PURPOSE
Colorado’s agricultural lands are incredibly diverse, including rangelands, croplands (irrigated and non-irrigated), pasturelands, and woodlands.1 Agricultural lands of all types and water are necessary for most farming and ranching today and will be essential into the foreseeable future. Across Colorado, however, agricultural lands and water are under threat from development, as well as from economic, regulatory, and environmental pressures. Colorado has prepared for many of these challenges with multiple agricultural land and water conservation tools, but current tools fall short of addressing the scale of the threat. This Issue Brief outlines threats to Colorado’s agricultural land, reviews Colorado’s tools for agricultural land protection and conservation, identifies limitations to those tools, and recommends next steps for the State of Colorado. This Issue Brief builds on two previous COFSAC Issue Briefs: Preparing for Food Security in an Age of Limited Natural Resources Part I: Water (2015)2 and Preparing for Food Security in an Age of Limited Natural Resources Part II: Land Use (2015).3
In this Issue Brief, we have excluded a detailed exploration of several closely related issues, including strengthening agricultural viability
AGRICULTURAL LANDS & WATER CONSERVING
and financial sustainability (including farm product pricing, input costs, market access, etc.), training programs supporting new and beginning farmers, educational programs facilitating farm transitions/succession, value chain infrastructure development initiatives, and on-farm natural resource conservation programs like Environmental Quality Incentives Program (EQIP), which invested $156M on over 3,500 projects across 1.8M acres of Colorado from 2014-2017.4 We also acknowledge the essential role that private land owners play in conserving on- farm natural resources and in keeping land in agriculture. Additional tools are likely needed to adequately compensate private landowners for the full public value they create and steward, and still more additional tools are likely needed to help producers capture the full value of their production practices and product attributes. We expect future Issue Briefs to explore one or more of these in detail.
F R COLORADO’S FUTURE
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CURRENT AGRICULTURAL LAND AND WATER PRESERVATIONS TOOLS IN COLORADO .......................... 7
A. FEDERALLY-LED PROGRAMS ........................................................................................................................ 7
FEDERAL INCENTIVES FOR PRIVATE LANDS ............................................................................................... 8
Agricultural Conservation Easement Program .......................................................................................... 8
Conservation Reserve Program (CRP) ......................................................................................................... 9
FEDERAL INCENTIVES FOR KEEPING LAND IN AGRICULTURE THROUGH TRANSITIONS ............... 10
USDA FSA Beginning Farmer Loans ........................................................................................................... 10
Federal Estate Taxes ...................................................................................................................................... 10
B. STATE-LED PROGRAMS ................................................................................................................................ 11
STATE INCENTIVES FOR PRIVATE LANDS ....................................................................................................11
Colorado’s Purchase of Agricultural Conservation Easement (PACE) Programs .............................. 12
Great Outdoors Colorado ........................................................................................................................... 12
STATE INCENTIVES FOR KEEPING LAND IN AGRICULTURE THROUGH TRANSITIONS .................... 15
Colorado Agricultural Development Authority ....................................................................................... 15
Colorado’s Beginning Farmer Loan Program and Aggie Bonds ........................................................... 16
Beginning Farmer Farm & Equipment Lease Income Tax Deduction Pilot ........................................17
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COUNTY TRANSFER OF DEVELOPMENT RIGHTS PROGRAMS ............................................................. 18
AGRICULTURAL LAND USE PLANNING ....................................................................................................... 19
LIMITATIONS OF CURRENT TOOLS ......................................................................................................................19
SUMMARY OF RECOMMENDATIONS ...................................................................................................................23
COLORADO IS LOSING 15,660 ACRES OF AGRICULTURAL LAND PER YEAR
Colorado currently has 39,534,800 acres of public and private agricultural lands, of which 62% is rangeland, 20% is cropland, 4% is pastureland, and 9% is woodland.5 Between 2001 and 2016, 234,900 acres (or, about 15,660 acres per year) were converted from agricultural uses into residential or moderate to high-density commercial/industrial use.6 Most of this development is occurring in the rapidly developing Front Range urban corridor, which also contains some of the best remaining farmland in Colorado. Of the converted farmlands, 48% was considered by the American Farmland Trust (AFT) to be Colorado’s best land, which AFT defines as land with high productivity, ability to support production of a wide range of crops, and ability to adapt to extreme weather.7 Of remaining highly productive farmland, a significant portion resides in the Eastern Plains region which is facing increasing vulnerability to extreme weather, drought, declining groundwater supplies, and development pressure.
RATE & LOCATION OF AGRICULTURAL LAND CONSERVATION UNABLE TO KEEP UP WITH RATE AND LOCATION OF LOSS
While voluntary incentive-based easements are not the sole, nor universally acceptable form of conservation, a 2017 analysis based on the Colorado Ownership, Management and Protection Database (COMaP)8 documented that Colorado had roughly 2.5 million acres held under conservation easements.9 An estimated 2.1 million of those acres have been conserved using state funding (approximately $280 million from GOCO and $772 million from the Colorado Conservation Easement Tax Credit program since 1995); this land includes 1.5 million acres of crucial habitat, 300,000 acres of prime farmland, 270,000 acres of elk winter range, 4,100 miles of stream, creek, or river frontage, and private lands critical for the Gunnison Sage-
Grouse.10 However, GOCO support for agricultural land conservation is subject to the priorities of the GOCO Board, which shift over time. Additionally, conservation organizations and government entities have directly purchased agricultural lands for conservation, which may remove opportunities for future private market transactions. For example, federal ownership of Colorado land increased 1.1%, or 261,700 acres, from 1997 to 2017.11
Aggregate data on these fee simple ownership efforts is not currently available, but taken together, it appears conservation efforts have not kept pace with
KEY THREATS TO AGRICULTURAL LANDS AND WATER IN COLORADO
Colorado is losing 15,660 acres of agricultural land per year
The rate & location of agricultural land preservation is outpaced by the rate & location of is loss
The rate of agricultural water preservation is also outpaced by the rate of its loss
Over the last 5 years, public support for maintaining land and water in agricultural production has declined
Irrigated agricultural land costs 4-6 times more than other agricultural land and its value is increasing 40% faster
Young and beginning farmers are struggling to find affordable land to start/expand operations
Farmers, especially young and beginning, are less likely to own their land
One in three Colorado farmers is over 65 and the state’s average farmer age is higher than the national average
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development pressures. The net loss in agricultural land noted above and the locations of protected lands does not always target regions with the highest rates of urban development. For example, current COMaP data shows limited agricultural land conservation activity in the Northern Front Range, which is perhaps the most rapidly developing urban corridor in Colorado12.
RATE OF AGRICULTURAL WATER CONSERVATION ALSO UNABLE TO KEEP UP WITH RATE OF LOSS
Working lands conservation strategies in Colorado often require ensuring that agricultural water stays with and on the land; this is essential, as these irrigated agricultural lands (1) are often the most productive working farms and ranches and (2) provide critical ecosystems for wildlife, as well as raw commodities. Water is essential for these functions. The Technical Update to the Colorado Water Plan projects that approximately 450,000 acres of irrigated agriculture could come out of production between now and 2050 due to various water- resource management issues including urbanization, groundwater sustainability, and planned ag-to-urban water transfers which traditionally involve separating land and water rights, also known as “buy and dry”.13 The amount of irrigated agriculture anticipated to come out of production due to water-resource drivers could substantially increase, depending on: i) decisions by municipalities to continue pursuing traditional water acquisitions, ii) climate change impacts that may decrease water supply while increasing demands, iii) impediments to water storage projects, iv) curtailing new supplies of water that are currently lost to other states, and v) other factors, such as interstate water requirements. With these water-resource challenges in mind, policy and programming recommendations will need to reflect the challenges and opportunities of both agricultural land and water conservation. The state has already begun addressing questions around speculative water and land purchases; Colorado’s Senate Bill 20-048 established an Anti-Speculation Law Work Group to explore ways to strengthen current anti-
speculation laws and to report recommended changes to the Water Resources Review Committee by August 15, 2021.14
OVER THE LAST 5 YEARS, PUBLIC SUPPORT FOR MAINTAINING LAND AND WATER IN AGRICULTURAL PRODUCTION HAS DECLINED
In the 2016 public attitudes survey about agriculture in Colorado, 94.8% of respondents indicated that maintaining land and water in agricultural production was somewhat or very important.15 However, this level of support was down from the previous 5 years, during which as much as 97.6% of respondents indicated the same opinion.16 In 2016, the most prevalent “very important” reasons for conservation cited by respondents were “Open Spaces/Wildlife Habitat” (62%) and “Food and Fiber Production” (55%). Again such support for all “very important” reasons for conservation had dropped between 2011 and 2016 - “Heritage” remained the lowest reason for supporting conservation across all categories and dropped the most (41%). Supporting conservation for “Jobs” dropped by 35% and for “Food and Fiber Production” dropped by 33%.17
IRRIGATED AGRICULTURAL LAND COSTS 4-6 TIMES MORE THAN OTHER AGRICULTURAL LAND AND IS INCREASING IN VALUE 40% FASTER
According to the USDA Land Values report, the cost of agricultural land in Colorado ranged from a low of $845/acre for pasture land, to $1,370/acre of non-irrigated cropland, to a high of $5,300/acre of irrigated cropland in 2020.18 Additionally, while the value of pasture land and non-irrigated cropland has increased by about $11/acre per year over the past five years (1.3% annually), the value of irrigated cropland has increased about 10 times more (e.g., $103/acre per year, or 1.9% annually).19 Colorado data reflects a similar agricultural land trend that is seen across the Kansas City/Tenth Federal Reserve District service area, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico, and the western third of Missouri).20 Importantly, however, land values vary
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substantially across regions in Colorado. land values, especially in the Front Range and other pockets like Grand Junction, have exceeded these averages and rates of growth.
