GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

H	2 

HOUSE BILL 260*
Committee Substitute Favorable 4/8/97

Short Title:  Conservation Easements/Tax Credit.	(Public)

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Sponsors:

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Referred to:  

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February 17, 1997

A BILL TO BE ENTITLED
AN ACT TO ESTABLISH A CONSERVATION EASEMENTS PROGRAM THAT USES CONSERVATION TAX CREDITS FOR THE PROTECTION OF NATURAL RESOURCES AND THAT FURTHERS APPROPRIATE PUBLIC USE OF NATURAL RESOURCES, TO CREATE THE FACILITATION AND ASSISTANCE GRANT FUND TO SUPPORT COOPERATIVE CONSERVATION EFFORTS, AND TO INCREASE THE CAP ON THE INCOME TAX CREDIT FOR REAL PROPERTY DONATED FOR CONSERVATION PURPOSES, AS RECOMMENDED BY THE ENVIRONMENTAL REVIEW COMMISSION.
The General Assembly of North Carolina enacts:
Section 1.  Chapter 113A of the General Statutes is amended by adding a new Article to read:
“ARTICLE 16.
"Conservation Easements Program.
"§ 113A-230.  Legislative findings; intent.
The General Assembly finds that past efforts to protect natural resources and to provide for the appropriate public use of natural resources through the provision of income tax credits for the donation of real property interests is fiscally prudent but too limited to meet increasing needs.  The General Assembly finds that a statewide network of protected riparian buffers and greenways can best be accomplished through a conservation easements program that entails the cooperative effort of all levels of government, nonprofit organizations, and individuals.  It is clear that a more comprehensive approach is required to accomplish riparian buffers and greenways, as well as this program's other conservation purposes, than was previously envisioned and set in place.  Other public conservation and use programs, such as natural area protection, beach access, trail systems, historic landscape protection, and agricultural preservation, also can benefit from increased attention and improved conservation tools.  Recognizing that flexibility is essential to the success of this effort, the conservation easements program utilizes a broad range of nonregulatory approaches and involves all interested parties in its activities.  Because public understanding and acceptance is crucial to a nonregulatory program, activities include education about the purpose of and methods for conservation, as well as opportunities to use such knowledge through involvement in efforts to conserve ecological systems.  Potential exists to accomplish multiple public purposes on conserved lands, and every reasonable effort should be made to accommodate compatible uses without diminishing their natural resource value.  In those cases where potential conservation lands have been previously degraded, partnerships should be sought to restore these lands so that they again will serve a viable role in the ecological system.  The General Assembly intends to extend the ability of the Department of Environment, Health, and Natural Resources to achieve these purposes and to strengthen the capability of private nonprofit land trusts to participate in land and water conservation.
"§ 113A-231.  Duties of the Department.
The Department of Environment, Health, and Natural Resources shall develop a nonregulatory program that uses conservation tax credits as a prominent tool to accomplish conservation purposes, including the maintenance of ecological systems.  The Secretary of Environment, Health, and Natural Resources shall:
(1)	Adopt a plan guiding efforts to educate involved parties, focus on attainable conservation objectives, and achieve ecological benefits for the State.
(2)	Set goals for education and communication designed to reach the broadest and most involved audience so that the conservation tax credit may develop into a significant tool for environmental protection and for furthering appropriate public use of natural resources.
(3)	Adopt guidelines, criteria, and rules for program operation to ensure maximum effectiveness and long-term efficiency.
(4)	Award grants and execute contracts and other agreements as necessary to conduct the nonregulatory program and achieve its goals.
(5)	Facilitate acquisition through donation and facilitate the holding and the transferring of interests in land necessary to establish a network of riparian buffers and greenways, as well as natural areas and other conservation benefits.
(6)	Facilitate acceptance of donations that are eligible for tax credits under G.S. 105-130.34 or G.S. 105-151.12 or that constitute a charitable deduction under federal or State law.
(7)	Cooperate with federal, State, or local government agencies, nonprofit organizations, corporations, and individuals.
