Feds reject farm appraisals at center of $300,000 dispute with Lexington

Federal conservation officials have rejected appraisals of two Fayette County farms at the center of a $300,000 disagreement between Lexington and the federal government.

The value of the farms was questioned in a 2015 federal audit that found that Lexington’s farmland preservation program, which has purchased the development rights to nearly 30,000 acres in Fayette County, overcharged the federal government more than $300,000. The federal conservation service generally picks up half the cost of buying conservation easements that protect farmland from future development.

The NRCS rejected a third set of appraisals in early November for the two farms because the appraisals didn’t comply with the agency’s guidelines and standards, according to documents from the federal conservation service.

The rejection means the Fayette County Rural Land Management Board will have to pay for a fourth set of appraisals for the two farms at a total cost of $6,000. Whether Lexington must repay the federal government is likely to depend on the outcome of those appraisals, which are not yet completed, federal conservation officials said.

“We haven’t specifically discussed next steps with NRCS as we have been focused on getting approved appraisals,” said Derek Paulsen, the city’s planning commissioner. “We assume when the appraisals are approved and if there are differences in values that this discussion will take place in a more deliberate manner.”

Fayette County’s purchase of development rights program was created in 2000 with the goal of preserving 50,000 acres of farmland. To date, the program has allocated $77 million — $37 million in local money, $24 million in federal money and $16 million in state funding — to buy conservation easements on Fayette County farmland. The program has preserved 29,165 acres and has been heralded by some as a model conservation program.

The 2015 audit was conducted by the Office of Inspector General for the U.S. Department of Agriculture and covered several programs operated by the Natural Resources Conservation Service. Fayette County’s PDR program was only one part of the federal audit.

The audit raised questions about two land transactions in which Fayette County allowed landowners to hire their own appraisers to challenge the findings of an appraisal that was paid for by the county. The audit covered transactions that closed in 2012 and 2013. In each case, the counter-appraisals were higher, and in each case, the board and the landowners agreed on compromise figures. However, in both cases, the audit found that the Fayette County PDR program forwarded only the higher counter-appraisal figure to the federal conservation agency when seeking reimbursement.

In one instance, the board-hired appraisal for a farm on Spurr Road was $2,900 an acre. The owner obtained a second appraisal that valued the development rights at $4,100 an acre. The board compromised and settled on $3,500 an acre. Lexington forwarded only the $4,100 figure to the federal government, which was charged about $215,000 more than it should have been, according to the audit.

In the second case, the board’s appraisal for a 315-acre farm on Royster Road was $3,150 an acre. The landowner’s counter-appraisal was $3,850 an acre. The board compromised at $3,500 an acre, but city officials forwarded only the $3,850 appraisal to federal reviewers, causing the federal government to pay $109,000 more than it should have, according to the audit.

The landowners did not receive any additional money. Instead, Fayette County’s PDR program benefited by making the federal government pay more of the total cost for the conservation easements, the audit found.

To resolve the issue, the conservation service agreed to obtain a third appraisal on both farms rather than seek repayment of $1.3 million, the total amount the federal government paid for its portion of the two conservation easements.

According to the May 2016 minutes of the Rural Land Management Board, an appraiser who worked for the same firm hired by both the Spurr Road and Royster Road landowners was hired to conduct the third appraisal. According to documents obtained by the Herald-Leader, the third appraisals are identical to the previous landowner-obtained appraisals.

Phillip Swartz, an appraisal reviewer hired by NRSC, wrote in reports dated Nov. 6 that the latest appraisals could not be supported by data.

Greg Bibb, the chairman of the Rural Land Management Board, told the board at its Dec. 5 meeting that it’s not clear how long it will take to resolve the issue.

“I think I saw some correspondence that said they hoped to have all of this resolved by May,” Bibb said. “We haven’t even gotten the appraisal started yet.”

If the new round of appraisals support the price charged to the federal government, Fayette County might not have to repay any funds, said Sam Miller, a spokesman for the conservation service.

This story was originally published December 19, 2016 at 11:37 AM with the headline "Feds reject farm appraisals at center of $300,000 dispute with Lexington."