Introduction
The Forest Land Trust is a method of managing combined parcels of forestland, thereby increasing their potential as a renewable resource. The Forest Land Trust has significant financial advantages for landowners and the community and enhances the aesthetic and ecological conditions of the land.
The Problem
Up to the present, several factors have discouraged management of privately held forestland, resulting in only a small percentage of privately owned forestland being managed. These factors include:
- Size of holdings: Most holdings are too small for landowners to afford professional forest management (a single professional forester can manage 5,000-10,000 acres intensively.)
- Short term of holdings: The average turnover in private land in the U.S. is 5-10 years. This is too short for long-term efficient forest management.
- High cost of management and low return: During the early years of forest management the cost is high relative to the return.
Private Benefits
The Forest Land Trust addresses these issues in the following ways:
- Management Plan
The Forest Land Trust combines several tracts of land, not necessarily contiguous, under a single management plan. Each Trust would have 2,000-10,000 acres in total making it possible to obtain the economy of scale necessary for efficient management and maximum returns. Forest landowners could participate without giving up rights of ownership.
- Permanent Trust
By placing conservation restrictions on the forested part of his/her property, the landowner ensures that the Trust will be able to develop long term ecologically sound management.
- Income Tax Savings
The Forest Land Trust offers landowners significant income tax savings in the very first year and for several years thereafter. These savings come about in several ways:
- By making a donation of a conservation restriction of the forested land to a qualified tax-deductible organization, landowners may receive a tax deduction for the value of the restriction. The donation may be spread out over a five-year period rather than taken all the first year. The value of such a deduction is generally 50% of the market value but can be much higher.
- Under the Forest Land Trust plan, landowners become partners in a limited partnership for forest management. As partners they can benefit from tax deduction for the depreciation of the original capital investment and expenses in setting up the forest management operation.
- Averaging of income from the entire pool of forest land means a steady yearly income rather than harvests of one year out of ten with resulting high tax in that year.
- Property Tax Savings
The conservation restriction on land permits the landowner to request a reduction of property tax. This is comparable to property tax reductions under Act 61 in the state of Massachusetts and similar laws in other states.
- Timber Revenue Insured
Professional management can increase the value of a landowner’s forest by several times through careful selective thinning and by knowledgeable marketing of timber.
Local Community Benefits
- Ecology
Good forest management and selective cutting opens up the forest to permit greater penetration of sunlight which both enhances the growth of good timber trees as well as the growth of low growing bushes and shrubs on which wildlife feed. Such well-managed forests, as can be seen in Europe but only rarely in the U.S., are a beauty to behold and add value to the entire community.
- Energy and Employment
Initial high cost of selective thinning is offset through selling wood waste as fuelwood. Dead trees and tree tops from harvesting trees can be sold as wood chips by knowledgeable foresters to the growing waste wood energy market. A dependable supply of waste wood for energy and quality lumber can encourage other wood related industries and provide jobs for the community.
How Does it Work?
Step One: Several landowners within a region of 25-30 mile radius donate a perpetual conservation restriction on their forested land (or a portion thereof) to a public or qualified non-profit organization. This procedure is commonly used by conservation organizations to preserve wild land and open space from development. Under the Forest Land Trust plan, timber rights are retained by the landowner in addition to the fee simple title. For income tax purposes the value of the donation is determined by tax assessors. Such donations produce a deduction in the amount of full value up to 30% of adjusted gross income and the balance of the deduction may be carried for up to five succeeding years. This is true for both federal and state income taxes where those apply.
Example: A parcel of land without restrictions is appraised at $50,000. After the development rights have been taken from the land and the land can be used only for open space or timber production, the appraiser values the land at $20,000. This leaves a difference of $30,000 which is the value of the restriction. It is this restriction that is donated to the public or non-profit organization while the landowner retains title to the land.
As the assessed value of the land is now only $20,000, the estate taxes and property taxes on the land would be lowered accordingly.
Step Two: A limited partnership is established by a local Community Land Trust in conjunction with a non-profit conservation organization. These non-profit organizations become the General Partners. The landowners become the Limited Partners. The value of each landowner’s share in the limited partnership is determined by the standing value of the forest at the time it is put into the Trust. The General Partners serve as general manager of the forest partnership and receive a management fee as well as a share of the partnership. Income to the partnership from harvesting of timber, fuelwood, wastewood, or any other source, is divided each year among the partners according to his/her share of the partnership.
Step Three: The General Partners and the Limited Partners will select one or more forester(s) to draw up a forest management plan and begin implementation.
Projections of Income
Based on the assumption of 2,000 acres of mixed hardwood at 4,000 Board Feet (BF) per acre, or a total of 8,000,000 BF and assuming a conservative annual growth rate of 4.5% and a further assumption of increasing stumpage prices of 7.9% (based on the steady upward trend of prices since 1938) these projections of timber sales alone (timber stand improvement could average $10-$15 per acre yearly) should net the following income to the partnership:
Year 1 $127,000 (asset value for standing timber $400,000)
Year 5 $80,200
Year 10 $109,100
Year 15 $145,860 (asset value for standing timber $780,000)
Cost to Landowners
Some of the research and development costs for this program have been advanced by grants from organizations and individuals. Additional funds will be needed initially, however, to cover assessments of the conservation restriction value and standing value of each landowner’s forest holdings, as well as other associated costs in setting up the limited partnerships. These costs will be met by a charge to each landowner which should not exceed $5-$10 per acre.