YOUNG, BEGINNING, AND EXPANDING FARMERS ARE STRUGGLING TO FIND AFFORDABLE LAND TO START/EXPAND OPERATIONS
Of Colorado’s 69,032 producers about 31% (e.g., 21,157) are beginning farmers and about 8% (e.g., 5,427) are under 35.21 A 2017 national survey from the National Young Farmer Coalition found that: “land access was the number one challenge faced by young and beginning farmers and ranchers. Importantly, in this survey, 39% of respondents who are current farmers cited land access as a significant challenge, with 17% calling it the most significant challenge they face. Both first-generation and multigenerational farmers cited land access as their top challenge.”22
Young and beginning farmers and ranchers most often start and grow their business operations through Direct to Consumer (DTC) marketing like Community Supported Agriculture (CSAs) and farmers markets.23 Research suggests that DTC marketing, however, is most effective for farms within 25 miles of their customers24 - a considerably shorter distance than previously assumed.25 Given land prices and development pressures near urban and other population centers, young and beginning direct market farmers often face additional barriers to accessing land closer to their markets.
Additionally, young, beginning, and expanding farmers seeking to expand their operations often seek larger parcels of land further from population centers. These lands are also important targets for conservation in order to support the wide diversity of scales, production attributes, and aspirations of current and future farmers and ranchers. Colorado specific information about land access needs for young, beginning, and expanding farmers, however, is not currently available from state, university, or nonprofit partners.
FARMERS ARE LESS LIKELY TO OWN THEIR LAND, ESPECIALLY YOUNG, BEGINNING, AND DIVERSE FARMERS
Nationally, nearly 40% of U.S. farmland is rented or leased.26 Since 1964, the percentage of leased farm land has increased slightly (with a peak in the farm crisis of the 1980s and early 1990s).27 Based on 2014 Tenure, Ownership, and Transition of Agricultural Land (TOTAL) survey data, young farmers under the age of 35 are most likely to fully-lease their land (about 26% of operators).28 Non-white farmers are also substantially less likely to own farmland. In 2012–2014, across the U.S., white people owned 98% and operated 94% of all farmland.29 Unfortunately, updated national data have not been published since 2014 and Colorado specific data is not available due to USDA ARMS30 protocols intended to protect producers’ privacy. While land ownership can be an important tool for long-term stability, stewardship, and wealth building, it is important to note that leasing land - particularly for young and beginning farmers- can enable them to be more nimble and more quickly pivot their production and/or business models.
ONE IN THREE COLORADO FARMERS IS OVER 65 AND THE STATE’S AVERAGE AGE OF FARMER IS HIGHER THAN THE NATIONAL AVERAGE
According to Colorado’s state demographer, one in three producers were over 65.31 In the most recent data available, the average farmer in Colorado was 57.6 years old, slightly above the national average age of the American farmer: 57.5. Importantly, succession between farm owners appears to be happening faster in Colorado than in other states, as nationally the average age of the American farmer increased 1.2 years from 2012 to 2017, whereas the average age of farmers in Colorado actually decreased 1.3 years from 2012 to 2017. Regional variation on the age of farmers likely exists in Colorado, but data are not currently available.
Despite what appears to be an increased frequency in farm succession in Colorado, information about
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familial and non-familial farm succession/transitions specific to Colorado, including data on prevalence, frequency, geography, cause, and/or “success rates” is not currently available from state, university, or nonprofit partners. The Colorado Department of Agriculture is, however, currently “gathering data specific to Colorado this year as part of [their] outreach and education.”32
CURRENT AGRICULTURAL LAND AND WATER PRESERVATION TOOLS IN COLORADO
Agricultural land and water conservation in Colorado is supported by important programs led by the federal, state, and local governments.
A. FEDERALLY-LED PROGRAMS
The federal government primarily supports agricultural land and water conservation through offering grazing leases on public lands, financially supporting agricultural conservation easements, providing beginning farmers loan programs, and structuring estate taxes to avoid unintentionally forcing the sale and division of agricultural property to meet estate tax requirements.
FEDERAL PUBLIC LAND GRAZING LEASES AND PERMITS
The total land area of the state of Colorado is over 66 million acres and 36% is owned by the federal government.33 Specifically, about 22% of Colorado land is part of the National Forest System and an additional 13% is administered by the Bureau of Land Management.34 See Table 1 for more detail.
Both the National Forest System (NFS) and Bureau of Land Management (BLM) administer agricultural lease programs important to agriculture in Colorado. For example, BLM reports that grazing on its lands created $142M in economic contributions and 2,077 jobs in FY 2018.35 Grazing permits and leases generally cover a 10-year period and are typically renewable. Grazing fees are set annually
“to represent the fair market value of grazing to the livestock owner”.36 Over the past 20 years, the fee has ranged from $1.35 to $2.11 per animal unit month (AUM), but has been $1.35/AUM from 2019 through 2021.37 Fees are also shared with state and local governments, though Colorado only received $79,107 from BLM FY2019 leases.38
The NSF39 in 2016 (the most recent data available online) supported 633 permittees in Colorado and authorized 809,861 head months (HMs). In 2019 (as most recently documented), the BLM supported 1,278 unique users and authorized 269,564 animal unit months (AUMs). The BLM data does suggest a slight decline in unique users (-0.54%) and a potentially substantial decline in authorized AUMs (-11.72%) compared to the prior year, but more research is needed to explore these trends over time. To note, animal unit months (AUMs) and head months (HMs) are treated as equivalent measures for determining fees; these indicators reflect land use by one cow and calf, one horse, five sheep, or five goats over one month. Allocations of AUMs/HMs are based on rangeland conditions and can decline due to drought pressure.
There are, however, multiple limitations to the efficacy of federal grazing permits and leases in meeting the state’s agricultural land conservation needs. Federal public land grazing leases and permits are limited to rangelands that support animal agriculture and, thus, do not apply to rangelands for cropping or other mixed production practices. This limitation exists partially because most public leases prohibit, or substantially limit, any on-site infrastructure development (e.g., irrigation systems, fixed foundation sheds, etc.). Public lease termination can also be politically and administratively complex, and there can be a lot of uncertainty and logistical barriers for farmers and ranchers when moving between consecutive lease agreements.
There are concerns that, in general, land leases are not conducive to best practices for long-term agricultural
land conservation (i.e. leases may facilitate temporary thinking that can motivate tenants to maximize shorter-term economic benefits and utilize more ecologically harmful farming practices).40 However, federal agricultural land leases actually stipulate conservation agricultural practices as part of each lease41. For example, each 10-year grazing lease includes a resource-based management plan that is developed in accordance with a National Environmental Policy Act (NEPA) assessment (conducted every 10 years) and that establishes lease criteria while taking into account other surrounding land uses. The resource-based management plan is implemented through annual operating instructions which further dictates amount of use, season of use, management practices, etc. along with providing considerations of other species, riparian, invasives, fire, etc. These grazing leases are extremely valuable assets that banks loan against. Additional fees, fines, or loss of lease may occur if the lease agreements are not followed.
FEDERAL INCENTIVES FOR PRIVATE LANDS
The federal government also seeks to support private landowners in conserving the quality, viability, and use of agricultural lands. Two important tools used in Colorado are the Federal Agricultural Conservation Easement Program (ACEP) and the Federal Conservation Reserve Program (CRP).
Agricultural Conservation Easement Program
The Agricultural Conservation Easement Program - Agricultural Land Easement (ACEP- ALE) program is administered by the National Resources Conservation Service (NRCS) of the U.S. Department of Agriculture.42 Under the ACEP-ALE, NRCS may contribute up to 50% of the fair market value of an agricultural conservation easement43 or may contribute up to 75% of the fair market value for easements where grasslands of particular ecological importance will be protected.44
An agricultural conservation easement (ACE) is an elective, legally recorded deed restriction placed on a property that prohibits practices that would damage or interfere with the agricultural use of the land, such as commercial or residential development45. As the easement is a restriction on the deed of the property, the easement remains in effect even when the land changes ownership.46 ACEs can be controversial as they are permanent for both current and subsequent owners, which can reduce the full market value of a specific property. However, the lower costs of conserved agricultural land can be helpful in keeping the cost of farmland more affordable for young, beginning, and expanding farmers.
In order to compensate the landowners for selling certain development rights on their land, ACE programs seek to pay landowners based on the difference between the land’s current “highest and best use,” which is often residential or commercial development, and the value of the land after the ACE and the restricted development rights are in place. The landowner can sell or donate an easement to the easement holder, or a combination of the two (e.g., a “bargain sale”).47
Agricultural conservation easements aim to ensure land is primarily devoted to active, agricultural production and is not subject to development pressures.48 ACEs are also specifically written to allow agriculture uses and farm structures, but to limit other types of on-site construction and physical development.
