State Designation of Important Ag Lands Hinges on Passage of Incentives Package

posted in: February 2008 | 0

For two days early last October, the Kohala Center, a sustainability think tank, sponsored what it called a food security summit at the Sheraton Keauhou Bay Resort and Spa. At times, though, it seemed more like an old-fashioned revival meeting.

Throughout the summit, various speakers announced that the state was ripe for major changes to its agriculture industry. And judging by the exuberant applause that greeted every speaker who condemned genetically engineered crops, most of those present had a very specific vision of Hawai`i’s agricultural future: No biotech crops, less industrial agriculture, and more organic. The summit, titled, “How Can Hawai`i Feed Itself,” was attended by about 250 (mostly Big Island) farmers, landowners, government agency representatives, educators, food sellers, and members of the public.

“We’re on a wave, a tsunami, a tipping point. Whatever you want to call it, we’re there,” Diane Ley, a research and development agent for Hawai`i County, said during her talk. William Steiner, dean of the University of Hawai`i-Hilo’s College of Agriculture, Forestry, and Natural Resource Management added that Hawai`i has been brought to a tipping point by climate change, geopolitical turmoil, and economic upheavals, and with nearly all of our food and energy coming from out of state, Hawai`i needed to find ways to be more self-sufficient.

“We may be subject to the will of others and we don’t know who those others will be,” he said.

Despite the shared overall vision of “wholesome food grown on wholesome land by wholesome people,” as Peter Simmons of Kamehameha Schools put it, when it came down to specifics, consensus was hard to find. Some speakers, such as Steiner, pushed biofuel crops, while others spoke against them. And Simmons argued that there is a place in Hawai`i for GMO crops, as well as for “gentleman farms,” which was held in equally low regard by the crowd.

In any case, the state has recently taken initial steps to securing a sustainable agricultural industry by passing legislation to protect its important agricultural lands from the growing pressure to urbanize.

Important Agricultural Lands
Gentleman farms may “add to the mix of what we’re doing,” Simmons said at the summit, but “as far as gaming the system, I can’t say I’m a fan of that.” Simmons was referring to the longstanding practice of landowners trying to pass off residential developments on agricultural lands as farm operations. To protect the state’s best agricultural land from this kind of abuse, which led to the controversial Hokuli`a court decision in 2003, the Legislature passed Act 183 in 2005. The act furthers directives laid out in a 1978 Hawai`i constitutional amendment that requires the state to “protect agricultural lands, to promote diversified agriculture, increase self sufficiency and to assure the availability of agriculturally suitable lands.”

Act 183 establishes a process for designating the state’s important agricultural lands (IAL). To make sure those protected lands are put to good use, the act requires the Legislature to approve an incentive package intended to make farming a more viable enterprise. Once IAL are designated, any decisions of the state Land Use Commission or a county council on district boundary amendments or zoning changes involving IAL must be approved by a two-thirds vote. Under the act, the LUC may designate important agricultural lands in response to a petition for a declaratory ruling filed by a farmer or landowner or to proposed maps and recommendations from the various counties.

Each county council must approve maps of proposed IAL on their respective islands. Those maps must then be submitted for approval to the Land Use Commission, but not before the effective date of the incentive package that the Legislature approves. Once the LUC approves the maps, the IAL designations will take effect three years after incentives and protections for IAL and agricultural viability are enacted.

While a petitioner may opt to designate all of its lands, the counties are limited to designating no more than 50 percent of a landowner’s property as IAL. According to people familiar with the legislation, this limitation was a last-minute addition that undermines the intent of the act and the need to protect contiguous blocks of land. The Hawai`i Chapter of the Sierra Club noted on its website, “The final bill…contained an 11th-hour amendment – inserted at the behest of large landowners – which prohibits the state from designating more than 50 percent of any landowner’s farmland as ‘important’ unless they request it be designated as such. The Sierra Club believes that the final bill falls far short of what was envisioned by the state constitution and will fail to provide adequate protection for Hawai`i’s important farmlands.”

The Land Use Research Foundation, which often represents the interests of large landowners before the Legislature, did not respond to inquiries about the 50 percent limitation by press time. However, the measure undoubtedly gives LURF’s constituents who want to develop their ag lands more flexibility. For example, in its 2006 annual report, Alexander & Baldwin notes that of its 59,320 acres of agricultural or pasture lands and 29,270 acres of conservation lands 8,700 acres have “urban potential.”

Despite what some may see as the law’s shortcomings, many in the agriculture industry are still eager to get the designation process underway. It took more than 20 years to enact laws aimed at fulfilling the constitutional mandate, and at the pace things are going now, it will be years before the state’s important agricultural lands achieve that designation. In the meantime, new housing developments continue to be proposed for actively used ag lands.

