Environmentalism and Shifting the Tax Burden

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This morning, my office got a call from a very nice elderly lady, inquiring about the mechanics of filing a conservation easement on her property. She had started the easement process in the late 1990's and decided against it at the time. However, something had changed her mind in the past decade: "With the property taxes getting so expensive, I need to do something here to bring them back down."

Ay, there's the rub, as Hamlet would say.

A conservation easement, as the name implies, is generally an encumberance placed on a piece of property (generally a large or desirable tract of land) by the owner for the purpose of conservation for the future. Usually they limit future development and use of the property to specific small, "low impact" uses. There will often have restrictions on how the land may be divided, what sorts of structures may be built, how the vegetation/trees on the property will be managed, etc. They are generally billed as "preserving the land for future generations". This easement will become attached to the title of the property and carry these restrictions forward to any future owners. A property owner may have this easement written up independently, by a lawyer or title company experienced in these matters, but more often than not the easements are written up and enforced by a third party conservation or land trust organization (generally a non profit).

The largest nation wide organization managing these sorts of easements is The Nature Conservancy. In my home state of Minnesota, the Minnesota Land Trust is the largest state wide organization managing conservation easements.

The question is, when does a conservation easement no longer become a conservation easement, but a tax shelter? From the Nature Conservancy's website:

Here is a summary of the benefits available to many landowners who donate conservation easements:

- They can deduct up to 50 percent of their adjusted gross income in
any year (up from 30 percent);

- They can deduct up to 100 percent of their adjusted gross income if
the majority of that income came from farming, ranching or forestry; and

- They can continue to carry over unused portions of deductions for as
long as 15 years (up from 5 years) after the initial year in which the deduction
was claimed.

Those are just the benefits at the federal level; if you're state uses an ad valorem property tax system that uses the value of property as the basis for figuring property taxes, the argument then becomes that since these sorts of easements diminish the usability of the property, then the value of the property on the open real estate market is therefore diminished, and therefore subject to a lower level of taxation. This aspect of the system is openly advertised by the groups that specialize in managing these properties, like Minnesota Land Trust:

Income Taxes: As with other charitable contributions, the donation of a conservation easement under certain circumstances may allow the landowner to claim a federal income tax deduction for the value of the easement.

Estate taxes: A gift of a conservation easement may also reduce federal estate taxes, making this an effective way to transfer land to the next generation with its natural features intact.

Property Taxes: An easement that reduces the value of the land may result in lowered annual property taxes.

The tendency is to shrug these sorts of incentives off, but at what point does this change from a simple incentive to a shifting burden? At the local and state level, the total levy amounts will not be changed to compensate for these lowering values; the loss in revenue will simply be passed on to the neighboring properties in the same taxing jurisdiction. In other words, if your neighbor's share of property taxes go down, yours are likely to go up.

In some areas, where these programs are very attractive to landowners of large tracts of land, the tax burden can get shifted down to folks who own pieces of property that are smaller, less desirable from a conservation standpoint, and lower in overall value. Theoretically, the owner of a multi million dollar property should be in a better position to pay their fare share of overall property taxes than a person who owns a family home on a small lot...but in the end, what constitutes their fair share becomes a point of conservation debate and not a simple fact.

There is more talk now than ever of additional government incentives to "be green", everything from subsidies to set aside farmland to a tax break for driving a high mpg vehicle. Having failed to get majority of people to enlist in the fight to save Mother Earth by appealing to our collective environmental conscience, they're now trying to get us to do it by appealing to our individual wallets.

At what point do a person's motives to "be green" come into question? Should the general public subsidize a person's conservation efforts when the sole point of that effort is to lower their taxes?

Is the planet really going to hell so fast that we can't slow down, take a look at some of these programs and say, "Wait, is this really in the average American taxpayers' best interests?"

Like Kermit said, it ain't easy being green.

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