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Short research deals reap big tax rewards

By Eric Dexheimer, Austin American-Statesman
McClatchy-Tribune Information Services

Aug. 17--

By 2010, Austin tech entrepreneur Joseph Liemandt and his company had amassed more than 80 acres of Austin real estate along the Colorado River just west of Loop 360. That year, the properties were valued at about $14 million, according to Travis Central Appraisal District records. The tax bill on the land -- which, while wooded and undeveloped, abuts lakeshore mansions -- was steep: more than $250,000 in 2010.

By the following year, the bill had dropped to about $400.

Liemandt had taken advantage of an obscure, but valuable tax break. In exchange for the 98 percent reduction in his taxes, he agreed to leave the land undisturbed and permit college student researchers on to the property to conduct biological projects, from studying male cricket frogs and squirrel foraging, to lizards and owlflies.

A generous property tax advantage in exchange for making land available for university work, known as ecological laboratories, has been permitted in Texas for decades. Although a small number of property owners historically have taken advantage of the law, appraisers say they are receiving more inquiries as property values in economically vibrant areas such as Travis County have ballooned.

While no agency tracks ecolabs statewide, about a dozen landowners annually have used the arrangement to shave hundreds of thousands of dollars from Travis County's tax collections. In recent years, ecolabs have even bred a free-market exchange; landowners pay researchers to conduct experiments on their property in order to qualify for the greatly reduced tax bill. Now, appraisers say they are seeing another twist, one which allows ecolab property owners to exit the research game relatively quickly but still keep their valuable tax break.

Typically, landowners hoping to transition their land from market value to vastly reduced agricultural valuations must first farm or ranch on the land for at least five years. Appraisers say the delay makes property owners prove they are serious about using their land for agriculture before earning a smaller tax bill. Owners then apply to the local appraisal district to have the land's worth for tax purposes determined by its production value, a calculation that can dramatically lower the land's value and, thus, its tax bill.

Ecolabs, by comparison, earn a dramatic agricultural tax reduction without any wait. The law, passed in 1977, also doesn't require that landowners provide the research opportunity for any minimal length of time. Central Texas appraisers say in recent years they've been seeing more ecolab property owners quickly transition their ecolab exemption into an agricultural tax break that doesn't need the participation of academics.

There are No Baby Steps in Sales.

Even the most generous ecolab tax breaks represent a tiny fraction of Travis County's$120 billion tax base. But the relatively short duration of some comes at at time of heightened interest in property tax fairness -- particularly in Central Texas, where vaulations have soared -- raising questions about whether the often-dramatic bill reductions are worth their cost.

In 2013, after two years as an ecolab, appraisal records show, Liemandt shifted his land into a traditional agricultural category, shortening the traditional waiting period by two-thirds, and saving hundreds of thousands of dollars in property tax payments in the process.

Through his attorney, Liemandt said he had been impressed by the quality of research conducted on his land, but declined to comment further.

Grants for tax breaks

Supporters say ecolabs fill important gaps in the Texas landscape. They provide natural science researchers access to land on which field studies can be performed. About 94 percent of Texas is in private hands, so finding land to set up and monitor experiments can be difficult.

Ecolabs also offer a way for property owners to support conservation. By agreeing not to develop land -- particularly in urban or suburban areas -- they can improve water quality, wildlife protection and scenic vistas.

Attorney David Braun has had experience with both. As a University of Texas student, he recalled having to search out locations to conduct field experiments on bird populations: "I spent two years trying to convince private landowners to let me use their land."

After law school, Braun focused his attention on conservation issues, working for the Texas Parks and Wildlife Department and as a director for the Nature Conservancy. Although his Dripping Springs law firm today handles a variety of land use issues for clients, a few years ago he hit upon a way to better use the ecolab law specifically.

"There was a real opportunity to match up landowners and universities," he said. According to local appraisers, Braun today arranges most of the area's ecolabs.

Past attempts by landowners to trade academic research opportunities for tax breaks had met with mixed success. Travis chief appraiser Art Cory, now retired, was an early foe, asserting the steeply discounted property tax bills purchased citizens little in return.

"We went in and looked at research that had supposedly been done, and there was little, if any," Cory recalled. The appraisal district yanked the tax break from several ecolabs in the mid-2000s, he said.

In an effort to professionalize the process, Braun in 2010 unveiled a sort of ecological laboratory dating site. Texasecolab.org matches landowners looking to slash their tax bill with university researchers seeking a location -- and funding -- for their projects. (Braun's firm also hosts annual meet-and-greets at universities.)

