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[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
      TAX INCENTIVES FOR LAND USE, CONSERVATION, AND PRESERVATION
=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 30, 2002

                               __________

                           Serial No. 107-93

                               __________

         Printed for the use of the Committee on Ways and Means

                           U.S. GOVERNMENT PRINTING OFFICE
85-675                         WASHINGTON : 2003
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001

                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. MCNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff
                  Janice Mays, Minority Chief Counsel

                                 ______

                Subcommittee on Select Revenue Measures

                    JIM MCCRERY, Louisiana, Chairman

J.D. HAYWORTH, Arizona               MICHAEL R. MCNULTY, New York
JERRY WELLER, Illinois               RICHARD E. NEAL, Massachusetts
RON LEWIS, Kentucky                  WILLIAM J. JEFFERSON, Louisiana
MARK FOLEY, Florida                  JOHN S. TANNER, Tennessee
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________
                                                                   Page
Advisory of April 23, 2002, announcing the hearing...............     2

                               WITNESSES

U.S. Department of the Treasury, Pamela F. Olson, Acting 
  Assistant Secretary for Tax Policy.............................    26

                                 ______

American Forest & Paper Association, and Temple-Inland Forests 
  Products Corporation, Jim DeCosmo..............................    63
Blumenauer, Hon. Earl, a Representative in Congress from the 
  State of Oregon................................................    18
Dunn, Hon. Jennifer, a Representative in Congress from the State 
  of Washington..................................................    13
Evergreen Forest Trust:
  Charles W. Bingham.............................................    53
  Eugene G. Duvernoy, Cascade Land Conservancy...................    56
Isakson, Hon. Johnny, a Representative in Congress from the State 
  of Georgia.....................................................    22
Johnson, Hon. Nancy L., a Representative in Congress from the 
  State of Connecticut...........................................    10
Land Trust Alliance, Rand Wentworth..............................    59
Portman, Hon. Rob, a Representative in Congress from the State of 
  Ohio...........................................................     7
Sawyer, Christopher Glenn, Atlanta, GA...........................    38
Nature Conservancy, Steven J. McCormick..........................    44
Real Estate Roundtable, and Lowe Enterprises, Inc., Timothy 
  Brazell........................................................    48
Weller, Hon. Jerry, a Representative in Congress from the State 
  of Illinois....................................................    16

                       SUBMISSIONS FOR THE RECORD

American Farm Bureau Federation, statement.......................    74
American Farmland Trust, Ralph Grossi, statement.................    76
Chesapeake Bay Foundation, Inc., Annapolis, MD, Lee R. Epstein, 
  statement......................................................    77
Ducks Unlimited, Memphis, TN, Scott Sutherland, letter...........    47
Houghton, Hon. Amo, a Representative in Congress from the State 
  of New York, statement.........................................    73
Montana Land Reliance, Helena, MT, statement.....................    75
Neal, Hon. Richard E., a Representative in Congress from the 
  State of Massachusetts, statement..............................     5
Trust for Public Land, San Francisco, CA, Alan Front, statement..    78

      TAX INCENTIVES FOR LAND USE, CONSERVATION, AND PRESERVATION

                              ----------                              

                        TUESDAY, APRIL 30, 2002

                  House of Representatives,
                       Committee on Ways and Means,
                   Subcommittee on Select Revenue Measures,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:05 p.m., in 
room 1100 Longworth House Office Building, Hon. Jim McCrery 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 226-5911
FOR IMMEDIATE RELEASE
April 23, 2002
No. SRM-5

              McCrery Announces Hearing on Tax Incentives
              for Land Use, Conservation, and Preservation

    Congressman Jim McCrery (R-LA), Chairman, Subcommittee on Select 
Revenue Measures of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on tax incentives for land 
use, conservation, and preservation. The hearing will take place on 
Tuesday, April 30, 2002, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 2:00 p.m.

    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.

BACKGROUND:

    The Internal Revenue Code includes a number of incentives to 
encourage responsible stewardship of the land, including the 
deductibility of gifts of land to charitable institutions, the 
deductibility of gifts of conservation easements, and the expensing of 
environmental remediation costs. The hearing will examine proposals 
designed to improve upon those incentives and further encourage the 
preservation of open spaces.

    In announcing the hearing, Chairman McCrery stated: ``Across 
America, once-pristine natural resources are giving way to the spread 
of urban areas. In many cases, the estate tax's valuation rules have 
forced family farms to be sold to developers. This hearing will give 
the Committee a better handle on the challenges facing communities 
working to preserve open spaces and the ways in which the tax code 
might help those efforts.''

FOCUS OF THE HEARING:

    The focus of the hearing will be to examine several proposals which 
expand the tax incentives available to individuals and groups seeking 
to preserve open spaces and promote conservation.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

    Please Note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record of the hearing should send it electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, by the close of business, Tuesday, May 14, 2002. Those 
filing written statements who wish to have their statements distributed 
to the press and interested public at the hearing should deliver their 
200 copies to the Subcommittee on Select Revenue Measures in room 1135 
Longworth House Office Building, in an open and searchable package 48 
hours before the hearing. The U.S. Capitol Police will refuse unopened 
and unsearchable deliveries to all House Office Buildings.

FORMATTING REQUIREMENTS:

    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.

    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.

    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.

    3. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman MCCRERY. The Subcommittee will come to order. Good 
afternoon, everyone.
    Today, the Subcommittee on Select Revenue Measures will 
learn more about the issue of urban sprawl and whether the tax 
code can encourage conservation through responsible land use. 
We are fortunate to have a distinguished group of witnesses 
today, including many of our colleagues in Congress whose 
efforts have landed this issue onto our Subcommittee's agenda.
    I am also pleased to welcome later Ms. Pam Olson, who is 
the Acting Assistant Secretary for Tax Policy. She is 
attempting to fill the very large shoes of our friend, Mark 
Weinberger, who has left U.S. Department of the Treasury. We 
look forward to Ms. Olson's testimony about the conservation 
proposals in President Bush's budget.
    Across the country, economic progress has been marked by 
the urbanization of America. In many parts of our country, 
cities seem to have grown steadily outward until they meet 
their nearest neighbor. In this area, it is becoming difficult 
to tell when one leaves the Washington metropolitan area and 
enters the Baltimore metropolitan area.
    Land which has been farmed for generations is being 
converted to golf courses, housing developments, and shopping 
centers. Small towns once thought to be far from the nearest 
urban area now find themselves becoming bedroom communities and 
home to thousands of commuters who seem to spend as much time 
getting to and from their work as they actually spend in their 
office.
    In some ways, this march of progress is a sign of our 
economic strength. Farmers are able to grow more food on less 
land, while the offices and factories of America turn out new 
and better products for consumption here and across the globe.
    This transformation of America's land and its use does not 
come without a price, though. Swimming holes are giving way to 
swimming pools and open spaces are being leveled to make room 
for open houses. Stands of trees are being replaced by 
nurseries where one can buy a tree or a shrub for his new 
house. It is becoming more difficult to take a stroll in the 
woods with your family, though there might be a designated 
walking path around the artificial lake in the middle of your 
housing development.
    In some ways, the tax code contributes to the urbanization 
of America. Today, we will hear about how the cost of 
remediating brownfields discourages developers from locating in 
and helping to rebuild blighted urban areas. We will hear how 
pressures of the estate tax can force estates to sell family 
farms to developers in order to pay Uncle Sam. We will also 
hear about proposals which help local governments and nonprofit 
groups raise funds necessary to prevent over-development in 
their communities.
    In a free market, land holders must be allowed to enjoy the 
appreciation in the value of their land. Accordingly, I think 
Congress must proceed very carefully on any proposal which 
would deprive them of the freedom to dispose of their land as 
they choose.
    The proposals being discussed today generally do not suffer 
from that flaw. Rather than handcuffing landowners, they use 
various tools to encourage voluntary transactions in which 
property owners dedicate their land to conservation purposes. 
Some of the proposals achieve that goal by increasing the 
deductions available to landowners for preserving open spaces 
for future generations. Others make it easier for nonprofits 
and government organizations to raise the money necessary to 
purchase lands for conservation purposes.
    Underlying each proposal is a belief that the loss of open 
spaces and the conversion of farms to freeways comes at some 
cost to the community, a so-called negative externality. These 
proposals attempt to act as a counterweight so local 
communities will not have to view the loss of their natural 
surroundings as an inevitable consequence of progress.
    [The opening statement of Chairman McCrery follows:]
      Opening Statement of the Hon. Jim McCrery, Chairman, and a 
         Representative in Congress from the State of Louisiana
    The Subcommittee will come to order. I ask our guests to please 
take their seats.
    Good afternoon. Today, the Subcommittee on Select Revenue Measures 
will learn more about the issue of urban sprawl and whether the tax 
code can encourage conservation through responsible land use. We are 
fortunate to have a distinguished group of witnesses today, including 
many of our colleagues in Congress whose efforts have landed this issue 
onto the Subcommittee's agenda.
    I am also pleased to welcome Ms. Pam Olson, who is the Deputy 
Assistant Secretary of Tax Policy and who is stepping into the very 
large shoes left behind by Mark Weinberger. We look forward to Ms. 
Olson's testimony about the conservation proposals in President Bush's 
budget.
    Across the country, economic progress has been marked by 
urbanization of America. In many parts of America, cities seem to have 
grown steadily outward until they meet their nearest neighbor. In this 
area, it is becoming difficult to tell where the Washington 
metropolitan area ends and Baltimore's begins.
    Land which had been farmed for generations is being converted to 
golf courses, housing developments, and shopping centers. Small towns 
once thought to be far from the nearest urban area now find themselves 
becoming bedroom communities and home to thousands of commuters who 
seem to spend as much time getting to and from work as they actually 
spend in the office.
    In some ways, this march of progress is a sign of our economic 
strength. Farmers are able to grow more food on less land, while the 
offices and factories of America turn out new and better products for 
consumption here and across the globe.
    This transformation of America's land and its use does not come 
without a price.
    Swimming holes are giving way to swimming pools, and open spaces 
are being leveled to make room for open houses. Stands of trees are 
being replaced by nurseries, where one can buy a tree or a shrub for 
the new house. It is becoming more difficult to take a stroll in the 
woods with your family, though there might be a designated walking path 
around the artificial lake in the middle of the housing development.
    In some ways, the tax code contributes to the urbanization of 
America. Today, we will hear about how the costs of remediating 
brownfields discourages developers from locating in and helping to 
rebuild blighted urban areas. We will hear how pressures of the estate 
tax can force estates to sell family farms to developers in order to 
pay Uncle Sam.
    We will also hear about proposals which help local governments and 
non-profit groups raise funds necessary to prevent over-development in 
their communities.
    In a free market, landholders must be allowed to enjoy the 
appreciation in the value of their land. Accordingly, I think Congress 
must proceed very carefully on any proposal which would deprive them of 
the freedom to dispose of their land as they choose.
    But the proposals being discussed today generally do not suffer 
from that flaw. Rather than handcuffing landowners, they use various 
tools to encourage voluntary transactions in which property owners 
dedicate their land to conservation purposes.
    Some of the proposals achieve that goal by increasing the 
deductions available to landowners for preserving open spaces for 
future generations. Others make it easier for non-profits and 
government organizations to raise the money necessary to purchase lands 
for conservation purposes.
    Underlying each proposal is a belief that the loss of open spaces 
and the conversion of farms to freeways comes at some cost to the 
community, a so-called negative externality. These proposals attempt to 
act as a counter-weight, so local communities will not have to view the 
loss of their natural surroundings as an inevitable consequence of 
progress.
    Before introducing our first witnesses, I yield to my friend from 
New York for an opening statement.

                                 

    Chairman MCCRERY. Before introducing our first 
distinguished panel of witnesses, I yield to my good friend 
from New York for his opening statement. Mr. McNulty?
    Mr. MCNULTY. Thank you, Mr. Chairman. In the interest of 
time, I would like to submit my entire statement for the record 
and briefly summarize. Also, I would ask permission, since 
Congressman Neal cannot arrive in time to testify in person, 
that his statement be submitted for the record.
    Chairman MCCRERY. Without objection.
    [The statement of Mr. Neal follows:]
  Statement of the Hon. Richard E. Neal, a Representative in Congress 
                    from the State of Massachusetts
    Thank you, Mr. Chairman and Mr. McNulty, for the opportunity to 
testify before the Subcommittee today. This Subcommittee has the unique 
opportunity to provide tax incentives for smart growth, brownfields 
redevelopment, and endangered species habitat, among other important 
land use issues. With such a responsibility, I urge the Subcommittee to 
draw from legislative efforts showing a broad base of support.
    I come before the Subcommittee to express my full support for H.R. 
2290, the Conservation Tax Incentives Act of 2001. I would like to 
recognize the outstanding leadership of Representatives Rob Portman and 
Bob Matsui on this important bill. Later in this hearing, the 
Subcommittee will be hearing from Steven McCormick, the President of 
the Nature Conservancy, who supports this bill and happens to be 
accompanied by Philip Tabas, the Director of the Land Protection 
program, from the Boston office of the Nature Conservancy.
    The bill allows a 50 percent exclusion from gain on the sale of 
land or water rights to an eligible conservation entity for 
conservation purposes. This bill would benefit all states across the 
nation by helping protect land and natural resources. In my own 
district in Massachusetts, there is a great need to prevent unplanned 
sprawl along the Connecticut River Valley, a precious and beautiful 
landscape. Local and state conservation groups have been able to do 
this by utilizing state money to purchase conservation easements from 
local farmers along the river valley, who are faced with the tough 
economic decision of either selling a conservation easement (and 
preserving an agricultural use) or selling the land altogether. With 
this legislation, the conservation easement would win more often in 
that battle as the tax incentive would mean a great deal to these small 
farmers.
    Further, these limited dollars in the state program could be 
stretched much farther and utilized for many other important projects, 
such as the Quinebaug River Heritage corridor, yet another land 
conservation priority in my district. Since 1945, Massachusetts has 
been steadily losing thousands of acres of farmland per year. However, 
just during the last year, this inventive state program was able to 
save 50 farms and over 4,700 acres. Providing tax incentives to those 
who want to conserve land is good tax policy, and I hope the 
Subcommittee will support H.R. 2290.
    Another bill I hope the Committee will consider is H.R. 4579, the 
Endangered Species Recovery Act of 2001, introduced by Rep. George 
Miller. This bill uses tax incentives to encourage endangered species 
conservation agreements between private landowners and the government 
regulators, while also providing certainty to these landowners under 
the Endangered Species Act. In my home State of Massachusetts, it has 
been estimated that there are 427 identified species of plants and 
animals designated as endangered, threatened, or of special concern. I 
am hopeful that the Subcommittee will consider legislation that draws 
the appropriate balance between landowner rights and environmental 
protections, through tax and other financial incentives.
    Finally, I am pleased that the Subcommittee will be hearing from 
our colleagues, Representatives Bill Coyne and Jerry Weller, on 
legislation to make permanent the expensing of brownfields remediation 
costs. Tax incentives to encourage land remediation has been supported 
by commercial developers and environmental groups alike. As co-chair of 
the Congressional Real Estate Caucus, I am fully aware of how important 
this issue is to the real estate industry and I hope the Subcommittee 
will consider these legislative priorities as well.
    Thank you again for the opportunity to address the Subcommittee 
today.

                                 

    Mr. MCNULTY. Conservation and preservation of our open 
space land is of great importance to every American. This 
Subcommittee, on a bipartisan basis, supports tax incentives to 
encourage donation of land for conservation purposes and to 
protect our environment through the clean-up of toxic sites. I 
look forward to the testimony of our distinguished colleagues 
and all of those who will testify on this important topic 
today. Thank you, Mr. Chairman.
    [The opening statement of Mr. McNulty follows:]
 Opening Statement of the Hon. Michael R. McNulty, a Representative in 
                  Congress from the State of New York
    Today, the Ways and Means Select Revenue Measures Subcommittee will 
hold a hearing to review current tax law incentives and pending 
legislation designed to improve land use conservation and preservation.
    Conservation and preservation of our open-space land is of great 
importance to every American. The Committee, on a bipartisan basis, 
supports tax incentives to encourage the donation of land for 
conservation purposes and to protect our environment through clean-up 
of toxic sites. In tandem with state and local efforts, Federal tax 
incentives have proven to be effective tools in support of private and 
public sector efforts to maintain and preserve critical features of our 
environment.
    Hearing testimony scheduled for this afternoon will focus on bills 
that would use the tax laws to achieve important environmental and 
conservation goals. Importantly, these bills have been developed on a 
bipartisan basis, with many Committee Democrats and Republicans joining 
as cosponsors. With Earth Day 2002 celebrations having just ended, it 
is appropriate that the Select Revenue Measures Subcommittee take the 
lead and consider how these proposals would contribute to land use 
preservation and conservation.
    I join Subcommittee Chairman McCrery in emphasizing the importance 
of this review and look forward to the possibility of moving the 
proposals to the full Committee for further consideration.
    Thank you.

                                 

    Chairman MCCRERY. Thank you, Mr. McNulty. Our first panel 
of witnesses is comprised of our colleagues from the House. Mr. 
Portman has expressed a desire to go first because he has an 
urgent engagement away from the hearing room, and so without 
objection from any other panel Member, I will recognize first 
our good friend from the Committee on Ways and Means, Mr. Rob 
Portman. Mr. Portman?

STATEMENT OF THE HON. ROB PORTMAN, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF OHIO

    Mr. PORTMAN. Thank you, Mr. Chairman. I appreciate the 
indulgence of my colleagues. I really thought your opening 
statement outlined the issues well, Mr. Chairman, and I 
appreciate Mr. Lewis, Mr. McNulty, and other Members of the 
panel who may join us for hearing us out.
    I do believe that conserving open spaces, as one of our 
Nation's greatest natural resources, is extremely important, 
and I look forward to working with my colleagues on this panel 
with me and with the Subcommittee to try to move legislation 
forward using the tax code to help encourage that.
    Mr. Chairman, open spaces are necessary to be sure that we 
are preserving our diversity of plants and wildlife in this 
country that are disappearing at an alarming rate. We are told, 
in fact, that every minute, another two acres of farmland in 
this country are lost to development. That translates, Mr. 
Chairman, to about one million acres a year. About the size of 
the State of Vermont is now being lost every year to 
development.
    Preserving some of our remaining open spaces will not only 
help maintain important natural habitat, but also improves our 
quality of life, as you noted in your opening statement, by 
slowing the growth of traffic, congestion, air and water 
pollution, maintaining areas for recreational use, and helping 
to keep productive farmland and ranch lands intact.
    The Federal and State Government cannot and should not have 
the sole responsibility for preserving these open spaces, and 
you have made that point well. In the United States, in fact, 
the vast majority of this land is held in private hands. 
Private landowners must be willing partners, thus, with the 
government in helping to conserve these open spaces and natural 
habitats for the public's benefit.
    The Tax Code, of course, does provide some tax incentives 
already to encourage conservation. For example, taxpayers can 
take a deduction for charitable contributions of real property 
or an interest in property for qualified conservation purposes. 
In fact, the Federal estate tax also provides for a partial 
exclusion for gifts of conservation easements. These are 
valuable tools for conservation, and they are used but they do 
not work in all instances and that is one of the focuses of my 
testimony today.
    As we all know, there has been a great appreciation in 
these rural land values, certainly in my district, and I am 
sure in all the districts of those represented today. It is 
particularly true where metropolitan areas, as you said, are 
moving outward to meet what were previously strictly rural 
areas and these farmers and ranchers in these areas found they 
have very few financial assets other than their land. The 
income from farming and ranching is still relatively modest, so 
these are land-rich and cash-poor property owners who are 
generally unable to take advantage of the existing charitable 
donation incentives because their annual incomes and their tax 
liabilities just are too low to use the tax benefit to declare 
the deduction.
    The legislation that I am promoting today, which is H.R. 
2290, Conservation Tax Incentive Act, would address this 
problem by focusing on another tax, which is the capital gains 
tax. I am pleased that this proposal was included in President 
Bush's fiscal year 2003 budget. The bill excludes 50 percent of 
the gain on sales of land or interest in land or water where 
the sale is made to a qualified conservation entity for 
conservation purposes.
    Now, that sounds like a lot of new language, but it is 
really not, because qualified conservation entities is already 
in the tax code. This could include publicly supported 
conservation charities, governmental conservation agencies. In 
my district, for example, the Southern Ohio Farmland 
Preservation Association would be a qualified purchaser, and so 
could a city park or a county park, the State. Conservation 
purposes in the Act would include, and again, this is in the 
tax code, the preservation of land for outdoor recreation by 
the general public and the protection of natural habitats of 
fish wildlife or plants or the preservation of open space, 
including farmlands or forest. The bill uses the definitions 
for conservation entities and the test for conservation 
purposes that are, again, already in the tax code and well 
understood.
    It is a fiscally conservative, private citizen-based 
approach to land conservation that will help preserve these 
open spaces from sprawl and development while avoiding any 
onerous new land use regulations. It also enables conservation 
organizations and State and local governments to stretch their 
limited resources so they can focus on acquiring the most 
environmentally sensitive tracts of land.
    My district offers a great example of how this bill could 
be very helpful. Like a lot of other big cities, Cincinnati has 
expanded out into the rural areas and a lot of family farmers 
in my area are just getting by financially. They do not have 
the income and, thus, the tax liability. A lot of them want to 
keep their land in agriculture, but it is getting harder and 
harder to do it all the time.
    The State of Ohio does have a new program that provides for 
the purchase of development rights. However, a lot of farmers 
have purchased their land before the property escalated in 
value, and they would have huge capital gains taxes if they 
were to sell their development rights. With such a hefty 
portion of the payment from the transaction going to Federal 
taxes, many just are unable or unwilling to participate in the 
program.
    Under this bill, again, the capital gains on the sale of 
these development rights could be substantially reduced. The 
resulting increase in the net after-tax return, of course, 
means that more farmers would be able to afford to keep their 
land in productive use. That is one example.
    The bill is supported, Mr. Chairman, by a wide range of 
interests, the American Farm Bureau, Ducks Unlimited, Defenders 
of Wildlife, Association of State Foresters, the Nature 
Conservancy, who helped us in putting this bill together the 
last several years.
    It will encourage conservation, again, through voluntary 
private, market-based sales at a very modest cost to the 
government. The current cost estimate we have from the Joint 
Committee on Taxation, Mr. Chairman, is $66 million per year. 
Again, I think that is a small cost that will yield lasting and 
very important benefits for generations to come.
    Again, thank you for allowing me to explain my proposal. I 
look forward to working with you and Members of the 
Subcommittee and colleagues here on the panel to move some of 
these ideas forward.
    [The prepared statement of Mr. Portman follows:]
 Statement of the Hon. Rob Portman, a Representative in Congress from 
                           the State of Ohio
    Mr. Chairman and Members of the Subcommittee, I appreciate your 
holding this hearing and giving me the opportunity to appear before you 
today to talk about the importance of conserving one of our Nation's 
greatest natural resources--open spaces. I also would like to 
acknowledge my colleagues who are on the panel with me today. They have 
been very active in legislative efforts to preserve and improve the 
environment, and their leadership is to be commended.
    Mr. Chairman, the open spaces necessary to preserve our Nation's 
rich diversity of plant and wildlife are disappearing at an alarming 
rate. Every minute, two acres of farmland in this country are lost to 
development. That translates to a loss of more than one million acres 
every year. Preserving some of our remaining open spaces will not only 
help to maintain important natural habitats, but will also improve our 
quality of life by slowing the growth of traffic congestion and air and 
water pollution, maintaining areas for recreational use, and helping to 
keep productive farm and ranch lands intact.
    The Federal and State Governments cannot, and should not, have sole 
responsibility for preserving open spaces. In the United States, the 
vast majority of threatened habitats are privately owned. Thus, private 
landowners must be willing partners with the government in helping to 
conserve open spaces and natural habitats for the public benefit.
    The tax code does provide some tax incentives to encourage 
conservation of open spaces. For example, taxpayers may take a 
deduction for charitable contributions of real property or interests in 
property for qualified conservation purposes. In addition, the Federal 
estate tax provides for a partial exclusion for gifts of conservation 
easements. These tax benefits are valuable tools for encouraging 
conservation, but they don't work in all instances. As we all know, 
there has been great appreciation in rural land values in recent years, 
particularly where metropolitan areas have expanded outward to meet 
rural areas. Farmers and ranchers in such areas often have few 
financial assets other than their land, and income from farming and 
ranching is still relatively modest. Thus, land rich, cash poor 
property owners are generally unable to take advantage of the existing 
charitable donation incentives because their annual incomes and tax 
liability are too low to use the tax benefit of a deduction.
    My bill, H.R. 2290, the Conservation Tax Incentive Act, would 
address this problem by focusing on the capital gains tax. I am pleased 
that this proposal was included in President Bush's Fiscal Year 2003 
budget. H.R. 2290 would exclude 50 percent of the gain on sales of land 
or interests in land or water where the sale is made to qualified 
conservation entities for conservation purposes. Qualified conservation 
entities include publicly-supported conservation charities and 
governmental conservation agencies. Conservation purposes include: (1) 
the preservation of land for outdoor recreation by the general public; 
(2) the protection of natural habitats of fish, wildlife or plants; and 
(3) the preservation of open space (including farmland and forests). 
The bill uses definitions for conservation entities and tests for 
conservation purposes that are already in the tax code, and are well 
understood.
    The Conservation Tax Incentives Act is a fiscally-conservative 
private citizen-based approach to land conservation that will help 
preserve open spaces from sprawl and haphazard development while 
avoiding onerous new land use regulations. It will also enable 
conservation organizations and state and local governments to stretch 
their limited resources to acquire the most environmentally-sensitive 
tracts of land.
    My district in Southwest Ohio offers a classic example of where the 
bill would be helpful. Like other major cities, the metropolitan areas 
of Cincinnati have expanded out to meet rural areas. Many small family 
farms in the rural areas outside Cincinnati are just getting by 
financially. They want to continue to keep their land in production 
agriculture, but it's getting tougher all the time.
    The State of Ohio has implemented a new program that provides for 
the purchase of development rights to recognize the public interest in 
maintaining farmland. However, many farmers purchased their land before 
the recent escalation in property values, and they would experience 
substantial capital gains taxes on a sale of their development rights. 
With such a hefty portion of the payment from the transaction going to 
Federal taxes, many have been unable to participate in the program. 
Under my bill, capital gains taxes on the sale of such development 
rights would be substantially reduced. The resulting increase in the 
net after-tax return means that more farmers could afford to keep their 
land in productive use.
    The bill is supported by a wide range of interests, including the 
American Farm Bureau, Ducks Unlimited, Defenders of Wildlife, the 
Association of State Foresters, and The Nature Conservancy. H.R. 2290 
will encourage conservation through private, voluntary, market-rate 
sales at a modest cost to the Federal Government--approximately $66 
million per year according to the last estimate we have from the Joint 
Committee on Taxation. This is a small cost that will yield important 
benefits for future generations.
    Thank you for allowing me to explain this proposal. Of course, I 
would be happy to try to respond to any questions you may have.

                                 

    Chairman MCCRERY. Thank you, Mr. Portman. Our colleague on 
the Committee on Ways and Means, the Chairman of the 
Subcommittee on Health, Mrs. Nancy Johnson. Mrs. Johnson?

  STATEMENT OF THE HON. NANCY L. JOHNSON, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CONNECTICUT

    Mrs. JOHNSON. Thank you very much, Mr. Chairman, and thanks 
to all of your colleagues on your Subcommittee on Select 
Revenue Measures for being here this afternoon.
    I am going to build on what my colleague from Ohio has 
said, but before I do, let me just welcome Rand Wentworth, who 
is the President of the Land Trust Alliance, whom you will hear 
from shortly. Mr. Wentworth and his organization have been 
really national leaders in promoting conservation across the 
country and his organization's membership have strong 
representation in Connecticut. I am proud that the Land Trust 
has devoted clear resources to developing the leadership and 
the literal resources for land preservation in many, many 
counties throughout America.
    Over the past 20 years, many landowners have protected the 
value that they place on their land by donating it for 
conservation or adopting an easement that permanently protects 
the land they love. The continued rise in land prices, coupled 
with the rising cost of retirement, has greatly undermined the 
existing income tax incentives for open space protection and 
forces people to choose between retirement security and land 
protection in a way they have not had to in the past.
    In addition, States have developed quite impressive 
programs to buy either land or development rights. Since they 
are appropriated programs and actually involve buying the land, 
they are very costly and States, too, are limited in their 
ability to address their own land preservation needs.
    It is my belief that while the tax code has in the past 
thought about this, its provisions are inadequate and its 
provisions are particularly inadequate for the kind of person 
of modest means that Mr. Portman referred to. Many of my 
constituents have modest incomes, but they look rich when you 
look at the now value of their land. The tax code could really 
be a far more powerful agent in land preservation if we could 
enable these people to donate their land, thus avoiding some of 
the capital gains problems that Mr. Portman alluded to.
    Our bills are actually complementary, because his deals 
with situations where there is a sale. Mine deals with 
situations when there is a donation. The primary provision of 
my bill, H.R. 1309, would increase the current income tax 
deduction for the donation of land for conservation purposes 
from 30 to 50 percent of income until the full value of the 
land was realized, rather than limiting those deductions to up 
to 6 years.
    So, it would enable the people in my part of Connecticut, 
the Northwest corner, who own only 10 acres or 20 acres but who 
live next to people who also own 10 or 20 acres and would like 
to see this reserve in the valley preserved, each of them to be 
able to donate and, in a sense, develop a reverse income 
through this deduction and reduction of tax liability. So, it 
is kind of like reverse mortgages, and it really minimizes the 
cost to the government while maximizing the opportunity to 
preserve land that is important to us to protect open spaces.
    In my part of the country, protecting open spaces is 
important so you have fields that you can lease to support the 
working farms in existence, because if those fields go out of 
protection and are developed, you lose the farms as a secondary 
impact.
    Allowing families to deduct 50 percent of the value of 
their land from their income for as many years as it takes to 
recoup the value of the donated land creates an income stream 
through reduced tax liability that allows them both to be 
secure in their retirement and protect the land that they so 
love.
    It is kind of interesting to note that if you have a very 
high income and you donate a $1-million picture, you can deduct 
the whole $1 million, which may bring, in the first year, the 
tax liability down very low. So, in a sense, we are saying to 
the person who does not have a $1-million picture by a famous 
artist but does have 20 acres they would like to donate to 
conservation that they cannot ever deduct the whole value of 
that. So, there is a disparity in our tax code, how we are 
valuing the donation of art objects to art museums versus how 
we are valuing the donation of land to environmentally friendly 
uses that will serve the public interest.
    I am going to skip the rest of my testimony out of 
deference to my colleagues, but I am very excited about this 
hearing. I think that if we really look thoroughly at this 
issue of sales and donation, that the Federal Government could 
be a far better partner to the States now that the States are 
keenly aware that the parcels that are left are rising rapidly 
in price and we need to act in the next decade, not in decades 
ahead.
    So, I think we have an opportunity to make a very 
significant contribution at minimal public cost and with 
maximum flexibility and maximum respect for the fact that there 
are many important pieces of public land owned by small 
landowners who really profoundly value their land and the 
preservation of the quality of life of their small town and 
know that only an easement or some other means of preservation 
will preserve that quality of life that they enjoy and hope to 
will to their children. Thank you for your attention.
    [The prepared statement of Mrs. Johnson follows:]
 Statement of the Hon. Nancy L. Johnson, a Representative in Congress 
                     from the State of Connecticut
    Mr. Chairman and Members of the Subcommittee:
    Thank you for convening this important hearing on tax incentives 
for the conservation of land. I want to welcome Rand Wentworth, 
President of the Land Trust Alliance (LTA), who you will hear from 
shortly. Mr. Wentworth, and his organization, has been a national 
leader in promoting land conservation across the country and his 
organization's membership has a strong presence in Connecticut. I am 
proud that the Land Trust Alliance has endorsed my bill, H.R. 1309, 
about which I have come to testify today, and appreciate the leadership 
and resources LTA has provided in representing more than 1,200 non-
profit, grass-roots land trusts nationwide.
    While Congress often uses the tax code to promote certain 
activities, I do not believe we have used it effectively enough to 
promote land conservation. Connecticut, like most of its fellow New 
England states, is known for its historical beauty. However, like so 
some many communities across the country, we have seen an alarming 
amount of farmland and green spaces lost to development. More and more 
strip malls, shopping plazas and housing complexes are replacing 
productive farms and precious open spaces.
    Today, in many places with important value for their wildlife 
habitat, scenic beauty, outdoor recreation, and open space, land prices 
have risen far faster than the incomes of the farmers, ranchers and 
other landowners whose stewardship has protected and enhanced those 
values. Over the past twenty years, many landowners have protected such 
values on their land by donating it, or by donating a conservation 
easement that legally protected those values permanently. But the 
continued rise in land prices has greatly undermined the existing 
income tax incentive for such.
    Connecticut has embarked on major initiatives to either buy, or 
provide grants for the purchasing of land for conservation or 
recreation. In addition to popular state initiatives and current tax 
incentives, more must be done to encourage those who are land rich, but 
of modest means, to donate their land for conservation purposes. The 
primary provision of my bill, H.R. 1309, would increase the current 
income tax deduction for the donation of land for conservation 
purposes, from 30 percent to 50 percent of income until the full value 
of the land is realized, rather than a deduction for no more than 6 
years.
    Allowing families to deduct 50 percent of the value of their land 
from their income for as many years as it takes to recoup the value of 
the donated land essentially creates an income stream while their land 
is permanently protected from development. In the absence of improved 
conservation tax incentives, more and more land owners will succumb to 
the highest bidder and sell their valuable land for development. This 
will diminish preservation efforts and urban sprawl will become an even 
greater problem throughout the country. We need to find better ways to 
protect and preserve open spaces and I believe the tax code can further 
promote environmentally-friendly uses of our lands.
    I also want to mention one other bill before the committee which 
complements my legislation. Mr. Portman's bill, H.R. 2290, would allow 
landowners to exclude from tax 50 percent of the gain on sales of land 
or easements to public or private conservation entities for 
conservation purposes. His bill would allow landowners to protect the 
ecological value of their land without forfeiting the lands' economic 
value. We both share the same goal of preserving land, but our 
respective bills seek to achieve this goal in slightly different ways.
    I will continue to strongly advocate for proposals to enhance tax 
incentives for the conservation of land so those who are land rich, but 
cash poor, can afford to make this income sacrifice and help us all 
preserve our rural landscapes. My legislation, and others before the 
committee, promote this goal. It is my hope that the committee will act 
as soon as possible to put in place greater incentives for the 
conservation of land.

