Washington Post series on TNC

Big Green: The Washington Post's Exposé of The Nature Conservancy and TNC's Response

by Laura Landon for Greendonor

In May, 2003 the Washington Post ran a scathing exposé of The Nature Conservancy (TNC), the biggest green NGO in the world. The series, written by two investigative reporters who researched the story for two years, outlined shady business deals, greed and money mismanagement. It showed a grassroots NGO turned 'corporate juggernaut,' tied uncomfortably closely with several heavily polluting industries, such as oil companies and utilities. It even outlined environmental harm done in the name of conserving nature.

The series drew a flurry of letters both supporting and condemning The Nature Conservancy. Calling the series distorted and unfair, The Nature Conservancy responded with an opinion-editorial in the Washington Post, and a 23-page rebuttal with reams of corresponding documentation. The rebuttal confirms many of the Post's main points, but portrays them in a different light. It says the Post series is "fraught with mischaracterizations and omissions of fact." It says that while TNC has made some mistakes, the Post "grossly neglected and misrepresented" TNC's record of achievement.

Shortly after the series ran, the U.S. Internal Revenue Service began auditing The Nature Conservancy — a process that is still underway. The Post series also prompted a U.S. Senate Finance Committee investigation into TNC's management and real estate sales. The Senate committee's report, issued in June 2005, recommended broad regulatory changes that would affect TNC and other non-profit groups.

TNC responded to the Post series and subsequent government investigations by announcing major changes to its governance in order to become more accountable. It created an 11-member executive committee to oversee new policies and procedures. It created an audit committee to focus on ethics, conflicts of interest, etc., and appointed an audit director to conduct internal investigations. It also appointed a Chief Compliance Officer responsible for ensuring that TNC complies with its own policies and procedures and the law.

Between 2003 and 2005, TNC underwent an in-depth review with an independent advisory panel. It adopted "virtually all" of the panel's recommendations and made dozens of other changes, including:

Restructuring its board of directors so members meet more often and have a greater hand in management and oversight;
Appointing a Chief Compliance Officer responsible for ongoing staff training and ensuring TNC policies and procedures are followed;
Establishing a 'whistleblower' hotline to protect workers who want to report violations;
Strengthening its conflict of interest policies;
Banning sales of land or conservation easements involving TNC staff, directors or those closely affiliated with TNC;
Strengthening its policies regarding all land transactions.

A report of The Nature Conservancy's strengthened policies, governance and procedures is available at: http://www.nature.org/aboutus/leadership/art15473.html

Below, Greendonor summarizes the main points from the Post series, followed by TNC's response to those points.

The entire Post series is available online at: http://www.washingtonpost.com/wp-dyn/nation/specials/natureconservancy/
The Nature Conservancy's reaction to the Post series is available at: http://nature.org/pressroom/links/art10505.html

A SUMMARY OF THE WASHINGTON POST SERIES:

The Nature Conservancy and Corporate Support

"The Conservancy's relationships with Fortune 500 corporations have become institutionalized," writes the Washington Post. The series cites critics who say TNC has been seized from within by corporate interests. It has 1,900 corporate sponsors including oil, logging, mining and power-generation companies. The series says TNC's relationships with big, polluting industries have caused the organization to avoid controversial issues such as opposing oil drilling in the Arctic National Wildlife Refuge and taking up the cause of reducing greenhouse gases. The Post also investigates TNC's practise of "co-branding," or allowing corporate partners to associate the Conservancy's oak leaf logo with various products, including beef and a brand of toilet cleaner.

TNC's Response:

"[T]he Conservancy occupies a unique niche in the conservation movement that some have called 'the radical center,'" writes The Nature Conservancy in its response to the Post's articles. "Our long history of working with business is no secret." TNC says its relationships with corporations "result in tangible, lasting conservation." Until the 1980s, TNC operated on a strictly "bucks for acres" regimen, buying up land to protect it. But it says land purchase alone wasn't enough. It began to work with businesses, communities and others to protect wildlife and ecosystems in "working" landscapes already inhabited by housing and industry.

"Our values compel us to find ways to ensure that human activities can be conducted harmoniously with the preservation of natural diversity," TNC says in its response to the Post. It "pursues non-confrontational, market-based solutions to conservation challenges," says its website.

TNC Drills for Oil in a Texas Prairie Preserve: the Story of the Attwater's Prairie Chicken

The Post series presents The Nature Conservancy as an organization gone greedy. When it was given a piece of land just south of Houston, Texas in order to protect the dwindling habitat of the endangered Attwater's prairie chicken, TNC promptly sank an oil well on the land. The resulting fiasco may have caused some of the endangered birds to die. The prairie chicken population dropped from a peak of 36 birds nesting on the land in 1998 to an estimated 16 in 2003, says the Post.

