Excerpts from the article "Land Trusts:  The Good, the Bad and the Ugly" 

by Dana Joel Gattuso - senior fellow at the National Center for Public Policy Research

NOTE:  Loophole, politics, and scientific discoveries have negatively impacted the ability for Land Trust and Land Conservation to serve their intended purpose.

Municipality Owned Trust:  This is the most political.  

        The municipal authority has the power to develop the land in any way it sees fit, outside of a public hearing, depending on the philosophy of those in office.  Some municipalities pursue this outright as a development avenue once the community buys in to the concept.  This type is also the riskiest for a landowner who may also lose potential benefits.  There are no current avenues available to guard against politically motivated actions. 

 

HOA Owned Trust:  

          Should the Municipality fail to have the developer of a development pre-address floodplain/drainage, etc., HOA's often later run out of funds to address a worsening problems such as invasive plant and animal species.  It does not typically receive any assistance from the municipality or developer once homeownership becomes official.   

          However, with responsible municipal governance and planning, and deed restrictions in each HOA to limit development in the natural areas, this would be effective.

 

Professionally OWNED Trust.   

 

Professionally MANAGED Trust.  

Unfortunately, however, over time the focus of many land trusts has changed, and many of them - particularly the large national organizations - have developed suspect relationships with the government.  In some cases, land trusts are aiding government agencies in obtaining private lands via conservation easements.

Problems with Conservation Easements

Stewards of Land or Stewards of Government?

          Any chance conservation easements have in being effective stewards of land is lost when land trusts cease to work as independent, private organizations obtaining easements through purely voluntary means and become agents of government aiding in public land acquisitions. Yet land trusts, particularly the larger organizations, are changing their focus from independent and private approaches to working in tandem with government agencies in an effort to assist government in obtaining private lands.

          In fact, many leaders in the land trust movement are articulating a new mission to pick up where government has failed at public ownership. As former president Jean Hocker of the Land Trust Alliance (the membership organization representing land trusts throughout the nation) observed, land trusts have a niche as a result of a "reluctance to regulate private lands or even to add land in public ownership."  And the "lack of a bureaucratic constraint makes land trusts exceedingly good at complementing, supplementing, and implementing public open-space agendas."48

Prearranged "flip." aka "pre-acquisition"

          In increasing practice, land trusts do not hold on to the easement but turn around and sell it to federal or state government agencies, known as a "prearranged flip" or "preacquisition." Because most easements are purchased by land trusts at below market value, land trusts can then sell the property to the government at market value, profiting off the difference. In one example, the Nature Conservancy bought an easement for $1.26 million, then directly sold it to the Bureau of Land Management for $1.4 million.49

          Land trusts benefit because they can earn a profit off the taxpayer-funded arrangement. Government agencies like the arrangements because, unlike seizing private lands through land use regulations, zoning laws, or even eminent domain, they can obtain private property via methods shielded from public scrutiny.  Preacquisitions also enable government to obtain private land when public funds are not yet readily available. 50 As a report on easements by the Department of Agriculture notes, "voluntary acquisitions" provide "opportunities for public agencies to influence resource use without incurring the political costs of regulation or the full financial costs of outright land acquisition."51

          Preacquisitions change the whole nature, intent, and potential benefits of conservation easements to protect lands through private stewardship. As referenced earlier in this report, studies show that unequivocally easements work better when managed by land trusts than by government entities. Easements become not a means of protecting lands through a private sector partnership between landowner and land trust, but a non-transparent tool for government to obtain private property without public knowledge or approval. As Clemson University economics professor Bruce Yandle writes:

          Such programs encourage land trusts to serve as government land agents, often quite profitably. If land trusts continue to respond to this temptation, land conservation will become ever more political...History teaches us that market incentives for conservation are strongest when individuals pay market prices and receive market rewards. They are weakest when government agents spend someone else's money and get no reward for good management.52

          While documentation is limited showing precisely how much land under conservation easement is transferred to government, anecdotal information indicates the practice is prevalent. An article published by the American Enterprise reports that more than two-thirds of the Nature Conservancy's operating budget goes to purchasing private lands that are then sold to the government.53 Similarly, the national American Farmland Trust has worked closely with federal and state government agencies for years, leveraging tax dollars to turn private property into public land via the conservation easement. A book on land conservation "public-private partnerships," published in 1993, describes such an arrangement with the state of Massachusetts:

