A Taxing Dilemma
NOTE: Reluctant though the News Guy still is to continue a story over the weekend, once again it seems necessary. Here, the first of two parts.
So your property taxes are going up. Aren’t everybody’s?
Actually, no. Some property owners in Vermont are paying less in property taxes this year than last year or the year before. Nor are these indigent owners of dilapidated shacks on weed-filled lots. Some are rich folks who own thousands of acres of productive land.
And who has made it possible for their tax bills to be lower?
You have. Or, to be more precise, the people of Vermont have over the last few decades, and that probably includes you. Furthermore, almost nobody thinks that the policy allowing these land-owners to pay less in taxes is a bad policy that ought to be abolished.
Which is not to say that there is no controversy here. There has been a great deal, and it may be about to boil over again as this year fades and the Legislature gets ready to resume in January.
The object of this controversy is the Current Use program, which is really not a program as much as a policy. Under this policy, established in 1978 but substantially revised in 1997, the taxes on farm and forest land are based not on the land’s market value, as are the taxes on most other properties, but on what one supporter called “the income-generating potential of the land.”
Which is less than full market value (or if it isn’t, the property owner doesn’t have to use Current Use), meaning the taxes will be lower.
In other words, though it’s considered unacceptable to say this in polite Vermont society, it’s a tax subsidy. Vermont’s other taxpayers – those who own mere houses, shops and the like – pay more so farmers and forest-land owners can pay less. Fiscally speaking, it’s a tax expenditure, no different from collecting the full market value property tax and then sending each farm and forest owner a check.
None of this means it’s a bad policy. It does render inconsistent the claims from farm and forest owners that they are devotees of the “free market.” But that makes them no different from other interest groups, all of whom love the “free market” when it benefits them and all the public subsidies they can get.
In fact, as mentioned, there is something close to universal agreement that Current Use is good policy, that it is one reason Vermont retains as much farm and forestland as it does. Good not only for agriculture and the forest products industry, but for tourism. And that’s just the economic benefit. Having farms and forest is also what makes Vermont the kind of place in which most Vermonters want to live.
So why the controversy?
First, because Current Use is expensive, and likely to get more expensive. According to the Tax Department’s William Johnson, it “cost the Education Fund (financed largely by the statewide education property tax) $35 million this year ($33,913,934 according to the official report, but that’s close enough), and will soon be $50 million a year.” The state also reimburses local governments for the money they lose because of Current Use. That now amounts to roughly $11 million.
So as this year’s Legislative session drew to an end, lawmakers scrounging around for revenue looked into getting more from the land-owners enrolled in Current Use. One idea was a cap on how much some landowners could benefit from the policy. The cap would have brought in an additional $1.6 million.
They didn’t get it, thanks to an unusual political coalition in which the Farm Bureau and the Vermont Forest Products Association were supported by the organized environmental community, with whom they are often at odds. After what both sides described as some rather heated discussions, the legislators agreed to wait.
But not forever. The burden is now on the producer/environmentalist coalition to come up with some ideas for raising something close to that $1.6 million without over-burdening the farmers and woodland owners. Meeting as the Forest Roundtable, some of them have come up with a draft “options report” they plan to discuss at a meeting in Randolph next week.
The other reason for the Current Use controversy is the belief, or at least the suspicion, that some landowners who benefit from it don’t really need it or deserve it. The draft report of the pro-Current Use Forest Roundtable acknowledges that the tax break for property owners enrolled in Current Use has steadily gone up, leading to a growing “perception of unfairness.”
Fortunately for Current Use supporters, this perception has not yet grown into anything like a political movement. Unfortunately for them, the (so far) lone public agitator for scaling back some of the tax breaks is a vivacious, persistent, energetic woman who is a property lister in the town of Vershire as well as a self-styled “Jane Q. Public” who keeps showing up at public meetings to point out what she considers the unfairness of the present system.
Not for the first time, Deb Kingsbury attended last month’s meeting of the Current Use Advisory Board to argue that some property owners are “using (Current Use) as a tax break,” and that too much of the benefit goes to out-of-staters.
