The Colorado governor showed some love for the southwest corner of his realm, visiting the Dolores River Valley Thursday to sign two bills related to extending tax credits for land conservation easements.
Earlier in the day. Gov. John Hickenlooper (D) and his entourage landed at Cortez Municipal Airport, on the way to speak at the grand opening of the new Visitor and Research Center at Mesa Verde National Park.
He then traveled to the Toman property, a 17-acre conservation easement situated where Bear Creek flows into the Dolores River. In a gesture of appreciation for the region’s open space and agricultural lifestyle, he signed the bills supporting land conservation programs.
“In 50 years and beyond the benefits of conservation easements will live on,” Hickenlooper said. “Preserving places as beautiful as this valley is what makes Colorado. It is part of our brand, our way of life.”
House Bill 1183 increases the total cap for state income tax credits available for donated conservation easements to $45 million annually beginning next year, up from a $34 million cap in 2013, and a $22 million tax-credit cap in 2012 and 2011, figures negotiated for individual calendar years.
“This new law puts the $45 million cap in perpetuity year to year, and gives landowners considering a conservation easement more certainty that tax credits are available,” said Juniper Katz, MLC executive director. “In the past, the cap would be reached statewide, and easement owners looking for the tax credit would have to go on a wait list.”
According to Greg Yankee, executive director of the Colorado Coalition of Land Trusts, “the $11 million more means around 40 more transactions a year, which in turn means 20,000 additional acres conserved a year.”
The second bill signed by Hickenlooper, Senate Bill 221, was more regulatory housekeeping. It streamlines an application process allowing state income tax credits derived from conservation easements to be sold by the landowner on the open market.
“What it does is shift the appraisals for the income tax credits from the Department of Revenue to the Division of Real Estate because that is where the expertise is,” Yankee said. “It makes for a more efficient and practical process.”
Rural property owners are often land rich and cash poor, Katz explained, and allowing them to sell tax credits is a nice perk.
“The certification program allows income tax credits to be sold for 82 cents on the dollar on the open market,” she said. “It is a way for conservation easement holders to put cash in their pocket for giving up development rights.”
Here’s an example: Say someone owes $100,000 in state income taxes. They can buy $100,000 in income tax credits for $82,000 through a broker on a market exchange and that amount will cover their tax bill, thereby lowering their tax burden.
To determine the income tax credit, an appraiser determines the monetary value of development rights given up in the conservation easement. The amount is reduced by 50 percent, leaving the income tax credit amount. However, the total amount of income tax credit is capped for each easement at $375,000, “so it is driven by landowner generosity and a desire to preserve the land long-term,” Yankee explained.
Land conservation easements are negotiated with private property owners who voluntarily agree to give up development rights to their land in order to keep it in agricultural production or as natural open space.
The deals are ironclad legal arrangements, and the restriction on land development is transferred to future owners. Compliance with development restrictions is monitored annually.
The new laws offer additional incentive for property owners who put their land into conservation easements for preservation purposes.
Such arrangements have always benefited from tax savings. By removing the land’s development potential, the market value is lowered and so are the property taxes.
“Depending where you live, and the development potential, high land prices can put a heavy tax burden on property owners,” Katz explained. “Conservation easements reduce that tax liability by reducing the land value so people can afford stay on their land and pass it on to the next generation for farming and ranching.
A dozen states, with Colorado being one of the first, have taken it a step further by offering state income tax breaks for conservation easement holders, the focus of the bills signed by Hickenlooper.
But the governor’s mind was also on the scenery, and on a pint of beer from the Dolores River Brewery. The famously casual governor looked the part, wearing jeans and a ball cap while shooting the breeze with everyone and posing for photos.
“Let’s sign these bills and get back to our beers,” he said, lamenting, “I didn’t bring my fishing pole. My schedule is too packed.”
Katz said the bill signing ceremony was a welcome opportunity.
“The Governor’s Office called and requested a scenic site for the signing, and we felt the Toman property was a good fit because it was a donated conservation easement that preserves the viewshed of the San Juan Scenic Skyway, a national scenic byway.”