Property owners typically are motivated to place their land in a conservation easement and take advantage of the federal and state tax breaks, to shield their property from development, or by the threat of government land-acquisition or due to very strict land-use regulations.
To receive tax benefits, landowners typically agree to restrict the use of land to one of the following:
Outdoor recreation for the general public;
Protection of animals, plants or ecosystems;
Preservation of open spaces - for either farming, forestry, or ranching;
Protect scenic vistas visible from roads and other public areas;
Preservation of historic land or structures.
They also must donate the easement to a government agency or a "qualified" nonprofit organization, defined as a charitable organization "that receives a substantial portion of [its] support from the public and government entities." And they must agree that the easement will be held in perpetuity, meaning all future landowners of the easement are bound by the terms of the deed and are prohibited from any future development. The intended purpose of the easement is to preserve the land for the benefit of the general public.
Under the Virginia Land Preservation Tax Credit - easement donors are allowed to use 40% of their “easement value” (the amount of their property’s value before the easement minus its reduced value after the easement) to pay their state income tax obligation for the year of donation and the ten years following. Whatever credits the donor can’t use himself in that eleven year filing period, may be sold to other taxpayers, usually through professional mediators or brokers.
These tax credits are normally sold for around $.75 on the dollar, depending on the market. In fact, these transactions have become so commonplace, that there are businesses established just to assist owners in finding buyers for their tax credits – for example - the Virginia Conservation Credit Exchange, LLC.
If you have a parcel of land with a pre-easement value of $1 million and donate an easement valued at $400,000, you are eligible to receive a $160,000 tax credit.
There is a cap of $100,000 tax credit per year so $100,000 can be taken the first year and the remaining $60,000 the second year.
Federal Income Tax Deduction reduces the easement donor's adjusted gross income (AGI) at 50% annually for the year of donation and up to the fifteen years following. Landowners who make 50% or more of their income from agriculture are able to deduct the donation at a rate of 100% of their AGI.
In addition to the generous tax credits and deductions, the reduced value of the land with an easement, guarantees a reduction of 40% in the real estate taxes for the property.
Virginia boasts that its land preservation incentives are the "most generous" in the country. Indeed, the state budgets over $100 million a year to pay people not to develop their land.
While the Land Preservation Tax Credit was capped at $100 million per year in 2007, donations (conservation easements) in excess of the annual cap are rolled over to subsequent years. The amount of the tax credit cap is adjusted annually to the Consumer Price Index. Consequesntly, the cap has reached well over $108 million and it could be as high as $114 for 2013.
The annual cost of lost revenue from the federal income tax conservation easement deductions have averaged more than $500 million annually since 2005.
According the the Virginia Department of Conservation and Recreation's Conservation Lands Database, as of the end of 2012, Virginia has nearly 3.8 million acres of land in conservation easements.
Conservation easements are touted as a means for the struggling farmer to save the family farm during hard times while at the same time preserving agricultural and forestry industries.
But a quick review of the State & Federal funding programs offered on the VA Dept. of Conservation & Recreation's website, reveals it is more about protection of wetlands, grasslands, walking trails, bicycle paths and natural habitat, as well as non-threatened species while doing precious little to grow the nation’s crop supply and stabilize rising food prices.
Farmers like Martha Boneta, are quickly realizing that conservation easements do little to nothing to preserve their ability to farm. Martha bought her land with a conservation easement held by the Piedmont Environmental Council. After refusing to sell her land to the PEC, she came under fire by the PEC as well as Fauquier County government officials.
Martha was threatened with fines for daring to host a birthday party for a 10 year old family friend on her farm without government permission.
Additionally, they threatened her with fines of $10,000 for advertising a pumpkin-carving contest and for selling fruits, vegetables and byproducts of the things she grew on her farm like soaps made from her goat's milk and wool from her alpacas and sheep. Today, her farm sits closed for business.
If that wasn't bad enough, the PEC insists on inspecting her farm to see if she has accommodations for a residence, even though her easement allows a 1600 sq. ft. residence in the barn complex. They seem to imply that's she's running a boarding house illegally.
Joel Salatin, a Shenandoah farmer,is called “the high priest of the pasture” by the New York Times. He warns all who venture into the “negative servitude” arena (referring to conservation easements) should enter with caution. In a letter to the editor of Flavor Magazine, Salatin writes about his inability to build a chicken coop, or even a doghouse, on the eased property he leased next to his farm to expand his farming capabilities.
Joel goes on to say “To have a non-farmer 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?”
Joshua Grizzle is one of the partners of Broadview Ranch in Lexington, VA. He writes “I also speak from experience here as my family has considered the conservation easement program on our land. I believe, however, that this program is a step in exactly the wrong direction.”
He goes on to write, “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.”
But land trusts deny any abuse and make the claim that easement donations have helped many cash-poor families retain farms and ranches they otherwise might have sold to developers. But some of the biggest and best-known easements have been linked to major corporations and some of the nation's richest individuals, from Ted Turner and David Letterman to the Rockefellers and DuPonts.
Countless wealthy estate owners have cashed in big on the generous conservation easement program in Virginia with a state giveaway of vast sums - some measuring into millions of dollars - to induce millionaires to "conserve" luxurious estates that they had no intention of developing anyway?
While the amount that any individual landowner receives is kept secret from the public, a 2010 investigation by Hook, a Charlottesville weekly newspaper, revealed a veritable who's who from the Charlottesville business, entertainment, government, and environmental worlds taking advantage of the taxpayer.
