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The relation of taxation to services as a technique to prevent the premature conversion of farm land Hartley, James Ernest 1963

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THE RELATION OF TAXATION TO SERVICES AS A TECHNIQUE TO PREVENT THE PREMATURE CONVERSION OF FARM LAND by JAMES ERNEST HARTLEY B.S.A. The University of Saskatchewan, 1958 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE i n the Department of COMMUNITY AND REGIONAL PLANNING We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , I963 In presenting t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the requirements for an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e for reference and"study. I furth e r agree that per-mission for extensive copying of t h i s t h e s i s for s c h o l a r l y purposes may be granted by the Head of my Department or by hi s representatives. I t i s understood that copying, or p u b l i -c a t i o n of t h i s t h e s i s for f i n a n c i a l gain s h a l l not be allowed without my w r i t t e n permission. Department of Community and Regional Planning The U n i v e r s i t y of B r i t i s h Columbia,. Vancouver 8, Canada. Date May 6, 1963 ABSTRACT The purpose of t h i s thesis i s two f o l d : f i r s t , to focus attention on the problems of urban expansion and the trend towards suburban l i v i n g and secondly, to investigate a technique which could be used by semi-rural municipalities to control one of the problems of suburbanization, that of premature conversion of farm land to non-farm uses. Many techniques are presently used to control land use and urban development i n municipalities i n t r a n s i t i o n from a r u r a l to an urban character, but generally, these techniques have f a i l e d to protect farm land from premature conversion to non-farm uses. The technique examined i n t h i s thesis i s that of f i n a n c i a l control as exercised through property taxation. A f t e r substantiating the increasing demand f o r land for urban uses, a b r i e f examination of the forces which regulate the supply and demand of land i s presented to a i d the understanding of the p r i n c i p l e of highest and best use as applied to competing land uses. This i l l u s t r a t e s the cause for the premature conversion of farm land to non-farm uses. An examination i s made of the conversion of farm land to non-farm uses with emphasis on premature conversion and the economic and s o c i a l costs which a r i s e from t h i s conversion. i i In view of the increasing rate of conversion of farm land to non-farm uses and the costs which can be at t r i b u t e d to premature conversion of farm land, i t becomes evident that a technique which w i l l protect farm land from premature conversion should be implemented. By studying the ways and means currently available for the control of land use and land development by a public agency, i t i s found that the regulations do not protect farm land from premature conversion to non-farm uses. Since f i n a n c i a l control of land use exercised through taxation i s not used to any appreciable degree by municipal governments, the r e l a t i o n s h i p of land use and property tax i s studied. In this evaluation, p a r t i c u l a r attention i s placed on the ef f e c t of property taxes on farm land. This leads to the conclusion that high property taxes can force land into a more intensive use. As a r e s u l t of th i s conclusion, i t i s proposed that a reduction i n farm property taxes would protect farm land from premature conversion to non-farm uses. Rather than use an a r b i t r a r y tax rate to lower farm taxes, the tax rate i s related to the cost of services provided for farm property. Using 1961 data c o l l e c t e d from The Corporation of The Township of Richmond, a 'rural-urban' municipality adjacent to the C i t y of Vancouver i n B r i t i s h Columbia, i t i s shown by apportioning the municipal revenues and expenditures to farm and non-farm property that a tax rate related to the cost of services provided f o r farm land i l l would reduce the farm taxes. The reduction i n taxes i s then related to the farm land income, which i s measured by farm land r e n t a l values, to determine the e f f e c t i t would have i n protecting farm land from premature conversion to non-farm uses. An analysis of the farm land income shows that the net return to farm land i s comprised of tangible and intangible elements. The tangible or monetary return to the farm land i s low when compared with the return available from other low r i s k investments. Thus, i t appears that the intangible returns such as the value as a homesite, the p o s s i b i l i t y of a c a p i t a l gain and the prestige of land ownership are greater than the economic returns. From th i s i t i s concluded that a reduction i n farm taxes a r i s i n g from r e l a t i n g the tax rate to the cost of services provided f o r farm property may, depending upon the taxation system, encourage farm land owners to keep t h e i r land i n farm use, but would not protect farm land from premature conversion to non-farm uses. APPROVED i v ACKNOWLEDGEMENTS The author wishes to express gratitude to the many-persons who generously provided valuable assistance during the preparation of t h i s t h e s i s . In p a r t i c u l a r , thanks are extended to Dr. H.P. Oberlander, Head, Community and Regional Planning Department, University of B r i t i s h Columbia, f o r his encouragement and guidance i n i n i t i a t i n g the study, and to Dr. K.J. Cross, of the same Department, for h i s day to day guidance and constructive c r i t i c i s m . Thanks are also due to Miss M. Dwyer and s t a f f of the Fine Arts section, University Library, f o r t h e i r patience, and assistance i n locating the bibliographic material. Great indebtedness i s due to the O f f i c i a l s of The Corporation of The Township of Richmond, B r i t i s h Columbia, es p e c i a l l y to Mr. Trigg, Municipal Assessor, f o r providing access to the municipal records and for devoting valuable time to an explanation of the municipal assessment and taxation system. Appreciation and sincere thanks are extended to my wife for her u n f a i l i n g encouragement and endless hours of typing which made the completion of t h i s thesis possible. F i n a l l y , gratitude i s extended to The Central Mortgage and Housing Corporation for the planning fellowship granted t h i s year which assisted the completion of the requirements of t h i s course. v TABLE OF CONTENTS Page ABSTRACT i i ACKNOWLEDGEMENTS V LIST OF TABLES v i i i LIST OF ILLUSTRATIONS i x INTRODUCTION - 1 Chapter I. PREMATURE CONVERSION OF FARM LAND 9 The Demand for Urban Land 9 The Economics of Land Use 12 Urban Expansion and A g r i c u l t u r a l Land . . . 17 The Premature Conversion of Farm Land to Non-Farm Uses . 18 Costs of Premature Conversion 22 Summary 3 ° I I . LAND USE CONTROL AND THE TAXATION OF FARM LAND 37 Land Use Controls 37 Taxation of Farm Land 51 Summary and Restatement of Hypothesis . . . 58 v i Chapter Page I I I . FARM PROPERTY TAXATION: COSTS AND BENEFITS. . 63 Functions of Municipal Governments 67 Assessment and Taxation L e g i s l a t i o n i n B r i t i s h Columbia 71 Apportionment of Munic ipal Revenue and Expenditure 7 5 Evaluat ion of the Revenue and Expenditure D i s t r i b u t i o n 83 IV. THE EFFECT ON FARM LAND RENTALS OF A TAX RATE RELATED TO SERVICES PROVIDED TO FARM LAND . 87 Calcu la t ion of a Tax Rate Related to the Services Provided 88 Se lec t ion of a Random Sample for Deta i led Analys i s 89 Rental Values as a Measure of Farm Land Returns . . . 91 The Ef fec t of the Proposed Tax Rate on Farm Land Returns 94 V. TAXATION AS A TECHNIQUE TO PROTECT FARM LAND FROM PREMATURE CONVERSION TO NON-FARM USES . 103 Summary 103 Assumptions and Limi ta t ions of the Study . . I l l Conclusions 113 BIBLIOGRAPHY 121 v i i LIST OF TABLES Table Page 1. Forecast of Urban Growth i n Canada 11 2. General Revenue for B r i t i s h Columbia M u n i c i p a l i t i e s , 1961 69 3. Apportionment of Munic ipal Tax Revenues, Richmond, 1961 7 9 4. Apportionment of Munic ipal Expenditures, Richmond, 1961 82 5. Summary of Municipal Revenue and Expenditure Apportioned to Farm and Non-farm Property, Richmond, I 9 6 I 82 6. Proposed Tax Rate Related to Services Provided for Farm and Non-Farm Property, Richmond, 1961 . . . 89 7. S ize and D i s t r i b u t i o n of Farm Land Pa rce l s , Richmond, 1961 91 8. Median Annual Rent Value According to Type of Farm Use for Ladner Clay Loam S o i l s , Richmond . . . . . . 92 9 . Median Annual Rent Value According to Farm Size for Ladner Clay Loam S o i l s , Richmond . . . . 93 10. Median Net Return Per Acre Using 1961 and Proposed Tax Rates, Richmond 97 11. Levied Tax and Net Return Per Acre Using 1961 and Proposed Tax Rates, Richmond . . . . . . 98 12. Percent Net Return on Farm Land Investment, Richmond, 1961 99 13. Median Rent and Net Return Per Acre , and Percent Return on Farm Land Investment, Richmond, 1961 116 v i i i LIST OF ILLUSTRATIONS Figure Page 1. Generalized P r o f i l e of Land Uses 16 2. Richmond, B r i t i s h Columbia, In the Metropolitan Complex . 64 3. Types of S o i l and Urbanized Area, Richmond, B r i t i s h Columbia . . 65 4. Richmond, B r i t i s h Columbia, Revenue and Expenditure For The Year Ending December 31? 1961 70 5. 196l Median Farm Land Values for a l l S o i l s , Richmond, B r i t i s h Columbia 95 Photograph 1. Farm Land Isolated by Premature Subdivisions . 34 2. This was 'Good1 Farm Land 34 3. Streets and Services - but no Houses 35 4. Houses - but no Inhabitants 35 5. Farm Land Converted P r i o r to the Demand for Residential Land 36 ix INTRODUCTION A b r i e f review of the l i t e r a t u r e concerned with population growth and urban expansion indicates that the world population can be expected to expand at an ever increasing r a t e . With this increasing population growth and the subsequent increase i n the material requirements of modern l i f e , the areal needs of almost every type of land use are bound to increase. The problem of meeting these a d d i t i o n a l land requirements would be greatly s i m p l i f i e d i f each use could expand without impinging upon lands needed f o r other purposes. Unfortunately, the f i x e d nature of the world's land-resource base makes t h i s an i m p o s s i b i l i t y . Accordingly, each new upward surge i n the demand for land may be expected to contribute further to the competition and possible c o n f l i c t s between various land uses. This competition w i l l encourage more e f f i c i e n t land use practices; and i t w i l l also lead to s i g n i f i c a n t changes i n land use and to the subjugation and non-f u l f i l l m e n t of many land requirements. Various c l a s s i f i c a t i o n schemes can be used to describe the p r i n c i p a l types of land use found throughout the world. However, schemes for clear-cut c l a s s i f i c a t i o n s of land use are often complicated by the presence of overlapping and multiple-use patterns. Most lands are used simultaneously for more than 1 2 one purpose; f o r example, some lands are used for forestry-purposes but at the same time have value f o r grazing, recreation and watershed uses. S i m i l a r l y , the land occupied by a hotel may be used primarily f o r r e s i d e n t i a l purposes but at the same time i t may provide commercial or r e c r e a t i o n a l f a c i l i t i e s . The clear-cut delineation of the various land use areas i s also reduced by the complementary nature of most land use patterns. Many areas enjoy natural and man-made advantages that favor t h e i r use f o r p a r t i c u l a r purposes. However, man's needs for various types of land uses often causes combinations of uses to develop i n close proximity to each other; even i n those areas where comparative advantage favors one type of use above a l l others. Farmers i n spec i a l i z e d crop production areas often use substantial acreages f o r other crops, pastures, woodlots, and for farm-steads and farm roads. S i m i l a r l y , most c i t i e s have large areas that are used for gardens, r e c r e a t i o n a l , transportation, and service purposes as well as for r e s i d e n t i a l , commercial, and i n d u s t r i a l purposes. For the purposes of t h i s t h e s i s , land uses have been c l a s s i f i e d into two broad categories, 'urban* land use and • a g r i c u l t u r a l 1 land use. The term 'urban' land use refer s to the s p a t i a l provisions f o r c i t y functions; the r e s i d e n t i a l communities or l i v i n g areas, the i n d u s t r i a l , commercial and r e t a i l business d i s t r i c t s or major work areas, and the 3 i n s t i t u t i o n a l and l e i s u r e areas. ' A g r i c u l t u r a l ' land use refers to the s p a t i a l provisions for r u r a l functionsj the crop-land areas, the pasture and grazing areas, and the forest land areas. Cropland and pasture or grazing land i s referred to as farm land and includes a l l of the cul t i v a t e d areas used f o r the production of food, feed, f i b e r s , and other crops as well as land used for pasture which i s considered plowable and which might e a s i l y be s h i f t e d into use for the production of food, feed, f i b r e s , and other crops. Urban land uses are seldom s t a t i c , but change as the urban organism changes. Land which i s devoted to r e s i d e n t i a l use may e a s i l y become used f o r i n d u s t r i a l , commercial, or even recreational purposes. These changes occur frequently i n the urban complex, and generally require l i t t l e or no adjustment i n the configuration of the land, but the timing of a change from from one urban use to another, or the type of use which i s changed may c o n f l i c t with the interests of individuals or society. Land uses i n the a g r i c u l t u r a l context may also change frequently; f o r example, pasture land may be converted to crop-land. However, as long as the land use remains such that i t can be c l a s s i f i e d as a g r i c u l t u r a l , these changes are somewhat similar i n action to the urban land use changes i n that they are interchangeable. The change i n land use which i s important i s the change from a g r i c u l t u r a l use to urban use. To f a c i l i t a t e such a change, physical a l t e r a t i o n s to the land are usually 4 required, such as the creation of roads, the i n s t a l l a t i o n of sewer or water l i n e s , or one of many other adjustments. Whatever the a l t e r a t i o n may be, i t usually renders the land both p h y s i c a l l y and economically unsuitable for a g r i c u l t u r a l purposes. Thus, once a g r i c u l t u r a l land i s converted to urban uses and i s covered with streets and houses or f a c t o r i e s , i t i s not l i k e l y to be reconverted to i t s previous use. Many arguments have been presented f o r preserving a g r i c u l t u r a l land, e s p e c i a l l y i n areas where s p e c i a l t y crops .are grown, such as i n the Niagara Peninsula i n Ontario and the orchard growing areas of C a l i f o r n i a . Other writers have pointed out the vast t r a c t s of a g r i c u l t u r a l land i n North America and have emphasized that there should be no concern over the loss of a small percentage of a g r i c u l t u r a l land. The purpose of th i s thesis i s not to investigate the d e s i r a b i l i t y of the conversion of farm land to non-farm uses, but to question the timing of t h i s conversion and to examine a technique which may be used to protect farm land from premature conversion to non-farm uses. When land uses are ranked according to i n t e n s i t y of use, farm use i s of low i n t e n s i t y compared with r e s i d e n t i a l , commercial, or i n d u s t r i a l uses. Generally, as the demand fo r land for a high i n t e n s i t y use increases there i s a tendency f o r t h i s use to displace a lower i n t e n s i t y use. Thus, as the demand for r e s i d e n t i a l and other urban land increases, farm land which i s suitable f o r these uses i s converted to non-farm uses. This 5 conversion from farm use to non-farm uses may occur prematurely. An example of t h i s premature conversion i s the subdivision of 'good' farm land f o r r e s i d e n t i a l development while areas of non-farm land remain vacant, or the removal of land from farm use because i t i s i s o l a t e d by r e s i d e n t i a l developments. The premature conversion of farm land to non-farm uses r e s u l t s i n various economic and s o c i a l costs. These costs become the r e s p o n s i b i l i t y of both the i n d i v i d u a l and society, and are i n the form of more co s t l y services, loss of farm income, higher a g r i c u l t u r a l p r i c e s , and the lack of amenities i n the r e s i d e n t i a l areas developed i n the suburban m u n i c i p a l i t i e s . The premature conversion of farm land to non-farm uses has resulted p a r t i a l l y because of inadequate control over land development. Zoning and subdivision regulations are commonly used to control a l l phases of land use and land development. These regulations were f i r s t employed i n an attempt to control the land use i n urban centres. However, when suburban muni c i p a l i t i e s r e a l i z e d that the form of development taking place i n t h e i r j u r i s d i c t i o n s was costly and creating a d d i t i o n a l problems, zoning and subdivision regulations were resorted to as a means of c o n t r o l l i n g the new development. M u n i c i p a l i t i e s have also employed other types of development control such as f i n a n c i a l c o ntrol, land purchasing and the lo c a t i o n of public u t i l i t i e s , but to a lesser degree. Despite these controls, farm land i s continuously being prematurely converted to non-farm uses. Since i t i s generally 6 accepted that property taxes can play a major r o l e i n encouraging land to be converted to a more intensive use, high farm property taxes could be responsible f o r causing t h i s undesirable type of conversion. Previous studies conducted i n suburban municipalities i n Canada have shown that farm property taxes exceed the value of municipal services provided f o r farm property. Therefore, assuming that farm property taxes should be related to the cost of services provided for such property, i t i s proposed: THAT A TAX RATE RELATED TO THE COST OF SERVICES PROVIDED FOR FARM PROPERTY WOULD REDUCE FARM TAXES AND THEREBY PROTECT FARM LAND FROM PREMATURE CONVERSION TO NON-FARM USES. To test t h i s hypothesis, the re s u l t s of a case study using 1961 s t a t i s t i c s c o l l e c t e d from the Corporation of the Township of Richmond w i l l be examined. Richmond, a suburban municipality adjacent to the C i t y of Vancouver, B r i t i s h Columbia, was selected because i t represents a t y p i c a l municipality i n t r a n s i t i o n from a r u r a l to an urban character and i s highly subject to the premature conversion of farm land to non-farm uses. The expansion of the urban population i n the metropolitan areas and the increasing demand for urban land i s indicated i n Chapter I. The economics of land use are examined i n an attempt to explain the reason farm land i s converted to non-farm uses. Emphasis i s placed on the premature conversion of farm land to non-farm uses and the various costs r e s u l t i n g 7 from t h i s premature conversion are outlined. In Chapter I I , the main land use control techniques are examined to determine t h e i r effectiveness i n preventing the premature conversion of farm land to non-farm uses. Since f i n a n c i a l control as exercised through taxation has not been used i n t h i s context to any appreciable degree, an examination of the r e l a t i o n s h i p between taxes and land resources i s presented to e s t a b l i s h whether taxes force land to be converted to a more intensive use. This leads to the hypothesis for which i t i s assumed that farm property taxes should be related to the services provided for such property. I t i s established i n Chapter III that municipal governments must perform c e r t a i n functions and that a major source of revenue for these functions i s derived from property taxation. The assessment and taxation l e g i s l a t i o n i n the Province of B r i t i s h Columbia i s reviewed to provide a clear understanding of the taxation system employed i n Richmond. The municipal revenue from property taxation f o r the year ending December 3 1 , I96I, i s apportioned to farm and non-farm property and an equivalent amount of expenditure i s also apportioned to the respective properties to ascertain whether the revenue obtained from farm property exceeds the expenditures which can be apportioned to the farm property. To complete the case study, a d e t a i l e d analysis i s presented i n Chapter IV. F i r s t , a tax rate related to the services provided for farm property i s calculated. This tax rate 8 i s then used to determine the amount by which the property tax on i n d i v i d u a l farm parcels i s reduced. Farm land r e n t a l values are then used as a measure of the income from farm land and an attempt i s made to determine the e f f e c t the use of a tax rate related to services provided would have on the income from farm land. The r e s u l t s of the study are summarized i n Chapter V and are correlated to determine i f a tax rate related to the cost of services provided f o r farm property would protect farm land from premature conversion to non-farm uses. CHAPTER I PREMATURE CONVERSION OF FARMLAND The Demand for Urban Land The combined action of two forces appears to be contributing to the exodus from the central c i t y to i t s peripheral areass one, the high rate of urban population increase and the second, the search f o r less congested business and dwelling s i t e s . The popularity of the.suburbs for r e s i d e n t i a l uses has been a r e s u l t of an attempt to elude the congestion and high land costs of the central c i t y and a response to the demand for extra space f o r additional urban population. The advent of the automobile has made a population movement to the suburbs both p r a c t i c a l and possible. Coupled with t h i s increased mobility of the population i s a trend towards s i n g l e - f l o o r homes and a desire f o r large l o t s , more outdoor l i v i n g space, and sometimes country l i v i n g . This has ended the popularity of the narrow twenty-five to for t y foot l o t s found i n the centre of many c i t i e s . The average family seeking a new homesite now looks f o r a l o t that has a wider frontage and a greater t o t a l area than the l o t s created two decades ago. This trend may be i l l u s t r a t e d by an examination of the land requirements for a s p e c i f i c increase i n 9 1G population? a century ago a population increase of 1000 people required ten acres; t h i r t y years ago the requirements were t h i r t y acres; today an area of one to two hundred acres i s needed.