[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
TAX INCENTIVES FOR LAND USE, CONSERVATION, AND PRESERVATION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON SELECT REVENUE MEASURES
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
APRIL 30, 2002
__________
Serial No. 107-93
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
85-675 WASHINGTON : 2003
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. MCNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Select Revenue Measures
JIM MCCRERY, Louisiana, Chairman
J.D. HAYWORTH, Arizona MICHAEL R. MCNULTY, New York
JERRY WELLER, Illinois RICHARD E. NEAL, Massachusetts
RON LEWIS, Kentucky WILLIAM J. JEFFERSON, Louisiana
MARK FOLEY, Florida JOHN S. TANNER, Tennessee
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of April 23, 2002, announcing the hearing............... 2
WITNESSES
U.S. Department of the Treasury, Pamela F. Olson, Acting
Assistant Secretary for Tax Policy............................. 26
______
American Forest & Paper Association, and Temple-Inland Forests
Products Corporation, Jim DeCosmo.............................. 63
Blumenauer, Hon. Earl, a Representative in Congress from the
State of Oregon................................................ 18
Dunn, Hon. Jennifer, a Representative in Congress from the State
of Washington.................................................. 13
Evergreen Forest Trust:
Charles W. Bingham............................................. 53
Eugene G. Duvernoy, Cascade Land Conservancy................... 56
Isakson, Hon. Johnny, a Representative in Congress from the State
of Georgia..................................................... 22
Johnson, Hon. Nancy L., a Representative in Congress from the
State of Connecticut........................................... 10
Land Trust Alliance, Rand Wentworth.............................. 59
Portman, Hon. Rob, a Representative in Congress from the State of
Ohio........................................................... 7
Sawyer, Christopher Glenn, Atlanta, GA........................... 38
Nature Conservancy, Steven J. McCormick.......................... 44
Real Estate Roundtable, and Lowe Enterprises, Inc., Timothy
Brazell........................................................ 48
Weller, Hon. Jerry, a Representative in Congress from the State
of Illinois.................................................... 16
SUBMISSIONS FOR THE RECORD
American Farm Bureau Federation, statement....................... 74
American Farmland Trust, Ralph Grossi, statement................. 76
Chesapeake Bay Foundation, Inc., Annapolis, MD, Lee R. Epstein,
statement...................................................... 77
Ducks Unlimited, Memphis, TN, Scott Sutherland, letter........... 47
Houghton, Hon. Amo, a Representative in Congress from the State
of New York, statement......................................... 73
Montana Land Reliance, Helena, MT, statement..................... 75
Neal, Hon. Richard E., a Representative in Congress from the
State of Massachusetts, statement.............................. 5
Trust for Public Land, San Francisco, CA, Alan Front, statement.. 78
TAX INCENTIVES FOR LAND USE, CONSERVATION, AND PRESERVATION
----------
TUESDAY, APRIL 30, 2002
House of Representatives,
Committee on Ways and Means,
Subcommittee on Select Revenue Measures,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:05 p.m., in
room 1100 Longworth House Office Building, Hon. Jim McCrery
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON SELECT REVENUE MEASURES
CONTACT: (202) 226-5911
FOR IMMEDIATE RELEASE
April 23, 2002
No. SRM-5
McCrery Announces Hearing on Tax Incentives
for Land Use, Conservation, and Preservation
Congressman Jim McCrery (R-LA), Chairman, Subcommittee on Select
Revenue Measures of the Committee on Ways and Means, today announced
that the Subcommittee will hold a hearing on tax incentives for land
use, conservation, and preservation. The hearing will take place on
Tuesday, April 30, 2002, in the main Committee hearing room, 1100
Longworth House Office Building, beginning at 2:00 p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
The Internal Revenue Code includes a number of incentives to
encourage responsible stewardship of the land, including the
deductibility of gifts of land to charitable institutions, the
deductibility of gifts of conservation easements, and the expensing of
environmental remediation costs. The hearing will examine proposals
designed to improve upon those incentives and further encourage the
preservation of open spaces.
In announcing the hearing, Chairman McCrery stated: ``Across
America, once-pristine natural resources are giving way to the spread
of urban areas. In many cases, the estate tax's valuation rules have
forced family farms to be sold to developers. This hearing will give
the Committee a better handle on the challenges facing communities
working to preserve open spaces and the ways in which the tax code
might help those efforts.''
FOCUS OF THE HEARING:
The focus of the hearing will be to examine several proposals which
expand the tax incentives available to individuals and groups seeking
to preserve open spaces and promote conservation.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business, Tuesday, May 14, 2002. Those
filing written statements who wish to have their statements distributed
to the press and interested public at the hearing should deliver their
200 copies to the Subcommittee on Select Revenue Measures in room 1135
Longworth House Office Building, in an open and searchable package 48
hours before the hearing. The U.S. Capitol Police will refuse unopened
and unsearchable deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
[email protected], along with a fax copy to
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
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3. Any statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
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materials in alternative formats) may be directed to the Committee as
noted above.
Chairman MCCRERY. The Subcommittee will come to order. Good
afternoon, everyone.
Today, the Subcommittee on Select Revenue Measures will
learn more about the issue of urban sprawl and whether the tax
code can encourage conservation through responsible land use.
We are fortunate to have a distinguished group of witnesses
today, including many of our colleagues in Congress whose
efforts have landed this issue onto our Subcommittee's agenda.
I am also pleased to welcome later Ms. Pam Olson, who is
the Acting Assistant Secretary for Tax Policy. She is
attempting to fill the very large shoes of our friend, Mark
Weinberger, who has left U.S. Department of the Treasury. We
look forward to Ms. Olson's testimony about the conservation
proposals in President Bush's budget.
Across the country, economic progress has been marked by
the urbanization of America. In many parts of our country,
cities seem to have grown steadily outward until they meet
their nearest neighbor. In this area, it is becoming difficult
to tell when one leaves the Washington metropolitan area and
enters the Baltimore metropolitan area.
Land which has been farmed for generations is being
converted to golf courses, housing developments, and shopping
centers. Small towns once thought to be far from the nearest
urban area now find themselves becoming bedroom communities and
home to thousands of commuters who seem to spend as much time
getting to and from their work as they actually spend in their
office.
In some ways, this march of progress is a sign of our
economic strength. Farmers are able to grow more food on less
land, while the offices and factories of America turn out new
and better products for consumption here and across the globe.
This transformation of America's land and its use does not
come without a price, though. Swimming holes are giving way to
swimming pools and open spaces are being leveled to make room
for open houses. Stands of trees are being replaced by
nurseries where one can buy a tree or a shrub for his new
house. It is becoming more difficult to take a stroll in the
woods with your family, though there might be a designated
walking path around the artificial lake in the middle of your
housing development.
In some ways, the tax code contributes to the urbanization
of America. Today, we will hear about how the cost of
remediating brownfields discourages developers from locating in
and helping to rebuild blighted urban areas. We will hear how
pressures of the estate tax can force estates to sell family
farms to developers in order to pay Uncle Sam. We will also
hear about proposals which help local governments and nonprofit
groups raise funds necessary to prevent over-development in
their communities.
In a free market, land holders must be allowed to enjoy the
appreciation in the value of their land. Accordingly, I think
Congress must proceed very carefully on any proposal which
would deprive them of the freedom to dispose of their land as
they choose.
The proposals being discussed today generally do not suffer
from that flaw. Rather than handcuffing landowners, they use
various tools to encourage voluntary transactions in which
property owners dedicate their land to conservation purposes.
Some of the proposals achieve that goal by increasing the
deductions available to landowners for preserving open spaces
for future generations. Others make it easier for nonprofits
and government organizations to raise the money necessary to
purchase lands for conservation purposes.
Underlying each proposal is a belief that the loss of open
spaces and the conversion of farms to freeways comes at some
cost to the community, a so-called negative externality. These
proposals attempt to act as a counterweight so local
communities will not have to view the loss of their natural
surroundings as an inevitable consequence of progress.
[The opening statement of Chairman McCrery follows:]
Opening Statement of the Hon. Jim McCrery, Chairman, and a
Representative in Congress from the State of Louisiana
The Subcommittee will come to order. I ask our guests to please
take their seats.
Good afternoon. Today, the Subcommittee on Select Revenue Measures
will learn more about the issue of urban sprawl and whether the tax
code can encourage conservation through responsible land use. We are
fortunate to have a distinguished group of witnesses today, including
many of our colleagues in Congress whose efforts have landed this issue
onto the Subcommittee's agenda.
I am also pleased to welcome Ms. Pam Olson, who is the Deputy
Assistant Secretary of Tax Policy and who is stepping into the very
large shoes left behind by Mark Weinberger. We look forward to Ms.
Olson's testimony about the conservation proposals in President Bush's
budget.
Across the country, economic progress has been marked by
urbanization of America. In many parts of America, cities seem to have
grown steadily outward until they meet their nearest neighbor. In this
area, it is becoming difficult to tell where the Washington
metropolitan area ends and Baltimore's begins.
Land which had been farmed for generations is being converted to
golf courses, housing developments, and shopping centers. Small towns
once thought to be far from the nearest urban area now find themselves
becoming bedroom communities and home to thousands of commuters who
seem to spend as much time getting to and from work as they actually
spend in the office.
In some ways, this march of progress is a sign of our economic
strength. Farmers are able to grow more food on less land, while the
offices and factories of America turn out new and better products for
consumption here and across the globe.
This transformation of America's land and its use does not come
without a price.
Swimming holes are giving way to swimming pools, and open spaces
are being leveled to make room for open houses. Stands of trees are
being replaced by nurseries, where one can buy a tree or a shrub for
the new house. It is becoming more difficult to take a stroll in the
woods with your family, though there might be a designated walking path
around the artificial lake in the middle of the housing development.
In some ways, the tax code contributes to the urbanization of
America. Today, we will hear about how the costs of remediating
brownfields discourages developers from locating in and helping to
rebuild blighted urban areas. We will hear how pressures of the estate
tax can force estates to sell family farms to developers in order to
pay Uncle Sam.
We will also hear about proposals which help local governments and
non-profit groups raise funds necessary to prevent over-development in
their communities.
In a free market, landholders must be allowed to enjoy the
appreciation in the value of their land. Accordingly, I think Congress
must proceed very carefully on any proposal which would deprive them of
the freedom to dispose of their land as they choose.
But the proposals being discussed today generally do not suffer
from that flaw. Rather than handcuffing landowners, they use various
tools to encourage voluntary transactions in which property owners
dedicate their land to conservation purposes.
Some of the proposals achieve that goal by increasing the
deductions available to landowners for preserving open spaces for
future generations. Others make it easier for non-profits and
government organizations to raise the money necessary to purchase lands
for conservation purposes.
Underlying each proposal is a belief that the loss of open spaces
and the conversion of farms to freeways comes at some cost to the
community, a so-called negative externality. These proposals attempt to
act as a counter-weight, so local communities will not have to view the
loss of their natural surroundings as an inevitable consequence of
progress.
Before introducing our first witnesses, I yield to my friend from
New York for an opening statement.
Chairman MCCRERY. Before introducing our first
distinguished panel of witnesses, I yield to my good friend
from New York for his opening statement. Mr. McNulty?
Mr. MCNULTY. Thank you, Mr. Chairman. In the interest of
time, I would like to submit my entire statement for the record
and briefly summarize. Also, I would ask permission, since
Congressman Neal cannot arrive in time to testify in person,
that his statement be submitted for the record.
Chairman MCCRERY. Without objection.
[The statement of Mr. Neal follows:]
Statement of the Hon. Richard E. Neal, a Representative in Congress
from the State of Massachusetts
Thank you, Mr. Chairman and Mr. McNulty, for the opportunity to
testify before the Subcommittee today. This Subcommittee has the unique
opportunity to provide tax incentives for smart growth, brownfields
redevelopment, and endangered species habitat, among other important
land use issues. With such a responsibility, I urge the Subcommittee to
draw from legislative efforts showing a broad base of support.
I come before the Subcommittee to express my full support for H.R.
2290, the Conservation Tax Incentives Act of 2001. I would like to
recognize the outstanding leadership of Representatives Rob Portman and
Bob Matsui on this important bill. Later in this hearing, the
Subcommittee will be hearing from Steven McCormick, the President of
the Nature Conservancy, who supports this bill and happens to be
accompanied by Philip Tabas, the Director of the Land Protection
program, from the Boston office of the Nature Conservancy.
The bill allows a 50 percent exclusion from gain on the sale of
land or water rights to an eligible conservation entity for
conservation purposes. This bill would benefit all states across the
nation by helping protect land and natural resources. In my own
district in Massachusetts, there is a great need to prevent unplanned
sprawl along the Connecticut River Valley, a precious and beautiful
landscape. Local and state conservation groups have been able to do
this by utilizing state money to purchase conservation easements from
local farmers along the river valley, who are faced with the tough
economic decision of either selling a conservation easement (and
preserving an agricultural use) or selling the land altogether. With
this legislation, the conservation easement would win more often in
that battle as the tax incentive would mean a great deal to these small
farmers.
Further, these limited dollars in the state program could be
stretched much farther and utilized for many other important projects,
such as the Quinebaug River Heritage corridor, yet another land
conservation priority in my district. Since 1945, Massachusetts has
been steadily losing thousands of acres of farmland per year. However,
just during the last year, this inventive state program was able to
save 50 farms and over 4,700 acres. Providing tax incentives to those
who want to conserve land is good tax policy, and I hope the
Subcommittee will support H.R. 2290.
Another bill I hope the Committee will consider is H.R. 4579, the
Endangered Species Recovery Act of 2001, introduced by Rep. George
Miller. This bill uses tax incentives to encourage endangered species
conservation agreements between private landowners and the government
regulators, while also providing certainty to these landowners under
the Endangered Species Act. In my home State of Massachusetts, it has
been estimated that there are 427 identified species of plants and
animals designated as endangered, threatened, or of special concern. I
am hopeful that the Subcommittee will consider legislation that draws
the appropriate balance between landowner rights and environmental
protections, through tax and other financial incentives.
Finally, I am pleased that the Subcommittee will be hearing from
our colleagues, Representatives Bill Coyne and Jerry Weller, on
legislation to make permanent the expensing of brownfields remediation
costs. Tax incentives to encourage land remediation has been supported
by commercial developers and environmental groups alike. As co-chair of
the Congressional Real Estate Caucus, I am fully aware of how important
this issue is to the real estate industry and I hope the Subcommittee
will consider these legislative priorities as well.
Thank you again for the opportunity to address the Subcommittee
today.
Mr. MCNULTY. Conservation and preservation of our open
space land is of great importance to every American. This
Subcommittee, on a bipartisan basis, supports tax incentives to
encourage donation of land for conservation purposes and to
protect our environment through the clean-up of toxic sites. I
look forward to the testimony of our distinguished colleagues
and all of those who will testify on this important topic
today. Thank you, Mr. Chairman.
[The opening statement of Mr. McNulty follows:]
Opening Statement of the Hon. Michael R. McNulty, a Representative in
Congress from the State of New York
Today, the Ways and Means Select Revenue Measures Subcommittee will
hold a hearing to review current tax law incentives and pending
legislation designed to improve land use conservation and preservation.
Conservation and preservation of our open-space land is of great
importance to every American. The Committee, on a bipartisan basis,
supports tax incentives to encourage the donation of land for
conservation purposes and to protect our environment through clean-up
of toxic sites. In tandem with state and local efforts, Federal tax
incentives have proven to be effective tools in support of private and
public sector efforts to maintain and preserve critical features of our
environment.
Hearing testimony scheduled for this afternoon will focus on bills
that would use the tax laws to achieve important environmental and
conservation goals. Importantly, these bills have been developed on a
bipartisan basis, with many Committee Democrats and Republicans joining
as cosponsors. With Earth Day 2002 celebrations having just ended, it
is appropriate that the Select Revenue Measures Subcommittee take the
lead and consider how these proposals would contribute to land use
preservation and conservation.
I join Subcommittee Chairman McCrery in emphasizing the importance
of this review and look forward to the possibility of moving the
proposals to the full Committee for further consideration.
Thank you.
Chairman MCCRERY. Thank you, Mr. McNulty. Our first panel
of witnesses is comprised of our colleagues from the House. Mr.
Portman has expressed a desire to go first because he has an
urgent engagement away from the hearing room, and so without
objection from any other panel Member, I will recognize first
our good friend from the Committee on Ways and Means, Mr. Rob
Portman. Mr. Portman?
STATEMENT OF THE HON. ROB PORTMAN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OHIO
Mr. PORTMAN. Thank you, Mr. Chairman. I appreciate the
indulgence of my colleagues. I really thought your opening
statement outlined the issues well, Mr. Chairman, and I
appreciate Mr. Lewis, Mr. McNulty, and other Members of the
panel who may join us for hearing us out.
I do believe that conserving open spaces, as one of our
Nation's greatest natural resources, is extremely important,
and I look forward to working with my colleagues on this panel
with me and with the Subcommittee to try to move legislation
forward using the tax code to help encourage that.
Mr. Chairman, open spaces are necessary to be sure that we
are preserving our diversity of plants and wildlife in this
country that are disappearing at an alarming rate. We are told,
in fact, that every minute, another two acres of farmland in
this country are lost to development. That translates, Mr.
Chairman, to about one million acres a year. About the size of
the State of Vermont is now being lost every year to
development.
Preserving some of our remaining open spaces will not only
help maintain important natural habitat, but also improves our
quality of life, as you noted in your opening statement, by
slowing the growth of traffic, congestion, air and water
pollution, maintaining areas for recreational use, and helping
to keep productive farmland and ranch lands intact.
The Federal and State Government cannot and should not have
the sole responsibility for preserving these open spaces, and
you have made that point well. In the United States, in fact,
the vast majority of this land is held in private hands.
Private landowners must be willing partners, thus, with the
government in helping to conserve these open spaces and natural
habitats for the public's benefit.
The Tax Code, of course, does provide some tax incentives
already to encourage conservation. For example, taxpayers can
take a deduction for charitable contributions of real property
or an interest in property for qualified conservation purposes.
In fact, the Federal estate tax also provides for a partial
exclusion for gifts of conservation easements. These are
valuable tools for conservation, and they are used but they do
not work in all instances and that is one of the focuses of my
testimony today.
As we all know, there has been a great appreciation in
these rural land values, certainly in my district, and I am
sure in all the districts of those represented today. It is
particularly true where metropolitan areas, as you said, are
moving outward to meet what were previously strictly rural
areas and these farmers and ranchers in these areas found they
have very few financial assets other than their land. The
income from farming and ranching is still relatively modest, so
these are land-rich and cash-poor property owners who are
generally unable to take advantage of the existing charitable
donation incentives because their annual incomes and their tax
liabilities just are too low to use the tax benefit to declare
the deduction.
The legislation that I am promoting today, which is H.R.
2290, Conservation Tax Incentive Act, would address this
problem by focusing on another tax, which is the capital gains
tax. I am pleased that this proposal was included in President
Bush's fiscal year 2003 budget. The bill excludes 50 percent of
the gain on sales of land or interest in land or water where
the sale is made to a qualified conservation entity for
conservation purposes.
Now, that sounds like a lot of new language, but it is
really not, because qualified conservation entities is already
in the tax code. This could include publicly supported
conservation charities, governmental conservation agencies. In
my district, for example, the Southern Ohio Farmland
Preservation Association would be a qualified purchaser, and so
could a city park or a county park, the State. Conservation
purposes in the Act would include, and again, this is in the
tax code, the preservation of land for outdoor recreation by
the general public and the protection of natural habitats of
fish wildlife or plants or the preservation of open space,
including farmlands or forest. The bill uses the definitions
for conservation entities and the test for conservation
purposes that are, again, already in the tax code and well
understood.
It is a fiscally conservative, private citizen-based
approach to land conservation that will help preserve these
open spaces from sprawl and development while avoiding any
onerous new land use regulations. It also enables conservation
organizations and State and local governments to stretch their
limited resources so they can focus on acquiring the most
environmentally sensitive tracts of land.
My district offers a great example of how this bill could
be very helpful. Like a lot of other big cities, Cincinnati has
expanded out into the rural areas and a lot of family farmers
in my area are just getting by financially. They do not have
the income and, thus, the tax liability. A lot of them want to
keep their land in agriculture, but it is getting harder and
harder to do it all the time.
The State of Ohio does have a new program that provides for
the purchase of development rights. However, a lot of farmers
have purchased their land before the property escalated in
value, and they would have huge capital gains taxes if they
were to sell their development rights. With such a hefty
portion of the payment from the transaction going to Federal
taxes, many just are unable or unwilling to participate in the
program.
Under this bill, again, the capital gains on the sale of
these development rights could be substantially reduced. The
resulting increase in the net after-tax return, of course,
means that more farmers would be able to afford to keep their
land in productive use. That is one example.
The bill is supported, Mr. Chairman, by a wide range of
interests, the American Farm Bureau, Ducks Unlimited, Defenders
of Wildlife, Association of State Foresters, the Nature
Conservancy, who helped us in putting this bill together the
last several years.
It will encourage conservation, again, through voluntary
private, market-based sales at a very modest cost to the
government. The current cost estimate we have from the Joint
Committee on Taxation, Mr. Chairman, is $66 million per year.
Again, I think that is a small cost that will yield lasting and
very important benefits for generations to come.
Again, thank you for allowing me to explain my proposal. I
look forward to working with you and Members of the
Subcommittee and colleagues here on the panel to move some of
these ideas forward.
[The prepared statement of Mr. Portman follows:]
Statement of the Hon. Rob Portman, a Representative in Congress from
the State of Ohio
Mr. Chairman and Members of the Subcommittee, I appreciate your
holding this hearing and giving me the opportunity to appear before you
today to talk about the importance of conserving one of our Nation's
greatest natural resources--open spaces. I also would like to
acknowledge my colleagues who are on the panel with me today. They have
been very active in legislative efforts to preserve and improve the
environment, and their leadership is to be commended.
Mr. Chairman, the open spaces necessary to preserve our Nation's
rich diversity of plant and wildlife are disappearing at an alarming
rate. Every minute, two acres of farmland in this country are lost to
development. That translates to a loss of more than one million acres
every year. Preserving some of our remaining open spaces will not only
help to maintain important natural habitats, but will also improve our
quality of life by slowing the growth of traffic congestion and air and
water pollution, maintaining areas for recreational use, and helping to
keep productive farm and ranch lands intact.
The Federal and State Governments cannot, and should not, have sole
responsibility for preserving open spaces. In the United States, the
vast majority of threatened habitats are privately owned. Thus, private
landowners must be willing partners with the government in helping to
conserve open spaces and natural habitats for the public benefit.
The tax code does provide some tax incentives to encourage
conservation of open spaces. For example, taxpayers may take a
deduction for charitable contributions of real property or interests in
property for qualified conservation purposes. In addition, the Federal
estate tax provides for a partial exclusion for gifts of conservation
easements. These tax benefits are valuable tools for encouraging
conservation, but they don't work in all instances. As we all know,
there has been great appreciation in rural land values in recent years,
particularly where metropolitan areas have expanded outward to meet
rural areas. Farmers and ranchers in such areas often have few
financial assets other than their land, and income from farming and
ranching is still relatively modest. Thus, land rich, cash poor
property owners are generally unable to take advantage of the existing
charitable donation incentives because their annual incomes and tax
liability are too low to use the tax benefit of a deduction.
My bill, H.R. 2290, the Conservation Tax Incentive Act, would
address this problem by focusing on the capital gains tax. I am pleased
that this proposal was included in President Bush's Fiscal Year 2003
budget. H.R. 2290 would exclude 50 percent of the gain on sales of land
or interests in land or water where the sale is made to qualified
conservation entities for conservation purposes. Qualified conservation
entities include publicly-supported conservation charities and
governmental conservation agencies. Conservation purposes include: (1)
the preservation of land for outdoor recreation by the general public;
(2) the protection of natural habitats of fish, wildlife or plants; and
(3) the preservation of open space (including farmland and forests).
The bill uses definitions for conservation entities and tests for
conservation purposes that are already in the tax code, and are well
understood.
The Conservation Tax Incentives Act is a fiscally-conservative
private citizen-based approach to land conservation that will help
preserve open spaces from sprawl and haphazard development while
avoiding onerous new land use regulations. It will also enable
conservation organizations and state and local governments to stretch
their limited resources to acquire the most environmentally-sensitive
tracts of land.
My district in Southwest Ohio offers a classic example of where the
bill would be helpful. Like other major cities, the metropolitan areas
of Cincinnati have expanded out to meet rural areas. Many small family
farms in the rural areas outside Cincinnati are just getting by
financially. They want to continue to keep their land in production
agriculture, but it's getting tougher all the time.
The State of Ohio has implemented a new program that provides for
the purchase of development rights to recognize the public interest in
maintaining farmland. However, many farmers purchased their land before
the recent escalation in property values, and they would experience
substantial capital gains taxes on a sale of their development rights.
With such a hefty portion of the payment from the transaction going to
Federal taxes, many have been unable to participate in the program.
Under my bill, capital gains taxes on the sale of such development
rights would be substantially reduced. The resulting increase in the
net after-tax return means that more farmers could afford to keep their
land in productive use.
The bill is supported by a wide range of interests, including the
American Farm Bureau, Ducks Unlimited, Defenders of Wildlife, the
Association of State Foresters, and The Nature Conservancy. H.R. 2290
will encourage conservation through private, voluntary, market-rate
sales at a modest cost to the Federal Government--approximately $66
million per year according to the last estimate we have from the Joint
Committee on Taxation. This is a small cost that will yield important
benefits for future generations.
Thank you for allowing me to explain this proposal. Of course, I
would be happy to try to respond to any questions you may have.
Chairman MCCRERY. Thank you, Mr. Portman. Our colleague on
the Committee on Ways and Means, the Chairman of the
Subcommittee on Health, Mrs. Nancy Johnson. Mrs. Johnson?
STATEMENT OF THE HON. NANCY L. JOHNSON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CONNECTICUT
Mrs. JOHNSON. Thank you very much, Mr. Chairman, and thanks
to all of your colleagues on your Subcommittee on Select
Revenue Measures for being here this afternoon.
I am going to build on what my colleague from Ohio has
said, but before I do, let me just welcome Rand Wentworth, who
is the President of the Land Trust Alliance, whom you will hear
from shortly. Mr. Wentworth and his organization have been
really national leaders in promoting conservation across the
country and his organization's membership have strong
representation in Connecticut. I am proud that the Land Trust
has devoted clear resources to developing the leadership and
the literal resources for land preservation in many, many
counties throughout America.
Over the past 20 years, many landowners have protected the
value that they place on their land by donating it for
conservation or adopting an easement that permanently protects
the land they love. The continued rise in land prices, coupled
with the rising cost of retirement, has greatly undermined the
existing income tax incentives for open space protection and
forces people to choose between retirement security and land
protection in a way they have not had to in the past.
In addition, States have developed quite impressive
programs to buy either land or development rights. Since they
are appropriated programs and actually involve buying the land,
they are very costly and States, too, are limited in their
ability to address their own land preservation needs.
It is my belief that while the tax code has in the past
thought about this, its provisions are inadequate and its
provisions are particularly inadequate for the kind of person
of modest means that Mr. Portman referred to. Many of my
constituents have modest incomes, but they look rich when you
look at the now value of their land. The tax code could really
be a far more powerful agent in land preservation if we could
enable these people to donate their land, thus avoiding some of
the capital gains problems that Mr. Portman alluded to.
Our bills are actually complementary, because his deals
with situations where there is a sale. Mine deals with
situations when there is a donation. The primary provision of
my bill, H.R. 1309, would increase the current income tax
deduction for the donation of land for conservation purposes
from 30 to 50 percent of income until the full value of the
land was realized, rather than limiting those deductions to up
to 6 years.
So, it would enable the people in my part of Connecticut,
the Northwest corner, who own only 10 acres or 20 acres but who
live next to people who also own 10 or 20 acres and would like
to see this reserve in the valley preserved, each of them to be
able to donate and, in a sense, develop a reverse income
through this deduction and reduction of tax liability. So, it
is kind of like reverse mortgages, and it really minimizes the
cost to the government while maximizing the opportunity to
preserve land that is important to us to protect open spaces.
In my part of the country, protecting open spaces is
important so you have fields that you can lease to support the
working farms in existence, because if those fields go out of
protection and are developed, you lose the farms as a secondary
impact.
Allowing families to deduct 50 percent of the value of
their land from their income for as many years as it takes to
recoup the value of the donated land creates an income stream
through reduced tax liability that allows them both to be
secure in their retirement and protect the land that they so
love.
It is kind of interesting to note that if you have a very
high income and you donate a $1-million picture, you can deduct
the whole $1 million, which may bring, in the first year, the
tax liability down very low. So, in a sense, we are saying to
the person who does not have a $1-million picture by a famous
artist but does have 20 acres they would like to donate to
conservation that they cannot ever deduct the whole value of
that. So, there is a disparity in our tax code, how we are
valuing the donation of art objects to art museums versus how
we are valuing the donation of land to environmentally friendly
uses that will serve the public interest.
I am going to skip the rest of my testimony out of
deference to my colleagues, but I am very excited about this
hearing. I think that if we really look thoroughly at this
issue of sales and donation, that the Federal Government could
be a far better partner to the States now that the States are
keenly aware that the parcels that are left are rising rapidly
in price and we need to act in the next decade, not in decades
ahead.