                                 

    Chairman MCCRERY. Thank you, Mrs. Johnson. Now, our next 
witness is another Member of the Committee on Ways and Means, 
the gentlelady from Washington, Ms. Jennifer Dunn. Ms. Dunn, 
welcome.

   STATEMENT OF THE HON. JENNIFER DUNN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Ms. DUNN. Thank you very much, Mr. Chairman. Mrs. Johnson 
put her finger on it. We are talking about partnership. I think 
it shows that you are, indeed, a panel of vision to be letting 
us have these hearings because we think we may have some 
solutions that will create good partnerships and result in the 
preservation of our Nation's beautiful forests at the same 
time.
    One of our most important roles as elected officials is to 
serve as stewards of our environment. We have a responsibility 
to future generations to care for our environment so that they 
will be able to experience and enjoy our natural resources.
    I believe there is broad support within Congress and in 
America for sound, consistent environmental policy. Sadly, it 
seems whenever a discussion moves beyond general goals to 
actual policies, it becomes rancorous and often bitter. The 
lingering distrust between the environmental community and 
private property advocates has proven to be a very difficult 
obstacle to overcome. Clearly, we need some new thinking.
    For this reason, I am so pleased to be speaking on behalf 
of H.R. 1711, the Community Forestry and Agriculture 
Conservation Act. This legislation presents an innovative 
solution to one of the most vexing challenges facing policy 
makers, conserving our land while ensuring that it remains a 
source of economic activity. This bill achieves an important 
balance by promoting a public good without impinging on private 
property rights.
    The bill has 25 cosponsors, including six Members of the 
Committee on Ways and Means. I want to recognize two Members of 
the Subcommittee, Mr. Tanner and Mr. Foley, for their support.
    Here is how the concept works. A community citizens group 
or a local government with a desire to protect a piece of land 
as a working greenbelt creates a nonprofit entity that includes 
a balanced membership of landowners, environmentalists, 
financial leaders, local officials, and forest professionals. 
The nonprofit group develops a management plan for the land 
that conforms to the relevant State and Federal environmental 
standards. Under the plan, a large portion of the land will be 
dedicated for stream and habitat protection and another area 
will be identified for logging.
    The State agency responsible for bond authority issues tax-
exempt revenue bonds on behalf of the nonprofit group, who 
purchases the land from the private owner at a fair market 
value. The nonprofit group takes title of the land. The 
nonprofit group harvests appropriate amounts of timber to pay 
off the debt while preserving the bulk of the forestland from 
future development.
    To make this concept a reality, Congress needs to change 
our tax law to allow nonprofit groups to access tax-exempt 
bonds. By doing so, we can employ a collaborative model to 
preserve natural resources.
    Although we began to write this legislation several years 
ago, Mr. Chairman, a recent example has allowed us to show how 
this concept could be applied in other areas around the 
country. The recent example of the partnership is the 
Snoqualmie Tree Farm in my district in Washington state. Last 
January, the Weyerhaeuser Corporation agreed to sell 104,000 
acres of the Snoqualmie Tree Farm to the Evergreen Forest 
Trust. The parcel is only 40 miles from downtown Seattle and is 
under imminent threat of development. The tree farm, which is 
nearly twice the size of the city of Seattle, is too valuable 
to remain as forest. Vast tracts would eventually be sold to 
developers. By accessing tax-exempt bonds, the trust can 
preserve the integrity of the tree farm.
    Once the trust takes ownership, it will accommodate the 
various needs of the community. It will protect vital habitats 
and watershed areas. It will continue to allow residents of the 
Puget Sound area to use wilderness lands for recreational 
purposes. Perhaps most significantly, it will keep the mills 
working and retain jobs for timber workers.
    In Washington state, we are blessed with stunning natural 
beauty, but as the population continues to grow, pressure to 
conserve the land often collides with the desires of the 
landowners. In the past, the government has further complicated 
matters through heavy-handed regulation. A typical result 
leaves one side victorious and the other side contemplating a 
long, costly court battle. H.R. 1711 demonstrates that 
environmental policy does not have to be a zero-sum game. We 
can satisfy both sides.
    Our problem in the Pacific Northwest is acute, but not 
unique. Communities all over the Nation are struggling with the 
competing demands of property owners and preservationists. I 
hope the Evergreen Trust can be a national example of a new, 
constructive effort to achieve the widely accepted goal of 
environmental preservation. Proof exists in the diverse group 
of supporters of this bill, including environmental 
organizations like the Nature Conservancy and timber companies 
like Weyerhaeuser and Plum Creek, two of whom you will hear 
from later on on the second panel.
    Privately-held forestland is disappearing throughout the 
United States. Since 1997, 10.6 million acres of private 
forestland have either been sold or are currently under 
contract for sale. One of the reasons for the reduction is the 
disparate tax treatment of private forestland. Hopefully, as we 
move forward with conservation measures, we can also devote 
some attention to how we tax timber assets.
    I have many fond memories of hiking through the woodlands 
around Puget Sound with my family. I want to ensure that 
families in the future will enjoy our forests just as much as 
we have. H.R. 1711 offers an opportunity to fulfill that 
promise. Thank you, Mr. Chairman.
    [The prepared statement of Ms. Dunn follows:]
Statement of the Hon. Jennifer Dunn, a Representative in Congress from 
                        the State of Washington
    One of the most important roles we have as elected officials is to 
serve as stewards of our environment. We have a responsibility to 
future generations to care for our environment so that they will be 
able to experience and enjoy our natural resources.
    I think that there is broad support within Congress and in America 
for sound, consistent environmental policy. Sadly, it seems whenever a 
discussion moves beyond general goals to actual policies it becomes 
rancorous and often bitter. The lingering distrust between the 
environmental community and private property advocates has proven to be 
a difficult obstacle to overcome. Clearly, we need some new ideas.
    For this reason I am so pleased to be speaking on behalf of H.R. 
1711, the Community Forestry and Agriculture Conservation Act. This 
legislation presents an innovative solution to one of the most vexing 
challenges facing policymakers--conserving our land, while ensuring 
that it remains a source of economic activity. The bill achieves an 
important balance by promoting a public good without impinging on 
private property rights.
    The bill has 25 cosponsors, including six Members of the Ways and 
Means Committee. I want to recognize two Members of the Subcommittee, 
Mr. Tanner and Mr. Foley, for their support.
    Allow me to briefly explain how the concept works:

         A community citizens' group or a local government 
        with a desire to protect a piece of land as a ``working'' 
        greenbelt creates a non-profit entity that includes a balanced 
        membership of landowners, environmentalists, financial leaders, 
        local officials, and forest professionals.
         The non-profit group develops a management plan for 
        the land that conforms to the relevant state and Federal 
        environmental standards. Under the plan, a large portion of the 
        land will be dedicated for stream and habitat protection and 
        another area will be identified for logging.
         The state agency responsible for bond authority 
        issues tax-exempt revenue bonds on behalf of the non-profit 
        group who purchases the land from the private owner at fair 
        market value. The non-profit takes title of the land.
         The non-profit group harvests small amounts of timber 
        to pay off the debt while preserving the bulk of the forestland 
        from future development.

    To make this concept a reality, Congress needs to change our tax 
law to allow non-profit groups to access tax-exempt bonds. By doing so, 
we can employ a collaborative model to preserve natural resources.
    One example of this partnership is the Snoqualmie Tree Farm in my 
district in Washington State. Last January, the Weyerhaeuser 
Corporation agreed to sell the 104,000 acre Snoqualmie Tree Farm to 
Evergreen Forest Trust. The parcel is only forty miles from downtown 
Seattle and is under imminent threat of development. The tree farm, 
which is nearly twice the size of Seattle, is too valuable to remain as 
forest. Vast tracts would eventually be sold to developers. By 
accessing tax-exempt bonds, the trust can preserve the integrity of the 
tree farm.
    Once the trust takes ownership it will accommodate the various 
needs of the community. It will protect vital habitats and watershed 
areas. It will continue to allow residents of the Puget Sound area to 
use wilderness lands for recreational purposes. And perhaps most 
significantly, it will keep the mills working and retain jobs for 
timber workers.
    In Washington State we are blessed with stunning natural beauty, 
but as the population continues to grow pressure to conserve the land 
often collides with the desires of landowners. In the past, the 
government has further complicated matters through heavy-handed 
regulation. A typical result leaves one side victorious and the other 
side contemplating a long, costly court battle. H.R. 1711 demonstrates 
that environmental policy does not have to be a zero-sum game. We can 
satisfy both sides.
    Our problem in the Pacific Northwest is acute, but it is not 
unique. Communities all over the nation are struggling with the 
competing demands of property owners and preservationists. I hope that 
the Evergreen Trust can be a national example of a new, constructive 
effort to achieve the widely accepted goal of environmental 
preservation. Proof exists in the diverse group of supporters of this 
bill, including environmental organizations like the Nature Conservancy 
and timber companies like Weyerhaeuser and Plum Creek.
    Privately-held forestland is disappearing throughout the United 
States. Since 1997, 10.6 million acres of private forestland have 
either been sold or are currently under contract for sale. One of the 
reasons for the reduction is the disparate tax treatment of private 
forestland. Hopefully, as move forward with conservation measures we 
can also devote some attention to how we tax timber assets. I have 
introduced H.R. 1581, the Reforestation Tax Act, which would ameliorate 
some the tax problems faced by the timber industry. I am happy to see 
that it is part of today's hearing.
    I have many fond memories of hiking through the woodlands around 
Puget Sound with my family. I would like to ensure that families in the 
future can enjoy our forests as much we have. H.R. 1711 offers an 
opportunity to fulfill that promise.

                                 

    Chairman MCCRERY. Thank you, Ms. Dunn. Now, a colleague 
from the Committee on Ways and Means and a Member of our 
Subcommittee, Mr. Jerry Weller from Illinois. Mr. Weller?

    STATEMENT OF THE HON. JERRY WELLER, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. WELLER. Thank you, Mr. Chairman, and Mr. McNulty, thank 
you, as well, for the opportunity to testify before our 
Subcommittee today on an issue that we all care very much about 
and an issue that carries strong bipartisan support and that is 
the issue of farmland and open space preservation. I commend 
you, Mr. Chairman, for conducting today's hearing on looking at 
how the tax code can impact our goal of protecting valuable 
open space.
    One lesson I think we have always learned as we look at the 
various pieces of tax legislation that have gone through our 
Committee is the tax code does have consequences and the tax 
code does have incentives. How can we use that to achieve this 
goal?
    Since I joined the Committee in 1996, and Mr. Chairman, if 
I could, I would like to summarize my testimony and just ask 
that I could submit my full testimony and summarize it for you.
    Chairman MCCRERY. Without objection.
    Mr. WELLER. I have enjoyed working with my colleagues, 
Nancy Johnson and Bill Coyne and others on the issue of 
brownfields. Every one of us can think of a community in our 
district, if not our hometown, where there is a parcel of land 
on one side of town, an old industrial park or a strategic 
location, and you always wonder why someone does not redevelop 
that and put it to use.
    All too often, there are some environmental cleanup needs 
in that brownfield, and if it is an old industrial park, you 
already have the sewer, the water, the infrastructure, the 
streets the access to that industrial park already in place, 
but private investors are hesitant to purchase it. Of course, 
the cost of the environmental cleanup has been the roadblock 
there, and as I talk with economic development as well as 
environmental agencies, they raise that issue when they are 
trying to attract a private investor to purchase that 
particular property.
    Now, why is it important that we revitalize brownfields? 
Well, if you are a private investor looking to develop an 
industrial park, you have a choice. You can take an existing, 
old, unused industrial park which already has the sewer, the 
water, the infrastructure, or you can purchase a cornfield in 
Illinois, a greenfield site, and statistics will show you that 
if the developer makes the choice of purchasing the greenfield 
site, they will probably consume anywhere from four to six 
times as much open space and land for that new industrial park 
as they would for an existing industrial park if they would 
just revitalize that.
    So, the question has been, how can we motivate and 
encourage those private investors to purchase that old 
industrial park, do the environmental cleanup, and revitalize 
it, and in turn, revitalize the community?
    We worked to provide, in a team effort, Nancy Johnson, Bill 
Coyne, and myself, over the last several years, provide an 
expensing provision for environmental cleanup of brownfields. 
In the 1997 Balanced Budget Act, we were successful in 
obtaining bipartisan support for a targeted provision that was 
targeted to low-income census tracts, the areas around them as 
well as Federal empowerment zones. Two years ago in the 
Community Renewal Tax Relief Act of 2000, we were successful in 
removing that targeting provision so every community in 
America, whether rural or suburban or urban or middle class or 
low income, would have the opportunity for this tax incentive 
to recover the costs of environmental cleanup, and it is 
working.
    In the district that I represent on the South side of 
Chicago as well as the South suburbs, we have brownfield sites 
currently being cleaned up in LaSalle County, Kankakee County, 
the city of Ottawa, Chicago's 10th ward, and in Joliet. In my 
district, considering the fact that there are 2,000 brownfields 
in the Chicago region alone, represents the two largest 
brownfields in the State of Illinois, the former Joliet 
arsenal, which is under redevelopment today, and, of course, 
land adjacent to the Ford plant in the 10th ward of Chicago, 
which is also under redevelopment. This tax incentive is 
helping make that happen.
    What we are asking the Subcommittee to consider and ask for 
the full Committee's support as well as continued bipartisan 
support for expensing of environmental cleanup on brownfields 
is to make this provision permanent. We have introduced H.R. 
2264, legislation which would make permanent the existing 
provisions for expensing of environmental cleanup of brownfield 
sites. The current provisions expire June 30, 2004.
    This is important. If you think about it, permanency of a 
tax provision causes greater investment in that. Business 
decisionmakers making decisions on millions of dollars in 
investments, if they know that the tax consequence is 
permanent, they are more likely to make a decision of greater 
magnitude, and I believe that making permanent the brownfields 
tax incentive will make a big difference.
    There are 400,000 brownfields across this country. The U.S. 
Conference of Mayors estimates that in 187 cities, estimated 
that if the 21,000 existing brownfield sites within the 
municipal limits of those cities were redeveloped, it would 
generate tax revenues for those cities of $2.4 billion and 
create up to 550,000 new jobs and revitalizing those 
communities.
    I would also like to touch briefly on an additional 
provision that was added to H.R. 2264 to expand the type of 
cleanup that would be eligible to benefit from this tax 
provision. Our provision would broaden the type of hazardous 
substances that are eligible for the treatment to include 
petroleum and pesticides, lead paint, and asbestos. Why do I 
mention that? Think of that gas station in your hometown that 
is on that strategic corner that needs to be cleaned up. This 
would help take care of that and achieve that goal.
    These type of contaminants are regularly found at 
brownfield sites. Our current law does not allow individuals 
cleaning up these sites with these substances the ability to 
use this tax incentive. We wish to expand it to include these 
because we believe it will help expedite the environmental 
cleanup and revitalization of more brownfields across this 
country.
    Mr. Chairman, thank you for the opportunity to testify. We 
believe this is an important environmental initiative as well 
as an economic development initiative and we ask the 
Subcommittee as well as the full Committee's consideration of 
making permanent the expensing of brownfields cleanup. So, 
thank you, Mr. Chairman.
    [The prepared statement of Mr. Weller follows:]
 Statement of the Hon. Jerry Weller, a Representative in Congress from 
                         the State of Illinois
    Mr. Chairman:
    As you may know, I have been interested in the cleanup of 
brownfields since I first joined this Committee in 1996. Two years ago, 
Nancy Johnson, Bill Coyne and I worked to include provisions into the 
Community Renewal Tax Relief Act of 2000 which extended and expanded 
existing tax incentives to all brownfield sites. Prior to the 2000 
legislation, the tax incentives were available only to brownfield 
cleanups in low income areas. Our legislation made brownfield cleanups 
in all communities across the nation eligible for the tax incentives.
    Now, I believe it is important that we make these tax provisions 
permanent. To that end, on June 21, 2001, I introduced H.R. 2264, a 
bill to make the brownfield tax incentives permanent. Currently, 
without action by this Committee, the existing provisions will expire 
June 30, 2004.
    Brownfield sites exist throughout all of our districts--abandoned 
eyesores that blight our communities and drag down local economies. 
Many brownfield properties are located in prime business locations near 
critical infrastructure, including transportation, and close to a 
productive workforce. These sites need to be put back into productive 
use, contributing to the economy and producing good paying jobs where 
they are needed most.
    The first step towards doing this is to remediate these sites 
environmentally. This U.S. Conference of Mayors estimates that there 
are over 400,000 brownfields sites across the country. Development of 
these sites will help restore many blighted areas, create jobs where 
unemployment is high and ease pressure to develop beyond the fringes of 
communities. Small, urban centered businesses often benefit most 
directly by this redevelopment. There are important economic and 
environmental benefits to brownfields cleanup. The U.S. Conference of 
Mayors recently completed a survey of 187 large and small cities 
throughout the nation, including Chicago, Houston, New York and Miami. 
According to the responses to this survey, the 187 cities estimated 
that if their 21,000 existing brownfield sites were redeveloped, this 
would bring additional tax revenues of up to $2.4 billion annually and 
could create up to 550,000 jobs. In Chicago alone, developing 2,000 
brownfield sites would mean $78 million in additional tax revenue to 
the city and 34,000 new jobs.
    At a time when we are looking for opportunities to jump-start our 
state, local and national economies, making the brownfields tax 
incentive permanent would be a big step in the right direction.
    Before I conclude my testimony, I would like to touch briefly on an 
additional provision included in H.R. 2264. This provision would 
broaden the types of hazardous substances that are eligible for the 
treatment to include petroleum and pesticides, and lead paint and 
asbestos. As you know, these contaminants are regularly found at 
brownfields sites, but current law does not allow individuals cleaning 
up sites with these substances the ability to use the tax incentives to 
cleanup these items. Given the toxic nature of these substances, I 
believe it is the best interest of our communities to ensure that these 
hazardous substances are cleaned up. I would encourage the Committee to 
broaden the definition of hazardous substance at the next available 
opportunity.
    Mr. Chairman, I appreciate the opportunity to testify before the 
Subcommittee on the issue of Brownfields. I look forward to continuing 
to work with you and other Members of the Subcommittee on this issue. I 
would be happy to answer any questions.

                                 

    Chairman MCCRERY. Thank you, Mr. Weller. Now, we will hear 
from our colleague from the State of Oregon, Earl Blumenauer. 
Mr. Blumenauer?

  STATEMENT OF THE HON. EARL BLUMENAUER, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate your 
courtesy in allowing me to join with my distinguished 
colleagues here for this critical discussion.
    I appreciate your opening statement, which really captured 
part of the dilemma that we are facing, and Mr. Portman talking 
about losing a million acres per year to development. Actually, 
it is worse than that. In the 1990s, there were some 17 million 
acres that were lost, an area roughly the size of the State of 
West Virginia. This has had profound impacts on the way that 
our communities are organized, the pressures that we are 
facing, the problems in the long term, and I appreciate your 
encapsulating that.
    It is not just that we are expanding the development area, 
but we have found that over the years 1960 to 1990, we were 
expanding almost three times faster than the increase in 
population. Development rates have gone up exponentially.
    Mr. Weller's metropolitan area increased 11 times faster 
than the population; a 4-percent increase in population and a 
46-percent increase in creation of developed land area. We are 
finding in Mr. Isakson's area the expansion of Atlanta, the 
most rapid development in the history of human settlement, that 
has caused that city to grow from 65 miles to 110 miles, north 
to south, in a 10 year period.
    Our citizens know that we cannot continue moving in this 
direction, paying for the infrastructure expansion and losing 
these precious resources, and luckily, we are seeing people 
starting to process this at the State and local level. When 
Maine finds that despite a decline of almost 30,000 students, 
they are paying a third-of-a-billion dollars more for school 
facilities because of the dislocation, we are finding that 
people are starting to react.
    I appreciate the panel that you have following us, with 
some of the key partners at the State and local level, local 
government, private business, and the nonprofit land trust 
community, for instance, that are looking at creative ways of 
doing that.
    Our citizens are voting at home. We have had over 550 
initiatives in the last election cycle that have produced 
billions of dollars of investment. They cannot do it by 
themselves, and looking at the tax code is an important place 
for us to begin.
    You have four excellent proposals before you. I have 
cosponsored a couple of them. I have been working with 
Representative Johnson for several years, trying to think 
through this.
    I would hope that the Subcommittee would consider three 
things. First, putting together a comprehensive package of tax 
incentives that would help us coax the types of behaviors that 
we want. You have got four good proposals before you. There are 
others that are floating around, and clearly, the Committee has 
some great ingenuity. This would be the sort of thing that 
people would move forward and look forward to being a part of, 
and you would find broad bipartisan support across the 
political spectrum for protection of farmland, open space, 
brownfield cleanup in ways that could lead to exciting 
partnerships in the future.
    I hope that the Committee would think about nudging some 
other things that are within the jurisdiction of the Committee 
on Ways and Means. Congressman Shaw sponsored H.R. 1172, the 
Historic Homeowner Tax Preservation Credit. This is something 
any of us in mature cities, large or small, could support. 
Whether it is Atlanta or St. Louis or Chicago or the smallest 
communities in the South and the North, there are historic 
structures that individual homeowners cannot afford to 
maintain, but this tax credit would make a huge difference in 
moving things forward.
    I would hope that the Committee would think about using its 
influence in finding a tax-free instrument that the farmers, 
for instance, that get payments from the sale of development 
rights or conservation easements could use not unlike a 
rollover for a 401(k) plan, a tax-deferred annuity, or an IRA. 
As a number of your witnesses have already said, land provides 
the retirement funds for individuals who do not necessarily 
want to lose control of their property. If they could have the 
opportunity for these payments to be in a tax-free instrument, 
you would find that there would be a lot more people that would 
step forward and take advantage of it.
    I appreciate the Committee's leadership and foresight in 
bringing together the panels and look forward to working with 
you in any way that I can to further this important work.
    [The prepared statement of Mr. Blumenauer follows:]
  Statement of the Hon. Earl Blumenauer, a Representative in Congress 
                        from the State of Oregon
    I want to thank Chairman McCrery, Ranking Member McNulty and the 
Committee for hosting this hearing that touches on an issue of concern 
for people everywhere--protecting land for agriculture, recreation, 
natural resource management, and environmental protection.
    My focus in Congress is to find ways in which the Federal 
Government can help localities create their vision of livable 
communities. A livable community is one where people are safe, healthy 
and economically secure. How the elements of land use and conservation 
fit together have a tremendous impact on our communities.
    I applaud the work of my colleagues whose legislative proposals we 
are hearing about today. I am supportive of each of these bills, which 
together represent the wide range of interests that understand the 
importance of land use and conservation decisions.

         Representative Rob Portman introduced H.R. 2290, the 
        Conservation Tax Incentives Act of 2001. This legislation 
        allows the exclusion of 50 percent of gains on land or water 
        sales for conservation purposes. I am pleased to hear that this 
        legislation is supported by groups as diverse as the American 
        Farm Bureau, environmental groups, and the Administration.
         H.R. 1309, introduced by Representative Nancy Johnson 
        amends the tax code to encourage the contribution of property 
        or easements for conservation purposes.
         Representative Jennifer Dunn's Community Forestry and 
        Agriculture Conservation Act of 2001, H.R. 1711, gives tax-
        exempt status to bonds issued to acquire renewable resources on 
        lands subject to conservation easements. I am a cosponsor of 
        this bill that helps to preserve farmland and forestry 
        economies that are important in my Congressional district.
         Representative Jerry Weller introduced H.R. 2264. 
        This legislation amends the Internal Revenue Code with respect 
        to environmental remediation cost expensing, making such 
        provision permanent and widening the definition of ``hazardous 
        substance'' and ``qualified contaminated site'' so that more 
        brownfield type sites will be developed and given a new 
        economic life.

    Why has land use, conservation and preservation become such an 
important issue nationwide? No matter where we live, even in areas with 
little to no population growth, we have witnessed the loss of important 
farmland and open space. Some of the facts are startling:

         Sprawling development uses land more inefficiently 
        than before, eating up land at twice the rate of population 
        growth. From 1960 to 1990, urban and suburban areas almost 
        tripled, while average population density fell by more than one 
        third.
         More than 90 million acres of farmland across the 
        nation are threatened by sprawl and we lose more than 2 million 
        acres every year to urban development.
         Farms are threatened by sprawl, but also are our 
        frontline against urban sprawl. Farms located near urban 
        centers serve as the primary source of fresh, locally grown 
        food--79% of our fruit, 69% of our vegetables, and 52% of our 
        dairy goods are produced on high quality farmland threatened by 
        urban growth.

    What makes the tax incentives being discussed today so important is 
that Federal programs and state and local initiatives cannot make it 
alone. Currently, the Department of Agriculture's Federal Farmland 
Protection Program is oversubscribed by 600%. If funds were available, 
more than 4,000 farmers would sell development rights on their land.
    Citizens and voters across the country have declared open space 
preservation a priority through their voting records. In 2001, voters 
in 17 states approved state and local ballot measures that generated 
$1.2 billion for conservation measures aimed at protecting recreational 
lands, farmland, parks and water supplies. Over 70 percent of these 
types of ballot measures passed.
    I support these tax incentive bills because it is another way in 
which the Federal Government can be active on this important issue. 
There are a couple of ways in which the Federal Government can make a 
difference and we must provide the resources necessary to do this.
    First, the Federal Government can help through direct funding. In 
the case of open space preservation, there are programs such as the 
Farmland Protection Program and Land and Water Conservation Fund that 
are extremely important. However, budgetary constraints limit the 
overall effectiveness of these programs.
    Second, the Federal Government must be a good partner to state and 
local governments. These tax incentives are one way we can help. These 
incentives create a tool for the private sector to create opportunities 
that will preserve lands that Federal dollars and local and state 
initiatives cannot protect alone.
    I would like to take the opportunity to touch on a few other pieces 
of legislation that are important to this whole discussion. There are 
many factors that have an effect on development and land use and 
Federal funding and tax incentives alone will not protect the resources 
and lands integral to our communities.
    It is important that states and regions are able to consider a 
wider view of the manner in which transportation infrastructure, 
employment centers, and housing are connected, or disconnected as the 
case may be. How these developments are coordinated and where they are 
built dictates the nature of our communities, the resources consumed, 
and the tax dollars it will take to maintain and service them. I 
believe that when regions give forethought to and coordinate the manner 
in which they invest in infrastructure and protect farmland and water 
resources, taxpayers can save billions of dollars.
    The Community Character Act, H.R. 1433, provides modest grants to 
states so that outdated planning statutes can be updated and 
comprehensive planning undertaken. A key reason for the Community 
Character Act and a primary obstacle to state comprehensive planning 
stems from the outdated statutes in place at the state level. Roughly 
half of the states rely on a model for land-use planning legislation 
created by the Department of Commerce over 70 years ago. The 
transformation of America's landscape and settlement patterns since the 
1920s has changed drastically. Updated state planning statutes are 
necessary to create the framework that will allow states and regions to 
address the modern world and adequately plan for the future.
    Another bill that touches on transportation's influence is the Bike 
Commuter Act, H.R. 1265. This legislation aims to include bicycling in 
the Transportation Fringe Benefit that employers are allowed to give 
employees for commuting to work. Currently, parking, vanpooling, and 
transit commuters are the only ones eligible for a benefit. By leveling 
the playing field for bike commuters we eliminate an incentive for 
people to live further from work, which is what leads to the 
development pressures we are now attempting to protect.
    Communities across the nation are seeking to reduce traffic 
congestion, improve air quality, and make neighborhoods safe. The 
Federal Government can assist in those efforts by promoting bicycling 
use through the existing Transportation Fringe Benefit of the tax code.
    Another important bill that utilizes tax credits is the Historic 
Homeownership Assistance Act, H.R. 1172. This legislation, introduced 
by Clay Shaw, Jr. Amends the Internal Revenue Code to allow a limited 
tax credit for rehabilitation of a qualified historic home. This is a 
bill important to directing development and investment away from 
outlying areas and back to the existing infrastructure of our 
communities.
    All of these legislative proposals are important pieces in helping 
people and localities create the types of communities they want to live 
in. These are incentives and grants that allow the Federal Government 
to be a good partner with state and local governments, so that they are 
able to create livable communities that are safe, healthy, and 
economically secure.

                                 

    Chairman MCCRERY. Thank you, Mr. Blumenauer. Now, our 
colleague from Georgia, a good friend who has been, I think, a 
leader in the effort to get a hearing in the Congress on this 
issue, my friend from Georgia, Johnny Isakson. Mr. Isakson?

