Lawmakers Look to Crack Down on "Current-Use" Abuse
Is the state’s “current-use” program a tax break for rich property owners or a crucial safeguard to prevent Vermont from becoming one big subdivision? It depends on who is assessing the state program that reduces taxes for some landowners of ag and forestlands by an average 88 percent.
But many Vermonters agree it’s due for an update, and that’s the goal behind H.329, a House bill passed last Friday that is now en route to the Senate.
Enacted in 1978, current use — formally known as use value appraisal — gives property owners lucrative tax breaks to keep land undeveloped. As its name implies, eligible landowners using property for agriculture or forestry are taxed on the value of their land as it’s currently being used, rather than the much higher potential value if the land were to be developed.
Critics complain that developers can game the system to reap short-term tax benefits and develop land later on, and there’s little oversight once a landowner is enrolled in the program. They also note the policy is costly — the state is obligated to reimburse towns a total of $13.3 million in lost municipal tax revenues for tax year 2012 — and that average taxpayers are paying for it. The price tag for current use has increased 8 percent per year, on average, over the past decade.
Supporters such as Rep. Alison Clarkson (D-Woodstock) call current use the most important conservation program in Vermont. More than a third of the state’s land is enrolled in the program — more than 1.7 million acres of forestland and 550,000 acres of farmland.
“If it had been taxed on its market value and not its use value, we would not have the same landscape that we have today, because the economic pressures would have driven them all into subdivisions and development,” says Clarkson, the lead sponsor of H.329.
But as it stands now, the penalties are so low that would-be developers can enroll in current use, enjoy the resulting tax breaks and still come out ahead when they turn around and subdivide or develop their land. In some cases the break-even point on that equation is less than a year. Critics call the practice “parking” land in current use.
Clarkson’s bill proposes a tiered system of penalties. The penalties would be higher than they are now in most cases, but the system would also reward landowners with lower penalties the longer they keep their land undeveloped.
“Even people who don’t like current use should be pleased about this,” Clarkson says, “because it’s more money coming back to taxpayers.” H.329 marks the third attempt to reform the current use program in recent years. Then-governor Jim Douglas vetoed a bill in 2010 that would have increased penalties, and a second attempt subsequently stalled out for a year and a half in the Senate Finance Committee.
Indeed, plenty of Vermonters dislike current use. Some are upset that there’s no income sensitivity in the program, meaning wealthy landowners who could afford to pay higher taxes benefit from generous breaks. Others complain about landowners who enjoy the tax reduction while simultaneously posting their land to prohibit hunting and recreation.
“Then we can’t even use the land, which many times has been used for decades,” says Mary O’Brien, a selectboard member in Hartland. “People who don’t understand or respect that tradition have the money to buy huge tracts of land and use the rest of us to pay their share.”
Current use was a hot topic on Town Meeting Day in Hartland last month. Every year, the town publishes an annual report with a list of property owners who are enrolled in the program; in a small town like Hartland, the list always generates a lot of interest.
Hartland lister Pat Rosson says she’s concerned about the potential for fraud or abuse. When the self-described “flatlander” moved to Vermont 27 years ago, an adjoining property owner had 30 acres of farmland enrolled in current use.
“They were having it brush-hogged,” says Rosson. “That’s not ag to me. Miss busy-body here called the state, and they said they don’t have the time to go out and check on everybody.”
Bill Johnson, the director of property valuation and review at the Vermont Department of Taxes, concedes that while forestland enrolled in the program should meet a rigorous forest management plan, the ag side of current use is largely conducted in “good faith.”
“We only have three people doing this,” he says, referring to the small staff in the current-use division, “and they can’t go running around looking at millions of acres.”
Reading from her list, Hartland’s Rosson ticks off a couple of large properties receiving equally large discounts, including a $960,200 reduction in property value assessment for Cobb Hill Cohousing.
Another property owner — VTel CEO and president Michel Guité — has 160 acres enrolled in the program; working with Cornell and the University of Vermont, he’s planting new, high-sugar-content maple saplings for a sugarbush. That lowered the taxable value of his land, which does not include any buildings, by $707,400. His annual property tax bill comes to roughly $530, according to a December 2011 report in the Valley News.