Like almost everyone else, Kingsbury favors the basic idea behind Current Use to help farmers and foresters hold onto their land.
“But we’re giving such a big tax deduction while everybody else is still paying,” she told the Board, whose members set the per-acre value of the farm and forest land.
For forest land, that value is now $123 per acre, lower than it has been in years. The result is that even as tax rates have crept up, some tax bills have gone down. In the town of Bridgewater, for instance, where there are 83 properties enrolled in Current Use, the Town Clerk’s office reported that the tax rate had risen from 1.3324 last year to 1.6949. But a year ago forest land was taxed at $136 an acre. The tax for some property owners, then, has declined by some $10 an acre, a decline of hundreds if not thousands of dollars even as other property-owners are paying more.
“We’re giving an 88.4 percent tax break,” Kingsbury said, citing the latest report of the Division of Property Evaluation and Review. “Nobody would not take a 68 percent tax break.”
But as Ed Larson of the Forest Products Association pointed out, the land value has been set so low because the price forest owners are getting for their product has plummeted.
“We’d be happy to pay more taxes if we made more money,” Larson said, claiming that most forest owners are now paying in property taxes roughly half the revenue they get from selling their product.
Capping the current use benefit or altering the formula to eke more money out of it, threatens to destroy the “core premise, the established principle,” that the tax should be based on how much money could be made the land, not the development value of the land or the wealth of the land-owner, said Jamey Fidel, the forest program director for the Vermont Natural Resources Council.
For at least two reasons, though, there is more going on here. One is that the Current Use controversy does not stand alone. Instead, it is related to the larger state fiscal predicament. Second, while almost nobody wants to raise the taxes of hard-working Vermont farmers and loggers, driving them out of business and their land into suburban-style development, not everyone enrolled in current use is really in the farming or logging business (or, for that matter, Vermont).
Trying to distinguish who is really what, though, isn’t easy, as shall be explained Monday
Tags: Current Use
October 9th, 2009 at 10:16 am
Thanks for this report. Here in Vermont there are a few sacred cows that the public and government support less as a policy and more as a personal sentiment. How can any rational Vermonter not support farms, forests and open land? To oppose or even question the Current Use subsidy is to commit sacrilege. But as with other sacred cows in Vermont, the numbers don’t always jive with the spirit of the law. Also contributing to this sentimental reverence is the assumption that Vermont is the only state with such a law on the books, and/or that somehow our law is somehow not comparable to similar laws in other states.
I concur with Ms. Kingsbury in her evaluation of the Current Use subsidy. Yes, many career farmers and loggers benefit in a way that helps Vermont as a whole. But the problem with the policy is that, like most Vermont laws, there has been no state evaluation. This is acknowledged in a white paper published at Cornell University.
“Regardless of one’s views on lineage, however, the special use, or agricultural, districts have proliferated in New York and elsewhere without much organized study or evaluation of program performance. The outcomes promoted by these laws have yet to be fully fleshed out by the research community, or carefully analyzed by policymakers.” (Ref: http://aem.cornell.edu/faculty_sites/nlb4/publications/SP98-01.pdf)
This study was published 11 years ago, but the question of evaluation should still be asked. By what measures does Vermont assess the Current Use program? What are the measurable benefits? What are the unintended consequences?
Policy process is described by its key parts: Identification of the problem; Formulation of a solution; Implementation of the formulated policy; Evaluation of policy effectiveness. Evaluation measurements then determine whether or not the policy should repeat the cycle if the measurements demonstrate a need to Identify negative consequences, re-Formulate, and so on.
Rarely do we see an evaluation of popular programs and policies like Current Use and this is unfortunate because unintended consequences can cost Vermonters a lot of money, affect our communities and create undue benefits for those who know how to make personal gain with little or no effort. Indeed there are many red flags to suggest the Current Use program creates multiple negative consequences with only one or two advocates suggesting we take a second look. Of course, a lone yet strident Vermonter like Ms. Kingsbury is unfortunately dismissed as a person of ill will.
