LINK TO Patrick County Minutes, Board of Supervisors, July 15th, 2013
Knowledge is power, please read this!
Should Pittsylvania County be in the Purchase of Development Rights Business?Pittsylvania County property owners, This is important information you need to know. Please read and then get this information out to other property owners in the county:
Our Pittsylvania County Board of Supervisors - Legislative Committee chaired by Chatham-Blairs District Supervisor Brenda Bowman set up a Purchase of Development Rights Subcommittee in the fall of 2012. The Pittsylvania County Board of Supervisors commissioned a constituent panel to "review the potential" of a Purchase of Development Rights Ordinance with focus on Purchase of Agricultural Conservation Easements at taxpayers expense.
From The National Conservation Easement Database for Pittsylvania County there have been 17 conservation easements, most occurred in 2013 after this Purchase of Development Rights committee was formed "to review the potential" It seems our county officials are actively using taxpayers money to buy land to keep it from development forever and remove it from the county's tax base. The burden for all other taxpayers becomes greater. See the list here: http://nced.conservationregistry.org/search/basic_search?search_term=pittsylvania
The distinction between Purchase of Development Rights and conservation easements involves whether the landowner receives a payment or not. When a conservation easement is paid for it is called a “purchase of development rights” or PDR. The document, a conservation easement is the same. PDR also is sometimes referred to as “purchase of agricultural conservation easement” or PACE, usually when public funds are used to purchase development rights. From: http://aces.nmsu.edu/pubs/research/economics/tr34.pdf
Conservation easements is known in legal terms as “negative servitude.” This legal description is derived from the requirement of the easement holder to prevent the donor ( landowner ) from certain actions on his own property. Transferring development rights results in significant and usually permanent consequences - It is impossible to get out of these contracts, and forever is a long time to bind your heirs to “negative servitude.” A landowner should not enter into an easement lightly without all the facts and guidance from professional advisers or considering the impact on his/her heirs. From: http://www.vdacs.virginia.gov/preservation/pdf/reap.pd
“These (conservation easements) are largely anti-farm production programs, restricting land use on private farmland to support wetlands, grasslands, and non-threatened species while doing precious little to grow the nation’s crop supply and stabilize rising food prices.” - Dana J. Gattuso, Senior Fellow at The National Center for Public Policy Research
There is so much money involved in these transactions that there are businesses established just to assist owners in finding buyers for their tax credits. From Wikipedia we learn “The Virginia transferable credit program is by far the largest among the States in dollar value of property conserved. By the end of 2010, $2,512,000,000 of property value had been donated as easements in Virginia for which tax credit was claimed. The qualifying easements cover over 516,000 acres (2,090 km2) of Virginia landscape.”
I would ask the reader to pause here a moment to reflect on the magnitude of the loss of state revenues this convoluted scheme, along with the other conservation tax breaks, has created. This also represents the magnitude of loss of private property in Virginia, which is staggering! Virginia Outdoors foundation estimates our loss of private property in Virginia is growing at 5 acres an hour: http://www.virginiaoutdoorsfoundation.org/
In the article below, we will look into the problems of an agreement into perpetuity, discuss if the benefits of easements are weighed heavily toward the rich, if easements are actually destroying farming and farm values, the long term effects on the shrinking supply of un-eased land ( private property ) and are the tax breaks involved with an easement actually the establishment of just another entitlement program. And you will learn since the amount of the donation is defined, in almost all cases, by a very subjective appraisal of land, there have been many cases of fraud and abuse.
Now let's review The Pittsylvania County Purchase of Development Rights Subcommittee's specific points offered for any potential Ordinance within Pittsylvania County which included (1) Partnering with one of the three main easement holders in the state (2) Avoid an appraisal review committee - would negatively influence the program ( by preventing fraud and abuse?) (3) And the subcommittee suggested leaving out any language revolving around extinguishment of easements. Extinguishment is the destruction of a right or contract.
This doesn't sound like they plan to prevent fraud and abuse or be transparent with Pittsylvania County landowners. Remember, Transferring development rights results in significant and usually permanent consequences - It is impossible to get out of these contracts, and forever is a long time to bind your heirs to “negative servitude.” A landowner should not enter into an easement lightly without all the facts and guidance from professional advisers or considering the impact on his/her heirs. From: http://www.vdacs.virginia.gov/preservation/pdf/reap.pd
All of this begs the question, Should Pittsylvania County be in the Purchase of Development Rights business at all? Should our local officials be involved in selling this convoluted scheme to Pittsylvania landowners or should they be honestly warning citizens of the dangers, not only to themselves and their heirs but to the future of our county, our state and our country?
READ MORE: Conservation Easements Explored / The Underside of the Beast The Real Costs of Conservation Easements Fauquier Free Citizen By Rick Buchanan http://fauquierfreecitizen.com/conservation-easements-explored-part-1-the-introduction/
Taxpayers are paying vast sums of money for the ability of some landowners to voluntarily give property rights to another entity. This begs the question “Why am I paying for someone else’s charity”? After reading the following discussion of conservation easements, you should be asking your legislative representatives their reasoning behind this decision, since they have made it for you. If they think this is such a great use of your money, there should be good reasons for their decision. But before you call, perhaps some background information germane to the discussion would be helpful.
As taxpayers, many things for which we are asked to pay, that originate from our trusted governmental representatives, are based in altruistic motives that sound “real good”. And, of course, we naturally assume our legislators are always looking out for our best interests. In fact if you take the opportunity to know your legislators you will find most really do go about their jobs earnestly trying to do what is right for all of us. Really!
However, in today’s world, the ship of state is not a slow moving luxury steamer. It is more like a speedboat in a regatta, skimming along the water barely touching the surface. It is easy to see why some of our best legislators end up steering off course. It is understandable that they may take a feel-good issue at face value and not look below the surface to analyze the long range effects of the policies they enact.
Since many of us are riding in a similar speedboat, barely glimpsing the waves of information flying by, I offer you a bit of research on one such wave: The tidal wave of billions of dollars spent each year on conservation easements that most of us know little about, though we might think we do.