Ironically, the more valuable agricultural production is on a parcel, the lower the potential conservation easement compensation, ceteris paribus, as agricultural value (value in use) approaches the real estate (best and highest use) value. This limits the efficacy of ACEs in conserving the highest value agricultural lands. This issue underscores a core limitation of ACEs as a tool - easement programs are focused on reducing development, not explicitly on conserving agriculture. Certainly revenues from the sale of a conservation easement may be important for farmers and
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ranchers as income or as a means to defer capital gains taxation. The proceeds may also allow retiring farmers/ranchers to fund his/her retirement which may indirectly benefit the successor(s). But, overall, these outcomes are not the primary motivation of easement policies and programs and this lack of alignment leaves gaps that may need to be filled by new tools that are specifically focused on conserving agriculture itself.
While providing immediate liquidity for the landowners, ACEs can be controversial because the purchase of an ACE can trigger federal and state capital gains taxes, which diminish the immediate cash opportunity. Some landowners, however, are able to defer capital gains taxes by using the proceeds to acquire additional land (using a like-kind 1031 exchange49).
Between 2009 and 2017, approximately 122 parcels of land in Colorado were enrolled in a federal agricultural conservation easement program.50 Across this time, easement payment facilitated changes in agricultural practices by 32% of participants.51 Such changes included improved irrigation, increased acreage, and adjusted crop mix and rotation.52 Researchers also found that easement participation was correlated with increased crop yields and facilitated the addition of outdoor recreation to agricultural operations.53 A press release about a recent study by Colorado State University54 highlighted that “if $88.9 million in federal ACEP payments (the estimated current need for active conservation projects in Colorado) were secured, this funding would generate up to $195 million in economic activity and create more than 1,200 jobs in Colorado”.55 The research also estimated that up to 80% of the resulting economic activity would directly benefit rural communities, further highlighting the essential role of the state in helping to attract and capture federal dollars to benefit Colorado communities.56
While rangeland, cropland, pastureland, grassland, and nonindustrial private forest land can be eligible for ACE programs, not all land is considered
equal in the application process.57 The Natural Resources Conservation Services prioritizes land that already protects agricultural uses and implements conservation practices for ACE selection over those lands that don’t already do so.58 Land must also be large enough and characteristically suitable for commercial agriculture to be considered for selection.
Additionally, landowners report discomfort with the perpetual nature of ACEs, as well as reluctance for any perceived external management of their land.59 Skepticism of government influence and unfamiliarity with conservation organizations also appears to discourage landowners’ ACE participation.60
Conservation Reserve Program (CRP)
The Conservation Reserve Program (CRP) is administered by the Farm Service Agency (FSA) of the U.S. Department of Agriculture. Under CRP, the FSA provides farmers and ranchers with annual rental payments and cost-share assistance, in exchange for removing environmentally sensitive lands from agricultural production and planting environmentally restorative species. CRP helps to conserve land and natural resources, but, as it takes land out of production, it does not directly support food production. Contracts under the Conservation Reserve Program are voluntary and last 10-15 years.
Primarily, the CRP aims to improve water quality, prevent soil erosion, and reduce loss of wildlife habitat through incentivizing farmer collaboration. 20.8 million acres are currently enrolled in the Conservation Reserve Program and the maximum acreage that can be enrolled is 25 million. However, the CRP acreage enrollment cap will rise to 27 million acres in 2023.61 Overall, CRP participation has shrunk substantially to 9.7 million hectares (24 million acres) in 2017 down from its high of 14.9 million hectares (36.8 million acres) in 2007.62
While CRP may help farmers improve their conservation practices and generate sustainable revenues on their lands, CRP is not a permanent
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solution for agricultural land and water conservation. Research on CRP has also found limited effects on rural economies63 and that its payments may not adequately capture the program’s ecological benefits.64
FEDERAL INCENTIVES FOR KEEPING LAND IN AGRICULTURE THROUGH TRANSITIONS
As noted above, transitions between agricultural land owners represent a critical risk to agricultural land conservation in Colorado. The federal government primarily supports agricultural land transitions by (1) underwriting Beginning Farmer Loans to help new farmers and ranchers access agricultural land and (2) crafting estate tax rules to ensure heirs are not unintentionally forced to sell all or part of the family farm to meet inheritance tax obligations.
USDA FSA Beginning Farmer Loans
The U.S. Department of Agriculture’s (USDA) Farm Service Agency (FSA) makes and guarantees loans to beginning farmers.65 Beginning farmer loans aim to make it more financially possible for new farmers to start building new farms, especially as such new farmers are not yet eligible for commercial loans.66 Beginning farmer loans can be disbursed as a micro loan or be specifically intended to facilitate farm ownership or operation.67 The FSA also provides down payment loans to help new farmers purchase a farm and to help transfer farmland from a retiring farmer to the next generation of farmers.68
The USDA also extends Farm Ownership Loans to help farmers (1) expand an existing farm, (2) buy a new farm, (3) cover closing costs, (4) integrate water & soil conservation and protection measures, and (5) improve farm structures and build new farm buildings.69 In 2020, farmers could access financial assistance through microloans or direct loans of up to $600,000 (this number is adjusted annually).70 In 2020, the Farm Service Agency also guaranteed up to $1,776,000 in farm ownership loans through a commercial lender.71 Farmers have up to 40 years to repay for both of these loan options.72
Over the past 4 years in Colorado, USDA FSA Beginning Farmers Loans have helped 361 beginning farmers acquire farm/range land and assets worth more than $95.5M73. See Table 2
There are also some critical limitations to the FSA Beginning Farmer Loan program including limiting eligibility for who can qualify as a “new farmer” to those who have not (1) owned a ranch or farm bigger than 30% of the average U.S. farm, according to the current Census for Agriculture, and (2) have not operated a ranch or farm for more than a decade.74 Applicants must also be heavily involved in the operation.75 Additionally, loan value limits can create barriers to accessing affordable land when supply is limited and competition is increasing from well- financed, non-tenant investors.
Federal Estate Taxes
Enacted in 1916, the federal estate tax76 is a tax on property (e.g. stock, real estate, cash, etc.) transferred from deceased persons to their heirs.77,78 The tax is applied to the full value of the estate and a credit is applied to the tax liability, and it is currently $11.7 million for individuals and $23.4 million for married couples.79 Between 2000 to 2020, the highest marginal estate and gift tax dropped from 55% to 40%.80
High exemption levels, estate and succession planning tools, and transfers of asset ownership before death ensure that the estate tax impacts less than 1% of estates across the U.S.81 In 2020, approximately only 0.6% of farm estates were required to file an estate tax return, with only 0.16% of estates that filed accruing any estate tax liabilities.82 From that 0.16%, approximately $130.2 million was collected in federal estate tax liabilities in 2020.83
Over time, the estate tax has been further adjusted to minimize its economic burden on farmers and to encourage the transfer of farms from one generation to the next. For example, provisions encourage farmers and landowners
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to donate easements or other restrictions for estate tax savings.84 Similarly, parts of the Internal Revenue code allow agricultural real estate to be valued at farm-use value, rather than its fair-market value. There are, however, restrictions and limitations to valuing agricultural land at farm-use value. Lastly, the estate tax also encourages agricultural land to be passed down across generations by omitting farm real-estate value appreciation.85
Some remain concerned, however, that estate taxes may unintentionally encourage some farmers to sell their land and may also discourage farmers and ranchers from investing in the growth of their agricultural businesses.86,87 so as to minimize tax liabilities and shore up reserves to cover anticipated estate tax expenses.88,89
Additionally, the Internal Revenue codes that pertain to estate and gift taxes may be changed in the coming months. The Biden administration and some Congressional leaders are proposing (1) discontinuing portability, (2) calculating capital gains taxes at the time of asset transfer, (3) lowering the federal estate tax exemption level from $11.7 million to $3.5 million, and (4) eliminating the step-up in basis on death and the transfer of basis in the case of gifts.90,91 However, it remains unknown when these proposals will be signed into law, as well as when they might take effect.
B. STATE-LED PROGRAMS
COLORADO LAND BOARD’S AGRICULTURAL LEASES
In accordance with the U.S. Congress’ Northwest Ordinance of 1785, the Colorado Land Board (CLB) was established by the Colorado Constitution in
1876 to manage lands that the federal government provided to the state in public trust.92 The CLB is the second largest landowner in Colorado, owning 2.8 million surface acres.93
The CLB owns, manages, sells, and leases publicly- owned land primarily to raise funds for Colorado public schools94 with two focal areas: (1) creating consistent and satisfactory income over time, and (2) providing reliable stewardship of the state trust property.95 Lease payments have raised $1.7 billion since 200896 and the Colorado Land Board is entirely self-funded by its own revenue.97 Most of the Land Board’s revenue is disbursed to the Colorado Department of Education’s Building Excellent Schools Program (BEST)98 though a portion of its revenue is also invested in the Colorado Department of Education’s annual operating budget.99
While not primarily focused on agricultural land conservation, the CLB leases 98% of its 2.8 million acres for agriculture via a combination of grazing, irrigated farming, and dry land crop production leases.100 The Colorado Land Board also leases land for a variety of other uses, including commercial real estate, mining, recreation, agriculture, ecosystem services, renewable energy, oil and gas, rights-of- way, water, tower sites.101 These multiple types of leases, combined with the CLB’s prioritization of revenue creation, sometimes render agricultural land conservation unrealistic or incompatible with competing land uses.
