Nonprofit Agencies That Went Bankrupt in Maryland

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					                                                        Trading
                                                                                   Spaces
                                                                                    Conservation efforts get
                                                                                    a boost from the market



                                                                                   BY B E T T Y J OYC E N A S H
Old pine trees: Home of the endangered red-cockaded woodpecker


                      ed-cockaded woodpeckers choose real estate                   Natural Remedy

            R         carefully. They prefer drilling cavities in old pine trees
                      — longleaf if they can get it — amid open space.
            A golf course, for instance. They’re picky, territorial, and
                                                                                   Conservation increasingly pits private interests against
                                                                                   public. Conflicts will only intensify as development
                                                                                   continues to chop up open land and species habitat.
            because they’re endangered, they influence private land                    Incentives, however, have demonstrated over the past
            transactions in a big way. They live in 10 Southeastern states         decade that they can turn environmental liabilities into
            on a sliver (3 percent) of their original longleaf pine habitat.       assets. Under some programs, farmers can sever and sell
                Even after federal protection in 1973, their numbers               development rights. In others, developer obligations can be
            continued to slide, in part because frustrated                         transferred to “mitigation banks” that sell credits from
            landowners tried to deter or get rid of the birds. Some                private, certified-restored natural areas. Both create
            cut forests before maturity to avoid woodpecker                        tradable commodities. Both achieve social goals through
            cavities or allowed dense hardwood growth to spoil                     market enterprises.
            foraging area under the pines. All this to avoid future                    Such incentives can inspire landowners to maintain land
            limitations on how property owners could use their land.               and correct the negative consequences of development.
                Something was very wrong with the incentives                       Now, red-cockaded woodpeckers are multiplying in the
            here: Habitat and species preservation demanded a truce.               Southeast, with the help of incentive-based agreements like
            Owners of the preferred pine tracts needed encouragement               Safe Harbor. The Sustainable Land Fund is ironing out
            to manage forests in a woodpecker-friendly way without                 details for a mitigation bank near Elkins, W.Va., for the
            liability. A conservation tool called Safe Harbor does that.           threatened Cheat Mountain salamander and West Virginia
            Landowners voluntarily agree to restore woodpecker                     northern flying squirrel. And a market for transferable
            habitat; in return, the U.S. Fish and Wildlife Service frees           development rights in Maryland has preserved 17,500 acres
            them from regulatory limits should those management                    of farmland in Calvert County.
            practices attract additional groups of birds beyond the                    “We know incentives inform what landowners decide to
            original “baseline.” Voila — incentive.                                do with their properties, so the idea of now turning those
                                                                                                                                                 PHOTOGRAPHY: U.S. FISH AND WILDLIFE SERVICE




                “It removes regulatory risk and allows landowners                  around and saying, ‘How can we use that same technology,
            to engage in practices beneficial to them and the                      that same financial set of tools to create a longer-term,
            woodpecker,” says Michael Bean, an attorney at                         sustainable future?’ is by my way of thinking just an
            Environmental Defense, the nonprofit environmental                     appropriate new mechanism we need to adopt to do more
            group that has pioneered Safe Harbor and other                         than we can possibly do with the old tools,” says William
            conservation incentives.                                               Ginn. He directs the Global Forest Partnership at