          Massachusetts has a strong tradition of private land conservation... Thus, it did not take much to convince the state agriculture department that a partnership with land trusts could enable it to save more Pioneer Valley farms than could the government acting alone. The department encouraged AFT [the American Farmland Trust] and other land trusts to acquire conservation easements over key parcels of valley farmland for subsequent resale to the state.54

The practice is also common among some state land trusts. The Maine Coast Heritage Trust, the state's largest land trust along the coast, has sold more than 700 of its 850 easements and acquisitions to federal and state agencies. As described in the Gulf of Maine Times:

          One of [the land trust's] partners, the U.S. Fish and Wildlife Service (USFWS), identifies important habitats for migratory and endangered fish and wildlife. The trust works with the owners of these areas to determine if there is an opportunity to protect that habitat. If there is, the trust takes a lead role in acquiring the land on behalf of either USFWS or the Maine Department of Inland Fisheries and Wildlife.55 

          In some cases, the federal government uses partnerships with conservation groups to skirt existing state laws that limit the terms of an easement. A report released last September by the Government Accountability Office describes how the U.S. Fish and Wildlife Service has partnered with Ducks Unlimited to obtain thousands of acres of easements from private landowners in North Dakota.

          The state forbids the term of an easement acquired by a conservation group to exceed 99 years.56 But according to officials from the Service, they are "not bound by state law regarding the easement terms." If the agency "receives a monetary donation from Ducks Unlimited to purchase easements, the eased land is protected in perpetuity," a direct violation of the state's intent.57

          Federal funding. Also indicative of the close "partnerships" many land trusts have with government is the amount of public funding land trusts receive, with The Nature Conservancy (TNC) collecting by far the largest amount of federal funds. The American Farmland Trust and The Conservation Fund take in a million and three million dollars annually in federal grants, respectively, while TNC receives an alarming sum exceeding one hundred million dollars. Moreover, revenues earned by TNC from sales of conservation easements to governments "and others" amounts to another $262 million annually, 20 percent of TNC's support and revenues.58

          Federal financing of conservation easements comes from numerous sources and programs, and it is difficult to find documentation showing the actual sum. However, it is clear that support has skyrocketed over the past decade.  The two largest programs funding easements are the Forest Legacy Program and the Farm and Ranch Lands Protection Program, both operating under the U.S. Department of Agriculture.  Funding for the Forest Legacy Program has ballooned from $2.6 million in fiscal year 1997 to over $80 million in fiscal 2007.59 The increase in the Farm and Ranch Lands Protection Program is even more dramatic, rising almost tenfold, from $62 million for 1996-2001 to $597 million for 2002-2007.60

 

Given the vast sums of federal dollars handed to many land trusts, along with the prearranged transfers of land from private hands to government acquisition, it is hard to imagine not only how land trusts can operate effectively as stewards of land, but also how they can operate independent of political pressures and influence.

Perpetual Conservation Easements: Forever Is a Long Time

          Another problematic aspect of conservation easements is the requirement that the easement be held in perpetuity in order for the grantor to receive federal tax benefits.61 Such restrictions have ecological and economic implications to the public interest - the intended beneficiary of conservation easements - that extend far into the future.  Furthermore, it is not fully clear how future courts will rule on the "dead-hand" control over private property.

          Changes in science and nature could deem perpetual easements useless or harmful. As numerous legal scholars and policy experts have argued, conservation easements that bind landowners and their descendants in perpetuity ultimately become antiquated and, therefore, useless or even harmful. The rule fails to recognize that conservation needs - as well as definitions of scenic, aesthetic and cultural62 - change over time, and that the easement may eventually lose any ecological benefit or even become a detriment.

          Gains in scientific knowledge can change our definition of what is ecologically beneficial. For example, we know from scientific advances in forest management that thinning techniques are essential to protecting healthy forests and their habitat and preventing forest fires.63 Yet conservation easement requirements with the specific purpose of perpetually protecting habitat in a forest may not allow for necessary logging and thinning projects.