^ In t h i s same time i n t e r v a l the frontage of the average building l o t has s t e a d i l y increased from about t h i r t y feet i n the early, part of the twentieth century to s i x t y feet or even larger today. As a r e s u l t of both increasing urbanization and the trend towards larger l o t s and building s i t e s , the growing demand for r e s i d e n t i a l land w i l l undoubtedly require a larger addition to the area now used f o r t h i s purpose. , The urbanization movement also c a l l s f o r more land area f o r commercial and i n d u s t r i a l uses, for streets and parking areas, for parks and playgrounds, f o r service areas, and f o r the many other expanding or new urban uses. Part of these land needs w i l l be met within the c i t i e s ; but as the land needs increase, the new urban lands w i l l of necessity be located i n the peripheral areas. The trend towards increased urbanization i n Canada has been established by the Royal Commission on Canada's Economic Prospects, the Gordon Commission. 2 Two sets of figures were u t i l i z e d , those compiled by the Dominion Bureau of S t a t i s t i c s and those from the Bank of Nova Scotia, which were based on the census data. The major difference was i n the a l l o c a t i o n of areas to metropolitan regions, f o r example, the 1951 census l i s t e d f i f t e e n areas, a l l but two of which had populations of more than 100,000 (St. John's was excluded). The Bank of Nova 11 Scotia study excluded Newfoundland and included fourteen metropolitan areas plus twenty other major urban areas, each having a population over 40,000. The data shows that i n 1921, t h i r t y eight percent of Canada's population l i v e d i n t h i r t y -f i v e metropolitan areas; by 1941 the figure had grown to f o r t y -four percent; and by 1951 the t o t a l was forty-seven percent.^ The Commission anticipated that by I98O the t o t a l population of Canada, exclusive of the Yukon and Northwest T e r r i t o r i e s , would reach 26,650,000, an increase of 12,666,000 over 1 9 5 1 . TABLE 1 FORECAST OF URBAN GROWTH IN CANADA 1951 1956 1970 1978 1980 Urban population 8,623 14,269 16,292 18,506 21,010 (000 ) Rural non-farm population ( 0 0 0 ) 2,534 2,866 2,993 3,134 3,294 Rural farm population ( 0 0 0 ) 2,827 2,385 2,355 2,350 2,346 Total population (excluding Yukon and Northwest T e r r i t o r i e s ) ( 0 0 0 ) 13,984 19,520 21,640 23,990 26,650 Urban population as % of t o t a l 62$ 73$ 75% To Source: Housing and So c i a l C a p i t a l . January, 1957, P« 33 The trend towards an urban population i s not ch a r a c t e r i s t i c of Canada alone but also of other countries. The United States, for example, has s w i f t l y become an urban nation. 12 As late as the F i r s t World War, the population of that country was approximately one-half urban and one-half r u r a l , now i t i s two-thirds urban. I t i s estimated that by the year 2000, eighty percent or more of the t o t a l population of the United States w i l l l i v e i n urban communities.^ This expansion of the urban centres has attracted much attention from professionals, j o u r n a l i s t s and the p u b l i c , e s p e c i a l l y i n the United States. The overwhelming majority of the comments have been very c r i t i c a l . One school of thought takes the view that, since the public either approves or at le a s t tolerates what has happened, the r e s u l t i s either good or at l e a s t acceptable. A second school of thought suggests that the kind of suburban development that has been experienced during the past two decades i s highly undesirable but l a r g e l y beyond co n t r o l . A good deal of the discussion i l l u s t r a t e s concern over what has happened or i s happening, but there have been very few s p e c i f i c suggestions as to what might be done to avoid or lessen the troubles men foresee as probable or inev i t a b l e i n another few decades. The Economics of Land Use I t i s at t h i s point that a b r i e f examination of the forces which regulate the supply and demand of land i s appropriate. This w i l l a i d the understanding of the inter-play of the real-estate market and the a p p l i c a t i o n of the highest and best use p r i n c i p l e to competing land uses. 13 Some land economists view each parcel of land as occupying a unique physical r e l a t i o n s h i p with every other parcel of land. I f i n each community there exists a variety of land uses, each parcel of land i s a focus of a complex but singular set of space rel a t i o n s h i p s with the s o c i a l and economic a c t i v i t i e s that are centered on a l l other parcels. The market attaches to each set of space rel a t i o n s h i p s a s p e c i a l evaluation which l a r g e l y determines the amount of money that w i l l be bid f o r a p a r t i c u l a r s i t e . ^ Thus, cert a i n s i t e s w i l l be more highly valued, for example r e s i d e n t i a l s i t e s because of c e r t a i n space relationships such as convenience to shops, transportation, schools and so f o r t h . To the economist, land w i l l be pressed into use by the existence of a value, and the use of a p a r t i c u l a r plot of land w i l l be f i n a l l y determined i n the operation of the market forces by the price paid and the decision as to what alternative w i l l y i e l d the highest return. This action r e s u l t s i n continuous competition between the various uses for c e r t a i n parcels of land, as most land areas are suited f o r a v a r i e t y of uses. As a general r u l e , land owners tend to use t h e i r land resource f o r those purposes which promise them the highest returns. In t h i s respect, they tend to a l l o c a t e t h e i r land resources i n accordance with t h i s concept of highest and best use. Land resources are at t h e i r highest and best use when they are used i n such a manner as to provide an optimum return to the owners or to society. Depending upon the c r i t e r i a used, 14 t h i s return may be measured i n s t r i c t l y monetary terms, i n intangible and s o c i a l values, or i n some combination of these values. Land i s o r d i n a r i l y considered at i t s highest and best use when i t i s used f o r that purpose or that combination of purposes for which i t has the highest comparative advantage or leas t comparative disadvantage r e l a t i v e to other uses. This concept necessarily c a l l s for consideration of both the use-capacity? of the land and the r e l a t i v e demand f o r the various uses to which i t might be put. Large areas are sometimes suited for h i g h - p r i o r i t y uses such as i n d u s t r i a l or r e s i d e n t i a l s i t e s j but the li m i t e d need for these s i t e s often causes many tra c t s to f i n d t h e i r highest and best use i n lower p r i o r i t y uses. The highest and best use f o r any p a r t i c u l a r s i t e i s subject to change; i t can s h i f t with changes i n the qu a l i t y of the land resource, with changes i n technology, and with changes i n the demand p i c t u r e . Under most circumstances, a change i n the highest and best use for a p a r t i c u l a r s i t e can be expected to take place i n response to the bidding and counter-bidding that goes on between various land owners. Land resources can usually earn a higher return when used for commercial or i n d u s t r i a l purposes than when used f o r any other type of use. As a r e s u l t , these uses are often able to take precedence over other uses for almost any s i t e . Residential uses o r d i n a r i l y have next p r i o r i t y , followed by other types of uses including a g r i c u l t u r a l uses. 15 This ordering of land uses often suggests a d e f i n i t e p r o f i l e such as that shown i n Figure 1, page 16, i n which the highest valued lands at the centre of the c i t i e s are used f o r commercial purposes while the areas with successively lower values are used for i n d u s t r i a l , r e s i d e n t i a l , farm and fo r e s t r y purposes resp e c t i v e l y . P r o f i l e s of t h i s type n a t u r a l l y represent a generalized average; and they are never as fi x e d or s t a t i c as they may f i r s t appear. Each use class contains wide gradations and there i s always a tendency for the various use classes to overlap. Also, many exceptions can be found; some i n d u s t r i a l and commercial uses are de l i b e r a t e l y located on low-cost s i t e s ; and some r e s i d e n t i a l uses, such as apartment blocks, occasionally displace commercial and i n d u s t r i a l uses on high cost s i t e s . Wide variations exist i n the p r i o r i t i e s associated with special-use areas. Mining s i t e s often have a top p r i o r i t y , p a r t i c u l a r l y when the prospects are good for th e i r p r o f i t a b l e use. Recreation lands vary from low-priority wilderness and r e s i d e n t i a l areas to urban park areas which may be reclaimed or redeveloped at great expense. Lands used f o r transportation purposes may be low i n value i n some instances, but involve considerable cost as i n the case of street-widening projects, new parking l o t developments, or new metropolitan a i r p o r t f a c i l i t i e s . GENERALIZED PROFILE OF LAND USES Source^ Raleigh Barlowe, Land Resource Economics{ Englewood Cliffs, Prentice Hall, Inc., 1958) p. 14. 17 Though the highest and best use of a given unit of land resources at any one time can usually be computed i n monetary terms, differences of opinion frequently ari s e when a value i s given to welfare considerations as non-monetary satisfactions,, This shows that the concept of highest and best use i s at most a r e l a t i v e concept, however, i t provides a worthy objective i n land use planning. Urban Expansion and A g r i c u l t u r a l Land As previously i l l u s t r a t e d , i t i s the economic force of human demands as expressed by what people are w i l l i n g to pay for goods or services that i s the key to the establishment of land values. Land i s l i k e any other commodity whose use i s determined by i t s value i n the market place. The l o c a t i o n of the land i s the main factor contributing to t h i s value. Each t r a c t of land has a variable value f o r each kind of farming as well as f o r r e s i d e n t i a l , commercial, i n d u s t r i a l and other uses. In the case of a g r i c u l t u r e , land productivity i s a r e l a t i v e thing and does not depend upon l o c a t i o n as much as on other factors such as climate and s o i l f e r t i l i t y . Tracts of farm land which are well located for other uses command a higher price because they are worth more to the buyers than the c a p i t a l i z e d value of the p o t e n t i a l farm products and r e l a t e d other values are to a g r i c u l t u r e . However, i f the supply of farm land was d e f i n i t e l y l i m i t e d r e l a t i v e to the demand fo r i t s products, t h i s land would probably be bid up to a l e v e l at which 18 i t would not s h i f t to other uses. In other words, the farm land would y i e l d a higher return and thereby compete with other uses. An example of farm uses competing for land well located f o r other uses i s i n areas such as the oasis communities of the Sahara Desert, where the supply of arable land i s extremely lim i t e d and the r e s i d e n t i a l quarters are often located on the edge of the desert. This enables a l l of the arable land to be used for food production purposes. This s i t u a t i o n i s not s i g n i f i c a n t i n North America and u n t i l i t i s , farm land adjacent to expanding urban centres w i l l continue to be converted to urban uses. The Premature Conversion of Farm Land to Non-Farm Uses Numerous arguments have been presented for preserving farm land which i s located near our urban complexes. To substantiate these arguments the students of t h i s school of thought have pointed out the need for food producing land and open spaces near our c i t i e s . Other students and authors have shown that when considering land development costs by using a cost-benefit analysis, i t may be more economical for society to convert farm land near the urban centres to urban uses and r e l y upon other a g r i c u l t u r a l areas f o r food supplies. I f the l a t t e r argument i s accepted, that i s , that there should be no absolute preservation of farm land adjacent to expanding urban centres, consideration must s t i l l be given to the timing of the conversion from farm use to non-farm use. 19 Farm land i s frequently taken out of production long before the conversion i s a c t u a l l y necessary, and suburban development tends to take place on 'good' farm land while land not a c t i v e l y used for farming purposes stands i d l e . Since land developers tend to follow the l i n e s of least resistance and also prefer areas for development which are e a s i l y accessible and are provided with service f a c i l i t i e s , farm land i s frequently subject to premature conversion to non-farm uses. I t i s very d i f f i c u l t to discuss the premature conversion of farm land to non-farm uses as a separate occurrence since vacant land i s also subject to premature conversion. Factors such as land speculation, which r e s u l t i n the premature conversion of farm land also lead to the premature conversion of vacant land. Thus, the following discussion, although emphasizing premature conversion of farm land, w i l l of necessity r e f e r to premature conversion of a l l land. The premature conversion of farm land to non-farm uses i s a r e s u l t of various economic and s o c i a l actions and occurs i n d i f f e r e n t ways. The most e a s i l y i l l u s t r a t e d example of premature conversion of farm land i s the creation of urban developments on farm land while there are substantial areas of non-farm land not being e f f i c i e n t l y used. Suburban developments are often concentrated i n the better farm areas around our c i t i e s . They do so because the suburbanite frequently wants a well drained location and an area with good s o i l s f o r gardens, 2 0 lawns and flowerbeds; but most of a l l , the suburbanite wants a c c e s s i b i l i t y to the ce n t r a l c i t y as well as to schools, water supply, e l e c t r i c a l power and other f a c i l i t i e s . The a c t i v e l y farmed areas are chosen as a l o c a t i o n for t h i s new development as t h i s i s where the desired f a c i l i t i e s are normally present i n the greatest abundance. Generally, people prefer high undulating s i t e s to l e v e l bottom s i t e s f o r r e s i d e n t i a l development, but they w i l l not locate on the higher s i t e s i f access to major roads and other f a c i l i t i e s does not e x i s t . Past experience i l l u s t r a t e s that suburban locations are a t t r a c t i v e for r e s i d e n t i a l development, e s p e c i a l l y areas suited for s p e c i a l t y crops, as the climate i n these areas i s also favorable f o r r e s i d e n t i a l development. E i g h t y - f i v e percent of Ontario's recent i n d u s t r i a l and urban growth has taken place on what i s c l a s s i f i e d as 'excellent' or 'very good 1 a g r i c u l t u r a l o land. This trend i s also evident i n the Lower Mainland Region of B r i t i s h Columbia where recent r e s i d e n t i a l developments have been located on 'good' a g r i c u l t u r a l land i n the municipalities of Richmond and Delta.9 H i l l y areas of non-farm land such as the uplands i n the Lower Mainland Region of B r i t i s h Columbia are often avoided and urban development takes place on low l y i n g •good' s o i l because of the developer's desire f o r good s o i l and a c c e s s i b i l i t y to major roads. Also, the economics of development i n h i l l y areas i s more pro h i b i t i v e than i n l e v e l areas because of the ad d i t i o n a l cost involved i n i n s t a l l i n g sewer and water mains and constructing roads. 21 Another factor which leads to the premature conversion of farm land and other land not used f o r urban purposes i s speculation. The demand for land for urban uses reaches a point at which land l y i n g outside the immediate demand area i s purchased i n a n t i c i p a t i o n of an increase i n demand. An increase i n demand f o r urban land then enables the purchaser to subdivide the s i t e and to receive a substantial p r o f i t by the sale of r e s i d e n t i a l l o t s . . While the speculators hold the land i t sometimes ceases to be used f o r farming purposes and l i e s i d l e . Normally the farm land would be leased or rented for farming purposes, however, L i c h f i e l d 1 0 points out that the owners of such land hesitate to commit t h e i r land for the period required for farming purposes as i f they do, when the opportune moment for subdividing occurs the land may be t i e d up by a lease agreement. Even i f the land i s leased for farming purposes i t i s subject to a short-term basis and the land i s therefore not e f f i c i e n t l y u t i l i z e d . The speculative action of the land market, as i t operates i n North America, often r e s u l t s i n the supply of building l o t s exceeding the demand f o r them. Land booms have been a frequent phenomenon i n North American his t o r y ; and they have often l e f t a harvest of excessive and poorly serviced subdivisions i n t h e i r wake. As early as the 1920's some areas i n the United States suffered from an excessive number of r e s i d e n t i a l l o t s . T h i r t y percent of the l o t s i n Chicago were vacant i n 1928 while sixty-nine percent of those i n Cook County 22 outside Chicago were s t i l l unused. In the municipality of Delta, B r i t i s h Columbia, a r e s i d e n t i a l subdivision boom developed i n 1958 when construction was started on a highway which would reduce the t r a v e l l i n g time from the Ci t y of Vancouver to the Municipality. In one p a r t i c u l a r subdivision three hundred and s i x t y l o t s were created on farm land i n 1958, and by August, 1962 only f i f t e e n houses were constructed while IP the r e s t of the l o t s remained vacant. The leap-frogging pattern of urban development which has taken place i n many suburbs i s another factor causing the premature conversion of farm land. The pattern of urban growth has not exhibited a uniform, systematic expansion of urban f a c i l i t i e s outwards from the central c i t y ; i n f a c t , i n many instances, the opposite has happened. A small t r a c t of land i s often bypassed for various reasons such as r e f u s a l to s e l l , too high a land p r i c e , or poor a c c e s s i b i l i t y . This land, i n many cases farm land, becomes i s o l a t e d i n a sea of sprawling houses and r e s i d e n t i a l - s i z e d l o t s and i s sometimes rendered useless for farming purposes. Costs of Premature Conversion Under Canadian land market conditions, the control of land resources normally goes to the highest bidder. This bidder i s then free to put his land to the use which of f e r s the highest return. In most cases, these uses are coincident with, or at lea s t are not contrary to the welfare of society. However, land owners quite often f i n d i t p r o f i t a b l e either to 23 exploit t h e i r land resources or to convert them to uses not compatible with the long-run interests of society. Such i s the case with the premature conversion of farm land to non-farm uses. Although the expanding urban centres create a demand for land which generally necessitates the conversion of farm land to non-farm uses, there appears to be no d e f i n i t e reason for th i s land having i t s use changed u n t i l the need f o r urban land reaches a c r i t i c a l point. The premature conversion of farm land to non-farm uses may y i e l d a monetary p r o f i t to various individuals but usually proves to be co s t l y for society as a whole and thus i s not the most desirable occurrence i n the economic land market. The various costs of premature conversion of farm land are not necessarily measured i n monetary terms since both economic and s o c i a l costs r e s u l t . Accompanying the premature conversion of farm land are scattered subdivisions and houses. When a few hundred houses are scattered over an area of several miles as has occurred around many of the major urban centres, the people l i v i n g i n these houses cannot have the :advantages of convenient schools, corner stores, parks, and playgrounds without undue expense. I f f a c i l i t i e s such as these are to be convenient and economical to everyone who uses them, the people they serve must be grouped cl o s e l y around them. Thus, there are both economic and s o c i a l costs r e s u l t i n g from the action of premature conversion of farm land and other land to urban uses. 24 Economic Costs The economic costs of premature subdivision are those costs which can be d e f i n i t e l y measured i n monetary terms. These costs range from the loss of income fo r the farmer and the high cost of services for the suburbanite, to more expensive food and higher property taxes f o r society. The major cost involved i n premature subdivision of land i s the high cost of the services and amenities desired by the residents or future residents of the area subdivided. Services such as water and sewer mains, street construction, paving and maintenance, street l i g h t i n g , and so on are generally paid for by the l i n e a l f o o t . Therefore, a f u l l y serviced sub-d i v i s i o n which i s only p a r t i a l l y u t i l i z e d by dwellings has encountered a l l the service costs and the services are functioning at only a portion of t h e i r capacity. The excessive costs of these services do not f a l l primarily on the owner of the prematurely converted land: but the costs of water d i s t r i b u t i o n , and of paving and road maintenance, for example, are d i s t r i b u t e d throughout a wider area such as a water d i s t r i c t or a municipality over which the services are d i s t r i b u t e d . Studies i n the Lower Mainland of B r i t i s h Columbia^ and Louth Township i n O n t a r i o ^ have shown that a greater proportion of these costs are c a r r i e d by the farm areas. In many cases, a subdivision poorly related to other subdivisions would require an excessive length of water mains, sewer mains or other u t i l i t i e s In order to provide the 25 r e s i d e n t i a l l o t s with the services which the people demand. Costs of education are also increased by premature conversion of land. The sparce population which i n e v i t a b l y accompanies premature subdivisions makes i t d i f f i c u l t and co s t l y f o r school boards to provide adequate schooling f a c i l i t i e s f o r the children l i v i n g i n these subdivisions. One r e s u l t of an incomplete r e s i d e n t i a l development i s the high cost of transporting c h i l d r e n to schools, or the excessive cost of constructing small schools which i n turn are less economical,and e f f i c i e n t than larger schools. Another way i n which the premature conversion of farm land to non-farm uses i s costly i s the premature destruction of farm land. This r e s u l t s i n the unnecessary loss of food products as well as a loss of income to the farmers. In the waves of.subdivision speculation which r e s u l t i n urban sprawl, many more building l o t s and small holdings are created than can possibly be absorbed by the market within a reasonable period. As a r e s u l t , "many small holdings never become f u l l y developed, as the owners discover that sparetime farming i s something more than a relaxing hobby f o r jaded c i t y workers."'1'^ This i n e v i t a b l y means that some farm land i s removed from the acreages required f o r economic farming. Apart from the question of whether urban development of arable land i s desirable at a l l , premature subdivision of farm land i s a destructive, wasteful mode of development from the point of view of economic income. 