Oligarch Valley

In this month’s NSFWCORP Print Edition, I tell the twenty-thousand-and-something-word story of my trip through California's Oligarch Valley. While reporting the story I came to understand what it means to be a member of America’s landed gentry, which meant that I also learned about a whole lotta creative schemes that let you skimp out on paying property taxes. I'd like to share some of these tax-slashing tips with you, because I sure as hell am too poor to get any real-life use of them.

The amount of land owned by the wealthiest Americans boggles the mind. Just the top two biggest land owners—John Malone and Ted Turner—own a combined 6,500 square miles, enough space to comfortably accommodate the entire state of Connecticut and most of Rhode Island. The top ten biggest landowners in America control a combined area of roughly 25,000 square miles or, in European measurements, Portugal.

What’s even more breathtaking is how these real estate oligarchs have papered over their vast land holdings with images of environmental protection and selfless conservation, as if their ownership of huge chunks of America is for our own good. They’ve got everyone believing it so firmly, that Americans happily subsidize their ranches, estates and private hunting preserves.

“[T]hey are making the planet a better place,” explains Eric O’Keefe, editor of The Land Report, a real estate magazine that publishes an annual list of top 100 US landowners. Today’s billionaires are not at all like the rapacious land barons we read about in the history books. “It’s about stewardship,” he adds.

Yes sir, America’s greedy billionaires have come a long way! Or at least that’s the impression you get flipping through the magazine’s annual list of the biggest landowners. The mag's pro-billionaire propaganda transforms real estate speculators into stewards of the open range, lumber barons into protectors of old growth forests and the degenerate heirs of vast wealth into organic farmers. No matter how rightwing or reactionary they are in the rest of their lives, when it comes to land, America's oligarchs suddenly turn into Prius-driving enviro-hippies who take care of animals, protect natural habitats and promote sustainability, selflessly toiling for the benefit of society.

The Land Report even makes the oligarch Koch brothers, listed together as the 38th largest landowner in 2012, sound like a bunch of sustainability-crazed coconut nectar guzzlers. They have won both recognition (!) and awards (!) for conservation and stewardship on their massive ranch, which stretches from Texas and up into Kansas. “The Koch family has long had a true love of the land and a steadfast commitment to environmental stewardship,” a Koch spokesman told The Land Report.

The Koch Family 239,000 acres The family’s historic Matador Ranch in West Texas dates back to a group of Scottish investors who acquired 1.5 million deeded acres and 1 million acres of open range in 1882. Under current management, the Matador has earned awards for its land management programs from Texas Parks & Wildlife, the Society for Range Management, Texas & Southwestern Catde Raisers Association, and the Texas Commission on Environmental Quality. Other Koch ranches are in Kansas and Montana.

Die hard libertarians caring about the environment? Next thing we know the Kochs are going to be backing teacher unions and bringing ACORN back from the grave.

It will no doubt come as a huge surprise, as it did for me, to learn that this green babble is just a front designed to dupe taxpayers into bankrolling the vast land holdings of Wall Street speculators, trustfund robber barons and other assorted oligarchs with tax breaks, subsidies and sorts of government handouts that you likely didn’t know existed.

One of the newest and stealthiest under-the-radar bailouts is a property tax construct called a “private conservation easement.”

What is a conservation easement? To answer that question, let’s take quick look at one of America’s leading private conservationists, John Malone, aka “Darth Vader of Cable,” aka “Don of the Cable Cosa Nostra.”

A few years ago, Malone became the country’s biggest land baron with over two million acres to his name stretching from Maine to New Mexico. Malone is a cutthroat freemarket activist and a longtime board member of the pro-pollution Cato Institute, which was founded by oil billionaire Charles Koch. Yet, Malone is described in the Land Report as a friend of the environment and a big fan of “conservation-minded land ownership.” He himself has described his last two big land buys—a 470 square mile cattle ranch in New Mexico and an astounding 1,600 square miles of forestland in Maine—almost purely in terms of environmental conservation.

Here's how Land Report summed up his holdings:

Out west, Malone's Silver Spur Ranches are headquartered in Encampment, Wyoming. The ranches themselves are in Wyoming, Nebraska, Colorado, and New Mexico. The most famous is the Bell Ranch, a 290,100-acre cattle kingdom whose roots go back to the 1824 Montoya Land Grant. Malone acquired The Bell from Chicago's Lane family in 2010.



In 2011, he acquired 1 million acres in Maine and New Hampshire from GMO Renewables. His timing was spot-on. Thanks to an anemic housing market, timberland prices were in a trough. Now that the U.S. housing market is showing signs of life, there's no telling how much these holdings have appreciated.

