AGRICULTURAL LANDS & WATER - F R COLORADO'S FUTURE - Colorado Food Systems ...
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Updated June 10th, 2021 – Adopted June 24th, 2021
CONSERVING
AGRICULTURAL LANDS
F R COLORADO’S FUTURE
& WATER
PURPOSE
Colorado’s agricultural lands are incredibly and financial sustainability
diverse, including rangelands, croplands (including farm product pricing, input
(irrigated and non-irrigated), pasturelands, costs, market access, etc.), training
and woodlands.1 Agricultural lands of all types programs supporting new and beginning
and water are necessary for most farming and farmers, educational programs facilitating
ranching today and will be essential into the farm transitions/succession, value chain
foreseeable future. Across Colorado, however, infrastructure development initiatives, and
agricultural lands and water are under threat on-farm natural resource conservation
from development, as well as from economic, programs like Environmental Quality
regulatory, and environmental pressures. Incentives Program (EQIP), which invested
Colorado has prepared for many of these $156M on over 3,500 projects across 1.8M
challenges with multiple agricultural land and acres of Colorado from 2014-2017.4 We
water conservation tools, but current tools also acknowledge the essential role that
fall short of addressing the scale of the threat. private land owners play in conserving on-
This Issue Brief outlines threats to Colorado’s farm natural resources and in keeping land
agricultural land, reviews Colorado’s tools for in agriculture. Additional tools are likely
agricultural land protection and conservation, needed to adequately compensate private
identifies limitations to those tools, and landowners for the full public value they
recommends next steps for the State of create and steward, and still more additional
Colorado. This Issue Brief builds on two tools are likely needed to help producers
previous COFSAC Issue Briefs: Preparing for capture the full value of their production
Food Security in an Age of Limited Natural practices and product attributes. We expect
Resources Part I: Water (2015)2 and Preparing future Issue Briefs to explore one or more of
for Food Security in an Age of Limited Natural these in detail.
Resources Part II: Land Use (2015).3
In this Issue Brief, we have excluded a detailed
exploration of several closely related issues,
including strengthening agricultural viability
1|
TABLE OF CONTENTS
PURPOSE....................................................................................................................................................................... 1
TABLE OF CONTENTS ................................................................................................................................................ 2
COLORADO’S AGRIGULTURAL LANDS ARE THREATENED ................................................................................4
CURRENT AGRICULTURAL LAND AND WATER PRESERVATIONS TOOLS IN COLORADO ........................... 7
A. FEDERALLY-LED PROGRAMS......................................................................................................................... 7
FEDERAL PUBLIC LAND GRAZING LEASES AND PERMITS......................................................................... 7
FEDERAL INCENTIVES FOR PRIVATE LANDS ................................................................................................ 8
Agricultural Conservation Easement Program ........................................................................................... 8
Conservation Reserve Program (CRP).......................................................................................................... 9
FEDERAL INCENTIVES FOR KEEPING LAND IN AGRICULTURE THROUGH TRANSITIONS................ 10
USDA FSA Beginning Farmer Loans ............................................................................................................ 10
Federal Estate Taxes....................................................................................................................................... 10
B. STATE-LED PROGRAMS................................................................................................................................. 11
COLORADO LAND BOARD’S AGRICULTURAL LEASES...............................................................................11
STATE INCENTIVES FOR PRIVATE LANDS.....................................................................................................11
Colorado’s Purchase of Agricultural Conservation Easement (PACE) Programs............................... 12
Great Outdoors Colorado............................................................................................................................ 12
Colorado Conservation Easement Tax Credit.......................................................................................... 13
Agricultural Use Property Tax Assessment Rate....................................................................................... 14
STATE INCENTIVES FOR KEEPING LAND IN AGRICULTURE THROUGH TRANSITIONS..................... 15
Colorado Agricultural Development Authority........................................................................................ 15
Colorado’s Beginning Farmer Loan Program and Aggie Bonds............................................................ 16
Beginning Farmer Farm & Equipment Lease Income Tax Deduction Pilot .........................................17
2|
TABLE OF CONTENTS CONTINUED...
C. COUNTY AND MUNICIPAL SUPPORT ........................................................................................................ 18
OPEN SPACE AGRICULTURAL LEASES.......................................................................................................... 18
COUNTY TRANSFER OF DEVELOPMENT RIGHTS PROGRAMS .............................................................. 18
AGRICULTURAL LAND USE PLANNING........................................................................................................ 19
LIMITATIONS OF CURRENT TOOLS....................................................................................................................... 19
A. FINANCIAL LIMITATIONS.............................................................................................................................. 19
B. DATA LIMITATIONS......................................................................................................................................... 21
C. COMPREHENSIVE PLAN LIMITATIONS......................................................................................................22
D. AGRICULTURAL LAND OWNERSHIP AND SUCCESSION LIMITATIONS...............................................22
SUMMARY OF RECOMMENDATIONS ...................................................................................................................23
3|COLORADO’S AGRICULTURAL LANDS ARE
THREATENED KEY THREATS TO AGRICULTURAL LANDS AND
WATER IN COLORADO
COLORADO IS LOSING 15,660 ACRES OF
AGRICULTURAL LAND PER YEAR Colorado is losing 15,660 acres of agricultural
land per year
Colorado currently has 39,534,800 acres of public
and private agricultural lands, of which 62% is The rate & location of agricultural land
rangeland, 20% is cropland, 4% is pastureland, preservation is outpaced by the rate & location
and 9% is woodland.5 Between 2001 and 2016, of is loss
234,900 acres (or, about 15,660 acres per year) were
converted from agricultural uses into residential or The rate of agricultural water preservation is
moderate to high-density commercial/industrial also outpaced by the rate of its loss
use.6 Most of this development is occurring in the Over the last 5 years, public support for
rapidly developing Front Range urban corridor, maintaining land and water in agricultural
which also contains some of the best remaining production has declined
farmland in Colorado. Of the converted farmlands,
48% was considered by the American Farmland Trust Irrigated agricultural land costs 4-6 times more
(AFT) to be Colorado’s best land, which AFT defines than other agricultural land and its value is
as land with high productivity, ability to support increasing 40% faster
production of a wide range of crops, and ability to
adapt to extreme weather.7 Of remaining highly Young and beginning farmers are struggling to
productive farmland, a significant portion resides in find affordable land to start/expand operations
the Eastern Plains region which is facing increasing Farmers, especially young and beginning, are
vulnerability to extreme weather, drought, declining less likely to own their land
groundwater supplies, and development pressure.
