Bacon's Rebellion

Giving Credits Where Credits Are Due

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by

James A. Bacon
in

Peter Galuszka has filed a Road to Ruin story about the dispute over the use of tax credits as an incentive for landowners to create conservation easements. The environmental community defends the tax credits as one of the most cost-effective tools available for protecting valuable open space, viewsheds, watersheds, habitat for endangered species, and properties of historical value. Conservation easements cost a fraction of buying land outright, and they don’t trample on property rights.

On the other hand, there are legitimate issues associated with the tax credits. The liability to the state has soared, reaching $130 million in 2004. And the program, which is little policed, is subject to abuse and manipulation by unscrupulous landowners. Despite their disagreements, it appears that the Senate and the House of Delegates are groping toward a reform of the program and a compromise that would cap the amount of tax credits granted in any one year.

As an aside to readers who love inside political baseball, the article provides details on the $28 million in tax credits claimed by the Silver Companies, developer of the Celebrate Virginia project in Fredericksburg. From what we hear, Sen. John Chichester, a moving force behind the tax credit crack-down, is not a big fan of Silver Companies developments, which have unalterably changed the face of Fredericksburg — many would say for the worse.

A final observation, filed in the “Irony” folder: the Silver Companies are the prime driver of the kind of dysfunctional settlement patterns in the Fredericksburg area that the conservationists are so opposed to.

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11 responses to “Giving Credits Where Credits Are Due”

  1. Anonymous Avatar
    Anonymous

    The Senate’s position to allow the program but to set some reasonable limit on the credits has merit. A cap of $600,000 in effect wipes out the state tax liability for $10 million in taxable income. That is more than enough to provide incentive to a family farm or somebody who hold substantial undeveloped tracts. The worst thing about the standoff is that needed controls on the appraisal process, which were not really in dispute, died with the bills.

  2. Tom James (aka Brave Hart) Avatar
    Tom James (aka Brave Hart)

    State Fair takes advantage of open space tax credit.

    http://carolinejustice.blogspot.com/2006/04/more-on-state-fair-emailed-to-me-by.html

    $17,000,000 million from Richmond/Fredericksburg maintenance budget, for “Driveway” for State Fair.

    State Police providing security.

    Caroline taxpayers providing everything else with tax dollars.

    Tim Kaine’s law firm representing State Fair.

  3. Larry Gross Avatar
    Larry Gross

    I would agree that there are some legitimate issues with the land conservation tax credits.

    Two would be the land appraisal process and then whether or not the land is actually “developable”.

    The basic law is good and I’ma amazed that someone of Howell’s caliber allowed that legislation to be written without those important safeguards as part of the law.

    But I’d strongly disagree with the words about the Silver Companies – in spades and I do from from a perspective of one who not only lives in the area but one who knows how the Silver Companies operates.

    FIRST – The Silver Companies is PRIMARILY a developer of Commercial Real Estate .. AND mixed-used development.

    They did a First Class job on Central Park in terms of infrastructure. They Master Planned the infrastructure AND they set up a CDA for each tenant to pay their fair share of the infrastructure.

    We would be so lucky that our local residential developers will do the same with their developments instead of maximizing rooftops and minimizing their contribution to transportation and school needs – directly associated with their development.

    The Silver Companies IS in business to make money and they do, very much take advantage of whatever incentives are offered and they did so with the tax credits for a substantial conservation easement along the banks of the Rappahannock River.

    They also agreed to set back their commercial development far enough so that it cannot be seen from River level.

    In addition, they have incorporated Best Management Practices for Storm Water to include LID (Low impact development) engineering – which is not cheap – and they were not forced by law to do it. They did it voluntarily after being approach by the local River group to help establish a model for other developers in the area to follow.

    In their latest commercial development – they set up a CDA to deal with traffic external to their property to include Route 1, Route 17 and I-95 to include a new bridge across I-95 and a reserved footprint for a new interchange and a substantial cash contribution towards that interchange.

    If I were to point to a developer who tried to do things right for the community – I’d be hard pressed to find another developer that does better than them.

    Are they the best thing since sliced bread? Nope – but they are a long way from your typical “evil” developer.

    In my opinion, THAT is what is wrong with the current public dialogue with respect to land-use and transportation.

    Developers .. MUST be part of the solution. They must be part of any dialogue that supposedly wants to find a “better way”.

