There’s a problem with Vermont’s Current Use program, lawmakers agree. There’s no telling how big or expensive the problem is, but none dispute it’s there. Just how to solve it is another matter.
The problem is some landowners temporarily “park” land in Current Use, a special tax structure designed to make it affordable to conserve Vermont farms and forests in perpetuity. The ability to place land in Current Use for a tax break while deciding how to subdivide and develop it is a costly loophole.
With more than 2.3 million acres enrolled as of April 1, Current Use is costing about $57 million in municipal reimbursements and forgone tax collections, combined.
It’s impossible to say how much of that cost is eaten up by “parking.” But in light of continual budget pressures and increasing property taxes for education funding, the program is under scrutiny.
“What we’re trying to get away from is a perception of allowing developers to milk the program and walk away with a bunch of money,” said Sen. Bobby Starr, D-Essex/Orleans, who chairs the Senate Committee on Agriculture.
Here’s how Current Use works, and how it can be manipulated for tax savings despite the program’s intentions: Enrolled land is taxed on the value of its “current use” rather than the full value it could fetch on the real estate market.
The state therefore collects less money in property taxes, in exchange for maintaining Vermont’s rural and working landscape. Municipalities don’t see a difference in their portion of property tax collections, because the state makes up the difference to keep local taxes whole.
The state holds a lien on the property while it’s enrolled — which, in theory, is forever. If a landowner wants to pull out of the program, he or she must pay a tax when the land use changes. That tax is more often referred to as a penalty, and it’s at the heart of the debate between the House and Senate panels that are tackling the parking problem.
They’re trying to fix other aspects of the program, too. But the penalty has dominated legislative discussions of Current Use since at least 2009.
“We’re trying to fix this once and for all, so maybe for the next couple of years we might be able to work on something else that needs addressing,” Starr said. He added that he’d like to preserve his committee’s time and energy to address water quality issues, in particular.
Senate Agriculture Wednesday unveiled its recommended changes to the program, including a new penalty structure they say will help eliminate parking. The language is still being drafted, but the gist of it is different from a bill that passed the House in 2013.
Senators propose increasing the penalty when land is taken out of Current Use after less than a decade. Any land that is taken out would be taxed at 10 percent of fair market value. Starr estimates the provision more than doubles the penalty.
That part of their plan is good, says Jamie Fidel of the Vermont Natural Resources Council.
But Fidel expressed serious concerns about the rest of the penalty structure Starr described to a group of stakeholders Wednesday morning. He said the penalty for withdrawing land after more than a decade remains weak, at best, and may even be diluted.
Starr defended his committee’s proposal to charge a 10 percent land use change tax on the pro-rated value of any land or portion of a parcel that’s pulled from the program after 10 years.
He said the penalties for taking land out of Current Use were too high when the program started in the late 1970s. The threat of the penalty discouraged enrollment, Starr said. When the penalty was reduced several years ago, enrollment soared.
“Ever since we changed that penalty, it’s not only secured the importance of the program,” Starr said. “It’s expanded the program.”
Starr expects to give landowners the option of leaving Current Use without a penalty when they make changes — as a matter of fairness to someone who signed up under different rules. The Senate committee’s strategy is to keep the number of opt-outs to a minimum.
“If we get the penalty too high, we have to give everyone the option to get out,” Starr said. And with more people out, the state can expect more subdivision and more development, he predicted.
The House version takes a different approach to the penalty structure.
The percentages are lower: 10 percent for land enrolled less than 10 years, 8 percent for land enrolled up to 20 years, and 5 percent for land enrolled longer. But all would be applied to the higher full market value, making most of the penalties stiffer.
Starr said the bill likely will be voted out of his committee this week or next.
