Colorado’s conservation easement program, enacted in 1999 and effective in 2000, gives farmers and ranchers an incentive in the form of state tax credits if they agree not to develop their land.The program has been successful. An article posted at www.politicswest.com Nov. 29, 2007, reported that 1,500 conservation easements had been created in Colorado for 1.2 million acres of land, totaling $270 million in tax breaks since the program’s inception.According to the Colorado Department of Revenue’s Web site, the program generated more than $81.7 million in state tax credits in 2007.Marsha Looper, state representative for House District 19, said the program will reduce Colorado’s 2008 tax revenues by another $80 million at a time when the Colorado General Assembly has cut programs and raised fees to balance the state’s budget.Colorado is required by law to balance its budget every year.Looper said she’s considering running a bill that will impose a moratorium on the conservation easement program.To form a conservation easement, a landowner works with a nonprofit land trust, such as The Nature Conservancy or a local government, to establish a permanent restriction on development and subdivisions.The landowner continues to own the land, but the easement is held by the land trust or a government entity acting as a land trust. The trust is required by state law to sign off on the value of the tax credits and ensure the conserved land is not developed.As of the end of 2007, 35 land trust organizations were operating in Colorado.In return for creating the easement, the property owner receives a state tax credit of up to $375,000 that can be used over a period of 20 years, or it can be sold for someone else to use.Mark Lowderman, assessor for El Paso County, said the saleable tax credit makes the conservation easement program “ripe for misuse.””I think a lot of people sought out an appraiser that would either intentionally or unintentionally over value the property grossly to benefit them,” he said.At the end of 2007, El Paso County had just 11 conservation easements on 3,533 acres, generating a total $1,835,883 in state tax credits. In spite of the small number, Lowderman said, “We’ve seen … screw ball appraisals done on those things.”An article posted at High Country News (www.hcn.org) March 31, 2008, stated that Erin Toll, director of the Colorado Department of Real Estate, had found gross overvaluations of 111 easements on the eastern plains involving Colorado Natural Land Conservation (also known as Noah Land Conservation), which is based in Arvada, Colo. As an example, Toll cited a 640-acre ranch’s value that climbed to more than $14 million in a matter of days.Under Internal Revenue Service rules, Colorado’s conservation easement program also generates federal charitable deductions of up to half the landowner’s adjusted gross income. The deduction must be used up within 16 years of the easement’s creation.According to a June 29, 2008, article in the Denver Post, problems with Colorado’s conservation easement program surfaced several years ago when the IRS audited 400 federal tax returns claiming the charitable easement deduction; 290 of the 400 returns were from Colorado.A Nov. 29, 2007, article at www.politicswest.com stated that the IRS had completed its audit of 108 of the Colorado returns and found problems with 96 of them.In June last year, Gov. Ritter signed House Bill 1353, which increased accountability for conservation easement appraisals, created a certification program for groups holding conservation easements and established the Conservation Easement Oversight Commission.”Any conservation easement appraisal that’s done now goes directly to the Department of Real Estate for review,” Lowderman said. “That alone should tighten it up.”Lowderman said county assessors don’t have access to the appraisal information for a conservation easement within their county and only become aware of one when the appraisal for the easement is lower than the county’s appraisal. In those cases, the property owner contacts the county assessor to get a reduction in the county property tax.”A sizable percentage of conservation easements include property classified by the assessor as agricultural,” he said. “Once you get an agricultural classification, your property is valued based on commodity prices or the carrying capacity, not on what like properties are selling for, and that places a very low value on the property.”Both Looper and Lowderman feel the conservation easement program is a worthwhile program.”It’s a very good program for farmers and ranchers to keep farms in the family,” Looper said.”It’s a good program. It’s certainly done what it was intended to do – to preserve wildlife and wetland areas,” Lowderman said.Looper said conservation easements throughout the state have been overvalued by millions of dollars and the problem is particularly bad in Lamar, Colo., and La Junta, Colo., in Otero and Prower counties, respectively.The Colorado Natural Land Trust formed all six of the conservation easements in existence at the end of 2007 in Otero County and 28 of the conservation easements in Prower County.An article published in the March 5 issue of the La Junta Tribune Democrat said at first the appraisals were based on the difference between the market value of the property before and after conservation restrictions are put in place. Later appraisals focused on water rights and the interest in purchasing those rights.The article also noted that a member of Landowners United named Vernon Dillon talked with an IRS representative who said, “Valuations had been placed on the lands at 25 percent of the original assessed values … the problem is with the state and not with the IRS.”The article claimed the IRS began the audit after the Colorado Department of Revenue contacted the IRS to see if the valuations were excessive.In the article, J.D. Wright, also a member of Landowners United, said land trust organizations solicited the landowners to create the conservation easements and charged each landowner more than $10,000 in stewardship fees.According to the article, Landowners United is working with Fred Grant, a retired attorney from Texas, who believes he can sue the state of Colorado for fraud under the Racketeer Influenced and Corrupt Organizations Act.Looper said she’s worried the IRS will sue the state of Colorado for not monitoring the conservation easement program more closely.
