Landing in a Tough Spot
A bequest made Colorado College the owner of 500 acres of rolling land sprinkled with pine and spruce trees in Colorado’s central mountains. As a stipulation of the bequest, the use of the property was limited to school-related retreats and natural area studies. But as the private liberal arts college examined its actual needs for the property, it determined that it had other lands that could be used for similar purposes.
At the same time, the college felt there would be no market for selling the parcel because of its restrictions and worried that if it did sell the property, a purchaser might just ignore the restrictions, thwarting the donor’s charitable intent. Finally, Colorado College was concerned that if it sought to dispose of the property in a manner that did not honor the donor’s charitable intent, there could be public relations issues, both with the general donor community and with the neighbors to the parcel, who had their own expectations that the land would remain largely undeveloped.
Real estate is sometimes referred to as “the gift that keeps on taking.” This is because, as Colorado College found, for colleges and universities, gifted property often ends up having little or no economic value—or worse, having negative economic value. Today most schools are savvy enough to only accept new gifts of land that significantly advance their institution’s priorities, and there are plenty of resources available to assist school representatives in prescreening and structuring any such proposed gifts.
A different situation, however, often applies to gifts that were received in the past, and many, if not most, schools have noncampus lands in their portfolios that were accepted by the school when lower standards prevailed and that are currently of less than optimal value to the school.
In our work, as an attorney specializing in real estate and conservation techniques (Strugar) and president of the Colorado Community College System (Garcia), we’ve found that there are both challenges and benefits as varied as the landscape itself when seeking the right tactic to best address donations of land.
Land conservation tools provide a great opportunity for restructuring existing real estate holdings to maximize their current value to the school, both in terms of generating revenue and meeting the institution’s noneconomic goals regarding environmental sustainability. But first you must understand what limitations you may be up against.
Two kinds of legal restrictions can affect a parcel of land: direct and implied. Direct restrictions are most often found in the real estate document, such as a donation deed or an estate deed, that conveyed the property to the school. A typical restriction might say that the property must be retained by the school and used for general—or perhaps specific—school purposes.
An implied restriction is often referred to as an implied charitable trust. This type of restriction springs from common law, rather than from a statute or transactional document. In a typical case, a restriction like this would arise where a gift of land was made to the school without written restrictions but where the parties understood that it was the donor’s intent that the school’s future ownership and use of the land would be restricted in some manner. This is a much more nebulous concept than a direct restriction, and consequently, it can make a school reluctant to do anything different with a property that may or may not be subject to an implied restriction, for fear that the school will be crossing some unseen line.
All legal restrictions are subject to possible modification. In the case of a direct restriction, the modification typically must be made by a court, which needs to determine, under what is referred to as the “cy-pres doctrine,” that the required use is no longer reasonably possible and that another similar use can be substituted. An implied restriction may also be modified by a court order, but it could also be sufficient to simply obtain an opinion of the state attorney general, or even of a private lawyer, to the effect that the changed use complies with any restriction that might reasonably be implied.
Land conservation tools provide a great opportunity for restructuring existing real estate holdings to maximize their current value to the school.
A final form of restriction is a public relations one: that by changing the use of or selling donated property, the school would be acting in an ungrateful manner that is contrary to what the donor may have expected. This is akin, in our ordinary lives, to being stuck with a gift from a family member who expects to see it used when they come to visit. Moreover, the development officers at a school may be concerned that the disposal of gifted property might discourage other donors from making gifts to the school.
The above kinds of restrictions can conspire to make a school reluctant to think creatively about how to maximize the benefits to the school from donated lands. That is why in so many cases gifted lands are merely carried on the books of the school but not used in a way that fully promotes the school’s current goals.
Land Conservation Approaches
In the last 30 years, there has been an explosion of land conservation transactions in the United States. This has been fueled, in large part, by the tax benefits offered by the federal and state governments. Unfortunately, schools have generally remained on the sidelines of this phenomenon, owing largely to the fact that most schools are government or nonprofit, and thus cannot typically use tax incentives. More recently, however, schools are realizing that they can employ conservation approaches and, in doing so, achieve economic gains while at the same time advancing environmental sustainability goals.
Conservation easement. This is the most important conservation strategy in a school’s toolbox. A conservation easement is a vehicle in which the landowner places an agreed-upon restriction on the future use of the land (e.g., no real estate subdivision/development), and the holder of the easement, typically a land trust or local government, agrees to hold onto and enforce the easement in perpetuity. Pursuant to a conservation easement, the original landowner (the school) continues to own the land and have exclusive possession of it; all that it has done is given up certain potential rights to develop the land in the future.