   STATEMENT OF THE HON. JOHNNY ISAKSON, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. ISAKSON. Chairman McCrery, Ranking Member McNulty, 
thank you for letting me be here today and thank you for 
calling this important hearing. I have submitted my written 
testimony for the record, but for the sake of these 5 minutes, 
I would like to speak to you from the heart.
    The Sixth Congressional District of Georgia lies in the 
greater metropolitan Atlanta area. It is known for two great 
things. It is the most rapidly growing urban area in America, 
and it is also the home for the largest protected natural 
waterway and greenway of any urban city in America, the 
Chattahoochee National River Forest.
    I somewhat represent those two characteristics. For 34 
years prior to coming to Congress, I was a real estate broker 
and a developer, and my first act after coming to Congress was 
to sponsor legislation to expand the Chattahoochee National 
River Park.
    I am not claiming the original thought of H.R. 882. The 
late Senator Coverdell from Georgia introduced it a few years 
ago. Mr. Chris Sawyer of Atlanta, Mr. Carl Knoblauch, and 
others who are the real thinkers and engineers behind what I 
believe is the solution to the problem that has been restated 
five times already brought it to me and I fell in love with it 
because I know tax policy drives economic policy and I know 
that public/private partnerships work when one side or the 
other driving the train normally does not.
    Mr. Chairman, if you think about it for a second, this 
Congress exempted home mortgage interest and allowed it to be a 
deduction on taxes. Therefore, America has the largest 
homeownership of any country in the world. We decide to allow 
municipal bond interest to be tax-free and we raised more 
capital to build more infrastructure in our cities and our 
counties, to have the finest quality of life of anyone. A 
decade ago, when public housing had fallen apart, we used the 
tax code and we used tax credits for low- and moderate-income 
housing to revolutionize both the capital investment and the 
quality of that.
    H.R. 882 simply does this. It creates a 5-year, $20 billion 
tax credit program to raise the capital to fund the purchase of 
conservation easements by approved not-for-profit 
organizations. Unlike depending on the gift of specific land or 
the exemption of the tax for one estate, this allows a 
coordinated effort where private ownership is maintained, but 
controlled and coordinated conservation easements may be 
purchased so as to manage our riverways, migratory habitat, our 
farms and ranches in the West.
    Mr. Chairman, I believe in this passionately because it has 
worked in other examples approved by this Committee in other 
areas. There is no greater need than creating a public/private 
partnership to pass on the legacy of our environment and its 
quality. Once destroyed, we can never pass it on.
    In my last business act in Atlanta, Georgia, I was the 
developer of a subdivision called Wild Timber, a unique piece 
of land on the Chattahoochee River that I referred to earlier. 
Early on in that development, we made an investment in the land 
and an investment in our environment. We sold the river 
frontage to the Trust for Public Lands and then we preserved 20 
percent of the remaining acreage for greenways throughout the 
neighborhood to accentuate the streams, the topography, and the 
other natural assets.
    Mr. Chairman, instead of investing in acres of tennis 
courts, multiple swimming pools, and clubhouses, we preserved 
what God gave us, and an interesting thing happened. People 
came to our subdivision not to see what we had built, but to 
appreciate what we had not destroyed. In my entire career, it 
was the most popular, most rapidly absorbed development we ever 
did.
    I believe passionately that the public and private sector 
can work together. I believe concretely that conservation 
easements purchased and coordinated nationwide can preserve our 
riverways, our migratory habitat pathways between national 
parks, and preserve individual ownership and the family passing 
of ranches and farms. With the leadership of this Subcommittee 
and the consideration of this initiative, I believe we can make 
a major step forward for my children, for your children, and 
for the heritage we would all like to pass on to them, and I 
thank the Committee for giving me this opportunity.
    [The prepared statement of Mr. Isakson follows:]
Statement of the Hon. Johnny Isakson, a Representative in Congress from 
                          the State of Georgia
    Mr. Chairman and ladies and gentlemen of the Subcommittee, I want 
to express my thanks to you for allowing us the opportunity to discuss 
H.R. 882.
    Mr. Chairman, I represent the 6th Congressional District of 
Georgia, which lies in the heart of the greater metropolitan Atlanta 
area. My district has been developing rapidly over the last 20 years, 
and is the home to many of America's major corporations. It is also the 
home of the most significant urban river park and greenway in America. 
To a certain extent, I reflect both of these characteristics of my 
district because prior to my election to Congress I was the president 
of a major real estate and development company, and upon my election to 
Congress, the very first accomplishment I committed myself to was the 
expansion of the Chattahoochee River Greenway Program, which Congress 
passed in the 106th Congress.
    I am one who firmly believes that all of us have a responsibility 
to preserve our environment and our quality of life. I am also one who 
believes that tax policy has a major influence on the way the American 
people and American business invests and spends their money. United 
States tax policy allows the American people to deduct the cost of 
interest on their home mortgage on their income tax return, and in 
turn, American home ownership is the highest of any country in the 
world. The United States tax policy exempts from taxation the interest 
in municipal bond debt, and because of that the capital investment in 
America's cities and counties provides us with the best quality of life 
and services of any country in the world. United States tax policy 
created the tax credit program for moderate and low income housing, and 
brought to America's poorest and less fortunate, better opportunities 
and better neighborhoods. House Resolution 882 makes the statement that 
a change in United States tax policy can, and will, have the same type 
of positive influence on our environment as each of these examples have 
had on other facets of American life.
    Mr. Chairman, the Committee will hear later today from Mr. 
Christopher Sawyer, an Atlanta attorney recognized nationally as a 
leader in preserving the quality of our environment and finding 
creative ways for government and the private sector to work together to 
preserve sensitive environmental lands and family farms and ranches. 
Mr. Sawyer is one of those who was principally responsible for creating 
the Chattahoochee River Greenway program which to date has raised $105 
million in private funds and gifts to match a $25 million dollar 
Federal appropriation, which resulted in an expansion of the size of 
the Chattahoochee National Recreation Area and added an additional 60 
miles of river frontage to the park. I urge the Committee to pay close 
attention to Mr. Sawyer and his observations, for his knowledge comes 
from experience, not theory, because he understands that the business 
community and the environmental community can work together for the 
entire community which we all share equally.
    Mr. Chairman, I must admit that this legislation does not represent 
my original thought. This legislation is the work of many people who 
believe as I do that our environment is important, and that good policy 
can result in positive changes. The legislation was originally drafted 
by the late United States Senator Paul Coverdell. Paul came to believe, 
as I have come to believe, that there is a role for government to play 
to be a catalyst for positive change in environmental protection.
    Mr. Chairman, I come from the southeastern portion of our great 
country, and we face, as much of America faces, severe water problems. 
We recognize how critical our rivers are, and how essential water 
quality is. This legislation would provide an unbelievable incentive 
for the formation of dollars used to purchase conservation easements 
along critical shorelines and river banks to protect the river, reduce 
erosion and preserve the environment that surrounds it. Conservation 
easements do not take the land from its owner, but do restrict the use 
of the area upon which the easement rests. In my last major development 
as a businessman before elected to Congress, I recognized the growing 
appreciation for green space and river corridors in our last 
development in Atlanta known as Wild Timber. We made the conscious 
decision to sell our river frontage to the Trust for Public Land, and 
to preserve 20% of the land area of the development in green space for 
common buffers behind houses and along streams. In essence, we banked 
on making the environment our amenity package, rather than multiple 
swimming pools, acres of tennis courts and houses built up against a 
riverbank. The result of that experience was gratifying as the 
subdivision set all records in absorption and popularity. People came 
as much to see what we had preserved as what we had built. I am 
confident the vision of Mr. Sawyer and countless others of our citizens 
is a vision that is right for America. Using tax policy as a catalyst 
for the raising of capital to purchase easements to protect sensitive 
areas makes sense. We all know there isn't enough money to buy, through 
parklands and wilderness areas, everything that is critical to the 
quality of our environment. The money just doesn't exist. But through 
the use of conservation easements funded by the tax credits recommended 
in House Resolution 882, we leverage every dollar spent or invested to 
protect the environment by ten-fold, while maintaining the ownership of 
those lands upon which the easement lies in the name of the families, 
many of whom are third or fourth generation owners of a beautiful 
ranch, a magnificent farm or countless acres of timberland.
    Finally, Mr. Chairman, I am completely aware of the arguments that 
abound on the Floor of the Congress with regard to tax reductions, tax 
credits and tax rates. I also know the truth, and that is that tax 
policy drives people's decisions and people's investments. While this 
bill proposes a $20 billion tax credit program over five years, it's 
result will be a savings of far more money than it would cost to 
acquire the lands we need to preserve or reclaim the lands that have 
been damaged. It is time in this country that we encourage the 
investment of private capital in the preservation of our environment 
and use our tax policy, as we have in the past, to cause good decisions 
to be made for the common good and the betterment of our country.
    Mr. Chairman, I thank you and the Committee for allowing us this 
time. I express my appreciation in advance for all the testimony you 
will hear from Mr. Sawyer and his years of work on behalf of my State 
of Georgia and our country.

                                 

    Chairman MCCRERY. Thank you, Mr. Isakson. I thank all of 
you. I know that there are witnesses in the last panel today 
that will touch on every piece of legislation that you all have 
talked about, so I am going to reserve my questions for those 
witnesses when they come, but I would yield to my friend from 
New York, Mr. McNulty.
    Mr. MCNULTY. Thank you, Mr. Chairman. I just have a couple 
of brief questions. First, to Congressman Isakson, I notice 
your bill has a State cap and I was just wondering if you could 
describe how that would be determined on a State-by-State basis 
and how it would be administered within the States as far as 
who could take advantage of it.
    Mr. ISAKSON. I thank you for the question. In the testimony 
submitted by Mr. Sawyer, in the backup documentation, there is 
a chart that shows that allocation, which basically, and I am 
going on my memory here, goes from the highest cap allocation 
of $200 million in the largest State to one that was somewhere 
in the area of, I believe, $47 million in terms of the lowest 
allocation in the lowest State. It is basically a ratio of the 
farms and land and timberland in that State as a percentage of 
the land available in that State and allocated on that basis.
    Mr. Sawyer is going to discuss in his testimony, and at 
length in the written part, the allocation. The cap--did I 
answer your question?
    Mr. MCNULTY. Well, then a subpart of that question would 
be, once you determine the cap, how do you determine the 
administration of who gets to apply for the credits in order to 
get up to that cap.
    Mr. ISAKSON. Well, ultimately----
    Mr. MCNULTY. That sounds like that would be hard to 
administer.
    Mr. ISAKSON. Well, I think not hard to administer, but 
ultimately, one of the things the Committee will do will be to 
work through that project. Although I understand the 
difficulty, we had no problem obtaining from the United States 
Government the number of acres in each State that fell in those 
categories, and I think you will find through both the U.S. 
Department of Agriculture (USDA) and other departments a pretty 
good monitoring of the use of land in the country.
    One other point that I want to make, each year, if a State 
does not utilize up to its cap, then the remaining funds can be 
allocated over other States who have. So, this is a type of 
situation where the incentive is to use conservation easements 
to conserve vital lands and see to it the money is used by 
those that are truly partnering and taking initiative. If one 
State did not for one reason or another, the money would be 
reallocated across the others based on the formula.
    Mr. MCNULTY. Thank you Congresswoman Dunn, in H.R. 1711, 
what types of entities would issue the bonds and is there a 
Federal revenue cost?
    Ms. DUNN. Thank you for the question, Mr. McNulty. It would 
be a State public agency would administer the bonds, and the 
revenue cost would be $6 million in 2003 and over 10 years it 
would be $487 million. You might wonder about the Payments in 
Lieu of Taxes. They would be included in the purchase of the 
property.
    Mr. MCNULTY. Thank you. That is all I have, Mr. Chairman.
    Chairman MCCRERY. Thank you all very much. We appreciate 
your taking your time to share with us your ideas on how we can 
conserve open spaces and green areas in our country.
    Chairman McCRERY. Now, I would like to call forward Ms. Pam 
Olson, who is the Acting Assistant Secretary for Tax Policy, 
U.S. Department of the Treasury.
    Ms. Olson, thank you very much for coming today. We assume 
you are going to share with us the proposals in the President's 
budget with respect to today's topic, and know that your full 
written testimony will be entered into the record and we would 
like for you to summarize that orally in about 5 minutes. You 
may begin.

 STATEMENT OF PAMELA F. OLSON, ACTING ASSISTANT SECRETARY FOR 
          TAX POLICY, U.S. DEPARTMENT OF THE TREASURY

    Ms. OLSON. Thank you, Mr. Chairman, Mr. McNulty. I 
appreciate the comment about the size of the shoes that I am 
attempting to fill. Please bear with me to the extent I fall 
short from time to time.
    I do appreciate the opportunity to appear before you today. 
As you know, the President has made a firm commitment to 
conservation and the environment. I would like to begin by 
commending you and the Subcommittee for holding today's hearing 
focusing on tax incentives to encourage responsible stewardship 
of the land and proposals designed to improve upon those 
incentives and further encourage the preservation of open 
spaces.
    I also commend the Members of the Committee on Ways and 
Means, Ms. Dunn, Mrs. Johnson, Mr. Neal, Mr. Portman, Mr. 
Weller, as well as Mr. Blumenauer and Mr. Isakson for their 
thoughtful comments and for their leadership in introducing 
legislation to encourage responsible stewardship of America's 
land.
    The Internal Revenue Code includes a number of conservation 
incentives, including brownfields deductions to encourage the 
cleanup of abandoned or under-utilized contaminated properties 
by allowing expensing of environmental remediation costs, a 
charitable deduction for the contribution of qualified real 
property for conservation purposes, an estate tax exclusion for 
qualified conservation easements, and a proposal to allow State 
and local governments to issue tax-exempt bonds for land 
conservation and preservation.
    The Administration has included several tax-related 
proposals in the President's fiscal year 2003 budget that I 
will expand on later in my testimony. However, I would note 
that the President's commitment to advance policies to 
encourage land conservation and preservation extends well 
beyond the tax code. A description of the Administration's 
proposals to encourage land conservation and preservation is 
included in my written testimony.
    The tax code includes a number of incentives to encourage 
responsible stewardship of the land. The President has included 
a number of proposals in his budget designed to improve on 
those incentives and further encourage the preservation of open 
spaces. We look forward to working with this Subcommittee as it 
considers those initiatives.
    First, brownfields. The Administration's budget includes 
$200 million, twice the fiscal year 2002 level of funding, for 
the Environmental Protection Agency's brownfields program, $171 
million of which is for grants for States and local 
communities. Moreover, the President proposes making the 
brownfields tax incentives permanent. This incentive is 
currently scheduled to expire on December 31, next year.
    Brownfields are abandoned or under-utilized properties, the 
expansion, redevelopment, or reuse of which may be complicated 
by the presence or potential presence of a hazardous substance, 
pollutant, or contaminant. Since lenders, investors, and 
developers fear the high and uncertain costs of cleanup, they 
avoid developing contaminated sites. Blighted areas of 
brownfields hinder the redevelopment of affected communities 
and create safety and health risks for residents.
    The obstacles in cleaning these sites, such as regulatory 
barriers, lack of private investment, and contamination and 
remediation issues, are being addressed through a wide range of 
Federal programs, including the tax incentive for brownfields 
remediation. To encourage the cleanup of contaminated sites, 
the brownfields tax incentives permits the current deduction of 
certain environmental remediation costs. The brownfields tax 
incentive applies to expenditures paid or incurred before 
January 1, 2004.
    The Administration believes that encouraging environmental 
remediation is an important national goal. The brownfields 
provision encourages the cleanup of contaminated brownfields, 
thereby enabling them to be brought into productive use in the 
economy and mitigating potential harms to public health.
    The current law incentive was made temporary to encourage 
faster cleanup of brownfields. Experience has shown, however, 
that many taxpayers are unable to take advantage of the 
incentive because environmental remediation often extends over 
a number of years. For that reason, the President's budget 
proposed a permanent extension of the brownfields tax 
incentive. Extending this special treatment accorded to 
brownfields on a permanent basis would remove doubt among 
taxpayers as to the future deductibility of remediation 
expenditures and would promote the goal of encouraging 
environmental remediation.
    The Administration's proposal, as has been noted, was 
introduced by Mr. Weller and Mr. Coyne as H.R. 1439 and we 
appreciate their support of that provision.
    The revenue cost of the proposal, we have estimated to be 
$1.1 billion over fiscal years 2003 through 2007. We estimate 
that the $300 million annual cost will leverage approximately 
$2 billion in private investment and return 4,000 brownfields 
to productive use each year.
    The second item I want to mention is conservation sales. 
The Administration has also proposed to provide an exclusion 
for 50 percent of the gain when land or an interest in land or 
water is sold for conservation purposes. The proposal would 
apply to land sales after December 31, 2003. Some landowners 
may want their land to be protected for conservation purposes 
but cannot afford simply to donate either the land or an 
easement on the land, especially if the land is the landowner's 
primary salable asset.
    By adding an incentive for sales to qualified conservation 
groups, the President's budget complements the existing 
provisions that encourage charitable donations. This proposal 
would encourage the sale of appreciated environmentally 
sensitive land and land rights to qualified conservation 
groups, thus achieving conservation goals through voluntary 
sales of property rather than imposing government regulation on 
land use.
    Mr. Chairman, we believe that the Administration's proposed 
tax initiatives represent sound tax policy that can produce 
significant environmental benefits for decades to come. This 
concludes my prepared testimony. I would be pleased to answer 
any questions that you or Members of the Subcommittee may have. 
Thank you.
    [The prepared statement of Ms. Olson follows:]
   Statement of Pamela F. Olson, Acting Assistant Secretary for Tax 
                Policy, U.S. Department of the Treasury
    Mr. Chairman, Mr. McNulty, and Members of the Subcommittee:
    I appreciate the opportunity to discuss with you today the 
Administration's proposed tax incentives for improving the environment. 
I would like to start by thanking the Subcommittee for holding a 
hearing on this important issue. I also commend Ms. Dunn, Ms. Johnson, 
Mr. Neal, Mr. Portman, and Mr. Weller of this Committee, as well as Mr. 
Blumenauer and Mr. Isakson, for their thoughtful comments and for their 
leadership in introducing legislation to encourage responsible 
stewardship of America's land. This is a goal the President shares.
    Reflecting the President's firm commitment to conservation and the 
environment, the President's Budget for FY 2003 includes a number of 
proposals that will encourage land conservation and preservation. The 
budget includes the following initiatives for environmental 
conservation and stewardship: (1) over $910 million to fully fund the 
Land and Water Conservation Fund to support natural resource 
conservation and outdoor recreation, including $200 million for State 
grants--this proposal recognizes that Federal land acquisition is not 
the only way to conserve land and other natural resources, and allows 
funds to be used for conservation easements; (2) $665 million for the 
National Park Service to address the park maintenance backlog; (3) 
$67.5 million for Natural Resource Challenge, a science-based 
initiative to strengthen natural resource management throughout the 
National Park System; (4) $376 million for wildlife protection and 
public use opportunities at our National Wildlife Refuges; (5) $100 
million for a new Cooperative Conservation Initiative to protect and 
conserve the environment by awarding challenge grants to landowners, 
environmental groups, land-user groups, communities and State and local 
governments; (6) $50 million for the Landowner Incentive Program, which 
provides funds to States, tribes and territories to make cost-sharing 
grants for the protection of habitat for endangered, threatened or 
other at-risk species on private or tribal lands; (7) $70 million for 
the Forest Legacy program to protect against the loss of forests from 
development; (8) $10 million for the Private Stewardship grant program 
to provide technical and financial assistance to landowners engaged in 
local, private and voluntary conservation efforts for the benefit of 
Federally listed or other imperiled species; and (9) $200 million--
twice the FY 2002 level of funding--for the Environmental Protection 
Agency's brownfields program, $171 million of which is for grants to 
States and local communities.
    The Budget proposes making the brownfields tax incentive permanent. 
Under current law, this incentive is scheduled to expire on December 
31, 2003. The revenue cost of a permanent extension is estimated to be 
$1.1 billion over five years. The Administration also proposes to 
provide an exclusion for 50 percent of the gain when land (or an 
interest in land or water) is sold for conservation purposes. The 
proposal would apply to land sales after December 31, 2003, and its 
revenue cost is estimated to be $328 million over five years.
    The President's Budget includes other proposals that will benefit 
the environment. These proposals are part of an overall environmental 
policy aimed at encouraging economic growth in ways that protect the 
environment. In February, the President announced the Clear Skies 
Initiative to cut power plant emissions of the three worst air 
pollutants--nitrogen oxides, sulfur dioxide, and mercury--by 70 
percent. This initiative will improve air quality using a proven, 
market-based, cap-and-trade approach. The Budget also provides $4.5 
billion for activities related to global climate change, including the 
first year of funding for a five-year, $5.0 billion commitment to tax 
incentives to encourage energy efficiency, reduce greenhouse gas 
emissions and develop renewable energy sources.
    Thanks in large part to the leadership shown by the Ways and Means 
Committee, many of the Administration's tax proposals have been enacted 
or are included in legislation that the House passed last summer. We 
look forward to working with this Subcommittee as it considers the 
remainder of the Administration's environmental initiatives.
    The remainder of my testimony will provide a more detailed 
discussion of the Administration's tax proposals.
                        LAND-RELATED INCENTIVES
Current law tax incentives for land conservation
    As the Chairman noted in announcing this hearing, the Internal 
Revenue Code currently includes a number of incentives to encourage 
responsible stewardship of the land. They include the deductibility of 
brownfields remediation costs, special rules for qualified conservation 
contributions, an estate tax exclusion for qualified conservation 
easements, an exclusion for certain conservation cost-sharing payments, 
and rules permitting the issuance of tax-exempt bonds for land 
conservation and preservation purposes.

Brownfields remediation costs

    A brownfield site is real property, the expansion, redevelopment, 
or reuse of which may be complicated by the presence or potential 
presence of a hazardous substance, pollutant, or contaminant. Because 
lenders, investors, and developers fear the high and uncertain costs of 
cleanup, they avoid developing contaminated sites. Blighted areas of 
brownfields hinder the redevelopment of affected communities and create 
safety and health risks for residents. The obstacles in cleaning these 
sites, such as regulatory barriers, lack of private investment, and 
contamination and remediation issues, are being addressed through a 
wide range of Federal programs, including the tax incentive for 
brownfields remediation.
    To encourage the cleanup of contaminated sites, the brownfields tax 
incentive permits the current deduction of certain environmental 
remediation costs. Environmental remediation costs qualify for current 
deduction if the expenditures would otherwise be capitalized (generally 
costs incurred to clean up land and groundwater that increase the value 
of the property) and are paid or incurred in connection with the 
abatement or control of hazardous substances at a qualified 
contaminated site. A qualified contaminated site generally is any 
property (1) that is held for use in a trade or business, for the 
production of income, or as inventory; (2) at or on which there has 
been a release, threat of release, or disposal of a hazardous 
substance; and (3) that is certified by the appropriate State 
environmental agency as to the release, threat of release, or disposal 
of a hazardous substance. Sites that are identified on the national 
priorities list under the Comprehensive Environmental Response, 
Compensation, and Liability Act of 1980 (CERCLA) do not qualify as 
qualified contaminated sites. The brownfields tax incentive applies to 
expenditures paid or incurred before January 1, 2004.

Qualified conservation contributions

    To encourage charitable donations, tax law provides a charitable 
contribution deduction not only for outright gifts but also in certain 
cases where the property is sold to a charity for less than its fair 
market value (that is, a ``bargain sale''). In general, however, a 
charitable deduction is not allowed for income, estate, or gift tax 
purposes for a contribution of less than the donor's entire interest in 
property. There is an exception, however, for qualified conservation 
contributions. A qualified conservation contribution is a contribution 
of a qualified real property interest to a governmental unit or public 
charity exclusively for any of the following conservation purposes: (1) 
the preservation of land areas for outdoor recreation by, or for the 
education of, the general public; (2) the protection of a relatively 
natural habitat of fish, wildlife, or plants, or similar ecosystem; (3) 
the preservation of open space (including farmland and forest land) 
where such preservation is (i) for the scenic enjoyment of the general 
public or (ii) pursuant to a clearly delineated Federal, State, or 
local governmental conservation policy; or (4) the preservation of an 
historically important land area or a certified historic structure. A 
real property interest is qualified for this purpose only if it is (1) 
the donor's entire interest other than a retained interest in 
subsurface oil, gas, or other minerals and the right of access to such 
minerals, (2) a remainder interest, or (3) a perpetual restriction on 
the use that can be made of the property.

Estate tax exclusion for qualified conservation easements

    For Federal estate tax purposes, up to 40 percent of the value of 
land subject to a qualified conservation easement may be excluded from 
a decedent's estate at the election of the executor. The maximum 
exclusion permitted for qualified conservation easements is $500,000. 
In addition, if the value of the conservation easement is less than 30 
percent of the value of the land (determined without regard to the 
value of the easement and reduced by the value of any retained 
development right), the exclusion percentage is reduced by two 
percentage points for each percentage point (or fraction thereof) by 
which the value of the qualified conservation easement is less than 30 
percent of the value of the land.
    A qualified conservation easement must meet the following 
requirements: (1) the land must be located within the U.S. or a 
possession of the U.S.; (2) the land must have been owned by the 
decedent or a member of the decedent's family at all times during the 
three-year period ending on the date of the decedent's death; and (3) a 
qualified conservation contribution of a qualified real property 
interest (see above) must have been granted by the decedent, a member 
of the decedent's family, the executor of the decedent's estate, or the 
trustee of a trust holding the land no later than the date of the 
executor's election. For this purpose, preservation of a historically 
important land area or a certified historic structure does not qualify 
as a conservation purpose. In addition, the qualified real property 
interest must include a prohibition on more than a de minimis use for a 
commercial recreational activity.
    Property financed with acquisition indebtedness is eligible for the 
exclusion only to the extent of the net equity in the property, and the 
exclusion does not extend to the value of any development rights 
retained by the decedent or donor. To the extent the value of the land 
acquired at death is excluded from the decedent's estate under the 
qualified conservation easement rule, the land will receive a carryover 
rather than a stepped-up basis.

Cost-sharing payments

    To further conservation, Federal and State governments implement a 
number of programs to share in taxpayers' costs of making improvements 
to land. These costs do not normally improve the income-producing 
capacity of the property. To encourage participation in these programs, 
taxpayers may exclude certain payments received under these programs 
from their gross income. To qualify for exclusion, the payments must be 
made primarily for the purpose of conserving soil and water resources, 
protecting or restoring the environment, improving forests, or 
providing a habitat for wildlife and may not increase substantially the 
annual income derived from the property. Taxpayers claiming the 
exclusion may not increase the basis of the improved property by the 
excluded amount and may not claim any deduction or credit for any 
expenditure associated with the excluded payment.

Tax-exempt bonds

    States and local governments may issue tax-exempt bonds for land 
conservation and preservation purposes so long as: (1) no more than ten 
percent of the bond proceeds is used by private entities in a trade or 
business if payments or security associated with that use are available 
to pay principal or interest on the bonds; and (2) no more than five 
percent of the bond proceeds is loaned to private businesses or 
individuals. If these private activity requirements are not met, tax-
exempt private activity bonds may nonetheless be issued, subject to 
per-State volume limits, for the following land conservation and 
preservation purposes: water, sewage, solid waste disposal, and 
hazardous waste facilities; and redevelopment infrastructure in 
blighted areas if the bonds are supported by incremental property 
taxes.
Administration budget proposals
    The President's Budget for FY 2003 includes two proposals to 
improve upon these tax incentives and further encourage the restoration 
and preservation of America's land.

Brownfields remediation costs

    The Administration believes that encouraging environmental 
remediation is an important national goal. The brownfields provision 
encourages the cleanup of contaminated brownfields, thereby enabling 
them to be brought into productive use in the economy and mitigating 
potential harms to public health. The current-law incentive was made 
temporary to encourage faster cleanup of brownfields. Experience has 
shown, however, that many taxpayers are unable to take advantage of the 
incentive because environmental remediation often extends over a number 
of years. For that reason, the President's budget proposed a permanent 
extension of the brownfields tax incentive. Extending the special 
treatment accorded to brownfields on a permanent basis would remove 
doubt among taxpayers as to the future deductibility of remediation 
expenditures and would promote the goal of encouraging environmental 
remediation. The Administration's brownfields proposal was introduced 
by Mr. Coyne and Mr. Weller as H.R. 1439.
    The revenue cost of the proposal is estimated to be $1.1 billion 
over FY 2003-2007. Treasury estimates that the proposal, at a $300 
million annual cost, will leverage approximately $2 billion per year in 
private investment and will return 4,000 brownfields per year to 
productive use.

Conservation sales

    Some landowners may want their land to be protected for 
conservation purposes but cannot afford simply to donate either the 
land or an easement on the land, especially if the land is the 
landowner's primary salable asset. By adding an incentive for sales to 
qualified conservation groups, the President's Budget complements the 
existing provisions that encourage charitable donations. This proposal 
would encourage the sale of appreciated, environmentally sensitive land 
and land rights to qualified conservation groups, thus achieving 
conservation goals through voluntary sales of property, rather than 
imposing government regulation on land use. The proposal would achieve 
this goal by strengthening the ability of conservation groups to 
compete with other potential buyers of appreciated, environmentally 
sensitive land.
    Under the Administration proposal, when land (or an interest in 
land or water) is voluntarily sold for conservation purposes (as 
defined below), only 50 percent of any capital gain would be included 
in the seller's income. The 50-percent exclusion is based on what the 
gain would have been without taking improvements into account (that is, 
the taxpayer may exclude 50 percent of the excess of (a) the purchase 
price allocable to the property other than improvements, over (b) the 
basis allocable to the property other than improvements). To be 
eligible for the partial exclusion, the sale must be to a qualified 
conservation organization. A qualified conservation organization is 
either a governmental unit or a charity that is a qualified 
organization under section 170(h)(3) and that is organized and operated 
primarily for conservation purposes. Conservation purposes are the 
preservation of land areas for outdoor recreation by, or the education 
of, the general public; the protection of a relatively natural habitat 
of fish, wildlife, or plants, or similar ecosystem; or the preservation 
of open space where the preservation is for the scenic enjoyment of the 
general public or pursuant to a clearly delineated Federal, State, or 
local governmental conservation policy.
    The buyer must provide a written statement representing that it is 
a qualified conservation organization and that it intends to hold the 
property exclusively for conservation purposes and not to transfer it 
for valuable consideration other than to a qualified conservation 
organization in a transaction that would qualify for this 50 percent 
exclusion if the buyer/transferor were taxable. The partial exclusion 
would not be available for sales pursuant to a condemnation order but 
would apply to any gain recognized in a sale that is made in response 
to the threat or imminence of such an order. If the property sold is 
less than the taxpayer's entire interest in the property, it must 
satisfy requirements like those applicable to qualified conservation 
contributions under section 170(h). In addition, the taxpayer or a 
member of the taxpayer's family must have owned the property sold for 
the three years immediately preceding the date of the sale.
    Similar proposals were introduced by Mr. Kolbe as H.R. 960 and by 
Mr. Portman (with a number of cosponsors) as H.R. 2290.
    The provision would be effective for sales taking place on or after 
January 1, 2004. The revenue cost of the proposal is estimated to be 
$328 million over FY 2003-2007.
                       ENERGY-RELATED INCENTIVES
Current law tax incentives for energy efficiency and alternative fuels
    Tax incentives currently provide an important element of support 
for energy-efficiency improvements and increased use of renewable and 
alternative fuels. Current incentives are estimated to total 
approximately $800 million for fiscal years 2003 through 2007. They 
include a tax credit for electric vehicles and expensing for clean-fuel 
vehicles, a tax credit for the production of electricity from wind or 
biomass, a tax credit for certain solar energy property, and an 
exclusion from gross income for certain energy conservation subsidies 
provided by public utilities to their customers.

Electric and clean-fuel vehicles and clean-fuel vehicle refueling 
        property

    A 10-percent tax credit is provided for the cost of a qualified 
electric vehicle, up to a maximum credit of $4,000. A qualified 
electric vehicle is a motor vehicle that is powered primarily by an 
electric motor drawing current from rechargeable batteries, fuel cells, 
or other portable sources of electric current, the original use of 
which commences with the taxpayer, and that is acquired for use by the 
taxpayer and not for resale. The full amount of the credit is available 
for purchases prior to 2004. The credit begins to phase down in 2004 
and does not apply to vehicles placed in service after 2006.
    Certain costs of qualified clean-fuel vehicles and clean-fuel 
vehicle refueling property may be deducted when such property is placed 
in service. Qualified electric vehicles do not qualify for the clean-
fuel vehicle deduction. The deduction begins to phase down in 2004 and 
does not apply to property placed in service after 2006.

