Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to testify before this subcommittee on the subject of new tax incentives for the conservation of land.

I am President of the Land Trust Alliance (LTA), the national association representing the 1,263 land trusts around the country.  These local nonprofit conservation organizations work with private landowners who voluntarily protect their land as working farms, forestland, wildlife habitat, parks, trails, and greenways. These organizations have more than one million members and have protected more than six million acres across the U.S.

But with two million acres of land a year being developed, we need to accelerate the pace of conservation if we hope to keep pace, and succeed in protecting a heritage of land for our children.

For many years, I was president of a commercial real estate development company in Atlanta, and I appreciate the many economic benefits of development.  I have also seen how land conservation enhances economic growth and the value of real estate.  In many cases, the highest and best value of certain lands is for the continuation of agriculture and forestry as a viable economic activity; for the protection of wildlife and plant habitats; for the continued availability of clean water; for historic preservation, including the preservation of historic battlefields; for recreation and outdoor education; and for the protection of scenic beauty.

Many landowners are willing to protect their land for conservation purposes, but they need help.  We strongly endorse H.R. 1309, introduced by Representative Johnson;

H.R. 2290, introduced by Representative Portman; and H.R. 1711, introduced by Representative Dunn.  Each of these bills would provide a careful measure of such help.  They are complimentary bills, each addressing a different set of landowners, and a different way to achieve land conservation.

Each of them will now have had hearings in the House in two successive Congresses; and each of the elements in these bills has had hearings in the Senate.  We believe this legislation is sorely needed, and that it is ready, right now, to be enacted into law.

I also want to thank Representative Isakson for introducing an even more ambitious proposal, H.R. 882.  He has seen the astounding scale of the loss of open space around Atlanta in the past two decades, and has sought to find a mechanism bold enough to protect open space under such circumstances.

The incentives already in place in our tax code have been a major contributor to the work land trusts have done.  Those incentives start with IRC 170(h), which provides for special treatment for conservation donations of land and of partial interests in land as charitable deductions from income tax.  They also include the deductibility of conservation easements from estate tax under IRC 2055(f), and an exclusion from estate tax for a portion of the value of land protected by a conservation easement provided by IRC 2031(c), the American Farm and Ranch Protection Act. 

But rising land prices and changes the Congress has made to the general tax law make it necessary for us to update the current incentives.  Rising land prices have greatly diminished the incentive provided by IRC 170(h)[1], and rendered that incentive almost meaningless to many farm and ranch families.

I want to specifically address the changes H.R. 1309 would make to IRC 170(h), because they would make truly extraordinary charitable donations possible. 

Currently, the deduction allowed for a contribution of appreciated property to charity is limited to no more than 30% of a taxpayer’s adjusted gross income (AGI), and can be rolled forward for no more than 6 years.  This provides a good incentive for high-income individuals, but discriminates against working ranchers and farmers with lower incomes. Many farmers, ranchers, and other landowners of modest means would be willing to donate their development rights for conservation if they received a tangible tax incentive for doing so.  They love their land and they would like to see the fruits of their stewardship protected into the future by a conservation easement[2].  But they cannot afford to just give away their family’s most valuable asset.

That’s what the current limits require.  A rancher earning $50,000 a year may own land with development rights worth $500,000, or $1 million, or more.  Yet, because of the rancher’s lower income, the current rules dictate that the most they could deduct is $90,000, no matter how valuable the gift.

We applaud Representative Nancy Johnson for recognizing this and introducing legislation to update the incentives for landowners to donate land or a conservation easement on land, to protect that land for the future. 

Section 1 of H.R. 1309 would allow the donors of qualifying conservation donations to deduct up to 50% of their AGI, for as many years as it might take for them to deduct the entire dollar value of their donation.  That would enable many more landowners to consider donating their land for conservation, or donating a conservation easement to restrict future development of their land.  It would provide a major boost for conservation across the country.