    When we demonize developers in general – we are driving them back towards their more cynical (and effective) brethern that show up every year at the General Assembly to slice and dice proposed legislation that could help lead us to better approaches to growth and transportation issues.

    I would urge that its important to identify GOOD developers who are willing to pursue good development practices and use them as a community model for other developers to follow.

  4. Big Survey Avatar
    Big Survey

    There is no question that there have been abuses. Gross overevaluation and mis appraisal of property values has been established on more than one occaision.

    However, the conservation easement program is a sound one–in theory at least. Conserving open space by the owners voluntarily granting a perpetual easement is certainly preferrable to the route of eminent domain or other methods.

    Solving the abuses by capping the total amount of easements that can be granted, however, is a solution that may work serious inequity as well as not addressing the problem of near fraudulent overevaluation of the easement.

    The inequity would lie in that the more expensive easements would “soak up” the available credits under the cap leaving some very worthy but less expensive easements unfunded and ungranted.

    Conservationists in Western, Southwestern and Southern Virginia rightly fear that the more expensive easements in NOVA , Tidewater and North Central Virginia would exclude less expensive and more accurately valued easements in their areas.

    The proposals of Senators Hanger and Watkins to establish a per easement cap coupled with some strict standards for appraisals and review of appraisals is a more reasonable approach and one that seems better designed to make certain that the easements are both proper in evaluation and distributed in a geographically equitable manner.

  5. Paul Avatar
    Paul

    I deal quite a bit with easements in my other life, and I can tell you that while there have been abuses, some of them have been exaggerated.

    The best solution is the attack the abuses but keep the easement program intact, perhaps with a cap.

    Trust me, after two Washington Post stories, you can’t get away with what you used to…the IRS is watching…

  6. Ray Hyde Avatar
    Ray Hyde

    Some years ago I attended a presentation given by a representative of the Virginia Open Land foundation, I believe it was sponsored by PEC. Much of the presentation was based on the idea that removing land from development helped keep county costs low. During the question and answer period I raised the issue that at some point, puting aside too much land would raise overall costs. I asked the presenter if VOLF had ever done any such analysis, or when would VOLF assume they had enough.

    The expression on her face showed utter surprise (that someone would ask a question perceived as antagonistic) combined with confusion, as if to say she had never thought about it. “Well”, she stammered, “I don’t think we have anywhere near enough.”

    That may be. But as the article points out, at some point you start to shoot a hole in the tax base. As a rule, land under conservation easements is taxed at the lower land use tax rates. Those lands comprise far mor than just land under easement, but one tax analyist concluded in a 1990 paper that land use taxation in Fauquier county resulted in overll taxes that were higher by 24 to 28%.

    In fact, he noted, land use taxation may work against some farmers because only land is covered, not farm infrastructure. Because of the higher overall tax rate a farmer with lots of infrastructure, like a dairy farmer or vineyard, may pay higher taxes than he would absent land use.

    In the case of the land noted in the story, the easement is interior to the rest of the property. Effectively, this makes that land a private park for the enjoyment of the residents of the development. In some cases, even golf courses have been claimed under conservation easements.

    Another common strategy is to grant a conservation easement around the perimeter of a property, while excluding enough of the interior to exercise the development rights. This tactic provides a tax favored privacy buffer for the owner and allows him to keep his development rights.

    In a sense, it is the ultimate in what Jim Bacon calls pods. In no way can this be called a way to reduce scattered and disconnected development.

    While the developer in this story claimed there was no quid pro quo, that is not always the case. sometimes a landowner will get a few extra development rights in an unstated exchange for the granting of an easement. In other cases, even if he has by-right development “rights” granting aneasement on the remainder of the land is a prerequisite in order to exercise thos “rights”.

    An even more egregious condition can occur. If a landowner has a problem under the endangered species act or some land use infraction, he may be offered the “option” of granting an easement rather than facing a protracted lawsuit and enormous fines. Either of these two conditions could amount to an abuse of power, or virtual extortion, depending on the conditions and your point of view.

    From my point of view, an even worse situation is that described by Chris Miller. The tax credits also are a less expensive way to preserve land than buying it outright. This strikes me as an argument that cannot be used effectively by an organization that preaches that users should pay for what they get. As it stands, many parks are underfunded and are increasingly relying on corporate sponsors (who sometimes reserve the parks for their own use) as a means of funding. If we cannot “afford” to maintain the parks we have now, and if we cannot “afford” to buy the land that most needs to be preserved, then why would we want to take on more land to manage, and why do we insist that the land is so valuable?

