsin to adopt the strategy known as PDR.

If the Common Council endorses the ordinance and voters approve, Mequon, like the Town of Dunn in Dane County, could become a model for other communities in the state.

"The bottom line is, if we do nothing, development is still going to cost money," said Brad Steinke, Mequon's director of economic development.

"If we get involved in the purchase of development rights, we can accomplish two things: discourage fiscally expensive development and preserve critical open space," Steinke said.

Purchase of development rights, or conservation easements, are just the latest attempt in Wisconsin to protect rural and agricultural lands from development.

In 1977, the state Legislature established the Farmland Preservation Program to encourage farmers to keep their land in agricultural use. More than $433 million in tax credits have been passed on to farmers since the program's inception.

"Unfortunately, the tax credits ... have often been insufficient to persuade farmers to keep their land in agricultural use,'' according to Gene Bunnell, an assistant professor of urban and regional planning at UW-Madison.

In the July issue of Perspectives on Planning, Bunnell noted that the average farmland preservation tax credit in 1995 was only $1,210 per farm, amounting to only $4 to $5 per acre on an average-sized farm, "hardly enough to cause a farmer to turn down an offer of $3,000 per acre from a prospective developer or home buyer."

Bunnell also doubts whether use value assessment of agricultural land, initiated in 1996, will slow the conversion of farmland to other uses.

"Under current administrative rules, land can qualify for use value assessment even if it is zoned for development, and even if the landowner has no intention of leaving the land in agricultural use," Bunnell noted. "Many believe that use value assessment as currently offered merely makes it less costly for speculators to prematurely buy and hold agricultural land prior to developing it."

Many communities continue to rely on minimum lot sizes to control development. But this approach has "done little to slow rural development," Bunnell said, especially in places with strong markets for hobby farms.

Hoping to clamp down on sprawl, local officials have turned to the purchase of development rights, an approach pioneered more than 20 years ago in states such as Maryland, Massachusetts and Washington.

How PDRs work

A farmer sells his or her development rights for an amount equal to the difference between the market value of land if it were developed and the value of the land when used strictly for agriculture. In return, the government or a designated nonprofit organization receives a conservation easement that restricts development of the land. Farmers can use the money as they choose: to reinvest in the farm, pay off debt or keep it as a nest egg.

Unlike zoning, PDR offers a permanent solution. The land must remain in farming or as open space unless the easement is limited to a certain number of years. The farmer, meanwhile, retains title and can sell the land to others.

Property rights advocates consider PDR an equitable way to preserve farmland because farmers are compensated for the decreased value of their property.

Unlike the Farm Preservation Program, PDR allows communities to target limited financial resources to preserve land most in need of protection, Bunnell said.

Like any tool, PDR has limitations. Some fear it weakens the credibility of zoning because it compensates landowners for value the landowner did not create.

"It's not a stand-alone tool," Bunnell said. "It's most useful when it's part of a larger growth-management program."

Dave Cieslewicz, executive director of 1000 Friends of Wisconsin, agrees. "As one tool in an array of tools, I think it works, but it has to be targeted," he said.

One large disadvantage of PDR is cost. In fast-growing areas on the East Coast, development rights can be quite expensive, often more than $2,000 per acre. In these states, municipalities don't foot the bill alone.

Eleven of 15 states surveyed by the American Farmland Trust had some amount of state money available to support PDR. Wisconsin is not one of them, although the Legislature included a provision to transfer $2 million in bonding authority from the state's Stewardship Fund in the state budget it submitted to Gov. Tommy Thompson. Thompson, however, vetoed the provision, saying he preferred to spend the money on projects for which it was originally intended.

For now, Wisconsin municipalities that want PDR must pay for it themselves. That's what the Town of Dunn did in September 1996, when residents voted, by a 119-vote margin, to increase their tax rate 50 cents per $1,000 of valuation to purchase development rights in the town.

The tax generated $140,000 in the first year.

"The real story here is that we have a community deciding its own destiny, instead of having outside sources decide our fate," said town chairman Ed Minihan, who has spent much of 1997 extolling the virtues of PDR in places like Waupaca, Hudson and Door County.

Minihan said PDR will allow the town's dairy, hog and grain farmers to prosper, unaffected for the most part by pressure to develop their land.

The town recently teamed up with the Dane County Parks Department and a nonprofit conservation agency to buy the development rights to a 250-acre farm, including 174 acres within town limits. The purchase drained the town's PDR budget for 1997 and part of 1998, but Minihan and others continue to forge ahead.

The Town of Dunn has 12 firm proposals on the table from landowners who want to sell their development rights, Minihan said. The U.S. Department of Agriculture also awarded Dunn a $100,000 grant to purchase the rights to a 140-acre farm, stipulating that the transaction be completed within two years.

Minihan is hoping to convince agribusinesses to provide the town direct grants to preserve prime agricultural land. He'd also like to build an endowment to augment the tax money collected for PDR.

"We know the (Madison) area is going to continue to grow," he said. "But in terms of our town, we want to set a different course. Our development plan is to have viable agribusiness."

The Town of Dunn, like Mequon's Economic Development Board, determined that the cost of development outweighed the purchase of development rights in the long run.

For every dollar of tax revenue raised from developed land, the town paid approximately $1.06 in services, a figure that doesn't include the costs of education, Minihan said. Open space, meanwhile, "costs us 18 cents," he said.

Ultimately, the cost argument may sway voters in favor of PDR, said Mequon's Steinke.

Mequon first examined PDR a year ago when the Common Council and Plan Commission couldn't agree on an approach to preserve the city's open space. Commissioners wanted five- and 10-acre lot sizes, but council members weren't convinced that approach was the best.

So Steinke and the Economic Development Board looked for alternatives. They found PDR.

In February, the board recommended that Mequon launch a PDR program, coupled with zoning regulations that encourage cluster development. The program would not only preserve Mequon's open space but limit the potential negative fiscal impact of future residential development, the board said. (Click here for more information about Mequon's cost estimates and fiscal impact of residential development.)

The board identified as many as 13,000 acres as potential land for the purchase of development rights. About 700 acres of undeveloped land in the city's environmental corridor and isolated natural areas should be the top priority, the board said.

The board estimated that purchasing development rights could cost the owner of a $250,000 home between $30 and $600 a year, depending on the amount of land protected, the method of financing used and the price of the development rights. (See accompanying chart.)

"If someone just said, `Are you willing to pay 50 bucks a year to preserve good environmental land?' I'd probably say, `Yes,'" Steinke said. "Once you get over the $100 mark, I think you'll have to persuade me. Some residents will say, `I'd rather see bike paths built, our park system expanded and potholes filled.'"

Unlike the Town of Dunn, Mequon views PDR as a way to preserve open space, not agricultural land. "Our farmers are saying, `We're the last ones out here,'" said Steinke, who expects some parcels to be converted to specialty crops and truck farming in future years.

If the Mequon Common Council agrees to try PDR, Steinke said the city would launch a public information campaign in advance of a referendum. Although PDR is gaining attention, Steinke believes many residents don't yet understand the concept.

"The questions are whether voters will philosophically embrace (PDR) and whether they will pay for it," Steinke said. "As a nation, we are all part of the growth machine. We have always been driven by the concept that growth is necessary and furthers the public interest. Are the people of Mequon willing to pay local government to step in and dramatically throttle back this growth? It may be a tough philosophical decision."