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Page 6 farmland preservation report Creative finance focus: installments, like -kind exchange Continued from page 5 diversify their assets. The installment purchase agreement is attrac- tive to these farmers because it allows them to defer payment of capital gains tax and to plan for retirement and farm transferral. Local governments make annual or semian- nual interest payments to the landowner and arrange to pay the principal in 20 or 30 years. Funding for the interest payments can be from general revenues or from a dedicated source. Funding for payment of the principal can be from unspecified future funds or from bonds issued in the future, or, local governments can purchase zero - coupon U.S. Treasury'-obligations. (zeros). These are sold at steep discounts, cur- rently about 20 cents on the dollar. O'Connell said local governments that are best able to administer installment purchases are those that have large easement purchase pro- grams and are paying high prices for easements. Installment purchase programs require some attention to detail - administrators must learn a whole new way to do an easement purchase. The Pennsylvania Farmland Preservation Bureau recognized the need to help localities that wanted to offer installment purchase agreements (IPAs) to farmers. It developed a model IPA program counties could access. "The state said `we're going to climb the learning curve for them, "' said O'Connell. To get localities started, the Bureau, for a limited time, covered the transaction costs ($18,000 to $20,000) for installment purchase agreements. To date, at least six Pennsylvania counties have used IPAs. The program may once again cover trans- action costs, according to director Mary Bender. Installment purchase can boost a local preser- March 2003 vation effort by offering tax advantages to ease- ment sellers that developers cannot match, and, the locality can increase purchases with the same funding level. Some of the major farmland preservation programs that use installment purchases are Howard, Harford and Anne Arundel Counties in Maryland, Chester and Lancaster Counties in Pennsylvania, and Burlington and Mercer Coun- ties in New Jersey. The City of Virginia Beach was also a pioneer in using installment purchases for farmland preservation. That program was rated by Moody's investment service in 1996, assigning a Aa rating to the program in an unusual focus for the company. While the rating focused on Vir- ginia Beach's ability to pay its obligations to landowners, the opinion implied approval of the installment purchase method for farmland preser- vation. A similar rating was issued for Mercer County, NJ. Kane County (IL) PDR kept afloat by riverboat casinos "We want agriculture to be a permanent part of our economy," said Kane County (IL) Board Chairman Mike McCoy, leading a session on community planning for agriculture. The county set a goal to keep 50 percent of its land area in farmland and open space, and at first pursued the idea of purchasing farms out- right and then leasing the land, but that idea was stomped by farmers. The county created a purchase of develop- ment rights program in 2001, dedicating revenues from two riverboat casinos to it. Revenues range from $4 million "in a low year" to $12 million. "The riverboats have been good for our area," McCoy said. "Farmland preservation was a goal in 1977, but not until the riverboats could we pay for it." Paying $5000 to $10,000 per acre, the county has closed on seven farms, protecting 690 acres Continued on page 7