Saving Land to Pave Land

One of Orange County’s biggest landowners is smoothing the path for bulldozers--and earning millions of dollars plus tax breaks--with a legal tool designed to preserve land from development.

Following a trend growing nationwide, the Rancho Mission Viejo Co. is using the so-called conservation easements to facilitate development as much as to protect land.

Conservation easements--IRS provisions that can give a property owner income tax and inheritance tax breaks in exchange for signing away forever the right to develop the land--have been used for decades by environmental groups, farmers, and others eager to stave off subdivision.

But now housing developers, road builders and timber companies are using the very tool designed to thwart them by setting aside pristine acreage in exchange for cash or inheritance tax benefits--and the right to develop elsewhere.

Despite the seeming contradictions--some land set aside by the Rancho Mission Viejo Co. will end up sandwiched between highways and housing tracts, for example--local environmentalists grudgingly accept them.

“As far as I’m concerned, if the habitat’s protected, I don’t care how we get there,” said activist Pete DeSimone, who helped arrange a reserve of company land in Upper Chiquita Canyon. “We’re going to make the best of a bad situation.”

Rancho Mission Viejo Co., a family-owned company headed by Richard O’Neill, his nephew Anthony Moiso and other relatives, owns the northern part of a vast ranch that once stretched all the way from Oceanside to El Toro.

The company has been paid not to develop several parcels--including a 1,200-acre preserve east of San Clemente, 35 acres of manufactured wetlands a few miles away and 1,182 acres of pristine sage scrub at the edge of the company’s new Ladera Ranch project.

Buyers of the development rights include another developer, two highway builders--Transportation Corridors Agency and Caltrans--and the Saddleback Unified School District. All were required by regulatory agencies to set aside land in exchange for destroying wildlife habitat, so they paid Rancho Mission Viejo to do it for them.

TCA alone paid the company $3 million in 1991 for 32 acres of the 35-acre wetland site to make up for wetland lost in construction of an earlier toll road.

The O’Neill family could benefit not only from the cash proceeds of those sales but from inheritance tax breaks as well. According to the IRS, the worth of the land is reduced by eliminating the development rights, cutting steep estate taxes. They are not entitled to income tax breaks unless they donate development rights.

Company officials insist that while their easements are business deals, not charitable contributions, the arrangements go beyond money.

Richard Broming, a company vice president who helped plan the conservation easements, said for the family: “This is about stewardship of the land. They love it, and they’re involved with it.”

But he also said that without the need for mitigation of environmental damage caused by roads and housing and school developments, his company’s easements would not exist.

The company is one of several around the nation that have found ways to profit from IRS regulations originally designed to help families protect their land from future development by donating the development rights. Now, large family-owned companies are figuring out ways to make money by selling those rights instead.

In Maine, the world’s largest proposed conservation easement would pay the Pingree family timber company $30 million in public money to set aside 755,000 acres from development, but would allow them to keep logging.

Here, the landowners have no interest in trade-offs for development projects. They do not want their north woods developed, ever.

“In terms of the Donald Trumps of the world, we haven’t ever given any of them any encouragement, and we don’t want to,” said Pingree family member and manager Stephen Shley.

But because there are scores of Pingree descendants who all own the land, they also face steep inheritance taxes each time one of them dies. A conservation easement, if properly structured, seems like an ideal solution. They have agreed to sign over the development rights--but not logging rights--if $30 million can be raised by Dec. 31, 2000.

The nonprofit New England Forestry Foundation hopes to raise the $30 million through donations.

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Indeed, public sentiment strongly favors such preservation efforts. In November 1998, 124 successful ballot initiatives across the United States earmarked roughly $5.3 billion for open space, according to the Land Trust Alliance, a national nonprofit organization that tracks preservation efforts.

That included cash not only to buy land, but to pay large landowners to sign away development rights through conservation easements.

“The public has created a market demand for open space, and the developers and other corporations are reacting to that demand,” said Russell Shay, director of public policy for the Land Trust Alliance. He said more timber companies, developers and others showed up at the alliance’s conference this year than ever before, eager to learn about the easements.

But Shay and others warned of potential pitfalls.

Some question the way the Rancho Mission Viejo Co. set aside 1,200 acres east of San Clemente, a preserve run by a nonprofit organization called the Rancho Mission Viejo Land Conservancy. The easement deed declares that the property will be bordered on the east by the future Foothill South toll road and on the south by the new 4,500-home Talega development. Yet another road can be built through the preserve itself to provide more access to the project.

The original would-be developers of the Talega planned community paid Rancho Mission Viejo Co. an undisclosed amount in 1990 to set up the conservation easement as compensation for their planned massive development nearby.

The land is an oasis of nature deep in South Orange County. Cristianitos Creek meanders along a canyon floor. A 500-year-old tree called the “Mother Oak” shades an entire hillside, its trunk so massive that eight Cub Scouts clasping hands can barely hug its girth. Saddleback Mountain’s rumpled twin peaks fill the northern horizon. The only sounds on an October afternoon are hawk, raven and kestrel calls, and the occasional rustle of an animal in the thick grasslands.

Stephen Small, a former government lawyer who wrote IRS laws on conservation easements, called this one “very unusual” because it is tied to public zoning approvals for the housing development next door, and because of the roads.

While stressing that he does not know all the particulars, Small--now a private attorney in Boston--said, “It isn’t clear to me that if the [easement] doesn’t fully protect all the conservation values that it should be called a conservation easement.”

Environmentalists are also concerned.

“If the toll road is built, the land conservancy will be its first road kill,” said Bill Corcoran of the Angeles chapter of the Sierra Club, covering Los Angeles and Orange counties. He said two remaining mountain lions who use the preserve, mule deer, snakes, and other species would all be cut off by the road.

Critics also say runoff from the road will drain into the creek that borders the preserve, home to the Arroyo toad and other unique southwestern animals.

TCA officials point out they had nothing to do with the conservation easement, and say they will build tunnels and sound barriers, and adopt other strict measures to protect wildlife. Critics scoff, and point to the mounting death toll on an earlier road, the Eastern Transportation Corridor.

Conservancy executive director Laura Cohen tries to stay optimistic, seeing the land conservancy as a starting point, not an end.

“I’m hopeful the developers, the community, everyone works together to protect a great deal more,” she said.

Shay of the Land Trust Alliance said the easement provided a good example of the potential weaknesses of corporate conservation arrangements. Rancho Mission Viejo Co., which has been paid millions by TCA for other easements, has the controlling interest on the conservancy’s board of directors, which also comprises city of San Clemente and county government representatives, and a representative of the Talega development. The board has taken no position on the toll road.

If, for example, Rancho Mission Viejo Co. were to violate the easement, “then the conservancy would need to sue its donor,” he said.

Cohen admits she feels torn because she is dependent on Rancho Mission Viejo Co. for funding, and said she is working hard to establish an independent endowment. But she notes the board did OK a letter of concern to TCA about what could happen to the wildlife if the toll road was built.