From Farmhouses to Townhouses

When most people think of New Jersey, they picture petrochemical refineries, urban sprawl, smog, pollution, and overcrowding. There's another part of New Jersey that is off the beaten path and very beautiful. Hunterdon County in northwestern New Jersey is rural farm country: dairy and horse farms on rolling hills, roadside stands, silos, red barns, and old stone houses.

About two-thirds of Hunterdon County's 430 square miles (275,400 acres) is in farmland assessment - a special level of tax valuation applied to New Jersey agricultural property. Farming is still Hunterdon's biggest industry, one that employs thousands in producing, processing, and selling crops and their products.

We rank first in the state for all hay production and number of sheep and lambs, second in field corn production and number of all cattle, third in number of hogs and pigs, and fourth in milk production. Nursery production, Christmas trees, and fruits and vegetables are steadily increasing.1 Diversified gross revenues average about $35 million, not including the horse industry or woodlands. Our total county population is just over 96,000 and about 15% is rural. At present, there's a 1 1/2% county unemployment rate, lowest in the state, and agriculture is Hunterdon County's biggest industry.

Grain, field crops, and dairy farmers are in a nationwide dilemma. As the price per bushel of grain drops, farmers can barely break even on production costs, and they still have to pay the mortgage. Price supports for milk producers are dropping as the stockpiles increase. To make matters worse, land values have dropped over the past five years so farmers selling their land can't even recover the equity.2 A severe financial distress exists in agriculture.

The land situation in New Jersey, however, isn't in the same dire straits. In fact, land values have increased 27% during the past five years. In 1986, the average value per acre of land in New Jersey was $3,913-$388 higher than in 1985, and highest in the nation.3 New Jersey farmers have cash flow problems, but with land values so high, they don't go bankrupt; they just cash in the farm and retire or relocate.

The housing and corporate building industry is booming in Hunterdon County, thanks in part to a recently completed interstate highway that connects Pennsylvania to New York City through northwestern New Jersey. About one-third of county farmland is held by speculators, and fields that farmers once rented for crops are now "producing" townhouses, condominiums, exclusive single-family homes, and corporate centers with campus-like settings. Farmers have also been approached by real estate developers to sell their land at astronomical prices: $5,000-$40,000 or more an acre. Serious development pressures exist on open space and farmland. Hunterdon County lost 2,000 acres of farmland to development between August 1985 and July 1986.4

The public, however, is very interested in retaining farmland and open space in the most densely populated state in the nation. The farmland assessment tax was passed by majority referendum in 1963 and "slowed farm sales from six a day in the late 1950s/early 1960s to one every six days after its passage."5

Recently, farmland preservation efforts have included the purchase of development easements (the difference between development value and the value as a farm) with county and state funds, transfer of development rights, cluster developments, agricultural zoning, outright purchase of land by interested conservation groups, and "right-to-farm" legislation to prevent nuisance suits.

Why should farmers turn down these outrageous real estate offers, with farm crop prices at a near all-time low? Their land is their "nest egg" and retirement pension. Sometimes there are no heirs to turn the farm over to; sometimes the heirs aren't interested in farming. It may be bad health, it may be the economic pressures that build. Whatever the reason, farmers were and will be considering the sale of their land. Selling the farm isn't a simple procedure; it's complicated.

In hopes of looking at all options, Calvin G. Wettstein, the other county agricultural agent, and I met with a few experts in the field of real estate, investments, and taxes to design a one-evening program entitled, "Selling the Farm...The Legal, Financial, and Emotional Considerations." The speakers included an accountant with Farm Credit Services, a local realtor, a certified financial planner, and the two of us. The presentations were to be brief (20 to 25 minutes). A panel discussion with questions and answers followed a refreshment break. The audience was offered the option of writing their questions anonymously on index cards for the speakers to answer.

The program wasn't to encourage anyone to sell the farm, but rather to offer briefly some marketing and crop alternatives (fruit, vegetables, nursery and greenhouse crops, and Christmas trees) to the current commodities of dairy and field crops and to discuss the latest farmland preservation efforts.

For those seriously considering a sale, we discussed some sale procedures and contract options, tax-free exchanges, the new federal tax law and its implications, estate tax, closing contracts, investments, and the emotional aspects of selling the farm, including displacement, retirement, relocation, grief, guilt, shame, and stress. As far as program content, I found the emotional considerations of selling the farm the most difficult to research and deliver.

