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MDAR’s APR Program Lacks an Effective Farmer Education Component and a Transparent Sale Process for APR Program Property.

Audit calls for more transparency and predictability in APR decisionmaking process.

Table of Contents

Overview

Certain aspects of MDAR’s administration of the APR Program could be improved. Specifically, the process MDAR uses to execute the sale of some APR Program farmland lacks sufficient transparency and can create complexities that may hinder APR Program farmland owners’ ability to derive the maximum benefit from the sale. Also, the process and information that MDAR uses to educate farmers about the APR Program could be enhanced to ensure that participating farmers are fully aware of program requirements and processes and all of their options when it comes to the use and sale of their property. Program administration issues such as these could result in participating farmers unknowingly violating program requirements and/or being unfairly financially penalized.

MDAR Lacks an Effective Education Component for Current and Potential APR Program Participants.

The process that MDAR has established to educate farmers about the APR Program does not appear to be adequate. MDAR operates under APR Program–related regulations established under Section 22 of Title 330 of the Code of Massachusetts Regulations (CMR) that are intended “to provide guidance and clarification for present and future APR Parcel Owners regarding their rights and responsibilities and the Department’s responsibilities,” as well as other policies, procedures, and program guidelines. However, although MDAR makes this information available to farmers, it does not provide any type of formal training and/or hold informational workshops that would provide an understandable overview of all APR Program requirements and an opportunity for farmers who are considering or currently participating in the program to ask questions. According to a number of farmers with whom we spoke, the APR Program information that MDAR makes available to farmers is sometimes unclear, too technical, and/or inadequate. For example, there is minimal guidance on how farmers can use natural resources such as solar energy or newly discovered water on their APR Program parcels; no information on a number of special-permitting options that are available to farmers; and minimal information regarding farmland-related resource use thresholds and restrictions that may apply to activities on APR Program parcels, such as the amount of resources that have to be produced on the APR Program farmland in support of a business activity. A number of APR Program farmers with whom we spoke expressed frustration over their lack of understanding of how certain aspects of the program work (see Appendix A for examples). As a result, these farmers may not fully understand the limitations on the use of their APR Program farmland when developing their business plans for their parcels, which may result in lower-than-expected revenue and financial stress. Further, a lack of understanding about program requirements and processes may result in APR Program farmers unknowingly conducting activities on their farmland that may conflict with MDAR’s APR Program requirements.

Authoritative Guidance

USDA has issued education and assistance resources for new farmers, emphasizing the importance of providing education and technical support for farmers and farm programs both to encourage participation and to ensure that participants understand how these programs operate and can thus receive the full benefits of participating. According to its website,

USDA offers a wealth of information and services for new farmers and ranchers. Such services include providing cutting-edge agricultural research, collecting and sharing information on markets, providing technical assistance for common challenges or issues on the farm, and offering programs to help support new farmers and ranchers in local communities.

Providing such services and support, with a focus on educating farmers about the mission of the program and acceptable farmland improvements and activities, is a best practice MDAR should follow.

Land for Good, a nonprofit organization located in Keene, New Hampshire, whose mission is similar to the APR Program’s, has developed a farm education program that involves providing program participants with “educational and planning materials, workshops and training, technical assistance and support on farmland tenure [holding rights], access, affordability, lease or purchase, and related topics.” Land for Good’s educational programs represent a model that MDAR could follow.

Reasons for Issues

MDAR stated that it has not had the resources necessary to develop a farmer education program and instead relies on the information on its website and in the original APR Program contract to inform farmers of how to join and participate in the APR Program and/or how to perform activities that need prior approval from the agency.