In a typical case, the donors of a conservation easement would be motivated both by the desire to protect their land and by the economic value of the tax incentives that they receive for the donation (often a large federal tax deduction and perhaps additional state tax benefits). In the case of a school, however, the motivation may more likely come from substituting a conservation easement in place of more vague restrictions on the land. This would then both assure permanent protection of the land and make the land marketable for sale to third parties, who would not buy the land if it were subject to possible academic-related restrictions but would buy it if it were subject to a clear and reasonable conservation easement.
This is the approach Colorado College took. Robert Moore, the school’s chief financial officer, was charged with figuring out what to do with the 500-acre parcel. He said, “I tried to work on it in my spare time, but it wasn’t clear what should be happening with it.” After consultation with Strugar, the college decided to substitute a conservation easement for the restrictions that had been placed by the original bequest. The college worked with a local land trust to draft an appropriate conservation easement.
A conservation easement is a vehicle in which the landowner places an agreed-upon restriction on the future use of land, and the holder of the easement agrees to enforce the easement in perpetuity.
This easement was superior to the prior deed restriction in four major ways. First, it was much more comprehensive and clearer than the prior deed restriction (the conservation easement was a 20-page document, as opposed to a single paragraph that constituted the deed restriction). Second, the new use provided for under the conservation easement (agriculture, as opposed to school-related retreats and studies) would be attractive to a much larger group of potential purchasers of the land. Third, the conservation easement provided for the perpetual stewardship and enforcement of its restrictions, as opposed to the deed restriction, which had no enforcement mechanism. Finally, because conservation easements are now widely used and understood, there was a ready market for selling land subject to a conservation easement, as opposed to a very limited market for selling land subject to a vague deed restriction.
Once the conservation easement was agreed upon and drafted, it was submitted to the probate court that had originally handled the administration of the bequest, and that court authorized the substitution of the conservation easement for the deed restriction. With the parcel now subject to a conservation easement, Colorado College approached the neighboring landowners and inquired whether any of them would be interested in purchasing the property. Happily, one of the adjacent owners immediately purchased the property.
Thus, the college was able to convert a nonproductive asset into funds that could be used for the school’s general purposes and, at the same time, the school was able to put in place a structure that would genuinely protect the land in perpetuity and honor the donor’s original intent. Moore’s takeaway from the project was this: “If you can’t see a beneficial use of the property to the college, find someone who can help restructure it so the asset, or its value, can be put to work for the school.”
The Bread Loaf campus began with a 1915 donation of a large parcel of land bordering a national forest near the college’s main campus.
Conservation easement funded by donation. Most schools have aggressive development programs in place and are constantly looking for ways to maximize their fundraising potential. Conservation projects can offer a way to tap into charitable giving by those who might be particularly motivated to give by land conservation undertakings. Alternatively, conservation-minded donors can be looked to as potential purchasers of school lands. In such transactions, the school can sell lands to conservation buyers, who will then place a conservation easement on the land and benefit from the tax incentives associated with the donation, the value of which they can share with the school.
An example of this is Middlebury College’s Bread Loaf campus in Vermont, which offers the largest English master’s degree program in the United States and is home to the annual Bread Loaf Writers’ Conference. Poet Robert Frost’s writing cabin is adjacent to the Bread Loaf campus, and he was involved in its first 40 years as a neighbor and lecturer.
The campus began with a 1915 donation of a large parcel of land bordering a national forest near the college’s main campus. The land was much revered by the school, and Middlebury wanted to somehow assure that the land would be permanently protected. The school’s trustees, however, could not justify simply placing a conservation easement over the land, which could be viewed as lowering the value of an important asset with no economic return for doing so.
Ron Liebowitz, then president of the college, took the lead in trying to figure out how to protect the land while at the same time assuring for the school the financial integrity of the protection effort. He enlisted Mike Schoenfeld, senior vice president for advancement, and Nan Jenks-Jay, the school’s dean of environmental affairs, plus a host of other partners in the project. They looked at the school’s donor base, with an eye toward finding a donor who could effectively provide an economic return to the school in return for permanently protecting the land.
“Environmental and sustainability initiatives are highly attractive to donors in higher education. We see this time and time again,” says Jenks-Jay. “Environmental giving often attracts a different pool of funds and different set of funders than traditional college advancement,” and these contributions tend to be “gifts that might not otherwise go to a college or university.”
They identified a donor, Middlebury alumnus Louis M. Bacon, who had both a strong interest in the Bread Loaf campus and a passion for land conservation. Through his foundation, Bacon was willing to make a substantial donation that allowed the placement of the conservation easement, as well as providing an endowment for the operating costs of the Bread Loaf campus and for the future enforcement and stewardship of the easement.
“Middlebury College helped shape my values and instill in me a deep appreciation for nature and the environment,” he said in a report issued by the school about the transaction. “I spent many memorable days on or near the Bread Loaf campus, hunting in the fall, cross-country skiing and snowshoeing in the winter, and hiking in the spring. I’m pleased to help ensure that future generations will enjoy these lands as I did, and that the writers and teachers who study at the Bread Loaf campus will always have Robert Frost’s backyard to return to.”
