A controversial bill setting aside $149 million in reparations for state-rejected conservation tax credits is speeding ahead, despite renewed accusations that the proposal was steered by landowners who will benefit from repayments, including the family of a former state agriculture commissioner.
The official working group that helped write Senate Bill 33 included three landowners who will each receive hundreds of thousands of dollars in state funds if the denied tax credits are restored.
Appraisers who reviewed conservation easements and urged the state to reject tax credits because they were wildly inflated note the working group would be written permanently into statute: the bill orders the state Department of Revenue is ordered to make reparations “in coordination with” the group.
“This bill puts the foxes squarely in the henhouse, as the working group will have statutory authority,” said Mark Weston, an appraiser who opposes repayment and who reviewed many of the denied claims as the first director of the state Division of Conservation.
Weston said he believes lawmakers voting to advance the bill, which addresses a problem that peaked from 2008 to 2013, are either unaware that the beneficiaries wrote the law, or feel “flush with cash” from an improving economy and federal stimulus dollars.
The bill has cleared the Senate and moved over to the House, where it awaits assignment to a committee.
While proponents, including Sen. Jerry Sonnenberg, R-Sterling, have said the bill protects taxpayers by including new reviews of the denied credits, lawmakers in negotiations have stripped some of the funding for enforcement. The bill’s language also makes it clear reparations by the state are not optional, saying the law would “repair the harm” caused by denial of tax credits and “restore the integrity of the program.”
Requiring the state to continue consulting the bill’s working group on reparations is necessary because when the Department of Revenue ran the program alone, Sonnenberg said, “it was one-sided. They didn’t take input, and everybody’s a little gun shy. So just making sure that there’s transparency, and another set of eyes on making sure those rules or regulations are done in an open manner.”
The legislation proposed this year is another run at smoothing lingering damage from the state’s easement tax credit policy between 2000 to 2013.
During that time, about 700 landowners had state tax rebates clawed back after their land valuations were found to be fraudulently inflated, adding up to $114 million in unpaid taxes, interest and penalties, according to a 2017 Department of Revenue report. That was about 17% of the total 4,347 donations for which approved tax credits were claimed in the state.
Deals too good to be true
A group of outspoken property appraisers who reviewed hundreds of property claims for the Internal Revenue Service and the state attorney general’s office, when the claims first became controversial, say taxpayers will be on the hook to pay for land deals that investors knew were too good to be true.
“This stuff that went on when Colorado’s conservation tax program was in infancy was disheartening,” said Weston, an easement appraiser for 30 years. “People saw the opportunity to cheat and not just push the envelope, but break the envelope. Finally, authorities wised up.”
Appraisers like Weston say the working group’s report recommending reparations, delivered in 2019, directly contradicted a broader working group’s report the year before saying the denials were valid and no paybacks should be made from the state treasury. They say the landowners and their legislative backers didn’t like the 2018 report’s conclusions, so they created a new working group weighted toward those personally seeking reparations.
The conservation easement program was meant to reward landowners for preserving environmentally significant tracts of land. Donors of an easement keep ownership of the land but give up future development rights for uses such as building homes or mining resources. In exchange for keeping the land for agriculture or wildlife, they can get state tax credits that can be valued at hundreds of thousands of dollars.
Later in the program, they could also sell credits for ready cash to “tax investors” who looked to pay 80 cents on the dollar, for example, to reduce their own tax burden. During the first years of the program, donating landholders could get a dollar-for-dollar tax swap for the appraised value of every easement donated to a land trust.
But a cottage industry of investment advisers and appraisers quickly sprung up selling cheap farmland, which could be reappraised at an inflated value and then put under a conservation easement for tax credits worth significantly more than the buying price.
“A lot of wealthy people who like owning land, they look at conservation easements, done right, to preserve and protect their land and soften their federal income tax,” Weston said.
“Conservation easements can be just wonderful and could make a big impact preserving wolves, sage-grouse habitat and other wildlife,” he added. “But they’re meant to be a charitable donation, not a moneymaker.”
