Bulldoze Williamson Act Subsidies?

Feb. 24, 2011

By DAVE ROBERTS

There is much wailing and gnashing of teeth over Gov. Jerry Brown’s proposed budget cuts, but the outcry over elimination of state subsidies for millionaire landowners may be overkill. Brown has zeroed out funding for the Williamson Act, which this year is providing $10 million (and recently was providing $39 million) to farmers, ranchers and speculative landowners to keep their land in farms, ranches and open space.

The media, naturally, have gone into Chicken Little mode. Articles in the Sacramento Bee and Contra Costa Times are filled with doom and gloom from a coalition of environmentalists, landowners and county officials. They predict that ending the subsidies will lead to urban sprawl, layoffs of sheriffs’ deputies, reduced “food security,” increased greenhouse gases, loss of habitat, diminished air and water quality, increased noise pollution and rural devastation.

If some struggling, family farmers bordering suburban areas don’t receive property tax reductions of anywhere from 20 to 75 percent, it is inevitable that they will be more likely to give way to development pressure. But the benefits of funding the Williamson Act may be minimal for California as a whole, government regulation of land use may have done more harm than good and, in any case, the state is broke.

Seven years ago the Legislative Analyst’s Office recommended phasing out the Williamson Act, which is formally known as the California Land Conservation Act of 1965. The LAO listed several reasons:

• The state exercises no control over the lands under contract, and can’t ensure that they are actually at risk of development. “As a consequence, it is likely that some lands under contract would not be developed even absent the Williamson Act subventions. As a result, a portion of the tax reduction may result in no behavioral change by the landowner at all.”

• If development pressure does occur, the landowner can simply cancel or not renew the 10-year contract. “As a consequence, the program may not result in permanent changes to land use patterns but simply delay for a relatively short period of time the development of open space and agriculture lands.”

• The costs are substantial. In addition to the nearly $40 million hit to the cash-strapped general fund to reimburse counties and cities for lost property tax revenue, the state must also compensate for reduced educational funding because lower land values reduce the property taxes flowing to schools. As a result, if the Williamson Act is fully funded, the total cost to the state is more than $80 million annually. “Given that the open space subvention represents only a portion of the local property tax loss, it is possible that total costs to the state (subventions plus increased education funding) are substantially higher — although no statewide figures are available.”

The LAO report concludes:

Given the state’s current budget situation and the issues associated with the Williamson Act program identified above, we do not believe an expenditure of almost $40 million for local subventions is an effective use of funds. While the state clearly has an important role to play in open space preservation, we recommend that the Legislature explore more efficient and permanent solutions to the issues related to open space and development pressures. In addition, we believe there are alternative means for open space preservation at the local level — including the direct purchase of land most at risk of development and the adoption of suitable regulatory and zoning policies.

Keeping the Williamson Act

If the Williamson Act remains in effect, the state should take more control over it (rather than simply reimbursing counties and cities) and tighten the eligibility rules to “help assure that only those properties genuinely at risk of development are allowed to participate in the program,” the LAO added. It recommended phasing out the program over 10 years, saving nearly $4 million per year in addition to $700,000 in administrative costs to the Department of Conservation.

Not content to wait 10 years, Gov. Schwarzenegger blue-penciled the whole program in 2009, reducing total expenditures to just $1,000. But last year he signed a compromise bill, SB863, which restored $10 million in funding by shortening the contracts to nine years and assessing the lands at slightly higher values.

Now in 2011, once again the program has been zeroed out, this time by Brown. “The program will thus be a local program,” states Brown’s budget summary. “Funding provided from the redevelopment agencies tax shift could help counties continue this program on their own.”

But it’s debatable whether the program should continue. Dr. Thomas Sowell, author of the new book “The Housing Boom and Bust,” argues that land use regulations like the Williamson Act artificially drove up housing prices, leading to the real estate crash and contributing to the Great Recession.

“In some areas, including California — coastal California — people were paying half their family income to put a roof over their head,” Sowell said in an interview with Reason Magazine. “That in turn was a result of local political people putting all sorts of restrictions on building.”

In an interview with the Hoover Institution, he said:

Although the housing boom and bust has national repercussions, its origins are concentrated in particular places. Only a very small part of the U.S. generated the delinquencies, foreclosures. The origins were in these extremely expensive areas where the prices had been forced up artificially. Because, despite the abundance of land in California, laws prevented people from building on much of that land made it prohibitively expensive on the rest of the land, so that the housing prices were shot up primarily because the land on which the houses were built was prohibitively expensive.

In a National Review article, Sowell stated:

Study after study has shown that housing prices are highest where government restrictions on building are the most severe. That is the ugly result of pretty words like “open space.” The same severe government restrictions on building that drive home prices sky high also lead to vast areas with nothing but trees and bushes. Where it doesn’t rain for months, that’s dangerous. No matter how much open space there is, it is never enough for environmental extremists, who will make political trouble if anyone is allowed to break up those miles and miles of solid vegetation with buildings, even though pavement and masonry don’t burn. In other words, government preserves all the conditions for wildfires and subsidizes people who live in their path.

The use of the Williamson Act to restrict development is cited as one of its strengths by supporters.

“Our biggest concern is that we are right in the Silicon Valley and have significant pressure for development because we have lower land prices,” Susan Thompson, administrative officer for San Benito County, told the Senate Local Government Committee last March. She added:

We house a lot of those neighboring counties’ workers, law enforcement, teachers. We have huge pressure. Last year we spent months and months on a 6,800-unit development for housing. That would have been 20,000 new people, and our total population is only 160,000. That development has been withdrawn. Another proposed development is 1,100 units adjacent to agricultural production land. If we don’t have this [Williamson Act] tool, we will have a real tough time with land use policy going forward.

Kern County Planning Director Ted James, who represents California’s county planning directors, said the Williamson Act…

[H]as been beneficial in my ability to prevent leapfrog development, prevent people from coming in who want to develop their land. We discourage people because it’s surrounded by Williamson Act property. We do that on a daily basis. The effectiveness of the program is our ability to discourage people from going through the process. The Williamson Act’s purpose is to preserve farmland. It’s also to discourage premature development and provide orderly development.

Although the state may no longer be providing payments to counties to cover their lost property tax revenue, there is nothing to prevent them from continuing to reduce property taxes in exchange for landowners not developing. But, like state officials, county officials are pleading poverty. They warn that without the state subsidy they would have to cut other services, such as law enforcement officers.