One in three Colorado farmers is over 65 and
RATE & LOCATION OF AGRICULTURAL LAND the state’s average farmer age is higher than
CONSERVATION UNABLE TO KEEP UP WITH RATE the national average
AND LOCATION OF LOSS
While voluntary incentive-based easements are
not the sole, nor universally acceptable form Grouse.10 However, GOCO support for agricultural
of conservation, a 2017 analysis based on the land conservation is subject to the priorities of the
Colorado Ownership, Management and Protection GOCO Board, which shift over time. Additionally,
Database (COMaP)8 documented that Colorado had conservation organizations and government entities
roughly 2.5 million acres held under conservation have directly purchased agricultural lands for
easements.9 An estimated 2.1 million of those conservation, which may remove opportunities for
acres have been conserved using state funding future private market transactions. For example,
(approximately $280 million from GOCO and $772 federal ownership of Colorado land increased 1.1%,
million from the Colorado Conservation Easement or 261,700 acres, from 1997 to 2017.11
Tax Credit program since 1995); this land includes
1.5 million acres of crucial habitat, 300,000 acres of Aggregate data on these fee simple ownership
prime farmland, 270,000 acres of elk winter range, efforts is not currently available, but taken
4,100 miles of stream, creek, or river frontage, together, it appears conservation
and private lands critical for the Gunnison Sage- efforts have not kept pace with
4|development pressures. The net loss in agricultural speculation laws and to report recommended
land noted above and the locations of protected changes to the Water Resources Review Committee
lands does not always target regions with the by August 15, 2021.14
highest rates of urban development. For example,
current COMaP data shows limited agricultural land OVER THE LAST 5 YEARS, PUBLIC SUPPORT
conservation activity in the Northern Front Range, FOR MAINTAINING LAND AND WATER IN
which is perhaps the most rapidly developing urban AGRICULTURAL PRODUCTION HAS DECLINED
corridor in Colorado12. In the 2016 public attitudes survey about agriculture
RATE OF AGRICULTURAL WATER CONSERVATION in Colorado, 94.8% of respondents indicated
ALSO UNABLE TO KEEP UP WITH RATE OF LOSS that maintaining land and water in agricultural
production was somewhat or very important.15
Working lands conservation strategies in Colorado However, this level of support was down from the
often require ensuring that agricultural water stays previous 5 years, during which as much as 97.6%
with and on the land; this is essential, as these of respondents indicated the same opinion.16 In
irrigated agricultural lands (1) are often the most 2016, the most prevalent “very important” reasons
productive working farms and ranches and (2) for conservation cited by respondents were “Open
provide critical ecosystems for wildlife, as well as raw Spaces/Wildlife Habitat” (62%) and “Food and Fiber
commodities. Water is essential for these functions. Production” (55%). Again such support for all “very
The Technical Update to the Colorado Water Plan important” reasons for conservation had dropped
projects that approximately 450,000 acres of between 2011 and 2016 - “Heritage” remained the
irrigated agriculture could come out of production lowest reason for supporting conservation across all
between now and 2050 due to various water- categories and dropped the most (41%). Supporting
resource management issues including urbanization, conservation for “Jobs” dropped by 35% and for
groundwater sustainability, and planned ag-to-urban “Food and Fiber Production” dropped by 33%.17
water transfers which traditionally involve separating
land and water rights, also known as “buy and dry”.13 IRRIGATED AGRICULTURAL LAND COSTS 4-6 TIMES
The amount of irrigated agriculture anticipated to MORE THAN OTHER AGRICULTURAL LAND AND IS
come out of production due to water-resource INCREASING IN VALUE 40% FASTER
drivers could substantially increase, depending on: According to the USDA Land Values report, the cost
i) decisions by municipalities to continue pursuing of agricultural land in Colorado ranged from a low
traditional water acquisitions, ii) climate change of $845/acre for pasture land, to $1,370/acre of
impacts that may decrease water supply while non-irrigated cropland, to a high of $5,300/acre of
increasing demands, iii) impediments to water irrigated cropland in 2020.18 Additionally, while the
storage projects, iv) curtailing new supplies of water value of pasture land and non-irrigated cropland
that are currently lost to other states, and v) other has increased by about $11/acre per year over the
factors, such as interstate water requirements. With past five years (1.3% annually), the value of irrigated
these water-resource challenges in mind, policy and cropland has increased about 10 times more (e.g.,
programming recommendations will need to reflect $103/acre per year, or 1.9% annually).19 Colorado
the challenges and opportunities of both agricultural data reflects a similar agricultural land trend that is
land and water conservation. The state has already seen across the Kansas City/Tenth Federal Reserve
begun addressing questions around speculative District service area, which includes Colorado,
water and land purchases; Colorado’s Senate Bill Kansas, Nebraska, Oklahoma, Wyoming, the
20-048 established an Anti-Speculation Law Work northern half of New Mexico, and the western third
Group to explore ways to strengthen current anti- of Missouri).20 Importantly, however, land values vary
5|substantially across regions in Colorado. land values, FARMERS ARE LESS LIKELY TO OWN THEIR LAND,
especially in the Front Range and other pockets like ESPECIALLY YOUNG, BEGINNING, AND DIVERSE
Grand Junction, have exceeded these averages and FARMERS
rates of growth.
Nationally, nearly 40% of U.S. farmland is rented or
YOUNG, BEGINNING, AND EXPANDING FARMERS leased.26 Since 1964, the percentage of leased farm
ARE STRUGGLING TO FIND AFFORDABLE LAND TO land has increased slightly (with a peak in the farm
START/EXPAND OPERATIONS crisis of the 1980s and early 1990s).27 Based on 2014
Tenure, Ownership, and Transition of Agricultural
Of Colorado’s 69,032 producers about 31% (e.g., Land (TOTAL) survey data, young farmers under the
21,157) are beginning farmers and about 8% (e.g., age of 35 are most likely to fully-lease their land
5,427) are under 35.21 A 2017 national survey from (about 26% of operators).28 Non-white farmers
the National Young Farmer Coalition found that: are also substantially less likely to own farmland.
