CORRECTION AND CLARIFICATION: We have made several corrections and clarifications to the following story. Please click to the bottom of the article to read.
Reid Rosenthal also has responded to the article.
SHERIDAN, Montana — On a cloudy, unsettled day in early May, Reid Rosenthal wheels his huge pickup truck along an unpaved backroad in Madison County, northwest of Yellowstone National Park. He passes through patches of sunlight, then patches of drizzle. When he gooses the throttle on the Ford Super Duty one-ton king-cab, the big diesel engine rattles. The stiff suspension hops on every bump.
The landscape sweeps from the Ruby River up to the snowcapped Ruby and Tobacco Root mountain ranges. Touches of green show on the lower ground, where winter's grip has relaxed. The surface water sparkles.
Rosenthal turns onto a paved road that isn't much better than dirt, then off the pavement again. He's leading a tour of five developments that he has helped mastermind, luxury estates carved out of former ranchland. His license plate says RRANCH, and he looks the part of the modern cowboy. A straw cowboy hat hides his bald spot, and he's wearing wire-rimmed sunglasses, tight jeans, and a silver-studded belt. He's 52, and burly from weightlifting.
"I'm proud of what we do," Rosenthal says. He's talking about how these developments fly the banner of conservation. Since the late 1980s, he's worked with investors from Florida, New Jersey, Maine and other places, as they've purchased more than 18,000 acres here. They've assembled choice parcels to form Ruby Oxbow Ranch, Ruby Canyon Ranch, Ruby Canyon Overlook Ranch, Ruby Lake Ranch and Three Creeks Ranch; in each ranch, they make improvements to the land, then sell it off as a few homesites and big ranchettes. And they've made sure that development will be forever limited on about 10,000 acres of the land, by donating conservation easements to a nonprofit land trust.
Rosenthal invested in some of the developments himself and typically serves as ranch manager. He says much of the land was "sadly degraded" by poorly managed cattle grazing in the past, which made it ripe for conservation-minded developers.
He points out faint tracks in the grass, where his workers have closed unnecessary roads; then to miles of fences they've modified to accommodate wildlife, protect the streambanks, and manage grazing; extensive irrigation systems for new hayfields; and new ponds for wildlife and cattle.
He offers his binoculars for spotting dozens of elk, deer and antelope. The wildlife populations have increased dramatically, he says, and so has the production of hay and cattle.
He also points out three substantial, earth-tone, wooden houses, built in the folds of the land. These houses are not "skylined" on ridgetops, the way trophy homes are in less sensitive developments, he says. Instead, the view is mostly preserved.
The conservation easements, he explains, have been an essential component in the investors' "business plans." By donating the easements to the land trust, the investors have likely reaped millions of dollars in tax breaks, along with profits from selling high-priced lots.
Similar weddings of conservation and business plans can be found throughout Madison County. One-fifth of the private land here is protected by conservation easements, a total of about 200,000 acres; the county may lead the West in that regard.
Madison County remains rural, with only about 7,000 residents. But the landowners doing easement deals here include Atlanta-based billionaire Ted Turner; a billionaire Wal-Mart heiress and her husband, the owner of the Denver Nuggets; the CEO of the $100 billion AIM mutual funds; the founder of the $150 billion Oppenheimer mutual funds; the CEO of the Cox Enterprises multinational media empire; the family that built the Arm & Hammer Baking Soda conglomerate; a multimillionaire Silicon Valley entrepreneur; and the owners of several exclusive ski-resort developments.
As in much of the scenic West, land conservation here has become largely a rich man's game. And the conservation easement system serves upscale landowners to such a degree that a growing number of people think it's unfair.
Rosenthal has raised the hackles of other Montanans, in fact, with his easement deals and other actions. "I'm controversial," he says, "because I represent the interests of my partners aggressively. I try to do what's right, and we don't back down ... some people just don't like that. That's tough."
