Lesson 5: Local Funding for Land Conservation I

Lesson Overview: As was discussed in Lesson One, the foundation of a successful long-term land conservation program is dedicated local funding.  The tools for raising funding for land conservation at the local government level are quite diverse and continually expanding. The availability of financing options depends on state enabling laws and generally takes the form of either “pay-as-you-go” funding, long-term borrowing or a combination of the two.  The funding tools discussed in this lesson are primarily used by municipal or county governments, depending upon the state's enabling laws.  Some states allow for the creation of special districts (discussed briefly) that may utilize the funding mechanisms outlined here to acquire parks and open space.  Regardless of the type of local government that pursues conservation funding – county, municipality, or special district – the scale of this funding is substantial, with more than $22 billion approved through ballot measures between 1999 and 2004, $11 billion for land conservation.

Objectives: By the end of this lesson, you will learn about the two primary approaches local governments take in funding land conservation ("pay-as-you-go" vs. borrowing), and the specific funding sources used to support these approaches. 

"Pay-as-you-go” Funding

With “pay-as-you-go” funding approaches, local governments spend revenues from general appropriations or a dedicated funding source. These dedicated funding sources, which can include property taxes, sales-tax set-asides, real-estate transfer taxes, and even one-time environmental fines and budget surpluses, can be attractive to debt-resistant voters and public officials. Pay-as-you-go means year-by-year accountability and no borrowing costs. It also means relatively small annual revenues (sometimes too small to pay for large capital projects) and funding that can be difficult to sustain as the politics and leadership of a community change.

Budget Appropriations: A budget appropriation by the governing body can involve a reallocation of existing resources or a legislatively approved tax levy.  All local governments have the ability to appropriate funds in their regular budgets for land conservation, but the practice is not common. When local governments do make budget appropriations for land conservation, they are often for the acquisition of a specific property, but not for the funding of a long-term program.  

Example: Montgomery County, Maryland is an exception, since it has allocate funding through budget appropriations to create a long-term program.  In 2000, the Montgomery County Legislature approved the Legacy Open Space program, which will provide $60 million in park and open-space funding over a six-year period. The county will appropriate $41 million as part of its annual budget process, while leveraging more than $18 million in grants and private contributions.  For more information, please see the following news release from Montgomery County or the Legacy Open Space website.

Property Taxes: Voters in communities across the country have also been willing to increase their property taxes, particularly when revenues are earmarked for park and open-space protection and spending accountability is guaranteed. Property taxes are the most common source of local funding for open space in the U.S. Of the more than 1150 local open space ballot measures between 1999 and 2004, 44 percent relied upon the property tax as their funding source. (For more information, see the following summary from the Trust for Public Land's LandVote database. 

Examples: In New Jersey, voters in all 21 counties and nearly 200 of 566 municipalities have approved open space trust funds paid for with property tax increases. Over the past three years, nearly 65 Massachusetts cities and towns have adopted the Community Preservation Act, which allows them to levy a dedicated property tax for open space, affordable housing and historic preservation and receive state matching funds.  For more information on the Community Preservation Act, please see the following website. Even in a tax-sensitive state like Idaho, people are willing to increase their property taxes to conserve land. Boise voters overwhelmingly approved a $10 million tax levy in May 2002 to protect critical open space in the foothills. The levy in Boise is a so-called serial levy, which will automatically end after two years. For more information, please see the following report on the Boise Foothills Levy.

Sales Taxes: The sales tax is the second largest source of income (after the property tax) for state and local governments. (Source: U.S. Census Bureau) Levied on the sale of goods or services, the tax can generate large sums of revenue, even at small taxing increments. It can also tap into tourism profits generated by open-space amenities. On the downside, tax revenues can drop when the economy slows, and the tax is often criticized as regressive, falling disproportionately on lower-income people. In addition, many jurisdictions require that a sales-tax increase be in large increments —½ or even 1 cent— making it harder to fine-tune than the property tax.  The sales tax has only been used as a local source of funding for land conservation in states where local sales taxes exist. According to TPL's LandVote database, between 1999 and 2004, there were 98 local ballot measures that used the sales tax to fund land conservation.  This is the third most common source of funding, after the property tax and general obligation bonds, accounting for 8 percent of total ballot measures.

