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Monday, June 18, 2012

What, exactly, would Charlestown get for its $398,000 Y-Gate “gift?”

IRS rules, national land trust standards and what the Y-Gate documents really say 
By Will Collette

In a week, on June 25, CCA Town Council President Boss Tom Gentz (left) hopes to get two other Councilors to vote with him to pull off one of the worst heists of Charlestown taxpayer funds in recent years. Yep, I’m talking about the Y-Gate Scandal.

On June 25, Boss Gentz will push a resolution authorizing the payment of $398,000 out of Charlestown’s $2 million Open Space/Recreation bond to the Charlestown Land Trust. The Charlestown Land trust will give Charlestown a “Conservation Easement.” 

Then the Charlestown Land Trust will give the Westerly YMCA $600,000 for a busted-out campground on Watchaug Pond that the Y abandoned four years ago. The Charlestown Land Trust will keep the deed. And apparently an extra $165,000 in state and town funds.

In my last article, I asked what ever happened to all the private money the Charlestown Land Trust had promised to raise for the Y-Gate deal. As it stands, not only is there no private Land Trust money in the deal, but the tax dollars for Y-Gate - $398,000 from Charlestown taxpayers and $367,000 from the RI Department of Environmental Management – exceed the sale price of the land by $165,000!

But today, let’s look at the question of exactly what Charlestown taxpayers are supposed to get if our Town Council foolishly gives the Charlestown Land Trust our $398,000.

We get a “Conservation Easement.” According to the national umbrella group for land trusts across the country, The Land Trust Alliance,  “A conservation easement (sometimes also referred to as a conservation restriction) is a voluntary, legal agreement between a landowner and a land trust or government agency that permanently limits uses of the land in order to protect its conservation values. It allows you [the property owner] to continue to own and use your land and to sell it or pass it on to heirs.”

Typically, a conservation easement permits a land owner a very substantial tax write-off. Because of the potential for tax fraud (i.e. bogus valuations that boost the size of the write-off), the IRS takes a very keen interest in how the value of easement are set and has set out rules for how to appraise the value of a conservation easement. Click here to see the IRS’s on-line conservation easement audit manual.

Even though Y-Gate is a transaction between two tax-exempt entities (the Land Trust and the Town of Charlestown), IRS regulations on land valuations in conservation easement transactions set out legal standards that still must be followed.

Much of the Charlestown Land Trust’s extensive land portfolio (click here for an earlier article that lists all their holdings) came to them through conservation easements that allowed donors to take sizeable tax deductions often while still retaining the ownership and use of their property. I don't have a problem with these transactions, as long as they are done by the rules.

The Charlestown Land Trust probably has more experience than any other group in Charlestown with the mechanics of conservation easement. Indeed, the Charlestown Land Trust pretty much sets the market for conservation easements in Charlestown.

Conservation easements are a big issue for land trusts all across the United States, since, like Charlestown, conservation easements are the way they build their land portfolios. Indeed, the national umbrella organization for the country’s land trusts, the Land Trust Alliance, puts a lot of attention into providing land trusts with guidance on how to do them right. For their “Conservation Donation Rules,” click here

However, there is little evidence that either the Westerly YMCA or Charlestown Land Trust paid any attention to those rules either, or the IRS regulations, when they got their appraisal for the YMCA campground.

Steven Miller, IRS’s Commissioner for Tax-Exempt and Government Entities, testified before the Senate in 2005 on issues with conservation easements. Miller said that when appraising the value of a conservation easement, you look at the existing local market for such easements and you take a realistic look at the fair market value of the property.

IRS Commissioner Miller said:
“The valuation also must take into account the effect of any zoning, conservation
or historic preservation laws that already restrict the property’s potential highest
and best use.”

But that’s not how the Charlestown Land Trust’s appraisal was done. They chose to pretend the land was not zoned "open space/recreational" so they could inflate the price the Westerly YMCA would get out of the deal. Apparently, neither the Land Trust nor the Westerly Y cared that appraisal was bogus - hey, they weren't paying for it - the taxpayers are!.

This is how the Land Trust's appraiser described how he conducted the appraisal:

IRS has strict rules against phony appraisals and looks hard at the valuation of conservation easements when rich individuals use them to reduce their income tax obligations.

Even though none of the parties to the Y-Gate transaction as tax-paying entities, the standards for how to conduct an honest appraisal still apply. The Charlestown Land Trust probably knows the IRS rules very well, since they use this device all the time. Since there is no inflated charitable tax deduction in play in the Y-Gate Scandal, there's little likelihood the IRS will step in and say "wait a minute."

