California's population increases have long been a topic of discussion.   By the year 2020, the population of California is projected to increase by a startling 24 percent!   Of paramount concern is the question of how the population growth will affect California's rich farmlands, rangelands, open space, wildlife, plant resources, and available parklands.

The business of protecting and conserving California's natural resources is a complex endeavor; however, a common theme emerges when individuals, planners and elected officials convene to discuss land use policies and growth.   Specifically, innovation and partnerships are critical.

Capitalizing on the opportunities and benefits that arise from integrating divergent interests and forming public/private partnerships, unique and innovative approaches to the protection and conservation of California's farm and ranch lands, natural resources and local economies have emerged.   One such innovative solution is the Natural Heritage Preservation Tax Credit Act of 2000 (Public Resources Code Section 37000 et seq.) (the "Tax Credit Act").

This Program Information and Application Package reflects changes to the Natural Heritage Tax Credit Program (the "Tax Credit Program") necessary to implement the amendments to the Tax Credit Act that became effective on January 1, 2005.

The purpose of the Tax Credit Program is to protect wildlife habitat, parks and open space, archaeological resources, agricultural land and water by providing state tax credits for donations of qualified land (fee title or conservation easement) and water rights.   The program objectives include the fostering of public/private partnerships to resolve land use and water disputes; assisting habitat stewardship; and demonstrating the state's commitment to protect natural resources by rewarding landowners who perceive habitat as an asset rather than a liability.   Initially implemented in 2001, the Tax Credit Program is a successful effort that to date has resulted in the approval of $48.2 million in tax credits, and the donation and transfer of ownership of more than 7,967 acres of critical parkland, open space, agricultural conservation easements, wildlife corridors and archeological resources.

Responding to increased fiscal demands and pressure upon the General Fund, the Legislature suspended the Tax Credit Program in 2002.   However, in recognition of the effectiveness of the program as a tool to leverage limited fiscal resources and protect critical land and water resources, the Tax Credit Act was amended and the Tax Credit Program reinstated effective January 1, 2005.   Specifically the Tax Credit Act was amended by Chapter 226, Statutes of 2004 (SB 1100) which allows tax credits to be awarded until June 30, 2008, provided there is no net loss of revenue to the General Fund for tax credits awarded between July 1, 2002 and June 30, 2005.   In addition, Chapter 715, Statutes of 2004 (AB 2722) provides a process to reimburse the General Fund for approved tax credits using eligible bond funds.

Pursuant to the 2004 Tax Credit Act amendments, the Board may again award tax credits, provided the General Fund is reimbursed for the loss of revenue associated with approved tax credits.   A department that accepts a contribution pursuant to the Tax Credit Program, either directly or through a qualified third party, must encumber eligible bond funds prior to acquiring the donated property and ultimately transfer those funds to the Natural Heritage Preservation Tax Credit Reimbursement Account (the "Reimbursement Account") as the tax credit is claimed.   Public Resources Code Section 37032 identifies specific bond act provisions from which monies may be used to reimburse the General Fund.

Consistent with the Tax Credit Act amendments, new certifications are required from donors, donees and departments.   The certifications are part of the Application Package included, and discussed in Chapter 2.   This Program Information and Application Package reflects the new program requirements.

To facilitate the reimbursement of the General Fund, Public Resources Code Sections 37034 and 37035 set out the process by which a department or local government may seek Board approval of a donation and (if the Board approves the tax credit), encumber and ultimately transfer funds to the Reimbursement Account.

Reimbursement must be from money that is not from the General Fund.   Public Resources Code Section 37032 (c) identifies provisions of Proposition 40 (California Clean Water, Clean Air, Safe Neighborhood Parks, and Coastal Protection Act of 2002) and Proposition 50 (Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002), from which a department or local government may expend bond funds to acquire property under the Tax Credit Act.

