The cost of an eight-year developmental deed restriction for nonindustrial private forest (NIPF)
owners in Minnesota was estimated by examining the property tax records from 1,200
landowners (1,341 parcels) who enrolled in one of two property tax incentive programs that
promote sustainable forest management in 2009. The requirements of these two programs, the
Minnesota Sustainable Forest Incentive Act (SFIA) and Minnesota 2c Managed Forest Lands
(2c), are identical in nearly every respect except for the minimum enrollment period. The SFIA
program requires forest landowners to place a covenant on their property deeds, restricting them
from developing their land for a minimum of eight years. The 2c program had no such minimum
enrollment period. However, landowners are prohibited from developing their properties while
enrolled in the 2c program. The coexistence of these two preferential forest property tax
programs provided a unique opportunity to analyze the enrollment choices landowners made and
the associated property tax consequences.
Each enrolled parcel was classified according to its actual tax savings associated with the
landowner’s preferred property tax program (the SFIA or 2c program). Then each parcel’s
potential tax savings (or loss) were calculated by assuming it had been enrolled in the SFIA
program. Comparing the potential tax savings (or loss) to actual tax savings (or loss) enabled
each forest landowner to be classified according to the enrollment decision it should have made
if the objective was to minimize its annual property tax liability. While studies have repeatedly
shown NIPF ownership motivations include a mix of objectives that are not purely financial
(Baughman 1988, Kilgore et al. 2007, Butler 2008). However, this study analyzes a sample of
forest landowners’ decisions from a purely financial perspective to quantify the opportunity cost
of an eight-year covenant recorded on their property deeds. By linking enrollment choices to the
parcel-specific annual property tax savings associated with each program, we estimated the value
NIPF owners place on the temporary loss of developmental rights.
This study found that a majority of the landowners in our study were willing to forego substantial
annual property tax savings ($422 on average) in order to avoid the deed restriction required by
the SFIA program. A logistic regression model was developed to identify significant
determinants of choosing the SFIA program over the 2c program and estimate the probability of
enrollment in the SFIA program over the 2c program. Developmental pressure, as measured by
two proximate variables and the level of annual financial savings offered by each program, were
highly significant variables in predicting a landowner’s enrollment decision.
Staff paper series (University of Minnesota. Department of Forest Resources);
1 electronic resource (PDF; 33 pages)
Funding for this project was provided by the Minnesota Agricultural Experimental Station and the University of Minnesota Grant-in-Aid Research Program.
Bagdon, Benjamin A.; Kilgore, Michael A..
The Opportunity Cost of Developmental Deed Restrictions for Minnesota Private Forest Owners.
University of Minnesota.
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