In 1974, Pennsylvania passed into effect Act 319 entitled, “The Pennsylvania Farmland and Forest Land Assessment Act”. More commonly known as the “Clean and Green Act”, this act provides a preferential tax assessment for land used for agricultural and forestry purposes. The purpose of the act is to encourage landowners to retain and protect their land for agricultural, recreational, and forest development by providing property tax relief. See 72 Pa. C.S. § 5490.1 et seq. However, a volatile economy and surge in energy development has forced Pennsylvania to adopt amendments to the Clean and Green Act focusing on encouraging and balancing environmental protection with energy development. Today, the PA Department of Agriculture estimates that more than 9.3 million acres are enrolled under Clean and Green.
Typically, when a county adopts the Clean and Green Program, it assesses two values on each piece of parcel that qualifies. These values include Fair Market Value and Use Value. When a landowner enrolls in the Clean and Green Program, their property is assessed at its Use Value rather than its Fair Market Value. The Use Value of property is typically lower than Fair Market Value, ultimately saving the landowner in taxes significantly. Generally, to qualify for the program landowners must devote at least 10 contiguous acres of land strictly for one of the following:
- Agricultural use – land in agricultural production or soil conservation
- Agricultural reserve - recreational open space available to the public
- Forest reserve – land capable of producing timber or other wood products
In situations where the use of the land does change to a non-qualifying use, the landowner is subject to a “roll-back” tax penalty of 7 years with an annual interest rate of 6%. A non-conforming use on any portion of the parcel results in the entire parcel being penalized. This penalty is calculated from the difference between the preferential taxes paid and the taxes that would have been paid if the land had been assessed at Fair Market Value.
Everyone benefits either directly or indirectly from the enactment of the Clean and Green Act. Property owners and landowners directly benefit from substantial property tax savings, while the general public indirectly benefits from the preservation of farmlands, woodlands, and the environment. But how does this relate to the recent surge of oil and gas production in Western Pennsylvania?
With the recent explosion of the oil and gas industry in the region, landowners with large holdings of natural and mineral resources have had the opportunity to lease property for the exploration and extraction of these resources beneath their lands. This resulted in some landowners leasing away property registered under the Clean and Green program to oil and gas extraction companies. Clearly, land that is used for the extraction of oil and gas is not one of the limited uses qualified under the Clean and Green Act. Knowingly or unknowingly, landowners were “double-dipping”, as they received the benefit of a tax reduction from the Clean and Green Program while also receiving royalties and other financial benefits from leasing away their property to oil and gas companies. In contrast, for other Clean and Green landowners the threat of “roll-back” taxes served as a major deterrent to “double-dipping” and exposing themselves to liability for leasing their registered Clean and Green property away to the oil and gas companies. Landowners were caught in a holding pattern between the Acts savings and potential large royalties payments.
Pennsylvania had to find a way to balance environmental protection with energy development. To encourage energy development, on October 27, 2010, Act 88, an amendment to the Clean and Green Act was signed into law that clarified implications concerning oil and gas use on Clean and Green parcels. The amendment made it possible for landowners to lease property for the removal of oil, gas, coal bed methane, and other energy sources without having their entire parcel being subject to the “roll-back” tax penalty. Instead, “roll-back” taxes are only imposed on the portion of land devoted to the energy activities. Essentially, the portion of property where the well-site or other energy production is located is excluded from the tax incentive and subject to a normal tax rate. In contrast, instead of an entire property becoming ineligible for preferential tax assessment and subject to the “roll-back” penalty, the preferential tax treatment will only be revoked on the portion of land no longer capable of being used for agricultural, agricultural reserve, or forest reserve.
Act 88 of 2010 states in part,
2) Portions of land subject to preferential assessment maybe used for exploration for and removal of gas and oil, including the extraction of coal bed methane, and the development of appurtenant facilities, including new roads and bridges, pipelines and other buildings or structures, related to those activities.
(3) Roll-back taxes shall be imposed upon those portions of land actually devoted to activities set forth in paragraph (2),excluding land devoted to subsurface transmission or gathering lines, which shall not be subject to roll-back tax . . .
This amendment provided a great benefit to Clean and Green landowners and successfully removed the deterrent effect Clean and Green had on energy development in the region. In most cases, landowners can still reap the preferential tax benefit of using their land for agricultural, agricultural reserve, and forest reserve while also capitalizing on the opportunities that oil and gas has brought to Western Pennsylvania. Within a short period of time, the economic and social benefits of the oil and gas industry have grown tenfold and it is important to allow this community to take advantage of its potential and continued growth.
Pennsylvania has made major strides in its attempt to balance environmental protection with energy development. With amendments to the Clean and Green Act, property owners benefit as well as the general public by helping promote oil and gas production while preserving the use of agricultural, open space, and forest development.