The Virginia Outdoors Foundation (VOF) has decided to begin imposing fees on all donations of conservation easements, effective January 1, 2016. This decision was made during VOF’s quarterly Board of Trustees meeting held on June 25, 2015. The official announcement of the decision was posted to VOF’s website in a blog post dated July 2, 2015. Let’s walk through the announcement and see how land preservation in Virginia might be affected.
How Will the New Fees Be Assessed?
The new fees come in the form of a fee assessed for the preparation of the baseline documentation report (BDR). The purpose of a baseline documentation report is to document the state of a property at the time of the donation of a conservation easement. Typically, a BDR will include a narrative statement describing the property and its various features, with the majority of the BDR consisting of photos taken on site as well as various maps of the property.
The BDR assists VOF in monitoring the property by setting forth the essential characteristics of the property in summary form, thus helping VOF staff to “learn” the property more quickly. Additionally, a BDR prevents a nefarious landowner from making a change to the property in the future, such as constructing a new building, and then attempting to claim that that building (or whatever else was changed) had always been there. Conversely, the BDR protects the landowner by providing proof of the location and size of buildings and other aspects of the property at the time of the donation of the easement.
Federal law requires that a BDR be prepared before donating a conservation easement in order for the easement to be eligible for federal tax deductions. (See Treasury Regulation § 1.170A–14(g)(5)(i), which makes it clear that the IRS is very much concerned about the “nefarious landowner” scenario that I described above.) Even if federal tax law did not require a BDR, it would still be prudent to prepare a BDR so as to minimize the risk of any misunderstandings in the future.
Because the BDR is of such pivotal importance, the BDR must describe the property thoroughly. It can take many hours to prepare the BDR properly, even aside from the travel time necessary to visit and photograph the property. Thus, it makes sense that VOF has decided to attach a fee to the preparation and review of the BDR. VOF’s blog post announcing the new fees (linked above) rightly noted that “such fees are common practice in the private land trust community,” so this change in VOF’s fee schedule is not surprising, particularly in the greater context of the fiscal belt-tightening that the Commonwealth of Virginia has been undergoing in recent years.
How Much Will the New Fees Be?
The fee schedule on VOF’s website indicates that the BDR preparation fee will range from $3,000 to $3,500 per easement. The website also indicates that the fee will be charged when the BDR is actually prepared, as opposed to when the landowner initially submits the easement application. VOF staff develops the BDR in coordination with the landowner in the months before the donation takes place. By the time that the BDR is prepared, the VOF Board of Trustees has usually already agreed to accept the easement, so there seems to be little-or-no likelihood of potential easement donors being charged a fee and then being turned away.
Initially, landowners who are considering whether or not to donate an easement for the first time might be surprised by the amount of the BDR preparation fee. However, this is actually one of the smaller fees involved in the easement donation process. A “qualified” (IRS-compliant) appraisal will by itself cost more than $3,500; ordinary appraisals cannot be used if the landowner wishes to claim federal tax deductions or Virginia tax credits for the donation. Attorney’s fees will also exceed $3,500 in nearly all cases.
It is not required that VOF be the author of the BDR. The landowner retains the right to have a third-party consultant prepare the BDR. However, the fee schedule on VOF’s website indicates that VOF will still charge a $1,500 flat fee to review the proposed BDR. The reason for this is simple: Even though VOF is not actually writing the BDR, VOF must still undertake the same research and investigation of the property to ensure that the BDR is accurate. Every BDR contains a certificate of accuracy that must be signed by both the landowner and a representative from VOF. Obviously VOF cannot be expected to blindly sign a BDR without verifying its contents.
The BDR preparation fee is not the only fee that VOF decided to add or change at its Board of Trustees meeting held on June 25, 2015. For example, VOF will now require stewardship endowments to be donated when easements are purchased rather than donated, such as through the Army Compatible Use Buffer (ACUB) program. Stewardship endowments are not required when the easement is purchased using funds coming from VOF or some other state entity. The other fees adopted or modified by VOF at its June board meeting are more specialized and affect landowners only in select situations, such as amending the terms of an easement after it has already been donated. Again, you can review VOF’s full fee schedule here.
Increased Financial Aid to Offset the Increased Fees
When one hears of increased fees to donate conservation easements, and thus higher barriers to entry (as it were), one immediately assumes that these fees would have a dampening effect on the donation of easements. VOF is the dominant holder of easements in Virginia, and so, in a very real way, VOF has the power to alter the course of land preservation in Virginia. However, VOF has taken steps to mitigate the negative effects that these fees might have.
In order to prevent landowners who are “land rich and cash poor” from being unduly deterred from donating conservation easements by the new fees, VOF has decided to expand its financial assistance program, called the Open Space Lands Preservation Trust Fund, or the Preservation Trust Fund for short. The Preservation Trust Fund is primarily intended to be used to defray the costs of donating an easement, such as appraisal costs, attorney’s fees, and now BDR preparation fees. Funding may also be requested to help defray survey costs, if the property has never been surveyed or if the survey of the property is otherwise inadequate (as might be the case with very old surveys).
Eligibility for the Preservation Trust Fund is, in large part, income-based. According to VOF’s announcement, the eligible income level for the program is being raised from $50,000 in annual income to $78,400 in annual income. Additionally, the maximum recommended funding per project is being raised from $6,500 to $9,500. This maximum recommended funding does not include survey costs, funding for which may be awarded separately.
In certain situations, funding from the Preservation Trust Fund may also be requested to purchase an easement, although this is very rare. VOF’s Board of Trustees also adopted changes to limit and prioritize this sort of funding. You can read about these changes in greater depth in VOF’s announcement released yesterday.
The Impact on Land Preservation in Virginia
I do wonder whether expanding the reach of the Preservation Trust Fund program will appropriately mitigate the negative impacts of the increased fees. Having to apply for the program still presents an additional hurdle for landowners, and any additional barrier to entry will likely deter at least some landowners. It is true that, with Virginia Governor Terry McAuliffe’s recent introduction of the “Virginia Treasures” initiative, VOF and other state agencies are now under a renewed mandate to focus on quality over quantity—but I wonder how many owners of those high-quality properties will be deterred by these additional barriers and never come to VOF’s attention to start with. Yet, perhaps this situation can be appropriately ameliorated with improved public outreach and education of landowners.
It is unfortunate that VOF can no longer claim to accept donations of conservation easements free of charge. That has long been an advantage that VOF has had over private land trusts. But, again, it is not surprising that VOF has decided that that model is no longer sustainable, and I am encouraged that VOF has made efforts to minimize the negative impact of these new fees. In the grand scheme of things, I expect that these new fees will have a small effect at first (simply because of the initial shock value of going from free to not free) but, over time, will prove not to have a noticeable impact on land preservation efforts in Virginia. Landowners will likely continue to focus mainly on changes to the various tax benefits associated with easement donations, such as the General Assembly’s recently imposed limitations on the land preservation tax credit and the general gamesmanship that takes place in Washington with tax deductions.
As always, stay tuned to Preserving for Tomorrow for updates as they happen.