26 As previously pointed out, the leap-frog pattern of development sometimes by-passes areas which were once productive farm land. These i s o l a t e d areas of farm land cannot be economically farmed and many l i e i d l e , awaiting the bulldozer. Farm land near an expanding urban centre generally begins to suffer from suburban development long before i t i s ac t u a l l y taken out of production. This i s due to the lack of reinvestment i n the land and the equipment necessary to farm the land e f f e c t i v e l y and productively. In the case of orchard farms near San Jose, C a l i f o r n i a , L e s s i n g e r ^ showed that due to expectation of urban development, the orchards were allowed to run down and replanting was not done for many years before urban development took over the farm. The uncertainty of the farmers about how much longer they w i l l be farming before t h e i r land i s ripe f o r subdivision prevents them from f u l l y developing the land for a g r i c u l t u r e . To i l l u s t r a t e t h i s point further, much of the farm land i n the Lower Mainland of B r i t i s h Columbia could be u t i l i z e d i n a more productive manner i f i r r i g a t i o n and drainage improvements were i n s t a l l e d . These improvements require a sizeable c a p i t a l outlay and therefore cannot be i n s t a l l e d economically on a short-term basis; and under the present conditions of uncertainty, i t i s l i k e l y not to be done at a l l . 1 ' 7 Thus, there i s a reduction of income f o r the farmers, combined with lesser production of food, which could possibly r e s u l t i n higher food prices f o r the consumer. 27 This p a r t i c u l a r aspect may be taken one stage further to an examination of the food product i n d u s t r i e s . I t i s only natural to assume that an uncertainty i n the source of raw materials for an industry w i l l i n j e c t a sizable amount of uncertainty into the industry. With an unpredictable future for farm land, and consequently farm products, one cannot expect the farm produce processing industries to expand and commit themselves to c a p i t a l expenditures. The Lower Mainland 18 Regional Planning Board states that twenty percent of the jobs i n the Lower Mainland are dependent d i r e c t l y or i n d i r e c t l y upon a g r i c u l t u r e . Thus, depending upon the economy of a region, th i s uncertainty may a f f e c t a large portion of the population i n the region. The premature subdivision of farm land r e s u l t s i n an increase i n the values of neighboring lands. In areas where farm land assessment values are r e l a t e d to the market value of the land this a ction w i l l increase farm land taxes possibly to a point where the land can no longer be economically used f o r farm purposes. In other areas where farm land assessment values are not d i r e c t l y r elated to the market value, but to a value f o r a g r i c u l t u r a l purposes, an increase i n the land value w i l l have no d i r e c t e f f e c t upon the farm land taxes. However, an increase i n the land value, although not d i r e c t l y a f f e c t i n g production i f the land owner remains the same, may discourage the purchase of the land by someone interested i n farming as the value of the land may have exceeded the point where the less 28 intensive use of farming w i l l not y i e l d a s u f f i c i e n t return. This i n turn may r e s u l t i n the land l y i n g i d l e u n t i l i t i s used for r e s i d e n t i a l or other urban uses. S o c i a l Costs Apart from the economic costs of premature conversion are costs which cannot be measured e a s i l y i n monetary terms. These costs are considered as s o c i a l costs, and although they are d i r e c t l y related to the economic costs they may be i l l u s t r a t e d i n a s l i g h t l y d i f f e r e n t way. The haphazard, scattered subdivisions which are usually a r e s u l t of premature subdivisions, e s p e c i a l l y on farm land, increase the cost of many services. In some instances, the increased cost may become exorbitant and make i t v i r t u a l l y impossible to supply the services. This makes i t more d i f f i c u l t f o r the subdivider to s e l l h i s property but he usually succeeds to a c e r t a i n degree and the people l i v i n g i n these areas are faced with i n s u f f i c i e n t or f a u l t y services. The premature urban development of land r e s u l t s i n a development which w i l l not 'mature1 for many years, by which time i t s scattered buildings may be old and run-down, and the entire area may have become low i n d e s i r a b i l i t y and value. Because of t h i s , the area i s not l i k e l y to command f u l l b uilding loans, and t h i s i n turn prevents the subdivision from becoming f u l l y developed. 29 During the time that r e s i d e n t i a l subdivisions are only p a r t i a l l y b u i l t up, i t i s very d i f f i c u l t to provide convenient schools, shopping centres, parks, and playgrounds for the people residing i n the area. Also, the haphazard development poses tremendous problems f o r future development. Because of the scattered development, i t becomes very d i f f i c u l t to organize and provide an e f f i c i e n t system of roads and services which alone would probably open up the area properly. These d i f f i c u l t i e s often cause f r u s t r a t i n g delays i n development and sometimes lead to a complete impasse. The hit-and-miss pattern of r e s i d e n t i a l development also brings f o r t h problems concerning parks and playgrounds. The municipal authorities have a d i f f i c u l t time j u s t i f y i n g the purchase and maintenance of a park for a po t e n t i a l neighborhood which w i l l only be p a r t i a l l y used. Tremendous c o n f l i c t s often ar i s e concerning the future uses of open spaces. Most authorities argue that substantial areas of open spaces are needed around built-up sections for parks, playgrounds and other si m i l a r uses. Yet there i s always a temptation to use these open spaces for various building projects. Public funds frequently are not avail a b l e to ensure the reservation of needed open areas at the time when they might be secured at the least cost. As a r e s u l t , i t i s often necessary to make the decision of either spending considerable sums at l a t e r dates for the purchase of built-up areas for parks or leaving the area d e f i c i e n t of adequate park space. 30 Summary The trend towards urbanization and the exodus to suburban areas has become increasingly evident during the past two decades and t h i s trend promises to continue i n the future. The areal requirements for urban land uses are expanding at an ever increasing r a t e . Since a g r i c u l t u r a l land use i s a low i n t e n s i t y use compared with most urban land uses, the urban uses e a s i l y replace the a g r i c u l t u r a l uses i n areas adjacent to expanding metropolitan centres. Due to the pattern of r e s i d e n t i a l development i n suburban areas and the speculative action of the land market, land i s continuously removed from farm use p r i o r to i t s actual need f o r urban uses. This premature conversion of farm land to non-farm uses i s i l l u s t r a t e d by urban development on 'good' farm land while there i s a substantial area of non-farm land a v a i l a b l e for development, and by the leap-frog pattern of development which i s o l a t e s farm land and renders i t useless f o r farming purposes. One of the main causative factors fo r t h i s premature conversion i s the speculative a c t i v i t y i n the r e a l estate market. As a r e s u l t of t h i s premature conversion various economic and s o c i a l costs a r i s e . Services become more co s t l y causing higher property taxes, farm land i s taken out of production or production i s r e s t r i c t e d r e s u l t i n g i n a loss of income to the farmer and higher a g r i c u l t u r a l produce costs for society, and the uncertainty i n the farm industry i n j e c t s uncertainty into the a g r i c u l t u r a l product i n d u s t r i e s . 31 In r e l a t i o n to s o c i a l costs, the poorly co-ordinated developments are costly to service and because of thi s many areas are without r e s i d e n t i a l services. Residential sub-d i v i s i o n s may not be f u l l y developed, and these areas may become low i n d e s i r a b i l i t y and value and may lack many of the amenities which the pot e n t i a l purchasers of the l o t s d e s i r e. In view of these s o c i a l and economic costs, i t i s evident that some technique should be employed to protect farm land from i t s premature conversion to non-farm uses. In Chapter I I , the main techniques used to control land use and land development are examined. The rel a t i o n s h i p of taxes to land resource use i s also outlined i n an attempt to ascertain the e f f e c t a readjustment i n the taxation system would have on farm land uses. REFERENCES •^American In s t i t u t e of Park Executives, The C r i s i s i n Open Land (Aglebay Park, West V i r g i n i a : American Inst i t u t e of Park Executives, 1 9 5 9 ) , P. 12. ^Yves Dube, J.E. Howes, and D.L, McQueen, Housing and S o c i a l C a p i t a l . Royal Commission on Canada's Economic Prospects (Ottawa: Queen's P r i n t e r , 1 9 5 7 ) , P. 26. 3 l b i d . 4 I b i d . ^Marion Clawson, "Suburban Development D i s t r i c t s , " Journal of  The American Inst i t u t e of Planners, XXVI, No. 2 (May, I 9 6 0 ) , 69. ^Richard U. R a t c l i f f , Urban Land Economics (New York: McGraw-H i l l Book Company, Inc., 1949), pp. 283-284. ?Use capacity refers to the a b i l i t y of any given unit of land resource to produce a net return above the production costs associated with i t s use. Raleigh Barlowe, Land Resource Economics (Englewood C l i f f s : Prentice-H a l l , Inc., 1 9 5 8 ) , p. 1 2 8 ^Edward G. H a l l , "Facts, Factories and Farms," A g r i c u l t u r a l I n s t i t u t e Review. XII, No. 4 (July-August, 1 9 5 7 ) , 18. ^Lower Mainland Regional Planning Board of B r i t i s h Columbia, Land For Farming (New Westminster; Lower Mainland Regional Planning Board of B r i t i s h Columbia, 1 9 6 2 ) , PP. 3 7 - 4 3 . 10 Nathanial L i c h f i e l d , Economics of Planned Development (London: The Estates Gazette, Ltd., 1 9 5 6 ) , p. 2 7 9 . 1 ; LBarlowe, 511. 12 Associated Engineering Services Limited, Vancouver, 1962. Private F i l e s . 32 33 •^Lower Mainland Regional Planning Board of B r i t i s h Columbia, Economic Aspects of Urban Sprawl (New Westminster: Lower Mainland Regional Planning Board of B r i t i s h Columbia, 1956), 45 pp. 1 4Tlalph Krueger, "The Rural-Urban Fringe Taxation Problem: A Case Study of Louth Township," Land Economics, XXXIII, No. 3 (August, 1957) , 264-269. 11 -'Lower Mainland Regional Planning Board of B r i t i s h Columbia, Economic Aspects of Urban Sprawl, p. 13 . 16 X D H a r o l d Mayer, " C i t i e s , Transportation, and Technology," Land, The Yearbook of Agri c u l t u r e , 1958 (Washington: The United States Department of Agri c u l t u r e , 1958), p. 496, quoting J . Lessinger, The Determination of Land Use i n Rural Urban Transition Areas, Berkley, 195oT^ ^Lower Mainland Regional Planning Board of B r i t i s h Columbia, Land For Farming, p. 2 2 . l 8 I b i d . , p. 1. 34 Photograph 2. This was "Good" Farm Land CHAPTER II LAND USE CONTROL AND THE TAXATION OF FARM LAND Land Use Controls The impact of urban pressures on farm land adjacent to urban centres i s often devastating. Farm land owners wishing to s e l l t h e i r land demand a price which i s often beyond the reach of operating farmers who may be interested i n purchasing the land, and t h i s forces the land to be removed from farm use. Special assessments for schools, sewers, water supply, or other improvements are voted by the non-farm land-owner, and farm taxes increase. Speculators purchase land from farmers for r e s i d e n t i a l subdivisions and remove i t from farm use long before the land i s subdivided and b u i l t upon. These actions j o i n t l y contribute to the premature conversion of farm land to non-farm uses. The techniques r e l i e d upon to cope with these problems are mainly regulatory controls, with subdivision controls and zoning by-laws being the most commonly used. Although these two techniques were o r i g i n a l l y conceived f o r s p e c i f i c purposes, they are now used as a means of c o n t r o l l i n g the many ramifications of land use. The f i r s t a p p l i c a t i o n of zoning and subdivision regulation was an attempt to bring under 37 38 control the development problems i n the urban centres. Later, when the development problems i n the 'urban f r i n g e 1 became prominent, subdivision controls and zoning were u t i l i z e d without undergoing modifications. J u r i s d i c t i o n s which have been interested i n c o n t r o l l i n g the l o c a t i o n of new subdivisions i n t h e i r areas have generally resorted to these two techniques although other methods of land use control such as land a c q u i s i t i o n , economic incentives, and p o s i t i v e design p o l i c i e s have, to a lesser extent, been employed. As a r e s u l t , subdivision controls and zoning by-laws have been applied to regulate the layout and use of i n d i v i d u a l l o t s as well as to control the general pattern of land development. Generally, these techniques have been i n e f f e c t i v e i n c o n t r o l l i n g the land use i n the suburban areas and have had very l i t t l e influence i n preventing the premature conversion of farm land to non-farm uses. Before examining the reasons for the inadequacy of the present land use controls, i t i s necessary to review the development of these concepts and to examine t h e i r s i gnificance as techniques used to control land use and land development i n Canada. Since zoning and subdivision control are the most commonly used techniques they w i l l be examined i n d e t a i l . The other controls, such as eminent domain and f i n a n c i a l control are of lesser importance and w i l l only be examined b r i e f l y . 39 Zoning Public r e s t r i c t i o n s on the use of private land f i r s t began i n Canada pr i o r to World War I. At that time the r e s t r i c t i o n s were not as they exist today, but were i n the form of the laws to prevent nuisance, and i n some cases were r e s t r i c t i v e covenants and building schemes i n conveyances. 1 J.B. Milner points out that many landowners sought to protect t h e i r own- land f a r beyond the law of nuisance, since when they sold part of the i r land they r e s t r i c t e d the purchaser's use to something they regarded as compatible with t h e i r enjoyment of the part they r e t a i n e d . 2 The law of nuisance was created to prevent a parcel of land from being used i n such a manner as to cause detrimental effects to the neighboring land. The prime example of t h i s i s the slaughterhouse which was classed as a nuisance and prohibited by law from c e r t a i n areas. This i l l u s t r a t e s the reason f o r the public authority wanting to r e s t r i c t the use of land. Since i t i s a common law r i g h t to be able to use land as one sees f i t , r e s t r i c t i o n s l i m i t i n g such a r i g h t are i n derogation of common law r i g h t s . Thus, when such r e s t r i c t i o n s are imposed by municipal by-law, clear statutory authority must e x i s t . In Canada, the municipality's power to place r e s t r i c t i o n s on land by zoning i s derived from a p r o v i n c i a l enabling act which grants the municipalities c e r t a i n powers. 40 The B r i t i s h North America Act, 1867,3 created a two-tier system of government and i n Section 92, paragraph 8, gave to the P r o v i n c i a l Legislature authority over municipal i n s t i t u t i o n s . On the basis of t h i s authority, each province has created municipal governments and delegated s p e c i f i c powers to them. Among other powers, the municipalities are authorized to protect health, safety, convenience, morals, and the general well-being of the community, and to control the use of private property to protect these ends. I t i s t h i s r i g h t to control the use of private property for the public good that i s the l e g a l basis of zoning c o n t r o l . The municipalities create the r e s t r i c t i v e regulations by adopting a 'zoning by-law.' A zoning by-law usually does two things: i t c l a s s i f i e s and segregates into p a r t i c u l a r d i s t r i c t s , areas, or zones the various uses of land and buildings that are permitted by the by-law, a l l other uses being prohibited; and i t regulates the permitted uses i n varying degrees, depending upon attendant circumstances. 4 Most zoning by-laws est a b l i s h i n d u s t r i a l , commercial, r e s i d e n t i a l , and a g r i c u l t u r a l zones as a minimum and i n many municipalities there may be three or more kinds of zones each for residences, f o r business, and for industry as well as for a g r i c u l t u r e . Within each of these zones various regulations and r e s t r i c t i o n s are generally applied concerning the use of land: the height, size and use of buildings; and the density of population. 41 The purposes of zoning, as designated i n many Canadian municipal by-laws ares the preservation of property values, the control of the a r c h i t e c t u r a l design of buildings, the protection of '-amehty,1 the l i m i t a t i o n of the density of population, the promotion of health and welfare, the reduction of t r a f f i c congestion, and so on.