Conservation Easements in Maryland: Analysis of this Land Conservation Tool
Submitted by Janet Mackey Revised May 14, 2004 PUAF 740: Public Policy and the Environment
Contents 1. Introduction 2. Conservation easements as a land protection tool A shift to protection of private land Land trusts and land protection techniques Conservation easements – Conservation values – Tax benefits Responsibilities of land trusts as holders of conservation easements – Acquisition of conservation easements – Monitoring – Enforcement 3. Trouble on the horizon? Concerns about the use of easements Are the right lands being protected? Can stewardship of the protected land be ensured? What does it cost the public to protect lands with this tool?
4. The use of conservation easements in Maryland Protected land in Maryland Easements held by Maryland Agricultural Land Preservation Fund and Maryland Environmental Trust – Benefits to the public – Public costs o Acquisition costs o Tax incentives = revenues foregone Assessment of the use of conservation easements in Maryland
5. Conclusion and Recommendations
1. Introduction Conservation of private land in the U.S. has exhibited rapid growth in recent years. By the end of 2000, local and regional land trusts protected more than 6.2 million acres of private land in the U.S. – about the size of the state of Maryland -- which more than doubled the amount of land held by these trusts just a decade earlier. Of that acreage, 2.6 million acres is protected by conservation easements -- a five-fold increase over the amount of land protected by easements in 1990. Although the first conservation easement was established in the 1890s, it was in the 1990s that use of this conservation approach really took off. The rapid increase in the use of this conservation tool raises a number of public policy questions relating to the balance between the conservation values these protected properties provide to the public and the costs borne by the public of acquiring and maintaining the easements. Most of the literature on land trusts in general, and conservation easements in particular, tends to tell a positive story. There is much praise for the amount of land under easement protection to maintain open space, working farmland, intact forest ecosystems, and healthy wetlands; and there are many articles explaining how landowners can benefit from income tax, property tax, and estate tax reductions by putting conservation easements on their land. There is, however, another body of literature that paints a less favorable picture about conservation easements as a land preservation tool, with cautionary articles that point out potential problems with the use of conservation easements. The major areas of concern include choices made as to which land is protected, the ability of land trusts to ensure appropriate stewardship of the protected land, and the use of public funds – both public expenditures and tax revenues foregone – to acquire and support the easements.
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This paper examines the recent growth in conservation easements in light of this body of “cautionary” literature. The purpose is to highlight areas where public policy may need to be strengthened to ensure that society receives the maximum benefit from this increasingly popular land preservation tool. This examination does not conclude that conservation easements are a poor land protection tool nor that land trusts are inadequate to the task they face. Rather, by stepping back from the flurry of activity, it offers some suggestions to minimize the risk that society might squander the wealth represented by the recent increases in land protected by conservation easements. 2. Conservation easements as a land protection tool Until fairly recently in U.S. history, land preservation was seen as a public responsibility more than a private one. In the eastern U.S., the Federal government, through agencies such as the National Park Service and the Forest Service, acquired land to be used for the benefit of the public. In the west, the land never went out of public ownership. State governments acquired land for parks and nature preserves. And local governments regulated how land could be used through zoning. As the 20th Century drew to a close, though, Americans began directing greater resources towards conserving private, rather than public, land. A Shift to Protection of Private Land A number of factors contribute to this recent shift to protect privately-owned land from development. First, there are landowners who want to continue to own their land but want to ensure it won‟t be developed in the future. Urban and suburban sprawl has led people to recognize that important lands could be lost to development forever if prompt action to protect the land isn‟t taken. Many landowners have looked for ways that they could ensure that the land
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they cherished wouldn‟t be developed when they no longer owned the land. At the same time, land prices were driven up by the pressures for development, increasing property taxes. This led some people to question whether they could afford to continue to pay property taxes and whether their heirs would be able to pay estate taxes when the land transferred to them or whether they would rather sell some of the land to developers to pay the taxes on the rest. The granting of conservation easements is a means of significantly reducing future property taxes. Second, people began questioning whether government agencies were the appropriate entities for this land protection task. Higher land prices meant it was more difficult for any level of government to set aside funds for land acquisition, especially in the face of increasing budget pressures. Even when funds might be available, government agencies were not always nimble enough to meet the timetables created by developers with private funds ready to purchase available properties. And, compounding bureaucratic delays was a growing disillusionment with the government as a land manager both by people who distrusted the government‟s commitment to continuing to preserve the land and by those who didn‟t believe the government should be in the business of acquiring land for conservation purposes. This disillusionment meant that some landowners would be unlikely to donate their land, or even a conservation easement on the land, to a government agency. Additionally, it led to a preference by some for conservation easements rather than land sales because the easement land remains on the property tax rolls, even if at reduced rates, and does not disappear entirely as a source of local funding. Finally, conservation biologists and others scientists and planners have been stressing the importance of protecting entire ecosystems to protect biodiversity. This ecosystem orientation placed importance on protecting contiguous properties, despite their ownership. The 1990s saw more emphasis on the development of plans to protect the green infrastructure in a community Page 3
and to establish greenways to protect the habitat and migratory paths of various species, both animal and plant. Since most of the land in the U.S. is privately owned, conservationists turned to land protection tools that were appropriate for private lands. Land Trusts and Land Protection Techniques Land trusts are “local, state, regional, and national nonprofit organizations that have been set up for the primary purpose of holding title to land or easements on land for conservation purposes,” according to the Land Trust Alliance (LTA), a national organization that encourages protection of land by local and regional land trusts across the U.S. (LTA website). Two key points in LTA‟s definition are that the trusts are nonprofit organizations and that their primary purpose is to conserve land. In addition to local and regional land trusts, there are international land trusts such as The Nature Conservancy, national ones such as the Trust for Public Lands, and state trusts such as the Maryland Environmental Trust. The number of local and regional land trusts has grown more than 40% in the last decade, to 1,260 land trusts as of 2000 (Figure 1). Figure 1: Growth in the number of local and regional land trusts
Number of Land Trusts
1,400 1,200 1,000 800 600 400 200 0
19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99
Source: Land Trust Alliance, 2001.