Unlimited carryover means that the taxpayer will get a reward that is proportional to their gift.  Obviously, tax benefits spread over twenty or more years are nowhere near as valuable as those taken all at once.  But increasing the percentage of AGI a taxpayer may deduct for a conservation gift to 50% -- the same percentage limit the law currently allows for cash donations -- will allow taxpayers to get more of a reward for making these extraordinary donations. 

In the coming years, we predict that these changes would make a significant difference in donations of land, and of conservation easements on land.  I have been asked by Connecticut land trusts to give Mrs. Johnson a series of letters of support for her legislation.   The changes she has proposed would enable them to help their communities protect open space and farmland that is more valuable with every passing day.  All of us thank her for her work on this, and we hope to see it come to fruition soon.

I would urge the committee to go even further in helping farmers and ranchers, and adopt the further incentives included in H.R. 2279, introduced by Congressman Hefley.  That bill would allow taxpayers donating a valuable conservation easement, and whose income is primarily from farming or ranching, to deduct up to 100% of their AGI in any one year, for up to 15 years.  A similar bill has been introduced in the Senate by Senator Max Baucus (S. 701).

While the concept of a 100% of AGI deduction may appear extraordinary at first glance, the lower tax rates the Congress has enacted mean that in reality this proposal is not nearly as generous as it may appear.  The Economic Research Service of the US Department of Agriculture says that the average income of a farmer or rancher in the U.S. is around $34,000 a year.  Such a taxpayer may pay less than $3,000 a year in taxes when the income tax cuts enacted in 2001 are fully phased in. Zeroing out such a taxpayer’s AGI for 15 years would give them less than $45,000 in benefits, spread out over 15 years, for a gift to the public worth $450,000 or more. 

That isn’t a very high incentive, but it would provide a tangible reward in cash flow to these landowners, and we know that this would result in some extraordinary donations of land.  When Congress drafted the limits on charitable deductions, it may have seemed inconceivable that a taxpayer earning $30,000 a year could give a gift worth $1 million or more.  But because of rising land values, this is a very real possibility for gifts of conservation easements.

Are we asking for too much for these donors?  I don’t think so.  Compare the $45,000 in potential tax benefits described above to the benefits a high-income taxpayer already receives.  If they are paying income taxes at the highest rate, they could receive almost $180,000 in benefits for a $450,000 donation under the current rules, and they would receive those benefits over a much shorter time.

In summary, let me ask the Subcommittee and other Members present for their continued help in conserving the landscapes that people love.   Through the tax code, the federal government has long been a partner in encouraging voluntary land conservation on private lands.  We now have the opportunity to protect the best of America’s landscape before it is too late, but we need your help.

The tax incentives in H.R. 1309, H.R. 2290, and H.R.1711 will produce tangible, visible, permanent results.  You will be able to see those results in the form of working farms, natural beauty, clean water, and livable communities that will benefit all Americans. 

Thank you again, Mr. Chairman, for the opportunity to appear before this subcommittee, and thank you very much for your interest in federal incentives for private land conservation.

[1] IRC 170(h) defines which contributions of appreciated real property qualify for treatment as a charitable donation.  Permanent conservation easements meeting the 170(h) standards are the only partial interest in property allowed to be counted as deductible from income tax.  Congress has also provided estate tax benefits for landowners whose lands are protected with conservation easements, through IRC 2055(f) and IRC 2031(c).

[[2]A conservation easement is a contract between a landowner and a nonprofit conservation organization or a government agency that restricts future uses of land to protect conservation values important to the general public.  While the contract restricts development options, the landowner retains title, control and use of the land.  Conservation easements may and often do provide for continued commercial uses of the land for agriculture and forestry.  They may, but need not, provide for public access to the land, so long as they protect publicly important values.  As with any easement, a conservation easement follows the land and binds subsequent landowners.  Forty-nine states have statutes defining and enabling the use of conservation easements, and in the only state without such a statute, Wyoming, conservation easements constructed under common-law principles are in widespread use.  Nine states have enacted state tax credits for the donation of conservation easements (South Carolina, North Carolina, Virginia, Colorado, Connecticut, Delaware, Maryland, New Jersey and California).