Discussion on the Economic Impact of Deed Restrictions related to NRCS conservation easements Elizabeth Crane-Wexler and Felix Spinelli, National GRP Manager and Senior Economist, respectively; USDA, NRCS, NHQ SWCS 67 th Annual International Conference July 22-25, 2012 Fort Worth, Texas

Disclaimer Thoughts and opinions presented today are those of the authors and do not represent those of USDA or the Natural Resources Conservation Service.

Outline 1.NRCS’s three main easement programs. 2.Deed restrictions on easements. 3.Deed-implied economic restrictions on easements. 4.Implications of deed restrictions’ on compensation. 5.Comparison and Observations of Past Compensation Levels. 6.Policy Implications and Further Research Needs.

Table 1. NRCS Three Main Easement Programs (1 0f 3) NRCS Easement Program ItemWRPGRPFRPP History Pilot program in 1992; nation-wide in Farm Bill and 2008 Farm Bill 2002 Farm Bill and 2008 Farm Bill 1/ Program Purpose Restore, protect, or enhance wetlands. Support grazing operations, biodiversity, grassland under threat of conversion to non grazing uses. Assists with purchase of conservation easement to protect agriculture and related conservation values. What land is eligible? Most private wetlands converted to agricultural use prior to 1985; wetland must be restorable and suitable for wildlife benefits. Private grassland, shrub land and land containing forbs or land that historically contained those features. Private land that contains prime farmland or other unique resources and in subject to a pending easement from an eligible entity.

Table 1. NRCS Three Main Easement Programs (2 of 3) NRCS Easement Program ItemWRPGRPFRPP NRCS $ Obligations NRCS contributes financial assistance up to 100 percent of the fair market value of the easement, within program limitations. NRCS contributes financial assistance up to 50 percent of the fair market value of the easement with partners. Landowner/ Entity $ Obligations NRCS works directly with landowner with NRCS pays all expenses associated with permanent easements. There is an option for eligible entity to enter into a Cooperative Agreement to purchase easement similar to FRPP. Entity writes, owns, and enforces easement per Cooperative Agreement with NRCS. For installation of conservation practices Yes, for restoration costs. Yes, for installation costs. None.

Table 1. Cumulative Enrollments in Key NRCS Easement Programs NRCS Easement Program WRPGRPFRPP Cumulative Acres Enrolled: 2,495,128318,0361,006,323 Cumulative Number of Agreements Enrolled: 13, ,922 Source: National Easement Staging Tool (NEST) as of: October 2011 October 2011 and February 2012 program manager estimate Note: WRP data are cumulative since 1992; GRP are cumulative since 2003 and FRPP data are cumulative since 1996.

Table 2. Deed restrictions on easements (1 of 3). Deed Element Classification of Easement Deed Reserve Interest DeedNegative Appurtenant Deed WRPGRPFRPP Interest/ Easement Holder United States of America through the Secretary of Agriculture. That is, USG is the sole easement holder. United States of America or Eligible Entity State, local, tribal governmental or non-governmental organization. Easement Duration Permanent and 30-years and maximum allowed under State Law. Permanent or maximum duration allowed under State Law. Permanent, unless State law prohibits a permanent easement. Restoration requirements Focus on providing maximum wildlife habitat and wetland functions and values; includes management guidelines - restore site to extent practicable on at least 70% of site. May restore land back to grassland and shrub land for easements held by the United States. N/A

Table 2. Deed restrictions on easements (2 of 3). Deed ElementClassification of Easement Deed Restricted interestNegative Appurtenant Deed WRPGRPFRPP Consultation Requirements Consult with FWS and NMFS if T & E species present, with FWS on eligibility and compatible use determinations/ consultation with State Technical committees. Birds in significant decline practices must address per recommendation of State Technical committees. Nesting season restrictions for haying. Work with easement holder (eligible entity) to negotiate the easement terms (reviewed by NRCS for consistency with statute). O&M Responsibilities NRCS monitors implementation and maintenance unless delegated to other State or Federal agency (On ASCS easements 1992 and and all restoration cost-share agreements, landowner has management responsibilities. NRCS monitors easement and landowner responsible for maintenance – easement monitoring may be delegated to other State, Federal or non-profit organizations. Or unless held by eligible entity then FRPP like. Eligible entity monitors easement (provides annual report to NRCS); NRCS monitors.