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Conservation Easements Land trusts have three primary tools that they can use to protect land. They can (1) own the land, called “fee simple,” by buying it or having it donated, (2) purchase land as “pre-acquisition” with the intent of transferring ownership to a public agency either as a sale or a donation, or (3) take a conservation easement on a property, again either by purchasing the easement or having it donated. The LTA conducts a periodic National Land Trust Census which documents growth in the overall number of acres protected by local and regional land trusts (Figure 2). While total acres protected between 1990 and 2000 tripled, the number of acres protected by conservation easements grew nearly 5-fold, showing the increasing importance of this land conservation tool. Figure 2: Growth in acreage protected by local and regional land trusts
7
millions of acres protected
6 5 4 3 2 1 0 1990 2000
Owned Transferred Easements
Source: Land Trust Alliance, 2001. A conservation easement is a legal agreement between a landowner and a land trust or government agency that restricts the use of the land to protect its conservation values. The landowner gives up certain of his or her property rights, such as the right to develop or subdivide the property, to the land trust yet retains all other ownership rights and responsibilities. The landowner and all subsequent owners of the property are bound by those restrictions, and the land trust is responsible for monitoring and enforcing the restrictions.
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Benefits: Protection of Conservation Values Conservation easements, by restricting development on the property, are intended to provide benefits to the public. These may include recreational and educational opportunities, where easements permit public access. They may provide access to scenic views or open space. Often property owners or land trusts restrict public access to protected land because of what the Nature Conservancy refers to as “the fragile ecology” of the lands, where permitting public access could reduce the conservation value of the property. Even where they don‟t provide public access or view, easement properties provide a broad range of ecological services to the public such as storm water management, improvement of air and water quality, wildlife habitat, and nutrient cycling. There is some evidence that conservation easements increase property values on neighboring land, which would contribute to the local tax base. To the extent that the easement properties are selected as part of a planning process to direct development to certain areas and away from others, they support smart growth goals, which recognize that undeveloped property generally requires fewer local services such as roads, public safety, and utilities. Although state laws vary considerably, the Uniform Conservation Easement Act (UCEA), which has been used as a model for many state laws, includes the following as qualified purposes of conservation easements: “retaining or protecting natural, scenic, or open-space values of real property, assuring its availability for agricultural, forest, recreational, or open-space use, protecting natural resources, maintaining or enhancing air or water quality, or preserving the historical, architectural, archaeological, or cultural aspects of real property” (UCEA reprinted in Gustanski, 2000). Conservation purposes recognized by the IRS include outdoor recreation, education, natural habitat of fish, wildlife, plants or similar ecosystem; scenic open space;
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conservation pursuant to government policy (including farmland and forest land); historic land; and historic structures (Tapick, 2002). Acquisition Costs and the Costs of Tax Incentives The government recognizes the importance of conservation easements to overall land protection goals and offers landowners benefits in terms of reductions in federal income and estate taxes and many states offer reductions in state income tax and state and local property taxes. Starting in 1980 landowners were allowed to take an income tax deduction for the value of an easement if a perpetual easement was donated to a qualified organization exclusively for conservation purposes. The value of the charitable donation is calculated as the appraised value of the land without any restrictions on its use less the appraised value of the land with the restrictions. The differences can be significant, which means the resulting tax revenues foregone can be significant. Small reports that the House and Senate, while formulating the 1980 legislation, estimated the tax loss from contributions of easements would amount to $5 million per year (Small, 2000). In early 2004, the LTA reported on progress of H.R. 7 which would expand the income tax deduction an individual can take for donating a conservation easement and also cut capital gains taxes on sales of land or conservation easements. The Senate version of the proposal estimated the impact would be $474 million over 10 years (LTA, 2004). The 1997 American Farm and Ranch Protection Act added section 2031(c) to the tax code to allow landowners to benefit from estate tax reductions by reducing the value of land with a donated easement by up to 40%, up to $500,000 per owner. It also allows for posthumous donations of easements by the executor of a will.