    Even worse, as Miller notes A typical easement, he notes, reduces the value of a tract of land by about 20 to 30 percent and the state tax credit allows for the transfer or sale of only half that reduction in value. It doesn’t seem to me that promoting a plan that you recognize is a rip-off to the land owner is one that is going to ever get the maximum traction. It only “benefits” those that can afford to take a large real loss, or don’t care for some other reason. I have seen a number of easements granted by elderly farmers whose children were not interested in farming.

    Furthermore, even the American Farmland Trust concedes that easements don’t guarantee that farming will continue. In fact, they may interfere with farming, depending on how the easement is written, and enforced. I know of one case where a farm was put under easement. Years later the farm was inherited in the family and run as usual. But the management of the easement holding group changed, and they now objected to farming practices that had previously continued unchanged since the easement was granted.

    Over the long term, conservationists argue, easements help reduce infrastructure costs by discouraging development in inappropriate places. State and local governments save money on building unnecessary roads, water and sewer lines and other amenities. Well, nice try, but it doesn’t seem to work that way. Because there is little coordination in how lands are placed under easement, because easements are voluntary, and because of the issues noted above, easement may actually promote scattered development. they may even promote more development near the easements: we have all seen ads for land “adjacent to protected land” or parks.

    Even worse, is the situation where easements are used to create greenbelts around rural (or even non-rural towns). In Fauquier County, officials are aggressively seeking land for easement around their service districts, and will preferentially spend their PDR moneys that way. This would seem to be a plan that will eventually fly in the face of the idea that easements help contain infrastructure costs, and it shows the true intent overall: stop development at all costs, particularly if the costs can be shunted to someone else.

    What was that argument about subsidising bad choices? Seems to me that it cuts both ways. I actually think preserving land is good idea, but scattered preservation of land can only lead to scattered use of land, and it may lead to preservation of land that is of little real value or use as open space. Just because you don’t pay full price, doesn’t mean you are getting a bargain. If we pay full price for land we think is valuable enough to preserve, we will make better “choices” about where we choose not to live, just as paying full price will encourage people to make better “choices” about where they do live. If we pay full price for land we wish to save, we will pay only for the land that is really valuable, and it will be available to us to use. Instead, we are paying for land that remains private, which seems to be a subsidy in itself, and that subsidy largely goes to those that some think live in the most dysfunctional places!

  7. Big Survey Avatar
    Big Survey

    Ray Hyde makes some good points and outlines some of the abuses that can happen when there is no effective oversight.

    His concetration on Fauquier County and the Piedmont Environmental Council, however, underscores the point that an overall statewide cap might be counterproductive. Smaller land trusts in “outlying areas” would tend to get squeezed out under such a system.

    His question of the PEC lady is another matter. Her reaction is similar to those I received at times when I didn’t want to go along with the “conventional” result. But while there may be too many “conservation areas” in a county like Fauquier I can assure you that there are plenty of counties in western, southwestern and southide where this is not the case.

    There are some areas where the national forests take up a large percentage of the county land mass (Craig for one) but those are the exceptions and I agree that some rules must be established to protect the tax base. But in most areas we are not about to hit Ray Hyde’s “Point of Dimishing Tax Returns”(Hmmmm….April 15th is always my point of dimishing tax returns–but I digress)

    But there are also areas along the Blue Ridge Parkway that need to have some protection for the view. Failure to protect the views in those areas may result in economic harm to counties and cities along the Parkway. Few of us would have the Parkway go through a subdivision or office park. Even fewer would want to take that “scenic” drive.

    Somewhere there should be a happy medium. How about a cap on individual easements, a central preapproval process with local comment? Just for starters.

  8. Larry Gross Avatar
    Larry Gross

    Ray has said a LOT and am trying to understand if the underlying philosophy is that land conservation is not a good thing or whether the abuses or, in fact, at issue.

    Let me address one of the issues about the WHO of such easements. I attended a recent seminar on land conservation that had a number of players present including the Trust for Public Land, VOF and the Albemarle County PDR person.

    He stated that in Albemarle, elgibility is determined on a sliding scale tied to family wealth and income and that the priority order is to favor those with little wealth or income but land rich on a percentage basis.

    He said the purpose was to set aside land where the family still wanted to live on the land but could no longer afford the taxes when it came under development pressure.

    This is a very different approach than that used by the Facquier PDR program – which seems most successful with wealthy land owners.