Table 2. Deed restrictions on easements (3 of 3). Deed Element Classification of Easement Deed Restricted interestNegative Appurtenant Deed WRPGRPFRPP Management Requirements State Conservationist, with State Tech Committee, to develop and process in order to ensure sites are properly managed. NRCS develops GRP Management Plan with landowner (and entity if applicable); landowner responsible for maintenance. management is dictated by the individual easement deed negotiated between the entity and landowner. Enforcement Responsibility Resides with NRCS unless delegated to Federal or State agencies that have the appropriate authority, expertise, and resources. Resides with eligible entity per terms of easement 1/ 1/ NRCS finds non-compliance with plan, NRCS reports it to the easement holder. Noncompliance with plan is considered a violation after appeal rights has been exhausted. Contingent right of enforcement

Table 3. Deed-implied economic restrictions on easements. Impact on the land to: WRPGRPFRPP Develop/build Removed Mine gravel; dispose of wastes; explore oil Removed Continue to farm, ranch or graze RemovedRetained Participate in environmental goods and services markets RemovedRetained Hunt and fish Retained Lumber and other vegetation harvest RemovedRestricted Depends on individual deed Generate wind energy RemovedRestrictedDepends Erect and maintain power corridors Modification can be made Removed

Implications of deed restrictions’ on compensation. Private landowners’ and Government’s easement motivations can be different (and usually are). Private Landowners’ motivations vary (next slide). Government’s perspective is to promote conservation values and fulfill the desires of Congress and administer program in an efficient and effective manner. Government cost is mainly a function of easement compensation. Objective is to protect land to meet program purposes.

Private landowner’s perspective Private landowner’s motivation for placing a conservation easement on their land varies. Three motivations are usually listed: – Receive compensation payment for easement placement. – Preserve land for future generations and community: Agricultural viability. Wildlife and water quality in the case of WRP. – Reduce tax burden of landowner. Difference in unrestricted and restricted values is considered a donation that can be deducted from income taxes. Lower land values due to easement placement can reduce magnitude of levied estate tax. May reclassify land as lower- taxed agricultural value versus as commercial or residential land uses.

Comparison and Observations of Compensation Levels. Compensation level needs to take into account the opportunity cost of the landowner with restricted land use on property and impact on terminal (price when sold) value of land. Some programs may have a residual direct use value which is not affected by the easement. Compensation to WRP easement participants could be expected to be highest; GRP and FRPP could be lower but both very similar. 1/

Table 4. Severity of Impact associated with NRCS Easement Programs ItemProgram Name WRPGRPFRPP Remaining Residual Direct Use Value None 1/Grazing ValueFarm and Ranch Value Tax Benefits 2/Possible Probable Restrictions on EGS Market Participation YesNone 1/ Compatible use value remains (passive enjoyment). 2/ Refers to income tax, property tax, and estate tax benefits.

Table 5. Comparison of Past Financial Assistance Levels of Key NRCS Easement Programs NRCS Program ItemWRPGRP (Easements) FRPP Financial Assistance Dollars Obligated $1,666 M$140 M$508 M Acres Enrolled680,859200,000544,218 Average Per Acre Enrolled $2,447$699$934 Total obligations and acreages are over 2008 Farm Bill and include fiscal years 2008, 2009, 2010, and Easement agreement and acreages are from the National Easement Staging Tool (NEST) as of June 2011 and February Dollar figures are from NRCS Foundation Financial Information System (FFIS).

Policy Implications and Further Research Needs. The evidence suggests that the deed restrictions could contribute to higher compensation levels for WRP, but less so for GRP and FRPP. The nature of deed restrictions vary across programs and are important considerations for potential easement grantees and grantors. The main goal of NRCS easement programs is to secure easements on land with high conservation values based on the information at the time of easement placement regardless of any eventual actions of landowners after easements are placed their land.

Policy Implications (1) Development pressure, cropping pressures associated with heighted demand for bio-fuels and agricultural commodities, and other demands continue to convert wetlands and agricultural land. For example, wetland losses in the US and around the world have been significant and represent a cost to society and future generations. Market solutions tend to undervalue wetlands and agricultural lands, like many natural resources, and thus they will be face peril without non-market collective actions.

Policy Implications (2) Conservation easements offer a means to protect open spaces and wetlands and restore previously converted ones so that they can provide valuable EGS for society and future generations and reserve capacity to produce food. Given their significant benefits, it would appear that the benefits of such actions exceed their costs. A significant cost of these actions is the compensation necessary to entice landowners to place easements on their land. Economists can play an important role in estimation needed compensation levels.

Further Research Needs (1) Given the importance and vulnerability of agricultural lands and wetlands in generating benefits and providing a “buffer” to provide food in the future, efforts in further research include: – Quantify the associated environmental goods and services (EGS) from conservation easements; – Explore other benefits derived from society by land placed in easements, such as open space, community resilience with respect to food security and diversity. – An important “other benefit” is the role that easements play in fostering “agricultural viability”.

Further Research Needs (2) – Develop regional or watershed models that could simulate the role of easements in providing valuable EGSs and the importance of location-targeting ; and, – Develop environmental indices that capture their EGS values to better communicate their value to policy makers and the public. – Developing models and indices such as the two points above describe for EGS, but with a focus on agricultural viability, food security, comprehensive land use planning, etc. – More interdisciplinary research to better quantify and possibly place these benefits in monetary and conservation terms.