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In addition to the Federal tax benefits, landowners also may receive State tax benefits for donations of qualified easements. Many states permit landowners to pay property tax based on a reduced valuation of the property that recognizes the restrictions imposed by the easement. Maryland allows reduced valuation based on an approved appraisal for calculating state property tax (after providing a full credit against property taxes for 15-years) and leaves it up to local governments to determine whether they recognize reduced valuations for local property taxes. There have been proposals to reduce the assessment on all conservation property to the agricultural rate, which would be a reduction from $1,000/acre to $125/acre, but these have not passed the Legislature. In addition to property tax breaks, some states also allow landowners to take a state income tax deduction for a qualified easement donation. For example, Maryland allows a maximum credit of $5,000 per year, with the remainder of the credit carried forward for up to 15 years for a total maximum credit of $80,000. Responsibilities of Land Trusts as Holders of Conservation Easements Land trusts bear responsibility for acquiring, monitoring, and enforcing conservation easements. The acquisition process includes establishing which easements to pursue or accept. After a conservation easement is acquired by a land trust, the land trust has to ensure that the conservation values of the land are maintained by appropriate stewardship. Acquisition of Conservation Easements A key aspect of land trusts‟ work needs to be carefully selecting which easements they bring under their stewardship since they have limited staff and financial resources. The LTA
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recommends that land trusts develop strategic plans that examine the area covered by the land trust and identify high priority lands for protection. The trust then can put plans in place to build relationships with the key landowners and work on gaining an easement on the land. Having a plan in place also allows the land trust to determine whether to pursue opportunistic easements, where a landowner contacts the trust about land. There is considerable preparation work before accepting an easement. The property needs to be visited and a baseline document prepared describing the boundaries of the easement and its conservation values. Often aerial photos of the property are commissioned. The easement document itself must be negotiated with the landowner. Often a management plan needs to be developed for the property as well, even if the management is to be done by the property owner. Monitoring Land trusts are responsible for ensuring that the conservation values of the land are maintained. Generally this involves a site visit once a year. Since the easements are on private property, this visit requires some coordination with the landowners. The baseline document may provide guidance about what needs to be monitored, such as ensuring pesticides are not applied, restricting ATVs, or eliminating noxious weeds, or the property may have a management plan that clearly defines the responsibilities of the landowner In general, monitoring is not much of a problem while the original owner owns the land, but may become a problem when the land changes hand and subsequent owners are less supportive of the goals of the easement. Monitoring can be a burden to land trusts in terms of staff time and money, and as the number of properties held by the land trust grows, the investment required to conduct effective monitoring increases. There may be situations where the staff of the land trust (usually volunteer) does not
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have sufficient skill sets to conduct the monitoring, such as being able to identify plants or being able to detect use of unapproved pesticides. Many land trusts have set up stewardship funds to defray the costs of monitoring and enforcement. Some request contributions from landowners equivalent to 10% of the value of donated property to build the stewardship fund. Enforcement A tricky part of a land trust‟s responsibilities is enforcing the terms of easement agreements. Practice has shown that there are relatively few problems while the donor remains the landowner. However, after the land has changed hands, there is more of a chance that the new owner will not be as sympathetic to the restrictions on use of the land, despite the fact that the existence of the easement is a clear part of the deed. As with monitoring, the skills required for enforcement may not be present among the land trust staff. In particular, land trusts often turn to outside legal counsel. This can be expensive, which leads some land trusts to avoid confrontations with landowners who might not be upholding all of the terms of the easement agreement. 3. Trouble on the Horizon? Concerns about the Use of Easements Given the rapid expansion in the use of conservation easements and the relative “youth” of many of the land trusts holding the easements -- 40% of the land trusts have been established in the past 10 years -- it is not surprising that there are concerns with the use of this tool. Words of caution are beginning to be heard from a range of sources. For example, conservation biologists Merenlender, et al, warn:
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“The use of land trusts to conserve resources by acquiring conservation easements has created a complex conservation situation that is poorly understood and warrants further study. We do not know what to expect from the most popular type of incentive-based conservation practice -- what it can protect, what it cannot, and what the long-term consequences may be. We cannot expect conservation easements to protect all the natural resources associated with private land or to provide goods and services for all people. However, given the popularity of easements and our dearth of knowledge about their effects, it is important that we gain a greater understanding of what is being provided for whom and at what cost in order to evaluate their usefulness for biodiversity protection” (Merenlender, et al, 2004). Legal analysts also offer their warnings, such as this from Cheever: ”At present, the land trust movement seems a successful combination of public and private. Its apparent success provides a useful model for achieving legislated goals in a privatized world. However, some dark omens cloud the future of the movement and, absent some changes in the legal structures that support it, time may erode the happy congruity between public and private at the cost of the environment and the public good. The legal community associated with the land trust movement should address these potential problems. However, in doing so, we must be careful to avoid destroying the private magic that gives the movement its special power” (Cheever, 1996). Cheever cites legal writers concerned about “the movement's place in the law of property, the tax benefits it can provide, and its potential positive effects on American farmers,” but says that he is most concerned with biodiversity and therefore wants “land trusts and conservation easements to
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function and to preserve environmental values for „biologically significant‟ periods of time” (Cheever, 1996). Tapick also cautions about legal aspects of conservation easements: “Despite the growing popularity of conservation easements, some of their most important and attractive provisions remain untested in a legal context. Specifically, a number of legal challenges could be made to the enforcement provisions and the duration of conservation easements. If successful, these challenges would significantly impair the continued viability and attractiveness of the conservation easement as a land preservation tool” (Tapick, 2002). In addition, investigative journalists have reported on abuses of the system, highlighting situations where private benefits are clearly out of proportion to any public benefits. The most prominent example is the Washington Post‟s critical reports in 2003 on certain actions by the Nature Conservancy. The worst abuses involved exaggerated appraisals, sales of properties with easements to members of the board and staff for their residences, and resource extraction on easement properties. The reports sparked response from the Nature Conservancy itself and many others involved with conservation work. In general it was felt that the Post‟s examination focused on isolated abuses of the use of easements, and that land trusts and conservation easements remain key conservation tools. The Nature Conservancy adopted a number of governance changes at its 2004 board meeting. The Land Trust Alliance revised its ethical standards and practices and is developing an accreditation program for local land trusts. In general, concerns about conservation easements fall into three categories: Are the right lands being protected? Can stewardship of the protected land be ensured? What does it cost the public
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to protect lands with this tool, and are these costs roughly proportionate to public benefits? Each of these is expanded below. Are the right lands being protected? How can we ensure that the right lands are protected? We need to find ways to get land trusts or state agencies to develop acquisition strategies based on green infrastructure planning or other processes to set priorities. They need to adequately address issues of ensuring conservation values. Only then can they avoid the risk of providing considerable tax benefits to individuals for land that would not be very high on a regional priority list if one existed. Can stewardship of the protected land be ensured? Will the terms of the easement agreements hold up in court? Land trusts will need access to legal guidance to know when and how to enforce the easements, and they will need money to take enforcement actions to the courts. Do the land trusts have the skills required to do an effective job of acquiring easements and then monitoring and enforcing their terms? What is the cost to the public if they don‟t? A large number of very young organizations need to be able to take on the responsibility of ensuring stewardship of the land “in perpetuity.” It may turn out to be more appropriate for a public agency to ensure stewardship (monitoring and enforcement) of easements since the conservation values should provide public benefits. Can easements adapt to changing conditions? Land trusts need to avoid the risk of defining easement restrictions in ways that aren‟t flexible enough to respond to improvements in our knowledge of ecological processes. It is also important that appropriate legislative changes are
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made to ensure that an easement can be transferred to another qualified organization if the land trust holding it dissolves. What does it cost the public to protect lands with this tool? Is it cost effective? What are the costs associated with acquiring and maintaining easements and who should pay them? The public deserves to know whether the public costs, including tax revenues foregone through tax incentives, are reasonable given the conservation values of the properties under easement. To understand how these concerns actually manifest themselves today, it is instructive to look at how conservation easements are used in a single state: Maryland. 4. The Use of Conservation Easements in Maryland Maryland is often cited as a leader among the states in terms of land conservation, yet Maryland continues to be in a race against development. As of the end of 1997, 20% of Maryland‟s dry land was developed -- 1.2 of Maryland‟s 6.2 million acres (Dehart, 2003). The average rate of development (measured in acres developed each year) from 1985 to 1990 was triple the rate of the early 1980s and the 1970s. The state‟s population grew by 30% in 25 years, from 1973 to 1997, while the amount of land lost to development increased by 49% over the same time period (Maryland Department of Planning, 2001). The Ehrlich Administration‟s land preservation program focuses on goals established by the 2000 Chesapeake Bay Agreement to protect 20% of the Bay watershed by 2010 and the Senate Joint Resolution 10 in 2002 on Prime Agricultural Land to protect three times the amount of farmland as was protected in 2002 (Ehrlich, 2003).