-* In any event, zoning i s a public regulatory power and may be used only to safeguard or promote public health, safety, morals, or the general welfare. I t i s a means of implementing a land-use plan, not a substitute fo r planning; and i t s value and general effectiveness always depend on the character of the planning upon which i t i s based. Zoning regulations were f i r s t designed for use i n built-up areas. The main kinds of zoning regulations created fo r use i n these areas were 'use' regulations to separate c o n f l i c t i n g land uses, and l o t and building-dimension regulations to control population d e n s i t i e s . These regulations have been shaped to promote urban objectives and have become a part of standard laws and t r a d i t i o n s . With the development of a mobile population and a trend towards suburban l i v i n g , i t became obvious that areas outside the urban centres required some sort of planning c o n t r o l , e s p e c i a l l y a g r i c u l t u r a l areas. In response to t h i s , an a g r i c u l t u r a l zone was established i n addition to the other zones. The p r i n c i p a l function of this a g r i c u l t u r a l zone was to prevent indiscriminate urban-sized l o t development, and to d i r e c t new urban growth into s p e c i f i c areas. As well as defining an area as an a g r i c u l t u r a l zone, 42 add i t i o n a l l i m i t a t i o n s were placed on the land by way of r e s t r i c t i n g subdivisions to a minimum prescribed acreage, the popular l i m i t being f i v e acres. That zoning can be used i n t h i s context with a f a i r degree of success i s indicated by the experience i n Richmond, a municipality adjacent to the C i t y of Vancouver i n B r i t i s h Columbia. In 195&, Richmond enacted a zoning by-law which r e s t r i c t e d subdivision of farm land to a minimum of f i v e acres. In the three years that followed, less than two percent of the new development took place i n the a g r i c u l t u r a l zone which had a f i v e acre minimum l o t size.7 This i s only one instance i n which zoning has been successfully used to prevent the premature subdivision of farm land. There are many instances where the l o c a l a u t h orities have similar zoning by-laws, but due to various reasons, such as the lack of administrative c o n t r o l , the by-laws have not been successful i n preventing premature subdivisions or the premature conversion of farm land to non-farm uses. Conventional zoning has been unable to deal with urban expansion as i t has occurred over the l a s t decade. Zoning, with i t s precise measurements and standards i s a t o o l designed to control the use of i n d i v i d u a l parcels of land and i s not a development plan for the entire municipality. I t i s much more useful i n guiding the construction on, and the use of, vacant l o t s which l i e i n an already developed area. Zoning can be p a r t i c u l a r l y useful i n maintaining the amenity of a 43 h i s t o r i c a l preservation, but depending upon the administration i t i s generally not e f f e c t i v e as a means of preserving the i n t e g r i t y of the land use plan f o r an undeveloped area. By pra c t i s i n g zoning as i t presently e x i s t s , the municipalities are approaching t h e i r problems i n a negative manner. Zoning i s e s s e n t i a l l y negative i n approach as i t regulates what cannot be done i n p a r t i c u l a r areas. By implication, t h i s may Indicate what can be done i n other areas, but the implications are often not c l e a r . Also, as stated by Marion Clawson concerning zoning i n the United States, but which also applies i n Canada: Zoning has been notoriously subject to change i n the face of pressures. I t has seldom prevented a few people, or at any rate a few people with wealth and p o l i t i c a l power, from doing what they wanted to do.8 The zoning by-law as i t exists today i s the product of a number of h i s t o r i c a l circumstances and the l i m i t a t i o n s of zoning to control land development are due i n one way or another to the f a c t that the t r a d i t i o n a l form of the zoning by-law makes i t too cumbersome and r i g i d to perform i t s new role i n the planning function. Zoning by-laws tend to be r e l a t i v e l y fixed and i n f l e x i b l e , and there i s seldom, i f ever, any b u i l t - i n mechanism fo r adjusting to the changing conditions and needs of a dynamic society. A zoning Board of Appeal exists i n Canadian municipalities f o r purposes of hearing and making decisions on cases presented to i t . The existence of th i s Board does not reduce the i n f l e x i b i l i t y of the zoning by-law, since i t only deals with appeal cases and not with the 44 o v e r a l l zoning although t h i s may be considered when making a decision f o r a p a r t i c u l a r parcel of land. Subdivision Control Land subdivision regulations represent another technique by which public control may be exercised over the use of private land. The use of land subdivision regulations i n Canada can be traced back to the c a r e f u l , but u n o f f i c i a l planning associated with the s e l e c t i o n and layout of many o r i g i n a l townsites. The controls used i n these instances usually applied only to the o r i g i n a l townsite. Once a town-s i t e was s e t t l e d , l i t t l e e f f o r t was usually made to regulate new subdivisions and i n some instances, even the plans for the o r i g i n a l townsite were ignored. Despite the early use of sub-d i v i s i o n controls i n Canada, i t was not u n t i l the 1920's that the use of subdivision regulations became an accepted procedure for m u n i c i p a l i t i e s . Subdivision control regulations are applied i n the same manner as zoning control, that i s , by municipal by-law. As with zoning, the municipality's power to enact a subdivision control by-law i s derived from a p r o v i n c i a l enabling act. Subdivision regulations were o r i g i n a l l y conceived to regulate the layout of i n d i v i d u a l l o t s upon which an owner would b u i l d a house or other structure. This type of regulation now goes beyond this to the extent of regulating a complete subdivision, and i n cases attempting to regulate the areas which may be 45 subdivided. Many municipalities enacted subdivision control by-laws when the authorities discovered that the municipality was being compelled to provide a vast array of public services f o r scattered and p a r t i a l l y developed subdivisions which offered l i t t l e promise of ever providing s u f f i c i e n t tax revenue to become s e l f supporting. Subdivision controls vary considerably i n use and app l i c a t i o n . They have been used to prevent developments i n areas regarded as unhealthful because of flood hazards, improper drainage, or other conditions. They have also been used to regulate the o v e r a l l street design and to set r i g i d s p e c i f i c a t i o n s for l o t s i z e , street construction, and f a c i l i t i e s such as water supply and sewer connections. The most important aspect of subdivision control for regulating the l o c a t i o n of subdivisions i s the requirements for sewer and water connections. Generally, municipalities can require the subdivider to supply s p e c i f i c services to any l o t s being created. These s p e c i f i c services may include the provision of sewer f a c i l i t i e s , water, pavement, sidewalks and other amenities. By doing t h i s , the general location of the future subdivisions may be controlled to a certa i n extent by c o n t r o l l i n g the loca t i o n of municipal sewer and water mains. Subdivision controls provide one of the most e f f e c t i v e means of discouraging the occurrence of premature subdivisions. Local governments lack the power to proh i b i t excessive 46 subdivisions, but by enforcing high development standards the number of excess building l o t s may be minimized. Although the use of subdivision controls can be ef f e c t i v e i n discouraging premature subdivisions, t h e i r use i s much less e f f e c t i v e i n discouraging the premature conversion of farm land to non-farm uses. Subdivision controls, depending on t h e i r a p p l i c a t i o n , may or may not es t a b l i s h a sound pattern for suburban growth; but usually, subdivlders are permitted a wide l a t i t u d e of action or ina c t i o n and therefore the controls are not completely r e l i a b l e . Subdivision regulations i n t h e i r best form can control private developments, however, they do not guarantee that the municipality w i l l have a po s i t i v e development p o l i c y co-ordinated with the private developments. Thus, i f there i s no general development plan or co-ordination of services, subdivision controls are rendered i n e f f e c t i v e . By enforcing the proper subdivision control by-laws, the municipalities can be assured of having subdivisions which meet the sp e c i f i c a t i o n s of the by-law. This means that any new subdivision must contain adequately sized and properly designed l o t s , serviced by those services which the municipality can prescribe by by-law. The lo c a t i o n of the subdivisions i s a d i f f e r e n t matter. Service and design requirements do not guarantee that the loc a t i o n of the subdivisions w i l l be compatible with the o v e r a l l objective of the municipality, nor do they prevent r e s i d e n t i a l development from surrounding and i s o l a t i n g farm land. These s p e c i f i c a t i o n s do not necessarily 47 encourage urban development to take place i n areas considered to be of lesser value for farm purposes. The basic weakness of the subdivision control by-law as a land use control technique i s i t s inadequacy to control the type of development which has occurred i n the l a s t decade.^ Subdivision regulations were designed to regulate the layout of i n d i v i d u a l l o t s . The technique has been car r i e d forward with a minimum of change and i s not adapted to the large scale control of land use because i t cannot control the l o c a t i o n of subdivisions. Zoning and subdivision control, as land use control techniques, have proven to be inadequate to control urban growth and to prevent the premature conversion of farm land to non-farm uses. Both techniques were devised for use on a smaller scale than that for which they are currently being used. I t i s not proper to condemn these two land use control techniques as they can be very e f f e c t i v e when used i n the manner fo r which they were o r i g i n a l l y designed. A properly drafted and enforced zoning by-law can ensure that the municipality w i l l have compatible land uses; and a proper subdivision control by-law can ensure that the subdivisions w i l l meet the standards set by the municipality. However, neither control can prevent the premature conversion of farm-land to non-farm uses. 48 Other Methods of Control M u n i c i p a l i t i e s and other l e v e l s of government possess a wide var i e t y of powers which may be used to control land use. Eminent domain and f i n a n c i a l control are examples of these powers. The concept of eminent domain involves "the power of the sovereign to take property for public use without the owner's consent,"*- 0 but with f a i r compensation. The concept i s rooted i n the ultimate authority of the state over property and i s commonly accepted and exercised i n many countries as an inherent r i g h t of government. To e s t a b l i s h control over property, eminent domain may be exercised alone or i n combination with other powers. Regardless of how i t i s used, i t frequently plays an e s s e n t i a l r o l e i n society by f a c i l i t a t i n g the orderly a c q u i s i t i o n of the s i t e s needed for highways, streets, u t i l i t i e s , public housing, and other public improvements. Eminent domain may be used i n the form of purchasing the land or purchasing the development right s of the land. In either case, i t involves payment of a f a i r compensation to the land owner. Since i t i s very d i f f i c u l t to e s t a b l i s h a f a i r compensation, eminent domain i s generally used only a f t e r purchase negotiations have f a i l e d . Thus, i f a municipality was to purchase land or development rig h t s as a means of land use control, the power of eminent domain could be employed to aid the purchase. However, land purchasing for the purposes of large scale land use control i s beyond the 49 comprehension of most mu n i c i p a l i t i e s , even with the use of the power of eminent domain, because of the compensation which must be paid. The power of eminent domain was employed by the Federal Government to e s t a b l i s h a 'green b e l t ' around the C i t y of Ottawa. This was done not to preserve farm land, or to prevent premature conversion of farm land to non-farm uses; but to f a c i l i t a t e planning f o r the i d e a l t r a n s i t i o n between c i t y and country and to enable the blending of the dense urban centre into i t s r u r a l surroundings. F i n a n c i a l controls have not been extensively used as tools for d i r e c t guidance of suburban development, although they may have had effects of t h i s kind. One of the most e f f e c t i v e controls of t h i s type i s that of c o n t r o l l i n g loans and loan insurance for r e s i d e n t i a l construction purposes. Central Mortgage and Housing Corporation, a Canadian Crown corporation charged with the implementation of the National Housing Act, recently adopted a p o l i c y concerning loan insurance f o r constructing d w e l l i n g s . 1 1 The Corporation, with some exceptions, now requires a house to be serviced with municipal sewer f a c i l i t i e s before a loan f o r constructing or purchasing the house w i l l be insured. This p o l i c y has very p o s i t i v e e f f e c t s on the location of houses for which the owners require loan insurance by the Corporation, and by proper co-ordination with other governmental p o l i c i e s , t h i s could be 50 a most e f f e c t i v e control over both l o c a t i o n and design of r e s i d e n t i a l subdivisions. Another f i n a n c i a l control of land use i s that of taxation. As w i l l be i l l u s t r a t e d i n the l a t t e r part of t h i s chapter, taxes may have a d i r e c t influence on land use, and therefore could be a po s i t i v e technique for c o n t r o l l i n g land use. This means of land use control i s not extensively used i n Canadian: m u n i c i p a l i t i e s , except i n provinces such as B r i t i s h Columbia where the assessment of farm land and non-farm land are on a d i f f e r e n t b a s i s . The best use of taxation as a means of c o n t r o l l i n g land use and land development would be i n conjunction with zoning as a technique to a i d the implementation of a development plan. There are many le g a l powers at a l l l e v e l s of government which might be used f o r the guidance of urban development and the control of land use. Many of these are presently used with some degree of success, but they are used without co-ordination of one power with another, or one l e v e l of government with another. Many of the suburban municipalities lack a development plan and without a po s i t i v e plan, the land use controls cannot be used e f f e c t i v e l y . The land use controls which are used most frequently are enacted at the municipal l e v e l and each control i s confined within a d e f i n i t e boundary. Thus, land outside a p a r t i c u l a r boundary may be under less control or under no control at a l l . This i s a serious l i m i t a t i o n to a l l land use controls which are applied at the municipal l e v e l . 51 Taxation of Farm Land Land use controls as they are presently applied have very l i t t l e e f f e c t on preventing premature conversion of farm land to non-farm uses. However, f i n a n c i a l control as exercised through taxation has not been used i n t h i s context to any appreciable degree. Therefore, i t i s not known exactly what ro l e a readjustment i n the tax system would play i n preventing farm land from being prematurely converted to non-farm uses. In order to explore the p o s s i b i l i t y of using a tax adjustment as an incentive to encourage farm-owners to keep t h e i r land i n farm uses u n t i l the economic demand fo r urban land i s such that the farm land would not be prematurely converted, i t i s necessary to examine the e f f e c t of taxes on land resources and land use, and determine how property taxes a f f e c t land devoted to farm use. Relationship Between Taxes and Land Resources Land resources are affected both by the c o l l e c t i o n and the spending of tax revenues. Most taxes tend to reallocate wealth and resources by taking c a p i t a l from the taxpayer to finance the functions of government. In th i s r e a l l o c a t i o n process, a high proportion of the funds c o l l e c t e d through land and improvement taxes are often used for purposes that enhance and protect property values or that benefit the taxpayer and his family. In this sense, taxes frequently have 52 a d i r e c t l y favorable e f f e c t upon land resources; but the measure of benefits received by the taxpayer varies from property to property. Some taxpayers receive benefits f a r i n excess of the i r contributions, while the reverse s i t u a t i o n applies with others. Land taxes represent a compulsory contribution on the part of the property owner to either the l o c a l or pr o v i n c i a l government. The actual e f f e c t of these taxes on the land resources vary, depending upon the type of tax, the amount of tax, the land use and other circumstances; but the influence of the taxes can usually be measured by th e i r e f f e c t s on the return to the resources, l e v e l of in t e n s i t y at which the land i s used, changes i n land use and property ownership, and the loc a t i o n of an enterprise. Property taxes are by f a r the most important taxes on land resources, even though the land resources may be subject to sp e c i a l taxes such as a c a p i t a l gains tax and a variety of less d i r e c t taxes. Since t h i s thesis i s only concerned with property taxes, no reference i s made to the minor taxes. The property tax involves an annual charge l e v i e d against a l l r e a l property located i n a taxation d i s t r i c t . The term 'real property' refers to the land and the improvements on the land. There are ce r t a i n instances when r e a l property i s exempt from general property taxes, but thi s depends upon the po l i c y of the taxing authority and does not a f f e c t the p r i n c i p l e of general property taxes. In general terms, a l l r e a l property 53 i s valued for taxation purposes at various l e v e l s , depending upon the p o l i c y of the j u r i s d i c t i o n i n which the r e a l property i s located. Once a value has been derived, i t i s then mu l t i p l i e d by a uniform tax levy to determine the actual tax payments due. These payments are then charged to the respective r e a l properties and are commonly known as r e a l property taxes. Although the tax i s l e v i e d against the r e a l property owner, i t i s not always absorbed by the person upon whom i t i s l e v i e d . The tax may be s h i f t e d forward to some eventual consumer i n the form of higher prices; or i t may be s h i f t e d backward i n the form of lower wages to employees or lower prices for raw materials. When a tax can be e a s i l y s h i f t e d , as i n the case of an enterprise which has control over i t s s e l l i n g p r i c e s , an increase i n the tax does not s u b s t a n t i a l l y a f f e c t the enterprise. When the tax i s only p a r t i a l l y s h i f t e d or cannot be shifted at a l l , the taxpayer i n v a r i a b l y suffers a reduction of income. This reduction of income may have various consequences. I t may cause an operator to use his land more inten s i v e l y ; i t may cause him to move his enterprise to a lower-taxed area, or i t may even lower income to a point at which the operator finds i t unprofitable to continue his operations. Taxes on property used for personal or family consumption uses such as owner-occupied homes, are usually considered non-shiftable. This s i t u a t i o n e x i s t s because 54 i n d i v i d u a l home owners are seldom able to s h i f t t he i r taxes i n the form of higher wages for t he i r services or higher pr ices for the products they s e l l . With productive propert ies such as i n d u s t r i a l plants and commercial establishments, the extent to which the r e a l property tax can be shi f ted usual ly depends upon the u n i v e r s a l i t y of the tax and the degree of cont ro l the operator has over the market p r i c e s . Under perfect competitive conditions product pr ices are set by the in te rp lay of supply and demand and general ly respond to an increase or decrease i n the productive cos t . Thus, any r e a l property tax that has almost a un iversa l effect on a l l propert ies used for the same purpose can be sh i f ted to the ultimate users of the product. In the case of r e a l property taxes on farm land , the extent to which^ they can be sh i f ted also l a rge ly depends on the u n i v e r s a l i t y of the tax . Since the tax rate i s es tabl ished at the l o c a l government l e v e l , the r e a l property tax i n one p a r t i c u l a r tax d i s t r i c t bears no r e l a t ionsh ip to the r e a l property tax i n a d i f fe ren t tax d i s t r i c t even though the farm produce from the d i f fe ren t d i s t r i c t s competes on the same market. Therefore, any increase i n r e a l property taxes i n a p a r t i c u l a r tax d i s t r i c t w i l l f a l l d i r e c t l y on the farm operator i n that d i s t r i c t as he cannot increase the pr ice of h i s products due to competitive ac t ion from areas where there was no increase i n taxes. This means that farm operators located i n areas near urban centres, i n which r e a l property taxes are inc reas ing , cannot sh i f t the increased amount and must employ 55 other methods to escape the taxes. The Effec t of Property Taxes on Farm Land Since the farm operators usual ly cannot sh i f t the r e a l property taxes, these taxes have a very d i r ec t effect upon the use of farm land . Taxation modifies the a l l o c a t i o n of land between farm and non-farm uses as w e l l as modifying the pattern and in t ens i ty of i t s use In a g r i c u l t u r e . ^ 2 Property taxes can be used to force a conversion of land to more intensive uses, when su i tab le demand a r i ses for these uses and when the land i n question i s sui ted to the intensive use. When these condit ions do not e x i s t , taxes can have an in jur ious effect i n br inging about the waste of land that comes with premature developments."