In some states – Arizona, California, Colorado, Florida, Georgia, Missouri, and Ohio – local governments have been granted enabling authority (by the state legislature) to levy a wide range of local sales taxes for purposes including general government, education, capital projects (buildings, roads) and parks and open space.  In these states, it may be common for local governments levy a local sales tax for capital projects to be used in whole, or in part, for open space and parks.  In other states like New York, a handful of local governments have successfully petitioned their state legislatures to allow them special authority to levy sales taxes for open space and parks, subject to approval by local voters. 

Examples: In 1967, the city of Boulder, Colorado passed the nation's first local dedicated tax for open-space protection and parkland acquisition, a 0.40 percent sales tax. Many Colorado communities have followed Boulder's lead, including Arapahoe County, a Denver area county that passed a sales-tax measure in 2003. For more information, see the LandVote database. 

In 1987, Suffolk County voters approved a ¼ cent sales tax increase for land conservation and drinking water protection, after first gaining approval from the state legislature.  The 13-year levy enabled Suffolk County to protect 6,000 acres of Pine Barrens and farmland at risk of development.  In November 1999, Suffolk County voters approved a 13-year extension, which will raise roughly $300 million. Click here for more information on Suffolk County's sales tax.

Real Estate Transfer Taxes: The real-estate transfer tax is levied on the sale of property, increasing with the value of the property being sold. Costs are sometimes imposed on the seller, who has likely experienced an increase in the property's value over the years. Other times the burden is placed on buyers, who, it is argued, are making an investment in the future of their community. The tax can create substantial funds for park and open-space acquisition, particularly in fast-growing communities, but revenues can plummet in a soft real-estate market. Perhaps most importantly, winning approval for the tax in the face of opposition from real-estate interests has proven to be a tough challenge for many communities. In fact, these taxes have only been used successfully in wealthy resort communities, such as Hilton Head Island, South Carolina; Martha's Vineyard and Nantucket, Massachusetts and the Five Towns of the Hamptons in Long Island's Suffolk County. Refer to their website for more information on Nantucket's land bank.

Impact Fees: An impact fee is a one-time charge that private entrepreneurs, often developers, must pay to the local government in order to build new housing units. In turn, the revenue from the impact fee finances public goods and services that the developer would not otherwise provide.  Water and sewer lines, streets and bridges, and parks and recreational facilities are typical projects funded by impact fees. Most state statutes require a direct correlation between the projects funded and the impact of the development. The goal of impact fees is to enable a community to maintain a constant "level of service" (park acres/resident, library books/resident, road miles/resident), despite facing growth. However, impact fees are not designed to allow a community to provide higher levels of service than existed prior to a development's creation.

Impact fees have their detractors, who oppose the added cost of development and, in some cases, a decreased availability of affordable housing due to the impact of the fee.  Impact fees often face legal challenges, primarily from developers who feel that they are being assessed to provide higher levels of service. To withstand litigation, proponents must carefully construct their impact fee program. Despite these challenges, impact fees are growing as a source of funding for the acquisition, construction and maintenance of parks and recreational facilities near new development.  In Raleigh, North Carolina, known as the “Park with a City in it,” residential developers pay impact fees that help finance greenways and other parks.

For more information, see the State of Maine's manual for establishing impact fees.

Borrowing

Borrowing presents its own set of opportunities and obstacles. On the one hand, borrowing can provide a community with the revenue and flexibility it needs up-front to fund large-scale park and open-space projects, the cost of which is less today than it will be tomorrow. On the other hand, many bonds require voter approval, and convincing voters of the merits of incurring debt and paying financing costs can be challenging. Revenue bonds, which may or may not require voter approval, borrow against pay-as-you-go funds to bring in more up-front cash. A summary of common debt funding techniques follows. General obligation bonds are by far the most common source of borrowing.

