#ColoradoRiver: Why Denver pays farmers in Yampa Valley not to irrigate this summer — The Mountain Town News

The Yampa River flows through the Carpenter Ranch. Photo courtesy of John Fielder from his new book, “Colorado’s Yampa River: Free Flowing & Wild from the Flat Tops to the Green.” -- via The Mountain Town News
The Yampa River flows through the Carpenter Ranch. Photo courtesy of John Fielder from his new book, “Colorado’s Yampa River: Free Flowing & Wild from the Flat Tops to the Green.” — via The Mountain Town News

From The Mountain Town News (Allen Best):

Irrigation season on the Carpenter Ranch normally begins in early May and continues until September. The ranch is located along the Yampa River in northwestern Colorado, about 20 miles west of the ski town of Steamboat Springs. Water from the river is used to grow fields of waist-high timothy, clover, and other types of grasses that, after being cut, provide hay for cattle.

This year, the seasonal cycle was disrupted. Irrigation on four of the fields, totaling 197 acres, was suspended on July 1. Instead, the water has been allowed to flow down the Yampa River 100 miles to Dinosaur National Park. There, it joins the water of the Green River coming down from Wyoming, which in turn joins the Colorado River in Utah. The comingled waters then flow into Lake Powell.

Powell is one of two giant reservoirs on the Colorado River, the other being Lake Mead, near Las Vegas. Together, the two reservoirs can hold 16 times the annual flow of the Colorado River—on average. But the river and its many tributaries have been flowing below average most years since 1999. Even after torrential rains and heavy snows in the Colorado Rockies in May, the inflow into Lake Powell this year is just 88 percent of average. It’s part of a long-term trend of declining reservoir levels in a river basin that provides water for 25 to 34 million people. (Estimates vary).

These reservoir declines have instilled a sense of urgency in Jim Lochhead, chief executive of Denver Water. His agency provides water to 1.3 people in metropolitan Denver, with half the water arriving in the city from the Fraser, Blue, and other tributaries of the Colorado River.

Jim Lochhead -- photo via Westword (Alan Prendergast)
Jim Lochhead — photo via Westword (Alan Prendergast)

“One of the things we have learned in this drought is that it just seems to keep going and going and going,” says Lochhead. “We are really in uncharted territory right now in terms of where the (reservoir) levels are. The levels are the lowest since these dams have been constructed.”

Lake Mead, formed in 1936 as a result of Hoover Dam, is now at 37 percent of capacity. Lake Powell began forming in 1963 as a result of construction of Glen Canyon Dam and is at 54 percent of capacity.

Lochhead and other architects of the Colorado River System Conservation Program want to be ready in case an even more severe drought revisits the Colorado River Basin. Fresh in mind is 2002, when the Colorado River carried only 25 percent of its normal flows, and 2003 wasn’t much better. Should drought of that severity return, Lake Powell could even shrink to something called a dead pool. That’s when there’s too little water to generate electricity. The electricity is distribu ted broadly across the West to towns, cities, and farms. Revenues from sales are used to fund programs designed to protect endangered fish on the Colorado River.

Lake Powell also has another vital function for Colorado and other headwaters states: It is used to me et commitments of water deliveries to the lower basin states of Arizona, Nevada, and California as specified by the Colorado River Water Compact of 1922. Denver’s water rights from the Western Slope of Colorado are mostly junior to the compact. If drought persisted, it’s conceivable that Denver and other water users with more junior rights—including many in the mountain resort community—would have to curtail their diversions in order to comply with the 1922 compact.

Lake Powell, shown here in 2008, serves multiple purposes. Photo/Andrew Pernick, U.S. Bureau of Reclamation -- via The Mountain Town News
Lake Powell, shown here in 2008, serves multiple purposes. Photo/Andrew Pernick, U.S. Bureau of Reclamation — via The Mountain Town News

To forestall this apple cart from being upset, Denver and several major water providers that tap the Colorado River Basin last year joined with the U.S. Bureau of Reclamation to begin exploring how water can temporarily be shifted from traditional uses and allowed to flow downstream. The Carpenter Ranch along the Yampa River is the first pilot project announced in this Colorado River System Conservation Program.