Weston was part of the original 2018 working group that recommended no tax reparations be given to property owners whose tax credits were rejected.
The advancement of Senate Bill 33 through this year’s legislature resurfaces years of bitter arguments over appraisals that, in some cases, are now up to 20 years old.
Alan Gentz, a member of the latest, 2019 working group, said some appraisers who helped the state review claims and now oppose reparations see a restoration of tax credits to landowners as criticism of their work.
Gentz is seeking return of tax credits for an easement he donated on land near Sterling, with the dispute with the state reaching more than $700,000 in payback and interest. He said the denial of credits and the state demanding money back has ruined many farm and ranch families who legitimately sought a new source of income.
The troublesome early Colorado conservation claims fell into what the IRS calls “syndicated conservation easements,” now listed among the agency’s dirty dozen tax scams.
Between 2000-2009, in about 300 state-disputed “gravel pit” tax cases in the Arkansas Valley, land was snapped up for $400 to $500 an acre. Speculators subdivided and sold the land in 40-acre parcels which were each re-appraised, as if suitable for profitable gravel pit mining, at between $17,000 to $24,000 per acre.
“Farmers know to the penny what their land and water are worth,” Weston said. ”Every year they go to the local bank and appraisals are required to get production or operating loans.
“For you to willingly believe your property is worth 20 to 40 times what you know it’s worth because of some special government program, that is ignoring your own due diligence,” he said.
Special district tax courts were set up around the state to adjudicate the conservation easement tax rebate cases.
“All these people had their day in court” 15 years ago, Weston said, “when their tax credits were denied the first time.”
At least 19 appraisers in Colorado were disciplined, fined or disbarred for inaccurate conservation easement appraisals and eight had their licenses revoked or voluntarily surrendered their credentials, according to records from the Colorado Department of Regulatory Agencies obtained by the Colorado Sun.
Most of the conservation appraisal shenanigans ceased when legislators created the state’s Conservation Easement Oversight Commission that kept a tighter leash on the program.
Former agriculture commissioner involved
Family members of former Colorado Agriculture Commissioner Don Brown were among those who bought Arkansas Valley land on the cheap and had it appraised at gravel-pit values. Their tax credits were revoked by the state.
The 2019 working group included Brown, Gentz, and Jillane Hixson, a property owner near Lamar who had to take out a long-term loan to pay back state tax credits after the state demanded them back. The group toured properties affected by easements, including those touted as potential gravel pits, and was intended to advise legislators for the 2020 session. When that session was altered drastically by the pandemic, their work was carried forward by Sonnenberg to this year.
In March 2005, Brown and seven other family members bought 40-acre parcels at $1,000 an acre from the Prowers County Idler farm property that had been snapped up at auction for $400 per acre. The family members in 2005 signed over their deeds to the Greenlands Reserve land trust, in August 2005. Frisco-based Greenlands Reserve has never been accredited by the state of Colorado.
In 2006, each of the family members could have claimed state tax credits for land appraised as gravel-pits valued up to $375,000 each, or 50% of declared land value at $18,750 per acre. Brown said a gravel pit on the property was not such a strange prospect, since the land abutted another gravel mine and core tests revealed an abundant gravel supply.
“If there was oil and gas on that land we never would have asked for an easement,” Brown said in an interview.
Brown said he and his wife, Peggy, had their parcels approved by the state for conservation easements, but two family members were challenged by the Department of Revenue and had to pay back their tax credits. Those relatives likely would be eligible for a refund of the money if the new law passes.
Brown said he believes the system was unfair because even after the state demanded the tax rebates back, conservation easement deeds were not extinguished, so family members and others caught in the system weren’t able to license the land for development or extraction to anyone else.
The family ended up liquidating the 40-acre parcels for less than $25,000 each, or $15,000 less than they had paid a few years before, because the land had limited use due to the conservation easements.