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Protected Land in Maryland Maryland‟s Department of Natural Resources estimates that 19% of Maryland‟s land is protected by federal, state or local agencies or private land conservation groups. Of the land protected by state and local agencies, 46% is protected by conservation easements (Figure 3). In addition to those nearly 500,000 acres protected by easements tied to government agencies, there is an additional 33,000 acres protected by private land conservation groups (Dehart, 2003). Unfortunately, the data indicating what portion of the 33,000 acres is protected by easements is not available. The Nature Conservancy – one of those private land conservation groups -protects 27 properties in Maryland. The Conservancy owns most of those properties outright, but about 3,100 of the total acres are protected by easement (The Nature Conservancy, 2004 and calculations by the Author). Clearly, conservation easements are an important land conservation tool in Maryland. Figure 3: Maryland's Protected Lands Protected Land = 1.2 million acres
Federal government 7% State and local agencies 90% Easements = 487,000 acres 46%
Private land conservation groups 3%
County/municipal parkland 13%
Dept. of Natural Resources lands 41%
Source: DNR (Dehart, 2003).
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Easements Held by MALPF and MET Two of Maryland‟s land conservation programs, the Maryland Agricultural Land Preservation Foundation (MALPF) and the Maryland Environmental Trust (MET) are responsible for 60% of easement acres (Figure 4). An additional 20% of the easement acres fall within county programs for Purchase or Transfer of Development Rights (PDR/TDR), which are not administered centrally by the state and are not the focus of this paper. The remaining public easement programs include the Rural Legacy Program, the GreenPrint Program, and Program Open Space, all within the Department of Natural Resources (DNR). These programs often co-hold easements with either MALPF or MET. The Maryland Historic Trust is focused on preserving historic structures and is not included in this analysis. Figure 4: Maryland agencies holding easements Easements = 487,000 acres MALPF
County/ Municipal Parkland MET Easements 46% County PDR/TDR Rural Legacy DNR Lands GreenPrint POS MHT
Key to abbreviations: DNR = Department of Natural Resources; MALPF = Maryland Agricultural Land Preservation Foundation; MET = Maryland Environmental Trust; County PDR/TDR = County Purchase of Development Rights/Transfer of Development Rights; POS = Program Open Space; MHT = Maryland Historic Trust. Source: DNR (Dehart, 2003).
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MALPF, operating within Maryland‟s Department of Agriculture, holds 1,677 easements on 230,000 acres (Figure 5). MALPF was created in 1977 to preserve productive farmland and forests for the continued production of food and fiber for all citizens of the State. It also works to curb unplanned urban development, protect wildlife habitat, and enhance the environmental quality of the Chesapeake Bay. MALPF acquires easements on properties that qualify based on their being enrolled in a state Agricultural Preservation District, being of sufficient size (generally at least 50 acres), and having appropriate soil characteristics. MALPF is often cited as one of the most successful agricultural land preservation programs in the U.S., having preserved in perpetuity more agricultural land than any other state. Figure 5: Land protected by conservation easements held by MALPF
300,000 Cumulative Easement Acres Cumulative Number of Easements 1,800 1,600 1,400 1,200 1,000 150,000 800 100,000 600 400 50,000 200 0
1977- 1994 1993 1995 1996 1997 1998 1999 2000 2001 2002 2003
250,000
200,000
Acres
0
Source: MALPF Annual Report for FY 2002 and Maryland FY05 Operating Budget, Agriculture/MALPF. MALPF works with local land preservation advisory boards, set up by local governments. Landowners interested in selling an easement to MALPF apply to the county land preservation
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Number of Easements
advisory board which reviews applications and ranks them according to the board‟s own ranking criteria, which may include factors such as the discount offered by the landowner compared to the property‟s fair market value, size of the farm, proximity to other protected properties, soil quality, or amount of direct threat of development. The counties may forward up to five applications (or the top 80% of the total number of applications the county received, if that number is greater) in priority order to MALPF. MALPF appraises the properties, makes purchase offers, and presents accepted offers to the Maryland Board of Public Works for approval. MALPF requires each property to have a Soil Conservation and Water Quality Plan which the landowner will be responsible for implementing. This plan identifies existing erosion and water quality problems on the property and recommends best management practices that will be used to address them and an implementation schedule. If more than 50% of the property is forested, the property must have a Forest Management Plan prior to settlement. The landowner retains certain rights, including rights to construct a home for the owner and/or children subject to some restrictions. When the property is sold, rights to construct houses are eliminated. MET, operating within DNR, holds about half as many easements on half as many acres as does MALPF – 746 easements on 100,000 acres (Figure 6). Maryland‟s first state land conservation program, MET, was created in 1967 as a statewide local land trust to preserve open land, including farmland, forest land, and significant natural resources.
