Farmers and ranchers seem to catch the best breaks from the State Legislature. In an act of bending over backwards that every contortionist would admire, the House voted to amend HB11-1300, a bill sponsored by Rep. Marsha Looper (R-Calhan), to resolve conservation easement tax issues. The amended bill absolves landowners of $67.9 million in interest and tax penalties accruing on contested easement tax credits.
The vote reduces landowners' potential tax liability from $222 million to $154.9 million, all in one swoop. The bill also exempts landowners from paying a surety bond to the court, removing a tool that keeps frivolous cases away from the judicial branch. What taxpayer with a contested state income tax return wouldn't want that deal?
Currently, landowners, like other taxpayers, must go through an administrative mediation process before litigating in district court. HB-1300 is designed to speed walk landowners past mediation directly to the halls of justice to get their tax cases resolved quickly.
Landowners claim the state has been slow to resolve their issues. The state's Department of Revenue says landowners refuse to negotiate, mostly because the discrepancies between state appraisals and landowner appraisals reach Grand Canyon territory.
Land value is the core of the easement tax credit. The state asserts that 600 easements should be disallowed because of over-stated appraisals. The state has completed 67 re-appraisals, and the picture isn't pretty. Many landowners took their credits based on the value of gravel on their properties near the Arkansas River. One landowner set aside 30 acres in perpetual trust, claiming $700,000 in value. The state appraised the same property at $7000, a 10,000% difference.
Another property owner put aside 20 acres appraised at $560,000. The state put the value at $4000. Of the 67 property appraisals, none exceeds 50 acres and three are 20 acres. Five properties exceed $1 million in estimated value, with the high at $1,710,000 based on fewer than 50 acres.
All but one of the 67 landowner appraisals reach six figures. On the state side, only three get to six figures, with $140,000 at the top. Two state appraisals are at $3000, with the landholder(s) claiming $670,000 on two, 40 acre properties.
Rep. Wes McKinley's (D-Walsh) HB11-1208 is even better for farmers and ranchers. This bill takes the landowners and tax credit buyers completely off the hook for any liability for the $222 million in taxes, interest, and penalties. The message here appears to be that if many citizens are involved in an alleged "tax scam," as defined by Peter Swartout of the Colorado Land Trust Coalition, then get a state legislator to run a bill to cut maximum slack.
Agriculture also caught some luck with HB11-1146, the Definition of Agriculture Land for Property Tax bill. Sponsored by Rep. Tom Massey (R-Poncha Springs), the bill causes two acres of land containing a residence to be appraised at residential property levels unless the residential unit can be certified as agricultural. This will bring in up to $22 million extra in local property tax. This is the best deal that Massey could get.
Many other millions in tax dollars will be left off the table if landowners can prove that a goat or two is chewing down the grass on the ranchette or some minimal amount of hay is grown to feed a few horses.
School districts lose out when residential land is appraised at ag rates. Poor Weld County opposed HB-1146 as it needs more land assessed at residential values. Its school district is operating on fumes, even though the County's farmers have received millions in conservation easement tax credits and federal farm subsidies as well as many breaks on residential land sliding in as ag land. HB11-1146 bill is on its way to the Governor.
Farmers and ranchers also may benefit from HB11-1005, a bill to reinstate the tax exemption for agricultural products. Known as the "bull semen" bill, it will allow farmers and ranchers to buy bull semen and pesticides in Colorado without paying sales tax. The savings are small in ag terms, only $3.7 million, but every little bit helps.
HB11-1300 will next move over to the Senate where it will be rushed through hearings to beat the end of the 2011 General Assembly session. It's unclear whether McKinley's bill will move forward. Even so, farmers and ranchers are licking their chops. They've already probably knocked off $67.9 million from their potential bill, a satisfying start, they reckon.
This post was published on May 3, 2011. Permalink ». Comments are disabled at this time.
In the ongoing saga of conservation easements, it now looks like the state will have to spend over $6.6 million to collect on $222.8 million in questionable conservation easements taken during the 2000-2007 conservation easement free-for-all.
Rep. Marsha Looper's (R-Calhan) HB11-1300 is up for second reading May 3 in the House, and if the bill passes, it creates a "go straight to court" shortcut for landowners whose easements are contested.
Easements overvalued up to 14000%, says state
The state's Department of Revenue has haggled with landowners for about four years to recover lost revenue from tax credits derived from the easements. The most current easement property review shows 600 dicey easements, one of which the state believes is 14,000% over valued.
HB-1300 will allow consolidation of cases so the state can fast forward their adjudication in the civil courts. Overall, the state will have to put six judges on the cases, spend $2.070 million on appraisers and appraisals, and hire 18 people to manage the litigation. Another $400,000 will go to travel expenses.
Currently, landowners are racking up interest and penalties on the claimed tax credits: the tax credit liability is about $155 million, with an additional $18.6 million in penalties and $49.3 million in interest.
Appraisers, lawyers, accountants, tax credit merchants will do well
Appraisers are the lucky ones in this deal. Landowners paid some appraisers for the allegedly overstated property values. Now different appraisers will go in for the do-over. Of 67 appraisals currently completed by the state, the average over-valuing is 2876%, or $1,478,000 from state appraisals v. $42,520,000 from landowners' appraisals, with 533 appraisals to go.
The state has to find the money to fund the clawback. Apparently, an amended bill will reduce the $26 million conservation easement cap set for three years from 2011-2014 to gin up the dollars. The easement cap will drop to about $22.5 million each year for 2011-12 and 2012-13. It will pop up to $33 million in 2013-14 so landowners, land trusts, appraisers, accountants, lawyers, and tax credit buyers can recoup the lost revenue from the earlier two years.