The ranch is owned by The Nature Conservancy, one of several partners from the environmental community working with Denver and other water providers. The non-profit in turn sublets the land to ranchers, says Geoff Blakeslee, the Yampa River project coordinator for the organization. Taking water off the hay meadows reduces harvest and it will also reduce the number of cattle that can graze the meadows in autumn. About 90 percent of agriculture on Colorado’s Western Slope is, like the Carpenter Ranch, used to produce hay.

Joe Brummer, an associate professor of forage science at Colorado State University, has studied effects of water curtailment in small plots at the Carpenter Ranch as well as other farms. Hay production continues if irrigation ceases, but only in small quantities. The second year, after irrigation has resumed, production lags 50 percent, he says. Even in the third year, again after full resumption of irrigation, production at the Carpenter Ranch test site was 8 to 9 percent below average.

This year, the experiment is different: a split season.

Nine other pilot sites have also been identified, five of them in Wyoming and four in Colorado. They are being funded at a total cost of $1 million. A larger program on the Colorado River involving lower-basins states has a cost of $11 million. Other water agencies providing money, in addition to Denver, include those serving metropolitan Las Vegas and Los Angeles, along with the Central Arizona Water Conservation District, and the Bureau of Reclamation.

Taylor Hawes, Colorado River program director for The Nature Conservancy, says the overarching goal of the pilot program is to learn as much as possible about how water can be shared in time of crisis.

“It’s complicated to move water around,” she says. “These are property rights. Many farmers are unsure how it will impact their water rights if they participate in a project like this. So the point of these pilots is to learn as much as we can right now, so that if a crisis does hit, we will have good information so that we can design a program that allows us to share water in a drought.”

How close is crisis? Too close for comfort, she says. “If this were your savings account and it was continuing to drop, you would be concerned,” she says.

Hawes also sees another, even more dramatic analogy. “I think we were on the edge of the cliff, and depending upon whether it’s a good year or bad year, we take a step forward and backward. The California (drought) situation has highlighted impacts that we will have if we don’t have a plan in place.”

A fishing pier stood distant from the receding waters of Lake Mead in December 2010. Photo/Allen Best - See more at: http://mountaintownnews.net/2015/08/20/letting-water-flow-down-the-yampa-to-lake-powell/#sthash.7tRYDEZj.dpuf
A fishing pier stood distant from the receding waters of Lake Mead in December 2010. Photo/Allen Best – See more at: http://mountaintownnews.net/2015/08/20/letting-water-flow-down-the-yampa-to-lake-powell/#sthash.7tRYDEZj.dpuf

Some say that the Colorado River actually is in worse shape over the long haul than California. New evidence finds that warming temperatures in the Southwest may be causing evaporation and [transpiration] that alone can explain declining reservoir levels.

“The fact that the Colorado River Basin drought is more a product of the heat than any drop in precipitation is a frightening prospect, because that heat is not going to go away,” says Doug Kenney, research associate at the Natural Resources Law Center at the University of Colorado. In fact, because of increased locked into the atmosphere because of accelerating greenhouse gas emissions, all climate models forecast brisk increases of heat in future decades in the basin.

Denver’s Lochhead says the 2002 drought forced the seven states in the Colorado River Basin to consider how to share impacts of drought. Upper Basin states can move water from smaller reservoirs near the headwaters, such as Flaming Gorge in Utah and Navajo in New Mexico, down into Powell. Water can also be allowed to flow downstream through projects such as are being tested at the Carpenter Ranch.

Water providers in the Colorado River program want to work out kinks so that, if crisis occurs, curtailments can be scaled. But many questions remain, such as how to protect water users through the process, to ensure their water rights remain valid. “It’s really the first step,” says Lochhead, and there will be many follow-up questions.

Lochhead is sensitive about how the program is perceived. It is not, he stressed, a grab by cities for agricultural water. The transfers are intended to be temporary and provide compensation to water-right holders. He also points out that it need not be just farms and ranches. One of the pilot programs involves a city on Colorado’s Front Range, he says, but declined to identify the city, because negotiations have not been completed.