Transactions Related to the Sale of APR Program Farmland Lack Sufficient Farmer Input & Transparency

As previously noted, in 1994 MDAR amended its standard APR Program contract by requiring farmers who want to participate in the program to agree to an “Option to Purchase at Agricultural Value” (OPAV) clause. The “Right of First Refusal” and OPAV clauses are both MDAR policies and are not codified in laws or regulations, which are permanent and require transparency and public input in their creation. MDAR’s authority for instituting these policies is derived from a broad clause in Section 31 of Chapter 184 of the Massachusetts General Laws that gives its commissioner the power to do what s/he believes is in the best interest of the APR Program. The OPAV clause establishes the right of the Commonwealth to buy the APR Program farmland when a farmer decides to sell his/her parcel; assign the option to buy the land to another purchaser, including the potential buyer that the APR Program farmland owner originally identified; or send the property out to bid, if MDAR determines that the original potential buyer does not meet the qualifications for purchasing APR Program farmland. Under current MDAR procedures, when there are multiple bids on an APR Program property, MDAR uses a scoring system to select the winning bidder. Under this system, potential buyers are first evaluated on a yes-or-no basis using four specific criteria, such as their demonstrated ability to pay the fair market agricultural value for the land and whether they submitted acceptable farm plans. If more than one potential bidder satisfies the initial criteria, the qualified bidders are further evaluated on the basis of four additional criteria, such as whether they have previously participated in the APR Program, under a point-based scoring system where an applicant can achieve a maximum of 14 points.

During our audit, we found problems with this process in terms of transparency. First, there are no specific details in MDAR guidelines regarding when the agency should exercise its option to use OPAV, which could result in an inconsistent application of this authority. Second, according to MDAR officials, when a bidder is rejected, MDAR does not formally provide the reasons for the rejection, even if the bidder submitted the highest bid.

Further, we found that the process that MDAR uses for the sale of APR Program parcels sometimes creates complexities that can frustrate farmers and may result in a farmer not being able to derive the maximum possible benefits from the sale of his/her parcel. For example, when MDAR sends a property out to bid, a bidder who already owns or leases other APR Program farmland is awarded three points under the scoring system; MDAR does not award those points to bidders who do not already own APR Program farmland, and thus it effectively limits the number of potential buyers. Because it does not allocate points to otherwise qualified buyers who do not own APR Program farmland, the bid process is biased and may result in the seller not being able to select the highest bidder for his/her parcel.

We also saw instances where MDAR complicated the sale of APR Program farmland when farmers owned both APR Program and non–APR Program farmland. For example, in one instance, a farmer was selling his farm, which consisted of both an APR Program parcel and a farmhouse that was located on a non–APR Program parcel. MDAR rejected the highest bid that included the purchase of both the APR Program parcel and the farmhouse and instead awarded the bid to a bidder who only agreed to buy the APR Program parcel. As a result, the selling farmer had to look for another buyer to purchase just the farmhouse without the farmland attached to it.

In another instance, MDAR stopped the sale of an APR Program farmland parcel located in western Massachusetts because the potential buyer wanted to use the parcel to grow native plants to use in a landscaping business. MDAR exercised its OPAV authority because it believed that the land would not be used for its best agricultural purpose, even though the farmer selling the property had received permission from MDAR to use the land for this purpose and been doing so for the past 13 years. MDAR ultimately sold the parcel to a neighboring farmer who planned to graze his cattle on the farmland.

Additionally, a number of APR Program farmers we met with expressed concerns about not being able to withdraw from the sale and bidding process if the option to purchase was assigned by MDAR to someone other than their preferred purchasers, as they would be able to do with any other real-estate transaction. Several also complained about their inability to appeal MDAR’s decision to sell their parcel to a particular buyer to the Agricultural Lands Preservation Committee (ALPC).

Finally, according to some APR Program participants with whom we spoke, there has also been a shift in how farmers choose to operate their APR Program farmland, with more farmers looking for alternative enterprises, such as operating breweries or wineries or conducting agritourism, to generate badly needed income. However, they indicated that the way MDAR administers the program creates obstacles that discourage farmers from pursuing these types of activities.

Authoritative Guidance

Other states’ agricultural agencies that oversee APR programs similar to MDAR’s operate their programs in a less-restrictive and less-complicated manner.