The land price set by the YMCA (originally $735,000, then dropped to $730,000 and now $600,000) was based on a phony appraisal.

That phony appraisal has been used to set the value of the land to secure the $367,000 state grant from DEM and the $398,000 “gift” from Charlestown taxpayers. The state and the town of Charlestown were given a valuation that would have stirred the wrath of the IRS had this involved a private donor.

It is a sobering fact that RIDEM rejected the Land Trust's appraisal and will not release their share of the funding until the Land Trust gets an honest appraisal done. By contrast, Charlestown, under the leadership of Boss Tom Gentz, is ready to hand over $398,000.

Commissioner Miller also said that valuations should be based on the local market for valuations. The Charlestown Land Trust has pretty much cornered the local market for conservation easements in Charlestown. Here’s what the Charlestown Land Trust told IRS about the true value of those easements:

Charlestown Land Trust’s IRS-990 filing for Fiscal Year 2010, page 20. Click here to read the Land Trust's entire IRS-990 filing with IRS.
Look, I'm not making this up. It's the Charlestown Land Trust that has declared to the IRS that conservation easements are worthless, even though it is selling one to Charlestown taxpayers for $398,000 and to state taxpayers for $367.000.

Hope y’all are with me so far. On June 25, Boss Gentz will ask his fellow Town Council members to authorize the purchase of a “conservation easement” from the Charlestown Land Trust. The Land Trust will then take our money and the state’s money to buy an improperly appraised derelict campground from the Westerly YMCA.

The YMCA's new land price is $600,000. The total taxpayer money sought by the Charlestown Land Trust is $765,000. The Charlestown Land Trust stands to make $165,000 in extra tax money after paying the YMCA, and that’s without spending a penny of the $100,000 in private money the Trust promised to raise.

And according to the Charlestown Land Trust, “conservation easements” of the type that they are selling Charlestown taxpayers are worth less than zero.

I’ll bet you’re thinking, “it doesn’t get any worse than this,” but uh-uh, it does get worse.

CLT Treasurer Russ Ricci told the Town Council that Y-Gate is a great deal, not just because we get state matching funds (and by the way, the state also gets a worthless conservation easement, but Charlestown residents will get unlimited access to what the Y-Gate Scandal players describe as one of the only points of access to Watchaug Pond. Of course, that doesn’t count Burlingame Park or the Audubon Kimball wildlife center, but who’s counting. 

And we get unlimited access, according to the Land Trust. Unlike the other properties managed by the Charlestown Land Trust that limit access to appointment-only or pre-arranged guided tour. Only two of the many Charlestown Land Trust properties around Charlestown actually allow dawn-to-dusk access.

But do we really get that promised unlimited access? Let’s look at what the actual language of the Conservation Easement says:

Note: Charlestown is the “Grantee”
 So Russ Ricci is essentially saying, “Who are you gonna believe? Me? Or your lying eyes?”

For a property like the Y Camp, IRS regulations require that “access must be substantial and on a regular basis.” That’s not what the Conservation Easement the Land Trust plans to sell Charlestown taxpayers for $398,000 says. Access "by prearranged appointment" is not the same as access that is "substantial and on a regular basis."

So there you have it, Charlestown campers. For $398,000, you get to buy a conservation easement worth less than zero on a trashed out piece of property you can enter “by prearranged appointment” only. The Charlestown Land Trust’s land appraisal ignored IRS rules and even the rules of its own national organization.

Planning Commissar Ruth Platner will be happy since no price is too high to pay and no rule should stand in the way to acquiring more open space, even when it’s not really open space. Fraud, deception, lies, broken promises. None of that matters, even when all we get is a rural junkyard.

On its face, the three main beneficiaries are the Charlestown Land Trust, the Westerly YMCA and the vacation home owners of the Sonquipaug Association neighboring the campground to the south.

If Y-Gate was happening anywhere else – say Central Falls where I was born or Pawtucket, Providence or Washington, DC where I lived – we’d quickly connect the dots and figure out who is driving this insane Y-Gate Scandal. 

This would be in one of the TV investigative reports as yet another case of public corruption.

Probably one or more people would end up doing a perp walk.

To anyone who has ever spent any time outside of Charlestown, Y-Gate smells like classic plunder and graft, with Boss Gentz in the role of Buddy Cianci and the Land Trust playing 38 Studios.

But this is Charlestown where that sort of thing isn’t supposed to happen. These people are, after all, pillars of Charlestown society, its social elite. Where are the crusaders for "moral, ethical and legal" standards when they are truly needed? Oops, they're part of the deal.