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Figure 6: Land protected by conservation easements held by MET
120,000 Cumulative Easement Acres Cumulative Number of Easements 800 700
Number of Easements
100,000
600 500 400 300 200
80,000
Acres
60,000
40,000
20,000
100 0
19731993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
0
Source: MET, 2004. MET works either directly with individual landowners interested in selling or donating conservation easements or with a local land trust to co-hold an easement. Staff visits the proposed property and documents land use, structures, and conservation features and draws up a deed of conservation easement. The easement is approved by MET‟s board or the board of the local land trust, depending on who will hold the easement, and it is then ratified by Maryland‟s Board of Public Works. Maryland‟s Rural Legacy Program, created in 1997, seeks to set aside large blocks of rural lands to protect natural and scenic resources and to foster a resource-based economy. MALPF will cohold Rural Legacy easements that are primarily agricultural. MALPF requires a Memorandum of Agreement with the Rural Legacy sponsor (county government or local land trust) which
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outlines responsibilities for monitoring and enforcing easement restrictions. By the end of FY 2002, MALPF co-held 46 Rural Legacy easements. Maryland‟s GreenPrint Program, established in 2000, seeks to protect critical undeveloped land identified as part of Maryland‟s green infrastructure. DNR has identified more than two million strategic acres and provides funding to MALPF and MET for acquisitions or easements on green infrastructure. In FY2002, MALPF purchased 36 GreenPrint easements. Maryland offers both income tax and property tax incentives to landowners who donate easements. Starting in FY 1987, landowners who donate a perpetual conservation easement to MET that is accepted and approved by the Board of Public Works receive a property tax credit against 100% of the property tax that would be due. This continues for 15 consecutive years. When the 15 years pass, the property is taxed based on its assessed value, however the value of property restricted by an easement is often reduced, based on the official appraisal. In addition to property tax relief, starting in 2001 Maryland offered income tax credit for donations of conservation easements to MET. Taxpayers can take a credit up to $5,000 per year for up to 15 years, for a maximum credit of $80,000, based on the appraised value of the easement. It is important to note that only qualified easement donations approved by the Board of Public Works receive this favorable tax treatment. The effectiveness of the 2001 income tax credit to create an incentive for landowners to donate conservation easements is apparent from the data. MET saw a sharp increase in the number of easements and the number of acres donated starting in FY 2001, growing from 4,500 acres in 2000 to more than 10,000 acres in 2001 (Figure 7). MALPF did not see a similar increase
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because MALPF purchases easements, rather than receiving them as donations, and its ability to increase the number of easements or acreage is constrained by funding. Figure 7: Comparison of MET and MALPF easements following introduction in 2001 of the state income tax credit for qualifying easements
12,000 10,000 8,000
Acres
MET
Acres of Easements Added # of Easements
90
Number of Easements
MALPF
25,000
2001
180 140 120 100 80 60 40 20 0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
70 60 50 40 30 20 10 0
20,000
Acres
15,000 10,000 5,000 0
6,000 4,000 2,000 0
1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
2000
Sources: MET, 2004; MALPF Annual Report for FY 2002; Maryland FY05 Operating Budget, Department of Agriculture/MALPF. Benefits to the Public Maryland has instituted several approaches that should ensure public benefits accrue from protecting land with conservation easements. MALPF looks at soil characteristics and the location of the property within designated agricultural preservation districts to pre-qualify properties. The GreenPrint program uses Maryland‟s Green Infrastructure Assessment to identify and prioritize areas of greatest ecological importance and greatest risk for development and to focus land protection efforts on those high priority areas. The green infrastructure work supports Maryland‟s efforts to concentrate future development in certain areas and minimize sprawl in others.
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Number of Easements
80
160
Local land trusts, including MET, use a wide range of criteria to evaluate land they consider for protection, reflecting the differences in local conditions. It is difficult to assess how well the easements provide specific public benefits since each property is unique and the restrictions in each easement agreement are unique. A recent analysis of Maryland‟s easements was conducted where each easement was tested against the GreenPrint criteria to evaluate the importance of each to Maryland‟s green infrastructure. (See Aviram, 2004 for analysis of criteria used by Maryland land trusts to evaluate land parcels and for results of green infrastructure analysis.) The analysis showed that more than 70% of MET easements met the criteria to be eligible for GreenPrint funding (although this had not been a requirement of the easement acquisition programs). Aviram concludes, “although private lands put in easement may not be pristine, the findings of this paper show that a significant portion of land protected by land trusts has ecological conservation value to the state. The value of these protected lands may increase as development continues to escalate and undeveloped land becomes scarce” (Aviram, 2004). Public Costs There are several types of costs associated with Maryland‟s programs to acquire conservation easements. There are the direct costs to the public such as paying for easement acquisitions themselves and the costs of running the programs dedicated to easements. There are also costs from tax revenues foregone, referred to as tax expenditures, including state and local property taxes and state income taxes. None of this data is collected by a single agency (which could lead to standardization) nor is it easily available. As a result, it proved difficult to develop any estimate of public costs associated with conservation easements in Maryland.