So, I think we have an opportunity to make a very
significant contribution at minimal public cost and with
maximum flexibility and maximum respect for the fact that there
are many important pieces of public land owned by small
landowners who really profoundly value their land and the
preservation of the quality of life of their small town and
know that only an easement or some other means of preservation
will preserve that quality of life that they enjoy and hope to
will to their children. Thank you for your attention.
[The prepared statement of Mrs. Johnson follows:]
Statement of the Hon. Nancy L. Johnson, a Representative in Congress
from the State of Connecticut
Mr. Chairman and Members of the Subcommittee:
Thank you for convening this important hearing on tax incentives
for the conservation of land. I want to welcome Rand Wentworth,
President of the Land Trust Alliance (LTA), who you will hear from
shortly. Mr. Wentworth, and his organization, has been a national
leader in promoting land conservation across the country and his
organization's membership has a strong presence in Connecticut. I am
proud that the Land Trust Alliance has endorsed my bill, H.R. 1309,
about which I have come to testify today, and appreciate the leadership
and resources LTA has provided in representing more than 1,200 non-
profit, grass-roots land trusts nationwide.
While Congress often uses the tax code to promote certain
activities, I do not believe we have used it effectively enough to
promote land conservation. Connecticut, like most of its fellow New
England states, is known for its historical beauty. However, like so
some many communities across the country, we have seen an alarming
amount of farmland and green spaces lost to development. More and more
strip malls, shopping plazas and housing complexes are replacing
productive farms and precious open spaces.
Today, in many places with important value for their wildlife
habitat, scenic beauty, outdoor recreation, and open space, land prices
have risen far faster than the incomes of the farmers, ranchers and
other landowners whose stewardship has protected and enhanced those
values. Over the past twenty years, many landowners have protected such
values on their land by donating it, or by donating a conservation
easement that legally protected those values permanently. But the
continued rise in land prices has greatly undermined the existing
income tax incentive for such.
Connecticut has embarked on major initiatives to either buy, or
provide grants for the purchasing of land for conservation or
recreation. In addition to popular state initiatives and current tax
incentives, more must be done to encourage those who are land rich, but
of modest means, to donate their land for conservation purposes. The
primary provision of my bill, H.R. 1309, would increase the current
income tax deduction for the donation of land for conservation
purposes, from 30 percent to 50 percent of income until the full value
of the land is realized, rather than a deduction for no more than 6
years.
Allowing families to deduct 50 percent of the value of their land
from their income for as many years as it takes to recoup the value of
the donated land essentially creates an income stream while their land
is permanently protected from development. In the absence of improved
conservation tax incentives, more and more land owners will succumb to
the highest bidder and sell their valuable land for development. This
will diminish preservation efforts and urban sprawl will become an even
greater problem throughout the country. We need to find better ways to
protect and preserve open spaces and I believe the tax code can further
promote environmentally-friendly uses of our lands.
I also want to mention one other bill before the committee which
complements my legislation. Mr. Portman's bill, H.R. 2290, would allow
landowners to exclude from tax 50 percent of the gain on sales of land
or easements to public or private conservation entities for
conservation purposes. His bill would allow landowners to protect the
ecological value of their land without forfeiting the lands' economic
value. We both share the same goal of preserving land, but our
respective bills seek to achieve this goal in slightly different ways.
I will continue to strongly advocate for proposals to enhance tax
incentives for the conservation of land so those who are land rich, but
cash poor, can afford to make this income sacrifice and help us all
preserve our rural landscapes. My legislation, and others before the
committee, promote this goal. It is my hope that the committee will act
as soon as possible to put in place greater incentives for the
conservation of land.
Chairman MCCRERY. Thank you, Mrs. Johnson. Now, our next
witness is another Member of the Committee on Ways and Means,
the gentlelady from Washington, Ms. Jennifer Dunn. Ms. Dunn,
welcome.
STATEMENT OF THE HON. JENNIFER DUNN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WASHINGTON
Ms. DUNN. Thank you very much, Mr. Chairman. Mrs. Johnson
put her finger on it. We are talking about partnership. I think
it shows that you are, indeed, a panel of vision to be letting
us have these hearings because we think we may have some
solutions that will create good partnerships and result in the
preservation of our Nation's beautiful forests at the same
time.
One of our most important roles as elected officials is to
serve as stewards of our environment. We have a responsibility
to future generations to care for our environment so that they
will be able to experience and enjoy our natural resources.
I believe there is broad support within Congress and in
America for sound, consistent environmental policy. Sadly, it
seems whenever a discussion moves beyond general goals to
actual policies, it becomes rancorous and often bitter. The
lingering distrust between the environmental community and
private property advocates has proven to be a very difficult
obstacle to overcome. Clearly, we need some new thinking.
For this reason, I am so pleased to be speaking on behalf
of H.R. 1711, the Community Forestry and Agriculture
Conservation Act. This legislation presents an innovative
solution to one of the most vexing challenges facing policy
makers, conserving our land while ensuring that it remains a
source of economic activity. This bill achieves an important
balance by promoting a public good without impinging on private
property rights.
The bill has 25 cosponsors, including six Members of the
Committee on Ways and Means. I want to recognize two Members of
the Subcommittee, Mr. Tanner and Mr. Foley, for their support.
Here is how the concept works. A community citizens group
or a local government with a desire to protect a piece of land
as a working greenbelt creates a nonprofit entity that includes
a balanced membership of landowners, environmentalists,
financial leaders, local officials, and forest professionals.
The nonprofit group develops a management plan for the land
that conforms to the relevant State and Federal environmental
standards. Under the plan, a large portion of the land will be
dedicated for stream and habitat protection and another area
will be identified for logging.
The State agency responsible for bond authority issues tax-
exempt revenue bonds on behalf of the nonprofit group, who
purchases the land from the private owner at a fair market
value. The nonprofit group takes title of the land. The
nonprofit group harvests appropriate amounts of timber to pay
off the debt while preserving the bulk of the forestland from
future development.
To make this concept a reality, Congress needs to change
our tax law to allow nonprofit groups to access tax-exempt
bonds. By doing so, we can employ a collaborative model to
preserve natural resources.
Although we began to write this legislation several years
ago, Mr. Chairman, a recent example has allowed us to show how
this concept could be applied in other areas around the
country. The recent example of the partnership is the
Snoqualmie Tree Farm in my district in Washington state. Last
January, the Weyerhaeuser Corporation agreed to sell 104,000
acres of the Snoqualmie Tree Farm to the Evergreen Forest
Trust. The parcel is only 40 miles from downtown Seattle and is
under imminent threat of development. The tree farm, which is
nearly twice the size of the city of Seattle, is too valuable
to remain as forest. Vast tracts would eventually be sold to
developers. By accessing tax-exempt bonds, the trust can
preserve the integrity of the tree farm.
Once the trust takes ownership, it will accommodate the
various needs of the community. It will protect vital habitats
and watershed areas. It will continue to allow residents of the
Puget Sound area to use wilderness lands for recreational
purposes. Perhaps most significantly, it will keep the mills
working and retain jobs for timber workers.
In Washington state, we are blessed with stunning natural
beauty, but as the population continues to grow, pressure to
conserve the land often collides with the desires of the
landowners. In the past, the government has further complicated
matters through heavy-handed regulation. A typical result
leaves one side victorious and the other side contemplating a
long, costly court battle. H.R. 1711 demonstrates that
environmental policy does not have to be a zero-sum game. We
can satisfy both sides.
Our problem in the Pacific Northwest is acute, but not
unique. Communities all over the Nation are struggling with the
competing demands of property owners and preservationists. I
hope the Evergreen Trust can be a national example of a new,
constructive effort to achieve the widely accepted goal of
environmental preservation. Proof exists in the diverse group
of supporters of this bill, including environmental
organizations like the Nature Conservancy and timber companies
like Weyerhaeuser and Plum Creek, two of whom you will hear
from later on on the second panel.
Privately-held forestland is disappearing throughout the
United States. Since 1997, 10.6 million acres of private
forestland have either been sold or are currently under
contract for sale. One of the reasons for the reduction is the
disparate tax treatment of private forestland. Hopefully, as we
move forward with conservation measures, we can also devote
some attention to how we tax timber assets.
I have many fond memories of hiking through the woodlands
around Puget Sound with my family. I want to ensure that
families in the future will enjoy our forests just as much as
we have. H.R. 1711 offers an opportunity to fulfill that
promise. Thank you, Mr. Chairman.
[The prepared statement of Ms. Dunn follows:]
Statement of the Hon. Jennifer Dunn, a Representative in Congress from
the State of Washington
One of the most important roles we have as elected officials is to
serve as stewards of our environment. We have a responsibility to
future generations to care for our environment so that they will be
able to experience and enjoy our natural resources.
I think that there is broad support within Congress and in America
for sound, consistent environmental policy. Sadly, it seems whenever a
discussion moves beyond general goals to actual policies it becomes
rancorous and often bitter. The lingering distrust between the
environmental community and private property advocates has proven to be
a difficult obstacle to overcome. Clearly, we need some new ideas.
For this reason I am so pleased to be speaking on behalf of H.R.
1711, the Community Forestry and Agriculture Conservation Act. This
legislation presents an innovative solution to one of the most vexing
challenges facing policymakers--conserving our land, while ensuring
that it remains a source of economic activity. The bill achieves an
important balance by promoting a public good without impinging on
private property rights.
The bill has 25 cosponsors, including six Members of the Ways and
Means Committee. I want to recognize two Members of the Subcommittee,
Mr. Tanner and Mr. Foley, for their support.
Allow me to briefly explain how the concept works:
A community citizens' group or a local government
with a desire to protect a piece of land as a ``working''
greenbelt creates a non-profit entity that includes a balanced
membership of landowners, environmentalists, financial leaders,
local officials, and forest professionals.
The non-profit group develops a management plan for
the land that conforms to the relevant state and Federal
environmental standards. Under the plan, a large portion of the
land will be dedicated for stream and habitat protection and
another area will be identified for logging.
The state agency responsible for bond authority
issues tax-exempt revenue bonds on behalf of the non-profit
group who purchases the land from the private owner at fair
market value. The non-profit takes title of the land.
The non-profit group harvests small amounts of timber
to pay off the debt while preserving the bulk of the forestland
from future development.
To make this concept a reality, Congress needs to change our tax
law to allow non-profit groups to access tax-exempt bonds. By doing so,
we can employ a collaborative model to preserve natural resources.
One example of this partnership is the Snoqualmie Tree Farm in my
district in Washington State. Last January, the Weyerhaeuser
Corporation agreed to sell the 104,000 acre Snoqualmie Tree Farm to
Evergreen Forest Trust. The parcel is only forty miles from downtown
Seattle and is under imminent threat of development. The tree farm,
which is nearly twice the size of Seattle, is too valuable to remain as
forest. Vast tracts would eventually be sold to developers. By
accessing tax-exempt bonds, the trust can preserve the integrity of the
tree farm.
Once the trust takes ownership it will accommodate the various
needs of the community. It will protect vital habitats and watershed
areas. It will continue to allow residents of the Puget Sound area to
use wilderness lands for recreational purposes. And perhaps most
significantly, it will keep the mills working and retain jobs for
timber workers.
In Washington State we are blessed with stunning natural beauty,
but as the population continues to grow pressure to conserve the land
often collides with the desires of landowners. In the past, the
government has further complicated matters through heavy-handed
regulation. A typical result leaves one side victorious and the other
side contemplating a long, costly court battle. H.R. 1711 demonstrates
that environmental policy does not have to be a zero-sum game. We can
satisfy both sides.
Our problem in the Pacific Northwest is acute, but it is not
unique. Communities all over the nation are struggling with the
competing demands of property owners and preservationists. I hope that
the Evergreen Trust can be a national example of a new, constructive
effort to achieve the widely accepted goal of environmental
preservation. Proof exists in the diverse group of supporters of this
bill, including environmental organizations like the Nature Conservancy
and timber companies like Weyerhaeuser and Plum Creek.
Privately-held forestland is disappearing throughout the United
States. Since 1997, 10.6 million acres of private forestland have
either been sold or are currently under contract for sale. One of the
reasons for the reduction is the disparate tax treatment of private
forestland. Hopefully, as move forward with conservation measures we
can also devote some attention to how we tax timber assets. I have
introduced H.R. 1581, the Reforestation Tax Act, which would ameliorate
some the tax problems faced by the timber industry. I am happy to see
that it is part of today's hearing.
I have many fond memories of hiking through the woodlands around
Puget Sound with my family. I would like to ensure that families in the
future can enjoy our forests as much we have. H.R. 1711 offers an
opportunity to fulfill that promise.
Chairman MCCRERY. Thank you, Ms. Dunn. Now, a colleague
from the Committee on Ways and Means and a Member of our
Subcommittee, Mr. Jerry Weller from Illinois. Mr. Weller?
STATEMENT OF THE HON. JERRY WELLER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. WELLER. Thank you, Mr. Chairman, and Mr. McNulty, thank
you, as well, for the opportunity to testify before our
Subcommittee today on an issue that we all care very much about
and an issue that carries strong bipartisan support and that is
the issue of farmland and open space preservation. I commend
you, Mr. Chairman, for conducting today's hearing on looking at
how the tax code can impact our goal of protecting valuable
open space.
One lesson I think we have always learned as we look at the
various pieces of tax legislation that have gone through our
Committee is the tax code does have consequences and the tax
code does have incentives. How can we use that to achieve this
goal?
Since I joined the Committee in 1996, and Mr. Chairman, if
I could, I would like to summarize my testimony and just ask
that I could submit my full testimony and summarize it for you.
Chairman MCCRERY. Without objection.
Mr. WELLER. I have enjoyed working with my colleagues,
Nancy Johnson and Bill Coyne and others on the issue of
brownfields. Every one of us can think of a community in our
district, if not our hometown, where there is a parcel of land
on one side of town, an old industrial park or a strategic
location, and you always wonder why someone does not redevelop
that and put it to use.
All too often, there are some environmental cleanup needs
in that brownfield, and if it is an old industrial park, you
already have the sewer, the water, the infrastructure, the
streets the access to that industrial park already in place,
but private investors are hesitant to purchase it. Of course,
the cost of the environmental cleanup has been the roadblock
there, and as I talk with economic development as well as
environmental agencies, they raise that issue when they are
trying to attract a private investor to purchase that
particular property.
Now, why is it important that we revitalize brownfields?
Well, if you are a private investor looking to develop an
industrial park, you have a choice. You can take an existing,
old, unused industrial park which already has the sewer, the
water, the infrastructure, or you can purchase a cornfield in
Illinois, a greenfield site, and statistics will show you that
if the developer makes the choice of purchasing the greenfield
site, they will probably consume anywhere from four to six
times as much open space and land for that new industrial park
as they would for an existing industrial park if they would
just revitalize that.
So, the question has been, how can we motivate and
encourage those private investors to purchase that old
industrial park, do the environmental cleanup, and revitalize
it, and in turn, revitalize the community?
We worked to provide, in a team effort, Nancy Johnson, Bill
Coyne, and myself, over the last several years, provide an
expensing provision for environmental cleanup of brownfields.
In the 1997 Balanced Budget Act, we were successful in
obtaining bipartisan support for a targeted provision that was
targeted to low-income census tracts, the areas around them as
well as Federal empowerment zones. Two years ago in the
Community Renewal Tax Relief Act of 2000, we were successful in
removing that targeting provision so every community in
America, whether rural or suburban or urban or middle class or
low income, would have the opportunity for this tax incentive
to recover the costs of environmental cleanup, and it is
working.
In the district that I represent on the South side of
Chicago as well as the South suburbs, we have brownfield sites
currently being cleaned up in LaSalle County, Kankakee County,
the city of Ottawa, Chicago's 10th ward, and in Joliet. In my
district, considering the fact that there are 2,000 brownfields
in the Chicago region alone, represents the two largest
brownfields in the State of Illinois, the former Joliet
arsenal, which is under redevelopment today, and, of course,
land adjacent to the Ford plant in the 10th ward of Chicago,
which is also under redevelopment. This tax incentive is
helping make that happen.
What we are asking the Subcommittee to consider and ask for
the full Committee's support as well as continued bipartisan
support for expensing of environmental cleanup on brownfields
is to make this provision permanent. We have introduced H.R.
2264, legislation which would make permanent the existing
provisions for expensing of environmental cleanup of brownfield
sites. The current provisions expire June 30, 2004.
This is important. If you think about it, permanency of a
tax provision causes greater investment in that. Business
decisionmakers making decisions on millions of dollars in
investments, if they know that the tax consequence is
permanent, they are more likely to make a decision of greater
magnitude, and I believe that making permanent the brownfields
tax incentive will make a big difference.
There are 400,000 brownfields across this country. The U.S.
Conference of Mayors estimates that in 187 cities, estimated
that if the 21,000 existing brownfield sites within the
municipal limits of those cities were redeveloped, it would
generate tax revenues for those cities of $2.4 billion and
create up to 550,000 new jobs and revitalizing those
communities.
I would also like to touch briefly on an additional
provision that was added to H.R. 2264 to expand the type of
cleanup that would be eligible to benefit from this tax
provision. Our provision would broaden the type of hazardous
substances that are eligible for the treatment to include
petroleum and pesticides, lead paint, and asbestos. Why do I
mention that? Think of that gas station in your hometown that
is on that strategic corner that needs to be cleaned up. This
would help take care of that and achieve that goal.
These type of contaminants are regularly found at
brownfield sites. Our current law does not allow individuals
cleaning up these sites with these substances the ability to
use this tax incentive. We wish to expand it to include these
because we believe it will help expedite the environmental
cleanup and revitalization of more brownfields across this
country.
Mr. Chairman, thank you for the opportunity to testify. We
believe this is an important environmental initiative as well
as an economic development initiative and we ask the
Subcommittee as well as the full Committee's consideration of
making permanent the expensing of brownfields cleanup. So,
thank you, Mr. Chairman.
[The prepared statement of Mr. Weller follows:]
Statement of the Hon. Jerry Weller, a Representative in Congress from
the State of Illinois
Mr. Chairman:
As you may know, I have been interested in the cleanup of
brownfields since I first joined this Committee in 1996. Two years ago,
Nancy Johnson, Bill Coyne and I worked to include provisions into the
Community Renewal Tax Relief Act of 2000 which extended and expanded
existing tax incentives to all brownfield sites. Prior to the 2000
legislation, the tax incentives were available only to brownfield
cleanups in low income areas. Our legislation made brownfield cleanups
in all communities across the nation eligible for the tax incentives.
Now, I believe it is important that we make these tax provisions
permanent. To that end, on June 21, 2001, I introduced H.R. 2264, a
bill to make the brownfield tax incentives permanent. Currently,
without action by this Committee, the existing provisions will expire
June 30, 2004.
Brownfield sites exist throughout all of our districts--abandoned
eyesores that blight our communities and drag down local economies.
Many brownfield properties are located in prime business locations near
critical infrastructure, including transportation, and close to a
productive workforce. These sites need to be put back into productive
use, contributing to the economy and producing good paying jobs where
they are needed most.
The first step towards doing this is to remediate these sites
environmentally. This U.S. Conference of Mayors estimates that there
are over 400,000 brownfields sites across the country. Development of
these sites will help restore many blighted areas, create jobs where
unemployment is high and ease pressure to develop beyond the fringes of
communities. Small, urban centered businesses often benefit most
directly by this redevelopment. There are important economic and
environmental benefits to brownfields cleanup. The U.S. Conference of
Mayors recently completed a survey of 187 large and small cities
throughout the nation, including Chicago, Houston, New York and Miami.
According to the responses to this survey, the 187 cities estimated
that if their 21,000 existing brownfield sites were redeveloped, this
would bring additional tax revenues of up to $2.4 billion annually and
could create up to 550,000 jobs. In Chicago alone, developing 2,000
brownfield sites would mean $78 million in additional tax revenue to
the city and 34,000 new jobs.
At a time when we are looking for opportunities to jump-start our
state, local and national economies, making the brownfields tax
incentive permanent would be a big step in the right direction.
Before I conclude my testimony, I would like to touch briefly on an
additional provision included in H.R. 2264. This provision would
broaden the types of hazardous substances that are eligible for the
treatment to include petroleum and pesticides, and lead paint and
asbestos. As you know, these contaminants are regularly found at
brownfields sites, but current law does not allow individuals cleaning
up sites with these substances the ability to use the tax incentives to
cleanup these items. Given the toxic nature of these substances, I
believe it is the best interest of our communities to ensure that these
hazardous substances are cleaned up. I would encourage the Committee to
broaden the definition of hazardous substance at the next available
opportunity.
Mr. Chairman, I appreciate the opportunity to testify before the
Subcommittee on the issue of Brownfields. I look forward to continuing
to work with you and other Members of the Subcommittee on this issue. I
would be happy to answer any questions.
Chairman MCCRERY. Thank you, Mr. Weller. Now, we will hear
from our colleague from the State of Oregon, Earl Blumenauer.
Mr. Blumenauer?
STATEMENT OF THE HON. EARL BLUMENAUER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate your
courtesy in allowing me to join with my distinguished
colleagues here for this critical discussion.
I appreciate your opening statement, which really captured
part of the dilemma that we are facing, and Mr. Portman talking
about losing a million acres per year to development. Actually,
it is worse than that. In the 1990s, there were some 17 million
acres that were lost, an area roughly the size of the State of
West Virginia. This has had profound impacts on the way that
our communities are organized, the pressures that we are
facing, the problems in the long term, and I appreciate your
encapsulating that.
It is not just that we are expanding the development area,
but we have found that over the years 1960 to 1990, we were
expanding almost three times faster than the increase in
population. Development rates have gone up exponentially.
Mr. Weller's metropolitan area increased 11 times faster
than the population; a 4-percent increase in population and a
46-percent increase in creation of developed land area. We are
finding in Mr. Isakson's area the expansion of Atlanta, the
most rapid development in the history of human settlement, that
has caused that city to grow from 65 miles to 110 miles, north
to south, in a 10 year period.
Our citizens know that we cannot continue moving in this
direction, paying for the infrastructure expansion and losing
these precious resources, and luckily, we are seeing people
starting to process this at the State and local level. When
Maine finds that despite a decline of almost 30,000 students,
they are paying a third-of-a-billion dollars more for school
facilities because of the dislocation, we are finding that
people are starting to react.
I appreciate the panel that you have following us, with
some of the key partners at the State and local level, local
government, private business, and the nonprofit land trust
community, for instance, that are looking at creative ways of
doing that.
Our citizens are voting at home. We have had over 550
initiatives in the last election cycle that have produced
billions of dollars of investment. They cannot do it by
themselves, and looking at the tax code is an important place
for us to begin.
You have four excellent proposals before you. I have
cosponsored a couple of them. I have been working with
Representative Johnson for several years, trying to think
through this.
I would hope that the Subcommittee would consider three
things. First, putting together a comprehensive package of tax
incentives that would help us coax the types of behaviors that
we want. You have got four good proposals before you. There are
others that are floating around, and clearly, the Committee has
some great ingenuity. This would be the sort of thing that
people would move forward and look forward to being a part of,
and you would find broad bipartisan support across the
political spectrum for protection of farmland, open space,
brownfield cleanup in ways that could lead to exciting
partnerships in the future.
I hope that the Committee would think about nudging some
other things that are within the jurisdiction of the Committee
on Ways and Means. Congressman Shaw sponsored H.R. 1172, the
Historic Homeowner Tax Preservation Credit. This is something
any of us in mature cities, large or small, could support.
Whether it is Atlanta or St. Louis or Chicago or the smallest
communities in the South and the North, there are historic
structures that individual homeowners cannot afford to
maintain, but this tax credit would make a huge difference in
moving things forward.
I would hope that the Committee would think about using its
influence in finding a tax-free instrument that the farmers,
for instance, that get payments from the sale of development
rights or conservation easements could use not unlike a
rollover for a 401(k) plan, a tax-deferred annuity, or an IRA.
As a number of your witnesses have already said, land provides
the retirement funds for individuals who do not necessarily
want to lose control of their property. If they could have the
opportunity for these payments to be in a tax-free instrument,
you would find that there would be a lot more people that would
step forward and take advantage of it.
I appreciate the Committee's leadership and foresight in
bringing together the panels and look forward to working with
you in any way that I can to further this important work.
[The prepared statement of Mr. Blumenauer follows:]
Statement of the Hon. Earl Blumenauer, a Representative in Congress
from the State of Oregon
I want to thank Chairman McCrery, Ranking Member McNulty and the
Committee for hosting this hearing that touches on an issue of concern
for people everywhere--protecting land for agriculture, recreation,
natural resource management, and environmental protection.
My focus in Congress is to find ways in which the Federal
Government can help localities create their vision of livable
communities. A livable community is one where people are safe, healthy
and economically secure. How the elements of land use and conservation
fit together have a tremendous impact on our communities.
I applaud the work of my colleagues whose legislative proposals we
are hearing about today. I am supportive of each of these bills, which
together represent the wide range of interests that understand the
importance of land use and conservation decisions.
Representative Rob Portman introduced H.R. 2290, the
Conservation Tax Incentives Act of 2001. This legislation
allows the exclusion of 50 percent of gains on land or water
sales for conservation purposes. I am pleased to hear that this
legislation is supported by groups as diverse as the American
Farm Bureau, environmental groups, and the Administration.
H.R. 1309, introduced by Representative Nancy Johnson
amends the tax code to encourage the contribution of property
or easements for conservation purposes.
Representative Jennifer Dunn's Community Forestry and
Agriculture Conservation Act of 2001, H.R. 1711, gives tax-
exempt status to bonds issued to acquire renewable resources on
lands subject to conservation easements. I am a cosponsor of
this bill that helps to preserve farmland and forestry
economies that are important in my Congressional district.
Representative Jerry Weller introduced H.R. 2264.
This legislation amends the Internal Revenue Code with respect
to environmental remediation cost expensing, making such
provision permanent and widening the definition of ``hazardous
substance'' and ``qualified contaminated site'' so that more
brownfield type sites will be developed and given a new
economic life.
Why has land use, conservation and preservation become such an
important issue nationwide? No matter where we live, even in areas with
little to no population growth, we have witnessed the loss of important
farmland and open space. Some of the facts are startling:
Sprawling development uses land more inefficiently
than before, eating up land at twice the rate of population
growth. From 1960 to 1990, urban and suburban areas almost
tripled, while average population density fell by more than one
third.
More than 90 million acres of farmland across the
nation are threatened by sprawl and we lose more than 2 million
acres every year to urban development.
Farms are threatened by sprawl, but also are our
frontline against urban sprawl. Farms located near urban
centers serve as the primary source of fresh, locally grown
food--79% of our fruit, 69% of our vegetables, and 52% of our
dairy goods are produced on high quality farmland threatened by
urban growth.
What makes the tax incentives being discussed today so important is
that Federal programs and state and local initiatives cannot make it
alone. Currently, the Department of Agriculture's Federal Farmland
Protection Program is oversubscribed by 600%. If funds were available,
more than 4,000 farmers would sell development rights on their land.
Citizens and voters across the country have declared open space
preservation a priority through their voting records. In 2001, voters
in 17 states approved state and local ballot measures that generated
$1.2 billion for conservation measures aimed at protecting recreational
lands, farmland, parks and water supplies. Over 70 percent of these
types of ballot measures passed.
I support these tax incentive bills because it is another way in
which the Federal Government can be active on this important issue.
There are a couple of ways in which the Federal Government can make a
difference and we must provide the resources necessary to do this.
First, the Federal Government can help through direct funding. In
the case of open space preservation, there are programs such as the
Farmland Protection Program and Land and Water Conservation Fund that
are extremely important. However, budgetary constraints limit the
overall effectiveness of these programs.
Second, the Federal Government must be a good partner to state and
local governments. These tax incentives are one way we can help. These
incentives create a tool for the private sector to create opportunities
that will preserve lands that Federal dollars and local and state
initiatives cannot protect alone.
I would like to take the opportunity to touch on a few other pieces
of legislation that are important to this whole discussion. There are
many factors that have an effect on development and land use and
Federal funding and tax incentives alone will not protect the resources
and lands integral to our communities.
It is important that states and regions are able to consider a
wider view of the manner in which transportation infrastructure,
employment centers, and housing are connected, or disconnected as the
case may be. How these developments are coordinated and where they are
built dictates the nature of our communities, the resources consumed,
and the tax dollars it will take to maintain and service them. I
believe that when regions give forethought to and coordinate the manner
in which they invest in infrastructure and protect farmland and water
resources, taxpayers can save billions of dollars.
The Community Character Act, H.R. 1433, provides modest grants to
states so that outdated planning statutes can be updated and
comprehensive planning undertaken. A key reason for the Community
Character Act and a primary obstacle to state comprehensive planning
stems from the outdated statutes in place at the state level. Roughly
half of the states rely on a model for land-use planning legislation
created by the Department of Commerce over 70 years ago. The
transformation of America's landscape and settlement patterns since the
1920s has changed drastically. Updated state planning statutes are
necessary to create the framework that will allow states and regions to
address the modern world and adequately plan for the future.
Another bill that touches on transportation's influence is the Bike
Commuter Act, H.R. 1265. This legislation aims to include bicycling in
the Transportation Fringe Benefit that employers are allowed to give
employees for commuting to work. Currently, parking, vanpooling, and
transit commuters are the only ones eligible for a benefit. By leveling
the playing field for bike commuters we eliminate an incentive for
people to live further from work, which is what leads to the
development pressures we are now attempting to protect.
