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Conservation Easements and Economic Incentives

This is an abridged version of the presentation I gave at the inaugural Tara Talks at Tara Wilderness in Eagle Lake, Mississippi on Saturday.

A conservation easement is a voluntary restriction on the use of land by means of a recorded deed restriction.

There are different benefits that can be derived from placing a conservation easement on your land. If you sell your development rights, you can get cash. If you donate your rights, you can take a charitable deduction on your income taxes. Other economic benefits include lower property value assessment because the land cannot be developed (meaning lower property taxes) and an estate tax deduction when you transfer your property to future generations.

In general, however the biggest benefit a landowner gets from placing a conservation easement on their land is the knowledge that their land and its legacy will be protected for generations to come.

The restrictions are required to last in perpetuity in order to receive federal tax benefits. However, subsequent landowners do not receive an economic incentive to continue conservation of land subject to a conservation easement.

The original landowner gets to determine what restrictions they would like, which will tie the hands of future landowners forever. Conservation easements are not easily modified or terminated due to the perpetuity requirement, which makes it difficult for future landowners to change land use practices if there is a change in technology, surrounding land use, or climate. This can create animosity between the landowner - who doesn't understand or want to follow the conservation purposes stated in the easement - and the easement holder.

A conservation easement can be designed for a term of years. This operates more like a contract, where a private landowner will agree to not develop their land, farm or graze their land, or will agree to implement conservation practices on their land for a certain number of years in exchange for rental or cost share payments. Conservation contracts are generally administered by federal and state government programs and do not qualify for federal tax deductions.

At the federal level, the Natural Resources Conservation Service (NRCS) and the Farm Service Agency administer a variety of voluntary conservation programs that provide funding and technical assistance for working land conservation. They are great tools for private landowners looking to balance natural resource conservation and economic development of their land.

The downside is that these federal conservation programs are under the knife. Government funds are dwindling, and without a Farm Bill (which is the mandatory funding legislation for these programs) many conservation programs have already lost funding and are no longer authorized.

Even with a Farm Bill, participation in some of these programs has dropped. This year the amount of acres enrolled in the Conservation Reserve Program hit a 26 year low and dropped well below 30 million acres (to about 26.9 million acres in total).

States also administer voluntary conservation programs. In California, the almost obsolete Williamson Act allows for local governments to enter into conservation contracts with private landowners to restrict land to agriculture of open space use for a property tax reduction. Many other states allow for land that is kept as open space, farm, ranch, or forestland to be assessed at a lower property value for property tax purposes under state current use programs.

Private landowners in the Mississippi Delta have participated in conservation easement programs and have benefited from conservation easements being placed on land upstream in the Mississippi River Basin.

According to a recent NRCS report, farmers have reduced sediment, nutrient, and pesticide loss from farm fields through conservation practices, such as erosion control and nutrient management treatment. From 2003-2006 it is estimated that there was a 30% reduction in sediment loss, 7% reduction in nitrogen loss, and a 51% reduction in phosphorus loss.

In 2012, the NRCS, through the Wetlands Reserve Program, granted $32 million to five water quality and wetland improvement projects in the Mississippi River Basin states. Of that, over $20 million was granted to the Mississippi River Trust for hardwood forest and wetlands restoration.

Finally, according to the National Conservation Easement Database, in Mississippi alone there are 602 conservation easements permanently protection over 257,000 acres of land.

We are going to have to get creative for conservation easements to remain a sustainable and viable tool for land conservation. We can no longer rely solely on governments and land trusts to purchase development rights, Farm Bill programs, or private landowners who are not receiving economic support for their conservation efforts.

Instead, we have to empower private landowners with a variety of funding and incentive options to encourage their engagement in land conservation. Private landowners need to be aware of the wide variety of public and private sector economic incentive programs available for land conservation, and be aware that they can be used creatively together to achieve conservation success.

For example, an alternative funding approach for supporting conserved land is for a private landowner to lease their conserved land for hunting, recreational, or agricultural purposes. They might also engage in agricultural tourism by creating corn mazes and hayrides. Or they could create a management plan for selective harvesting, grazing, or energy development.

An emerging idea for funding large scale conservation is to monetize ecosystem services through ecosystem services credit trading programs. Through ecosystem services credit trading programs, private landowners would be able to sell carbon credits to polluters, sell habitat credits to developers, and sell watershed credits to agricultural producers in order to fund conservation of their land as a whole.

One of the major obstacles in perpetuating land conservation through this kind of economic incentive is determining what the value of preserved land is, and then subsequently, who should pay for it. However, once a market is created for selling ecosystem credits, private landowners who place a conservation easement on their land will have perpetual economic incentives and support for keeping their land in conservation.

All of the conservation being done today can disappear if private landowners do not plan for the future of their land after they are gone.

Currently, there is a graying tsunami in rural America. The average age of private landowners is almost 60 years old and increasing, which will result in the country's largest transfer of land over the next few decades. How private landowners choose to transfer their land will greatly shape the way rural landscapes function and look.

Conservation easements are a valuable tool in estate planning because they prevent subdivision and development of the land, and can provide heirs with an estate tax deduction. Conservation easements can be granted during life, or at the landowner's death, which can create a wide array of options. For instance, a landowner can use the money from the sale of development rights to compensate non-land managing heirs.

Other estate planning tools that a private landowner can use are to set up the farm, ranch, or forestland as a business, such as a Family Limited Partnership or Limited Liability Company, and grant equal shares to all heirs, or purchase life insurance against the land to create a liquid asset.

RFF recognizes the issues facing private landowners and seeks to empower their conservation visions through the coalescence of resources provided by the public and private sectors. This unique approach is essential for the future of land conservation.

Breana is the Conservation Tax Center Director for Resources First Foundation. Due to a lack of space on this blog, what you see here is an abridged version of Breana's presentation - she is very thorough. Her full presentation is available in the PLN Library here.