This study is offered with only one request. If you care enough to know where these tax dollars are going, please do your own research. Not only am I suggesting you open the links provided in this series of articles but also go online where there are volumes of further information. I you have something to add, or see something you disagree with, please voice your opinion in the comment section given below. The money invested in conservation deserves conversation, so chime in.
My findings are presented in three parts: Conservation Easements – The History
Conservation Easements – The Application
Conservation Easements – Winners and Losers of Conservation Benefaction.
Part One: Conservation Easements – The History The concept of a conservation easement, which began as an excellent way to preserve natural resources and “save the farm” of struggling land-rich, cash-poor farmers was actually a great idea. In the hands of the private sector the voluntary actions of landowners and the charitable gifts of the wealthy all working to enhance the use of conservation easements could have created a very worthwhile, some would even say necessary, program to conserve our natural resources. However, politicians, being ever anxious to please prospective voters, have never seen a good program that could not be enhanced by using other people’s money to purchase favor. But I digress. First the basics should be discussed.
A conservation easement is initiated with the donation of a part of the “bundle of rights” that are normally accepted as part of ownership of all property. This benefaction, held by a public or private land conservation organization, creates an encumbrance or “deed restriction” on the property. The encumbrances vary, but usually fall into some category of the loss of land use through restrictions on crop choices, development rights, building and/or demolition. This then allows the easement holder to conduct inspections of the property to verify compliance to the deed restrictions on the property.
It should be noted here that the overwhelming majority of easements are initiated only when deed restrictions are agreed to in perpetuity. There are a very few that may be agreed to for set blocks of time, but any tax breaks given through the easement agreement would automatically be due if, at the end of the agreed upon time, all rights are reverted back to the land owner. There is also the possibility of other penalties associated with ending these limited agreements.
In a look back to the beginning of conservation easements Harvard researcher Zachary Bray explains that until the 1950s, conservation easements were used only sporadically and were held exclusively by governmental organizations, like the National Park Service. The recent growth in the number of private land trusts and the amount of land protected by conservation easements is primarily due to changes in the tax code.
By 1975, sixteen states had statutes enabling private acquisition and retention of conservation easements. In 1981, the Uniform Conservation Easement Act (“UCEA”) was drafted and designed to enable “private parties to enter into consensual arrangements with charitable organizations or governmental bodies to protect land and buildings without the encumbrance of certain potential common law impediments.”
In 1990, private land trusts held conservation easements covering 450,000 acres. By 1994, private land trusts protected more land through conservation easements than fee ownership. From 1994 to 1998, the amount of land protected by privately held conservation easements nearly doubled, then nearly doubled again from 1998 to 2000, and then more than doubled again from 2000 to 2005. The total of private (non-governmental) easements as of 2012 is more than 6,400,000 acres and still climbing.
Along with private easements, government also holds a large number of easements. Many, if not most of the easements held are still owned by private individuals. These easements are controlled by the state, local, or federal governmental agency which holds the rights of the easement. As of 2012 the total acreage under governmental easements is 11,405,000.
Of the approximately 17.8 million acres under easement today, 17 million acres of land are owned by entities other than governmental agencies. You can find all of these statistics here.
So what has led to this meteoric rise in land “donations” into the easement program?
Is it the altruistic nature of the landowners? Is it their deep concern for our natural lands, watersheds and wildlife or the protection of magnificent view sheds?
Or is it the burgeoning amount of tax breaks and the accompanying transferability of these tax credits? We will begin to unravel the truth in the next segment: Conservation Easements – The Application
Conservation Easements Part two – The Underside of the Beast Fauquier Free Citizen By Rick Buchanan http://fauquierfreecitizen.com/conservation-easements-part-two-the-underside-of-the-beast/
Conservation Easements – The Application For those of you who have read Conservation Easements – the History, you know a brief history of conservation easements and should have a general feel of the background, number and scope of these programs. Now we will look into how the different aspects of easements are applied, how they are promoted and how the rules and regulations in place can be manipulated.
As we get started on this section, I think it important to realize that the conservation easement program does not generate revenue.
The money expended on the program comes strictly from taxpayer generated revenues. There are some that say it saves money, but in all the reading I have done thus far on this issue I have yet to find any real data on this. What I have found is the listing of the following items that some easements may accomplish:
If you are like most people who do not own that large a parcel of land, you will still be footing the bill. It will be up to you to determine whether the benefits are worth the monetary contributions you are required to pay for them.
I simply state once again that anyone who has additional input into the information seen here is welcome to chime in. The effort here is to reveal the truth, as we always endeavor to do.
“Show Me the Money” It does not take much reading on conservation easements to learn that money has driven the meteoric rise in the number and scope of conservation easements.
Most citizens have no idea how much money is involved in the concept of what is known in legal terms as “negative servitude”. This legal description is derived from the requirement of the easement holder to prevent the donor (landowner) from certain actions on his own property.
Congress has authorized billions in years past to fund conservation programs, and the expansion of conservation funding for use as a tax break has been growing for over five decades. What began in the 1960’s as an ill-defined federal program started to take formal shape in the 1980’s when the Treasury Department provided more clarity, listing various acceptable charitable purposes for the deduction, and providing the appraisal rules for computing the amount of the deduction.
More recently, as part of the Pension Protection Act, President George W. Bush signed HR 4, which expanded the existing tax breaks dramatically for landowners.
This bill nearly doubled the federal benefits for conservation easement “donors”, allowing them to deduct the value of their “gift” at the rate of 50% of their adjusted gross income (AGI) per year. Landowners who made 50% or more of their income from agriculture were able to deduct the donation at a rate of 100% of their AGI.
Any amount of the donation remaining after the first year could be carried forward for fifteen additional years or until the amount of the deduction has been used up. This benefit has been renewed in similar fashion each year, ever since.
Note: More about the interesting dichotomy of conservation easements being in perpetuity while the tax breaks for them having a finite ending in our next segment.
In 2010 total federal funding for key conservation programs exceeded $1.7 billion. President Obama’s 2013 budget is requesting nearly $1.5 billion.
The Federal program is only part of the spending on easements.
