AGRICULTURAL LANDS

Agriculture is the most extensive land use, other than forest, in Maryland and the Chesapeake Bay watershed. Modern agriculture relies on nutrient inputs, whether from commercial fertilizer or organic sources. Unpredictable rainfall patterns result in frequent drought and make yields (and thus fertilizer need) difficult to estimate. As a result of these factors, some nutrients are lost to ground and surface waters.
Farmers, recognizing the need for good stewardship, have used practices to reduce erosion and more efficiently manage nutrients for decades. In addition, lost nutrients represent an economic loss to farmers. The agricultural Tributary Strategies uses a combination of old and new practices in addition to already implemented measures to reach our reduction goal. Conservation planning, nutrient management, no-till, animal waste management, stream protection from livestock and cover crops are all important parts of the strategy. Areas with high animal populations or inadequate waste management systems may have excessive nutrients to use at the proper rate or timing on the available land.
Current public expenditures for agricultural practices are low in light of the importance of these practices in reaching Tributary Strategy goals. As a result, the proportional shortfall in funding for agriculture is higher than for other categories. While funding has previously been directed to point source and developed land nutrient sources, additional resources will need to be directed to agriculture if goals are to be met.
Farmers are also in a unique situation in which they have no control of market prices for what they produce and thus cannot pass along increased costs of production. In addition, conflicting societal goals of wanting inexpensive food and wanting the farmer to pay for nutrient control measures without cost to the consumer add to these problems.
Based on the situation described above, ideas proposed to address agricultural funding shortfalls are focused on providing cheaper capital to farmers, increasing cost-share and incentives, tax credits, and surcharges to spread costs to all who benefit. An environmental "check-off" paid by farmers on all goods they produce is recommended as is the development of farmer environmental cooperatives with access to state revolving loan funds. Incentives include increasing the cost-share cap for livestock waste storage structures and expanding conservation equipment tax deductions. To assist private sector delivery of conservation services, large agricultural companies could provide these services and then be repaid as the farmer accrues savings from implementation. This would be similar to energy conservation programs offered by utilities.
Finally, it was recommended that a surcharge could be added to existing prepared food and beverage sales taxes.
While time constraints prevented the list of ideas from being exhaustive, new ideas were proposed, modifications to existing programs were explored and some old ideas resurfaced.

Agricultural Lands: List of Funding Mechanisms

IDEA: Develop local agriculture cooperatives on a watershed basis to assist farmers in financing activities

Revenue Generated/Redirected: Revenue neutral-can improve access to capital and possibly reduce borrowing costs to farmers.

Description: A local cooperative governed by a board of farmers could help members obtain loans from existing programs or financial institutions, or could leverage available funds through financing institutions, such as banks. Co-ops could secure or guaranty loans by putting up collateral for borrowings. By using their greater size, co-ops may be in a better position to influence policy decisions, not just within government, but in the private sector as well, increasing the availability of funds dedicated to agriculture.

Mechanism: Private Initiative/Incentive.

Action Needed: Formation of Cooperatives.

Issues to Consider: Farmers interest in this concept has not been explored. There may be concerns expressed by relatively debt-free farmers who are being asked to support debt-laden farm operations within the same cooperative. Loans obtained by the cooperative for farmers would not help those farms that cannot support additional debt costs. In addition, borrowing money for non-revenue generating structures such as animal waste storage facilities can be expensive and often difficult to obtain.

The co-op is in a better position to take advantage of any funds that may become available from any changes in the State Revolving Fund (SRF) suggested in this report.

IDEA: Extend State Revolving Fund (SRF) to include a broader borrowing base (the private sector) and wider application to nonpoint source pollution controls

Description: Extending the SRF to finance private sector capital projects and nonpoint source pollution control projects would make funds available to the agricultural community for activities such as the building of animal waste storage systems and other capital-intensive projects (see page 26 for full description).

Mechanism: Loan and Redirection of Existing Program.

Action Needed: Amend the Maryland Water Quality Financing Administration Act to permit loans to the private sector. In addition, changes must be made in the federal Clean Water Act to allow for private loans for point source projects.

Issues to Consider: Farmers who are not in a position to assume additional debt would not benefit from any new loan program. The farmer would now compete with the public sector and with other private and public/private borrowers for available SRF funds, unless a portion of the SRF program was dedicated only to farmers. Loans to private parties would reduce the amount of federal and state funds available to be leveraged with tax-exempt bonds.

