Tax Break Credited In Saving Va. Land
State Is a Leader In Conservation

By Amy Gardner
Washington Post Staff Writer
Tuesday, May 16, 2006

As growth spreads west from Washington along the Piedmont, record numbers of property owners are protecting their land from development by using a little-known state tax credit that has transformed Virginia into a national leader of private land conservation.

In the six years since the General Assembly enacted a tax credit for landowners who place their property under conservation easements, the number of such easements has skyrocketed. In 1995, landowners donated fewer than 6,000 acres; last year, the figure exceeded 35,000, according to the Virginia Outdoors Foundation.

Dorothy A. Smithwick was responsible for 1,076 of them.

Along the northern property line of Smithwick's horse and cattle farm in southwestern Loudoun County runs Goose Creek, through which the horses and hounds of the Middleburg Hunt have splashed for generations. In the swale below the house stands a barn that stabled Traveller, Robert E. Lee's iron-gray gelding.

The history is rich at Sunny Bank Farm. Smithwick is not -- a condition that undoubtedly would have prompted other owners in her situation to sell. With land enough for at least 250 homes, Sunny Bank Farm, on the outskirts of fashionable Middleburg, probably would have fetched $20 million or more.

Instead, Smithwick chose to place her property under conservation easement -- a legal way to restrict development and preserve her land permanently. She gets to keep the land, because the easements restrict property use but do not remove ownership.

"It's terrible -- little houses everywhere," muttered Smithwick, a crusty woman in her 70s who prefers worn turtlenecks and the company of the horses she trains to the cocktail circuit of Middleburg.

The tax credit helped, too. Conceived by two Northern Virginia tax lawyers and championed by House Speaker William J. Howell (R-Stafford), the program rewards landowners with a credit worth 50 percent of the value of the easement.

"I'd just like to keep the farm going," said Smithwick, who rises at 5 a.m. each day to tend to her cattle and hayfields and the 30 or so horses she boards and trains. "It's been in the family a long time."

The credit can be claimed over six years, and, as of 2002, it is transferable, meaning people can sell it if their income isn't sufficient to claim its full value.

Few other states allow the credit to be sold -- and that probably explains the explosion of easements in Virginia, conservation officials say. The Maryland Environmental Trust, by comparison, accepted slightly more than 2,000 acres in donations last year.

"There was a huge increase as soon as those credits became transferable," said Nicholas Williams, director of the Maryland Environmental Trust, one of several state agencies in Maryland that accepts donated easements. "That meant people could buy them and sell them and make money."

The effect of Virginia's credit is undeniable. In its first year, conserved acres more than doubled, from nearly 12,000 to nearly 29,000. In 2002, when the credit was made transferable, the number of acres jumped again -- from about 23,000 to 38,000. Since 2000, when the program was enacted, property owners have donated enough land to qualify for nearly $382 million in tax credits, according to the Virginia Department of Taxation.

"This is basically the tool that's being used for land conservation in Virginia right now," said Michael Kane of the Piedmont Environmental Council, which encourages and assists landowners interested in placing their property under easement.

Critics view the tax credit less favorably. They say the program is a boondoggle for rich landowners that isn't adequately monitored for compliance. Landowners donate their easement to a third-party agency -- usually the Virginia Outdoors Foundation, which then assumes responsibility to protect the easement. Easement donors qualify not only for the state tax credit but also for charitable deductions on their federal income tax returns. And they are eligible for major reductions in their local property tax bills.

"It's a huge scam," said Sally R. Mann, a property owner near Hamilton who believes her neighbor's use of his land for farming violates the terms of his easement. "The government is paying very wealthy people to live on their estates that they would never subdivide to begin with."

The Virginia Outdoors Foundation, the state agency that holds most easements donated in the state, disagrees. Easements are noted permanently on property deeds, making it almost impossible for property to be developed illegally, said Leslie Grayson, a stewardship director with the foundation. And the foundation employs field inspectors to investigate complaints and monitor compliance, she said.

"We retain a file on each property," she said. "We visit them, photograph them, map them and record changes as the property evolves. The easements go with the land, not with the landowner."

Grayson noted that terms of an easement vary from case to case. One easement might prohibit all new construction, and another might allow a "reasonable" addition. Some require preservation of a view, and others demand protection of a local water supply.

Other critics say the tax credit is too expensive for Virginia. The credit has cost the state more than lawmakers anticipated when they enacted it. Seeking money to balance a budget that includes new funds for transportation, senators have proposed capping the credit and limiting it in other ways to reduce its cost. The idea is tied up in budget negotiations.

Howell and others say the problem with a cap is that Virginia spends relatively little on other types of land conservation, notably outright acquisition. In 1999, the General Assembly's investigative arm ranked Virginia last among the states in the amount spent per capita on natural resources. Maryland spends millions annually buying land outright but accepts far fewer acres in donated easements.

"In Maryland, they appropriate dollar for dollar to preserve land," Howell said. "Our situation: We pay 50 cents on the dollar, so we get two for one."

And easement donations have declined in recent years in most states, Williams said, because of uncertainty over the federal estate tax. Virginia's attractive tax credit has softened the decline.

Helping Howell's cause is Gov. Timothy M. Kaine (D), who recently pledged to preserve an additional 400,000 acres across Virginia by 2010. Kaine hopes to use state surplus money to make outright land purchases, but he also is depending on the popularity of the tax credit to meet his goal, said L. Preston Bryant Jr., the governor's secretary of natural resources.

"Virginia has probably the most attractive tax credit in the country," Bryant said. "It's very aggressive."

Smithwick weighed the decision to put her land in easement for years before making her move in December. She was motivated by the tax benefit but also by the possibility that her donation-- the largest on record in Loudoun -- would prompt others to follow.

"The money means nothing to me. Nothing," she said on a recent spring morning, driving around the farm in bumpy old pickup. "I never had much to start with. This is all that I have."