Communities across the nation are seeking to reduce traffic
congestion, improve air quality, and make neighborhoods safe. The
Federal Government can assist in those efforts by promoting bicycling
use through the existing Transportation Fringe Benefit of the tax code.
Another important bill that utilizes tax credits is the Historic
Homeownership Assistance Act, H.R. 1172. This legislation, introduced
by Clay Shaw, Jr. Amends the Internal Revenue Code to allow a limited
tax credit for rehabilitation of a qualified historic home. This is a
bill important to directing development and investment away from
outlying areas and back to the existing infrastructure of our
communities.
All of these legislative proposals are important pieces in helping
people and localities create the types of communities they want to live
in. These are incentives and grants that allow the Federal Government
to be a good partner with state and local governments, so that they are
able to create livable communities that are safe, healthy, and
economically secure.
Chairman MCCRERY. Thank you, Mr. Blumenauer. Now, our
colleague from Georgia, a good friend who has been, I think, a
leader in the effort to get a hearing in the Congress on this
issue, my friend from Georgia, Johnny Isakson. Mr. Isakson?
STATEMENT OF THE HON. JOHNNY ISAKSON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF GEORGIA
Mr. ISAKSON. Chairman McCrery, Ranking Member McNulty,
thank you for letting me be here today and thank you for
calling this important hearing. I have submitted my written
testimony for the record, but for the sake of these 5 minutes,
I would like to speak to you from the heart.
The Sixth Congressional District of Georgia lies in the
greater metropolitan Atlanta area. It is known for two great
things. It is the most rapidly growing urban area in America,
and it is also the home for the largest protected natural
waterway and greenway of any urban city in America, the
Chattahoochee National River Forest.
I somewhat represent those two characteristics. For 34
years prior to coming to Congress, I was a real estate broker
and a developer, and my first act after coming to Congress was
to sponsor legislation to expand the Chattahoochee National
River Park.
I am not claiming the original thought of H.R. 882. The
late Senator Coverdell from Georgia introduced it a few years
ago. Mr. Chris Sawyer of Atlanta, Mr. Carl Knoblauch, and
others who are the real thinkers and engineers behind what I
believe is the solution to the problem that has been restated
five times already brought it to me and I fell in love with it
because I know tax policy drives economic policy and I know
that public/private partnerships work when one side or the
other driving the train normally does not.
Mr. Chairman, if you think about it for a second, this
Congress exempted home mortgage interest and allowed it to be a
deduction on taxes. Therefore, America has the largest
homeownership of any country in the world. We decide to allow
municipal bond interest to be tax-free and we raised more
capital to build more infrastructure in our cities and our
counties, to have the finest quality of life of anyone. A
decade ago, when public housing had fallen apart, we used the
tax code and we used tax credits for low- and moderate-income
housing to revolutionize both the capital investment and the
quality of that.
H.R. 882 simply does this. It creates a 5-year, $20 billion
tax credit program to raise the capital to fund the purchase of
conservation easements by approved not-for-profit
organizations. Unlike depending on the gift of specific land or
the exemption of the tax for one estate, this allows a
coordinated effort where private ownership is maintained, but
controlled and coordinated conservation easements may be
purchased so as to manage our riverways, migratory habitat, our
farms and ranches in the West.
Mr. Chairman, I believe in this passionately because it has
worked in other examples approved by this Committee in other
areas. There is no greater need than creating a public/private
partnership to pass on the legacy of our environment and its
quality. Once destroyed, we can never pass it on.
In my last business act in Atlanta, Georgia, I was the
developer of a subdivision called Wild Timber, a unique piece
of land on the Chattahoochee River that I referred to earlier.
Early on in that development, we made an investment in the land
and an investment in our environment. We sold the river
frontage to the Trust for Public Lands and then we preserved 20
percent of the remaining acreage for greenways throughout the
neighborhood to accentuate the streams, the topography, and the
other natural assets.
Mr. Chairman, instead of investing in acres of tennis
courts, multiple swimming pools, and clubhouses, we preserved
what God gave us, and an interesting thing happened. People
came to our subdivision not to see what we had built, but to
appreciate what we had not destroyed. In my entire career, it
was the most popular, most rapidly absorbed development we ever
did.
I believe passionately that the public and private sector
can work together. I believe concretely that conservation
easements purchased and coordinated nationwide can preserve our
riverways, our migratory habitat pathways between national
parks, and preserve individual ownership and the family passing
of ranches and farms. With the leadership of this Subcommittee
and the consideration of this initiative, I believe we can make
a major step forward for my children, for your children, and
for the heritage we would all like to pass on to them, and I
thank the Committee for giving me this opportunity.
[The prepared statement of Mr. Isakson follows:]
Statement of the Hon. Johnny Isakson, a Representative in Congress from
the State of Georgia
Mr. Chairman and ladies and gentlemen of the Subcommittee, I want
to express my thanks to you for allowing us the opportunity to discuss
H.R. 882.
Mr. Chairman, I represent the 6th Congressional District of
Georgia, which lies in the heart of the greater metropolitan Atlanta
area. My district has been developing rapidly over the last 20 years,
and is the home to many of America's major corporations. It is also the
home of the most significant urban river park and greenway in America.
To a certain extent, I reflect both of these characteristics of my
district because prior to my election to Congress I was the president
of a major real estate and development company, and upon my election to
Congress, the very first accomplishment I committed myself to was the
expansion of the Chattahoochee River Greenway Program, which Congress
passed in the 106th Congress.
I am one who firmly believes that all of us have a responsibility
to preserve our environment and our quality of life. I am also one who
believes that tax policy has a major influence on the way the American
people and American business invests and spends their money. United
States tax policy allows the American people to deduct the cost of
interest on their home mortgage on their income tax return, and in
turn, American home ownership is the highest of any country in the
world. The United States tax policy exempts from taxation the interest
in municipal bond debt, and because of that the capital investment in
America's cities and counties provides us with the best quality of life
and services of any country in the world. United States tax policy
created the tax credit program for moderate and low income housing, and
brought to America's poorest and less fortunate, better opportunities
and better neighborhoods. House Resolution 882 makes the statement that
a change in United States tax policy can, and will, have the same type
of positive influence on our environment as each of these examples have
had on other facets of American life.
Mr. Chairman, the Committee will hear later today from Mr.
Christopher Sawyer, an Atlanta attorney recognized nationally as a
leader in preserving the quality of our environment and finding
creative ways for government and the private sector to work together to
preserve sensitive environmental lands and family farms and ranches.
Mr. Sawyer is one of those who was principally responsible for creating
the Chattahoochee River Greenway program which to date has raised $105
million in private funds and gifts to match a $25 million dollar
Federal appropriation, which resulted in an expansion of the size of
the Chattahoochee National Recreation Area and added an additional 60
miles of river frontage to the park. I urge the Committee to pay close
attention to Mr. Sawyer and his observations, for his knowledge comes
from experience, not theory, because he understands that the business
community and the environmental community can work together for the
entire community which we all share equally.
Mr. Chairman, I must admit that this legislation does not represent
my original thought. This legislation is the work of many people who
believe as I do that our environment is important, and that good policy
can result in positive changes. The legislation was originally drafted
by the late United States Senator Paul Coverdell. Paul came to believe,
as I have come to believe, that there is a role for government to play
to be a catalyst for positive change in environmental protection.
Mr. Chairman, I come from the southeastern portion of our great
country, and we face, as much of America faces, severe water problems.
We recognize how critical our rivers are, and how essential water
quality is. This legislation would provide an unbelievable incentive
for the formation of dollars used to purchase conservation easements
along critical shorelines and river banks to protect the river, reduce
erosion and preserve the environment that surrounds it. Conservation
easements do not take the land from its owner, but do restrict the use
of the area upon which the easement rests. In my last major development
as a businessman before elected to Congress, I recognized the growing
appreciation for green space and river corridors in our last
development in Atlanta known as Wild Timber. We made the conscious
decision to sell our river frontage to the Trust for Public Land, and
to preserve 20% of the land area of the development in green space for
common buffers behind houses and along streams. In essence, we banked
on making the environment our amenity package, rather than multiple
swimming pools, acres of tennis courts and houses built up against a
riverbank. The result of that experience was gratifying as the
subdivision set all records in absorption and popularity. People came
as much to see what we had preserved as what we had built. I am
confident the vision of Mr. Sawyer and countless others of our citizens
is a vision that is right for America. Using tax policy as a catalyst
for the raising of capital to purchase easements to protect sensitive
areas makes sense. We all know there isn't enough money to buy, through
parklands and wilderness areas, everything that is critical to the
quality of our environment. The money just doesn't exist. But through
the use of conservation easements funded by the tax credits recommended
in House Resolution 882, we leverage every dollar spent or invested to
protect the environment by ten-fold, while maintaining the ownership of
those lands upon which the easement lies in the name of the families,
many of whom are third or fourth generation owners of a beautiful
ranch, a magnificent farm or countless acres of timberland.
Finally, Mr. Chairman, I am completely aware of the arguments that
abound on the Floor of the Congress with regard to tax reductions, tax
credits and tax rates. I also know the truth, and that is that tax
policy drives people's decisions and people's investments. While this
bill proposes a $20 billion tax credit program over five years, it's
result will be a savings of far more money than it would cost to
acquire the lands we need to preserve or reclaim the lands that have
been damaged. It is time in this country that we encourage the
investment of private capital in the preservation of our environment
and use our tax policy, as we have in the past, to cause good decisions
to be made for the common good and the betterment of our country.
Mr. Chairman, I thank you and the Committee for allowing us this
time. I express my appreciation in advance for all the testimony you
will hear from Mr. Sawyer and his years of work on behalf of my State
of Georgia and our country.
Chairman MCCRERY. Thank you, Mr. Isakson. I thank all of
you. I know that there are witnesses in the last panel today
that will touch on every piece of legislation that you all have
talked about, so I am going to reserve my questions for those
witnesses when they come, but I would yield to my friend from
New York, Mr. McNulty.
Mr. MCNULTY. Thank you, Mr. Chairman. I just have a couple
of brief questions. First, to Congressman Isakson, I notice
your bill has a State cap and I was just wondering if you could
describe how that would be determined on a State-by-State basis
and how it would be administered within the States as far as
who could take advantage of it.
Mr. ISAKSON. I thank you for the question. In the testimony
submitted by Mr. Sawyer, in the backup documentation, there is
a chart that shows that allocation, which basically, and I am
going on my memory here, goes from the highest cap allocation
of $200 million in the largest State to one that was somewhere
in the area of, I believe, $47 million in terms of the lowest
allocation in the lowest State. It is basically a ratio of the
farms and land and timberland in that State as a percentage of
the land available in that State and allocated on that basis.
Mr. Sawyer is going to discuss in his testimony, and at
length in the written part, the allocation. The cap--did I
answer your question?
Mr. MCNULTY. Well, then a subpart of that question would
be, once you determine the cap, how do you determine the
administration of who gets to apply for the credits in order to
get up to that cap.
Mr. ISAKSON. Well, ultimately----
Mr. MCNULTY. That sounds like that would be hard to
administer.
Mr. ISAKSON. Well, I think not hard to administer, but
ultimately, one of the things the Committee will do will be to
work through that project. Although I understand the
difficulty, we had no problem obtaining from the United States
Government the number of acres in each State that fell in those
categories, and I think you will find through both the U.S.
Department of Agriculture (USDA) and other departments a pretty
good monitoring of the use of land in the country.
One other point that I want to make, each year, if a State
does not utilize up to its cap, then the remaining funds can be
allocated over other States who have. So, this is a type of
situation where the incentive is to use conservation easements
to conserve vital lands and see to it the money is used by
those that are truly partnering and taking initiative. If one
State did not for one reason or another, the money would be
reallocated across the others based on the formula.
Mr. MCNULTY. Thank you Congresswoman Dunn, in H.R. 1711,
what types of entities would issue the bonds and is there a
Federal revenue cost?
Ms. DUNN. Thank you for the question, Mr. McNulty. It would
be a State public agency would administer the bonds, and the
revenue cost would be $6 million in 2003 and over 10 years it
would be $487 million. You might wonder about the Payments in
Lieu of Taxes. They would be included in the purchase of the
property.
Mr. MCNULTY. Thank you. That is all I have, Mr. Chairman.
Chairman MCCRERY. Thank you all very much. We appreciate
your taking your time to share with us your ideas on how we can
conserve open spaces and green areas in our country.
Chairman McCRERY. Now, I would like to call forward Ms. Pam
Olson, who is the Acting Assistant Secretary for Tax Policy,
U.S. Department of the Treasury.
Ms. Olson, thank you very much for coming today. We assume
you are going to share with us the proposals in the President's
budget with respect to today's topic, and know that your full
written testimony will be entered into the record and we would
like for you to summarize that orally in about 5 minutes. You
may begin.
STATEMENT OF PAMELA F. OLSON, ACTING ASSISTANT SECRETARY FOR
TAX POLICY, U.S. DEPARTMENT OF THE TREASURY
Ms. OLSON. Thank you, Mr. Chairman, Mr. McNulty. I
appreciate the comment about the size of the shoes that I am
attempting to fill. Please bear with me to the extent I fall
short from time to time.
I do appreciate the opportunity to appear before you today.
As you know, the President has made a firm commitment to
conservation and the environment. I would like to begin by
commending you and the Subcommittee for holding today's hearing
focusing on tax incentives to encourage responsible stewardship
of the land and proposals designed to improve upon those
incentives and further encourage the preservation of open
spaces.
I also commend the Members of the Committee on Ways and
Means, Ms. Dunn, Mrs. Johnson, Mr. Neal, Mr. Portman, Mr.
Weller, as well as Mr. Blumenauer and Mr. Isakson for their
thoughtful comments and for their leadership in introducing
legislation to encourage responsible stewardship of America's
land.
The Internal Revenue Code includes a number of conservation
incentives, including brownfields deductions to encourage the
cleanup of abandoned or under-utilized contaminated properties
by allowing expensing of environmental remediation costs, a
charitable deduction for the contribution of qualified real
property for conservation purposes, an estate tax exclusion for
qualified conservation easements, and a proposal to allow State
and local governments to issue tax-exempt bonds for land
conservation and preservation.
The Administration has included several tax-related
proposals in the President's fiscal year 2003 budget that I
will expand on later in my testimony. However, I would note
that the President's commitment to advance policies to
encourage land conservation and preservation extends well
beyond the tax code. A description of the Administration's
proposals to encourage land conservation and preservation is
included in my written testimony.
The tax code includes a number of incentives to encourage
responsible stewardship of the land. The President has included
a number of proposals in his budget designed to improve on
those incentives and further encourage the preservation of open
spaces. We look forward to working with this Subcommittee as it
considers those initiatives.
First, brownfields. The Administration's budget includes
$200 million, twice the fiscal year 2002 level of funding, for
the Environmental Protection Agency's brownfields program, $171
million of which is for grants for States and local
communities. Moreover, the President proposes making the
brownfields tax incentives permanent. This incentive is
currently scheduled to expire on December 31, next year.
Brownfields are abandoned or under-utilized properties, the
expansion, redevelopment, or reuse of which may be complicated
by the presence or potential presence of a hazardous substance,
pollutant, or contaminant. Since lenders, investors, and
developers fear the high and uncertain costs of cleanup, they
avoid developing contaminated sites. Blighted areas of
brownfields hinder the redevelopment of affected communities
and create safety and health risks for residents.
The obstacles in cleaning these sites, such as regulatory
barriers, lack of private investment, and contamination and
remediation issues, are being addressed through a wide range of
Federal programs, including the tax incentive for brownfields
remediation. To encourage the cleanup of contaminated sites,
the brownfields tax incentives permits the current deduction of
certain environmental remediation costs. The brownfields tax
incentive applies to expenditures paid or incurred before
January 1, 2004.
The Administration believes that encouraging environmental
remediation is an important national goal. The brownfields
provision encourages the cleanup of contaminated brownfields,
thereby enabling them to be brought into productive use in the
economy and mitigating potential harms to public health.
The current law incentive was made temporary to encourage
faster cleanup of brownfields. Experience has shown, however,
that many taxpayers are unable to take advantage of the
incentive because environmental remediation often extends over
a number of years. For that reason, the President's budget
proposed a permanent extension of the brownfields tax
incentive. Extending this special treatment accorded to
brownfields on a permanent basis would remove doubt among
taxpayers as to the future deductibility of remediation
expenditures and would promote the goal of encouraging
environmental remediation.
The Administration's proposal, as has been noted, was
introduced by Mr. Weller and Mr. Coyne as H.R. 1439 and we
appreciate their support of that provision.
The revenue cost of the proposal, we have estimated to be
$1.1 billion over fiscal years 2003 through 2007. We estimate
that the $300 million annual cost will leverage approximately
$2 billion in private investment and return 4,000 brownfields
to productive use each year.
The second item I want to mention is conservation sales.
The Administration has also proposed to provide an exclusion
for 50 percent of the gain when land or an interest in land or
water is sold for conservation purposes. The proposal would
apply to land sales after December 31, 2003. Some landowners
may want their land to be protected for conservation purposes
but cannot afford simply to donate either the land or an
easement on the land, especially if the land is the landowner's
primary salable asset.
By adding an incentive for sales to qualified conservation
groups, the President's budget complements the existing
provisions that encourage charitable donations. This proposal
would encourage the sale of appreciated environmentally
sensitive land and land rights to qualified conservation
groups, thus achieving conservation goals through voluntary
sales of property rather than imposing government regulation on
land use.
Mr. Chairman, we believe that the Administration's proposed
tax initiatives represent sound tax policy that can produce
significant environmental benefits for decades to come. This
concludes my prepared testimony. I would be pleased to answer
any questions that you or Members of the Subcommittee may have.
Thank you.
[The prepared statement of Ms. Olson follows:]
Statement of Pamela F. Olson, Acting Assistant Secretary for Tax
Policy, U.S. Department of the Treasury
Mr. Chairman, Mr. McNulty, and Members of the Subcommittee:
I appreciate the opportunity to discuss with you today the
Administration's proposed tax incentives for improving the environment.
I would like to start by thanking the Subcommittee for holding a
hearing on this important issue. I also commend Ms. Dunn, Ms. Johnson,
Mr. Neal, Mr. Portman, and Mr. Weller of this Committee, as well as Mr.
Blumenauer and Mr. Isakson, for their thoughtful comments and for their
leadership in introducing legislation to encourage responsible
stewardship of America's land. This is a goal the President shares.
Reflecting the President's firm commitment to conservation and the
environment, the President's Budget for FY 2003 includes a number of
proposals that will encourage land conservation and preservation. The
budget includes the following initiatives for environmental
conservation and stewardship: (1) over $910 million to fully fund the
Land and Water Conservation Fund to support natural resource
conservation and outdoor recreation, including $200 million for State
grants--this proposal recognizes that Federal land acquisition is not
the only way to conserve land and other natural resources, and allows
funds to be used for conservation easements; (2) $665 million for the
National Park Service to address the park maintenance backlog; (3)
$67.5 million for Natural Resource Challenge, a science-based
initiative to strengthen natural resource management throughout the
National Park System; (4) $376 million for wildlife protection and
public use opportunities at our National Wildlife Refuges; (5) $100
million for a new Cooperative Conservation Initiative to protect and
conserve the environment by awarding challenge grants to landowners,
environmental groups, land-user groups, communities and State and local
governments; (6) $50 million for the Landowner Incentive Program, which
provides funds to States, tribes and territories to make cost-sharing
grants for the protection of habitat for endangered, threatened or
other at-risk species on private or tribal lands; (7) $70 million for
the Forest Legacy program to protect against the loss of forests from
development; (8) $10 million for the Private Stewardship grant program
to provide technical and financial assistance to landowners engaged in
local, private and voluntary conservation efforts for the benefit of
Federally listed or other imperiled species; and (9) $200 million--
twice the FY 2002 level of funding--for the Environmental Protection
Agency's brownfields program, $171 million of which is for grants to
States and local communities.
The Budget proposes making the brownfields tax incentive permanent.
Under current law, this incentive is scheduled to expire on December
31, 2003. The revenue cost of a permanent extension is estimated to be
$1.1 billion over five years. The Administration also proposes to
provide an exclusion for 50 percent of the gain when land (or an
interest in land or water) is sold for conservation purposes. The
proposal would apply to land sales after December 31, 2003, and its
revenue cost is estimated to be $328 million over five years.
The President's Budget includes other proposals that will benefit
the environment. These proposals are part of an overall environmental
policy aimed at encouraging economic growth in ways that protect the
environment. In February, the President announced the Clear Skies
Initiative to cut power plant emissions of the three worst air
pollutants--nitrogen oxides, sulfur dioxide, and mercury--by 70
percent. This initiative will improve air quality using a proven,
market-based, cap-and-trade approach. The Budget also provides $4.5
billion for activities related to global climate change, including the
first year of funding for a five-year, $5.0 billion commitment to tax
incentives to encourage energy efficiency, reduce greenhouse gas
emissions and develop renewable energy sources.
Thanks in large part to the leadership shown by the Ways and Means
Committee, many of the Administration's tax proposals have been enacted
or are included in legislation that the House passed last summer. We
look forward to working with this Subcommittee as it considers the
remainder of the Administration's environmental initiatives.
The remainder of my testimony will provide a more detailed
discussion of the Administration's tax proposals.
LAND-RELATED INCENTIVES
Current law tax incentives for land conservation
As the Chairman noted in announcing this hearing, the Internal
Revenue Code currently includes a number of incentives to encourage
responsible stewardship of the land. They include the deductibility of
brownfields remediation costs, special rules for qualified conservation
contributions, an estate tax exclusion for qualified conservation
easements, an exclusion for certain conservation cost-sharing payments,
and rules permitting the issuance of tax-exempt bonds for land
conservation and preservation purposes.
Brownfields remediation costs
A brownfield site is real property, the expansion, redevelopment,
or reuse of which may be complicated by the presence or potential
presence of a hazardous substance, pollutant, or contaminant. Because
lenders, investors, and developers fear the high and uncertain costs of
cleanup, they avoid developing contaminated sites. Blighted areas of
brownfields hinder the redevelopment of affected communities and create
safety and health risks for residents. The obstacles in cleaning these
sites, such as regulatory barriers, lack of private investment, and
contamination and remediation issues, are being addressed through a
wide range of Federal programs, including the tax incentive for
brownfields remediation.
To encourage the cleanup of contaminated sites, the brownfields tax
incentive permits the current deduction of certain environmental
remediation costs. Environmental remediation costs qualify for current
deduction if the expenditures would otherwise be capitalized (generally
costs incurred to clean up land and groundwater that increase the value
of the property) and are paid or incurred in connection with the
abatement or control of hazardous substances at a qualified
contaminated site. A qualified contaminated site generally is any
property (1) that is held for use in a trade or business, for the
production of income, or as inventory; (2) at or on which there has
been a release, threat of release, or disposal of a hazardous
substance; and (3) that is certified by the appropriate State
environmental agency as to the release, threat of release, or disposal
of a hazardous substance. Sites that are identified on the national
priorities list under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA) do not qualify as
qualified contaminated sites. The brownfields tax incentive applies to
expenditures paid or incurred before January 1, 2004.
Qualified conservation contributions
To encourage charitable donations, tax law provides a charitable
contribution deduction not only for outright gifts but also in certain
cases where the property is sold to a charity for less than its fair
market value (that is, a ``bargain sale''). In general, however, a
charitable deduction is not allowed for income, estate, or gift tax
purposes for a contribution of less than the donor's entire interest in
property. There is an exception, however, for qualified conservation
contributions. A qualified conservation contribution is a contribution
of a qualified real property interest to a governmental unit or public
charity exclusively for any of the following conservation purposes: (1)
the preservation of land areas for outdoor recreation by, or for the
education of, the general public; (2) the protection of a relatively
natural habitat of fish, wildlife, or plants, or similar ecosystem; (3)
the preservation of open space (including farmland and forest land)
where such preservation is (i) for the scenic enjoyment of the general
public or (ii) pursuant to a clearly delineated Federal, State, or
local governmental conservation policy; or (4) the preservation of an
historically important land area or a certified historic structure. A
real property interest is qualified for this purpose only if it is (1)
the donor's entire interest other than a retained interest in
subsurface oil, gas, or other minerals and the right of access to such
minerals, (2) a remainder interest, or (3) a perpetual restriction on
the use that can be made of the property.
Estate tax exclusion for qualified conservation easements
For Federal estate tax purposes, up to 40 percent of the value of
land subject to a qualified conservation easement may be excluded from
a decedent's estate at the election of the executor. The maximum
exclusion permitted for qualified conservation easements is $500,000.
In addition, if the value of the conservation easement is less than 30
percent of the value of the land (determined without regard to the
value of the easement and reduced by the value of any retained
development right), the exclusion percentage is reduced by two
percentage points for each percentage point (or fraction thereof) by
which the value of the qualified conservation easement is less than 30
percent of the value of the land.
A qualified conservation easement must meet the following
requirements: (1) the land must be located within the U.S. or a
possession of the U.S.; (2) the land must have been owned by the
decedent or a member of the decedent's family at all times during the
three-year period ending on the date of the decedent's death; and (3) a
qualified conservation contribution of a qualified real property
interest (see above) must have been granted by the decedent, a member
of the decedent's family, the executor of the decedent's estate, or the
trustee of a trust holding the land no later than the date of the
executor's election. For this purpose, preservation of a historically
important land area or a certified historic structure does not qualify
as a conservation purpose. In addition, the qualified real property
interest must include a prohibition on more than a de minimis use for a
commercial recreational activity.
Property financed with acquisition indebtedness is eligible for the
exclusion only to the extent of the net equity in the property, and the
exclusion does not extend to the value of any development rights
retained by the decedent or donor. To the extent the value of the land
acquired at death is excluded from the decedent's estate under the
qualified conservation easement rule, the land will receive a carryover
rather than a stepped-up basis.
Cost-sharing payments
To further conservation, Federal and State governments implement a
number of programs to share in taxpayers' costs of making improvements
to land. These costs do not normally improve the income-producing
capacity of the property. To encourage participation in these programs,
taxpayers may exclude certain payments received under these programs
from their gross income. To qualify for exclusion, the payments must be
made primarily for the purpose of conserving soil and water resources,
protecting or restoring the environment, improving forests, or
providing a habitat for wildlife and may not increase substantially the
annual income derived from the property. Taxpayers claiming the
exclusion may not increase the basis of the improved property by the
excluded amount and may not claim any deduction or credit for any
expenditure associated with the excluded payment.
Tax-exempt bonds
States and local governments may issue tax-exempt bonds for land
conservation and preservation purposes so long as: (1) no more than ten
percent of the bond proceeds is used by private entities in a trade or
business if payments or security associated with that use are available
to pay principal or interest on the bonds; and (2) no more than five
percent of the bond proceeds is loaned to private businesses or
individuals. If these private activity requirements are not met, tax-
exempt private activity bonds may nonetheless be issued, subject to
per-State volume limits, for the following land conservation and
preservation purposes: water, sewage, solid waste disposal, and
hazardous waste facilities; and redevelopment infrastructure in
blighted areas if the bonds are supported by incremental property
taxes.
Administration budget proposals
The President's Budget for FY 2003 includes two proposals to
improve upon these tax incentives and further encourage the restoration
and preservation of America's land.
Brownfields remediation costs
The Administration believes that encouraging environmental
remediation is an important national goal. The brownfields provision
encourages the cleanup of contaminated brownfields, thereby enabling
them to be brought into productive use in the economy and mitigating
potential harms to public health. The current-law incentive was made
temporary to encourage faster cleanup of brownfields. Experience has
shown, however, that many taxpayers are unable to take advantage of the
incentive because environmental remediation often extends over a number
of years. For that reason, the President's budget proposed a permanent
extension of the brownfields tax incentive. Extending the special
treatment accorded to brownfields on a permanent basis would remove
doubt among taxpayers as to the future deductibility of remediation
expenditures and would promote the goal of encouraging environmental
remediation. The Administration's brownfields proposal was introduced
by Mr. Coyne and Mr. Weller as H.R. 1439.
The revenue cost of the proposal is estimated to be $1.1 billion
over FY 2003-2007. Treasury estimates that the proposal, at a $300
million annual cost, will leverage approximately $2 billion per year in
private investment and will return 4,000 brownfields per year to
productive use.
Conservation sales
Some landowners may want their land to be protected for
conservation purposes but cannot afford simply to donate either the
land or an easement on the land, especially if the land is the
landowner's primary salable asset. By adding an incentive for sales to
qualified conservation groups, the President's Budget complements the
existing provisions that encourage charitable donations. This proposal
would encourage the sale of appreciated, environmentally sensitive land
and land rights to qualified conservation groups, thus achieving
conservation goals through voluntary sales of property, rather than
imposing government regulation on land use. The proposal would achieve
this goal by strengthening the ability of conservation groups to
compete with other potential buyers of appreciated, environmentally
sensitive land.
