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• ~ In-Stream Flow Incentives Program Environmental Defense, in collaboration with the Colorado Water Trust and the Nature Conservancy, is proposing legislation to create a tax incentive for water rights holders to donate water rights to the Colorado Water Conservation Board for use as instream flow (ISF) rights.' The purpose of this measure is to increase the utilization of the ISF program as a tool to protect and/or improve stream flow and aquatic and riparian ecosystems across Colorado. Under current law., the Colorado Water Conservation Board is exclusively authorized to hold "such water, water rights, or interests in water in such amount as the board determines is appropriate for stream flows or for natural surface water levels or volumes for natural lakes to preserve or improve the natural environment to a reasonable degree;," COLO. REV. STAT. § 37-92-102(3). The Board can acquire such rights through grant, purchase, donation, devise, lease, exchange or other contractual arrangement from any person or governmental entity. Id. Although other entities, such as the Colorado Water Trust, can acquire water rights, they must be donated to the CWCB to be held as ISF rights. While some conveyors of conservation easements on their land have added the value of appurtenant water rights to the value of the conveyed easements in order to enhance the value of the tax credit conferred pursuant to COLO. REV. STAT. § 39-22-522, no discrete, valuable financial incentive to encourage the donation of stand-alone water • rights to be held in the stream currently exists. By creating a distinct financial incentive to water rights holders to donate all or partial water rights to the CWCB, more streams can be protected from diminished flows and more agricultural lands can be protected from development. This proposal seeks to create the Instream Flow Incentive Tax Credit that would: • Create market incentives that encourage voluntary water rights donations to preserve Colorado's streams and rivers. • Create a transferable income tax credit, equal to 50% of the current use value (as determined by the CWCB) of the water right converted to instream flow. • Cap the individual tax credit claimed by rights holders to $100,000, and allow it to be carried over for up to five years or until the entire credit is used. • Cap the entire tax credit program at $2,000,000 per year. • Disallow instream flow tax credits in years in which the general fund budget does not reach its 6 % expenditure cap. • Require the highest industry standards for water rights appraisers and appraisals to qualify fo'r tax credits, a reform recently added to the conservation easement tax credit program. See section 3.3 of HB 07-1361 This proposal would NOT: