Editor’s note: This commentary is by Steve Allen of Winooski.
The Current Use tax subsidy program costs Vermont taxpayers $57 million a year and is growing at an alarming rate. The cost of this subsidy has doubled in the last 10 years and has placed an increasingly heavy burden of higher property taxes on non-subsidized property owners. The time has come to closely examine the fairness and effectiveness of Current Use.
The Current Use program had well-intended beginnings. Current Use was established “to encourage and assist the maintenance of Vermont’s productive agricultural and forest land” and “to encourage and assist in their conservation and preservation for future productive use …” The goals are commendable, by recognizing the vital need to protect Vermont’s working landscape. But what started as a worthy goal has devolved into an unjustified and unsustainable subsidy to one class of property owners, at the expense of others. The main problems with the program, in my view, are: 1) the program does not adequately protect the lands which benefit from the subsidy; 2) the subsidies are too generous; and, 3) the subsidies are not appropriately targeted.
Under the Current Use program, properties are taxed at levels which are absurdly low, even considering their current use. For example, agricultural land is taxed based on a “use value” of $279 per acre. This is a small fraction of what the property is worth as productive agricultural land. Similarly, forest land is taxed at a base rate of $118 per acre, well below what productive forest land sells for.
Who are the beneficiaries of this program? No doubt, the program reaches every community in the state and benefits many owners of working farms and forests. But the program is more broadly exploited. Statewide, over 14,000 property owners are enrolled in the program, representing nearly 2.4 million acres of land. In terms of program cost, among the most prominent beneficiaries are property owners in towns like Barnard, Charlotte, Norwich, Shelburne, Stowe and Woodstock. In both Stowe and Woodstock the taxpayer subsidy for property owners enrolled in Current Use is around $1.4 million annually. Of course, protecting open spaces in these towns is also important, but the high level of direct subsidy from other taxpayers is not an equitable method to achieve this goal.
Similar to the income sensitivity provision for taxes on a homestead residence, the taxpayer subsidies for the Current Use program should be based on financial need. It doesn’t make sense to provide a property tax subsidy to high income households or corporations.
Who pays the cost of the program? We all do. Home owners and commercial property owners who pay property taxes based on actual market value are effectively paying the subsidy to the Current Use property owners. A particularly notable inequity of current property tax policy is that apartment rental properties, most of which are occupied by Vermont’s lower income residents, are taxed at a high “commercial” tax rate (even higher than single family homes) while productive and valuable agricultural and forest land is taxed at a small fraction of it actual use value.
What can be done? First, if taxing properties based on “current use” is the goal, it would make sense to tax forest and agricultural land based on what it is actually worth for forest and agricultural use, and not base the values on an artificial formula that deepens the subsidy beyond that which was intended by the program. There is abundant market data available which can be used to develop more realistic estimates of agricultural and forest use value. Specifically, the data that should be used as the basis for these estimates are sales of properties which have development restrictions in place. These sales reflect the real “use value” of farm and forest properties.
Second, limit participation in the program to property owners that actually restrict their land to agricultural or forestry use in a permanent way. It should be a requirement that land enrolled in the program should be subject to a conservation easement which permanently restricts the use of the land to agricultural or forestry use. The Current Use program is intended to protect and conserve our agricultural and forest lands. As the program currently stands, properties can be removed from the program and then developed, with the consequence of only a modest penalty. The penalty does not provide an adequate financial disincentive to prevent development. This defeats the purpose of the program to provide long term protection for our working landscape. Let’s provide a taxpayer subsidy to property owners who will commit to the long-term protection of their land.
A close examination of who receives the subsidy is also needed. Similar to the income sensitivity provision for taxes on a homestead residence, the taxpayer subsidies for the Current Use program should be based on financial need. It doesn’t make sense to provide a property tax subsidy to high income households or corporations.
Protecting Vermont’s open spaces is a complex challenge. But the Current Use program, as it is presently structured, is not an effective solution to provide long-term protection to our farm and forest lands. It is neither fair nor effective. The program provides an excessive taxpayer subsidy to property owners who may not need it, and, it does not insure that the land is protected from development, even after many years of expensive subsidy. It is time for a fresh look at the merits and structure of Current Use.