For example, the State of Connecticut’s Department of Agriculture has published a document titled “Conservation Options for Connecticut Farmland” that states that “landowners can transfer or sell their property to anyone they choose” as long as the buyer agrees to abide by the terms of the agricultural conservation easement.

Similarly, Chapter 138e.227 of the Pennsylvania Code (the state’s official published rules and regulations) addresses the state’s Agricultural Conservation Easement Purchase Program and landowners’ duties with respect to change of ownership by establishing the following simple process regarding the sale of program property:

A deed conveying an interest in the restricted land shall set forth the language of the easement restrictions verbatim.

Within 30 days of a change in ownership of the restricted land, the prior owner shall notify the county board and the Department of the name and address of the new owner, provide each a copy of the deed, provide a statement of the price per acre or portion thereof involved in the transfer and a reference to the volume and page in which the transfer has been recorded by the county recorder of deeds.

In terms of transparency, the Office of the State Comptroller of New Jersey report “Best Practices for Awarding Service Contracts,” dated March 4, 2010, states,

The process of actually scoring competing proposals should be understandable to those who evaluate the proposals, explainable to vendors before and after the award process, and capable of withstanding scrutiny in the event of any bid protest. A scoring process that is not explainable by, or understandable to, those who evaluate competing proposals can prove embarrassing when a contracting unit finds itself having to defend its decision-making.

Regarding notifying losing bidders, the New York State Office of General Services Contract Award Notification states,

Unsuccessful Bidders shall be notified upon Notification of Award to the winning Contractor(s). A Bidder shall be accorded fair and equal treatment with respect to its opportunity for debriefing. Requests for debriefings may be made both prior to and after Contracts are awarded.

Massachusetts’s Operational Services Division, the agency charged with regulating procurements by state agencies, states in 801 CMR 21.06(4) that each rejected bidder should be provided with a reason it was not selected and afforded an opportunity for a debriefing.

Reasons for Lack of Transparency

MDAR officials stated that they think it is in the best interest of the APR Program to give preference to bidders who have owned or leased other APR Program parcels, since they already have experience with the program’s requirements. They also stated that the agency denies or modifies sales when it believes that is in the best interest of the preservation of the farmland. Finally, they indicated that they feel that the OPAV provisions of the APR Program contract would become useless if APR Program parcel owners were given the option to back out of the sale agreements on APR Program parcels in which the buyer is selected by MDAR.

Recommendations

  1. MDAR should seek the funding and other resources necessary to establish a formal training component that covers all aspects of the APR Program for both potential and current APR Program farmland owners. It should also review, and update as necessary, all APR Program information and documents to ensure that they are current and understandable and detail all aspects of the program, including different scenarios that could occur in the sale of property.
  2. MDAR should amend its guidelines to include when and under what conditions it will exercise its option to use the OPAV provision and also to allow losing bidders to obtain information about why their bids were not accepted.
  3. ALPC should consider taking the measures necessary to allow APR Program farmland owners to appeal sales of their property that have been denied by MDAR.
  4. MDAR should take whatever measures it deems appropriate to address the issue of allowing a farmer to withdraw from the sale of APR Program farmland parcels if MDAR assigns the option to purchase to someone other than their preferred purchasers.

Auditee's Response

MDAR agrees that effective education and outreach are crucial components of the APR program, and is committed to continuing a strong partnership with Massachusetts farmers to maintain the viability of agricultural land. We have already taken significant steps to make process improvements based on feedback received from affected stakeholders.

Specifically, MDAR conducted four public listening sessions over the Winter and early Spring of 2018 to solicit public comments on the APR Program from a wide variety of constituencies. The sessions were attended by 165 people and 70 comments were received through the sessions and a specially created web-portal called “The APR Program Looking Forward.” The comments have been posted to the MDAR website. Given the success of these listening sessions, MDAR intends to hold similar outreach sessions on a more regular basis. Based upon the input from the community the Department is actively considering ways to improve farmer education and increase outreach to the public regarding the APR program. MDAR has discussed posting FAQs on MDAR’s website related to various aspects of the APR program—acquisition, certificate of approvals, waivers, etc. In addition, MDAR has discussed preparing an informational packet of materials that would contain contact information, the FAQs, and other helpful information that MDAR would provide to all farmers upon initial acquisition of an APR and that field staff would provide to APR landowners when conducting a monitoring visit. MDAR also intends to publish its APR Prime Newsletter on a more regular basis and include articles aimed at helping and educating the APR landowner community. MDAR intends to launch these new outreach efforts by the end of 2018.