O’Brien, who raises sheep and chickens on 10 acres in Hartland, feels that’s deeply unfair. Her property is too small to enroll in current use, which typically requires a minimum 25 acres to join. Her property tax bill is $9000 a year — 17 times as much as a landowner with roughly 16 times the amount of land.
“The disparity, the gap, between that $530 and my taxes — it’s so vast of a gulf, it’s impossible to ignore anymore,” says O’Brien. “And there’s no end in sight for me. We can’t afford to buy another 15 acres of land and throw our land in current use.”
Guité says that his agricultural endeavors — which also include planting historic orchards modeled after the varieties favored by Thomas Jefferson — qualify him for the program. “I don’t know if it’s fair or not, but that’s just the way it works,” he says. “There’s nothing that is different from my property than the other, say, 1000 farms in Vermont. … It’s only equitable that they should be treated all alike.”
All told, more than 13,000 acres in Hartland are enrolled in the program, resulting in a nearly $41.2 million reduction in the town’s grand list and $793,657 in tax savings for enrolled landowners.
And it’s not even at the top of the list: With 29,000 acres in current use, Fairfield earns that distinction. Cambridge and Averill are right up there, too. Meanwhile, the greatest tax savings are found, predictably, in towns with higher property values: Stowe, Pomfret and Woodstock, where participants in the program avoided, respectively, $1.33 million, $1.32 million and $1.26 million in total tax payments in 2012.
“Everybody says, ‘Well, the state reimburses you,’” says Rosson, referring to a provision in the program under which the state pays towns for the difference in their municipal taxes.
Her retort? “Where does the state money come from?”
Johnson backs up Rosson’s assessment: “Everybody in the state is paying for the program, through one form of taxes or another.”
Proponents, meanwhile, argue that the tax policy has economic value that outweighs its cost. In 2007, a current- use task force estimated that the economic payback of leaving land undeveloped — looking at everything from specialty foods to tourism — was more than $4 billion.
“People don’t get how essential it is to the economy and the working lands they value so much,” says Clarkson. In a perfect world, she said, bottles of maple syrup and other Vermont goods would come plastered with a label akin to “Made Possible by Current Use.”
Forests, Parks & Recreation Commissioner Michael Snyder is among those who rave about current use; he objects to the characterization of current-use as a “tax break” and instead terms it a tax fairness program. In his previous work as a county forester, he heard from landowners who said that were it not for current use, they couldn’t afford to retain ownership of their forestlands. While some are ideologically opposed to it — “There were many who said, ‘I’d never enroll in that welfare program,’” he recalls — many more depended upon it. Nearly half of all eligible parcels in the state are enrolled in current use.
“The pressure on people’s lands to subdivide, to convert to non-forests, is really staggering, and it’s growing,” says Snyder. “If you like how Vermont looks and functions and feels, it’s largely because we’re a forest state now.” That Vermont retains its forests, he says, is thanks in large part to current use.
Put Blodgett, the president of the board of the Vermont Woodlands Association, agrees. “If land is taxed at development value, that’s what it will become,” he says.
Current use’s biggest proponents — and there are many — argue that there are too many rumors about the program. The perception that rich, out-of-state landowners are tapping into the tax break is, they say, a misperception. Full-time Vermonters own 76 percent of the land enrolled in current use. That’s according to the Current Use Tax Coalition, a diverse team of advocates for the program representing conservationists, sportsmen, foresters and farmers.
Still, even many current-use supporters agree it’s time for some changes. Tom Vickery, who has worked as a lister and reappraiser in Stowe and Waterbury for more than 40 years, was a huge backer of the program in the 1970s. He’d seen firsthand the benefits of a tax stabilization program in Stowe that was a predecessor to current use, and Vickery was active in getting the original current-use law passed.
Years later, the state “watered down” the penalties associated with removing land from current-use — a decision that Vickery says made “a shambles” of the program. He and many other listers in the state were disappointed in the results.
“What we were seeing was people coming in to avoid taxes, not for the preservation and conservation we saw originally with the program,” he says. “We thought people were beginning to game the system.”
Now he’s holding out hope that tougher penalties might fix that problem. “I look at this as being a second generation of the current-use program,” Vickery says. “Let’s start fresh.”