Direct funding. There are now many different sources of funding that directly pay for conservation easements, including various federal, state, and local funding mechanisms. Typically, only those in the conservation community are aware of these funding opportunities and how to access them. By partnering with a member of the conservation community, a school can often access this funding network and receive significant payments in return for permanently protecting appropriate lands.
Additionally, four states (Colorado, Virginia, New Mexico, and Georgia) have easement tax benefits that are transferable. Via these tax credits, a school can essentially obtain the tax incentives available to a tax-paying entity, because it can sell the tax credits that it receives for a conservation easement donation to taxpayers, who can then use those credits to reduce their own tax liabilities.
These tax credits can be of significant value. For example, in Virginia, there is no cap on the size of the credits, and there have been individual credits in amounts exceeding $30 million. Because these credits are transferable, they can be earned by a nonprofit, such as a nonprofit college or public university foundation, and then sold to generate unrestricted funds. Other states have similar incentives, such as direct payment of cash, that are available in return for the granting of conservation easements.
Schools can look at their land resources in a new way, not as "gifts that keep on taking," but as opportunities.
In this type of transaction, the school desires to retain the land and keep using it in the current manner, but to obtain a conservation easement to limit other potential uses, like residential development. There are several schools that are currently working on these types of transactions.
One involves a large ranch that was donated to a state agricultural college and is held by the school’s foundation. The school plans to use the land for agricultural research and related studies and activities. The plan is to place a conservation easement on the property that allows those uses to continue unchanged but prohibits subdivision and development of the land in the future. The transaction is expected to produce transferable tax credits in an amount of several million dollars. So at the end of the day, the school (and the donor) will know that the land is protected in perpetuity, the school will still be free to do exactly what it plans to do with the property, and the school will free up millions of dollars of value that can be used for other school priorities.
Like Middlebury and Colorado College, a great number of higher education institutions could benefit in similar ways. It merely requires that the schools look at their land resources in a new way, not as “gifts that keep on taking,” but as opportunities to achieve environmental sustainability goals and at the same time free up funding for other school priorities.
Some Wild Gifts
While gifts of land are common donations to colleges and universities, some natural resource–oriented contributions have an unusual bent. One donor offered the State University of New York at Binghamton a cranberry bog. Another wanted to give George Washington University in Washington, D.C., a pet cemetery, complete with the graves of the pets of J. Edgar Hoover. These schools turned the offers down. Here’s a look at some other uncommon donations that schools did decide to take on.
Land for dinosaur digs. Nearly 4,700 acres of Wyoming ranchland known for its fossil deposits were given to the University of Pittsburgh in 2005 for its paleontology and archeology departments.
Ranch with Arabian horses. In 1938, cereal magnate W.K. Kellogg made a donation providing 813 acres of land for the California State Polytechnic University at Pomona in return for the university caring for his herd of Arabian horses in perpetuity. Today about 100 horses live on 35 acres of pastureland at the school and perform in monthly horse shows on Sundays, a tradition that Kellogg began more than 90 years ago.
One million–plus insects. Charlie and Lois O’Brien met at Arizona State University more than 60 years ago. In 2017, they donated their collection of more than 1.2 million insects to the university and endowed a professorship. But they’re not the only philanthropists going buggy. In 2011, the University of Newcastle in Callaghan, Australia, received a collection of more than 2,700 insects intended to help students in the university’s natural history illustration program practice drawing from the specimens.
An island. In 2010, a 7-acre island was donated to Mississippi Gulf Coast Community College and is part of the college’s Estuarine Education Center.
A rock collection worth US$1.75 million. The 2016 donation to Colorado School of Mines consists of nearly 800 mineral, gem, and meteorite specimens that are now on display at the school’s geology museum. BARBARA RUBEN
Opening Image Credit: Colorado College
About the author(s)
Mike Strugar established the Conservation Resource Center, a nonprofit organization dedicated to helping communities and governmental entities work through issues involving land conservation. In Colorado, he established the nation’s first exchange for transferring conservation tax credits and began similar programs in other states.
Joe Garcia is the president of the Colorado Community College System, which serves 137,000 students at 13 colleges and 40 locations across Colorado. From 2011 to 2016, he served as the lieutenant governor of Colorado and as the executive director of the Colorado Department of Higher Education. Garcia also served as president of the Western Interstate Commission for Higher Education.
Article appears in:
Breaking Barriers: How advancement professionals are meeting the challenges that face community colleges. Also, a shared identity of connecting alumni through affinity groups, and how alumni advocates are rallying alumni online, at the statehouse, and beyond.