General Obligation (G.O.) bonds: G.O. bonds are loans taken out by a local government against the value of its taxable property. These bonds are secured by the issuer's full faith, credit and taxing power to make timely payments of principal and interest. Depending on the situation, open space bond money can be included in a general capital funding measure or paired with related environmental programs such as agricultural land preservation, soil conservation or stormwater management.

General obligation bonds are a popular open space financing tool for local governments since they allow for the immediate purchase of land that is often quickly rising in value, with the cost spread out over many years.   According to the Trust for Public Land's LandVote database, between 1999 and 2004, nearly 40% of all local land conservation ballot measures relied upon general obligation bonds. (For more information, see the following summary.)

While G.O. bonds are attractive for their revenue raising ability, there are a number of challenges facing their use for land conservation.  First, bonds cannot be used as a source of funds for maintenance of open space or parks since bond proceeds are limited to capital purposes.  G.O. bonds either require voter approval (sometimes as much as two-thirds of the electorate) or legislative approval, or both. Interest charges also add costs, and debt ceilings limit the amount of bonds a community can issue. Finally, there is generally stiff competition for G.O. bonds among the many local programs in need of financing.

Example: In recent years, more than a dozen New Hampshire towns have approved general obligation bonds for land conservation, surpassing the requirement that 2/3 of town meeting voters support such a measure. In 2003 alone, Durham, Exeter, Londonderry, Rindge, and Rye approved bond measures for land conservation.  Two other towns – Hampton and Salem – surpassed the 50% mark, (the common requirement in most states), but failed to reach 66.7% support. For more information on the 2003 bond measure in Exeter, please see the following summary for the New Hampshire Estuaries Project.

Revenue bonds: Revenue bonds are forms of borrowing in which a source of funding is pledged to repay the debt. Voter approval is not typically required since the government is not obligated to repay the debt if the revenue stream does not flow as expected.  Because the "full faith and credit: of a local government is not pledge to repay the debt, the risk is higher.  As such, the interest rate offered to investors is higher and the cost to the local government are also higher. In some cases, local governments may package a tax increase with revenue bond authorization into one ballot measure. Unlike G.O. bonds, revenue bonds are not constrained by debt ceilings.

Example: In Greeley, Colorado, a November 2002 ballot measure was approved (55% yes) that both provided for a 20-year increase in the sales tax of 0.3%, along with authorization to issue $34 million in bonds backed by the dedicated sales tax increase.

Certificates of Participation: Certificates of participation (COPs) are a form of lease/purchase agreement that allows a government to pay for a leased property over time.  The transaction is not formally considered debt (like a bond) and therefore does not require approval by voters.  As such , the COPS don't count against a community's debt limit and won't limit future borrowings or negatively affect the community's bond rating. COPs are becoming an increasingly important tool for protecting open space at the local level, especially when a high threshold (e.g. 2/3 support) is required to gain voter support. 

Example: In November 2000, Columbia Missouri voters approved a 1/4 cent sales tax for parks and open space.  In order to acquire and improve Stephens Lake Park without the need to go back to voters to approve a general obligation bond, Columbia has issued $7 million in COPs to finance this project. For more information, please see the financial statement for Columbia.

Special Districts

Several kinds of special districts can help fund land acquisition or maintenance. Special assessment districts are separate units of government that manage specific resources within defined boundaries. Districts vary in size, encompassing a single community or several counties. They can be established by the local government or by voter initiative, depending on state laws and regulations. As self-financing legal entities, these districts have the ability to raise a predictable stream of money (through taxes, user fees, or bonds) directly from the people who benefit from the services—often parks and recreation. Special districts are helping protect and maintain parkland throughout the country, with the greatest activity in recent years in California, Colorado, Illinois and Ohio. 

Examples: One of the first special park districts, California's East Bay Regional Park District, was created in 1934 with a nickel-per-$100 value property assessment. The district now owns and operates 53 parks and 78,000 acres and has an operating budget of over $60 million. Special districts are very common in Illinois, with successful ballot measures for open space approved for the DuPage, Lake, Kane, McHenry, and Will forest preserve districts near Chicago between 1998 and 2004. For more information on these forest preserve districts in Northern Illinois, see the Conservation Foundation's website.