NCPA - National Center for Policy Analysis

CONSERVATION EASEMENTS AND FEDERAL TAX POLICY

March 13, 2006

Land trusts and conservation easements are major forces in today's environmental movement, but they have recently fallen are under intense criticism, says Dominic Parker of the Property and Environment Research Center (PERC).

Conservation easements -- partial interests in land that prohibit intense development --have helped conserve millions of acres of valuable open space, wildlife habitat, river corridors and wetlands, but many federal lawmakers have questioned their tax-deductibility, says Parker.

Moreover, current reforms have done little to address the endemic potential problems related to tax code funding, says Parker:

  • The perpetual constraint on the transfer of conservation easements has limited the ability of trusts to respond to dynamic economic and ecological conditions.
  • It has also created a disconnect between federal taxpayers, who pay for conservation easements, and local land trusts.
  • Tax code funding can also discourage local trusts from considering whether the benefits of accepting donated easements justify the full costs to all taxpayers.

Instead, tax code reformers should consider some more fundamental changes, says Parker:

  • Land trusts could be allowed to sell their easements back to landowners, provided that the trusts reinvest the money in land conservation; however, irresponsible trusts could take advantage of this by converting donated easements into cash, or
  • The federal tax code funding could be replaced with a matching federal grant; total funding could be the same as the aggregate decrease in taxes paid by landowners because of easement donations and the funds would be allocated to trusts on a competitive basis.
  • Additionally, this would create an explicit financial budget constraint for land trusts' conservation projects.

Furthermore, as the number of land trusts grows and existing conservation easements age, we should consider whether taxpayer dollars can be channeled to land trusts to encourage more effective conservation, says Parker.

Source: Dominic P. Parker, "Conservation Easements: A Closer Look at Federal Tax Policy," Property and Environment Research Center, October 2005.

For text:

http://www.perc.org/pdf/ps34.pdf

 

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