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It is difficult to gather data related to acquisition costs of easements because of the number of programs involved, the practice of co-holding easements among more than one agency (which can lead to under-counting or double-counting), the existence of local land trusts that may hold easements without any connection to a government agency (and thus have no requirement to report data on their easement acquisitions), and the fact that some easements are purchased and some are donated. Additionally, different organizations could include different costs in their determination of acquisition costs, such as staff time for property assessment, research, and document preparation, appraisals, legal counsel, and payment to the landowner. Even determining an average cost per acre proved difficult (Figure 8), since there was no single source of information and it is quite likely that different groups made their calculations differently. Nevertheless, the average cost data provides some guidance and can be used to calculate a total cost of easement acquisitions in the 2002-2003 timeframe of approximately $41.8 million. Figure 8: Comparison of easement acquisition costs Agency Rural Legacy MET MALPF GreenPrint TOTAL (broad estimate) Average Cost per Acre $2,600a $2,500c $180c $1,892b $1,542a $41.8 million if purchased if donated 5,000 5,000 15,000 $12.5 million $0.9 million $28.4 million Average Acreaged Total Coste
Sources: a – Ehrlich, 2003; b –Task Force to study MALPF, 2003; c – FY05 Operating Budget (DNR/MET), 2004; d – estimate based on MET, 2004 and MALPF 2002 Annual Report; e – calculated by author. In addition to acquisition costs, it is important to consider costs associated with running the organizations that operate the programs. Again this is not a simple task. First, the agencies are involved in more than just acquiring easements, and it would be very complicated to divide
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annual expenditures among different activities. Similarly, it is not clear which of the state land conservation agencies ought to be included in an accounting of conservation easement costs. Finally, if staff or operational costs are included in calculations of acquisition costs, then they would need to be eliminated from this category. Nevertheless, since MALPF and MET are very involved with easements, their annual budgets provide some guidance about organizational costs. Their combined costs have ranged around $2 million per year in recent years (Figure 9). Figure 9: Program Expenditures Agency MET MALPF 2000 actual $600,254 $820,427 2001 actual $839,506 $1,045,384 2002 actual $957,942 $1,105,302 2003 actual $655,260 $1,264,469 2004 appropriation $1,364,151 $1,297,036 2005 allowance $1,670,436 $1,300,000
Sources: FY00-FY05 Maryland Operating Budget (DNR/MET and Dept. of Ag./MALPF), 1999-2004. In addition to these direct costs, there are the costs of tax expenditures – exemptions from taxes that reduce state and local revenues. Tax incentive programs are offered to encourage landowners to sell or donate easements on their properties. The costs of these programs, too, are difficult to calculate. Maryland publishes a biennial tax exemption report (Maryland Department of Budget and Management, 2003), but there are issues with both the property and the income tax calculations in the report. The estimate of the income tax credit is based on estimates developed when the 2001 legislation was considered. There has not yet been much actual experience upon which to improve estimates, and the actual data reflects the tax year rather than the fiscal year (Figure 10). The data indicates that the income tax credit “costs” approximately $400,000 a year.
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Figure 10: Tax expenditures: Maryland state income tax credit for conservation easements Fiscal Note HB681 (2001) HB 849 (2004) HB 768 (2004)* $189,620 FY2002 $171,400 FY2003 $342,700 $400,000 $384,285 FY2004 $514,000 $420,000 FY2005 $685,400 $440,000 FY2006 $856,800 $460,000
* Actual tax credits claimed in tax year 2001 and 2002, not fiscal year Sources: Fiscal and Policy Notes for HB 681, HB 849, and HB 768. Property tax credits are not included in the tax expenditure report because funds are appropriated through the regular budget process to pay for them. As a result, the value of the 15 year property tax credit for conservation property is not available. It is possible to make an estimate from data in the Fiscal and Policy Note for a bill in the 2004 session that had no action (Figure 11). One would need to know how long ago the properties were donated to be able to calculate whether they would still qualify for the 15 years of property tax exemption. It is important to note that the tax impact of the property tax exemption is greater for local governments which have considerably higher tax rates, averaging around $1.00 per $100 assessed value. Maryland property tax credits “cost” the state approximately $50,000 and local governments approximately $400,000. Figure 11: Tax expenditures: Maryland property tax credit Estimated Current Assessment $41,922,000 State Tax Rate per $100 assessed value $0.132 State Property Tax $48,500 Total Local Tax $393,648
Source: Fiscal and Policy Note for HB 1106 and calculations by the Author. In addition to the property tax exemption, there is also the cost of the reduction in assessed value of the easement properties. For the first 15 years, the property receives a credit for property
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taxes. However, after that, the property returns to the tax rolls, but often at a value that is lower than it was before the easement was established. There is no estimate of this impact. One could assume that the estimated current assessment reflects a reduction by half of the unencumbered property value which would mean that the estimates in Figure 11 would also reflect the annual amount of property tax lost when the properties return to the tax rolls, though some inflationary increase in the value. Given the difficulties associated with estimating direct costs and the costs associated with tax revenues foregone, it is not easy to calculate anything but a broad estimate of the overall cost to the public of the conservation easement programs in Maryland. Assuming $42 million for easement acquisitions, $2 million for associated program costs, and $1 million in tax expenditures, the cost would come to $45 million per year. The $3 million in non-acquisition costs per year for approximately 500,000 acres yields an operational cost of about $6 per acre. Assessment of the Use of Conservation Easements in Maryland Maryland has an active and effective approach to using conservation easements as a land conservation tool. Maryland, like the rest of the nation, is seeing growth in the number of land trusts, easements, and acres protected by easement. However, Maryland has a long history of effective land conservation, and there are numerous aspects to Maryland‟s use of easements that address many of the general concerns about conservation easements raised earlier in this paper. Are the right lands being protected? Maryland has done a lot of statewide planning for conservation purposes, resulting in the designation of specific areas for different types of protection, such as Agricultural Preservation Districts and areas within green infrastructure. These designations guide organizations, such as MALPF or GreenPrint, when setting priorities