   28       Region Focus • Spring 2007
The Nature Conservancy and wrote             landowner reported a downed cavity             One cluster of birds sold for
the 2005 book, Investing in Nature.          tree and insisted that a biologist drill   $100,000 and went to a conservation
    Using market tools to achieve            an artificial cavity ASAP so the wood-     easement owned by the University of
conservation goals isn’t a new idea, but     peckers would stay. Today, about 100       South Carolina, Costa says. The birds
it is gaining currency as preservation       Safe Harbor agreements cover about         came from property being developed
funds dwindle and regulation proves          50,000 acres, according to Susan Ladd      on the coast of South Carolina. “What
inadequate.                                  Miller of the U.S. Fish and Wildlife       drives the price [is the] value of
    Environmental regulation tries to        Service. And six new groups of red-        the timber and/or the dirt for develop-
make up for costs that affect society,       cockaded woodpeckers have settled in       ment on the mitigation property,” he
costs that aren’t borne by firms             the North Carolina Sandhills.              says. “We have some prices floating
or landowners, called externalities.            “What it did was allow us to not        around right now approaching
Like pollution. Or doing in the last         just be the bad guy, the regulatory guy,   $250,000 for a developer who has a
red-cockaded woodpecker. But a               but allowed us to have positive            group they want to get rid of and it’s
one-size-fits-all standard may not           relationships with these landowners,”      because the land could be used
work as envisioned. (Economists John         Miller says. Safe Harbor and other         for timber.” Few high-dollar groups of
List, Michael Margolis, and Daniel           conservation plans have inspired           woodpeckers remain on coastal high-
Osgood have written a paper suggest-         some private landowners to put             dollar dirt, Costa says, making such
ing that the U.S. Endangered Species         land in conservation easements, one        transactions rare.
Act has accelerated development,             adjacent to Ft. Bragg, desperate for           While such informal trades don’t
leading to habitat and even species          noise buffers and critter habitat.         constitute a true conservation or
decline. Property owners, the authors        (By law, federal lands must recover        mitigation bank with active trading,
argue, are forward-looking and when          endangered species.)                       that concept is gaining ground.
they see the “act as a threat to their                                                  California established rules for the
development rights,” they may                Banking on Conservation                    first endangered species banks in 1995,
respond “by developing preemptively”         Birds can be “banked.” Two elderly         and in 2003, the U.S. Department of
that is, before restrictions imposed by      women in North Carolina needed to          the Interior issued guidelines. Under a
the act are applied to them.)                sell timber to pay medical expenses        command and control system, if an
                                             but were hindered by the discovery of      endangered species were found during
The Birdie                                   three red-cockaded woodpeckers.            development, a protracted process
Pinehurst, a resort in the Sandhills of      Those birds were moved to Nature           ensued that often led to piecemeal
south central North Carolina, was in         Conservancy land in Sussex County,         preservation. Using endangered
on Safe Harbor from the get-go, says         Va. The Piney Grove Preserve, 2,700        species mitigation banks, an “enviro-
Brad Kocher, vice president of               acres of primo foraging habitat, has       preneur” may buy and manage land,
grounds and golf course management.          twice been a mitigation bank for           gaining appropriate agency approvals.
His interest dates back to 1995, when        the woodpeckers.                           (Those in the business say that, for
the resort’s No. 8 golf course was               Ralph Costa of the U.S. Fish and       now, they’re overregulated but expect
under construction. A shame, he              Wildlife Service brokered the deal. He     that to diminish as the banks prove
recalls thinking, that the resort couldn’t   tracks the red-cockaded woodpeckers’       themselves.)
do something to attract more birds.          progress and works out agreements              A California firm, Wildlands, Inc.,
“But if I did something to encourage         with landowners all over the Southeast     has opened seven mitigation banks
the species on No. 8, I [would have]         — public and private. Between 100          since November; the latest one
encumbered anybody within a half-            and 200 groups of birds are growing        preserves habitat for the giant garter
mile radius of that tree, and they were      annually throughout the region on          snake in an eight-county area near
not going to be very happy with me.”         public and private land, Costa             Sacramento, Calif. Wayne White
   Safe Harbor will protect landowners       says. Landowners must pay the              works as a consultant for mitigation
from future restrictions once the orig-      mitigation costs.                          banks, having learned the ropes during
inal group of birds is documented.               Costa explains: “I get a phone         his career with the U.S. Fish and
Owners also must enhance the habi-           call … ‘Got two groups to get off          Wildlife Service.
tat. Pinehurst has about 11 families of      my property — I need the money.’               A new mitigation bank carries risk
red-cockaded woodpeckers, and has            I give them the names of all the           just like any other business. You need
won awards for stewardship. The              mitigation banks and contacts within       to know your market and how many
agreement extends to neighboring             their recovery unit and that’s the end     credits you’ll have to sell to break even
properties affected if new woodpeckers       of my involvement. At that point, they     or to make a profit, White says.
are drawn by Pinehurst habitat.              call the bank and negotiate the            The bank improves, monitors, and
   Incentives can prompt improbable          price. I don’t care if it’s free or a      establishes an endowment to ensure
acts: After Hurricane Fran in 1996, a        million dollars.”                          management in perpetuity. And here’s