VA DCR ( Virginia Department of Conservation and Recreation ) David Johnson
Here in Virginia, in the January 23rd, 2013 report from the Department of Conservation and Recreation, Director David Johnson explains the state’s contribution to the tax incentives associated with conservation easements, “As a result of legislative amendments enacted in 2006, effective January 1, 2007, the LPTC (Land Preservation Tax Credit) program was capped at $100 million per year, with donations (conservation easements) in excess of the annual cap to be rolled over to subsequent years. The amount of the tax credit cap is adjusted annually to the Consumer Price Index, increasing in 2008 to $102.3 million, in 2009 to $106.6 million, in 2010 to $106.8 million, and in 2011 the program was capped at $108.4 million. Additionally, the amount of value that can be registered for any conservation easement was limited to 40 percent of the fair market value of the qualified donation – reduced from the previously allowed 50 percent. These compromises represented a diminution in the state’s peak annual tax credit expenditures, which reached $155.9 million in tax year 2005 and $247.8 million in 2006, but still allow for an exemplary program that the state can budget for into the future.”
Are you still with me?
Of course, when landowners have little income from which to gain tax benefits, another solution had to be found to get the land they own into conservation easements. The answer? Turn the tax breaks issued to these low-income, land rich owners into a commodity that can be sold on the open market to others in need of a tax break; those individuals with large incomes and without enough tax breaks to deflect their own tax bills.
From the Virginia Department of Conservation and Recreation site linked previously we find, “Virginia allows an income tax credit for forty percent of the value of donated land or conservation easements. Taxpayers may use up to $100,000 per year for the year of sale and the ten subsequent tax years. Unused credits may be sold, allowing individuals with little or no Virginia income tax burden to take advantage of this benefit.”
These tax credits are normally sold for around $.75 on the dollar, depending on the market. In fact, there is so much money involved in these transactions that there are businesses established just to assist owners in finding buyers for their tax credits.
From Wikipedia we learn “The Virginia transferable credit program is by far the largest among the States in dollar value of property conserved. By the end of 2010, $2,512,000,000 of property value had been donated as easements in Virginia for which tax credit was claimed. The qualifying easements cover over 516,000 acres (2,090 km2) of Virginia landscape.”
I would ask the reader to pause here a moment to reflect on the magnitude of the loss of state revenues this convoluted scheme, along with the other conservation tax breaks, has created.
Then, here in Fauquier County, there is yet another program using taxpayer dollars to fund conservation donations.
If you review the Fauquier County 2014 Budget, starting on page 8 you will see Conservation Easement Service District Fund. The total budget of $606,872.00 shown there represents the aggregate of our projected 2014 contributions of .6% of our assessed property value which you can see as a line item on your property tax form.
This amount actually represents a 50% reduction to funding for the County’s prior Purchase of Development Rights (PDR) program. It should also be noted here that this amount represents almost three times the funds allocated in FY 2014 for the operating costs of Fauquier County’s Affordable Housing budget.
The Underside of the Beast As you can well imagine, with all this money available and with the intricacies of nebulous rules and regulations, it is no wonder there were many who were looking to take advantage of the situation.
Since the amount of the donation is defined, in almost all cases, by a very subjective appraisal of land, there have been many cases of fraud and abuse. Here is a sampling of the bigger cases where the tax advantages of conservation easements are applied by less than honest people.
From The Hook, you can read all about what some called an “appraisal racket”, netting the owners of Biscuit Run millions of dollars in The Flip That Flopped: “Virginia is one of about a dozen states that allow certain property owners to convert an appraisal into cash. It happens via a program called conservation tax credits. The bigger the appraisal, the bigger the value of the “gift” when property is sold or encumbered by a non-profit entity. This year, Virginia will issue about $107 million in such credits– paying people to give up the right to develop their land.”
The Hook also posted The Big Chill which chronicles how “At Wintergreen, a company subsidiary found an appraiser willing to claim in 2008 that the 1,422-acre peak called Crawford’s Knob was worth $11.5 million. Like the owners of Biscuit Run, Wintergreen turned that valuation into several million in cash. Also like Biscuit Run, the state later cried foul.”
Of course, Virginia is not alone. A tangled web of alleged fraud and deceit was on display in Idaho. In Pesky v. U.S., the Pesky’s are charged with conservation easement fraud by using the tax breaks in an easement with The Nature Conservancy to avoid paying taxes due. They are facing a 75% penalty.
The Director of the Colorado Division of Real Estate, called the subpoena slinging Erwin Toll, is “cracking down on crooked deals with a vengeance.”
Also in Colorado, the Department of Revenue battling legislators and landowners puts appraisers in the middle of another huge controversy.
Then in Ohio, the DOJ v. Jefferson & Lee Appraisals rounds out this very small sampling of a very large problem. At the center of almost all of these cases are the actions of appraisers and the owners that employ them, who obviously see the tax incentives of conservation easements as ripe for the taking.
When easements were first started, private money was utilized and the land was held by private citizens or groups or purchased directly by the government in deals that were open to public scrutiny.
The chances of foul play were almost non-existent.
Now, as government money has become more and more involved, so has the dark underside that comes along with big money given freely and government officials anxious to please constituents and big donors.
It sure gives one pause when one considers where this may end.
In the next installment, we will look into the problems of an agreement into perpetuity, discuss if the benefits of easements are weighed heavily toward the rich, if easements are actually destroying farming and farm values, the long term effects on the shrinking supply of un-eased land and are the tax breaks involved with an easement actually the establishment of just another entitlement program.
I hope you join us here next week for Conservation Easements – Winners and Losers of Conservation Benefaction.
Fauquier Free Citizen: http://fauquierfreecitizen.com/
Conservation Easements Part Three – Winners and Losers of Conservation Benefaction By Rick Buchanan Even though most people do not know the details of conservations easements, most agree with the general idea. Who could possibly be against a program that touts the philosophy of preserving our lands for wildlife habitat and farming? How could “preserving” our rural countryside possibly be detrimental to farming or to our society as a whole? Yet there are some that would say the concepts behind conservation easements need a much more in-depth study. Just as sugar is surely pleasant to the palate, misuse and overindulgence can lead to many health problems, such as obesity and diabetes. In just such a way, conservation easement candy is not the environmental panacea we have been led to believe it is.
