How Trump scored a big tax break for conserving a golf range
How Trump scored a big tax break for conserving a golf range
WASHINGTON (Reuters) - When Donald Trump bought his seaside golf course in a wealthy Los Angeles suburb in 2002, he vowed to surround it with “some of the most beautiful houses in California.” But the 261-acre property on the Palos Verdes Peninsula had a problem.
The denials infuriated Trump, who lobbied and litigated for eight years in a failed effort to reverse the geologists’ findings and secure development approvals, according to interviews with planners and geologists and a Reuters review of public records and court filings.
Trump eventually abandoned a plan to build 16 homes and turned instead to the tax code to offset the lost profits - securing a $25 million tax deduction in exchange for a promise not to develop the land. The agreement with a nonprofit conservancy allowed him to continue using the land as a driving range for the Trump National Golf Course.
That 2014 agreement, known as a conservation easement, is now one focus of a broader investigation by New York Attorney General Letitia James into whether Trump improperly manipulated real-estate values for tax and other economic benefits, court records filed by her office show. “Information regarding the valuation of Trump Golf LA is significant to the Attorney General’s investigation,” the office said in a filing.
The attorney general is also investigating a $21.1 million tax deduction claimed on Trump’s Seven Springs estate in New York through another conservation easement. The office declined to comment on its investigations into the easements.
An attorney for the Trump Organization, Jill Martin - who worked on the California easement and whose office is on the golf course - declined to comment. Other lawyers representing Trump and his business did not respond to requests for comment.
Conservation easements are usually agreements between property owners and nonprofit organizations dedicated to preserving open space. In return for foregoing development rights, property owners can take a charitable tax deduction based on a real-estate appraiser’s estimate of lost value. The agreements are under growing scrutiny by tax authorities and Congress members who contend wealthy developers often get huge tax breaks for easements providing little public benefit. The Internal Revenue Service has been particularly skeptical of values of easements on golf courses.
Trump’s troubled effort to develop the land, and its continued use as part of his golf business, also casts doubt on the public benefit of protecting it.
“What conservation value is there in an urban golf range that can’t be developed anyway because of foundational problems?” said Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center in Washington.
Trump made his easement agreement, for 11.5 acres, with the Palos Verdes Peninsula Land Conservancy. Allen Franz, a longtime conservancy board member and former president, acknowledged in an interview that the easement had little public value compared to most of the organization’s agreements. The conservancy typically focuses on areas with a public use such as parks or hiking trails. The driving range, by contrast, was just a part of Trump’s business.
The conservancy and some local residents did value preventing home construction there, however, in part because they believed homes on the site would obstruct the area’s ocean views. Franz said the conservancy had “no role in assigning any value” to Trump’s driving range easement, which is typical in such conservation agreements.
DETERMINING PUBLIC VALUE
Pinpointing the value of Trump’s lost development rights is a central challenge facing the New York investigators in proving that Trump took an improper or inflated tax deduction.
“It would be worth at least that,” said Scott Wellman, a lawyer who represented Trump in his fight against the city, of the $25 million deduction.
Yet Trump himself valued a parcel covering most of the driving range at just $900,000 in a 2013 property tax appeal, just a year before signing the conservation agreement, Los Angeles County assessment records show. Trump was seeking to lower his taxes after a county assessor pegged the value at $1.1 million.
Trump has a history of assigning widely varying values to the course. An attorney general’s legal filing shows that Trump’s appraisers on the conservation easement assigned a value of $107 million to the entire property in December of 2014, including the driving range.
Appraisals to support Trump’s tax breaks for the California and New York easements were done by the firm of Cushman & Wakefield Plc. Cushman did not respond to requests for comment on how it arrived at the $25 million figure. Trump, his appraiser and the conservancy declined to disclose the appraisal to Reuters.
Lots around the course that can be developed have proven to be valuable. Trump sold more than 25 vacant lots bordering the course from 2007 through 2019, for a total of $48.2 million, with a median price of about $1.6 million each, according to property records.
THREATS, INSULTS, LAWSUITS
But unlike Trump’s ultra-exclusive golf resorts in Palm Beach and New York - where membership fees can be hundreds of thousands of dollars - he was required to keep Trump National open to the public by the California Coastal Commission, as part of a deal that the previous owners made with local residents to maintain open space.
To boost profits, Trump sought to develop expensive homes around the course. The previous developers had drawn up plans for 75 houses on its borders.
The risk of unstable soils was apparent when Trump bought the course in 2002. When another developer was close to opening the course in 1999, most of the 18th hole and parts of the 9th and 12th holes collapsed, trapping a man and his dog, who were rescued by helicopter. The owners then tried but failed to run it as a 15-hole course. Three years later, after the owners declared bankruptcy, Trump bought it from banking giant Credit Suisse at the bargain price of $27 million.