^ When land i s used In i t s highest capaci ty , property taxes general ly do not p roh ib i t t h i s use. The tax i s a f ixed charge and therefore does not influence production decisions i n regard to e i ther the method or the i n t e n s i t y of use. An exception occurs when the land i s not used i n i t s most productive capaci ty . In th i s case, a property tax and the r e su l t i ng reduction i n income place add i t i ona l pressure on the owner to u t i l i z e the land more e f f e c t i v e l y or to s e l l i t . Farm uses are general ly considered to be low capacity uses and therefore an increase i n property taxes on farm land tends to reduce the farm land income, and to encourage the owner to convert the land to a higher capacity use. With the demand for land for urban development 56 i n the suburban areas, i t i s only natural that the farm land i s converted to non-farm uses. Thus, when the property taxes on a p a r t i c u l a r parcel of farm land absorb a sizeable portion of the net return to the land, or exceed i t , the operator can only s e l l the land or convert the use of the land to non-farm uses. Property Taxes and Services Received As mentioned i n Chapter I, one of the consequences of the premature conversion of farm land to non-farm uses i s the increase i n property taxes within the j u r i s d i c t i o n i n which the premature conversion i s occurring. A large proportion of the cost of services to the ne\7 scattered subdivisions f a l l s on the municipality, which i n turn d i s t r i b u t e s the cost among the r e a l property owners within the j u r i s d i c t i o n of the municipality. The scattered urban development i s the greatest cause of increasing expenditures i n suburban m u n i c i p a l i t i e s , and a large portion of these expenditures f a l l on farm property i n the form of property taxes. This i s borne out i n studies conducted i n Ontario and B r i t i s h Columbia. In a study conducted i n Westminster Township, Ontario, i t was concluded that "the average suburban person receives township services to twice as great a value as the average farm person, but pays only h a l f as much as the average farm person towards provision of those services." 1 4" Ralph Krueger conducted a study i n a d i f f e r e n t township i n Ontario to 57 determine i f these c o n c l u s i o n s could be a p p l i e d to a l l r u r a l -urban f r i n g e a r e a s , or i f Westminster Township was merely a unique ca se . From h i s s tudy i n Louth Township, O n t a r i o , he concluded t h a t the average non-farm u n i t r e c e i v e s approx imate ly e i gh ty- two d o l l a r s more i n s e r v i c e s than i t y i e l d s i n taxes and that the average farm u n i t pa id approx imate ly s i x t y - f i v e d o l l a r s more than i t r e c e i v e d i n s e r v i c e s . " ^ Krueger a l s o found t h a t the tax y i e l d s of farms tend t o be p r o p o r t i o n a l to t h e i r co s t s of s e r v i c e s , whereas the t a x y i e l d s of non-farm u n i t s tend to be i n v e r s e l y p r o p o r t i o n a l to t h e i r cos t of s e r v i c e s . A s i m i l a r study conducted i n the Lower Main land Region of B r i t i s h Columbia produced s i m i l a r f i n d i n g s . ^ T h i s s t u d y , done i n 1954, showed tha t a t tha t time farm areas p a i d more i n taxes than they r e c e i v e d i n s e r v i c e s . The s tudy area was d i v i d e d i n t o three c a t e g o r i e s and when the revenues were expressed as a percentage of the e x p e n d i t u r e s , the s t a t i s t i c a l averages f o r the c a t e g o r i e s were: farm areas one hundred and t h i r t y - s i x p e r c e n t , sprawl areas s e v e n t y - s i x percent and suburban areas n i n e t y - s i x p e r c e n t . The farm areas produced a c o n s i d e r a b l e surp lu s of revenues over e x p e n d i t u r e s , the sprawl areas f e l l shor t of paying f o r the m u n i c i p a l expendi tures they r e q u i r e d , and the suburban a rea s , on the average, came c lo se to paying t h e i r own way. J . W . W i l s o n , E x e c u t i v e D i r e c t o r of the Lower Mainland R e g i o n a l P l a n n i n g B o a r d , s t a t e s t h a t the study conducted i n the 58 Lower Mainland Region shows that two assumptions which are made when using land as a basis for taxation are not properly applicable i n areas such as the Lower Mainland Region. One assumption i s that land i s a proper index of tax-paying a b i l i t y f or both the urbanite and the farmer. The other i s that land area i s a proper index of municipal costs. "Obviously, land should not be used as part of the tax base without due consideration for the t y p i c a l areas involved." 1'' Summary and Restatement of Hypothesis The trend towards increasing urban population i s increasing the demand for urban land. This increasing demand i s placing pressure on farm land owners to convert t h e i r land from farm uses to non-farm uses. The present land use control techniques, of which zoning and subdivision control are predominantly used, have proven, i n a majority of cases, to be i n e f f e c t i v e i n c o n t r o l l i n g the expanding urban development. As a r e s u l t , acres of farm land are being prematurely converted to non-farm uses. This, combined with the sprawl development which has taken place on both farm and non-farm land, has resulted i n increased service costs for the l o c a l governments. The increased service costs have i n turn resulted i n increased property taxes and the farm land i s bearing the majority of these taxes. Since an increase i n farm taxes reduces the net return to the farm land, t h i s action forces the farm land to be 59 u t i l i z e d more i n t e n s i v e l y . In order to do t h i s , the farm land i s converted to a d i f f e r e n t use such as r e s i d e n t i a l use. I f th i s conversion process occurred only when there was a d e f i n i t e need for more land for urban uses, the problems r e s u l t i n g from the conversion would be reduced. However, the removal of farm land from farm uses has usually occurred well i n advance of the actual need for the land for urban uses. The purpose of t h i s thesis i s to examine what e f f e c t a reduction i n farm taxes would have i n preventing the premature conversion of farm land to non-farm uses. Rather than reduce farm taxes by an a r b i t r a r y f i g u r e , the reduction i n taxes i s based on the theory that property taxes should be related to the municipal services provided. Admittedly, cessation of unco-ordinated urban development would r e s u l t i n lowering municipal expenditures and reducing taxes on farm land; but t h i s does not remove the problem of farm land contributing more i n taxes than i t receives i n services. The root of th i s problem l i e s i n the indiscriminate use of land as one of the two bases f o r municipal tax assessment. The present use seems a reasonable enough basis i n a f a i r l y homogeneous area, whether urban or r u r a l , but i t does not seem j u s t i f i e d when applied without discrimination to both urban and farm land within one taxation d i s t r i c t . Thus, with the assumption that r e a l property taxes should be based on the services received, consideration i s given to the two main types of land use, that i s , farm use and 60 non-farm use. This assumption i s l i m i t e d i n that i t i s not ca r r i ed through to the d i f fe ren t types of land use w i t h i n the farm category and the non-farm category, but refers only to farm and non-farm use. The property taxes l ev ied on the two types of property could be re la ted to the cost of services provided for the respective property e i ther by es tab l i sh ing a d i f fe ren t l e v e l of assessment or a separate tax r a t e . Since the assessment system i s usual ly very de ta i l ed and complicated, the easiest method of obtaining t h i s r e l a t ionsh ip i s by accepting the present assessment system and adjusting the tax rate to r e l a t e the property taxes to the cost of services provided. Accepting the assumption that farm property taxes should be re la ted to the cost of services provided for such property, and the fact that high farm taxes may cause the premature conversion of farm land to non-farm uses, then i t i s proposed: THAT A TAX RATE RELATED TO THE COST OF SERVICES PROVIDED FOR FARM PROPERTY WOULD REDUCE FARM TAXES AND THEREBY PROTECT FARM LAND FROM PREMATURE CONVERSION TO NON-FARM USES. REFERENCES 1 J . B . M i l n e r , " A n I n t r o d u c t i o n t o Zoning E n a b l i n g L e g i s l a t i o n , " The Canadian Bar Review. X L , No. 11 (March, 1962), 8 6 . 2 I b i d . 3canada, S t a tu te s a t L a r g e . 31 V i c t o r i a , c . 3 (1867) , " B r i t i s h Nor th America A c t . " i l n e r , 8 6 . - 'Ear l L e v i n , "Zoning i n Canada, " Community P l a n n i n g Review ? V I I , No. 2 ( June, 1957) ,~W. ^ R a l e i g h Bar lowe , Land Resource Economics (Englewood C l i f f s : P r e n t i c e - H a l l , I n c . , 1958), p . 495 . ^ A . D . C r e r a r , "Land f o r Our F u t u r e , " Community P l a n n i n g  Review. I X , No. 2 ( June, 1959) , 44. ^Mar ion Clawson, "Suburban Development D i s t r i c t s , " J o u r n a l  of The American I n s t i t u t e of P l a n n e r s . X X V I , No. 2 (May, I 9 6 0 ) , 7 1 . " ™~ ^American S o c i e t y of P l a n n i n g O f f i c i a l s , New Techniques f o r Shaping Urban E x p a n s i o n , In fo rmat ion Report No. 160. Prepared by The A . S . P . O . P l a n n i n g A d v i s o r y S e r v i c e (Chicago : American S o c i e t y of P l a n n i n g O f f i c i a l s , 1962) , p . 2 . 1 G B a r l o w e , 517, quot ing J u l i u s Sackman and R u s s e l l Van B r u n t , The Law of Eminent Domain (New Y o r k : Matthew Bender and Company, 1950) , V o l . I , p . 2 . 11 C e n t r a l Mortgage and Housing C o r p o r a t i o n . B u i l d e r s ' B u l l e t i n . Number 113 (Ottawa: C e n t r a l Mortgage and Housing C o r p o r a t i o n , i 9 6 0 ) . IP ^ F r e d r i c k D. S t o c k e r , "How Taxes A f f e c t the Land and F a r m e r s , " Land. The Yearbook of A g r i c u l t u r e . 1958 (Washington: The U n i t e d S ta te s Department of A g r i c u l t u r e , 1958), p . 240. • ^ B a r l o w e , 546. 61 62 Ralph Krueger, "The Rural-Urban Fringe Taxation Problem: A Case Study of Louth Township," Land Economics XXXIII, No."3 (August, 1957), 264, quoting A.J. Barker, Urban Drones i n Rural Hives (London: London Suburban Planning Board, 1949)7 " Xrueger, 268. 'Lower Mainland Regional Planning Board of B r i t i s h Columbia, Economic Aspects of Urban Sprawl (New Westminster: The Lower Mainland Regional Planning Board of B r i t i s h Columbia, 1956), 45 pp. James W. Wilson, "Some Thoughts on Sprawl," Urban Land. XV, No. 7 (July-August, 195&), 7. CHAPTER I I I FARM PROPERTY TAXATION: COSTS AND BENEFITS To test the hypothesis: that a tax rate re la ted to the cost of services provided for farm property would reduce farm taxes and thereby protect farm land from premature conversion to non-farm uses, a case study was conducted using s t a t i s t i c s co l l ec ted from The Corporation of the Township of Richmond, a suburban munic ipa l i ty adjacent to the C i t y of Vancouver i n B r i t i s h Columbia. Richmond was selected for the case study for two main reasons. F i r s t , the munic ipa l i ty was predominantly r u r a l i n character , but due to i t s proximity to the C i t y of Vancouver (Figure 2, page 64) i t has r ap id ly become urbanized during the past ten years.*- As shown i n Figure 3 , page 6 5 , a large percentage of the s o i l i n the munic ipa l i ty i s very f e r t i l e and extremely su i tab le for farm use. With the development of the urban areas i n the mun ic ipa l i t y , acres of the f e r t i l e s o i l used for farming purposes have been converted to non-farm uses, e spec i a l l y r e s i d e n t i a l use. In 1 9 6 l , approximately t h i r t y -n ine percent of the land i n the munic ipa l i ty was c l a s s i f i e d as farm land for assessment purposes. 2 Therefore, Richmond represents a t y p i c a l munic ipa l i ty i n t r a n s i t i o n from a r u r a l to an urban character and i s h igh ly subject to the premature conversion of farm land 63 RICHMOND, BRITISH COLUMBIA, IN THE METROPOLITAN COMPLEX Source^ Technical Committee for Metropolitan Highway Planning, A Study on Highway Planning, Part 2 , A Report Prepared by the City Engineering Department (Vancouver; Technical Committee for Metropolitan Highway Planning, 1958-1959) p. I. TYPES OF SOIL AND URBANIZED AREA, RICHMOND, BRITISH COLUMBIA Source: Lower Mainland Regional Planning Board of British Columbia, Land For Forming. (New Westminster- Lower Mainland Regional Planning Board 67 British Columbia, 1962.) p. 7. 66 to non-farm uses. The second reason for the se l ec t ion of Richmond over other rural-urban mun ic ipa l i t i e s located near Vancouver was that the taxat ion system used i n th i s mun ic ipa l i t y , and the assessment records kept by the municipal o f f i c i a l s , were such that the required s t a t i s t i c s could be extracted and processed wi th in the time ava i lab le for the study and wi th a l i m i t e d knowledge of the municipal accounting p rac t i ce s . The time ava i l ab le for the case study excluded the p o s s i b i l i t y of using data representing a ser ies of years. Thus, one pa r t i cu l a r year was selected as a basis for the study. The year 1961 was selected because of the a v a i l a b i l i t y of population s t a t i s t i c s , and the fact that the assessment f igures could be obtained from the 1961 assessment r o l l without causing undue inconvenience for the municipal o f f i c i a l s concerned. Since i t was impossible to e s t ab l i sh a trend i n the l e v e l of farm taxat ion over a number of years, the representative qua l i t y of t h i s data i s unknown. In t h i s chapter, the taxat ion system used i n B r i t i s h Columbia i s examined to i l l u s t r a t e the re la t ionsh ip between farm and non-farm property t axa t ion . Af ter es tab l i sh ing the basis of the farm taxa t ion , the municipal revenues and expenditures for Richmond are apportioned to the farm and non-farm property. The purpose of these ca lcu la t ions i s to determine whether the municipal revenues received from the farm property exceeded the municipal expenditures which could be a t t r ibu ted to the farm property. The r e su l t s of these ca lcu la t ions w i l l then be used as a basis for es tab l i sh ing a tax rate re la ted to the cost of services provided for the farm property w i th in the mun ic ipa l i t y . Functions of Municipal Government The c o n s t i t u t i o n a l basis for l o c a l or municipal government i n Canada i s contained i n The B r i t i s h North America A c t , 1867.3 Section 92 of the Act assigns municipal i n s t i t u t i o n s i n Canada to the j u r i s d i c t i o n of the provinces. The municipal i n s t i t u t i o n s are instruments of l o c a l s e l f -government, and the exercise of t he i r powers l i e s with the elected representatives of the l o c a l populat ion, but they receive a l l t he i r cons t i t u t i ona l powers from p r o v i n c i a l au thor i ty . M u n i c i p a l i t i e s i n Canada perform functions and provide services which are both mandatory and permissive under P r o v i n c i a l l e g i s l a t i o n . In B r i t i s h Columbia, the general powers and functions of the mun ic ipa l i t i e s are defined i n the 4 cr 'Munic ipa l A c t ' and the 'Vancouver Incorporations A c t f > , and add i t iona l duties are imposed upon them by such l e g i s l a t i o n as the ' Pub l i c Schools A c t , ' the 'Heal th A c t , 1 the 'Hospi ta l s A c t , 1 the ' Juveni le Courts A c t , 1 and various other A c t s . The functions which are mandatory for B r i t i s h Columbia m u n i c i p a l i t i e s , r e la te p r i n c i p a l l y to matters which are of wider than l o c a l concern, which require ce r t a in minimum 68 standards and which are financed both by the Province and the m u n i c i p a l i t i e s . These matters are education, s o c i a l welfare, heal th and h o s p i t a l i z a t i o n , and the adminis t ra t ion of j u s t i c e . The permissive functions usua l ly cover the p rov i s ion of services which are of p e c u l i a r l y l o c a l concern and which are generally considered the proper r e s p o n s i b i l i t y of l o c a l government, to be exercised as desired by the l o c a l inhabitants and as required by l o c a l condi t ions . These services include the protec t ion of persons and property, the enforcement and supervision of sani tary regula t ions , the construct ion and maintenance of publ ic parks, s t ree t s , s ide-walks, and street l i g h t s , the c o l l e c t i o n and d isposa l of sewage and garbage, the operation of municipal u t i l i t i e s , the l i cenc ing of trades and professions, and the p rov is ion of other services to protect safety, hea l th , property, and morals of the inhabi tan ts . Munic ipal expenditures are determined p a r t i a l l y by the l o c a l inhabitants and p a r t i a l l y as a r e su l t of mandatory r e s p o n s i b i l i t i e s imposed on the munic ipa l i ty by p r o v i n c i a l s ta tu tes . The province shares i n f inancing ce r t a in services of more than l o c a l in te res t by way of per capi ta grants and spec ia l grants. To meet the l e v e l of municipal expenditures required, the mun ic ipa l i t i e s have been granted ce r t a in powers to ra i se revenues. Under these powers, the p r i n c i p a l sources of municipal revenue are the taxat ion of land and improvements trade l i cences , spec ia l fees and r en t a l s , f ines and pena l t i e s , 69 and miscellaneous taxes such as a road tax, a dog tax, a l i b r a r y tax, a vehic le tax , and a p o l l tax . A d d i t i o n a l sources of revenue for the mun ic ipa l i t i e s are obtained from P r o v i n c i a l and Federal government grants, and i n some cases, p r o f i t s from municipal ly owned u t i l i t i e s . Table 2 i l l u s t r a t e s that the r e a l property tax i s the larges t source of municipal revenue i n B r i t i s h Columbia, while Figure 4 , page 70, shows the sources of revenue and the d i s t r i b u t i o n of the expenditures for Richmond for the f i s c a l year ending December 31, 1961. TABLE 2 GENERAL REVENUE FOR BRITISH COLUMBIA MUNICIPALITIES, I 9 6 I Type of Mun ic ipa l i t y Source of Revenue Property,Taxes % Other Sources % C i t i e s 59-5 40.5 D i s t r i c t s 71.7 28.3 Towns 55.2 44.8 V i l l a g e s 60.8 39.2 C i t y of Vancouver 66.9 33.1 Source: Munic ipal S t a t i s t i c s for the Year Ended December 31? 196l> Department of Municipal A f f a i r s , Province of B r i t i s h Columbia, V i c t o r i a . 7 0 RICHMOND, BRITISH COLUMBIA REVENUE AND EXPENDITURE For the Year Ending December 31, 1961 Revenue MUNICIPAL SCHOOL LEVY GOVERNMENT GRANTS GENERAL MUNICIPAL LEVY SPECIAL ASSESSMENTS LICENCES AND PERMITS INTEREST AND FINES MISCELLANEOUS (%) 33.4 17.0 38.7 2.0 3.8 3.3 (%) Expenditure TOTAL 100.0 3 3 . 4 MUNICIPAL SCHOOL GRANT 8.5 GENERAL GOVERNMENT 8.7 PROTECTION TO PERSONS AND PROPERTY 16.3 PUBLIC WORKS 3.9 HEALTH AND SANITATION 9.4 SOCIAL WELFARE 4.1 RECREATION 5.8 DEBT CHARGES 6.1 UTILITIES AND LOAN FUND 1.2 MISCELLANEOUS 2.6 RESERVE FUND 100.0 TOTAL Source : Richmond Financial Statements and Annual Reports, 1961 > pp. 6 and 7. Figure 4 71 Assessment and Taxation L e g i s l a t i o n i n B r i t i s h Columbia The Evolution of Assessment and  Taxation L e g i s l a t i o n The f i r s t act providing for the incorporation of municipalities i n B r i t i s h Columbia and setting f o r t h the powers of the municipalities was passed i n 1872. This Act granted the municipalities the power to levy a rate on c e r t a i n property for the purpose of meeting the expenses of the municipality. Section 24, sub-section 6 reads: The council may i n each and every year a f t e r the f i n a l r e v i s i o n of the r o l l pass a by-law for levying a rate on a l l the r e a l and personal property on the said r o l l , to provide for a l l the necessary expenses of said municipality, and also f o r such sum or sums of money as may be found expedient.7 Under t h i s Act, the municipalities did not have the power to exempt improvements and the land and improvements g which were exempt were s p e c i f i e d i n the Act. Amendments to t h i s Act passed i n 1873 and 1874 s t i l l did not grant any power to the municipalities to exempt improvements. However, by the Municipal Act of 1891? a decisive step was taken towards granting t h i s power to the m u n i c i p a l i t i e s . Section 121 of t h i s Act contains the following: Notwithstanding any law to the contrary, i t s h a l l be lawful for the Council of any municipality to pass a by-law declaring that a d i s t i n c t i o n , for the purpose of assessment, within the m u n i c i p a l i t i e s , s h a l l be made between 'land 1 and 'improvements!;9 72 Sub-section (a) of the same Section grants power to the mu n i c i p a l i t i e s to pass by-laws f o r the assessing of land at i t s actual cash value, as i t would be appraised i n payment of a just debt from a solvent debtor. In sub-section (b) of the same Section, power i s granted to pass by-laws for the purpose of assessing improvements not i n excess of f i f t y percent of t h e i r actual cash value, or to exempt a l l improvements from assessment and taxation. In I896, an important change with regard to assessment of improvements came with the passing of the 'Municipal Clauses Act' (now the 'Municipal A c t 1 ) . 1 0 This Act was made to apply to a l l municipalities except where clauses of a s p e c i a l act were repugnant to i t . The Act provides for the assessment of land and improvements at actual cash value, ". . . a s they would be appraised i n payment of a just debt from a solvent debtor, but land and improvements s h a l l be assessed separately'';i 1 1 Power i s given to the municipal council to pass a by-law f o r the taxing of property as i n the assessment r o l l , but the tax on improvements must not be l e v i e d on more than f i f t y percent of t h e i r assessed value, and improvements may be t o t a l l y exempt at the d i s c r e t i o n of the council.*- 2 In 1932, an Act was passed to increase the l e v e l at which improvements could be taxed from f i f t y percent to seventy-five percent.*^ Farm land and improvements have received s p e c i a l treatment with regard to taxation. In 193°, the P r o v i n c i a l 73 government enacted l e g i s l a t i o n which stated that farm land s h a l l be assessed at the value which i t has for farm purposes.*- 4 During the 1948 session, the P r o v i n c i a l Legislature enacted l e g i s l a t i o n which granted a f i v e thousand d o l l a r exemption for taxation purposes to farm improvements, excluding the farm residence.