Lesson 3: State Conservation Finance

Lesson overview: While this course began with an examination of federal funding for land conservation, this does not imply that the federal government is the predominant player in conservation finance.  Rather, states form the critical foundation of conservation finance in the United States (although, as will be discussed in later lessons, primary responsibility for accomplishing land conservation rests with local governments).  States are both principal participants in conservation finance, through their direct efforts to protect land, but also facilitators of conservation finance efforts by local governments and nonprofit groups, through the policies they establish. Underpinning conservation finance in a state are a series of public policies – i.e., a "policy framework" – that play a central role in determining whether significant conservation will take place or whether land conservation will languish.  The focus of this lesson is to introduce this policy framework and present examples illustrating how these policies are put to use.  The focus of the subsequent lesson will be an in-depth examination of three leading states – New Jersey, Florida and Colorado – and how they have developed model conservation finance programs.

Objectives:  By the end of this lesson, you will understand the range of state public policies that support funding for land conservation, as described through the conservation finance policy framework. You will also be able to use this policy framework to evaluate a specific state's conservation finance policies.

Note: much of the information in this lesson is based on Chapter Two of The Conservation Finance Handbook, published by The Trust for Public Land in 2004.

Keys to Successful State Conservation Finance Programs

Conservation Finance Policy Framework

There are seven principles and strategies that contribute to effective statewide land conservation. No single approach, however, will be sufficient on its own. Participation is necessary at many levels, for one entity or program cannot reach goals alone. Successful land conservation requires an array of funding sources and conservation tools, with top-down incentives and enabling legislation with bottom-up leveraging of conservation dollars. Policies that encourage multi-layered partnerships and foster active participation by the nonprofit community go a long way towards helping a state develop a vibrant conservation character.

State Policy Framework for Conservation Finance

1. Substantial state funding
2. Local enabling authority
3. State incentives for local conservation finance
4. Purchase of Development Rights
5. Public private partnerships
6. Federal partnerships
7. Tax credits (with careful design)

1. Substantial State Funding

The foundation of an effective land conservation program is a strong fiscal commitment on the part of state government through a significant, stable revenue source.  Having a substantial state investment fosters program development and long-term vision. Some existing state programs rely on a single revenue stream, while others use a combination of revenue sources.  The chart lists the most common substantial revenue sources for land conservation, with general obligation bonds the most common.  These revenue sources are described in more depth below.  Other state revenue sources that have been used include license plate revenues, hunting and fishing license fees, hotel/motel taxes, and cigarette taxes  While some of these revenue sources are commonly used (license plate revenues and hunting and fishing license fees), they do not yield substantial revenues to form the foundation of a state's land conservation program. However, they may be effective complements toone of the major sources of funding.

Whether funding is truly reliable often depends on the legal status of the funding source. Dedicated funds for land conservation that are established in the state's constitution are the most reliable, followed by those established in state statute.  Funds established as part of the annual budget process are the least reliable.

Constitutionally dedicated funding: In order to ensure the continuity of a funding source, the establishment of the funding source as part of the state constitution is very preferable. Between 1992 and 2000, there were seven states (Alabama, Colorado, Florida, Minnesota, New Jersey, Ohio and Oregon) that established dedicated funding for land conservation by approving a constitutional amendment. For more information see the following spreadsheet. These funds are very secure since changing a state's constitution is an often lengthy and difficult process.

Statutorily dedicated funding: Dedicated funding sources established in statute (also known as state law) are generally reliable, but may be undone by the passage of a new law or an amendment to an existing law. The legislature may choose to reallocate some of the conservation funds into a different fund or even to eliminate the funding altogether.  The process of amending a state law can often be a lengthy or tortuous process, but in some states, law changes are often tacked onto annual budget bills as so-called outside sections or budget riders. Coupling them with the annual budget bills makes them much harder to defeat.   In Maryland, the nationally recognized Program Open Space, funded by a statutorily dedicated real estate transfer tax, has seen more than $250 million siphoned off during the last several years of the state's fiscal crisis. In the early 1990s, Program Open Space also faced similar cuts.  Click here for more information on recent cuts to Maryland's conservation funding.