“land access was the number one challenge faced In 2012–2014, across the U.S., white people
by young and beginning farmers and ranchers. owned 98% and operated 94% of all farmland.29
Importantly, in this survey, 39% of respondents who Unfortunately, updated national data have not been
are current farmers cited land access as a significant published since 2014 and Colorado specific data
challenge, with 17% calling it the most significant is not available due to USDA ARMS30 protocols
challenge they face. Both first-generation and intended to protect producers’ privacy. While land
multigenerational farmers cited land access as their ownership can be an important tool for long-term
top challenge.”22 stability, stewardship, and wealth building, it is
Young and beginning farmers and ranchers most important to note that leasing land - particularly
often start and grow their business operations for young and beginning farmers- can enable them
through Direct to Consumer (DTC) marketing like to be more nimble and more quickly pivot their
Community Supported Agriculture (CSAs) and production and/or business models.
farmers markets.23 Research suggests that DTC ONE IN THREE COLORADO FARMERS IS OVER 65
marketing, however, is most effective for farms AND THE STATE’S AVERAGE AGE OF FARMER IS
within 25 miles of their customers24 - a considerably HIGHER THAN THE NATIONAL AVERAGE
shorter distance than previously assumed.25 Given
land prices and development pressures near urban According to Colorado’s state demographer, one in
and other population centers, young and beginning three producers were over 65.31 In the most recent
direct market farmers often face additional barriers data available, the average farmer in Colorado was
to accessing land closer to their markets. 57.6 years old, slightly above the national average
age of the American farmer: 57.5. Importantly,
Additionally, young, beginning, and expanding succession between farm owners appears to be
farmers seeking to expand their operations often happening faster in Colorado than in other states, as
seek larger parcels of land further from population nationally the average age of the American farmer
centers. These lands are also important targets for increased 1.2 years from 2012 to 2017, whereas
conservation in order to support the wide diversity the average age of farmers in Colorado actually
of scales, production attributes, and aspirations of decreased 1.3 years from 2012 to 2017. Regional
current and future farmers and ranchers. Colorado variation on the age of farmers likely exists in
specific information about land access needs for Colorado, but data are not currently available.
young, beginning, and expanding farmers, however,
is not currently available from state, university, or Despite what appears to be an increased frequency
nonprofit partners. in farm succession in Colorado, information about
6|familial and non-familial farm succession/transitions “to represent the fair market value of grazing to
specific to Colorado, including data on prevalence, the livestock owner”.36 Over the past 20 years, the
frequency, geography, cause, and/or “success rates” fee has ranged from $1.35 to $2.11 per animal unit
is not currently available from state, university, or month (AUM), but has been $1.35/AUM from 2019
nonprofit partners. The Colorado Department of through 2021.37 Fees are also shared with state and
Agriculture is, however, currently “gathering data local governments, though Colorado only received
specific to Colorado this year as part of [their] $79,107 from BLM FY2019 leases.38
outreach and education.”32
The NSF39 in 2016 (the most recent data available
CURRENT AGRICULTURAL LAND AND online) supported 633 permittees in Colorado and
WATER PRESERVATION TOOLS IN authorized 809,861 head months (HMs). In 2019
(as most recently documented), the BLM supported
COLORADO 1,278 unique users and authorized 269,564 animal
Agricultural land and water conservation in Colorado unit months (AUMs). The BLM data does suggest
is supported by important programs led by the a slight decline in unique users (-0.54%) and a
federal, state, and local governments. potentially substantial decline in authorized AUMs
(-11.72%) compared to the prior year, but more
A. FEDERALLY-LED PROGRAMS research is needed to explore these trends over
time. To note, animal unit months (AUMs) and head
The federal government primarily supports months (HMs) are treated as equivalent measures for
agricultural land and water conservation through determining fees; these indicators reflect land use
offering grazing leases on public lands, financially by one cow and calf, one horse, five sheep, or five
supporting agricultural conservation easements, goats over one month. Allocations of AUMs/HMs are
providing beginning farmers loan programs, and based on rangeland conditions and can decline due
structuring estate taxes to avoid unintentionally to drought pressure.
forcing the sale and division of agricultural property
to meet estate tax requirements. There are, however, multiple limitations to the
efficacy of federal grazing permits and leases in
FEDERAL PUBLIC LAND GRAZING LEASES AND meeting the state’s agricultural land conservation
PERMITS needs. Federal public land grazing leases and
The total land area of the state of Colorado is over permits are limited to rangelands that support
66 million acres and 36% is owned by the federal animal agriculture and, thus, do not apply to
government.33 Specifically, about 22% of Colorado rangelands for cropping or other mixed production
land is part of the National Forest System and an practices. This limitation exists partially because
additional 13% is administered by the Bureau of Land most public leases prohibit, or substantially limit,
Management.34 See Table 1 for more detail. any on-site infrastructure development (e.g.,
irrigation systems, fixed foundation sheds, etc.).