*-5 An exemption was granted to farm land i n 1961 with the passing of a clause permitting a one thousand d o l l a r exemption per 'farm unit' f o r school taxation purposes. *-^  L e g i s l a t i o n i n 196l As of I 9 6 I , the Municipal Act states that land and improvements s h a l l be assessed at t h e i r actual value. The degree to which the improvements may be taxed i s at the d i s c r e t i o n of the l o c a l authority, with the exception that they are not to be taxed at a value exceeding seventy-five percent of the assessed value. A l l assessment and taxation procedures which apply to the municipalities i n B r i t i s h Columbia, excluding the C i t y of Vancouver, are outlined i n d e t a i l i n the Municipal Act.*-? When assessing land and improvements, the Municipal Assessor may give consideration to the present use, l o c a t i o n , o r i g i n a l cost, cost of replacement, r e n t a l value, the price which the property might be expected to bring i f sold, and to any other circumstances which may a f f e c t the value.*- 8 Certain properties within the municipalities receive special consideration and 74 these properties, as l i s t e d i n the Municipal Act, may be p a r t i a l l y or wholly exempt.^ Farm improvements receive s p e c i a l exemption as outlined i n Section 327 of the Municipal Act: ( i ) A l l improvements (other than dwellings and those f i x t u r e s , machinery, and similar things mentioned i n sub-clause ( i i ) of t h i s clause) erected upon or a f f i x e d to farm lands and used exclusively i n the operation of a farm, up to but not exceeding a value of f i v e thousand d o l l a r s : ( i i ) The f i x t u r e s , machinery, and similar things located on farm land which, i f erected or placed i n , upon, or under or a f f i x e d to land, thereon, or thereunder, would, as between landlord and tenant, be removable by the tenant.20 As previously mentioned, land which i s c l a s s i f i e d as farm land i s assessed on the basis of i t s value for farming purposes only. The c r i t e r i a used to c l a s s i f y land as farm land i s outlined i n d e t a i l i n the Municipal Act and includes consideration of the portion of land under c u l t i v a t i o n or used f o r a g r i c u l t u r a l purposes, the time devoted to the use of the land by the owner or tenant, and the r e l a t i o n s h i p between the value of the products and the area of the land. A l l land i n parcels of f i v e acres or more i s c l a s s i f i e d as farm land i f these requirements are s a t i s f i e d . In the case of a parcel of land of two acres or more, and less than f i v e acres i n s i z e , i t may be c l a s s i f i e d as farm land i f the owner or occupier receives the greater part of his t o t a l annual income from the p a r c e l . 2 1 In Richmond, where the case study was conducted, l o c a l taxation on a l l taxable land i s levied on one hundred percent of 75 the assessed land value: the assessed value being f i f t y per-cent of the f u l l land value. The percentage of the assessment upon which taxes for municipal purposes may be levi e d on improvements i s established at the d i s c r e t i o n of the council, but i s a c t u a l l y applied at the maximum of seventy-five percent. The assessed value of the improvements, including equipment, i s equal to f i f t y percent of the market value. For school purposes, the percentage of the assessed value which may be subject to taxation i s mandatory at seventy-five percent. In addition to t h i s , there are exemptions for farm improvements. The farm dwelling i s subject to taxation as are a l l other dwellings i n the municipality, but there i s a maximum exemption of f i v e thousand d o l l a r s f o r improvements used exclusively i n the operation of a farm. Farm land i s also granted an exemption f o r school taxation purposes with a maximum exemption of one thousand d o l l a r s per 'farm u n i t ' 2 2 from the assessed value allowed. Apportionment of Municipal Revenue and Expenditure The aim of thi s study i s to determine the rel a t i o n s h i p between the farm property taxes and the cost of services provided for farm property by a l l o t t i n g the municipal revenue and expenditure to two types of property; farm and non-farm. In order to apportion the revenue and expenditure to the farm and non-farm property i t was necessary to separate the revenue and expenditure into two categories; one, that which could be 76 d i r e c t l y r e l a t e d t o the farm and non-farm p r o p e r t y and the second, tha t which had to be r e l a t e d i n d i r e c t l y by a p p o r t i o n i n g i t on a per c a p i t a b a s i s . To d i s t r i b u t e the revenue and expendi ture on a per c a p i t a b a s i s n e c e s s i t a t e s a b a s i c assumption t h a t these revenues and expendi tures are p r o p o r t i o n a l to the s i z e o f the p o p u l a t i o n . Before any d i s t r i b u t i o n c o u l d be made, i t was necessary to es t imate both the t o t a l farm p o p u l a t i o n and the number of farm c h i l d r e n a t t e n d i n g s c h o o l . P o p u l a t i o n Es t imates There were no records r e v e a l i n g the 1961 farm p o p u l a t i o n i n Richmond and t h e r e f o r e i t was necessary to use the a v a i l a b l e i n f o r m a t i o n to e s t imate the farm p o p u l a t i o n . The t o t a l p o p u l a t i o n f o r the m u n i c i p a l i t y and a d i s t r i b u t i o n of t h i s p o p u l a t i o n i n t o t h i r t y - f i v e census enumeration d i s t r i c t s was a v a i l a b l e . The t o t a l number of d w e l l i n g s , the number of farms, and the average f a m i l y s i z e f o r each enumeration d i s t r i c t was a l s o a v a i l a b l e . 23 An es t imate of the t o t a l number of farm d w e l l i n g s was obtained, by de termin ing the number of farm d w e l l i n g s assessed and l i s t e d i n the assessment r o l l , 2 ^ By making a p r o p o r t i o n a l adjustment to compensate f o r the d i s c repancy between the 489 farms as d e f i n e d by the Dominion Bureau of S t a t i s t i c s 2 ^ and the 418 c l a s s i f i e d farm 26 u n i t s as d e f i n e d by the M u n i c i p a l A c t i t was p o s s i b l e t o es t imate the number of farm d w e l l i n g s as d e f i n e d i n t h i s s tudy , i n each census enumeration d i s t r i c t . 77 The ca lcula ted number of farm dwellings i n each enumeration d i s t r i c t was then m u l t i p l i e d by the average number of persons per dwell ing uni t i n each enumeration d i s t r i c t to give the farm population for each d i s t r i c t . Since the average family s i ze i n f ive census enumeration d i s t r i c t s which were predominantly farm areas was smaller than the average family s i ze of the mun ic ipa l i t y , an adjustment was made to the average number of persons per dwell ing i n each census enumeration d i s t r i c t . This adjustment was made on the assumption that the average farm family was smaller than the average non-farm fami ly , and therefore the number of persons per farm dwell ing would be less than the number of persons per non-farm dwe l l ing . The t o t a l 1961 farm population for the munic ipa l i ty was estimated to be 1,373<> The same method was employed to estimate the number of farm ch i ld ren attending school . The average number of school ch i ld ren i n the munic ipa l i ty i n 1961 was 9,5&3» By ca lcu la t ing the average number of school ch i ld ren per dwell ing and again making an adjustment to allow for the smaller farm family s i z e , i t was poss ib le to estimate the number of farm ch i ld ren i n each enumeration d i s t r i c t attending school . The number of farm ch i ld ren attending school was estimated at 315» 78 Allotment of the Munic ipal Revenue and Expenditure Munic ipa l Revenue The only municipal revenue included i n the ca lcu la t ions i s that derived from d i r ec t taxat ion on r e a l property and from a Federal Government grant i n l i e u of property taxes. A l l other revenues were excluded i n order to reduce the error which ar i ses when apportioning revenue and expenditure on a per capi ta b a s i s . The 1961 municipal revenue for Richmond was apportioned to farm and non-farm property i n the fol lowing manner. Farm land assessments for municipal taxa t ion purposes and for school taxat ion purposes, as w e l l as the assessments on farm improvements, were obtained from the municipal assessment r o l l . These to t a l s were then subtracted from the t o t a l assessments for the munic ipa l i ty to determine the assessments on the non-farm property. The d i f fe ren t assessments were then m u l t i p l i e d by the 1961 tax rate to determine the municipal revenue derived from taxat ion of the farm and non-farm property. Since the municipal tax rate was greater than the school tax r a t e , separate ca lcu la t ions were made for each. The Federal Government grant i n l i e u of taxes was included with the non-farm taxes as a l l Federal Government property i n the munic ipa l i ty i s non-farm property. The re su l t s of apportioning the municipal revenue are shown i n Table 3, page 79. 79 TABLE 3 APPORTIONMENT OF MUNICIPAL TAX REVENUES RICHMOND, I96I Total Farm Non-Farm Revenue Share Share % of % of Dollars Dollars Total Dollars Total Taxes - Municipal Land Improvements 502,101 1,307,721 1,809,822 68,749 50,398 119,147 14 4 7 433,352 1,257,323 1,690,675 86 96 93 - School Land Improvements 365,732 1,1?4,329 1,560,061 42,781 37,570 80,351 12 3 5 322,951 1,156,759 1,479,710 88 97 95 Total Taxes 3,369,883 119,498 6 3,170,385 94 Grant i n l i e u of Taxes 57,093 — - 0 57,093 100 3,426,976 119,49U 6 3,227,478 94 Municipal Expenditure From an examination of the municipal expenditures i t became evident that education and welfare were the only municipal expenditures which could be f a i r l y apportioned to farm and non-farm property according to the actual value of the services received. The value of the remaining expenditures included i n the calculations have been apportioned on a per capita b a s i s . By apportioning these expenditures i n t h i s manner, the service costs to industry and commercial 80 establishments are included with the non-farm expenditures. This was done because of the d i f f i c u l t y of determining the exact service costs of i n d u s t r i a l and commercial establishments. Although t h i s does not a f f e c t the t o t a l expenditures as apportioned to the farm and non-farm property, i t does introduce a s l i g h t error when the expenditures to the non-farm property are expressed as a dwelling unit cost. The municipal expenditures apportioned are equivalent to the amount which had to be made up by the taxpayers of the municipality a f t e r government grants and other miscellaneous income were subtracted from the t o t a l municipal expenditure. This was done i n order to reduce the error introduced by apportioning c e r t a i n municipal expenditures on a per capita basis and does not influence the o v e r a l l r e l a t i o n s h i p since the additional revenue and expenditure would be apportioned on the same per capita basis. A l l expenditures which could be i d e n t i f i e d with l o c a l improvements were excluded because, i n such cases, each user pays for the services received. The cost of s o c i a l welfare was charged d i r e c t l y to the non-farm property as only two of the approximately six hundred welfare cases i n the municipality were c l a s s i f i e d as farm people by the Welfare Department. Since the Welfare Department could not release the names or addresses of these people, i t was impossible to determine whether they would be c l a s s i f i e d as part of the farm population according to the d e f i n i t i o n of a farm as used i n t h i s study. 81 The method used to apportion the various expenditures between farm and non-farm property was as follows: Education-Number of farm pupils x Actual municipal = F a r m share Total number of pupils cost Remaining Expenditures-Farm population x Expenditures = Farm share Total population By exchanging the word 'non-farm' f o r 'farm,' exactly the same procedure was used to determine the expenditures apportioned to the non-farm property. The expenditures for s o c i a l welfare charged to the non-farm property were only those costs incurred by the municipality, that i s , t o t a l s o c i a l welfare costs minus the P r o v i n c i a l Government s o c i a l assistance grant. The r e s u l t s of apportioning the municipal expenditures are shown i n Table 4, page 82. A summary of the apportioned municipal revenue and expenditure i s presented i n Table 5, page 82. Table 5 shows that the taxes on farm property contributed 5*8 percent of the t o t a l tax revenue and only 3*1 percent of the same sum of expenditures are apportioned to the farm property. The table also shows that the farm property subsidized the non-farm property by approximately 92,753 d o l l a r s i n 1961. 82 TABLE 4 APPORTIONMENT OF MUNICIPAL EXPENDITURES, RICHMOND, 1961 T o t a l Expendi ture D o l l a r s Farm Share D o l l a r s % of T o t a l Non-farm Share % of D o l l a r s T o t a l E d u c a t i o n 1,562 ,114 51,550 3 1,510,564 97 S o c i a l Welfare 123,686 — - 123,686 100 Other Expenses 1 ,741,176 3,426,976" 55,195 106,745 3 3 1,685,981 97 3,320,231 97 TABLE 5 SUMMARY OF MUNICIPAL REVENUE AND EXPENDITURE APPORTIONED TO FARM AND NON-FARM PROPERTY, RICHMOND, I96I Farm Non-Farm T o t a l % of % of A p p o r t i o n e d D o l l a r s D o l l a r s T o t a l D o l l a r s T o t a l Revenue 3,426,976 199,498 5.8 3,227,478 94.2 E x p e n d i -3,426,976 106,745 3.1 ture 3,320,231 96.9 83 Evaluat ion of the Revenue and Expenditure D i s t r i b u t i o n In I96I, Richmond contained 727 parcels of land which were c l a s s i f i e d as farm land under the Municipal A c t . Ca lcu la t ing the l ev ied taxes on farm property on a per parce l bas i s , there was an average tax levy of 274- d o l l a r s per p a r c e l . The average cost of services apportioned to the farm property was 146 d o l l a r s per p a r c e l . Thus, for the year 1961, each parce l of farm land i n Richmond subsidized the non-farm property by an average of 128 d o l l a r s . These f igures indica te a general r e l a t ionsh ip r e su l t i ng from apportioning the municipal tax revenues and an equal sum of expenditures between two types of property: farm property, and non-farm property. A further breakdown apportioning the revenues and expenditures among the various types of property w i th in the two broad groups should r e su l t i n the same general t rend. I f the apportionment to the non-farm property were car r ied one stage fur ther , i t would probably reveal that the commercial and i n d u s t r i a l property i n the munic ipa l i ty paid more taxes i n r e l a t i o n to services received than the r e s i d e n t i a l property. Pos i t i ve data regarding the non-farm revenue and expenditures i s not a v a i l a b l e , but the general r e l a t ionsh ip i s i l l u s t r a t e d by municipal records which show that each residence i n Richmond requires an average of 127 d o l l a r s per year subsidy from other tax sources. 27 84 In th i s study, only a por t ion of the municipal revenue and expenditure was included i n the c a l c u l a t i o n s . I f the t o t a l municipal revenue and expenditure were included, the amount of revenue and expenditure a l l o t t e d to the farm and non-farm property would be greater , but the re la t ionsh ip would remain the same since, the add i t i ona l revenue and expenditure would be apportioned on a per capi ta ba s i s . I t i s es tabl ished that the farm property i s paying more i n r e l a t i o n to the cost of services received than the non-farm property. In Chapter IV, a tax rate re la ted to the cost of services provided for the farm and non-farm property i s ca lcu la ted . This tax rate i s then used to determine the taxes which would be l ev i ed on a f ive percent random sample of the 727 parcels of farm land i f the tax rate were re la ted to the cost of services provided for farm property. An attempt i s then made to determine the effect th i s tax rate has on farm land income as measured by farm land r en t a l va lues . REFERENCES Lower Main land R e g i o n a l P l a n n i n g Board of B r i t i s h Columbia , Land For Farming (New Westminster : Lower Main land R e g i o n a l P l a n n i n g Board of B r i t i s h Columbia , 1962), P . 39. p C a l c u l a t e d from data c o l l e c t e d from the assessment r o l l , The C o r p o r a t i o n of The Township of Richmond, 1963. ^Canada, S t a t u t e s a t L a r g e . 31 V i c t o r i a , c . 3 (1867), " B r i t i s h Nor th America A c t . " ^ B r i t i s h Columbia , Rev i sed S t a tu te s a t Large . 9 E l i z a b e t h I I , c . 255 ( I 960 ) , " M u n i c i p a l A c t . " 5The Vancouver I n c o r p o r a t i o n A c t i s a s p e c i a l ac t under which the C i t y of Vancouver i s i n c o r p o r a t e d . ^ B r i t i s h Columbia , S t a t u t e s a t L a r g e , 35 V i c t o r i a , No. 35 (1872), " A n A c t Respec t ing M u n i c i p a l i t i e s . " 7 I b i d . , S e c t i o n 24. 8 I b i d . , S e c t i o n 27. 9Br i t i s h Columbia , S t a t u t e s at L a r g e . 54 V i c t o r i a , c . 29, S e c t i o n 121 ( I 8 9 D , "An A c t Respect ing M u n i c i p a l i t i e s . " 1 0 B r i t i s h Columbia , S t a t u t e s at L a r g e . 59 V i c t o r i a , c . 37 (I896), "The M u n i c i p a l Clauses A c t . " 1 1 I b i d . , S e c t i o n 112. 1 2 I b i d . . S e c t i o n 136. 13 B r i t i s h Columbia , S t a t u t e s a t La rge , 22 George V , c . 39, S e c t i o n 14 (1932), " A n A c t to Amend the M u n i c i p a l A c t . " • ^ B r i t i s h Columbia , S t a t u t e s at La rge , 20 George V , c . 4 8 , S e c t i o n 10 (1930), "An A c t to Amend the M u n i c i p a l A c t . " 1 ^ B r i t i s h Columbia , S t a tu te s a t L a r g e . 12 George V I , c . 6 l , S e c t i o n 10 (1948, " A n A c t to Amend the M u n i c i p a l A c t . " 86 l - ^ B r i t i s h C o l u m b i a , S t a t u t e s a t L a r g e , 10 E l i z a b e t h I I , c. 4 3 , S e c t i o n 10 (1948), "An A c t t o Amend t h e M u n i c i p a l A c t . " " ^ B r i t i s h C o l u m b i a , R e v i s e d S t a t u t e s a t L a r g e , 9 E l i z a b e t h I I , c. 255 ( I 9 6 0 ) , " M u n i c i p a l A c t . " I b i d . , S e c t i o n 33O, s u b s e c t i o n ( 1 ) . 1 9 I b i d . . S e c t i o n 327. 20 I b i d . , S e c t i o n 327, s u b s e c t i o n ( 1 ) . 2 1 I b i d . . S e c t i o n 332. 2 2 F a r m u n i t means any p a r c e l o r group o f p a r c e l s o f l a n d c o n t i g u o u s or n o t , making up a t r a c t o f l a n d owned o r o c c u p i e d by a p e r s o n s i n g l y o r j o i n t l y w i t h any o t h e r p e r s o n o r per s o n s and o p e r a t e d as an i n t e g r a t e d f a r m i n g e n t e r p r i s e . 2^Canada Census, Tenth Census o f Canada ( U n p u b l i s h e d D a t a , Ottawa, 1961) . ecause o f the d i f f i c u l t y o f d e t e r m i n i n g w h i c h farms h a v i n g an improvement assessment over f i v e thousand d o l l a r s had a r e s i d e n c e , t h i s e s t i m a t e i s s u b j e c t t o a c e r t a i n e r r o r . 2 5canada Census, Tenth Census of Canada ( U n p u b l i s h e d D a t a , Ottawa, I 9 6 I ) . 26Above, P. 73 . 27[Che C o r p o r a t i o n o f The Township o f Richmond, Richmond  I n d u s t r i a l Development By-Law, Richmond, 1961. P r o m o t i o n Pamphlet. CHAPTER IV THE EFFECT ON FARM LAND RENTALS OF A TAX RATE RELATED TO SERVICES PROVIDED TO FARM LAND In Chapter I I I i t was shown that i n 19&1, the farm property i n Richmond subsidized the non-farm property by 92,753 d o l l a r s . The purpose of t h i s Chapter i s to further examine the hypothesis: that a tax rate re la ted to the cost of services provided for farm property would reduce farm taxes and thereby protect farm land from premature conversion to non-farm uses. This w i l l be done by es tab l i sh ing a tax rate which i s re la ted to the cost of services provided for farm land . An attempt i s a lso made to determine the effect that t h i s would have on income from farm land, as measured by farm land ren ta l values. The i d e a l measure to be used to determine the effect a reduction i n farm property taxes would have on the prevention of premature conversion of farm land to non-farm uses, would be net farm income, providing a l l other expenditures remained constant. To use th i s measure, de t a i l ed data on net farm income would be required, and a l l data would have to be on a comparable bas i s . Due to the sca rc i ty of s t a t i s t i c a l data reveal ing the farm income for a spec i f i c area and a lso the fact that farm enterprises do not have a standardized system of accounting which would enable a f a i r comparison of net 87 88 income, t h i s measure i s not sui table for use. In view of th i s s i t u a t i o n , an a l t e rna t ive measure i s employed. This measure i s the r en ta l value of farm land, that i s , the income or y i e l d from the land as opposed to the income or y i e l d from the farm enterpr i se . Since a non-operating farm land owner i s w i l l i n g to grant the r i gh t to farm the land to an operating farmer for an annual charge, t h i s annual charge may be used as an i n d i c a t i o n of the ac tua l re turn to the farm l a n d , 1 and i n turn indicates the in te res t on the c a p i t a l which i s invested i n the farm land . Ca lcu la t ion of a Tax Rate Related to the Services Provided The f i r s t step of t h i s f i n a l analys is i s to ca lcula te a tax rate which w i l l levy r e a l property taxes on farm property and on non-farm property which are propor t ional to the cost of services provided to the respective propert ies as ca lcula ted i n Chapter I I I . Table 6, page 89, i l l u s t r a t e s the proposed tax rates derived from these c a l c u l a t i o n s . By r e l a t i n g the tax rate to the cost of services the tax rate for farm and non-farm property i s reduced approximately f i f t y percent, while the tax rate for non-farm property i s increased approximately four percent i n order to provide the munic ipa l i ty wi th the same t o t a l tax revenue. The tax rate re la ted to the cost of services would r e su l t i n less taxes l ev ied on farm property and more taxes l ev i ed on 89 non-farm property. This would increase the amount of tax l ev i ed on the scattered r e s i d e n t i a l developments, but i t would a lso increase the amount of tax l ev ied on commercial and i n d u s t r i a l property. TABLE 6 PROPOSED TAX RATE RELATED TO SERVICES PROVIDED FOR FARM AND NON-FARM PROPERTY, RICHMOND, I 9 6 I Type of Property and Purpose of Tax Tota l Land and Imp. Assessment (do l la r s ) Cost of Services Provided (do l la r s ) 1961 Tax Rate ( m i l l s ) a Proposed Tax Rate (mi l l s ) Farm Property Municipal Purposes School Purposes 4,332,650 3 ,919,560 55,195 51,550 2 7 . 