Schwarzenegger says no to Williamson Act
Governor Arnold Schwarzenegger has said there will be no Williamson Act subvention funds as long as he is governor, Farm Bureau’s land use expert said. Now Farm Bureau leaders will try to convince key legislators to restore at least some of the funding in the coming year to keep counties on board.
California Farm Bureau Federation Taxation and Land Use Director John Gamper told delegates to the CFBF Annual Meeting on December 9, 2009, that Schwarzenegger finally rejected requests that he restore the funding.
Without the state money that offsets some of the cost, cash-strapped counties may decide to abandon the farmland preservation program. As an alternative, some counties have already begun exploring ways to get money from local taxpayers or from local farm land owners to keep the program going.
Over half the farm land in California is protect under Williamson Act contracts the offer reduced taxes in exchange for long-term commitments to keep the land in agriculture.
Even if counties decide to bail out of the program, they may not see increased taxes any time soon. The contracts cannot be cancelled by government and can only be non-renewed, starting a countdown until the contracts run out. While contracts were originally for ten years, so-called Super Williamson Act contracts are for 20 years, and in some places like Monterey County, the basic contracts have also been 20-year contracts. If land owners protest non-renewal, they can retain their tax benefit until their contracts have less than five years remaining. For 20-year contract holders like those in Monterey County, that means sixteen years of continued tax breaks and no increased revenue for the county.
Previous reports:
Supervisors urged to maintain Williamson Act
Farm Bureau urged Monterey County supervisors to maintain the Williamson Act despite Governor Schwarzenegger’s recent decision to eliminate funding for the popular land conservation program from the budget.
Farm Bureau followed an oral presentation during Public Comment at supervisors’ August 25 meeting with a letter giving the background, current situation, and recommendations to continue the Williamson Act. Supervisors will have to put Williamson Act on their agenda before they can take any action.
The recommendations to supervisors were:
· Publicly express your commitment to retain the Williamson Act as a Monterey County land use planning tool.
o Implement a policy to continue processing applications in the normal manner.
o Implement a policy assuring land owners that their application fees will be refundable if the program is cancelled while an application is being processed.
· Adopt a resolution to legislators in support of the Williamson Act, including:
o Recommend that they attach a high level of priority to restoring state subventions.
o Recommend that they commit to retaining the funding in future years at levels consistent with fiscal conditions (meaning increased funding when the economy improves.)
· Send a letter to the governor recommending that he restore subventions in his January state budget proposal.
· Recommend to other governments that they take similar steps.
Current Situation
The Farm Bureau letter described the current situation:
The Legislature approved a 20% reduction in Williamson Act subventions, to $27.7 million, in the budget for the 2009-2010 fiscal year that began July 1. However, Governor Arnold Schwarzenegger used his line-item veto to completely eliminate Williamson Act subventions to counties.
Elimination of Williamson Act funding has already had effects foreshadowing the local government decisions and legal battles to come. Tulare County supervisors voted to place a moratorium on new Williamson Act contracts and to research the non-renewal of substandard parcels. Imperial County supervisors decided to keep the program but are looking for ways to allow land owners to cancel their contracts without having to pay 12.5 percent penalty.
There are now two suits challenging the governor’s authority to veto the spending, raising questions about the definition of appropriations, which the governor is authorized to eliminate or reduce.
There is a slight possibility that Williamson Act funding could be restored as the budget talks continue. Farm Bureau will continue to push for restoration of the 2009-10 funding.
The governor’s veto eliminates $1,005,648 that Monterey County expected to receive as subvention for its participation in Williamson Act. That figure represents 1.21% of Monterey County’s share of property tax revenue. There are 25 other counties that lose a larger percentage of revenue, up to 21.52% for Glenn County, with 12 counties where the subventions are more than 5% of their property tax share. There are 12 other counties that lose a larger amount of funding than Monterey County, up to $5.6 million for Fresno County.
The loss of funds falls heavily on farm counties already struggling with the economic downturn. Agricultural counties where Williamson Act had been a line of defense against urban growth have also suffered loss of agricultural production due to water cutbacks and have severe unemployment putting added burdens on government services.
Unless the governor includes subventions in next year’s budget, he would be sending a signal that the state is no longer committed to the Williamson Act. This would have several likely consequences:
Legislators will find it too easy to leave Williamson Act funding out of future budgets.