(8)	Involve professional associations, business leagues, community groups, and other volunteer groups in program activities.
(9)	Facilitate public education regarding the function and importance of ecological systems and the methods available for their protection.
(10)	Coordinate with other programs involved with the conservation of lands and waters to gain the most public benefit while protecting the environment.
(11)	Pursue cooperative efforts to restore previously degraded lands brought under the public trust to reestablish their ecological function.
"§ 113A-232.  Facilitation and Assistance Grant Fund.
(a)	Fund Created. – The Facilitation and Assistance Grant Fund is created.  The Fund shall be administered by the Department of Environment, Health, and Natural Resources to stipulate use of the conservation easements for other conservation purposes, to improve the capacity of private nonprofit land trusts to successfully accomplish conservation projects, to better equip real estate related professionals to pursue opportunities for conservation, to increase citizen participation in land and water conservation, and to provide an opportunity to leverage private and other public monies for conservation easements.
(b)	Fund Sources. – The Facilitation and Assistance Grant Fund shall consist of any monies appropriated to it by the General Assembly and any monies received from public or private sources.  Unexpended monies in the Fund that were appropriated from the General Fund by the General Assembly shall revert at the end of the biennium unless the General Assembly otherwise provides.  Unexpended monies in the Fund from other sources shall not revert and shall remain available until such time as they are expended consistent with this Article.
(c)	Administration of Fund. – The Secretary of Environment, Health, and Natural Resources shall adopt rules that set forth the process for awarding grants and administering the Facilitation and Assistance Grant Fund, using the best available information to focus grants activity on those areas, approaches, and techniques that are likely to provide the optimum positive effect on environmental protection.  The Secretary may contract for administrative services to assist in administering the program under this Article.
(d)	Eligibility. – In order to be the subject of a grant under this Article, lands must possess or have a high potential to possess ecological value, must be reasonably restorable, and must qualify for tax credits under G.S. 105-151.12 and G.S. 105-130.34.  To be eligible to receive a grant under this Article, a grantee must be a private nonprofit land trust organization that is organized to receive and administer lands for conservation purposes and that is qualified to receive charitable contributions under the Code.  For the purposes of this subsection, the term ‘Code' has the same meaning as defined in G.S. 105-228.90.
"§ 113A-233.  Uses of the Facilitation and Assistance Grant Fund.
(a)	The Facilitation and Assistance Grant Fund shall be used to pay costs reasonably necessary to administer the grants program.  After these administrative costs are paid, the Fund may be used for:
(1)	Reimbursement for total or partial transaction costs for donations from individuals or corporations satisfying either of the following:
a.	Insufficient financial ability to pay all costs or insufficient taxable income to allow these costs to be included in the donated value.
b.	Insufficient tax burdens to allow these costs to be offset by the value of tax credits under G.S. 105-130.34 or G.S. 105-151.12 or by charitable deductions.
(2)	Management support, including initial baseline inventory and planning.
(3)	Monitoring compliance with conservation easements; the related use of riparian buffers, natural areas, and greenways; and the presence of ecological integrity.
(4)	Education, including information materials intended for landowners and education for staff and volunteers.
(5)	Direct stewardship and stewardship as provided in subsection (b) of this section.
(6)	Transaction costs, including legal expenses, closing and title costs, and unusual direct costs, such as overnight travel.
(7)	Administrative costs for short-term growth or for building capacity.
(b)	The Secretary may allocate up to ten percent (10%) of available funds after reasonably necessary administrative costs have been paid to a protected endowment account, the interest from which shall be available to accomplish the ongoing activities provided in subdivisions (3) and (5) of subsection (a) of this section.
(c)	The Fund shall not be used to pay the purchase price for any interest in land.
"§ 113A-234.  Administration of grants.
(a)	The Department of Environment, Health, and Natural Resources may administer the grants under this Article or may contract for selected activities under this Article.  If administrative services are contracted, the Department shall establish guidance and criteria for its operation and contract with a statewide nonprofit land trust service organization.