         In addition to gains in scientific knowledge, nature constantly affects changes that aren't predictable. The very notion that easements in perpetuity are ecologically beneficial contradicts modern views in ecology which hold that the environment is "in a process of constant change rather than in search of a stable end-state."64 For example, a conservation easement intended to protect the habitat of salmon would likely designate an area along a river for spawning and limit development. But rivers change their course over time. If the area under easement is defined geographically, it will be deemed useless when, inevitably, the river shifts.65 Another example would be a situation where a conservation easement covering a wetland to protect habitat dries up, deeming the wetland useless for conservation purposes. In still another situation, an easement created and written to protect an endangered species could become useless if the species becomes plentiful or extinct.

          Some environmental lawyers respond that inevitable changes can be broadly addressed by writing "dynamic" - rather than the more traditional "static" - conservation easements.  They recommend that perpetual easements be written specifically allowing for changes in science, nature, and public policy.66 But, as some of these same attorneys point out, drafting these easements can be prohibitively expensive and difficult to write, particularly for the smaller land trusts with limited staff and resources.67 And without possibly knowing or being able to predict what changes would occur, how could even the most experienced attorneys write an easement comprehensive enough to cover all possible changes to what's considered ecologically beneficial, far into the future?

          Another unintended consequence of perpetual conservation easements is the long-term impact they inevitably will have on housing costs. The rapid rate land trusts are acquiring properties, preventing construction of homes far into the future, will in time limit housing availability and push prices up.68 This already is a critical issue in California, where 427,000 acres of land are encumbered by conservation easements69 and where the state contains some of the most expensive real estate in the nation. For decades there has been a constant struggle pitting farming and grazing needs and the desire for open spaces against housing needs.70 With the rapid pace that land throughout the state is being taken out of production by conservation easements, housing costs can only be expected to rise further. 

          Does perpetual have to mean forever? Does a perpetual conservation easement allow either party to terminate the agreement once it has lost its ecological benefit? How difficult is it for heirs to terminate a time-worn agreement? And how costly?

          The answers are not obvious, mainly because conservation easements do not conform to the traditional rules of common law (see next section).71  Outcomes could differ depending on the specific language of the easement, state law, and interpretations of the residing courts. Laws generally favor honoring perpetuity, primarily because grantors receive federal tax benefits for donating or selling conservation easements only if they are perpetual.

          Land trusts particularly are motivated to ensure perpetuity, not only by a desire to maintain interest in the property far into the future, but also to assure prospective grantors that the property under easement will be protected forever.72 Furthermore, as some experts argue, land trusts are acutely aware of the inevitable future challenges to easements by descendants and are writing agreements they believe will survive the test of time.

          The issue becomes less clear, however, in cases where the land trust, as well as the landowner, are in agreement over the need and desire to end a conservation easement.  In these instances, the ease or difficulty generally depends on the state's law governing easements. Most state laws either contain the same language in the non-binding Uniform Conservation Easement Act, stating the conservation easements may be modified or terminated "in the same manner as other easements," and that courts may "modify or terminate a conservation easement in accordance with the principles of law and equity" - or they do not address the issue.73 

          But most experts agree state requirements and procedures for termination are not uniform, adding to the confusion over if, when, and how a perpetual conservation easement can be ended or modified.74 Some states require a public approval procedure.75 Other states stipulate the decision-making falls on the state attorney general, who enforces the general interests of the public.76

          Legal scholars generally believe it is not likely that the courts will readily allow termination unless they determine the purpose for the conservation easement has changed or become obsolete, and the agreement no longer provides intended benefits. Specifically, courts can apply the Restatement (Third) of Property which reads, "[i]t is inevitable that, over time, changes will take place that will make it impracticable or impossible for some conservation servitudes to accomplish the purpose they were designed to serve. If no conservation or preservation purpose can be served by continuance of the servitude, the public interest requires that courts have the power to terminate the servitude so that some other productive use may be made of the land."77

          Regardless of the outcome, attempts to change perpetual conservation easements will be costly. If changes are sought by future descendants, legal and transaction fees are likely to be hefty. The law was written recognizing that the donor received tax benefits for agreeing to perpetuity. However, as the law now stands, in cases where termination is desired by both parties and the state or court allow it, the landowner would not be required to compensate the land trust.  But if the property eventually is sold by the property owner, he would be required to pay the land trust a portion of the proceeds, assuming the owner initially received a charitable deduction.78