Importantly, and unlike federal lands, some state agricultural leases allow cropping or other mixed production practices, in addition to animal agriculture. Additionally, the CLB promotes conservation practices by explicitly requiring that lessees adhere to “strict land stewardship guidelines.”
STATE INCENTIVES FOR PRIVATE LANDS
Similar to the federal government, the state also seeks to support private
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landowners in conserving the quality, viability and use of agricultural lands through the direct Purchase of Agricultural Conservation Easement Program (PACE) programs. The state also offers the Colorado Conservation Easement Tax Credit program to incentive conservation when the full purchase amount of an easement is not available and seeks to reduce recurring property tax expenses for agricultural lands through a reduced agricultural assessment rate.
Colorado’s Purchase of Agricultural Conservation Easement (PACE) Programs
Colorado is one of 30 states with a Purchase of Agricultural Conservation Easement (PACE) Program.102 Nationwide, PACE programs help pay landowners for keeping their land in agriculture. PACE programs work by purchasing the development rights from land owners (which is why they are sometimes called Purchase of Development Rights, or PDR, programs) using a tool called an agricultural conservation easement (ACEs). ACEs are described in detail above. Colorado has one of the most successful PACE programs in the nation, with over 872,167 acres protected as of January 2020103 and state investments in ACEs have conserved almost 300,000 acres of prime farmland.104
Colorado’s PACE programs are primarily funded by Great Outdoors Colorado (described in detail in the following section), but the Colorado Department of Natural Resources (DNR) and Colorado Parks and Wildlife (CPW) also provide some direct funding for the purchase of specific types of ACEs. CPW, for example, manages the statewide Colorado Wildlife Habitat Program (CWHP), which offers opportunities for private landowners to voluntarily protect important wildlife habitat, and provide wildlife-related recreational access to the public. CWHP is an incentive-based, voluntary program that accomplishes strategic wildlife conservation and public access goals using conservation easements, and in some cases, fee title purchases. The Colorado Water Conservation Board (CWCB), as part of the DNR, also provides financial support for private land
and water conservation initiatives through several grant programs. CWCB targets funding for land conservation projects with significant water resource co-benefits such as the conservation of riparian and wetland areas and protecting irrigated agricultural lands from water resource development. Through the CWCB Alternative Transfer Method Grant Program, CWCB has also supported the coupling of conservation easements with temporary water leasing arrangements that keep water in agriculture while also allowing water to be leased or shared for other uses.
Image 1: Acres of Farmland Protected by State, as of January 2020 - Source: American Farmland Trust, November 2020105
Great Outdoors Colorado Colorado’s Purchase of Agricultural Conservation Easement (PACE) Program is funded in large part by Great Outdoors Colorado. Created through a Colorado Constitutional amendment in 1992, the Great Outdoors Colorado (GOCO) Program is a trust fund (housed in the Treasury of the State of Colorado106) and is completely funded by redirected lottery proceeds107.
The Great Outdoors Colorado Program aims to conserve, protect, enhance and manage the state’s park, trail, wildlife, river, and open space resources108 and, over the past 29 years, has committed more than $1.3 billion to over 5,300 projects in all of
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Colorado’s 64 counties.109 Counties, municipalities, Title 32 special districts with parks and recreation authority, Colorado Parks and Wildlife, and political subdivisions of the state are eligible to receive GOCO funds.110 These entities can also obtain GOCO funding on behalf of foundations, nonprofits that are not land conservation organizations, school districts, business owners, private landowners, and community groups and volunteers.111
To date, GOCO has helped partners across the state protect 1.2 million acres of open space112 and added 66,200 acres to the State Parks system.113 Since 2015, GOCO also invested $44.5 million in 11 large- scale projects that conserved 130,063 acres of land, which included both working cattle ranches and agricultural lands.114
Image 2: Acres Conserved by GOCO and the Conservation Easement Tax Credit Program - Source: INVESTING IN COLORADO: Colorado’s Return on Investments in Conservation Easements: Conservation Easement Tax
Credit Program and Great Outdoors Colorado115
GOCO is constitutionally required to allocate its funds equitably across multiple priorities: wildlife, local governments, open space, and outdoor recreation, as well as youth outdoors engagement, which further reduces the priority of using funds for agricultural land conservation. Given limitations
on available dollars and the wide range of eligible grantees, there is significant competition for GOCO funds. Additionally, GOCO requires a minimum 50% match for its easement program, which in effect requires that all other sources of support will consistently match or exceed GOCOs contributions. GOCO priorities have shifted over time, but more research is needed to understand how agricultural land conservation has trended in terms of deal volume and incremental conserved acres/dollars in recent years.
Colorado Conservation Easement Tax Credit
In addition to the outright purchase of agricultural conservation easements (ACEs), 14 states, including Colorado, offer tax incentives for conserved land.116 These tax incentives are particularly critical when PACE programs are not able to pay for the full value of the ACE as they help landowners recapture the full value of their land.
In Colorado, the program aiming to financially incentivize the enrollment of land into conservation easements is called the Colorado Conservation Easement Tax Credit.117 First established in 1995, the Colorado Conservation Easement Tax Credit program facilitates the enrollment of private lands into ACEs through the buying and selling of income tax credit certificates.118 The Conservation Easement Oversight Commission and the Director of the Division of Conservation (housed within the Colorado Department of Regulatory Agencies) verifies the tax credit certificate applications, ensures the conservation easement donations meet qualification appraisal requirements, and fulfils the Internal Revenue Code’s 170(h) stipulations for a qualified conservation easement donation.119 Despite such a rigorous screening system, the Colorado Department of Revenue may still reject a tax credit claim due to tax compliance concerns.120
Currently, tax credit certificates reimburse landowners for 75% of the first $100,000 of donated land value and 50% of the remaining donated value, up to a maximum of $5 million
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per conservation easement donation.121 Credits greater than $1.5 million are disbursed in increments of up to $1.5 million per year in future years.122 Landowners can sell such tax credit certificates to any Colorado taxpayer at a discount through a Tax Credit Connection entity.123 Buyers then use the tax credit certificate to save money on their own income tax liabilities.124 Pending Colorado legislation may shift some of these program parameters; one such bill is HB21-1233, which has been passed by the legislature but awaits Governor Polis’ signature.125
Since its inception, the Colorado Conservation Easement Tax Credit program has helped Colorado conserve over 1.2 million acres, including 102,943 acres for agriculture.126 See Table 3.
Overall, as shown in Image 3, the value of tax credit investments has far exceeded that of GOCO investments.
Image 3: Colorado’s Investments in Conservation Easements through GOCO and the Conservation Easement Tax Credit Program, 1995-2016 - Source: INVESTING IN COLORADO: Colorado’s Return on Investments in Conservation Easements: Conservation Easement Tax Credit Program and
Great Outdoors Colorado127
However, the Colorado Conservation Easement Tax Credit program has not been without controversy. Between 2000 and 2013, calculations of the Colorado Conservation Easement Tax Credit were challenged128 and led to that state seeking approximately
$220 million in back taxes from landowners.129 Additionally, confusion about how certain business entities may claim the credit130 and other nuances, led to instances in which Colorado taxpayers received a federal income tax deduction for a conservation easement donation, but were denied state income tax credit for the same donation.131 Lastly, when landowners abandon conservation easements, there are limited guidelines related to the outcomes of the state tax credits.132
SB20-135 introduced a series of solutions created by the conservation easement working group convened in accordance with HB19-1264, but was postponed indefinitely once the legislature reconvened after the COVID-19 outbreak.133 SB21-033, which again sought to implement the conservation easement working group’s recommendations, failed to get to a vote on the House floor of the Colorado General Assembly.134
Agricultural Use Property Tax Assessment Rate
Perhaps an often overlooked tool in maintaining the economic viability of agriculture is reducing recurring property taxes for agricultural use.