Both the National Forest System (NFS) and Bureau Public lease termination can also be politically and
of Land Management (BLM) administer agricultural administratively complex, and there can be a lot of
lease programs important to agriculture in Colorado. uncertainty and logistical barriers for farmers and
For example, BLM reports that grazing on its ranchers when moving between consecutive lease
lands created $142M in economic contributions agreements.
and 2,077 jobs in FY 2018.35 Grazing permits and
leases generally cover a 10-year period and are There are concerns that, in general, land
typically renewable. Grazing fees are set annually leases are not conducive to best
practices for long-term agricultural
7|land conservation (i.e. leases may facilitate An agricultural conservation easement (ACE) is an
temporary thinking that can motivate tenants elective, legally recorded deed restriction placed on a
to maximize shorter-term economic benefits property that prohibits practices that would damage
and utilize more ecologically harmful farming or interfere with the agricultural use of the land, such
practices).40 However, federal agricultural land as commercial or residential development45. As the
leases actually stipulate conservation agricultural easement is a restriction on the deed of the property,
practices as part of each lease41. For example, each the easement remains in effect even when the land
10-year grazing lease includes a resource-based changes ownership.46 ACEs can be controversial as
management plan that is developed in accordance they are permanent for both current and subsequent
with a National Environmental Policy Act (NEPA) owners, which can reduce the full market value of
assessment (conducted every 10 years) and that a specific property. However, the lower costs of
establishes lease criteria while taking into account conserved agricultural land can be helpful in keeping
other surrounding land uses. The resource-based the cost of farmland more affordable for young,
management plan is implemented through annual beginning, and expanding farmers.
operating instructions which further dictates
In order to compensate the landowners for selling
amount of use, season of use, management
certain development rights on their land, ACE
practices, etc. along with providing considerations
programs seek to pay landowners based on the
of other species, riparian, invasives, fire, etc. These
difference between the land’s current “highest and
grazing leases are extremely valuable assets that
best use,” which is often residential or commercial
banks loan against. Additional fees, fines, or loss
development, and the value of the land after the ACE
of lease may occur if the lease agreements are not
and the restricted development rights are in place.
followed.
The landowner can sell or donate an easement to the
FEDERAL INCENTIVES FOR PRIVATE LANDS easement holder, or a combination of the two (e.g., a
“bargain sale”).47
The federal government also seeks to support
private landowners in conserving the quality, Agricultural conservation easements aim to ensure
viability, and use of agricultural lands. Two land is primarily devoted to active, agricultural
important tools used in Colorado are the Federal production and is not subject to development
Agricultural Conservation Easement Program pressures.48 ACEs are also specifically written to
(ACEP) and the Federal Conservation Reserve allow agriculture uses and farm structures, but to
Program (CRP). limit other types of on-site construction and physical
development.
Agricultural Conservation Easement Program
Ironically, the more valuable agricultural production
The Agricultural Conservation Easement is on a parcel, the lower the potential conservation
Program - Agricultural Land Easement (ACEP- easement compensation, ceteris paribus, as
ALE) program is administered by the National agricultural value (value in use) approaches the real
Resources Conservation Service (NRCS) of the U.S. estate (best and highest use) value. This limits the
Department of Agriculture.42 Under the ACEP-ALE, efficacy of ACEs in conserving the highest value
NRCS may contribute up to 50% of the fair market agricultural lands. This issue underscores a core
value of an agricultural conservation easement43 limitation of ACEs as a tool - easement programs
or may contribute up to 75% of the fair market are focused on reducing development, not explicitly
value for easements where grasslands of particular on conserving agriculture. Certainly revenues
ecological importance will be protected.44 from the sale of a conservation easement
may be important for farmers and
8|ranchers as income or as a means to defer capital equal in the application process.57 The Natural
gains taxation. The proceeds may also allow retiring Resources Conservation Services prioritizes land that
farmers/ranchers to fund his/her retirement which already protects agricultural uses and implements
may indirectly benefit the successor(s). But, overall, conservation practices for ACE selection over those
these outcomes are not the primary motivation of lands that don’t already do so.58 Land must also
easement policies and programs and this lack of be large enough and characteristically suitable
alignment leaves gaps that may need to be filled by for commercial agriculture to be considered for
new tools that are specifically focused on conserving selection.
agriculture itself.
Additionally, landowners report discomfort with
While providing immediate liquidity for the the perpetual nature of ACEs, as well as reluctance
landowners, ACEs can be controversial because the for any perceived external management of their
purchase of an ACE can trigger federal and state land.59 Skepticism of government influence and
capital gains taxes, which diminish the immediate unfamiliarity with conservation organizations
cash opportunity. Some landowners, however, also appears to discourage landowners’ ACE
are able to defer capital gains taxes by using the participation.60
proceeds to acquire additional land (using a like-kind
1031 exchange49). Conservation Reserve Program (CRP)
Between 2009 and 2017, approximately 122 parcels The Conservation Reserve Program (CRP) is
of land in Colorado were enrolled in a federal administered by the Farm Service Agency (FSA) of
agricultural conservation easement program.50 the U.S. Department of Agriculture. Under CRP,
Across this time, easement payment facilitated the FSA provides farmers and ranchers with annual
changes in agricultural practices by 32% of rental payments and cost-share assistance, in
participants.51 Such changes included improved exchange for removing environmentally sensitive
irrigation, increased acreage, and adjusted crop lands from agricultural production and planting
mix and rotation.52 Researchers also found that environmentally restorative species. CRP helps to
easement participation was correlated with conserve land and natural resources, but, as it takes
increased crop yields and facilitated the addition land out of production, it does not directly support
of outdoor recreation to agricultural operations.53 food production. Contracts under the Conservation
A press release about a recent study by Colorado Reserve Program are voluntary and last 10-15 years.
State University54 highlighted that “if $88.9 million Primarily, the CRP aims to improve water quality,
in federal ACEP payments (the estimated current prevent soil erosion, and reduce loss of wildlife
need for active conservation projects in Colorado) habitat through incentivizing farmer collaboration.
