Rush to Preserve

New tax breaks are creating a boom in conservation efforts

About a decade ago, an East Coast investment banker offered Rick Berg millions of dollars to buy his scenic cattle ranch — thousands of acres of prairie, timbered hills, big-game habitat, and a river bottom set between two mountain ranges in central Montana.

The offer was tempting, Mr. Berg recalls, but he turned it down, resolving then to hold on to the ranch and preserve intact the land his great-grandfather had homesteaded more than 100 years earlier.

But until this summer, it was unclear whether he really could afford to make good on his promise. Mr. Berg’s potential difficulties were erased in August when Congress decided to give more-generous tax breaks to landowners who take steps to protect environmentally important property.

As a result, when Mr. Berg takes action to limit development on his land, he will get tax breaks worth three times as much as he would have been eligible for under the old law.

“It was simple math,” says Mr. Berg, 58. “We have been dedicated to the idea for a while, but it didn’t make anywhere near financial sense to do it before now.”

Mr. Berg and many of his fellow farmers and ranchers are at the forefront of the latest American land rush — this one with a twist: Instead of gobbling up land, property owners are preserving it.

Spurred by the new tax incentives — which will be in effect only until the end of next year — landowners interested in protecting working farms and ranches, open space, wetlands, forests, animal habitats, and more are lining up to donate so-called easements, a legal tool that shields land from development now and for generations to come.

And land-trust groups, the nonprofit organizations that accept, arrange, and monitor the easements, are bulking up to handle the upsurge in business. At the same time, they are taking measures to make sure that donors don’t try to take unfair advantage of the new rules.

“The tax incentives give people who are sitting on the fence about this, mostly for financial reasons, the impetus to go for it, do the easement, protect the land they love,” says Glenn Pauley, executive director of the Wyoming Stock Growers Agricultural Land Trust, in Cheyenne. “There are a lot of people who love their land and are now jumping down off that fence.”

Rapid Growth

To be sure, the conservation-easement business was already booming. The Nature Conservancy, the nation’s biggest conservation group by far, has acquired easements covering a total of roughly four million acres, up from about 1.5 million acres in 2001. And, at the hundreds of local, state, and regional land trusts that work independently nationwide, the total acres covered by easements grew two-and-a-half fold in five years, to more than six million acres last year.

But the new tax incentives are quickly making conservation easements even more popular.

Rand Wentworth, president of the Land Trust Alliance, a Washington group with 1,100 member land trusts, says that the new tax incentives have the potential to at least double the pace of growth in conservation easements, particularly if Congress extends the provisions beyond next year. And land trusts around the country are already seeing that kind of momentum.

Since 2001, Mr. Pauley’s group has received 19 conservation easements on more than 32,000 acres of Wyoming rangeland. He expects to match those figures in just the coming year alone.

The Land Trust of Napa County, in California, which protects, among other valuable lands, wildlife sanctuaries, botanical preserves, and grape-growing farms, typically handles about three or four donations of conservation easements a year. The group expects to see as many as 15 in 2007.

Tall Timbers Land Conservancy, in Tallahassee, Fla., expects next year to triple to 30 the number of easements it receives annually. Seven donations, covering roughly 15,000 acres of pine forests and wetlands areas in north Florida and southwest Georgia, are already planned for next month.

Expanded Deductions

The added appeal of conservation easements, now that Congress has changed the law, is easy to understand. Donors now get to write off up to 50 percent of their adjusted gross income per year for the gifts; in the past, they could deduct no more than 30 percent of their incomes annually. They may also spread the deduction over 15 years, compared with just five years before the law passed. What’s more, many farmers and ranchers who meet additional qualifications are allowed to deduct up to 100 percent of their income throughout the 15 years.

That last provision makes easements particularly attractive for land-rich, cash-poor farmers and ranchers, like Mr. Berg, in Montana, who often have to contend with growing tax bills. Mr. Berg’s ranch yields only about $50,000 profit each year, but the land it occupies may be valued at as much as $12-million.

Still, the donations are not all about the money: In nearly every case — including Mr. Berg’s — landowners would make out better financially by selling their property outright than by taking the write-offs associated with an easement. And while conservation easements allow the donor to retain title to the property and other rights of ownership, the limits on development guarantee that the property will probably never again be worth as much as it would be otherwise.

But for many people who want to protect their way of life and preserve land for its scenic, natural, or environmental value, the new law sweetens the tax breaks just enough to make conservation donations an affordable option.

Curbing Abuses

The new law increases the appeal of donating easements at the same time that it cracks down on potential abuses by donors by tightening regulations governing property appraisals and increasing penalties for people who are found guilty of inflating the value of the land. Those provisions are on top of a new Internal Revenue Service requirement for more-detailed reporting on landowners’ tax returns.

The new rules are a response to lingering worries that donors might be taking overly generous write-offs for property gifts and easements. Last year, a Congressional committee recommended slashing tax deductions for easement donations, and a Senate panel suggested major changes in the way conservation groups operate. The IRS, too, announced its concerns about valuation problems with conservation easements.

Tightening Standards

Since then, land-conservation groups have done much to police themselves and donors and to improve the image of land trusts.

The Nature Conservancy, which was scolded by a Senate panel for questionable land deals, has made dozens of changes to strengthen its governance, accountability, and openness. And the Land Trust Alliance has stiffened standards — required to be adopted by all its members — for accepting and overseeing gifts of land and easements. Next month, the alliance will also start a test run of its new training and accreditation program meant to ensure the responsible operation of land trusts.

Many land-trust officials say they support the self-regulation measures and appreciate the need for the tougher provisions and penalties written into the new law.

