Acquisition of Conservation Easements (ACE) Waiver of Income Determination Method




Request approval to waive a requirement in the ACE ordinance that makes income determination subject to aggregate AGI instead of weighted AGI





Tucker, Foley, Kamptner, Cilimberg, Benish, Goodall



January 14, 2004


ACTION:                                     INFORMATION:




ACTION:      X                           INFORMATION:



“A” - Income Grid for determining purchase price

“B” - Income determination for Henley Forest, Inc.






As per section A.1-110(I) of the ACE ordinance, the Board of Supervisors may waive or extend any requirement or deadline if, for good cause, it is shown that circumstances exist which warrant such action.



Goal: 2.1 – “Protect and/or preserve the County’s rural character”.  Goal: 2.2 – “Protect and/or preserve the County’s natural resources”.



Per the Executive Summary of August 13th, 2003, the Board of Supervisors approved the appraisals of five (5) properties from the ACE applicant pool for FY 2002-03.   One of these appraisals was for the 483 acre Henley Forest, Inc. property, located in the Blue Ridge Mountains 3 miles west of Boonesville.  Based on the ranking evaluation criteria, it is the second highest ranked property in the applicant pool and has tourism value because a portion of the property lies within a mountain “ridge area boundary”.  Before the County can extend the owner an “Invitation to Offer to Sell”, staff must determine the purchase price, which is calculated by multiplying the appraised value by the applicable percentage of appraised value set forth in the income grid on page 9 of the ACE ordinance (see Attachment “A”).  In the case of an “S” corporation, such as Henley Forest, Inc., “the average adjusted gross income shall be based on the aggregate annual adjusted gross income of the shareholders”.


The Henley Forest, Inc. property is held by fifteen (15) different shareholders, all of whom are part of the extended Henley family.  According to accounting rules for “S” corporations, income taxes are paid by the individual shareholders of the corporation rather than by the corporation.  In addition, profits and losses are allocated according to a shareholder’s proportionate share of stock.  Of the fifteen individual shareholders, 58% of the average annual adjusted income is concentrated in two (2) of the shareholders, whose interest in the family corporation is only 3%.  Under the calculation required by the ACE ordinance, which considers only the aggregate income of all shareholders, Henley Forest, Inc. would receive only 4% of appraised value because the aggregate income exceeds $200,001 (by a substantial margin).  In fact, the aggregate income of the two shareholders alone, who control only 3% of the family corporation, exceeds this threshold.


Though the aggregate income approach may be appropriate in other cases of multi-person ownership, it is the opinion of staff and the ACE Committee that this approach unfairly penalizes the Henley family corporation and those shareholders (including seven children) whose average annual income falls within the range necessary to earn 100% of appraised value.  One of the original objectives of the ACE program was to give landowners of modest means a financial incentive for placing their property under easement since current tax laws provide little or no benefit from donating an easement.  Since the corporation’s net profit and taxable income is not based on the shareholder’s aggregate income, staff believes it would be inconsistent to base the determination of (easement) purchase price on the shareholder’s aggregate income.  If the vast majority of shareholders of Henley Forest, Inc. have insufficient income to benefit from a donated easement, the purchase of an easement is the only financial incentive available to these shareholders of modest means.


A more equitable solution would be to use a “weighted average” approach whereby payment is based on a  shareholder’s proportionate share or contribution of income (see Attachment “B”).  The purchase price of the easement would be determined by multiplying the appraised value of the easement ($242,000) by an individual shareholders proportionate share of the corporation.  The resulting value would then be adjusted according to the income grid.  The individual payments for each of the fifteen (15) shareholders would then be added up to produce the total ACE payment.  This approach would follow the accounting standard for “S” corporations and minimize the disproportionate influence of two (2) high income shareholders to a level that more appropriately reflects the relative contributions (in income) of each of the shareholders.  Using the weighted average approach, the net ACE payment would be $237,644 or 98.2% of the total appraised value.  Those with incomes below the minimum threshold would be entitled to the full appraised value while those with incomes above it would be appropriately discounted.


Clearly, the Henley Forest, Inc. property has significant conservation value.  In addition to qualifying for tourism funds (because it has 76 acres and 2,250 feet of ridgeline within the mountain “ridge area boundary”), the property has 11,494 feet of common boundary with the Byrom property (put under an ACE easement in August, 2003) and 5,400 feet of common boundary with the Shenandoah National Park.  Placed side by side, easements on both Henley and Byrom would create a 1,083 acre contiguous block of protected property that runs from Blackwells Hollow Road to the Shenandoah National Park.  Since neither property would permit any future division, this large block of unfragmented forestland would help to preserve the rural character of Albemarle County, conserve and protect biodiversity and wildlife habitats, and provide a permanent wooded buffer to protect the quality of water flowing into the South Fork of the Rivanna River.


Therefore, ACE staff recommends that the Board of Supervisors waive the aggregate income method for determining income for the Henley Forest, Inc. property and allow the determination of AGI and purchase price to be based on the weighted average of the shareholders of the corporation as described above and shown on Attachment ”B”.




Approve staff’s recommendation that the purchase price for the Henley Forest, Inc. ACE easement be $237,644 by applying the weighted income approach, rather than the aggregate income approach set forth in the ACE ordinance.


View Attachment A

View Attachment B

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