The bond provisions from which a department or local government may expend bond funds to reimburse the General Fund are as follows:

Proposition 40 (California Clean Water, Clean Air, Safe Neighborhood Parks, and Coastal Protection Act of 2002):

• Public Resources Code Section 5096.615 – State Department of Parks and Recreation

• Public Resources Code Section 5096.650 (specified portions) – Wildlife Conservation Board, State Coastal Conservancy, California Tahoe Conservancy, Santa Monica Mountains Conservancy, Coachella Valley Mountains Conservancy, San Joaquin River Conservancy, San Gabriel and Lower Los Angeles Rivers and Mountains Conservancy, Baldwin Hills Conservancy, San Francisco Bay Area Conservancy Program, and Secretary of Resources Agency

Proposition 50 (Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002):

• Water Code Section 79541 – Secretary of Resources Agency (River Parkways)
• Water Code Section 79542 – California Tahoe Conservancy (Lake Tahoe Water Quality)
• Water Code Section 79544 – Secretary of Resources Agency (Sierra Nevada – Cascade Mountain Region Water Quality)
• Water Code Section 79550 (e) or (f) – CALFED Bay-Delta Program (Ecosystem Restoration and Watershed Programs)
• Water Code Section 79565 – Wildlife Conservation Board (Regional Water Quality; Fish and Wildlife Habitat)
• Water Code Section 79568 – Wildlife Conservation Board (Colorado River)
• Water Code Section 79570 – State Coastal Conservancy, Santa Monica Mountains Conservancy, San Gabriel and Lower Los Angeles Rivers and Mountains Conservancy (Coastal Watershed Protection)
• Water Code Section 79572 – Wildlife Conservation Board (Coastal Wetlands, Upland Areas Adjacent to Coastal Wetlands and Coastal Watershed Lands)

Other bond funds may also be used, if the bond act specifies that its funds may be used for the purposes of the Tax Credit Act.

While the amended Tax Credit Act requires the General Fund to be reimbursed for approved tax credits, the purpose, intent and project selection criteria of the Tax Credit Program did not change.   The Board is authorized to implement the program, and in doing so is authorized to request staff services from any department that submits an application and a proposal for a donation of property to the Board.

Subject to Board approval, a private landowner may donate qualified lands, conservation easements or water rights to Resources Agency departments, the Resources Agency itself, local government entities or designated nonprofit organizations for conservation purposes.   A donor that contributes qualified property to an eligible donee pursuant to the Tax Credit Act will receive a state tax credit equal to 55 percent of the appraised fair market value of the donated property, in accordance with Revenue and Taxation Code Sections 17053.30 and 23630.   If the donor is a partnership, "S" corporation, or limited liability company treated as a partnership, the fair market value of the contribution is passed through to the partners or shareholders of the donor in accordance with their interest in the entity as of the date of the contribution.

If the approved tax credit exceeds the "net tax," the excess may be carried over to reduce the "net tax" for the next eight years if necessary, until all of the tax credit is exhausted.   The tax credit is in lieu of any other state tax credit or deduction that the taxpayer may otherwise claim with respect to the donated property.

Absent further statutory authorization, the Tax Credit Program will remain in effect until June 30, 2008, or until the entire $100 million in available tax credits has been awarded, whichever comes first.   Currently, the requirement to reimburse the General Fund for approved tax credits applies to tax credits awarded between July 1, 2002 and June 30, 2005.   However, it is possible that this requirement could be extended.

The terms below are defined in the Tax Credit Act and govern the Tax Credit Program.

• "Approval" or "Approval for Acceptance" means the Board's approval of the granting of a tax credit for a donation of qualified property.

• "Board" means the Wildlife Conservation Board.

• "Conservation Easement" means a conservation easement, as defined by Civil Code Section 815.1, which is contributed in perpetuity.

• "Department" means the California Resources Agency or any state entity within the Resources Agency and authorized to hold title to land.

• "Designated Nonprofit Organization" means a nonprofit organization qualified under Internal Revenue Code section 501 (c)(3) that has as a principal purpose the conservation of land and water and has been designated by a department or local government to accept property in lieu of the department or local government.   The nonprofit organization must have experience in land conservation.

• "Donee" means any of the following:

1. A department to which a donor has donate qualified property.

2. A local government that has filed a joint application with a donor requesting approval of a donation to that local government.

3. A designated nonprofit organization.

• "Donor" means a property owner that donates, or submits an application to donate, property pursuant to the program.

• "Local Government" means any city, county, city and county, or any district, as defined in Section 5902 or Division 26 (commencing with Section 35100) of the Public Resources Code, or any joint powers authority made up of one or more of those entities or those entities and departments.   If bond funds are used to acquire property under the program, "local government" also includes any other local government entity eligible to receive bond funds pursuant to the relevant provision of the applicable bond act.

• "Program" means the Natural Heritage Preservation Tax Credit Program authorized by Public Resources Code Section 37000 et seq.

• "Property" means any real property, any perpetual interest in real property, including land, conservation easements and land containing water rights, as well as water rights.

• "Secretary" means the Secretary of the Resources Agency.