In addition, TNC began selling the natural gas it tapped into — even though the gas was owned by somebody else. TNC and its partners eventually paid $10 million in a lawsuit over the drilling blunder.

TNC, land sales and conservation easements: tax scams and land for the rich?

A good portion of the Post series focuses on TNC's practice of buying scenic properties, putting development restrictions — called "conservation easements" — on the land, and re-selling it at a significantly reduced price to wealthy people, some closely affiliated with the Conservancy. The buyers in turn give TNC a donation making up the remainder of the market value, and receive a tax deduction for the charitable donation.

Such easements came under scrutiny by the U.S. Internal Revenue Service after the Washington Post ran its series on The Nature Conservancy. TNC in turn strengthened its policies. [See IRS and U.S. Senate Finance Committee investigate, below.]

Today, conservation easements remain an important — but still somewhat controversial — part of TNC's efforts to protect land. They're controversial because while such easements ensure the land is protected from major development, some agreements are weak, difficult to enforce, and may seem like a big private tax break given for little public benefit.

"A conservation easement is a voluntary, legally binding agreement that limits certain types of uses or prevents development from taking place on a piece of property now and in the future, while protecting the property's ecological or open-space values," reads TNC's website.

Conservation easements are widely used by TNC and other non-profit groups as means for landowners to protect their private land permanently while still owning it. Under a conservation easement, landowners sell or donate certain development rights that would normally be allowed on their property, such as the right to subdivide. A group such as TNC can hold those rights in trust, ensuring the conservation easement is honoured in perpetuity, and the land is protected from developments such as suburbs or trailer parks. Conservation easements gained popularity in the U.S. after 1976, when the government made them tax deductible, says the Post. Since landowners willingly decrease their property value when they agree to conservation easements, they are often eligible for a tax break when they enter into an easement agreement — and essentially donate their land-development rights — to a group like TNC. In addition, some conservation easements qualify landowners for lower property and estate taxes.

The Post series outlined possible abuses of the tax credit system, citing several examples in which TNC collaborated with affluent people, helping them buy scenic land and reap large tax benefits from conservation easements while maintaining the right to establish lush, private estates with swimming pools, tennis courts and docks. In effect, it showed that TNC was helping rich people establish mansions in wilderness paradises at a price subsidized by American taxpayers.

In one instance outlined by the Post, TNC helped a trustee buy a $368,000 piece of Kentucky riverside land in order to establish a horse farm and two houses — with a conservation easement preventing industrial development. TNC bought the 146-acre property, placed an easement on it, and sold it to the trustee for $252,000. The trustee in turn donated the difference between the two amounts to TNC, giving him a charitable tax deduction of roughly $130,000.

In a second example, TNC bought 185 acres along Lake Huron for $1.7 million. It sold the land to a former trustee for just over $1 million, plus a $650,000 charitable donation. The ex-trustee estimated his after-tax savings on the deal at $300,000. He said the conservation easement doesn't alter his plans for development — he wants a "family compound" and he can still build it. "This is quite exciting," he told the Post. "I have my own private bay and 4,000 feet of golden, sandy beach."

The Conservancy says the property is nevertheless protected; it was previously slated to become a golf course and condominium complex. "Without the help of conservation buyers, the Conservancy would not have been able to protect this area," it says.

Some tax experts say conservation easements are gaining popularity among rich families seeking tax shelters, says the Post, which adds that upper-income donors receive disproportionately greater tax savings than middle- and lower-income donors. Since appraisers hired by the landowner often set the value of the land being placed under development restrictions, land values are sometimes inflated so the easement generates a larger tax deduction, says the Post. A 1984 IRS investigation cited by the Post showed that of 42 easements examined, all but one had inflated the land value by an average of roughly 220 per cent. Donors seldom face audits that could identify such inflated deductions, says the Post, even though the IRS has a program designed to stop this kind of tax fraud. In two years, the program produced thousands of leads but did not result in a single audit, "because of competing priorities at the agency."

The Nature Conservancy defends its conservation easements: "In every case, the value of the land before and after the transaction is established by professional, independent appraisals," it writes.