Current Use creates economic divides between rich and poor; raises land value and education tax for owners of surrounding and similar properties; substantially decreases state revenue; and provides tax write offs for beneficiaries who do not earn the majority of their real income through agricultural use except through the magic of accounting. However, these negative consequences continue because the Current Use program has never been evaluated by the State of Vermont.
In addition to the Vermont Forest Products Association and the Vermont Farm Bureau, of which I am a member, we should recognize the Vermont Land Trust as a promoter and active lobbyist in the Forest Roundtable. (Ref: http://www.vlt.org/current-use.html)
The Vermont Land Trust in particular seems egregious in its promotion of tax benefits for affluent non-farming individuals. The examples provided in their Tax Benefits paper are clearly representative of affluent beneficiaries, not the cash-poor, land rich dairy farmers who were originally considered during the creation of the Current Use program. Detailed examples include tax benefits for the hypothetical landowner who earns $100,000 annually and the imaginary widow with $1.2 million estate in addition to her land valued at $800,000. VLT’s target audience in its promotion of
the donation of conservation easements are clearly not the directed to dairy farmers and vegetable growers with more land than money. (Ref: http://www.vlt.org/Tax_Benefits_Donating_Easements.pdf)
Vermont’s Current Use program deserves more attention through an independent evaluation of unnecessary tax benefits reducing state revenue. In many states, tax subsidies intended for land-rich, cash-poor farmers and forest owners now benefit landowners as a tax write off. Lacking a critical examination of this popular policy will result in further lost revenue and other unintended consequences not considered during the creation of the Current Use program.
Nate Freeman
Northfield, Vt
October 11th, 2009 at 7:03 pm
Nate
A agree that all such programs should be evaluated regularly.
But I think you’re off the mark on the VLT. First, VLT’s publication is about the purchase of development rights and only peripherally about the Current Use Program. The most significant tax benefits are federal, not state.
Second, the goal is to preserve important open land. Some of these parcels are owned by comparatively wealthy residents (or non-residents). Therefore, it’s not surprising that they create a hypothetical targeted to this group.
Finally, are you suggesting that VLT should only target open land owned by poor farmers? If so, it would exclude many beautiful properties that may well be closer to towns and, therefore, more likely to be developed if offered for sale.
October 12th, 2009 at 8:06 pm
As I remember the original intent of the Current Use program it was to ensure that productive farm and forest land be kept in that use and not be sold off due to the high property taxes that the use of the land couldn’t support.
The general idea was for the land to be kept in this use in perpetuity. However, the penalty provisions for withdrawing the land from current use were basically a joke. Any landowner that was just buying the land for development could put it in current use and withdraw it later and have a strong net benefit after paying the measly penalty.
So the emphasis on current use is on the word current. Other taxpayers are paying an annual fee to keep that land in its current use. This also raises the value/cost of land in Vermont. With so much land in current use there is less available for other uses. Absent current use, the value of the land would drop and the amount of taxes on land only suitable for forestry purposes would be what the forestry use could support.
However, much of this land has significant other value. In some cases, the cost of keeping some land open is extremely high because it is prime development land.
So, what kind of improvements to the program should be made?
* A cap on the value of land in current use would be a good place to start. We should essentially let land that has a very high use value be used for that purpose. This allows more emphasis on the properties that should be maintained as farm or forest land.
* The income of the landowner has no bearing on whether the goals of the program can be met from a particular property and shouldn’t be a criteria.
* Do a meaningful penalty. This would help cover the cost of the program and keep more land in it that belongs in it.
* And perhaps the granddaddy of them all – - maybe we should skip current use entirely and go only with the Housing and Conservation Board programs to buy development rights to our most important farm and forest land properties. That preserves the important properties in perpetuity and let the other ones fend for themselves.
PJ
October 16th, 2009 at 6:41 am
I appreciate what both of you are saying. I think we might all agree for the need of an independent evaluation of the program.
Nate