“It was a convoluted, complex thing and none of it made a lot of sense,” Brown said. “The state changed the rules and moved the goal posts after the field goal was kicked.”
Brown said he didn’t volunteer to be in the group for a handout. Brown was appointed Commissioner of Agriculture by Gov. John Hickenlooper in 2015 and served until 2018. Brown said Sonnenberg approached him to serve as a volunteer on the working group because of his experience throughout the state.
“I was commissioner and I’d covered a lot of the state and I knew many people who were affected by this,” Brown said. The work, he said, gave him the chance “to help some of those who had been financially ruined by this.”
Brown pointed out that he agreed to be on the working group in an advisory capacity. He said the three aggrieved landowners were outnumbered by five people in the group not personally involved in tax credit claims. Other members included an attorney, two land trust executives, a property owner who received an allowed conservation tax credit and a landowner advocate.
Families say real farmers with real needs were hurt
Jillane Hixson, the third landowner on the 2019 working group, said her family will be paying back easement-related loans for decades without some relief from the current Senate bill. Hixson said her family has farmed dryland wheat and millet south of Lamar for three, “now going on four,” generations.
They thought donating easements in exchange for tax credits could help them pay down farm debt. Hixson said the family owns valuable land along U.S. 287 that could be developed as a truckstop, and other land valuable for gravel operations or housing development. The donated easement preserved the land while giving the family fair value for development rights they were giving up, she said.
Their tax credit claim for the easement was eventually overturned by the state, which then demanded the money back. Facing tens of thousands of dollars more in attorney fees to fight the revenue department and the Attorney General’s Office, the Hixsons settled. She took out a 20-year loan to pay the settlement, with payments every month until 2035, she said.
Hixson said the working group needed to have roots in those who were hurt most by the years of fighting the state. Her family would be better off, she said, “if I had never, ever, ever even heard of conservation easements. I’d be so damn far ahead. I mean, we just kept going backwards.”
Some of the landowners, including those on the 2019 working group still seeking reparations, say Weston and other appraisers used the state’s review of tax credit awards to discredit other appraisers and create more long-term easement appraisal work for themselves. The landowners say the appraisers are just defending their own past decisions and credibility.
But it’s unlikely that other appraisers were trying to discredit and steal business from the rogue appraisers disciplined after the conservation easement tax scams, said Berthoud-based appraiser Kevin McCarty. McCarty reviewed more than 200 gravel-pit easement claims for six years with the IRS and Colorado Attorney General’s Office. Good appraisers do not lack for work, he said.
McCarty applied to serve on the working group and was rejected, along with another appraiser, he said. McCarty called the Idler Farm, subdivided into plots and bought by Don Brown’s family, “the poster child for all the craziness that went on.”
“We worked hard to do it right,” he said. The land along the Arkansas River near Lamar is near the historic Santa Fe Trail and is conserved forever, he said.
Even the sour experience with the easement tax credits has not stopped the family from participating in other programs, including the U.S. Department of Agriculture’s Conservation Stewardship and Conservation Reserves programs, Brown said.
Appraisers believe Senate Bill 33, as written, will include reparations for landowners who may have genuinely been taken advantage of in a sophisticated tax program they didn’t understand. A companion bill meant to draw more legislative support, House Bill 1233, will expand a revised conservation easement program and raise tax credits to 90% of fair market valuations.
But taxpayers should not be creating the reparations fund and paying out potentially tens of millions of dollars for overvalued claims, especially in the gravel pit easement cases, whose owners should have known they were “egregious” valuations, McCarty said.
McCarty said since Colorado’s appraisal community got a black eye in these overvalued appraisals, he and his colleagues have created continuing education courses. They teach Colorado appraisers complicated land, water and mineral valuation techniques.
Senate Bill 33 “may reflect badly on what took place 15 years ago,” McCarty said in an email. “But the system that gave rise to that situation and the appraisers involved are a thing of the past.
“We have a number of young, well-educated appraisers who are fully capable of being the backbone of this program going forward,” he added.