Case Example: pages 92, 93

IDEA: Require nutrient management plans on all Maryland Agricultural Land Preservation Foundation easements

Revenue Generated/Redirected: Revenue neutral; increases acreage with nutrient management plans.

Description: Approximately 10,000 acres of agricultural land is preserved, in perpetuity, each year through the Maryland Agricultural Land Preservation Program. Soil Conservation and Water Quality Plans (SCWQP) are currently required for all land in the program. Nutrient management and SCWQP are two of the key agricultural practices in the Tributary Strategies. This idea would require that nutrient management plans as well as SCWQP be required on all easements.

Mechanism: Redirection of Existing Program.

Action Needed: Recommend to Maryland Agricultural Land Preservation Board that they consider requiring nutrient management plans on all future easements.

Issues to Consider: This idea assures that land preserved for agricultural use will be farmed using nutrient management plans. It may also increase total acreage under nutrient management plans. There is some concern that increasing the requirements in order to be considered for a preservation easement may reduce the interest of some farmers to enter the program.

IDEA: Expand tax deduction for conservation tillage and animal waste handling equipment to include other environmental equipment

Revenue Generated/Redirected: Revenue neutral.

Description: Farmers are currently able to deduct the full purchase price of conservation tillage equipment from their taxes in the year of purchase. The Conservation District certifies that the equipment qualifies. The expansion of this deduction to other environmental equipment would provide an incentive for purchasing it. Initially, the deduction should be expanded to include manure spreaders, but after additional evaluation, other equipment such as waste storage structures and precision farming (computer controlled, variable rate fertilizer and pesticide application) equipment could be added. It may also be feasible to allow deductions for services such as nutrient management or conservation planning and integrated pest management.

Mechanism: Redirection of Existing Program.

Action Needed: Legislative authorization to amend the tax deduction for conservation tillage and animal waste handling equipment to include other environmental equipment.

Issues to Consider: The conservation tillage tax deduction has been very successful. Expansion of the deduction to manure spreaders may be proposed in the 1995 legislative session. Further expansion of this concept for other equipment and private sector environmental services could substantially increase practice implementation.

The deduction allows "instant" depreciation, but is still not as direct an incentive as partial tax credits on conservation equipment offered in some other states.

Case Example: pages 103,104

IDEA: Purchase of environmental easements by the private sector

Revenue Generated/Redirected: Estimate not known.

Description: This idea would allow purchase of easements on farm or forest land. The easements would require use of best management systems to minimize environmental impact as long as the land is farmed or forested. Required practices should include nutrient management, soil conservation and water quality plan implementation, integrated pest management, use of cover crops, animal waste management, stream fencing, forest buffers, forest stewardship plans, streamside management plans, and other appropriate forest best management practices. The easement would be in perpetuity and all future farm operators must use these practices. Applicable practices would continue through covenants and deed restrictions.

This type of easement would not-as traditional conservation easements do-protect farmland from future development.

Mechanism: Public/Private Partnership.

Action Needed: Legislative authorization of easement purchase and allocation of funds to run the program.

Issues to Consider: This idea would assure that land is being farmed using a broad group of environmentally protective practices. It would also assure that those practices applicable during and after development would continue. If payments are adequate, they may provide incentive for adoption of practices that are currently not cost effective such as forest buffers and cover crops.

IDEA: Surcharge on prepared food and beverages

Revenue Generated/Redirected: $0.005 surcharge-$40 million per year. $0.0025 surcharge $20 million per year.

Description: A surcharge would be added to the existing prepared food and beverage sales tax. Revenues generated would be dedicated to provide cost-share, technical assistance and education to address nonpoint sources of pollution to the Chesapeake Bay. Initially, the funds would be used to address agricultural issues, but could be broadened to include urban/suburban nonpoint sources of pollution such as septic tanks, lawn management, etc. The surcharge may be time limited (e.g. 10 years) with optional renewal by the General Assembly.

Mechanism: Surcharge.

Action Needed: Legislation to amend food and sales tax to add Chesapeake Bay surcharge.

Issues to Consider: All citizens of Maryland contribute to pollution of the Chesapeake Bay. A recent survey conducted for the Bay Program indicated overwhelming support of restoring the Bay. A large majority indicated they would be willing to pay more as long as they knew the funds would be used to restore the Bay. A surcharge on the existing prepared food and beverage tax dedicated to cost-share, technical assistance and education to increase implementation of Tributary Strategy practices is the least regressive tax available to provide the needed revenue. The surcharge could be time limited with renewal based on continuing needs at the time.