MDAR believes that it is important for farmers to meet face to face with MDAR staff to fully understand all parties’ rights and obligations set forth in the APR document. Field agents meet with landowners to review the terms of the APR as part of the initial acquisition process. As further discussed below, in the event the landowner intends to sell the land subject to the APR, the Department would also require the landowner, prior to accepting an offer from a proposed purchaser of the subject land, to participate in a meeting with the proposed purchaser and the Department to discuss the requirements for the sale and for any requests for waivers of the Department’s right to exercise or assign a right of first refusal (“ROFR”) or option to purchase at agricultural value (“OPAV”). While these changes would require MDAR to formally amend its APR template and obtain federal approval for federally held APRs moving forward, MDAR intends, at a minimum, to offer these types of meetings and technical assistance on a voluntary basis. . . .

MDAR appreciates the auditor’s comments and suggestions with regard to ROFR and OPAV procedures, which we acknowledge have sparked some controversy in recent months. While we disagree with certain statements and findings in the draft audit report, we agree with the overall sentiment that MDAR should work to promote greater transparency in its decision-making in these areas. To that end, we have already begun to make process improvements as discussed below.

As an initial matter, we think it is important to note that the APR program originally introduced the OPAV and ROFR processes to address the concern of the Agricultural Land Preservation Committee (ALPC) that an estate market had developed in Massachusetts around protected farmland in certain parts of the state. The purpose of these processes is to ensure first and foremost that land transfers to farmers. The OPAV was added to further ensure that land will transfer at its “agricultural value,” not a higher “estate” or other market value, so that the land will remain affordable for future generations of farmers. The Department buys the right for an OPAV or ROFR as part of the APR acquisition. This additional right has value, and the Department pays a higher price for an APR that has an OPAV or ROFR than for an APR that is merely a restriction on use. Generally, the Department exercises these rights when it is reasonably clear that the proposed purchaser is not a farmer or has no intention to farm the land, or when the proposed price is above agricultural value without sufficient justification. The program does not make these decisions lightly as can be shown by the fact that the Department has exercised and assigned OPAVs/ROFRs only four times over the course of the 40 years the program has been in existence. In all cases, the APR program has followed its guidelines and made its recommendations to the Commissioner based upon a careful and thoughtful evaluation of the facts presented and the criteria developed by the Department. MDAR believes the specific cases cited [in Finding 1b] were decided in accordance with the above criteria. While the Department understands that any exercise of rights that may impede the seller’s ability to complete the transaction with a preferred purchaser will be controversial, the Department notes that these rights were purchased with public funds as part of arms-length transactions.

To enhance transparency in the decision-making process for ROFRs and OPAVs, MDAR has been working on revisions to the OPAV and ROFR process for several months including systemic fixes and revisions to the existing policies and procedures. The goal of these revisions is to streamline the waiver process, more clearly define what documentation is required to be submitted, introduce more flexibility into the process and update the circumstances under which MDAR will exercise its right to purchase. The following process improvements are being considered:

  • As noted above, the Department is considering requiring, as a condition of newly acquired APRs, that the property owner engage in a “pre-submittal” meeting with the Department, prior to accepting an offer from a proposed purchaser, to discuss the requirements for a request to waive the Department’s ROFR and OPAV rights. While the Department’s guidelines, policies and scoring sheets for OPAVs and ROFRs are currently posted to the Department’s website, we believe that entering into discussions with the seller (and proposed purchaser) much earlier in the process will avoid any confusion or misunderstanding about the requirements, timing, and process.
  • MDAR is committed to providing an opportunity for public comment on any significant regulatory changes to procedures or substantive requirements. MDAR will consult with the ALPC in promulgating any changes.
  • For any policy changes that MDAR will make without regulation, MDAR will make it a consistent practice to post any draft policies on its website and solicit comment for at least a two week period.

