Persistent state legislators are once again hoping to compensate Colorado landowners whose conservation easement tax credits were rejected and clawed back years ago, this time with a bill whose price tag to the treasury would be about $155 million.
The effort by Sens. Faith Winter, a Westminster Democrat, and Cleave Simpson, an Alamosa Republican, revives a yearslong effort to repay family ranchers and farmers who say they signed conservation easements in good faith only to have them rejected by state revenue officials who determined they were overvalued. The sponsors say they have put in more conditions since last year’s failed $149 million payback bill, including new limits on the easements’ value and who can still claim them.
“We’ve been down that road,” Simpson said. “So let’s try to focus this in a little different direction.”
Last year, when a similar bill flew through the Senate and died in a House committee, Winter said, “members still had concerns around these guardrails and making sure that we’re really addressing the family farms and ranches and not the speculators.” And this year, Winter said, the legislature has more revenue to work with.
“So I think we’ll be more successful,” she said. The new bill, Senate Bill 119, will first appear at the Senate Finance Committee on Wednesday.
Mark Weston, a prominent critic of the past payback attempts said this year’s bill does appear to have meaningful changes “preventing some of the worst abusers from qualifying” for repayment of credits.
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Changes include a requirement that families need to have owned the land for three years before applying for the initial tax credits, and capping tax credits at 250% of the purchase price of the land. That will cut out some speculators who tried to manipulate the system to get lucrative tax credits, without any real interest in the land or its conservation value, said Weston, an appraiser who opposes repayment and who reviewed many of the denied claims as the first director of the state Division of Conservation.
It’s important for legislators and taxpayers to understand, Weston said, that “these credits were not disallowed arbitrarily by the Department of Revenue, but were scrutinized by a governor-appointed expert commission, qualified appraisal staff within the Division of Real Estate, along with the number crunchers in the Department of Revenue.”
Fixing past mistakes
The 2022 bill is the latest attempt to restore controversial easement tax credits issued from 2000 to 2013, some of which investigators called spurious and the Colorado Department of Revenue denied after reviews by teams of appraisers.
The conservation easements were originally intended to protect natural spaces while compensating family farmers and other longtime landowners for giving up their rights to develop the property. An appraiser estimated the value of the land and development rights, and the state issued tax credits that allowed the landowner to offset other taxes or get paid cash by investors who bought the credits.
But the revenue department and many in the appraiser community said that in some cases unscrupulous investment advisers created partnerships or family groups to claim lucrative, overvalued credits for development that never would have happened. In one disputed case, a piece of land near Lamar that sold for $776,000 appeared to qualify for easement credits of $8 million.
Some farming and ranching families have for more than a decade protested that they signed up for the earliest iterations of conservation easements in good faith to help save their family business and pay tax bills. They emphasize that the federal Internal Revenue Service allowed the tax credits even when state officials denied them and demanded repayment.
The disputes eventually involved more than 800 cases and hundreds of millions of dollars in contested credits. Some families say paying back the credits or being confronted by investors who bought the rejected credits has ruined their lives. The fiscal note for the new bill says the total of disallowed credits from 2000 to 2013 is now about $177.7 million. Some cases have been resolved or settled.
This year’s bill calls for a newly created ombudsman in the state Division of Conservation to resolve disputes between parties who may be claiming the same credits.
The bill would spend $5.8 million in the first year to hire about 17 full time positions to administer the credit disputes. Based on the percentage of credit holders expected to apply, restoring the credits would cost the general fund another $66.6 million the first year, and up to $88.8 million in the second year.
The Colorado system for conservation easement tax has been tweaked multiple times since the period when officials say it was abused and families said they were unfairly denied. Last year, the legislature passed a bill sought by conservation groups that increased the amount of tax credit on new easements to 90% of the donated value, and added water conservation groups and others among those who could apply for credits.
That bill was initially hailed as a companion to last year’s attempt at restoring credits to past denied credit holders. But the credit-restoration bill died in its second House committee vote on party lines dominated by Democrats, in what rural supporters called “pulling the football” after months of negotiations.