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In perpetuity, or not? 

Credit:  Anne Galloway | Mar. 9, 2014 | vtdigger.org ~~

Vermont has one of the most extensive private land conservation efforts in the country. Over the past 30 years, the Vermont Land Trust, community land trusts and The Nature Conservancy have preserved hundreds of thousands of acres in Vermont.

The cornerstone of the land conservation movement has been the notion that property – working forests, farms and ecologically important lands – would remain undeveloped in perpetuity.

One of the tools used to conserve parcels is a legally binding land covenant known as a conservation easement. An easement eliminates a landowner’s interest in “development rights.” Those rights, which have monetary value, are transferred to a land trust that holds the easements in perpetuity.

About 10 percent of Vermont’s land is protected under conservation easements at a cost of hundreds of millions of dollars in federal funds, donations, state grants and forgone income tax revenues.

Several conservation groups are questioning whether the word “perpetuity” should apply to all conservation easements. Prominent Vermont conservationists, led by Darby Bradley, the former longtime director of the Vermont Land Trust, are now arguing that in certain instances limited development should be allowed.

Bradley and The Nature Conservancy are asking the House Judiciary Committee to pass S.119, a bill that would allow easement holders – such as the trust and the conservancy – to make minor changes to the agreements without seeking the approval of a judge.

The legislation, however, also includes a provision that would give an easement-holder, typically a land trust, the ability to make major changes to the development rights as long as a special panel approves.

Others who have been active in conservation efforts – including former Gov. Howard Dean, the head of the Upper Valley Land Trust and a professor at the Vermont Law School – believe S.119 could give easement holders, including the land trust, the ability to significantly change land protections. Critics say the “Category 3” provision in S.119 would allow a land trust to revoke easements, eliminate the obligation to protect land and effectively allow development on property that was legally bound to be preserved.

“Category 3” also undermines the expectation among donors that “forever” means “forever,” according to John Echeverria, a Vermont Law School professor and former director of the environmental law and policy institute at the Georgetown Law School.

Legal experts, including Echeverria, say the IRS has no authority to challenge changes to easements that have been purchased.

But for easements that have been donated, Echeverria says the state legislative proposal creates a slippery slope. Under a provision of the bill, conservation groups could renege on promises made to donors who have taken tax deductions for the value of the easements. Changes to donated easements could violate the spirit of the charitable trust doctrine, he said, and leave donors and trusts vulnerable to IRS audits of property no longer protected in perpetuity.

“This legislation basically says the land trust and the landowner can go to a board or hold their own friendly proceeding and say, ‘well we think it’s best for Vermont if we move the easement,’” Echeverria says. “I think the most fundamental policy problem with that is that it breaks the promises that have been made to hundreds if not thousands of landowners here in Vermont who have made conservation donations on the clear understanding that their land – not some other land – will be subject to permanent protection.”

Roughly 30 percent of the easements in Vermont have been donated to conservancy organizations.

The amendment process, Echeverria said, could allow trusts to “swap” easements, eliminate protections and change house locations. He says the legislation violates the charitable trust doctrine, established under state law, and undermines the public’s perception of a trust’s obligation to keep land perpetually free of development. Changing the terms of an easement on donated land is a partial extinguishment under the law that should be amended by the courts under federal law, in Echeverria’s view.

In a hypothetical scenario, Echeverria says the easement for a Taylor Valley Conservation Area in Strafford could be passed into the hands of an investment group that wants to build 25 rural estate properties. In theory, he says the group could go to conservancy and offer to buy easements for land along the Connecticut River, which has a higher conservation value in exchange for the right to develop the Strafford conservation area.

Gil Livingston, the executive director of the Vermont Land Trust, says Echeverria’s example is extreme.

“When he speaks to the Vermont Land Trust erasing conservation easements and swapping conservation easements elsewhere – that hasn’t happened in Vermont,” Livingston said. “We are not going to sell conservation easements. The first time we do something like that is the last time we receive a donation. Our goal is to create and maintain a trusting relationship with each landowner. We work with them to have faith that we’ll honor commitments we’ve made.”

Bradley and Livingston, the current director of the Vermont Land Trust, say the working landscape evolves over time and they don’t want to “shackle” farmers. There are currently no explicit state guidelines for amending easements. Bradley and Livingston both support the adoption of S.119, because it would create a process and criteria for changes to covenants for conserved land.

“Land uses and the context in which conservation easements exist change over time,” Livingston said. “Easements can be amended under current law, but there is no process, no explicit criteria, no test to be applied when organizations are considering an amendment. Nor is there public review or public engagement.”