“We’re trying to take the perception of winners and losers off the table,” he says. “In this program, everybody wins because the system wins.”

What’s also of note is the extent to which environmental groups have waded into this program. Hawes says The Nature Conservancy wants to work with farmers because, when the river system gets taxed, agriculture and the environment are usually the first to lose. “We need to work to find partnerships,” she says.

Water rights for the Carpenter Ranch date to 1881, the oldest on the Yampa River. Photo/ Mark Godfrey and The Nature Conservancy
Water rights for the Carpenter Ranch date to 1881, the oldest on the Yampa River.
Photo/ Mark Godfrey and The Nature Conservancy

Trout Unlimited has also been a major partner. It has property in the Pinedale-Green River area of Wyoming participating, and the organization has also enlisted a small farm along the Gunnison River near Delta, Colo. Cary Denison, project coordinator for Trout Unlimited in the Gunnison Basin, says the farmer will fallow the land for one year then, in the second year, plant a lower consumption crop. Corn, the current crop, takes two feet per acre. Winter wheat only requires a foot.

“Our role is very limited. I am looking at this is a way of participating in an interesting pilot project that looks at consumptive use of different crops.”

While some farmers already knew about the pilot program, he says, others needed to understand the motivation.

Some ratepayers in Denver also wanted to know why Denver Water would be paying farmers to let water flow downstream toward California. That question gets to the heart of the great complexity of water and the Colorado River Basin, points out Doug Kenney, research associate at the Natural Resources Law Center at the University of Colorado.

Denver itself is outside the basin, of course. Cheyenne, Albuquerque, and Salt Lake City, plus Phoenix and Tucson, Los Angeles, and San Diego are similarly outside the basin—but also depend upon Colorado River water.

For such a relatively small river, it pulls a heavy load.

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Colorado Water Trust (@COWaterTrust) comes to the aid of the Yampa River once again — Steamboat Today

stagecoachreservoir1

From Steamboat Today:

Water Trust Staff Attorney Zach Smith said Upper Yampa began releasing 12 cubic feet per second from Stagecoach Reservoir on Monday, with the goal of boosting flows in the river up to the decreed instream flow amount of 72.5 cfs. The U.S. Geological Survey reflected that flows had quickly reached that level on Monday before declining slightly on Tuesday.

Smith reported Tuesday that the Lake Catamount Metropolitan District had agreed to pass flows below the Catamount Dam downstream from Stagecoach.

This summer’s water release comes later in the summer than it did in 2012 and 2013, when below average winter snowpack and early spring runoff left the river flowing below historic averages in early July. The hay harvest has been early in 2015 — months earlier, in some cases — than it was in 2014.

This summer’s purchase of 1,185 acre-feet of water is in contrast to 2012, when 4,000 acres was purchased from Stagecoach, translating into about 26 cfs for much of the summer.

The winter of 2014-15 was another low snow year, but above average rainfall has kept the upper Yampa Valley lush and the river at healthy flows through the end of July.

As recently as Aug. 4, the Yampa was flowing above median for the date at 180 cfs, but fell to 110 cfs on Aug. 9. It bumped slightly upward in downtown Steamboat on Tuesday.

The city of Steamboat Springs, Colorado Parks and Wildlife, Tri-State Transmission and Generation and Catamount Development and the Catamount Metropolitan District also played a role in the latest conservation water release.

The Colorado Water Trust is a private, nonprofit organization that facilitates voluntary, market-based water rights transactions to restore and protect streamflows in Colorado to sustain healthy aquatic ecosystems. It also works on physical solutions and provides technical assistance on other projects.

Senate Agriculture Committee Chairman Jerry Sonnenberg to Chair Hearing on Conservation Easements

Saguache Creek
Saguache Creek

From The Prowers Journal (Russ Baldwin):

Senate Agriculture Committee Chairman Jerry Sonnenberg (R-District 1) today announced the holding of a special August 5 public hearing, focused on the state’s conservation easement program. It’s scheduled for between 9:00 a.m. and noon in SCR 356 at the state Capitol.