were secured, this funding would generate up to 20.8 million acres are currently enrolled in the
$195 million in economic activity and create more Conservation Reserve Program and the maximum
than 1,200 jobs in Colorado”.55 The research also acreage that can be enrolled is 25 million. However,
estimated that up to 80% of the resulting economic the CRP acreage enrollment cap will rise to 27
activity would directly benefit rural communities, million acres in 2023.61 Overall, CRP participation
further highlighting the essential role of the state has shrunk substantially to 9.7 million hectares (24
in helping to attract and capture federal dollars to million acres) in 2017 down from its high of 14.9
benefit Colorado communities.56 million hectares (36.8 million acres) in 2007.62
While rangeland, cropland, pastureland, grassland, While CRP may help farmers improve their
and nonindustrial private forest land can be eligible conservation practices and generate sustainable
for ACE programs, not all land is considered revenues on their lands, CRP is not a permanent
9|solution for agricultural land and water conservation. Over the past 4 years in Colorado, USDA FSA
Research on CRP has also found limited effects Beginning Farmers Loans have helped 361 beginning
on rural economies63 and that its payments may farmers acquire farm/range land and assets worth
not adequately capture the program’s ecological more than $95.5M73. See Table 2
benefits.64
There are also some critical limitations to the FSA
FEDERAL INCENTIVES FOR KEEPING LAND IN Beginning Farmer Loan program including limiting
AGRICULTURE THROUGH TRANSITIONS eligibility for who can qualify as a “new farmer” to
those who have not (1) owned a ranch or farm bigger
As noted above, transitions between agricultural land than 30% of the average U.S. farm, according to
owners represent a critical risk to agricultural land the current Census for Agriculture, and (2) have not
conservation in Colorado. The federal government operated a ranch or farm for more than a decade.74
primarily supports agricultural land transitions by (1) Applicants must also be heavily involved in the
underwriting Beginning Farmer Loans to help new operation.75 Additionally, loan value limits can create
farmers and ranchers access agricultural land and barriers to accessing affordable land when supply
(2) crafting estate tax rules to ensure heirs are not is limited and competition is increasing from well-
unintentionally forced to sell all or part of the family financed, non-tenant investors.
farm to meet inheritance tax obligations.
Federal Estate Taxes
USDA FSA Beginning Farmer Loans
Enacted in 1916, the federal estate tax76 is a tax
The U.S. Department of Agriculture’s (USDA) Farm on property (e.g. stock, real estate, cash, etc.)
Service Agency (FSA) makes and guarantees loans transferred from deceased persons to their heirs.77,78
to beginning farmers.65 Beginning farmer loans aim The tax is applied to the full value of the estate and a
to make it more financially possible for new farmers credit is applied to the tax liability, and it is currently
to start building new farms, especially as such new $11.7 million for individuals and $23.4 million for
farmers are not yet eligible for commercial loans.66 married couples.79 Between 2000 to 2020, the
Beginning farmer loans can be disbursed as a micro highest marginal estate and gift tax dropped from
loan or be specifically intended to facilitate farm 55% to 40%.80
ownership or operation.67 The FSA also provides
down payment loans to help new farmers purchase High exemption levels, estate and succession
a farm and to help transfer farmland from a retiring planning tools, and transfers of asset ownership
farmer to the next generation of farmers.68 before death ensure that the estate tax impacts
less than 1% of estates across the U.S.81 In 2020,
The USDA also extends Farm Ownership Loans to approximately only 0.6% of farm estates were
help farmers (1) expand an existing farm, (2) buy required to file an estate tax return, with only
a new farm, (3) cover closing costs, (4) integrate 0.16% of estates that filed accruing any estate tax
water & soil conservation and protection measures, liabilities.82 From that 0.16%, approximately $130.2
and (5) improve farm structures and build new farm million was collected in federal estate tax liabilities in
buildings.69 In 2020, farmers could access financial 2020.83
assistance through microloans or direct loans of up
to $600,000 (this number is adjusted annually).70 In Over time, the estate tax has been further adjusted
2020, the Farm Service Agency also guaranteed up to minimize its economic burden on farmers and to
to $1,776,000 in farm ownership loans through a encourage the transfer of farms from one generation
commercial lender.71 Farmers have up to 40 years to to the next. For example, provisions
repay for both of these loan options.72 encourage farmers and landowners
10 |to donate easements or other restrictions for estate 1876 to manage lands that the federal government
tax savings.84 Similarly, parts of the Internal Revenue provided to the state in public trust.92 The CLB is the
code allow agricultural real estate to be valued at second largest landowner in Colorado, owning 2.8
farm-use value, rather than its fair-market value. million surface acres.93
There are, however, restrictions and limitations to
valuing agricultural land at farm-use value. Lastly, The CLB owns, manages, sells, and leases publicly-
the estate tax also encourages agricultural land to owned land primarily to raise funds for Colorado
be passed down across generations by omitting farm public schools94 with two focal areas: (1) creating
real-estate value appreciation.85 consistent and satisfactory income over time,
and (2) providing reliable stewardship of the state
Some remain concerned, however, that estate taxes trust property.95 Lease payments have raised $1.7
may unintentionally encourage some farmers to billion since 200896 and the Colorado Land Board
sell their land and may also discourage farmers is entirely self-funded by its own revenue.97 Most
and ranchers from investing in the growth of their of the Land Board’s revenue is disbursed to the
agricultural businesses.86,87 so as to minimize tax Colorado Department of Education’s Building
liabilities and shore up reserves to cover anticipated Excellent Schools Program (BEST)98 though a portion
estate tax expenses.88,89 of its revenue is also invested in the Colorado
Department of Education’s annual operating
Additionally, the Internal Revenue codes that budget.99
pertain to estate and gift taxes may be changed
in the coming months. The Biden administration While not primarily focused on agricultural land
and some Congressional leaders are proposing (1) conservation, the CLB leases 98% of its 2.8 million
discontinuing portability, (2) calculating capital gains acres for agriculture via a combination of grazing,
taxes at the time of asset transfer, (3) lowering the irrigated farming, and dry land crop production
federal estate tax exemption level from $11.7 million leases.100 The Colorado Land Board also leases land
to $3.5 million, and (4) eliminating the step-up in for a variety of other uses, including commercial real
basis on death and the transfer of basis in the case of estate, mining, recreation, agriculture, ecosystem
gifts.90,91 However, it remains unknown when these services, renewable energy, oil and gas, rights-of-
proposals will be signed into law, as well as when way, water, tower sites.101 These multiple types of
they might take effect. leases, combined with the CLB’s prioritization of
revenue creation, sometimes render agricultural
B. STATE-LED PROGRAMS land conservation unrealistic or incompatible with
The state government primarily supports agricultural competing land uses.
land and water conservation through offering Importantly, and unlike federal lands, some
agricultural leases on public lands, financially state agricultural leases allow cropping or other
supporting agricultural conservation easements, mixed production practices, in addition to animal
administering beginning farmers loan programs, agriculture. Additionally, the CLB promotes
and structuring property taxes to reduce recurring conservation practices by explicitly requiring
expenses on agricultural lands. that lessees adhere to “strict land stewardship
COLORADO LAND BOARD’S AGRICULTURAL LEASES guidelines.”
