In recent years, the usage of land trusts and conservation easements as tools for land protection have grown massively. Free market organizations have touted them as a non-coercive and non-regulatory approach to land protection that protects private property rights while achieving environmental targets.
A conservation easement is the sale or donation of a land’s development rights to a third party organization that extinguishes said development rights in perpetuity. Third party nonprofits that acquire conservation easements or outright purchase land in fee simple to protect from development are known as land trusts.
Conservation easements have been used as a tool to achieve a variety of conservation outcomes, which vary depending on the values of the entity holding them, from endangered species protection to open space preservation and historical preservation. Depending on the easement, varying levels of activity can occur on the land. While some easements prohibit any development, even trail construction, others allow for a broad array of intensive agricultural uses.
There are an estimated 1,700 land trusts in the United States, and it’s estimated that an area of private land the size of the state of Michigan have been protected by conservation easements.
State and Federal Laws
As conservation easements are fundamentally deed restrictions, state legislatures set the limits to their use. Although the National Conference of Commissioners on Uniform State Laws set guidelines on state land trust legislation in 1981, there remain differences between states as to what constitutes a conservation easement. Fourteen states prohibit forestland from being protected by conservation easements, and Oregon does not allow cultural resources to be protected by conservation easements. Some states, like Mississippi, do not have any legislation regarding conservation easements at all.
Not every land trust has a primary interest in environmental protection. Historical preservation groups preserve Civil War battlefields through conservation easements. Farmland protection groups protect farmers on the edges of cities from development amid potential zoning changes through conservation easements.
While states set the stipulations for what qualifies as a conservation easement, the Federal government is the primary provider of tax benefits for conservation easements, using broad language to designate conservation easements, allowing land put into easement for outdoor recreation, protection of relatively natural habitat, preservation of open space, and historic preservation. There are no mandates for public access, for active habitat restoration, or even active management to qualify.
Under Federal law, an individual can deduct 50% of their income from federal income tax for up to 15 years using their conservation easement donation, up to the value of the donation. If the individual is a farmer, conservation easement donations can be up to 100% of an individual’s income for the same time period. Additionally, donors receive estate tax reductions.
One of the largest issues with land trusts has been rampant abuse of the conservation tax deduction by a handful of organizations. The conservation easement tax deduction is the most generous charitable deduction in the federal tax code. In 2017, the deduction cost taxpayers between $1.2 and $2.1 billion dollars.
Shell land trusts can be set up by tax attorneys to take advantage of the deduction. Of the roughly 1,700 land trusts nationwide, about 25 land trusts received half of overall donations. While legitimate land trusts like the Nature Conservancy made up some of them, others are poorly staffed tax avoidance operations that have no interest in land protection.
Because the value of a land’s development rights is always up for debate (tax law stipulates that they should be appraised at “fair market value”), appraisers can artificially inflate the value of the land’s development rights (and therefore conservation easement value) to maximize tax benefits. ProPublica documented the story of an abandoned South Carolina golf course that couldn’t sell for $5.8 million was valued at over $40 million by appraisers for a massive tax break.
A Brookings investigation discovered that conservation easements are being disproportionately used in areas of low conservation benefit but high tax advantages. That has resulted in 36% of all conservation tax deductions taking place in the state of Georgia (where the state provides tax incentives as well as the Federal government), even as the state holds only 1.5% of conserved land in the US. High value deductions do not necessarily mean protections of large areas of land.
Although the IRS has stepped up enforcement against egregious violations, underfunding and understaffing of the agency has limited enforcement capabilities.
Low Conservation Value
There are no mandates for land in easement to have a material public benefit outside of broadly defined conservation goals in the tax code, which include historic preservation, recreation, open space protections, wildlife habitat, and scenic enjoyment.
Controversially, conservation easements can be broadly applied to any land, even land of extremely low conservation value. Furthermore, the landowner qualifies for the tax credit regardless of if there’s any public benefit to their easement. Golf course easements are particularly criticized, as they have a massive environmental impact, only serve the select few who can afford to play on the course, but regardless qualify for easement tax credits. One of the beneficiaries of this has been President Donald Trump, who has used the deduction on his golf course properties for a $100 million tax windfall.