“This conservation easement process continues to be confusing and somewhat challenging,” said Sonnenberg. “We need to figure out why after a number of years some of these easements are still in limbo.”

More conservation easements coverage here and here.

Colorado hopes to protect the integrity of conservation easements by cracking down on the monkey business

Saguache Creek
Saguache Creek

From the High Country News (Jennie Lay):

Perched at the podium during a Colorado Coalition of Land Trusts gathering, Erin Toll wears a poker face, a smart black pencil skirt and sassy Jimmy Choos. Among the jeans-and-hiking-boot-clad crowd attending, this wry New York transplant seems an unlikely hero. As recently as last fall, Toll, director of the Colorado Division of Real Estate, had no idea what a conservation easement was. But now, she says, protecting the integrity of land conservation is her number-one priority – and she’s cracking down on crooked deals with a vengeance.

Toll’s new enthusiasm for conservation easements, which offer landowners tax breaks in exchange for accepting limits on their right to develop, couldn’t come at a better time for Colorado’s land trusts. The state has seen some of the fastest-paced land conservation in the country, driven by a boom in both land trusts – the nonprofit organizations that hold easements – and in government open-space programs. Coloradans have protected nearly 1.8 million acres with conservation easements, much of it fueled by innovative tools, including a lottery-funded land protection program and a transferable state income tax credit.

Unfortunately, though, tax benefits sometimes breed abuses. And questionable conservation deals are drawing intense scrutiny – including Toll’s investigation into inflated real estate appraisals in Colorado and an ongoing Internal Revenue Service audit of hundreds of tax returns nationwide claiming federal tax breaks for donated easements. While state investigation and reform is moving swiftly, the federal audits have dragged on, frustrating landowners and creating confusion about easement appraisals.

The legal and financial complexities of conservation easements have reached a crossroads in Colorado. “What happens in Colorado could bleed out to the rest of the country,” says Lynne Sherrod, Western policy manager for the national Land Trust Alliance.

To help ferret out abusers, Toll has issued 30 subpoenas since November. So far, she’s suspended two appraisers who inflated appraisal values on more than 35 conservation easements. (She’s still wading through 44 boxes of evidence and says, “Every day we find more.”) The jacked-up appraisal values exploit a state program that offers landowners up to $375,000 in transferable tax credits for conservation easement donations. Land-conservation professionals say the program has been critical in protecting more than a million acres (at a cost of about $274 million) across the state since it took effect in 2000.

Although the majority of the state’s conservation easements are rock-solid, Toll rolls her eyes as she reveals some of the more outrageous exceptions. In a sampling of conservation easements from one group, Noah Land Conservation (also known as Colorado Natural Land Conservation), Toll found gross overvaluations of 111 easements on the eastern plains. The scheme involved 6,100 acres valued at $76.5 million (hence eligible for $37 million in state tax credits) by a mere three appraisers, on parcels that were meticulously subdivided so they could slip past county and state laws regarding acreage or subdivision development. In one particularly egregious example, the appraised value of a single 640-acre ranch leaped more than $14 million in a matter of days. Toll’s investigation is ongoing, but she’s narrowed the state’s spoilers down to about eight appraisers (including the two she’s already sanctioned), a couple of attorneys and a promoter or two – and their offenses, including possible securities fraud, could spread into the realm of other government agencies.

More conservation easement coverage here and here.

2015 Colorado legislation: SB15-130 (Assist Conservation Easement Tax Credit Buyers) dies in committee

Saguache Creek
Saguache Creek

From The Denver Post (David Migoya):

A bill that aimed to offer relief to taxpayers who bought into the early days of Colorado’s conservation easement program and were blind-sided years later by hefty penalties was defeated in committee Tuesday.

The bill, SB-130, by Sen. John Kefalas, D-Fort Collins, met with stern opposition from state revenue officials who said taxpayers who purchased millions of dollars worth of easement tax credits were on their own, and the state shouldn’t have to fix their errors.