Last year was the first chance that the Legislature had to adopt an incentives package, but it failed to do so. After two years of research and discussions with large landowner and agriculture community representatives, the state Department of Agriculture submitted to the Legislature last year a final report on an incentives package, which must be approved by the Legislature before the state IAL designation process can even begin. The department recommended the following “crop neutral” incentives:

  • Important Agricultural Land Infrastructure Tax Credit: A business using important agricultural lands could claim a 100 percent infrastructure tax credit for expenditures such as roads or utilities, distributed power generation facilities, agricultural processing facilities, water wells, reservoirs, dams, water storage, water pipelines, irrigation systems, agricultural housing for laborers, and equipment costs. The tax credit would be available for ten years. Potential costs to the state for this tax credit were estimated to be $28.1 million in the sixth year after legislative approval.
  • Agribusiness Investment Tax Credit: A qualified agribusiness could deduct 100 percent of just about any IAL-related expense from its net income tax liability over five years. The cost of operating expenses and farm production expenses, including fertilizer, seeds, livestock, gas, labor, supplies, repairs, land rent, and property taxes, among other things, could be deducted. The maximum deduction would be $2.5 million, and any credit would be spread out over five years, with 50 percent taken in the year the investment was made, 20 percent taken in the following year, and then 10 percent taken in the third, fourth, and fifth years. Estimated costs to the state: $50 million in the sixth year after legislative approval.
  • IAL Exclusion to Income and General Excise Tax: This incentive would allow landowners to exclude any rental income from IAL from their gross income. If the landowner provided an affordable lease to its farmer lessee, it would also be eligible for a GET exemption for 20 years or more, depending on the term of the lease.
  • Water for Important Agricultural Lands: This proposal was aimed at guiding the state Commission on Water Resource Management in determining water sources for IAL. Although it is unclear exactly what the incentive would be, the report states, “Changes proposed in the Water Code serve to emphasize the constitutional status of Important Agricultural Lands and the need to recognize this status whenever water issues are being considered.”
  • Guaranty Loan Program: The state Department of Budget and Finance would administer this program under which a landowner or landowner association could obtain loans. A private lending institution would qualify the applicant as an eligible IAL borrower and submit a loan package to the director of finance.
  • Air Permit Processing Priority: This incentive would simply require the state Department of Health to establish a procedure for giving agricultural processing facilities priority in the department’s review of permit applications and renewals.
  • The estimated costs per year for these incentives range from $15.5 million in the first year to $82.5 million in year six. In its report, the DOA wrote, “Future producers of biodiesel and ethanol fuel stocks will find [the incentives] as beneficial as producers of Hawai`i’s current crops. However, they are specifically targeted to commercial scale producers.”

    Although several bills were introduced in the 2007 legislative session to achieve these incentives, none was approved. Other bills proposed different incentives, including a 100 percent real property tax credit and the ability to construct worker housing on IAL.

    Summit organizer Nancy Redfeather criticized the bills that had been proposed for being too generous.

    “It was a DOA-Farm Bureau package trying to appease large landowners who attended [planning] meetings. It was financially foolish,” she says, adding, “Of course you have to compensate them [landowners] … but the taxpayer picks up everything and they get to pay no property taxes?”

    Attempts by Environment Hawai`i to get responses from the Farm Bureau and LURF by press time were not successful.

    At the end of last year’s session, state Sen. Jill Tokuda, vice chair of the Committee on Water, Land, Agriculture and Hawaiian Affairs, says that she asked farmers and landowners who had testified on the bills to “go back in the interim and look at the incentives on the table.” She says that the Hawai`i Farm Bureau Federation worked with the Land Use Research Foundation and brought back “a refined and complete package.”

    The package again includes tax incentives, breaks on GET and income taxes, a loan guaranty program, and permitting incentives. It also addresses workforce housing.

    Tokuda adds, “The Farm Bureau does want to take a look at water. Is water for important agricultural lands [also] a public trust priority? We’re looking at the state Water Plan and making sure IAL water is factored in.”

    The loan guaranty program and requirements to speed up government permitting for IAL projects are “key to developing processing facilities that will allow farmers to use more of their harvest and cut down on waste,” she says.

    Whether the package can be approved this year remains to be seen. “At the end of the day, we have to look at the fiscal impact [and] the revenue stream is not looking so good,” Tokuda says.

    Kona County Farm Bureau president nancy Pisicchio, who helped frame Act 183 and participated in discussions on the first incentives package, hopes hopes the Legislature can come up with some incentives soon. If the state designation process somehow fails to result in adequate protections, however, Pisicchio seems to take comfort in Hawai`i County’s efforts to protect ag lands. In 2001, Hawai`i County took it upon itself to incorporate the designation of important agricultural lands into its General Plan update, which was approved by the County Council a few months before the state legislation passed.

