Finger-pointing and name calling is an annual event in the House of Representatives when Rep. Wes McKinley, D-Walsh, sponsors his conservation easement bill to get the state’s Department of Revenue (DOR) off the backs of farmers and ranchers with contested easement appraisals. This year, HB11-1208 tells the DOR to put up or shut up.
Rep. Marsha Looper, R-ElPaso Cty, has now introduced HB11-1300, a bill to take the DOR out of the settlement process, allowing landowners to go straight to court where they apparently feel they'll get a fairer, or better, deal.
Landowners say Dept of Revenue unfairly targets their easements
Some landowners, mostly farmers, are crying foul and poor as DOR tries to grab back about $222 million in contested conservation easements with associated tax credits. The landowners sold the tax credits, worth up to $375,000, to wealthy Coloradans who needed a state income tax break. The tax credit buyers, now caught between DOR and landowners, threaten to sue landowners to get their money back.
DOR, in a hearing on McKinley's bill, protested that landowners were sitting on their hands, unwilling to negotiate, because they believe they can wait the state out. McKinley's bill, if it passes, allows landowners to keep full easement value along with the tax credits, for any easements granted before 2008.
Appraisers take credibility hit
Everyone’s clanking the land appraisers’ bells. The appraisers set the underlying value of conservation easement properties based on ‘highest and best use.’ “Some of these appraisals were so far off the radar someone should have identified them before they were approved,” said Rep. Daniel Pabon, D-Denver.
Until 2008, the state had no oversight over the easement program. The legislature stepped in only after the IRS, then the DOR, identified hundreds of questionable easements worth millions of dollars. Since then, at least three appraisers have lost their licenses.
Coalition of Land Trusts agrees with DOR
The Colorado Coalition of Land Trusts, which opposes McKinley's bill, says some easement appraisals are bad, if not fraudulent, and those easement donors “should be held accountable.” “No one should be let off,” said Coalition executive John Swartout, “who willfully took money from taxpayers.” The role of some land trusts in exacerbating potential fraud remains an outstanding question.
Colorado has 2 million acres, about 3 percent of state land, held in conservation easement trust. The Coalition has 56 members, including land trusts and local governments. Greenlands Reserve Land Trust and Colorado Natural Lands Conservation, not members of the Coalition and not currently accredited by the state, are two trusts in the spotlight from dodgy easements, especially in southeast Colorado.
Land trusts typically charge about $10,000 per easement to hold properties in perpetuity. Bulking up on easements was an easy way to make money from 2003 to 2008 when no program oversight occurred. Some farms and ranches divided their lands into multiple conservation easements, increasing dollars all along the money chain.
State's Division of Real Estate now reviews appraisals
Now the state’s Division of Real Estate reviews appraisals, both past and current. But Landowners United, which supports McKinley’s bill, cannot get a hold of any appraisal review documents despite filing under open records laws. Paul Zogg, attorney for Landowners United, says citizens trying to get information from the DOR and Division of Real Estate run into “a stonewall.”
Rep. Pabon, noting the dimensions of the problem, said, “There’s something about conservation easements that attracts scam artists.” But Zogg said that the DOR is “hanging the Sword of Damocles over these landowners.”
Landowners don't trust DOR or the Division of Real Estate to develop fair appraisals. While the state believes some contested easements are valued up to 1000 times more than they're worth, landowners riposte that DOR has set the value at $0. From there, DOR and landowners argue over gravel rights along the Arkansas River.
Suspect gravel easements heart of issue in southern Colorado
Zogg asserts that if the contested gravel easements are tossed, only counties where residential development is likely to occur, such as Boulder, Garfield, Summit, and Pitkin Counties, will benefit from the conservation easement program. That would exclude landowners in ‘poorer’ counties from receiving financial value in setting aside their land.
Review of Colorado’s conservation easement program, based on spotty
information available from the Department of Revenue, shows the state
has as yet taken no interest in the distribution of easements. Easements are valued on the "highest and best use" of the land. Contested easement appraisals often depend on whether the "highest and best use of the land," such as residential development, will occur in this century. DOR works on the basis that if the development will not occur in any reasonable timeframe, then the value of the land is agricultural and the easement has no value.