“This bill would place the government in the middle of a financial transaction between two private parties, and that is an area we should not occupy,” said John Vecchiarelli, Colorado’s director of taxation at the Department of Revenue. “Those responsible should be held accountable and the people of the state should not have to provide that relief.”

The Senate Finance Committee voted 5-0 to defeat the measure despite acknowledgments of testimony from taxpayers who were forced to pay as much as 10 times the original amount of their income tax bill.

“It’s our obligation to pay taxes so government works, but don’t do it in a way that makes me feel robbed,” said Julius Medgyesy, who runs Front Range Cancer Specialists in Fort Collins. “We’ve done nothing wrong in trusting a government program.”

At issue were millions of dollars in tax credits given to landowners in return for preserving their property from future development. The tax credits could be sold and taxpayers bought them at a discount and used them against their personal tax liability.

The first years of the program were not policed by the state and credits were claimed on donations whose underlying appraisals were grossly inflated — some by as much as 166,000 percent, state officials said.

Credit buyers learned of the abuses and poor appraisals years after they’d already used the credits, only to learn they had to pay the state their original tax debt. Worse, the landowners they’d bought the credits from no longer had the cash to repay the buyers and their land was now virtually worthless, stuck in the conservation easement forever.

“We are left taking bankrupt or broke landowners to court to collect money that’s no longer there,” testified Mark Heiden of Fort Collins. “What’s been fair to the credit buyers? Nothing. I’ve paid 150 percent to the state of what my normal tax liability would have been. The landowners got my money and spent it. The state got the rest.”

Senators said they struggled between an obvious injustice and the state’s liability to cover the taxpayers’ losses.

“This was a troubling afternoon of testimony,” said Sen. Mike Johnston, D-Denver. “We have those who supported (a program) and got short-changed on their investment, and that’s unfortunate and catastrophic. But the challenge is I can’t fit it into the precedent of the state’s obligation to correct it for them.”

More 2015 Colorado legislation coverage here.

Conservation easements aren’t working out for everyone, assessed land values were inflated

Saguache Creek
Saguache Creek

David Migoya hits it out of the park with this in-depth look at Colorado’s conservation easement program, which was designed to be self-regulated and what happened when that didn’t work out. Take the time to read the whole thing. Follow the links as well:

From The Denver Post (David Migoya):

Rocky Ford hay farmer Timothy Crow despises staring at bankruptcy. The 61-year-old says he hates it even more that Colorado put him there. “This was supposed to be a good thing for everyone,” Crow says of the state’s conservation easement program, where land-rich but cash-poor ranchers and farmers like him can preserve their property forever in return for needed income. “It’s become a living nightmare,” he said.

Crow and thousands of others like him preserved millions of acres of land in return for state income-tax credits they could either sell for cash or use to pay their own income tax bill.

Now, the state is forcing a handful of those landowners — and hundreds of people who bought those credits — to pay as much as $220 million in back taxes because the state says the land isn’t worth what the landowners claimed.

“It’s like a bait-and-switch scam,” Crow said. “Now my land is worth nothing, and I’m broke because of it. The only one making out is the state.”

At issue are nearly 500 conservation easements like Crow’s, the bulk of them donated between 2003 and 2007, that were created under a state law that for years had no oversight.

Things went wrong from the start. Wealthy investors and their lawyers latched onto an apparent loophole where the amount of tax credits they could get — and later sell at huge profits — were maximized by way of an appraisal method the state later said was flawed.

And although many landowners went into the program honestly, they relied on appraisers who used the flawed method.

Although it took years to unravel, state investigations ensued, and corrective action was taken to prevent further abuses and works well today.

But the fallout to taxpayers who bought in during the program’s earliest days is just now reaching a crossroad.

Instead of looking to the landowners who reaped the cash from selling the tax credits, the state is reaching into the pockets of the taxpayers who used the credits to pay their tax bills. The taxpayers say they bought the credits believing the state had scrutinized the process.

“This just stinks all the way around,” said Fort Collins businessman Michael McCurdie, who today is staring at a $100,000 bill for back taxes and penalties because he bought $65,000 in easement credits in 2003.

“How is any of this our fault?” he asked.

