Memorandum

To: Long-Term Financial Planning Subcommittee

From: John R Murray

Subject: Easement Discussion – Jim Wyse

June 15, 2010

Dear All,

On Friday 9 April, Austin Godfrey and I met with Jim Wyse, a land use attorney, to discuss the options available for placing open space easements on Lakeshore property as a tax reduction strategy. We were most interested in gaining a better understanding of the likelihood of regaining development rights in the event that the Lake community had a serious financial crisis that would make it important to regain those rights so that the property could be sold at the highest “Best use” value.

I had previously sent a note to Jim summarizing our interests and he a done some preliminary research into the issue. While the meeting was helpful in clarifying things already known by the Long-range Financial Planning Committee, he did introduce us to one issue that at least I was not aware of. Based on our discussion he will do some additional research in the next week or so to help us better understanding the opportunities and risks.

Following is a summary of what was covered in our meeting. In interpreting the following, it is important to know that at this point neither he nor we are aware of precedent either way for the recapture of development rights on property where public funding was not involved.

Easement Holder: Wyse did not feel that going forward the Association is a likely easement holder because of its organizational proximity to Lakeshore, a condition that has only gotten closer recently. The fact that the Association already is a holder is a potentially useful precedent, but the new Township Assessor who will be hired in Harding this summer may not feel bound by that precedent and could insist on an easement holder that is more clearly associated with the conservation goals of the easement.

Opportunity: Other things being equal, there is no reason not to apply with the Association as the easement holder since if the application is rejected, Lakeshore could then apply with a different easement holder, e.g., Harding Land Trust, and that application would almost certainly be approved.

Risk: The application could trigger a review of the current easement agreements and the new Assessor would have the option of unilaterally rescinding those in which case Lakeshore would have to find an acceptable easement holder, e.g. Harding Land Trust.

Recapturing Development Rights: To initiate the process of reversing an easement, both the easement holder and Lakeshore would have to agree to do so to start the process. What was an added starter for me was Jim’s opinion that the dissolution of the easement would require NJ DEP approval. I know from experience that where public funding is involved in an easement or fee simple purchase, approval by a high-level committee state is required, infrequently sought, but approved more often than not. Jim was not aware of any instances where easement reversal not involving public funding was attempted much less deigned. He was not particularly impressed that hardship would have much impact on the chances of getting an approval to rescind an easement.

Opportunity: Depending on the degree of likelihood, the possibility of rescinding an easement has the effect of reducing taxes while allowing Lakeshore to recapture the development value of a property under emergency conditions. The likelihood of recapture, of course, dependent on who is the easement holder and the nature of the DEP review. As cover in a previous memo on this subject the local Assessor would simply note the change and assess a new tax based on the current value.

Risk: If Jim is correct and the DEP would have to approved a rescission, the risk of a permanent loss of development value would go up substantially. Even if that review turns out not to be necessary, a more distant easement holder than the Association, would make it more difficult to have a bilateral agreement to drop the easement. From the local view, if an easement were to be discontinued, the tax recapture would likely be limited to 2 years, similar to a discontinuing a farmland assessment. Whether the state would impose a greater penalty is as unknown as the likelihood that the NJ DEP would allow a rescission.

Woodlot Option: Subsequent to our meeting, Jim researched for us the provisions of the New Jersey Forest Stewardship Act, which was enacted on January 17, 2010, and will become effective on January 6, 2011. While a lot of the Act remains to be implemented through DEP regulation, the main point for us is that landowners who normally could have qualified for farmland assessment through woodland management activities, will now be able to do so without the requirement that they harvest or sell any timber.

Rather, it will suffice that they manage the woodland for preservation and stewardship purposes in accordance with an approved "forest stewardship plan" prepared by a qualified forester. The same 5 acre minimum property size applies and the land must have been devoted to such forest stewardship for two years previous.

It appears that by combining Lots 7 and 27 with the paper roadway that runs between them, we would probably have at least 5 acres. We could also consider including Lot 26. According to Jim, this seems like an appealing option, even though we would have a two year waiting period to qualify. Jim says that if we wish to pursue that option, he strongly recommends that we have a forest stewardship plan prepared as soon as possible and begin following it. He believes that we would also need to file that plan with an application by the August 1 of this year to meet the farmland assessment application deadline. Christmas tree farm anyone?