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March 2003 Continued from page 4 farmland preservation report Nichols offered a motto for sustaining a preservation effort: "It's the rural economy, stupid." Loudoun's purchase of development rights program has approved 15 applications since Feb 2002, consisting of 3,134 acres of farmland and open space, according to program director Michael Kane. The acquisitions include eight working farms and 1,400 acres of prime and secondary soils. The acquisitions commit $8.4 million - all the county funds thus far allocated plus federal grants - for an average of $2,684 per acre. All ease- ments were acquired at 18 - 95 percent below appraised value, Kane said, and 564 development rights were retired. Loudoun had 185,000 acres in farms in the 1997 USDA census, and $26 million in sales of agricultural products, not including equine production or activities, a sector not included in census data. Loudoun's horse - related activities figure high in its rural economy. Loudoun's farmland preservation funds are now spent, and its next purchases are unclear, according to Kane. A hotel tax estimated to generate $1.3 million this year could be a revenue source if so designated, particularly after an air and space museum at Dulles Airport opens next year, an event that could triple annual hotel tax revenues for the county. Like -kind exchange, installments outlined Tom Daniels, professor of planning at the State University of New York (SUNS at Albany paired up with Daniel Patrick O'Connell, presi- dent of Evergreen Capital Advisors Inc. to explain two ways easement sellers can leverage easement funds. Daniels, who formerly directed the Lancaster County, Pa. program, said a landowner's chal- lenges in easement sales include the capital gains tax, concern about appreciation potential of their land, family issues, and a perceived possible loss of a retirement fund. Page 5 "You need to offer landowners as many payment options as possible," Daniels said. One answer is the like -kind exchange, or a 1031 exchange, under Section 1031 of the Internal Revenue code. While in Lancaster, Daniels obtained a private letter ruling from the IRS that confirmed a conservation easement is an interest in real estate "and hence is real estate." As such, an easement is "like- kind" and payment for it can be used to acquire other real estate. If done through an intermediary, the seller can defer capital gains tax. The seller can acquire up to three properties in an exchange. Daniels said some of the deals he helped to arrange involved the purchases of additional farmland, which were in turn preserved, and farmland purchased again with the proceeds. "Farmers can create a retirement income stream, and facilitate farm transfer to the next generation." Landowners must use an intermediary, usually an attorney, to handle a like -kind transac- tion. The landowner has 45 days to identify the property to be purchased, and 180 days to settle on that property. Daniels said he believed that at least 200 like - kind exchanges involving easement proceeds had been transacted, many of those in Pennsylvania. One of the 40 or so attendees at the session said they knew of like -kind exchanges using easement funds that had occurred in California. Daniel Patrick O'Connell described the workings of the securitizable installment pur- chase agreement, an easement purchase tech- nique he first devised for Howard County, Md., which is now in use by a number of localities in the mid- Atlantic. O'Connell said easement sellers most likely to benefit from accepting installment payments as opposed to lump sum payments are those who have thriving operations and are looking to Continued on page 6