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about which properties to fund. MET, working with private local land trusts, may face the greatest challenge of ensuring that the most important lands get protected, although MET‟s influence may be limited to easements that MET co-holds. Easements held by local land trusts without MET‟s involvement are not likely to incur much in terms of public costs – since they won‟t be acquired with public funds and they won‟t be eligible for either the income tax credit or the property tax credit. Can stewardship of the protected land be ensured? Maryland may not be in any better shape with respect to ensuring continued stewardship than any other state as different aspects of easements get tested in the courts. Having state agencies such as MET and MALPF involved in the evolving legal landscape does provide certain advantages. It centralizes experience and knowledge about proceedings, and it offers local land trusts or counties a potential source of expertise that could save resources from reinventing wheels. It also provides a locus for ideas about legislative changes that could benefit the effective use of easements. The problem of having many local land trusts that are fairly inexperienced may be less of a problem in Maryland since the MET is so closely involved with most of them. MET develops programs and offers funding to build organizational capacity at local land trusts. It also can provide contacts at other land trusts that might be useful. The local land trusts can choose to cohold easements with MET which could prove beneficial if there are challenges with monitoring or problems with enforcement. The problem of ensuring that easements be able to adapt to changing conditions is as much a problem in Maryland as anywhere. Having centralized agencies may enable good ideas to be shared more rapidly and bad ideas to be avoided, but it doesn‟t speed up the ability of the
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conservation community to improve our knowledge of ecological processes or to determine how best to bring that knowledge to bear on easement holdings. However, centralized government organizations are also subject to the changing political winds, and their operations may be disrupted when administrations change. What does it cost the public to protect lands with this tool? There are at least two aspects to the issue of costs. First there is the question of whether we have adequate data to understand where we stand. The second relates to making judgments about what that data shows in terms of costs and benefits. It became apparent during the course of researching this paper that adequate data about both costs and benefits is lacking. However, MALFP recognizes its role in developing data of this sort, noting that it “has an obligation to help establish initial benchmarks [relating to land preservation objectives]; develop standardized reporting format to make clear how protected farmland acreage and other protected land is calculated; monitor ongoing progress; and use this work in evaluating its program, coordinating activities with other land preservation organizations, and making recommendations on the resources needed to achieve these goals.” (MALPF Annual Report for FY 2002). To the extent that this effort brings together data on benefits (the land preservation objectives) with costs, then it will be up to land conservation organizations and/or the Legislature to develop conclusions about the appropriate balance and make recommendations about needed adjustments. Without data though, it is difficult to have an intelligent discussion about adjustments.
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5. Conclusion and Recommendations Conservation easements are protecting a lot of private land in the U.S. today and appear likely to protect even more in the near future. Seeing this trajectory, it is well worth the effort to fix potential problems that are emerging with the system and prevent problems from arising that could seriously compromise the public‟s ability to achieve the potential conservation benefits from these easements. The efforts of more than 1,200 land trusts to bring into being conservation easements protecting more than 2.5 million acres represents a significant investment of human capital as well as financial capital to build this important public asset. To ensure that the public maximizes the benefits that these conservation easements provide, there are a range of actions that could be taken. Some of these fall to government agencies and some to land trusts and organizations supporting them. Each of them focuses on making conservation easements a more effective tool. Ensuring the appropriate lands are protected Establish some way to measure progress towards the goal of using conservation easements to preserve conservation values (what the benefits are that we seek, what to measure to better understand if we are achieving those benefits, how to get the data, how to standardize the data so it can be aggregated and compared, who should keep the data). This affects individual land trusts and also a national policy debate about the effectiveness of alternate land protection tools.
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Ensuring ongoing stewardship of the protected land Strengthen capabilities of land trusts to make them equal to their challenge (guidance on documents such as baseline description of land or the easement itself; skills training for each phase, including strategic planning prior to acquisitions; identification and sharing of best practices; developing funding sources for monitoring and enforcement activities). Monitor the prevalence and outcomes of enforcement actions by land trusts; share success stories and words of warning relating to unsuccessful approaches. Make appropriate legislative changes to ensure that easements can be transferred among qualified organizations. If an easement holder changes its purpose which causes it to lose its charitable status or if an easement holder ceases to exist as an organization, the easement itself should not be in question as long as another qualified entity takes responsibility for the easement. Determining whether the public costs are justified Determine the public costs of easements – federal income tax, federal estate tax, state property tax, and state income tax; determine whether benchmark $/acre values could be developed to guide appraisals and to support tax planning by governments. Determine whether easements raise values of neighboring properties such that property taxes reduced on the easement are replaced from taxes on the higher valued neighboring properties. To the extent they do, this should be incorporated into tax planning, too. Compare the costs of alternative land conservation techniques, including purchasing properties and changing zoning.
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Both land trusts and conservation easements are human constructs that enjoy widespread appreciation today. Devoting the effort to shore up the public policy framework in which they operate could ensure that we do not squander this valuable new wealth.