                                                                                        Spring 2007 • Region Focus                  29
                   the trickiest part, he says: “Can you         deprives them of income, they’ll           and sell TDRs. Owners also can develop
                   sell the credits?”                            pressure local authorities for change.     their land or buy rights and develop
                       Conservation banks seem sound,                Paul Thorsnes of the University of     beyond base zoning limits. A single
                   but they need tweaking. California’s          Otago in New Zealand and Gerald            TDR preserves one land parcel.
                   first bank, formed in 1995, went              Simons of Grand Valley State               McConnell points out that one of the
                           bankrupt in 2005. “Agencies and       University in Michigan have studied        downsides to TDR programs is
                             bankers learned you have            the issue and written: “In short,          adverse selection. Conceivably, some
                              to have a good financial port-     however efficient the allocation of        owners sell rights who may never have
                             folio,” White says. Since then,     land, the inequitable distribution         intended to sell or develop their
                           state and federal wildlife            of costs and benefits plagues open-        property in the first place. That could
                         agencies have developed tools to        space zoning.” But creating a market       lead to more density than would occur
                       monitor financial performance.            for development rights is preserving       under a straight zoning regime.
                                                                 land, particularly in Calvert and             About 142 TDR programs are
                      Flexible Farmland                          Montgomery counties.                       ongoing in the United States, some
                     in Calvert County                               Prices are determined through          more successful than others. Getting
                    Perhaps the oldest conservation              supply and demand, not appraisals.         supply and demand in sync is critical.
                   incentive tool comes in the form              “If the builders are building, and they    If people don’t know who is selling
                   of “rights” that can be sold off              need those rights to increase density in   development rights, there are problems
                   farm properties to offset additional          the subdivisions, then the price goes      matching willing buyers and sellers.
                   density elsewhere.                            up,” Hance-Wells explains.                 To remedy a thin market and
                      From the top half of Calvert                                                          price fluctuation, Calvert County
                   County, Md., you can commute                  The Power of Prices                        began in 1993 to buy TDRs annually
                   to Washington, D.C., in about 35              Channeling development through             at announced prices. They also
                   minutes. This Eastern Shore county            a TDR market draws on the same             now publish a newsletter to keep
                   has been a prime bedroom community            principles as free market environmen-      information flowing.
                   even as far back as the early 1980s.          talism. In theory, people choose              With the uncertainty reduced,
                   Between 1990 and 2000, Calvert                based on self-interest and everybody       McConnell says, trading increased.
                   was the fastest-growing county                benefits. “Regulation to a standard        A recent study of TDR programs found
Red-cockaded       in Maryland.                                  means forcing some people to be at a       that market stimulation through such
  woodpeckers         “We were one of the first to feel the      position they’d rather not be,”            public purchases helps balance supply
average about      effect of the concept of a bedroom            says Margaret Walls, an economist          and demand and is characteristic of
  eight inches     community,” says Susan Hance-Wells.           at Resources for the Future, a             successful TDR markets.
 in length and     Her family has lived on Calvert farm-         Washington, D.C., think tank.                 Purchases vary from year to year
   feed mostly
                   land since it was established some 300        “Whether it has to do with acres           and prices have increased from
     on insects.
  Landowners
                   years ago. Today, she grows corn,             of land or power plant emissions,          an average of $2,500 in 2001 to $7,500
     face fewer    soybeans, and oats, and she breeds            market-based instruments tend to           in 2005. Maryland’s TDR program
restrictions on    Friesian horses.                              have more flexibility.”                    has preserved 12,000 acres, and
       property       Worried about disappearing farm-               Walls, with co-authors Virginia        Calvert County has bought 5,500 acres
          use in   land, Hance-Wells and her father,             McConnell and Elizabeth Kopits,            to retire permanently. Separately,
     return for    Maryland’s first secretary of agricul-        has studied the market for                 the state has bought easements that
        habitat
                   ture, enrolled in Calvert County’s            development rights in Calvert County.      have preserved 7,000 acres.
 maintenance.
                   transferable development rights               “It creates a price for selling these
                   (TDR) program back in 1979. Their             rights, an incentive for people to         Not Perfect
                   fears illustrate the externality that isn’t   preserve this land permanently,”           Critics point out, though, that devel-
                   accounted for by a builder — in this          McConnell notes.                           opment in Calvert County sprouted in
                   case, the reduction of open space and             One measure of a TDR program’s         the rural communities anyway, demon-
                   loss of farmland.                             success lies in trading activity,          strating low demand for dense
                      In a TDR market, development               McConnell says. “So often the              residential development. While the
                   potential transfers from one parcel to        programs are on the books but nobody       development pattern isn’t perfect,
                   another. It can be used to preserve           makes transactions; supply and             flexibility may have worked to the
                   natural or historic areas as well as          demand are out of whack. If the            county’s advantage.
                   species habitat. Zoning, a typical            market works in the sense that people         “A lot of programs try to dictate
                   regulatory response, often doesn’t            are participating, then you know land      that the sales go into more high-
                   work the way it’s supposed to because         is being preserved.”                       density areas; as a result it sometimes
                   of what economists call “rent-seek-               In Calvert County, any landowner       limits the demand for them,”
                   ing.” If owners feel a classification         with productive soil may enroll            Walls says. “TDRs are not a growth