County governments will continue making decisions about whether to withdraw from Williamson Act contracts. Since they can’t realize any increased tax revenue for at least four years, this decision will hinge on whether they see the political will in Sacramento to restore subventions and to continue underwriting the program. Monterey’s
If Monterey County should decide to cancel its Williamson Act program, the action would produce no extra tax revenue for 14 years. It is likely that almost every property owner would file a written protest, which allows property owners to keep their current tax benefit until the last six year of the contract. Since most of Monterey County’s contracts are 20 years, that means property taxes would remain at Williamson Act levels for 14 years but would then increase quickly to market rate taxes over the remaining six years.
Land owners will begin making decisions about their own long-term plans. They will immediately decide whether to invest in maintenance and improvements for habitat and agriculture. They will also begin considering land-use strategies to maximize their asset value and to avoid future tax impacts including selling or subdividing land. For grazing land owners, the potential tax burden will force some to divest themselves of acreage that can’t support the full market value property taxes.
Restoring the funding next year is only part of the solution. Legislators can’t continue to use the Williamson Act as a budget football. Counties need assurance that the program will remain in place, and land owners need assurance that their counties will continue the program.
Williamson Act counties must receive an equitable share of the state budget. For years the subvention fund has remained fixed or diminished. Legislators also need to demonstrate that when the economy and budget improve, Williamson Act funding will get a fair share of the budget pie.
The Williamson Act is unique because it combines a planning and zoning tool with a property tax policy and an open space policy. The result has been the retention of millions of acres of agricultural land in agricultural use and the improvement of the financial stability of state's agricultural economy.
An eventual demise of the Williamson Act due to California’s ongoing budget crisis could result in a return to the land use policies of the 1960’s and 1970’s that resulted in the loss of millions of acres of farm and ranch land, including watershed areas and wildlife habitat, to uncontrolled urban and suburban growth.
In addition to the property tax relief, over half of California farmers and ranchers participate in the Williamson Act because they believe that farming and ranching is the highest and best use of their land, they have an emotional attachment to the land and they want to pass it on to the next generation as farm or ranch land. The loss of the Williamson Act’s property tax relief could jeopardize our next generations of California food producers.
Williamson Act and the protections it grants land owners also provide much needed certainty that they will be able to continue to farm or ranch land their land without the intrusion of incompatible non-agricultural uses.
Background
Farm Bureau outlined the history of the Williamson Act:
The California Land Conservation Act of 1965, commonly referred to as the Williamson Act, was created to preserve agricultural and open space lands by discouraging premature and unnecessary conversion to urban uses. The Williamson Act creates an arrangement whereby private land owners contract with counties and cities to voluntarily restrict land to agricultural and open-space uses.
Property tax assessments under Williamson Act are based upon farming and open space uses and re stable and predictable, providing a reliable basis for future planning. Adopted prior to Proposition 13, it protected agricultural land owners from fluctuations in market value, from unexpected land use decision by neighboring farms and from arbitrary valuation by the county assessor.
Local governments benefit from predictable tax revenues, from land use planning certainty, and from protection of the farms and farm land in the county. Local governments have, until this year, also benefitted from an annual subvention – reimbursement -- of forgone property tax revenues from the state via the Open Space Subvention Act of 1971.
Nearly 16.9 million of the state’s 29 million acres of farm and ranch land are currently protected under the Williamson Act. The Williamson Act is estimated to save agricultural land owners from 20 percent to 75 percent in property tax liability each year. One in three Williamson Act farmers and ranchers said in a survey that without the Williamson Act they would no longer own their parcel (Source: Land in the Balance, University of California: December 1989).
The Williamson Act was enacted in Monterey County in 1968. Contracts enacted in 1968 were for a term of ten years, but contracts after 1968 were for a term of 20 years. The Farmland Security Zone became effective in Monterey County in 1998.
The local administration is done through the Board of Supervisors by the Planning Department. The Assessor’s Office annually computes the taxable values.
Monterey County’s commitment to the Williamson Act was recognized in 2005 by the California Department of Conservation with a resolution. Monterey County had 767,084 acres of land enrolled in the Williamson Act, including 59,254 acres of prime farmland.