Conservation developers like Rosenthal, and some who are even more aggressive, have drawn attention to a number of flaws in the easement system. Even as easements have become the most popular tool for private-land conservation, keeping millions of acres from becoming dense subdivisions, people have begun to realize that the system is surprisingly loose, and easy to abuse. Congress, conservationists, the Internal Revenue Service, academics and think tanks have jumped on board a movement to reform it.
Proposals for improving the system range from gentle to drastic. But there's a widespread view that since conservation easements became popular 20 years ago, they've been enjoying a Wild West era. A look at Rosenthal's operations shows how the easement system works, for better or worse.
"Don't lose sight of the end goal: conservation of land. And there's an economic equation to that." — Reid Rosenthal
For the whole six-hour ranch tour, Rosenthal keeps himself going on a diet of unfiltered cigarettes, many cups of caffeinated coffee, and handfuls of chocolate drops. He's a high-energy guy.
He moved to Montana in the 1980s, around the time his career as a Colorado developer went down the tubes. In that state, he controlled $75 million in real estate, including shopping malls. But he "lost it all in the collapse of Colorado's oil boom economy" and defaulted on millions in loans, according to the Rocky Mountain News.
His move coincided with the beginning of the conservation-easement rush. Since the mid-1980s, the numbers of easements, acres protected by easements, and land trusts have soared.
But each easement is merely a deal between two parties: the landowner, and either a land trust or a government agency that acquires the easement and monitors the land over time, making sure the terms are carried out.
And every easement is unique, depending on the land's condition, the local ecosystem, the landowner's financial situation, and countless other variables. Landowners can design easements so they can keep on ranching, farming or logging. They can use herbicides and pesticides, sell lots, build houses, or create ski runs, as long as they don't exceed the maximum development set out by the easement agreement. The IRS regulations merely sketch a list of conservation goals. Open space is the easiest goal, which explains why so many easements are dedicated to that.
Landowners doing easements are typically motivated by their concern for the land, but as in any other business deal, they're also interested in the bottom line. They may sell easements to an agency or a land trust, but it's often difficult to find a buyer, because the budgets of land trusts and government agencies don't stretch far. More often, the landowners donate the easement, while still gaining a financial return through tax breaks.
The tax breaks set off the easement rush: "Conservation easements are entirely a creature of the tax code," says Steve Small, a Boston lawyer who wrote the bedrock tax code on easements when he worked for the IRS in the early 1980s. The rules have been merely tuned a bit since then.
The tax breaks are based on the claim that the owner has lowered the value of the land by voluntarily restricting its development. They include a reduction in the inheritance tax when the land passes to heirs, and in some states, a reduction in the annual property tax. Donated easements can also be claimed as charitable contributions on federal income tax returns. To maximize the income tax break, landowners can spread the deduction over six years. According to the IRS formula, the larger their income, the more they benefit.
The tax breaks make it easier for wealthy New Westerners to buy and hold land. "When all the smoke clears, they've bought (the land) for 60 percent of the selling price," says Lane Adamson, project director of the Madison Valley Ranchlands Group, which coordinates local ranchers' conservation efforts.
But easement economics don't work that well for the cash-poor, Old West ranch families struggling to hang onto their land. The inheritance-tax break helps some, but they often don't have enough income to take full advantage of the income tax break. Working ranchers are just "hoping for a year with some black ink, instead of red ink," Adamson says. So they're far less likely to put easements on their land. (Some innovations are aimed at making easements a better deal for ranchers.)
Montana's leading land trust sees the same pattern. Montana Land Reliance has been in business since 1978, specializing in donated easements. It now holds 593 easements covering more than 570,000 acres, and has a reputation for making deals with working ranchers — but only one-third of its easements are with that kind of rancher. The rest are with the wealthy, New West landowners, says Rock Ringling, a managing director for Montana Land Reliance.
