Feds to Lexington: You overcharged us $350,000. City will appeal.

A federal conservation program has told the city of Lexington to repay $350,560 for overcharging the federal government in two land transactions

A June 26 letter from an official with the Natural Resource Conservation Service said the city had overcharged the program in deals to purchase the development rights of two Fayette County farms.

Susan Straub, a spokeswoman for the city, said the city will appeal the ruling.

The Natural Resource Conservation Service typically pays half the cost of conservation easements in Fayette County’s Purchase of Development Rights program, which protects farmland from future development.

Fayette County’s PDR program was created in 2000 with the goal of preserving 50,000 acres of farmland. So far, the program had allocated $77 million — $37 million in local money, $24 million in federal money and $16 million in state funding — to buy conservation easements on nearly 29,000 acres of Fayette County farmland.

The city has known for two years there were questions about how Fayette County’s PDR program charged the federal government for conservation easements. The issue was first raised in a 2015 audit by the Office of Inspector General for the U.S. Department of Agriculture.

That audit raised questions about two land transactions in which Fayette County allowed land owners to hire appraisers to conduct counter-appraisals after the landowners disagreed with the one paid for by the program. 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 PDR program forwarded only the higher counter-appraisal to the federal conservation agency.

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. The Fayette County program forwarded only the $4,100 figure to federal reviewers, and the federal program was charged about $215,000 more than it should have been charged, 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 compromise figure was $3,500 an acre, but Fayette County forwarded only the $3,850 appraisal to federal reviewers, causing the federal government to pay $109,000 more than it should have paid, according to the audit.

The owners of the two farms were not involved in the transaction and had no knowledge that the local PDR program overcharged the federal government, officials have said.

After the audit, the NRCS agreed to get another appraisal of the two farms. However, the agency rejected the third set of appraisals in early November because they didn’t comply with the agency’s guidelines and standards, according to documents from the federal conservation service. 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. The third appraisals were identical to the previous landowner-obtained appraisals, according to documents obtained by the Herald-Leader.

The city and NRSC then agreed to do a fourth round of appraisals. Those valuations were much lower than the original landowner-obtained appraisal used to charge the federal government.

The NRSC letter said the federal government was overcharged $248,673 for the Spurr Road farm’s development rights and $101,887.34 for the Royster Road farm’s development rights.

The NRSC no longer allows landowners to get a second appraisal for conservation easements but the local PDR program still allows counter-appraisals.

This story was originally published June 30, 2017 at 3:55 PM with the headline "Feds to Lexington: You overcharged us $350,000. City will appeal.."