Property Rights Foundation of America®

(Reprinted from the New York Property Rights Clearinghouse, Fall 2008)

Colorado Tax-exempt Bonds for TNC's New York Land-Grab

Worth Commenting

By Carol W. LaGrasse

The Nature Conservancy is looking to a quasi-government authority in Colorado to rescue it from the level of interest payments it is experiencing on $45 million that it borrowed to acquire 160,540 acres of forestland in the Adirondacks from paper manufacturer Finch, Pruyn and Co. in Glens Falls in June 2007.

On November 14, the Colorado Educational and Cultural Facilities Authority advertised in various newspapers, including the Glens Falls Post-Star and the New York Times, that it intends to hold hearings about its intention to issue tax-exempt Revenue Bonds to cover the purchase price. The interest payments on the conservancy's debt would be reduced by the issuance of tax-exempt bonds. The hearings, which are scheduled for Glens Falls and Albany on December 2, are required to meet the IRS's requirement for public hearings to show public support for the project.

The conservancy and the New York State Department of Environmental Conservation had explained their elaborate agreement for the bulk of the lands, the northern parcels, in February. These lands, 85 percent of the original purchase, would be in divided into two categories of ownership, fee simple lands to be conveyed to the state to become part of the "forever wild" Forest Preserve and split title lands. The split title lands would be divided into perpetual conservation easements to be deeded to the state and the residual title to be held by private companies for managed timber harvest.

The irony is that the most productive lands are to become "forever wild," never to be harvested again. The damage to the local economy and culture will be exacerbated by the fact that twenty hunting clubs (with 439 members) located on the northern holdings to become "forever wild" will be eliminated.

A recent announcement revealed the planned disposition of presumably the entire 160,540-acre Finch, Pruyn holdings, which are to be divided into 90,500 acres of timberlands which have been offered for sale, subject to conservation easements, and 57,699 acres to be deeded to the state as "forever wild." (In addition, according to the February report, 1,098 acres would be available to communities and 1,415 acres would be subject to a conservation easement and sold to Finch Paper, which is now owned by Atlas Holdings.)

An earlier agreement between the conservancy and Finch, Pruyn requires that all the lands continue to supply wood to the company's paper mill for twenty years.

The timeline of the various sales to the state affect the conservancy's holding costs. Under the economic conditions when the agreement for the northern holdings was announced, the conservation easements could have been sold to the state relatively soon, probably after the conservancy completed its biological studies, but, because the agreement with Finch, Pruyn creates an encumbrance on the land to become forever wild, there is a question whether the fee simple land could be deeded to the state before the twenty years are up.

However, although it appears that the conservancy could have expected the state to acquire these conservation easements rather quickly, it is unclear from news reports whether the conservation easements have already been sold to the state. Judging by the state's appraisal practice for conservation easements, this would enable the conservancy to recover between 65% and 85% of the price it paid for those lands, plus the sort of "imputed holding charges" that the state allows the land trusts to charge.

The State of New York now faces tight fiscal constraints. Battles are raging among the governor, legislature, and interest groups over the funding of expenses to close out the current fiscal year and the upcoming budget for 2009 over everything from aid to education and funding for Medicaid. Reportedly, no money is forthcoming from the legislature to buy large acreages of land for preservation.

The explanation of why the $45 million in bonding is sought when the original purchase price was $110 million has not been made public.

How much of the original amount that the conservancy paid to Finch, Pruyn for the 160,540 acres did it expect to recover in a relatively short time? How much did it expect to finance? How quickly did it expect to sell the residual lands to the timber management companies? Whatever the answer to these questions, the indebtedness on these lands requires the payment of interest. And this is where the Colorado Educational and Cultural Facilities Authority comes in. The interest charges on a $45 million loan would be high and would have to be sustained, perhaps much of it on an unexpected basis. The conversion of the indebtedness to tax-exempt bonds would lower the interest cost.

The question arises how The Nature Conservancy, an Arlington, Virginia, corporation that is buying land in New York State is qualified to have the Colorado authority issue tax-exempt bonds to fund its purchase. Frederic H. Marienthal, an attorney at Kutak Rock, LLP, in Denver, the bond counsel, answered this question in a telephone interview. He said that the conservancy is qualified because it has an office in Colorado and does business in Colorado. In fact, he said, the authority has previously handled similar matters for the conservancy.

Because of previous announcements by the state and the conservancy that the state intends to acquire the fee simple lands and conservation easements, the question arises as to whether the State of New York explicitly or implicitly guarantees the bonds. The November 14 advertisement states:

"The Bonds and the interest thereon shall never constitute the debt or indebtedness of the Authority or the State of New York (the "State") or any political subdivision of the State within the meaning of any provision of the Constitution of the State and shall not give rise to a pecuniary liability or a charge against the general credit or taxing powers of the Authority or the State or any subdivision of the State."

Mr. Marienthal said that this clause was added in the advertisement at the request of Governor Paterson.

However, the joint agreement issued by the State of New York and the conservancy in February for the northern parcels indicates a commitment that the state will acquire the lands.

How can the IRS approve the authority's issuance of tax-exempt bonds on behalf of a private not-for-profit corporation to acquire land for preservation? The answer reportedly is that the bonds are being issued to carry out the educational purpose of the conservancy because the lands are being acquired for educational purposes. The conservancy reportedly claims that it intends to use the lands to educate the public about biodiversity.

This claim is inconsistent with the conservancy's operations for decades. The conservancy acquires land on a grand scale to flip it to state and federal government on the scale that it deems necessary to preserve biodiversity, which has been the conservancy's central mission since the seventies, according to David Morine in Good Dirt.

The claim that the bonds will be used to fulfill the educational purpose of the conservancy is spurious. The amounts expended on education related to the Finch, Pruyn tracts will be a very small fraction of the money that has changed hands and will continue to change hands again as the land is flipped to the state as fee simple and as conservation easements. The amount spent on education about biodiversity will be a very small part of that $45 million to be financed with the tax-exempt bonds.

And why should the taxpayers pick up the tab not only for the state's purchase of the lion's share of the land as it is flipped to the state, but also for the taxes that will be lost because borrowing will not be through ordinary channels?

How can the issuance of tax-exempt bonds be justified to acquire land for the state and thereby further damage the economy of an area already depressed by excessive state land acquisition and regulation? Whether in fee simple for the "forever wild" Forest Preserve or as perpetual conservation easements that prohibit the building of any residences, business structures, highways, schools and the like, more conversion of land in the Adirondacks to state ownership is against the public interest.

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© 2008 Carol W. LaGrasse
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