    “If Act 183 kicks in, land may not end up in the state IAL, but the county may be more restrictive. If they [county officials] have the political will…it doesn’t matter what the state designation is….My feeling is there is probably more genuine intent to protect resources than there ever has been in this county,” she says.

    How Hawai`i County’s IAL designation will mesh with the state designation process – especially considering the 50 percent limitation – remains to be seen. County Planning Director Chris Yuen notes that state IAL lands must be evaluated under several criteria that were still being written when the county adopted its General Plan.
    “We would work through what we have. We can’t simply [offer the county designation to the state] without demonstrating we looked at the criteria,” he says.

    ‘For the people and by the people’
    While the DOA tried to stay neutral in its incentives package, some of the speakers at last October’s food security summit clearly wanted more emphasis on local food production and sustainability.

    At the summit, UH-Hilo’s Steiner floated several ideas, including allowing residents to deduct the cost of foods grown in Hawai`i from their taxes, establishing a sustainable agriculture section within the state Department of Agriculture, providing tax incentives to grocery stores for marketing local foods, and establishing a $20 million sustainable ag fund from taxes on GMO researchers, a three-year tax pardon for all new farmers, and an energy tax credit to farmers who use biofuels, among other things.

    While many of his ideas drew praise from the crowd, the state’s actions so far suggest that it’s not ready to start favoring one kind of farming over another.

    Consider, for example, the actions of the state Board of Land and Natural Resources. Last June, the board approved several projects under its Legacy Land Conservation program, which was created by the Legislature the same year Act 183 became law. Under the program, a portion of conveyance taxes are directed into a Land Conservation Fund. Landowners or counties may then apply for those funds to purchase lands, including agricultural and conservation easements, that are deemed valuable to the state.

    One of those projects was approved over the objections of the Land Conservation Commission, which evaluates and makes recommendations to the board. The project, which had been approved by the Legislature in 2006, involved a $1.1 million appropriation of Land Conservation funds for the purchase of an agricultural easement on 108 acres owned by the Hawai’i Agricultural Research Center on O’ahu in Kunia. The property is currently used for crop research, but the easement was sought to prevent the land from being converted to non-agricultural use.

    The state Agribusiness Development Corporation had secured $1.7 million from the federal Farm and Ranchland Protection Program to acquire the easement, but needed state matching funds to complete the transaction.

    A month before the Land Board’s vote, as ADC executive director Alfredo Lee explained the project to the Land Conservation Commission, the issue of HARC’s involvement in GMO research came up. While some commissioners seemed fine with the fact that HARC conducts genetic engineering research, others were steadfastly against providing money to such an enterprise.

    According to the May meeting minutes, commissioner Wesley Kaiwi Nui Yoon said that a vote against the project might deter the expansion of GMO agribusiness in Hawai`i. Commission chair Dale Bonar, however, felt that “the more support the commission can give to protecting agricultural lands, the better,” the minutes state. The ADC’s Lee added, “Agriculture may change, and GMOs are one continuing project that ADC is looking at, however, protecting the land permanently is the issue in question, and if it does not happen today, it may not be here tomorrow.”

    In the end, however, the project did not win the commission’s approval. Two commissioners voted for it, three voted against it, and two abstained. After the vote, commissioner Chip Fletcher, who had noted that “we’re rescued every day by Matson [container ships]” said his vision of agriculture for Hawai`i was something that is “for the people and by the people” and that he was concerned about the pollution associated with industrial agriculture.

    To this, Bonar asked whether the commissioners planned to vote down any agricultural project that was not organic. Fletcher responded that it was the first year that projects were being approved and that “tough choices had to be made.” Commissioner Karen Young, who had abstained from the vote because of her involvement in organic agriculture, added that she might change her mind about such proposals in the future if safeguards or “ways to do research that are wholesome and pesticide-free are established,” the minutes state.

    Despite the commission’s vote, the project was forwarded to the Land Board, which voted its approval. Since then, the commission has approved two more agricultural projects. Last December, the commission approved a request to provide $737,300 to the Wai`anae Community Re-development Corp. to buy 11 acres in Lualualei Valley. The property, once the site of an old chicken farm, would expand the non-profit corporation’s MA`O Organic Farms. The second project involves the purchase of 196 acres of the 212-acre Kawaikapu Ranch in east Molokai. Ke `Aupuni Lokahi, Inc. (Molokai Enterprise Community) has proposed using $937,500 of Land Conservation funds, $312,500 in federal grant money, and a $38,500 donation from current owners Gregory and Tracy Gordon to purchase the property.

    Regardless of what decisions are being made by state agencies, Redfeather says, “The real world goes on anyway and there is a momentum for healthier, more self-reliant agriculture… These issues will still go forward at the grassroots level.” Without strong diversified agriculture policy advocate, however, it will be very difficult to effect changes, she admits.

    — Teresa Dawson

    Volume 18, Number 8 February 2008

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