(b)	The Secretary of Environment, Health, and Natural Resources shall adopt rules for the award of grants.  The rules may address, but are not limited to, the following considerations:
(1)	Application and award frequency.
(2)	Organizational capability of the grantees.
(3)	Viability of the donor.
(4)	Location of the natural resources.
(5)	Ecological and conservation value.
(6)	Legal parameters of protective instruments.
(7)	Procedural considerations.
(8)	Management policies.
(9)	Stewardship expectations.
(10)	Requirements for matching funds.
(c)	The Secretary of Environment, Health, and Natural Resources shall make the final decision on the award of grants and shall announce the award publicly in a timely manner.
"§ 113A-235.  Conservation easements.
Ecological systems and appropriate public use of these systems may be protected through conservation easements, including conservation agreements under Article 4 of Chapter 121 of the General Statutes, the Conservation and Historic Preservation Agreements Act.  A conservation easement or conservation agreement secured with assistance from the Facilitation and Assistance Grant Fund shall provide that all rights under the easement or conservation agreement may be transferred to the Department of Environment, Health and Natural Resources.  As a condition of receiving funds under this Article, the holder of the conservation easement or conservation agreement shall grant to the Department of Environment, Health, and Natural Resources, as trustee for the State, a first right of refusal to acquire all rights in the conservation easement or conservation agreement under such terms and conditions as agreed to between the holder of the conservation easement or conservation agreement and the Department of Environment, Health and Natural Resources.  Any holder of a conservation easement or conservation agreement secured under this Article shall assume responsibility for the management of the protected interests created by the easement.  The Department of Environment, Health, and Natural Resources shall work cooperatively with State and local agencies and qualified nonprofit organizations to monitor compliance with conservation easements and conservation agreements and to ensure the continued viability of the protected ecosystems."
Section 2.  G.S. 105-130.34 reads as rewritten:
"§ 105-130.34.  Credit for certain real property donations.
(a)	Any corporation that makes a qualified donation of an interest in real property located in North Carolina during the taxable year that is useful for public beach access or use, public access to public waters or trails, fish and wildlife conservation, or other similar land conservation purposes, is allowed a credit against the tax imposed by this Division equal to twenty-five percent (25%) of the fair market value of the donated property interest.  To be eligible for this credit, the interest in real property must be donated to and accepted by either the State, a local government, or a body that is both organized to receive and administer lands for conservation purposes and qualified to receive charitable contributions pursuant to G.S. 105-130.9.  Lands required to be dedicated pursuant to local governmental regulation or ordinance and dedications made to increase building density levels permitted under the regulation or ordinance are not eligible for this credit.  The credit allowed under this section may not exceed two hundred fifty thousand dollars ($250,000).  To support the credit allowed by this section, the taxpayer shall file with its income tax return for the taxable year in which the credit is claimed, a certification by the Department of Environment, Health, and Natural Resources that the property donated is suitable for one or more of the valid public benefits set forth in this subsection.
(b)	The credit allowed by this section may not exceed the amount of tax imposed by this Division for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.
(c)	Any unused portion of this credit may be carried forward for the next succeeding five years.
(d)	That portion of a qualifying donation that is the basis for a credit allowed under this section is not eligible for deduction as a charitable contribution under G.S. 105-130.9."
Section 3.  G.S. 105-151.12 reads as rewritten:
"§ 105-151.12.  Credit for certain real property donations.