“We’re not in this to get rich,” he told Forbes in 2011. And then gave a dozen other reasons for he bought the land: His wife’s passion for horseback riding, his love of the frontier lifestyle, low real estate values…

He of course left out the main reason. Unlike Facebook or gold or bitcoins, land will always have value. And if you can get it cheap enough, that value will hold and grow. It's called "land-banking" … But burying your money in property poses just one problem: property taxes, which are the biggest most hated foe of real estate speculators.

Luckily, there are plenty of options for Mr. Malone and people like him.

Take his newly acquired 460-square-mile New Mexico ranch, which contained a small high-end beef cattle ranching operation when he snapped it up for an undisclosed sum a few years back. Malone is no rancher, but he decided to keep the ranching business operational after buying the property. Yes, the ranching business would cost a lot of money to maintain, but Malone's handlers explained that he wanted to preserve the historical heritage of the property, which had been used to grow cattle since the 1800s.

By coincidence, New Mexico, like most states, gives extremely lucrative tax breaks to agricultural business. These breaks can shave 90 to 99 percent of property taxes on land used for farming, ranching and other pseudo-agricultural pursuits like conservation and timber production. The year before Malone bought the ranch, the exemption saved its previous owners nearly $940,000 in property taxes, reducing them by 94% to just $61,439. Yep, 470 square miles of land and only $60,000 in property taxes.

No wonder Malone is so eager to keep the ranch up and running, paying for a couple of cowboys to drive cattle back and forth across his land. If he ever stopped, he'd be on the hook for nearly a million dollars in property taxes a year. When a couple of cows can extinguish a one million dollar tax bill just by standing around, eating brush and farting, who wouldn’t fall in love with the ranching lifestyle?

But that’s not all. Agricultural property tax breaks are old school stuff—every rich asshole with a bit of land has mined them for all their worth, including Ronald Reagan, George Bush Jr., Michael Dell and even Bon Jovi. But John Malone tapped into a whole new scheme.

After buying the New Mexico ranch, Malone announced that he was going to permanently place most of the property into what is known as a “conservation easement,” a private contract in which a property owner “donates” limited development rights to his land to non-profit conservation organization, while retaining all other rights to the land. Granting public access is not required and landowners are allowed to keep logging, farming, ranching or spraying the land with toxic pesticides. It's sorta like donating a Picasso to a museum, but keeping the painting hanging on a wall in your own house.

In return for this non-donation donation, landowners get to deduct the value of the easement from their taxable income, slash estate taxes on the property and get various local tax breaks and credits, depending on the state. New Mexico gives an instant tax credit worth 50% of the value of the easement that can be applied to their own tax bill or sold on a secondary market.

It’s supposed to lock down land from future development, but in reality is just an accounting trick that allows land to be turned into a tax deductible charitable donation, while the landowner keeps owning and using the land.

As for Malone, New Mexico just so happens to have some of the best conservation easement perks in the country. The landowner gets to deduct the whole value of the easement from their federal taxable income over the span of 16 years, and the state sweetens the deal with an instant tax credit worth 50% of the value of the easement. So, going by old property tax records, Malone could instantly generate somewhere around $10 million in cash flow and get a $20 million income tax deduction just by putting a quarter of his New Mexico ranch under a conservation easement—all while retaining just about all other rights to the land. He could even drill for oil if he wanted.

No wonder billionaires are flocking to the wilderness…and putting it under “conservation.” Unlike an investment in urban real estate, say a Park Ave penthouse apartment, they pay virtually no property taxes and get bonus cash subsidies just for the hell of it.

This preferential red carpet tax treatment for the rich is more widespread than most people could ever imagine. Just about every single person featured in The Land Report’s “100 Biggest US Landowners” benefits from conservation easements of one type or another, shrinking their property tax bills to zero and getting then money taxpayer money on top of that as a sweetener. Find a person rich enough to own a lot of rural land—a ranch, country estate, vineyards or just a tract of undeveloped land—and you’ll find that they pay pennies on the dollar in property taxes. …

“Private land set aside for conservation grew 54 percent from 24 million acres to 37 million acres– an area larger than New England – between 2000 and 2005,” reported the Christian Science Monitor in 2006, noting that taxes are a “key issue” driving the expansion…

In fact, just about every mansion with a big lot in the Malibu hills here in Los Angeles County is surrounded by a conservation easement, which allows Hollywood's multimillionaires to shrink their property tax bills to almost nothing.

Like I said last week: “Welfare for the rich is the only kind of welfare our political culture can tolerate.”