Property taxes and assessment rates are designed to promote optimal use of land resources and to equitably distribute the land tax burden across all property owners.135 Property tax assessments assume that the property is used in its best and highest use.136 Property tax revenue funds stay within its respective county, funding county and municipal governments, special districts, public schools, junior colleges.137 No portion of property taxes are diverted to fund state services.138
Agricultural land has a significantly lower tax burden than residential or commercial properties,139 as both residential and commercial property are valued according to the market.140 Agricultural land is taxed according to its earning or productive capacity,141 and is capitalized at the statutory rate of 13%.142 The earning capacity of agricultural land is evaluated by multiplying the 10-year
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average price of the grazing or commodity rate by the yield correlated with the property’s soil classification. That figure is then multiplied with the landlord’s typical crop share to produce the landlord’s gross income.143 Next, the 10-year average of the landlord’s typical expenses are subtracted from the landlord’s net-income to arrive at the landlord’s net income.144 This net income is capitalized by the statutory 13% to produce the valuation of the land’s actual value.145 Such actual value is multiplied by the agricultural assessment rate (currently 29%) to obtain the land’s assessed value.146
Residential property on agricultural land is assessed by its market value and according to a separate, residential assessment rate.147 Agricultural structures utilized for agricultural production are valued typically according to cost, and the actual value of the structures is multiplied by the statutory 29% assessment rate.148 Agricultural equipment used primarily to create profit from food production, as well as livestock, supplies, and agricultural & livestock products, are exempt from taxation.149
A three-year process is required to determine if a plot of land statutorily qualifies as agricultural land.150
Agricultural tax assessment rates are designed to reduce property tax burden for ranchers and farmers, so as to facilitate the economic viability of agriculture.151 Additionally, agricultural assessment rates are also intended to protect the environmental benefits of agriculture and also to discourage commercial, residential or industrial development of agricultural land.152
While farming produces a number of ecological benefits beyond crop commodities (e.g., wildlife habitat, amenity value, etc.), monetarily incorporating these benefits would be difficult and would raise the assessed value and minimize the property tax preference placed on agricultural land.153 Incorporating the economic benefits of
agricultural land conservation could be similarly unappealing for farmers.154
In the past, researchers have characterized various state approaches to the income capitalization methods as inconsistent, not transparent, excessively complex and ad hoc.155 Researchers also recommend that capitalization computation methods should account for default risk, liquidity constraints, inflation and maturity risk.156
STATE INCENTIVES FOR KEEPING LAND IN AGRICULTURE THROUGH TRANSITIONS
The state of Colorado also helps to keep farming economically viable by smoothing the transitions between owners of agricultural land. The state government primarily supports these agricultural land transitions through a beginning farmer loan fund administered by the Colorado Agricultural Development Authority (CADA).
Colorado Agricultural Development Authority
The Colorado Agricultural Development Authority (CADA) was statutorily established in 1981 as an independent state entity.157 Its creation was also enabled through Title 26 of the U.S. Federal Statute.158 CADA is governed by seven board members: one appointed by the Governor, three by the Speaker of the House, and three appointed by the President of the State Senate.159 The Commissioner of Agriculture also serves on the Board as a non-voting member.160
Currently CADA oversees the state’s beginning farmer loan program (explored in more detail below). Historically, CADA also administered the states value added development grants161 and a 3-year pilot of the state’s farm lease income tax deduction program (also, explored in more detail below), but both of those programs are currently idle due to a lack of resources.
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Colorado’s Beginning Farmer Loan Program and Aggie Bonds
Colorado’s Beginning Farmer Loan Program, administered by The Colorado Agricultural Development Authority (CADA), is a federal-state partnership enabled by the federal Aggie Bond Loan Program which began in 1980.162 Colorado is one of approximately 16 states that use this tax-exempt, beginning farmer agricultural development bond program.163
Importantly Aggie Bond programs fall under the broader umbrella of federal Public Activity Bonds (PABs) and are subject to the federal government’s tax-exempt Private Activity Bond Cap authorization for each state each year.164 For example, in 2020, the State of Colorado was authorized $604,667,000 (equal to $105 per resident).165 The state uses revenue from the sale of these bonds to support a range of investments including infrastructure, affordable housing and economic development projects. In addition, Colorado law requires that up to 50% of the annual PAB authorization goes to local authorities—counties and cities—with a minimum population of 19,048 residents.166 This population requirement immediately excludes 80% of Colorado’s rural counties as only 11 out of 53 rural counties qualified for direct PAB allocation authorizations in 2020.167 Counties that receive PAB authorization allocations have the choice of: 1) using their bond authorization on qualified programs, 2) assigning their authorization to another local issuer, 3) assigning their volume cap to the Colorado Housing and Finance Authority (CHFA), or 4) doing nothing, at which point the cap will revert back to the Colorado Department of Local Affairs (DOLA) to be included in the statewide balance for future allocation.168 At this time, counties are not able to assign their excess volume cap to CADA.169
Per state law, the remaining 50% of the total PAB allocation is further divided, with 48% going to the Colorado Housing and Finance Authority (CHFA), and 2% going to the CADA.170
With its allocation of PABs, the Colorado Agriculture Development Authority issues tax-exempt bonds to private investors and then uses bond proceeds to assist first time ranchers and farmers with the purchase of equipment, land, and other capital expenditures.171 Since these bonds are tax-exempt, their interest rates are typically up to 2% below commercial farm rate.172
Beginning farmer loans created using Aggie Bonds are, however, subject to substantial restrictions from the federal government, the state authority, and each specific lender.
Federal rules, under the guidelines established by the Agricultural Bond Improvement Act,173 approved in 2005, limit the maximum funds each applicant is eligible to receive, indexed to the rate of inflation, which in 2020 established the loan ceiling at $552,500. Additionally, the Internal Revenue Code (IRC) has established a $62,500 cap on the amount allowed for use on used equipment purchases. Federal requirements also stipulate that a “first-time farmer” (and also, a “first-time- rancher”) is defined as any individual who has not at any time had direct or indirect ownership of, and material participation in, “substantial farmland,” and who has not received more than $250,000 in tax-exempt financing, including any proposed financing. In this case “substantial farmland” means any parcel of land unless: it is smaller than 30%
Colorado’s General Assembly established the Colorado Housing and Finance Authority in 1973, to address the shortage of affordable housing in the state. In 1982, CHFA’s mission expanded to include loans to businesses. Today, CHFA serves a dual mission, 1) increase the availability of affordable, decent and accessible housing for lower- and moderate- income Coloradans, and 2) strengthen the state’s economy by providing financial assistance to businesses.
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of the median size of a farm in the county where it is located, and the value of the land does not exceed $125,000. Importantly, first time farmers and ranchers can combine funding from Colorado’s Beginning Farmer Loan Program with the U.S. Department of Agriculture’s (USDA) Aggie Bond program, operated by the Farm Service Agency. However, under the current Internal Revenue Code, section 147(c)(2), first-time farmer bonds cannot be aggregated under a single ownership in order to purchase large blocks of land.
State rules, under the Colorado Agricultural Development Authority, further restrict who can receive beginning farmer loan support.
Also, these bonds are dispersed through a three- way transaction between the borrower, lender and CADA,174 where the lender provides all of the capital and bears all of the associated risk.175 Accordingly, the beginning farmer loan program requires that borrowers: (1) independently qualify with a lender; (2) be a resident of Colorado; and (3) actively involved with agricultural production on the land they seek to buy. Since the liability for this federally insured program rests entirely with the lender, banks or others that take part in this program must assess a borrower’s credit history and ability to meet down payment requirements. For new producers entering into farming and ranching, an income and credit review can create one of many potential barriers to entry.
Overall these restrictions contribute to the successes attributed to Aggie Bond programs. According to a whitepaper published in the Journal of Agricultural and Applied Economics (JAAE), “the proportion of beginning farmers who are full land owners is 2.5% higher in counties of states with Aggie Bond programs than in those without, and on average, beginning farmers operated 143.3 more acres in the program counties... .” The authors of the JAAE study further state, “We find limited evidence that the program may have led to a greater Proportion of Full Land Ownership and greater Acres Operated... .”
Colorado’s Beginning Farmer Loan Program reflects these findings, with 6 loans for $1,040,000 disbursed to beginning farmers and ranchers in 2020176 and 27 loans awarded over the past three years (2017 – 2019) for an additional $7.5MM dispersed to qualified applicants (an average of $260,000 per loan). As of December 31, 2020, 390 loans for a total of $62,151,909.34 have been made to individual borrowers over the full life of the program.177
Personal communications with CADA confirmed that maps of loan locations were not available, nor was information by county or by producer type.178 However, CADA reported that “the vast majority of bonds were to assist farmers in eastern Colorado, as unfortunately the cost of land along the front range and in western Colorado often prohibits farmland purchases by first time farmers.”179
Beginning Farmer Farm & Equipment Lease Income Tax Deduction Pilot
While no longer active, the Colorado Agricultural Development Authority (CADA) also administered Colorado’s Beginning Farmer Farm Lease Income Tax Deduction pilot program. Colorado Beginning Farmer Tax Deduction was designed to encourage private land owners to lease agricultural land and other assets to new farmers and ranchers using a personal and corporate state income tax deduction. As established by HB16-1194,180 taxpayers that rented an agricultural asset (e.g. livestock, land, crops, farm equipment, grain storage, or irrigation equipment) to a beginning farmer or rancher for at least three years qualified for the 20% deduction.181
The program was a pilot that provided tax deductions beginning in the years after 2017 and before 2020.182 While more than one deduction certificate could be offered to a qualified taxpayer, the related possible deductions were limited to no more than $25,000 per taxpayer, per year.183 Additionally, the taxpayer was required to lease to a beginning farmer or rancher who: (1) resided in Colorado; (2) farmed or ranched full-time; (3)
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was responsible for most of the management and labor on the agricultural asset most of the time; (4) already had some experience or education or experience in ranching or farming; (5) had less than a decade’s worth of farming or ranching experience; (6) had a net-worth of less than $2 million; and (7) participated in a financial management educational program endorsed by the Colorado Agricultural Development Authority.184
Further, the program had a statutorily-established maximum of 100 tax deductions that could be issued to taxpayers each year185,186. While the program provided zero (0) actual deductions,187 some believe the restrictive nature of its potential tax deductions may have dissuaded potential participants.