Still, says the Post, determining land values is contentious. A third example cited in the newspaper series focuses on the 27,000-acre retreat of Wilhelmina duPont Ross, the now-deceased heiress of the DuPont chemical fortune. In 1978, Ross gave TNC an easement restricting commercial development on her estate in the Adirondack Mountains. Her land appraisal said the restrictions reduced her property value by 44 per cent, which earned her a tax deductions of $1 million (about $2.8 million in current dollars). Her private forest estate already housed 16 buildings and more than 60 miles of roads and trails. Ross retained rights to subdivide, build 10 more homes, cut trees, mine gravel pits, drill for oil, and exclude the public, says court documents cited by the Post. A land dispute 20 years after her donation to TNC led New York state officials to claim she had inflated the value of her easement and deny requests to reduce her property taxes. Federal officials also challenged the tax deduction, but later ruled it was fair.

Martha's Vineyard: a serpentine land deal

A fourth, more complicated example outlined in the Post involved 215 acres of sand plain in Martha's Vineyard. The Conservancy bought the land, limited development on half of it, and sold the other half to buyers including comedian David Letterman, "paving the way for Gatsbyesque vacation houses on pristine beaches and grasslands," said the Post.

In the end, the Conservancy permanently protected 102 acres of the most ecologically sensitive areas of the land. It sold the rest in about seven parcels. Letterman bought a 24-acre parcel, which already contained a 4,750-square-foot house. TNC's conservation easements allow limited development on six other parcels. At the time the Post published its series, retired Goldman-Sachs executive Daniel Stanton was "bulldozing for a $14 million mansion that soon resembled a high-end resort," it says.

The story behind the land purchase

TNC's purchase of the Martha's Vineyard property is complicated, and shows complex manipulation of tax laws. In a nutshell, the Post says the Conservancy swung a deal with the developers who owned the land, in the end allowing the developers to reap a massive tax deduction that might violate IRS rules. TNC couldn't afford the $78 million price tag, and offered $14 million dollars less. The developers accepted the lower amount and also donated $18.5 million to TNC, which enabled TNC to come up with the purchase price. The developers received two tax deductions: a $14 million deduction for selling the land to TNC for below market value; and an $18.5 million deduction for their donation to TNC.

At a glance, the first tax deduction shouldn't raise many eyebrows. After all, the developers — brothers Neil and Monte Wallace — did indeed sell the land to TNC for $14 million below its market value. However, the background to the sale tells another story.

For about 10 years, the Wallaces had been trying to rezone the land — the historic, coastal Herring Creek Farm — to build 54 homes. Development officials denied their application. The Post says the Wallaces challenged the decision in seven lawsuits, losing every time. The Post cites strong local opposition to development on the land, as well as opposition from the family who originally owned Herring Creek Farm, and retained rights to first-purchase of the land until 2010.

Enter TNC, which in 2000 offered to purchase the land, with plans to leave half of it protected and sell the rest to conservation buyers who would agree to development restrictions. The family that retained first-purchase rights was willing to let TNC buy the land, says the Post. And the Wallaces spread the word to the locals, who were also mollified. "With the Conservancy in the picture, the Wallaces were able to finally satisfy their desire to get a rezoning that would boost the value of their property," says the Post. The rezoning increased the property value by $14 million. The Wallaces agreed to sell the land to TNC for its original price, but claimed a $14 million tax deduction for its bargain sale to a charity. The Post quotes a Wallace family spokesperson who says the tax deduction was a "linchpin" to the deal and a way "to soften the pain of taxes."

The second, $18.5 million deduction is more contentious. The Wallaces donated the money to TNC two days before the closing of the land deal. Under IRS rules, the donation would not be deductible if it were made with restrictions that it be spent on the land purchase. The IRS also has regulations preventing family foundations from making charitable donations that benefit themselves. TNC says there was no restriction on the donation, and salutes the Wallaces for their generosity. The Post, however, quotes a Conservancy lawyer who says TNC used the money to close the deal.

In the end, says the Post, everyone was a winner in the Martha's Vineyard land deal — except perhaps the taxpayers who subsidized the deal. The developers were happy to sell the land and get some tax deductions. TNC was happy to be able to protect and restore 102 acres of what it calls the most ecologically important parts of the land. And TNC's conservation buyers were happy to own land on the once-unattainable Herring Creek Farm. Neither the Post series nor TNC says how the family that formerly owned the land feels about the land deal, although the Post says the family knew of TNC's plans, and endorsed its purchase of the land.