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Sources “Cautionary” Literature Cheever, Federico. 1996. Environmental Law: Public Good and Private Magic in the Law of Land Trusts and Conservation Easements: A Happy Present and a Troubled Future. Denver University Law Review 73:1077. Cooper, Mary H. 1999. Saving Open Spaces: Are Land Conservation Efforts in the Public Interest? The CQ Researcher 9:955. De Alessi, Michael. 2000. Can Land Trusts Be Trusted? American Enterprise 11:48-49. Main, Martin B., Fritz M. Roka, and Reed F. Noss. 1999. Evaluating Costs of Conservation. Conservation Biology:13:1262-1272. Merenlender, A.M., L. Huntsinger, G. Guthey, and S.K. Fairfax. 2004. Land Trusts and Conservation Easements: Who Is Conserving What for Whom? Conservation Biology 18:65. Ohm, Brian W. 2000. The Purchase of Scenic Easements and Wisconsin‟s Great River Road: A Progress Report on Perpetuity. Journal of the American Planning Association 66:177. Ottaway, David B. and Joe Stephens. “Land-Trust Boom a Boon for Habitat,” Washington Post, December 21, 2003, pg. A20. Stephens, Joe and David B. Ottaway. “Developers Find Payoff in Preservation: Donors Reap Tax Incentive by Giving to Land Trusts, but Critics Fear Abuse of System.” Washington Post. December 21, 2003, Pg. A01. Stocford, Daniel. C. 1990. Property Tax Assessment of Conservation Easements. Boston College Environmental Affairs Law Review 17:823-855. Tapick, Jeffrey. 2002. Student Note: Threats to the Continued Existence of Conservation Easements. Columbia Journal of Environmental Law 27:257. Other Sources Aviram, Rina. 2004. Local Land Conservation in Maryland. Unpublished paper in partial fulfillment of requirements for Graduate program in Sustainable Development and Conservation Biology, University of Maryland. Brewer, Richard. Conservancy: The Land Trust Movement in America. Lebanon, NH: University Press of New England, 2003. Dehart, Grant. 2003 Maryland Department of Natural Resources. Summary of Maryland‟s Protected Land. www.conservemd.org/grogress/index.html
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Ehrlich, Robert L., Jr., Governor, Michael S. Steele, Lt. Governor, Lewis R. Riley, Secretary of Agriculture, James DiPaula, Secretary of Budget and Management, C. Ronal Franks, Secretary of Natural Resources, and Audrey Scott, Department of Planning. 2003. Maryland‟s Land Conservation Programs: Protecting the Chesapeake Bay Watershed. (no other publication information provided) www.malpf.info/GovernorReport121703.pdf Foussekis, Laura. March, 2004. Maryland Department of Budget and Management. Personal communication. Gustanski, Julie Ann and Roderick H. Squires, editors. Protecting the Land: Conservation Easements Past, Present, and Future. Washington, D.C.: Island Press, 2000. Hilty, Jodi, and Adina M. Merenlender. 2003. Studying Biodiversity on Private Lands. Conservation Biology 17:132-137. Horton, Tom. “Forest loss has a cost: Building pollution-fighting systems that wooded areas naturally provide is a bad deal for the Earth and budgets,” Baltimore Sun, April 9, 2004. Horton, Tom. “Calculating the cost of land preservation: A new study challenges the conventional wisdom on the economic impact of downzoning,” Baltimore Sun, March 26, 2004. Ladin, Jay. March, 2004. Maryland Department of Budget and Management. Personal communication. Land Trust Alliance. 2001. National Land Trust Census. www.lta.org/aboutlt/census.shtml Land Trust Alliance. 2004. New Tax Incentives for Conservation by Private Landowners. www.lta.org/publicpolicy/tax_incentives_details.htm Lyndon B. Johnson School of Public Affairs, the University of Texas at Austin. “State Growth Management and Open Space Preservation Policies.” Policy Research Project Report No. 143. 2002. The Maryland Agricultural Land Preservation Foundation. 2003. Annual Report for FY 2002. Maryland Department of Budget and Management. 2000. Fiscal Year 2000 Operating Budget Detail. Maryland Department of Budget and Management. 2001. Fiscal Year 2001 Operating Budget Detail. Maryland Department of Budget and Management. 2002. Fiscal Year 2002 Operating Budget Detail. Maryland Department of Budget and Management. 2003. Fiscal Year 2003 Operating Budget Detail.
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Maryland Department of Budget and Management. 2004. Fiscal Year 2004 Operating Budget Detail. Maryland Department of Budget and Management. 2005. Fiscal Year 2005 Operating Budget Detail. Maryland Department of Budget and Management. 2003. Maryland Tax Expenditures Report, Fiscal Year 2004. Maryland Department of Legislative Services, Maryland General Assembly. 2001 Session. Fiscal Note, Revised: House Bill 681 “Income Tax – Credit for Preservation and Conservation Easements.” Maryland Department of Legislative Services, Maryland General Assembly. 2004 Session. Fiscal and Policy Note: House Bill 768 “Income Tax Credit for Preservation and Conservation Easements - Transferability” (no action). Maryland Department of Legislative Services, Maryland General Assembly. 2004 Session. Fiscal and Policy Note: House Bill 849 “Tax Incentives and Benefits – Credits and Subtraction Modification” (no action). Maryland Department of Legislative Services, Maryland General Assembly. 2004 Session. Fiscal and Policy Note, Revised: House Bill 1106 “Property Tax – Assessment of Conservation Property” (no action). Maryland Department of Planning. 2001. Maryland‟s Changing Land: Past, Present and Future. www.conservemd.org/policy/essential/index.html Maryland Environmental Trust. 2000. Annual Report. Maryland Environmental Trust. 2001. Annual Report. Maryland Environmental Trust. 2002. Annual Report. Maryland Environmental Trust. 2004. Fiscal Acreage Report. McQueen, Mike and Ed McMahon. Land Conservation Financing. Washington, D.C.: Island Press, 2003. The Nature Conservancy. 2004. Places we protect: Maryland. www.nature.org/wherewework/northamerica/states/maryland Office of Legislative Audits, Department of Legislative Services, Maryland General Assembly. 2003. Audit Report: Maryland Agricultural Land Preservation Fund, Fiscal Year Ended June 30, 2002. Roakes, Susan L. and Marie Zwolinski. “The Land Trust as a Conservation Tool.” CPL Bibliography No. 323. Chicago, IL: Council of Planning Librarians, 1995.
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Small, Stephen J. An Obscure Tax Code Provision Takes Private Land Protection into the Twenty-First Century. In Gustanski, 2000, p.55-66. Task Force to Study the Maryland Agricultural Land Preservation Foundation. 2003. Interim Report: 2003 Session of the General Assembly. Websites Maryland sites Maryland Agricultural Land Preservation Foundation www.malpf.info and www.mda.state.md.us/agland/main.htm GreenPrint Program www.dnr.state.md.us/greenways/greenprint Maryland Environmental Trust www.dnr.state.md.us/met and www.conservemd.org Program Open Space www.dnr.state.md.us/pos.html Rural Legacy Program www.dnr.state.md.us/rurallegacy Maryland Department of Planning www.mdp.state.md.us Private organization sites Land Trust Alliance www.lta.org The Nature Conservancy www.nature.org/easements The Conservation Fund www.conservationfund.org or www.greeninfrastructure.net The Trust for Public Land www.tpl.org
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