Landowners also are reeling, with many pushed into bankruptcy or its edge, because the taxpayers who bought the credits now want their money back. Landowners, such as Crow, used the tax-credit money to keep their farms and ranches operating. A few made improvements to homes or vehicles. There isn’t much left for refunds.

“The state created, advertised, and promoted the conservation easement program with the full understanding of the (land) appraisals, and (knew about) them for years,” said Fort Collins businessman Mark Lueker, who paid $52,000 to buy about $60,000 in easement tax credits. The state has since disallowed most of his credits and forced him to pay an additional $43,000 in taxes and penalties.

State officials say they’re merely collecting on taxes due.

“It is inaccurate to suggest that buyers of (conservation easement) credits, which were subsequently disallowed, have paid their tax twice,” state Department of Revenue spokeswoman Daria Serna said in an e-mail to The Denver Post. “They were private deals negotiated by private parties, and as with any investment there is risk.”

Serna said the original idea in creating the tax credits was for landowners and tax-credit buyers to keep each other honest, not for the state to police them.

The legislation was enacted in 1999 “with the intention the program would be self-regulated,” Serna said. [ed. emphasis mine]

Lueker, like others, says the state is culpable for creating the monster and not keeping track. The mere existence of the state tax credits led many buyers to believe they were safe, he said.

“The state has to accept responsibility for fiscal losses due to its internal negligence,” Lueker said.

Triple play

The conservation easement program was to be a triple play for Colorado.

“You want landowners to put their property into easements. That’s what makes our state beautiful. That’s a win,” McCurdie said. “And the tax credit helps us, the taxpayer, facilitate it. Everyone is winning.”

The state wins because easements are donated to a nonprofit land trust that ensures it remains pristine forever, protected from urban sprawl and development.

That’s how Crow saw it when he placed his 30-acre farm into an easement in 2003. He said he wanted to ensure it would never be developed, “that it would stay part of the valley forever.”

Crow claimed income-tax credits worth $160,000 based on an appraisal that valued his land on its potential use for a housing development should nearby Rocky Ford reach him.

Crow either could apply the credits against what he owed on his own income taxes, or he could sell the credits to someone else, who in turn could use the credits to pay their taxes.

To entice buyers, tax credits are typically sold at a discount, so $10,000 of tax credits would sell for as little as $8,000. The buyer can claim the whole $10,000 against their state income-tax debt or stretch it out over a few years.

And instead of paying the state, the buyer’s money went to the landowner.

Thousands bought into the idea. To date there have been 4,243 easement donations comprising nearly 2 million acres of land since it began.

Like hundreds of other ranchers, Crow had little use for tax credits — he never owed that much — and preferred the cash-flow for his small farm.

“I’m one of the small guys,” he said. “Like so many others, I’m usually just waiting around for the wrath of God to change things.”

He sold the credits through a broker.

“We didn’t get rich, but that money sure helped when times were tough,” Crow said. “Those were not easy years.”

Everything would have been fine had state revenue agents not noticed some tax-credit buyers were making claims in dollar amounts that were out of line from others participating in the program. Something was wrong.

Money-making scheme

Investigators found a small group of investors and attorneys had twisted the fledgling program into a monumental money-making scheme.

Not only were land appraisals abused, but the investors decided a 1,000-acre donation could garner many more times the state maximum of $260,000 in tax credits by carving it into smaller donations.

Suddenly one property was worth millions of dollars in tax credits that could then be sold for cash.

Retired attorney Stanley Mann led a group of real-estate investors whose 1,000-acre development near Walsenberg was at a near stand-still with only two houses built.

“Developing in Walsenberg doesn’t happen overnight, and we saw a minimum of 19 years to get it done,” Mann said. “But we were getting older, and the (easement) idea made perfect sense.”

The group pared the land into two dozen 35-acre donations at $260,000 in tax credits each, then sold them.

It was a payday. Between 2003 and 2007, there were 2,417 donations statewide totalling $498 million in tax credits, state officials said.

About a third of them — covering nearly half the tax-credit total — were found to have faulty appraisals.

