Audit questions $1B in tax breaks for donated lands
Colorado’s nearly billion-dollar conservation easement program pays more attention to whether a land donation qualifies for a tax break rather than the merit of its conservation value to the state, an audit of the program has found.
That means contributions to the program — more than 1.7 million acres of land are held in easements that protect them from future development — are approved on a first-come, first-served basis instead of first evaluated for what it is they are actually conserving and if the expense is worth it to the state, the analysis by State Auditor Dianne Ray’s office found.
Auditors said that even though about $965 million in tax credits have been approved on over 4,200 easement donations since January 2000, no one in the state has bothered to evaluate whether what is being conserved is worth the lost tax revenue.
For instance, auditors questioned the conservation value of a one-acre park in downtown Aspen that yielded its owner thousands of dollars in tax credits.
“Overall, we found it difficult to determine the benefits that the state receives from the program because currently no state agency reports on the types of lands being preserved …, how they are used, or the specific wildlife and habitats they support that are valuable for conservation,” according to the report from the Colorado Office of the State Auditor.
The audit, the first in four years, looked at whether the program — controversial in its earliest days because of abuses in which some donors inflated land values and walked off with huge tax breaks — is accomplishing what it should.
Members of the Legislative Audit Committee asked whether lawmakers should have another look after trying to fix the program several times previously.
“There’s a question of whether the state is getting the best conservation bang for its buck. It doesn’t make a heck of a lot of sense to me that this (program) is accomplishing what it was meant to do,” Sen. Rollie Heath said. “If (an easement donation) fits the criteria, whether it fits the state’s conservation goals, they’re approved regardless. Somehow or other, we have to come to grips with this.”
Conservation easements were designed to allow landowners, typically ranchers with large tracts of property, to donate often pristine ground for permanent protection against future development. In return, the state gives a tax credit that can be counted against the amount the landowner owes in income tax.
But landowners often didn’t have tax bills large enough to use the credits, so lawmakers expanded the program to allow the tax credits to be sold. Credits are often sold at an 80 percent discount, so $10,000 in credits are sold for $8,000. In that way landowners can convert credits to cash and credit-buyers are able to get tax breaks at a discount.
Land-conservation trusts that help with the program and maintain many of the donated easements disagreed with some of the audit’s findings.
“The state reviews every easement against criteria to ensure that the easements will, in fact, protect statewide, regional and local conservation benefits,” said Amanda Barker, executive director of the Colorado Coalition of Land Trusts. “The audit’s randomly sampled easements confirm exactly this.”
A study by the Trust for Public Land and mentioned in the audit determined the state reaps $6 in benefits for every $1 invested in tax breaks. The study “demonstrates the important economic value of conservation in addition to the widely understood environmental benefits like clean water, public recreation, wildlife habitat and Colorado’s vibrant tourism industry,” Barker said.
Auditors evaluated seven easements the state approved between 2014 and 2016 and found that several had little more than a possibility that wildlife was present on the property. Two had confirmable evidence of a species that the state deems as having a high need for conservation: the northern leopard frog. One property had no evidence of any habitat that should be conserved, such as greasewood, ponderosa pine or even spruce fir, but did have solid evidence that mule deer were present, the report showed. Yet the landowners received a tax credit.
“First-come, first-served just doesn’t appear to be appropriate,” Heath said.
The Colorado Division of Real Estate, which oversees the program, agreed to fix a number of auditor findings that ranged from better appraiser training to setting fees that would better cover the costs of administering the program.
Legislators use the audit reports as guideposts to potential legislation.
Whether the program will face a wholesale overhaul or its demise was unclear from this week’s hearing, but land trustees were optimistic.