Under the Administration proposal, when land (or an interest in
land or water) is voluntarily sold for conservation purposes (as
defined below), only 50 percent of any capital gain would be included
in the seller's income. The 50-percent exclusion is based on what the
gain would have been without taking improvements into account (that is,
the taxpayer may exclude 50 percent of the excess of (a) the purchase
price allocable to the property other than improvements, over (b) the
basis allocable to the property other than improvements). To be
eligible for the partial exclusion, the sale must be to a qualified
conservation organization. A qualified conservation organization is
either a governmental unit or a charity that is a qualified
organization under section 170(h)(3) and that is organized and operated
primarily for conservation purposes. Conservation purposes are the
preservation of land areas for outdoor recreation by, or the education
of, the general public; the protection of a relatively natural habitat
of fish, wildlife, or plants, or similar ecosystem; or the preservation
of open space where the preservation is for the scenic enjoyment of the
general public or pursuant to a clearly delineated Federal, State, or
local governmental conservation policy.
The buyer must provide a written statement representing that it is
a qualified conservation organization and that it intends to hold the
property exclusively for conservation purposes and not to transfer it
for valuable consideration other than to a qualified conservation
organization in a transaction that would qualify for this 50 percent
exclusion if the buyer/transferor were taxable. The partial exclusion
would not be available for sales pursuant to a condemnation order but
would apply to any gain recognized in a sale that is made in response
to the threat or imminence of such an order. If the property sold is
less than the taxpayer's entire interest in the property, it must
satisfy requirements like those applicable to qualified conservation
contributions under section 170(h). In addition, the taxpayer or a
member of the taxpayer's family must have owned the property sold for
the three years immediately preceding the date of the sale.
Similar proposals were introduced by Mr. Kolbe as H.R. 960 and by
Mr. Portman (with a number of cosponsors) as H.R. 2290.
The provision would be effective for sales taking place on or after
January 1, 2004. The revenue cost of the proposal is estimated to be
$328 million over FY 2003-2007.
ENERGY-RELATED INCENTIVES
Current law tax incentives for energy efficiency and alternative fuels
Tax incentives currently provide an important element of support
for energy-efficiency improvements and increased use of renewable and
alternative fuels. Current incentives are estimated to total
approximately $800 million for fiscal years 2003 through 2007. They
include a tax credit for electric vehicles and expensing for clean-fuel
vehicles, a tax credit for the production of electricity from wind or
biomass, a tax credit for certain solar energy property, and an
exclusion from gross income for certain energy conservation subsidies
provided by public utilities to their customers.
Electric and clean-fuel vehicles and clean-fuel vehicle refueling
property
A 10-percent tax credit is provided for the cost of a qualified
electric vehicle, up to a maximum credit of $4,000. A qualified
electric vehicle is a motor vehicle that is powered primarily by an
electric motor drawing current from rechargeable batteries, fuel cells,
or other portable sources of electric current, the original use of
which commences with the taxpayer, and that is acquired for use by the
taxpayer and not for resale. The full amount of the credit is available
for purchases prior to 2004. The credit begins to phase down in 2004
and does not apply to vehicles placed in service after 2006.
Certain costs of qualified clean-fuel vehicles and clean-fuel
vehicle refueling property may be deducted when such property is placed
in service. Qualified electric vehicles do not qualify for the clean-
fuel vehicle deduction. The deduction begins to phase down in 2004 and
does not apply to property placed in service after 2006.
Energy from wind or biomass
A 1.5-cent-per-kilowatt-hour tax credit is provided for electricity
produced from wind, ``closed-loop'' biomass (organic material from a
plant that is planted exclusively for purposes of being used at a
qualified facility to produce electricity), and poultry waste. The
electricity must be sold to an unrelated person and the credit is
limited to the first 10 years of production. The credit applies only to
facilities placed in service before January 1, 2004. The credit amount
is indexed for inflation after 1992.
Solar and geothermal energy
A 10-percent investment tax credit is provided to businesses for
qualifying equipment that (1) uses solar energy to generate
electricity, to heat or cool or provide hot water for use in a
structure, or to provide solar process heat or (2) is used to produce,
distribute, or use energy derived from a geothermal deposit.
Ethanol and renewable source methanol
An income tax credit and an excise tax exemption are provided for
ethanol and renewable source methanol used as a fuel. In general, the
income tax credit is 53 cents per gallon for ethanol and 60 cents per
gallon for renewable source methanol. As an alternative to the income
tax credit, gasohol blenders may claim an equivalent gasoline tax
exemption for ethanol and renewable source methanol that is blended
into qualifying gasohol.
The income tax credit expires on December 31, 2007, and the excise
tax exemption expires on September 30, 2007. In addition, the ethanol
credit and exemption are each reduced by 1 cent per gallon in 2003 and
by an additional 1 cent per gallon in 2005. Neither the credit nor the
exemption applies during any period in which motor fuel taxes dedicated
to the Highway Trust Fund are limited to 4.3 cents per gallon. Under
current law, the motor fuel tax dedicated to the Highway Trust Fund
will be limited to 4.3 cents per gallon beginning on October 1, 2005.
Energy conservation subsidies
Subsidies provided by public utilities to their customers for the
purchase or installation of energy conservation measures are excluded
from the customers' gross income. An energy conservation measure is any
installation or modification primarily designed to reduce consumption
of electricity or natural gas or to improve the management of energy
demand with respect to a dwelling unit.
Administration budget proposals
The Administration's budget for FY 2003 proposes a number of tax
incentives for renewable energy and more efficient energy use. The
budget also proposes to modify the tax treatment of nuclear
decommissioning funds. The Administration's budget proposals are
described below.\1\
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\1\ For a more detailed description, see General Explanations of
the Administration's Fiscal Year 2003 Revenue Proposals, Department of
the Treasury, February 2002.
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Electricity from wind and biomass
The President's Budget proposed to extend the credit for
electricity produced from wind and biomass for three years to
facilities placed in service before January 1, 2005. This proposal has
since been enacted, in part, by the Economic Security and Worker
Assistance Act of 2002, which provides a two-year extension of the
credit. In addition, the President's Budget proposes to expand eligible
biomass sources to include certain biomass from forest-related
resources, agricultural sources, and other specified sources. Special
rules would apply to biomass facilities placed in service before
January 1, 2002. Electricity produced at such facilities from newly
eligible sources would be eligible for the credit only from January 1,
2002, through December 31, 2004. The credit for such electricity would
be computed at a rate equal to 60 percent of the generally applicable
rate. Electricity produced from newly eligible biomass co-fired in coal
plants would also be eligible for the credit only from January 1, 2002,
through December 31, 2004. The credit for such electricity would be
computed at a rate equal to 30 percent of the generally applicable
rate.
Residential solar energy systems
The President's Budget proposes a new tax credit for individuals
who purchase solar energy equipment used to generate electricity
(photovoltaic equipment) or heat water (solar water heating equipment)
for use in a dwelling unit that the individual uses as a residence. The
credit would be available only for equipment used exclusively for
purposes other than heating swimming pools. The proposed credit would
be equal to 15 percent of the cost of the equipment and its
installation. The credit would be nonrefundable and an individual would
be allowed a lifetime maximum credit of $2,000 per residence for
photovoltaic equipment and $2,000 per residence for solar water heating
equipment. The credit would apply only to solar water heating equipment
placed in service after December 31, 2001, and before January 1, 2006,
and to photovoltaic systems placed in service after December 31, 2001,
and before January 1, 2008.
Fuel from landfill methane
The President's Budget proposes to extend the section 29 credit for
fuel produced from landfill methane produced at a facility (or portion
of a facility) that is placed in service after December 31, 2001. Fuel
produced at such facilities would be eligible for the credit through
December 31, 2010. The proposal would also expand the credit by
permitting the credit for fuel used by the taxpayer to produce
electricity. The credit for fuel produced at landfills subject to EPA's
1996 New Source Performance Standards/Emissions Guidelines would be
limited to two-thirds of the otherwise applicable amount. In the case
of landfills with facilities that currently qualify for the section 29
credit, this limitation would not apply until after 2007.
Ethanol and renewable source methanol
The President's Budget proposes to extend the income tax credit and
excise tax exemption for ethanol and renewable source methanol through
December 31, 2010. The current law rule providing that neither the
credit nor the exemption applies during any period in which motor fuel
taxes dedicated to the Highway Trust Fund are limited to 4.3 cents per
gallon would be retained. As under current law, the credit and the
exemption would each be reduced by 1 cent per gallon in 2003 and by an
additional 1 cent per gallon in 2005.
Hybrid and fuel cell vehicles
The President's Budget proposes to provide temporary tax credits
for certain hybrid and fuel cell vehicles.
A credit of $250 to $4,000 would be available for purchases of
qualifying hybrid vehicles after December 31, 2001, and before January
1, 2008. A hybrid vehicle is a vehicle that draws propulsion from both
an on-board internal combustion or heat engine using combustible fuel
and an on-board rechargeable energy storage system. To qualify for the
minimum credit, a hybrid vehicle would be required to derive at least 5
percent of its maximum available power from the rechargeable energy
storage system. Larger credits would be available for vehicles that
derive larger percentages of power from the rechargeable energy storage
system and for vehicles that meet specified fuel economy standards.
A credit of $1,000 to $8,000 would be available for the purchase of
qualifying fuel cell vehicles after December 31, 2001, and before
January 1, 2008. A fuel cell vehicle is a motor vehicle propelled by
power derived from one or more cells that convert chemical energy
directly into electricity by combining oxygen with on-board hydrogen
(including hydrogen produced from on-board fuel that requires
reformation before use). To qualify for the minimum credit, a fuel cell
vehicle would be required to meet a minimum fuel economy standard for
its weight class. Larger credits would be available for vehicles that
achieve higher fuel economy standards.
Combined heat and power systems
To encourage more efficient energy usage, the President's Budget
proposes to provide a 10-percent investment credit for qualifying
combined heat and power (CHP) systems. CHP systems are used to produce
electricity (and/or mechanical power) and usable heat from the same
primary energy source. To qualify for the credit, a system would be
required to produce at least 20 percent of its total useful energy in
the form of thermal energy and at least 20 percent in the form of
electrical and/or mechanical power and would also be required to
satisfy an energy efficiency standard. The credit would apply to CHP
equipment placed in service after December 31, 2001, and before January
1, 2007.
Nuclear decommissioning funds
The President's Budget proposes to repeal the current law provision
that limits deductible contributions to a nuclear decommissioning fund
to the amount included in the taxpayer's cost of service for ratemaking
purposes. Thus, unregulated taxpayers would be allowed a deduction for
amounts contributed to a qualified nuclear decommissioning fund. The
Administration also proposes to permit funding of all decommissioning
costs (including pre-1984 costs) through qualified nuclear
decommissioning funds. Contributions to fund pre-1984 costs would be
deductible except to the extent a deduction (other than under the
qualified fund rules) or an exclusion from income has been previously
allowed with respect to those costs. The Administration's proposal
would clarify that any transfer of a qualified nuclear decommissioning
fund in connection with the transfer of the power plant with which it
is associated would be nontaxable and no gain or loss will be
recognized by the transferor or transferee as a result of the transfer.
In addition, the proposal would permit taxpayers to make deductible
contributions to a qualified fund after the end of the nuclear power
plant's estimated useful life and would provide that nuclear
decommissioning costs are deductible when paid.
SAFE Act
The Administration is pleased that the House, following the lead of
this Committee, has passed H.R. 4, the Securing America's Future Energy
Act of 2001. The Administration said, when the House was considering
H.R. 4, that it was an important step in ensuring the Nation's energy
security. We should also note that the inclusion in H.R. 4 of
incentives from the President's budget to encourage conservation,
energy efficiency, and the use of renewable and alternative energy
sources advances vital elements of the Administration's environmental
initiatives.
CONCLUSION
Mr. Chairman, we believe that the Administration's proposed tax
initiatives represent sound policy that can produce significant
environmental benefits for decades to come. While this concludes my
prepared testimony. I will be pleased to answer any questions you or
other members of the Subcommittee may have.
Chairman MCCRERY. Thank you, Ms. Olson. In looking at the
array of incentives in the tax code currently and those which
the Administration and Members of Congress might be proposing,
did you consider the effect of the alternative minimum tax on
some of these incentives, and if so, can you describe what
those effects might be and if they would have any effect on the
conservation incentives themselves?
Ms. OLSON. Yes, we did. The Alternative Minimum Tax (AMT)
generally allows charitable contributions to be deducted to the
same extent as the regular tax. The AMT taxpayers generally
face different marginal tax rates than if the AMT did not
exist. Those marginal rates can be higher or they can be lower
than regular tax marginal rates. If the AMT marginal rate is
higher, then the AMT may increase the incentive to make
charitable conservation contributions. If the AMT marginal rate
is lower, the AMT may decrease the incentive.
Chairman MCCRERY. Again, in looking at the array of
incentives to encourage conservation, did you consider the
estate tax and the effect that the estate tax has on conserving
land? As you know, the House just recently voted to make
permanent the repeal of the estate tax. Can you tell us what
effect that might have on the use of land generally and
conservation of land in particular?
Ms. OLSON. Well, Treasury has estimated that the repeal of
the estate tax would have some disincentive effects on
charitable contributions, but those disincentive effects are
offset to some extent by the fact that individuals with the
repeal of the estate tax have more cash available for purposes
such as charitable contributions. In addition to that, we
believe that the proposal for the exclusion in the President's
budget would offset some of the effects of the repeal of the
estate tax. If I might elaborate just a little bit----
Chairman MCCRERY. Sure.
Ms. OLSON. Part of the repeal of the estate tax includes a
carryover basis, and so an heir would take the property with
the same basis as the decedent and would, therefore, have the
same built-in gain and at some point in the heir's life might
have the same incentive to make a charitable contribution with
respect to that property.
Chairman MCCRERY. What about the effect on conservation of
that land posed by the burden placed on the heirs of the estate
tax itself and having to come up with the cash to pay the
estate tax?
Ms. OLSON. Well----
Chairman MCCRERY. If they are land-rich and cash-poor, what
is the result?
Ms. OLSON. Well, I think if they are land-rich and cash-
poor, they are sometimes put in a position of being compelled
to sell something in order to raise the cash to pay the estate
tax. If there is no compulsion to sell the property to pay the
estate tax because there is not an estate tax anymore, they are
left with more money in their pockets, which might ultimately
mean that they have got a greater ability to make a charitable
contribution.
Chairman McCRERY. They might also keep their land, might
they not?
Ms. OLSON. They might also keep their land, that is right.
Chairman MCCRERY. They might also continue to farm the
land.
Ms. OLSON. That is right.
Chairman MCCRERY. To grow trees on it or whatever.
Ms. OLSON. That is right, which might go a long ways, as
well, to conserving open space.
Chairman MCCRERY. Thank you, Ms. Olson. Mr. McNulty?
Mr. MCNULTY. Thank you for your testimony, Ms. Olson. I was
wondering, why does your proposal to permanently extend the
expensing of brownfields remediation costs not also include an
expanded list of deductible expenses, such as those relating to
petroleum, asbestos, and pesticide contaminations?
Ms. OLSON. With respect to items such as asbestos that are
generally found inside of buildings, we have not suggested it
should be expanded to items that are inside of buildings. I
think that keeping the focus on the current list of items
ensures that the most resources are devoted to cleanup of those
kinds of items on contaminated sites. If you are looking at a
contaminated site and you are trying to do the land cleanup, if
it is not deductible under the brownfields remediation
provision, it is going to go into the basis of that land and
that cost is not going to be recovered at all until the land is
disposed of. If it is something that goes into the building,
then it does become depreciable or recoverable cost as part of
the building. So, there is less of a critical need for that
question to be answered with respect to things that are inside
of buildings.
Another point is just administerability. Right now, the way
that the provision works, taxpayers who want to do a cleanup
and claim the 198 deduction go to a State agency that
regulates, keeps track of the brownfields site and certifies
the expenses. If we expand it beyond the current list, we have
lost that bit of administerability that goes along with it.
Mr. MCNULTY. In your proposal to exclude 50 percent of the
capital gains from the sale of property for conservation
purposes, how do you define conservation purposes and what
entity makes that determination?
Ms. OLSON. We would follow some of the proposals that have
been followed in the past, where you have got organizations
that are currently permitted under the tax code as conservation
entities, and so it would be those same kinds of entities that
would be making the decision about what to acquire in terms of
the land that is offered for sale.
Mr. MCNULTY. That is all I have, Mr. Chairman. Thank you.
Chairman MCCRERY. Mr. Weller?
Mr. WELLER. Thank you, Mr. Chairman, and Ms. Olson,
welcome. It is good to have you before the Subcommittee today
and I very much appreciate the Bush Administration's commitment
on brownfields cleanup and embracing the need to make permanent
the brownfields expensing provision that we have all worked
together on over the last several years.
Let me ask this. Based on your knowledge of brownfields
cleanup and the data that you have and just looking at it from
a national perspective, how do you feel that this expensing
provision acts as a motivation for a private investor to be
more inclined to purchase that old industrial site on the edge
of town rather than a cornfield further out on the edge of
town, which from the standpoint of just cost of the land,
without having to do the environmental cleanup, they might be
able to save money on. What do you see as a motivating factor
as a result of this tax provision?
Ms. OLSON. Well, I think it has a significant effect. There
is a big difference between taking the costs of cleanup and
putting it into the basis of the land than having it just hang
there for an indeterminate amount of time as a cost that cannot
be recovered versus being able to deduct those out-of-pocket
expenses up front. So, if you were comparing two parcels of
land of equal value except that one had to be cleaned up
considerably before it could be used, it is obviously
significantly increased cost, and the fact that the taxpayer
can deduct the costs of cleanup would give him an incentive to
do that.
Mr. WELLER. Okay. You have interesting numbers there. You
indicated that you feel that making permanent this provision
would generate at least $2 billion worth of investment and over
the next 5 years would clean up an additional 2,000
brownfields. From the standpoint of the Chicago area that I
represent, that represents our entire current inventory of
brownfields in the Chicago metropolitan area. I think there are
about 400,000 brownfields nationwide, so we have a lot of work
to do.
Ms. OLSON. That is right. We do have a lot of work to do.
Our estimate is actually 4,000 per year, so----
Mr. WELLER. Four thousand per year would be----
Ms. OLSON. Yes.
Mr. WELLER. I need to correct that, but that would be a
tremendous investment. I do want to thank the Administration
for your commitment on this. I look forward to working with
you.
I do wish that the Administration would take a look at
expanding the types of materials that would benefit from this
tax incentive when it comes to what types of materials can be
cleaned up. Obviously, as we have experimented with how to make
this tax incentive work, it has been quite evident that there
is a need for expansion of the type of cleanup that would
succeed in our goal of revitalizing brownfields, so I would
very much like to work with you on identifying ways that we can
expand the type of cleanup that would be eligible for this tax
incentive, as well as making it permanent.
Ms. OLSON. We would be happy to give that further study.
Mr. WELLER. Thank you, Mr. Chairman. Thank you for holding
this hearing.
Chairman MCCRERY. Thank you, Mr. Weller. I have not asked
or advised Ms. Dunn or Mr. Blumenauer, but if you would like to
ask the Administration's witness anything, feel free to do
that. Ms. Dunn?
Ms. DUNN. Thank you very much, Mr. Chairman. I did not
expect to have a chance to ask the Administration witness a
question, but I would simply say that we have sat down and had
a good briefing with Mark Weinberger on H.R. 1711 and I am
hopeful that we can sit with you, Ms. Olson, and go through
this in detail. Do you have any sense of what the position
would be in general on this type of legislation?
Ms. OLSON. I would be happy to sit down with you and
discuss it. We have been through the legislation and we do have
some suggestions that we have discussed with some of the folks
who are interested in your proposal that we think would make it
a little bit tighter and make it work a little bit better, make
it more administrable, because we do have a few
administerability concerns. We also have some ideas that might
help bring the cost of it down, as well.
Ms. DUNN. That is great, and that is exactly the sort of
feedback we are looking for, so we will look forward to making
that meeting happen.
Ms. OLSON. Thank you.
Ms. DUNN. Thank you, Mr. Chairman.
Chairman MCCRERY. Thank you, Ms. Dunn. Ms. Olson, thank you
very much. We look forward to seeing you again and again and
again in the future.
Ms. OLSON. Thank you.
Chairman MCCRERY. Now, I would like to call our third and
final panel, Mr. Chris Sawyer, Mr. Steven McCormick, Timothy
Brazell, Charles Bingham, Eugene Duvernoy, Rand Wentworth, and
Jim DeCosmo.
Thank you, gentlemen, for coming today to share with us
your views on some of the legislation that we have already
heard discussed today and some other ideas for us to consider.
Our first witness on this panel is Mr. Chris Sawyer, who is
President of the West Hill Foundation for Nature, Inc., in
Atlanta, Georgia. Mr. Sawyer, welcome. Note, all of you, that
your written testimony will be incorporated into the record and
we would like for you to summarize orally in about 5 minutes.
Mr. Sawyer?
STATEMENT OF CHRISTOPHER GLENN SAWYER, ATLANTA, GEORGIA
Mr. SAWYER. Thank you very much, Mr. Chairman. Thank you
and your Members for the invitation and opportunity to appear
before your Subcommittee. You are considering a number of
important and thoughtful bills today, but my focus will be on
H.R. 882.
My name is Chris Sawyer and I am from Atlanta, Georgia. I
also work with real estate companies across America relating to
issues of development and institutional real estate investment.
For over a decade, I have also been active with land
conservation issues throughout America, serving at both the
State and national volunteer leadership levels with the Nature
Conservancy and the Trust for Public Land.
While I am here today as a private citizen and not as a
representative of these various organizations, these
experiences with both the profit and nonprofit sectors have
certainly informed and shaped my opinions. My fundamental
perspective is that America is now in the middle of an
insidiously devastating land use crisis that without immediate
and dramatic action guarantees a greatly degraded and
irrevocably altered natural estate for all generations to come.
While I have offered much more extensive support for this
assertion in materials that I have submitted with this
testimony, let me briefly offer support here.
Over our 225-year history, the lower 48 States have lost 52
percent of their original wetland areas and continue to lose
these areas at the rate of 109,000 acres per year. This is
costing us billions of dollars annually, which annual cost
compounds each successive year. Of the 14 major living groups
of organisms, including all vertebrates and vascular plants in
the United States, one-third of them are either extinct,
imperiled, or significantly vulnerable. Of the 76 ecoregions in
the 48 contiguous States, only 9 are considered not to be
critical, endangered, or in a vulnerable condition as habitat
for the species that they contain.
These statistics do report the critical condition of our
natural state, but it is not just our natural state. It is also
our culture and our quality of life. For example, from 1982 to
1997, we converted over 21 million acres of farmland to
residential and other development uses. In the last two
decades, over one million acres of rangeland in the greater
Yellowstone area alone have been split into plots of 200 acres
or less. In the 5-year period from 1992 to 1997, the United
States created 15 percent of its total urban footprint while
the other 85 percent took 225 years.
As a nation, we have simply worked our land and natural
estate hard for 225 years, a fact that would stress any system.
This stress is greatly exacerbated today by the fact that we
now have 281 million people and it is anticipated that that
number will increase by at least 58 million, or 21 percent, by
2020, only 18 years away.
Collectively, this is an extraordinarily disturbing
picture. When we fully admit that this is also the picture of
the physical platform for the future strength, power, and
wealth of our great Nation, it becomes simply unacceptable. It
demands a national response today that guarantees dramatic,
immediate, and permanent improvements in the condition of our
natural estate.
H.R. 882 offers a national response that includes just that
guarantee. It does so by building a plan around those elements
that will be necessary to achieve this critical national goal
on the most financially efficient basis, consistent with our
heritage of private property rights. Those elements include the
participation of every State, public/private partnerships, use
of conservation easements for the purchase of development
rights, allocation of capital that scales to the problem,
specific deadlines that will motivate States and landowners
alike, the participation of everyone, and the use of tax
credits to involve more citizens directly and to provide for a
much more immediate and locally driven response.
Through this plan, H.R. 882 will direct and empower all
levels of government, land trust, taxpayers, and landowners to
work in an aligned partnership, focused at the local level to
conserve and restore our natural infrastructure for all
generations to come, and the investments made through H.R. 882
will also bear economic results. They will filter our water and
protect it. They will clean our air. They will keep our
fisheries and foodstocks healthy and productive. They will help
assure genetic diversity. They will provide the much needed
relief of greenspace for all of us while simultaneously
allowing us to avoid the costs of artificially replacing these
same services. These savings and returns will significantly
lower, if not, in fact, exceed the entire cost of this program.
These are complex issues, but given what we have lost, what
we are losing, and what we urgently need, we must embrace an
administratively and financially efficient plan that honors
private property rights and guarantees immediate, dramatic, and
permanent improvements to our Nation's natural state. H.R. 882
is just such an opportunity. Thank you for your consideration.
Chairman MCCRERY. Thank you, Mr. Sawyer, for being so
concise and getting just in your 5 minutes. Very well done.
Mr. SAWYER. Thank you, sir. Thank you, Mr. Chairman.
[The prepared statement of Mr. Sawyer follows:]
Statement of Christopher Glenn Sawyer, Atlanta, Georgia
Mr. Chairman: Thank you and your Members for the invitation and
opportunity to appear before your Committee.
My name is Christopher Glenn Sawyer. I reside in Atlanta, Georgia,
where I have practiced law for 24 years.
During this period of time, I have had a unique experience with
land usage in America. As a lawyer, I have advised and represented real
estate companies across America relating to issues of development and
institutional real estate investment. In addition to the experience of
this legal practice, I also represent and serve today as a member of
the Board of Directors of one of the largest, privately held
development companies in America. I have also been nominated to serve
on the Board of Trustees of the Urban Land Institute.
Over the last twelve years, I have also been active with land
conservation issues throughout the United States. In addition to
serving on the Georgia boards of the Trust for Public Land and The
Nature Conservancy, I have also served as chairman of the National Real
Estate Advisory Board of The Nature Conservancy, as current President
of the West Hill Foundation for Nature in Wyoming, and currently and
for the last six years as the National Chairman of the Trust for Public
Land headquartered in San Francisco.
While these experiences have certainly exposed me to the broad
issues of our environment, I have also worked on specific projects.
Most notably, five years ago I helped start the Chattahoochee River
Greenway Program, an effort to create a greenway along the banks of the
Chattahoochee River from Helen to Columbus, Georgia, a linear distance
of approximately 180 miles. As part of that effort, we came to Congress
and received an appropriation of $25 million to increase significantly
the size of the Chattahoochee River National Recreation Area. Since
that time, we have taken those funds and, through creating an active
partnership among Federal, state and local governments, a number of
nonprofits, and many businesses and individuals, we have not only
essentially doubled the size of the Chattahoochee River National
Recreation Area, but by leveraging those Federal dollars we have also
raised over $130 million in addition to the Federal grant and, now four
years later, have acquired by gift or acquisition a total of 60 miles
of river frontage. As founding and current chairman of the
Chattahoochee River Coordinating Committee, the organizing body of this
effort since its inception, I have learned a lot about our
environmental needs and what we, I believe, must do to respond to them.
This work, as well as work with other national organizations, has
required me to travel 40,000 to 60,000 miles a year within the United
States over the last ten years working on, and learning about, land use
and environmental issues. While I wish to make it clear that I am here
today as a private citizen and not as a formal representative of these
various organizations, these experiences have certainly informed and
shaped the opinions that I wish to share with you this afternoon.
My fundamental perspective as a result of these experiences is that
America has a very significant land use crisis that threatens the
bounty of our natural resources and the rich diversity of our culture.
This crisis poses an immediate threat to us today and the promise,
without immediate and dramatic action that scales to the true needs of
our country, of a greatly degraded and irrevocably altered natural
estate for all generations to come.
While I have offered more extensive support for this assertion in
materials that I have submitted with this testimony, let me offer some
support here for this position, as well as a sense of the current pace
of this degradation and depletion.
Over our history, the lower 48 states have lost 52%
of their original wetland areas and they continue to lose these
areas at the rate of 109,000 acres per year; because each acre
of wetland provides significant annual economic benefits,\1\
this continuing annual loss of 109,000 acres amounts to a loss
of billions of dollars each year, losses that continue and
compound with new losses year after year. Geologically
significant grasslands have and are disappearing at similar
rates.
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\1\ See, e.g., the attached article: ``The Value of Conservation
Easements: The Importance of Protecting Nature and Open Space,'' by
Amanda Sauer, World Resources Institute, April 9, 2002.
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When one surveys the environment regionally, the loss
seems, if possible, even greater: the Central Valley of
California has lost 95% of its original wetlands and 90% of its
riparian corridors have been lost or severely degraded; 50% of
the forest and wetlands have been cleared and drained around
the Chesapeake Bay, severely deteriorating the quality of its
water; 80% of the original 24,000,000 acres of forested
wetlands in the Mississippi Aleuvial Valley are gone; 96% of
the original 167,000,000 of the tallgrass prairies in the
Midwest are gone; 98% of the formerly dominant long-leaf pine
in the Southeast region are gone; and the Pacific Northwest has
lost 90%, or 25,000,000 acres, of its ancient forests.
Of the 14 major living groups of organisms, including
all vertebrates and vascular plants in the United States, \1/3\
of them are graded of ``conservation concern,'' meaning that
they are either extinct, imperiled or significantly vulnerable.
Similarly, of the 76 eco-regions in the 48 contiguous states,
only nine are considered not to be critical, endangered or in a
vulnerable condition as habitat for the species they contain.
Indeed, an astounding 30% or more of the natural communities in
areas such as Hawaii, Oregon's Willamette Valley, and vast
portions of the Midwest and Southeast are in danger of
vanishing from our natural landscape.