Rural Policy
Recently, in the American Spectator, Joseph Lawler stated “the single greatest policy failure of modern America is urban policy. Since the Great Society era of Lyndon Johnson, the country has poured hundreds of billions of dollars into poor urban neighborhoods.” Fifty years and hundreds of billions of taxpayer dollars have produced increased rates of violence, drug addiction, family breakdown, incarceration and abortion rates in our cities. Are the hundreds of billions of dollars we are now spending in rural America destined for a similar failure?
Landowners and/or farmers who decide to put their land in a negative servitude program (known as a conservation easement) to receive tax breaks are not required to farm the land. In fact, if a “good” deal is struck, the land alone can become a cash producer, at least for a few years. And therein lies the rub.
We are looking at a policy that is assisting in the creation of a new dependent class; a land-rich class that will become dependent on the largesse of the government and the tax credits associated with eased land. The problem for these landowners is two-fold: 1) The tax credits are for a limited time but the easements are, for the most part, in perpetuity. 2) The landowner is then stuck with a property that is necessarily lower in value.
Instead of promoting farmers and farming, these policies have the exact opposite force on the family farm. Rich landowners who get tax breaks for eased land do not need the income from working the farm. In fact, their tax breaks are figured on their Adjusted Gross Income (AGI), with no restrictions on where their earnings come from. This makes it easier for them to just allow the land to sit fallow. In fact, this is exactly what many do. Fox hunting, a popular sport in rural counties, requires many acres of uncultivated land to really enjoy the thrill of open-country chases, which can, and in some cases is, funded by these benefaction programs.
This gift-mentality taxation policy for the land-rich also creates additional burdens on the other citizens who make up the vast majority of taxpayers. Since the land is valued for less, the taxes collected are less. Add to this the funding of pay-outs for the additional tax breaks offered and the burden for all other taxpayers becomes greater. On top of that, if the land does not produce marketable products yet another source of tax revenue is lost and even more burden is heaped on the (anyone-who-does-not-have-a-conservation-easement) citizen.
Unintended Consequences
Going against the conservation easement tide is not a popular position to take, but that is where Joel Salatin finds himself. The Shenandoah farmer, called “the high priest of the pasture” by the New York Times, warns all who venture into the “negative servitude” arena to enter with caution. Writing in Flavor Magazine, which touts itself as “the only independent publication dedicated to local food, Virginia wine, and sustainable agriculture in the Capital foodshed”, Salatin writes about his inability to build a chicken coop, or even a doghouse, on the eased property he leased to enlarge his farmed land.
Using his usual flare for colorful descriptions, Joel laments “To have a nonfarmer group from 200 miles away telling the landowner what is appropriate according to the easement is like putting an Amish man in charge of nuclear reactor regulations….What good is protecting farmland if we don’t protect the farmers and their economic viability on the land?”
Salatin goes on to say “Economic viability today demands value-adding, which means onfarm infrastructure like you would expect to see in Williamsburg. Too often those policing these easements want to see cows, pretty pastures, and bucolic gambrel barns without realizing that such a landscape never existed sustainably. Ultimately, these easements reduce farm viability and gradually turn Virginia’s pastoral landscape into a wilderness area. That’s probably not the green space folks have in mind. Giving over farm decisions to people who neither farm nor adapt their approaches jeopardizes farmers’ livelihoods. Ultimately, preserving farmers is the only sustainable way to preserve farms.”
As you might imagine, the defenders of conservation easements sounded off angrily in their letters to the editor of Flavor Magazine, saying they were “bewildered” and calling Salatin’s remarks a “disservice” and having “inaccurate and maligned information”.
However, fellow farmer Joshua Grizzle of Lexington, VA wrote in his letter (also found in preceding link) to explain how he had experiences similar to Salatin. Since I found his personal experiences were pertinent to the discussion here, I will let his words frame the discoveries of many who are involved in these conservation programs. “I also speak from experience here as my family has considered such a (conservation easement) program on our land. I believe, however, that this program is a step in exactly the wrong direction. If we are afraid that our land is going to become developed into a subdivision or Walmart, the solution is exactly not to try to put up blind barriers to development and further decrease land value. Instead we must figure out a way for landowners and the broader community to place a higher value on land used for things other than strip malls. We do that by creating value-added businesses on those lands that enhance, rather than destroy, the natural beauty.”
It would appear Salatin and Grizzle are backed up by learned professionals that have long studied land and farming issues. Dana J. Gattuso, Senior Fellow at The National Center for Public Policy Research says “These (conservation easements) are largely anti-farm production programs, restricting land use on private farmland to support wetlands, grasslands, and non-threatened species while doing precious little to grow the nation’s crop supply and stabilize rising food prices.”
Certainly it is not the aim of the “conservation benefaction” programs to create the classification of unintended consequences known as the perverse effect, but there is ample evidence that, like the urban policy discussed earlier, that is the path the new rural policy is taking. Many across the country are now taking a good, hard look at what unintended consequences are being wrought with the full implementation of conservation easements.
“Model Community”
From The Nerve, a publication in South Carolina, reporter Donna Linsin writes “As more and more land is grabbed by federal, state, county and municipal governments, and land banks, and is placed in conservation easements, the rest of us will have to put up with living in crowded conditions, noisy and intruding neighbors, the unworkable schedules of public transportation, and lack of clean air and water. Is this how we want to live, work and play? These land-grabbing tactics can only drive up the cost of (non-easement) land that only a few people will be able to afford to buy.”
Winners and Losers
If you have read through these articles thoughtfully, YOU should have the ability to begin the process of establishing the winners and losers of conservation policies. With a better understanding of how our governmental policies affect us, and armed with that knowledge, we can all take steps to insure we are working toward long-ranging answers, not sugar-coated missteps sweetened by our tax dollars.
If you have made up your mind, call your local or state representative and share your knowledge. Find out what their understanding is and if it is fact-based or just wishes and hopes. Become involved in the process. Get your thoughts out. Only then can we all be winners in the future. It is the future for your kids and their kids, into perpetuity, that we are planning for today.