Beginning farmer tax credit programs in Minnesota188, Pennsylvania189, Nebraska190, and Iowa191 offer some evidence that a tax credit may have been more effective than a tax deduction. For example, an economic analysis of Iowa’s Beginning Farmer Tax Credit Program conducted by the Iowa Department of Revenue192 suggests that ”program participants had statistically significantly increased average farm income net profits” and were 10% more likely to stay in business. The Iowa program started in 2007 and supported 1,004 beginning farmers with a total of $40.8 million in tax credits claimed through 2019193.
C. COUNTY AND MUNICIPALITY-LED PROGRAMS
While not the focus of this issue brief, it is important to acknowledge the important role that Colorado counties and municipalities play in helping support the conservation of agricultural lands for Colorado’s future through leases, transfer of development right programs, and land use planning. Despite these strengths, local programs provide a checkerboard approach where some high-value lands may fall into gaps between jurisdictions.
OPEN SPACE AGRICULTURAL LEASES
Several counties and municipalities currently offer agricultural leases on public open space lands (often using elective taxpayer funds). Starting with Boulder in 1967, Jefferson County in 1972, and the City of Westminster in 1985,194 at least 16 counties and 7 municipalities across Colorado currently have excise, sales, or other taxes that support the expansion of their open space programs; These areas include the counties of Adams, Arapahoe, Boulder, Broomfield, Chaffee, Denver, Douglas, Eagle, Grand, Gunnison, Jefferson, Larimer, Park, Pitkin, Routt, and Summit; the municipalities of Breckenridge, Boulder, Colorado Springs, Crested Butte, Durango, Fort Collins, and Westminster;195 as well as, the Ute Mountain Ute tribal lands near Towaoc, Colorado.
While not allowed by all programs, many open space programs in Colorado do offer agricultural leases on appropriate parcels. The size of some programs is perhaps surprising, for example, the City of Thornton owns 18,751 acres of agricultural property of which about two thirds are leased to local farmers.196 Similarly, the City of Boulder leases approximately 13,000 acres and Boulder County leases approximately 25,000 acres, most of which are irrigated.197 Readers can learn more about “Land Leases for New and Beginning Farmers in Colorado” here: https://s3.amazonaws.com/arena- attachments/2341965/23e0ddca14f520aacf8c1a ccde354e51.pdf, but at this time a comprehensive assessment of county and municipal acres is not available.
COUNTY TRANSFER OF DEVELOPMENT RIGHTS PROGRAMS
In addition to tax-financed growth of open space programs, several Colorado counties (e.g. Boulder198, Summit199, Pitkin200, Larimer201) also have transferable development rights programs that can function to offset incremental development in one location with added conservation in another, more suitable location.202 These programs allow
AGRICULTURAL LAND USE PLANNING
Colorado state law, as well as the Local Government Land Use Control Enabling Act,203 delegates substantial land use, conservation, and planning authorities to counties and municipalities. Through tools like comprehensive plans and zoning, local authorities exert significant control over which lands can be used for what purposes204. Counties and municipalities make explicit and implicit decisions about the values of population growth, density, industry development, natural resource protection, and agricultural land conservation. While the vast majority of zoning regulations include certain allowances for agriculture, the inclusion of agriculture as a valued, priority land use in comprehensive plans is more mixed. Agricultural land conservation proponents strongly advocate that local land use plans intentionally embrace agricultural uses, rather than allow them to be intentionally or unintentionally displaced.205
LIMITATIONS OF CURRENT TOOLS AND RECOMMENDATIONS FOR COLORADO
Despite the wide range of tools currently and historically available in Colorado, the diversion rate of land from agriculture to other non- agricultural uses reveals critical limitations to Colorado’s current toolset. Financial limitations make it difficult to increase the scale of agricultural land conservation, and these limitations are exacerbated by data limitations, widespread omission of agricultural conservation from local comprehensive plans, and limited incentives for agricultural land ownership and succession.
A. FINANCIAL LIMITATIONS
With billions of dollars in estimated farmland transfers anticipated in the coming decade, as well as an increasingly strained water supply, successful land and water conservation will require additional dedicated public and philanthropic dollars. Supporting market rate acquisitions of Colorado agricultural lands and water, especially for young, beginning, and expanding farmers, will also require additional support to overcome capital creates challenges due to high debt burdens, agricultural business volatility, and limited access to affordable capital. Moreover, while investor dollars continue to move into farmland and water assets across the nation,206 it is increasingly difficult to attract private funding that conserves local ownership of agricultural lands, water, and operations. Additionally, investment capital moves faster than public dollars, which disadvantages public funding and tools like agricultural conservation easements.
More flexible public capital is also needed to address gaps in funding levels and restrictions that are built into current state and federal programs. These dollars should also be rapidly deployable to help buy time for conservation deals to come together and to better compete with time pressure of the current agricultural land market - particularly in high value geographies. That said, agricultural conservation easements should also be required on appropriate agricultural lands purchased with public funds after a period of no more than five years.
RECOMMENDATION 1: EXPAND THE FLEXIBILITY OF PUBLIC CONSERVATION DOLLARS TO BE QUICKLY DEPLOYABLE
RECOMMENDATION 2: AGRICULTURAL CONSERVATION EASEMENTS SHOULD BE REQUIRED ON AGRICULTURAL LAND PURCHASED WITH PUBLIC FUNDS.
Additionally, the state should seek novel methods to incentivize farmland conservation using the public-
private partnership (P3) investment paradigm. Land For Good (LFG), a New England based nonprofit, for example, provides a leading model for the potential of P3s. Founded in 2013, with funding from the USDA’s Land Access Project, Land For Good helped launch five values-based investment companies including Dirt Capital Partners and Local Farms Fund. Over the first three years, the value of farmland appreciated significantly which generated positive returns to investors. The organization and operational models vary across each of the Land For Good P3 investment firms, in terms of capital investments (accredited vs. non-accredited), board structure and operations, as well as whether ownership shares are extended to farm tenants. However, all five nonprofits in LFG’s report based their companies on a shared desire to revitalize and expand--on a large scale--agricultural land ownership across the Northeast. Importantly, both Dirt Capital Partners and Local Farms Fund allow farmers to begin operations under an agricultural lease arrangement and offer a buyout option at a specified time in the future.
As a unique variation of the public-private partnership (P3) model, Colorado should explore the formation of an Agriculture Land Preservation Cooperative, structured to offer preferred and general stock to interested investors. Through the use of a farmland appreciation investment model, the preferred investor position in the cooperative (a non-voting role) would secure their investment using land and associated assets - such as water rights and structures - as collateral, until paid off, with interest. The co-op model could also provide that common stockholders, but not preferred stockholders, are eligible to vote on the organization’s business matters, as well as receive annual patronage dividends. The common stock share structure could also lower the cost per acre for a farm or rangeland purchase by the co-op by providing incentives that would replace up-front cash with a transferable income stream, similar to an annuity. This pilot initiative could leverage other public support, as it meets the requirements for the
USDA’s Conservation Innovation Grant, as well as the the Economic Development Administration’s Revolving Loan Fund and Economic Development Integration Grant Program. State entities with substantial reserve fund balances should be encouraged to provide seed capital as early stage investors in the Agriculture Land Preservation Cooperative.
RECOMMENDATION 3: FACILITATE MARKET- DRIVEN APPROACHES TO FARMLAND CONSERVATION BY INNOVATING PUBLIC-PRIVATE PARTNERSHIP MODELS THAT RETAIN LOCAL CONTROL OF FARMLAND (E.G INVESTMENT GRADE AGRICULTURE LAND PRESERVATION COOPERATIVES)
Additionally, any new financing for beginning farmer land access should deploy flexible capital including: (1) fixed-rate loans with very low interest and a substantial initial grace period; (2) revenue- based financing that provides graduated repayment when producers can pay as they earn more revenue and have aligned payments in years where revenues are uncharacteristically low, and (3) provide “lease to own” terms when credit or collateral is insufficient to meet more traditional underwriting. Furthermore, new programs should seek to address the critical limitations of current farmland programs for beginning farmers, including allowing aggregations of multiple co-located sites, financing costs above FSA limits, and incentivizing other P3 capital wherever possible. Lastly, land support programs for young and beginning farmers/ ranchers may be best paired with training programs, like experiential learning mentorships, that help qualify farmer/rancher readiness to access publicly financed land. More research is needed into the best practices for designing land access programs for young and beginning farmers in order to ensure that public resources are utilized responsibly and to address any potential tradeoffs, given the scale and viability of operations.
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RECOMMENDATION 4: NEW GRANT/LOAN PROGRAMS FOR BEGINNING FARMERS SHOULD ADDRESS GAPS FROM FSA RULES AND LEVERAGE FLEXIBLE FINANCING, LIKE REVENUE-BASED FINANCING WITH “PAY AS YOU EARN” REPAYMENT MECHANISMS
Colorado should (1) continue to learn from the limits of the beginning farmer tax deduction and (2) explore the potential of beginning farmer tax credit programs in Colorado.
RECOMMENDATION 5: EXPLORE TAX CREDIT PROGRAMS TO BENEFIT BEGINNING FARMERS
B. DATA LIMITATIONS
Due to the lack of high quality, relevant, and timely information about agricultural lands and water, local and state policy makers are limited in their ability to proactively conserve the highest value agricultural lands in Colorado. Maps of “farmlands of national importance”and “farmlands of statewide importance” are available along with maps from the American Farmland Trust that retroactively identify high quality lands that have been lost to development. However, existing mapping tools must integrate important information on high quality agricultural land, water resources, and crop/market opportunities. Enhanced mapping tools would support proactive prioritization of agricultural lands for conservation.