Annual budget appropriations: Funding that relies upon the normal budget making process is the least secure, subject to annual revenue fluctuations and competition for scarce funds. In some states, state legislatures have maintained strong annual commitments to fund land conservation for years, as has been the case in Washington State. The latter situation has arisen recently in New Hampshire, as the Legislature cut funding for the state's Land & Community Heritage Investment Program from $12 million per biennium (2-year period) to $1.5 million.

 

State Land Conservation Finance Activity 1996 - 2003

Between 1996 and 2003, twenty states created new funding for land conservation through the passage of either ballot measure or by state legislative activity.  The most common way to establish funding for land conservation at the state level is through passage of a ballot measure. The vast majority of these ballot measures are referenda, or bills referred to the ballot by state legislatures for voter approval.  In some cases, most notably California, a voter initiative will be placed on the ballot after collection of a specified number of approved signature petitions. Between 1996 and 2003, there were 28 ballot measures that created funding for land conservation and parks. Twenty-four of these 28 measures were approved by voters. For more information on these ballot measures, click here.

One of the most prominent state ballot measures was California's Proposition 12, a $2.1 billion measure approved in 2000. For more information on the Safe Neighborhood Parks, Clean Water, Clean Air and Coastal Protection Bond Act, please see the California League of Women Voter's review of Prop. 12.

In other states, land conservation funding sources are established solely through the state legislative process. Between 1996 and 2003, nine states established funding for land conservation and parks through the legislative process. For more information on state funding enacted through the legislative process, click here.

State Revenue Options for Land Conservation

General Obligation Bonds

Borrowing, by issuing bonds, presents a number of opportunities and drawbacks.  On the one hand, borrowing can provide the state with the revenue and flexibility it needs up front to fund large-scale park and open space projects, when land is available and less expensive than it will be in the future. Bonds insure a steady stream of funding that is not dependent on the fluctuations of the operating budget. Costs are typically spread out over a long time horizon, and therefore are borne by both current and future beneficiaries.  On the other hand, financing charges accrue, and convincing voters of the merits of incurring debt can be challenging.

General obligation (G.O.) bonds are essentially loans taken out by a government secured by the jurisdiction's full faith, credit, and taxing power to make timely payments. G.O. bonds are a popular open space financing tool at the state level because they allow for the immediate purchase of land, and they distribute the cost of acquisition across a long time horizon (generally 20 years or more). Interest charges also add costs to the price of the project, and debt ceilings limit the amount of bonds a community can issue.

In some states, the authority to issue G.O. debt may be granted directly by the legislature, whereas in other states, voter approval must be secured by passage of a bond measure. Once this authority has been obtained, the actual decision to sell bonds to the public (i.e. borrow money) is determined by the executive branch (governor) or in some cases, a bond review board. There is generally stiff competition for G.O. bond spending among state agencies and funding for land conservation and parks may be tough to secure. In addition, many states have legally mandated debt limits that can limit the ability to issue debt, as well as self-imposed debt limits aimed at maintaining their bond ratings (a measure of a borrower's creditworthiness).

Examples: California has led the way in recent years, with voters approving four statewide bond measures – two in 2000 and two in 2002.  Collectively, these measures will raise more than $10 billion, including more than $5 billion directly for land conservation and parks. In addition, large state bond measures have been approved by voters in Nevada (2002), Ohio (2000), Maine (1999) and Rhode Island (2000).

Sales Taxes

All but five states have taxes on the sale of goods (and in some cases services).  Typically, sales tax revenues will be directed into the state's general fund, which provides funding for the vast array of state programs – higher education, public safety, human services, transportation, etc. In a handful of states, a portion of the state's sales tax is specifically dedicated to funding for land conservation.  These states include Arkansas, New Jersey (discussed extensively in the next lesson) and Missouri.