Should Pittsylvania County be in the Purchase of Development Rights Business?Pittsylvania County property owners, This is important information you need to know. Please read and then get this information out to other property owners in the county:
Our Pittsylvania County Board of Supervisors - Legislative Committee chaired by Chatham-Blairs District Supervisor Brenda Bowman set up a Purchase of Development Rights Subcommittee in the fall of 2012. The Pittsylvania County Board of Supervisors commissioned a constituent panel to "review the potential" of a Purchase of Development Rights Ordinance with focus on Purchase of Agricultural Conservation Easements at taxpayers expense.
From The National Conservation Easement Database for Pittsylvania County there have been 17 conservation easements, most occurred in 2013 after this Purchase of Development Rights committee was formed "to review the potential" It seems our county officials are actively using taxpayers money to buy land to keep it from development forever and remove it from the county's tax base. The burden for all other taxpayers becomes greater. See the list here: http://nced.conservationregistry.org/search/basic_search?search_term=pittsylvania
The distinction between Purchase of Development Rights and conservation easements involves whether the landowner receives a payment or not. When a conservation easement is paid for it is called a “purchase of development rights” or PDR. The document, a conservation easement is the same. PDR also is sometimes referred to as “purchase of agricultural conservation easement” or PACE, usually when public funds are used to purchase development rights. From: http://aces.nmsu.edu/pubs/research/economics/tr34.pdf
Conservation easements is known in legal terms as “negative servitude.” This legal description is derived from the requirement of the easement holder to prevent the donor ( landowner ) from certain actions on his own property. Transferring development rights results in significant and usually permanent consequences - It is impossible to get out of these contracts, and forever is a long time to bind your heirs to “negative servitude.” A landowner should not enter into an easement lightly without all the facts and guidance from professional advisers or considering the impact on his/her heirs. From: http://www.vdacs.virginia.gov/preservation/pdf/reap.pd
“These (conservation easements) are largely anti-farm production programs, restricting land use on private farmland to support wetlands, grasslands, and non-threatened species while doing precious little to grow the nation’s crop supply and stabilize rising food prices.” - Dana J. Gattuso, Senior Fellow at The National Center for Public Policy Research
There is so much money involved in these transactions that there are businesses established just to assist owners in finding buyers for their tax credits. From Wikipedia we learn “The Virginia transferable credit program is by far the largest among the States in dollar value of property conserved. By the end of 2010, $2,512,000,000 of property value had been donated as easements in Virginia for which tax credit was claimed. The qualifying easements cover over 516,000 acres (2,090 km2) of Virginia landscape.”
I would ask the reader to pause here a moment to reflect on the magnitude of the loss of state revenues this convoluted scheme, along with the other conservation tax breaks, has created. This also represents the magnitude of loss of private property in Virginia, which is staggering! Virginia Outdoors foundation estimates our loss of private property in Virginia is growing at 5 acres an hour: http://www.virginiaoutdoorsfoundation.org/
In the article below, we will look into the problems of an agreement into perpetuity, discuss if the benefits of easements are weighed heavily toward the rich, if easements are actually destroying farming and farm values, the long term effects on the shrinking supply of un-eased land ( private property ) and are the tax breaks involved with an easement actually the establishment of just another entitlement program. And you will learn since the amount of the donation is defined, in almost all cases, by a very subjective appraisal of land, there have been many cases of fraud and abuse.
Now let's review The Pittsylvania County Purchase of Development Rights Subcommittee's specific points offered for any potential Ordinance within Pittsylvania County which included (1) Partnering with one of the three main easement holders in the state (2) Avoid an appraisal review committee - would negatively influence the program ( by preventing fraud and abuse?) (3) And the subcommittee suggested leaving out any language revolving around extinguishment of easements. Extinguishment is the destruction of a right or contract.
This doesn't sound like they plan to prevent fraud and abuse or be transparent with Pittsylvania County landowners. Remember, Transferring development rights results in significant and usually permanent consequences - It is impossible to get out of these contracts, and forever is a long time to bind your heirs to “negative servitude.” A landowner should not enter into an easement lightly without all the facts and guidance from professional advisers or considering the impact on his/her heirs. From: http://www.vdacs.virginia.gov/preservation/pdf/reap.pd
All of this begs the question, Should Pittsylvania County be in the Purchase of Development Rights business at all? Should our local officials be involved in selling this convoluted scheme to Pittsylvania landowners or should they be honestly warning citizens of the dangers, not only to themselves and their heirs but to the future of our county, our state and our country?
READ MORE: Conservation Easements Explored / The Underside of the Beast The Real Costs of Conservation Easements Fauquier Free Citizen By Rick Buchanan http://fauquierfreecitizen.com/conservation-easements-explored-part-1-the-introduction/
Taxpayers are paying vast sums of money for the ability of some landowners to voluntarily give property rights to another entity. This begs the question “Why am I paying for someone else’s charity”? After reading the following discussion of conservation easements, you should be asking your legislative representatives their reasoning behind this decision, since they have made it for you. If they think this is such a great use of your money, there should be good reasons for their decision. But before you call, perhaps some background information germane to the discussion would be helpful.
As taxpayers, many things for which we are asked to pay, that originate from our trusted governmental representatives, are based in altruistic motives that sound “real good”. And, of course, we naturally assume our legislators are always looking out for our best interests. In fact if you take the opportunity to know your legislators you will find most really do go about their jobs earnestly trying to do what is right for all of us. Really!
However, in today’s world, the ship of state is not a slow moving luxury steamer. It is more like a speedboat in a regatta, skimming along the water barely touching the surface. It is easy to see why some of our best legislators end up steering off course. It is understandable that they may take a feel-good issue at face value and not look below the surface to analyze the long range effects of the policies they enact.
Since many of us are riding in a similar speedboat, barely glimpsing the waves of information flying by, I offer you a bit of research on one such wave: The tidal wave of billions of dollars spent each year on conservation easements that most of us know little about, though we might think we do.
This study is offered with only one request. If you care enough to know where these tax dollars are going, please do your own research. Not only am I suggesting you open the links provided in this series of articles but also go online where there are volumes of further information. I you have something to add, or see something you disagree with, please voice your opinion in the comment section given below. The money invested in conservation deserves conversation, so chime in.