Supporters of the law, though, are worried that it will expire before they are able to handle all the potential donations.

Because of the tight time frame, land-trust groups are scrambling to get the word out quickly to potential donors that they have only until the end of 2007 to take advantage of the new tax breaks. The donation process, which often includes a major family decision and a complicated financial and legal transaction, can itself take months, even years, to complete.

Land trusts are posting notices about the new tax incentives on their Web sites; sending e-mail messages; hosting seminars for accountants, lawyers, and financial advisers; running ads in trade journals; and visiting trade shows and neighborhood meetings where landowners congregate.

The Green River Valley Land Trust, in Pinedale, Wyo., has used humor to alert its supporters about the changes. At its annual picnic to honor donors last summer, it displayed a series of posters, featuring black-and-white photos of the old West.

One of the posters — hung inside each of the 12 portable bathrooms at the big outdoor event — showed a picture of a riderless horse standing next to an outhouse, with the accompanying text asking readers if they were “relieved” that they could now get many more years’ worth of income-tax benefits for preserving their land for agriculture.

The Land Trust Alliance is also using pictures to get the message out: It produced 75,000 postcards illustrated with photographs of farms, ranches, rivers, and mountains, and containing summary information about the new incentives, for its members to send out to supporters and landowners.

The Maine Coast Heritage Trust, in Topsham, has crafted more personal letters to send to the owners of many of Maine’s tiny coastal islands — a high priority area for the trust’s conservation efforts — and plans to follow up with phone calls.

Ducks Unlimited, in Memphis, which protects wetlands for waterfowl all over North America, is reviewing files about its donors to uncover projects that might work best under the new legislation and then pitching the idea.

David Marrone, who runs Ducks Unlimited’s conservation-easement program, says, for example, that he contacted a small-business owner who has a 400-acre farm in Mississippi.

The man, a hunter and regular contributor to Ducks Unlimited, in the past had expressed interest in preserving his property, inhabited in the wintertime by songbirds and other migratory wetland birds.

“He wanted to keep it undeveloped, but he just couldn’t justify an easement before,” Mr. Marrone says. “After we talked, he ran the numbers with his accountant, and now he’s doing it.”

‘Over-the-Fence Talk’

For the Colorado Cattlemen’s Agricultural Land Trust, getting the message out to interested landowners is a subtler art. The organization’s bylaws prohibit the group from contacting property owners who have not first come to the trust.

The rule — meant to appease ranchers who sometimes view conservation groups suspiciously — means the land trust’s outreach is a lot about what its director of conservation, Chris West, calls “at-the-kitchen-table and over-the-fence talk.”

Once talk turns to action, though, the Colorado group wants to be ready: It is adding an extra project manager, not only to handle new easements, but also to monitor the newly protected lands over time.

Other local, state, and regional land-trust groups are getting ready for a bigger workload, too.

The Napa land trust is applying for money from a state agency that oversees conservation in California to pay for an additional staff member, who would focus exclusively on conservation easements protecting Napa County’s agricultural lands. And in Florida, Tall Timbers has lined up three consulting firms that specialize in forestry and the environment to help analyze and document the value of properties that people want to donate.

Adding Employees

In Wyoming, the agricultural land trust plans to add a new staff member next year, but the addition won’t be handling easements.

The new employee will be the group’s first-ever full-time development officer, and will take over the group’s first fund-raising campaign. Dubbed “Maintain the Range,” the campaign aims to raise $700,000 by the end of next year, in part to cover the start-up costs of a development program and pay the salary of the new fund raiser for a few years.

About $100,000 will be earmarked for an “opportunity fund” to pay for attracting and arranging easements during the time of the enhanced tax breaks. And the rest would go into the trust’s endowment, which now stands at roughly $300,000.

The trust’s Mr. Pauley says it is a perfect time to raise money, taking advantage of the heightened interest in conservation easements and the land group’s obvious operational needs to handle that interest. He also says that it is critical to grow the endowment, which helps pay to monitor the preservation of protected properties.

“If we’re increasing our portfolio of land, we have to increase our capacity to take care of it far into the future — forever,” Mr. Pauley says.

He and many of his counterparts at other land trusts also counsel restraint in accepting conservation easements. With such a hot product, they say, groups must take extra care in maintaining high standards when it comes to such things as ensuring fair appraisals and properly assessing the environmental value of land.

Kevin McGorty, director of Tall Timbers Land Conservancy, says his group occasionally gets offered donations that appear overvalued or do not provide enough benefit to the public, and he has already seen the number of those sub-par proposals grow since the tax law passed this summer.

He has rejected as many as nine offers of conservation easements in recent months, a few of them from people with small tracts of land on which they wanted to preserve house sites. The properties were in an area prone to flooding, he says.

“We want to preserve a very critical watershed area,” Mr. McGorty says. “But we are not going to protect someone’s right to build a house in a flood plain.”

Still, Mr. McGorty says, those “cake-and-eat-it-too people,” as he calls them, are the exception in the land-conservation field. The overwhelming majority of donors and land trusts are together protecting significant and meaningful land and landscapes, he says.

Mr. Berg’s ranch in Montana, home to elk and antelope, among countless other species, includes a more than two-mile stretch of river and shares a seven-mile border with a federally protected forest. Despite the hardship of running a cattle operation on the high, rough terrain, Mr. Berg says he is devoted to the place, and was thrilled to be able to afford preserving it.

“I’ve thought about those millions I could get for selling it,” he says. “But I’ve thought about what I’d do with the money, and it’d be, Go out and buy another ranch. This one is worth protecting.”