The proposed Resource Conservation Agreement program could be implemented by incorporating it into the existing Conservation Reserve Program (Chapter 16 U.S. Code, Section 3831) administered by the USDA’s Natural Resources Conservation Service.

During the term of a Natural Resource Conservation Agreement, an owner or operator of a farm, ranch or woodland would agree to implement a plan for the protection of landscapes that harbor endangered species, wetlands or other natural ecosystems. Such agreements would --

(1) have a minimum duration of 20 years,

(2) be written as long-term service contracts to provide for the management by the landowner of specific natural resources on private lands,

(3) be initiated by:

(4) require that the agency responsible for the agreement:

(A) work in cooperation with landowner to prepare a status report on the agreement at least once every five (5) years; such report shall be submitted to the USDA Natural Resources Conservation Service and shall form the basis for determining if any changes should be made in the agreement, its administration, the services which the landowner is to provide under the agreement, the fees paid to the landowner, whether any "bonus payments" are due to the landowner, and whether any modifications are necessary or desirable in the agreement’s farm operation document or best management practices,

(A)(B) inform the landowner in writing at least twice -- in year 16 and year 17 of the agreement -- of requirements for written termination notice and for 3-year transition from date of termination notice, so the landowner has the opportunity to give notice in a timely manner and terminate the agreement at the end of its 20-year term,

(5) notwithstanding #7 below, require that the agreement shall terminate at the end of its original term if the agency responsible for the agreement is unable to secure funding for or make timely payment to the landowner for any period covered by an automatic extension or renewal of the agreement,

(6) require a 3-year transition period from the date of notification to allow all parties ample time to determine how the properties subject to the agreements shall be affected and governed by the land use regulations that will be in effect at the time of termination of the agreements (and allow agencies time to begin the process of land acquisition, or to negotiate permanent conservation easements, if those courses of action are decided upon by the parties),

(7) be automatically renewing on a year-to-year basis until terminated by written notice from the landowner,

(8) contain incentives -- in the form of "bonus payments" -- for landowners to convert the agreements into permanent conservation easements and/or provide government agencies with the right of first refusal if the land is offered for sale,

(9) reward landowners -- again, in the form of "bonus payments" -- for taking actions that will improve habitats on their property so the habitats will support additional species and expanded populations of threatened and endangered species, or for taking actions that improve other natural resources covered by the agreement,

(10) provide federal tax incentives (see separate description of proposed tax incentives under compensation, below) as the primary one form of compensation, which, if approved, may be used as the sole form of compensation or combined with other forms of compensation, which may include but are not limited to:

(A) per acre fees paid in cash, securities, land or other negotiable instruments,

(11) allow payment of monetary fees in a lump sum at the onset of the agreement, with proceeds invested in a zero-coupon bond through which annual payments can be made to the landowner or his or her designee,

(12) contain:

(A) a map, prepared by the administering agency at no charge to the landowner, showing the "conservation premises," which shall be the focus of the agreement and contain habitats for threatened or endangered species, wetlands or other natural ecosystems, and the "adjoining lands" that also are a part of the property, but consist of working landscapes, contain structures or are devoted to other than natural uses,

(B) property description,

(E) description of current property use,

(J) arrangements for compliance monitoring and access; such monitoring may be conducted by the landowner after appropriate training by the agency responsible for the agreement, but shall be subject to review and verification by the agency and can be supplemented with aerial or remote sensing methods of monitoring,

(K) arrangements for assignment,

(L) default and penalties, and

Eligible Lands

(a) All private lands are eligible which are in primarily native or natural condition, or are classified as cropland, pasture or grazing lands, or timberlands by the Secretary of Interior Agriculture and contain habitats for threatened and endangered species, wetlands or other natural ecosystems.

(b) Payments would be made in the form of tax incentives or monetary fees on a per acre basis for wildlife habitats, wetlands, native landscapes or other natural ecosystems which are designated as "conservation premises" in the resource conservation agreements. Such fee or level of compensation would be set by the Secretary of Interior Agriculture and periodically reviewed every five years, but no fee under this subpart would be lower than the equivalent of $10 per acre per year.