          In conclusion, considering the rapid growth in the use of conservation easements, the question of perpetuity enforcement will be with us for decades to come and eventually must be dealt with by the courts in one way or another. And it will be costly. As law professor Julia Mahoney observes, perpetual conservation easements inevitably will burden future generations with economic, "ecological, legal and institutional messes for later generations to deal with."79

          Are perpetual conservation easements inconsistent with common law? Most legal experts agree that conservation easements, perpetual or time-limited, are not recognized under common law. Conservation easements are called "negative servitudes" in legal terminology, referring to the fact the easement holder is preventing the landowner from taking action on his own property - i.e., building or developing.  By contrast, an "affirmative servitude," or non-conservation easement, enables the landowner to make active use of his land.  Common law, which favors use of one's land rather than restrictions, traditionally recognizes only three types of negative servitudes, none of which include those for conservation purposes.80

          In addition, conservation easements are easements "in gross," meaning they benefit one or more individuals who do not own land adjacent to the easement. In a standard non-conservation easement, such as an agreement that allows the holder to use the grantor's property to build an access road, the individual benefiting from the easement is the holder who owns land adjacent to the land under easement. In a conservation easement, however, the easement is assumed to benefit the general public, and does not entail ownership of adjacent land. Generally, common law has disfavored easements in gross and, specifically, has rejected long-lasting easements in gross. It has also rejected both covenants (contracts) and servitudes that bind holders of land via dead-hand control.81

          Over the years, however, all 50 states and the District of Columbia have enacted laws allowing for perpetual "negative servitudes in gross."82 While the laws vary from state to state, most include: 1) a legislative declaration of policy; 2) an authorization to utilize conservation easements as "property interest," more apt to be recognized under common law, rather than as "covenants" or "contracts;" and 3) an attempt to shield conservation easements from common law doctrines.83 While some legal experts are of the view that in time, the courts will strike down the "perpetual" aspect of conservation easements, others believe that because statutes supersede common law, state laws allowing for perpetual easements will prevail.84

Tax Incentives

          Another controversial aspect of conservation easements are tax incentives.85 From the viewpoint of the owner donating an easement, the tax benefit is pivotal; it is considered by many the key incentive driving the landowner to donate the use of his land.86 As noted recently by The Wall Street Journal, the increase in the federal income tax deduction for easement donations "spurred a sharp increase in the number of landowners interested in placing easements on their property."87

          Yet to some critics, the tax incentives are considered a "tax bonanza," largely rewarding wealthy landowners and costing the U.S. Treasury over $1 billion, while providing questionable public benefit.88  Easements received wide public attention following a series in The Washington Post in 2003, exposing significant abuses and violations by land trusts, most notably, The Nature Conservancy. The articles revealed a typical practice in which the land trust acquires an easement for millions of dollars, then turns around and sells it at a loss for a considerable tax write-off. In some cases, easements had little to do with conservation, such as using the tax-funded arrangements to build golf courses.89

The series triggered a Congressional investigation, followed by a 2005 report by the Joint Committee on Taxation, concluding that current tax policy also enables "taxpayers to claim substantial charitable deductions for conservation easements that arguably do not serve a significant conservation purpose."90 Similarly, the report found that the process for appraising the value of the easement is ripe for error, and that the subjective nature of assessing the value of the easement before and after the donation makes it "virtually certain that many appraised values are incorrect."91

          The IRS since then has cracked down on such activities and unlike previously, now audits conservation easement donations routinely. Furthermore, the Land Trust Alliance is working closely with its members on proper and ethical handling of easements. In 2004, it revised its "Land Trust Standards and Practices," devising new accounting and ethical procedures and requiring its members to adopt the new policies. In 2005, it introduced an accreditation program for conservation groups and worked closely with the Senate Finance Committee to adopt new uniform appraisal standards and rules on conflict of interest.92 Furthermore, a new law enacted in 2006 tightens the rules governing appraisals and establishes harsh penalties.93

          But reforms have not changed another problem with the tax incentives - what many view as conservation easement's unfair tax treatment of non-wealthy property owners.  Because the allowable charitable income tax deduction is based on annual income, individuals in high income brackets earn disproportionately larger tax savings than those in middle and lower.