In accordance with the U.S. Congress’ Northwest STATE INCENTIVES FOR PRIVATE LANDS
Ordinance of 1785, the Colorado Land Board (CLB) Similar to the federal government, the
was established by the Colorado Constitution in state also seeks to support private
11 |landowners in conserving the quality, viability and water conservation initiatives through several
and use of agricultural lands through the direct grant programs. CWCB targets funding for land
Purchase of Agricultural Conservation Easement conservation projects with significant water resource
Program (PACE) programs. The state also offers co-benefits such as the conservation of riparian and
the Colorado Conservation Easement Tax Credit wetland areas and protecting irrigated agricultural
program to incentive conservation when the full lands from water resource development. Through
purchase amount of an easement is not available the CWCB Alternative Transfer Method Grant
and seeks to reduce recurring property tax expenses Program, CWCB has also supported the coupling
for agricultural lands through a reduced agricultural of conservation easements with temporary water
assessment rate. leasing arrangements that keep water in agriculture
while also allowing water to be leased or shared for
Colorado’s Purchase of Agricultural Conservation other uses.
Easement (PACE) Programs
Colorado is one of 30 states with a Purchase
of Agricultural Conservation Easement (PACE)
Program.102 Nationwide, PACE programs help pay
landowners for keeping their land in agriculture.
PACE programs work by purchasing the
development rights from land owners (which is why
they are sometimes called Purchase of Development
Rights, or PDR, programs) using a tool called an
agricultural conservation easement (ACEs). ACEs are
described in detail above. Colorado has one of the
most successful PACE programs in the nation, with
over 872,167 acres protected as of January 2020103
and state investments in ACEs have conserved
almost 300,000 acres of prime farmland.104 Image 1: Acres of Farmland Protected by State, as of January 2020 -
Source: American Farmland Trust, November 2020105
Colorado’s PACE programs are primarily funded by
Great Outdoors Colorado (described in detail in the
following section), but the Colorado Department of Great Outdoors Colorado
Natural Resources (DNR) and Colorado Parks and Colorado’s Purchase of Agricultural Conservation
Wildlife (CPW) also provide some direct funding Easement (PACE) Program is funded in large part
for the purchase of specific types of ACEs. CPW, by Great Outdoors Colorado. Created through a
for example, manages the statewide Colorado Colorado Constitutional amendment in 1992, the
Wildlife Habitat Program (CWHP), which offers Great Outdoors Colorado (GOCO) Program is a
opportunities for private landowners to voluntarily trust fund (housed in the Treasury of the State of
protect important wildlife habitat, and provide Colorado106) and is completely funded by redirected
wildlife-related recreational access to the public. lottery proceeds107.
CWHP is an incentive-based, voluntary program that The Great Outdoors Colorado Program aims
accomplishes strategic wildlife conservation and to conserve, protect, enhance and manage the
public access goals using conservation easements, state’s park, trail, wildlife, river, and open space
and in some cases, fee title purchases. The Colorado resources108 and, over the past 29 years, has
Water Conservation Board (CWCB), as part of the committed more than $1.3 billion
DNR, also provides financial support for private land to over 5,300 projects in all of
12 |Colorado’s 64 counties.109 Counties, municipalities, on available dollars and the wide range of eligible
Title 32 special districts with parks and recreation grantees, there is significant competition for GOCO
authority, Colorado Parks and Wildlife, and political funds. Additionally, GOCO requires a minimum
subdivisions of the state are eligible to receive 50% match for its easement program, which in
GOCO funds.110 These entities can also obtain effect requires that all other sources of support will
GOCO funding on behalf of foundations, nonprofits consistently match or exceed GOCOs contributions.
that are not land conservation organizations, school GOCO priorities have shifted over time, but more
districts, business owners, private landowners, and research is needed to understand how agricultural
community groups and volunteers.111 land conservation has trended in terms of deal
volume and incremental conserved acres/dollars in
To date, GOCO has helped partners across the state recent years.
protect 1.2 million acres of open space112 and added
66,200 acres to the State Parks system.113 Since Colorado Conservation Easement Tax Credit
2015, GOCO also invested $44.5 million in 11 large-
scale projects that conserved 130,063 acres of land, In addition to the outright purchase of agricultural
which included both working cattle ranches and conservation easements (ACEs), 14 states, including
agricultural lands.114 Colorado, offer tax incentives for conserved land.116
These tax incentives are particularly critical when
PACE programs are not able to pay for the full value
of the ACE as they help landowners recapture the full
value of their land.
In Colorado, the program aiming to financially
incentivize the enrollment of land into conservation
easements is called the Colorado Conservation
Easement Tax Credit.117 First established in 1995,
the Colorado Conservation Easement Tax Credit
program facilitates the enrollment of private lands
into ACEs through the buying and selling of income
tax credit certificates.118 The Conservation Easement
Oversight Commission and the Director of the
Division of Conservation (housed within the Colorado
Department of Regulatory Agencies) verifies the
tax credit certificate applications, ensures the
conservation easement donations meet qualification
Image 2: Acres Conserved by GOCO and the Conservation Easement Tax appraisal requirements, and fulfils the Internal
Credit Program - Source: INVESTING IN COLORADO: Colorado’s Return
on Investments in Conservation Easements: Conservation Easement Tax Revenue Code’s 170(h) stipulations for a qualified
Credit Program and Great Outdoors Colorado115 conservation easement donation.119 Despite such a
rigorous screening system, the Colorado Department
of Revenue may still reject a tax credit claim due to
GOCO is constitutionally required to allocate its tax compliance concerns.120
funds equitably across multiple priorities: wildlife,
local governments, open space, and outdoor Currently, tax credit certificates reimburse
recreation, as well as youth outdoors engagement, landowners for 75% of the first $100,000 of donated
which further reduces the priority of using funds land value and 50% of the remaining donated
for agricultural land conservation. Given limitations value, up to a maximum of $5 million
13 |per conservation easement donation.121 Credits $220 million in back taxes from landowners.129
greater than $1.5 million are disbursed in increments Additionally, confusion about how certain business
of up to $1.5 million per year in future years.122 entities may claim the credit130 and other nuances,
Landowners can sell such tax credit certificates to any led to instances in which Colorado taxpayers
Colorado taxpayer at a discount through a Tax Credit received a federal income tax deduction for a
Connection entity.123 Buyers then use the tax credit conservation easement donation, but were denied
certificate to save money on their own income tax state income tax credit for the same donation.131
liabilities.124 Pending Colorado legislation may shift Lastly, when landowners abandon conservation
some of these program parameters; one such bill is easements, there are limited guidelines related to the
HB21-1233, which has been passed by the legislature outcomes of the state tax credits.132
but awaits Governor Polis’ signature.125
SB20-135 introduced a series of solutions created by
Since its inception, the Colorado Conservation the conservation easement working group convened
Easement Tax Credit program has helped Colorado in accordance with HB19-1264, but was postponed
conserve over 1.2 million acres, including 102,943 indefinitely once the legislature reconvened after
acres for agriculture.126 See Table 3. the COVID-19 outbreak.133 SB21-033, which again
sought to implement the conservation easement
Overall, as shown in Image 3, the value of tax working group’s recommendations, failed to get to
credit investments has far exceeded that of GOCO a vote on the House floor of the Colorado General
investments. Assembly.134
Agricultural Use Property Tax Assessment Rate
Perhaps an often overlooked tool in maintaining
the economic viability of agriculture is reducing
recurring property taxes for agricultural use.
