Please vote NO on The new Conservation Easement Incentive Act (H.R. 1964)
Do Conservation Easement (C.E.) promoters ever address Federal Nexus and the process of registration and regulation of Land Trust (L.T.) agents?
Since most state's constitutions have stipulations against "perpetuities" (and regards C.E.'s North Dakota has 10 year limits, and Wyoming is working on 25 year), why "perpetuity" at all?
Which came first? IRS perpetuity requirement (which, as stated earlier violates most states constitutions) or Conservation Easements? And why?
Invites from C.E. or L.T. groups always claim, "Earn Money by protecting your working lands: How Conservations Easements can save your family's farm or ranch." Having attended some of these presentations, a constant is their painting of rosy pictures only. I've yet to hear a C.E. promoter state - or have available in writing - the reality of a down side.
Having once been in the world of public companies, I'm very cognizant of SEC regs and the integral requirement of keeping investors alerted to "absolute worse case scenarios." If a public company fails to do so, they're in violation. If C.E. and L.T. promoters are exempt from this responsibility, could someone please explain how and why.
Daily I read conversations between land planner attorneys from all over the U.S. - arguing about Conservation Easements and Land Trusts. If they don't understand them, no disrespect here, but then how can you?
And why would any person deliberately engage in an activity that's designed to purposely split their estate, cloud their title, and partner them into perpetuity with government employees?
Eventually, our tax codes will be changed. Then what? Won't that remove "taxes" - the C.E. promoters main persuasion tool?
More importantly and doable at present, is for you to focus on abolishing the Estate/Death Tax. That - would end the onerous problems surrounding C.E.'s and Land Trusts.
I urge you to please study the following - "Are you asking the right questions about C.E.'s" - and - "Taxes and Conservation Easements."
After studying this information, I can assure you you will be moved to vote NO.
Please kill HR 1964 now.
Thank you, Roni
Are You Asking the Right Questions about Conservation Easements or Purchased Development rights?
By Ric Frost - Former Policy Analyst New Mexico State University
Published October 2, 2003
In recent decades, Conservation Easements (CEs) and Purchased Development Rights (PDRs) have become a trendy way to acquire tax write-offs on private lands. Reasons as to why varies with each owner, but the common thread has been tax relief and to retain the land in agricultural production. Many of these landowners have placed portions, or all, of their private land holdings
into a split estate situation without fully understanding the impacts to themselves, or their community. This is largely due to not asking enough questions, or the right questions.
To truly understand the problem: land trusts come on to landowners and communities with the claim that they are working to protect rural agriculture from development pressures. Development is not the problem, as rural economic pressures come from:
Government Restrictions and Regulations,
Tax Exempt Non Government Organization Environmental Lawsuits,
Weather Fluctuations, Market Fluctuations,
Operators Being Price Takers Without Control of the Market Pricing
Structure (or the ability to pass on increased business costs, such as fuel
expenses), Subsidized Foreign Market Dumping Without Protection,
Influx of Wealthy Urbanites Competing for Control, Estate Taxes and Compliance Costs.
These cumulative pressures force the economic demise of rural economies, and create compromised-sellers ready for a quick economic fix, not willing sellers desiring to leave their cultural practices or heritage. So the question simply put is, do CEs protect agriculturalists from these real pressures as is claimed? Simply put, NO THEY DO NOT! The secondary question to this is, if land trusts are concerned with protecting agriculture, then what have they done to alleviate these real pressures?
Splitting the title of private land has other consequences as well. Some comments on CE and PDR impacts by financial officers:
"Owners give up management and control of the land" : Jimmy Hall, PCA, NM
"Severely diminished loan value of land" : John Johnson, First Western Bank, SD "CEs eliminate property loan value" : Dee Gidney, Texas Bank Ag Loans, TX
"Fragmentation of land title to deny future generations a full range of productive land use options" : David Guernsey, Alliance for America
Loan Value for Operational and Other Loans is Reduced up to 90 percent with an Easement
Interviews of land owners with CEs and PDRs have revealed some common misunderstandings held when they got involved. Some misconceptions are:
"Perpetual means 99 years." False: perpetual is forever.
"I retain full title to the land." False: title becomes split with easement holder.
"A CE (PDR) is the only way the land is managed to my intent." False: the easement holder and future easement holder can change management practices at any time, including development! Easement management loopholes also allow easement holders to sue the landowner and impose habitat restrictions.
"A CE (PDR) allows me to use the property as I always have." False: you give up management control of all easement property, forever!
"Property with a CE (PDR) will sell easy." False: a CE (PDR) may reduce the property value, and affect the willingness of financial institutions to loan money on a split title.