Energy from wind or biomass

    A 1.5-cent-per-kilowatt-hour tax credit is provided for electricity 
produced from wind, ``closed-loop'' biomass (organic material from a 
plant that is planted exclusively for purposes of being used at a 
qualified facility to produce electricity), and poultry waste. The 
electricity must be sold to an unrelated person and the credit is 
limited to the first 10 years of production. The credit applies only to 
facilities placed in service before January 1, 2004. The credit amount 
is indexed for inflation after 1992.

Solar and geothermal energy

    A 10-percent investment tax credit is provided to businesses for 
qualifying equipment that (1) uses solar energy to generate 
electricity, to heat or cool or provide hot water for use in a 
structure, or to provide solar process heat or (2) is used to produce, 
distribute, or use energy derived from a geothermal deposit.

Ethanol and renewable source methanol

    An income tax credit and an excise tax exemption are provided for 
ethanol and renewable source methanol used as a fuel. In general, the 
income tax credit is 53 cents per gallon for ethanol and 60 cents per 
gallon for renewable source methanol. As an alternative to the income 
tax credit, gasohol blenders may claim an equivalent gasoline tax 
exemption for ethanol and renewable source methanol that is blended 
into qualifying gasohol.
    The income tax credit expires on December 31, 2007, and the excise 
tax exemption expires on September 30, 2007. In addition, the ethanol 
credit and exemption are each reduced by 1 cent per gallon in 2003 and 
by an additional 1 cent per gallon in 2005. Neither the credit nor the 
exemption applies during any period in which motor fuel taxes dedicated 
to the Highway Trust Fund are limited to 4.3 cents per gallon. Under 
current law, the motor fuel tax dedicated to the Highway Trust Fund 
will be limited to 4.3 cents per gallon beginning on October 1, 2005.

Energy conservation subsidies

    Subsidies provided by public utilities to their customers for the 
purchase or installation of energy conservation measures are excluded 
from the customers' gross income. An energy conservation measure is any 
installation or modification primarily designed to reduce consumption 
of electricity or natural gas or to improve the management of energy 
demand with respect to a dwelling unit.
Administration budget proposals
    The Administration's budget for FY 2003 proposes a number of tax 
incentives for renewable energy and more efficient energy use. The 
budget also proposes to modify the tax treatment of nuclear 
decommissioning funds. The Administration's budget proposals are 
described below.\1\
---------------------------------------------------------------------------
    \1\ For a more detailed description, see General Explanations of 
the Administration's Fiscal Year 2003 Revenue Proposals, Department of 
the Treasury, February 2002.

---------------------------------------------------------------------------
Electricity from wind and biomass

    The President's Budget proposed to extend the credit for 
electricity produced from wind and biomass for three years to 
facilities placed in service before January 1, 2005. This proposal has 
since been enacted, in part, by the Economic Security and Worker 
Assistance Act of 2002, which provides a two-year extension of the 
credit. In addition, the President's Budget proposes to expand eligible 
biomass sources to include certain biomass from forest-related 
resources, agricultural sources, and other specified sources. Special 
rules would apply to biomass facilities placed in service before 
January 1, 2002. Electricity produced at such facilities from newly 
eligible sources would be eligible for the credit only from January 1, 
2002, through December 31, 2004. The credit for such electricity would 
be computed at a rate equal to 60 percent of the generally applicable 
rate. Electricity produced from newly eligible biomass co-fired in coal 
plants would also be eligible for the credit only from January 1, 2002, 
through December 31, 2004. The credit for such electricity would be 
computed at a rate equal to 30 percent of the generally applicable 
rate.

Residential solar energy systems

    The President's Budget proposes a new tax credit for individuals 
who purchase solar energy equipment used to generate electricity 
(photovoltaic equipment) or heat water (solar water heating equipment) 
for use in a dwelling unit that the individual uses as a residence. The 
credit would be available only for equipment used exclusively for 
purposes other than heating swimming pools. The proposed credit would 
be equal to 15 percent of the cost of the equipment and its 
installation. The credit would be nonrefundable and an individual would 
be allowed a lifetime maximum credit of $2,000 per residence for 
photovoltaic equipment and $2,000 per residence for solar water heating 
equipment. The credit would apply only to solar water heating equipment 
placed in service after December 31, 2001, and before January 1, 2006, 
and to photovoltaic systems placed in service after December 31, 2001, 
and before January 1, 2008.

Fuel from landfill methane

    The President's Budget proposes to extend the section 29 credit for 
fuel produced from landfill methane produced at a facility (or portion 
of a facility) that is placed in service after December 31, 2001. Fuel 
produced at such facilities would be eligible for the credit through 
December 31, 2010. The proposal would also expand the credit by 
permitting the credit for fuel used by the taxpayer to produce 
electricity. The credit for fuel produced at landfills subject to EPA's 
1996 New Source Performance Standards/Emissions Guidelines would be 
limited to two-thirds of the otherwise applicable amount. In the case 
of landfills with facilities that currently qualify for the section 29 
credit, this limitation would not apply until after 2007.

Ethanol and renewable source methanol

    The President's Budget proposes to extend the income tax credit and 
excise tax exemption for ethanol and renewable source methanol through 
December 31, 2010. The current law rule providing that neither the 
credit nor the exemption applies during any period in which motor fuel 
taxes dedicated to the Highway Trust Fund are limited to 4.3 cents per 
gallon would be retained. As under current law, the credit and the 
exemption would each be reduced by 1 cent per gallon in 2003 and by an 
additional 1 cent per gallon in 2005.

Hybrid and fuel cell vehicles

    The President's Budget proposes to provide temporary tax credits 
for certain hybrid and fuel cell vehicles.
    A credit of $250 to $4,000 would be available for purchases of 
qualifying hybrid vehicles after December 31, 2001, and before January 
1, 2008. A hybrid vehicle is a vehicle that draws propulsion from both 
an on-board internal combustion or heat engine using combustible fuel 
and an on-board rechargeable energy storage system. To qualify for the 
minimum credit, a hybrid vehicle would be required to derive at least 5 
percent of its maximum available power from the rechargeable energy 
storage system. Larger credits would be available for vehicles that 
derive larger percentages of power from the rechargeable energy storage 
system and for vehicles that meet specified fuel economy standards.
    A credit of $1,000 to $8,000 would be available for the purchase of 
qualifying fuel cell vehicles after December 31, 2001, and before 
January 1, 2008. A fuel cell vehicle is a motor vehicle propelled by 
power derived from one or more cells that convert chemical energy 
directly into electricity by combining oxygen with on-board hydrogen 
(including hydrogen produced from on-board fuel that requires 
reformation before use). To qualify for the minimum credit, a fuel cell 
vehicle would be required to meet a minimum fuel economy standard for 
its weight class. Larger credits would be available for vehicles that 
achieve higher fuel economy standards.

Combined heat and power systems

    To encourage more efficient energy usage, the President's Budget 
proposes to provide a 10-percent investment credit for qualifying 
combined heat and power (CHP) systems. CHP systems are used to produce 
electricity (and/or mechanical power) and usable heat from the same 
primary energy source. To qualify for the credit, a system would be 
required to produce at least 20 percent of its total useful energy in 
the form of thermal energy and at least 20 percent in the form of 
electrical and/or mechanical power and would also be required to 
satisfy an energy efficiency standard. The credit would apply to CHP 
equipment placed in service after December 31, 2001, and before January 
1, 2007.

Nuclear decommissioning funds

    The President's Budget proposes to repeal the current law provision 
that limits deductible contributions to a nuclear decommissioning fund 
to the amount included in the taxpayer's cost of service for ratemaking 
purposes. Thus, unregulated taxpayers would be allowed a deduction for 
amounts contributed to a qualified nuclear decommissioning fund. The 
Administration also proposes to permit funding of all decommissioning 
costs (including pre-1984 costs) through qualified nuclear 
decommissioning funds. Contributions to fund pre-1984 costs would be 
deductible except to the extent a deduction (other than under the 
qualified fund rules) or an exclusion from income has been previously 
allowed with respect to those costs. The Administration's proposal 
would clarify that any transfer of a qualified nuclear decommissioning 
fund in connection with the transfer of the power plant with which it 
is associated would be nontaxable and no gain or loss will be 
recognized by the transferor or transferee as a result of the transfer. 
In addition, the proposal would permit taxpayers to make deductible 
contributions to a qualified fund after the end of the nuclear power 
plant's estimated useful life and would provide that nuclear 
decommissioning costs are deductible when paid.
SAFE Act
    The Administration is pleased that the House, following the lead of 
this Committee, has passed H.R. 4, the Securing America's Future Energy 
Act of 2001. The Administration said, when the House was considering 
H.R. 4, that it was an important step in ensuring the Nation's energy 
security. We should also note that the inclusion in H.R. 4 of 
incentives from the President's budget to encourage conservation, 
energy efficiency, and the use of renewable and alternative energy 
sources advances vital elements of the Administration's environmental 
initiatives.
                               CONCLUSION
    Mr. Chairman, we believe that the Administration's proposed tax 
initiatives represent sound policy that can produce significant 
environmental benefits for decades to come. While this concludes my 
prepared testimony. I will be pleased to answer any questions you or 
other members of the Subcommittee may have.

                                 

    Chairman MCCRERY. Thank you, Ms. Olson. In looking at the 
array of incentives in the tax code currently and those which 
the Administration and Members of Congress might be proposing, 
did you consider the effect of the alternative minimum tax on 
some of these incentives, and if so, can you describe what 
those effects might be and if they would have any effect on the 
conservation incentives themselves?
    Ms. OLSON. Yes, we did. The Alternative Minimum Tax (AMT) 
generally allows charitable contributions to be deducted to the 
same extent as the regular tax. The AMT taxpayers generally 
face different marginal tax rates than if the AMT did not 
exist. Those marginal rates can be higher or they can be lower 
than regular tax marginal rates. If the AMT marginal rate is 
higher, then the AMT may increase the incentive to make 
charitable conservation contributions. If the AMT marginal rate 
is lower, the AMT may decrease the incentive.
    Chairman MCCRERY. Again, in looking at the array of 
incentives to encourage conservation, did you consider the 
estate tax and the effect that the estate tax has on conserving 
land? As you know, the House just recently voted to make 
permanent the repeal of the estate tax. Can you tell us what 
effect that might have on the use of land generally and 
conservation of land in particular?
    Ms. OLSON. Well, Treasury has estimated that the repeal of 
the estate tax would have some disincentive effects on 
charitable contributions, but those disincentive effects are 
offset to some extent by the fact that individuals with the 
repeal of the estate tax have more cash available for purposes 
such as charitable contributions. In addition to that, we 
believe that the proposal for the exclusion in the President's 
budget would offset some of the effects of the repeal of the 
estate tax. If I might elaborate just a little bit----
    Chairman MCCRERY. Sure.
    Ms. OLSON. Part of the repeal of the estate tax includes a 
carryover basis, and so an heir would take the property with 
the same basis as the decedent and would, therefore, have the 
same built-in gain and at some point in the heir's life might 
have the same incentive to make a charitable contribution with 
respect to that property.
    Chairman MCCRERY. What about the effect on conservation of 
that land posed by the burden placed on the heirs of the estate 
tax itself and having to come up with the cash to pay the 
estate tax?
    Ms. OLSON. Well----
    Chairman MCCRERY. If they are land-rich and cash-poor, what 
is the result?
    Ms. OLSON. Well, I think if they are land-rich and cash-
poor, they are sometimes put in a position of being compelled 
to sell something in order to raise the cash to pay the estate 
tax. If there is no compulsion to sell the property to pay the 
estate tax because there is not an estate tax anymore, they are 
left with more money in their pockets, which might ultimately 
mean that they have got a greater ability to make a charitable 
contribution.
    Chairman McCRERY. They might also keep their land, might 
they not?
    Ms. OLSON. They might also keep their land, that is right.
    Chairman MCCRERY. They might also continue to farm the 
land.
    Ms. OLSON. That is right.
    Chairman MCCRERY. To grow trees on it or whatever.
    Ms. OLSON. That is right, which might go a long ways, as 
well, to conserving open space.
    Chairman MCCRERY. Thank you, Ms. Olson. Mr. McNulty?
    Mr. MCNULTY. Thank you for your testimony, Ms. Olson. I was 
wondering, why does your proposal to permanently extend the 
expensing of brownfields remediation costs not also include an 
expanded list of deductible expenses, such as those relating to 
petroleum, asbestos, and pesticide contaminations?
    Ms. OLSON. With respect to items such as asbestos that are 
generally found inside of buildings, we have not suggested it 
should be expanded to items that are inside of buildings. I 
think that keeping the focus on the current list of items 
ensures that the most resources are devoted to cleanup of those 
kinds of items on contaminated sites. If you are looking at a 
contaminated site and you are trying to do the land cleanup, if 
it is not deductible under the brownfields remediation 
provision, it is going to go into the basis of that land and 
that cost is not going to be recovered at all until the land is 
disposed of. If it is something that goes into the building, 
then it does become depreciable or recoverable cost as part of 
the building. So, there is less of a critical need for that 
question to be answered with respect to things that are inside 
of buildings.
    Another point is just administerability. Right now, the way 
that the provision works, taxpayers who want to do a cleanup 
and claim the 198 deduction go to a State agency that 
regulates, keeps track of the brownfields site and certifies 
the expenses. If we expand it beyond the current list, we have 
lost that bit of administerability that goes along with it.
    Mr. MCNULTY. In your proposal to exclude 50 percent of the 
capital gains from the sale of property for conservation 
purposes, how do you define conservation purposes and what 
entity makes that determination?
    Ms. OLSON. We would follow some of the proposals that have 
been followed in the past, where you have got organizations 
that are currently permitted under the tax code as conservation 
entities, and so it would be those same kinds of entities that 
would be making the decision about what to acquire in terms of 
the land that is offered for sale.
    Mr. MCNULTY. That is all I have, Mr. Chairman. Thank you.
    Chairman MCCRERY. Mr. Weller?
    Mr. WELLER. Thank you, Mr. Chairman, and Ms. Olson, 
welcome. It is good to have you before the Subcommittee today 
and I very much appreciate the Bush Administration's commitment 
on brownfields cleanup and embracing the need to make permanent 
the brownfields expensing provision that we have all worked 
together on over the last several years.
    Let me ask this. Based on your knowledge of brownfields 
cleanup and the data that you have and just looking at it from 
a national perspective, how do you feel that this expensing 
provision acts as a motivation for a private investor to be 
more inclined to purchase that old industrial site on the edge 
of town rather than a cornfield further out on the edge of 
town, which from the standpoint of just cost of the land, 
without having to do the environmental cleanup, they might be 
able to save money on. What do you see as a motivating factor 
as a result of this tax provision?
    Ms. OLSON. Well, I think it has a significant effect. There 
is a big difference between taking the costs of cleanup and 
putting it into the basis of the land than having it just hang 
there for an indeterminate amount of time as a cost that cannot 
be recovered versus being able to deduct those out-of-pocket 
expenses up front. So, if you were comparing two parcels of 
land of equal value except that one had to be cleaned up 
considerably before it could be used, it is obviously 
significantly increased cost, and the fact that the taxpayer 
can deduct the costs of cleanup would give him an incentive to 
do that.
    Mr. WELLER. Okay. You have interesting numbers there. You 
indicated that you feel that making permanent this provision 
would generate at least $2 billion worth of investment and over 
the next 5 years would clean up an additional 2,000 
brownfields. From the standpoint of the Chicago area that I 
represent, that represents our entire current inventory of 
brownfields in the Chicago metropolitan area. I think there are 
about 400,000 brownfields nationwide, so we have a lot of work 
to do.
    Ms. OLSON. That is right. We do have a lot of work to do. 
Our estimate is actually 4,000 per year, so----
    Mr. WELLER. Four thousand per year would be----
    Ms. OLSON. Yes.
    Mr. WELLER. I need to correct that, but that would be a 
tremendous investment. I do want to thank the Administration 
for your commitment on this. I look forward to working with 
you.
    I do wish that the Administration would take a look at 
expanding the types of materials that would benefit from this 
tax incentive when it comes to what types of materials can be 
cleaned up. Obviously, as we have experimented with how to make 
this tax incentive work, it has been quite evident that there 
is a need for expansion of the type of cleanup that would 
succeed in our goal of revitalizing brownfields, so I would 
very much like to work with you on identifying ways that we can 
expand the type of cleanup that would be eligible for this tax 
incentive, as well as making it permanent.
    Ms. OLSON. We would be happy to give that further study.
    Mr. WELLER. Thank you, Mr. Chairman. Thank you for holding 
this hearing.
    Chairman MCCRERY. Thank you, Mr. Weller. I have not asked 
or advised Ms. Dunn or Mr. Blumenauer, but if you would like to 
ask the Administration's witness anything, feel free to do 
that. Ms. Dunn?
    Ms. DUNN. Thank you very much, Mr. Chairman. I did not 
expect to have a chance to ask the Administration witness a 
question, but I would simply say that we have sat down and had 
a good briefing with Mark Weinberger on H.R. 1711 and I am 
hopeful that we can sit with you, Ms. Olson, and go through 
this in detail. Do you have any sense of what the position 
would be in general on this type of legislation?
    Ms. OLSON. I would be happy to sit down with you and 
discuss it. We have been through the legislation and we do have 
some suggestions that we have discussed with some of the folks 
who are interested in your proposal that we think would make it 
a little bit tighter and make it work a little bit better, make 
it more administrable, because we do have a few 
administerability concerns. We also have some ideas that might 
help bring the cost of it down, as well.
    Ms. DUNN. That is great, and that is exactly the sort of 
feedback we are looking for, so we will look forward to making 
that meeting happen.
    Ms. OLSON. Thank you.
    Ms. DUNN. Thank you, Mr. Chairman.
    Chairman MCCRERY. Thank you, Ms. Dunn. Ms. Olson, thank you 
very much. We look forward to seeing you again and again and 
again in the future.
    Ms. OLSON. Thank you.
    Chairman MCCRERY. Now, I would like to call our third and 
final panel, Mr. Chris Sawyer, Mr. Steven McCormick, Timothy 
Brazell, Charles Bingham, Eugene Duvernoy, Rand Wentworth, and 
Jim DeCosmo.
    Thank you, gentlemen, for coming today to share with us 
your views on some of the legislation that we have already 
heard discussed today and some other ideas for us to consider.
    Our first witness on this panel is Mr. Chris Sawyer, who is 
President of the West Hill Foundation for Nature, Inc., in 
Atlanta, Georgia. Mr. Sawyer, welcome. Note, all of you, that 
your written testimony will be incorporated into the record and 
we would like for you to summarize orally in about 5 minutes. 
Mr. Sawyer?

    STATEMENT OF CHRISTOPHER GLENN SAWYER, ATLANTA, GEORGIA

    Mr. SAWYER. Thank you very much, Mr. Chairman. Thank you 
and your Members for the invitation and opportunity to appear 
before your Subcommittee. You are considering a number of 
important and thoughtful bills today, but my focus will be on 
H.R. 882.
    My name is Chris Sawyer and I am from Atlanta, Georgia. I 
also work with real estate companies across America relating to 
issues of development and institutional real estate investment. 
For over a decade, I have also been active with land 
conservation issues throughout America, serving at both the 
State and national volunteer leadership levels with the Nature 
Conservancy and the Trust for Public Land.
    While I am here today as a private citizen and not as a 
representative of these various organizations, these 
experiences with both the profit and nonprofit sectors have 
certainly informed and shaped my opinions. My fundamental 
perspective is that America is now in the middle of an 
insidiously devastating land use crisis that without immediate 
and dramatic action guarantees a greatly degraded and 
irrevocably altered natural estate for all generations to come. 
While I have offered much more extensive support for this 
assertion in materials that I have submitted with this 
testimony, let me briefly offer support here.
    Over our 225-year history, the lower 48 States have lost 52 
percent of their original wetland areas and continue to lose 
these areas at the rate of 109,000 acres per year. This is 
costing us billions of dollars annually, which annual cost 
compounds each successive year. Of the 14 major living groups 
of organisms, including all vertebrates and vascular plants in 
the United States, one-third of them are either extinct, 
imperiled, or significantly vulnerable. Of the 76 ecoregions in 
the 48 contiguous States, only 9 are considered not to be 
critical, endangered, or in a vulnerable condition as habitat 
for the species that they contain.
    These statistics do report the critical condition of our 
natural state, but it is not just our natural state. It is also 
our culture and our quality of life. For example, from 1982 to 
1997, we converted over 21 million acres of farmland to 
residential and other development uses. In the last two 
decades, over one million acres of rangeland in the greater 
Yellowstone area alone have been split into plots of 200 acres 
or less. In the 5-year period from 1992 to 1997, the United 
States created 15 percent of its total urban footprint while 
the other 85 percent took 225 years.
    As a nation, we have simply worked our land and natural 
estate hard for 225 years, a fact that would stress any system. 
This stress is greatly exacerbated today by the fact that we 
now have 281 million people and it is anticipated that that 
number will increase by at least 58 million, or 21 percent, by 
2020, only 18 years away.
    Collectively, this is an extraordinarily disturbing 
picture. When we fully admit that this is also the picture of 
the physical platform for the future strength, power, and 
wealth of our great Nation, it becomes simply unacceptable. It 
demands a national response today that guarantees dramatic, 
immediate, and permanent improvements in the condition of our 
natural estate.
    H.R. 882 offers a national response that includes just that 
guarantee. It does so by building a plan around those elements 
that will be necessary to achieve this critical national goal 
on the most financially efficient basis, consistent with our 
heritage of private property rights. Those elements include the 
participation of every State, public/private partnerships, use 
of conservation easements for the purchase of development 
rights, allocation of capital that scales to the problem, 
specific deadlines that will motivate States and landowners 
alike, the participation of everyone, and the use of tax 
credits to involve more citizens directly and to provide for a 
much more immediate and locally driven response.
    Through this plan, H.R. 882 will direct and empower all 
levels of government, land trust, taxpayers, and landowners to 
work in an aligned partnership, focused at the local level to 
conserve and restore our natural infrastructure for all 
generations to come, and the investments made through H.R. 882 
will also bear economic results. They will filter our water and 
protect it. They will clean our air. They will keep our 
fisheries and foodstocks healthy and productive. They will help 
assure genetic diversity. They will provide the much needed 
relief of greenspace for all of us while simultaneously 
allowing us to avoid the costs of artificially replacing these 
same services. These savings and returns will significantly 
lower, if not, in fact, exceed the entire cost of this program.
    These are complex issues, but given what we have lost, what 
we are losing, and what we urgently need, we must embrace an 
administratively and financially efficient plan that honors 
private property rights and guarantees immediate, dramatic, and 
permanent improvements to our Nation's natural state. H.R. 882 
is just such an opportunity. Thank you for your consideration.
    Chairman MCCRERY. Thank you, Mr. Sawyer, for being so 
concise and getting just in your 5 minutes. Very well done.
    Mr. SAWYER. Thank you, sir. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Sawyer follows:]
        Statement of Christopher Glenn Sawyer, Atlanta, Georgia
    Mr. Chairman: Thank you and your Members for the invitation and 
opportunity to appear before your Committee.
    My name is Christopher Glenn Sawyer. I reside in Atlanta, Georgia, 
where I have practiced law for 24 years.
    During this period of time, I have had a unique experience with 
land usage in America. As a lawyer, I have advised and represented real 
estate companies across America relating to issues of development and 
institutional real estate investment. In addition to the experience of 
this legal practice, I also represent and serve today as a member of 
the Board of Directors of one of the largest, privately held 
development companies in America. I have also been nominated to serve 
on the Board of Trustees of the Urban Land Institute.
    Over the last twelve years, I have also been active with land 
conservation issues throughout the United States. In addition to 
serving on the Georgia boards of the Trust for Public Land and The 
Nature Conservancy, I have also served as chairman of the National Real 
Estate Advisory Board of The Nature Conservancy, as current President 
of the West Hill Foundation for Nature in Wyoming, and currently and 
for the last six years as the National Chairman of the Trust for Public 
Land headquartered in San Francisco.
    While these experiences have certainly exposed me to the broad 
issues of our environment, I have also worked on specific projects. 
Most notably, five years ago I helped start the Chattahoochee River 
Greenway Program, an effort to create a greenway along the banks of the 
Chattahoochee River from Helen to Columbus, Georgia, a linear distance 
of approximately 180 miles. As part of that effort, we came to Congress 
and received an appropriation of $25 million to increase significantly 
the size of the Chattahoochee River National Recreation Area. Since 
that time, we have taken those funds and, through creating an active 
partnership among Federal, state and local governments, a number of 
nonprofits, and many businesses and individuals, we have not only 
essentially doubled the size of the Chattahoochee River National 
Recreation Area, but by leveraging those Federal dollars we have also 
raised over $130 million in addition to the Federal grant and, now four 
years later, have acquired by gift or acquisition a total of 60 miles 
of river frontage. As founding and current chairman of the 
Chattahoochee River Coordinating Committee, the organizing body of this 
effort since its inception, I have learned a lot about our 
environmental needs and what we, I believe, must do to respond to them.
    This work, as well as work with other national organizations, has 
required me to travel 40,000 to 60,000 miles a year within the United 
States over the last ten years working on, and learning about, land use 
and environmental issues. While I wish to make it clear that I am here 
today as a private citizen and not as a formal representative of these 
various organizations, these experiences have certainly informed and 
shaped the opinions that I wish to share with you this afternoon.
    My fundamental perspective as a result of these experiences is that 
America has a very significant land use crisis that threatens the 
bounty of our natural resources and the rich diversity of our culture. 
This crisis poses an immediate threat to us today and the promise, 
without immediate and dramatic action that scales to the true needs of 
our country, of a greatly degraded and irrevocably altered natural 
estate for all generations to come.
    While I have offered more extensive support for this assertion in 
materials that I have submitted with this testimony, let me offer some 
support here for this position, as well as a sense of the current pace 
of this degradation and depletion.

         Over our history, the lower 48 states have lost 52% 
        of their original wetland areas and they continue to lose these 
        areas at the rate of 109,000 acres per year; because each acre 
        of wetland provides significant annual economic benefits,\1\ 
        this continuing annual loss of 109,000 acres amounts to a loss 
        of billions of dollars each year, losses that continue and 
        compound with new losses year after year. Geologically 
        significant grasslands have and are disappearing at similar 
        rates.
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    \1\ See, e.g., the attached article: ``The Value of Conservation 
Easements: The Importance of Protecting Nature and Open Space,'' by 
Amanda Sauer, World Resources Institute, April 9, 2002.
---------------------------------------------------------------------------
         When one surveys the environment regionally, the loss 
        seems, if possible, even greater: the Central Valley of 
        California has lost 95% of its original wetlands and 90% of its 
        riparian corridors have been lost or severely degraded; 50% of 
        the forest and wetlands have been cleared and drained around 
        the Chesapeake Bay, severely deteriorating the quality of its 
        water; 80% of the original 24,000,000 acres of forested 
        wetlands in the Mississippi Aleuvial Valley are gone; 96% of 
        the original 167,000,000 of the tallgrass prairies in the 
        Midwest are gone; 98% of the formerly dominant long-leaf pine 
        in the Southeast region are gone; and the Pacific Northwest has 
        lost 90%, or 25,000,000 acres, of its ancient forests.
         Of the 14 major living groups of organisms, including 
        all vertebrates and vascular plants in the United States, \1/3\ 
        of them are graded of ``conservation concern,'' meaning that 
        they are either extinct, imperiled or significantly vulnerable. 
        Similarly, of the 76 eco-regions in the 48 contiguous states, 
        only nine are considered not to be critical, endangered or in a 
        vulnerable condition as habitat for the species they contain. 
        Indeed, an astounding 30% or more of the natural communities in 
        areas such as Hawaii, Oregon's Willamette Valley, and vast 
        portions of the Midwest and Southeast are in danger of 
        vanishing from our natural landscape.

    While it is easy to read these as statistics, these statistics 
report the condition of our natural estate. That estate has been the 
remarkable physical platform for our wealth and our strength, and it is 
obviously diminished and imperiled. But it is not just the natural 
estate; it is also our culture and our quality of life. For example:

         From 1982 to 1992, more than 1,000,000 acres of 
        agricultural land across the United States was converted 
        annually to residential and other development purposes, one-
        third of which was classified as prime and unique farmland. 
        From 1992 to 1997, the conversion rate doubled, with 11.2 
        million acres converted from farmland to other purposes.
         In the last two decades, over one million acres of 
        rangeland in the Greater Yellowstone area have been split into 
        plots of 200 acres or less, changing irrevocably those ranching 
        communities and fragmenting the landscape that some say defines 
        America.
         From 1992 to 1997, the United States created 15% of 
        its total urban footprint--the other 85% took approximately 220 
        years.
         This development pattern is dependent on the 
        automobile and the result of that is that the average American 
        now spends approximately 445 hours in a car annually or the 
        equivalent of 55 eight hour work days--all at a great cost to 
        our land, our air, our water, our families, and our 
        communities.

    While we need economic growth, to continue to develop in this same 
pattern not only wastes our land base, but it also diminishes our water 
quality, our air quality, our sense of community, our natural habitat 
for plants and animals, and our culture. It is especially harmful to 
our ranching and farming communities because so much of their land is 
being irreparably lost to other land uses.
    Without dramatic change, the future bodes no better for the future 
of our beautiful country:

         For example, the scientists at Yellowstone National 
        Park report that, unless development patterns are addressed in 
        the three states surrounding the park, the large mammals within 
        the park will no longer be able to exist naturally. They will, 
        in effect, become museum pieces because they will no longer be 
        able to follow their migratory trails in and out of those 
        spectacular areas that their natural existence requires.
         The demographers in the Southeast are now reporting 
        that we should anticipate that there will be one metropolitan 
        area that connects Birmingham to Atlanta to Greenville to 
        Charlotte to Raleigh in the very near term. Not only will this 
        change the culture of the Southeast forever, but it will 
        obviously affect the natural communities as indicated above.
         Recent flooding of the Mississippi reminds us of the 
        astounding costs of channeling these great rivers and losing 
        the wetlands that cushion and absorb the natural flood stages 
        of our riparian systems. This will become an even greater 
        problem throughout the nation.
         If current development and population trends 
        continue, it is estimated that by 2050 our farmers and ranchers 
        will be required to produce food for 50% more Americans on 13% 
        less land.