RECOMMENDATION 6: ENHANCE COMPREHENSIVE LAND AND WATER MAPPING TOOLS THAT INTEGRATE INFORMATION ON HIGH QUALITY AGRICULTURAL LAND, WATER RESOURCES, AND CROP/MARKET OPPORTUNITIES WOULD BE ESSENTIAL FOR PROACTIVELY PRIORITIZING AGRICULTURAL LAND FOR CONSERVATION.
Additionally, local and state policy makers are limited in their ability to design optimal programs to support beginning farmers due to the lack of information about beginning farmer needs. No
Colorado specific data were available to understand the land assets and needs of beginning farmers, nor was data available about the prevalence, frequency, geography, cause, and/or “success rates” of farm succession/transitions.
RECOMMENDATION 7: DEVELOP BEGINNING FARMER LAND ACCESS DATA SET INCLUDING INFORMATION ABOUT PRESSING NEEDS AS WELL AS THE PREVALENCE, FREQUENCY, GEOGRAPHY, CAUSE, AND/OR “SUCCESS RATES” OF FARM SUCCESSION/TRANSITIONS.
Lastly, local and state policy makers are limited in their ability to proactively intervene to support farms and ranches that may be experiencing an unwanted, unplanned farm transition due to the lack of an early monitoring program. An agricultural land transition early monitoring program would highlight risk indicators that high value land is under threat and provide sufficient alert time to mobilize conservation resources and supportive partners (e.g., Extension, trade associations, etc.), as well as time to protect agricultural land and water for Colorado’s future. These innovative tools would leverage publically available data to map farmland transition risk using variables like proximity to the path of development, size of household, age of producer, and regional economic data. Tools would need to carefully protect the anonymity of individuals and private businesses, but could help target critical agricultural regions for enhanced farm support. Through this program, new, rapidly deployable tools could also be designed and engaged to help support farms and ranches at risk of an unwanted transition.
RECOMMENDATION 8: DEVELOP AN AGRICULTURAL LAND TRANSITION MONITORING PROGRAM THAT HIGHLIGHTS RISK INDICATORS AND PROVIDES EARLY WARNING SIGN FOR HIGH- VALUE LAND UNDER THREAT
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C. COMPREHENSIVE PLAN LIMITATIONS
Recent state plans have begun to turn the tide of integrating agricultural conservation into state- level, strategic, and integrative resource plans. For example, the 2020 Colorado Resiliency Framework207 included “Agriculture & Food” as one of its six resiliency priority areas and emphasized the importance of promoting and protecting working lands. However, more opportunities remain to integrate voluntary and incentive-based tools to conserve agricultural lands and water within comprehensive plans.
RECOMMENDATION 9: INTEGRATE THE CONSERVATION OF PRIME AND HIGH-PUBLIC VALUE AGRICULTURAL LANDS AND WATER AS A GOAL INTO STATE, REGIONAL AND LOCAL COMPREHENSIVE PLANS.
For example, the Colorado Water Plan Update represents a critical opportunity to deepen integrated resource planning for the future of water and agriculture in Colorado. Given (1) that the Colorado Water Plan identifies that 450,000 irrigated acres might come out of production, and (2) the unique importance of irrigated agriculture land to socio-economic outcomes, it is essential to develop cross-cutting land and water conservation strategies. It is also essential to target additional state financial support for these innovative approaches to land and water conservation.
Colorado is also missing a comprehensive statewide agricultural plan to integrate land and water conservation with a forward-looking perspective on natural resources, value chains and market development.
RECOMMENDATION 10: PROACTIVELY PRIORITIZING AGRICULTURAL LAND FOR CONSERVATION IN A COMPREHENSIVE STATEWIDE AGRICULTURAL PLAN THAT INTEGRATES LAND AND WATER CONSERVATION WITH A FORWARD LOOKING PERSPECTIVE ON NATURAL RESOURCES, VALUE CHAINS, AND
MARKET DEVELOPMENT.
Similarly, local and regional plans lack mechanisms for landscape-scale strategic coordination. As no clear entity has developed a shared framework to prioritize conservation of agricultural working land, many county and municipal efforts are creating a disjointed approach. Based on research from the University of Kentucky,208 as well as work in Humboldt County, CA209 and East Park County, WY210, the NRCS “Land Evaluation and Site Assessment” (LESA) model211 has emerged as a potentially beneficial tool for counties, municipalities and land trusts.
RECOMMENDATION 11: DEVELOP MECHANISMS FOR REGIONALLY COORDINATED AGRICULTURAL LAND CONSERVATION ALIGNED WITH THE STATE AGRICULTURAL LAND CONSERVATION PLAN.
D. AGRICULTURAL LAND OWNERSHIP AND SUCCESSION LIMITATIONS
Unlike several states, Colorado does not have strong restrictions on farmland transfers, not incentives for succession/transition planning.
Nine other states, including South Dakota, North Dakota, Oklahoma, Iowa, Minnesota, Wisconsin, Nebraska, Missouri, and Kansas have sought to protect their agricultural lands through statutes (or, less commonly, through constitutional amendments) that restrict who can own and control land that is used or usable for agricultural production.212 While these laws can be useful in limiting certain types of foreign and corporate ownership, more research is needed to assess the comprehensive impact, and unintended consequences, of these measures, as well as to understand its potential implications for Colorado.
RECOMMENDATION 12: EXPLORE REGULATIONS THAT RESTRICT CERTAIN TYPES OF CORPORATE OWNERSHIP AND CONTROL OF AGRICULTURAL LANDS
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Alternatively, 17 states213 (including Alabama, Arkansas, Connecticut, Florida, Georgia, Hawaii, Illinois, Iowa, Mississippi, Missouri, Montana, Nevada, New Mexico, New York, South Carolina, Texas, and Virginia) have implemented protections to limit unnecessary partition of heirs property sales.214 By increasing due process protections for all heirs of agricultural land owners, states are able to help prevent the further unnecessary division of viable agricultural lands. In an era where many farms need to add acreage to remain viable, forced sales and partitions can be uniquely harmful to farmers, including beginning farmers and ranchers.
RECOMMENDATION 13: EXPLORE NEW LAWS THAT LIMIT UNNECESSARY PARTITION OF HEIRS PROPERTY SALES
Lastly, the state could pursue new succession/ transition planning incentives, including providing free and reduced-cost legal counsel for retiring farmers, families developing transition plans, and beginning farmers navigating land leases and land purchases.
Recommendation 14: Provide free and reduced- cost legal counsel and financial planning for retiring farmers, families developing transition plans, and beginning farmers navigating land leases and land purchases.
SUMMARY OF RECOMMENDATIONS
1. Expand the flexibility of public conservation dollars to be quickly deployable
2. Require agricultural conservation easements on agricultural land purchased with public funds.
3. Facilitate market-driven approaches to farmland conservation by innovating public/private partnership models that retain local control of farmland (e.g investment grade Agriculture Land Preservation Cooperatives)
4. New grant/loan programs for beginning farmers should address gaps from FSA rules and
leverage flexible financing like revenue-based financing with “pay as you earn” repayment mechanisms
5. Explore tax credit programs to benefit beginning farmers
6. Enhancing comprehensive land and water mapping tools that integrate information on high quality agricultural land, water resources, and crop/market opportunities is essential for proactively prioritizing agricultural land for conservation.
7. Develop a beginning farmer land access data set including information about pressing needs, as well as about the prevalence, frequency, geography, cause, and/or “success rates” of farm succession/transitions.
8. Develop an agricultural land transition monitoring program that highlights risk indicators and provides early warning sign for high value land under threat
9. Integrate the conservation of prime and high-public value agricultural lands and water as a goal into state, regional and local comprehensive plans.
10. Proactively prioritize agricultural land for conservation in a comprehensive statewide agricultural plan that integrates land and water conservation, with a forward-looking perspective on natural resources, value chains, and market development.
11. Develop mechanisms for regionally-coordinated agricultural land conservation efforts that are aligned with the state agricultural land conservation plan.
12. Explore regulations that restrict certain types of corporate ownership and control of agricultural lands
13. Explore new laws that limit unnecessary partition of heirs’ agricultural property sales
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14. Provide free and reduced-cost legal counsel and financial planning for retiring farmers, families developing transition plans, and beginning farmers navigating land leases and land purchases.
NEXT STEPS
Moving forward, Colorado should urgently prioritize developing the data and comprehensive planning infrastructure needed to align efforts on conserving the most important agricultural land and water resources for Colorado’s future.
Colorado should also accelerate its efforts to slow down development in the clusters of the best farmlands in the state by (1) increasing public funding and (2) continuing to explore best practices that leverage public-private partnerships and innovative financing vehicles to bring more capital into the conservation of Colorado agricultural
lands and water. These efforts should also operate alongside efforts to conserve local control and to create opportunities for beginning farmers and ranchers.
RECOMMENDED CITATION
Blake Angelo, Ida Cossitt-Glesner, Alex Funk, Andrew Seidl, and Greg Thomason. Preserving Agricultural Lands for Colorado’s Future. Colorado Food Systems Advisory Council Issue Brief. TBD 2021.