Example: In Missouri, for example, voters in 1976 approved a constitutional amendment to dedicate 1/8 of a cent of the sales tax for soil and water conservation and for the acquisition, development, maintenance and operation of state parks and historic sites.  In 1984, voters approved an increase of 1/10 of a cent for five years.  Since then, voters have overwhelmingly approved two tax renewals.  The tax is now due to expire in 2008. Missouri's park system has benefited, as more than $200 million dollars has been invested in the system. For more information on Missouri's conservation sales tax, click here.

Lottery Income

According to the North American Association of State and Provincial Lotteries (www.naspl.org), 38 states had state lotteries as of 2003, with combined sales of $45 billion. [1] State lottery proceeds are most commonly used for general government purposes (state general funds) and for public education.  There are several states that specifically dedicate portions of their lottery for parks and land conservation, notably Arizona, Colorado, and Minnesota.

Example: In November 1988, Minnesota voters approved a constitutional amendment that established the Environment and Natural Resources Trust Fund, which receives 40 percent of net lottery proceeds (after expenses and prizes are awarded). Dedication of lottery proceeds was extended to 2024 after voters approved another constitutional amendment in November 1998.  Through the 2003 legislative session, the Minnesota legislature had appropriated $174 million, including nearly $125 million for parks and land conservation. For more information on Minnesota's lottery and its use for land conservation, click here.

Real Estate Transfer Tax

Real estate excise taxes or real estate transfer taxes (“REETs”) are imposed by states and localities on the sale of land and/or property, usually with the buyer paying the additional percentage tax. The revenue generated can be dedicated solely or in part to the purpose of open space conservation, although many states have REETs that fund government programs other than conservation. The tax can generate substantial funds for parks and open space, although revenues can fluctuate with the real estate market.  The large majority of states levy some form of real estate transfer tax, with several dedicating the REET for land conservation (for example: Florida, Maryland, New York, North Carolina).   All of the REETs for land conservation were approved through action of state legislatures and were established prior to the mid 1990s.

Example: North Carolina charges a real estate transfer tax of $2 per $1,000 of the value of property conveyed. One half of the funds goes to the general fund of the county where it was collected and the other dollar goes to the state.  Of the State's share, 75 percent is dedicated to the Parks and Recreation Trust Fund, and 25 percent is dedicated to the Natural Heritage Trust Fund.

There have been no state REETs created for land conservation since the early 1990s (New York's Environmental Protection Fund was created by legislation in 1990), with Georgia's 1998 Heritage Fund ballot measure being the last considered.  This measure was vigorously opposed by the state association of realtors, based on the view that a higher REET would be an impediment to sales and would raise the price of real estate. The measure was defeated, receiving 46 percent of the vote.

2. Enable Local Financing

Local governments need uniform legislative authority to establish a dedicated revenue source via a ballot measure, preferably with approval by a simple majority of voters. There is a direct relationship between the number of local governments that have approved conservation finance measures and their legislative authority. States that require legislative approval to seek a ballot measure have few local governments with dedicated funding. In addition, local governments that can only seek funding through the budgetary process spend much less money on land conservation. State enabling legislation makes local governments partners in protecting open space resources.

The three primary local financing options are:

• Property tax
• Local option sales tax
• General obligation bonds

While individual communities may use other funding options (real estate transfer tax, impact fees, parcel levy) occasionally, the vast majority of local conservation finance ballot measures involve the aforementioned “Big Three.”

Example: Massachusetts' Community Preservation Act

Massachusetts' Community Preservation Act, signed into law in September 2000, combines enabling authority with a commitment of state funds to urge communities to implement a local property tax for open space. During its first three years (2001-2003), 65 cities and towns adopted the law. Each town may levy up to a 3 percent property tax surcharge, with the proceeds allocated for land conservation, affordable housing and historic preservation. The state will match between 5 and 100 percent of local funds depending upon the number of participating communities, so there is an added incentive for cities and towns to move quickly in order to leverage a larger portion of state funds.