    As a nation, we have simply worked our land and natural estate hard 
for 225 years, a fact that would stress any system. This stress, 
however, is greatly exacerbated today by the fact that we now have 
281,000,000 people, a 13% increase since 1990, and it is anticipated 
that that number will increase by 58,000,000, or 21%, by 2020.
    Collectively this is a very difficult picture. It is the result of 
many causes and stresses and will require new and dramatic solutions 
that scale to the depths and breadth of these challenges to restore 
fully a balance that is worthy of this great land and nation that we 
share.
    It is, however, an especially disturbing picture, not just from the 
perspective of what we have lost, which is extraordinarily significant, 
but even more so when we fully realize that this is also the picture of 
the physical platform for our future strength. We are the beneficiary 
and the product of our natural estate. And just as it has been 
throughout our history, the strength, power and wealth of our nation in 
the future is absolutely dependent upon its condition.
    This disturbing conclusion is underscored by the fact that we no 
longer have any time left for wasted opportunity or misguided 
activity.\2\ It is the same as when we started the Chattahoochee River 
Greenway project. We simply looked at the aerial photographs and 
realized that unless we began that day to create our Greenway, we would 
lose the opportunity to create those parks and conserve and enhance 
those river and water resources forever. As one travels over our 
country, one knows that there are identical aerial photographs in every 
state. It certainly is so around Yellowstone National Park; as the 
South morphs into one metropolitan area from Birmingham to Washington, 
it is certainly true there; as one looks at development leap up the 
Hudson River or consume more of the desert of Arizona or as another 
ranch or farm family elects to sell its land, we know that it is true 
in those places and elsewhere in America as well.
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    \2\ See, e.g., the attached lecture: ``The Cascading of 
Environmental Consequences: Are We Running Out of Time?'', by James 
Gustave Speth, Dean, Yale School of Forestry & Environmental Studies, 
April 11, 2001.
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    As we consider all of this and wonder how we might effectively 
respond, we must admit one clear fact. We must acknowledge these 
statistics as a troubling report card at best on our generation's 
stewardship of our natural estate. We must also agree that it is a 
report card that demands response today and a response that is 
predicated on the certain knowledge that we can no longer afford any 
course that does not begin to improve this report card dramatically, 
immediately and permanently.
    So the question is not, do we need to make a reinvestment, or when, 
it is simply what is the best way to do it? And even this question has 
its own urgency because we are at a point in our history where the 
economy is difficult, there is heightened turmoil in the world, and 
governmental dollars are especially precious. We need to make certain 
that every dollar we spend on conservation is wisely invested. And 
every dollar we spend, whether it is through direct appropriation or 
through tax policy, should be tested through the prism of whether or 
not that dollar best assures us of a significant and lasting 
improvement in our natural estate report card.
    This new course will require over time many things. There will be 
new conservation opportunities to seize, maintenance and operational 
issues to address, and new park needs to be met. But business as usual 
will clearly not by itself achieve our goal.
    We must begin today a thoughtful new national initiative, on a 
scale that is beyond any historical standard, that allows us to 
conserve and allow for the restoration of our natural estate. And it 
must be an initiative that gives all of us confidence that its 
inevitable result will be significant improvement in the protection of 
our rivers, conservation of our forests, the providing of sufficient 
habitat for the diversity of species that we need to survive, the 
setting aside of our precious farm and ranch land, and the enhancement 
of cities through appropriate ``green space.'' To fail to create such a 
program, or to create a new program that is not structured and 
coordinated to achieve these results nationally, will not work.
    The question then is how do we craft such an initiative that will 
best spend our dollars, most effectively and most expeditiously, with 
the greatest chance of success against our goal?
    While one can debate many of the details, my experiences have 
taught me that the following principles, strategies and values must be 
incorporated in any plan for us to be successful against this goal. 
Those include the following:

        1. LHybrid land estate: We must recognize that our emphasis on 
        land being either public or private has been too simple and a 
        real part of the problem. A great deal of the required solution 
        is coming to understand that we need a greater emphasis on the 
        creation of a larger hybrid land estate throughout America that 
        can achieve our conservation needs and in many instances 
        connect our fully public land to our fully private and enhance 
        them both. This hybrid land estate must remain privately owned 
        and managed, but simultaneously must also be burdened with the 
        loss of certain development rights that the public has acquired 
        voluntarily from the owner at fair market value and holds in 
        perpetuity for the benefit of all of us. These hybrid lands, 
        while staying in private ownership and supporting private 
        purposes, would also serve the public and its collective needs 
        by protecting our water, cleaning the air, conserving habitat 
        for our natural species, maintaining our farm and ranch lands, 
        and by offering ``green'' space to all of us. Fortunately, we 
        have a 25-year or more history of working with conservation 
        easements, which is the legal tool that creates this hybrid 
        estate. Funding conservation easements must therefore be at the 
        center of any such program.

        2. LLeveraged Focus: The program's focus must be sharp and it 
        must be on reinvesting in, and thereby strengthening, our 
        natural estate. The use of conservation easements would allow 
        us to acquire from the landowner only that portion of the real 
        estate necessary to accomplish our goals. Use of conservation 
        easements would therefore offer the substantial advantage of 
        allowing us to accomplish a great deal more conservation than 
        we would with equivalent dollars expended for the full 
        acquisition of the property. This strategy would also allow us 
        to avoid the on-going costs associated with managing and 
        operating the property.\3\
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    \3\ This is more succinctly stated in the attached report published 
by the Western Governors' Association, The Trust for Public Land, and 
National Cattlemen's Beef Association, entitled ``Purchase of 
Development Rights: Conserving Lands, Preserving Western Livelihoods,'' 
January 2001: ``[Purchase of development rights through conservation 
easements] makes economic sense in the West: it is a compensatory 
approach to conservation that protects land from development pressure 
at prices that are more affordable for the public than outright 
purchase, and it helps keep farmers and ranchers on the land, providing 
essential stewardship and contributing to the tax base.'' (Page 5) and 
``The dire need to create substantial, dedicated funding sources for 
state and local [Purchase of Development Rights] programs can hardly be 
overstated.'' (page 12)

        3. LState Involvement: Every state must be involved and 
        incented to participate in this program. While a portion of 
        this reflects that every state has environmental stresses that 
        must be addressed, this also recognizes that environmental 
        systems, such as rivers, prairies, forests, and all of the 
        species that they support, do not know state lines. To be 
        successful over time, and to protect our overall investment, we 
---------------------------------------------------------------------------
        must therefore have every state moving in a similar direction.

        4. LPartnerships: We must recognize that the most effective 
        conservation has been the result of public/private partnerships 
        and therefore any plan must put their creation at its center. 
        Congress must set the strategic direction and must set both the 
        importance and pace of the program by the amount of capital 
        that it allocates to it; the states must be involved in 
        coordinating the activities at their level and in helping to 
        set local priorities; and the private sector must lead the 
        execution. As part of this, we must understand and appreciate 
        that conservation easements are bought and sold one family 
        landowner at a time. The best and most expeditious way to 
        negotiate and close those transactions will be to leverage the 
        existing resources of the nonprofit conservation community, 
        including the community leaders across America that serve on 
        their board of directors. The nonprofit organizations therefore 
        must also be at the center of any such plan.

        5. LUse and scale of capital: Use of capital under this program 
        should be limited to the acquisition and requirements of 
        conservation easements. By doing so, Congress would be putting 
        specific restrictions on the use of the capital in accordance 
        with existing law that happens to be consistent with our 
        program's objectives. The scale of the capital should reflect 
        the deep needs of our country but should also be calibrated 
        between what is possible to execute as well as what is needed 
        to unlock the focus, imagination and energy of the most people 
        to respond to this challenge.

        6. LUrgency: The dollars should be allocated to states pursuant 
        to specific deadlines and, if the money is not spent within 
        those deadlines, it should be redistributed to those parts of 
        our country with more pressing needs and that also have the 
        immediate capacity and desire to execute.

        7. LEquity: We must recognize that the conservation and 
        restoration of our natural estate is everyone's responsibility. 
        Paying for it rather than simply accomplishing it through 
        regulation or relying on the generosity of the few reflects 
        this value. We should certainly keep our current donation 
        system in place and encourage its generous use. But by creating 
        a system that is based on acquisitions of conservation 
        easements at fair market value, we can move to a program that 
        not only allows everyone to participate, but also allows us to 
        negotiate for clearer results, act more strategically, and 
        establish our own pace of execution: all critically important 
        to the success of our effort.

        8. LTax credits: To be successful, we must get as many people 
        involved in America as possible. The best way to achieve this 
        is not through direct appropriations, which is a process 
        involving relatively few people, but instead to use tax 
        credits, which is a process that ultimately includes a lot of 
        people. A program based on tax credits will invite and incent 
        those organizations that wish to deploy the credits to get more 
        individuals and businesses involved in these issues and their 
        solutions. This will require a process of education and 
        engagement that will result in much more attention, 
        understanding, and commitment to the resolution of these 
        issues. It will also allow us to move at the much quicker 
        response pace that our natural estate crisis requires.

        9. LStrategic conservation: Because of the way in which we have 
        financed a great deal of conservation in this nation, much of 
        it has been done opportunistically as distinct from 
        strategically. What this means by example is that we have 
        acquired a site here and there as they have become available or 
        as someone has been able to afford to give them, but 
        collectively they do not necessarily support or maintain an 
        ecosystem. In those instances, not only do they not fully 
        accomplish a natural estate goal, but by failing to do so they 
        devalue, in some instances, the investment or gift that has 
        been made. The system that we establish must allow us to move 
        to strategic conservation. By allocating a set amount on an 
        annual basis on a state-by-state basis with appropriate sunset 
        provisions, we would allow and incent states and landowners to 
        respond strategically to these issues. This is essentially what 
        happened with our successful Chattahoochee River project.

    These are the nine elements that I believe must be included to 
craft a plan that will dramatically improve our natural estate report 
card immediately and permanently. That is why I am here to urge 
consideration, and ultimately, passage of H.R. 882.
    H.R. 882 prescribes a plan that reflects each of the nine values, 
strategies, and principles stated above. It is entirely centered on 
conservation easements; dollars are allocated to every state on a fair 
basis which assures the participation of every state; it puts a non-
profit conservation organization at the center of the plan, but in the 
context of a direct working partnership with Federal and state 
government; the capital that it allocates may only be used for the 
acquisition and requirements of conservation easements; it proposes a 
spending level that scales to the need as well as communicates the 
importance of the need; there are specific deadlines that will motivate 
states and land owners alike; it allows each of us to participate in 
the conservation and restoration of our natural estate; it is centered 
on tax credits rather than direct appropriations; and it will allow 
strategic conservation planning and execution.
    While over time experience may require us to alter some of its 
provisions, all dollars spent in the interim will move us closer to our 
goal. The reason for this is that under H.R. 882 dollars can only be 
expended for the acquisition of conservation easements and their 
requirements. This will assure two results. Because of the current 
legal limitations on conservation easements, whatever dollars are spent 
during that period will have resulted in significant conservation goals 
having been met. In addition, because we can achieve a great deal more 
conservation for the equivalent dollar with conservation easements than 
through outright acquisition of property, we will have substantially 
leveraged all of the dollars that we have spent.
    It is also important to appreciate that this is not just an 
investment in ``America the Beautiful.'' While that might be reason 
enough to make such an investment, given the beauty and wonder of this 
great land, these investments will bear economic results: they will 
filter our water and protect it; they will clean our air; they will 
keep our fisheries and food stocks healthy and productive; they will 
help assure genetic diversity and a healthy array of species; and they 
will provide the much needed relief of ``green space'' to us all, while 
simultaneously allowing us to avoid the costs of artificially replacing 
these same services. These savings and returns will significantly lower 
the cost of this program if not pay for it altogether.
    These are complex issues, but, given what we have lost, and what we 
are losing and what we urgently need, this complexity should not keep 
us from taking dramatic action today. Where there is a sound idea with 
a certain promise of significant improvement in these critical issues, 
we must seize it and put it into place. H.R. 882 is just such an 
opportunity.
    [The attachments are being retained in the Committee files.]

                                 

    Chairman MCCRERY. Our next witness is Mr. Steven J. 
McCormick, who is President of The Nature Conservancy, from 
Arlington, Virginia. Mr. McCormick, welcome, and might I say 
thank you for all the work that your organization does in 
helping us in Louisiana and other places to conserve some of 
our wetlands and other areas which are vital to our future. 
Thanks.

STATEMENT OF STEVEN J. MCCORMICK, PRESIDENT AND CHIEF EXECUTIVE 
        OFFICER, NATURE CONSERVANCY, ARLINGTON, VIRGINIA

    Mr. MCCORMICK. Thank you very much, Mr. Chairman, and thank 
you for all your help in establishing, among other things, the 
Red River National Wildlife Refuge in your home State. Thank 
you, Members of the Subcommittee, for the opportunity to 
amplify on my written testimony and to speak from some personal 
experience.
    The Nature Conservancy, as the Chairman suggests, is an 
organization dedicated to protecting land that captures the 
rich natural heritage that enriches our life, and our natural 
heritage around the world.
    We are increasingly working at a much larger scale because 
we want to ensure that the impact of our work in protecting 
land really has a meaningful consequence for all people. As we 
work at that larger scale, we are finding that it is imperative 
that we embrace and include and engage local communities and 
people in those communities in our work because they derive 
their livelihood and certainly the quality of their life from 
that natural landscape.
    In many rural communities in which we and our colleague 
organizations are engaged, there are landowners who, as have 
been identified in earlier testimony, do not really have the 
wherewithal to make gifts of their property or gifts of 
conservation easements, the permanent restrictions that protect 
their lands. Yet, they really are terrific stewards of their 
property and in many cases would like to do the right thing.
    My testimony, therefore, focuses principally on support for 
H.R. 2290, the Conservation Tax Incentives Act, and I want to 
acknowledge and thank Congresswoman Dunn for her cosponsorship 
of this legislation. This legislation would really be a 
profound and dramatic incentive for landowners who have 
properties that are exceedingly important from a biological 
perspective or a natural open space recreational perspective.
    Again, from my own experience, in many cases it is their 
concern about the financial consequences of selling fee title 
or partial interest in the form of a conservation easement that 
is an enormous inhibition. As we have talked with private 
landowners about the concept of a favorable capital gains 
treatment, it is quite clear that they would be very, very 
enthusiastic in embracing this idea and so motivated to sell 
their property for the right purpose.
    This would, therefore, provide an enormous solution to the 
impediment that many landowners face, and frankly, constitutes 
a terrific opportunity for a truly bipartisan legacy of natural 
lands in this country, a legacy that will grow in increasing 
value over time. So, we, as an organization which picks our 
political emphasis very, very carefully, are quite excited 
about the prospect of this legislation and very much appreciate 
your conducting a hearing on it today. Thank you.
    [The prepared statement of Mr. McCormick follows:]
    Statement of Steven J. McCormick, President and Chief Executive 
            Officer, Nature Conservancy, Arlington, Virginia
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to present testimony on the critically important issue of 
tax incentives for land conservation. I am speaking today on behalf of 
The Nature Conservancy, an international, science-based, non-profit 
organization that protects the land and water needed to protect the 
diversity of life on earth. The Conservancy has more than one million 
individual members and over 1,500 corporate members; we have programs 
in every state and in 27 nations. For half a century we have worked 
with the private sector, using business principles and the best 
available scientific information to conserve the special places that 
ensure the long-term survival of plant and animal species on earth. To 
date, our organization has protected more than 12 million acres in the 
United States and has helped local partner organizations preserve 
approximately 80 million acres internationally. Our experience working 
hand-in-hand with private landowners in diverse communities has 
convinced us that changes in the Federal Tax Code are necessary to more 
effectively encourage and reward private conservation actions.
    Just last week we celebrated Earth Day. Many of us visited and 
reflected on the many special places that have been saved since the 
first Earth Day 30 years ago. For example, thanks to the work of the 
Chairman, the Red River National Wildlife Refuge was established to 
preserve land critically important for neotropical migratory birds and 
waterfowl. We also contemplated the challenge ahead of us to protect 
those places essential for a thriving, healthy environment for our 
children. The Nature Conservancy's science-based approach has led us to 
the understanding that we cannot accomplish our mission by saving 
isolated pockets for individual species. We now know that diversity of 
life thrives in larger, more complex, functioning landscapes that 
sustain natural processes and healthy land, water, flora and fauna.
    This approach means that we work in partnership with private 
landowners who are an essential component to ensuring the health of the 
larger landscape. In fact, half of the land essential to the 
conservation goals we have set for ourselves in the coming years is in 
private hands. Many of these special places are farms, ranches and 
forests.
    These landowners have a right to realize economic benefits of their 
private investment in land. The conservation and sustainability of such 
places could also provide a broad public benefit. Federal and state 
environmental laws and regulations such as the Endangered Species Act, 
the Clean Water and Clean Air Acts are important tools to help preserve 
the environmental quality of land, but they can place economic and 
regulatory burdens on individual landowners.
    Although current Federal tax law does provide some financial 
compensation to landowners for the conservation of their land, these 
provisions were not designed with the so-called land-rich, cash-poor 
landowners in mind. The tax code provides for tax-advantaged charitable 
contributions of conservation easements and land for those landowners 
who have enough income to make such gifts financially worthwhile. 
Wealthier landowners who are able to make charitable conservation 
contributions can realize tax benefits that make it possible for them 
to achieve both conservation and financial goals.
    Most farmers, ranchers and family timber operators on the other 
hand, lack sufficient income to take advantage of the current tax 
deductions. Moreover, for many of these landowners, most if not all of 
their financial assets are tied up in their land value and cannot be 
relinquished as a conservation contribution. For them, the sale of the 
land for development may be the only viable financial choice in order 
to realize the full economic return of the investment in their land.
    Unfortunately, under current tax laws, a sale--even for a 
conservation-related use--triggers a capital-gains tax and can severely 
reduce the landowner's net return. If a tax reduction on the sale of 
land or a conservation easement were available, the farmer or rancher 
could realize the financial value of his or her land and at the same 
time achieve lasting conservation of importance to the community.
    In addition, a Federal capital gains tax conservation incentive 
would help leverage funds that state and local governments raise to 
protect open space, farm and ranchland. For example, in 2000 voters in 
the State of Ohio approved the expenditure of $25 million under the 
Clean Ohio bond program for the purchase of agricultural easements. If 
there were a conservation provision that reduced the capital gains tax 
that farmers have to pay on the sale of those easements and thus 
increased their financial return, it is likely that more farmers would 
remain on the land to protect important areas in Ohio.
    Thus, a new financial incentive is required to encourage protection 
of critically important lands that are in the care of some of the 
original and best conservationists--the farmers, ranchers, foresters 
and others who work the land for a living.
    Congress now has before it several proposals that would create such 
incentives. The Nature Conservancy's top priority is enactment of the 
Conservation Tax Incentives Act, H.R. 2290, sponsored by Representative 
Rob Portman, along with Representatives Jennifer Dunn, John Tanner, 
Robert Matsui, Richard Neal, Nancy Johnson, J.D. Hayworth, and others. 
In addition, President Bush included the proposal in the 
Administration's FY 2003 budget. Moreover, the bill is supported by 
such diverse organizations as the American Farm Bureau Federation, 
Ducks Unlimited and Defenders of Wildlife. The Portman bill and 
companion Administration proposal would reduce the amount of capital 
gains tax if land or easements were sold for conservation purposes, 
thereby providing a landowner with a more attractive financial return 
from such sales and conserving the land in perpetuity.
    I would like to congratulate Representative Portman for his 
leadership on this issue. His legislation is a fiscally conservative, 
market-based approach to land conservation. It achieves environmental 
objectives without imposing new land use regulations. The provision is 
strictly voluntary, administratively simple, and uses definitions and 
tests for conservation purposes that are already contained in the tax 
code. It provides capital gains tax relief for sales of land for 
conservation to government agencies or qualified conservation 
nonprofits. The bill would allow landowners to preserve permanently 
their property's environmental value without foregoing its financial 
value. It would exclude 50% of any gain realized from private, 
voluntary sales of land or interests in land for conservation. The land 
must be used to protect fish, wildlife or plant habitat or open space 
for agriculture, outdoor recreation or scenic beauty.
    Another worthy proposal is H.R. 1309, which would change the 
individual and corporate charitable giving laws to improve the tax 
benefits of conservation gifts. Because it would increase from 30% to 
50% the amount of the taxpayer's adjusted gross income that could be 
offset by a conservation donation, and allow the unused deduction to be 
carried forward indefinitely, it would be of particular benefit to the 
``land-rich, cash-poor'' taxpayer. The Conservancy supports this 
legislation and thanks Representative Johnson for her continuing role 
as a conservation leader.
    As we seek innovative, environmentally and economically compatible 
uses of land, creative solutions such as sustainable timber operations 
hold real potential. Representative Dunn's Community Forestry and 
Agriculture Conservation Act would allow the issuance of tax-exempt, 
private activity bonds to finance the acquisition of land with 
renewable resources such as timber, crops and water rights, provided 
that the land is subject to a conservation easement. The Nature 
Conservancy endorses this proposal, H.R. 1711, and commends 
Representative Dunn for her leadership in this legislation.
    The public has a real interest in the health of private lands. 
These voluntary, incentive-based conservation proposals achieve 
meaningful, lasting results with modest investments and without new 
regulatory control of land. We appreciate your serious consideration of 
these proposals. By giving incentives to private landowners we can help 
ensure that our natural heritage is protected for future generations.

                                 

    Mr. MCCORMICK. One last thing. I have been asked by our 
colleague organization, Ducks Unlimited, who unfortunately 
could not be here today, if I could submit for the record 
written testimony on their behalf.
    Chairman MCCRERY. Certainly, without objection.
    Mr. MCCORMICK. Thank you.
    [The statement of Ducks Unlimited follows:]

                                                    Ducks Unlimited
                                           Memphis, Tennessee 38120
                                                     April 29, 2002

House Committee on Ways and Means
The Honorable Jim McCrery, Chairman, and
The Honorable Michael McNulty, Ranking Member
Subcommittee on Select Revenue Measures
U.S. House of Representatives
1135 Longworth House Office Building
Washington, DC 20515

Dear Representatives McCrery, McNulty, and fellow Subcommittee Members:

    On behalf of our one million supporters, we believe that providing 
tax relief on private lands that enjoy a protected conservation status 
is an effective and efficient way for the government to foster land 
conservation. Ducks Unlimited supports voluntary, incentive based 
approaches to encourage landowners to secure their lands for future 
generations. We have a long history of working with private and public 
landowners across the country and continent to achieve and secure 
conservation values on their lands.
    It would be incorrect to assume that the government can accomplish 
all the conservation that will be needed to assure the healthy 
continuation of North America's wildlife resources by using their 
agencies and funding. While that effort is extremely important using 
that as the sole strategy for ensuring a conservation legacy would 
unfortunately leave us short of what will be needed. Measures like 
those being considered by you on April 30. The Nature Conservancy's 
President Steve McCormick's testimony mentions good examples of how 
your vision and leadership can help respond to this challenge. We 
appreciate the leadership shown by Representatives Portman, Johnson, 
Dunn and their cosponsors toward finding solutions.
    To acquaint you with who we are, Ducks Unlimited was formed over 65 
years ago and is the world's leading wetland and waterfowl conservation 
group. We have members, supporters and conservation projects in all 50 
States and have contributed directly to the conservation of over 10 
million acres of habitat in North America. Despite current conservation 
efforts, United States continues to lose more than 100,000 wetland 
acres every year.
    Ducks Unlimited asks that this letter be placed in the record of 
the hearing to be held on April 30, 2002 considering proposals that 
will create new tax relief for landowners that wish to protect future 
use of their lands in ways that benefit wildlife conservation and hence 
the American public.
            Sincerely,
                                                   Scott Sutherland
                                   Director of Governmental Affairs

                                 

    Chairman MCCRERY. Our next witness is Mr. Timothy Brazell. 
He is the Tax Manager for Lowe Enterprises and he is here on 
behalf of the Real Estate Roundtable. Mr. Brazell?

 STATEMENT OF TIMOTHY BRAZELL, TAX MANAGER, LOWE ENTERPRISES, 
    INC., LOS ANGELES, CALIFORNIA, AND MEMBER, REAL ESTATE 
                           ROUNDTABLE

    Mr. BRAZELL. Thank you, Mr. Chairman. I am a tax manager 
for a privately held real estate development firm in Los 
Angeles and it is interesting to be on the same panel with all 
these conservation--it is nice to be on the same side for once.
    [Laughter.]
    Mr. BRAZELL. I am also here today on behalf of the Real 
Estate Roundtable, which is a large organization of private 
real estate owners, developers, lenders, and they are the 
primary reason that I am here today.
    I want to thank Mr. Weller of Illinois for sponsoring this 
legislation. I am speaking of H.R. 2264. I am also happy to 
hear that President Bush is in support of at least a part of 
this legislation, the extension of the expensing part of it.
    I think as a tax manager, I cannot speak any more 
eloquently on this legislation than Mr. Weller did, but I can 
kind of tell you where the rubber hits the road. One of the 
things that Lowe Enterprises does is value-added development. 
We are not a big company and we do not have the resources to 
compete in large capital transactions. We look for infill 
transactions. We look for places where we can add value. One of 
those places is developments on so-called brownfields sites, 
inner-city developments, other types of developments where we 
can add value.
    When we look at a project, we look at the after-tax return 
of that project. It is very difficult to develop any kind of 
real estate project. You have to do a lot of planning. You have 
to get a lot of entitlements. You have to get a lot of 
financing. It all starts with, can you make the project work, 
and one of the things you do when you sit down and put the 
numbers down, you look at the after-tax returns.
    This bill, H.R. 2264, by allowing expensing of brownfield 
cleanup costs, increases the after-tax return to a developer 
and makes it more likely that these projects will happen. I 
think we all want these projects to happen because we have seen 
the sites that they are sitting at and they are not doing 
anybody any good if they are sitting fallow.
    So, the primary emphasis for us is to obviously get the tax 
benefit. We would like to see the expansion, also, of the 
definition of hazardous substances, which Ms. Olson alluded to. 
There are several substances that are not included in the 
current definition of hazardous substance, and that is because 
the original definition, I believe, was based on the Superfund 
liability cleanup legislation and was not very broad in scope. 
When you look at some of the items that are not included, like 
petroleum products, pesticides, lead paint, and asbestos, I 
think we can all agree that these are pretty commonly known to 
be hazardous substances.
    If you buy a building that is on a brownfields site and you 
want to recondition or you find that there is asbestos in the 
building, the fact that you are not able to expense those costs 
is a large cost to you. She did indicate that you could recover 
these costs over the life of the building. Unfortunately, the 
recovery period for commercial real estate is 40 years, so it 
is a pretty small recovery period.
    There is another portion to the bill, H.R. 2264, which 
deals with a recapture provision. The existing section 198 
forces you to recapture the ordinary expense that you have 
taken when you made the cleanup costs when you sell the 
project. We think that this should be repealed, as well.
    You have expensed the costs but you have not increased your 
basis in the property. So, when you sell the property, you are 
going to have a gain, and that will be the same whether you 
recapture or not. This recapture portion of the existing tax 
code section simply forces you to treat it as ordinary income 
instead of capital gain. This impacts primarily individuals and 
partnerships, not corporations, because corporations do not 
have capital gains in the same sense that we do as individuals. 
So, we think that this repeal is consistent with the 
legislation to continue the brownfields expensing.
    In my own neighborhood in Los Angeles, we have seen a lot 
of aerospace companies that have packed up and moved out as 
times have changed. My own company is involved in redeveloping 
a large piece of property adjacent to Los Angeles airport. We 
know there is contamination there, but we have not, in 2 years, 
we have not even been able to quantify the amount of the cost 
yet. This provision to allow continuing expensing of 
brownfields costs would definitely give us some assurance that 
the tax risk will be minimized should we incur more costs than 
we presently think we are going to.
    In conclusion, I want to urge Congress and this 
Subcommittee to specifically enact H.R. 2264, along with all of 
its provisions. I think the result will be injection of new 
capital into these projects, as Mr. Weller said, potentially 
over 400,000 nationwide, and also benefits job creation and 
improving the infrastructure and the close infill property and 
not having to develop these properties on the outside, the 
greenfields. Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Brazell follows:]
Statement of Timothy Brazell, Tax Manager, Lowe Enterprises, Inc., Los 
        Angeles, California, and Member, Real Estate Roundtable
Introduction
    Mr. Chairman and Members of the Subcommittee, my name is Timothy 
Brazell. I am Tax Manager of Lowe Enterprises, Inc. a Los Angeles based 
real estate company with offices across the country and in Europe.
    I am here today on behalf of The Real Estate Roundtable. The Real 
Estate Roundtable is the vehicle through which the leaders of the real 
estate industry come together to identify, analyze and advocate policy 
positions on capital, finance, environmental, investment and tax 
issues. Roundtable members are the Chairmen, Presidents or Chief 
Executive Officers of the nation's 100 leading commercial, retail and 
multifamily real estate companies and the managing directors of major 
financial institutions.
    The Roundtable also includes the elected leaders of Washington's 
major real estate trade organizations. Collectively, Roundtable members 
hold portfolios containing over 2.5 billion square feet of developed 
property valued at more than $250 billion. The industry represents over 
one million people involved in virtually every aspect of the real 
estate business.
    Joining The Real Estate Roundtable in these comments are: American 
Institute of Architects; Building Owners and Managers Association 
International; International Council of Shopping Centers; Mortgage 
Bankers Association of America; National Association of Industrial and 
Office Properties; National Association of Real Estate Investment 
Trusts; National Association of Realtors; National Apartment 
Association; National Multi Housing Council; The Associated General 
Contractors of America.
    Over the past 30 years, Lowe has developed, acquired or managed 
more than $6 billion of real estate assets. Lowe currently employs over 
7,000 people, with a management team of approximately 250 men and 
women.
    The firm operates through three wholly owned divisions:

    Lowe Enterprises Investment Group directs the company's capital and 
investment activities, including more than $3 billion of fiduciary 
investments on behalf of nine public and private pension plans;
    Lowe Enterprises Real Estate Group oversees the development and 
property management of the firm's commercial and residential projects 
throughout the U.S., including over 13 million square feet of 
commercial assets currently under management and more than 4 million 
square feet of commercial space currently being developed, and;
    Lowe Hospitality Group is responsible for its hotel and resort 
development and management activities.
    Lowe Commercial Development Company (``LCDC'') is a joint venture 
between Lowe Enterprises and Teachers Insurance Annuity Association, 
which was formed in August 1999 to pursue new commercial development 
opportunities. LCDC targets 100,000 to 500,000 square-foot office and 
industrial development opportunities in suburban and urban locations.

    Mr. Chairman, I am here today to testify in strong support of H.R. 
2264, a bill to extend and expand the expensing of environmental 
remediation costs. This bill is sponsored by Mr. Weller of this 
Subcommittee and is cosponsored by Ways and Means Committee Members 
Nancy Johnson and Bill Coyne. S. 1082 is the companion bill sponsored 
by Senator Torricelli.
    H.R. 2264 would do three things:

        1. LMake permanent Internal Revenue Code Section 198, which 
        allows the expensing of brownfield clean up costs, but is 
        currently scheduled to sunset January 1, 2004.
        2. LBroaden the definition of ``hazardous substances'' in 
        Section 198 so it covers petroleum, pesticides, lead paint and 
        asbestos contaminants.
        3. LRepeal the provision in the law requiring the recapture of 
        the Section 198 deduction when the property is sold.
Making Section 198 Permanent
    Redevelopment of existing sites and properties is an important 
component of any community's development plans. The U.S. Conference of 
Mayors estimates that there are over 400,000 brownfields sites across 
the country. Development of these sites would help restore many 
blighted areas, create jobs where unemployment is high and ease 
pressure to develop beyond the fringes of communities. Small, urban 
centered businesses often benefit most directly by this redevelopment. 
Many brownfields properties are located in inner cities--precisely 
where many businesses want to be. The economics are often right. 
Critical infrastructure, including transportation, is already in place 
and the workforce is in close proximity.
    In 2000, the above listed real estate organizations backed the 
provision in the Community Renewal and Reinvestment Act of 2000 that 
removed the geographic targeting requirements of Internal Revenue Code 
Section 198. This allowed developers of ``brownfields'' to expense the 
clean up costs of brownfields wherever they are located. Prior to this 
change, these clean up costs had to be added to the purchase price of 
the land (``capitalized'') unless the contaminated site was located in 
an empowerment zone or other designated low-income area.
    Capitalization means there is no deduction for these expenses until 
the building is sold. Since this could be several years, this increases 
the overall tax burden of the redevelopment project. This higher tax 
burden hinders redevelopment efforts--particularly in areas that need 
them most.
    We are pleased that in 2000 Congress determined that these clean up 
costs should be deductible in the year they are incurred and do not 
have to be capitalized. However, for revenue reasons, Congress 
scheduled the expensing provision to expire in 2004. We strongly 
believe clean up cost expensing for all brownfields should be extended 
permanently. H.R. 2264 would do this and we urge its immediate 
enactment.