ACKNOWLEDGEMENTS
COFSAC would also like to thank the generous support and feedback provided by Micah Schwalb, Dawn Thilmany, Jeff Tranel, Martha Sullins, Adrian Card, Kevin Jablonski, Terry Fankhauser, Travis Rollins, Callie Hendrickson, Brian Coppom, Jennifer Benson, Julie Moore, Nicole Franklin, and William Woolston.
USDA Forest Service Bureau of Land Management Total Federally Owned Land
Total US Acres 192,919,130 acres 244,391,312 acres 615,311,596 acres
Total CO Acres 14,487,064 acres 8,352,437 acres 24,100,247 acres
% of Total Acres in CO 21.79% 12.56% 36.2%
Table 1: Federal Land Ownership in Colorado215
TABLES 1-3
Direct Ownership $ 18,433,925 (n= 89 farms)
$ 14,997,040 (n=72 farms)
$ 14,324,850 (n=70 farms)
$ 18,857,710 (n=59 farms)
$ 66,613,525 (n=290 farms)
$ 7,326,568 (n=22 farms)
$ 19,486,540 (n=83 farms)
$ 21,651,418 (n=92 farms)
$ 28,265,290 (n=77 farms)
$ 95,571,774 (n=361 farms)
Table 2: FSA Beginning Farmer Loan Program Totals for Colorado
25 |
Acres Acres Conserved by Both
Programs*
Woody Wetland 15,336 26,239 41,575
Deciduous Forest 66,093 110,647 176,740
Evergreen Forest 68,587 233,214 301,801
Mixed Forest 4,244 9,280 13,523
Scrub/Shrub 206,937 264,981 471,918
Grassland/Herbaceous 370,725 471,345 842,070
11,025 12,894 23,918
Agriculture 68,640 102,943 171,583
Total Acres Conserved 826,515 1,254,525 2,081,040
Table 3: Acres of Each Ecosystem Type Conserved by GOCO and the Conservation Easement Tax Credit Program
*We developed our inclusion criteria to prevent double counting of acres. Therefore, acres included in the GOCO summaries would not also be in- cluded in the Colorado State Tax Credit program summaries even if the donated portion of a GOCO supported project qualified for a tax credit.
Source: INVESTING IN COLORADO: Colorado’s Return on Investments in Conservation Easements: Conservation Easement Tax Credit Program and
Great Outdoors Colorado216
5 U.S. Department of Agriculture’s Natural Resources Conservation Service. (October, 2020). 2017 National Resources Inventory: Colorado Land Use. Available at: https://www.nrcs.usda.gov/Internet/NRCS_RCA/ reports/nri_co.html
6 American Farmland Trust. (2020). THE STATE OF THE STATES Agricultural Land Conversion Highlight Summary Colorado. Available at: https://storage.googleapis.com/csp-fut.appspot.com/reports/spatial/ Colorado_spatial.pdf
7 Id.
8 “The Colorado Ownership, Management and Protection (COMaP) service delivers the state’s premier map of protected lands. COMaP features over 28,000 entries of protected lands parcels from over 300 different data sources, each of which contains a suite of attributes such as owner, manager, easement holder, public access, and more. Since its inception in 2004 at Colorado State University, COMaP has become the go-to resource for land managers, land owners, and the conservation community”. Available at: https://comap.cnhp.colostate.edu/
9 Seidl, A., Anderson, D., Bennett, D., Greenwell, A., and M. Menefee. 2017. Colorado’s return on investments in conservation ease- ments: Conservation Easement Tax Credit program and Great Outdoors Colorado. Colorado State University, Fort Collins, Colorado. Available at: http://www.cnhp.colostate.edu/download/documents/2017/ ColoradoStateU_CE-ROI-study_web.pdf
10 Seidl, A., Anderson, D., Bennett, D., Greenwell, A., and M. Menefee. 2017. Colorado’s return on investments in conservation ease- ments: Conservation Easement Tax Credit program and Great Outdoors Colorado. Colorado State University, Fort Collins, Colorado. Available at: http://www.cnhp.colostate.edu/download/documents/2017/ ColoradoStateU_CE-ROI-study_web.pdf
11 NRCS - https://www.nrcs.usda.gov/Internet/NRCS_RCA/reports/ nri_co.html
12 https://comap.cnhp.colostate.edu/comap/
13 Technical Update to the Colorado Water Plan (2019). Available at: https://cwcb.colorado.gov/colorado-water-plan/technical-update-to- the-plan.
14 https://dnr.colorado.gov/anti-speculation-law-work-group
16 Id.
17 Id. Author calculations.
18 USDA NASS. (2020). Land Values 2020 Summary. Available at: https://www.nass. usda.gov/Publications/Todays_Reports/ reports/land0820.pdf
19 Id. Author calculations.
22 Sophie Ackoff, Andrew Bahrenburg, Lindsey Lusher Shute. (2017). Building a Future with Farmers: Results and Recommendations from the National Young Farmer Survey. National Young Farmers Coalition. Available at: https://www.youngfarmers.org/resource/building-a- future-with-farmers-ii/
23 United States Department of Agriculture National Agricultural Statistics Service. (2014). Beginning Farmers Characteristics of Farmers by Years on Current Farm. Accessible at: https://www.nass. usda.gov/Publications/Highlights/2014/Beginning_Farmers/index. php#:~:text=In%202012%2C%20the%20United%20States,the%202.1%20 million%20U.S.%20farms (Table 4 highlights that Beginning Farmers are 15% of total ag sales but 22% of direct sales (almost 50% higher) and therefore relatively more focused on those channels)
24 Jeffrey K. O’Hara* and Jeffrey Lin. (2020). Population Density and Local Food Market Channels Applied Economic Perspectives and Policy, volume 42, number 3, pp. 477–496. doi:10.1093/aepp/ppy040
25 O’Hara, J.K., and S.A. Low. 2016. The Influence of Metropolitan Statistical Areas on Direct-to-Consumer Agricultural Sales of Local Food in the Northeast. Agricultural and Resource Economics Review 45 (3): 539–62.
26 https://newfarmers.usda.gov/usda-work-issue
28 Daniel Bigelow, Allison Borchers, and Todd Hubbs. (2016). U.S. Farmland Ownership, Tenure, and Transfer. USDA ERS. Available at: https://www.ers.usda.gov/webdocs/publications/74672/eib-161. pdf?v=7196.3
29 Horst, Megan & Marion, Amy. (2019). Racial, ethnic and gender inequities in farmland ownership and farming in the U.S.. Agriculture and Human Values. 36. 10.1007/s10460-018-9883-3.
30 Agricultural Resource Management Survey (ARMS). https://www.ers. usda.gov/data-products/arms-farm-financial-and-crop-production- practices/
31 Colorado State Demography Office. (Jan 29, 2020). Crosstabs - A Closer Look at the Economics & Demographics of Colorado: Highlights from the 2017 Census of Agriculture. Available at: https://demography. dola.colorado.gov/crosstabs/Census%20of%20Agriculture%20 2017/#:~:text=Considering%20that%20rural%20Colorado%20 tends,over%20the%20age%20of%2065.
32 April 23, 2021 email communications with Mark Gallegos and Jennifer Benson, Colorado Department of Agriculture.
33 https://fas.org/sgp/crs/misc/R42346.pdf with author calculations
34 https://fas.org/sgp/crs/misc/R42346.pdf
35 https://www.blm.gov/sites/blm.gov/files/documents/files/BLM_ CO_COSO_FY18_EconomicRackCard.pdf
36 https://fas.org/sgp/crs/misc/RS21232.pdf
37 https://fas.org/sgp/crs/misc/RS21232.pdf
38 Public Land Statistics 2019. (June 2020). U.S. Department of the Interior Bureau of Land Management
39 https://www.fs.fed.us/rangeland-management/documents/ grazing-stats/2010s/GrazingStatisticalSummaryFY2016.pdf
40 The National Agricultural Law Center. Agricultural Leases: An Overview. Accessible at: https://nationalaglawcenter.org/overview/ agleases/
41 National Wildlife Federation. (2016). Public Land: Improving Environmental Performance on Agricultural Leases. Accessed at: https://www.nwf.org/~/media/PDFs/Misc/Public-Lands_LOW%20 RES-080216.ashx
42 Seidl, A., Swartzentruber, R., & Hill, R., Colorado State University. (July 2018). Estimated Economic Impact of Federal Agricultural Conservation Easement Programs (ACEP) on Colorado 2009-2017. Accessible at: https://cowestlandtrust.org/wp-content/uploads/ csu307173-RuralLandResearch-bk-www-1.pdf
43 U.S. Department of Agriculture, Natural Resources Conservation Service. (2021). Agricultural Conservation Easement Program (ACEP). Accessed at: https://www.nrcs.usda.gov/wps/portal/nrcs/main/ national/programs/easements/acep/
44 U.S. Department of Agriculture, Natural Resources Conservation Service. (2021). Agricultural Conservation Easement Program (ACEP). Accessed at: https://www.nrcs.usda.gov/wps/portal/nrcs/main/ national/programs/easements/acep/
45 U.S. Department of Agriculture, Natural Resources Conservation Service. (2021). Agricultural Conservation Easement Program (ACEP). Accessed at: https://www