Pure Midway has been gathering information about how to potentially conduct and use an open space or rural preservation bond for several months. Recently we noted that the city has gained some interest in the idea as well and they have scheduled a discussion to be held June 28th at 6pm at the Community Center. We are sharing here some of the data and ideas that we have collected, and we have shared the same information with the City Council. Pure Midway believes that if a bond initiative is to be successful it will require cooperation from the City, the citizens, and all other interested groups. We look forward to open and thoughtful dialog about the goals and issues that we can tackle together. Watch this space for updated information.
Midway’s Rural Preservation Bond
What Is A General Obligation Bond?
General Obligation Bonds require voter approval to increase property taxes in order to generate money for specific projects. It is similar to getting a line of credit for a project and then making payments to a bank to pay back the money.
What Projects Will The Bond Fund?
Open Space Preservation
The City should set up an Open Space Committee to determine the best use of the funds so they can benefit the entire community. Park City has a Citizens Open Space Committee (“COSAC”) for this purpose. Bond funds can be used to preserve agricultural land, view corridors, wildlife habitat, hunting or fishing areas, and to create trails and parks. The City should not identify specific projects before a bond is passed because doing so raises the cost of that land and the study process needs time to be effective.
Historic Home Preservation
The City could use a small percentage of the bond as matching funds to preserve the exterior of historic homes. An owner could apply for a grant for funds to help restore the exterior of a home in exchange for a promise to keep the façade preserved forever through a historic preservation easement.
Will The City Buy Land With Bond Funds?
The City can use the bond to buy land but land in Midway is expensive to purchase and maintain. Typically the only reason to buy land outright is to create more public parks. The City already has a mechanism for public parks through the development process so it’s worth considering a purchase of development rights instead of a purchase of land.
The best way to stretch the bond dollars is for the City to purchase development rights from a willing landowner. The landowner must agree voluntarily to the purchase of development rights and gets to keep and use the land but is restricted from developing it. The landowner can continue to use any existing buildings on the property and may negotiate the right to build additional structures such as a barn, guest cottage or outbuildings.
What Is the Cost to Purchase Development Rights?
The value of the development rights is based on an independent appraiser’s valuation of the difference between the present value of the land and the value of the land if it was developed in accordance with the City Zoning Code. For example, if a farm were worth $3,000,000 if it is developed, but only worth $1,000,000 if it is undeveloped, the fair market value of the development rights would be $2,000,000 ($3,000,000 – $1,000,000). In many cases, the landowner will agree to donate some of the development rights in exchange for tax benefits.
How Is The Restriction on Development Enforced?
When the City buys development rights or those rights are donated, the terms of that purchase are detailed in a Conservation Easement Agreement which is recorded and runs with the land. The holder of the easement is typically a land trust, such as Utah Open Lands. They have a land management division that monitors the land and enforces the terms of the easement if it is being violated through development.
Are Matching Dollars Available?
The funds from an Open Space Bond can be multiplied through agricultural and other grants and matching donations. This makes the bond dollar stretch in ways that other funds can’t.
What is the Difference Between a Purchase of Development Rights and a Conservation Easement?
They are very similar. A purchase of Development Rights occurs when money changes hands, and such a purchase is also memorialized in a Conservation Easement Agreement. A Conservation Easement occurs when no money changes hands if the right to develop is donated.
Are There Tax Benefits To Landowners?
Many people donate a portion of their development rights or enter into conservation easements because they want to preserve their land but there can be significant tax benefits that create an added incentive.
- Income Tax Benefits: Landowners can deduct the fair market value of the easement from their income based on the following:
- They can write off 50% of their annual income every year for 15 years up to the value of the easement
- A farmer/rancher can write off 100% of annual income for every year for 15 years up to the value of the easement
- Estate Tax Benefits. One of the major advantages of donating a conservation easement is that it helps pass land on to the next generation by reducing estate taxes. Estate taxes can lead to land being sold off even when families want to keep the land intact. These taxes make it especially challenging for families to hold onto working farm or ranch land. As of 2016, estates of $5.1 million or more are subject to estate taxes of 40%. Conservation easements lower estate taxes in two ways:
- A conservation easement lowers the value of the land, often below the estate tax threshold so it can be an effective tool for avoiding paying estate taxes altogether while keeping the land.
- Heirs can exclude up to 40% of the value of the land encumbered by the conservation easement up to $500,000. There are many nuances to this deduction not discussed here.
Why Preserve The Land Through A Conservation Easement?
Conservation easements can contribute to improved water quality and are often designed to protect aquifers and watersheds. They can protect a community’s scenic beauty, vistas and open space by keeping landscapes free of sprawl. They can help keep landscapes in traditional uses, such as farming and ranching, and can keep small family farmers and ranchers on the land in tough economic times.
How Much Will This Cost?
The maximum amount Midway can borrow under state law is $37,000,000. We asked Zions Bank Public Finance to run the costs for a $10M and $6M Bond. The $10M bond was cost prohibitive, so we are showing the cost for the $6M bond below. Open space is crucial for tourist revenue, so we believe businesses and the City will directly benefit economically from preserving Midway’s rural heritage.
$6 Million Bond (payable over 20 years)
|Type of Property||Monthly Tax Increase
Per $100,000 of Value
|Annual Tax Increase Per $100,000 of Value|
For a $500,000 home the monthly cost would be $14.95 and the annual cost would be $179.65
For a $500,000 business the monthly cost would be $27.20 and the annual cost would be $326.65
What About People Who Can’t Afford A Tax Increase?
The City could explore the possibility of creating an Open Space Tax Relief Fund that wealthier individuals could choose to voluntarily support, or developers could be required to contribute to. This fund could support grants to pay or supplement tax increases for citizens with fixed incomes or who otherwise could not afford the tax increase. Developers building a rural preservation subdivision would be exempt from the fee.
Sounds like a good and sound thing to do. Thank You,
How wonderfully thoughtful of you to put this in simplistic terms and share with all of us! Thanks! See you on WEDNESDAY! Thanks for all your work on our behalf!