The Virginia Department of Taxation has denied $28 million in tax credits claimed for conservation easements set up by the Silver Companies as part of Celebrate Virginia, a major mixed-use project in the Fredericksburg area. Silver Companies had sold most of the credits to private investors at about 50 cents on the dollar.
Last week, reports Rusty Dennen with the Free Lance-Star, the tax department sent letters to hundreds of those investors, informing them that the tax breaks could not be used. The Silver enterprise has not decided whether to file an administrative appeal or go to court.
In its letter, Taxation did not provide any reason for the denial. But the action follows an initiative in which the agency has been checking assessed values on some large easement parcels around the state to see if any had been overvalued or were ineligible for inclusion in the conservation program.
Conservation easements are a centerpiece of Gov. Timothy M. Kaine’s goal to preserve open space in Virginia. However, the General Assembly tighted up the program last year, providing more oversight on land valuation and imposing a $100 million cap on the total amount of credits that can be issued in a given year.
The legislature was perfectly reasonable to cap the amount of tax credits offered — fiscal prudence cannot permit an open-ended and uncontrollable drain on state tax revenue. However, the existence of a cap creates a new set of issues: When the credits are a finite commodity, who qualifies to receive them? Are the credits granted on a first-come, first-serve basis, or do some property owners move to the head of the line? Should a single business like the Silver Companies qualify for $28 million worth? Did the Silver Companies go too far and ask for too much? Or is it being singled out for scrutiny simply for its size — or perhaps for political reasons?
The problem with the conservation-easements tax credit as currently structured is that the most important criterion — the value of the easements to the public — is not even a consideration. As Ed Risse has pointed out, the state is expending public money (in the form of tax credits) to underwrite conservation easements that are established on a haphazard basis, reflecting the idiocyncratic priorities of individual property owners. There is little coherence to the easements — the parcels are scattered randomly across the countryside.
Should there not be some system for establishing priorities for granting the tax credits? Surely easements that preserve valued habitats, or heritage sites, or viewsheds have greater value to the public and warrant the tax credits over easements on some unremarkable piece of property, or even dicier, easements used to facilitate large real estate deals.
The General Assembly needs to revisit this issue.