Wednesday, August 15, 2007
Conservation easements bring difficult decisions
Land under conservation easements can sell for a profit, but restrictions apply.
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Sam Dean | The Roanoke Times
Thad Montgomery runs a 500-acre dairy farm in Franklin County with his father. Montgomery said he plans to sell the land if it becomes surrounded by development. He thinks that won't be possible if he trades away part of the farm's value under a conservation easement.
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What are conservation easements?
- They are agreements between a landowner and a conservation organization to limit or prevent property from being developed. If certain standards are met, both federal and state taxing authorities treat them as special charitable gifts. Easements are individually negotiated deals, voluntary arrangements between the landowner and the easement holder, so each one is unique. One landowner's conservation easement may allow him to retain the right to build up to two houses per 100 acres, while another easement may prohibit additional houses but allow the owner to retain her right to timber some land. The tax breaks are based on the easement’s value — the difference between the land’s market value before and after development restrictions have been imposed.
- State tax credit: 40 percent of an easement’s value can be used to reduce or eliminate a landowner’s state income tax bill. Excess tax credits — those over what a landowner owes — can be sold. The going rate is about 75 to 80 cents on the dollar.
- Federal tax deductions: Easements are a special class of charitable donations, so an easement’s value can reduce the amount of income taxed by up to 50 percent for up to 15 years.
- Source: Conservation organizations.
EASEMENTS BY THE NUMBERS
Virginia Outdoors Foundation
- 80 percent: state conservation easements the foundation holds
- 71,227: acres foundation put under easement last year
- 401,498: acres foundation has covered through June 2007
- 10: easement specialists at foundation
- $3 million: foundation’s budget
- $1.45: amount Virginia spends per capita on land conservation
When Gov. Tim Kaine announced last year that he intended to put 400,000 acres of Virginia out of developers' reach before he left office, few people thought to ask if that was a good thing.
After all, the governor was talking about "preserving" and "protecting" land. What could be bad about that?
But some people are uncomfortable with conservation easements, the principal tool for preserving land.
"The biggest problem I have with the conservation easement is it's forever," Thad Montgomery said while sipping tea before a Farm Bureau meeting at the Franklin Restaurant near Rocky Mount. "You sign up front and you're stuck with it."
Through a negotiated conservation easement, a landowner gives up specific development rights in exchange for state and federal tax breaks -- reductions that can amount to 40 percent to 50 percent of an easement's value. Virginia allows landowners to sell their tax credits, too. The going rate is nearly 80 cents on the dollar.
The financial aspects of conservation easements can be difficult to understand.
Roger Holnback, executive director of the Western Virginia Land Trust, said that sometimes when he tells families they can keep farming their land, control what happens to that land after they're dead and get $200,000 or $300,000 in the bargain, they think he's trying to pull something over on them.
"I hear that all the time," said David Hurt, a member of the Franklin County Board of Supervisors. "A lot of landowners don't feel that they're giving up anything. They feel like they're getting something. ... And then, if you add some financial benefit on top of that, it does sound too good to be true to some people."
But in return for the tax breaks, the easement's restrictions stay with the property no matter who takes ownership.
Typically, the easements restrict the number of times property can be subdivided, limit the number and sometimes the location of houses that can be built on the property and prohibit certain uses such as mining.
Even though conservation easements are meant to last forever, it is possible to set them aside. The process isn't easy, particularly when the easements are held by state agencies. It usually requires replacing land to be removed from an easement with property of equal or greater preservation value. Sections of protected land have had easements lifted this way, but no entire easement has ever been completely set aside.
A growing discussion
Conservation easements elicit different opinions -- and the issue hinges on one of the United States' founding principals: ownership of property.
"It's all about property rights," said Bob Lee, executive director of the Virginia Outdoors Foundation, a state agency charged with preserving land with conservation easements. "If you have the right to develop, you have the right not to develop."
Two Franklin County landowners, Hurt and Montgomery, have differing opinions on the program.
