Acres & Dollars: Virginia Beach may tap land preservation funding

COURTHOUSE – The proposed city budget shifts about a quarter of the designated tax funding from the agricultural reserve program, leaving roughly $3.3 million for payments per year owed to owners of already protected acres, run the program, and buy new development rights.

If the proposal passes in May, that remainder would largely fund more than $2 million in interest payments the city makes each year to cover easements that keep more than 9,200 acres of agricultural land from being developed while owners maintain other land rights.

At issue is whether the program will keep the level of dedicated funding that some officials said allows the Beach to act decisively when landowners want in. By purchasing developments rights for thousands of acres, the program has helped maintain the rural character of the city’s south.

But there have been few deals closed due to low interest rates recently.

Amid a budget process poised to hike up the property tax rate, the plan under discussion removes a dedicated portion of the existing tax rate from the reserve program and puts it elsewhere. The change is from 0.9 cents of the property tax rate to 0.56 cents.

City Councilmember Barbara Henley, a farmer who represents the Princess Anne District, said the change will be discussed as members of the council enter the reconciliation process before adopting the next budget.

“I think it’s important we keep the availability of the 0.9, but we can examine each year what surplus could go back to the general fund,” Henley said, noting that the city has reclaimed money from the reserve program before for the general fund or specific projects, such as supporting open space efforts.

Henley said there may be one such transfer of funds coming for an open space project, and she said the city could work out a way to ensure funds were available if there is more demand for the reserve program. However, she said, ensuring money is set aside for this purpose is important.

“That’s been the strength of our program,” Henley said. “It’s had dedicated funding.”

The reserve program has represented the city’s commitment to conservation and agriculture itself – the Beach’s third largest industry.

“We would be concerned about funding for the program and people’s perception,” said Jenny McPherson, coordinator of the agricultural reserve program, who said she hopes the City Council will continue to fund it. “We have to at least meet our interest obligations.”

The proposed budget aims to purchase 150 acres per year, down from the current goal of 300 acres. The potential change reflects a current reality for a program hailed for years as a success. Not as many landowners are taking the city up on the deal, in part, because the interest rates on federal securities that determine pricing in the program have made it less lucrative.

At its height, the program purchased easements on hundreds — at one point, thousands — of acres annually. In recent years, the return has been slower. However, city officials said several applications are working their way through the process – 17 applications representing 836 eligible acres of agricultural land.

“It’s not that they aren’t applying,” said David Trimmer, the city’s director of agriculture. “It’s just that there are various stages.”

It’s a matter of closing. The numbers over the past two years suggest the impact of low interest rates.

In 1997, when the rates were far higher and the program was new, 835 acres came into the program. In 1998, 2,693 acres were enrolled.

Now, with much lower rates, the acreage has been lower. In FY14, 23 acres came into the program in a single closing at purchase price of about $270,500. In FY15, the current program year, there has been one closing representing 43 acres. Between FY11 and FY13, the acrage went up and down, includuing a height of nine closing with a sum of 739 acres in FY11. For the past two years, 300 had been elusive.

Henley, in an interview, said, “The way it’s been going the last few years, they haven’t been using all of the funding.”

Officials may discuss a number of options for addressing the program, such as a tax increment financing district or, as one Agricultural Advisory Commission member suggested, using the fund balance to sweeten the interest rate that appears to be discouraging participation.

Diane F. Horsley, 67, born and raised in the Blackwater area, is a commission member and a farmer. Her father used the program to help protect land, as did neighbors, which helped keep acreage connected.

“That makes farming land all in one spot,” Horsley said. “You can go from one field to the other. There’s not development encroaching in. … People who kind of have a heart for farming see this really is keeping this end of the city rural.”

She added, “I think it’s not only farmers who appreciate this.”

The city’s Agricultural Advisory Commission formed in 1994 as a bridge between rural communities and the government of a growing city. The committee’s focus includes updates on applications to the reserve program, which got its start in 1995 and bought its first rights in 1997.

In the mid-1990s, the Beach was the first city in Virginia to institute a purchase of development rights program, ahead of wider state efforts to address the development of farm and forest and squarely amid a period in which 23,260 acres of farmland and 22,000 of forest were developed across the commonwealth.

A state task force, the source of the numbers above, in 2005 reported that more than 10,000 of those lost acres were “prime … the most productive land” in Virginia.

A buyer – often, but not always, a governmental organization – gets “the right to develop the land and extinguishes that right permanently,” according to the Virginia Department of Agriculture and Consumer Services Farmland Preservation Task Force report.

Landowners, in turn, might put the money back into a farm or retire, letting someone else farm the land by renting it. As Virginia Beach’s program explains in literature, owners capitalize on potential development value of their land without actually having to sell the farm. There are benefits with taxes and estate planning.

These issues weigh heavily on farmers, especially as they age and see following generations struggle to make the economics of family farming work. Some use the money to reinvest in the farm.

“What we had to do was come up with something that gave them an alternative to development,” Henley said.

In Virginia Beach, the goal was to keep agriculture viable and protect 20,000 acres.

“Right now, we’d be glad to see 10,000 acres,” McPherson said.

Dedicated funding is a better option for the program. However, she noted: “That’s up to the council to decide.”

City Councilmember Jim Wood, who represents the Lynnhaven District, said the council can always revisit funding for the program later if the change is adopted.

“I think if it comes to a point where if the program has too many sellers and not enough money, we could revisit that,” Wood said.

That is not the situation now, and there are a number of priorities for the city to consider.

“Everything is really volatile in the budget,” said City Councilmember Bob Dyer, who represents the Centerville District. “At this point, I’m more concerned with how much money they want to put into light rail.”