While it is easy to read these as statistics, these statistics
report the condition of our natural estate. That estate has been the
remarkable physical platform for our wealth and our strength, and it is
obviously diminished and imperiled. But it is not just the natural
estate; it is also our culture and our quality of life. For example:
From 1982 to 1992, more than 1,000,000 acres of
agricultural land across the United States was converted
annually to residential and other development purposes, one-
third of which was classified as prime and unique farmland.
From 1992 to 1997, the conversion rate doubled, with 11.2
million acres converted from farmland to other purposes.
In the last two decades, over one million acres of
rangeland in the Greater Yellowstone area have been split into
plots of 200 acres or less, changing irrevocably those ranching
communities and fragmenting the landscape that some say defines
America.
From 1992 to 1997, the United States created 15% of
its total urban footprint--the other 85% took approximately 220
years.
This development pattern is dependent on the
automobile and the result of that is that the average American
now spends approximately 445 hours in a car annually or the
equivalent of 55 eight hour work days--all at a great cost to
our land, our air, our water, our families, and our
communities.
While we need economic growth, to continue to develop in this same
pattern not only wastes our land base, but it also diminishes our water
quality, our air quality, our sense of community, our natural habitat
for plants and animals, and our culture. It is especially harmful to
our ranching and farming communities because so much of their land is
being irreparably lost to other land uses.
Without dramatic change, the future bodes no better for the future
of our beautiful country:
For example, the scientists at Yellowstone National
Park report that, unless development patterns are addressed in
the three states surrounding the park, the large mammals within
the park will no longer be able to exist naturally. They will,
in effect, become museum pieces because they will no longer be
able to follow their migratory trails in and out of those
spectacular areas that their natural existence requires.
The demographers in the Southeast are now reporting
that we should anticipate that there will be one metropolitan
area that connects Birmingham to Atlanta to Greenville to
Charlotte to Raleigh in the very near term. Not only will this
change the culture of the Southeast forever, but it will
obviously affect the natural communities as indicated above.
Recent flooding of the Mississippi reminds us of the
astounding costs of channeling these great rivers and losing
the wetlands that cushion and absorb the natural flood stages
of our riparian systems. This will become an even greater
problem throughout the nation.
If current development and population trends
continue, it is estimated that by 2050 our farmers and ranchers
will be required to produce food for 50% more Americans on 13%
less land.
As a nation, we have simply worked our land and natural estate hard
for 225 years, a fact that would stress any system. This stress,
however, is greatly exacerbated today by the fact that we now have
281,000,000 people, a 13% increase since 1990, and it is anticipated
that that number will increase by 58,000,000, or 21%, by 2020.
Collectively this is a very difficult picture. It is the result of
many causes and stresses and will require new and dramatic solutions
that scale to the depths and breadth of these challenges to restore
fully a balance that is worthy of this great land and nation that we
share.
It is, however, an especially disturbing picture, not just from the
perspective of what we have lost, which is extraordinarily significant,
but even more so when we fully realize that this is also the picture of
the physical platform for our future strength. We are the beneficiary
and the product of our natural estate. And just as it has been
throughout our history, the strength, power and wealth of our nation in
the future is absolutely dependent upon its condition.
This disturbing conclusion is underscored by the fact that we no
longer have any time left for wasted opportunity or misguided
activity.\2\ It is the same as when we started the Chattahoochee River
Greenway project. We simply looked at the aerial photographs and
realized that unless we began that day to create our Greenway, we would
lose the opportunity to create those parks and conserve and enhance
those river and water resources forever. As one travels over our
country, one knows that there are identical aerial photographs in every
state. It certainly is so around Yellowstone National Park; as the
South morphs into one metropolitan area from Birmingham to Washington,
it is certainly true there; as one looks at development leap up the
Hudson River or consume more of the desert of Arizona or as another
ranch or farm family elects to sell its land, we know that it is true
in those places and elsewhere in America as well.
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\2\ See, e.g., the attached lecture: ``The Cascading of
Environmental Consequences: Are We Running Out of Time?'', by James
Gustave Speth, Dean, Yale School of Forestry & Environmental Studies,
April 11, 2001.
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As we consider all of this and wonder how we might effectively
respond, we must admit one clear fact. We must acknowledge these
statistics as a troubling report card at best on our generation's
stewardship of our natural estate. We must also agree that it is a
report card that demands response today and a response that is
predicated on the certain knowledge that we can no longer afford any
course that does not begin to improve this report card dramatically,
immediately and permanently.
So the question is not, do we need to make a reinvestment, or when,
it is simply what is the best way to do it? And even this question has
its own urgency because we are at a point in our history where the
economy is difficult, there is heightened turmoil in the world, and
governmental dollars are especially precious. We need to make certain
that every dollar we spend on conservation is wisely invested. And
every dollar we spend, whether it is through direct appropriation or
through tax policy, should be tested through the prism of whether or
not that dollar best assures us of a significant and lasting
improvement in our natural estate report card.
This new course will require over time many things. There will be
new conservation opportunities to seize, maintenance and operational
issues to address, and new park needs to be met. But business as usual
will clearly not by itself achieve our goal.
We must begin today a thoughtful new national initiative, on a
scale that is beyond any historical standard, that allows us to
conserve and allow for the restoration of our natural estate. And it
must be an initiative that gives all of us confidence that its
inevitable result will be significant improvement in the protection of
our rivers, conservation of our forests, the providing of sufficient
habitat for the diversity of species that we need to survive, the
setting aside of our precious farm and ranch land, and the enhancement
of cities through appropriate ``green space.'' To fail to create such a
program, or to create a new program that is not structured and
coordinated to achieve these results nationally, will not work.
The question then is how do we craft such an initiative that will
best spend our dollars, most effectively and most expeditiously, with
the greatest chance of success against our goal?
While one can debate many of the details, my experiences have
taught me that the following principles, strategies and values must be
incorporated in any plan for us to be successful against this goal.
Those include the following:
1. LHybrid land estate: We must recognize that our emphasis on
land being either public or private has been too simple and a
real part of the problem. A great deal of the required solution
is coming to understand that we need a greater emphasis on the
creation of a larger hybrid land estate throughout America that
can achieve our conservation needs and in many instances
connect our fully public land to our fully private and enhance
them both. This hybrid land estate must remain privately owned
and managed, but simultaneously must also be burdened with the
loss of certain development rights that the public has acquired
voluntarily from the owner at fair market value and holds in
perpetuity for the benefit of all of us. These hybrid lands,
while staying in private ownership and supporting private
purposes, would also serve the public and its collective needs
by protecting our water, cleaning the air, conserving habitat
for our natural species, maintaining our farm and ranch lands,
and by offering ``green'' space to all of us. Fortunately, we
have a 25-year or more history of working with conservation
easements, which is the legal tool that creates this hybrid
estate. Funding conservation easements must therefore be at the
center of any such program.
2. LLeveraged Focus: The program's focus must be sharp and it
must be on reinvesting in, and thereby strengthening, our
natural estate. The use of conservation easements would allow
us to acquire from the landowner only that portion of the real
estate necessary to accomplish our goals. Use of conservation
easements would therefore offer the substantial advantage of
allowing us to accomplish a great deal more conservation than
we would with equivalent dollars expended for the full
acquisition of the property. This strategy would also allow us
to avoid the on-going costs associated with managing and
operating the property.\3\
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\3\ This is more succinctly stated in the attached report published
by the Western Governors' Association, The Trust for Public Land, and
National Cattlemen's Beef Association, entitled ``Purchase of
Development Rights: Conserving Lands, Preserving Western Livelihoods,''
January 2001: ``[Purchase of development rights through conservation
easements] makes economic sense in the West: it is a compensatory
approach to conservation that protects land from development pressure
at prices that are more affordable for the public than outright
purchase, and it helps keep farmers and ranchers on the land, providing
essential stewardship and contributing to the tax base.'' (Page 5) and
``The dire need to create substantial, dedicated funding sources for
state and local [Purchase of Development Rights] programs can hardly be
overstated.'' (page 12)
3. LState Involvement: Every state must be involved and
incented to participate in this program. While a portion of
this reflects that every state has environmental stresses that
must be addressed, this also recognizes that environmental
systems, such as rivers, prairies, forests, and all of the
species that they support, do not know state lines. To be
successful over time, and to protect our overall investment, we
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must therefore have every state moving in a similar direction.
4. LPartnerships: We must recognize that the most effective
conservation has been the result of public/private partnerships
and therefore any plan must put their creation at its center.
Congress must set the strategic direction and must set both the
importance and pace of the program by the amount of capital
that it allocates to it; the states must be involved in
coordinating the activities at their level and in helping to
set local priorities; and the private sector must lead the
execution. As part of this, we must understand and appreciate
that conservation easements are bought and sold one family
landowner at a time. The best and most expeditious way to
negotiate and close those transactions will be to leverage the
existing resources of the nonprofit conservation community,
including the community leaders across America that serve on
their board of directors. The nonprofit organizations therefore
must also be at the center of any such plan.
5. LUse and scale of capital: Use of capital under this program
should be limited to the acquisition and requirements of
conservation easements. By doing so, Congress would be putting
specific restrictions on the use of the capital in accordance
with existing law that happens to be consistent with our
program's objectives. The scale of the capital should reflect
the deep needs of our country but should also be calibrated
between what is possible to execute as well as what is needed
to unlock the focus, imagination and energy of the most people
to respond to this challenge.
6. LUrgency: The dollars should be allocated to states pursuant
to specific deadlines and, if the money is not spent within
those deadlines, it should be redistributed to those parts of
our country with more pressing needs and that also have the
immediate capacity and desire to execute.
7. LEquity: We must recognize that the conservation and
restoration of our natural estate is everyone's responsibility.
Paying for it rather than simply accomplishing it through
regulation or relying on the generosity of the few reflects
this value. We should certainly keep our current donation
system in place and encourage its generous use. But by creating
a system that is based on acquisitions of conservation
easements at fair market value, we can move to a program that
not only allows everyone to participate, but also allows us to
negotiate for clearer results, act more strategically, and
establish our own pace of execution: all critically important
to the success of our effort.
8. LTax credits: To be successful, we must get as many people
involved in America as possible. The best way to achieve this
is not through direct appropriations, which is a process
involving relatively few people, but instead to use tax
credits, which is a process that ultimately includes a lot of
people. A program based on tax credits will invite and incent
those organizations that wish to deploy the credits to get more
individuals and businesses involved in these issues and their
solutions. This will require a process of education and
engagement that will result in much more attention,
understanding, and commitment to the resolution of these
issues. It will also allow us to move at the much quicker
response pace that our natural estate crisis requires.
9. LStrategic conservation: Because of the way in which we have
financed a great deal of conservation in this nation, much of
it has been done opportunistically as distinct from
strategically. What this means by example is that we have
acquired a site here and there as they have become available or
as someone has been able to afford to give them, but
collectively they do not necessarily support or maintain an
ecosystem. In those instances, not only do they not fully
accomplish a natural estate goal, but by failing to do so they
devalue, in some instances, the investment or gift that has
been made. The system that we establish must allow us to move
to strategic conservation. By allocating a set amount on an
annual basis on a state-by-state basis with appropriate sunset
provisions, we would allow and incent states and landowners to
respond strategically to these issues. This is essentially what
happened with our successful Chattahoochee River project.
These are the nine elements that I believe must be included to
craft a plan that will dramatically improve our natural estate report
card immediately and permanently. That is why I am here to urge
consideration, and ultimately, passage of H.R. 882.
H.R. 882 prescribes a plan that reflects each of the nine values,
strategies, and principles stated above. It is entirely centered on
conservation easements; dollars are allocated to every state on a fair
basis which assures the participation of every state; it puts a non-
profit conservation organization at the center of the plan, but in the
context of a direct working partnership with Federal and state
government; the capital that it allocates may only be used for the
acquisition and requirements of conservation easements; it proposes a
spending level that scales to the need as well as communicates the
importance of the need; there are specific deadlines that will motivate
states and land owners alike; it allows each of us to participate in
the conservation and restoration of our natural estate; it is centered
on tax credits rather than direct appropriations; and it will allow
strategic conservation planning and execution.
While over time experience may require us to alter some of its
provisions, all dollars spent in the interim will move us closer to our
goal. The reason for this is that under H.R. 882 dollars can only be
expended for the acquisition of conservation easements and their
requirements. This will assure two results. Because of the current
legal limitations on conservation easements, whatever dollars are spent
during that period will have resulted in significant conservation goals
having been met. In addition, because we can achieve a great deal more
conservation for the equivalent dollar with conservation easements than
through outright acquisition of property, we will have substantially
leveraged all of the dollars that we have spent.
It is also important to appreciate that this is not just an
investment in ``America the Beautiful.'' While that might be reason
enough to make such an investment, given the beauty and wonder of this
great land, these investments will bear economic results: they will
filter our water and protect it; they will clean our air; they will
keep our fisheries and food stocks healthy and productive; they will
help assure genetic diversity and a healthy array of species; and they
will provide the much needed relief of ``green space'' to us all, while
simultaneously allowing us to avoid the costs of artificially replacing
these same services. These savings and returns will significantly lower
the cost of this program if not pay for it altogether.
These are complex issues, but, given what we have lost, and what we
are losing and what we urgently need, this complexity should not keep
us from taking dramatic action today. Where there is a sound idea with
a certain promise of significant improvement in these critical issues,
we must seize it and put it into place. H.R. 882 is just such an
opportunity.
[The attachments are being retained in the Committee files.]
Chairman MCCRERY. Our next witness is Mr. Steven J.
McCormick, who is President of The Nature Conservancy, from
Arlington, Virginia. Mr. McCormick, welcome, and might I say
thank you for all the work that your organization does in
helping us in Louisiana and other places to conserve some of
our wetlands and other areas which are vital to our future.
Thanks.
STATEMENT OF STEVEN J. MCCORMICK, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATURE CONSERVANCY, ARLINGTON, VIRGINIA
Mr. MCCORMICK. Thank you very much, Mr. Chairman, and thank
you for all your help in establishing, among other things, the
Red River National Wildlife Refuge in your home State. Thank
you, Members of the Subcommittee, for the opportunity to
amplify on my written testimony and to speak from some personal
experience.
The Nature Conservancy, as the Chairman suggests, is an
organization dedicated to protecting land that captures the
rich natural heritage that enriches our life, and our natural
heritage around the world.
We are increasingly working at a much larger scale because
we want to ensure that the impact of our work in protecting
land really has a meaningful consequence for all people. As we
work at that larger scale, we are finding that it is imperative
that we embrace and include and engage local communities and
people in those communities in our work because they derive
their livelihood and certainly the quality of their life from
that natural landscape.
In many rural communities in which we and our colleague
organizations are engaged, there are landowners who, as have
been identified in earlier testimony, do not really have the
wherewithal to make gifts of their property or gifts of
conservation easements, the permanent restrictions that protect
their lands. Yet, they really are terrific stewards of their
property and in many cases would like to do the right thing.
My testimony, therefore, focuses principally on support for
H.R. 2290, the Conservation Tax Incentives Act, and I want to
acknowledge and thank Congresswoman Dunn for her cosponsorship
of this legislation. This legislation would really be a
profound and dramatic incentive for landowners who have
properties that are exceedingly important from a biological
perspective or a natural open space recreational perspective.
Again, from my own experience, in many cases it is their
concern about the financial consequences of selling fee title
or partial interest in the form of a conservation easement that
is an enormous inhibition. As we have talked with private
landowners about the concept of a favorable capital gains
treatment, it is quite clear that they would be very, very
enthusiastic in embracing this idea and so motivated to sell
their property for the right purpose.
This would, therefore, provide an enormous solution to the
impediment that many landowners face, and frankly, constitutes
a terrific opportunity for a truly bipartisan legacy of natural
lands in this country, a legacy that will grow in increasing
value over time. So, we, as an organization which picks our
political emphasis very, very carefully, are quite excited
about the prospect of this legislation and very much appreciate
your conducting a hearing on it today. Thank you.
[The prepared statement of Mr. McCormick follows:]
Statement of Steven J. McCormick, President and Chief Executive
Officer, Nature Conservancy, Arlington, Virginia
Mr. Chairman and Members of the Committee, thank you for the
opportunity to present testimony on the critically important issue of
tax incentives for land conservation. I am speaking today on behalf of
The Nature Conservancy, an international, science-based, non-profit
organization that protects the land and water needed to protect the
diversity of life on earth. The Conservancy has more than one million
individual members and over 1,500 corporate members; we have programs
in every state and in 27 nations. For half a century we have worked
with the private sector, using business principles and the best
available scientific information to conserve the special places that
ensure the long-term survival of plant and animal species on earth. To
date, our organization has protected more than 12 million acres in the
United States and has helped local partner organizations preserve
approximately 80 million acres internationally. Our experience working
hand-in-hand with private landowners in diverse communities has
convinced us that changes in the Federal Tax Code are necessary to more
effectively encourage and reward private conservation actions.
Just last week we celebrated Earth Day. Many of us visited and
reflected on the many special places that have been saved since the
first Earth Day 30 years ago. For example, thanks to the work of the
Chairman, the Red River National Wildlife Refuge was established to
preserve land critically important for neotropical migratory birds and
waterfowl. We also contemplated the challenge ahead of us to protect
those places essential for a thriving, healthy environment for our
children. The Nature Conservancy's science-based approach has led us to
the understanding that we cannot accomplish our mission by saving
isolated pockets for individual species. We now know that diversity of
life thrives in larger, more complex, functioning landscapes that
sustain natural processes and healthy land, water, flora and fauna.
This approach means that we work in partnership with private
landowners who are an essential component to ensuring the health of the
larger landscape. In fact, half of the land essential to the
conservation goals we have set for ourselves in the coming years is in
private hands. Many of these special places are farms, ranches and
forests.
These landowners have a right to realize economic benefits of their
private investment in land. The conservation and sustainability of such
places could also provide a broad public benefit. Federal and state
environmental laws and regulations such as the Endangered Species Act,
the Clean Water and Clean Air Acts are important tools to help preserve
the environmental quality of land, but they can place economic and
regulatory burdens on individual landowners.
Although current Federal tax law does provide some financial
compensation to landowners for the conservation of their land, these
provisions were not designed with the so-called land-rich, cash-poor
landowners in mind. The tax code provides for tax-advantaged charitable
contributions of conservation easements and land for those landowners
who have enough income to make such gifts financially worthwhile.
Wealthier landowners who are able to make charitable conservation
contributions can realize tax benefits that make it possible for them
to achieve both conservation and financial goals.
Most farmers, ranchers and family timber operators on the other
hand, lack sufficient income to take advantage of the current tax
deductions. Moreover, for many of these landowners, most if not all of
their financial assets are tied up in their land value and cannot be
relinquished as a conservation contribution. For them, the sale of the
land for development may be the only viable financial choice in order
to realize the full economic return of the investment in their land.
Unfortunately, under current tax laws, a sale--even for a
conservation-related use--triggers a capital-gains tax and can severely
reduce the landowner's net return. If a tax reduction on the sale of
land or a conservation easement were available, the farmer or rancher
could realize the financial value of his or her land and at the same
time achieve lasting conservation of importance to the community.
In addition, a Federal capital gains tax conservation incentive
would help leverage funds that state and local governments raise to
protect open space, farm and ranchland. For example, in 2000 voters in
the State of Ohio approved the expenditure of $25 million under the
Clean Ohio bond program for the purchase of agricultural easements. If
there were a conservation provision that reduced the capital gains tax
that farmers have to pay on the sale of those easements and thus
increased their financial return, it is likely that more farmers would
remain on the land to protect important areas in Ohio.
Thus, a new financial incentive is required to encourage protection
of critically important lands that are in the care of some of the
original and best conservationists--the farmers, ranchers, foresters
and others who work the land for a living.
Congress now has before it several proposals that would create such
incentives. The Nature Conservancy's top priority is enactment of the
Conservation Tax Incentives Act, H.R. 2290, sponsored by Representative
Rob Portman, along with Representatives Jennifer Dunn, John Tanner,
Robert Matsui, Richard Neal, Nancy Johnson, J.D. Hayworth, and others.
In addition, President Bush included the proposal in the
Administration's FY 2003 budget. Moreover, the bill is supported by
such diverse organizations as the American Farm Bureau Federation,
Ducks Unlimited and Defenders of Wildlife. The Portman bill and
companion Administration proposal would reduce the amount of capital
gains tax if land or easements were sold for conservation purposes,
thereby providing a landowner with a more attractive financial return
from such sales and conserving the land in perpetuity.
I would like to congratulate Representative Portman for his
leadership on this issue. His legislation is a fiscally conservative,
market-based approach to land conservation. It achieves environmental
objectives without imposing new land use regulations. The provision is
strictly voluntary, administratively simple, and uses definitions and
tests for conservation purposes that are already contained in the tax
code. It provides capital gains tax relief for sales of land for
conservation to government agencies or qualified conservation
nonprofits. The bill would allow landowners to preserve permanently
their property's environmental value without foregoing its financial
value. It would exclude 50% of any gain realized from private,
voluntary sales of land or interests in land for conservation. The land
must be used to protect fish, wildlife or plant habitat or open space
for agriculture, outdoor recreation or scenic beauty.
Another worthy proposal is H.R. 1309, which would change the
individual and corporate charitable giving laws to improve the tax
benefits of conservation gifts. Because it would increase from 30% to
50% the amount of the taxpayer's adjusted gross income that could be
offset by a conservation donation, and allow the unused deduction to be
carried forward indefinitely, it would be of particular benefit to the
``land-rich, cash-poor'' taxpayer. The Conservancy supports this
legislation and thanks Representative Johnson for her continuing role
as a conservation leader.
As we seek innovative, environmentally and economically compatible
uses of land, creative solutions such as sustainable timber operations
hold real potential. Representative Dunn's Community Forestry and
Agriculture Conservation Act would allow the issuance of tax-exempt,
private activity bonds to finance the acquisition of land with
renewable resources such as timber, crops and water rights, provided
that the land is subject to a conservation easement. The Nature
Conservancy endorses this proposal, H.R. 1711, and commends
Representative Dunn for her leadership in this legislation.
The public has a real interest in the health of private lands.
These voluntary, incentive-based conservation proposals achieve
meaningful, lasting results with modest investments and without new
regulatory control of land. We appreciate your serious consideration of
these proposals. By giving incentives to private landowners we can help
ensure that our natural heritage is protected for future generations.
Mr. MCCORMICK. One last thing. I have been asked by our
colleague organization, Ducks Unlimited, who unfortunately
could not be here today, if I could submit for the record
written testimony on their behalf.
Chairman MCCRERY. Certainly, without objection.
Mr. MCCORMICK. Thank you.
[The statement of Ducks Unlimited follows:]
Ducks Unlimited
Memphis, Tennessee 38120
April 29, 2002
House Committee on Ways and Means
The Honorable Jim McCrery, Chairman, and
The Honorable Michael McNulty, Ranking Member
Subcommittee on Select Revenue Measures
U.S. House of Representatives
1135 Longworth House Office Building
Washington, DC 20515
Dear Representatives McCrery, McNulty, and fellow Subcommittee Members:
On behalf of our one million supporters, we believe that providing
tax relief on private lands that enjoy a protected conservation status
is an effective and efficient way for the government to foster land
conservation. Ducks Unlimited supports voluntary, incentive based
approaches to encourage landowners to secure their lands for future
generations. We have a long history of working with private and public
landowners across the country and continent to achieve and secure
conservation values on their lands.
It would be incorrect to assume that the government can accomplish
all the conservation that will be needed to assure the healthy
continuation of North America's wildlife resources by using their
agencies and funding. While that effort is extremely important using
that as the sole strategy for ensuring a conservation legacy would
unfortunately leave us short of what will be needed. Measures like
those being considered by you on April 30. The Nature Conservancy's
President Steve McCormick's testimony mentions good examples of how
your vision and leadership can help respond to this challenge. We
appreciate the leadership shown by Representatives Portman, Johnson,
Dunn and their cosponsors toward finding solutions.
To acquaint you with who we are, Ducks Unlimited was formed over 65
years ago and is the world's leading wetland and waterfowl conservation
group. We have members, supporters and conservation projects in all 50
States and have contributed directly to the conservation of over 10
million acres of habitat in North America. Despite current conservation
efforts, United States continues to lose more than 100,000 wetland
acres every year.
Ducks Unlimited asks that this letter be placed in the record of
the hearing to be held on April 30, 2002 considering proposals that
will create new tax relief for landowners that wish to protect future
use of their lands in ways that benefit wildlife conservation and hence
the American public.
Sincerely,
Scott Sutherland
Director of Governmental Affairs
Chairman MCCRERY. Our next witness is Mr. Timothy Brazell.
He is the Tax Manager for Lowe Enterprises and he is here on
behalf of the Real Estate Roundtable. Mr. Brazell?
STATEMENT OF TIMOTHY BRAZELL, TAX MANAGER, LOWE ENTERPRISES,
INC., LOS ANGELES, CALIFORNIA, AND MEMBER, REAL ESTATE
ROUNDTABLE
Mr. BRAZELL. Thank you, Mr. Chairman. I am a tax manager
for a privately held real estate development firm in Los
Angeles and it is interesting to be on the same panel with all
these conservation--it is nice to be on the same side for once.
[Laughter.]
Mr. BRAZELL. I am also here today on behalf of the Real
Estate Roundtable, which is a large organization of private
real estate owners, developers, lenders, and they are the
primary reason that I am here today.
I want to thank Mr. Weller of Illinois for sponsoring this
legislation. I am speaking of H.R. 2264. I am also happy to
hear that President Bush is in support of at least a part of
this legislation, the extension of the expensing part of it.
I think as a tax manager, I cannot speak any more
eloquently on this legislation than Mr. Weller did, but I can
kind of tell you where the rubber hits the road. One of the
things that Lowe Enterprises does is value-added development.
We are not a big company and we do not have the resources to
compete in large capital transactions. We look for infill
transactions. We look for places where we can add value. One of
those places is developments on so-called brownfields sites,
inner-city developments, other types of developments where we
can add value.
When we look at a project, we look at the after-tax return
of that project. It is very difficult to develop any kind of
real estate project. You have to do a lot of planning. You have
to get a lot of entitlements. You have to get a lot of
financing. It all starts with, can you make the project work,
and one of the things you do when you sit down and put the
numbers down, you look at the after-tax returns.
This bill, H.R. 2264, by allowing expensing of brownfield
cleanup costs, increases the after-tax return to a developer
and makes it more likely that these projects will happen. I
think we all want these projects to happen because we have seen
the sites that they are sitting at and they are not doing
anybody any good if they are sitting fallow.
So, the primary emphasis for us is to obviously get the tax
benefit. We would like to see the expansion, also, of the
definition of hazardous substances, which Ms. Olson alluded to.
There are several substances that are not included in the
current definition of hazardous substance, and that is because
the original definition, I believe, was based on the Superfund
liability cleanup legislation and was not very broad in scope.
When you look at some of the items that are not included, like
petroleum products, pesticides, lead paint, and asbestos, I
think we can all agree that these are pretty commonly known to
be hazardous substances.
If you buy a building that is on a brownfields site and you
want to recondition or you find that there is asbestos in the
building, the fact that you are not able to expense those costs
is a large cost to you. She did indicate that you could recover
these costs over the life of the building. Unfortunately, the
recovery period for commercial real estate is 40 years, so it
is a pretty small recovery period.
There is another portion to the bill, H.R. 2264, which
deals with a recapture provision. The existing section 198
forces you to recapture the ordinary expense that you have
taken when you made the cleanup costs when you sell the
project. We think that this should be repealed, as well.
You have expensed the costs but you have not increased your
basis in the property. So, when you sell the property, you are
going to have a gain, and that will be the same whether you
recapture or not. This recapture portion of the existing tax
code section simply forces you to treat it as ordinary income
instead of capital gain. This impacts primarily individuals and
partnerships, not corporations, because corporations do not
have capital gains in the same sense that we do as individuals.
So, we think that this repeal is consistent with the
legislation to continue the brownfields expensing.
In my own neighborhood in Los Angeles, we have seen a lot
of aerospace companies that have packed up and moved out as
times have changed. My own company is involved in redeveloping
a large piece of property adjacent to Los Angeles airport. We
know there is contamination there, but we have not, in 2 years,
we have not even been able to quantify the amount of the cost
yet. This provision to allow continuing expensing of
brownfields costs would definitely give us some assurance that
the tax risk will be minimized should we incur more costs than
we presently think we are going to.
In conclusion, I want to urge Congress and this
Subcommittee to specifically enact H.R. 2264, along with all of
its provisions. I think the result will be injection of new
capital into these projects, as Mr. Weller said, potentially
over 400,000 nationwide, and also benefits job creation and
improving the infrastructure and the close infill property and
not having to develop these properties on the outside, the
greenfields. Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Brazell follows:]
Statement of Timothy Brazell, Tax Manager, Lowe Enterprises, Inc., Los
Angeles, California, and Member, Real Estate Roundtable
Introduction
Mr. Chairman and Members of the Subcommittee, my name is Timothy
Brazell. I am Tax Manager of Lowe Enterprises, Inc. a Los Angeles based
real estate company with offices across the country and in Europe.
I am here today on behalf of The Real Estate Roundtable. The Real
Estate Roundtable is the vehicle through which the leaders of the real
estate industry come together to identify, analyze and advocate policy
positions on capital, finance, environmental, investment and tax
issues. Roundtable members are the Chairmen, Presidents or Chief
Executive Officers of the nation's 100 leading commercial, retail and
multifamily real estate companies and the managing directors of major
financial institutions.
