Land development is a double-edged sword. Creeping urbanization brings more customers closer to your location. Business may actually flourish for awhile as more and more people discover the joys of riding, the open spaces around your farm, and the rural ambiance.
At some point, however, it begins to cut the other way. Continued development brings more and more people who fantasize about living in the country but whose vision of bucolic bliss does not include any smells, manure, flies, dust, or noise. They build on or close off riding trails you may have used for years. They complain to local officials if a horse manures along the edge of a road or (horrors!) at the end of their driveway. They agitate in the local media about property rights and promote restrictive zoning ordinances that can put you out of business.
Ultimately, you are left with two choices. One is to give in and sell out. Sell your land, your horses, your tack, your farm equipment. Go somewhere else and start over, find a new line of work, or retire. Take the money and run.
The other option is to partner with others in your community whose philosophies about growth align with your own and figure out a way to embrace change rather than fight it. The benefit is that you can continue enjoying the business you have built, stay on land that may have been in your family for generations and pass the land or the business on to a son or daughter, all while getting along with your new neighbors.
Local land trusts are among the potential partners a commercial equestrian operation can turn to in order to stay in business as residential housing creeps up to its fences.
Equestrians tend to view a horse property pragmatically. They assess its barns, sheds, pastures, paddocks, rings and trails. They see their business as a recreational option within their community.
Suburban neighbors tend to focus on the nuisances of traffic, ring lights or dust, unsightly or smelly manure piles and noisy children or animals. They are sure that any insect on their property came from the horse’s side of the fence. Whose view prevails often depends on which side is more successful in convincing local politicians that their viewpoint is the correct one.
Land trusts can often help all parties concerned find a common ground. These nonprofit groups are dedicated to preserving open space. While national organizations like the Nature Conservancy or the American Farmland Trust may come to most people’s minds whenever land trusts are mentioned, the reality is that most land trusts are much smaller and very local. And their numbers are growing.
According to a National Land Trust Census conducted by the Land Trust Alliance in 2000, there were 1,263 local and regional land trusts working to preserve open space in 2000. This represented a 42 percent increase over the number of trusts (887) tallied in 1990. Collectively, they had protected a whopping 6.2 million acres, a 226 percent increase over the 1.9 million acres protected as of 1990.
A land trust sees a horse property differently than either the owner or the neighbors. Land trusts typically see the farm as a riparian buffer, wildlife habitat, a scenic asset within the community, or even as an historic site. By finding a common ground in aesthetics, public recreation or other typical land trust concerns, land trusts and horse business owners can become valuable allies.
Staying on the Land
Many people believe wrongly that working with a land trust always means giving up their land or allowing public access to it. True, among the actions they take to protect open space, trusts do sometimes use their funds to purchase key parcels outright. And landowners interested in leaving a conservation legacy may donate their property to a trust or agree to sell the land to the trust at a price below its fair market value. But there are other, less restrictive options.
Conservation easements are the land trust tool most likely to be used by horse business owners who want to stay on their land. A conservation easement is basically a contract between the landowner and another party, such as a land trust, that spells out specific actions that will be taken to limit development and manage the land. Public access may or may not be part of the contract. Like land itself, a conservation easement can be sold or donated to the trust. The landowner continues to own, use and control the land. The development restrictions that protect the land as open space effectively lower the land’s market value. The net result is that a conservation easement can:
- reduce real estate property taxes
- reduce federal income taxes (for a limited period—see below)
- reduce estate taxes, making it easier to pass a business on to a son or daughter
- guarantee future equestrian access to a property
- ensure continued use of the property for a commercial equestrian enterprise even as residential development creeps up to the fences.
Running the Numbers
Using conservation easements or selling agricultural development rights to protect your right to continue commercial equestrian use of your land inevitably means giving up some of the land’s potential future value. In exchange, the landowner gets certain tax benefits. Whether the foregone land value and the tax benefits are a wash depends on the individual landowner’s financial situation and on the decisions of Congressional lawmakers.
When an easement lowers the value of a property, the landowner will realize property tax relief. This lowers the business’s annual operating costs and immediately makes the business more profitable.
How much tax relief accrues to the landowner? The difference between the land’s development value and its value with easement restrictions is considered a charitable donation to the land trust holding the easement. Current law allows the landowner to deduct a portion of that donation equal to 30 percent of his or her adjusted gross income for up to 6 years. Pending legislation would extend that tax benefit to 40 percent of adjusted gross income for up to 14 years.
Another benefit: Because the land’s value will be lower at the time it goes into the landowner’s estate, it becomes more likely that a son or daughter who wants to continue the family horse business will be able to pay the estate taxes and keep the business in the same location. While Congress has recently voted considerable estate tax relief, financial advisors point out that the changes are not permanent, and that states may step into the void to impose new taxes.