The title of the program distressed some people, who thought that we were encouraging farmers to sell their land. We insisted that alternative crop and marketing ideas and farmland preservation options would be discussed. This was not going to be a "how-to-sell-the-farm" program. Others were concerned about the choice of session leaders. We chose the most personable speakers with the most experience with farmers. Of the 190 participants, 10 were realtors and 20 considered themselves farmer/realtor.

There was no fee for the program, but pre-registration was requested to plan for handouts and refreshments. The program was advertised through direct mailings and news releases. With luck, we thought we'd have 25 participants. Imagine our surprise when 185 people registered and 190 showed up at the program!

An evaluation was distributed to the participants before the refreshment break. About half (92) were completed and returned by the end of the evening. The questionnaire was used to judge the program leaders' teaching effectiveness and rate the program overall. Here are some of the findings:

• Regarding the new federal tax law: 67% of the respondents had a "good" understanding of the changes and how it would affect them if they sold their farms. Nine percent had a "very good" understanding of the concept; 24% had "no" understanding.

• Seventy-four percent of the respondents reported a "good" knowledge of what to include in a real estate contract so it works to their best advantage. Thirteen percent had "very good" knowledge and another 13% didn't grasp the concept.

• Forty-five percent had "very good" understanding of savings and investment options available, 30% had "good" understanding, and 25% had "no" understanding.

• Thirty-nine percent of the respondents will consider alternative crops and farming methods.

• Eighty-two percent are now more aware of the emotional aspects of selling/retiring from the farm; the other 18% already knew the results of selling the farm.

• Regarding farm management: 75% will be using an accountant to complete their taxes this year; 72% have a family attorney; 56% have an IRA or Keogh plan today; and 80% of the respondents who had no IRA or Keogh plan will consider one next year.

• Overall, 74% of the respondents rated the program "very good" and 26% "good," with no "fair" or "poor" ratings. Comments included the desire for more information on the new tax law, estate planning, and business management.

New Jersey has the highest land values in the nation, while farm crop values are at a near all-time low. We're seeing a rapid change in the profile of rural Hunterdon County from farmhouses to townhouses as farmers sell their land for development. Farming must be profitable for farmers to stay in business, or some incentives must exist for farmers to sell their land as a farm (and be fairly compensated). Some farms will inevitably sell because family members aren't interested in farming, have no heirs, suffer poor health, or severe economic hardship. Farm sales will have a ripple effect on the entire county's economy.

This one-night program successfully helped a great majority of participating farmers learn about tax law changes, land sales and contracts, financial planning, the emotional aspects of selling the farm, crop and marketing alternatives, and farmland preservation efforts. Four other counties have since expressed interest in organizing a similar program.

For the future: (1) open forums are needed between legislators and farmers to discuss legislative changes related to farmland preservation; (2) educational programs should be presented to county and municipal planning and zoning boards to discuss the pros and cons of exclusive agricultural zoning, transfer of development rights, cluster zoning, and the purchase of development easements from farmlands; (3) educational programs for farmers are needed on estate planning, small business management, and cash flow; and (4) production and marketing information should be delivered to farmers through traditional educational methods about new and unusual crops, including horticultural and high-cash crops, to increase farm profitability, because "agriculture keeps New Jersey green."6

1. Crop Reporting Service, New Jersey Agriculture 1985, Circular 510 (Trenton: New Jersey Department of Agriculture, 1986), pp. 1, 12, 17, 34, 40, 46, 47, 53, 69.

2. U. S., Department of Agriculture, The Current Financial Condition of Farmers and Farm Lenders, Agricultural Information Bulletin 490 (Washington, D.C.: U. S. Government Printing Office, March 1985).

3. Crop Reporting Service, Farm Facts (Trenton, New Jersey: Department of Agriculture, May 30, 1986).

4. Hunterdon County Board of Taxation, Annual Report of Farmland Assessment Applications (Flemington, New Jersey: Hunterdon County, 1986).

5. Comments from former New Jersey Secretary of Agriculture Phillip Alampi, at open hearing on farmland preservation, November 24, 1986, Hunterdon County Extension Center, Flemington, New Jersey.

6. Motto of the New Jersey Agricultural Society, Trenton, New Jersey.