Grand Jury to Eye Easements Conservation Plan Has Spawned Questionable Deals

By Jerd Smith

Colorado Attorney General John Suthers is convening a statewide grand jury to investigate improper use of the state’s controversial conservation tax credit program.

The grand jury will be asked to examine several easement transactions and several individuals, Suthers’ spokesman, Nate Strauch, said Wednesday afternoon.

“This is great news,” said Erin Toll, director of the Division of Real Estate, which has led much of the inquiry to date. “The fact that they have it ready for a grand jury is an excellent sign that we’re going to get enforcement. It’s going to provide the synergy we desperately need if we’re going to protect this program.”

Plan aimed at protection

The troubled undertaking, formed in 2000, was designed to protect Colorado’s privately owned scenic lands and working ranches and has won the state national recognition.

Landowners who agree to permanently protect their land from development can claim lucrative income tax credits – which can be sold for cash – in exchange for giving up their development rights.

Under the law as it was until recently, nonprofit organizations and land trusts were solely charged with evaluating the transactions.

But problems began cropping up almost immediately, in part because no state agency ever reviewed the easements or the tax credits to ensure that the land values were valid or that the lands being protected were worthy of inclusion in the program.

This month, Gov. Bill Ritter signed a major reform package design to halt the abuses, including a new commission that will review transactions.

But the problems have forced the state to backtrack, to seek millions of dollars in repayments, and to examine hundreds of questionable deals and the people who may intentionally have misused the program.

Conservation advocates and others hope the grand jury will have enough legal muscle to restore the program’s reputation. It will also give Suthers a graceful way to handle what one legal analyst called a tough political dilemma.

‘Political hot potato’

On June 9, Toll filed an ethics complaint with the Colorado Supreme Court against a prominent tax attorney, Rodney Atherton, who is a partner in the firm Zakhem Atherton. Atherton joined the firm as a partner last year.

Suthers is the top Republican officeholder in the state and Zakhem Atherton represents the Republican Party.

The complaint at the high court stems from Atherton’s work on several conservation easement transactions, according to documents obtained by the Rocky Mountain News.

Atherton has never contributed to any of Suthers’ campaigns directly, according to campaign finance documents. But the law firm has contributed to the state Republican Party and to a political action committee that advances Republican causes, according to the documents.

“This is a political hot potato,” said Craig Silverman, a former deputy district attorney and Denver trial attorney. “There are prominent Republicans being investigated and John Suthers is a prominent Republican. This grand jury insulates him. And it’s a great device to get at the truth.”

Strauch, Suthers’ spokesman, said any concerns about potential conflicts of interest were baseless.

“John Suthers put plenty of people in jail who contributed to his campaigns when he was (El Paso County) district attorney,” Strauch said.

Prosecuting wrongdoing in conservation credits isn’t likely to be easy, several officials said, in part because the law was so broadly written and because no single state agency has had any responsibility for the easements or the nonprofits that must evaluate the deals and protect the land.

$274 million in tax credits

An investigation by the Rocky Mountain News into the easement program earlier this year uncovered dozens of cases in which the law may have been abused, including those where:

* Land values appeared to be grossly inflated using faulty appraisals;

* Lots in pricey, gated subdivisions and on golf courses were put under easement and used to claim tax credits;

* Large land parcels were divided into small parcels and transferred to shell companies, a practice that allowed landowners to create multiple easements and claim multiple tax credits. Under the law, just one credit can be claimed per easement.

The program has generated more than $274 million in tax credits – that’s revenue that did not flow into the state treasury, as it would have without the program. The Department of Revenue, in its review of hundreds of questionable transactions, is already seeking at least $19.2 million in repayments.

Brian Ross, executive director of the Colorado Conservation Trust, said the investigations have put a damper on land protection efforts.

“We’re hopeful these kind of abuses aren’t going to be repeated in the future,” Ross said. “Having said that, Colorado Conservation Trust takes the position that people who have abused the program and broken the law absolutely ought to be prosecuted.”

Originally published by Jerd Smith, Rocky Mountain News.

(c) 2008 Rocky Mountain News. Provided by ProQuest Information and Learning. All rights Reserved.