Still, the Post article implies the developers — with the help of TNC — used their relationship with the Conservancy to: a) make the land more expensive by successfully getting it rezoned for development; and b) manipulate the tax system to claim tax deductions of $32 million. Were it not for TNC, the article implies, the developers would never have been able to rezone their land, raise its price, and sell it. They would instead be stuck with a piece of expensive Martha's Vineyard property that they were unable to develop. And the original owners — who were opposed to any further development on the land and retained first option to repurchase it until 2010 — could block sales to development-friendly buyers for another 10 years. The Wallaces instead cut their losses, sold the land to TNC for $64 million, and got some tax deductions to sweeten the deal.

The Conservancy stands by the deal and its sale of half the land to wealthy "conservation buyers." Purchasing the land enabled TNC to prevent a 33-lot subdivision on the property, it says. (The Post says officials and locals only allowed the land to be rezoned for a 33-lot subdivision because everyone knew the developers planned to instead sell the land to the Conservancy, which had no plans to carry through with the development.)

TNC says it placed conservation easements on the 113 acres it sold, allowing no more than six new homes, only on previously cleared land and former farm pasture. The Post wrongly implies the Conservancy sold "pristine beach and grasslands," says TNC's response, which adds it sold no beachfront lots. "For our conservation efforts, which aim to restore grasslands long since lost to the plow, the conservation buyer parcels are buffer land — land surrounding the core area we intend to restore to a natural, native grassland. The series overlooks our motivation for engaging in these transactions in the first place: These lands are not environmentally sensitive, but they buffer places that are."

In its rebuttal to the Post, TNC also cites an editorial in the Vineyard Gazette, which congratulated TNC and its conservation buyers, saying the land deal ended more than a decade of political warfare and lawsuits.

In conclusion, the Nature Conservancy stands by all its land deals, saying the land is now far better off. While the new owners receive tax breaks for making cash contributions to the Conservancy, the public is assured that environmentally important, permanent restrictions are placed on the properties. The trade-off, says TNC, is more than fair and does not violate existing tax laws.

IRS and U.S. Senate Finance Committee investigate

In July 2004 — roughly a year after the Post's series appeared — the U.S. Internal Revenue Service announced crackdowns on conservation easements. It singled out conservation easements that offer little public benefit, or easements in which the value of land has been inflated to generate larger income tax deductions for landowners. If caught using conservation easements to twist the tax laws, charities could lose their tax-exempt status. An IRS audit of The Nature Conservancy, which began in December 2003, is still underway.

After the Post series appeared, the U.S. Senate Finance Committee also spent two years investigating TNC. Much of the inquiry focused on TNC's conservation easement practices. Its 200-page report, released in June 2005, recommends limits on tax deductions linked to the easements. It also raises concerns about TNC's failure to ensure its 1,600 conservation easements are being enforced. In some cases, TNC has allowed donors of easements or subsequent property owners to change the terms of the agreements, allowing them to expand dwellings, cut more trees, etc. (For more information on the Finance Committee report, see: this webpage)

In a June 2005 statement cited in the Post, TNC said the Senate report mainly deals with issues TNC has already addressed. TNC initiated many changes after the Post series. In particular:

It stopped conservation easement transactions with TNC staff and trustees.
It suspended all conservation buyer transactions while it reviewed its polices and procedures.

TNC's review of its conservation easement procedures, along with its strengthened guidelines, are on its website: here.

TNC's failed foray into for-profit business

TNC's flagship for-profit venture was an unequivocal flop. In the 1990s, TNC planned several eco-friendly for-profit businesses on its 45,000-acre Virginia Coast Reserve. The ventures included:

An abandoned Coast Guard station converted to a country inn;
Plans for a sweet-potato chip company;
Oyster and clam farms;
Plans for a real estate development;
Arts and crafts.

The resulting mix of residential, farming and retail was supposed to create a green but economically viable community that would attract eco-tourists and breathe life into an economically depressed area. The effort failed. The Conservancy lost between $3.5 and $5 million on the country inn. In total, the coastal venture ended up costing TNC $24 million in liabilities, according to the Post. TNC says that number is inflated, and that it reduced its debt to $4 million by selling seaside farms.

TNC says its challenge along Virginia's Eastern Shore was "daunting" — trying to protect a vast coastal area vital to plants, marine creatures and migratory birds, while helping communities create economic opportunities.

"As we have forthrightly admitted long before the Post series was published, we have made some mistakes at the Virginia Coast Reserve," reads TNC's response. It goes on to say: "It's not that we should have avoided experimentation; we launched these efforts in good faith to accomplish conservation objectives. But we should have been more circumspect in assessing our work and halting work that was not yielding good results."

TNC and money mismanagement

The Post series outlines several questionable business deals — from the conservation easements outlined above to the failed business venture on Virginia's Eastern Shore. The Nature Conservancy's own audit of its Virginia business venture, which the Post obtained, showed accounting problems and violations of IRS rules. It also stated that managers helped a contractor hide personal income.