My findings are presented in three parts: Conservation Easements – The History
Conservation Easements – The Application
Conservation Easements – Winners and Losers of Conservation Benefaction.
Part One: Conservation Easements – The History The concept of a conservation easement, which began as an excellent way to preserve natural resources and “save the farm” of struggling land-rich, cash-poor farmers was actually a great idea. In the hands of the private sector the voluntary actions of landowners and the charitable gifts of the wealthy all working to enhance the use of conservation easements could have created a very worthwhile, some would even say necessary, program to conserve our natural resources. However, politicians, being ever anxious to please prospective voters, have never seen a good program that could not be enhanced by using other people’s money to purchase favor. But I digress. First the basics should be discussed.
A conservation easement is initiated with the donation of a part of the “bundle of rights” that are normally accepted as part of ownership of all property. This benefaction, held by a public or private land conservation organization, creates an encumbrance or “deed restriction” on the property. The encumbrances vary, but usually fall into some category of the loss of land use through restrictions on crop choices, development rights, building and/or demolition. This then allows the easement holder to conduct inspections of the property to verify compliance to the deed restrictions on the property.
It should be noted here that the overwhelming majority of easements are initiated only when deed restrictions are agreed to in perpetuity. There are a very few that may be agreed to for set blocks of time, but any tax breaks given through the easement agreement would automatically be due if, at the end of the agreed upon time, all rights are reverted back to the land owner. There is also the possibility of other penalties associated with ending these limited agreements.
In a look back to the beginning of conservation easements Harvard researcher Zachary Bray explains that until the 1950s, conservation easements were used only sporadically and were held exclusively by governmental organizations, like the National Park Service. The recent growth in the number of private land trusts and the amount of land protected by conservation easements is primarily due to changes in the tax code.
By 1975, sixteen states had statutes enabling private acquisition and retention of conservation easements. In 1981, the Uniform Conservation Easement Act (“UCEA”) was drafted and designed to enable “private parties to enter into consensual arrangements with charitable organizations or governmental bodies to protect land and buildings without the encumbrance of certain potential common law impediments.”
In 1990, private land trusts held conservation easements covering 450,000 acres. By 1994, private land trusts protected more land through conservation easements than fee ownership. From 1994 to 1998, the amount of land protected by privately held conservation easements nearly doubled, then nearly doubled again from 1998 to 2000, and then more than doubled again from 2000 to 2005. The total of private (non-governmental) easements as of 2012 is more than 6,400,000 acres and still climbing.
Along with private easements, government also holds a large number of easements. Many, if not most of the easements held are still owned by private individuals. These easements are controlled by the state, local, or federal governmental agency which holds the rights of the easement. As of 2012 the total acreage under governmental easements is 11,405,000.
Of the approximately 17.8 million acres under easement today, 17 million acres of land are owned by entities other than governmental agencies. You can find all of these statistics here.
So what has led to this meteoric rise in land “donations” into the easement program?
Is it the altruistic nature of the landowners? Is it their deep concern for our natural lands, watersheds and wildlife or the protection of magnificent view sheds?
Or is it the burgeoning amount of tax breaks and the accompanying transferability of these tax credits? We will begin to unravel the truth in the next segment: Conservation Easements – The Application
Conservation Easements Part two – The Underside of the Beast Fauquier Free Citizen By Rick Buchanan http://fauquierfreecitizen.com/conservation-easements-part-two-the-underside-of-the-beast/
Conservation Easements – The Application For those of you who have read Conservation Easements – the History, you know a brief history of conservation easements and should have a general feel of the background, number and scope of these programs. Now we will look into how the different aspects of easements are applied, how they are promoted and how the rules and regulations in place can be manipulated.
As we get started on this section, I think it important to realize that the conservation easement program does not generate revenue.
The money expended on the program comes strictly from taxpayer generated revenues. There are some that say it saves money, but in all the reading I have done thus far on this issue I have yet to find any real data on this. What I have found is the listing of the following items that some easements may accomplish:
- Maintain and improve water quality
- Perpetuate and foster the growth of healthy forest
- Maintain and improve wildlife habitat and migration corridors
- Protect scenic vistas visible from roads and other public areas; or
- Ensure that lands are managed so that they are always available for agriculture and forestry.
If you are like most people who do not own that large a parcel of land, you will still be footing the bill. It will be up to you to determine whether the benefits are worth the monetary contributions you are required to pay for them.
I simply state once again that anyone who has additional input into the information seen here is welcome to chime in. The effort here is to reveal the truth, as we always endeavor to do.
“Show Me the Money” It does not take much reading on conservation easements to learn that money has driven the meteoric rise in the number and scope of conservation easements.
Most citizens have no idea how much money is involved in the concept of what is known in legal terms as “negative servitude”. This legal description is derived from the requirement of the easement holder to prevent the donor (landowner) from certain actions on his own property.
Congress has authorized billions in years past to fund conservation programs, and the expansion of conservation funding for use as a tax break has been growing for over five decades. What began in the 1960’s as an ill-defined federal program started to take formal shape in the 1980’s when the Treasury Department provided more clarity, listing various acceptable charitable purposes for the deduction, and providing the appraisal rules for computing the amount of the deduction.
More recently, as part of the Pension Protection Act, President George W. Bush signed HR 4, which expanded the existing tax breaks dramatically for landowners.
This bill nearly doubled the federal benefits for conservation easement “donors”, allowing them to deduct the value of their “gift” at the rate of 50% of their adjusted gross income (AGI) per year. Landowners who made 50% or more of their income from agriculture were able to deduct the donation at a rate of 100% of their AGI.
Any amount of the donation remaining after the first year could be carried forward for fifteen additional years or until the amount of the deduction has been used up. This benefit has been renewed in similar fashion each year, ever since.
Note: More about the interesting dichotomy of conservation easements being in perpetuity while the tax breaks for them having a finite ending in our next segment.
In 2010 total federal funding for key conservation programs exceeded $1.7 billion. President Obama’s 2013 budget is requesting nearly $1.5 billion.
The Federal program is only part of the spending on easements.