State punted on setting up criteria for acceptable easements
Zogg’s view spotlights two unanswered questions in how the state structured the program. First, the state did not establish clear criteria to define development from which lands need protection, or a clear methodology to decide when land protection in a specific area may become a priority.
Second, the program’s runaway growth has taken at least $466 million out of the state’s general fund used to support public education, higher education, Medicaid, and other essential state services, even during the ongoing revenue dive. Only since 2011 has the state imposed an annual $26 million/year cap, which ends in 2014. The state still has not decided how much money or how much land it wants to see in easements.
SE counties received $558 million+ in farm subsidies on top of easements
At the same time as the easement program evolved into a half billion dollar program, some of the state’s so-called ‘poorer’ counties received over a half billion dollars in federal farm subsidies supporting agriculture in Colorado.
Baca County, on the state’s border with Oklahoma, received $321 million in farm subsidies from 1995 to 2009, with $109,555,350 from the Conservation Reserve Program, according to the federal Farm Subsidy database. The state doesn’t provide similar transparency for the conservation easement program, but it’s likely that many acres in the conservation reserve program are also in easements.
Baca County is home to Rep. McKinley. It has 4517 residents. Twenty-seven farms have received over $900,000 in federal farm subsidies, with three farms receiving a total of $13 million. Baca received over $12 million in farm subsidies in 2009. It had an unemployment rate of 4 percent in 2009 compared to the state average at 7.7. Even so, 27.4 percent of Baca’s children live under the poverty line.
Prowers County received $207 million in federal farm subsidies since 1995. Of that, $78,388,881 came from the Conservation Reserve program. Prowers has a population of 13,484. Twenty-seven percent of children live under the poverty line. It has 27 farms that received over $900,000 in subsidies from 1995-2009. The feds pitched in $7,796,102 in 2009. Prowers’ unemployment rate in 2009 was 6.3 percent that year.
Bent County is the piker of the three in the state’s southeast corner. Its population is 6,299. It received $50.6 million in federal farm subsidies from 1995-2009, with $11,348,000 in the conservation program. Three farms received over $1 million in subsidies and 19 farms got over $500,000 each. Bent has 32 percent of children living in poverty. Its unemployment rate is 6.6 percent.
Some easement landowners also catch large farm subsidies
Some individuals who testified in support of the bill to get landowners off the hook with DOR for alleged easement abuses are significant recipients of the federal farm subsidy program. John (JD) Wright, head of Landowners United from Akron in Washington County, has received over $600,000 in federal farm subsidies up to 2009.
Jillane Hixson of Lamar has received $109,000 in federal subsidies and Brian Wurst of Lamar, with his wife, has received over $700,000. Valerie Emick of Lamar, who testified that the DOR has had her credit garnished, has received $616,000 in federal subsidies. Kevin Goodwin, Otero County commissioner who testified about trying to create conservation easements around water rights for the whole county, is married to Ellen Goodwin who received $123,186 in federal subsidies.
Goodwin argued that the DOR wasn’t valuing Otero County’s water rights properly. “Our water has sought after value,” he said. “The state is trying to fit a round peg into a square hole.”
Landowners claim state broke its promise
These landowners claim the state has broken its promise. “Citizen landowners are going broke and are being sued by tax credit buyers,” said Jim Bucher, Pueblo subdivision developer with a contested easement. “I applied for the easement to do good. I wanted my grandchildren to know that we cared about the land.”
DOR says landowners aren't talking
The DOR sees the situation differently. It has tried to get landowners into mediation, but on the few occasions in which mediation has occurred, both sides remained far apart on tax credit value. DOR has sent appraisers out to get new appraisals and some landowners haven’t allowed the appraisers on their property. Some landowners would prefer to go directly to court rather than through a DOR mediation process. Looper's bill allows such direct court action.
With all sides standing in a circular firing squad, the committee punted on a vote on McKinley's bill. Looper's bill will streamline the process to resolve disputed easement tax credits, which, according to DOR, could take many years if it remains in the middle of the process.
In the meantime, the legislature continues to take a pass on developing any strategic vision or limits to conservation easements. It does have the $26 million per year cap on the program until 2014. DOR does provide more oversight, but as Phillip Horwitz of the DOR noted, taxpayers are always creative. PEN 4 19 2011