During the laws first three years, each community that has adopted a surcharge has received a 100 percent match. For more information, see www.communitypreservation.org.

 

3. State Incentives for Local Conservation

State incentives, often in the form of matching grants and low interest loans, encourage local governments and nonprofit conservation organizations to develop programs and create financing mechanisms to leverage state funds. In some states, establishing a dedicated local fund will qualify a local government automatically for matching funds. In other states, having a dedicated fund will qualify a local government for more generous grant/loan terms or increase their score in a competitive grant program. Finally, having a dedicated fund will allow a local government to have the requisite funding to compete for state matching grants on a regular basis and to allow them to seek less state funding (increasing their ranking).

Example: New Jersey's Green Acres Planning Incentive Program

In 1989, New Jersey passed landmark legislation that enables counties and municipalities to raise additional local funds by establishing voter-approved Open Space Trust Funds supported by property taxes.  Through the Green Acres Planning Incentive Program, the state offers matching funds to communities that develop an open space and recreation plan and approve a dedicated tax for land acquisition.  Eligible communities may receive a 50 percent matching grant to make the immediate purchase of land possible, with the confidence that future grants are likely.  Green Acres also provides matching grants to nonprofit organizations to acquire land for public recreation and conservation purposes.  Today, all 21 counties and nearly 200 municipalities have established an open space tax by vote referendum and more than 390,000 acres of land have been preserved with Green Acres funds.  The goal, established by Governor Christine Todd Whitman in 1999, is to preserve 1 million acres over ten years.

 

4. Purchase of Development Rights

Purchase of development rights (PDR) is an effective device for permanent open space and farmland protection. Under a PDR program, landowners place easements on their property to limit future development in exchange for payment. A PDR program helps maximize conservation dollars (since acquisition of the land in full title does not occur, and allows for continued private land ownership.

According to the American Farmland Trust's Farmland Information Center, as of January 2004, there were 19 states that had PDR programs that were protecting farmland from development.

Example: Pennsylvania – PDR Programs

The Pennsylvania Agricultural Conservation Easement Purchase Program was developed in 1988 to help slow the loss of prime farmland to non-agricultural uses. The program enables state, county and local governments to purchase conservation easements (sometimes called development rights) from owners of quality farmland. The first easements were purchased in 1989. Counties participating in the program have appointed agricultural land preservation boards with a state board created to oversee this program. The state board is responsible for distribution of state funds, approval and monitoring of county programs and specific easement purchases. With nearly 280,000 acres approved for permanent preservation through 2,400 agricultural conservation easements, the Pennsylvania State Farmland Preservation Program is first in the nation in number of acres preserved and is continuing to preserve farmland at a faster rate than any other state.  Lancaster County was the most active county participating in the Farmland Preservation Program, protecting 323 farms totaling nearly 38,000 acres at a cost of $83 million. (For more information on county efforts, click here.)

A dedicated source of funding for the conservation easement purchase program began in July 1993 with the collection of cigarette tax revenues. In 2002, the provisions of the cigarette tax revenue were changed, with $20.4 million per year earmarked for the preservation of farmland. In prior years, the program received a two-cent tax on each pack of cigarettes sold in Pennsylvania. This new provision eliminates concerns about the sustainable nature of the cigarette tax revenues for the program.  Funding is made available only to those counties which have county programs approved by the State Agricultural Land Preservation Board by January 1st of each funding year.  In 2003, there were 53 counties receiving allocated funds for easement purchase. 

 

5. Public-Private Partnerships

A partnership that joins private desires and public goals to protect natural resources encourages private, nonprofit actions that further open space preservation. Public-private partnerships broaden the base of support for land conservation goals and leverage scarce conservation resources.

There are a range of approaches that states may undertake to foster these types of partnerships. These can include providing technical assistance to nonprofit conservation groups who might lack certain skills (see the Maryland Environmental Trust) or actually providing reimbursement to private landowners for the costs associated with conserving their land (see the Virginia Outdoors Foundation).  In addition, some states like Pennsylvania and New Jersey allow nonprofit conservation groups, in addition to local governments, to apply for certain types of land conservation grants.