Echeverria says there is extensive legal precedent on the steps charities must take to carry out donor intent. “The problem is not that there are no criteria, but that the Vermont Land Trust would like to have the Legislature erase the current criteria, so the trust can proceed without regard to donor intent,” he said.

In an email, Dean, who was governor of Vermont from 1991 to 2003, wrote that he respects Gil Livingston and the Vermont Land Trust, “but I am alarmed by the idea.” Dean made land conservation a signature part of his legacy. (He was involved in the preservation of the former Champion Lands forestland in Essex County among other areas.)

“There is a real chance that the passage of this bill could undo decades of significant progress in keeping Vermont sustainable,” Dean said in an email. “Time to slow this train down so the public can learn more before we alter Vermont for the worse forever.”

Why create an easement panel?

Bradley, the much-revered former head of the Vermont Land Trust, had an “epiphany” in 2007. He began to question whether easements should never be changed. There are practical reasons to amend the legal covenants, he said, that are beneficial to the public good.

Bradley began to collect examples of easement changes that do little harm and provide a public benefit. A volunteer fire department in Woodstock needed a half acre to expand, but the department was surrounded by conserved land. The town asked for an amendment and because the change didn’t “materially change” the conservation value of the remaining land, he said, an amendment to allow construction on the parcel served the public good.

When farmers want to put a cellphone antenna on an silo, for example, there is no universal state process for changing an easement to allow that use, Bradley said.

Bradley points to a land swap at an orchard in Shoreham in which a conservation easement created 20 years ago retained the right to build a second home on the property. Recently, a new owner wanted to conserve that land and exchange the easement restriction for the right to build worker housing on the farm compound.

In rare cases, Bradley said, easements on whole parcels that are of lesser conservation value can be swapped for easements on land that is of higher conservation value, as long as the amendment does not create a financial windfall for the landowner.

Livingston says there is no process for amending easements under the current state law. That is to say there is no criteria, no test, no public review and no public engagement for the amendment process in state statute. Only the Vermont Attorney General as enforcement authority under state law and can challenge amendments if they are contrary to the public interest or violate charitable trust requirements.

As land uses change, Livingston says, easement holders like the Vermont Land Trust need to be able to consider the context in which people are using land for farming and forestry.

The farm building compound, for example, might need to extinguish easements on small parcels in order to add another barn or more housing for workers. Or new restrictions for river protection might need to be added.

Most farmland easements, Livingston says, are not donated. Typically, the land trust purchases the easements because an operating farm is the principal asset for a landowner rarely able to donate the capital value of the easement.

The Vermont Land Trust holds easements on about 1,700 properties. About 700 are held on farms. Vermont has about 2,000 properties in all that have been conserved through easements.

“The statute we’re proposing, S.119 is designed to create a single process for all classes of easements (purchased or donated),” Livingston said.

That process creates a set of criteria under three categories of easement amendment. Under category 1, amendments would include adding or enhancing protections under an easement, the right of first refusal for the easement holder to obtain an ownership stake and merging conservation easements. Category 2 amendments would allow changes to 2 acres to 5 acres under an easement.

Category 3 allows the panel to remove a “protected quality from the easement” or changes to the hierarchy of the easement’s stated purposes or “materially reduces the safeguards afforded to the protected qualities of the easement.

Under any of these circumstances, the easement holder would apply for an amendment review by the Vermont Natural Resources Board and a five-member Easement Amendment Panel to review changes to an easement that removes conservation protections or changes an easement’s stated purpose. The members of the panel would be chosen by the board and the governor.

Applicants for category 3 easement amendments must notify the Vermont Attorney General, the Vermont Housing and Conservation Board, the local planning commission, the municipality, and anyone who has an interest in the easement.

Tax implications?

John Echeverria, who has represented the National Audubon Society and American Rivers, says Category 3 amendments could allow for the “taxicab” theory of conservation to take hold, the notion that land trusts could move easements around from “low priority” conservation parcels to “higher priority” land.

“Part of the problem with that is that people (donors) have been told and told by the land trusts, that the land trusts will protect their particular property,” Echeverria said. “That’s the mantra of the land trust community. If you look at the websites of the land trusts in Vermont, they’re very clear that they are encouraging donations by landowners in order to ensure the perpetual protection of their individual property.”

In his view, when a landowner makes a charitable donation for an easement on that particular property, the land trust has a fiduciary duty to protect that land.

The Internal Revenue Code states that if someone is going to donate a conservation easement to a conservation organization, Echeverria says, it has to be a perpetual conservation easement on that particular property. “The reason is, Congress didn’t want to have a situation where people were putting easements on a property, getting tax deductions, then hold property for 30 to 40 years then selling it off at an enormous profit, with a subsidy from the taxpayer,” he said.