Broadening the Definition of ``Hazardous Substance''
            Petroleum and Pesticides

    In addition to extending Section 198 permanently, we also believe 
Section 198 should be amended to work more as intended by Congress. One 
such amendment would be to broaden the types of hazardous substances 
that are eligible for expensing treatment if cleaned up to include 
petroleum, lead paint asbestos and pesticides.
    The current version of IRC Section 198 relies on the term 
``hazardous substance'' used in the Comprehensive Environmental 
Response Compensation and Liability Act (``CERCLA'') to identify which 
contaminated sites would be eligible for tax relief: Section 
98(c)(1)(A)(iii) defines a ``qualified contaminated site'' as one ``at 
or which there has been a release (or threat of release) or disposal of 
hazardous substance.'' The term ``hazardous substance'' is defined in 
Section 198(d)(1) to have the same meaning as in sections 101(14) and 
102 of CERCLA. Section 198(d)(2) further states that the term 
``hazardous substance'' shall not include any substance for which a 
removal or remedial action is not permitted under section 104(a)(3) of 
CERCLA.
    At first blush, it appears logical for the drafters of Section 198 
to simply borrow the term ``hazardous substance'' as used in CERCLA, 
the principal Federal statute concerning environmental remediation, 
rather than coming up with a new term or a new definition. But, the 
problem created by this approach is that it assumes that the CERCLA 
definition of the term is broad enough to encompass all types of toxic 
materials that might be found at a brownfield site. That is not the 
case.
    When CERCLA was adopted in 1980, Congress made the decision that it 
did not want the Federal Superfund used to clean up certain types 
substances--such as petroleum and certain pesticides--or to be spent 
cleaning up the interiors of buildings. While the decision not to 
authorize the spending of Federal funds on these types of cleanups had 
significance for the administration of the Superfund program, the same 
rationale does not apply to a statute intended to provide a tax 
incentive to private parties cleaning up brownfield properties.
    When CERCLA was adopted in 1980, the term ``hazardous substances'' 
was expressly defined not to include ``petroleum.'' Also, although the 
term ``hazardous substance'' was defined to include a variety of 
substances considered toxic under various other environmental laws, it 
did not include most pesticide products and a variety of other toxic 
materials.
    There were various reasons for the decision to exclude from the 
definition of ``hazardous substance,'' these materials which are 
nonetheless considered toxic. In the case of petroleum contamination, 
for example, Congress made a decision to rely on other statutory 
mechanisms to effectuate cleanups. In 1984, Congress adopted subtitle I 
of the Resource Conservation and Recovery Act (``RCRA''), 42 U.S.C. 
section 6991 et seq., which addressed the cleanup of releases from 
underground storage tanks, many of which contain gasoline, fuel oil, or 
other petroleum products. In 1990, Congress adopted the Oil Pollution 
Act, 33 U.S.C. Section 2701 et seq., to address oil pollution into 
navigable waters. Thus, the exclusion of ``petroleum'' from the CERCLA 
definition of ``hazardous substances'' was not an indication that 
Congress believed that petroleum pollution did not need to be cleaned 
up. Petroleum simply was covered in other statutes.
    Petroleum and pesticide pollution are common at brownfield sites. 
Petroleum products in the forms of fuel oil, heating oil or gasoline, 
were often used at these sites. Indeed, these materials were often 
stored in above ground or underground tanks. Also, some of these sites 
have been contaminated by migrating gasoline spills from nearby service 
stations.
    Pesticide residues are also frequently found at brownfield sites. 
Pesticides were often used to control weeds or insects at these sites 
when they were operating industrial plants. Moreover, some of these 
sites may be contaminated by pesticides run-off from other properties. 
While it may make sense not to authorize the use of Federal funds under 
the Superfund program to clean up petroleum and pesticides, these 
substances often have to be cleaned up at brownfield sites before those 
properties can be returned to beneficial use. There is no reason not to 
extend the same type of tax incentive to a private party who is 
cleaning up petroleum waste or pesticide residues on a brownfield site 
as to one who is cleaning up other types of contaminants.

            Asbestos and Lead Paint

    Also, Congress in adopting CERCLA in 1980 did not want EPA to spend 
Superfund dollars cleaning up the interior of buildings. Accordingly, 
Congress adopted section 104(a)(3)(B) of CERCLA which prohibited EPA 
from cleaning up the interior of structures. Congress did not adopt 
this limitation because it believed that contaminated interiors did not 
require cleanups. Rather, Congress believed that the use of the limited 
funds set aside for Superfund cleanups should be prioritized to deal 
with contamination that had escaped into the general environment. Once 
again, Congress used other Federal programs to address interior 
contamination, such as the asbestos regulations under the Clean Air 
Act.
    IRC Section 198, as currently drafted, states that the term 
``hazardous substance'' does not include a substance that EPA would not 
be permitted to cleanup under section 104(a)(3) of CERCLA. Because of 
the applicability of the limitation in subsection 104(a)(3)(B), no 
expensing is allowed for the removal of asbestos, lead paint or other 
hazardous materials inside the buildings that are located at otherwise 
qualified sites. But brownfield restoration often involves the cleanup 
of existing buildings on the property. Expensing of costs to clean up 
buildings would give developers more reason to invest in brownfield 
properties. Thus, the expensing treatment IRC section 198 should be 
expanded to cover the removal of hazardous substances from buildings.
    Also, as a point of clarification, the definition of lead-based 
paint and lead-based paint hazards is more accurately described and 
defined in ``Identification of Dangerous Levels of Lead; Final Rule 66 
Fed. Reg. 1206.'' We would urge that S. 2264 be amended so that section 
1(b)(2)(D) reads: any asbestos (whether friable or non-friable), oil 
(as defined in section 1001 (23 of the Oil Pollution Act of 1990), 
pesticide (as defined in section 2(u) of the Federal Insecticide, 
Fungicide, and Rodenticide Act), radon, lead-based paint and lead-based 
paint hazards as defined in Lead: Identification of Dangerous Levels of 
Lead; Final Rule 66 Fed. Reg. 1206.
Recapture
    Finally, another amendment that H.R. 2264 would make to Section 198 
is to repeal the recapture requirement of Section 198(e). Currently, 
any qualified environmental remediation expenditure expensed under 
Section 198 is subject to recapture as ordinary income when the 
property that was contaminated is sold or otherwise disposed of.
    In effect, the amount expensed as a cleanup cost is treated as 
depreciation on IRC Section 1245 property. Thus, when the property is 
sold, gain to the extent of the cleanup cost deduction is treated as 
ordinary income.

            Example

          In 2001, Owner purchased an acre of land that was 
        contaminated with a hazardous substance. The land cost $10,000 
        and Owner spent $5,000 in remediation expenses. Currently, he 
        is allowed to claim a current deduction for the $5,000 instead 
        of adding it to his basis in the land. If he sells the land for 
        $16,000, he would be required to treat $5,000 of his $6,000 
        gain ($16,000 sale proceeds less $10,000 cost) as ordinary 
        income taxable at 39.6%. The remaining $1,000 gain would be 
        taxed at 20%.

            When Does Recapture Matter?

    In the example above, if Owner sold the land the year after he 
cleaned it up, he would receive little or no benefit from having 
deducted the clean up costs. This immediate repayment to the government 
leaves Owner with little tax incentive to clean up the property.
    We believe that a more appropriate result would be to treat any 
gain in excess of Owner's original investment/acquisition cost in the 
property ($5000 in this case) as capital gain by repealing the 
recapture requirement. This provides an incentive for Owner to clean up 
the property without having the deduction effectively rescinded after 
the improvement is made.
    If the clean up expenditure were recaptured as a capital gain, 
rather than as ordinary income, each party is in a stronger position. 
It would allow the government to recover a portion of its tax incentive 
from the developer, the developer retains a significant incentive for 
bearing the expense and associated risks of the clean up activity, and 
the community receives an improved property with the prospect of job 
creation.
    This treatment would be particularly helpful for developers who 
acquire brownfield properties with the intent of reclaiming them and 
then selling the improved property shortly thereafter. If a developer 
were to acquire a brownfield, clean it up and restore it to a viable 
market use, but then immediately lose the benefit of the clean up 
deduction at the time of sale, the developer is left with little, if 
any, incentive effect. If the recapture provision were repealed, 
Section 198 would become far more of a redevelopment incentive than it 
is now.
Conclusion
    In conclusion, we urge Congress and this Committee specifically to 
enact H.R. 2264. The result will be the injection of new capital into 
rehabilitation projects. Many small, urban centered businesses will 
benefit resulting in substantial job creation and economic 
revitalization. Also, the viability of existing space will improve and 
ease the pressure to develop ``greenfields'' allowing for the 
preservation of more open space.

                                 

    Chairman MCCRERY. Thank you, Mr. Brazell. I am told by 
staff that our next witness is actually a tandem act and Mr. 
Bingham and Mr. Duvernoy are going to share some time to share 
their views. I will first call on Charles W. Bingham. He is a 
Board Member of Evergreen Forest Trust from Seattle, 
Washington. Mr. Bingham?

STATEMENT OF CHARLES W. BINGHAM, BOARD MEMBER, EVERGREEN FOREST 
                   TRUST, SEATTLE, WASHINGTON

    Mr. BINGHAM. Mr. Chairman, thank you very much for having 
me and my cellmate here together. I think it is symbolic that a 
tree cutter and a tree hugger could appear together at the same 
time supporting the same legislation.
    I am a member of the board of the Evergreen Forest Trust, a 
nonprofit conservation company chartered in the State of 
Washington. For the last 20 years of my professional life 
before I retired, I served as Weyerhaeuser Company's Executive 
Vice President responsible for forest management. I am here 
urging your consideration of H.R. 1711 that you have heard 
about from Congresswoman Dunn, who, incidentally, has done a 
fantastic job in helping to bring this needed legislation to a 
point of consideration. It will make possible the opportunity 
for private nonprofit organizations to issue tax-exempt bonds 
to acquire and manage forestlands for a whole array of economic 
and environmental benefits.
    Nearly two-thirds of the forested lands in this country are 
privately owned, yet well over 90 percent of the timber harvest 
comes from these lands. Even though that is true, we are still 
a net importer of forest products. In some years, a third of 
our lumber comes from outside of this country. One of the 
reasons is the conversion of forestlands to higher-value uses. 
Another reason, of course, is the increasing environmental 
restraints that causes capital to move away from forestland 
investment.
    Because of the long-term nature of the investment, usually, 
companies that are in the business to stay require about an 8 
percent real rate of return on their investment in this very 
important asset. If a private nonprofit organization could 
issue tax-exempt bonds at roughly a 6-percent rate, we could 
borrow at a capital cost rate which permits us to pay, a 
private organization to pay a private owner the full market 
value of that company and also provide the opportunity for 
enhanced public benefits through time.
    This legislation would permit bonds to be issued on behalf 
of our organization. They will require a permanent conservation 
easement to be placed on the property, and so there is no 
misunderstanding, this property is going to be managed for 
timber production. It is going to be harvested and reforested. 
It is going to support family wage jobs in the forest, in the 
mills. It is going to pay the same local and State land and 
harvest taxes that would be paid by any other private owner. 
The only source of income is the harvest of timber and the sale 
of logs to retire the debt and the bonds through time.
    I would urge you respectfully to consider this very, very 
carefully. It is another source of needed capital to protect 
these valuable resources. Gene, you are on.
    [The prepared statement of Mr. Bingham follows:]
Statement of Charles W. Bingham, Board Member, Evergreen Forest Trust, 
                          Seattle, Washington
    Mr. Chairman and Members of the Subcommittee; my name is Charles W. 
Bingham. I am a board member of the Evergreen Forest Trust, a nonprofit 
conservation company based in Washington State. During the last 20 
years of my professional life I served as the Weyerhaeuser Company's 
Executive Vice President responsible for forest management.
    I want to thank you for holding this important hearing today on 
conservation tax incentives. It is a subject that holds great promise 
to bring the forest products and environmental interests together in an 
era that has most recently been characterized by deep conflicts.
    I am here today to testify in strong support of H.R. 1711--The 
Community Forestry and Agriculture Conservation Act of 2001. Passage of 
this legislation will help private nonprofit conservation organizations 
acquire and manage forestlands for an array of the environmental, 
economic and social benefits they provide. More specifically, this bill 
will help the Evergreen Forest Trust acquire nearly 100,000 acres of 
forestland in Washington State that hold important conservation and 
economic benefits and is threatened by conversion to non-forest uses.
    Before I go into more detail, I would like to express my sincere 
appreciation to Congresswoman Jennifer Dunn and Congressman John Tanner 
for their leadership in working to secure passage of H.R. 1711. Your 
tireless efforts have been recognized by all of us who care so much 
about this particular transaction and the broader need addressed in the 
bill. I would also like to thank the other original cosponsors of this 
bill--Congressmen McDermott, McInnis, Herger and Matsui--as well as the 
rest of the Washington, Oregon and Idaho delegations for their support.
Forest Products Industry
    Nearly 400 million acres--nearly 65%--of our nation's forests are 
privately owned, yet well over 90% of the timber harvest originates 
from private lands. These forestlands are valued at roughly $300 
billion and, therefore, are one of the largest agricultural commodities 
in the nation.
    Even with these impressive economic statistics, the United States 
is a large importer of forest products. For example, up to one third of 
the national softwood lumber used each year is imported from Canada. 
While there are many macro and micro-economic reasons for this, some in 
the industry believe that one factor we must recognize is the erosion 
of working forestlands that are available to grow trees in a cost 
efficient manner. Thus, we must maintain a critical mass of working 
forestlands so that we can remain competitive with other producers.
Changes in Industrial Ownership
    Over the last 15 years the forest products industry has seen 
important changes cause by restructuring, increased value of non-forest 
uses and environmental regulations. Collectively these changes have 
resulted in almost one quarter of the industrial forest land base 
changing hands in the 1990s.

    Real-Estate Conversion--Forest fragmentation and conversion to non-
forest uses is taking place high rates. For example, according to 
American Forests, a national conservation group, 107 thousand acres or 
50 percent of the greater Seattle, Washington area has been converted 
to non-forest uses since 1973. And such conversion is not just taking 
place in urban areas. If you travel to the Bitteroot Valley in Montana, 
Bend, Oregon or many parts of the southeast you will find that higher 
financial values are increasingly being placed on forests' real estate 
value than on their timber value. In other words, especially around 
urban areas and rural recreational acres, forests do not compete with 
real estate or with annual agriculture on a per acre basis.

    Environmental Regulations--Despite their tremendous public benefits 
that result from the nation's environmental laws, it is a fact that 
local, state and Federal regulations can significantly impact the cost 
of acquiring and managing forestlands. For example, the citizens of 
Washington State and the nation generally agree we should save salmon. 
There is, however, a cost to forestland owners for doing so. In 
Washington State new forest practice rules directly and indirectly 
require that that 10% to 15% of a landowner's land must be taken out of 
production to protect riparian areas. In some cases, this has the 
impact of making once profitable forest operations unprofitable. Thus, 
forestland owners, especially industrial forestland owners, will look 
to monetize their assets by selling it off to other timber investors, 
developers or those who want to subdivide for recreational properties.
Legislative Need
    Notwithstanding the trends outlined above, tens of millions of 
acres of commercial forestlands are being and will continue to be 
responsibly managed by industrial and non-industrial landowners. Yet, 
because of the trends outlined above we still have tens of thousand of 
acres where unplanned urban sprawl is forcing conversion or where 
regulation or the needs for public benefits exceed what a private owner 
can afford. What we need is a financial vehicle that makes less 
intensive forestry pay and the Community Forestry and Agriculture 
Conservation Act does just that.

    Financial--Because of the long-term nature of a forestland 
investment (generally 30 to 60 years) the real rate of interest on 
borrowed capital is the greatest single variable in the price one can 
afford in acquiring and re-investing in a forest asset. While 
fluctuations occur, such capital cost are generally around 8%. Applying 
tax-exempt rates at 6% could provide qualified nonprofit conservation 
organizations with a capital cost that allows them to buy forestland, 
assure that public environmental and economic benefits are maintained 
and enhanced and allow property rights to be preserved. In addition, 
the tax-exempt market is very large and established. Based on our 
discussions with underwriting companies there is a financial market for 
the type of conservation bonds we must access in order to purchase the 
property.

    Stop the Conflict--We are all acutely aware of the conflicts over 
the use of our great National Forest lands. We are still struggling to 
find an acceptable balance between commercial harvesting and 
preservation of these lands. On private lands, so far, we have either 
set-aside from harvest relatively small parcels of private forestlands 
or we have devised regulations that would permit harvest at reduced 
levels but within the economic parameters of a long-term forest 
investor.
Legislative Provision
    The Community Forestry and Agriculture Conservation Act will allow 
tax-exempt revenue bonds to be issued on behalf of a private nonprofit 
conservation organization to acquire a renewable resource. Such bonds 
will require that a permanent conservation easement that complies with 
Section 170(h)(4)(A) be placed on the property and that environmental 
laws are exceeded. Thus, Mr. Chairman and Members of the Subcommittee, 
the Community Forestry and Agriculture Conservation Act will allow me 
as a strong advocate for private commercial forestry to join with 
strong advocates of the environment to do two very important things:

         First, when we finally have the financial wherewithal 
        to work together on a goal we both strongly support--acquiring 
        large-scale forestlands to keep them forested.
         Second, we will be forced--in a very positive way--to 
        make joint economic and environmental decisions on how those 
        forestlands are managed.

    These actions will be afforded by our private non-profit 
conservation organization's ability to, in certain situations:

         Borrow at a lower cost of capital so that it can 
        acquire a forest property at its current market value,
         Operate the forest while providing a higher level of 
        public benefit, including but not limited to wider stream side 
        buffers, alternative silviculture for fish and wildlife 
        habitat, longer holding periods for trees to store carbon, and 
        more thinning and less clear cutting.

    Also to be clear, our forest will be managed. When I joined this 
board I said I would do so only if we recognized that this state has 
some of the most productive forestland in the Nation. I want to be a 
part of something that shows the positive benefits of active forest 
management. My Evergreen Forest Trust colleagues agree. The Evergreen 
Forest at Snoqualmie will be managed, it will be harvested and it will 
be reforested. There will continue to be family wage jobs in the forest 
and there will be raw material to sell to converting plants to support 
those jobs as well. The owner will pay the same local and state land 
and harvest taxes as that of any other private forestland property 
owner. These are issues that I know are very important to Members of 
this Committee not only in the Northwest but also around the Nation.
    These decisions will be made within economic parameters because all 
of the board directors will have 40 +/- years of debt to pay back. The 
only source of income to pay the dividends and to retire the bonds will 
come from harvesting trees. Whatever the background of the directors, 
whether in commercial forest management or preservation of forests, 
they will have to come face to face in the running the operation in the 
boardroom and not with sound bites on television. They will have to 
balance the terms of the easement on the property which in a very real 
and beneficial way requires a high level of public benefit with the 
realities of the commodity market for logs, the need for cash reserves, 
interest payments, and bond refinancing or retirement.
    Mr. Chairman and members of the Subcommittee, in my 35 year career 
in the forest products industry I have yet to see a private market 
vehicle that truly brings industry and environmental interests together 
in support of both the economic and environmental benefits forests 
provide.
    In Washington State we have an opportunity to show the Nation that 
jobs and the environment can be produced. And we don't have much time. 
Our purchase and sale agreement with the seller is contingent on a tax 
clarification. I would again, respectfully request that you seek prompt 
passage of H.R. 1711--The Community Forestry and Agriculture 
Conservation Act of 2001.
    Thank you for this opportunity to appear before your Committee 
today and I would be pleased to answer any questions you may have.

                                 

    Chairman MCCRERY. Mr. Eugene G. Duvernoy, President of 
Cascade Land Conservancy and also from Seattle, Washington. Mr. 
Duvernoy?

STATEMENT OF EUGENE G. DUVERNOY, BOARD MEMBER, EVERGREEN FOREST 
    TRUST, SEATTLE, WASHINGTON, AND PRESIDENT, CASCADE LAND 
                CONSERVANCY, SEATTLE, WASHINGTON

    Mr. DUVERNOY. Thank you, Mr. Chairman, Subcommittee. I 
suppose I must be the tree hugger component of this tandem 
presentation.
    In any event, I am here to voice strong support for H.R. 
1711 and I want to thank Congresswoman Jennifer Dunn and 
Congressman John Tanner for their leadership on this 
legislation. I would also like to thank Congressmen McDermott, 
Herger, Matsui, and McInnis for their original sponsorship and 
acknowledge the legislation's many other cosponsors.
    I want to touch base quickly on the problem that H.R. 1711 
addresses, the solution it presents, and then the benefits it 
provides.
    First, the problem. In recent years, as Ms. Dunn correctly 
pointed out, differing ideas about how forestland should be 
used and managed have polarized our Northwest communities. On 
private timberlands, this rancorous debate has centered on 
clear cutting, water quality, and the protection of salmon 
habitat.
    Now, in the Puget Sound basin, the problem has become even 
more complex with the rapid conversion of forestland to other 
uses. As these lands are converted and the debate about how to 
best manage a resource, either for timber or for the 
environment, is silenced and replaced by a community's 
recognition of a loss, a very significant loss of landscape 
that provided a multitude of environmental, recreational, and 
economic benefits.
    While there is growing consensus finally on the importance 
of keeping land in forests, it is still a fact that, too often, 
environmentalists and owners of private forestlands still sit 
at opposite sides of the table. I think as you see this panel 
here today, it is the demonstration that the conservation 
community is working with private landowners to forge solutions 
to this very vexing problem and creating the foundation of 
trust that has led to today's joint appearance by Mr. Bingham 
and me. Now, H.R. 1711 is a hallmark of this collaborative 
effort.
    I have just briefly touched on the problem. In order to 
illustrate the solution provided by H.R. 1711 to this problem, 
I am going to focus on the transaction that, again, 
Congresswoman Dunn mentioned that has great promise to the 
Puget Sound community.
    Puget Sound community leaders with backgrounds in business, 
timber management, environment, and government have joined to 
create the Evergreen Forest Trust. In January of this year, the 
trust signed an agreement with the Weyerhaeuser Company to 
purchase the 100,000-acre Snoqualmie Tree Farm, which is a 
scant distance from Seattle, a very vibrant and growing 
metropolitan area. In collaboration with the Cascade Land 
Conservancy, the Evergreen Forest Trust has developed a very 
strong statement of principles that will guarantee in 
perpetuity the careful stewardship of this property as it 
produces wood fiber. The trust has also worked with forestry 
and financial advisors to ensure a harvest regime adequate to 
fulfill the debt obligation it will assume to finance the 
transaction.
    Now, how did we provide both these significant benefits 
while also meeting our business obligations? To do that, the 
trust proposes to finance the purchase of property by selling a 
tax-exempt bond. The bond would be repaid through the revenue 
stream expected from the harvest flow from the timber 
operations. Consequently, this transaction hinges on the 
clarification of the tax code provided by H.R. 1711 that 
clearly authorizes this sort of financing.
    Now, I have touched on the problem. I have mentioned the 
elegant solution provided by H.R. 1711. Let me conclude with an 
overview of its remarkable benefits.
    By establishing a mechanism for the forest to pay for its 
own conservation, which is remarkable, this transaction and 
H.R. 1711 leverages the very small public cost of tax-exempt 
financing and produces a very large public benefit. Retaining 
this vast landscape and forest will sustain its air and water 
quality benefits and provide recreational opportunities. The 
forest will continue to support herds of elk and runs of 
salmon, and as Mr. Bingham said, at the same time, the working 
forest will also provide local tax revenues and jobs critical 
to forest-dependent communities.
    H.R. 1711 demonstrates that we can marry sound 
environmental stewardship and business acumen to secure 
meaningful conservation and the continued productivity of 
forestlands.
    I want to thank you for the opportunity to testify in front 
of this Committee and I respectfully urge your passage of H.R. 
1711 with the many other fine bills discussed today. Thank you 
very much.
    [The prepared statement of Mr. Duvernoy follows:]
Statement of Eugene G. Duvernoy, Board Member, Evergreen Forest Trust, 
Seattle, Washington, and President, Cascade Land Conservancy, Seattle, 
                               Washington
1. Introduction
    Mr. Chairman and Members of the subcommittee, my name is Eugene 
Duvernoy. I am the President of Cascade Land Conservancy operating in 
the east-central Puget Sound area of Washington. I also join Charley 
Bingham as a board member of Evergreen Forest Trust. Both these 
organizations are private, nonprofit Washington corporations. Cascade 
Land Conservancy conducts voluntary, cutting edge transactions to 
conserve critical landscapes in King, Pierce and Snohomish counties. 
Evergreen Forest Trust is a separate, but related organization that was 
created to acquire, manage, and protect Washington's forestland.
    I am here to voice strong support for H.R. 1711, The Community 
Forestry and Agriculture Conservation Act of 2001. This bill will allow 
nonprofit conservation companies to acquire working forestlands in 
order to advance the conservation, economic and social benefits these 
lands provide our local communities.
    I want to thank Congresswoman Jennifer Dunn and Congressman John 
Tanner for their leadership on this legislation. I would also like to 
thank Congressmen McDermott, Herger, Matsui, and McInnis for their 
original sponsorship of this effort. And, of course, we would like to 
thank the legislation's other co-sponsors for their support of our 
efforts. It is a credit to this concept that there is such broad bi-
partisan support.
2. The Problem
    Early pioneers saw the Pacific Northwest as a land of abundant 
natural resources including what seemed at the time an endless supply 
of timber. In recent years, a growing recognition of the limits of our 
natural assets has created conflicts among groups with differing ideas 
about how these forest lands should be used and managed, polarizing our 
Northwest communities.
    On private timberlands, this rancorous debate has centered on 
clearcutting, water quality and protection of salmon stream habitat. In 
the Puget Sound Basin the problem has appeared to become even more 
complex with the rapid conversion of forestland to other uses. This new 
threat particularly looms over the working forests along the foothills 
of the Cascade Mountains. These lands are among the most productive 
timber lands in the world and have provided clean water wildlife 
habitat and recreation for generations of citizens. As these lands are 
converted to urban uses the debate about how to best manage a resource 
for timber and environmental benefit is replaced by the general 
community recognition of the loss of a once vibrant landscape that 
provided a multitude of benefits to our citizens.
    While there is a growing consensus on the importance of keeping the 
foothills in forest, too often environmentalists and owners of private 
forestland still sit at opposite ends of the table. One side will focus 
on the stark ecological concerns while the other side emphasizes the 
production requirements for the property. Fortunately, the conservation 
community, working with progressive private landowners, is forging 
solutions to this vexing problem; creating the foundation of trust that 
has lead to today's joint appearance by Mr. Bingham and me. Earlier 
cooperative experiments included the negotiations the Conservancy 
completed in 2001 involving the City of Snoqualmie, King County, 
Weyerhaeuser Real Estate Company, and Puget Western, Inc. to create the 
Snoqualmie Preservation Initiative. The Initiative secured the 
permanent preservation of the 145-acre forested viewshed directly 
behind Snoqualmie Falls, the state's second-most visited tourist site 
and has also secured the future of a nearby 9,000 acre landscape as an 
active tree farm. Importantly the Initiative also paved the way for a 
significant new community within the City of Snoqualmie allowing needed 
growth to flourish where it can be supported by existing infrastructure 
and services.
3. The Solution for One Critical Property that can be Applied 
        Nationally
    Over the years, these strong relationships the conservation 
community has established with landowners, as illustrated above, has 
opened the door to projects of a scale that can truly serve our local 
communities and enhance the region's ecosystems and landscapes. H.R. 
1711 is the hallmark of this collaborative effort.
    After a feasibility study demonstrated the viability of revenue-
backed forestry bonds, community leaders with backgrounds in business, 
finance, timber, academia, the environment, and government worked 
together to create the Evergreen Forest Trust (``the Trust''). The 
Trust's board of directors include B. Gerald Johnson, the board's 
president and managing attorney at Preston Gates Ellis LLP, Charley 
Bingham, retired Executive Vice President for Weyerhaeuser, King County 
council members Rob McKenna and Larry Phillips, environmental activist 
Bill Pope, retired University of Washington Dean of Forestry David 
Thorud, civic leader and Cascade Land Conservancy Chair Carol James, 
and myself.
    In January of 2002, the Trust signed a purchase and sale agreement 
with Weyerhaeuser Company to acquire the 100,000-acre Snoqualmie Tree 
Farm (``the Tree Farm''). In collaboration with Cascade Land 
Conservancy, the Trust developed a statement of principles for a 
conservation easement to be placed on the land which guarantees the 
careful stewardship of the property in perpetuity. The Trust also 
worked with US Forest Capital, a forestry and financial services 
company, and The Campbell Group, a timber investment and management 
firm, to meet our conservation objectives for the property while 
carefully planning its harvest regime in order to fulfill the debt 
obligation it will assume in order to purchase the Tree Farm.
    In order to provide the significant public benefits secured by the 
Conservation Easement and meet its business obligations, the Trust 
proposes to purchase the property with a tax-exempt bond and repay the 
bond through revenue from forest operations. Consequently, this 
agreement hinges on two contingencies: tax clarification, which we are 
here to discuss today, and the financial logistics of a bond sale in 
excess of $200 million. With your support, the sale of the Tree Farm 
will be the first application of the tax provisions laid out in H.R. 
1711.
4. The Benefits of H.R. 1711
    By establishing a mechanism for the forest to pay for its own 
conservation, this transaction leverages the small public cost of tax-
exempt financing to generate a very large public benefit. Retaining 
this vast but close-to-home landscape in forest will maintain valuable 
open space that contributes to air and water quality and provides 
recreational opportunities. The habitat values of the forest will be 
maintained and enhanced, supporting herds of elk and runs of salmon, 
and supplementing forest conservation efforts on adjacent state and 
federal lands. At the same time, a working forest will maintain the 
forest tax base and provide jobs that are critical to forest-dependent 
communities over the long term.
    The model created by Evergreen Forest Trust is a vehicle for 
bringing environmentalists and industry together to protect working 
forests. It will be a critical tool to secure meaningful conservation 
and the continued productivity of forestlands across our county. The 
benefits to our citizens indeed will be great and importantly will 
require neither public land ownership nor significant public 
expenditures. H.R. 1711 would make this opportunity available not only 
in the Pacific Northwest but across the country. I respectfully request 
that you pass H.R. 1711, The Community Forestry and Agriculture 
Conservation Act of 2001. Thank you for the opportunity to appear 
before the Subcommittee.

                                 

    Chairman MCCRERY. Thank you, Mr. Duvernoy. Now, we will 
hear from Mr. Rand Wentworth, the President of the Land Trust 
Alliance. Mr. Wentworth, it does not say where you are from. 
Perhaps you will tell us that when you start. Please share with 
us your testimony.