 

6. Federal Partnerships

The federal government can be an excellent partner to state and local governments and nonprofit conservation groups.  Active participation by state governments in federal programs such as the Forest Legacy Program and the Farm and Ranchland Protection (FRPP) program can promote land conservation partnerships between federal, state and local governments and with nonprofit partners. 

Example: Farm and Ranchland Protection Program

In some states, state, local and nonprofit sectors have teamed up to take maximum advantage of the Farm and Ranchland Protection Program (FRPP).  In other states, these partnerships have not mobilized to pursue FRPP funding. The evidence of these active partnerships is illustrated through the FY 2004 FRPP grant allocations. Of the $87 million in FRPP funds awarded in 2004, Vermont received nearly $3 million, while Iowa received just $237,000. Massachusetts, at $3.9 million topped California at $3.2 million. Montana, a state with active public/private ranchland preservation partnerships (particularly in Greater Yellowstone's Gallatin County), garnered $2.2 million, compared with $850,000 in Wyoming. For the full list of FY 2004 grants from FRPP, click here.

 

7. Conservation Tax Credits

State laws can provide income or other tax credits to private landowners who donate land or easements to public or private, nonprofit entities for conservation purposes. Tax incentive programs offer a strong supplement to other open space funding programs by encouraging private, voluntary land conservation. Particularly when combined with existing federal and state charitable deductions, conservation tax credits may make conservation a more attractive option for landowners than development. Tax credits can be targeted to state-specific objectives such as wetlands or farmland protection. In 2000 alone, South Carolina, Colorado, and California enacted new tax credits for conservation. 

Example: North Carolina

North Carolina enacted the nation's first conservation tax credit in 1983, and has become a model for many other states.  The state offers a 25 percent tax credit on the value of land or easement donated to public or private nonprofit conservation entities, up to $250,000 for individuals and $500,000 for corporations. There is a five-year carryover if credits exceed tax liability in any one year. Approximately 35,000 acres have been protected under the tax credit program.  For more information, please click here. 

Example: California

In June 2000, the California legislature approved the Natural Heritage Preservation Tax Credit Act to provide an additional tool to address open space needs and to safeguard the state's natural habitats. Under this program, a landowner who donates property, or a conservation easement, to provide for the protection of wildlife habitat, open space, or agricultural land, will receive a state tax credit of 55 percent of the fair market value of the land.  If the credit exceeds the landowner's tax liability, the excess may be carried over in up to seven succeeding years until the credit is exhausted. The Act authorizes up to $100 million in tax credits to be awarded over five years. For more information click here.

 

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Evaluating a state's conservation finance policy framework – the Chesapeake Bay 2000 Agreement

The states of Maryland, Pennsylvania and Virginia signed the Chesapeake Bay 2000 agreement, which included a commitment to protect 20% of the Bay watershed as open space by 2010.  In order to understand how these three states could reach this goal, the Chesapeake Bay Commission and the Trust for Public Land collaborated on a report entitled Keeping Our Commitment, which presents a complete rundown on each state's land conservation accomplishments, programs and policies, as well as suggestions for how to improve each state's conservation finance policy framework. The report has served as a roadmap for implementation of a number of policy changes.

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Exercise

Using the state policy framework listed above, review how a particular state (of your choosing) is in meeting the seven goals of the state policy framework.  For each element of the policy framework, discuss how the state is doing in meeting (or not meeting) that element. For guidance see Keeping Our Commitment, where for each state, a description of the extent of the policy framework is discussed.

Specific Requirements: Complete a 1-2 summary for a specific state of their conservation finance policy framework.  Devote 1-2 paragraphs to a review of how each state is faring on each applicable element of the policy framework. Provide references for specific facts or legal citations. Post to course discussion board.

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Sources

[1] Lotteries ranked by FY 2003 Sales, North American Association of State and Provincial Lotteries (NASPL), http://www.naspl.org/ranksales.h tml

 

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