Property taxes and assessment rates are designed
to promote optimal use of land resources and to
equitably distribute the land tax burden across
all property owners.135 Property tax assessments
assume that the property is used in its best and
highest use.136 Property tax revenue funds stay
within its respective county, funding county and
municipal governments, special districts, public
schools, junior colleges.137 No portion of property
Image 3: Colorado’s Investments in Conservation Easements through taxes are diverted to fund state services.138
GOCO and the Conservation Easement Tax Credit Program, 1995-2016 -
Source: INVESTING IN COLORADO: Colorado’s Return on Investments in
Conservation Easements: Conservation Easement Tax Credit Program and Agricultural land has a significantly lower tax burden
Great Outdoors Colorado127 than residential or commercial properties,139 as
both residential and commercial property are valued
However, the Colorado Conservation Easement Tax according to the market.140 Agricultural land is taxed
Credit program has not been without controversy. according to its earning or productive capacity,141
Between 2000 and 2013, calculations of the Colorado and is capitalized at the statutory rate of 13%.142
Conservation Easement Tax Credit were challenged128 The earning capacity of agricultural land is
and led to that state seeking approximately evaluated by multiplying the 10-year
14 |average price of the grazing or commodity rate agricultural land conservation could be similarly
by the yield correlated with the property’s soil unappealing for farmers.154
classification. That figure is then multiplied with
the landlord’s typical crop share to produce the In the past, researchers have characterized various
landlord’s gross income.143 Next, the 10-year state approaches to the income capitalization
average of the landlord’s typical expenses are methods as inconsistent, not transparent,
subtracted from the landlord’s net-income to arrive excessively complex and ad hoc.155 Researchers
at the landlord’s net income.144 This net income also recommend that capitalization computation
is capitalized by the statutory 13% to produce the methods should account for default risk, liquidity
valuation of the land’s actual value.145 Such actual constraints, inflation and maturity risk.156
value is multiplied by the agricultural assessment STATE INCENTIVES FOR KEEPING LAND IN
rate (currently 29%) to obtain the land’s assessed AGRICULTURE THROUGH TRANSITIONS
value.146
The state of Colorado also helps to keep farming
Residential property on agricultural land is assessed economically viable by smoothing the transitions
by its market value and according to a separate, between owners of agricultural land. The state
residential assessment rate.147 Agricultural government primarily supports these agricultural
structures utilized for agricultural production land transitions through a beginning farmer loan
are valued typically according to cost, and the fund administered by the Colorado Agricultural
actual value of the structures is multiplied by the Development Authority (CADA).
statutory 29% assessment rate.148 Agricultural
equipment used primarily to create profit from Colorado Agricultural Development Authority
food production, as well as livestock, supplies, and
agricultural & livestock products, are exempt from The Colorado Agricultural Development Authority
taxation.149 (CADA) was statutorily established in 1981 as
an independent state entity.157 Its creation was
A three-year process is required to determine if also enabled through Title 26 of the U.S. Federal
a plot of land statutorily qualifies as agricultural Statute.158 CADA is governed by seven board
land.150 members: one appointed by the Governor, three
by the Speaker of the House, and three appointed
Agricultural tax assessment rates are designed by the President of the State Senate.159 The
to reduce property tax burden for ranchers Commissioner of Agriculture also serves on the
and farmers, so as to facilitate the economic Board as a non-voting member.160
viability of agriculture.151 Additionally, agricultural
assessment rates are also intended to protect the Currently CADA oversees the state’s beginning
environmental benefits of agriculture and also to farmer loan program (explored in more detail
discourage commercial, residential or industrial below). Historically, CADA also administered the
development of agricultural land.152 states value added development grants161 and a
3-year pilot of the state’s farm lease income tax
While farming produces a number of ecological deduction program (also, explored in more detail
benefits beyond crop commodities (e.g., below), but both of those programs are currently
wildlife habitat, amenity value, etc.), monetarily idle due to a lack of resources.
incorporating these benefits would be difficult
and would raise the assessed value and minimize
the property tax preference placed on agricultural
land.153 Incorporating the economic benefits of
15 |Colorado’s Beginning Farmer Loan Program and
Aggie Bonds
Colorado’s General Assembly established the
Colorado’s Beginning Farmer Loan Program, Colorado Housing and Finance Authority in
administered by The Colorado Agricultural 1973, to address the shortage of affordable
Development Authority (CADA), is a federal-state housing in the state. In 1982, CHFA’s mission
partnership enabled by the federal Aggie Bond Loan expanded to include loans to businesses.