       30          Region Focus • Spring 2007
limiting tool but a growth allocation,            cases that don’t suit what you’re looking     satisfy everybody, but it’s increasing
spatial allocation tool.”                         for or don’t accomplish the goals, but        populations of the red-cockaded
   High land prices have brought new              they’re not going to be in the majority.”     woodpecker. And mitigation banks are
owners to TDRs, says Susan Hance-                     OK, so maybe the development              criticized for “enabling” development.
Wells, but many are “farmettes” rather            isn’t ideally situated. And perhaps it        Yet the private banks, the successful
than large-tract farms. “Some of the              isn’t a true market, as Thorsnes              ones, are preserving larger sites and
land that will get in is not what we orig-        points out, because the zones are             providing permanent management for
inally intended, but they preserve farm           predetermined by planners. But                endangered animals. As markets for
communities. It’s insulating the farms            the fact remains that farmland is             endangered species and open land
in that community against increased               being preserved.                              mature and go mainstream, they may
density,” she says. “Y ou’re going to have            Likewise, maybe Safe Harbor won’t         reveal nature’s true value.       RF

READINGS
Balsdon, Ed. “Incentives for Resource Conservation through the          List, John A., Michael Margolis, and Daniel E. Osgood. “Is the
Capitalization of Environmental Value: An Evaluation of Open            Endangered Species Act Endangering Species?” NBER Working
Space Mitigation Requirements.” Discussion Paper 03-04, Center          Paper no. 12777, December 2006.
for Public Economics, San Diego State University, January 2003.
                                                                        McConnell, Virginia, Elizabeth Kopits, and Margaret Walls. “Using
Boyd, James, Kathryn Caballero, and R. David Simpson. “The Law          Markets for Land Preservation: Results of a TDR Program.”
and Economics of Habitat Conservation: Lessons from an Analysis         Journal of Environmental Planning and Management, September
of Easement Acquisitions.” Discussion Paper 99-32, April 1999,          2006, vol. 49, no. 5, pp. 631-651.
Resources for the Future.
                                                                        Shogren, Jason F., et al. “Why Economics Matters for Endangered
Dehart, Grant H., and Rob Etgen. “The Feasibility of Successful         Species Protection.” Conservation Biology, December 1999, vol.13,
TDR Programs for Maryland’s Eastern Shore.” The Maryland                no.6, pp. 1257-1261.
Center for Agro-Ecology, Inc. January 2007.
                                                                        Thorsnes, Paul, and Gerald P. W. Simons. “Letting the Market
Ginn, William. Investing in Nature: Case Studies of Land                Preserve Land: The Case for a Market-Driven Transfer of
Conservation in Collaboration with Business. Washington, D.C.:          Development Rights Program.” Contemporary Economic Policy,
Island Press, 2005.                                                     April 1999, vol. 17, no. 2, pp. 256-266.


GRINDING GEARS                          •   continued from page 27
year, while Ford lost $2,015 per vehicle           during the onset of the 2001 recession,       production and employment.”
and GM lost $335 per vehicle.                      McAlinden noted, they would                      This overcapacity has been partially
    Some industry observers argue that             have laid off tens of thousands of            masked by strong sales of high-margin
if it weren’t for the cost of the jobs             workers who would have collected              trucks and sport-utility vehicles. But
bank, mass layoffs would have been                 supplementary unemployment bene-              continued poor sales of the Big
more common in the automotive indus-               fits and, eventually, full pay and            Three’s cars are forcing automakers to
try. Sean McAlinden, chief economist               benefits in the jobs bank. “The               make more drastic changes. With or
at the Center for Automotive Research              companies, already facing pension             without the jobs bank, it’s a more
in Ann Arbor, Mich., agreed with this              shortfalls, and remembering the disas-        challenging environment for both
argument in a June 2004 report.                    trous cash drain of such layoffs in           American automakers and the people
    If the Big Three held firm on prices           1992 for GM, cut prices instead of            they employ.                       RF


READINGS
Fahey, Jonathan, and Joann Muller. “Idling.” Forbes, Oct. 17, 2005,     Katz, Harry C. “The Restructuring of Industrial Relations in the
pp. 110-112.                                                            United States.” Cornell University Center for Advanced Human
                                                                        Resource Studies Working Paper no. 91-20, May 1991.
Farber, Henry S. “Job Loss in the United States, 1981-2001.”
Princeton University Industrial Relations Section Working Paper         ___. “Industrial Relations in the U.S. Automobile Industry: An
no. 471, January 2003.                                                  Illustration of Increased Decentralization and Diversity.”
                                                                        Economic and Labour Relations Review, December 1997, vol. 8, no. 2,
Harbour, Jim, and Laurie Harbour-Felax. “Automotive Competitive         pp. 192-220.
Challenges: Going Beyond Lean.” Harbour-Felax Group,
October 2006.                                                           McAlinden, Sean P. “The Meaning of the 2003 UAW-Automotive
                                                                        Pattern Agreement.” Center for Automotive Research, June 2004.


                                                                                                 Spring 2007 • Region Focus                   31

				
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