Landowners such as Crow saw only needed money they could make on land they never wanted used for anything other than what it had been for generations — for pasture and plow.

“There were those who got sucked in because it probably seemed like just another Farm Bill program,” said John Swartout, special policy adviser to Gov. John Hickenlooper and former executive director of Outdoors Colorado.

Faulty appraisals

Irregularities first caught investigators’ eyes in about 2007. The early abusers eventually were taken down, some attorneys were sanctioned, a handful of appraisers lost their licenses, and a few speculator investors repaid millions of dollars of credits they had sold to hundreds of unsuspecting taxpayers.

Meanwhile, the state backtracked through hundreds of other donations, disallowing tax credits that were claimed on 682 donations based on faulty appraisals from 2000 to 2010.

More than 80 percent of the problem donations were from 2003 to 2007.

So many credits were disqualified that the state Department of Revenue, which was in charge of the easement program at the time, couldn’t keep up. Cases were tied up in administrative red tape and legal challenges for years.

In 2011, the legislature devised a shortcut in HB11-1300, creating three regions of conservation easement district courts where the cases would go. All those involved — the state, the taxpayers and the landowners — would be part of a court process to work out who was to pay and how much.

Although landowners could choose a hearing before revenue department administrators, few did. Ultimately 478 easements headed to court, each with a dozen or more credit buyers.

“The state encouraged the conservation easements then turned around to nail everyone who had one,” said Walter Kowalchik, a retired lawyer in Jefferson County who was part of Mann’s group. “It was a horrible disappointment to hundreds of people.”

In dozens of cases since, tax-credit buyers have been told they can either repay the original amount of income tax they owed from as long as a decade ago — penalties and interest forgiven — or fight it out and risk hefty add-ons later.

“Basically I had two choices: Settle, be happy and pay the smaller amount, or complain and then pay the whole thing with penalties and interest,” said Julius Medgyesy, who runs Front Range Cancer Specialists in Fort Collins. “I had to cut another fat check.”

Not every credit buyer had to pay. Some wealthy landowners and developers, like Mann’s group, covered the tab because tax credits are sold with a promise of indemnity. If something goes wrong, the seller agrees to pay up.

Many, like Crow, couldn’t afford that. They had little money left or not enough equity in their property to pay the taxpayers back.

The money was spent long ago on their farms. Worse, their land is permanently stuck in a conservation easement that’s worth nothing now. They can never develop it, never change its current use. Selling won’t get very much. For Crow, it’s forever a hay farm.

“It’s a State of Colorado Ponzi scheme,” Medgyesy said.

“The state doesn’t care”

When the Department of Revenue told Crow the appraiser’s error on his easement donation meant he should not have gotten $160,000 in tax credits, his heart sank.

“When they pulled the plug, that was it for us,” Crow said.

The 10 people who bought the tax credits from Crow had to pay up.

That meant Jeannine Thomas, who in 2003 paid Crow about $12,000 for $15,000 of his income tax credits, had to write a second check for taxes she thought she’d handled years ago.

In all, she’s repaid about $40,000.

“What I’ve paid the state is on top of what I gave the land donors,” she said. “I can put a lien on their property or force a sale of what little they have left.”

Thomas takes a long pause.

“So, I can either kick them out of their homes or simply be quiet and eat the loss,” she said. “The state says the easements did not meet their standards, and that it’s just business. Is this what this program was intended to do? Pit the tax-credit buyers against the conservation easement donors? To hurt people?”

Many say they’ve simply put their head down and accepted their fate.

“We’ve tried to make noise, but no one wants to go toe to toe with state (tax) revenue,” McCurdie said.

The Lamar landowner from whom McCurdie and 13 others purchased tax credits works three jobs today, his land nearly worthless because of the easement on it and the subsequent disallowance of its donation value. All the money from the tax credits he sold years ago was put into the farm.

With penalties and interest, Colorado pegged McCurdie and the others for roughly $1.4 million — on top of the nearly $1 million they’d already paid for the tax credits.

“We’ve tried to make the point that we bought into (the program) on good faith,” McCurdie said. “The state simply doesn’t care. They’re very clear this is their money and they will have it.”