Program which began in 1980.162 Colorado is one Today, CHFA serves a dual mission, 1) increase
of approximately 16 states that use this tax-exempt, the availability of affordable, decent and
beginning farmer agricultural development bond accessible housing for lower- and moderate-
program.163 income Coloradans, and 2) strengthen
the state’s economy by providing financial
Importantly Aggie Bond programs fall under the assistance to businesses.
broader umbrella of federal Public Activity Bonds
(PABs) and are subject to the federal government’s
tax-exempt Private Activity Bond Cap authorization
With its allocation of PABs, the Colorado Agriculture
for each state each year.164 For example, in 2020,
Development Authority issues tax-exempt bonds
the State of Colorado was authorized $604,667,000
to private investors and then uses bond proceeds
(equal to $105 per resident).165 The state uses
to assist first time ranchers and farmers with the
revenue from the sale of these bonds to support
purchase of equipment, land, and other capital
a range of investments including infrastructure,
expenditures.171 Since these bonds are tax-exempt,
affordable housing and economic development
their interest rates are typically up to 2% below
projects. In addition, Colorado law requires that
commercial farm rate.172
up to 50% of the annual PAB authorization goes
to local authorities—counties and cities—with a Beginning farmer loans created using Aggie Bonds
minimum population of 19,048 residents.166 This are, however, subject to substantial restrictions
population requirement immediately excludes 80% from the federal government, the state authority,
of Colorado’s rural counties as only 11 out of 53 and each specific lender.
rural counties qualified for direct PAB allocation
authorizations in 2020.167 Counties that receive Federal rules, under the guidelines established
PAB authorization allocations have the choice by the Agricultural Bond Improvement Act,173
of: 1) using their bond authorization on qualified approved in 2005, limit the maximum funds each
programs, 2) assigning their authorization to applicant is eligible to receive, indexed to the
another local issuer, 3) assigning their volume cap rate of inflation, which in 2020 established the
to the Colorado Housing and Finance Authority loan ceiling at $552,500. Additionally, the Internal
(CHFA), or 4) doing nothing, at which point the cap Revenue Code (IRC) has established a $62,500 cap
will revert back to the Colorado Department of on the amount allowed for use on used equipment
Local Affairs (DOLA) to be included in the statewide purchases. Federal requirements also stipulate
balance for future allocation.168 At this time, that a “first-time farmer” (and also, a “first-time-
counties are not able to assign their excess volume rancher”) is defined as any individual who has not
cap to CADA.169 at any time had direct or indirect ownership of, and
material participation in, “substantial farmland,”
Per state law, the remaining 50% of the total PAB and who has not received more than $250,000
allocation is further divided, with 48% going to the in tax-exempt financing, including any proposed
Colorado Housing and Finance Authority (CHFA), financing. In this case “substantial farmland” means
and 2% going to the CADA.170 any parcel of land unless: it is smaller than 30%
16 |of the median size of a farm in the county where Colorado’s Beginning Farmer Loan Program
it is located, and the value of the land does not reflects these findings, with 6 loans for $1,040,000
exceed $125,000. Importantly, first time farmers disbursed to beginning farmers and ranchers in
and ranchers can combine funding from Colorado’s 2020176 and 27 loans awarded over the past three
Beginning Farmer Loan Program with the U.S. years (2017 – 2019) for an additional $7.5MM
Department of Agriculture’s (USDA) Aggie Bond dispersed to qualified applicants (an average of
program, operated by the Farm Service Agency. $260,000 per loan). As of December 31, 2020, 390
However, under the current Internal Revenue Code, loans for a total of $62,151,909.34 have been made
section 147(c)(2), first-time farmer bonds cannot to individual borrowers over the full life of the
be aggregated under a single ownership in order to program.177
purchase large blocks of land.
Personal communications with CADA confirmed
State rules, under the Colorado Agricultural that maps of loan locations were not available, nor
Development Authority, further restrict who can was information by county or by producer type.178
receive beginning farmer loan support. However, CADA reported that “the vast majority of
bonds were to assist farmers in eastern Colorado, as
Also, these bonds are dispersed through a three- unfortunately the cost of land along the front range
way transaction between the borrower, lender and in western Colorado often prohibits farmland
and CADA,174 where the lender provides all of purchases by first time farmers.”179
the capital and bears all of the associated risk.175
Accordingly, the beginning farmer loan program Beginning Farmer Farm & Equipment Lease Income
requires that borrowers: (1) independently qualify Tax Deduction Pilot
with a lender; (2) be a resident of Colorado; and
(3) actively involved with agricultural production While no longer active, the Colorado Agricultural
on the land they seek to buy. Since the liability for Development Authority (CADA) also administered
this federally insured program rests entirely with Colorado’s Beginning Farmer Farm Lease Income
the lender, banks or others that take part in this Tax Deduction pilot program. Colorado Beginning
program must assess a borrower’s credit history Farmer Tax Deduction was designed to encourage
and ability to meet down payment requirements. private land owners to lease agricultural land and
For new producers entering into farming and other assets to new farmers and ranchers using a
ranching, an income and credit review can create personal and corporate state income tax deduction.
one of many potential barriers to entry. As established by HB16-1194,180 taxpayers that
rented an agricultural asset (e.g. livestock, land,
Overall these restrictions contribute to the crops, farm equipment, grain storage, or irrigation
successes attributed to Aggie Bond programs. equipment) to a beginning farmer or rancher for at
According to a whitepaper published in the Journal least three years qualified for the 20% deduction.181
of Agricultural and Applied Economics (JAAE),
“the proportion of beginning farmers who are full The program was a pilot that provided tax
land owners is 2.5% higher in counties of states deductions beginning in the years after 2017 and
with Aggie Bond programs than in those without, before 2020.182 While more than one deduction
and on average, beginning farmers operated certificate could be offered to a qualified taxpayer,
143.3 more acres in the program counties... .” The the related possible deductions were limited to
authors of the JAAE study further state, “We find no more than $25,000 per taxpayer, per year.183
limited evidence that the program may have led to Additionally, the taxpayer was required to lease
a greater Proportion of Full Land Ownership and to a beginning farmer or rancher who: (1) resided
greater Acres Operated... .” in Colorado; (2) farmed or ranched full-time; (3)
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