The state’s conservation easement program took off in the 1990s and shifted into overdrive in the 2000s. The program gives income tax credits to landowners with property that supports open space, agriculture, water, wildlife, and endangered species. In return, landowners agree to sustain their property for those purposes in perpetuity.
The state has distributed more than $1 billion in conservation tax credits. Lawyers, bankers, appraisers. tax credit brokers, farmers, ranchers, and land trusts are the main players. Land trusts in particular have proliferated as the keepers of the easements.
The program has a checkered history. For a time, the state had no cap on the total dollars distributed per year for easements. In 2001 the law was changed to allow landowners to sell their tax credits. There was, in effect, an easement land rush.
Then the IRS disallowed hundreds of easement appraisals after the tax credits were claimed. Farmers and ranchers held the bag as they had to repay the full value of the credits they sold at a discount, while their properties remain under easement in perpetuity.
The state reacted to the mess in three ways. In 2014 it limited the total amount of easement tax credits per year to $45 million/year. It put the screws to appraisals. It reduced the percent of appraised land value available for tax credits to 75 percent for the first $100,000 and 50 percent for every $100,000 above. These changes put the program in a box and easement applications dramatically dropped.
The Conservation Easement Tax Credits Modification bill, House Bill 1264, attempts to re-juice the program. The bill will change appraisal methodologies based on recommendations from a conservation easement task force. Currently, land values are appraised on property development potential. In the Gunnison Valley, for example, many tax credits were distributed based on concerns over condo development, according to a video presentation by Great Outdoors Colorado (GOCO).
With the bill, appraised value will be based on conservation reality such as open space, wildlife protection, water use, and agriculture. This methodology removes the uncomfortable problem of tax credits given out when no property development prospects exist anywhere on the ‘in perpetuity’ horizon. The percent of tax credit per land value will rise to a very attractive 90 percent. That’s good news for land trusts who need steady growth in conservation easements to stay in business.
The prospective appraisal methodologies don’t address the facts that tax credits go to individuals with high net worth and that open space GOCO grants, based on lottery dollars from Coloradans of all income levels, go disproportionately to individuals who own lots of valuable land. Much of this land remains under private ownership. Most Coloradans get to appreciate the open space as they drive by on state and county roads.
There’s no doubt that the conservation easement program plays big in ranching and property development. The largest ranch for sale in the Aspen area at $17.5 million announces in its promotion material: “terrific hunting for deer, elk, and bear…Unencumbered by CE (ask about Colorado’s lucrative conservation tax credits).” Other properties for sale depend on open space easements to increase the value of unencumbered land parceled out for ranchettes.
The bill partially addresses another problem. No one, free public resource collects data on where conservation easement properties are located. The bill will fund COMaP, an application run by Colorado State University to identify easement locations.
More accountability should go into that portion of the bill. COMaP should also document the land trusts that hold the easements, whether the easements have received their annual inspections, any easement violations and their cures, and consequences for easement non compliance.
While HB-1264 improves the conservation easement program, the state has enough history with problems that the legislature should develop a comprehensive solution. The perils are obvious, and with the prospect of $45 million annually dispersed in tax credits, it is worth the effort.
Paula Noonan owns Colorado Capitol Watch, the state’s premier legislature tracking platform.