Landowners could negotiate, but prefer Judge Judy
Meanwhile, landowners could save themselves and the state the trouble by negotiating with the Department of Revenue. But most landowners have decided not to take that route because of the huge disparity in appraisal value. They also hold hope that Rep. Wes McKinley's (D-Walsh) bill, HB11-1208, that affirms the tax credits and takes landowners off the hook, will pass.
Added to this is a core issue with the program itself. Much of the value of the contested property is in gravel from the Arkansas Valley. Some question whether protecting gravel is an appropriate use of easements, no matter how the property is valued.
In any case, if the bill passes, landowners will not have to grovel for their gravel - they will have their day in court. PEN 5.2.11
This post was published on May 2, 2011. Permalink ». Comments are disabled at this time.
Rep. Amy Stephens, House Majority leader, has mystified some legislators with her two health care bills, HB11-1273, which passed the House Health and Environment committee, and SB11-200, which got through the Senate on third reading. If both bills pass, unlikely but possible, the state may go in two completely different directions with health care.
HB-1273 is close to Stephens' heart and mind. It will yank Colorado out of "Obamacare," the GOP term for the Patient Protection and Affordable Care Act (the Act) passed by Congress in 2010. It will eliminate Medicare and Medicaid as currently provided, turning both into "block grant" programs administered by the state. The bill was passed by the committee on a 7-6 party line vote in about three hours. Its next stop is House Appropriations.
Online health care exchange v. vaporized Medicare/Medicaid
SB-200, co-sponsored with Sen. Betty Boyd, D-Lakewood, will set up online health care exchanges, offered by the state, to enable individuals and businesses to compare health insurance plans for price and coverage. The bill was put together in a cooperative effort by business interests and public health care advocacy groups.
No major players from the business community testified in favor of HB-1273, though some sat stoically in the committee room.
Stephens and HB-1273 co-sponsor Rep. BJ Nikkel, R-Longmont, flew in Mario Loyola, a consultant from a Texas free-market think tank to lecture the Colorado H&E committee on the US Constitution's 10th amendment.
HB11-1273 relies on US constitution 10th amendment
The 10th amendment lays out the Constitution's principle of federalism. It provides that powers not granted to the federal government or prohibited to the states are reserved to the states and the people. Loyola argues that Colorado can use the 10th amendment to duck out of the federal Act, and any other federal health care law, to join with other states in an "interstate compact" to provide health care. The interstate compact would act in a manner similar to the 1930 Colorado River Compact that allows states to divvy up Colorado river water, Loyola says.
The bill doesn't identify the other states that might join the compact. It does say that the legislature will put together a health care program funded by approximately $8.97 billion comprising all the state's tax money for Medicaid and CHPS+ from the general fund, and from Medicare via FICA taxes. Rep. John Kefalas, D-Ft.Collins, says that $8.97 billion will not be nearly enough, as the state's real health care costs are over $30 billion.
Texas expert for 1273 v. Colorado expert against 1273
The bill will face other challenges at the federal level, as interstate compacts must be voted on by Congress and signed into law by the President, even though Loyola said that the 10th amendment doesn't specify the President's role. Scott Moss, a University of Colorado law school professor not from Texas, told the committee any interstate compact will definitely require passage by Congress and a President's signature.
The state's Tea Party challenged the HB-1273 as too much government. Rick Barnes came down from Craig, Colorado representing the Bears Ears Tea Party Patriots and other Tea Party groups. "This bill puts more government into health care at the state level. We're taking a stand on the principle of limited government."
HB11-1273 called 'right wing' strategy
Dede de Percin, executive director of the Colorado Consumer Health Initiative representing 50 health care organizations, says the bill presents the "right wing" national strategy of the American Legislative Exchange Council (ALEC), "not a Colorado strategy." "The people of Colorado weighed in with Amendment 63," says de Percin, citing the 53% vote in 2010 supporting the federal health care law.
Stephens reminded de Percin not to slur ALEC with the "right wing" appelation. ALEC is "one of many think tanks supporting this."
HB11-1273 takes out Medicare for states' rights
Others who object to the bill include the AARP and the Colorado Center on Law and Policy (CCLP). Elizabeth Aranales of the CCLP said "dismantling Medicare and Medicaid is an enormous policy discussion, and that's the direction this bill takes us in. The implications on policy are extraordinary."
Aranales listed numerous questions that emerge, unanswered, from the bill. "What will be the base funding for health care in Colorado"; "are we exempting ourselves from large federal funding that goes to health care"; "what will be the duties of the interstate commission" that helps to administer the compact; "what other states are going to be a part of the compact"; "what are we doing here that will be helpful"?
Two Stephens health care bills in the pipeline - which will come out?
The state will have more flexibility, Nikkel says, and "we can follow the will of the people" by having government "closest to the people" deliver health care. To which Barnes from Craig says hooey. "This bill furthers government interaction with health care... Let's bring everything back to the people."
SB-200, meanwhile, much narrower in scope and retaining Medicare, Medicaid, and CHPS+, moves on to the House. No one is sure how Stephens will vote on that bill. PEN 4/26/11
This post was published on April 26, 2011. Permalink ». Comments are disabled at this time.
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 ». Comments are disabled at this time.
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
This post was published on April 20, 2011. Permalink ». Comments are disabled at this time.