There are No Baby Steps in Sales.

There, property owners promote their land to students and faculty advisers from local college science departments, typically seeking locations for graduate dissertation work. "The irregularly-shaped property is bordered by Lake Austin to the east and Coldwater Creek to the south," reads one recent entry, followed by a technical description of the property's soil, topographical and habitat features. The entry suggests several "research possibilities."

To attract the academics necessary for the ecolab designation, many landowners also advertise tax-deductible "research grants" to have the work performed on their properties -- a draw for hard-up graduate students.

"The grant money certainly helps," said Susan Schwinning, a Texas State University biology professor whose students have won money to perform their study of the drought's effect on trees on ecolab land. Steven Phelps, an associate professor of biology at UT, said his students have received as much as $16,000 to conduct work on property in exchange for the tax break.

Kelly Gray, an Austin insurance executive and investor, said he paid $30,000 last year for several university researchers to conduct experiments on about 400 acres he'd recently purchased in Burnet County. The property was being developed as a golf course, "but it doesn't look like that's going to happen for a while," Gray said. "So this was a way for us to reduce taxes while we're holding it."

Thanks to the presence of the academics, Gray's property tax bill on the golf course dropped from $26,400 last year to $429 this year, according to Burnet County appraisal records.

A few local ecolabs sit on modestly priced parcels. But because of the area's strong real estate market -- which, in turn, provides an incentive for owners of more expensive land to seek a tax break -- many local ecolabs have landed on high-dollar sites. An American-Statesman analysis of property tax records shows that Travis County ecolabs have enjoyed some of the area's most valuable tax breaks.

Ed Theriot, a biology professor and director of UT's Texas Memorial Museum, said the money a landowner offers can influence where students and their teachers decide to conduct their work: "The particular selection of properties often turns on where the funds come from."

But, he added, "I don't care what their motivation is; it's extremely valuable to get access" to the private land.

As a land preservation advocate, Braun said such financial incentives were essential. "Conservation happens when it's in people's financial interests," he said.

Research site for two years

There are No Baby Steps in Sales.

Without Braun's ecolab website, "Just getting hold of property owners and getting permission can be a real issue," said Alison Bockoven, a Texas A&M University graduate student who used it to find locations to study fire ants.

Brockoven received a grant to conduct field work on, among other sites, a piece of property northwest of the city, near Emma Long Metropolitan Park. Also owned by Gray, the 57 acres generated $40,000 in property taxes for Travis County jurisdictions in 2011, according to county records. In 2012, the property was designated as an ecolab -- dropping the yearly bill to just over $76.

Quiet Mountain's ecolab designation was relatively short-lived. As with Liemandt's lakefront land, after two years the property was transitioned out of ecolab status and into a separate agricultural designation that confers the same property tax breaks. Today, it is considered "wildlife management" land, a classification that requires no research, and which would typically take a half-dozen years for the owner to achieve.

Gray said he made the move to wildlife management in part because it was less expensive. "If you're under ecolab, you have to pay researchers to come out and do their research," he said. He said there was no longer scientific work being conducted on his property.

Patrick Rose, who supported ecolabs legislatively while serving as a state representative from Dripping Springs, said one of the values of the ecolab arrangement was its duration. "Private individuals don't just let university representatives on their land, particularly for sustained periods" necessary for "meaningful research," he said.

Rose said property owners moving from ecolab to another tax-break classification still meet that objective. He noted that plenty of research projects can be completed in a couple of years.

Braun said while landowners may only recently have begun using the quick transition, legislators intended it as a further incentive to persuade reluctant property owners to host an ecolab. "It is so hard to get Texas landowners to allow people on their land," he said.

And while he prominently advertises the quick transition on his website as an advantage for property owners to turn their land into an ecolab, Braun said he often recommends his clients consider a longer commitment to hosting research. Even if owners don't continue hosting an ecolab, Braun said, local citizens continue to benefit from the exchange in unbroken vistas and cleaner water and air.

"This is usually the beginning of a long-term commitment to conservation," he said.

------

How valuable are ecolab exemptions?

400-acre property in Burnet County:

2013 property taxes: $26,400

2014 property taxes (after ecolab designation): $429

Landowner payment to university researchers: $30,000

This story is part of the American-Statesman's continuing coverage of local property tax issues. Reporter Eric Dexheimer is a member of the paper's investigative team, which has examined inequities in how commercial and residential properties are appraised.

___

(c)2014 Austin American-Statesman, Texas

Visit Austin American-Statesman, Texas at www.statesman.com

Distributed by MCT Information Services

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