Another significant case study on the unintended consequences and perverse incentives from conservation easement tax writeoffs was Kiva Dunes in 1994, in which a developer built millions of dollars of housing on a portion of a previously wild, undeveloped, low value island. He used the rest of the island as a golf course, and placed a conservation easement on it, claiming tens of millions as a deduction. His reasoning for his large deduction was that he could have put homes on the rest of the island, which was now highly valued because of the development he’d built in the first place, which in turn were valuable because of the golf course he was placing on the rest of the island. The IRS sued in tax court, arguing that said usage of the easement was not consistent with the intended purpose of the deduction, and eventually capitulated, allowing the deduction.
Beyond golf courses, conservation easements could potentially contribute to increased sprawl. Farmers in Oregon are increasingly considering conservation easements on their land to protect themselves from development if the UGB expands onto their farmland. By doing so, they fragment urban development, forcing it to snake around their lands, undermining urban density and increasing sprawl, the very thing the easements were intended to prevent. Conservation easements on golf courses prohibit development on said land even after the golf course goes bankrupt.
A Lack of Institutional Strength
At their core, land trusts are 501(c)3 organizations that acquire land and easements. Although some have large budgets, paid staff, endowments, and comprehensive land management programs, most are little more than volunteer led nonprofits who can afford little more than a PO Box.
Every land trust needs to crest the difficult threshold of passing the torch from the original volunteers who created the trust to a longer lasting organization with a paid staff that can pass the torch between generations of volunteers. Many fail that hurdle, and the trusts effectively cease to exist, putting land protections at risk.
Donors love to fund acquisitions and acreage purchases and will gladly donate money to support purchases of easements. But managing donated lands and easements without any cash is nearly impossible. It’s difficult to acquire funds to enforce easements, protect them against legal challenges, and maintain them. A perfect analogy would be that it’s easy for a university to fundraise to get a new athletics training gym, but the facility then becomes a cost burden, as no donor pays for the electricity bill or to offset deferred maintenance at the new facility.
Nationally, there is no comprehensive nationwide list or map of conservation easements. There is no monitoring agency to ensure that the easement obligations are being followed, and there is no approval process for new easements. Trusts are often given little scrutiny, which has resulted in startling figures.
In the 2005 report Reinventing Conservation Easements, it was noted that up to ⅓ of land trusts surveyed didn’t even have a systematic list of easement THEY HELD! If one doesn’t know what land they own, how the hell can they monitor it? Land trusts were aware of this crisis, and 80% of land trusts surveyed thought of it as likely that some of their lands may not be protected within a lifetime, because of a lack their own institutional strength to protect the land. If a state requires an easement to be re-registered, and the land trust does not do it, the easement can be nullified. The paper recommended stronger institutional strength in land trusts and state regulation of conservation easements.
There’s no enforcement agency to ensure that contracts are being upheld. The diligence of a land trust is required to enforce easements, even if said restrictions are visible in the property deed. Furthermore, poor oversight prevents the public from receiving the maximum benefits of the easement. If an easement allowed for public access and trail construction, but said easement was misplaced or forgotten by the land trust controlling it, how could the public know? Not everyone has the time to look over the property deeds of every piece of land in the county. If a land trust struggles to keep the lights on, how can it possibly withstand a legal challenge from a developer?
A Model for the Future: Massachusetts
It’s clear that the conservation easement tax deduction is becoming a tax windfall that sometimes fails at its primary mission of protecting undeveloped land.
To address some of the gaps in institutional strength, umbrella organizations such as the Land Trust Alliance have been created to establish best practices, share information, certify good actors, set standards for conservation easement contracts, and create a pooled legal defense to defend easements. While those steps have improved the strength of trusts that are committed to conservation goals, they don’t weed out the bad actors that use the deduction as a tax shelter. State legislatures need to step in. Massachusetts has been at the forefront of increasing conservation easement oversight.
Massachusetts requires a state official to approve all new easements and includes a public review process for all new easements. The state also requires that easement documents be made publicly available, thus allowing the public and land trusts to better monitor easements, and for land use planners to accurately map conservation and development strategies, thus ensuring that conservation easements have an explicit public and environmental benefit, and blocking out the bad actors. The public easement documents allow for templates to be used when drafting new conservation documents, reducing the likelihood of poorly written easements that result in legal litigation down the road. The transparency additionally allows the state to include private lands in easement that allow for hunting on its state wildlife lands viewer, further maximizing the public benefit.
Although government oversight would add a layer of government interference into an institution praised for its lack of government involvement, it’s clear that the rampant abuse of the deduction must be curtailed. Because of the immense conservation benefits of the deduction, with millions of acres protected under easement, it would cause great harm to conservation efforts to eliminate or cut the deduction to stop the bad actors. Oversight would be much more effective.