Economic impacts may also be encountered as the result of CEs and PDRs.
Some of the impacts already experienced by landowners and communities have been:
Reduced management options on taxed lands of landowner and heirs
Restrictions on farm and ranch management practices
Restrictions on chemicals used
Restrictions on seed and plant types
Restrictions on farm and ranch management practices
Reduction of income due to restrictions
Reduction in management options with land and business value decline, forcing owner into a "willing seller" status (actually a compromised seller)
Imposition of Environmental Assessment (EA) and Environmental Impact Study (EIS) expenses on land owner for restriction and management changes, especially if a Federal Nexus exists Legal and penalty expenses for CE and PDR violations (It's built into the fine print) Vulnerability from non-trust third party lawsuit - Litigation Exposure is in the Easement Act Decreased, or eliminated, production, translating into negative economic impacts to agriculture and related industries within community, county, and state. Recent reports indicate a majority of lands with CEs (PDRs) have not remained in agriculture, and are rendered to untaxed "open space" in the hands of the government, or
owned by wealthy non-agriculturalists comfortable with "open space" restricted lands without production.
Reduced Management Options on Taxed Lands of Landowner and Heirs
Reduction of Income due to Restrictions Reduction of Direct, Induced, and
Indirect Economic Benefits to all Related Industries within Community, County and State Reduction of County Tax Base Forcing Tax Increases and Reduction of County Services on Other Property Owners in County to Make Up Loss (a disproportionate burden)
Impacts resulting from violations were studied by the Land Trust Alliance and published in the Winter 2000, Vol. 19 #1 issue of Exchange. It revealed that the landowner always pays legal and penalty expenses for violations, as this condition is built into CE and PDR language. Average cost per case is $35,000 with range of $5,000 to $100,000. Of 498 violations reported, 22 were litigated, only one landowner won in court, but was still made to pay land trust expenses (the $100,000 case).
Another ill-understood impact of CEs and PDRs is that if there are any federal permits or expenditures involved, this creates a Federal Nexus. The landowner must now undergo a Section 7 consultation process for existing and new species, restriction and proposed management changes. The owner with a CE or PDR must also pay for all related expenses for studies.
One question that is typically missed is who is behind the push to get private property into a CE or PDR. One effort where CEs and PDRs are the centerpiece, is known as the Wildlands Project, a plan developed by Michael Soule, Dave Foreman (founder of the Earth First! movement), and Dr. Reed Noss of Idaho. The base concept is that wilderness areas need connecting corridors (without human activity) for the creatures to roam freely and keep the gene pool healthy. The key to establishing these corridors is CEs and PDRs. Dave Foreman, as quoted in Listening to the Land by Derrick Jensen (Sierra Club Books),
considers conservation easements as the keys to the corridors. He had this to say about conservation easements:
If we identify a ranch ... that's between two wilderness reserves, and we feel it will be necessary as a corridor, we can say to the rancher, "We don't want you to give up your ranch now, but let us put a conservation easement onyou can donate it in your will to this reserve system."
It is highly recommended you research the design and implications of the Wildlands Project. It is a plan to render 50 percent of the United States land area as unoccupied, or affected by human activity. Several trusts such as the Nature Conservancy, involved with developing CEs and PDRs
support and promote the Wildlands Project. A description of this plan and partial list of supporting organizations can be accessed at http://www.wildlandsprojectrevealed.org and
Questions landowners approached for CEs or PDRs should be asking themselves are:
What are CE (PDR) impacts to private landowners and communities?
Do the "benefits" offset the impacts? (Lost tax revenue and future earnings opportunities).
What are the other impacts and implications from imposing a CE (PDR) on private land?
(Federal Nexus and Section 7)
What is the long-range outcome from imposing a CE (PDR) on private landowners?
According to whom? (A tax-exempt organization?)
Would a limited liability company or incorporation better serve the landowner's tax needs, instead of a CE (PDR) that brings in tax-exempt third party and potential federal management?
Would it not be better to protect agriculture by:
Supporting reduced environmental restrictions on agricultural producers?
Stopping the dumping of foreign commodities on our markets by foreign
subsidized products, at prices lower than what our producers' cost of operation?
Making agriculture attractive as a viable business career and encouraging our youth to remain in agriculture as a productive and fulfilling life?
Questions State and County officials should be considering for CE regulation are:
License and Regulate Land Trust Agents Regulation by State Real Estate Commission (they are acting as land brokers)
Bonding Requirement on Each CE Transaction Equivalent to Value of
Encumbered Property Before Transaction
Renegotiation Language Built into CE Contract that Allows Grantee to
Renegotiate Every 5 Years (North Dakota has 10 year limits - no perpetuity allowed!)