    And I agree with another of Ray’s points about what happens to the land after it is set aside – and would agree that land set aside for public use and enjoyment should be a higher priority than land set aside as (he termed it) private parks.

    And there is another perversion in that developable land ADJACENT to set-aside land becomes one of the most sought-after and valuable amenties for homes – a protected backyard “buffer”.

    In Spotsylvania County, the MOST valueable land.. is… land that backs up to the National Park Service Battlefields, reservoirs and other non-developable land/water.

    I’ll cover the philosophy issues in a follow-up.. to keep this short.

  9. Larry Gross Avatar
    Larry Gross

    re: philosophy of the wisdom of setting aside land from development.

    I’d guess I’d have to ask if a mistake was made when Prince William Park was “set aside”…
    and other Regional Parks in the NoVa area, bike trails, Battlefields in Spotsylvania, River Corridor Greenways,
    Lake Anna State Park… the Caledon Eagle Sanctuary, etc ?

    Mistakes.. any or all?

    Land set aside today in conservation easements is NOT necessarily precluded from being utilized for such purposes in the future (or are they?)

    But I suspect Ray’s point is that without rhyme or reason.. land is being set aside.. for private purposes that has no direct public value or use other than to benefit the owners – and that without some cogent bigger-picture “plan”.. that we’ll eventually end up with a gazillion smallish parcels of land.. that either no one wants or is responsible for OR.. they have become defacto private preserves.

    Now.. I’m quite sure the folks who live in the mountain scenery parts of Loudoun and Facquier.. and other counties will point out that everybody benefits from the preservation of the “viewshed”.

    But I’d be remiss to Not point out that landowners can set aside selected parts of properties – and not others and those not set aside become extremely valuable by appreciating greatly in value.

    But all things equal.. if a landowner is making such choices on a willing seller/willing buyer basis… i.e. not force to do something with their land – then why is land set aside a concern if land that abuts it will go up in value? Won’t the localities still benefit from the increased taxes of properties not set aside?

    and .. let’s talk landowner “rights”. Should landowners have the “right” to NOT develop their land ..??? and NOT be penalized for doing so.. by higher and higher taxes based on the concept of “best use” which only values land that is “productive”.

  10. Ray Hyde Avatar
    Ray Hyde

    My concentration on Fauquier and PEC is only because that is what is familiar to me. I’m sure the conditions are different in other areas. They are even vastly different between southern Fauquier and Northern Fauquier.

    My only intent is to raise the questions, in order that we don’t fall into a situation where, like now, we look back at what planners did and ask what they were thinking. I know of one town that established a greenbelt with permanent easements, and later had to work to get the easements removed, in favor of an affordable housing plan. It is not only tax returns that hurt us.

    It is kind of amusing that we want to promote denser and transit oriented development in order to reduce driving and save open space – in order that people can then go on a scenic drive. I’ve said before, that if the powers that be want to put me in the business of providing scenery, then they need to figure out how to become a paying customer: you don’t get to watch the movies for free.

    In one respect, we have looked the other way on tax abuses, because we believe we are getting a good long term deal on preserving the land, even if the current owner takes a bit of a short term cheat. Like immigration we looked the other way on law enforcement because we knew we were getting a good deal. Eventually too much of a good deal works against you, or even if it is still a good deal,it causes other problems.

    There should be a happy medium, and it should be happy for everyone involved. The claim is made that we are saving “our” open space and vistas for the public good. If that is the case, then there should be no need to excessively use the cheapskate approach. If you can’t pay off the losers and still come out ahead, then there is no real public benefit. It is a perfect example of the input output diagrams I described in another post.

    The popularity of easements is also explained by the kind of sentiment described in JAB’s description of the situation in Poquoson. We now have almost a rabid hatred of development and developers, even when they are doing a pretty good job. And that sentiment is seen everywhere, from TMT’s complaints about supersizing Fairfax to tiny little towns in Utah. But the downside is that, as Glaeser and others have shown, it has a dramatic effect on home affordability.

    This weeks Fauquier Democrat is a tableau in point. On the Op-Ed page we have a county supervisor justifying the huge increase in tax expenditures, partly exacerbated by decision made in the wake of a two year argument over the next new school. Yet his argument is that Fauquier has not done enough to restrain growth, in spite of a forty year anti-growth campaign, continuously more stringent regulations, and an ample number of easements.