5 2 0 . 5 1 2 . 7 4 b 13.15 Non-Farm Property Municipal Purposes School Purposes 6 l , 4 7 9 , 0 6 0 72,180,968 1,809,667 1,510,564 2 7 . 5 2 0 . 5 29.43 • 20.93 a A m i l l i s equivalent to one thousandth, i . e . $0,001 ^Tota l assessment m u l t i p l i e d by the tax rate equals the amount of taxes i n d o l l a r s . Se lec t ion of a Random Sample for Detai led Ana lys i s To proceed wi th the study i t was necessary to select a random sample from the 727 parcels of farm land i n the M u n i c i p a l i t y . A f i ve percent sample was selected on the basis that i t would y i e l d a number of parcels which could e a s i l y be 90 employed i n the d e t a i l e d a n a l y s i s and s t i l l a d e q u a t e l y r e p r e s e n t the t o t a l number o f p a r c e l s . The o r i g i n a l l i s t i n g o f a l l r e a l p r o p e r t y assessments i n t he M u n i c i p a l i t y appears i n t h e assessment r o l l . The r o l l i s a r r a n g e d i n n u m e r i c a l sequence w i t h r e s p e c t t o the l e g a l s u r v e y w i t h i n the m u n i c i p a l i t y and a l l assessments a r e r e c o r d e d as t h e y a r e e n c o u n t e r e d . Thus, the i n d i v i d u a l assessments f o r the f arm p r o p e r t y a r e i n t e r m i x e d w i t h assessments f o r non-farm p r o p e r t y , w i t h a l l f a r m p r o p e r t y assessments i d e n t i f i e d by a p r e f i x t o the r o l l number. A l l o f the f a r m p r o p e r t y assessments were i d e n t i f i e d and e x t r a c t e d f rom t h e r o l l and r e c o r d e d f o r s a m p l i n g p u r p o s e s . Of the 727 p a r c e l s o f f a r m l a n d r e c o r d e d i n the assessment r o l l , 378 c o n t a i n a f a r m r e s i d e n c e and 349 do not c o n t a i n a r e s i d e n c e . The f a r m l a n d p a r c e l s a l s o v a r y i n s i z e so i t was n e c e s s a r y t o s e l e c t a random sample w h i c h would r e p r e s e n t the v a r i o u s s i z e d p a r c e l s and the p a r c e l s w i t h and w i t h o u t a r e s i d e n c e . To do t h i s , a l l p a r c e l s were grouped and c l a s s i f i e d e i t h e r w i t h a r e s i d e n c e o r w i t h o u t a r e s i d e n c e . S i n c e many o f the farm p a r c e l s appeared t o be l e s s t h a n t e n a c r e s i n s i z e , t h i s was s e l e c t e d as the major d i v i s i o n f o r g r o u p i n g . I n o r d e r t h a t the d i f f e r e n t s i z e d p a r c e l s c o u l d be compared i n the a n a l y s i s , a f u r t h e r d i v i s i o n was made and t h e p a r c e l s were c l a s s i f i e d i n t o f o u r groups a c c o r d i n g t o s i z e as shown i n T a b l e 7, page 91» 91 Each of these groups was divided into. two sub-groups, A and B , wi th sub-group A containing the parcels without a residence and sub-group B containing the parcels wi th a residence. A f ive percent sample was then selected from each sub-group by se lec t ing a number from one to twenty at random and se lec t ing every twentieth l i s t i n g . The farm parcels selected i n t h i s manner were used i n comparing the median farm land ren ta l values with the l ev ied taxes using both the 1961 tax rate and the proposed tax r a t e . TABLE 7 SIZE AND DISTRIBUTION OF FARM LAND PARCELS RICHMOND, I96I Group Size of P a r c e l s ' i n Acres Number, of Parcels I 0 to 5 .0 196 I I 5 .1 to 10.0 232 I I I 10.1 to 2 0 . 0 117 IV 20.1 and over 182 Rental Values as a Measure of Farm Land Returns Farm Land Rental Values Farm land i n Richmond i s valued for assessment purposes by using the income approach based on p roduc t iv i ty as measured by farm land r e n t a l s . 2 In general , t h i s involves de ta i l ed 92 analys is of ex i s t ing information on ac tua l farm renta ls by r e l a t i n g the r en ta l value to the d i f ferent classes of s o i l and applying a c a p i t a l i z a t i o n rate to the median r en ta l values . This approach shows a r e l a t i v e l y constant value per acre, wi th a tendency towards lower r en ta l values for smaller p a r c e l s . 3 . Farm land has been c l a s s i f i e d by the Municipal Assessor in to three s o i l types for assessment c a l c u l a t i o n s , namely, Ladner Clay Loam s o i l s , mixed s o i l s and peat s o i l s . Out of 35 r en ta l cases which were analysed to y i e l d the median r e n t a l values, 31 were r en t a l values for land cons is t ing of Ladner Clay Loam s o i l s and 4 were r en ta l values for land cons is t ing of mixed s o i l s . There were no renta ls of farms located on peat s o i l s i n the mun ic ipa l i t y . The Assessor ' s analys is of renta ls based on Ladner Clay Loam s o i l s showed that the r en t a l value varies wi th the type of farming and the s ize of the parcel as i l l u s t r a t e d i n Table 8 below and Table 9, page 93? °u t the r en t a l value for each parce l remained r e l a t i v e l y constant from year to year. 4* TABLE 8 MEDIAN ANNUAL RENT VALUE ACCORDING TO TYPE OF FARM USE FOR LADNER CLAY LOAM SOILS, RICHMOND Median of Mixed Median of Pasture Median of a l l Rentals Farm Rentals Land Rentals $30 per acre $35 per acre $25 per acre Sources Assessment Department F i l e s , Richmond, 1963. 93 TABLE 9 MEDIAN ANNUAL RENT VALUE ACCORDING TO FARM SIZE FOR LADNER CLAY LOAM SOILS, RICHMOND Size i n Acres Rental per Acre 4 to 10 i n c l u s i v e $25 12 to 20 i n c l u s i v e 35 21 to 30 i nc lu s ive 30 31 to 40 i nc lu s ive 35 Source:. Assessment Department F i l e s , Richmond, 19&3* For the mixed s o i l s , the median ren ta l value was found to be twenty do l l a r s per acre, however, the r en t a l value varies wi th the composition of the mixed s o i l s .5 Limi ta t ions and A p p l i c a t i o n of Rental Values The r en t a l value of farm land as previously out l ined represents the annual payments made by a farm operator to a farm land owner for the r i g h t to use the land for farming a c t i v i t i e s . The r e a l property taxes are the r e s p o n s i b i l i t y of the land owner and represent a f ixed annual charge against the property. General ly , t h i s i s the only charge which the land owner i s responsible f o r , but depending upon the r en t a l agreement between the tenant and the owner, other charges may occur. Thus, the r en ta l charges represent a form of in te res t 94 on the investment i n the land rather than a p r o f i t from the farming enterpr ise . I f the market value of farm land was re la ted to the value for farming purposes and no other factors contributed to i t s value, the annual r en t a l charges would be a precise measurement of the return from the land. However, as i l l u s t r a t e d i n Figure 5, page 95, there are various other factors i n add i t ion to the p roduc t iv i ty of the land which combine to form the market value of the l and . These other factors include a value as a home s i t e , a value a t t r ibu ted to the prest ige attached to land ownership and a speculative value . Thus, the r en ta l charges for farm land do not f u l l y represent the economic re turn to the c a p i t a l invested i n the land as the land owners a t t r i bu te a value to the in tangib le re turns . A farm land owner may accept a low re turn on the c a p i t a l invested i n the land as the land supplies the in tangib le elements out l ined above. Since i t i s impossible to evaluate these in tangible returns , i t i s necessary to assume that any increase or decrease i n farm property taxes w i l l d i r e c t l y affect the re turn to the farm land as measured by r e n t a l values. The Effect of the Proposed Tax Rate on Farm Land Returns The r en t a l values ca lcula ted by the Assessor for Richmond were adjusted for use i n th i s study. In order to evaluate the r en ta l values of the i n d i v i d u a l parcels of farm land , the parcels selected for de ta i led analys is should have 1961 MEDIAN FARM LAND VALUES FOR ALL SOILS , RICHMOND, BRITISH COLUMBIA Ul 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95- 100 SIZE OF FARM PARCEL IN ACRES L E G E N D Productivity Value Residential Value Speculative Value Sources Assessment Records, Richmond, British Columbia, 1963. 96 been re la ted to the types of s o i l and the r e n t a l values appl ied on th i s b a s i s . This would have involved endless hours of work r e l a t i n g the l e g a l desc r ip t ion of the i n d i v i d u a l parcels of land to a s o i l map of the munic ipa l i ty as w e l l as causing undue inconvenience to the Municipal O f f i c i a l s concerned. In view of t h i s , a median r e n t a l value was calcula ted and used as a basis for a l l pa rce l s . The r en ta l value a lso varies wi th the type of farming a c t i v i t y and the s ize of the parce l s , and since i t was impossible to iden t i fy the type of farming for each parce l of land i n the selected sample, an adjustment was made on the basis of the median establ ished for the various s ized parcels located on Ladner Clay Loam s o i l s . The median r e n t a l values used as a measure of the re turn to the farm land are 22.50 do l l a r s per acre for parcels of land under 10 acres i n s ize and 27-50 d o l l a r s per acre for parcels of land 10.1 acres i n s i ze or l a rge r . Deta i led ca lcu la t ions were made for each of the parcels of farm land i n the f ive percent sample to determine the taxes l ev ied on the land i n 1961 (tax rate A) and the taxes which would have been l ev ied on the land i f the taxes were re la ted to the services provided to the farm land (tax rate B ) . I t was assumed that a l l farm property should be subject to the same tax rate even i f the property d id not receive equal se rv ices . Improvement assessments were excluded when ca l cu l a t ing the taxes l ev ied on the farm land as the r en ta l values used do not include payment for improvements. 97 The net re turn per acre, that i s , the r e n t a l charge minus the l ev ied taxes, was calcula ted for each parcel using tax rate A and tax rate B and from t h i s , the increase i n ac tua l re turn per acre was der ived. Table 11, page 98> shows the resu l t s of these c a l c u l a t i o n s . The medians for the net re turn using tax rate A , the net return using tax rate B , and the increase i n the net re turn for each of the four s ize groups are presented i n Table 10. TABLE 10 MEDIAN NET RETURN PER ACRE USING I96I AND PROPOSED TAX RATES, RICHMOND Tax Rate Tax Rate Percent Size of parcels A B Increase Increase 0 - 5.0 A c . $ 8.36 $15.2-9 $6.93 82.7 5.1 - 10.0 A c . 13 .04 17.85 4.72 36.2 10.1 - 20.0 A c . 14.34 20.56 6.21 43.3 20.1 and over A c . 21 .14 24.08 2.94 13.9 This table shows that by r e l a t i n g the tax rate to the cost of services provided to farm property, a reduction i n the taxes l ev ied on farm land occurs and resu l t s i n an increase i n the net re turn to the land. The increase i n net re turn ranges from 1.10 d o l l a r s to 11.14 do l l a r s per acre for the 37 parcels TABLE 11 LEVIED TAX AND NET RETURN PER ACRE USING 1961 AND PROPOSED TAX RATES, RICHMOND Levied Taxes Net Return (rent - taxes) Land Assessment Tax Rate A a Tax Rate B b Tax Rate A Tax Rate B Increase Acreage General School Total Per T o t a l Per Per Acre Per Acre Per Acre Acre Acre ' 4.6 $1,520 • $ 520 $ 52.46 $11.40 $ 26.26 $ 5.70 $11.10 $16 .80 $ 5.70 G 2.2 700 700 33.60 15.27 18.13 8.24 7.23 14.26 7.03 R 4.3 750 n i l 20.63 4.80 9.56 2.22- 17.70 20.28 2.58 0 5.0 1,900 900 70.70 14.14 36.05 . 7.21 8.36 15.29 6.93 U 5.0 1,650 650 58.71 11.74 . 29 .57 5.91 10.76 16 .59 5.83 P 5.0 900 . n i l 24.75 4.95 11.47 2.29 17 .55 20.21 ' 2 . 6 6 4.6 1,600 1,500 74.75 16.25 40.11 8.92 6.25 13 .78 7.53 I 2.0 1,340 340 43.82 21/91 21 .54 10.77 .59 11.73 11.14 5.0 1,900 900 70.70 14.14 36.05 7.21 8.36 15.29 6.93 5.0 1,900 900 70.70 14.14 36.05 7.21 8.36 15.29 6.93 5.2 •$1,080 $ 80 $ 31.34 $ 6.03 $ 14.81 $ 2.85 $16.47 $19 .65 $ 3.18 G 10.0 1,100 770 46.04 4.60 24.14 2.41 17.90 20.09 2.19 R 6VL- 1,050 1,050 50.41 8.26 27.19 - 4.46 14.24 18.04 3.80 0 8.0 2,200 1,200 85.10 10.64 43.81 5.48 11 .86 17.02 5.16 U 5.9 2,200 2,200 105.60 17.89 56.96 9.65 4.61 • 12 .85 8.24 P 5.1 940 n i l 24.85 5.07 11.98 2.35 17 .43 20.15 2.72 5.8 1,570 570 54.87 '9.46 27.50 4.74 13.04 17.76 4.72 I I 6 .5 1,430 430 48.15 7.41 23.87 3.67 15.09 18 .83 3.74 5.3 .1,600 • 600 56.30 10.62 28.27 5.33 11 .88 17.17 • 5.29 6 .8 2,530 1,530 100.95 14.85 52.35 7.70 7.65 14 .80 7.15 5.4 1,820 820 66.86 12.38 33.97 6.29 10.12 16.21 6.09 G • .13 . 4 $4,100 $3,100 $176.30 $13.16 $ 93.00 $ 6.94 $14.34 $20 .56 $ 6.22 R 17.0 4,930 4,510 229.27 13.49 122.91 7.23 14.01 20.27 6.26 0 19.5 2,630 2,430 122.15 6.26 65.46 3.36 . 21.24 24.14 2.90 U 12.1 4,84o 4,080 • 216.74 17.91 115.31 • 9.53 9-59 17 .97 8.38 P 11.2 . 1,780 780 64.94 5.80 32.94 2.94 21.70 24.56 2.86 19.6 5,500 4,500 243.50 12.42 129.25 6.59 15.08 20.91 5.83 I I I 15 . 9 4,8oo 3,800 209.90 13.20 111.12 .6.99 14.30 20.51 6.21 33.7 $ 1,680 $ 1,680 $ 80.64 $ 2.39 $ 43.49 $ 1.29 $25.11 $26.21 $ 1.10 G' 30.0 5,700 5,330 266.02 8.87 142.70 4.76- 18.63 22 .74 4.11 R 93.6 12,200 11,640 574.12 6.13 308.50 3.30 21 .37 24.20 2.83 0 21.6 3,800 3,350 173 .18 8.02 92.46 4.28 19 .48 23.22 3.74 u 153.2 20,930 19,930 984.15 6.42 528 .73 . 3.45 21.08 24.05 2.97 p 4o.o 4,4oo 4,110 205.26 5.13 110.11 . 2.75 22 .37 24 .75 '• 2.38 24.0 3,490 2,490 147.03 .6.13 77.20 3.22 21 .37 24.28 • 2.91 r v 48.1 6,500 6,200 305.85 6.36 164.34 3.42 21.14 24.08 2.94 32 . 9 7,400 6,400 334.70 IO.17 178.44 5.42 17.33 22.08 4.75 aTax r a t e A was used i n 1961. PTax rate B i s r e l a t e d to the cost of s e r v i c e s provided. 99 i represented i n the sample, wi th a median increase of 4.75 d o l l a r s per acre . The increase i n net re turn per acre i s s i g n i f i c a n t i n a l l cases but i s greater for farms 20 acres or less i n s ize than i t i s for farms over 20 acres i n s i z e . The net re turn per acre i s expressed as a percentage of the t o t a l c a p i t a l invested i n the land and i s shown i n Table 12. This was done to determine the s igni f icance of the increase i n net re turn as an economic investment. The median market value per acre for farm land was obtained from the values expressed i n Figure 5, page 95. TABLE 12 PERCENT NET RETURN ON FARM LAND INVESTMENT RICHMOND, 1961 Size of Parcels Median Market Value per acre % Return Tax Rate A % Return Tax Rate B 0 - 5.0 A c . $1280 0.7 1.2 5.1 - 10.0 A c . 1180 1.1 1.5 10.1 - 20.0 A c . 1080 1.6 1.9 20.1 and over A c . 770 2.7 3.1 Table 12 shows that the percent re turn on c a p i t a l invested i n farm land i s extremely low for farms of 20 acres or less i n s i z e , but increases for farms over 20 acres i n s i z e . The net re turn on the c a p i t a l invested i n farm land does not 100 appear to be as s i g n i f i c a n t a factor i n farm land ownership as the in tangib le returns obtained from the value as a r e s i d e n t i a l s i t e , the prestige attached to land ownership, and the p o s s i b i l i t y of a c a p i t a l ga in . By r e l a t i n g the tax rate to the cost of services provided for farm property, i t was found that the farm property taxes would be reduced by an average of 4 .25 do l l a r s per acre . Calcula t ions using a f ive percent random sample of the 727 parcels of farm land i n the munic ipa l i ty showed that the reduction i n taxes would r e su l t i n an increase i n net re turn to the farm land ranging from 1.10 d o l l a r s to 11.14 do l l a r s per acre . When the net re turn ca lcula ted by using the proposed tax rate i s expressed as a percentage re turn on the c a p i t a l invested i n farm land, the re turn ranges from 1.2 percent for farm parcels 5*0 acres or less i n s ize to 3*1 percent for farm parcels 20 .1 acres or larger i n s i z e . This re turn to c a p i t a l i s extremely low when compared to the 4 to 10 percent or higher return^ on c a p i t a l from other economic investments. Thus, the farm land owners must receive some in tangible re tu rn . The in tangible returns such as the re turn as a value for a homesite, the p o s s i b i l i t y of a c a p i t a l ga in , and the prest ige of land ownership appear to outweigh the economic re turns , e spec ia l ly for-parcels of farm land 20 acres or less i n s i z e . 1 0 1 The effect which th i s increase i n re turn to farm land may have on protect ing farm land from premature conversion to non-farm uses i s further explored i n Chapter V. A b r i e f summary of the i n d i v i d u a l chapters i s presented and the r e su l t s of the study are corre la ted i n an attempt to determine i f the reduction i n farm taxes a r i s i n g from r e l a t i n g the tax rate to the cost of services provided for such property would protect farm land from premature conversion to non-farm uses. REFERENCES x Wilson Gee, The S o c i a l Economics of A g r i c u l t u r e , 3rd E d i t i o n (New York: The Macmillan C o . , 1954) , p . 172. 2The Corporation of The Township of Richmond, " I963 Assessments of Farm Lands i n Richmond," A Report Prepared by the Assessment Department, 19&3 ( i n the f i l e s of the Assessment Department). 3 I b i d . 4 I b i d . ^ I b i d . Interview with a member of the sales s t a f f , James Richardson and Sons, March, 1963. 102 CHAPTER V TAXATION AS A TECHNIQUE TO PROTECT FARM LAND FROM PREMATURE CONVERSION TO NON-FARM USES Summary Canadian and American population forecasts indicate that the population of North America can be expected to increase r a p i d l y i n the future . Coupled wi th the increase i n population i s a trend towards urban and suburban l i v i n g . By 1980, i t i s expected that seventy-nine percent of Canada's population w i l l be c l a s s i f i e d as urban i n character . In the United States i t i s estimated that by the year 2000, eighty percent or more of the t o t a l population w i l l reside i n urban communities. A large por t ion of the urban population i s a t t racted to a r e l a t i v e l y small number of metropolitan areas. Within these metropolitan areas there i s a trend towards suburban l i v i n g i n s ingle family homes, wi th the r e su l t that the land requirements per person are inc reas ing . This i s contr ibut ing to an increasing demand for land for urban uses, which i n turn i s p lac ing greater pressure on owners of farm land near the urban centres to convert t he i r land to urban uses. 103 104 Farm land use i s general ly considered to be a less in tensive use than r e s i d e n t i a l , commercial, or i n d u s t r i a l uses, as the land resources can usual ly y i e l d a higher re turn when devoted to the l a t t e r uses. Because of th i s low in t ens i t y of use, there i s a tendency for farm land w e l l located for the higher i n t e n s i t y uses to be converted to these uses. I f t h i s conversion were to occur only when there was a de f in i t e need for land for urban uses, the problem investigaged i n t h i s thes is would not e x i s t . However, t h i s i s not the case, as farm land tends to be removed from farm use p r i o r to the demand for the land for urban uses. This phenomenon takes place i n several ways and i s i l l u s t r a t e d by r e s i d e n t i a l development occurring on 'good' farm land, while there are subs tan t ia l areas of non-farm land sui table for t h i s type of development; by the occurrence of r e s i d e n t i a l subdiv is ion 'booms' on farm land which leave a large number of r e s i d e n t i a l l o t s vacant for many years; by farm land being removed from production and remaining vacant because the non-operating owner i s holding the land for speculative purposes; and by farm land being i so l a t ed by r e s i d e n t i a l developments. The cost of the premature conversion of farm land to non-farm uses may be measured i n economic and s o c i a l terms. The economic costs include loss of income for the farmer, high cost of services for the residents of the premature subdiv is ions , more expensive a g r i c u l t u r a l products, and higher 105 i property taxes i n the suburban m u n i c i p a l i t i e s . The s o c i a l costs include lack of services and other amenities for the homeowner, incomplete r e s i d e n t i a l subdiv is ions , and the lack of a sa t i s fac tory urban environment. In view of the increasing demand for urban land and the cos t l iness of the premature conversion of farm land to non-farm uses, i t i s i n the in te res t of the publ ic that some technique be employed to protect the farm land from premature conversion. The problems a r i s i n g from the premature conversion of farm land are evident i n many suburban m u n i c i p a l i t i e s . As the Munic ipa l Au tho r i t i e s have become aware of the cos t l iness of premature subdivisions and unco-ordinated developments, many have adopted some form of regulatory measure i n an attempt to con t ro l the land development and land uses. The two measures commonly used are zoning and subdiv is ion regu la t ions . These regulat ions were o r i g i n a l l y designed as a means of c o n t r o l l i n g the land development and land use i n compact urban centres . As the development problems became prominent i n the suburban m u n i c i p a l i t i e s , the two regulat ions were enacted by the l o c a l au thor i t i e s to con t ro l the development. In add i t ion to these regulatory con t ro l s , more pos i t i ve techniques have been employed i n an attempt to reduce the premature conversion of farm land to non-farm