(a)	A person who makes a qualified donation of an interest in real property located in North Carolina during the taxable year that is useful for (i) public beach access or use, (ii) public access to public waters or trails, (iii) fish and wildlife conservation, or (iv) other similar land conservation purposes, is allowed as a credit against the tax imposed by this Division an amount equal to twenty-five percent (25%) of the fair market value of the donated property interest.  To be eligible for this credit, the interest in property must be donated to and accepted by either the State, a local government, or a body that is both organized to receive and administer lands for conservation purposes and qualified to receive charitable contributions under the Code.  Lands required to be dedicated pursuant to local governmental regulation or ordinance and dedications made to increase building density levels permitted under the regulations or ordinances are not eligible for this credit.  The credit allowed under this section may not exceed one hundred thousand dollars ($100,000).  To support the credit allowed by this section, the taxpayer shall file with the income tax return for the taxable year in which the credit is claimed a certification by the Department of Environment, Health, and Natural Resources that the property donated is suitable for one or more of the valid public benefits set forth by this subsection.
(b)	The credit allowed by this section may not exceed the amount of tax imposed by this Division for the taxable year reduced by the sum of all credits allowed, except payments of tax made by or on behalf of the taxpayer.
Any unused portion of this credit may be carried forward for the next succeeding five years.
(c)	In order to claim the credit allowed under this section, the taxpayer must add the fair market value of the donated property interest, up to a maximum of four hundred thousand dollars ($400,000), to taxable income as provided in G.S. 105-134.6(c).
(d)	In the case of property owned by a married couple, if both spouses are required to file North Carolina income tax returns, the credit allowed by this section may be claimed only if the spouses file a joint return.  If only one spouse is required to file a North Carolina income tax return, that spouse may claim the credit allowed by this section on a separate return.
(e)	In the case of marshland for which a claim has been filed pursuant to G.S. 113-205, the offer of donation must be made before December 31, 1998, to qualify for the credit allowed by this section."
Section 4.  G.S. 105-134.6(c)(5) reads as rewritten:
"(5)	The fair market value, up to a maximum of four hundred thousand dollars ($400,000), of the donated property interest for which the taxpayer claims a credit for the taxable year under G.S. 105-151.12 and the market price of the gleaned crop for which the taxpayer claims a credit for the taxable year under G.S. 105-151.14."
Section 5.  G.S. 105-287(a) reads as rewritten:
"(a)	In a year in which a general reappraisal or horizontal adjustment of real property in the county is not made, the assessor shall increase or decrease the appraised value of real property, as determined under G.S. 105-286, to accomplish any one or more of the following:
(1)	Correct a clerical or mathematical error.
(2)	Correct an appraisal error resulting from a misapplication of the schedules, standards, and rules used in the county's most recent general reappraisal or horizontal adjustment.
(2a)	Recognize changes in value resulting from agreements made pursuant to Article 4 of Chapter 121 of the General Statutes, the Conservation and Historic Preservation Agreements Act.
(3)	Recognize an increase or decrease in the value of the property resulting from a factor other than one listed in subsection (b)."
Section 6.  G.S. 105-317(a) reads as rewritten:
"(a)	Whenever any real property is appraised it shall be the duty of the persons making appraisals:
(1)	In determining the true value of land, to consider as to each  tract, parcel, or lot separately listed at least its advantages and disadvantages as to location; zoning; quality of soil; waterpower; water privileges; dedication as a nature preserve; conservation easements; historic preservation agreements; mineral, quarry, or other valuable deposits; fertility; adaptability for agricultural, timber-producing, commercial, industrial, or other uses; past income; probable future income; and any other factors that may affect its value except growing crops of a seasonal or annual nature.
(2)	In determining the true value of a building or other improvement, to consider at least its location; type of construction; age; replacement cost; cost; adaptability for residence, commercial, industrial, or other uses; past income; probable future income; and any other factors that may affect its value.
(3)	To appraise partially completed buildings in accordance with the degree of completion on January 1."
Section 7.  Sections 2 through 4 of this act are effective for taxable years beginning on or after 1 January 1997.  The remaining sections of this act become effective 1 July 1997.