VA DCR ( Virginia Department of Conservation and Recreation ) David Johnson
Here in Virginia, in the January 23rd, 2013 report from the Department of Conservation and Recreation, Director David Johnson explains the state’s contribution to the tax incentives associated with conservation easements, “As a result of legislative amendments enacted in 2006, effective January 1, 2007, the LPTC (Land Preservation Tax Credit) program was capped at $100 million per year, with donations (conservation easements) in excess of the annual cap to be rolled over to subsequent years. The amount of the tax credit cap is adjusted annually to the Consumer Price Index, increasing in 2008 to $102.3 million, in 2009 to $106.6 million, in 2010 to $106.8 million, and in 2011 the program was capped at $108.4 million. Additionally, the amount of value that can be registered for any conservation easement was limited to 40 percent of the fair market value of the qualified donation – reduced from the previously allowed 50 percent. These compromises represented a diminution in the state’s peak annual tax credit expenditures, which reached $155.9 million in tax year 2005 and $247.8 million in 2006, but still allow for an exemplary program that the state can budget for into the future.”
Are you still with me?
Of course, when landowners have little income from which to gain tax benefits, another solution had to be found to get the land they own into conservation easements. The answer? Turn the tax breaks issued to these low-income, land rich owners into a commodity that can be sold on the open market to others in need of a tax break; those individuals with large incomes and without enough tax breaks to deflect their own tax bills.
From the Virginia Department of Conservation and Recreation site linked previously we find, “Virginia allows an income tax credit for forty percent of the value of donated land or conservation easements. Taxpayers may use up to $100,000 per year for the year of sale and the ten subsequent tax years. Unused credits may be sold, allowing individuals with little or no Virginia income tax burden to take advantage of this benefit.”
These tax credits are normally sold for around $.75 on the dollar, depending on the market. In fact, there is so much money involved in these transactions that there are businesses established just to assist owners in finding buyers for their tax credits.
From Wikipedia we learn “The Virginia transferable credit program is by far the largest among the States in dollar value of property conserved. By the end of 2010, $2,512,000,000 of property value had been donated as easements in Virginia for which tax credit was claimed. The qualifying easements cover over 516,000 acres (2,090 km2) of Virginia landscape.”
I would ask the reader to pause here a moment to reflect on the magnitude of the loss of state revenues this convoluted scheme, along with the other conservation tax breaks, has created.
Then, here in Fauquier County, there is yet another program using taxpayer dollars to fund conservation donations.
If you review the Fauquier County 2014 Budget, starting on page 8 you will see Conservation Easement Service District Fund. The total budget of $606,872.00 shown there represents the aggregate of our projected 2014 contributions of .6% of our assessed property value which you can see as a line item on your property tax form.
This amount actually represents a 50% reduction to funding for the County’s prior Purchase of Development Rights (PDR) program. It should also be noted here that this amount represents almost three times the funds allocated in FY 2014 for the operating costs of Fauquier County’s Affordable Housing budget.
The Underside of the Beast As you can well imagine, with all this money available and with the intricacies of nebulous rules and regulations, it is no wonder there were many who were looking to take advantage of the situation.
Since the amount of the donation is defined, in almost all cases, by a very subjective appraisal of land, there have been many cases of fraud and abuse. Here is a sampling of the bigger cases where the tax advantages of conservation easements are applied by less than honest people.
From The Hook, you can read all about what some called an “appraisal racket”, netting the owners of Biscuit Run millions of dollars in The Flip That Flopped: “Virginia is one of about a dozen states that allow certain property owners to convert an appraisal into cash. It happens via a program called conservation tax credits. The bigger the appraisal, the bigger the value of the “gift” when property is sold or encumbered by a non-profit entity. This year, Virginia will issue about $107 million in such credits– paying people to give up the right to develop their land.”
The Hook also posted The Big Chill which chronicles how “At Wintergreen, a company subsidiary found an appraiser willing to claim in 2008 that the 1,422-acre peak called Crawford’s Knob was worth $11.5 million. Like the owners of Biscuit Run, Wintergreen turned that valuation into several million in cash. Also like Biscuit Run, the state later cried foul.”
Of course, Virginia is not alone. A tangled web of alleged fraud and deceit was on display in Idaho. In Pesky v. U.S., the Pesky’s are charged with conservation easement fraud by using the tax breaks in an easement with The Nature Conservancy to avoid paying taxes due. They are facing a 75% penalty.
The Director of the Colorado Division of Real Estate, called the subpoena slinging Erwin Toll, is “cracking down on crooked deals with a vengeance.”
Also in Colorado, the Department of Revenue battling legislators and landowners puts appraisers in the middle of another huge controversy.
Then in Ohio, the DOJ v. Jefferson & Lee Appraisals rounds out this very small sampling of a very large problem. At the center of almost all of these cases are the actions of appraisers and the owners that employ them, who obviously see the tax incentives of conservation easements as ripe for the taking.
When easements were first started, private money was utilized and the land was held by private citizens or groups or purchased directly by the government in deals that were open to public scrutiny.
The chances of foul play were almost non-existent.
Now, as government money has become more and more involved, so has the dark underside that comes along with big money given freely and government officials anxious to please constituents and big donors.
It sure gives one pause when one considers where this may end.
In the next installment, we will look into the problems of an agreement into perpetuity, discuss if the benefits of easements are weighed heavily toward the rich, if easements are actually destroying farming and farm values, the long term effects on the shrinking supply of un-eased land and are the tax breaks involved with an easement actually the establishment of just another entitlement program.
I hope you join us here next week for Conservation Easements – Winners and Losers of Conservation Benefaction.
Fauquier Free Citizen: http://fauquierfreecitizen.com/
Conservation Easements Part Three – Winners and Losers of Conservation Benefaction By Rick Buchanan Even though most people do not know the details of conservations easements, most agree with the general idea. Who could possibly be against a program that touts the philosophy of preserving our lands for wildlife habitat and farming? How could “preserving” our rural countryside possibly be detrimental to farming or to our society as a whole? Yet there are some that would say the concepts behind conservation easements need a much more in-depth study. Just as sugar is surely pleasant to the palate, misuse and overindulgence can lead to many health problems, such as obesity and diabetes. In just such a way, conservation easement candy is not the environmental panacea we have been led to believe it is.