Under the Charitable Trust Doctrine, Echeverria says, land trusts are obliged to materially maintain the overarching intent of each donated easement (he does not object to “de minimis” or small changes under category 1 and 2 of the proposed state law).

“The theory is, if we want people to contribute to charity, the law has to require the recipient to carry out the donor’s wishes, otherwise the donors stop giving,” he says.

The courts, Echeverria said, have dealt with charitable gifts that fail or become impossible to carry out. Charities that want to change the use of a gift must go to the courts.

Under the proposed state law, land trusts would not have to seek approval for changes to conservation easements from the courts.

Echeverria says S.119 sets up a complicated amendment system that makes it possible to terminate easements or substitute amendments.

“To make matters worse, as I read the legislation, it does not provide for the review process to be conducted by an independent body,” Echeverria says. “In the case of category #3 amendments, this legislation provides for a process that is directed and run by the nonprofit organization that holds the conservation easement.”

Livingston says Echeverria “is operating in the context of national law” and the Internal Revenue Code; Vermont’s Real Estate statutes supercede the jurisdiction of the IRS in his view.

“I think that John is not accurately describing even the national law on the subject,” Livingston said. “There’s a pending national conversation about what the Internal Revenue Code requires with respect to conserved land. John and the authors (of a recent commentary on VTDigger) are in one school. Their perspective is not shared by a majority of land practitioners. We don’t happen to agree.”

A working group that was charged by the Legislature to study the changes (the group included Bradley, other land trust officials and Bob Klein of The Nature Conservancy, among others) found that “a state-sanctioned process such as the one we propose, and where IRS issues are clearly involved,” creates a “pathway to Superior Court.”

Jeanie McIntyre, director of the Upper Valley Land Trust, has been a member of the working group. McIntyre opposes the Category 3 provision of S.119.

“Our organization is not saying this bill is terrible, we’re saying let’s have a bill that takes care of donors,” McIntyre said. “I don’t think people who give conservation easements should be second class citizens. I don’t know why they (VLT and TNC) can’t agree to that. We should be able to find common ground on that.”

McIntyre said the working group’s pursuit of a state-sanctioned amendment process raised questions about whether donors could run into difficulties with the IRS. She contacted an official at the federal agency and came to the conclusion that a change in state statute would not protect donors from federal income tax regulations. Only a court proceeding allowing the “extinguishment” an easement would be acceptable, according to a letter from Karin Gross, an attorney for the IRS.

In a worst case scenario, donors could be audited and required to pay back tax deductions. Land trusts could be audited as well.

Stowe Land Trust deal

In 2004, Johannes Von Trapp bought 513 acres adjacent to 1,100 acres owned by the Trapp Family Lodge in Stowe. He let word out that he wanted to put about 50 houses on the adjoining land, which is home of the Stowe Derby and Catamount cross country ski trails.

Before long, the Stowe Land Trust offered to buy a conservation easement on the property.

The pricetag? $1.75 million. The trust didn’t have the money, and embarked on a fundraising drive that despite donations, a $450,000 municipal bond and a $600,000 grant from the Vermont Housing and Conservation Board fell short by $750,000, according to news reports.

Von Trapp offered to trade the value of an easement on 32 acres of the 1,000 acre property for the remaining $750,000. The Stowe Land Trust agreed to the easement exchange, and the land was protected.

Echeverria says the Stowe Land Trust easement swap is illegal and sets a new precedent.

Bradley sees it differently. In a speech to the Vermont Bar Association, Bradley said there was “a vague uneasiness about lifting perpetual restrictions on the 32 acres even though the overall transaction resulted in a clear ‘win’ for the public.”

“Things are going to change over time in ways that no one could have anticipated, and land trusts are going to have to respond to that change,” Bradley wrote. “Changes in technology, in conservation opportunities, in the business of agriculture, in community needs, in plant and animal species, even changes in climate will test the permanence of the conservation choices that we make today. To say ‘no’ to cell antennas on silos, to let 500 acres of high conservation-value land go for the sake of 32 acres of low conservation-value land, to require the Village of South Woodstock to go through an eminent domain process to secure a site for a needed community facility, these positions would be untenable for a land trust that tries to do its work in a “community” context. The question is not whether conservation easements will change, but under what criteria and through what process they will be allowed to change.”

Editor’s note: This story was updated at 5:15 a.m., 6:04 a.m. and 6:34 a.m.

Source:  Anne Galloway | Mar. 9, 2014 | vtdigger.org

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this article resides with the author or publisher indicated. As part of its noncommercial educational effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send requests to excerpt, general inquiries, and comments via e-mail.

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