Owners of grazing land in Monterey County are particularly dependent on the Williamson Act because of the low margin of income for livestock. Livestock production value, at $42 million a year, is modest compared to the county’s overall crop production of $3.8 billion, but livestock uses account for 1.1 million acres, over half the county’s land area. Changes in livestock operations precipitated by loss of the Williamson Act could have profound effects on the county.
The Williamson Act uses a rolling term contract between the local government and individual land owners. Unless either party files a “notice of nonrenewal” the contract is automatically renewed annually. In return, restricted parcels are assessed for property tax purposes at a rate consistent with their actual use, rather than the purchase value.
The minimum term for a contract is 10 years. However, Monterey is among the jurisdictions that have exercised the option of using a 20-year term. Government can also offer Farmland Security Zone contracts, the so-called Super Williamson Act for a 20-year term, providing an additional 35% reduction in taxable value.
Williamson Act properties receive the lesser of the fair market value, the factored base year value, or the Williamson Act value.
The Williamson Act value is determined by dividing the income (gross income - 3% for management and insurance) by a capitalization rate. The rate is composed of a yield rate based on the four-year average of long-term Treasury bond yield rate, plus a component for risk, plus 1% for taxes. Trees and vines in the Williamson Act are also capitalized using the restricted rate.
If the property is in the Farmland Security Zone then the Williamson Act calculation is done and the property gets the lower of 65% of the base year value or 65% of the Williamson Act value
The Williamson Act requires designation of an agricultural preserve, a boundary designated by resolution of the board of supervisors or city council having jurisdiction. Only land located within an agricultural preserve is eligible for a Williamson Act contract.
Preserves are regulated by rules and restrictions designated in the resolution to ensure that the land within the preserve is maintained for agricultural or open space use. An agricultural preserve must consist of no less than 100 acres, but two or more parcels may be combined if they are contiguous or in common ownership. Smaller agricultural preserves may be established if a board or council determines that the unique characteristic of the agricultural enterprise in the area calls for smaller agricultural units, and if the establishment of the preserve is consistent with the General Plan.
Preserves may be made up of land in one or more ownerships. Property owners with less than 100 acres may combine with neighbors to form preserves, provided the properties are contiguous.
A Williamson Act Contract is the legal document that obligates the property owner, and any successors of interest, to the contract’s enforceable restrictions.
Rules governing preserves
When a board or council adopts rules governing the administration of agricultural preserves, they specify the uses allowed. Generally, any commercial agricultural use will be permitted within any agricultural preserve. In addition, local governments may identify compatible uses permitted with a use permit. In the case of a breach of a contract, the local government may seek a court injunction to enforce the terms of the contract.
The Department of Conservation is responsible for the interpretation of the Williamson Act, research of related issues and policies, and enforcement of Williamson Act provisions and restrictions. As of 2005, all counties except Del Norte, Los Angeles, San Francisco, Inyo and Yuba offered Williamson Act contracts.
Canceling a contract
Only the land owner can petition to cancel a contract.
To approve a tentative contract cancellation, a county or city must make specific findings that are supported by substantial evidence. Neither the existence of an opportunity for another use of the property nor the uneconomic character of an existing agricultural use is, by itself, a sufficient reason to cancel a contract.
If cancelation is approved, the land owner must pay a cancellation fee equal to 12.5 percent of the unrestricted, current fair market valuation of the property.
Nonrenewal
A notice of nonrenewal is a notice that a Williamson Act contract will not be renewed or extended at the end of its current period. It starts the 9- or 19-year nonrenewal period. During the nonrenewal process, the annual tax assessment gradually increases. At the end of the nonrenewal period, the contract is terminated.
A land owner who chooses nonrenewal must give 90 days notice prior to January 1. Property taxes immediately start escalating to the Proposition 13 value.
The county can only opt to end Williamson Act contracts by giving notice of nonrenewal. County nonrenewal gives land owners two choices to respond, which produce different results. The county gives 60 days notice to the land owner.
If the land owner doesn't file a written protest, property taxes immediately start escalating to the Proposition 13 value over the term of the contract.
If the land owner files a written protest, property taxes do not start escalating to the Proposition 13 value until there are less than six years remaining on the contract. Then the property taxes escalate to the Proposition 13 value over the remaining term of the contract.
Friday, December 18, 2009 04:40:47 PM
