The Conservation Easement Wars moved on to Gettysburg when the state Department of Revenue (DOR) revealed on Wednesday results of its appraisals of 67 contested properties located mostly in southeastern Colorado. DOR has found that the average over value of these easements is 2876%, with four easements showing more than $1.3 million separating the landowner's appraised value from the state's appraised value.

Conservation easements allow landowners to set land aside into conservation trusts in perpetuity.  Landowners receive, in exchange, tax credits worth half the appraised value of the "highest and best use" of the property. The program currently allows landowners to put parcels valued up to $750,000 in trust and receive $375,000 in tax credits that they can sell.

Revenue has 600 easements in the crosshairs

The DOR is investigating 600 easements out of 3000 taken since 1999.  Colorado now has three percent of its land, over two million acres, in conservation easements with over 50 private and public conservation trusts.  

The state started the program in 1999 when it was estimated the easements would cost about $1 million in revenue annually.  The program was expanded to give landowners more return on the land exchange.  Since that time, the state has given up over $460 million in tax revenue. 

When the state changed the conservation program law in 2003, it did not put additional resources into DOR to monitor easement appraisals.  DOR became aware of the easement over-valuing in 2006-2007 when the federal IRS kicked back tax returns with over valued appraisals. Since that time, 67 investigations have produced over $15 million in contested tax credits.

$222 million in landowner liabilty on the table

With 533 easements to go, the state estimates about $222 million in landowner liability if every easement is valued at $0.  An easement hits the zero number if the "highest and best use" of the land is agricultural and is likely to remain agricultural for the foreseeable future.

Rep. Marsha Looper, R-ElPaso Cty, brought HB11-1300 to the House Finance Committee, which gave DOR the occasion to bring out its big guns.  For several years, DOR has been taking in-coming fire from landowners in southeast Colorado disgruntled by their treatment from the tax man. With the unveiling of the appraisal results, lawmakers can see the valuation Royal Gorge that separates landowners and DOR.

In one instance, a landowner took over $1.4 million on less than 50 acres of property.  DOR assessed the value at $18,000, a 7833% difference.  The total landowner assessed property value on the 67 easements is $42,520,000.  The state assesses the value at $1,478,000.

Landowners hang back, hoping for help from lawmakers

Landowners so far have resisted DOR's attempts to mediate the contested appraisals, preferring to hope the legislature will bail them out.  Rep. Wes McKinley, D-Walsh, re-sponsored a bill, HB11-1203, to let the landowners and their tax credit buyers off the hook for properties placed in easement through 2007.  That bill is in limbo and likely will go under, but landowners generally have gotten a sympathetic ear from lawmakers.

Looper's bill will streamline the easement litigation by allowing landowners the option to take their cases directly to the courts where they believe they'll have a better shot at winning.  DOR and the state attorney general say 'bring it on.'  They'd like for cases to go directly to court to get some resolution.

Revenue and attorney general want the cases in court 

The attorney general's office and DOR believe that if cases settle for the state, landowners will line up for mediation.  If cases settle for the landowners, then the whole problem will go away.

DOR asserts it has a strong position.  Phil Horwitz, DOR's point man, told the House Finance Committee that the CEOC has sided with its appraisers on most contested easements. 

Looper's bill puts a 2014 deadline on getting the cases through mediation or to the courts.  After that time, DOR will have to drop allegations and let the easements and tax credits go through.  In the meantime, interest and penalty costs accrue for landowners, and appraisal, mediation, and court costs accrue for the state.

The legislature still hasn't reassessed the program's overall value.  A cap on total easements per year was set at $26 million from 2011 to 2014 to reduce lost tax revenue during the recession.  Contested easements have mostly gone away since the oversight improved in 2010.  But lawmakers have yet to take a position on the distribution of easements across the state, easement priorities related to land development pressure, and what total percentage of Colorado land they ultimately expect to be taken off the development battle field.  PEN 4 20 11

 

This post was published on April 21, 2011. Permalink »