No one has helped

Efforts at fixing the problem have fallen on deaf ears, several say. There have been letters to officials, meetings with agencies, phone calls to the governor’s office. No one has helped.

“Our point is that the (Department of Revenue) had by far the better chance to catch this abuse back in 2004 than we did,” Fort Collins builder David Neenan wrote Hickenlooper in March, appealing for a solution.

Neenan bought $80,000 of tax credits for himself and his family for $64,000. Earlier this year, he paid the state $128,000 in back taxes, penalties and interest.

A tax bill of $80,000 has now cost him more than $200,000.

“I received a form letter thanking me for my letter,” Neenan said of his plea to Hickenlooper.

The farmers from whom Neenan bought the credits have gone bankrupt or have only a small house or a few tractors in assets.

“There’s nothing to collect from,” he said.

Sen. John Kefalas, D-Fort Collins, said he’d like to take up the cause, but it’s uphill. Two earlier legislative efforts at amnesty have died.

“There’s an element of fairness here, and we need to find a way to deal with that,” Kefalas said. “But it’s a challenge.”

Even some businesses have suffered.

“We thought of participating with the state for a good cause,” said Mark Bower, executive vice president and CFO at Home State Bank in Lafayette. “It was their program. We thought we’d be a good corporate citizen and participate.”

In all, the bank lost $225,000 because of disallowed credits. Bower said it was “unpleasant” having to explain the loss to the bank’s board of directors.

“And what were we going to do, evict a rancher over it?” Bower said.

Today, mostly disabled and a widower, Crow gets by on his wife’s death benefit, too proud, he says, to apply for disability.

“This whole thing sucked the last bit of life right out of my wife,” he said of his wife, Jane, who died last year.

Looking north over the barren land behind his small home, Crow sighs.

“I was broken-hearted about how it’s all fallen apart,” he said, “and now we’re all backed into a corner.”

Even if Crow had the money to pay the buyers back, nothing would change.

His small farm is trapped in an easement for Colorado to enjoy — forever.

Click here to go to the November 23, 2007 Coyote Gulch post when things first breaking. Here’s a post about HB11-1300 designed to provide some relief to taxpayers that got caught up in the shenanigans.

Kudos to The Denver Post for keeping links alive in the archives.

More conservation easement coverage here.

Land trust closer to purchasing 1,000 acres in Ark River Valley — The Mountain Mail

Arkansas River near Leadville
Arkansas River near Leadville

From The Mountain Mail (J.D. Thomas):

The Land Trust of the Upper Arkansas is closer to its goal of purchasing 1,000 acres scattered throughout the valley, thanks to its fifth annual fundraising event. The land trust raised a net total of $16,990 Friday at Salida SteamPlant.

Andrew Mackie, executive director, said 120 tickets were sold for the event, with tickets ranging in price from $35 for land trust members to $45 for nonmembers.

“The event is open to anyone who wants to come out and support what we do,” Mackie said. “We are limited to the amount of people who can attend because of the size of the venue.”

Of the $16,990 raised, $6,230 went to the $10,000 goal for the land trust to purchase 1,000 acres scattered throughout the Arkansas Valley, said Mackie. “We did pretty solid,” he said. “Over the next few weeks we will be seeking to reach our goal.”

Mackie said he couldn’t be specific as to the locations of the various properties because he wanted to protect the confidentiality of the landowners and is still negotiating the deals.

Mackie said the fundraiser typically raises between $8,000 and $10,000.

The event included a light dinner provided by Kalamatapit Catering, a cash bar, silent auction and a program, “Rivers Are More Than Water: Linking Land and Water in Colorado’s Water Plan.”

Items such as alcohol, guided trips and outdoor gear were included in the silent auction.

The program was presented by Ken Neubecker, associate director for the Colorado River Basin Program with American Rivers. Neubecker said he hoped his informative talk would advance the discussion of Colorado’s Water Plan.

Mackie said people who wish to find out more about the organization and to donate to Land Trust of the Upper Arkansas can visit http://ltua.org or call 539-7700.

More conservation easement coverage here and here.