Entertainment magnates like Dave Matthews, John Grisham, and Coran Capshaw joined business titans Hunter Craig, Wick McNeely, and Jim Murray in the program.
Local leaders Ann Mallek, an Albemarle Supervisor and waterworks chair Michael Gaffney use the program.
So do big names from the environmental world such as Nature Conservancy board member Michael Bills, Southern Environmental Law Center director Rick Middleton, and avid eco-donor Tony Vanderwarker.
In 2003, The Washington Post reported that The Nature Conservancy, the world’s largest environmental group, had bought scenic properties, placed conservation easements on them and then sold them to its supporters and trustees for reduced prices in exchange for cash donations to the Nature Conservancy approximately equal to the value of the conservation easement. The donations yielded huge tax write-offs for the wealthy supporters.
The Post reported conservation easement tax write-offs on golf courses, vacation resorts, dude ranches, unused portions of subdivisions and large residential lots. The same article reported that conservation easement donors were overvaluing their land at an average of 220% when calculating their tax deductions.
Some would call it “socialized capitalism for the rich”!
There are no restrictions on where earnings come from to receive the generous tax benefits. In fact, the land in some cases sits in fallow. Thousands of acres of land are set aside merely for the thrill of fox hunting which is very popular in Virginia, funded by the taxpayer through the CE program.
Though the purpose of conservation easements is to terminate development rights, developers have found clever ways to realize huge payoffs in Conservation Easements as the Post article points out.
Mike Kahn, a Florida golf course business consultant and former golf pro, advises celebrities and sports stars how they can save millions in taxes. Buy a golf course and prohibit building on the fairways. "You make virtually risk-free easy money," Kahn's Web site says. He explained in one Internet posting how an investor paid $2.4 million to build a golf course and reaped $4.8 million "in pure tax savings."
Veteran Real Estate Speculator, Hunter Craig, Dave Matthews & his band manager, Coran Capshaw and the band's fiddler, Boyd Tinsley, all investors with Forest Lodge LLC, paid $46.2 million in 2006 for 1,194 acres of land in Charlottesville known as Biscuit Run. The intent was to put some of the land in conservation easement and build 3100 homes on the remainder. But after obtaining approval of the project, development costs proved to be more than they were prepared to pay. And with the burden of property taxes as well as an eight-figure mortgage that had gone into delinquency, Biscuit Run faced the threat of becoming the biggest foreclosure in Albemarle County history.
In 2009, the state offered to pay nearly $12 million in cash added to the $9.8 already received in tax credits for the undeveloped land. But Forest Lodge, seeking to recover more of its losses, found an appraiser willing to excessively inflate the value of the property to $87.7 million which was quite a leap from the county's assessed value of $39 million after the real estate crash. They sued the state for more money arguing that even though the land had never been developed, it was worth much more. They had secured the approval and rezoning by the county to develop much of the land.
After a three-day trial in Albemarle Circuit Court ended on April 17 of this year, it was ruled that the land was worth $86.5 million, or 99% of what Forest Lodge LLC asked for.
In other words, the court's decision meant the taxpayer was now on the hook for a little over $31 million more in cash and state tax credits. Not only that, but the state and federal income tax deductions for the charitable contribution of the value over and above what was received, will add up to as much as $31.3 million more. The final cost of the land to the taxpayer could top $72 million making Biscuit Run the most expensive park in Virginia history. You paid for that!
I should add that due to public outrage over the deal, under McDonnell, the state investigated the near $88 million inflated appraisal by Patricia O'Grady-Filer but her case was closed with no consequence to her due to "insufficient evidence”.
At Wintergreen, a company subsidiary found an appraiser willing to claim in 2008 the 1,422-acre easement called Crawford’s Knob was worth $11.5 million, which was 4 times what a state-hired appraiser later determined. Like the owners of Biscuit Run, Wintergreen turned that valuation into several million in cash. Also like Biscuit Run, the state later cried foul.
From a $100 million listing in 2009, to a foreclosure and then purchase of a 745 acre estate by Donald Trump for a mere $6 million, Trump Winery is open for business. The land was put in conservation easement by the previous owners and since records of cash payouts and tax benefits are kept secret, it's anyone's guess how much the taxpayer was fleeced for that property. Trump is aiming to expand his acquisition of land with the purchase of 217 aces next to his winery, that is also in conservation easement, for the purpose of building a golf course.
There's no shortage of millionaires waiting in the wings to cash in on the program whether it's to reap the tax benefits themselves or to capitalize on the value-stricken land often for mere pennies on the dollar.
As more and more land is placed in conservation easements, more people will be forced into high-density urban development. Conservation easements serve to drive up the cost of the non-easement land that few will be able to afford. It redistributes the tax liability to the rest of the taxpayers and, further, redistributes our wealth, not to benefit the poor, but to line the pockets of the wealthy and well-connected. And you, the taxpayer are paying for it while your prosperity suffers and everyone's property rights are extinguished.
The result will be the implementation of the global biodiversity plan in a treaty that was rejected by the U.S. Senate and never ratified, to make Agenda 21 a reality.
Private property consists not merely in its ownership and possession, but in the unrestricted right of use. When the right to use the property as the owner sees fit is restricted or in some cases even denied, the right to own land is rendered a barren right.