Discussion on the Economic Impact of Deed Restrictions related to NRCS conservation easements

1. 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 67thAnnual International Conference July 22-25, 2012 Fort Worth, Texas

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

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

6. Note: WRP data are cumulative since 1992; GRP are cumulative since 2003 and FRPP data are cumulative since 1996.

14. 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.

15. 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.

16. 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/

18. Total obligations and acreages are over 2008 Farm Bill and include fiscal years 2008, 2009, 2010, and 2011. Easement agreement and acreages are from the National Easement Staging Tool (NEST) as of June 2011 and February 2012. Dollar figures are from NRCS Foundation Financial Information System (FFIS).

19. 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.

20. 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.

21. 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.

22. 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”.

23. 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.