Maintaining Trust

The Challenge Facing Private Land Conservation

By Dominic P. Parker

One of the most striking environmental trends of recent decades is the growth of land trusts.1 These nonprofit, missionoriented organizations preserve valuable open space primarily by acquiring property rights from landowners through voluntary exchange. Their market approach is in stark contrast to government regulation, which can impose restrictions on landowners against their will, as well as government ownership, where management is often political.

But not everyone is comfortable with the growth of land trusts. As with many nonprofit organizations, questions emerge about whether land trusts actually serve the public interest. Are the fiduciary constraints under which they must operate really binding? Who monitors land trust behavior-and if mismanagement is detected, what recourse does the public have? Critics such as Zane Walley want more regulations to control what he calls "unrestrained land trusts" (Walley 2000). And recent Washington Post articles assailed the ethics of the Nature Conservancy, by far the nation's largest land trust (Stephens and Ottaway 2003).

Over the past two years, I have studied land trusts, focusing on those that do not generally transfer land to government agencies. One of my goals was to gain insight into whether land trusts are managing their resources efficiently. Do the incentives for good stewardship outweigh shortsighted goals such as increasing donations and influence? I assembled a database of state and local trusts operating throughout the country. The data include information about where each trust operates, the types of amenities it seeks to provide (e.g., recreational trails, bucolic views, and wildlife habitat), and whether it seeks to restore ecological functions or simply preserve land. Using regression analysis, I examined which factors explain the percentage of land trust acres held in conservation easements, as opposed to fee simple (see Parker 2002).

I learned that land trusts' choices between easements or fee-simple ownership reflect efforts to reduce costs over the long term. In other words, land trusts have generally been conscientious stewards of the resources entrusted to them.

For example, I found that land trusts that focus on providing scenic views are more likely to hold conservation easements rather than land in fee simple. The immediate cost of acquiring an easement is lower than acquiring full ownership, and the longterm stewardship burden is minimal because the easement can readily be monitored and enforced. The easement need only prohibit conspicuous construction in viewsheds-violations will be easy to detect and easy for courts to verify. Thus, in these cases, conservation easements are the low-cost choice.

If a land trust wants to provide public access in densely populated areas, however, it usually chooses full ownership. Landowners are rarely willing to allow public access without substantial compensation. Because this compensation accounts for a significant portion of the land's value, full ownership provides public access without the costs of monitoring and enforcing an already-expensive agreement with the landowner.

In general, when they want to protect productive agricultural land, land trusts hold easements rather than full ownership. The reason is that land trusts rarely have experienced farmers or ranchers on their staffs. Without such expertise, if the land trusts owned the land, they would probably lose agricultural profits. An easement that allows the landowner to continue to run a profitable business may be far less costly. (Of course, a land trust could own land outright and lease back farming rights to a third party. But it would have to conduct an expensive search for the appropriate rental price and tenant.)

These and other findings (Parker 2002) suggest that land trusts take into account stewardship costs and landowner specialization when making decisions. Even though they are not-for-profit organizations, they search for ways to reduce costs, motivated by concern for their reputation, armed with local knowledge, and constrained by self-regulation. Such factors tend to be weaker for governmental agencies. It is not surprising then, that studies indicate that land trusts are better stewards of conservation easements than are government agencies (Guenzler 1999; Pentz 2001).

Land trusts do face pressures, however. Most land trusts enjoy charitable status and exemption from federal and state income taxes. In addition, federal, state, and local tax incentives are a primary reason why landowners donate land or conservation easements. These tax exemptions can encourage land trusts and landowners to capitalize on tax benefits instead of fully weighing long-term costs and benefits. I am studying the impact of taxes on the easement-vs.-full ownership decision. The evidence shows that land trusts that use their own dollars to finance acquisitions are somewhat more economical (Parker 2003). This is consistent with expectations. We are all more disciplined when we bear the full costs of our decisions.

There is another problem with relying on tax exemptions. Internal Revenue Service rules require perpetual easements, and IRS penalties for changing perpetual easements can be high. Yet amending or extinguishing an obsolete provision or easement when circumstances change may be in the public's best interest. Imagine, for example, that new homes have grown up around a small, 25-year-old wildlife habitat easement. A developer offers to pay a hefty sum to extinguish the easement. The public at large would support extinguishment if it could be assured that more or better habitat would be acquired elsewhere. Yet, with tax-supported conservation easements, land trusts can't freely initiate such trades without IRS scrutiny.