Rural Policy
Recently, in the American Spectator, Joseph Lawler stated “the single greatest policy failure of modern America is urban policy. Since the Great Society era of Lyndon Johnson, the country has poured hundreds of billions of dollars into poor urban neighborhoods.” Fifty years and hundreds of billions of taxpayer dollars have produced increased rates of violence, drug addiction, family breakdown, incarceration and abortion rates in our cities. Are the hundreds of billions of dollars we are now spending in rural America destined for a similar failure?
Landowners and/or farmers who decide to put their land in a negative servitude program (known as a conservation easement) to receive tax breaks are not required to farm the land. In fact, if a “good” deal is struck, the land alone can become a cash producer, at least for a few years. And therein lies the rub.
We are looking at a policy that is assisting in the creation of a new dependent class; a land-rich class that will become dependent on the largesse of the government and the tax credits associated with eased land. The problem for these landowners is two-fold: 1) The tax credits are for a limited time but the easements are, for the most part, in perpetuity. 2) The landowner is then stuck with a property that is necessarily lower in value.
Instead of promoting farmers and farming, these policies have the exact opposite force on the family farm. Rich landowners who get tax breaks for eased land do not need the income from working the farm. In fact, their tax breaks are figured on their Adjusted Gross Income (AGI), with no restrictions on where their earnings come from. This makes it easier for them to just allow the land to sit fallow. In fact, this is exactly what many do. Fox hunting, a popular sport in rural counties, requires many acres of uncultivated land to really enjoy the thrill of open-country chases, which can, and in some cases is, funded by these benefaction programs.
This gift-mentality taxation policy for the land-rich also creates additional burdens on the other citizens who make up the vast majority of taxpayers. Since the land is valued for less, the taxes collected are less. Add to this the funding of pay-outs for the additional tax breaks offered and the burden for all other taxpayers becomes greater. On top of that, if the land does not produce marketable products yet another source of tax revenue is lost and even more burden is heaped on the (anyone-who-does-not-have-a-conservation-easement) citizen.
Unintended Consequences
Going against the conservation easement tide is not a popular position to take, but that is where Joel Salatin finds himself. The Shenandoah farmer, called “the high priest of the pasture” by the New York Times, warns all who venture into the “negative servitude” arena to enter with caution. Writing in Flavor Magazine, which touts itself as “the only independent publication dedicated to local food, Virginia wine, and sustainable agriculture in the Capital foodshed”, Salatin writes about his inability to build a chicken coop, or even a doghouse, on the eased property he leased to enlarge his farmed land.
Using his usual flare for colorful descriptions, Joel laments “To have a nonfarmer group from 200 miles away telling the landowner what is appropriate according to the easement is like putting an Amish man in charge of nuclear reactor regulations….What good is protecting farmland if we don’t protect the farmers and their economic viability on the land?”
Salatin goes on to say “Economic viability today demands value-adding, which means onfarm infrastructure like you would expect to see in Williamsburg. Too often those policing these easements want to see cows, pretty pastures, and bucolic gambrel barns without realizing that such a landscape never existed sustainably. Ultimately, these easements reduce farm viability and gradually turn Virginia’s pastoral landscape into a wilderness area. That’s probably not the green space folks have in mind. Giving over farm decisions to people who neither farm nor adapt their approaches jeopardizes farmers’ livelihoods. Ultimately, preserving farmers is the only sustainable way to preserve farms.”
As you might imagine, the defenders of conservation easements sounded off angrily in their letters to the editor of Flavor Magazine, saying they were “bewildered” and calling Salatin’s remarks a “disservice” and having “inaccurate and maligned information”.
However, fellow farmer Joshua Grizzle of Lexington, VA wrote in his letter (also found in preceding link) to explain how he had experiences similar to Salatin. Since I found his personal experiences were pertinent to the discussion here, I will let his words frame the discoveries of many who are involved in these conservation programs. “I also speak from experience here as my family has considered such a (conservation easement) program on our land. I believe, however, that this program is a step in exactly the wrong direction. If we are afraid that our land is going to become developed into a subdivision or Walmart, the solution is exactly not to try to put up blind barriers to development and further decrease land value. Instead we must figure out a way for landowners and the broader community to place a higher value on land used for things other than strip malls. We do that by creating value-added businesses on those lands that enhance, rather than destroy, the natural beauty.”
It would appear Salatin and Grizzle are backed up by learned professionals that have long studied land and farming issues. Dana J. Gattuso, Senior Fellow at The National Center for Public Policy Research says “These (conservation easements) are largely anti-farm production programs, restricting land use on private farmland to support wetlands, grasslands, and non-threatened species while doing precious little to grow the nation’s crop supply and stabilize rising food prices.”
Certainly it is not the aim of the “conservation benefaction” programs to create the classification of unintended consequences known as the perverse effect, but there is ample evidence that, like the urban policy discussed earlier, that is the path the new rural policy is taking. Many across the country are now taking a good, hard look at what unintended consequences are being wrought with the full implementation of conservation easements.
“Model Community”
From The Nerve, a publication in South Carolina, reporter Donna Linsin writes “As more and more land is grabbed by federal, state, county and municipal governments, and land banks, and is placed in conservation easements, the rest of us will have to put up with living in crowded conditions, noisy and intruding neighbors, the unworkable schedules of public transportation, and lack of clean air and water. Is this how we want to live, work and play? These land-grabbing tactics can only drive up the cost of (non-easement) land that only a few people will be able to afford to buy.”
Winners and Losers
If you have read through these articles thoughtfully, YOU should have the ability to begin the process of establishing the winners and losers of conservation policies. With a better understanding of how our governmental policies affect us, and armed with that knowledge, we can all take steps to insure we are working toward long-ranging answers, not sugar-coated missteps sweetened by our tax dollars.
If you have made up your mind, call your local or state representative and share your knowledge. Find out what their understanding is and if it is fact-based or just wishes and hopes. Become involved in the process. Get your thoughts out. Only then can we all be winners in the future. It is the future for your kids and their kids, into perpetuity, that we are planning for today.