The Roundtable also includes the elected leaders of Washington's
major real estate trade organizations. Collectively, Roundtable members
hold portfolios containing over 2.5 billion square feet of developed
property valued at more than $250 billion. The industry represents over
one million people involved in virtually every aspect of the real
estate business.
Joining The Real Estate Roundtable in these comments are: American
Institute of Architects; Building Owners and Managers Association
International; International Council of Shopping Centers; Mortgage
Bankers Association of America; National Association of Industrial and
Office Properties; National Association of Real Estate Investment
Trusts; National Association of Realtors; National Apartment
Association; National Multi Housing Council; The Associated General
Contractors of America.
Over the past 30 years, Lowe has developed, acquired or managed
more than $6 billion of real estate assets. Lowe currently employs over
7,000 people, with a management team of approximately 250 men and
women.
The firm operates through three wholly owned divisions:
Lowe Enterprises Investment Group directs the company's capital and
investment activities, including more than $3 billion of fiduciary
investments on behalf of nine public and private pension plans;
Lowe Enterprises Real Estate Group oversees the development and
property management of the firm's commercial and residential projects
throughout the U.S., including over 13 million square feet of
commercial assets currently under management and more than 4 million
square feet of commercial space currently being developed, and;
Lowe Hospitality Group is responsible for its hotel and resort
development and management activities.
Lowe Commercial Development Company (``LCDC'') is a joint venture
between Lowe Enterprises and Teachers Insurance Annuity Association,
which was formed in August 1999 to pursue new commercial development
opportunities. LCDC targets 100,000 to 500,000 square-foot office and
industrial development opportunities in suburban and urban locations.
Mr. Chairman, I am here today to testify in strong support of H.R.
2264, a bill to extend and expand the expensing of environmental
remediation costs. This bill is sponsored by Mr. Weller of this
Subcommittee and is cosponsored by Ways and Means Committee Members
Nancy Johnson and Bill Coyne. S. 1082 is the companion bill sponsored
by Senator Torricelli.
H.R. 2264 would do three things:
1. LMake permanent Internal Revenue Code Section 198, which
allows the expensing of brownfield clean up costs, but is
currently scheduled to sunset January 1, 2004.
2. LBroaden the definition of ``hazardous substances'' in
Section 198 so it covers petroleum, pesticides, lead paint and
asbestos contaminants.
3. LRepeal the provision in the law requiring the recapture of
the Section 198 deduction when the property is sold.
Making Section 198 Permanent
Redevelopment of existing sites and properties is an important
component of any community's development plans. The U.S. Conference of
Mayors estimates that there are over 400,000 brownfields sites across
the country. Development of these sites would help restore many
blighted areas, create jobs where unemployment is high and ease
pressure to develop beyond the fringes of communities. Small, urban
centered businesses often benefit most directly by this redevelopment.
Many brownfields properties are located in inner cities--precisely
where many businesses want to be. The economics are often right.
Critical infrastructure, including transportation, is already in place
and the workforce is in close proximity.
In 2000, the above listed real estate organizations backed the
provision in the Community Renewal and Reinvestment Act of 2000 that
removed the geographic targeting requirements of Internal Revenue Code
Section 198. This allowed developers of ``brownfields'' to expense the
clean up costs of brownfields wherever they are located. Prior to this
change, these clean up costs had to be added to the purchase price of
the land (``capitalized'') unless the contaminated site was located in
an empowerment zone or other designated low-income area.
Capitalization means there is no deduction for these expenses until
the building is sold. Since this could be several years, this increases
the overall tax burden of the redevelopment project. This higher tax
burden hinders redevelopment efforts--particularly in areas that need
them most.
We are pleased that in 2000 Congress determined that these clean up
costs should be deductible in the year they are incurred and do not
have to be capitalized. However, for revenue reasons, Congress
scheduled the expensing provision to expire in 2004. We strongly
believe clean up cost expensing for all brownfields should be extended
permanently. H.R. 2264 would do this and we urge its immediate
enactment.
Broadening the Definition of ``Hazardous Substance''
Petroleum and Pesticides
In addition to extending Section 198 permanently, we also believe
Section 198 should be amended to work more as intended by Congress. One
such amendment would be to broaden the types of hazardous substances
that are eligible for expensing treatment if cleaned up to include
petroleum, lead paint asbestos and pesticides.
The current version of IRC Section 198 relies on the term
``hazardous substance'' used in the Comprehensive Environmental
Response Compensation and Liability Act (``CERCLA'') to identify which
contaminated sites would be eligible for tax relief: Section
98(c)(1)(A)(iii) defines a ``qualified contaminated site'' as one ``at
or which there has been a release (or threat of release) or disposal of
hazardous substance.'' The term ``hazardous substance'' is defined in
Section 198(d)(1) to have the same meaning as in sections 101(14) and
102 of CERCLA. Section 198(d)(2) further states that the term
``hazardous substance'' shall not include any substance for which a
removal or remedial action is not permitted under section 104(a)(3) of
CERCLA.
At first blush, it appears logical for the drafters of Section 198
to simply borrow the term ``hazardous substance'' as used in CERCLA,
the principal Federal statute concerning environmental remediation,
rather than coming up with a new term or a new definition. But, the
problem created by this approach is that it assumes that the CERCLA
definition of the term is broad enough to encompass all types of toxic
materials that might be found at a brownfield site. That is not the
case.
When CERCLA was adopted in 1980, Congress made the decision that it
did not want the Federal Superfund used to clean up certain types
substances--such as petroleum and certain pesticides--or to be spent
cleaning up the interiors of buildings. While the decision not to
authorize the spending of Federal funds on these types of cleanups had
significance for the administration of the Superfund program, the same
rationale does not apply to a statute intended to provide a tax
incentive to private parties cleaning up brownfield properties.
When CERCLA was adopted in 1980, the term ``hazardous substances''
was expressly defined not to include ``petroleum.'' Also, although the
term ``hazardous substance'' was defined to include a variety of
substances considered toxic under various other environmental laws, it
did not include most pesticide products and a variety of other toxic
materials.
There were various reasons for the decision to exclude from the
definition of ``hazardous substance,'' these materials which are
nonetheless considered toxic. In the case of petroleum contamination,
for example, Congress made a decision to rely on other statutory
mechanisms to effectuate cleanups. In 1984, Congress adopted subtitle I
of the Resource Conservation and Recovery Act (``RCRA''), 42 U.S.C.
section 6991 et seq., which addressed the cleanup of releases from
underground storage tanks, many of which contain gasoline, fuel oil, or
other petroleum products. In 1990, Congress adopted the Oil Pollution
Act, 33 U.S.C. Section 2701 et seq., to address oil pollution into
navigable waters. Thus, the exclusion of ``petroleum'' from the CERCLA
definition of ``hazardous substances'' was not an indication that
Congress believed that petroleum pollution did not need to be cleaned
up. Petroleum simply was covered in other statutes.
Petroleum and pesticide pollution are common at brownfield sites.
Petroleum products in the forms of fuel oil, heating oil or gasoline,
were often used at these sites. Indeed, these materials were often
stored in above ground or underground tanks. Also, some of these sites
have been contaminated by migrating gasoline spills from nearby service
stations.
Pesticide residues are also frequently found at brownfield sites.
Pesticides were often used to control weeds or insects at these sites
when they were operating industrial plants. Moreover, some of these
sites may be contaminated by pesticides run-off from other properties.
While it may make sense not to authorize the use of Federal funds under
the Superfund program to clean up petroleum and pesticides, these
substances often have to be cleaned up at brownfield sites before those
properties can be returned to beneficial use. There is no reason not to
extend the same type of tax incentive to a private party who is
cleaning up petroleum waste or pesticide residues on a brownfield site
as to one who is cleaning up other types of contaminants.
Asbestos and Lead Paint
Also, Congress in adopting CERCLA in 1980 did not want EPA to spend
Superfund dollars cleaning up the interior of buildings. Accordingly,
Congress adopted section 104(a)(3)(B) of CERCLA which prohibited EPA
from cleaning up the interior of structures. Congress did not adopt
this limitation because it believed that contaminated interiors did not
require cleanups. Rather, Congress believed that the use of the limited
funds set aside for Superfund cleanups should be prioritized to deal
with contamination that had escaped into the general environment. Once
again, Congress used other Federal programs to address interior
contamination, such as the asbestos regulations under the Clean Air
Act.
IRC Section 198, as currently drafted, states that the term
``hazardous substance'' does not include a substance that EPA would not
be permitted to cleanup under section 104(a)(3) of CERCLA. Because of
the applicability of the limitation in subsection 104(a)(3)(B), no
expensing is allowed for the removal of asbestos, lead paint or other
hazardous materials inside the buildings that are located at otherwise
qualified sites. But brownfield restoration often involves the cleanup
of existing buildings on the property. Expensing of costs to clean up
buildings would give developers more reason to invest in brownfield
properties. Thus, the expensing treatment IRC section 198 should be
expanded to cover the removal of hazardous substances from buildings.
Also, as a point of clarification, the definition of lead-based
paint and lead-based paint hazards is more accurately described and
defined in ``Identification of Dangerous Levels of Lead; Final Rule 66
Fed. Reg. 1206.'' We would urge that S. 2264 be amended so that section
1(b)(2)(D) reads: any asbestos (whether friable or non-friable), oil
(as defined in section 1001 (23 of the Oil Pollution Act of 1990),
pesticide (as defined in section 2(u) of the Federal Insecticide,
Fungicide, and Rodenticide Act), radon, lead-based paint and lead-based
paint hazards as defined in Lead: Identification of Dangerous Levels of
Lead; Final Rule 66 Fed. Reg. 1206.
Recapture
Finally, another amendment that H.R. 2264 would make to Section 198
is to repeal the recapture requirement of Section 198(e). Currently,
any qualified environmental remediation expenditure expensed under
Section 198 is subject to recapture as ordinary income when the
property that was contaminated is sold or otherwise disposed of.
In effect, the amount expensed as a cleanup cost is treated as
depreciation on IRC Section 1245 property. Thus, when the property is
sold, gain to the extent of the cleanup cost deduction is treated as
ordinary income.
Example
In 2001, Owner purchased an acre of land that was
contaminated with a hazardous substance. The land cost $10,000
and Owner spent $5,000 in remediation expenses. Currently, he
is allowed to claim a current deduction for the $5,000 instead
of adding it to his basis in the land. If he sells the land for
$16,000, he would be required to treat $5,000 of his $6,000
gain ($16,000 sale proceeds less $10,000 cost) as ordinary
income taxable at 39.6%. The remaining $1,000 gain would be
taxed at 20%.
When Does Recapture Matter?
In the example above, if Owner sold the land the year after he
cleaned it up, he would receive little or no benefit from having
deducted the clean up costs. This immediate repayment to the government
leaves Owner with little tax incentive to clean up the property.
We believe that a more appropriate result would be to treat any
gain in excess of Owner's original investment/acquisition cost in the
property ($5000 in this case) as capital gain by repealing the
recapture requirement. This provides an incentive for Owner to clean up
the property without having the deduction effectively rescinded after
the improvement is made.
If the clean up expenditure were recaptured as a capital gain,
rather than as ordinary income, each party is in a stronger position.
It would allow the government to recover a portion of its tax incentive
from the developer, the developer retains a significant incentive for
bearing the expense and associated risks of the clean up activity, and
the community receives an improved property with the prospect of job
creation.
This treatment would be particularly helpful for developers who
acquire brownfield properties with the intent of reclaiming them and
then selling the improved property shortly thereafter. If a developer
were to acquire a brownfield, clean it up and restore it to a viable
market use, but then immediately lose the benefit of the clean up
deduction at the time of sale, the developer is left with little, if
any, incentive effect. If the recapture provision were repealed,
Section 198 would become far more of a redevelopment incentive than it
is now.
Conclusion
In conclusion, we urge Congress and this Committee specifically to
enact H.R. 2264. The result will be the injection of new capital into
rehabilitation projects. Many small, urban centered businesses will
benefit resulting in substantial job creation and economic
revitalization. Also, the viability of existing space will improve and
ease the pressure to develop ``greenfields'' allowing for the
preservation of more open space.
Chairman MCCRERY. Thank you, Mr. Brazell. I am told by
staff that our next witness is actually a tandem act and Mr.
Bingham and Mr. Duvernoy are going to share some time to share
their views. I will first call on Charles W. Bingham. He is a
Board Member of Evergreen Forest Trust from Seattle,
Washington. Mr. Bingham?
STATEMENT OF CHARLES W. BINGHAM, BOARD MEMBER, EVERGREEN FOREST
TRUST, SEATTLE, WASHINGTON
Mr. BINGHAM. Mr. Chairman, thank you very much for having
me and my cellmate here together. I think it is symbolic that a
tree cutter and a tree hugger could appear together at the same
time supporting the same legislation.
I am a member of the board of the Evergreen Forest Trust, a
nonprofit conservation company chartered in the State of
Washington. For the last 20 years of my professional life
before I retired, I served as Weyerhaeuser Company's Executive
Vice President responsible for forest management. I am here
urging your consideration of H.R. 1711 that you have heard
about from Congresswoman Dunn, who, incidentally, has done a
fantastic job in helping to bring this needed legislation to a
point of consideration. It will make possible the opportunity
for private nonprofit organizations to issue tax-exempt bonds
to acquire and manage forestlands for a whole array of economic
and environmental benefits.
Nearly two-thirds of the forested lands in this country are
privately owned, yet well over 90 percent of the timber harvest
comes from these lands. Even though that is true, we are still
a net importer of forest products. In some years, a third of
our lumber comes from outside of this country. One of the
reasons is the conversion of forestlands to higher-value uses.
Another reason, of course, is the increasing environmental
restraints that causes capital to move away from forestland
investment.
Because of the long-term nature of the investment, usually,
companies that are in the business to stay require about an 8
percent real rate of return on their investment in this very
important asset. If a private nonprofit organization could
issue tax-exempt bonds at roughly a 6-percent rate, we could
borrow at a capital cost rate which permits us to pay, a
private organization to pay a private owner the full market
value of that company and also provide the opportunity for
enhanced public benefits through time.
This legislation would permit bonds to be issued on behalf
of our organization. They will require a permanent conservation
easement to be placed on the property, and so there is no
misunderstanding, this property is going to be managed for
timber production. It is going to be harvested and reforested.
It is going to support family wage jobs in the forest, in the
mills. It is going to pay the same local and State land and
harvest taxes that would be paid by any other private owner.
The only source of income is the harvest of timber and the sale
of logs to retire the debt and the bonds through time.
I would urge you respectfully to consider this very, very
carefully. It is another source of needed capital to protect
these valuable resources. Gene, you are on.
[The prepared statement of Mr. Bingham follows:]
Statement of Charles W. Bingham, Board Member, Evergreen Forest Trust,
Seattle, Washington
Mr. Chairman and Members of the Subcommittee; my name is Charles W.
Bingham. I am a board member of the Evergreen Forest Trust, a nonprofit
conservation company based in Washington State. During the last 20
years of my professional life I served as the Weyerhaeuser Company's
Executive Vice President responsible for forest management.
I want to thank you for holding this important hearing today on
conservation tax incentives. It is a subject that holds great promise
to bring the forest products and environmental interests together in an
era that has most recently been characterized by deep conflicts.
I am here today to testify in strong support of H.R. 1711--The
Community Forestry and Agriculture Conservation Act of 2001. Passage of
this legislation will help private nonprofit conservation organizations
acquire and manage forestlands for an array of the environmental,
economic and social benefits they provide. More specifically, this bill
will help the Evergreen Forest Trust acquire nearly 100,000 acres of
forestland in Washington State that hold important conservation and
economic benefits and is threatened by conversion to non-forest uses.
Before I go into more detail, I would like to express my sincere
appreciation to Congresswoman Jennifer Dunn and Congressman John Tanner
for their leadership in working to secure passage of H.R. 1711. Your
tireless efforts have been recognized by all of us who care so much
about this particular transaction and the broader need addressed in the
bill. I would also like to thank the other original cosponsors of this
bill--Congressmen McDermott, McInnis, Herger and Matsui--as well as the
rest of the Washington, Oregon and Idaho delegations for their support.
Forest Products Industry
Nearly 400 million acres--nearly 65%--of our nation's forests are
privately owned, yet well over 90% of the timber harvest originates
from private lands. These forestlands are valued at roughly $300
billion and, therefore, are one of the largest agricultural commodities
in the nation.
Even with these impressive economic statistics, the United States
is a large importer of forest products. For example, up to one third of
the national softwood lumber used each year is imported from Canada.
While there are many macro and micro-economic reasons for this, some in
the industry believe that one factor we must recognize is the erosion
of working forestlands that are available to grow trees in a cost
efficient manner. Thus, we must maintain a critical mass of working
forestlands so that we can remain competitive with other producers.
Changes in Industrial Ownership
Over the last 15 years the forest products industry has seen
important changes cause by restructuring, increased value of non-forest
uses and environmental regulations. Collectively these changes have
resulted in almost one quarter of the industrial forest land base
changing hands in the 1990s.
Real-Estate Conversion--Forest fragmentation and conversion to non-
forest uses is taking place high rates. For example, according to
American Forests, a national conservation group, 107 thousand acres or
50 percent of the greater Seattle, Washington area has been converted
to non-forest uses since 1973. And such conversion is not just taking
place in urban areas. If you travel to the Bitteroot Valley in Montana,
Bend, Oregon or many parts of the southeast you will find that higher
financial values are increasingly being placed on forests' real estate
value than on their timber value. In other words, especially around
urban areas and rural recreational acres, forests do not compete with
real estate or with annual agriculture on a per acre basis.
Environmental Regulations--Despite their tremendous public benefits
that result from the nation's environmental laws, it is a fact that
local, state and Federal regulations can significantly impact the cost
of acquiring and managing forestlands. For example, the citizens of
Washington State and the nation generally agree we should save salmon.
There is, however, a cost to forestland owners for doing so. In
Washington State new forest practice rules directly and indirectly
require that that 10% to 15% of a landowner's land must be taken out of
production to protect riparian areas. In some cases, this has the
impact of making once profitable forest operations unprofitable. Thus,
forestland owners, especially industrial forestland owners, will look
to monetize their assets by selling it off to other timber investors,
developers or those who want to subdivide for recreational properties.
Legislative Need
Notwithstanding the trends outlined above, tens of millions of
acres of commercial forestlands are being and will continue to be
responsibly managed by industrial and non-industrial landowners. Yet,
because of the trends outlined above we still have tens of thousand of
acres where unplanned urban sprawl is forcing conversion or where
regulation or the needs for public benefits exceed what a private owner
can afford. What we need is a financial vehicle that makes less
intensive forestry pay and the Community Forestry and Agriculture
Conservation Act does just that.
Financial--Because of the long-term nature of a forestland
investment (generally 30 to 60 years) the real rate of interest on
borrowed capital is the greatest single variable in the price one can
afford in acquiring and re-investing in a forest asset. While
fluctuations occur, such capital cost are generally around 8%. Applying
tax-exempt rates at 6% could provide qualified nonprofit conservation
organizations with a capital cost that allows them to buy forestland,
assure that public environmental and economic benefits are maintained
and enhanced and allow property rights to be preserved. In addition,
the tax-exempt market is very large and established. Based on our
discussions with underwriting companies there is a financial market for
the type of conservation bonds we must access in order to purchase the
property.
Stop the Conflict--We are all acutely aware of the conflicts over
the use of our great National Forest lands. We are still struggling to
find an acceptable balance between commercial harvesting and
preservation of these lands. On private lands, so far, we have either
set-aside from harvest relatively small parcels of private forestlands
or we have devised regulations that would permit harvest at reduced
levels but within the economic parameters of a long-term forest
investor.
Legislative Provision
The Community Forestry and Agriculture Conservation Act will allow
tax-exempt revenue bonds to be issued on behalf of a private nonprofit
conservation organization to acquire a renewable resource. Such bonds
will require that a permanent conservation easement that complies with
Section 170(h)(4)(A) be placed on the property and that environmental
laws are exceeded. Thus, Mr. Chairman and Members of the Subcommittee,
the Community Forestry and Agriculture Conservation Act will allow me
as a strong advocate for private commercial forestry to join with
strong advocates of the environment to do two very important things:
First, when we finally have the financial wherewithal
to work together on a goal we both strongly support--acquiring
large-scale forestlands to keep them forested.
Second, we will be forced--in a very positive way--to
make joint economic and environmental decisions on how those
forestlands are managed.
These actions will be afforded by our private non-profit
conservation organization's ability to, in certain situations:
Borrow at a lower cost of capital so that it can
acquire a forest property at its current market value,
Operate the forest while providing a higher level of
public benefit, including but not limited to wider stream side
buffers, alternative silviculture for fish and wildlife
habitat, longer holding periods for trees to store carbon, and
more thinning and less clear cutting.
Also to be clear, our forest will be managed. When I joined this
board I said I would do so only if we recognized that this state has
some of the most productive forestland in the Nation. I want to be a
part of something that shows the positive benefits of active forest
management. My Evergreen Forest Trust colleagues agree. The Evergreen
Forest at Snoqualmie will be managed, it will be harvested and it will
be reforested. There will continue to be family wage jobs in the forest
and there will be raw material to sell to converting plants to support
those jobs as well. The owner will pay the same local and state land
and harvest taxes as that of any other private forestland property
owner. These are issues that I know are very important to Members of
this Committee not only in the Northwest but also around the Nation.
These decisions will be made within economic parameters because all
of the board directors will have 40 +/- years of debt to pay back. The
only source of income to pay the dividends and to retire the bonds will
come from harvesting trees. Whatever the background of the directors,
whether in commercial forest management or preservation of forests,
they will have to come face to face in the running the operation in the
boardroom and not with sound bites on television. They will have to
balance the terms of the easement on the property which in a very real
and beneficial way requires a high level of public benefit with the
realities of the commodity market for logs, the need for cash reserves,
interest payments, and bond refinancing or retirement.
Mr. Chairman and members of the Subcommittee, in my 35 year career
in the forest products industry I have yet to see a private market
vehicle that truly brings industry and environmental interests together
in support of both the economic and environmental benefits forests
provide.
In Washington State we have an opportunity to show the Nation that
jobs and the environment can be produced. And we don't have much time.
Our purchase and sale agreement with the seller is contingent on a tax
clarification. I would again, respectfully request that you seek prompt
passage of H.R. 1711--The Community Forestry and Agriculture
Conservation Act of 2001.
Thank you for this opportunity to appear before your Committee
today and I would be pleased to answer any questions you may have.
Chairman MCCRERY. Mr. Eugene G. Duvernoy, President of
Cascade Land Conservancy and also from Seattle, Washington. Mr.
Duvernoy?
STATEMENT OF EUGENE G. DUVERNOY, BOARD MEMBER, EVERGREEN FOREST
TRUST, SEATTLE, WASHINGTON, AND PRESIDENT, CASCADE LAND
CONSERVANCY, SEATTLE, WASHINGTON
Mr. DUVERNOY. Thank you, Mr. Chairman, Subcommittee. I
suppose I must be the tree hugger component of this tandem
presentation.
In any event, I am here to voice strong support for H.R.
1711 and I want to thank Congresswoman Jennifer Dunn and
Congressman John Tanner for their leadership on this
legislation. I would also like to thank Congressmen McDermott,
Herger, Matsui, and McInnis for their original sponsorship and
acknowledge the legislation's many other cosponsors.
I want to touch base quickly on the problem that H.R. 1711
addresses, the solution it presents, and then the benefits it
provides.
First, the problem. In recent years, as Ms. Dunn correctly
pointed out, differing ideas about how forestland should be
used and managed have polarized our Northwest communities. On
private timberlands, this rancorous debate has centered on
clear cutting, water quality, and the protection of salmon
habitat.
Now, in the Puget Sound basin, the problem has become even
more complex with the rapid conversion of forestland to other
uses. As these lands are converted and the debate about how to
best manage a resource, either for timber or for the
environment, is silenced and replaced by a community's
recognition of a loss, a very significant loss of landscape
that provided a multitude of environmental, recreational, and
economic benefits.
While there is growing consensus finally on the importance
of keeping land in forests, it is still a fact that, too often,
environmentalists and owners of private forestlands still sit
at opposite sides of the table. I think as you see this panel
here today, it is the demonstration that the conservation
community is working with private landowners to forge solutions
to this very vexing problem and creating the foundation of
trust that has led to today's joint appearance by Mr. Bingham
and me. Now, H.R. 1711 is a hallmark of this collaborative
effort.
I have just briefly touched on the problem. In order to
illustrate the solution provided by H.R. 1711 to this problem,
I am going to focus on the transaction that, again,
Congresswoman Dunn mentioned that has great promise to the
Puget Sound community.
Puget Sound community leaders with backgrounds in business,
timber management, environment, and government have joined to
create the Evergreen Forest Trust. In January of this year, the
trust signed an agreement with the Weyerhaeuser Company to
purchase the 100,000-acre Snoqualmie Tree Farm, which is a
scant distance from Seattle, a very vibrant and growing
metropolitan area. In collaboration with the Cascade Land
Conservancy, the Evergreen Forest Trust has developed a very
strong statement of principles that will guarantee in
perpetuity the careful stewardship of this property as it
produces wood fiber. The trust has also worked with forestry
and financial advisors to ensure a harvest regime adequate to
fulfill the debt obligation it will assume to finance the
transaction.
Now, how did we provide both these significant benefits
while also meeting our business obligations? To do that, the
trust proposes to finance the purchase of property by selling a
tax-exempt bond. The bond would be repaid through the revenue
stream expected from the harvest flow from the timber
operations. Consequently, this transaction hinges on the
clarification of the tax code provided by H.R. 1711 that
clearly authorizes this sort of financing.
Now, I have touched on the problem. I have mentioned the
elegant solution provided by H.R. 1711. Let me conclude with an
overview of its remarkable benefits.
By establishing a mechanism for the forest to pay for its
own conservation, which is remarkable, this transaction and
H.R. 1711 leverages the very small public cost of tax-exempt
financing and produces a very large public benefit. Retaining
this vast landscape and forest will sustain its air and water
quality benefits and provide recreational opportunities. The
forest will continue to support herds of elk and runs of
salmon, and as Mr. Bingham said, at the same time, the working
forest will also provide local tax revenues and jobs critical
to forest-dependent communities.
H.R. 1711 demonstrates that we can marry sound
environmental stewardship and business acumen to secure
meaningful conservation and the continued productivity of
forestlands.
I want to thank you for the opportunity to testify in front
of this Committee and I respectfully urge your passage of H.R.
1711 with the many other fine bills discussed today. Thank you
very much.
[The prepared statement of Mr. Duvernoy follows:]
Statement of Eugene G. Duvernoy, Board Member, Evergreen Forest Trust,
Seattle, Washington, and President, Cascade Land Conservancy, Seattle,
Washington
1. Introduction
Mr. Chairman and Members of the subcommittee, my name is Eugene
Duvernoy. I am the President of Cascade Land Conservancy operating in
the east-central Puget Sound area of Washington. I also join Charley
Bingham as a board member of Evergreen Forest Trust. Both these
organizations are private, nonprofit Washington corporations. Cascade
Land Conservancy conducts voluntary, cutting edge transactions to
conserve critical landscapes in King, Pierce and Snohomish counties.
Evergreen Forest Trust is a separate, but related organization that was
created to acquire, manage, and protect Washington's forestland.
I am here to voice strong support for H.R. 1711, The Community
Forestry and Agriculture Conservation Act of 2001. This bill will allow
nonprofit conservation companies to acquire working forestlands in
order to advance the conservation, economic and social benefits these
lands provide our local communities.
I want to thank Congresswoman Jennifer Dunn and Congressman John
Tanner for their leadership on this legislation. I would also like to
thank Congressmen McDermott, Herger, Matsui, and McInnis for their
original sponsorship of this effort. And, of course, we would like to
thank the legislation's other co-sponsors for their support of our
efforts. It is a credit to this concept that there is such broad bi-
partisan support.
2. The Problem
Early pioneers saw the Pacific Northwest as a land of abundant
natural resources including what seemed at the time an endless supply
of timber. In recent years, a growing recognition of the limits of our
natural assets has created conflicts among groups with differing ideas
about how these forest lands should be used and managed, polarizing our
Northwest communities.
On private timberlands, this rancorous debate has centered on
clearcutting, water quality and protection of salmon stream habitat. In
the Puget Sound Basin the problem has appeared to become even more
complex with the rapid conversion of forestland to other uses. This new
threat particularly looms over the working forests along the foothills
of the Cascade Mountains. These lands are among the most productive
timber lands in the world and have provided clean water wildlife
habitat and recreation for generations of citizens. As these lands are
converted to urban uses the debate about how to best manage a resource
for timber and environmental benefit is replaced by the general
community recognition of the loss of a once vibrant landscape that
provided a multitude of benefits to our citizens.