  STATEMENT OF RAND WENTWORTH, PRESIDENT, LAND TRUST ALLIANCE

    Mr. WENTWORTH. Another from Atlanta, Georgia. Thank you for 
the opportunity to testify today. I am President of the Land 
Trust Alliance, the national organization representing 1,263 
land trusts in every State of this country. These are 
nonprofit, private conservation organizations that work with 
private landowners who voluntarily protect their land as farms, 
forests, wildlife habitat, parks, and trails. They have over 
one million members and have protected over six million acres 
throughout the United States. With two million acres of land 
being developed each year in America, we need to accelerate the 
pace of conservation if we hope to leave our children the best 
of our American landscape.
    Now, for many years, I, like Representative Isakson, was 
President of a commercial real estate development company in 
Atlanta and I appreciate the many economic benefits of growth. 
In that role, I have also seen how land conservation actually 
enhances economic development and real estate values. In many 
cases, keeping land in agriculture, forestry, protecting scenic 
beauty is the best thing we can do for our economy and our 
communities.
    Many landowners that we work with are willing to protect 
their land for conservation purposes, but they need help. We, 
the Land Trust Alliance, strongly endorse H.R. 1309 introduced 
by Representative Johnson, H.R. 2290 introduced by 
Representative Portman, H.R. 1711 introduced by Representative 
Dunn, and H.R. 2279, introduced by Representative Hefley. Each 
of these bills would provide a careful measure of such help. 
They are complementary bills, each addressing a different set 
of landowners and a different approach to land conservation.
    I also want to thank my fellow Georgian, Representative 
Isakson, for introducing an even more far-reaching proposal in 
H.R. 882. He has seen, as I have, the astounding loss of 
greenspace around Atlanta in the past two decades and has 
sought to find a mechanism bold enough to meet the challenge, 
and I hope that this Committee will look favorably at those 
kind of bold and fresh ideas.
    Now, since others have spoken eloquently on the other 
bills, I want to specifically address my comments to 
Representative Johnson's bill, H.R. 1309. This bill will 
encourage some truly extraordinary charitable donations in the 
public interest.
    Currently, the deduction allowed for conservation 
contribution under section 170(h) is limited to no more than 30 
percent of a taxpayer's adjusted gross income and can be 
carried forward for no more than 5 years. The current limits 
mean that a landowner of modest means gets next to no reward 
for making an extraordinary donation. A rancher, for example, 
earning $50,000 a year may own land with development rights 
worth more than $1 million. Yet, because of the rancher's lower 
income, the current rules mean that the most they could deduct 
is $90,000, no matter how valuable their gift to the public 
interest.
    Section 1 of H.R. 1309 would allow the donors of qualifying 
conservation donations to deduct up to 50 percent of their 
adjusted gross income for as many years as it might take for 
them to deduct the entire dollar amount. Now, obviously the tax 
benefits spread out over 20 years or more are nowhere near as 
valuable as those taken all at once, but by increasing the 
percentage of the adjusted gross income, a taxpayer may deduct 
for a conservation gift to 50 percent, which is the same 
percentage limit the law currently allows for cash donations, 
this will allow taxpayers an incentive more closely related to 
the value of their extraordinary donations.
    I have been asked by 50 land trusts from Connecticut to 
present to Mrs. Johnson their letters in support of her 
legislation, which I have attached for the record. All of us 
thank her for her work on this and we hope to see it come to 
fruition soon.
    I would urge the Committee to go even further and adopt 
incentives included in H.R. 2279. This bill would allow 
taxpayers whose income is primarily from farming and ranching 
to deduct up to 100 percent of their adjusted gross income in 
any 1 year for up to 15 years. Are we asking too much for these 
donors? The average farmer, according to the Department of 
Agriculture, has an income of only $34,000 a year and pays less 
than $3,000 a year in income tax. Allowing them full tax relief 
is the only way they will get a meaningful incentive to make a 
gift for conservation.
    The tax incentives in the bills I have talked about will 
produce tangible, visible, permanent results. You will see 
those results in working farms, natural beauty, clean water, 
and livable communities throughout America. Thank you.
    [The prepared statement of Mr. Wentworth follows:]
      Statement of Rand Wentworth, President, Land Trust Alliance
    Mr. Chairman and Members of the Subcommittee:
    Thank you for the opportunity to testify before this subcommittee 
on the subject of new tax incentives for the conservation of land.
    I am President of the Land Trust Alliance (LTA), the national 
association representing the 1,263 land trusts around the country. 
These local nonprofit conservation organizations work with private 
landowners who voluntarily protect their land as working farms, 
forestland, wildlife habitat, parks, trails, and greenways. These 
organizations have more than one million members and have protected 
more than six million acres across the U.S.
    But with two million acres of land a year being developed, we need 
to accelerate the pace of conservation if we hope to keep pace, and 
succeed in protecting a heritage of land for our children.
    For many years, I was president of a commercial real estate 
development company in Atlanta, and I appreciate the many economic 
benefits of development. I have also seen how land conservation 
enhances economic growth and the value of real estate. In many cases, 
the highest and best value of certain lands is for the continuation of 
agriculture and forestry as a viable economic activity; for the 
protection of wildlife and plant habitats; for the continued 
availability of clean water; for historic preservation, including the 
preservation of historic battlefields; for recreation and outdoor 
education; and for the protection of scenic beauty.
    Many landowners are willing to protect their land for conservation 
purposes, but they need help. We strongly endorse H.R. 1309, introduced 
by Representative Johnson; H.R. 2290, introduced by Representative 
Portman; and H.R. 1711, introduced by Representative Dunn. Each of 
these bills would provide a careful measure of such help. They are 
complimentary bills, each addressing a different set of landowners, and 
a different way to achieve land conservation.
    Each of them will now have had hearings in the House in two 
successive Congresses; and each of the elements in these bills has had 
hearings in the Senate. We believe this legislation is sorely needed, 
and that it is ready, right now, to be enacted into law.
    I also want to thank Representative Isakson for introducing an even 
more ambitious proposal, H.R. 882. He has seen the astounding scale of 
the loss of open space around Atlanta in the past two decades, and has 
sought to find a mechanism bold enough to protect open space under such 
circumstances.
    The incentives already in place in our tax code have been a major 
contributor to the work land trusts have done. Those incentives start 
with IRC 170(h), which provides for special treatment for conservation 
donations of land and of partial interests in land as charitable 
deductions from income tax. They also include the deductibility of 
conservation easements from estate tax under IRC 2055(f), and an 
exclusion from estate tax for a portion of the value of land protected 
by a conservation easement provided by IRC 2031(c), the American Farm 
and Ranch Protection Act.
    But rising land prices and changes the Congress has made to the 
general tax law make it necessary for us to update the current 
incentives. Rising land prices have greatly diminished the incentive 
provided by IRC 170(h),\1\ and rendered that incentive almost 
meaningless to many farm and ranch families.
---------------------------------------------------------------------------
    \1\ IRC 170(h) defines which contributions of appreciated real 
property qualify for treatment as a charitable donation. Permanent 
conservation easements meeting the 170(h) standards are the only 
partial interest in property allowed to be counted as deductible from 
income tax. Congress has also provided estate tax benefits for 
landowners whose lands are protected with conservation easements, 
through IRC 2055(f) and IRC 2031(c).
---------------------------------------------------------------------------
    I want to specifically address the changes H.R. 1309 would make to 
IRC 170(h), because they would make truly extraordinary charitable 
donations possible.
    Currently, the deduction allowed for a contribution of appreciated 
property to charity is limited to no more than 30% of a taxpayer's 
adjusted gross income (AGI), and can be rolled forward for no more than 
6 years. This provides a good incentive for high-income individuals, 
but discriminates against working ranchers and farmers with lower 
incomes. Many farmers, ranchers, and other landowners of modest means 
would be willing to donate their development rights for conservation if 
they received a tangible tax incentive for doing so. They love their 
land and they would like to see the fruits of their stewardship 
protected into the future by a conservation easement.\2\ But they 
cannot afford to just give away their family's most valuable asset.
---------------------------------------------------------------------------
    \2\ A conservation easement is a contract between a landowner and a 
nonprofit conservation organization or a government agency that 
restricts future uses of land to protect conservation values important 
to the general public. While the contract restricts development 
options, the landowner retains title, control and use of the land. 
Conservation easements may and often do provide for continued 
commercial uses of the land for agriculture and forestry. They may, but 
need not, provide for public access to the land, so long as they 
protect publicly important values. As with any easement, a conservation 
easement follows the land and binds subsequent landowners. Forty-nine 
states have statutes defining and enabling the use of conservation 
easements, and in the only state without such a statute, Wyoming, 
conservation easements constructed under common-law principles are in 
widespread use. Nine states have enacted state tax credits for the 
donation of conservation easements (South Carolina, North Carolina, 
Virginia, Colorado, Connecticut, Delaware, Maryland, New Jersey and 
California).
---------------------------------------------------------------------------
    That's what the current limits require. A rancher earning $50,000 a 
year may own land with development rights worth $500,000, or $1 
million, or more. Yet, because of the rancher's lower income, the 
current rules dictate that the most they could deduct is $90,000, no 
matter how valuable the gift.
    We applaud Representative Nancy Johnson for recognizing this and 
introducing legislation to update the incentives for landowners to 
donate land or a conservation easement on land, to protect that land 
for the future.
    Section 1 of H.R. 1309 would allow the donors of qualifying 
conservation donations to deduct up to 50% of their AGI, for as many 
years as it might take for them to deduct the entire dollar value of 
their donation. That would enable many more landowners to consider 
donating their land for conservation, or donating a conservation 
easement to restrict future development of their land. It would provide 
a major boost for conservation across the country.
    Unlimited carryover means that the taxpayer will get a reward that 
is proportional to their gift. Obviously, tax benefits spread over 
twenty or more years are nowhere near as valuable as those taken all at 
once. But increasing the percentage of AGI a taxpayer may deduct for a 
conservation gift to 50%--the same percentage limit the law currently 
allows for cash donations--will allow taxpayers to get more of a reward 
for making these extraordinary donations.
    In the coming years, we predict that these changes would make a 
significant difference in donations of land, and of conservation 
easements on land. I have been asked by Connecticut land trusts to give 
Mrs. Johnson a series of letters of support for her legislation. The 
changes she has proposed would enable them to help their communities 
protect open space and farmland that is more valuable with every 
passing day. All of us thank her for her work on this, and we hope to 
see it come to fruition soon.
    I would urge the committee to go even further in helping farmers 
and ranchers, and adopt the further incentives included in H.R. 2279, 
introduced by Congressman Hefley. That bill would allow taxpayers 
donating a valuable conservation easement, and whose income is 
primarily from farming or ranching, to deduct up to 100% of their AGI 
in any one year, for up to 15 years. A similar bill has been introduced 
in the Senate by Senator Max Baucus (S. 701).
    While the concept of a 100% of AGI deduction may appear 
extraordinary at first glance, the lower tax rates the Congress has 
enacted mean that in reality this proposal is not nearly as generous as 
it may appear. The Economic Research Service of the U.S. Department of 
Agriculture says that the average income of a farmer or rancher in the 
U.S. is around $34,000 a year. Such a taxpayer may pay less than $3,000 
a year in taxes when the income tax cuts enacted in 2001 are fully 
phased in. Zeroing out such a taxpayer's AGI for 15 years would give 
them less than $45,000 in benefits, spread out over 15 years, for a 
gift to the public worth $450,000 or more.
    That isn't a very high incentive, but it would provide a tangible 
reward in cash flow to these landowners, and we know that this would 
result in some extraordinary donations of land. When Congress drafted 
the limits on charitable deductions, it may have seemed inconceivable 
that a taxpayer earning $30,000 a year could give a gift worth $1 
million or more. But because of rising land values, this is a very real 
possibility for gifts of conservation easements.
    Are we asking for too much for these donors? I don't think so. 
Compare the $45,000 in potential tax benefits described above to the 
benefits a high-income taxpayer already receives. If they are paying 
income taxes at the highest rate, they could receive almost $180,000 in 
benefits for a $450,000 donation under the current rules, and they 
would receive those benefits over a much shorter time.
    In summary, let me ask the Subcommittee and other Members present 
for their continued help in conserving the landscapes that people love. 
Through the tax code, the federal government has long been a partner in 
encouraging voluntary land conservation on private lands. We now have 
the opportunity to protect the best of America's landscape before it is 
too late, but we need your help.
    The tax incentives in H.R. 1309, H.R. 2290, and H.R. 1711 will 
produce tangible, visible, permanent results. You will be able to see 
those results in the form of working farms, natural beauty, clean 
water, and livable communities that will benefit all Americans.
    Thank you again, Mr. Chairman, for the opportunity to appear before 
this Subcommittee, and thank you very much for your interest in federal 
incentives for private land conservation.

                                 

    Chairman McCRERY. Thank you, Mr. Wentworth. Our last 
witness for the afternoon is Mr. Jim DeCosmo, who is Vice 
President for Forests for Temple-Inland Forests Products 
Corporation, Diboll, Texas.

STATEMENT OF JIM DECOSMO, VICE PRESIDENT-FOREST, TEMPLE-INLAND 
 FORESTS PRODUCTS CORPORATION, DIBOLL, TEXAS, ON BEHALF OF THE 
              AMERICAN FOREST & PAPER ASSOCIATION

    Mr. DECOSMO. That is correct.
    Chairman MCCRERY. That is somewhere between Shreveport and 
Houston, is it not?
    Mr. DECOSMO. That is pretty close.
    Chairman MCCRERY. Okay.
    Mr. DECOSMO. It is about an hour and a half north of 
Houston, and I must also say that I was recently almost from 
Atlanta.
    [Laughter.]
    Chairman MCCRERY. Well, welcome to Washington.
    Mr. DECOSMO. It is good to be here. I lived in Rome, 
Georgia, just outside Atlanta.
    Thank you, Mr. Chairman and Members of the Subcommittee, 
for this opportunity to testify with you today. I am 
responsible for 2.1 million acres of forestland in Texas and 
Louisiana and Georgia and Alabama. We have approximately 
350,000 acres of timberland in North Georgia and I know exactly 
what the other panel members and the witnesses are testifying 
to with regard to development and growth and expansion of these 
metropolitan areas.
    I am here on behalf of the American Forest and Paper 
Association, which represents 240 member companies and over 
nine million non-industrial private landowners. I am here to 
strongly endorse the Reforestation Tax Act, H.R. 1581, which I 
contend has three primary and significant objectives and 
benefits.
    First, it greatly supports the continued conservation and 
improvement of forest practices throughout the United States, 
and in turn, that leads to greater forest health.
    Second, it provides incentives for corporations as well as 
large landowners to continue to hold timberland and manage it 
for the long term.
    Third, it levels the playingfield for corporate and large 
landowners with regards to the effective tax rate when you look 
at our taxes with our competitors globally.
    The Reforestation Tax Act has primarily two components. The 
first is an adjustment for gross income at the time of timber 
sales for inflation. Generally, when we make investments in 
timberland, it is in year zero or one or at the time of the 
establishment and timber revenues are generally not realized 
until 25, possibly 30, 50 years out. As you can imagine, the 
basis in cost considered in respect to the revenues after 
inflation create a fairly drastic and gross margin, which 
oftentimes inflates the taxes.
    The second part of it is full amortization of reforestation 
costs. The current law enables those who invest up to $10,000 a 
year a 10-percent tax credit on reforestation expenses and the 
balance of that to be amortized over 7 years. To put $10,000 
into perspective, that will regenerate about 50 acres a year. 
Temple-Inland regenerates close to 50,000 acres a year, so it 
is of some benefit, but not much.
    Of course, the logical question is how does the 
Reforestation Tax Act provide the objectives and the benefits 
that I have stated? Specifically with regards to improving 
conservation and conservation practices, I think it is 
important to note and to say that conservation has costs 
associated with it. We manage much of our land, many of our 
acres strictly for conservation practices and there is a 
management cost associated with it.
    I will also say that the greatest cost is an opportunity 
cost. Previous testimony said that, typically, forest investors 
look for an 8-percent real return on a market value, which 
means that timberland should grow somewhere around $60 an acre 
per year in value. Oftentimes, conservation acres do not grow 
any value and may even be a net cost, so this tax act would 
help us to even do a better job of managing for these 
conservation acres and would certainly provide some tax relief.
    This tax relief would also provide some relief pressure in 
the incentive for landowners to sell property, which would be a 
significant benefit. When we sell property into the open 
market, we end up with further development, greater fracture, 
and even more fragmentation of these assets in these forested 
ecosystems.
    Recently, a report was issued by the U.S. Forest Service 
along with other universities called the Southern Forest 
Resource Assessment. It identified that in the recent past, 
there were 12 million acres in the South that had been 
converted to development and other land uses for forest and the 
forecast is another 12 million acres to be converted by the 
year 2020.
    You will also notice that if you look at other trends in 
the past, corporations have divested over nine million acres of 
timberland in the last 4 years and that has been divested to 
entities who primarily have tax structures that are far 
beneficial to the current tax rates for corporations. I would 
contend the corporations are good stewards. If you look at the 
role that we play and investments that we make in research and 
development, I would say that many of the new landowners and 
forest owners are not filling those footsteps.
    With regard to leveling the playingfield, 
PricewaterhouseCoopers conducted a study looking at global tax 
rates. It was completed in January 2001. Effective tax rates 
vary from 7 percent to 55 percent. Unfortunately, we are the 
latter. The Reforestation Tax Act is targeted to bring us to 
the midpoint, somewhere between 25 to 28 percent.
    Just in closing, I want to say that the Reforestation Tax 
Act is endorsed by the forest products industry, our non-
industrial private landowners, labor unions, and the 
Conservation Fund.
    On behalf of American Forest & Paper Association and the 
previously mentioned supporters, I just want to strongly 
encourage you, the Subcommittee, to include the tax act in any 
legislation moving to the full Committee that deals with sprawl 
or conservation tax issues. Our forests and our environment 
will be healthier as a result of your support. I thank you for 
this opportunity to testify.
    Chairman MCCRERY. Thank you, Mr. DeCosmo.
    Mr. DECOSMO. You are welcome.
    [The prepared statement of Mr. DeCosmo follows:]
 Statement of Jim DeCosmo, Vice President-Forest, Temple-Inland Forest 
    Products Corporation, on behalf of the American Forest & Paper 
                              Association
    Good Afternoon Mr. Chairman and Members of the Subcommittee. My 
name is Jim DeCosmo. I am Vice President-Forest for Temple-Inland 
Forest Products Corporation. Temple-Inland is a forest products company 
with significant timberland holdings in Louisiana, Texas, Alabama and 
Georgia. I am testifying today on behalf of the American Forest and 
Paper Association (AF&PA). AF&PA represents more than 240 member 
companies and related associations that engage in or represent the 
manufacturers of pulp, paper, paperboard and wood products, as well as 
the growers and harvesters of this nation's forest resources. America's 
forest and paper industry ranges from state-of-the-art paper mills to 
small, family-owned sawmills and some 9 million individual woodlot 
owners.
    The U.S. forest products industry is vital to the nation's economy, 
providing approximately 7 percent of the U.S. manufacturing output, 
while ranking among the top ten manufacturing employers in 42 states. 
More than 1.5 million people are employed by the forest products 
industry with an estimated annual payroll of $64 billion. Sales of the 
paper and forest products industry top $250 billion annually in the 
U.S. and export markets, making us the world's largest producer of 
forest products. We are also a natural resource based industry 
responsible for planting, growing and harvesting trees, a basic 
renewable resource.
    I would like to commend the Subcommittee for holding this hearing 
today on tax issues relating to urban sprawl and conservation. It could 
not be timelier.
    In May 1999, the Southern Forest Resource Assessment (SFRA) was 
initiated to examine the status, trends and potential future of 
southern forests. The results of the SFRA study, led by the U.S. Forest 
Service, were released this past November. The conclusion was that 
southern forests are healthy and are being sustainably managed; though 
continued urban growth presents a substantial threat to the condition, 
health and long-term sustainability of these forests. The report 
confirmed earlier findings that urban growth is the primary cause of 
forest loss in the South. Between 1982 and 1997, developed land in the 
South increased by 45%, representing 12 million acres of forest lost 
forever to development. The SFRA report concluded that another 12 
million acres could be sold and developed by 2020.
    The report goes on to underscore the important role the tax system 
can play in keeping land in forest cover. There are two critical ways 
this can be accomplished that AF&PA urges your committee to consider. 
They include the treatment of timber gain and how reforestation costs 
are treated under the tax code.
    AF&PA agrees with the SFRA conclusion that additional tax 
incentives are needed to encourage landowners to hold onto their forest 
land rather than be forced to sell to developers, thus worsening urban 
sprawl. Another reason for providing additional tax incentives for 
owners of timber is because the current tax laws governing the forest 
products industry in the U.S. place us at a great disadvantage vis-a-
vis our international competitors. A 2001 analysis by 
PricewaterhouseCoopers found that foreign-based competitors (in 
Indonesia, Brazil, Finland, Japan, Germany and Canada) of U.S. forest 
products companies enjoy effective tax rates as low as 8%. U.S.-based 
companies, by comparison, face an effective tax rate of 55%--25 
percentage points higher than the average for the other competing 
nations and among the worst in the world. Similarly, non-corporate U.S. 
investment in timber is treated among the worst of our foreign-based 
competitors.
    We do not believe this situation was intended by Congress. Rather 
it is more likely the result of years of tax policy changes without an 
analysis of the accumulated effect on either urban sprawl or 
international competitiveness. Unfortunately, the current rules 
discourage job creation in the U.S., promote imports and undercut the 
high environmental standards that the U.S. practices. Congress can go a 
long way toward improving this situation by enacting ``The 
Reforestation Tax Act of 2001'' (H.R. 1581) introduced by Rep. Jennifer 
Dunn, a Member of the Ways and Means Committee, and Rep. Sanford 
Bishop. This bipartisan legislation currently has 80 cosponsors in the 
House and 15 members of the Ways and Means Committee. Mr. Chairman, we 
also note that you are a cosponsor of this legislation, and we are 
grateful for your support.
    The Reforestation Tax Act (RTA) recognizes the unique nature of 
timber and the overwhelming risks associated with an investment in this 
essential natural asset and attempts to place the industry in a more 
equal position with its international competitors. Trees can take 
anywhere from 25 to 75 years to grow to maturity. Fire, disease, 
weather--events that are unpredictable and uninsurable--can wipe out 
acres of trees at any time during the long, risky growing period. Good 
management practices can help mitigate some of nature's vagaries, but 
are costly over the entire growing period. The RTA does two things to 
remove disincentives for private investment in our forests and promote 
reforestation efforts: reduces the tax paid on timber for individuals 
and corporations; and it improves the tax treatment of reforestation 
expenses.
    Specifically, the bill provides a sliding scale reduction in the 
amount of taxable gain based on the number of years the asset is held--
3 percent per year, up to a maximum reduction of 50 percent. While this 
provision does not fully compensate for the negative tax impact of 
inflation, it does provide a significant incentive for landowners not 
only to re-plant their land after a timber harvest, but to keep their 
land in forest cover for generations to come.
    Under current law, the first $10,000 of reforestation expenses are 
eligible for a 10 percent tax credit and can be amortized over 7 years. 
Reforestation expenses are the initial expenses required to establish a 
new stand of trees including expenses for site preparation, the cost of 
seedlings, and the labor costs required to plant the seedlings. Because 
amounts over $10,000 may not be amortized and do not qualify for the 
credit, most reforestation expenses are not recoverable until the 
timber is harvested. The RTA removes the $10,000 cap and allows all 
reforestation expenses to qualify for the tax credit and to be 
amortized over a 5-year period. This change in the law will provide a 
strong incentive for increased reforestation by eliminating the 
arbitrary cap on such expenses.
    The RTA is enthusiastically endorsed by all elements of the forest 
products industry--individual landowners, large and medium sized forest 
and paper companies and our labor unions. In addition, the RTA has the 
support of the Conservation Fund since the bill directly encourages 
replanting resulting in not only reduced sprawl but also an improved 
environment due to trees storing carbon dioxide that would otherwise be 
released into the atmosphere.
    A variation of the RTA was included in the 1999 Omnibus Tax Bill 
that passed Congress but was vetoed by President Clinton. Likewise, it 
was included in the Minimum Wage and Small Business Tax Relief Bill 
passed by the House in 2000.
    AF&PA strongly urges the Subcommittee to include the RTA in any 
legislation you move to the full Committee dealing with sprawl/
conservation tax issues. The RTA has the additional benefits of being 
bipartisan, helps our industry's competitive position, protects U.S. 
companies and the jobs they provide and promotes sustainable forestry 
in an environmental friendly way.
    Thank you, Mr. Chairman, for this opportunity to testify, and I 
would be happy to answer any questions.

                                 

