Au­dit ques­tions $1B in tax breaks for do­nated lands

The Denver Post - - NEWS - By David Migoya

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.

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