Farm Management Update

Quarterly Publication of Ohio State University Extension

Fall 2002

By Peggy Kirk Hall, Director of Agricultural and Rural Law Program

Agricultural Easement Purchase Program

Over 400 landowners recently vied for the right to sell an agricultural easement on their farm under Ohio's new Agricultural Easement Purchase Program (AEPP). The program provides funding to local governments and non-profit organizations to purchase agricultural easements from willing landowners. The agricultural easement ensures that the farmland will remain permanently in agricultural use.

The response to the first funding round of AEPP was much higher than anticipated. In total, the Office of Farmland Preservation (OFP) received 442 applications covering 63,450 acres of farmland. Applications came from 49 of Ohio's 88 counties.

The OFP has $6.25 million to spend on agricultural easements this year. OFP received a total of $25 million from the Clean Ohio Fund to conduct a four-year pilot program for the purchase of agricultural easements. The $400 million bond issue passed by Ohio voters two years ago as "State Issue One" created the Clean Ohio Fund.

The AEPP might also receive additional monies from the federal government as a result of the recently enacted Farm Bill, which reauthorized the USDA Farmland Protection Program (FPP). The FPP provides matching funds for the purchase of agricultural easements to states that have farmland preservation programs. Ohio has applied for FPP funding for this year. The high number of applications to AEPP increase Ohio's chances of receiving up to $6.25 million more for the first round of AEPP.

AEPP applications were due to the OFP at the end of April. The applicant, who is the local government or non-profit organization that will receive the funds from the State, partnered with the landowner to submit information about the farm, the farm operator and the local community. The OFP scored all applications on initial criteria—soils, location to other protected property, development pressure, utilization of best management practices, local planning and zoning, and local or individual matching funds. A working group of citizens from around the state assisted the OFP in developing the scoring criteria.

Farms that scored highest on the initial criteria proceeded to a second scoring round conducted by the AEPP's 12 member Advisory Board. The board assigned point values for information on farm management, business and conservation plans, local agricultural infrastructure support and community support for farmland preservation. The OFP ranked applications according to the combined totals of the two scoring rounds.

In early July, the OFP announced final scores for all applications. Top ranking farms have been notified and are now undergoing an appraisal and legal review, which might require several months for completion.

The appraisal process will determine the value of the agricultural easement, which is the difference between the fair market value of the land and the land's agricultural value. For example, where a farm would sell for $5,000 per acre on the open market or $3,000 per acre as agricultural land, the value of the agricultural easement is the difference between the two amounts, or $2,000 per acre.

The AEPP will pay the landowner up to 75% of the value of the agricultural easement, with the remaining 25% coming from the local community, non-profit organization, or by the landowner's donation of the value. This year, the Director of ODA has placed a $4,000/acre limit on the State's share of the purchase price. A landowner who is dissatisfied with the determined value of the agricultural easement may opt out, and the farm with the next highest score will have the opportunity to enter the program.

The final step in the AEPP process is negotiating the Deed of Agricultural Easement. The deed is the written agreement between the landowner, the Ohio Department of Agriculture, and the local government or non-profit organization. By entering into the deed of agricultural easement, the landowner agrees to maintain the land in agricultural use. The deed of easement outlines uses and activities that are consistent with agricultural use, and also states prohibited uses and activities. As a result of the deed of easement, the ODA and the local government or non-profit organization hold the legal right to require the landowner to abide by the terms of the agreement. Because the agricultural easement is permanent, all successive landowners must also follow its terms.

Selling an agricultural easement is a decision that requires careful consideration by the landowner. The income from the sale is subject to taxation, but may be offset by utilizing like-kind exchange provisions or a charitable conservation contribution deduction. The agricultural easement is a legal agreement that creates rights and obligations for the landowner. The landowner should ensure that those rights and obligations are consistent with long-term plans for the farm and operation. For these reasons, the assistance of tax and legal professionals is a necessity before selling an agricultural easement.

Judging by the surprising interest in AEPP, many Ohio farm owners agree with the commonly cited reasons for selling an agricultural easement: financial benefits to the farm operation, maintaining the family's agricultural heritage, and protecting the land and its resources.

Information on the AEPP and final scores for this year's applications are available on-line at http://www.state.oh.us/agr/.