With respect to the auditor’s further recommendations to allow for an appeal process for ROFR/OPAV appeals and provisions to withdraw from proposed sales, MDAR is currently reviewing these issues.

In addition to the points above, we offer the following points of clarification on specific statements made in the draft audit report.

  • In the “Authoritative Guidance” section, the audit report refers to how other states administer their programs, quoting from various out of state documents and one out of state statute. MDAR is committed to administering its program in accordance with Massachusetts law. While we regularly consult with our colleagues in other states regarding best practices, we do not regard other states’ statutes or programs as authoritative. In particular, if another state’s program has not spent public money on OPAVs or ROFRs, that program may not be a good comparison to the Massachusetts program.
  • According to the audit report “there are no specific details in MDAR guidelines regarding when the agency should exercise its option to use OPAV, which could result in an inconsistent application of this authority.” In fact, the Department’s guidelines titled “Requests for a Waiver of an Option to Purchase at Agricultural Value” outline the four specific pre-requisites that an applicant must satisfy in order for the Department to waive its option to purchase the APR. If the pre-requisites are not satisfied, the recommendation is made to the Commissioner to exercise the Department’s option to purchase the APR. This is intended to ensure transparency and consistency in how all applicants are evaluated.
  • The audit report also states that “MDAR does not formally provide the reasons for the rejection, even if the bidder submitted the highest bid.” In fact, when MDAR exercises its right to purchase MDAR includes in the notice of exercise the internal ranking form so that the seller knows the specific criteria that were not met. . . .

Further, the points system was developed to reflect Department priorities but also to allow farmers who have already invested into the APR Program, and who are familiar with the program requirements, an opportunity to acquire APR land. The points system also awards additional points to farmers that are currently leasing land to give them an opportunity to actually purchase APR land over a farmer who currently owns land. Regardless of the ultimate purchaser of the land, the OPAV process is not an auction and the sale price will ultimately be at agricultural value offered at the time that the Department exercises its option to acquire the property.

Auditor's Reply

MDAR is correct in pointing out that the information in our report regarding similar agricultural programs and program requirements in other states is not presented as authoritative. Rather, it is presented as examples of best practices that, in the Office of the State Auditor’s opinion, demonstrate that it is possible to use a program model that is somewhat less restrictive, less complicated, and more transparent for the purpose of preserving farmland, which might better serve both the Commonwealth and the farmers participating in the program.

We do not dispute that MDAR’s “Requests for Waiver of an Option to Purchase at Agricultural Value” program guidelines outline the four specific prerequisites that an applicant must satisfy in order for the department to waive its option to purchase APR Program farmland. As noted above, our primary issue with this process is that policies are not codified in laws or regulations, which are permanent and require transparency and public input in their creation. Further, under these guidelines, MDAR has the right to assign the option to buy land to another purchaser, including the potential buyer that the APR Program farmland owner originally identified, or to send the property out to bid, if MDAR determines that the original potential buyer does not meet the qualifications for purchasing APR Program farmland. The guidelines are unclear about why MDAR would assign the option to a bidder other than the one the APR Program parcel owner felt was qualified.

Although MDAR provides each rejected bidder with the internal ranking form that conveys the points the bidder accumulated, the scoring process is not explained; as a result, a bidder that submitted the highest bid but was not sold the parcel might not understand why this occurred. Further, by the agency’s own admission, the point system MDAR has established to evaluate multiple bids on APR Program farmland is biased in favor of farmers who have already invested in the program. While one could argue the merits of this bias, it does result in otherwise qualified buyers being penalized, effectively limiting the number of potential buyers, and it also could prevent sellers from selecting the highest qualified bidders for their parcel.

Based on its response, MDAR is taking measures to address our concerns about the APR Program.

Date published: August 22, 2018
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