And in today's superheated market for ranch real estate, the easements can actually produce additional income for investors. Often "the ranch's value actually increases," Adamson says, because of the uninterrupted views and other conservation amenities. "The larger the ranch, the more it's worth per acre now. It's just a matter of whose checkbook shows up." That means landowners in hot markets can double-dip the system, getting land-sales profits as well as tax breaks.
Rosenthal has learned to use conservation easements to market real estate. For example, a sales pitch on one of his Web sites, seeking a buyer for 320 riverside acres, says, "The very significant tax benefits of a conservation easement are still available (hint, hint)."
Rosenthal declines to discuss his investors' tax breaks. But investors in one of his developments, the 2,250-acre Three Creeks Ranch, went through several phases of subdividing lots with the county planning office. Then they put most of the lots into easements, reaping tax benefits worth more than $1 million, court records indicate. Now, most of that land is for sale as three big ranchettes, for a total asking price of more than $5 million.
When developers go through a subdivision process, then donate easements on the lots, "in some cases, it seems like they're just jacking up the value of their property, in order to turn around and get an income tax benefit, or to pass that benefit on to a future buyer, who might buy 10 lots only planning to build on one," says Madison County Planner Doris Fischer. "Part of the marketing strategy is to tell buyers, 'You can give up development rights on nine lots and get a wonderful tax deduction.' "
Rosenthal cites a different reason for scaling back the Three Creeks subdivision plans. He says a legal battle soured the whole project: A Florida couple who bought two of the lots wound up suing him and the other investors. The couple's lawsuit, which is still pending, contains many arguments about land-management practices. It also alleges that Rosenthal improperly tried to put a conservation easement on the two lots after the sale. Rosenthal says he acted properly, but admits he's having a hard time making that particular easement stick, although easements cover the rest of the Three Creeks land. And it was a costly adjustment: The lawsuit indicates the Three Creeks investors would have gained another $160,000 in tax benefits from putting an easement on those 54 acres.
Still, Rosenthal says, Three Creeks is preserving the landscape. As he drives around, he points to several lower-priced rural subdivisions popping up nearby. The small lots have more concentrated environmental impacts than do his widely spaced building sites, he says. Per acre, there are more fences that carve up habitat, more dogs and cats that prey on small mammals and birds, and more wells that tap groundwater.
"If we hadn't bought Three Creeks," Rosenthal says, "that's what it would look like."
"I've always had an adept feel for the energy of the land, what it's going to take to make it right, to bring it back to signature status. ... I always get labeled a developer. It drives me crazy. I was a developer in another life, I know what a developer is. We are ranch operators and ranch preservationists." — Reid Rosenthal
Rosenthal talks a good game, but it's difficult to weigh all the pros and cons of his conservation easements, or for that matter, of anyone else's.
The basic easement documents, describing which activities are allowed on each piece of land and which are not, are tucked away in the files of the landowners, land trusts, county recorders' offices, and many other government offices.
County and state agencies in Montana have computerized records and mapping, but no one has a complete list or map of all the Montana easements. The state's Natural Resource Information System makes an effort to collect easement information from other government offices and land trusts. But the land trusts report only voluntarily, and the government records are so scattered, "My guess is that we probably have 90 to 95 percent of the (easement) acres, and maybe 75 percent of the number of easements," says Allan Cox, who runs the agency's mapping program.
The same goes in other states. And nationwide, the periodic surveys of land trusts by the Land Trust Alliance, a Washington, D.C.-based umbrella group, are similarly incomplete. The Alliance totals only the acres that the trusts choose to report, and hundreds of trusts don't even respond to its surveys. The federal government doesn't know how many acres of easements its agencies oversee, either.
And the tax breaks are known only by the landowners, their accountants, the IRS, and sometimes, state revenue departments.
The lack of public information, and of strict rules in the system, has created an opportunity for abuse and led to calls for reform. "I've traveled around the country, meeting with land trust people in almost every state, and they are good people who want to do the right thing," says Small, a lawyer who now works on easement deals around the country. "Ninety-five percent of what's been done (with conservation easements) has been from excellent to good, or medium good. Maybe 5 percent has been bad."
