One must also not forget that HCPs represent an exchange of commitments, and that individual HCP permittees should be expected to live up to their conservation commitments if they expect to be the beneficiaries of the "No Surprises" policy. Thus, any legislative language on "No Surprises" should limit the application of the policy to those HCP permittees who are living up to their HCP commitments in good faith. Anything less would fall short of ensuring that a deal truly remain a deal for all parties involved. Moreover, the scope of the "No Surprises" policy is inevitably tied to the scope of the original HCP, species not adequately provided for under the terms of a properly functioning HCP should not be covered by the "No Surprises" policy. Again, flexibility is needed to broadly assess the range of "benefits" under habitat-based HCPs. A final issue is whether the "No Surprises" policy should be applied to unlisted species as well as to listed species. The August 11th "No Surprises" policy did include unlisted species that might otherwise be adequately covered in an HCP (that is, which could otherwise satisfy the HCP permit issuance criteria presently applied to listed species). Contrary to the August 11 announcement, some Dialogue participants have expressed concern about the application of the "No Surprises" policy to unlisted species if there is no later opportunity to review whether the HCP has contributed to the decline of the species if the species subsequently needs to be listed. Chapter 3 Financial Incentives and Resources Introduction The Dialogue Group recommends a number of changes in federal laws to create tax incentives and additional resources for endangered species conservation. Taxes, including income taxes, estate taxes, and property taxes, affect all landowners and sometimes significantly affect their land use decisions. Changes in tax laws, including some that have a relatively small cost to the Treasury, could yield important conservation benefits. The Dialogue Group sought to identify a small number of key changes to create tax incentives and increase resources to produce the greatest endangered species benefits. Estate Tax Reform Problem Federal estate tax requirements are a major obstacle for private landowners whose land stewardship has been sensitive to its environmental value and who would like to be able to pass on their land to their heirs without destroying that value. The imposition of federal estate taxes often forces large parcels of environmentally valuable land to be broken up into smaller, less environmentally valuable parcels. Some of the best remaining habitat for endangered species is put at risk in this manner. Federal law imposes a tax on the amount of a decedent's estate in excess of $600,000. The tax begins at a rate of 37 percent, and climbs to 55 percent for estates in excess of $3 million. For estates in which undeveloped land represents a significant portion of the estate's total value, the need to pay the federal tax creates powerful pressure to develop or sell off part or all of the land or to liquidate the timber resources of the land. Because land is appraised by the Internal Revenue Service according to its "highest and best use," and such use is often its development value, the effect of the tax is to make retention of undeveloped land in forest or other undeveloped condition difficult at best. For farmers, ranchers, forest land owners, and others who are "land rich and cash poor," the federal estate tax is a widely perceived threat to the ability to pass on the family's property to the next generation. The pernicious environmental effects of the federal estate tax laws have been widely recognized. The recent recommendations of the Northern Forest Lands Council with respect to maintaining the privately owned forest land of the Northeast prominently feature estate tax reform. In addition, the recently completed multi-agency habitat preservation plan for the highly endangered Florida panther outlined a number of needed incentives to encourage the retention of high-priority, privately-owned habitat in compatible agricultural land uses. Near the top of the list, once again, was estate tax reform. Problems like those to which these proposals were addressed are commonplace. At the same time that state and federal governments are pursuing the conservation of environmentally important lands, federal tax laws are forcing the destruction of many of the last best examples of such lands in private ownership. Proposal Landowners should be given the opportunity to reduce the estate tax burden in return for voluntarily entering into revocable agreements to manage their lands in ways that benefit endangered species. To qualify, the owner (prior to death) or the executor (after the owner's death) would have to enter into a written agreement with the Secretary of the Interior (or a state fish and game agency if a suitable agreement between the Secretary and the state agency existed) to manage an identifiable parcel of land in a way that provided significant benefits to endangered species. Such management could include measures not otherwise required by law or an agreement to refrain from activities not prohibited by law. In cases where landowners are practicing beneficial habitat management, they may need only to agree to continue existing uses and to forgo other legally permissible uses. If the heirs subsequently cease to honor the conservation agreement or dispose of the property without securing the agreement of the new owners to: (1) continue the conservation agreement; and (2) assume the tax liability in the event of a breach, the heirs will then be liable to pay the tax that would originally have been due with respect to the property but for the agreement. The amount of the tax then due should be adjusted to reflect any intervening changes in the land's value not due to improvements thereon. In this manner, heirs can effectively defer for as long as they wish the estate tax otherwise due on a parcel of land at the time of death of the person from which the property was inherited. By maintaining the conservation agreement indefinitely, they escape the estate tax on the property altogether. Discussion Some of the questions commonly asked about this proposal, and the answers to them, are as follows: Q. Does the conservation agreement require the landowner to give up all economic use of the property? A. No. The only requirement is that the Secretary (or perhaps a state fish and game agency) conclude that the activities the landowner agrees to undertake (or to forego) will provide significant benefits for an endangered species. Such agreements might include longer forest rotation cycles, management of cattle around certain riparian Q. A. Q. A. Q. areas, installation and maintenance of protective gates at significant bat caves, fallowing of crop land according to an agreed schedule, protection of areas supporting endangered plants, etc. In some situations, the landowner may need only to agree to continue existing uses and to forgo other legally permissible uses. There may also be unique situations in which the only way that endangered species can benefit on a particular parcel is if all or nearly all economic uses are foregone. In such situations, however, the landowner is free not to enter into the agreement that would produce the estate tax benefits and the heirs are free to discontinue it whenever they wish (subject to the obligation to pay the tax that has been deferred). Does the proposal require some form of monitoring to ascertain that the conservation agreement is being carried out? Yes. Since the obligation to repay the deferred tax is triggered by a failure to honor the terms of the agreement, some means of monitoring compliance must be built into the agreement. That monitoring, however, need not be a task for the IRS. Rather, certification from the Secretary (or from a state fish and game agency pursuant to delegation from the Secretary) that the agreement remains in effect and is being honored should suffice to establish the heir's right to continue to defer the tax. Alternatively, the IRS could conduct random audits on its own. Is there any precedent in the tax code for deferring estate taxes? Yes. If half or more of the value of an estate is comprised of property used as a Why should a landowner find this option attractive if the tax is merely deferred rather than forgiven? A. First, the tax will be forgiven if the conservation agreement is never discontinued. Q. A. Q. A. proposal offers significant benefits to landowners. It gives them a greater likelihood of being able to keep their land in the family. It also gives the heirs control over the timing of when to pay the estate tax; rather than being forced to pay at death, when few liquid assets may be available, or when family intentions with respect to the property are in doubt, it provides a means of postponing the tax burden to a later time when liquid assets may be more readily available or when family consensus about the future of the property is achieved. What will this proposal cost the Treasury? Surprisingly little. According to the most recent data available from the Internal Are there any alternative ways of structuring the benefits of this proposal? There are many possible permutations of this proposal, including some that are less |