“We wanted to make damn sure that anybody who thought about building a house with conventional foundations wouldn’t have to worry about the house sliding into the ocean,” said Bill Cotton, one of the city’s consulting geologists.
‘ALL HE DID WAS BULLY US’
Trump’s history as owner of the Los Angeles golf course is a study in the hardball tactics that became a hallmark of his business career and White House tenure. When he ran into resistance in the secluded seaside enclave, Trump repeatedly tried to bulldoze his way through obstacles with threats, insults and legal actions.
“Councilman Stern doesn’t want to take down a flagpole, he wants to take down the American flag,” Trump wrote in a letter to the city manager, speaking of then-Councilman Doug Stern. “He should be ashamed of himself!”
The public browbeating was typical of Trump’s style, Stern said in an interview.
“All he did was bully us or try to,” he said. “If there are two ways to do something to accomplish a goal, there’s no thrill in doing it the right way. He always did it the wrong way.”
In 2005, when Trump needed to build a driving range before hosting a professional golf tournament, Stern said he proposed a solution.
“We told him: You can put a driving range in the area where you have questionable geology,” Stern said.
In June of 2005, a Trump executive came to a city hearing and agreed with city officials to get rid of 16 of the 39 lots under review and to instead use that land for the driving range.
‘WE’RE GOING TO SUE YOU’
Despite that agreement, Trump kept trying to win city approvals to build homes on that land. As the geology studies continued, Trump began leaning on local officials and the geologists who continued to find safety problems on the driving range site that stymied Trump’s development plans.
In June 2007, Trump called the Rancho Palos Verdes city manager and threatened to sue, according to minutes of a city meeting. Cotton, one of the geologists the city consulted, told Reuters that Trump also called him at his office twice with legal threats.
“First thing he says to me: ‘I’m looking at these lawsuits. We’re going to sue you and sue your company,’” Cotton said.
Cotton asked for time to review his files. Trump called him the next day, letting him know first that he was in a limousine on his way to film his reality television show, “The Apprentice.”
“Look, I can’t do anything,” Cotton recalled telling Trump when he called him back. “The ball’s in your court.”
“I’m going to sue you guys then,” Trump shot back, according to Cotton.
Trump’s lawsuit against the city, filed in December 2008, claimed he was being unfairly denied permission to build the 16 homes, among other projects, and that he was being held to a higher standard than other developers. As promised, Trump’s suit also named Cotton and two other geologists individually as defendants, alleging that they were trying to squeeze him to spend more money on unnecessary geological studies after he had already spent $3 million.
Steve Wolowitz, another council member at the time, told Reuters that Trump also called him at his home and office a “half dozen” times to pressure him before Wolowitz finally got fed up with Trump’s insults and told him to quit calling.
As the lawsuit dragged on, Stern wrote a memo to the city manager and his fellow council members in 2010 urging them not to settle the case because Trump could not be trusted to abide by any commitments he might make.
“What amazes me is that we seem to ignore the reality of what and who we are dealing with, acting like he thinks and behaves like an ethical person,” Stern wrote in a memo reviewed by Reuters. “Why do we now expect him to live up to his word, when he does not do that?”
SHOT DOWN IN COURT
Federal and state judges ruled against Trump during the long case, saying there was no evidence the city was being unfair. After four years of litigation, a new group of council members agreed to settle the lawsuit.
The city granted Trump’s request to rename a street at the golf course Trump National Drive. Other details of the settlement were subject to a confidentiality agreement. But Trump received no money, said the mayor at the time, Anthony Misetich, who added that the city’s relations with Trump improved after the settlement.
“My philosophy was, we were fortunate to have Donald Trump,” Misetich said in an interview, because Trump invested heavily to make the golf course “a beautiful property.”
By then, geologists had concluded in an August 2012 city sport that the driving range could only be developed if Trump conducted a massive stabilization project by sinking 104 “shear pins,” which are vertical shafts reinforced with concrete. That reinforcement work would likely require supports running 50 to 60 feet deep, with costs well into the millions, according to southern California construction engineers and geologists.
Trump also faced a steep political challenge in restoring the housing lots - lots that he had agreed to give up when he sought city permission to use the land as a driving range. He would have to start over in applying to subdivide the property for homes, and then, separately, he would have to apply for permission to build on the unstable soil, the 2012 report said. That process would likely have dragged on for years and drawn fierce opposition from community groups, said current and former officials from the city and the state coastal commission.
In the end, Trump never did the pricey stabilization work, and never applied to reinstate the building lots. He chose instead to use the easement to get the $25 million tax deduction that is now under investigation.
In a letter memorializing the easement, the conservancy’s board thanked Trump, calling his donation “generous.” Trump also agreed to give a total of $70,000 to the nonprofit.
The land will be primarily used by golfers - Trump’s paying customers. Still, the letter, signed by the conservancy’s board president, hailed Trump for preserving the property “so that the public may use it for recreational purposes and enjoy its breathtaking views for years to come.”