More cash in on land, tax deal - Preserving open space a key goal

By Jeff Thomas
Special to The Denver Post

Article Published: Sunday, November 16, 2003

As much as $15 million in state tax credits may be brokered this year under a program that preserves open spaces by swapping development rights for lesser tax liabilities.

The 4-year-old Colorado Conservation Tax Exchange Program gives state income tax credits to property owners for donating development rights to a land trust. In cases where the landowner can't use the entire credit, it may be transferred to a brokerage or sold directly to individuals or corporations with heavy tax liabilities.

Buyers of the credit save at least 10 percent on their state income tax bills, and along the way help to preserve open space, often in areas under heavy development pressure.

"It's pretty flawless," said Scott Raderstorf of Boulder, who used the program for his 2002 personal income taxes, after he and six partners sold their software company, Eclipse Inc., to Intuit for $88 million.

Instead of writing a tax payment check that went straight into the state's general fund, Raderstorf's check went to a rancher in southern Colorado, who had donated development rights to a local conservation trust. The deal was brokered by the Conservation Resource Center in Boulder.

"It took me about half an hour for the whole process," he said. "I wrote my check and they did all the intermediary work."

Raderstorf's story is typical among clients of the Conservation Resource Center, a nonprofit organization that has specialized in brokering land conservation tax credits since the program became law in 1999.

The center negotiated $700,000 in tax credit exchanges for the 2001 tax year and $3.3 million in 2002; the total is expected to reach $10 million for the 2003 tax year, center director Mike Strugar said.

"Typically, it's some rich, green guy who approaches us," Strugar said. However, once financial planners and accountants see how the program works, they usually are instrumental in bringing in more clients, he said.

The Conservation Resource Center was pivotal in establishing the process and establishing a market for the tax credits.

Landowners are credited 80 percent of the value of the conservation easement. Buyers pay 90 percent of the easement's value to the broker. The 10 percent gap covers the cost of title transactions, other legal preparations and broker operations.

There are now at least four companies or nonprofit agencies that broker conservation tax credits, including Colorado Conservation Connections in Denver, Carl Spina of Spina Enterprises in Fort Collins, and Boulder conservation attorney Ruth Becker.

Colorado was the first state to create a transferable tax credit, and so far only Virginia has followed suit.

With a minimum purchase requirement of $20,000, the program essentially focuses on relatively wealthy individuals or on corporations. For instance, to have a state tax bill of at least $20,000 requires an annual income in excess of $430,000.

Targeting only wealthy taxpayers for tax credits did lead to some early opposition of the program by the Colorado Union of Taxpayers.

Union president Penn Pfiffner said the group's board made no recommendation when the bill was offered by Rep. Lola Spradley, R-Beulah. At the time, Pfiffner was a state representative from House District 32 and opposed it.

"It would have been better to give this to everyone through a reduction in the income tax rate, rather than a tax credit that legislatures give to preferred interests," Pfiffner said last week.

Although there is no central accounting of the program by the state, brokers estimate that the pool of available tax credits could reach $15 million for the 2003 tax year. Potential buyers have until Dec. 31 to get into the 2003 pool.

The rapid expansion of the credit pool has been driven largely by national, state and local conservation trusts that promote and end up holding the conservation easements. But allowing the credits to be sold, and extending the program to include development rights valued as high as $500,000 triggered a major surge.

Before the state began authorizing the transfer of tax credits, landowners could use up to $100,000 of their credits to pay their state tax bills over a period of 20 years. During surplus years in the state budget designated by the Taxpayer's Bill of Rights, landowners also could receive cash payments of up to $50,000 a year.

Under the exchange law, landowners get tax credits on a dollar-for-dollar basis up to the first $100,000 worth of development rights donated, then 40 cents on the dollar up to $260,000 in credits.

"There's no question that most of them (easement donations) will come in at the $260,000 range," said Will Shafroth, executive director of the Colorado Conservation Trust.

During the mid-1990s, Spradley and Shafroth, who was then the executive director of Great Outdoors Colorado, or GOCO, developed the idea for the transferable credits. The program, he said, is working exactly as they envisioned.

For conservation trusts ranging from the national Nature Conservancy, to the Colorado Cattlemen's Land Trust and even local organizations such as the Black Canyon Regional Land Trust and the Animas Conservancy, the program rapidly is becoming a mainstay of conservation work in Colorado.

Shafroth estimates there are about 38 land trusts operating in Colorado, and says most are using the transfer program.

Land trusts typically pick the properties they deem most viable for conservation and work directly with landowners, using the tax credit as a carrot.

"In many cases they have been working with these landowners for years, when suddenly they had a vehicle to use to get landowner participation," Shafroth said.

He said 2003 might be the top of the curve for program participation, because many farmers and ranchers have been involved in negotiations for several years but hung onto their development rights until the program criteria firmly were established.

Ranches in Spradley's home district, in the Wet Mountain area southwest of Pueblo, are participating in the program. These are properties with scenic and wildlife values that are square in the sights of development interests.

For lands with less development potential, the tax credits are lower. But such groups as the Colorado Cattlemen's Agricultural Land Trust say maintaining farm and ranch land is important, even if it's not targeted by development.

"It helps preserve rural economies," said Lynne Sherrod, the trust's executive director. "When important agricultural lands are saved, it makes it more viable for all the neighbors to stay in the business - you retain the tractor and parts sales (outlets)."

The Cattlemen's Trust was established in 1995 solely to provide a way for farmers and ranchers to sell or donate conservation easements. The trust now is using the transferable credits in most of their acquisition deals.

"We think this legislation is the best thing that has ever happened to agricultural land owners," Sherrod said. "Now landowners can keep their property in production and hand it down to their families."