While there is a growing consensus on the importance of keeping the
foothills in forest, too often environmentalists and owners of private
forestland still sit at opposite ends of the table. One side will focus
on the stark ecological concerns while the other side emphasizes the
production requirements for the property. Fortunately, the conservation
community, working with progressive private landowners, is forging
solutions to this vexing problem; creating the foundation of trust that
has lead to today's joint appearance by Mr. Bingham and me. Earlier
cooperative experiments included the negotiations the Conservancy
completed in 2001 involving the City of Snoqualmie, King County,
Weyerhaeuser Real Estate Company, and Puget Western, Inc. to create the
Snoqualmie Preservation Initiative. The Initiative secured the
permanent preservation of the 145-acre forested viewshed directly
behind Snoqualmie Falls, the state's second-most visited tourist site
and has also secured the future of a nearby 9,000 acre landscape as an
active tree farm. Importantly the Initiative also paved the way for a
significant new community within the City of Snoqualmie allowing needed
growth to flourish where it can be supported by existing infrastructure
and services.
3. The Solution for One Critical Property that can be Applied
Nationally
Over the years, these strong relationships the conservation
community has established with landowners, as illustrated above, has
opened the door to projects of a scale that can truly serve our local
communities and enhance the region's ecosystems and landscapes. H.R.
1711 is the hallmark of this collaborative effort.
After a feasibility study demonstrated the viability of revenue-
backed forestry bonds, community leaders with backgrounds in business,
finance, timber, academia, the environment, and government worked
together to create the Evergreen Forest Trust (``the Trust''). The
Trust's board of directors include B. Gerald Johnson, the board's
president and managing attorney at Preston Gates Ellis LLP, Charley
Bingham, retired Executive Vice President for Weyerhaeuser, King County
council members Rob McKenna and Larry Phillips, environmental activist
Bill Pope, retired University of Washington Dean of Forestry David
Thorud, civic leader and Cascade Land Conservancy Chair Carol James,
and myself.
In January of 2002, the Trust signed a purchase and sale agreement
with Weyerhaeuser Company to acquire the 100,000-acre Snoqualmie Tree
Farm (``the Tree Farm''). In collaboration with Cascade Land
Conservancy, the Trust developed a statement of principles for a
conservation easement to be placed on the land which guarantees the
careful stewardship of the property in perpetuity. The Trust also
worked with US Forest Capital, a forestry and financial services
company, and The Campbell Group, a timber investment and management
firm, to meet our conservation objectives for the property while
carefully planning its harvest regime in order to fulfill the debt
obligation it will assume in order to purchase the Tree Farm.
In order to provide the significant public benefits secured by the
Conservation Easement and meet its business obligations, the Trust
proposes to purchase the property with a tax-exempt bond and repay the
bond through revenue from forest operations. Consequently, this
agreement hinges on two contingencies: tax clarification, which we are
here to discuss today, and the financial logistics of a bond sale in
excess of $200 million. With your support, the sale of the Tree Farm
will be the first application of the tax provisions laid out in H.R.
1711.
4. The Benefits of H.R. 1711
By establishing a mechanism for the forest to pay for its own
conservation, this transaction leverages the small public cost of tax-
exempt financing to generate a very large public benefit. Retaining
this vast but close-to-home landscape in forest will maintain valuable
open space that contributes to air and water quality and provides
recreational opportunities. The habitat values of the forest will be
maintained and enhanced, supporting herds of elk and runs of salmon,
and supplementing forest conservation efforts on adjacent state and
federal lands. At the same time, a working forest will maintain the
forest tax base and provide jobs that are critical to forest-dependent
communities over the long term.
The model created by Evergreen Forest Trust is a vehicle for
bringing environmentalists and industry together to protect working
forests. It will be a critical tool to secure meaningful conservation
and the continued productivity of forestlands across our county. The
benefits to our citizens indeed will be great and importantly will
require neither public land ownership nor significant public
expenditures. H.R. 1711 would make this opportunity available not only
in the Pacific Northwest but across the country. I respectfully request
that you pass H.R. 1711, The Community Forestry and Agriculture
Conservation Act of 2001. Thank you for the opportunity to appear
before the Subcommittee.
Chairman MCCRERY. Thank you, Mr. Duvernoy. Now, we will
hear from Mr. Rand Wentworth, the President of the Land Trust
Alliance. Mr. Wentworth, it does not say where you are from.
Perhaps you will tell us that when you start. Please share with
us your testimony.
STATEMENT OF RAND WENTWORTH, PRESIDENT, LAND TRUST ALLIANCE
Mr. WENTWORTH. Another from Atlanta, Georgia. Thank you for
the opportunity to testify today. I am President of the Land
Trust Alliance, the national organization representing 1,263
land trusts in every State of this country. These are
nonprofit, private conservation organizations that work with
private landowners who voluntarily protect their land as farms,
forests, wildlife habitat, parks, and trails. They have over
one million members and have protected over six million acres
throughout the United States. With two million acres of land
being developed each year in America, we need to accelerate the
pace of conservation if we hope to leave our children the best
of our American landscape.
Now, for many years, I, like Representative Isakson, was
President of a commercial real estate development company in
Atlanta and I appreciate the many economic benefits of growth.
In that role, I have also seen how land conservation actually
enhances economic development and real estate values. In many
cases, keeping land in agriculture, forestry, protecting scenic
beauty is the best thing we can do for our economy and our
communities.
Many landowners that we work with are willing to protect
their land for conservation purposes, but they need help. We,
the Land Trust Alliance, strongly endorse H.R. 1309 introduced
by Representative Johnson, H.R. 2290 introduced by
Representative Portman, H.R. 1711 introduced by Representative
Dunn, and H.R. 2279, introduced by Representative Hefley. Each
of these bills would provide a careful measure of such help.
They are complementary bills, each addressing a different set
of landowners and a different approach to land conservation.
I also want to thank my fellow Georgian, Representative
Isakson, for introducing an even more far-reaching proposal in
H.R. 882. He has seen, as I have, the astounding loss of
greenspace around Atlanta in the past two decades and has
sought to find a mechanism bold enough to meet the challenge,
and I hope that this Committee will look favorably at those
kind of bold and fresh ideas.
Now, since others have spoken eloquently on the other
bills, I want to specifically address my comments to
Representative Johnson's bill, H.R. 1309. This bill will
encourage some truly extraordinary charitable donations in the
public interest.
Currently, the deduction allowed for conservation
contribution under section 170(h) is limited to no more than 30
percent of a taxpayer's adjusted gross income and can be
carried forward for no more than 5 years. The current limits
mean that a landowner of modest means gets next to no reward
for making an extraordinary donation. A rancher, for example,
earning $50,000 a year may own land with development rights
worth more than $1 million. Yet, because of the rancher's lower
income, the current rules mean that the most they could deduct
is $90,000, no matter how valuable their gift to the public
interest.
Section 1 of H.R. 1309 would allow the donors of qualifying
conservation donations to deduct up to 50 percent of their
adjusted gross income for as many years as it might take for
them to deduct the entire dollar amount. Now, obviously the tax
benefits spread out over 20 years or more are nowhere near as
valuable as those taken all at once, but by increasing the
percentage of the adjusted gross income, a taxpayer may deduct
for a conservation gift to 50 percent, which is the same
percentage limit the law currently allows for cash donations,
this will allow taxpayers an incentive more closely related to
the value of their extraordinary donations.
I have been asked by 50 land trusts from Connecticut to
present to Mrs. Johnson their letters in support of her
legislation, which I have attached for the record. 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 and adopt
incentives included in H.R. 2279. This bill would allow
taxpayers whose income is primarily from farming and ranching
to deduct up to 100 percent of their adjusted gross income in
any 1 year for up to 15 years. Are we asking too much for these
donors? The average farmer, according to the Department of
Agriculture, has an income of only $34,000 a year and pays less
than $3,000 a year in income tax. Allowing them full tax relief
is the only way they will get a meaningful incentive to make a
gift for conservation.
The tax incentives in the bills I have talked about will
produce tangible, visible, permanent results. You will see
those results in working farms, natural beauty, clean water,
and livable communities throughout America. Thank you.
[The prepared statement of Mr. Wentworth follows:]
Statement of Rand Wentworth, President, Land Trust Alliance
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.
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\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).
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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.
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\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).
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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 U.S. 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.
Chairman McCRERY. Thank you, Mr. Wentworth. Our last
witness for the afternoon is Mr. Jim DeCosmo, who is Vice
President for Forests for Temple-Inland Forests Products
Corporation, Diboll, Texas.
STATEMENT OF JIM DECOSMO, VICE PRESIDENT-FOREST, TEMPLE-INLAND
FORESTS PRODUCTS CORPORATION, DIBOLL, TEXAS, ON BEHALF OF THE
AMERICAN FOREST & PAPER ASSOCIATION
Mr. DECOSMO. That is correct.
Chairman MCCRERY. That is somewhere between Shreveport and
Houston, is it not?
Mr. DECOSMO. That is pretty close.
Chairman MCCRERY. Okay.
Mr. DECOSMO. It is about an hour and a half north of
Houston, and I must also say that I was recently almost from
Atlanta.
[Laughter.]
Chairman MCCRERY. Well, welcome to Washington.
Mr. DECOSMO. It is good to be here. I lived in Rome,
Georgia, just outside Atlanta.
Thank you, Mr. Chairman and Members of the Subcommittee,
for this opportunity to testify with you today. I am
responsible for 2.1 million acres of forestland in Texas and
Louisiana and Georgia and Alabama. We have approximately
350,000 acres of timberland in North Georgia and I know exactly
what the other panel members and the witnesses are testifying
to with regard to development and growth and expansion of these
metropolitan areas.
I am here on behalf of the American Forest and Paper
Association, which represents 240 member companies and over
nine million non-industrial private landowners. I am here to
strongly endorse the Reforestation Tax Act, H.R. 1581, which I
contend has three primary and significant objectives and
benefits.
First, it greatly supports the continued conservation and
improvement of forest practices throughout the United States,
and in turn, that leads to greater forest health.
Second, it provides incentives for corporations as well as
large landowners to continue to hold timberland and manage it
for the long term.
Third, it levels the playingfield for corporate and large
landowners with regards to the effective tax rate when you look
at our taxes with our competitors globally.
The Reforestation Tax Act has primarily two components. The
first is an adjustment for gross income at the time of timber
sales for inflation. Generally, when we make investments in
timberland, it is in year zero or one or at the time of the
establishment and timber revenues are generally not realized
until 25, possibly 30, 50 years out. As you can imagine, the
basis in cost considered in respect to the revenues after
inflation create a fairly drastic and gross margin, which
oftentimes inflates the taxes.
The second part of it is full amortization of reforestation
costs. The current law enables those who invest up to $10,000 a
year a 10-percent tax credit on reforestation expenses and the
balance of that to be amortized over 7 years. To put $10,000
into perspective, that will regenerate about 50 acres a year.
Temple-Inland regenerates close to 50,000 acres a year, so it
is of some benefit, but not much.
Of course, the logical question is how does the
Reforestation Tax Act provide the objectives and the benefits
that I have stated? Specifically with regards to improving
conservation and conservation practices, I think it is
important to note and to say that conservation has costs
associated with it. We manage much of our land, many of our
acres strictly for conservation practices and there is a
management cost associated with it.
I will also say that the greatest cost is an opportunity
cost. Previous testimony said that, typically, forest investors
look for an 8-percent real return on a market value, which
means that timberland should grow somewhere around $60 an acre
per year in value. Oftentimes, conservation acres do not grow
any value and may even be a net cost, so this tax act would
help us to even do a better job of managing for these
conservation acres and would certainly provide some tax relief.
This tax relief would also provide some relief pressure in
the incentive for landowners to sell property, which would be a
significant benefit. When we sell property into the open
market, we end up with further development, greater fracture,
and even more fragmentation of these assets in these forested
ecosystems.
Recently, a report was issued by the U.S. Forest Service
along with other universities called the Southern Forest
Resource Assessment. It identified that in the recent past,
there were 12 million acres in the South that had been
converted to development and other land uses for forest and the
forecast is another 12 million acres to be converted by the
year 2020.
You will also notice that if you look at other trends in
the past, corporations have divested over nine million acres of
timberland in the last 4 years and that has been divested to
entities who primarily have tax structures that are far
beneficial to the current tax rates for corporations. I would
contend the corporations are good stewards. If you look at the
role that we play and investments that we make in research and
development, I would say that many of the new landowners and
forest owners are not filling those footsteps.
With regard to leveling the playingfield,
PricewaterhouseCoopers conducted a study looking at global tax
rates. It was completed in January 2001. Effective tax rates
vary from 7 percent to 55 percent. Unfortunately, we are the
latter. The Reforestation Tax Act is targeted to bring us to
the midpoint, somewhere between 25 to 28 percent.
Just in closing, I want to say that the Reforestation Tax
Act is endorsed by the forest products industry, our non-
industrial private landowners, labor unions, and the
Conservation Fund.
On behalf of American Forest & Paper Association and the
previously mentioned supporters, I just want to strongly
encourage you, the Subcommittee, to include the tax act in any
legislation moving to the full Committee that deals with sprawl
or conservation tax issues. Our forests and our environment
will be healthier as a result of your support. I thank you for
this opportunity to testify.
Chairman MCCRERY. Thank you, Mr. DeCosmo.
Mr. DECOSMO. You are welcome.
[The prepared statement of Mr. DeCosmo follows:]
Statement of Jim DeCosmo, Vice President-Forest, Temple-Inland Forest
Products Corporation, on behalf of the American Forest & Paper
Association
Good Afternoon Mr. Chairman and Members of the Subcommittee. My
name is Jim DeCosmo. I am Vice President-Forest for Temple-Inland
Forest Products Corporation. Temple-Inland is a forest products company
with significant timberland holdings in Louisiana, Texas, Alabama and
Georgia. I am testifying today on behalf of the American Forest and
Paper Association (AF&PA). AF&PA represents more than 240 member
companies and related associations that engage in or represent the
manufacturers of pulp, paper, paperboard and wood products, as well as
the growers and harvesters of this nation's forest resources. America's
forest and paper industry ranges from state-of-the-art paper mills to
small, family-owned sawmills and some 9 million individual woodlot
owners.
The U.S. forest products industry is vital to the nation's economy,
providing approximately 7 percent of the U.S. manufacturing output,
while ranking among the top ten manufacturing employers in 42 states.
More than 1.5 million people are employed by the forest products
industry with an estimated annual payroll of $64 billion. Sales of the
paper and forest products industry top $250 billion annually in the
U.S. and export markets, making us the world's largest producer of
forest products. We are also a natural resource based industry
responsible for planting, growing and harvesting trees, a basic
renewable resource.
I would like to commend the Subcommittee for holding this hearing
today on tax issues relating to urban sprawl and conservation. It could
not be timelier.
In May 1999, the Southern Forest Resource Assessment (SFRA) was
initiated to examine the status, trends and potential future of
southern forests. The results of the SFRA study, led by the U.S. Forest
Service, were released this past November. The conclusion was that
southern forests are healthy and are being sustainably managed; though
continued urban growth presents a substantial threat to the condition,
health and long-term sustainability of these forests. The report
confirmed earlier findings that urban growth is the primary cause of
forest loss in the South. Between 1982 and 1997, developed land in the
South increased by 45%, representing 12 million acres of forest lost
forever to development. The SFRA report concluded that another 12
million acres could be sold and developed by 2020.
The report goes on to underscore the important role the tax system
can play in keeping land in forest cover. There are two critical ways
this can be accomplished that AF&PA urges your committee to consider.
They include the treatment of timber gain and how reforestation costs
are treated under the tax code.
AF&PA agrees with the SFRA conclusion that additional tax
incentives are needed to encourage landowners to hold onto their forest
land rather than be forced to sell to developers, thus worsening urban
sprawl. Another reason for providing additional tax incentives for
owners of timber is because the current tax laws governing the forest
products industry in the U.S. place us at a great disadvantage vis-a-
vis our international competitors. A 2001 analysis by
PricewaterhouseCoopers found that foreign-based competitors (in
Indonesia, Brazil, Finland, Japan, Germany and Canada) of U.S. forest
products companies enjoy effective tax rates as low as 8%. U.S.-based
companies, by comparison, face an effective tax rate of 55%--25
percentage points higher than the average for the other competing
nations and among the worst in the world. Similarly, non-corporate U.S.
investment in timber is treated among the worst of our foreign-based
competitors.
We do not believe this situation was intended by Congress. Rather
it is more likely the result of years of tax policy changes without an
analysis of the accumulated effect on either urban sprawl or
international competitiveness. Unfortunately, the current rules
discourage job creation in the U.S., promote imports and undercut the
high environmental standards that the U.S. practices. Congress can go a
long way toward improving this situation by enacting ``The
Reforestation Tax Act of 2001'' (H.R. 1581) introduced by Rep. Jennifer
Dunn, a Member of the Ways and Means Committee, and Rep. Sanford
Bishop. This bipartisan legislation currently has 80 cosponsors in the
House and 15 members of the Ways and Means Committee. Mr. Chairman, we
also note that you are a cosponsor of this legislation, and we are
grateful for your support.
The Reforestation Tax Act (RTA) recognizes the unique nature of
timber and the overwhelming risks associated with an investment in this
essential natural asset and attempts to place the industry in a more
equal position with its international competitors. Trees can take
anywhere from 25 to 75 years to grow to maturity. Fire, disease,
weather--events that are unpredictable and uninsurable--can wipe out
acres of trees at any time during the long, risky growing period. Good
management practices can help mitigate some of nature's vagaries, but
are costly over the entire growing period. The RTA does two things to
remove disincentives for private investment in our forests and promote
reforestation efforts: reduces the tax paid on timber for individuals
and corporations; and it improves the tax treatment of reforestation
expenses.
Specifically, the bill provides a sliding scale reduction in the
amount of taxable gain based on the number of years the asset is held--
3 percent per year, up to a maximum reduction of 50 percent. While this
provision does not fully compensate for the negative tax impact of
inflation, it does provide a significant incentive for landowners not
only to re-plant their land after a timber harvest, but to keep their
land in forest cover for generations to come.
Under current law, the first $10,000 of reforestation expenses are
eligible for a 10 percent tax credit and can be amortized over 7 years.
Reforestation expenses are the initial expenses required to establish a
new stand of trees including expenses for site preparation, the cost of
seedlings, and the labor costs required to plant the seedlings. Because
amounts over $10,000 may not be amortized and do not qualify for the
credit, most reforestation expenses are not recoverable until the
timber is harvested. The RTA removes the $10,000 cap and allows all
reforestation expenses to qualify for the tax credit and to be
amortized over a 5-year period. This change in the law will provide a
strong incentive for increased reforestation by eliminating the
arbitrary cap on such expenses.
The RTA is enthusiastically endorsed by all elements of the forest
products industry--individual landowners, large and medium sized forest
and paper companies and our labor unions. In addition, the RTA has the
support of the Conservation Fund since the bill directly encourages
replanting resulting in not only reduced sprawl but also an improved
environment due to trees storing carbon dioxide that would otherwise be
released into the atmosphere.
A variation of the RTA was included in the 1999 Omnibus Tax Bill
that passed Congress but was vetoed by President Clinton. Likewise, it
was included in the Minimum Wage and Small Business Tax Relief Bill
passed by the House in 2000.
AF&PA strongly urges the Subcommittee to include the RTA in any
legislation you move to the full Committee dealing with sprawl/
conservation tax issues. The RTA has the additional benefits of being
bipartisan, helps our industry's competitive position, protects U.S.
companies and the jobs they provide and promotes sustainable forestry
in an environmental friendly way.
Thank you, Mr. Chairman, for this opportunity to testify, and I
would be happy to answer any questions.
Chairman MCCRERY. First of all, would you run by me one
more time the 5 percent, the 55 percent tax rate. Where did
that come from?
Mr. DECOSMO. PricewaterhouseCoopers conducted a study for
American Forest & Paper Association to look at the effective
tax rates of corporations that own timberland across the globe.
They benchmarked six other countries and the effective tax
rates varied from the low of 7 percent to the high of 55
percent, and as I said, it is the United States who has a 55
percent effective tax rate. Actually, it is two taxations. One
is at the corporate level and one is at the individual level
that gets you to the 55 percent. If needed, that study is
certainly available.
Chairman MCCRERY. Okay. So, it is not just Temple-Inland,
it is American corporations doing business here----
Mr. DECOSMO. Absolutely.
Chairman McCRERY. That are engaged in the forestry
business.
Mr. DECOSMO. Absolutely, and that is probably the real
driver in the number that I shared with you, with corporations
divesting nine million acres in the last 4 years.
Chairman MCCRERY. Okay. Thank you. Mr. Duvernoy, would you
try to summarize for me quickly the goal of Ms. Dunn's
legislation.
Mr. DUVERNOY. Yes, I will. The goal of Ms. Dunn's
legislation is to allow nonprofit corporations to access
capital markets. It does that through allowing nonprofit
corporations to issue tax-exempt debt. Now, the obligation of
the nonprofit corporation in response for issuing tax-exempt
debt is to provide permanent public benefit in its conduct of
its timber operations on the land, and the way this legislation
requires that benefit to be permanent is by the placement of a
conservation easement, if you will, on that property that then
will be held by another conservation organization.
Chairman MCCRERY. You went on to say in your testimony that
the land that was purchased, or for which the bonds would be
issued, would be managed for timber production and it was the
sale of the timber that would pay the bonds, is that correct?
Mr. DUVERNOY. That is correct. We fully anticipate the
property will be managed for timber production. The public
benefit that would emanate from this in this instance would be
the fact that the development potential of that property would
be retired and the care and stewardship of this particular
property would exceed State, and the State does a very good
job, but exceed State standards. We can afford to manage this
property for timber, but at a level higher than we could
otherwise.
Chairman MCCRERY. So, in other words, the legislation would
encourage timberland to stay timberland?
Mr. DUVERNOY. That is correct. In the face of a very
difficult market to manage for timber, particularly on the
urban fringe, this vehicle will allow us to keep this land in
timber production and to keep jobs and that local tax base so
important to the local community.
Chairman MCCRERY. So, would you say that the legislation
that Mr. DeCosmo talked about, the reforestation tax credits
and so forth, and the legislation that you are espousing, Ms.
Dunn's, have much the same goal?
Mr. DUVERNOY. If I may, Mr. Chairman, I think a lot of this
legislation, if you take it together, works very
synergistically to create a set of very powerful tools to
conserve forestland.
Chairman MCCRERY. Thank you. I think it is interesting that
we have folks from what some might call the environmental
community speaking favorably about corporate America. Maybe we
could do more of this and actually make more progress.
[Laughter.]
Chairman MCCRERY. So, it is good that you all have done
that today. Mr. McCormick, since I know your organization has a
lot of experience in facilitating through the private sector,
and sometimes using the public sector, as well, the
preservation and conservation of lands, I want you to address
the fact that you cannot make people sell their land, you can
lead a horse to water but you cannot make him drink. How do we
then accomplish our goals without government telling people
what they can and cannot do with their own land?
Mr. MCCORMICK. That is a very good question and the Nature
Conservancy, as you well know, does work in a very
collaborative fashion with private landowners, and for that
matter, with industry. As I suggested in my testimony, we very
much believe in the free market system and, therefore, do not
believe in any form of coercion. The Nature Conservancy does
not attempt to tell landowners what they should or should not
do with their property, but engage, as the land trust community
does at large, in arms'-length transactions.
A very attractive inducement for that would be for those
landowners, particularly in rural communities, who have very
few financial assets, an attractive inducement would be the
opportunity to have preferential treatment for the capital
gains that they derive on those sales, largely because, again,
these are multi-generational landowners, for the most part,
very appreciated values on those properties, frankly, often
reflecting the development potential. So, there is an enormous
burden on the tax and preferential treatment for sale for
conservation purpose would be a very, very attractive
inducement and not a coercion at all.
Chairman MCCRERY. Thank you. Mr. Brazell, there was some,
not confusion, I guess, but different opinions on how many
brownfields sites might be cleaned up if we were to have Mr.
Weller's legislation or the Administration's proposal enacted.
Can you shed some light on that from the Roundtable's
perspective?
Mr. BRAZELL. I think the figure of 400,000 brownfields was,
as Mr. Weller said, coming from the U.S. Conference of Mayors.
I am not able to tell you exactly how many of those are going
to be cleaned up by continuing the legislation to allow
expensing, but I would say more than would be cleaned up
without that legislation.
Chairman MCCRERY. Can you give us some insight on what that
means in terms of, number one, the resulting economic growth in
those brownfield areas, which oftentimes are distressed
economically, and number two, does the fact that we would be
seeing more development in these brownfields sites take
pressure off development in the suburban areas and pressing out
into the rural areas?
Mr. BRAZELL. I would say yes to both. In the first case,
when you redevelop an area that is fallow and unproductive, you
bring property taxes up, you revitalize the neighborhoods, and
along with that, you take the pressure off the greenfields
because some clients that can locate into those areas do not
necessarily have to locate outside the city center where most
of the brownfields are located.
Chairman McCRERY. Thank you. Mr. McNulty?
Mr. MCNULTY. Thank you, Mr. Chairman, and I want to thank
all of the panelists for their testimony. I just have one
question I want to pursue.
My friend, Johnny Isakson, who is still here, suggested
that I pursue further with Mr. Sawyer this question about the
State cap, and I just wanted to clarify in my own mind how that
is determined, but more importantly, how it would be
administered. In other words, once you determine what the State
cap is, for example, if within that particular State the cap
was $50 million in benefit and there were legitimate
applications for $100 million, how is it determined who gets
the benefit? Do you say to 50 percent of the people, you get
the benefit, and the other 50 percent, you say, sorry, Charlie?
Who determines that? How does that work?
Mr. SAWYER. Thank you for asking that question. On the cap,
or the allocation, really, the way that is determined is that
we look at the total amount of land in farms and woodlands in
each State, pursuant to the Department of Agriculture census,
and the denominator of that number for the whole country--the
total acreage for the whole country is the denominator and the
numerator is the State's total acreage of those figures. Then
we apply a 4-percent cap, which basically allows it to level
out and compress just a little bit. I think Texas gets a
disproportionate amount if you do not have a 4-percent cap. So,
that is how your fraction of the $4 billion a year is
determined, is through that process.
The second part is it is really administratively quite
efficient, because, basically, what we have done with this bill
is we have taken two very accepted tax concepts, well proven
tax concepts--one is the conservation easement structure--and
have not changed that. So, that is going to limit any capital
spent under this to accomplishing conservation goals because
that is how the money has to be spent. It cannot be spent for
any other purpose.
On the other side, in terms of the administration of it,
each State will have a clearinghouse, just like we use with the
low-income tax credit system, so that the State will be told.
For instance, Georgia, I believe, has $60 million a year under
this program. So, the State will be told, you have $60 million
in credits. You now have to assign the administration of that
credit pool to one of your agencies or one of your branches of
government, and it is then up to that branch to help manage
this process within the State. Now, obviously, that also allows
the State to help determine the priorities in terms of whether
you make this investment or that investment.
One other footnote is, of course, with the conservation
easement, as Mr. McCormick pointed out, these are all
voluntarily negotiated arrangements with private property
owners, and so nobody is telling anybody they have got to
conserve this or not. It is just that is what you work out.
Now, we do think by having a pool of dollars under this
system, what is going to happen is that you will have strategic
conservation, which is to say that the States, the Federal
Government, the local governments, the land trust, and the
business community will sit down and say, gee, we have got
enough money now to really do something about this problem, and
so they will go out and strategically try to acquire land that
actually complements the development needs of the community as
well as protects the natural infrastructure of that community.
Mr. MCNULTY. Thank you very much. Mr. Brazell, while your
testimony focuses mostly on the brownfields legislation, what
are your views on additional tax incentives for conservation
land sales?
Mr. BRAZELL. Well, it is not an area that I am familiar
with, but I would say if it is in your interest to conserve
open spaces and you want to use the tax incentive to do it, it
sounds like a pretty good one to use.
Mr. MCNULTY. I thank all of the panelists. That is all I
have, Mr. Chairman.
Chairman McCRERY. Thank you. Mr. Weller?
Mr. WELLER. Thank you, Mr. Chairman. I appreciate the
opportunity to question our witnesses here. Before I direct my
questions to Mr. Brazell on the brownfields legislation, Mr.
Sawyer, I just want to commend you on your proposal and also
salute your champion here in the House, Johnny Isakson. He is a
very articulate, hard working spokesman for your cause. We have
talked about your legislation many times, and just to let you
know, he is working very hard for you on your proposal.
Mr. SAWYER. Thank you, and I agree.
Mr. WELLER. Mr. Brazell, on the issue of the brownfields
legislation, of course, I have worked with you and with your
organization in finding ways to attract private investment and
environmental cleanup of old industrial sites for the purpose
of revitalizing blighted communities. Whether it is rural or
suburban or middle class or low income areas or even urban
areas, we have our share of these so-called brownfields, 2,000
in the Chicago region and the two largest are in the district
that I represent.
The Administration, when they, of course, endorse the
proposal to make permanent the existing provision, which
expires in a little over a year, they point out that permanency
would generate about $2 billion in additional investment as
well as cleanup of an additional 4,000 brownfields a year,
which it will take a while to get up to the 400,000 that are
totally across this country, but it will make a tremendous
amount of progress.
I was wondering, from your perspective, you work with
business decision makers every day in your business. You talk
with them, and one thing I think we have all learned is that
the tax code influences business decision making. Now, there
are consequences to the tax code. There are incentives to the
tax code.
From the standpoint of a business decision maker who is
trying to decide where to invest their dollars, whether or not
to purchase an old industrial site, a brownfield, clean it up,
or go to the edge of town and buy a cornfield or a soybean
field outside the suburban area that I represent in Chicago,
how do they factor in this expensing provision? How would a
business decisionmaker use this to make their decision and
decide it is in their advantage to purchase that old industrial
site and clean it up and revitalize it?
