Tax Increment Financing for Optimal Open Space Preservation: an Economic Inquiry



I. Introduction

The public has been concerned with preserving open space from development in their
neighborhood for decades. The Trust for Public Land finds that in both robust and
challenging economic times since 1996, American voters have strongly supported
conservation finance measures that preserve natural lands, create parks, and protect
farmland, and more than 77 percent of the conservation finance ballot measures were
approved, generating a total of $27 billion. The market, however, often fails to provide
open space optimally, despite the substantial social value attached to open space, since
the value of open space as a local public good doesn’t, in most cases, fully accrue to the
private land owner who provides them. In response, planners and local land managers
have adopted many policy instruments to promote open space preservation (Bengston et.
al. 2004, Porter 1997). One common approach extensively used across the U.S. is
purchase of land designated as open space or rights to development (Myers and Puentes
2001, Porter 1997, Kelly 1993). An interesting question related to the purchase of open
space land is how local government can balance their budget to cover the cost of the
public investment in open space. If acquisition of open space land requires a tax
increase, it may not be politically desirable although people strongly support preserving
open space. According to a survey conducted by the National Association of Realtors
(2001), 75% voters would like their local governments to buy land to create new open
space in their communities, but most oppose increasing their property taxes by more than
$50 a year to pay the cost of acquiring open space land.

Some studies have pointed out acquisition of open space land may be financed by
the increment in tax revenue generated by property value appreciation in response to the



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