John McBride: Bad tax policy is gobbling up the rural West
September 3, 2009
Longtime public policy, both state and federal, is destroying the historic West and creating an unsustainable future. This will continue as long as the governments treat agricultural lands and open lands as though they are or will be rural subdivisions. Inevitably, our magnificent West will look more like suburban Maryland than what we remember or imagine.
But let me first tell you what brought me to this epiphany. Earlier this summer I had an unusual opportunity. A pilot friend who lives and works in London offered our family a flight in a restored old Beech 19 airplane from a World War II air base north of London to a small airfield in the Alps just south of Geneva.
For almost 600 miles we flew at only 500 feet above the ground. As a rancher and an individual who has been in land development, I was fascinated to study the English, French and Swiss landscape up close! For more than 2 1/2 hours, I scrutinized the ground below. We flew low over Dover, Calais, Lens, Reims, and Dijon to Geneva.
We saw perhaps 50 towns, but we saw not one subdivision. What we saw, mile after mile, were small, densely populated towns, farms, orchards, vineyards, forests. Perhaps there was a gravel pit, another town, an occasional windmill, etc., but not one subdivision!
How can this be? Our western mountain world is equally beautiful, yet so different. The West is full of subdivisions everywhere. As a pilot myself, I have flown some 30 years throughout the West. I have flown most if not all of the valleys and river ways in the West, from Kalispell and Great Falls to Nogales and Tucson.
Wallace Stegner said the essence of the West is “aridity.” I think it is also subdivisions. We are carving up our farms, ranches and open space throughout the West at an alarming rate. That is not done in Europe. Why?
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Do the English, French and Swiss love their land more? I think not. Are they free market capitalists like us? Yes, they are.
The main difference is that Europeans recognize agricultural and open land for what they are, not as we do for what they might be. And they tax their lands at the time of transfer, be it death or as a gift, at a value that reflects the property at that moment. We, on the other hand, value property and tax it at a value that it might be – i.e., a rural subdivision. This value could be five to 50 times higher than the actual value.
In Colorado, this is especially true because of Senate Bill 35, which allows any large property owner to sell 35 acres at a time without going through any local governmental regulation. Consequentially, the whole state is effectively zoned “rural subdivision.” Given the so called “highest and best use” concept, all land except conserved land will be valued as a hypothetical subdivision – even before any thought of subdividing.
This absurd notion is speeding the conversion of the West into subdivisions. Heirs and beneficiaries of ranches who want to continue the family businesses are forced to sell or subdivide. Owners who see what is coming opt to sell out ahead of time to pay the much lower capital gains tax rather than the estate or gift tax. Again, stupid public policy is speeding the ruination of the West.
As an alternative, I suggest a conversion tax instead of an anticipatory tax. If my children inherit our ranch and decide to turn it into a subdivision, I hope they are taxed heavily when they do! However, if they want to keep it going as a ranch (which is a tough business anyway) why should they be penalized with an unreasonably high tax that anticipates another use? This tax should be imposed at the time of conversion, not before.
As far as I know, no other estate asset is treated in this fashion. Your father’s house is not valued higher than it should be, because it could be torn down and a much fancier, more expensive house built to replace it. The same with his business. The government doesn’t overvalue it because he might have made a better product and had a more valuable business.
Every other family asset is valued for what it actually is. Why not farms, ranches and open space?
Some people think the salvation of agricultural land and open space rests with conservation easements. However, while many nonprofits have done an excellent job protecting some “gem-like” lands, the percentage amount is almost insignificant. Of the 922 million acres of farmland in the U.S., only 2.8 million acres are protected. That is less than one-third of 1 percent. In Colorado the percentage is slightly higher, but still tiny at 1.4 percent.
Much more needs to be done. It is time we help the owners of the rest of these properties to stay on and protect these lands if they so choose. Tax them when they actually convert the properties, not before. A conversion tax at the time of conversion might delay some tax collections. But it will help agriculture; it will protect public open lands and forests; it will help wildlife; and it will make us more sustainable by not promoting more subdivisions, roads and traffic.
We will never have a landscape like much of Europe, but a change in tax policy can go a long way toward protecting private lands, farms, ranches, orchards and vineyards from an unnecessary and often unwanted subdivision conversion.