(c) Payments also could be made in the form of tax incentives or monetary fees on a per acre basis for "adjoining lands" which have low-intensity uses, such as pasture and grazing lands, and which can be managed to minimize adverse impacts on the "conservation premises," as a means of encouraging the continuation of these low-intensity uses and to prevent their conversion to more intense uses that might cause more adverse impacts on the "conservation premises." Such fee or level of compensation would be set by the Secretary of Interior Agriculture and periodically reviewed every five years, but no fee under this subpart would be lower than the equivalent of $5 per acre per year.

Paying For Resource Conservation Agreements

OPTION 1: FEDERAL TAX INCENTIVES

The following tax incentives are patterned after a bill introduced in the U.S. Senate by Sen. Dirk Kempthorne of Idaho during the 104th Congress. The bill, S-1181, was intended to provide incentives for landowners to enter into "endangered species protection agreements," as part of a related bill, S-1180, to reauthorize the Endangered Species Act. Neither bill was acted on before the close of Congress at the end of 1998. Several participants in this project have proposed the following package of tax incentives, to be awarded to encourage landowners to:

1. Keep land in agricultural and forestry operations. This proposal recognizes the economic strains being placed on farmers and ranchers as a result of the current farm crisis -- the worst, according to the New York Times, since the 1970s. It also recognizes that, when farms and ranches go out of business, the owners are likely to sell their land — their best remaining asset — to the highest bidder and, as a result, the land could very well be converted to a more intense, developed use that may be at odds with protecting any existing wildlife habitats, wetlands or other natural resources on the property.

The proposed package of tax incentives appears below:

(1) Federal income tax deductions, including:

(A) a Federal income tax deduction based on an acreage rate that accurately reflects the value of each service provided, as set by the Secretary of Interior Agriculture, periodically reviewed every five years, and valued by comparison to the "Property Analysis Record" maintained by the Center for Natural Lands Management in Fallbrook, CA, a database developed through grants from U.S. Environmental Protection Agency and David and Lucile Packard Foundation to accurately determine management costs over time so land trusts that accept conservation easements can obtain sufficient funds to ensure proper management of the properties for which they assume responsibility through easement donations. (Click here to see separate description of the "Property Analysis Record")

(2) Deductions from Federal income taxes for state and local property taxes, as follows:

(A) an additional 25% deduction from Federal income taxes for state and local property taxes for properties subject to resource conservation agreements, and

(3) Exclusion from estate for real property that remains in agricultural or forestry production, is subject to a resource conservation agreement or is subject to a permanent conservation easement, as follows:

(C) A deduction of 100% of the full market value of the property if it is subject to a perpetual conservation agreement.

(4) Exclusion of gain on sales of land that remains in agriculture or forestry production, is subject to a resource conservation agreement, or is subject to a permanent conservation easement, as follows:

(A) A 30% 50% reduction in the amount of capital gains tax owing, if land remains in agriculture or forestry production for at least 10 years following sale,

(B) An additional reduction of 10% (for a total reduction of 40% 60%) in the amount of capital gains tax owing, if land is subject to a resource conservation agreement, plus an additional 1% reduction per year for each year remaining in the term of the agreement at the time of the sale (i.e., another 10% reduction for 10 years, another 15% reduction for 15 years, etc.)

(C) a 65% 100% reduction in the amount of capital gains tax owing, if land is subject to a perpetual conservation easement.

OPTION 2: PAYMENT FOR SERVICES ON A PER ACRE FEE BASIS

This would be a cost-share program, with a portion of the funds coming from the federal government through the USDA and the balance of the funds coming from state or local government entities or private land trusts. Where possible, existing conservation programs would be utilized (or modified so they could be utilized) to provide these cost-share funds. The authorities that exist and funds that are available from all levels of government to enter into contracts for specific services also could be utilized to provide funding for the agreements.

Payments would be based on an acreage rate that accurately reflects the value of each service provided, as determined by comparison to the "Property Analysis Record" maintained by the Center for Natural Lands Management in Fallbrook, CA, a database developed through grants from the U.S. Environmental Protection Agency and the David and Lucile Packard Foundation to accurately determine management costs over time so land trusts that accept conservation easements can obtain sufficient funds to ensure proper management of the properties through the endowments that many land trusts require as part of easement donation. (Click here to see separate description of the "Property Analysis Record")

Per acre service fees could be paid through annual contracts (as is done through the USDA/NRCS’s Conservation Reserve Program, for example) or paid in a lump sum at the onset of the agreement, with proceeds invested in a zero-coupon bond through which annual payments can be made to the landowner or his or her designee. (The zero-coupon bond payment option has been successfully used for over 15 years in the Howard County, Maryland Farmland Protection Program.)