    Chairman MCCRERY. First of all, would you run by me one 
more time the 5 percent, the 55 percent tax rate. Where did 
that come from?
    Mr. DECOSMO. PricewaterhouseCoopers conducted a study for 
American Forest & Paper Association to look at the effective 
tax rates of corporations that own timberland across the globe. 
They benchmarked six other countries and the effective tax 
rates varied from the low of 7 percent to the high of 55 
percent, and as I said, it is the United States who has a 55 
percent effective tax rate. Actually, it is two taxations. One 
is at the corporate level and one is at the individual level 
that gets you to the 55 percent. If needed, that study is 
certainly available.
    Chairman MCCRERY. Okay. So, it is not just Temple-Inland, 
it is American corporations doing business here----
    Mr. DECOSMO. Absolutely.
    Chairman McCRERY. That are engaged in the forestry 
business.
    Mr. DECOSMO. Absolutely, and that is probably the real 
driver in the number that I shared with you, with corporations 
divesting nine million acres in the last 4 years.
    Chairman MCCRERY. Okay. Thank you. Mr. Duvernoy, would you 
try to summarize for me quickly the goal of Ms. Dunn's 
legislation.
    Mr. DUVERNOY. Yes, I will. The goal of Ms. Dunn's 
legislation is to allow nonprofit corporations to access 
capital markets. It does that through allowing nonprofit 
corporations to issue tax-exempt debt. Now, the obligation of 
the nonprofit corporation in response for issuing tax-exempt 
debt is to provide permanent public benefit in its conduct of 
its timber operations on the land, and the way this legislation 
requires that benefit to be permanent is by the placement of a 
conservation easement, if you will, on that property that then 
will be held by another conservation organization.
    Chairman MCCRERY. You went on to say in your testimony that 
the land that was purchased, or for which the bonds would be 
issued, would be managed for timber production and it was the 
sale of the timber that would pay the bonds, is that correct?
    Mr. DUVERNOY. That is correct. We fully anticipate the 
property will be managed for timber production. The public 
benefit that would emanate from this in this instance would be 
the fact that the development potential of that property would 
be retired and the care and stewardship of this particular 
property would exceed State, and the State does a very good 
job, but exceed State standards. We can afford to manage this 
property for timber, but at a level higher than we could 
otherwise.
    Chairman MCCRERY. So, in other words, the legislation would 
encourage timberland to stay timberland?
    Mr. DUVERNOY. That is correct. In the face of a very 
difficult market to manage for timber, particularly on the 
urban fringe, this vehicle will allow us to keep this land in 
timber production and to keep jobs and that local tax base so 
important to the local community.
    Chairman MCCRERY. So, would you say that the legislation 
that Mr. DeCosmo talked about, the reforestation tax credits 
and so forth, and the legislation that you are espousing, Ms. 
Dunn's, have much the same goal?
    Mr. DUVERNOY. If I may, Mr. Chairman, I think a lot of this 
legislation, if you take it together, works very 
synergistically to create a set of very powerful tools to 
conserve forestland.
    Chairman MCCRERY. Thank you. I think it is interesting that 
we have folks from what some might call the environmental 
community speaking favorably about corporate America. Maybe we 
could do more of this and actually make more progress.
    [Laughter.]
    Chairman MCCRERY. So, it is good that you all have done 
that today. Mr. McCormick, since I know your organization has a 
lot of experience in facilitating through the private sector, 
and sometimes using the public sector, as well, the 
preservation and conservation of lands, I want you to address 
the fact that you cannot make people sell their land, you can 
lead a horse to water but you cannot make him drink. How do we 
then accomplish our goals without government telling people 
what they can and cannot do with their own land?
    Mr. MCCORMICK. That is a very good question and the Nature 
Conservancy, as you well know, does work in a very 
collaborative fashion with private landowners, and for that 
matter, with industry. As I suggested in my testimony, we very 
much believe in the free market system and, therefore, do not 
believe in any form of coercion. The Nature Conservancy does 
not attempt to tell landowners what they should or should not 
do with their property, but engage, as the land trust community 
does at large, in arms'-length transactions.
    A very attractive inducement for that would be for those 
landowners, particularly in rural communities, who have very 
few financial assets, an attractive inducement would be the 
opportunity to have preferential treatment for the capital 
gains that they derive on those sales, largely because, again, 
these are multi-generational landowners, for the most part, 
very appreciated values on those properties, frankly, often 
reflecting the development potential. So, there is an enormous 
burden on the tax and preferential treatment for sale for 
conservation purpose would be a very, very attractive 
inducement and not a coercion at all.
    Chairman MCCRERY. Thank you. Mr. Brazell, there was some, 
not confusion, I guess, but different opinions on how many 
brownfields sites might be cleaned up if we were to have Mr. 
Weller's legislation or the Administration's proposal enacted. 
Can you shed some light on that from the Roundtable's 
perspective?
    Mr. BRAZELL. I think the figure of 400,000 brownfields was, 
as Mr. Weller said, coming from the U.S. Conference of Mayors. 
I am not able to tell you exactly how many of those are going 
to be cleaned up by continuing the legislation to allow 
expensing, but I would say more than would be cleaned up 
without that legislation.
    Chairman MCCRERY. Can you give us some insight on what that 
means in terms of, number one, the resulting economic growth in 
those brownfield areas, which oftentimes are distressed 
economically, and number two, does the fact that we would be 
seeing more development in these brownfields sites take 
pressure off development in the suburban areas and pressing out 
into the rural areas?
    Mr. BRAZELL. I would say yes to both. In the first case, 
when you redevelop an area that is fallow and unproductive, you 
bring property taxes up, you revitalize the neighborhoods, and 
along with that, you take the pressure off the greenfields 
because some clients that can locate into those areas do not 
necessarily have to locate outside the city center where most 
of the brownfields are located.
    Chairman McCRERY. Thank you. Mr. McNulty?
    Mr. MCNULTY. Thank you, Mr. Chairman, and I want to thank 
all of the panelists for their testimony. I just have one 
question I want to pursue.
    My friend, Johnny Isakson, who is still here, suggested 
that I pursue further with Mr. Sawyer this question about the 
State cap, and I just wanted to clarify in my own mind how that 
is determined, but more importantly, how it would be 
administered. In other words, once you determine what the State 
cap is, for example, if within that particular State the cap 
was $50 million in benefit and there were legitimate 
applications for $100 million, how is it determined who gets 
the benefit? Do you say to 50 percent of the people, you get 
the benefit, and the other 50 percent, you say, sorry, Charlie? 
Who determines that? How does that work?
    Mr. SAWYER. Thank you for asking that question. On the cap, 
or the allocation, really, the way that is determined is that 
we look at the total amount of land in farms and woodlands in 
each State, pursuant to the Department of Agriculture census, 
and the denominator of that number for the whole country--the 
total acreage for the whole country is the denominator and the 
numerator is the State's total acreage of those figures. Then 
we apply a 4-percent cap, which basically allows it to level 
out and compress just a little bit. I think Texas gets a 
disproportionate amount if you do not have a 4-percent cap. So, 
that is how your fraction of the $4 billion a year is 
determined, is through that process.
    The second part is it is really administratively quite 
efficient, because, basically, what we have done with this bill 
is we have taken two very accepted tax concepts, well proven 
tax concepts--one is the conservation easement structure--and 
have not changed that. So, that is going to limit any capital 
spent under this to accomplishing conservation goals because 
that is how the money has to be spent. It cannot be spent for 
any other purpose.
    On the other side, in terms of the administration of it, 
each State will have a clearinghouse, just like we use with the 
low-income tax credit system, so that the State will be told. 
For instance, Georgia, I believe, has $60 million a year under 
this program. So, the State will be told, you have $60 million 
in credits. You now have to assign the administration of that 
credit pool to one of your agencies or one of your branches of 
government, and it is then up to that branch to help manage 
this process within the State. Now, obviously, that also allows 
the State to help determine the priorities in terms of whether 
you make this investment or that investment.
    One other footnote is, of course, with the conservation 
easement, as Mr. McCormick pointed out, these are all 
voluntarily negotiated arrangements with private property 
owners, and so nobody is telling anybody they have got to 
conserve this or not. It is just that is what you work out.
    Now, we do think by having a pool of dollars under this 
system, what is going to happen is that you will have strategic 
conservation, which is to say that the States, the Federal 
Government, the local governments, the land trust, and the 
business community will sit down and say, gee, we have got 
enough money now to really do something about this problem, and 
so they will go out and strategically try to acquire land that 
actually complements the development needs of the community as 
well as protects the natural infrastructure of that community.
    Mr. MCNULTY. Thank you very much. Mr. Brazell, while your 
testimony focuses mostly on the brownfields legislation, what 
are your views on additional tax incentives for conservation 
land sales?
    Mr. BRAZELL. Well, it is not an area that I am familiar 
with, but I would say if it is in your interest to conserve 
open spaces and you want to use the tax incentive to do it, it 
sounds like a pretty good one to use.
    Mr. MCNULTY. I thank all of the panelists. That is all I 
have, Mr. Chairman.
    Chairman McCRERY. Thank you. Mr. Weller?
    Mr. WELLER. Thank you, Mr. Chairman. I appreciate the 
opportunity to question our witnesses here. Before I direct my 
questions to Mr. Brazell on the brownfields legislation, Mr. 
Sawyer, I just want to commend you on your proposal and also 
salute your champion here in the House, Johnny Isakson. He is a 
very articulate, hard working spokesman for your cause. We have 
talked about your legislation many times, and just to let you 
know, he is working very hard for you on your proposal.
    Mr. SAWYER. Thank you, and I agree.
    Mr. WELLER. Mr. Brazell, on the issue of the brownfields 
legislation, of course, I have worked with you and with your 
organization in finding ways to attract private investment and 
environmental cleanup of old industrial sites for the purpose 
of revitalizing blighted communities. Whether it is rural or 
suburban or middle class or low income areas or even urban 
areas, we have our share of these so-called brownfields, 2,000 
in the Chicago region and the two largest are in the district 
that I represent.
    The Administration, when they, of course, endorse the 
proposal to make permanent the existing provision, which 
expires in a little over a year, they point out that permanency 
would generate about $2 billion in additional investment as 
well as cleanup of an additional 4,000 brownfields a year, 
which it will take a while to get up to the 400,000 that are 
totally across this country, but it will make a tremendous 
amount of progress.
    I was wondering, from your perspective, you work with 
business decision makers every day in your business. You talk 
with them, and one thing I think we have all learned is that 
the tax code influences business decision making. Now, there 
are consequences to the tax code. There are incentives to the 
tax code.
    From the standpoint of a business decision maker who is 
trying to decide where to invest their dollars, whether or not 
to purchase an old industrial site, a brownfield, clean it up, 
or go to the edge of town and buy a cornfield or a soybean 
field outside the suburban area that I represent in Chicago, 
how do they factor in this expensing provision? How would a 
business decisionmaker use this to make their decision and 
decide it is in their advantage to purchase that old industrial 
site and clean it up and revitalize it?
    Mr. BRAZELL. Mr. Weller, it is very difficult to compare 
parcels of land, different parcels of land. If you can imagine 
you had two sites, one of which was a brownfield and one of 
which was not a brownfield, and the selling price of the non-
brownfield site was $100 and you knew you had $20 of 
remediation costs, the other site is going to sell for $80. So, 
the fact that you are going to buy the other site for $80, you 
are going to spend $20 to clean it up, but then you are going 
to be able to expense that, your investment is $80 after-tax, 
so right away, you have got a jump on the other site, if there 
are suitable sites.
    Obviously, development has to have a plan. It has to be 
viably functional, apart from the tax effects, and it probably 
is not going to drive every transaction. It may be the fulcrum 
that turns a transaction to be being done in favor of cleaning 
up the brownfields.
    Mr. WELLER. One of the comments that I have received from 
economic development experts in the South Side of Chicago and 
the South suburbs that I represent, as they are attempting to 
recruit and lure private investors to invest in these sites, of 
course, is in the liability, the financial cost of the 
environmental cleanup. Of course, our hope is that this is 
working, and I see it working in the district that I am in, 
where private investors are now taking advantage of the ability 
to expense, to fully deduct in the year they incur the cost of 
environmental cleanup, to deduct that cost as a way of 
recovering it, so I appreciate that.
    Let me ask another question here. As one of my colleagues 
mentioned, also, in the legislation, in H.R. 2264, we proposed 
broadening the type of environmental cleanup that would be 
covered and would be able to utilize the expensing provision 
that is in the brownfields incentive. We have learned over the 
last several years in working this legislation that there are 
other types of cleanup besides existing law that private 
investors run into. It was noted currently they would, of 
course, have to capitalize those costs over, what, 40 years, 
and that is the cleanup of petroleum and pesticides, paint, 
asbestos as part of that.
    Can you explain the merits of broadening this tax 
provision, how that would be an incentive to attract investors 
who have to look at an old building that they may have to deal 
with on that old industrial site called a brownfield?
    Mr. BRAZELL. Right. Just in the same way that the 
legislation benefits someone that is going to purchase a piece 
of land and expense the remediation cost. Often on those types 
of sites, those older sites, those infill sites, you are going 
to find buildings that probably have contamination like 
asbestos, and as our perceptions about asbestos have changed, 
we have had many more regulations that require us to clean them 
up.
    So, being able to expense that cleanup cost in the year of 
acquisition or in the years in which you incur the expense, the 
present value of that is much, much higher than trying to 
recover that cost over a 40-year period.
    Mr. WELLER. Thank you, Mr. Chairman. I see my time has 
expired. Again, thank you for conducting this hearing on a 
very, very important issue for all of us.
    Chairman MCCRERY. Thank you, Mr. Weller. Mr. Hayworth?
    Mr. HAYWORTH. Thank you, Mr. Chairman, and my apologies 
both to the Subcommittee and the witnesses. Flight schedules 
kept me away from hearing the testimony in its entirety, but I 
am no stranger to the challenges we confront, especially in the 
Western States. I just must say, Mr. Chairman, how gratified I 
am that it looks like now we have reached a point where instead 
of drawing caricatures of each other and trying to shout past 
each other, it seems that now, based on the testimony I have 
heard today, people are actually talking to each other and 
working to solve problems.
    To the extent that the tax code and this Committee, being 
the first Arizonan in history to serve on the Committee on Ways 
and Means and one of innumerable Arizonans to serve on the 
Committee on Resources, I appreciate the opportunity to 
champion legislation like the bills discussed today and I 
welcome in a broader context the fact that, at long last, we 
are agreeing to disagree in some areas, but working in an 
important way to produce results that can help all Americans 
and especially those who live in States like Arizona So, with 
that, I thank you and yield back my time.
    Chairman MCCRERY. Thank you, Mr. Hayworth, and I could not 
agree with you more. I stated earlier that it is nice to have 
corporate America and some of the environmental community 
communicating and working together for bills that we all 
believe are laudable, so I concur with your remarks. Mr. 
Blumenauer?
    Mr. BLUMENAUER. Mr. Chairman, I just want to express my 
appreciation for your courtesy in allowing me to participate 
and to listen to the testimony here today. I commend the 
Subcommittee. The record that is being developed is a very 
powerful one in terms of approaching this issue, and I think we 
have outlined here a range of choices.
    I do hope that there is a way to consolidate some of these 
together for a bigger package. I just returned from Detroit a 
few hours ago, spending a couple of days talking to people, 
many of whom would buy into this, and I know that there is an 
interesting range of opinion and support for the work that the 
Subcommittee is doing.
    I would just note, though, the comment from the gentleman a 
moment ago that he was almost from Atlanta, and as I think 
about what is happening with metropolitan Atlanta, if we do not 
get the legislation, Mr. Chairman, that you are talking about, 
we all might almost be from Atlanta.
    [Laughter.]
    Chairman MCCRERY. That is right.
    Mr. BLUMENAUER. I appreciate your efforts.
    Chairman McCRERY. Yes, sir. Thank you, Mr. Blumenauer, for 
participating in today's hearing. Once again, I want to thank 
all of the witnesses for your excellent testimony and your 
responses to our questions and your patience in staying with us 
most of the afternoon. Thank you, and we look forward to 
working with you as we work together to solve the problem of 
encroaching urbanization across America, so thanks. Before 
adjourning, I would like to insert into the record a statement 
from Congressman Amo Houghton.
    [The statement of Mr. Houghton follows:]
 Statement of the Hon. Amo Houghton, a Representative in Congress from 
                         the State of New York
    I appreciate the opportunity to comment on the efforts of many in 
Congress and others to continue to expand the tax incentives available 
to individuals and groups to preserve open space and promote 
conservation. I certainly have a strong interest in protecting the 
environment and preserving the natural resources of our country for 
current and future generations. Also, I have a particular interest in 
tax provisions that exclude the value of land subject to conservation 
easements from the estate tax. I commend the Chairman for holding this 
hearing.
    I was especially gratified that Congress enacted the basic 
provisions of the American Farm Protection Act (a bill I introduced), 
as part of the 1997 Taxpayer Relief Act. The bill added an exclusion 
from estate taxes for gifts of conservation easements. The relief is 
targeted. Because the measure was enacted in a time of budget deficits, 
some thought the limitations were too restrictive. In 1999, the 
Oversight Subcommittee held a hearing on the same subject as today's 
hearing. I am sure many of the points made in that hearing will be made 
today.
    Since the estate tax relief law for permanent conservation 
easements was enacted, two significant changes have been made. The 
first was in 1998, when a change was made to allow the post-mortem 
election and granting of the easement to be made by the executor and 
heirs after the death of the decedent. The original law required the 
easement grant to be made prior to death. This change certainly 
facilitates the granting of land easements.
    In addition, the Economic Growth and Tax Relief Reconciliation Act 
(EGTRRA) of 2001 removed the restrictive requirements as to location, 
i.e. within a metropolitan area determined by OMB or abutting national 
parks or wilderness areas, etc. The change allows land located in the 
United States or any possession to qualify, assuming the other 
requirements are met.
    These changes have all contributed to making the exclusion more 
available and beneficial to taxpayers, which can only add to the 
increase in the granting of these conservation easements. Although the 
provision included in EGTRRA of 2001 will sunset in 2010, it is likely 
these changes will be made permanent in some manner, as was done in 
H.R. 586, which passed the House on April 18, 2002. In any event, 2010 
is some distance away, and many will still find the tax incentive to 
grant a permanent land conservation easement to be advantageous. We 
should not cut back on the efforts to encourage such transfers. 
Ultimately if the estate tax is repealed, we will need to seriously 
explore other tax incentives to replace the current estate tax 
incentives, in order to preserve open space and promote conservation.
    Rep. Nancy Johnson has a bill, H.R. 1309, which I am sure will be 
mentioned in today's hearing. The bill would further improve the tax 
incentives for granting permanent land conservation easements, and I 
support the bill.
    Although it is difficult to determine the effect of the 1997 
legislation, the IRS data for 2000 indicates that 43 estates elected 
the provisions to exclude easements with a value of $7.6 million. The 
prior year showed more estates electing, although the value was less. 
Of course, the number of estates will vary from year to year, and it 
will take some time for trends to develop. The Land Trust Alliance's 
data indicate that there has been a steady upward increase in the 
donated acres of conservation easements from the Piedmont area of 
Virginia from 1996 to 2001. The Piedmont Environmental Council has made 
a significant effort to educate landowners in their area of the 
benefits involved in donating the easements. So, I believe we are 
certainly on the right track.
    Gifford Pinchot, the founder of the U.S. Forest Service under 
President Theodore Roosevelt, once wrote that a nation ``deprived of 
its liberty may win it, a divided nation may unite, but a nation whose 
natural resources are destroyed must inevitably pay the penalty of 
poverty, degradation, and decay.'' As true today as a hundred years 
ago. Thank you.

                                 

    Chairman MCCRERY. I would also like to include in the 
record prepared statements from the American Farm Bureau 
Federation and the Montana Land Reliance.
    [The statements of the American Farm Bureau Federation, and 
the Montana Land Reliance follow:]
            Statement of the American Farm Bureau Federation
    The American Farm Bureau Federation, which represents over 5.1 
million member families in all 50 States and Puerto Rico, is concerned 
over the loss of farmland. One million acres are lost each year to 
development. Concentrated around urban/suburban cores, farmland 
disappears when it is more lucrative to sell land for development than 
for agricultural purposes. If these losses are allowed to continue, one 
of our Nation's most valuable resources is threatened.
LH.R. 923--SELF-EMPLOYMENT TAXES AND CONSERVATION RESERVE PROGRAM
    Most farmers and ranchers are self-employed. Currently they pay a 
self-employment tax at the rate of 15.3 percent. Self-employment taxes 
apply to income from labor and employment and are assessed in order to 
collect for Social Security and Medicare. The self-employment tax does 
not ordinarily apply to income from cash rent because cash rental 
income represents the equity value of ownership in land.
    The U.S. Department of Agriculture (USDA) makes Conservation 
Reserve Program (CRP) payments to owners and operators of land who sign 
a rental agreement and agree to refrain from farming the enrolled 
property in order to conserve and improve the environmental resources 
of that land.
    In 1996, the Tax Court ruled in Wuebker vs. Commissioner, that CRP 
payments were considered rental payments and therefore would not be 
subject to the self-employment tax. However, in March 2000, the Sixth 
Circuit Court of Appeals reversed the Tax Court's opinion, placing an 
additional tax burden of 15.3 percent on farmers for their CRP payments 
and allowing the Internal Revenue Service to retroactively collect 
these taxes from the last 4 years on farmers participating in CRP.
    It is unfair to treat active farmers and ranchers differently from 
other taxpayers when imposing self-employment taxes on rental income. 
Because of the Wuebker case, the IRS now singles out farmers and 
ranchers as landlords liable for the self-employment tax. For other 
taxpayers who receive CRP payments, and are not materially 
participating in a farming operation, the payments are considered to be 
rental income that is not subject to self-employment tax.
    Farmers and ranchers are in a no-win situation concerning the 
application of self-employment taxes. Agriculture producers face 
confusion and uncertainty because it is not known if and when an appeal 
will be heard by the full Sixth Circuit Court.
    Additional confusion arises over jurisdictional matters. The 
original case was brought before the Tax Court. The Tax Court ruling, 
which said that self-employment taxes are not owed, has nationwide 
application. The appeals case was heard in the Sixth Circuit Court of 
Appeals which only has jurisdiction over Ohio, Tennessee, Michigan and 
Kentucky. This means that farmers in other states are not directly 
affected by the appellate court decision to require self-employment 
taxes on CRP payments. But because the IRS believes that the tax should 
be paid, it could audit farmers in other states with the intention of 
securing favorable court rulings to collect the tax. If farmers and 
ranchers are audited and fail to satisfy the IRS, they risk paying back 
taxes, interest, penalties and the cost of amending as many as 4 years' 
tax returns.
    This issue not only has impact on farmers and ranchers, but also on 
the environment. Self-employment tax on CRP payments may discourage a 
farmer from future participation in this program. Environmentally 
sensitive acreage that has been taken out of production to protect its 
natural resources may be forced back into production if CRP payments 
are subject to self-employment taxes.
    Tax policy should not single out farmland owners to pay the self-
employment tax on cash rental receipts. The IRS should not be able to 
impose new taxes on farmers and ranchers without congressional 
approval.
    Congress should pass legislation to restore equitable tax treatment 
for farmers and ranchers by making it clear that CRP payments are not 
subject to self-employment taxes.
    Farm Bureau supports H.R. 923 introduced by Reps. Moran (R-KS) and 
Pomeroy (D-ND) to clarify that CRP payments are not subject to self-
employment taxes.
H.R. 2290--THE CONSERVATION TAX INCENTIVES ACT OF 2001
    One farmland preservation tool embraced by some state and local 
governments and a growing number of private conservation groups are 
voluntary conservation easements. These programs compensate farmers and 
ranchers who are willing to give up the right to develop or to sell 
their property for development.
    The value of a conservation easement is typically the difference 
between the development and agricultural value of a piece of property. 
Because farmers and ranchers tend to reinvest their earnings in their 
businesses, they consider their land to be their retirement savings. 
Few are willing to give up the right to develop, and thereby lessen the 
value of their land, without compensation.
    Programs that purchase conservation easements from farmers overcome 
this issue and successfully protect farmland from development. But 
because income from the sale of conservation easements triggers capital 
gains taxes, farmland preservation programs are not as successful as 
they could be.
    Efforts have been made to exclude 50 percent of the gain on sales 
of land or easements made for conservation purposes from taxation. This 
tax code change will encourage more landowners to designate land for 
conservation purposes because capital gains taxes will be lower than if 
the property were sold for development. The change will also encourage 
and assist farmers and ranchers who wish to voluntarily preserve land 
as habitat for endangered or threatened plants and animals. Rewarding 
landowners who choose to protect habitat is a much better approach than 
mandatory programs that restrict the use of land without compensating 
land owners.
    Farm Bureau supports H.R. 2290 introduced by Reps. Portman (R-OH) 
and Matsui (D-CA) to exclude 50 percent of gain from the sale of land 
from gross income to an entity intending to put the land in a 
conservation use.
                               __________
        Statement of the Montana Land Reliance, Helena, Montana
    Mr. Chairman:
    The Montana Land Reliance commends you for calling this hearing to 
examine Federal tax policy governing land conservation and 
preservation. The Montana Land Reliance was founded in l978 as a 
private, non profit land trust that utilizes conservation easements to 
protect Montana's private lands from unbridled development. The 
Reliance has protected over 466,000 acres of land in Montana including 
850 miles of stream and river frontage.
    The primary focus of the Montana Land Reliance is the voluntary, 
private donation of conservation easements on sensitive agriculture and 
ranchland. Private land conservation is less expensive than public land 
conservation in that it involves the donation of an interest in 
property rather than the purchase of the property or its development 
rights. In some situations involving land with unusual beauty or 
fragility, land purchases by government or private conservation 
organizations can be more appropriate. All of these methods have their 
place and contribute to the overall goals of preserving unique lands. 
However, our comments today relate to some needed revisions to Internal 
Revenue Code sec. 170(h) to remove severe restraints on the ability of 
farming and ranching families with modest levels of income to donate 
the development rights on their land.
    Rural communities across the United States are experiencing an 
accelerating demise of open space. This problem is visually apparent to 
anyone who remembers the open spaces of the American landscape of only 
a few years ago and is now confronted with views of tract housing and 
new construction on what were formerly working ranches and farms. This 
disappearing open space is occurring not only in the perimeters of our 
major metropolitan cities and suburbs, but also in the more sparsely 
populated areas of the intermountain west.
    Changes in land use patterns have always occurred in America--they 
will continue--and they do not necessarily need to be feared or blindly 
prevented. What the Montana Land Reliance is increasingly concerned 
about is lack of balance in the incentives that we have at the Federal 
level in our tax policies that govern private and public land 
conservation efforts. This imbalance is encouraging the development of 
ranches and farms at an accelerating rate.
    Many private landowners wish to keep their farms and ranches in 
their traditional uses. Development is not their preference. However, 
if the property is scenic or sensitive, the owners will come under 
intense financial pressures to sell for development. For these working 
landowners and their families, we must make certain that the available 
incentives that are provided for private land conservation treat their 
situation equitably.
    We currently have a deduction in the Federal Tax Code (sec. 170(b)) 
that is designed to encourage the donation of conservation easements on 
sensitive lands and open spaces. These incentives tend to work well for 
individuals with high levels of adjusted gross income because the value 
of the donated easement is typically large and can be used to offset 
ordinary income from sources unrelated to the land itself. These 
provisions are responsible for a large portion of the private land 
conservation that has occurred in America today. The provisions work 
well as far as they currently go, but they do not adequately address 
the situation faced by a working farm or ranching family with a more 
modest level of income. For these landowners--who are often struggling 
to make a living on a ranch or tract of land that has enormous value 
for alternative uses--the restrictions on the availability of the 
deductions for conservation easements offer little practical economic 
incentive to counter the offers received from a developer. A landowner 
in this financial posture who places an easement on his or her ranch or 
farm will be left with little current tax relief and an immense 
unusable tax deduction. The solution to this dilemma (absent an 
outright subdivision and sale for development), is a sale of the family 
property to a high net worth individual who can use the deduction and 
the possible leaseback of ones' former property for ongoing farming or 
ranching purposes.
    The Montana Land Reliance deals with these real life situations 
every day. Often, the only solution we have to recommend is the paring 
of a ranch family with a high net worth individual, the ``so called'' 
conservation minded buyer. The situation of the conservation minded, 
working ranch family of modest means has led us to recommend changes in 
our tax laws that would give these landowners a more liberalized tax 
deduction so that they, like their wealthier counterparts, have an 
equivalent economic incentive to undertake private land conservation, 
if they are so inclined.
    In the the last session of Congress, Congressman Hefley introduced 
H.R. 2279, The Rural Heritage Conservation Act, a measure designed to 
rebalance the tax code so that everyone with sensitive land who is 
conservation minded has a like incentive. The Senate counterpart to 
H.R. 2279 is S. 701, introduced by Senator Baucus of Montana, Chairman 
of the Finance Committee.
    The operative change in the tax code made by both bills would allow 
a working farmer or rancher, defined as someone who derives over 50 
percent of their income from farming and ranching, to deduct the value 
of a donated easement against 100 percent of their taxable income. This 
liberalized deduction is targeted to the category of individuals that 
are land rich and cash poor, and is designed in such a way as to avoid 
abuse. The fact that the average income of a farming family in the 
United States is just over $32,000 means that any revenue loss 
associated with this expanded deduction is likely to be very modest.
    The Montana Land Reliance appreciates the opportunity to present 
our views before the Committee today, and hopes that the Subcommittee 
will recommend the approval of the substance of H.R. 2279 in any markup 
that may be undertaken by the Ways and Means Committee on this subject. 
We do not have the luxury of postponing action at a time when the 
remaining open spaces in America are being developed at an alarming 
rate. Private land trusts respect the property rights of property 
owners to choose whether to preserve traditional uses or develop 
property for new uses. We are only asking that the network of existing 
tax incentives be reexamined so that they work better for all those 
taxpayers who wish to preserve their property. Attached is a list of 
land trusts in the United States who support this goal.

                                 

    Chairman MCCRERY. The hearing is adjourned.
    [Whereupon, at 4:06 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
     Statement of Ralph Grossi, President, American Farmland Trust
    Mr. Chairman, Mr. McNulty, and Members of the Subcommittee:
    American Farmland Trust (AFT) appreciates this opportunity to 
provide your Subcommittee with its views on how to develop new tax 
incentives to encourage the conservation of open space and farmland. I 
am the President of AFT, and also a third-generation cattle rancher and 
grain producer in California.
    American Farmland Trust is a national, nonprofit organization with 
50,000 members working to stop the loss of productive farmland and to 
promote farming practices that lead to a healthy environment. I make 
this statement on behalf of AFT's members and the vast majority of 
farmers who care deeply about resource stewardship.
    For the past century land conservation in our country has largely 
focused on the acquisition of land for parks, wildlife refuges, forests 
and recreation areas. These efforts have protected over 89 million 
acres of parks, 80 million acres in national wildlife refuges and over 
190 million acres in national forests. Although this is a tremendous 
accomplishment, our country is not addressing what many believe to be 
the conservation challenge of the 21st century--ensuring that the 
natural, economic, and aesthetic resources provided by private lands 
are not consumed by the ongoing rush of development.
    The traditional approach to preserving our private working 
landscapes has been to regulate their use without providing 
compensation to the property owner. AFT believes that regulation alone 
is not the answer. To encourage responsible private land stewardship, 
we need to expand funding for the acquisition of voluntary conservation 
easements, reduce tax disincentives discouraging the sale of 
conservation easements, and expand tax incentives for the donation of 
conservation easements.
    On the funding side, Congress has recently taken dramatic action to 
increase resources for the acquisition of voluntary conservation 
easements by including a significant increase in the funding for the 
Federal Farmland Protection Program in the farm bill. Nearly $1 billion 
will be made available to match funding provided by state and local 
governments for the acquisition of agricultural conservation easements. 
Perversely, however, a significant disincentive to the very 
conservation sales that this bill seeks to encourage will remain in 
place in the Federal Tax Code. Many of those sales will trigger 
significant capital gains tax liability for landowners with appreciated 
real estate.

    H.R. 2290, sponsored by Rep. Portman, would help address this 
problem. It would exclude 50 percent of the gain realized from sales of 
land or interests in land to qualified conservation entities for 
conservation purposes, including the protection of open space for 
agriculture. AFT supports this bill. It will further leverage state and 
local funding for the protection of productive private agricultural 
land.
    The existing tax incentives that encourage private land 
conservation through donated conservation easements include the 
deduction for qualified conservation contributions under IRC 
Sec. 170(h) and the partial exclusion from estate tax for land 
protected by a conservation easement under IRC Sec. 2031(c). While 
these incentives have been instrumental in promoting private land 
conservation, many farmers and ranchers do not have the income to take 
full advantage of them. The income tax deduction available for an 
individual donating land or a conservation easement is limited to 30 
percent of adjusted gross income (AGI), and unused amounts can be 
carried over for up to five years after the date of the donation.

    H.R. 1309, introduced by Rep. Johnson, would address this problem. 
It would raise the percentage limit for conservation gifts to 50 
percent of AGI and eliminate the carryover limitation. It will make it 
possible for many more ``land rich, cash poor'' farmers and ranchers to 
take advantage of the tax benefits available for conservation easement 
donations. Indeed, H.R. 2279, introduced by Rep. Hefley, would go even 
further and raise the percentage limit to 100 percent of AGI for 15 
years for taxpayers whose income is derived primarily from farming and 
ranching. AFT supports both these bills.
    AFT also supports the following pending tax bills:

         H.R. 882, introduced by Rep. Isakson, which would 
        provide $4 billion annually in tax credits to donors to 
        nonprofit conservation organizations. This is the boldest 
        conservation proposal that has come before Congress since the 
        creation of the Land and Water Conservation Fund a generation 
        ago.
         H.R. 1711, introduced by Rep. Dunn, which would give 
        tax-exempt status to bonds issued to acquire renewable 
        resources on lands subject to conservation easements. While we 
        expect tax-exempt bond financing to be most useful in the 
        preservation of forest properties, it has the potential to be 
        used for the preservation of agricultural lands as well.

    Over a million acres of privately owned farmland are lost to 
development each year. However much it may trouble them, this is a 
result of economic forces beyond the control of most ordinary 
Americans. But unlike most Americans, as Members of this Subcommittee 
you have it within your power to actually do something to stem this 
tide of farmland loss. And not only do you have that power, you also 
have a number of thoughtful pieces of legislation before you suggesting 
effective ways to use that power. So we urge you to act now to create 
additional tax incentives for the protection of farm and ranch land. 
Your children will thank you for it.
    Thank you for the opportunity to submit this statement.

                                 

 Statement of Lee R. Epstein, Director, Lands Program, Chesapeake Bay 
                 Foundation, Inc., Annapolis, Maryland
    Thank you for the opportunity to provide our views on this 
important matter. The Chesapeake Bay Foundation (CBF) is the largest 
non-profit conservation organization dedicated to the restoration of 
the Chesapeake Bay. With 100,000 members in virtually all the states of 
the Union, and programs in environmental education, environmental 
protection, and restoration, CBF is vitally interested in promoting 
land conservation throughout our 64,000 square mile watershed.
    We wholeheartedly agree with Chairman McCrery that sprawling 
urbanization, outpacing mere population growth in some places and 
occurring even with population decline in others, is threatening to 
overcome the nation's best resource lands. In our six-state watershed, 
the environmental impacts of uncontrolled growth threaten to overcome 
many of the gains that have been made cleaning up other sources of 
pollution. Communities and individuals do face great challenges in 
protecting and preserving their invaluable open spaces, and the Federal 
Government does have a role to play in helping communities realize such 
important objectives.
    It seems only fitting, given the role that the Federal Tax Code 
plays in actually creating some incentives for urban sprawl--from 
accelerated depreciation, to five-year amortization, to the 
deductibility of ``passive'' real estate losses--for that same code to 
better encourage and promote active land conservation. There are 
already some land conservation incentives embedded in the Code. Land 
conservation receives some favorable treatment, for example, with 
respect to the deductibility of conservation easement and fee 
donations.
    We would propose that other approaches or extensions of these ideas 
be explored. Enhancing the tax deductibility of a conservation 
easement, up to a significant percentage of adjusted gross income, and 
allowing a carryover into (unlimited) future years, is one idea with 
merit. For farmers, an even higher amount of deductibility might be 
appropriate.
    Another idea would be to reduce the capital gains on sales of land 
or easements to conservation entities. A third idea worthy of some 
examination might be to create a tax credit or partial tax credit, 
similar to that utilized for rehabilitating qualifying historic 
properties, for example, that would apply toward conservation 
transactions. Tax credits have the advantage of being able to be 
bundled together and sold to investors, so that REIT-like syndicates or 
other partnerships could actually be formed around solid land 
conservation objectives. A Federal tax credit could be matched with 
State tax credit programs to generate an even larger conservation 
impact.
    In any case, we commend to you these various ideas for further 
study and exploration, and pledge our assistance should the 
Subcommittee deem that of some value. Thank you for the opportunity to 
provide our views.

                                 
Statement of Alan Front, Senior Vice President, Federal Affairs, Trust 
               for Public Land, San Francisco, California
    The Trust for Public Land (TPL) is a national nonprofit land 
conservation organization founded to protect land for public enjoyment. 
TPL helps citizens and government agencies identify and conserve lands 
in need of protection. We support H.R. 2290, H.R. 1309, and H.R. 1711 
as measures that provide market-based incentives for land conservation, 
thus meeting the needs of landowners as well as the public good. TPL 
often works with landowners who feel pressured to sell their land for 
development, but who would nonetheless like to see the land preserved 
in its natural state or as a working farm or ranch. These landowners 
are frequently ``land rich but cash poor,'' and the land conservation 
tax incentives legislation being considered by the Subcommittee on 
Select Revenue Measures will better enable them to make the choice to 
conserve land.
    H.R. 2290, introduced by Congressman Rob Portman, would exclude 
from gross income 50% of the gain on sales of land or interests in land 
or water when sold for conservation purposes. This legislation is 
especially important for landowners of modest means, who need to sell 
rather than donate the land. In TPL's experience, there have been cases 
where significant parcels of land have been lost to development because 
of the obstacle posed by the tax burden faced by the landowner.
    In one such case a few years ago, the Oconee National Forest was 
very interested in acquiring a tract along the Ocmulgee River in 
Georgia. The property was an 800-acre forest with river frontage. There 
were numerous ownership interests due to the land being passed down to 
heirs after death. All but one interest agreed to sell. The owner of 
that interest was an 80-year-old uncle, who would have been a willing 
seller but for capital gains tax considerations. While the entire 
family wanted to arrange a conservation transaction for their property, 
the uncle and TPL ultimately recognized that there was no way, given 
capital gains consequences, to structure a sales to meet his needs. A 
50% reduction in the capital gains tax might have been enough to 
encourage the uncle to sell to protect the land, but when he died two 
years later, development pressures were such that The Trust for Public 
Land could not compete with developers for the property. The Oconee 
National Forest was unable to acquire this high-priority land, which 
will now be developed.
    Ever-increasing amounts of land are consumed by the sprawl 
emanating from metropolitan areas. We believe that land conservation is 
a public value that should be promoted through tax policy as well as 
direct public expenditures. H.R. 2290 would permit government agencies 
and nonprofit land conservation organizations to compete for land 
threatened by sprawl development. State programs like Florida Forever 
and Great Outdoors Colorado would find their limited dollars going even 
farther in purchasing land for open space.
    For those landowners who are able to donate land or an easement for 
conservation purposes, there is an income-based inequity in the tax 
benefits received for such a donation. H.R. 1309, introduced by 
Congresswoman Nancy Johnson, addresses this problem. Under current law, 
a taxpayer with a $300,000 adjusted gross income (AGI) could deduct 
over six years the entire value of a donated $500,000 conservation 
easement. A taxpayer with an AGI of $50,000 would only be able to 
deduct $90,000 over six years for donating a $500,000 easement. 
Enactment of H.R. 1309 would mean that these two taxpayers with 
disparate incomes would both be able to deduct the full value of the 
easement. H.R. 1309 would permit the deduction of up to 50% of the 
taxpayers AGI with unlimited carryover. This legislation will provide 
the necessary incentive and reward for the generous donation of 
easements by taxpayers of all income levels.
    The Trust for Public Land is also on record supporting H.R. 1711, 
introduced by Congresswoman Jennifer Dunn, which would enable 
communities to issue tax-exempt revenue bonds on behalf of private 
nonprofit organizations to purchase, or lease long-term, land for 
conservation purposes. The revenue to service these bonds would be 
provided by permitting the harvesting of resources, such as timber, 
crops, and water rights. This legislation provides an additional tool 
for conservation of working landscapes. TPL has worked with timber 
companies throughout the country to preserve lands from development 
when the companies need to divest some of their acreage for economic 
reasons. H.R. 1711 will further the goal of cooperating with industry 
to promote the preservation of open space.
    As Congress considers further changes to the tax code in the coming 
weeks and months, I urge the passage of tax incentives for land 
conservation. Enactment of the provisions included in H.R. 2290, H.R. 
1309, and H.R. 1711 will encourage land preservation at a time when 
there is widespread agreement on the necessity of protecting open space 
and natural resources against the encroachment of urban sprawl. I 
commend the Subcommittee on Select Revenue Measures for holding this 
important hearing, and The Trust for Public Land will be happy to work 
with you as you consider these proposals.

                                
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