Mr. BRAZELL. Mr. Weller, it is very difficult to compare
parcels of land, different parcels of land. If you can imagine
you had two sites, one of which was a brownfield and one of
which was not a brownfield, and the selling price of the non-
brownfield site was $100 and you knew you had $20 of
remediation costs, the other site is going to sell for $80. So,
the fact that you are going to buy the other site for $80, you
are going to spend $20 to clean it up, but then you are going
to be able to expense that, your investment is $80 after-tax,
so right away, you have got a jump on the other site, if there
are suitable sites.
Obviously, development has to have a plan. It has to be
viably functional, apart from the tax effects, and it probably
is not going to drive every transaction. It may be the fulcrum
that turns a transaction to be being done in favor of cleaning
up the brownfields.
Mr. WELLER. One of the comments that I have received from
economic development experts in the South Side of Chicago and
the South suburbs that I represent, as they are attempting to
recruit and lure private investors to invest in these sites, of
course, is in the liability, the financial cost of the
environmental cleanup. Of course, our hope is that this is
working, and I see it working in the district that I am in,
where private investors are now taking advantage of the ability
to expense, to fully deduct in the year they incur the cost of
environmental cleanup, to deduct that cost as a way of
recovering it, so I appreciate that.
Let me ask another question here. As one of my colleagues
mentioned, also, in the legislation, in H.R. 2264, we proposed
broadening the type of environmental cleanup that would be
covered and would be able to utilize the expensing provision
that is in the brownfields incentive. We have learned over the
last several years in working this legislation that there are
other types of cleanup besides existing law that private
investors run into. It was noted currently they would, of
course, have to capitalize those costs over, what, 40 years,
and that is the cleanup of petroleum and pesticides, paint,
asbestos as part of that.
Can you explain the merits of broadening this tax
provision, how that would be an incentive to attract investors
who have to look at an old building that they may have to deal
with on that old industrial site called a brownfield?
Mr. BRAZELL. Right. Just in the same way that the
legislation benefits someone that is going to purchase a piece
of land and expense the remediation cost. Often on those types
of sites, those older sites, those infill sites, you are going
to find buildings that probably have contamination like
asbestos, and as our perceptions about asbestos have changed,
we have had many more regulations that require us to clean them
up.
So, being able to expense that cleanup cost in the year of
acquisition or in the years in which you incur the expense, the
present value of that is much, much higher than trying to
recover that cost over a 40-year period.
Mr. WELLER. Thank you, Mr. Chairman. I see my time has
expired. Again, thank you for conducting this hearing on a
very, very important issue for all of us.
Chairman MCCRERY. Thank you, Mr. Weller. Mr. Hayworth?
Mr. HAYWORTH. Thank you, Mr. Chairman, and my apologies
both to the Subcommittee and the witnesses. Flight schedules
kept me away from hearing the testimony in its entirety, but I
am no stranger to the challenges we confront, especially in the
Western States. I just must say, Mr. Chairman, how gratified I
am that it looks like now we have reached a point where instead
of drawing caricatures of each other and trying to shout past
each other, it seems that now, based on the testimony I have
heard today, people are actually talking to each other and
working to solve problems.
To the extent that the tax code and this Committee, being
the first Arizonan in history to serve on the Committee on Ways
and Means and one of innumerable Arizonans to serve on the
Committee on Resources, I appreciate the opportunity to
champion legislation like the bills discussed today and I
welcome in a broader context the fact that, at long last, we
are agreeing to disagree in some areas, but working in an
important way to produce results that can help all Americans
and especially those who live in States like Arizona So, with
that, I thank you and yield back my time.
Chairman MCCRERY. Thank you, Mr. Hayworth, and I could not
agree with you more. I stated earlier that it is nice to have
corporate America and some of the environmental community
communicating and working together for bills that we all
believe are laudable, so I concur with your remarks. Mr.
Blumenauer?
Mr. BLUMENAUER. Mr. Chairman, I just want to express my
appreciation for your courtesy in allowing me to participate
and to listen to the testimony here today. I commend the
Subcommittee. The record that is being developed is a very
powerful one in terms of approaching this issue, and I think we
have outlined here a range of choices.
I do hope that there is a way to consolidate some of these
together for a bigger package. I just returned from Detroit a
few hours ago, spending a couple of days talking to people,
many of whom would buy into this, and I know that there is an
interesting range of opinion and support for the work that the
Subcommittee is doing.
I would just note, though, the comment from the gentleman a
moment ago that he was almost from Atlanta, and as I think
about what is happening with metropolitan Atlanta, if we do not
get the legislation, Mr. Chairman, that you are talking about,
we all might almost be from Atlanta.
[Laughter.]
Chairman MCCRERY. That is right.
Mr. BLUMENAUER. I appreciate your efforts.
Chairman McCRERY. Yes, sir. Thank you, Mr. Blumenauer, for
participating in today's hearing. Once again, I want to thank
all of the witnesses for your excellent testimony and your
responses to our questions and your patience in staying with us
most of the afternoon. Thank you, and we look forward to
working with you as we work together to solve the problem of
encroaching urbanization across America, so thanks. Before
adjourning, I would like to insert into the record a statement
from Congressman Amo Houghton.
[The statement of Mr. Houghton follows:]
Statement of the Hon. Amo Houghton, a Representative in Congress from
the State of New York
I appreciate the opportunity to comment on the efforts of many in
Congress and others to continue to expand the tax incentives available
to individuals and groups to preserve open space and promote
conservation. I certainly have a strong interest in protecting the
environment and preserving the natural resources of our country for
current and future generations. Also, I have a particular interest in
tax provisions that exclude the value of land subject to conservation
easements from the estate tax. I commend the Chairman for holding this
hearing.
I was especially gratified that Congress enacted the basic
provisions of the American Farm Protection Act (a bill I introduced),
as part of the 1997 Taxpayer Relief Act. The bill added an exclusion
from estate taxes for gifts of conservation easements. The relief is
targeted. Because the measure was enacted in a time of budget deficits,
some thought the limitations were too restrictive. In 1999, the
Oversight Subcommittee held a hearing on the same subject as today's
hearing. I am sure many of the points made in that hearing will be made
today.
Since the estate tax relief law for permanent conservation
easements was enacted, two significant changes have been made. The
first was in 1998, when a change was made to allow the post-mortem
election and granting of the easement to be made by the executor and
heirs after the death of the decedent. The original law required the
easement grant to be made prior to death. This change certainly
facilitates the granting of land easements.
In addition, the Economic Growth and Tax Relief Reconciliation Act
(EGTRRA) of 2001 removed the restrictive requirements as to location,
i.e. within a metropolitan area determined by OMB or abutting national
parks or wilderness areas, etc. The change allows land located in the
United States or any possession to qualify, assuming the other
requirements are met.
These changes have all contributed to making the exclusion more
available and beneficial to taxpayers, which can only add to the
increase in the granting of these conservation easements. Although the
provision included in EGTRRA of 2001 will sunset in 2010, it is likely
these changes will be made permanent in some manner, as was done in
H.R. 586, which passed the House on April 18, 2002. In any event, 2010
is some distance away, and many will still find the tax incentive to
grant a permanent land conservation easement to be advantageous. We
should not cut back on the efforts to encourage such transfers.
Ultimately if the estate tax is repealed, we will need to seriously
explore other tax incentives to replace the current estate tax
incentives, in order to preserve open space and promote conservation.
Rep. Nancy Johnson has a bill, H.R. 1309, which I am sure will be
mentioned in today's hearing. The bill would further improve the tax
incentives for granting permanent land conservation easements, and I
support the bill.
Although it is difficult to determine the effect of the 1997
legislation, the IRS data for 2000 indicates that 43 estates elected
the provisions to exclude easements with a value of $7.6 million. The
prior year showed more estates electing, although the value was less.
Of course, the number of estates will vary from year to year, and it
will take some time for trends to develop. The Land Trust Alliance's
data indicate that there has been a steady upward increase in the
donated acres of conservation easements from the Piedmont area of
Virginia from 1996 to 2001. The Piedmont Environmental Council has made
a significant effort to educate landowners in their area of the
benefits involved in donating the easements. So, I believe we are
certainly on the right track.
Gifford Pinchot, the founder of the U.S. Forest Service under
President Theodore Roosevelt, once wrote that a nation ``deprived of
its liberty may win it, a divided nation may unite, but a nation whose
natural resources are destroyed must inevitably pay the penalty of
poverty, degradation, and decay.'' As true today as a hundred years
ago. Thank you.
Chairman MCCRERY. I would also like to include in the
record prepared statements from the American Farm Bureau
Federation and the Montana Land Reliance.
[The statements of the American Farm Bureau Federation, and
the Montana Land Reliance follow:]
Statement of the American Farm Bureau Federation
The American Farm Bureau Federation, which represents over 5.1
million member families in all 50 States and Puerto Rico, is concerned
over the loss of farmland. One million acres are lost each year to
development. Concentrated around urban/suburban cores, farmland
disappears when it is more lucrative to sell land for development than
for agricultural purposes. If these losses are allowed to continue, one
of our Nation's most valuable resources is threatened.
LH.R. 923--SELF-EMPLOYMENT TAXES AND CONSERVATION RESERVE PROGRAM
Most farmers and ranchers are self-employed. Currently they pay a
self-employment tax at the rate of 15.3 percent. Self-employment taxes
apply to income from labor and employment and are assessed in order to
collect for Social Security and Medicare. The self-employment tax does
not ordinarily apply to income from cash rent because cash rental
income represents the equity value of ownership in land.
The U.S. Department of Agriculture (USDA) makes Conservation
Reserve Program (CRP) payments to owners and operators of land who sign
a rental agreement and agree to refrain from farming the enrolled
property in order to conserve and improve the environmental resources
of that land.
In 1996, the Tax Court ruled in Wuebker vs. Commissioner, that CRP
payments were considered rental payments and therefore would not be
subject to the self-employment tax. However, in March 2000, the Sixth
Circuit Court of Appeals reversed the Tax Court's opinion, placing an
additional tax burden of 15.3 percent on farmers for their CRP payments
and allowing the Internal Revenue Service to retroactively collect
these taxes from the last 4 years on farmers participating in CRP.
It is unfair to treat active farmers and ranchers differently from
other taxpayers when imposing self-employment taxes on rental income.
Because of the Wuebker case, the IRS now singles out farmers and
ranchers as landlords liable for the self-employment tax. For other
taxpayers who receive CRP payments, and are not materially
participating in a farming operation, the payments are considered to be
rental income that is not subject to self-employment tax.
Farmers and ranchers are in a no-win situation concerning the
application of self-employment taxes. Agriculture producers face
confusion and uncertainty because it is not known if and when an appeal
will be heard by the full Sixth Circuit Court.
Additional confusion arises over jurisdictional matters. The
original case was brought before the Tax Court. The Tax Court ruling,
which said that self-employment taxes are not owed, has nationwide
application. The appeals case was heard in the Sixth Circuit Court of
Appeals which only has jurisdiction over Ohio, Tennessee, Michigan and
Kentucky. This means that farmers in other states are not directly
affected by the appellate court decision to require self-employment
taxes on CRP payments. But because the IRS believes that the tax should
be paid, it could audit farmers in other states with the intention of
securing favorable court rulings to collect the tax. If farmers and
ranchers are audited and fail to satisfy the IRS, they risk paying back
taxes, interest, penalties and the cost of amending as many as 4 years'
tax returns.
This issue not only has impact on farmers and ranchers, but also on
the environment. Self-employment tax on CRP payments may discourage a
farmer from future participation in this program. Environmentally
sensitive acreage that has been taken out of production to protect its
natural resources may be forced back into production if CRP payments
are subject to self-employment taxes.
Tax policy should not single out farmland owners to pay the self-
employment tax on cash rental receipts. The IRS should not be able to
impose new taxes on farmers and ranchers without congressional
approval.
Congress should pass legislation to restore equitable tax treatment
for farmers and ranchers by making it clear that CRP payments are not
subject to self-employment taxes.
Farm Bureau supports H.R. 923 introduced by Reps. Moran (R-KS) and
Pomeroy (D-ND) to clarify that CRP payments are not subject to self-
employment taxes.
H.R. 2290--THE CONSERVATION TAX INCENTIVES ACT OF 2001
One farmland preservation tool embraced by some state and local
governments and a growing number of private conservation groups are
voluntary conservation easements. These programs compensate farmers and
ranchers who are willing to give up the right to develop or to sell
their property for development.
The value of a conservation easement is typically the difference
between the development and agricultural value of a piece of property.
Because farmers and ranchers tend to reinvest their earnings in their
businesses, they consider their land to be their retirement savings.
Few are willing to give up the right to develop, and thereby lessen the
value of their land, without compensation.
Programs that purchase conservation easements from farmers overcome
this issue and successfully protect farmland from development. But
because income from the sale of conservation easements triggers capital
gains taxes, farmland preservation programs are not as successful as
they could be.
Efforts have been made to exclude 50 percent of the gain on sales
of land or easements made for conservation purposes from taxation. This
tax code change will encourage more landowners to designate land for
conservation purposes because capital gains taxes will be lower than if
the property were sold for development. The change will also encourage
and assist farmers and ranchers who wish to voluntarily preserve land
as habitat for endangered or threatened plants and animals. Rewarding
landowners who choose to protect habitat is a much better approach than
mandatory programs that restrict the use of land without compensating
land owners.
Farm Bureau supports H.R. 2290 introduced by Reps. Portman (R-OH)
and Matsui (D-CA) to exclude 50 percent of gain from the sale of land
from gross income to an entity intending to put the land in a
conservation use.
__________
Statement of the Montana Land Reliance, Helena, Montana
Mr. Chairman:
The Montana Land Reliance commends you for calling this hearing to
examine Federal tax policy governing land conservation and
preservation. The Montana Land Reliance was founded in l978 as a
private, non profit land trust that utilizes conservation easements to
protect Montana's private lands from unbridled development. The
Reliance has protected over 466,000 acres of land in Montana including
850 miles of stream and river frontage.
The primary focus of the Montana Land Reliance is the voluntary,
private donation of conservation easements on sensitive agriculture and
ranchland. Private land conservation is less expensive than public land
conservation in that it involves the donation of an interest in
property rather than the purchase of the property or its development
rights. In some situations involving land with unusual beauty or
fragility, land purchases by government or private conservation
organizations can be more appropriate. All of these methods have their
place and contribute to the overall goals of preserving unique lands.
However, our comments today relate to some needed revisions to Internal
Revenue Code sec. 170(h) to remove severe restraints on the ability of
farming and ranching families with modest levels of income to donate
the development rights on their land.
Rural communities across the United States are experiencing an
accelerating demise of open space. This problem is visually apparent to
anyone who remembers the open spaces of the American landscape of only
a few years ago and is now confronted with views of tract housing and
new construction on what were formerly working ranches and farms. This
disappearing open space is occurring not only in the perimeters of our
major metropolitan cities and suburbs, but also in the more sparsely
populated areas of the intermountain west.
Changes in land use patterns have always occurred in America--they
will continue--and they do not necessarily need to be feared or blindly
prevented. What the Montana Land Reliance is increasingly concerned
about is lack of balance in the incentives that we have at the Federal
level in our tax policies that govern private and public land
conservation efforts. This imbalance is encouraging the development of
ranches and farms at an accelerating rate.
Many private landowners wish to keep their farms and ranches in
their traditional uses. Development is not their preference. However,
if the property is scenic or sensitive, the owners will come under
intense financial pressures to sell for development. For these working
landowners and their families, we must make certain that the available
incentives that are provided for private land conservation treat their
situation equitably.
We currently have a deduction in the Federal Tax Code (sec. 170(b))
that is designed to encourage the donation of conservation easements on
sensitive lands and open spaces. These incentives tend to work well for
individuals with high levels of adjusted gross income because the value
of the donated easement is typically large and can be used to offset
ordinary income from sources unrelated to the land itself. These
provisions are responsible for a large portion of the private land
conservation that has occurred in America today. The provisions work
well as far as they currently go, but they do not adequately address
the situation faced by a working farm or ranching family with a more
modest level of income. For these landowners--who are often struggling
to make a living on a ranch or tract of land that has enormous value
for alternative uses--the restrictions on the availability of the
deductions for conservation easements offer little practical economic
incentive to counter the offers received from a developer. A landowner
in this financial posture who places an easement on his or her ranch or
farm will be left with little current tax relief and an immense
unusable tax deduction. The solution to this dilemma (absent an
outright subdivision and sale for development), is a sale of the family
property to a high net worth individual who can use the deduction and
the possible leaseback of ones' former property for ongoing farming or
ranching purposes.
The Montana Land Reliance deals with these real life situations
every day. Often, the only solution we have to recommend is the paring
of a ranch family with a high net worth individual, the ``so called''
conservation minded buyer. The situation of the conservation minded,
working ranch family of modest means has led us to recommend changes in
our tax laws that would give these landowners a more liberalized tax
deduction so that they, like their wealthier counterparts, have an
equivalent economic incentive to undertake private land conservation,
if they are so inclined.
In the the last session of Congress, Congressman Hefley introduced
H.R. 2279, The Rural Heritage Conservation Act, a measure designed to
rebalance the tax code so that everyone with sensitive land who is
conservation minded has a like incentive. The Senate counterpart to
H.R. 2279 is S. 701, introduced by Senator Baucus of Montana, Chairman
of the Finance Committee.
The operative change in the tax code made by both bills would allow
a working farmer or rancher, defined as someone who derives over 50
percent of their income from farming and ranching, to deduct the value
of a donated easement against 100 percent of their taxable income. This
liberalized deduction is targeted to the category of individuals that
are land rich and cash poor, and is designed in such a way as to avoid
abuse. The fact that the average income of a farming family in the
United States is just over $32,000 means that any revenue loss
associated with this expanded deduction is likely to be very modest.
The Montana Land Reliance appreciates the opportunity to present
our views before the Committee today, and hopes that the Subcommittee
will recommend the approval of the substance of H.R. 2279 in any markup
that may be undertaken by the Ways and Means Committee on this subject.
We do not have the luxury of postponing action at a time when the
remaining open spaces in America are being developed at an alarming
rate. Private land trusts respect the property rights of property
owners to choose whether to preserve traditional uses or develop
property for new uses. We are only asking that the network of existing
tax incentives be reexamined so that they work better for all those
taxpayers who wish to preserve their property. Attached is a list of
land trusts in the United States who support this goal.
Chairman MCCRERY. The hearing is adjourned.
[Whereupon, at 4:06 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of Ralph Grossi, President, American Farmland Trust
Mr. Chairman, Mr. McNulty, and Members of the Subcommittee:
American Farmland Trust (AFT) appreciates this opportunity to
provide your Subcommittee with its views on how to develop new tax
incentives to encourage the conservation of open space and farmland. I
am the President of AFT, and also a third-generation cattle rancher and
grain producer in California.
American Farmland Trust is a national, nonprofit organization with
50,000 members working to stop the loss of productive farmland and to
promote farming practices that lead to a healthy environment. I make
this statement on behalf of AFT's members and the vast majority of
farmers who care deeply about resource stewardship.
For the past century land conservation in our country has largely
focused on the acquisition of land for parks, wildlife refuges, forests
and recreation areas. These efforts have protected over 89 million
acres of parks, 80 million acres in national wildlife refuges and over
190 million acres in national forests. Although this is a tremendous
accomplishment, our country is not addressing what many believe to be
the conservation challenge of the 21st century--ensuring that the
natural, economic, and aesthetic resources provided by private lands
are not consumed by the ongoing rush of development.
The traditional approach to preserving our private working
landscapes has been to regulate their use without providing
compensation to the property owner. AFT believes that regulation alone
is not the answer. To encourage responsible private land stewardship,
we need to expand funding for the acquisition of voluntary conservation
easements, reduce tax disincentives discouraging the sale of
conservation easements, and expand tax incentives for the donation of
conservation easements.
On the funding side, Congress has recently taken dramatic action to
increase resources for the acquisition of voluntary conservation
easements by including a significant increase in the funding for the
Federal Farmland Protection Program in the farm bill. Nearly $1 billion
will be made available to match funding provided by state and local
governments for the acquisition of agricultural conservation easements.
Perversely, however, a significant disincentive to the very
conservation sales that this bill seeks to encourage will remain in
place in the Federal Tax Code. Many of those sales will trigger
significant capital gains tax liability for landowners with appreciated
real estate.
H.R. 2290, sponsored by Rep. Portman, would help address this
problem. It would exclude 50 percent of the gain realized from sales of
land or interests in land to qualified conservation entities for
conservation purposes, including the protection of open space for
agriculture. AFT supports this bill. It will further leverage state and
local funding for the protection of productive private agricultural
land.
The existing tax incentives that encourage private land
conservation through donated conservation easements include the
deduction for qualified conservation contributions under IRC
Sec. 170(h) and the partial exclusion from estate tax for land
protected by a conservation easement under IRC Sec. 2031(c). While
these incentives have been instrumental in promoting private land
conservation, many farmers and ranchers do not have the income to take
full advantage of them. The income tax deduction available for an
individual donating land or a conservation easement is limited to 30
percent of adjusted gross income (AGI), and unused amounts can be
carried over for up to five years after the date of the donation.
H.R. 1309, introduced by Rep. Johnson, would address this problem.
It would raise the percentage limit for conservation gifts to 50
percent of AGI and eliminate the carryover limitation. It will make it
possible for many more ``land rich, cash poor'' farmers and ranchers to
take advantage of the tax benefits available for conservation easement
donations. Indeed, H.R. 2279, introduced by Rep. Hefley, would go even
further and raise the percentage limit to 100 percent of AGI for 15
years for taxpayers whose income is derived primarily from farming and
ranching. AFT supports both these bills.
AFT also supports the following pending tax bills:
H.R. 882, introduced by Rep. Isakson, which would
provide $4 billion annually in tax credits to donors to
nonprofit conservation organizations. This is the boldest
conservation proposal that has come before Congress since the
creation of the Land and Water Conservation Fund a generation
ago.
H.R. 1711, introduced by Rep. Dunn, which would give
tax-exempt status to bonds issued to acquire renewable
resources on lands subject to conservation easements. While we
expect tax-exempt bond financing to be most useful in the
preservation of forest properties, it has the potential to be
used for the preservation of agricultural lands as well.
Over a million acres of privately owned farmland are lost to
development each year. However much it may trouble them, this is a
result of economic forces beyond the control of most ordinary
Americans. But unlike most Americans, as Members of this Subcommittee
you have it within your power to actually do something to stem this
tide of farmland loss. And not only do you have that power, you also
have a number of thoughtful pieces of legislation before you suggesting
effective ways to use that power. So we urge you to act now to create
additional tax incentives for the protection of farm and ranch land.
Your children will thank you for it.
Thank you for the opportunity to submit this statement.
Statement of Lee R. Epstein, Director, Lands Program, Chesapeake Bay
Foundation, Inc., Annapolis, Maryland
Thank you for the opportunity to provide our views on this
important matter. The Chesapeake Bay Foundation (CBF) is the largest
non-profit conservation organization dedicated to the restoration of
the Chesapeake Bay. With 100,000 members in virtually all the states of
the Union, and programs in environmental education, environmental
protection, and restoration, CBF is vitally interested in promoting
land conservation throughout our 64,000 square mile watershed.
We wholeheartedly agree with Chairman McCrery that sprawling
urbanization, outpacing mere population growth in some places and
occurring even with population decline in others, is threatening to
overcome the nation's best resource lands. In our six-state watershed,
the environmental impacts of uncontrolled growth threaten to overcome
many of the gains that have been made cleaning up other sources of
pollution. Communities and individuals do face great challenges in
protecting and preserving their invaluable open spaces, and the Federal
Government does have a role to play in helping communities realize such
important objectives.
It seems only fitting, given the role that the Federal Tax Code
plays in actually creating some incentives for urban sprawl--from
accelerated depreciation, to five-year amortization, to the
deductibility of ``passive'' real estate losses--for that same code to
better encourage and promote active land conservation. There are
already some land conservation incentives embedded in the Code. Land
conservation receives some favorable treatment, for example, with
respect to the deductibility of conservation easement and fee
donations.
We would propose that other approaches or extensions of these ideas
be explored. Enhancing the tax deductibility of a conservation
easement, up to a significant percentage of adjusted gross income, and
allowing a carryover into (unlimited) future years, is one idea with
merit. For farmers, an even higher amount of deductibility might be
appropriate.
Another idea would be to reduce the capital gains on sales of land
or easements to conservation entities. A third idea worthy of some
examination might be to create a tax credit or partial tax credit,
similar to that utilized for rehabilitating qualifying historic
properties, for example, that would apply toward conservation
transactions. Tax credits have the advantage of being able to be
bundled together and sold to investors, so that REIT-like syndicates or
other partnerships could actually be formed around solid land
conservation objectives. A Federal tax credit could be matched with
State tax credit programs to generate an even larger conservation
impact.
In any case, we commend to you these various ideas for further
study and exploration, and pledge our assistance should the
Subcommittee deem that of some value. Thank you for the opportunity to
provide our views.
Statement of Alan Front, Senior Vice President, Federal Affairs, Trust
for Public Land, San Francisco, California
The Trust for Public Land (TPL) is a national nonprofit land
conservation organization founded to protect land for public enjoyment.
TPL helps citizens and government agencies identify and conserve lands
in need of protection. We support H.R. 2290, H.R. 1309, and H.R. 1711
as measures that provide market-based incentives for land conservation,
thus meeting the needs of landowners as well as the public good. TPL
often works with landowners who feel pressured to sell their land for
development, but who would nonetheless like to see the land preserved
in its natural state or as a working farm or ranch. These landowners
are frequently ``land rich but cash poor,'' and the land conservation
tax incentives legislation being considered by the Subcommittee on
Select Revenue Measures will better enable them to make the choice to
conserve land.
H.R. 2290, introduced by Congressman Rob Portman, would exclude
from gross income 50% of the gain on sales of land or interests in land
or water when sold for conservation purposes. This legislation is
especially important for landowners of modest means, who need to sell
rather than donate the land. In TPL's experience, there have been cases
where significant parcels of land have been lost to development because
of the obstacle posed by the tax burden faced by the landowner.
In one such case a few years ago, the Oconee National Forest was
very interested in acquiring a tract along the Ocmulgee River in
Georgia. The property was an 800-acre forest with river frontage. There
were numerous ownership interests due to the land being passed down to
heirs after death. All but one interest agreed to sell. The owner of
that interest was an 80-year-old uncle, who would have been a willing
seller but for capital gains tax considerations. While the entire
family wanted to arrange a conservation transaction for their property,
the uncle and TPL ultimately recognized that there was no way, given
capital gains consequences, to structure a sales to meet his needs. A
50% reduction in the capital gains tax might have been enough to
encourage the uncle to sell to protect the land, but when he died two
years later, development pressures were such that The Trust for Public
Land could not compete with developers for the property. The Oconee
National Forest was unable to acquire this high-priority land, which
will now be developed.
Ever-increasing amounts of land are consumed by the sprawl
emanating from metropolitan areas. We believe that land conservation is
a public value that should be promoted through tax policy as well as
direct public expenditures. H.R. 2290 would permit government agencies
and nonprofit land conservation organizations to compete for land
threatened by sprawl development. State programs like Florida Forever
and Great Outdoors Colorado would find their limited dollars going even
farther in purchasing land for open space.
For those landowners who are able to donate land or an easement for
conservation purposes, there is an income-based inequity in the tax
benefits received for such a donation. H.R. 1309, introduced by
Congresswoman Nancy Johnson, addresses this problem. Under current law,
a taxpayer with a $300,000 adjusted gross income (AGI) could deduct
over six years the entire value of a donated $500,000 conservation
easement. A taxpayer with an AGI of $50,000 would only be able to
deduct $90,000 over six years for donating a $500,000 easement.
Enactment of H.R. 1309 would mean that these two taxpayers with
disparate incomes would both be able to deduct the full value of the
easement. H.R. 1309 would permit the deduction of up to 50% of the
taxpayers AGI with unlimited carryover. This legislation will provide
the necessary incentive and reward for the generous donation of
easements by taxpayers of all income levels.
The Trust for Public Land is also on record supporting H.R. 1711,
introduced by Congresswoman Jennifer Dunn, which would enable
communities to issue tax-exempt revenue bonds on behalf of private
nonprofit organizations to purchase, or lease long-term, land for
conservation purposes. The revenue to service these bonds would be
provided by permitting the harvesting of resources, such as timber,
crops, and water rights. This legislation provides an additional tool
for conservation of working landscapes. TPL has worked with timber
companies throughout the country to preserve lands from development
when the companies need to divest some of their acreage for economic
reasons. H.R. 1711 will further the goal of cooperating with industry
to promote the preservation of open space.
As Congress considers further changes to the tax code in the coming
weeks and months, I urge the passage of tax incentives for land
conservation. Enactment of the provisions included in H.R. 2290, H.R.
1309, and H.R. 1711 will encourage land preservation at a time when
there is widespread agreement on the necessity of protecting open space
and natural resources against the encroachment of urban sprawl. I
commend the Subcommittee on Select Revenue Measures for holding this
important hearing, and The Trust for Public Land will be happy to work
with you as you consider these proposals.