There are other considerations, too. The economics of donating or selling a conservation easement depends on a large number of variables, says Denny Caneff, director of the Upper Midwest regional office of the American Farmland Trust. They include the landowners’ ages, other tax deductions available to them, their income expectations in coming years, the value of the property they are foregoing, its potential development value, when they anticipate retiring, and when they anticipate leaving the property because of retirement or other reasons. “They need to sit down with their tax advisor and get some sense of where their income will be in the coming years,” says Caneff.
“The landowner can come out ahead if planning is done carefully and far enough in advance,” says Marsha Kenny, director of communications with the Peconic Land Trust on the eastern tip of Long Island. Win-win conservation projects can be very complicated to put together, she points out. Estate planners and financial advisors often go for simple solutions they already understand, rather than carefully considering the landowner’s wishes.
The bottom line is that any landowner considering placing a conservation easement on their land in order to perpetuate their business must be clear about their long-term goal and understand how their decision will impact their financial situation. “It becomes a bigger thing for many people than just the money they can realize,” says Kenny. Preserving the land that they love and have worked on, seeing it continue, is as important a goal for them as getting equity out of the land. “Planners and attorneys don’t understand that,” she says. “Land trusts do.”
Working With a Land Trust
Land trusts often have the experience and talent to help equestrian business owners find and understand all of their options for coping with creeping development. They not only know their own capabilities, but also those of other land trusts in their region and of state and federal programs that might be sources of funding. A land trust might help a landowner put together a package that includes the sale of development rights on a portion of a property to a county or state agency, a conservation easement on another part that is sold or donated to a land trust, and outright donation of yet another piece of land to a different group.
For example, there are 60 counties around the country that have Purchase of Agricultural Conservation Easement, or PACE, programs for buying agricultural development rights (see fact sheets on PACE and other agricultural conservation programs at www.farmlandinfo.org). A landowner realizes a large capital gain when he or she sells the agricultural development rights through one of these programs, points out Anson W.H. Taylor, Jr., president and chairman of the board of the Equestrian Land Conservation Resource. A conservation easement sold or donated to a local land trust can provide tax benefits to offset the gain.
Taylor also notes that placing a conservation easement on a property’s marginally useful land, such as marshes or steep slopes, can move the purchase of development rights on the property’s prime lands up in priority with the public agencies that purchase those rights.
“Land trusts around the country have an incredible tool box to work with,” says Kenny. “You want to use the best tools for the best outcome, but there is no silver bullet. We want to find the outcome everyone is comfortable with and that is good for the landowner, the community, and the environment.”
Another way land trusts can be of special benefit to commercial horse business owners is through their management expertise. Many public agencies are uncomfortable accepting donations of conservation easements or land when the deal includes continued operation of a commercial enterprise such as a riding stable. When a land trust is willing to help develop and monitor a management plan for the easement, that can be an important factor in selling a conservation deal to local authorities leery of horse operations.
Take Your Time
Caneff points out that when you start talking to a land trust about a conservation easement, it’s the beginning of a long conversation. “Conservation easements are not simple things,” he points out. “They cannot be put in place in a few months.”
Helen Alexander, chairman of the board of Kentucky’s Bluegrass Conservancy, agrees. She points out that easements can be complicated documents and emphasizes the importance of taking time to make sure they reflect what you want. Keep in mind, she says, that the contract will encumber the land for as long as you own it and for decades after that.
When Alexander decided to place a conservation easement on her Middlebrook Farm in Lexington, Ky., she got a sample easement document from the Bluegrass Conservancy. It contained a provision that mature trees would not be removed. As she thought to the future, she decided that she wanted more leeway to make appropriate management decisions. She points out that tent caterpillars and the wild cherry trees they feed on were implicated in the wave of aborted foals that crippled the Thoroughbred industry two years ago. If her property had been encumbered by that restriction, she would not have been able to act to protect her livestock.
Alexander also wanted to take the time to ensure that her easement would be part of a critical mass of open space before she moved forward. When Alexander first began considering an easement, she contacted her neighbors and urged them to think about protecting their properties from development as well. The neighbors sold their development rights to Fayette County, Alexander gave the Bluegrass Conservancy a conservation easement, and the collective result is a swath of over 800 acres of open space preserved from development.
That sort of joint effort can be crucial in dealing with suburban encroachment. When horse property owners band together in a critical mass, they can form a hard edge against suburban sprawl, says John Strassburger, president of the Land Trust of Virginia and editor of “The Chronicle of the Horse.” “At Land Trust of Virginia, we are encouraging landowners adjacent to small cities and towns to put easements on their land in order to make that hard edge,” he says.
“Anyone who values agriculture, wildlife habitat, open space, clean air, clean water, should support land trusts either financially or in volunteer time,” Strassburger continues. “It’s really a responsibility for everyone and one of the primary ways to save our countryside.”
Equestrian Land Conservation Resource: www.elcr.org
Land Trust Alliance: www.lta.org
American Farmland Trust: www.farmlandinfo.org