uses 106 and to cont ro l the l o c a t i o n and type of r e s i d e n t i a l development. The most i l l u s t r a t i v e example of a pos i t i ve cont ro l technique i s f i n a n c i a l con t ro l exercised through r i g i d r e s t r i c t i o n s on construct ion loans and construct ion loan insurance. The process of premature conversion of farm land continues because of a lack of pos i t i ve controls and comprehensive development p lans , and despite the use of regulatory con t ro l s . Thus, there i s a need for an e a s i l y implemented technique which w i l l protect farm land from premature conversion to non-farm uses. The property tax represents a compulsory cont r ibu t ion on the part of a property owner to some l e v e l of government, general ly the municipal government. The ac tual effect of the property tax on land resources v a r i e s , depending upon the amount of tax , the land use, and other circumstances; but the influence of the tax can usual ly be measured by the effect on land income, l e v e l of i n t e n s i t y at which the land i s used, and changes i n land use and property ownership. Depending upon the type of a c t i v i t y , a property tax may be shi f ted from the property owner i n the form of higher p r i c e s . In the case of farm property taxes, there i s l i t t l e or no opportunity for the owner to sh i f t the t ax . This means that any increase i n farm property taxes w i l l reduce the income received from the farm ente rpr i se . When land i s used i n I t s highest capaci ty , property taxes general ly do not a f fec t t h i s use. However, when land i s 107 not used i n i t s most productive capaci ty , an increase i n the property tax and the r e su l t i ng decrease i n income place add i t i ona l pressure on the owner to u t i l i z e the land more e f f ec t i ve ly or to s e l l the l and . Thus, when the farm property taxes absorb a large por t ion of the farm income, the property owner must e i ther s e l l the land or convert i t to non-farm uses. Accompanying the increasing r e s i d e n t i a l development i n the suburban mun ic ipa l i t i e s i s an increase i n municipal expenditures necessary to finance and maintain the services required for the new developments. As v e r i f i e d by studies conducted i n suburban mun ic ipa l i t i e s i n Canada, farm property i s subs id iz ing the r e s i d e n t i a l areas, that i s , the farm property taxes exceed the cost of services provided to such property. Assuming that property taxes l ev i ed on the various kinds of property should be re la ted to the cost of services provided for the respective property, then a tax rate re la ted to the cost of services provided for farm property would reduce the property taxes on farm land. Since high farm property taxes encourage the premature conversion of farm land to non-farm uses, then t h i s reduction i n farm taxes may protect farm land from premature conversion. A b r i e f study of the municipal governments i n Canada showed that the mun ic ipa l i t i e s are e n t i t l e d to perform functions which are both mandatory and permissive. The mandatory functions r e l a t e p r i n c i p a l l y to matters which are of wider than 108 l o c a l concern, while the permissive functions usual ly cover the p rov i s ion of services which are of l o c a l concern. To meet the expenditures encountered while performing the functions of municipal government, the mun ic ipa l i t i e s have been granted ce r t a in powers to ra i se revenues. Under these powers, the larges t source of revenue for the mun ic ipa l i t i e s i s r e a l property t axa t ion . Property taxes i n mun ic ipa l i t i e s i n B r i t i s h Columbia are comprised of taxes l ev ied on land, improvements, and equipment. Each type of property i s valued according to P r o v i n c i a l Government procedures and th i s assessed value i s m u l t i p l i e d by a tax rate to determine the tax l ev ied on each property. When der iv ing the assessed value of the property, considerat ion may be given to the use, l o c a t i o n , o r i g i n a l cos t , cost of replacement, r en ta l value, market value, and any other circumstances which may affect the value. In Richmond, l o c a l , taxat ion on a l l taxable non-farm land i s l ev ied on one hundred percent of the assessed value: the assessed value being f i f t y percent of the market va lue . The non-farm improvements are assessed at f i f t y percent of the market value and seventy-five percent of th i s value i s taxable . A l l farm land i s assessed on the basis of i t s value for farming purposes and the taxat ion i s l ev i ed on f i f t y percent of th i s va lue . Farm land i s granted an exemption for school taxat ion purposes, wi th a maximum exemption of one thousand d o l l a r s per farm u n i t . 109 The farm dwellings are assessed and taxed i n the same manner as a l l other dwel l ings , while the improvements used exc lus ive ly i n the operation of a farm receive a maximum exemption of f ive thousand d o l l a r s . The taxat ion system employed i n Richmond recognizes that land cannot he used ind i sc r imina te ly as a basis for taxat ion without some form of modi f i ca t ion . The system tends to br ing a c loser r e l a t ionsh ip between the taxes l ev ied on farm property and the cost of services provided for farm property by using d i f fe ren t l eve l s of assessment rather than d i f fe ren t tax rates for the farm and non-farm land . On the assumption that t h i s system does not f u l l y r e la te farm property taxes to the services rece ived, a case study was conducted to determine the r e l a t ionsh ip of taxes to the cost of services for farm and non-farm property. By apportioning the 1961 revenues and expenditures for Richmond, d i r e c t l y and on a per capi ta bas i s , to farm and non-farm property, i t was found that the farm property subsidized the non-farm property. When apportioning the municipal expenditures on a per capi ta ba s i s , i t was necessary to assume that these expenditures were proport ional to the s ize of the populat ion. Only the revenues derived from property taxat ion and a propor t ional amount of expenditures were apportioned i n order to minimize the error which may have been introduced by making the above assumption. 110 The resu l t s of the apportioning show that the taxes l ev i ed on farm property contributed 5«8 percent of the t o t a l tax revenue and that only 3.1 percent of the same t o t a l of expenditures could be apportioned to the farm property. When placed on a farm parce l bas i s , each farm parce l had an average tax levy of 129 d o l l a r s more than the average cost of se rv ices , that i s , each parcel of farm land subsidized the non-farm property by an average of 129 d o l l a r s . From th i s i t may be concluded that a tax rate re la ted to the cost of services provided for farm property i n Richmond for the year I96I would have reduced the farm taxes. From these ca lcu la t ions i t was found that the increase i n net re turn ranged from 1.10 d o l l a r s to 11.14 d o l l a r s per acre for the 37 parcels represented i n the sample, wi th a median increase of 4.75 d o l l a r s per acre . By r e l a t i n g the median net return per acre for four s i ze groups of farm land to the median market value per acre , i t was found that the land r en t a l represents a minor part of the re turn to the land . The net re turn per acre ranged from 1.2 to 3.1 percent of the t o t a l investment, wi th the parcels over 20 acres i n s ize having the largest r e tu rn . Therefore, i t i s evident that for farm parcels 20 acres or less i n s ize the in tangible returns such as the re turn as a r e s i d e n t i a l s i t e , the prest ige attached to land ownership and the p o s s i b i l i t y of a c a p i t a l gain make up a greater part of the net re turn to c a p i t a l invested i n the farm I l l l and . For parcels of farm land larger than 20 acres i n s i z e , the in tangib le returns make up a smaller por t ion of the t o t a l net re turn to c a p i t a l invested. Assumptions and Limi ta t ions of the Study In order to tes t the hypothesis: that a tax rate re la ted to the cost of services provided for farm property would reduce farm taxes and thereby protect farm land from premature conversion to non-farm uses, i t was necessary to accept ce r t a in assumptions and use median data. The assumptions and the use of median data caused ce r ta in l i m i t a t i o n s to the v a l i d i t y of the study and therefore warrant d i scuss ion . One assumption accepted was that farm property taxes should be re la ted to the cost of services provided for such property. This assumption accepts the present taxat ion system, and re la tes the cost of services to farm property as a group rather than to the i n d i v i d u a l pa rce l s . This means that a l l farm property receives the same se rv ices , or i f not , then the farm property should contribute p ropor t iona l ly to the cost of services provided to any farm property. To re l a t e the taxes to the cost of services provided for the i n d i v i d u a l farm propert ies would make the taxat ion system unmanageable. . In order to apportion the municipal expenditures to farm and non-farm property, i t was necessary to estimate the 112 farm population and the number of school ch i ld ren res id ing on farms. These estimates were made using data from Richmond and the Dominion Bureau of S t a t i s t i c s . Because of the difference i n the two d e f i n i t i o n s of farm land, an error may have appeared when r e l a t i n g the two sets of data for the population estimates. The population estimates were then used to apportion the expenditures on a per capi ta b a s i s . To do t h i s , i t was assumed that the expenditures were propor t ional to the s ize of the populat ion. This may not be true since the non-farm population may receive more services per person than the farm populat ion. The use of the 1961 municipal revenues and expenditures for Richmond may also prove to be a l i m i t a t i o n to the v a l i d i t y of the conclusions. Although Richmond represents a suburban munic ipa l i ty i n t r a n s i t i o n from a r u r a l to an urban character, the proport ion of farm and non-farm property i s l i k e l y to be d i f fe ren t than the proport ion i n other suburban m u n i c i p a l i t i e s . I f there was a greater percentage of farm property, t h i s may influence the r e l a t ionsh ip between the l ev ied taxes and the services rece ived. The s e l ec t i on of a pa r t i cu l a r year for the basis of the study may a lso influence the r e s u l t s . Since no information was ava i l ab le to es tab l i sh the farm taxat ion trends, i t i s not known whether the 1961 farm property taxes f a i r l y represent the taxes l ev ied over a period of years . Any change i n assessment since 113 1961 would change the ent i re s i t u a t i o n , unless the change was on a propor t ional basis for both farm and non-farm property. An add i t i ona l error may be incurred by using the median r en t a l values as a measure of farm land income. Since r e l a t i n g each parce l of farm land to the type of s o i l and the type of farming was beyond the scope of th i s study, the median r en t a l values were applied to a l l pa rce l s . Thus, the r en ta l values are low for farm land cons is t ing of Ladner Clay Loam s o i l s and high for farm land cons is t ing of peat s o i l s . To avoid further e r ro r , only the median r en ta l values for each s ize group were used i n further c a l c u l a t i o n s . The same re l a t ionsh ip occurred when using the market values . However, there would be a tendency for the errors to cancel one another s ince , i f the farm parcel were located on peat s o i l , both the r en ta l and market value would be h igh . Conclusions A tax rate re la ted to the services provided for farm property i n Richmond for the year 1961 would reduce the farm property taxes by an average of 129 do l l a r s per farm p a r c e l . A reduction i n farm property taxes would mean that some a l t e rna t ive source of revenue i s required for the munic ipa l i ty to maintain the same t o t a l tax revenue. Assuming that the non-tax revenue remains constant, i t would be necessary to increase the non-farm property taxes i n order to derive the same amount of t o t a l revenue. The major components of non-farm property 114 are r e s i d e n t i a l , commercial, and i n d u s t r i a l property, wi th other types of property present i n minor quan t i t i e s . An increase i n the tax rate on non-farm property would r e su l t i n an increase i n the amount of taxes l ev ied on r e s i d e n t i a l property, which i s general ly the property requi r ing a subsidy, but would a lso increase the amount of taxes l ev ied on commercial and i n d u s t r i a l property. Depending upon the amount of the increase, the add i t i ona l taxes may overburden the commercial and i n d u s t r i a l property wi th the net r e su l t of discouraging industry to locate i n the mun ic ipa l i t y . To re la te the tax rate to the services received for every type of property i n a munic ipa l i ty would require a very complex taxat ion system and i s therefore considered unp rac t i ca l . As i l l u s t r a t e d i n Figure 5> page 95» the market value of farm land includes the p roduc t iv i ty value, a r e s i d e n t i a l value, and other values referred to as speculative values . The r e s i d e n t i a l and speculat ive values make the market value much higher than the p roduc t iv i ty value. This r e su l t s i n the pr ice of farm land exceeding the l e v e l that many operating farmers can reach i n order to expand the i r operations. When an operating farm land owner i s ready to cease operations and s e l l the land, the s e l l i n g pr ice cannot be met by someone interested i n farming, but only by investment firms and ind iv idua l s with speculative motives. The median reduction of 4.75 do l l a r s per acre i n taxes would not lead to a reduction of the market value. In f ac t , the lowering of property taxes 115 general ly causes the market value of land to increase. Table 13, page 116, shows that when using the farm land r en t a l value as a measure of the return to c a p i t a l Invested i n the land , the re turn i s extremely low, e spec i a l l y for farm parcels 20 acres or less i n s i z e . The reduction i n taxes which resul ted from r e l a t i n g the tax rate to services provided for farm property leads to a very small increase i n the net re turn to the c a p i t a l invested i n farm land . Therefore, t h i s ac t ion would have l i t t l e or no effeet i n preventing the premature conversion of farm land i n parcels of 20 acres or less i n s ize to non-farm uses. The net re turn to c a p i t a l invested i n larger s ized parcels of farm land would be Increased almost to an equal l e v e l wi th other low r i s k investments. The greater net re turn may encourage non-operating owners to invest i n farm land since they would receive a higher re turn on t he i r money while wai t ing for a c a p i t a l ga in . This type of land owner i s more l i k e l y to convert the land prematurely and i s a lso hesi tant to make improvements to the land to increase i t s p r o d u c t i v i t y . I t i s assumed that there are various factors which encourage farm land owners to s e l l t he i r land or to convert the land to other uses, wi th taxat ion included as one of these fac to r s . Although the taxes may be a contr ibut ing factor i n encouraging the premature conversion of farm land to non-farm uses, they do not absorb a l l the land income and therefore are TABLE 13 SUMMARY TABLE MEDIAN RENT AND NET RETURN PER ACRE, AND PERCENT RETURN ON FARM LAND INVESTMENT, RICHMOND, I96I Median Median Net Return Per Acre 3 , Median Market Percent Return e Size of Parcels Rent Per Acre 1961 Tax Rate Proposed sb Tax Rate c In -crease a Value Per, Ac . 1961 ;Tax Rate Proposed Tax Rate 0 - 5.0 A c . 22.50 8.36 15.29 6.93 1280 0.7 1.2 5.1 - 10.0 A c . 22.50 13.04 17.85 4.72 1180 1.1 1.5 10.1 - 20.0 A c . 27.50 14.34 20.56 6.21 1080 1.6 1.9 20.1 and over A c . 27.50 21.14 24.08 2.94 770 2.7 3.1 a Net re turn i s equal to the t o t a l rent minus the taxes. ^Tax rate used i n the Munic ipa l i t y of Richmond for 1961. cProposed tax rate i s re la ted to the cost of services provided. ^Increase i n net re turn r e su l t i ng from re l a t ing the tax rate to the cost of se rv ices . e Percen t re turn i s the net re turn expressed as a percent of the t o t a l investment. 117 not the dominating f ac to r . Thus, a reduction i n farm property taxes w i l l increase the farm land income, but w i l l not protect the farm land from premature conversion to non-farm uses. The monetary re turn to farm land i s extremely low when compared to returns from other economic investments. Since the farm land owner does not invest the c a p i t a l i n other economic ventures, there must be some in tangib le re turn which i s not measured i n economic terms. This return may include r e s i d e n t i a l benef i t , pres t ige of land ownership, and the p o s s i b i l i t y of a c a p i t a l ga in . For farm land i n parcels of 20 acres or less i n s i ze the in tangible re turn out-weighs the monetary re tu rn , while for parcels larger than 20 acres i n s i z e , the monetary re turn i s probably equal to the in tangib le r e tu rn . The reduction i n farm land taxes and the r e su l t i ng increase i n net re turn to the farm land which a r i ses from r e l a t i n g the tax rate to the services provided for farm property produces a median increase of 0.4 percent i n the net re turn expressed as a percent of the t o t a l farm land investment. This net re turn remains extremely low, and the in tangible re turn remains dominant. In view of the above f ac to r s , i t i s concluded: that a tax rate re la ted to the cost of services provided for farm property WOULD reduce farm taxes, but WOULD NOT protect farm land from premature conversion to non-farm uses. 118 The hypothesis: that a tax rate re la ted to the cost of services provided for farm property would reduce farm taxes and thereby protect farm land from premature conversion to non-farm uses, does not hold true for farm land i n Richmond because of the in tangible returns derived from farm land ownership. Although the taxat ion system would be on a more equitable bas i s , the reduction i n taxes would not protect farm land from premature conversion to non-farm uses. The same conclusion would be equally appl icable to other mun ic ipa l i t i e s i n B r i t i s h Columbia because of the P r o v i n c i a l L e g i s l a t i o n which states that farm land must be assessed at the value i t has for farm purposes. This l e g i s l a t i o n operates to re la te p a r t i a l l y the farm property taxes to the cost of services provided for such property by using a d i f fe ren t l e v e l of•assessment for farm land rather than a d i f fe ren t tax r a t e . This prevents the taxes on farm land from increasing wi th an increase i n the market value of the land, as other land assessments do. In suburban areas outside of B r i t i s h Columbia, farm land assessments may be determined on a d i f fe ren t basis and the farm land taxes may absorb a greater proport ion of the farm land income. In such cases, a tax rate on farm property re la ted to the cost of services provided to such property may reduce the taxes and increase the farm land re turn enough to be a s i gn i f i c an t factor i n discouraging the premature conversion of farm land to non-farm uses. However, the reduction i n taxes and the r e su l t i ng increase i n net re turn w i l l not protect the farm 119 land from premature conversion to non-farm uses because of the in tangib le re turn derived from the farm land and the various motivating factors which encourage farm land owners to s e l l t he i r land or convert i t to non-farm uses. A p a r t i a l so lu t ion to the problem of premature conversion of farm land would be to create a tax structure which would make the r e s i d e n t i a l developments s e l f sus ta in ing , that i s , pay for the services rece ived . This would increase the taxes on r e s i d e n t i a l developments and may be more ef fec t ive i n protect ing farm land from premature conversion to non-farm uses. With th i s type of tax s t ruc ture , the farm land owners would be hesi tant to convert the land to non-farm uses u n t i l the demand for urban land would ensure prompt development. This i s only a p a r t i a l so lu t ion since i t would not insure that non-farm land would be developed for urban use p r i o r to farm land . In f ac t , i t may discourage development on non-farm land as these areas are general ly more cos t ly to service and the taxes would be higher . A s ingle tax or land tax system may be ef fect ive i n inducing bet ter development of under-used areas and r e l i e v i n g some of the pressure from farm land . • This type of tax should reduce the land speculat ion, but i t s effectiveness would l i k e l y depend upon the taxat ion base wi th in a mun ic ipa l i t y . One l i n e of ac t ion which might be ef fec t ive i n protect ing farm land from premature conversion to non-farm uses 120 could be to reduce the element of speculat ion from farm land ownership. Since the p o s s i b i l i t y of c a p i t a l gain appears to be one of the main motivating factors i n farm land ownership by non-operating owners, an e l imina t ion of th i s would make the reward i n farm land ownership f u l l y dependent upon the economic re turn to the land and the value as a r e s i d e n t i a l s i t e . This would discourage non-operating ownership and reduce the market value of farm land to a l e v e l at which the land could be purchased by ind iv idua l s interested i n farming. The most e f fec t ive ac t ion which could be taken to protect farm land from premature conversion to non-farm uses would be the adoption of pos i t ive planning p o l i c i e s . 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