If Renegotiations Cannot be Accomplished to Satisfaction of Landowner, the CE Contract Becomes Null and Void Land Trust pays back-taxes on land if this occurs, not landowner (don't forget that if a CE is ended, under current law the landowner pays the IRS the back-taxes back to the time of the origin of the CE, not the trust)
Land Trust Pays Taxable Value of Severed Development Right to County to Prevent Erosion of Tax Base as Community Infrastructure Demands Increase (check with county appraiser for development right tax values)
No CE Shall be Valid and Enforceable Unless the Limitations or Obligations Created by the Easement are Clearly Presented in Writing on the Face of Any Document Creating the CE Including Information From the UCEA 1981 (Uniform Conservation Easement Act) Water, Grazing, Farming and Mineral Rights Shall Not be Encumbered by Conditions or Restrictions Imposed or Agreed to in the CE Contract. Grantee (landowner) Retains Rights of Transfer on All Rights Not Expressly Identified in CE.
Local and State Legislation Expressly Prohibiting Transfer of CE to Other Parties Without Formal Written Consent of Landowner (a common practice of land trusts is to trade CEs without knowledge or consent of landowner)
Elimination of Third-party Enforcement Clause Language From CE Contracts - Must be State law! (Colorado apparently already has this law, and it has been upheld in one case)
Remember, restricting land through Conservation Easements in the name of "protecting agriculture" simply put, does not protect agriculture!
Taxes and Conservation Easements
By Jesse J. Richardson - Published January 12, 2011
Much of the perversity with respect to perpetual conservation easements comes from the tax breaks. The Internal Revenue Code/land use policy is
much more nuanced than democracy/voter fraud. The Internal Revenue Code fails to recognize the nuances of land use planning, and that's one of the
problems in a long list. Donating a conservation easement is much different than donating cash to a church or a painting to a museum.
In general, I think taxes are a horribly ineffective and inefficient way to try to influence policy. The exception would be Pigouvian taxes to internalize externalities (if we could accurately estimate the correct amount of tax to impose).
The home mortgage interest deduction is a horribly distorting tax that increases the cost of housing and exacerbates sprawl so, yes, I oppose it (although I admit that I exploit it as much as possible, just as I purchase state conservation income tax credits in Virginia).
As for the charitable deduction in general, it indeed distorts the market. As with just about everything, direct payments by the government to charitable organizations would be be effective and more efficient. However, I think the deduction for conservation easements (and for donations of land that is then taken off the market for development) is much, much worse than the general charitable deduction for several reasons. First, it's very easy to value a cash contribution, and relatively easy to value most other contributions that have a an easily ascertainable fair market value. Conservation easements are difficult to value.
Secondly, even if we can estimate the fair market value, we desire donations of conservation easements for the conservation valuincorrectly, that prevention of development always (or almost always) yields a net public benefit. In other words, the IRS seems to think that conservation easements make development magically disappear. They don't. The development occurs across the street or down the road, somewhere in the region. The accurately determine the net conservation benefit of the donation, we would have to calculate the conservation benefit of not development the easement parcel, then subtract the conservation detriment of development the alternative site, where the development actually occurs. We would also need to discount many donations, since development would not occur in many years, if at all, on many conservation easement properties.
Like other charitable contributions, the public pays more for the donations of high income earners than of lower income donees. However, this effect is more distorting in the conservation easement context, given the fact that we base the deduction on fair market value for development as opposed to conservation values. We pay high income taxpayers more for conservation easements, even though there is no evidence that the land of high income earners yields more conservation value than the land of low income earners. In fact, high income earners are probably less likely to develop their property than low income earners.
The Internal Revenue Code also requires that the easements be perpetual. Not sure how the IRS has the expertise to determine that perpetual easements are "better" than term easements. I know that most on this listserv adamantly believe that perpetual is better, but land use planning theory and practice says otherwise. Comprehensive plans look 20 years into the future. Land use (and nature) is dynamic, conservation easements are static. Perpetual conservation easements inhibit or prevent adaptive management. Effects of global climate change, as well as other dynamic changes in nature, indicate that perpetuity is probably not a good idea. However, the IRS says that it has to be perpetual.
Unique to charitable contributions, many donations of conservation easements result in net public detriment instead of public good. It just makes no sense to incentivize donations of perpetual conservation easements with income tax deductions or credits.
I could go on, but I'll leave it at this. I am consistent in my opposition to the use of the tax code to effect social policy, but I think that deductions and credits for conservation easements are even worse due to the dynamics of land use. In an ideal world, we would use the tax code to raise revenue only. The tax code at present doesn't even do that very well.
Jesse J. Richardson, Jr.
Urban Affairs and Planning
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