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Future planning is key for future habitat

By Steven Groh

 

The population in Michigan has grown relatively slowly (approximately 12 percent over the past three decades), development has continued to create pressure on wildlife as a result of other factors. In spite of relatively low population growth, the numbers of households have increased by more than 40 percent, resulting in fewer people in more homes. The increasing demand for larger home sites and estate lots, coupled with the rise in second homes in rural locations led to the development of 820,000 acres between 1982 and 1997, according to with the Center for Environment and Population, based in New Canaan, Connecticut.

While it's fashionable to demonize developers, there are no simple solutions. Growth is the lifeblood of the Michigan economy, providing jobs and homes for all. The challenge has been and will always be balancing livelihood and lifestyle. But it’s not so easy.

For the most part, the public sector has been powerless to control growth, but, a little-used section of the tax code has created a valuable tool for conservationists, trading tax benefits for land preservation. The result is more and more land protected from development forever. The legal instrument of this movement is the conservation easement, and it may be the last great hope to preserve open space in Michigan.

What is a conservation easement?

A conservation easement is a binding legal document which transfers legal rights from a property owner to another party for conservation purposes.

In practice, it’s generally an agreement in perpetuity between a private party and a conservation organization or land trust to refrain from developing or otherwise diminishing the conservation values of the property. In exchange for doing so, a land owner may receive cash, or in the case of a donation, a tax deduction. It may be a simple concept, but the process is anything but.

To begin with, the land in question must possess conservation values worthy of preservation. According to the Internal Revenue Service, a donated conservation easement must be for conservation purposes such as, “the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem” or “the preservation of open space including farmland and forest land, for the scenic enjoyment of the general public or pursuant to a clearly delineated governmental conservation policy.”

A conservation-minded owner of such property now must consider his or her financial goals. What are one’s priorities? A variety of legal structures and strategies must be explored with the assistance of accountants, attorneys, and appraisers. Once a basic plan has been defined, it is necessary to select a grantee to which to entrust the future stewardship of the property. This may be a governmental entity such as a parks department or, more likely, a land trust. And such a transfer may require an endowment of the land trust to finance into perpetuity the management of the conservation easement.

With the assembled team of financial, legal, and conservation experts, a deed of conservation easement will be prepared. This is the legal document which will be recorded in the County Courthouse in which the property is located. It generally prohibits subdivision, construction of buildings, commercial or industrial uses, mining, or logging on the property.

To establish the conservation values, a team of biologists will perform a base line study of the flora and fauna present and the general state of the property at the time of the deed.

If the conservation easement is granted in whole or in part as a charitable contribution, an appraisal by a qualified real estate appraiser is required to determine the value of the donation. Relatively few real estate appraisers are qualified to perform such appraisals, and those with the requisite experience and expertise require significant lead time (usually 60 days or more) to complete such an appraisal.

Although the process is time-consuming and costly, it provides significant benefits to both grantor (the landowner) and grantee (the land trust). The former will receive a variety of benefits for relinquishing rights, and the latter will receive the protection of the land in perpetuity, preserving open space for man and beast alike forever.

LANDOWNER BENEFITS

A landowner may receive cash in exchange for granting such a conservation easement. This is often the case when a municipality seeks to expand an existing open space property or to maximize its available dollars for open space programs. He or she may also consider granting the easement as a charitable donation, which may provide a variety of estate tax and/or income tax benefits.

Since 1964, the Internal Revenue Service has allowed the deduction of such charitable contributions through revenue rulings, and the deduction was codified 1976. Furthermore, in 1998 the IRS code was amended to allow an exclusion of up to 40% of the value of land in an estate from estate taxes. Since that time the rush has been on to preserve and protect land from development and capital from the IRS.

The critical question then becomes, “what is the value of the conservation easement?”

Those that consider conservation easements just another form of “welfare for the rich” insist that a landowner should receive nothing for relinquishing the ability to develop his or her land. And many reasonable people have questioned such values. Since relatively few conservation easements are sold, although the number is growing, it is relatively difficult to establish the value of a conservation easement by the comparison of sales of similar easements. The appraiser must often rely upon comparing sales of similar properties without conservation easements to other similar properties encumbered with conservation easements, in order to arrive at the diminution of value, if any, of the property.

PUBLIC BENEFITS

Between 2000 and 2005 the area of land protected by conservation easements nationwide increased from 2,514,566 acres to 6,245,969 acres. Such conservation easements will forever enhance the Michigan environment and provide habitat for game and non-game species alike. Although conservation easements do not convey the right to public access, they provide a very cost effective tool for public acquisition and are often acquired in conjunction with access easements.

As more and more landowners are taking advantage of these tax benefits more scrutiny has been directed at all aspects of the process. The Internal Revenue Service has begun to scrutinize tax returns with charitable deductions for conservation easements. According to one IRS agent, approximately 250 returns with such deductions were being audited as of year end 2006.

In the current regulatory climate, taxpayers are being audited, appraisers are under scrutiny, and IRS officials have vowed to crack down on abuse.

Whereas there has surely been some fraudulent abuse of the donation of conservation easements, this is clearly the relatively rare exception. More often it is a way for a family to preserve a farm or a ranch,  a municipality to acquire open space to perpetuate scenic vistas,  or a conservation organization to protect endangered habitat. As long as the public values open space and is willing to reward the private sector for conservation, Michigan has a chance to preserve land for people and wildlife for future generations. It is an idea whose time has come.