Fact Sheet #7
Financing Open Space Protection
Where should our community start?
Thinking broadly about the potential purposes of land conservation efforts in your community will help you make the most of the investment in it and also help you access more resources to implement it. Funders want to achieve particular purposes for open space conservation: water quality protection, transportation, flood control, recreation, natural habitat protection or restoration, wetland protection, forest protection, farmland protection, scenic preservation, urban revitalization, cultural enrichment, or education. Different funding sources are possible for each of those purposes.
Even within one agency such as a city, an integrated approach to land conservation makes finding funds in the capital budget easier. For example, purchasing an open space corridor could serve the multiple public works functions of providing stormwater retention for peak storm events and improving water quality by filtering runoff as well as serving other public benefits of providing recreational opportunities and natural habitat for wildlife.
What are your community's funding needs?
Funding is often specific to certain needs, from planning and community process, to land acquisition and development, to maintenance. This fact sheet focuses principally on land acquisition of conservation easements or fee title. Please refer to the Conservation Easement and Land Acquisition fact sheets in this series for more information on those land protection tools.
Who are your potential partners?
Thinking broadly about potential public and private partners will help you identify more funding sources because certain funds may be available to them and not directly to your community. Alternatively, partnerships help raise sufficient funds from several sources or parts of a budget. A city public works department and parks and recreation department could each receive funds in their capital budgets for creation of a greenway, while the departments separately might not receive the funds to do it alone. Private groups such as sporting clubs, local citizen groups, the Minnesota Land Trust, or the Trust for Public Land may help with temporarily securing the land while raising matching funds for its protection. Bringing in varied, key partners early also helps sustain the effort.
What about private donors?
Private donors often receive tax benefits through supporting land conservation by either a nonprofit organization or a public agency. A landowner may contribute all or part of the land value to an agency or nonprofit land conservation organization and receive tax benefits. Individuals, corporations, and foundations may be interested in supporting land conservation.
What local agencies could help?
Many local agencies include land conservation in their budgets. Some examples of such agencies, many at the city or county level, include: parks/recreation agency, public works department, flood control agency, environmental services agency, wastewater agency, transportation agency, or school district. In Minnesota, watershed districts have authority to acquire interests in land, and soil and water conservation districts can assist in placing conservation easements on private lands.
What public financing mechanisms can our community consider for land protection?
Communities throughout the United States have used a broad variety of financing mechanisms to fund land protection. Land acquisitions may be made using appropriations from general funds exclusively or using general funds together with other funding sources. Some communities establish a special fund such as development, impact fee or park dedication fund as an alternative to land dedication by developers. A special assessment district could also be established creating a separate unit of government with its own taxing authority for bonds, taxes, or user fees. Alternatively, a local government could create a tax increment finance district in which a value increase on land within the district caused by protection of open space is used to pay off a bond for land protection.
Often communities bond to pay for open space and pay back the interest and principal on the bond from general funds or revenue sources such as user fees or property taxes.
Two frequently used types of bonds are general obligation, which requires voter approval in certain circumstances, and revenue, when a tax is levied for the use of a specific project, or when user fees are dedicated to paying off the bonds. Unlike general obligation bonds, capital improvement bonds are not subject to levy limits and require a public hearing, not a referendum, but they can be used only on projects specifically included in a capital improvement plan. Sometimes landowners are interested in receiving payment over time to defer capital gains taxes; communities can use zero-coupon bonds which pay landowners tax-free interest for 15-30 years with a balloon payment at the end. Communities can often purchase thirty-year zero-coupon bonds for roughly 15 cents on the dollar.
Communities may elect to use a certificate of participation, a debt instrument which is commonly sold in public finance markets but does not require voter approval because it does not qualify as general obligation debt. The agency makes lease payments including principal and interest for usually five to ten years before receiving title. Similar to a bond, the cost to the agency is the land's fair market value, issuance costs, and interest based upon the agency's credit rating and current market conditions. Although this method may be more costly than bonding, decision-makers may use it to raise funds more quickly than bonding when they can dedicate a particular revenue stream to make the payments.
To generate the revenue to service the bonds or make certificate of participation payments, communities have many options: property taxes, sales and use taxes, user fees, deed transfer taxes, mortgage registry taxes, or selected natural resource taxes. In Minnesota, special legislative authority is required for a local government to create a local sales and use tax or income tax. The bulk of deed transfer and mortgage registry taxes (97%) and all income taxes are directed to the state general fund and are not currently available to local governments directly. In the 7-county metro area, counties with agricultural preservation areas can use an additional $5 deed transfer tax, half of which the county can keep to use for conservation purposes.
What non-local public funding sources will help stretch our community's dollars?
Matching grants, mitigation funds, and habitat or water protection funds are all potential funding sources for land protection. Federal transportation funding can be used for land protection, and several federal wetland protection funding programs are available. The Minnesota Department of Natural Resources (DNR) manages several local grant programs including the Natural and Scenic Area program, which can provide funds to local agencies and school districts for up to 50% of the property's value, and the Metro Greenways Program, a natural area protection and restoration program building partnerships with local communities in the seven county Twin Cities metro area. The Board of Water and Soil Resources can purchase easements on environmentally sensitive lands and eligible wetlands, and a Native Prairie Bank Program is available for easements on native prairie. The Legislative Commission on Minnesota Resources, funded in part through lottery proceeds, recommends a broad array of environmental funding projects to the legislature every two years. In the 7-county metro area, the Metropolitan Council's Parks and Open Space Program, Livable Communities Demonstration Program, and Twin Cities Water Quality Initiative Grant Program are all potential sources.
To learn more about financing land conservation, contact the Trust for Public Land, which has published a local financing options handbook entitled Increasing Public Investment in Parks and Open Space.
For more information on these tools, refer to the other fact sheets in this series below.
The Green Corridor Project is dedicated to helping Washington and Chisago County residents keep the beautiful countryside, farmland, and special natural areas that make this a great place to live. The project is an independent network of the seven local public and private organizations listed on the front of this sheet. For more information, call 1000 Friends of Minnesota or any of the project collaborators.
Fact Sheets in This Series
#1 – The Green Corridor Project…Keeping Open Spaces for Tomorrow
#2 – The Land Protection Toolbox
#3 – Donated Conservation Easements
#4 – Purchase of Development Rights
#5 – Transfer of Development Rights
#6 – Land Acquisition
#7 – Financing Open Space Protection
Funding for this project approved by the Minnesota Legislature: ML1997, Chapter 216, Section 15, subdivision 9(d) as recommended by the Legislative Commission on Minnesota Resources, from the Environmental Trust Fund.