Damage or Destruction by Landowner; Option to Repair or Compensate

In the event that the Conservation Premises, the Improvements, or any part of them are damaged or destroyed by any cause whatsoever on the part of the Landowner, and the Landowner is not following a legal, recommended or required practice promulgated by another agency outside of the provisions of the agreement, the Agency with responsibility for enforcing this Agreement may elect either of the following options:

If the landowner is found to be liable for causing damage or destruction to the Conservation Premises, or any part thereof, the agency with responsibility for enforcing this agreement may elect either of the following options:

(a) Within __ days after receipt of written demand by the agency with responsibility for enforcing this agreement, the landowner shall commence and diligently pursue completion of the repair, restoration, or replacement of the damaged or destroyed habitat, natural area and/or natural resource on the Conservation Premises, and this agreement shall remain in full force and effect, with no abatement in compensation. Landowner shall pay all costs necessary to restore the habitats, natural areas and/or other natural resources covered by this agreement to the condition that existed on the Conservation Premises on the commencement date of this agreement.

(b) If the agency with responsibility for enforcing this agreement determines that it is not possible to repair, restore, or replace the damaged or destroyed habitats, natural areas and/or other natural resources covered by this agreement, the agency shall terminate this agreement on that portion of the Conservation Premises that has been damaged or destroyed on _____ days written notice to landowner and any lender under Article ____ of this agreement. In addition, as just compensation for said damage or destruction, landowner shall be required to locate, negotiate for and pay to establish permanent protection of a similar habitat, natural area and/or natural resource on another property in the state through a fee simple purchase or a perpetual conservation easement that shall be donated by the landowner to the agency with responsibility for enforcing this agreement, or another designee of the agency’s choosing, and shall be of the same quality and contain the same area, acreage or amount of habitat, natural area and/or other natural resource that was damaged on the Conservation Premises.

Acts of God

Nothing in this agreement shall require the landowner or the agency with responsibility for enforcing this agreement to take any action to restore the condition of the Conservation Premises after any Act of God or other event over which they had no control.

Reclaim Provisions

In the event that the remedies described above cannot be satisfactorily carried out, it is possible that reclaim provisions could be considered as a part of any federal legislation that would be enacted to authorize the tax incentives described previously. S. 1181, for example, included fairly stringent reclaim provisions to discourage premature termination of its "endangered species conservation agreements," exact penalties for violation of the agreements when habitats are destroyed or damaged, and ensure that habitats are not converted to other uses the moment the agreements expire. Reclaim provisions for the Resource Conservation Agreements might work as follows:

(A) A requirement that a percentage of the actual value of tax credits received during the time the agreement was in effect be recaptured if the agreement is terminated early, as follows:

(1) A recapture of 100% of the actual value of tax credits received if the agreement is terminated prior to its first anniversary.

(2) A recapture of 80% of the actual value of tax credits received if the agreement is terminated in years 1-4

(3) a recapture of 60% of the actual value of the tax credits received if the agreement is terminated in years 5-9

(4) a recapture of 40% of the actual value of the tax credits received if the agreement is terminated in years 10-14

(5) a recapture of 20% of the actual value of the tax credits received if the agreement is terminated in years 15-19

(B) A requirement that a percentage of the actual value of tax credits received during the term of the agreement be recaptured if the habitats and/or other natural resources covered by the agreement are converted to other uses or significantly altered so as to disrupt their natural ecological functions within 10 years after the conclusion of the agreement. The percentage of tax credits recaptured would be equal to the percentage of habitat or other natural resource that is converted to another use. For example, if 25% of the "Conservation Premises" is converted to another use or significantly altered within 10 years after the conclusion of the agreement, then 25% of the value of the tax credits received during the term of the agreement would be reclaimed. Again, if property is sold, new owner shall have full liability for compliance.

One advantage to these reclaim provisions is that they would add up and give productive ag lands and natural resources higher values so they could compete more effectively in the market economy and thus make it less desirable (and less economically attractive) to convert them to more intense land uses. At the same time a landowners’ equity -- and the value of the land for loans -- also would be enhanced.

Impact of This Proposal on Efforts to Repeal Federal Estate Taxes