Rosenthal probably fits in the "medium good" category. Unlike some landowners who are interested in simply preserving land, he employs easements in conjunction with development. His projects also demonstrate how the looseness in the system serves investors, and how land trusts sometimes have to deal with landowners who may not be popular in their communities.
For this story, Rosenthal provided letters from some traditional ranchers in the area, praising his work as a ranch manager and consultant. "Mr. Rosenthal was very aggressive on our behalf and negotiated superbly (with bankers). He saved us from litigation, bankruptcy, and from losing our ranch which we have owned for over 40 years," says one rancher's letter. Rosenthal's Web sites also have quotes of praise from satisfied clients.
On the other hand, Rosenthal is notorious for getting into battles. He, or his businesses or partners, have been involved in more than 30 lawsuits in Montana courts, mostly over the terms of various business deals. "He uses lawsuits as a business tool," says one opposing lawyer.
In their lawsuit, the couple from Florida who moved into the Three Creeks development complained that Rosenthal was harassing them. County lawmen investigated, and filed a misdemeanor criminal charge — stalking — against Rosenthal. After a trial in a local court, the jury found him not guilty. Then he sued the county government for malicious prosecution; that case is still active.
The biggest complaint about Rosenthal, voiced by numerous Madison County residents as well as county and state officials, is that his developments have shut down traditional public access. The new perimeter fences, locked gates, no-trespassing signs and security guards make it much harder for anglers to reach the Ruby River, they say, and for hunters or anyone else to set foot on the land.
It's a common complaint about wealthy newcomers around the West, and about conservation easements, which typically don't allow for public access. But Rosenthal seems to be in a special league. "He throws his weight around, scares people, he and his hired goons," says Tony Schoonen, a longtime fishing guide who runs the grassroots Public Land/Water Access Association, based in Butte. "He tells his buyers, the water is all private," despite a Montana law that guarantees public access to navigable waters.
In an editorial on one of his Web sites, Rosenthal says some people "despise" him because they have a "provincial notion" that all change is bad. Apparently referring to the disputes over public access, he writes, "Perhaps we could have been a bit less aggressive or assertive. ... Perhaps not."
Rosenthal's determination showed in the course of setting up the Three Creeks easements. First he hired geologist Debbie Hanneman to evaluate whether mining might someday ruin the land. It's a crucial step for "split estate" lands, where the mineral rights are owned by a third party not involved in the easement. This corner of Madison County has been a historical hotspot for mining, and Three Creeks bears scars from old prospecting. Hanneman says she told Rosenthal it's possible that a mining company could someday dig into more than half the Three Creeks land, so no easements could be placed on that portion. "He came unglued," she says.
Then Rosenthal hired another geologist, who found little risk of future mining on Three Creeks. Rosenthal used that report instead for his Three Creeks easements. Hanneman "only did a draft report," and the second geologist took a more thorough look, Rosenthal says. "It was like getting a second doctor's opinion."
And despite Rosenthal's claims about the conservation benefits, his developments are a mixed bag in that regard too. On part of the land he manages, he has restored patches of native sagebrush and encouraged vegetation on riverbanks, by managing the cattle more carefully than did the previous owners.
But in other places, Rosenthal has cleared sagebrush, harming many species of birds, small mammals, and small plants that depend on sagebrush for cover, says Jim DeBoer, a state wildlife agent for the area. And Rosenthal's plantings of alfalfa and crested wheatgrass (an exotic grass), a common practice by local ranchers, really benefit cattle more than wildlife, several experts say.
DeBoer also rejects Rosenthal's claims that his land management has caused antelope, elk and deer populations to increase. The land improvements and water tanks have attracted the animals, but not increased their numbers, DeBoer says: "They've just been redistributed."
