Red Hook Revisited
One of the most effective programs for containing growth and preserving farmland through free-market incentives is well into its third year in the northern Dutchess Town of Red Hook, and its financial advantages and political popularity appear to be as compelling as first advertised.
Red Hook, one of the most progressive municipalities in the region when it comes to grappling with the rising costs to taxpayers of rapid development, has meanwhile adopted additional fiscal innovations that deserve close scrutiny by the dozens of neighboring towns now reviewing their land use regulations.
In a pioneering move for the Hudson Valley, Red Hook residents in October of 2003, voted by a margin of nearly 5:1 to borrow $3.5 million worth of bonds to purchase farmers’ rights to develop their land into residential building lots, thereby preserving the open land for farming in perpetuity.
Drawing on wide-spread evidence that a new house, on average, costs the surrounding school district substantially more than it contributes in new property taxes, this column estimated in October 2004 that every dollar of new taxes the town spends in acquiring open acreage through this Purchase of Development Rights, or PDR, program will bring savings of $5 in school taxes.
Many of the numbers have changed from the time of the initial analysis: the cost of buying the development rights off farmland has risen by 20-30%, the cost of educating a student has jumped some 20%, and a town-wide reassessment in 2005 has increased school tax revenues from each new home by about 10%. On the bottom line, though, the basic premise remains intact: every dollar raised for Red Hook’s PDR bond will save at least $5 by reducing the number of new homes that create unfunded demands for school services.
Factoring in the net new town taxes needed to cover additional fire, police and road services for the new homes would further increase the property tax burden and make the PDR bond even more financially attractive. (For more details on how the program works and on the original cost/benefit analysis, see the 2004 “Views From Gallatin” column It’s Cheaper To Keep Her .)
Since inception, Red Hook has closed on nearly 370 acres of prime farmland development rights and is currently reviewing applications on another 400 acres, according to Robert McKeon who spearheaded the PDR program as Chairman of the town’s Agriculture and Open Space Advisory Committee.
Beyond the direct financial benefits to taxpayers and to the farmers who sell their development rights, the program also provides a powerful, if subtle, psychological advantage, according to Mr. McKeon.
“Even farmers who haven’t participated in the program realize that it gives them a financial option other than selling off their land for development should they need the money sometime in the future,” he said.
With the popular bond program under its belt, the Red Hook Town Board has recently approved two related policies. This month, the board voted unanimously to seek state authorization for a public vote on creating a 2% fee or “transfer tax” on all property sales in the town, with proceeds earmarked for the purchase of open land and development rights. The program, as now envisioned, would exempt the first $300,000 of value, thereby protecting sellers of more affordable homes. The town board chose to bypass the advice of some, including this columnist, that the fee proceeds be used to finance affordable home ownership as well as open space preservation.
The town is also launching a “conservation easement” policy, approved by the board in September, which would reduce tax assessments on open land by 40-75% if the owner agrees to refrain from developing the property for up to 15 years.
These programs “are an investment in the future of the town, said Town Councilwoman Jean Bordewich. “We need to have sufficient safeguards today so we won’t get hit with big increases in property taxes in the future.”
Noting that Red Hook is also exploring a multi-town program for transferring development rights from open lands to more suitable sites, Ms. Bordewich added that “The most important thing for the town is to publicly declare it is our goal to protect high-quality soils and support farming as an industry. It’s important not only to the existing farmers and taxpayers, but to new residents wanting to move to Red Hook.”
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James,
Thanks for visiting Greenwich this week and sharing your perspective. I was especially interested in the “$1 invested in open space = $5 in school tax savings” formula. I would like to understand it better and use it to bolster arguments in favor of farmland protection for ASA, our land trust.
Two questions:
You mentioned that the $1 was a cost-share. At what ratio? If it was matched by $4 from other sources, thenis the tax savings really a wash? If not, over what time frame were the tax savings realized and then does it become an annual savings?
Thanks, Maria Trabka
Ag. Stewradship Assn.
REPLY:
Maria,
The Red Hook program finances at most 50% of the development right purchase, with the balance coming from county, state and foundation sources.
The tax savings is calculated by assuming the farms in question are instead subdivided into single family home lots whose redidents generate large net deficits for school district. (I’ve not included the additional net costs for town and county public services.) The tax costs are the town’s 50% share of financing bond principal and interest payments at 5% amortized, over a 20-year life, using actual market prices for the purchased DRs.
The 5:1 ratio between the school tax costs, if developed, and the PDR costs to the town, if undeveloped, is roughly the same in any single year or over a 20-year period, as it assumes the farmer would otherwise sell the land and builders would fill the homes within a few years.
I’d be happy to go through the spreadsheet analysis with you if you’d find it helpful.
James Sheldon
LittleTownViews.com