Rather than continuing to increase federal and state tax incentives, experimenting with alternative funding mechanisms seems appropriate. One alternative for continuing public support without tax benefits is to offer matching grants to land trusts wishing to conserve strategic tracts of land. The Department of Agriculture and the Forest Service offer such grants, as do several state-level government programs. 2 Under such programs, purchase decisions are less distorted than when land and easement acquisitions are funded through the tax code. Grantreceiving trusts are apt to consider more carefully how and where they will spend their dollars. Not doing so would put at risk dollars that could be used to successfully achieve their mission.

To be sure, substituting matching grant programs for tax code funding has its risks. Montana attorney Andrew Dana,3 who has drafted conservation easements for several years, is concerned that some land trusts measure their success by the acreage they acquire or by the number of transactions completed. If land trusts focus on only these measures of success, they may compromise their fiduciary duties to their public beneficiaries. They may acquire easements over land with marginal conservation value simply to close deals or may accept easements without securing the resources necessary to steward them over time. Dana is already concerned about a "race to the bottom" as a result of such competition, and competition for government grants could exacerbate this race.

This problem could be mitigated, however, if government agencies offering such grants are local and work with local trusts. Local entities are better qualified than federal agencies based in Washington to evaluate the success of projects. They know best the open-space desires of their communities and are disciplined by a concern for their local reputations.

Land trusts have enjoyed widespread public support for good reason. To sustain public support in the years to come, they must continue to be creative, productive, and responsible. True success will be measured by satisfied landowners, willing donors, and an informed public. We can help them succeed by thinking of ways to ensure that their incentives are sustainable.

NOTES
1. From 53 in 1950, the number of land trusts increased to 1,263 in 2000 (Land Trust Alliance 2000).
2. See Natural Resource Conservation Service (2002) for a description of the Farmland Protection Program. See American Farmland Trust (2002) for examples of state programs.
3. Personal interview with Andrew Dana, attorney, Bozeman, MT, December 8, 2002.

REFERENCES
American Farmland Trust. 2002. Status of State PACE Programs. Washington DC: Online: www.farmlandinfo.org/fic/tas/ PACE_state_702.pdf (cited May 7, 2003).
Guenzler, Darla. 1999. Ensuring the Promise of Conservation Easements. San Francisco, CA: Bay Area Open Space Council.
Land Trust Alliance. 2000. 2000 National Land Trust Census. Online: www.lta.org/aboutlt/census.shtml (cited February 16, 2003).
Natural Resource Conservation Service. 2002. Farmland Protection Program. Online: www.nrcs.usda.gov/programs/ fpp/ (cited May 6, 2003).
Parker, Dominic P. 2002. Cost-Effective Strategies for Conserving Private Land: An Economic Analysis for Land Trusts and Policymakers. Bozeman, MT: PERC.
---. 2003. Land Trusts and the Choice to Own Land or Hold Conservation Easements. Working paper WP03-03. PERC, Bozeman, MT.
Pentz, Debra J. 2001. Planning for Perpetuity: A Study of Colorado Conservation Easement Practices. Boulder, CO: Conservation Resource Center.
Stephens, Joe, and David B. Ottaway. 2003. Nonprofit Sells Scenic Acreage to Allies at a Loss. Washington Post, May 6. Online: www.washingtonpost.com/wp-dyn/articles/A17955- 2003May5.html.
Walley, Zane J. 2000. A Clear and Crucial Need for Land Trust Regulation. Paragon Powerhouse, December. Online: prfamerica.org/Clear&CrucialNeed.html (cited May 6, 2003).


Dominic P. Parker is a PERC research associate. He codirected PERC's recent forum, "Private Land Conservation: Institutions and Instruments," with PERC senior associate Roger Meiners.

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Dominic Parker is a Senior Research Fellow at PERC and is an Assistant Professor of Agricultural and Applied Economics at University of Wisconsin-Madison where he teaches courses in natural resource economics. His research examines how legal systems and government policies affect natural resource use, environmental outcomes, and economic...
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