The Commissioner — Spring 2000

Since You Asked . . .

Below are the answers to questions from the February 9, 2000, audio conference "Transfer of Development Rights Revisited." The program examined the purposes of TDRs, how they were being used today, and their value as a planning tool.

What is the web address for the New Jersey Pinelands credit bank? (Doug Fox, Planning, Penfield, New York)

New Jersey Pinelands Commission's address is www.state.nj.us/pinelands. (Response by Editor)

Where receiving areas and sending areas for TDRs have been in different jurisdictions or different school districts, what arrangements, if any, have been made for sharing new tax revenue? (Bill Robinett, Green County Highway Department, Springfield, Missouri)

An excellent question. In my experience, the issue of lost tax revenue has not been an issue. The general explanation is that communities that have embraced TDR have done so to preserve sensitive or critical land areas. Any coincident loss of tax revenue that would have been generated by development is not seen in the negative.

Rather, the transferred development is perceived as beneficial. More to the point, these jurisdictions have been convinced that the cost of development outweighs the benefits of increased property taxation, that the property tax associated with the new development would not equal the costs of providing public services and benefits demanded by the new development. In general, I agree with this belief. It is rare that the costs of new development are ever fully recouped through property taxation. Even the addition of impact fees, where applied, has left many jurisdictions with the realization that the costs of new development far exceed the costs of land preserved in its natural state.

Applying this theory to TDR, a local government should ensure that it is using TDR for the correct reasons: the protection and preservation of key natural and built resources. If this preservation/protection can be accomplished and the property tax revenue otherwise lost recouped, all the better. However, inability to recoup these revenues does not diminish the effectiveness or utility of TDR. (Response by Jon D. Witten, AICP, Horsley & Witten, Inc., Sandwich, Massachusetts)

Are there any studies showing the impact of TDR programs on land values? (Sue Veth, St. Mary's County Planning Commission, Leonardtown, Maryland)

No, I don't know of any studies and wish I did. If you find any, please share them with me. (Response by Ann Louise Strong, AICP, University of Pennsylvania, Philadelphia)

Would the donation of TDRs to a land trust be a tax deductible "qualified conservation contribution" assuming the sending area was protected with a conservation easement? (Kate Brown, Brandywine Conservancy, Chadds Ford, Pennsylvania)

The donation of TDRs to a land trust can qualify as a tax deductible contribution when the conservation easement or deed restriction recorded on the sending site complies with all of the applicable tax code requirements. Anyone considering this should, of course, consult with a tax attorney to ensure deductibility before making such a donation. The best example of this is the Mountains Restoration Trust, a land trust that administers a portion of the TDR program in California's Malibu Coastal Zone. Here, many property owners receive tax benefits as great as $150,000 by recording easements on their land and donating the resulting TDRs to the Trust. (Response by Rick Pruetz, AICP, Planning & Implementation Strategies, Marina Del Rey, California)

Are TDR credits considered capital gains for ordinary income tax purposes? What is the impact on assessed valuation of the "sending area" parcels? (Phil Pearson, Director of Planning and Economic Development, Colonie, New York)

First question: In Warfield v. Commissioner of Internal Revenue, the U.S. Tax Court held that income from the sale of TDRs was subject to capital gains tax (U.S. Tax Court 1985, 84 T.C. 179). This decision is consistent with federal tax law, which subjects a property owner to capital gain liability upon property interest transfers. Of course, property owners should consult with a tax attorney before selling TDRs for a site specific and up-to-date assessment of the tax implications.

Second question: The impact of TDR sales on sending site assessed valuation will vary depending on the state, and even the jurisdiction, in which the sending site is located. In some states, once a deed restriction is recorded on a sending area parcel, the value of that property can be reassessed for property tax purposes. The end result of this reassessment should be a reduction in assessed value if the pre-easement assessed value included the value of the property's development potential. That would occur because the recording of a deed restriction would reduce development potential with corresponding reductions in the assessed value.

Of course, other results could occur if the pre-deed restriction assessed value did not include the value of development potential. For example, farmland may be assessed only for its agricultural value under preferential tax provisions available in most states. Also, in some states, the assessed value of property may increase only at an authorized rate regardless of the actual increase in value. In this instance, it is possible that a tax assessor will determine that the value reduction created by the loss of development potential does not reduce the value of the property to an amount that is lower than the pre-deed restriction assessed value. Finally, at least one state, Florida, treats TDRs as personal property rather than as real property. Therefore, potential sending site owners should consult with real estate or tax attorneys working in the property owner's community to determine the assessed value consequences of selling TDRs. (Response by Rick Pruetz, AICP, Planning & Implementation Strategies, Marina Del Rey, California)

How do land trusts interface with TDR programs established by local government agencies? (Marian Pearcy, Harrison County, Corydon, Indiana)

Currently, most land trusts appear to work separately from local TDR programs. One exception is the Land Conservancy of San Luis Obispo County, a land trust that was authorized by that California county to administer its TDR program. Rather than simply buying land or easements, the Conservancy buys TDRs that it then resells to developers in an ongoing revolving fund. The ability to resell TDRs has allowed the Conservancy to double its original acquisition fund while preserving 230 properties.

A second exception is the Mountains Restoration Trust, formed to administer a portion of California's Malibu Coastal TDR Program. This land trust buys and sells TDRs, accepts donations of TDRs as charitable contributions, and has even sold the TDRs created when deed restrictions were recorded on land already in public ownership.

These two exceptions demonstrate that the apparent lack of coordination between land trusts and TDR programs represents a missed opportunity since land trusts are able to focus on a single mission. Also, together they may be more likely to leverage limited funding from loans, grants, and charitable donations through an ongoing revolving fund. (Response by Rick Pruetz, AICP, Planning & Implementation Strategies, Marina Del Rey, California)

What width of street do the panelists recommend (in order to improve community livability and meet sustainability objectives)? (Jimmy Teal, Fayetteville, North Carolina)

In Reid Ewing's recent book, Best Development Practices (APA Planners Press, 1996), he addresses this issue in the chapter "Best Transportation Practices." The standards vary:
For local streets the standard prescribed by the Urban Land Institute/National Association of Home Builders/American Society of Civil Engineers is 22 to 24 feet. In Bucks County, Pennsylvania, it varies from 16 to 26 feet, and in Orange County, Florida, the width is 18 feet. For collectors: ULI recommends 24 to 36 feet, Bucks County 20 to 24 feet, and Orange County 24 feet.