Current public and political sentiment does not favor any new surcharge, even if it is not regressive. If such a surcharge is developed, it must be designed so that nearly all of the revenues go directly to cost-share, technical assistance, and educational programs with minimal administrative and management cost.

IDEA: Environmental "check-off" for all agricultural products

Revenue Generated/Redirected: $2-10 million per year.

Description: Agricultural check-offs have a long history of producing small to medium amounts of money to support research, education and promotion for specific commodities. In Maryland, corn and soybean check-offs generate several hundred thousand dollars per year. A check-off requires that every farmer who markets a certain commodity pays a fee for each unit (usually bushel or pound) that he/she markets. Producers of a commodity vote on establishing a check-off and at specified time periods, vote on renewal. If a majority vote favorably, a small surcharge is added to each unit of production when it is marketed. The funds generated are managed by a board of farmers.

An environmental check-off would be far broader than any existing, but could be established and function similarly. The funds generated could be used to provide cost-share for non-structural practices such as cover crops, provide incentives for adoption of new, non-cost effective practices, pay for private sector technical assistance to farmers and/or for education.

Mechanism: Fee.

Action Needed: Legislation to authorize a check-off vote and development of specific rules and regulations governing the board and the funds. Issues to Consider This would generate funds that could be used with greater flexibility to assist farmers with implementation of new practices. Over time, most farmers would have the potential to benefit, but it could initially be directed to areas of greatest need. The check-off would represent the farm community coming together to address environmental issues. As such, this could be used to leverage additional funds to support agricultural practices and would be a tremendous example to the public of agriculture's proactive commitment to the environment.

The check-off would take additional money out of an already weak farm economy. Many farmers will feel they are doing all needed practices and will not benefit from the funds.

Additional Ideas: Since everyone benefits from minimizing pollution from farms and from the cheap price of food, it can be argued that the public should contribute to the check-off. If the state provided the board with funds to match check-off receipts, the concept might be more acceptable to farmers and be able to accomplish more.

IDEA: Increase cost-share cap for livestock waste storage systems from $35,000 to $50,000 per system

Revenue Generated/Redirected: Revenue neutral.

Description: The current maximum cost-share for animal waste storage systems is $35,000. It is proposed that the maximum cost-share be raised to $50,000 per system.

Mechanism: Redirection of Existing Program.

Action Needed: Change the Maryland Agricultural Cost-Share (MACS) Law.

Issues to Consider: A recent review of actual costs of livestock waste storage structures cost-shared through the MACS program indicated an average cost greater than $55,000 with some systems more than $90,000. Most other practices, including poultry waste storage structures are cost-shared at a rate of 87.5% of actual cost. The current limit of $35,000 for waste storage structures means that farmers can only receive 30% to 60% of actual cost. Raising the limit for livestock waste storage structures would reduce this apparent inequity.

There are currently inadequate cost-share funds to support all the practices needed for the Tributary Strategies. Increasing the amount paid for a practice without increasing cost-share funding will decrease the number of practices that can be implemented.

IDEA: Conservation services incentive programs by major agricultural companies (comparable to electric utility energy conservation programs)

Revenue Generated/Redirected: Estimate not known. Industry would pay initial cost of nutrient management and/or conservation planning.

Description: The electric utility industry has found it cost-effective to pay for installation of energy conserving equipment in homes and recover the cost, over time, out of savings in consumers' electric bill. Nutrient management plans usually save farmers money.

Conservation plans and animal waste storage systems can save money or increase productivity. A large agricultural fertilizer or farm service company could develop nutrient management, conservation or animal waste management plans for farmers with an agreement that requires repayment for plan development over time out of the savings realized by the farmer.

Mechanism: Private Initiative/Incentive.

Action Needed: Private company develop conservation services program.

Issues to Consider: Farmers are frequently unable or unwilling to pay for conservation planning services. This idea would provide a mechanism where the farmer would be paying for the services after the fact from the savings resulting from the service.

Interest would need to be included in the repayment. Developing an agreement defining savings and repayment may be difficult. A large initial expenditure would be required of the company before seeing a return. This would likely limit such a program to the largest agricultural companies with substantial assets.