          As an example, consider three individual grantors with different income levels, each donating a conservation easement worth $500,000. The grantor with an adjusted growth income of $35,000 will receive an annual charitable tax deduction of $10,500, an aggregate tax deduction over six years of $63,000, and an aggregate tax savings of $9,450. The individual earning $75,000 receives an annual deduction of $22,500, a deduction over six years of $135,000, and an aggregate tax savings of $36,450. A donor earning $250,000, however, will receive an annual deduction of $75,000, a six-year aggregate tax deduction of $450,000, and an aggregate tax savings of $157,500.94

RECOMMENDATIONS

          1. Government should not be allowed to obtain conservation easements through prearranged acquisitions.

          An easement acquired by a government agency through a public land trust does not require any approval process from either the public or the property owner and, therefore, is not accountable. Government agencies at any level of government should not be permitted to obtain land through preacquisitions or any form of arrangement with land trusts. If a landowner wishes to donate or sell an easement directly to a government entity, there is nothing preventing him from doing so.

          2. No federal funding for nonprofit conservation groups.

          Land trusts, through their definition as public charitable organizations, already benefit enormously by their federal tax-exempt status. Beyond this benefit, land trusts should work independent of tax-dollar handouts, which too easily can subject them to political pressures, coercion or influence from government.  Government should end its use of subsidies, grants, and other funding to these nonprofit organizations.

          3. Tax deductions should not require perpetuity.

          A property owner has the right to do with his land as he wishes and should be entitled to place restrictions, if desired. However, given that changes in nature and science over time alter society's definition of what is ecologically beneficial - and given the economic and ecological uncertainties of permanently encumbering land - government should not use tax dollars to effect perpetual conservation easements.  Conservation easements differ from regular easements in that the "party" to be affected by the agreement is not one individual but the public as a whole. Future generations should not be burdened with inflexible, irreversible policies based on today's land use decisions.

          Specifically, conservation easements should be time-limited ("term easements,") providing charitable income tax deductions to those individuals who restrict land use on their property in, say, 10- or 20-year increments.

          Legislative language based on The Uniform Conservation Easement Act allows for easements limited in time as well as perpetual.99  Furthermore, a number of states provide tax incentives for term easements.100 California's Williamson Act gives tax incentives to landowners who place agricultural easements on property for a minimum of 10 years under a "rolling contract" with local government.101 Other states such as North Dakota allow only term easements. Neither the federal nor state governments should be able to mandate perpetual terms as a condition of tax benefits.

          4. Eliminate the estate tax.

          It must first be said that the right to sell or donate one's land or a portion of one's land to a nonprofit organization or to a government entity is a property right. No matter what public policies are enacted governing conservation easements, individuals will always have the right to do with their property as they wish.

          The issue is whether government through tax incentives should be able to influence property owners' land use decisions, particularly considering problems with conservation easements outlined in this report.

          While the overall objective of conservation easements is to discourage development, the rising burden of estate taxes on heirs is often the factor driving them to sell their property to developers. As Environmental Defense's Michael Bean wrote back in 1997, the estate tax is "highly regressive in the sense that it encourages the destruction of ecologically important land in private ownership.Conclusion

          What once showed promise as an effective tool for preserving lands through private ownership and stewardship is increasingly becoming a questionable practice, particularly as land trusts join government in partnerships and, in some cases, use conservation easements to turn private land over to government ownership.  As the conservation easement and land trust movement continues to grow by leaps and bounds, it is imperative that reforms be put into place that return easements to their original intent to protect property through private means.

          Requirements that easements encumber land in perpetuity remove one of the arrangement's most significant benefits - flexibility.  As the natural state of our environment and scientific discovery evolve, so do society's definitions of what should be preserved and how.  Tax policy should not lock future generations into relatively shortsighted visions of what today is considered ecologically-beneficial.

          Finally, through manipulations to the tax code, government influences property owners' decisions on land use, promising immediate tax relief to those who forfeit full rights and ownership of property. Were land trusts fully private organizations, free from government association and influence, there could be value. But given inherent problems with conservation easements, most pointed, the rise in government involvement, influence, and acquisition of lands under easement, a far more effective means would be to eliminate the estate taxes that discourage land preservation in the first place.​