By Andrew Johnson
July 19, 2019
New legislation being pursued on Capitol Hill risks stifling the private sector’s role in protecting the environment at the very time when the U.S. government’s spending on land preservation is drying up. South Carolina could be hit particularly hard, as explosive growth is threatening its coastal areas and wetlands.
Rather than curtailing this private investment, Congress needs to promote and refine laws that expand the ability of private companies and individuals to invest in land conservation in South Carolina and elsewhere. Tax incentives need to encourage the safeguarding of not just ranch lands and hunting plantations, but also coastal waterfronts, marshes, watershed lands and other ecological features in high growth corridors.
For more than 50 years, I’ve been exploring innovative ways to optimize land conservation. I was among a small group of environmentalists who worked with Congress in the 1970s to pass legislation that incentivized landowners to protect the environment. This included the creation of conservation easements – financial tools that allow landowners to qualify for congressionally authorized tax incentives in exchange for voluntarily wiping out their rights to develop their property in perpetuity. I was also one of the early supporters of the Land Trust Alliance, a Washington lobby dedicated to promoting land conservation.
My 50 years in working to promote land conservation have taught me just how crucial the private sector is to the Green Movement. Some purists believe environmentalism should be bereft of the pursuit of profits. Philanthropists or wealthy landowners, in their eyes, are the ones who should be leading this effort.
But such a philosophy is hampering efforts to protect the environment. Land in high-growth, densely populated areas is often too expensive for non-commercial entities to purchase. As a results, apartments and urban sprawl clog important environmental arteries. The catastrophic flooding in recent years in New Orleans and Houston shows the costs of not preserving land in densely populated areas. Moreover, some of the highest-valued land for developers is often in our most pristine areas, such as the coast, mountains, rivers and lakes. In these areas, land conservation organizations had only a narrow group of wealthy individuals in the position to put land aside for conservation, and existing tax incentives were largely insufficient to counter the profits from full-scale development of those areas.
South Carolina is an important case. The state is experiencing explosive growth, which is sharply driving up land values in coastal communities. Without the involvement of the private sector, including through syndications, the conservation community cannot compete. The appraisal methodology needs to recognize the wide divergence between waterfront lands and interior forest plantations. These are already good models of the private sector’s role in preserving land in South Carolina. These include: a new 1,600 acre preserve in Myrtle Beach; Spring Island near Hilton Head; and Palmetto Bluff in Bluffton.
During the past decade, I’ve focused on helping landowners, including development companies, achieve a conservation outcome while still providing a revenue stream. This includes blending tax incentives with the right to partial development of the land. This formula has resulted in important conservation in places from coast to coast.
More recently, I have partnered with some real estate development companies that have innovatively provided conservation options in connection with traditional real estate offerings. These companies offer real estate investors alternative limited development/conservation projects through syndication. Highly regulated by the SEC, IRS, and others, this model has provided a powerful tool for individual investors to choose to participate in conservation without having to be a wealthy large landowner.
In the programs with which I have been affiliated, tax benefits are significantly less than the financial value that would be realized by owners through traditional full-scale real estate development. In high development value areas, investors are giving up, on average, as much as two-thirds of anticipated financial returns from development by electing to protect the majority of the property in its natural state in perpetuity.
This financial value is lost forever, permanently extinguished through the placement of a perpetual conservation easement in favor of a limited development opportunity blended with conservation and tax benefits. Still, the Land Trust Alliance, which I helped found, is promotion new legislation that will hurt the environment by drying up this private sector investment. The proposed law would effectively prohibit real estate syndications from utilizing conservation easements in their development offerings. And it seeks to place arbitrary limits on the size of congressionally authorized tax incentives based on faulty assumptions about value.
Everyone agrees that steps should be taken to ensure these investment opportunities aren’t abused. But whatever those steps are should be impartially applied to all conservation easements, regardless of whether the easement involves a wealthy landowner, a syndicator or a corporation.
In the face of vanishing farmlands that are needed to support our growing population, rivers and streams facing water quality declines, and traffic congestion and pollution caused by rampant development, incentives remain vital. The threat of global warming can be confronted, in part, by protecting the plants that produce oxygen and absorb carbon dioxide, as well as trees in urban environments such as Atlanta threatened by over-development.
The government cannot do this alone; the private sector must participate in land conservation efforts, too. Land will be developed to its highest and best use – which means maximizing development to maximize profits – unless the law continues to provide incentives to undertake conservation, in whole or in part. Congress and conservationists shouldn’t kill the golden egg of private sector investment. South Carolina should be lending its voice to this debate.