Snyder Budget Targets Farmland Preservation Credits

Friday, March 11, 2011

Governor Snyder's proposed budget focuses on removing tax credits he regards as benefitting special interests. In my view, we all have our own special interests, and our economy is made up of many, many such special interests. In this case, the special interest is owners of farmland and open space land which is subject to (or could be subject to) a Farmland and Open Spaces Development Agreement. The act, so-called P.A 116, provides that qualifying lands can be enrolled in a program administered by the Michigan Department of Agriculture, for a period of years (generally from 10 years to 90 years). The agreement provides that such lands may not be developed or used for purposes other than agricultural production (or in the case of open spaces, left open or for recreational use) during the pendency of the agreement.

In return, the landowner is give a tax credit which is based upon the acreage enrolled and the "household income" of the landowner under Michigan's income tax law. The agreements also exempt the landowner from special assessments on the property for adjacent services during the term of the agreement. If the land is removed from the agreement at its expiration, a lien for the past 7 years of credit claimed is placed on the land and will become due upon the transfer of the land to another owner.

Conventional wisdom (well, mine, anyway J ) said that an agreement should be entered for the minimum period allowed and then extended for the minimum period each time (extensions could be a minimum of 7 years). However, if passed the Snyder budget (and subsequent enabling legislation) will change that convention. In a recent interview, the governor acknowledged that the existing agreements are a matter of contract to which the state is obligated. In other words, regardless of the result of the budget act, existing agreements will continue to be honored. This will include agreements due to expire in the future, no matter how far out into the future. However, it is probable that on passage of a new law in concert with the Snyder proposal, after some period of time (presumably as soon as November, 2011), new agreements will no longer be enrolled.

This gives rise to an interesting and different analysis. P.A. 116 allows a landowner who has a current contract to extend that contract. The contract may be extended at any time during the agreement. Now there is some incentive for farmland owners to at least consider extending their contracts for a longer term, in order to insure continued P.A. 116 credits. As well, landowners who have not yet enrolled their land in the program now have a potential looming deadline, as well as an opportunity to preserve the credits going forward. At the same time, any analysis should also include consideration about intended and potential future uses of the land. Once in the agreement, it will be very difficult, if not impossible, to remove the land from the agreement in order to sell or use it for purposes other than the production of agricultural crops or open space and recreation.


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