Montana Land Reliance has worked with Rosenthal on nine easement deals, totaling about 10,000 acres, but it did so reluctantly, says managing director Ringling. Ringling believes that new mining on the Three Creeks easements is unlikely, and that overall, the public benefits outweighed the drawbacks on all the easements. If no land trust had accepted the easements, any future owner of the land could "slam houses along the riverbanks," Ringling says. "From our standpoint, did we get long-term land conservation? Yes." But Ringling adds, "Reid is a royal pain in the ass to deal with."
Hanneman has been doing minerals reports on easements for about 20 years, and says that since her brush with Rosenthal, she won't work on any more easements for gated developments. "I started running into (people) who wanted to do gated communities, do conservation easements, get their tax benefits, and then just lock it off. I got pretty fed up with that."
"The buyers (who get the few houses in the ranch developments) come from everywhere. A lot of these folks, they're not movie stars, but they've built up wealth over their careers, they have their retirement accounts, and very good equity in their properties in California, Florida, Texas, or wherever. They're looking for a place to spend a portion of their time." — Reid Rosenthal
The movement to reform the easements system might affect Rosenthal's operations. His easement deals might have to place more emphasis on conservation goals, make more of the basic information publicly accessible, and possibly even guarantee public access to the land. Rosenthal says he thinks the system needs some tuning, to make it harder for blatant scam artists, but he is leery of drastic reforms that might discourage many beneficial easements in the future.
Rosenthal concludes the tour at his newest development, the Ruby Lake Ranch. The ranch includes three miles of the shore of beautiful Ruby River Reservoir, which is formed by a dam in the river's headwaters. From the shore, Ruby Lake Ranch rises up Garden Creek to a grazing lease for 2,000 acres of federal land, including portions of two wilderness-study areas.
A cultural as well as economic struggle played out here. The Garden Creek Grazing Association, mostly old-time local ranchers who pooled their money, owned this land for many years and used it for summer pasture. A batch of conservation investors bought a 30 percent interest in the association about 14 years ago, and began trying to improve the management, Rosenthal says. The effort turned into another huge lawsuit, pitting the investors against the ranchers who didn't want to accept their advice, and even turning some ranchers against others. Finally, in a settlement in May, the investors won this 5,600-acre portion of the association's total holdings.
"The deed is being delivered today," Rosenthal says.
He points out how this land, too, bears the scars of poor management by the previous owners. Too many dirt roads shoot off in too many directions. Cattle have grazed the grass nearly to bare ground in places. Generations of teenagers have partied beside a pond that's fed by warm springs, and they've left lawn chairs, sleeping bags and trash. ATV ruts go right up the bed of the warm creek.
Already the investors have begun to install their new fences and locked gates. As usual, they plan new pivot irrigation for hay pastures, excavation for new ponds, a lot of seeding and resting of the land. They'll carve out four homesites, instead of the dozens that could be created, Rosenthal says. And they'll donate conservation easements covering most of the land, getting the tax breaks. When they're done, only multimillionaires will be able to buy in.
"A developer could rape it, pave it, and smile all the way to the bank," Rosenthal says. "I'm very much looking forward to this work here. It's going to be good stuff."
Ray Ring is High Country News editor in the field.
The following sidebar articles accompany this feature story:
This story is funded by the generous donors to the "Who Will Take Over the Ranch" project, a series of stories on the plight of the West's private lands.
For advice on how to examine conservation easements in your area, check a page on HCN's Web site, www.hcn.org/easementinfo.jsp
Land Trust Alliance
Washington, D.C., 202-638-4725 or www.lta.org
Lincoln Institute of Land Policy
Cambridge, Mass., 617-661-3016 or www.lincolninst.edu
Sen. Max Baucus
Washington, D.C. office, 202-224-2651
Sen. Charles Grassley
Washington, D.C. office, 202-224-3744
CORRECTIONS AND CLARIFICATIONS
We’d like to make the following corrections and clarifications to Ray Ring’s story on conservation easements, “Write-off on the Range” (HCN, 5/30/05):
First, the story did not intend to imply that Reid Rosenthal has done anything illegal.
