Forever is a long time: Conservation easements create tax dilema
June 27, 2013
A rancher from Union Center, S.D., who serves in the state senate is concerned that perpetual conservation easements are creating unexpected heartache for landowners across the state. Majority whip Larry Rhoden learned in 2012, while serving on a task force to research property tax assessment solutions, that taxing land encumbered with easements is sometimes tricky business. The republican senator sponsored legislation this past spring to limit conservation easements to a time period of no more than 30 years.
"One of the main topics of discussion on the task force was how to do this new production tax on land with easements," Rhoden explained. "We had one case where a landowner had sold a perpetual easement on his place for over three-quarters of a million dollars, and then the very next year he protested his taxes because the land now couldn't be farmed." Rhoden said in that situation the assessor could call "baloney" on the appeal but Rhoden worries about the future generations of landowners who will continue to pay full "ag" taxes on the land even though the agricultural uses – and much of the income-earning potential – has been forfeited in a perpetual easement.
According to an Ohio State University online fact sheet, "A conservation easement is designed to exclude certain activities on private land, such as commercial development or residential subdivisions. Its primary purpose is to conserve natural or man-made resources on the land. The easement itself is typically described in terms of the resource it is designed to protect (e.g., agricultural, forest, historic, or open space easements)." It goes on to explain, "Ownership of a piece of property may best be described as a 'bundle of rights.' These rights include the right to occupy, use, lease, sell, and develop the land. An easement involves the exchange of one or more of these rights from the landowner to someone who does not own the land. Easements have been used for years to provide governments, utilities, and extractive industries with certain property rights. An easement permits the holder certain rights regarding the land for specified purposes while the ownership of the land remains with the private property owner."
"My perspective is that when you sign a perpetual easement you have, for all intents and purposes, just stolen the property rights of every future owner of that land," said Rhoden. "The irony is that people call me anti-property rights for supporting limitations on easements but when you look at the big picture, we are just tenants on this earth for a brief period of time. You have every right to do what you want with your land during your time on earth but I don't see how people think they can control it beyond the grave."
Rhoden points out the changes that have been made in agriculture in just the last 20 years. "Given all the potential advancements out there, how can we tie up land for eternity? And there are practical considerations. These organizations that hold these easements, you don't know four or five generations down the road – the leadership, management or philosophies can change." Rhoden explained that an unscrupulous organization (now or in the future) holding an easement with "90 percent of the value of the property" could at some point in the future purchase that land for "pennies on the dollar" and then vacate the conservation easement, leaving them with full possession and full rights of the property that they purchased at a below-market-value rate. "That could hypothetically be done moments after you leave this earth. They could dissolve the easement," he points out. "I don't mean to discredit any organizations that deal with these issues, but we are thinking about the here and now and eternity is a long time. We've seen firsthand how these organizations, with just a couple of members changing in leadership, can change dramatically."
"Given the global situation that we're involved in with agriculture, we're expected to feed twice as many people on the same amount of land. These organizations are stripping away the capabilities to produce food based on the situation in the here and now," he said.
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Dave Sigdestad, a Pierpont, S.D., farmer and former legislator knows firsthand how challenging a perpetual easement can be. The ag land he rents from his mother-in-law was signed into an easement with the U.S. Fish and Wildlife Service about a decade ago, limiting his ability to make fundamental management decisions on the land that would improve productivity.
"I saw some stakes out in the field and I asked her about them and she told me, 'oh, it's just like manna from heaven, they told me we can farm it just like we always have and we'll get a payment for the easement.'" Sigdestad said he thinks agencies and groups seeking easements sometimes prey on older people. "She didn't understand what she was getting into and now she regrets it but since it is perpetual we have no way of ever changing it," he explained. Sigdestad said the easement amount probably paid the taxes for about 15 years which sounded appealing at the time, but taxes have risen quickly and that payment now seems quite small in the whole scheme of things.
Sigdestad said that because of the easement he can't even take care of some common sense management issues like burning dead trees. But his big squabble isn't with the restrictions on the property but with the perpetuity of the easement. "The word perpetual is a word I have trouble with. I realize that it's your land as long as you're alive and if you want to do something, with it, you have that right. But you shouldn't have the right to determine what happens to that land forever. You're just a caretaker to take care of that land right now," he said, adding that he has often wondered how our agricultural industry would have survived these past few decades if it had been tied up in easements years ago.
Although his legislation didn't survive, Rhoden remains passionate about the issue, and says he would have been open to amendments to allow exemptions for utilities and other such easement needs. He points out that South Dakota could look to North Dakota as an example because their neighbor to the north, has a law in effect that limits certain easements to 30 or 50 years and others to 99 years.
Former North Dakota legislator and Basin Electric employee Steve Tomac, St. Anthony, N.D., said that he believes 99 year easements are in effect across the state for utility purposes.
"Whether we're building transmission lines or just getting usable electricity to a residence or an oil well or a pumping station for a gas pipeline, it's an easement. We do want those to last longer than 25 or 30 years so we do them for 99 years." Tomac added that rural telephone co-ops also utilize the 99 year easements that can be renewed as many times as needed.