    On the front page is the headline “6500 Homes, Right Next Door?” Well, OK, but aside from the fact it is not our jurisdiction, where did you think they would go, since they cannot come to Fauquier?

    Then in the letters to the editor is a gentleman complaining about how inadequate the county’s new auxiliary home regulation is, and how hard the situation is for those that need a moderate priced home. Apparently, the county claimed that because the front porch (on the second home he built for his son’s family) was 6’6″ deep instead of 6’0″, that it counted as interior space! This on a home that is limited to 1200 sq ft. (recently increased form 900, but I’m not sure about the exact numbers). His comment was that if the officials thought it was interior space, they were welcome to come live there next February.

    And that is a perfect example of what Big Survey said about finding a happy medium. We are squeezing a balloon: every input is somebody else’s output. Whether you have developers or conservationists working on the cheap and skirting the rules, the end result is going to be substandard.

    In fact, I have made the argument that conservation is luxury, and it takes a good economy to be able to afford it. Look at the difference between Haiti and the Dominican Republic: on the same island you cansee the difference in the economies in the saatellite pictures. In fact, conservation is at least as expensive as development, once the true allocated costs are examined. Only when we recognize that will we be able to plan and budget for the best possible results.

  11. Ray Hyde Avatar
    Ray Hyde

    Larry is right, if it is truly a free decision, then who cares and who are we to argue?

    One problem we have is when it is not free. For example, under county rules, I am only allowed to develop 15% of my land. Those rules protect the other 85%. Nothing can be built there. Yet,in order to build on the first 15% the county will require that I place a permanent easement on the remaining 85%.

    This hardly strikes me as free, yet the county still claims easements are voluntary. If I am already prohibited from building on the other 85%, then why is the easement required?

    It is because the current board is trying to enforce their will on future boards. By forcing an easement they abdicate the authority of future boards to consider the use of that land, and effectively remove the ability of future citizens to vote for people who will support their preferences at that time. The current board is reaching out of their grave to enforce their current plans on the future residents, even if it turns out badly.

    We may not like the sprawl that confronts us, but at least we can change it, if and when we choose. But how would we feel if those that planned our worst examples of sprawl had slapped permanent easements on them?

    The difference between a park and an easement,is that the park belongs to us, we can use it now, and we can decide to change the use later,if we decide the needs are different. This recently happened in Maryland, when the state wanted to sell land to raise money: just like any other landowner.

    But if we put the land in easement, we have permanently abdicated control, and it can only be changed by a court of law. In that event, the easement owners will want to be compensated,and handsomely. (Notice the similarity here with a landowner who complains about eminent domain.) I believe that eventually our needs will change, and as a result our current development of easements will turn out to be the full employment act for our grandchildren’s lawyers.

    At present those that promote easements are careful to note that the land remains private, however, any kind of easement can be written, and certainly if someone offered hiking trails or some such thing the easement holders would be happy to accept.

    There is some evidence of movement afoot to require certain kinds of public access, in some cases. It doesn’t take a lot of imagination to see where that is heading: it could eventually become a kind of hikers and fishermens eminent domain targeted toward easement land. After all, if a park has the ability to control land that is in its viewshed, or a military base can control land use outside its borders. If we start treating “our” easements the way we talk about “our” views and “our” open space, then we are headed down the path of a lot of fuzzy thinking.

    I don’t know what it takes to become an easement holder, and surely there are safeguards in place to prevent VOLF or other large organizations from making sweetheart deals. But suppose you had a family held company which chartered itself as a conservation group, which then accepted a conservation easement from the family property. The family could then run, or amend, the conservation easement any way it liked.

    That company is a corporation, with a board of directors. They might accept other easements from outside the family.

    What happens when there is a corporate takeover? Why couldn’t that happen for a corporation that was rich in control of land, just as it happens to companies that are cash or asset rich? What is to prevent the unscrupulous owner of an easement from putting undue pressure on the landowner to sell? Most easements place the burden of cost for leagal action on the landowner.

    Another problem is that easement owners only control the conservation aspects of activites of the owners of the land, they are not set up or funded to actually control the land’s environment. Suppose an owner dies intestate, or the future owners are absentee and could care less about it, other than paying the taxes. The land becomes a surreptitious dumpsite, and a nuisance to the (new) community that has grown up around it; who is responsible?

    These are the darkest possible scenarios, but some of them have already happened. If it was up to me, I would prefer to see public money spent for public land.

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