Property Tax Incentives for Forest Conservation in the U.S. South

By John Talberth and Logan Yonavjak

Current use valuation programs can encourage landowners to resist development pressures and leave forest as forest.

Development pressure on the outskirts of cities throughout the southern United States drives up land values and makes it more difficult for private landowners to keep their forestland. On average, in the South, short term returns for development can be $36,000 per acre. And for private landowners who want to keep their forest, rising property taxes can also provide a perverse incentive, because as the fair market value of the land increases, property tax bills rise. To help pay these increased taxes many landowners often resort to selling at least a portion of their lands despite their intention to keep their forests intact.

Current use valuation programs, as illustrated in a new WRI issue brief Current Use Valuation Programs: Property Tax Incentives for Preserving Local Benefits of Forests, are a tax benefit that states and counties in the South are using to encourage forestland owners to leave forest as forest and help resist development pressure. Under these programs, enrolled lands are assessed not at their fair market value (for housing development and the like) but at their value for timber production and other forest uses. This lowers the tax bill for landowners, improves the profitability of timber production, and helps reduce development pressure.

Road blocks to implementing effective Current Use Valuation Programs

Current use valuation programs exist throughout the South, but the scale of their implementation and overall effectiveness is limited for a variety of reasons. For example, some programs still provide low financial returns to landowners relative to the opportunity cost of development. Additionally, there are concerns from many local governments about the impact of reduced property taxes.

WRI’s report argues that overcoming these obstacles will require more consistent and accurate analysis of the overall fiscal impacts of current use valuation programs to determine whether protecting forests and other forms of open space result in a net drain or net surplus when the cost of providing community services is taken into account. Cost of community service studies and other forms of fiscal impact analysis demonstrate that by helping counties avoid infrastructure and community service costs (such as roads, electricity, and sewer infrastructure) of new residential developments, such programs can often save money in the long term (Figure 1).

Figure 1: Dollars Spent on Community Services per Dollar in Tax Revenue Received: Range of Values from Cost of Community Service Studies in the South, 1997-2007, (click to enlarge)

The report also discusses how a variety of modifications to existing programs will increase their popularity among local governments and landowners.

How can Current Use Valuation Programs Promote the Conservation of Forests?

This report outlines four changes to current use valuation programs that could make them more effective, as applied in the South.

• Designated state reimbursement fund. States can offer reimbursement funds similar to the one pioneered in Georgia to help alleviate county concerns over short-term fiscal impacts from drops in property tax revenues. Reimbursement funds can be targeted at forestlands specifically rather than open space in general to provide a more direct link between current use valuation and forest protection.
• Longer covenant (contract) periods. States and counties can extend covenant terms to match the minimum rotation age for commercial forest management. Extending covenant terms to 20 years or more would ensure that lands protected under current use valuation programs would be of sufficient age to generate income streams from the sale of commercial forest products. Extending covenant terms would also help reduce speculation on lands enrolled for shorter periods.
• Management for ecosystem services. States and counties could increase the flexibility of current use valuation programs to allow landowners to enroll lands that provide important ecosystem service benefits but not necessarily cash income from the sale of forest products. Building in this flexibility would make it easier for landowners to enroll and help states and counties meet important objectives related to environmental conservation and improved quality of life for residents. This flexibility would also improve the economics of maintaining land in current use valuation status relative to conversion, by saving landowners the expense of investing in timber or crops when they otherwise would not have chosen to do so.
• Extending current use valuation programs to restore forest cover on marginal farmland. On agricultural lands, states and counties could encourage forest restoration on marginal and idle cropland by removing crop income requirements for enrollment. Providing tax incentives to farmers who want to let these lands naturally transition back to forest could help increase the extent of southern forests by millions of acres in the decades ahead.

Implementing these changes to current use valuation programs could help alleviate concerns about the bottom line, and bolster the long-term effectiveness of current use valuation programs throughout the region. In addition, these changes could increase the acreage of southern forest protected from development and instead managed for timber, water, wildlife habitat, recreation, scenery, erosion control, watershed protection, reduction of flooding hazards and other ecosystem services increasingly important to the well-being of southern communities.

This brief is designed to inform state, county, and municipal decisionmakers; land-use planners; and other people working to conserve and sustainably manage forests.