Montgomery, 32, and his father, Melvin, 60, operate a 500-acre dairy farm. The cattle and equipment have value, but the land is their real wealth.
"I can't sell my most valuable asset to the government so they can have open space," Thad Montgomery said.
What, Montgomery asked, if one of his children or his grandchildren contracts a disease that requires expensive treatment? Besides, Montgomery said, conservation easements preserve open space, but they don't necessarily preserve farmland.
If development surrounds his farm, it won't be practical to farm it any more, he said. When the day comes that he and his herd are encircled by houses and shopping centers, Montgomery said, he'll sell his farm and buy more land somewhere else. He thinks that won't be possible if he has traded away part of the farm's value through a conservation easement.
On the opposite side of the issue is Hurt who works for Conservation Partners, a company that facilitates conservation easements. He used to work for the Western Virginia Land Trust, a strong advocate for the easements. He lives on land his father put under an easement nearly a decade ago.
Hurt said studies have shown that it's cheaper for a locality to subsidize land conservation than to pay for the services development demands.
'A daggone good deal'
"I can certainly understand his [Thad Montgomery's] viewpoint," said Jack Leffel, a Botetourt County farmer who is deep into the process of putting more than 100 acres under a conservation easement. "Some of what he says is true."
But Leffel thinks Montgomery isn't seeing the whole picture. Putting land under a conservation easement may reduce its value by removing its potential uses, but in 10 years the land would appreciate enough to make up for that, he said. In the meantime, Montgomery would get a financial benefit for agreeing not to do things he wouldn't want to do anyway.
"Daggone it, in his mind he's giving up $30,000 an acre and he's not," Leffel said. "It's a daggone good deal for the farmers. It's about like having your cake and eating it."
But Montgomery, a third-generation dairy farmer, said he has already been offered $30,000 an acre by a private developer. "About once a year, I see a developer coming down the driveway," he said.
"When you plant them houses on the land, that's the last crop," said Reuben Brown, another Franklin County farmer.
Julia Mahoney, a University of Virginia law professor, argues that development is more flexible than Brown suggests.
"Meadows are routinely converted into office parks, but office parks can be converted back to meadows, too," Mahoney wrote in a paper titled "Perpetual Restrictions on Land and the Problem of the Future." "It is tempting for modern humans to imagine ... that their works will endure forever, but history teaches otherwise.
"Stone structures erected by the Romans have sunk into European fields, once booming mining towns in the American west are now ghost towns, and disintegrating urban neighborhoods are plowed under to make way for new construction or even city parks."
Burdening the land
While Kaine talks of protecting land with conservation easements, Mahoney writes of burdening land with them.
Undoing development may be expensive and difficult, Mahoney writes, but undoing a conservation easement may be just as costly and challenging.
The burden is the time, effort and expense that future landowners will have to exert to regain the property rights present-day owners negotiated away under the easements.
Those future owners will be motivated, in part, by a desire to maximize the value of their property and regain the value surrendered by the previous owners, Mahoney predicts.
In some parts of Virginia, though, some people are willing to pay a premium for land that they know is covered by a conservation easement. Holnback said a landowner near Botetourt County put a conservation easement on a piece of property to get the tax credits. The landowner later cut the tract into four pieces and sold them -- at a profit.
That situation brings up another objection from Mahoney.
"Because most of the owners of land burdened by conservation easements are affluent, or even rich, the prospect of such a giveaway raises serious distributional concerns," she writes.
Hurt thinks that's irrelevant. What matters with conservation easements is their true public benefit, he said.
"If a county were going to buy a piece of land for a school, people wouldn't gripe if they bought it from a rich person or a poor person. They would say, 'Do we have an appropriate site for a school? Did we pay a fair price for it?' I think we need to look at conservation easements that same way."
Hurt ticks off historic properties that have been protected, streams and rivers whose banks will remain free of development, farmland and forests that can remain productive. Farming and forestry contribute more to Virginia's economy than any other industry. All that open space translates into cleaner water, cleaner air, more wild animal habitat and more open space that help drive tourism, Virginia's second-largest industry.