We reported that Mr. Rosenthal took Ring on a tour of five of his ranch projects, which total more than 18,000 acres. In fact, Ring didn’t see the smallest project, which runs 500 acres. We also reported that each project has a few homesites. But in fact, the two smallest projects, totaling 1,500 acres, now have only one house each, Mr. Rosenthal says. And in the newest project, Ruby Lake Ranch, the total number of homesites is not yet set.
In the 2,250-acre Three Creeks project, the first conservation easement covered more than 20 tracts, including old patented mining claims, which could have been homesites without going through county subdivision approval. That easement alone, preserving about 600 acres of wildlife habitat, generated more than $1 million in tax benefits for the investors, according to court records. Subsequent easements cover more Three Creeks land, including lots that were subdivided; Mr. Rosenthal declines to discuss any tax benefits generated by those easements.
Also in Three Creeks, we reported that most of the land is now for sale in three parcels, for a total price of more than $5 million. That price actually includes four parcels and a house, according to a brochure presented by Mr. Rosenthal.
We cited a Rocky Mountain News story which stated that Mr. Rosenthal had defaulted on millions in loans in Colorado. Mr. Rosenthal says the loans were actually made to several of his former development firms, which faltered after he resigned as chief executive officer. He says that he got sued over those debts; that his 1996 bankruptcy filing listed $1.9 million in unresolved debts; and that he resolved the issue with the creditors within eight months.
While Mr. Rosenthal, or his businesses or partners, have been involved in more than 30 court actions in Montana, as we reported, he says most stem from “four or five core disputes.”
We reported that Madison County filed a misdemeanor criminal charge — stalking — against Mr. Rosenthal, that a jury found him not guilty, and that he sued the county for malicious prosecution. But in fact, in that misdemeanor case, the Madison County attorney turned the files over to the Montana attorney general’s office, and the attorney general’s office filed two misdemeanor charges — stalking and trespassing — against Mr. Rosenthal in 2003. Some of that case had to do with a dispute over water rights and irrigation practices. The state’s prosecutor eventually dropped the trespassing charge, and took the stalking charge to the jury; the jury then acquitted Mr. Rosenthal.
The county made a different attempt to prosecute Mr. Rosenthal, in 2002, on a misdemeanor charge of violating Ruby Valley Conservation District regulations, and that case was also thrown out. Both those prosecutions led to Mr. Rosenthal’s filing a lawsuit against the county attorney and the state, charging malicious prosecution and defamation. That lawsuit is still active.
We reported that many people say Mr. Rosenthal’s projects have made it harder for the public to access private land and the Ruby River, for hunting and fishing. It should be noted that Mr. Rosenthal put together a plan in 1995 for landowners to provide access for fishing, with strict limits to be set by the landowners. The Montana Department of Fish, Wildlife and Parks rejected it, because the agency did not want to allow the landowners such authority. Mr. Rosenthal has run ads in the weekly Madisonian, publicizing how people can get permission to go on some of the private land.
In a paragraph about the importance of sagebrush habitat, we reported that experts say Mr. Rosenthal’s plantings of alfalfa and crested wheatgrass benefit cattle more than wildlife. Those interviews and studies refer generally to the effects when any landowner converts sagebrush to nonnative plants. Mr. Rosenthal says that he’s cleared only several hundred acres of sagebrush.
We’ve received a lot of questions on one observation in “Write-off on the Range”: We reported that using a conservation easement to limit subdivision on ranch land can appear to increase the land’s value, because wealthy buyers prefer big pieces of land. A clearer way to state it is that such easements often don’t appear to inhibit soaring land prices.
Some experts believe easements can cause an increase in prices. A little-known Internal Revenue Service study in the 1990s, for example, looked at the effect of easements that preserve historic buildings. It found that such buildings often sell for higher prices than buildings that are not protected by easements. It said those easements can “appear to confer some sort of status with the ownership of such property.”