It's these not-quite-above-board practises that prompted IRS and U.S. Senate Finance Committee investigations of The Nature Conservancy. The IRS audit is still underway, but the Senate committee released its 200-page report in June 2005. According to the Washington Post's summary of the report, the committee expressed concern about TNC's murky financial affairs. The report said TNC provided the IRS with limited details about Conservancy business deals with its own board members and their corporations. The Post quotes the report as saying TNC's public disclosure of the deals "was oftentimes ambiguous or incomplete, and in a few instances, misleading."

The Senate committee's chairperson praised the Conservancy, however, for initiating many of its own reforms — something TNC undertook with vigour after the Post series in 2003.

Some other issues raised in the Post series:

The Post says: TNC underreported the pay of its president, Steven J. McCormick. The Conservancy said his pay was $275,000 plus standard health and pension benefits. In fact, says the Post, McCormick's total compensation and benefits for 2002 was roughly $420,000.

TNC responds: "We made mistakes in reporting accurate information regarding Mr. McCormick's salary to the Post. There was never any intent to mislead the Post, and we regret the error." McCormick's compensation for 2004 was $360,000 "plus standard Conservancy fringe benefits."

The Post says: In addition to his salary, TNC President McCormick received a $1.55 million home loan, a $75,000 signing bonus and a $75,000 yearly living allowance. The Conservancy told the Post it set the home loan at seven per cent interest, and later said it was actually six per cent. Real estate records show it was 4.59 per cent. "We were wrong," President McCormick said in his apology to the Post.

TNC responds: TNC's president receives a salary and benefits comparable to that of executives at similar-sized nonprofits. McCormick received the home loan as part of a package to encourage him to move from California to Virginia. He has since refinanced the loan and repaid TNC in full. TNC suspended any new loans to current or prospective employees while its Board of Governors did a review.

TNC and its commitment to science

The Post's exposé of The Nature Conservancy points to conflicts between science and fundraising. A 2001 study and poll commissioned by TNC cites frustrated scientists who worry the organization "may have drifted from its original foundation in strong science," quotes the Post. (Excerpts from TNC's Report of the External Science Review Committee )

"The role of scientists is insufficiently valued in TNC and much less valued than that of fundraisers," says one Conservancy scientist quoted by the Post.

Another scientist interviewed by the Post left his job as a TNC state science director after he was asked to sign papers stating that some cattle ranches were environmentally sound. The scientist, Jerry Freilich, said TNC did not support his research on the impact of ranching "because they want to get along with the ranchers."

TNC's restructuring of its science department also concerned some of its scientists. In 2001, TNC created a spin-off non-profit organization called the Association for Biodiversity Information, which sells TNC's biological data. The new organization siphoned off 65 of TNC's 95 scientists who were formerly based at the Conservancy's Arlington, Virginia headquarters. One scientist quoted in the 2001 poll said the reorganization was a mistake because "The Conservancy divested itself of most of its technical expertise and personnel in biodiversity information management."

TNC's response

"The implication that we are moving away from our roots as a science-based organization could not be further from the truth," says TNC, which adds that the Post cited only negative comments from the 2001 Report of the External Science Review Committee. Furthermore, says TNC, following the 2001 report, TNC's new president, Steve McCormick, "acted quickly to make changes recommended in the report. These changes have been difficult in some cases, and some good scientists left the organization as a result of the uncertainty change always brings."

The Post used a personnel dispute to create the false impression that TNC isn't committed to science, says the Conservancy, presumably referring to the Post's interview with former TNC scientist Jerry Freilich.

In addition, TNC makes the following clarifications about "erroneous and misleading points made by the Post":

TNC encourages its scientists to publish their findings. Since 2001, TNC scientists have been published in journals including Science, Nature, Ecological Applications, Bioscience, and Conservation Biology.
"There is no �thought police' at the Conservancy. Although papers submitted for publication are reviewed by peers, there is no mechanism or policy by which anyone can control what a Conservancy scientist says in his or her publication."
TNC does not avoid candid assessments of controversial topics such as climate change or the effects of cattle grazing. In 2003, for example, it funded a large research project examining the impact of grazing on biodiversity. In addition, TNC "is leading the way among conservation organizations in documenting the implications of climate change for existing conservation projects."
Most TNC scientists work in the field — not in the Arlington, Virginia headquarters. This dispersing of scientists is a deliberate strategy for better connecting science to conservation work, says TNC.

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