ADDISON COUNTY — Budget woes could spell major changes for the state’s Use Value Appraisal Program, better known as “Current Use,” which is credited with preserving millions of acres of Vermont forestland and farmland from development.
Right now, the 32-year-old program is facing a one-year moratorium on new enrollments, higher penalties for landowners who withdraw land from Current Use to be developed, and a new property transfer tax that would be more in line with the rates applied to other property sales in the state.
Those changes are one step closer to being enacted after House members last Wednesday approved H.485, which is now headed to various committees in the Senate for discussion. If the bill becomes law, the changes could save the state $1.6 million.
The program is popular: A third of the land in Vermont is enrolled in the program. Property owners who enroll their land enjoy tax breaks, because their land is taxed at the value of what it is currently being used for, instead of at the higher value it would have if it were developed. The tax incentive encourages property owners to protect working landscapes.
Meanwhile, the state reimburses individual towns for the tax revenue they lose because of the program. Right now, reimbursements total roughly $11 million each year.
The program first came under scrutiny last spring, when the Legislature was scrambling to approve a budget for fiscal year 2010. At that time, a few proposals were tossed out, including a possible cap on the assessed value of land in Current Use.
“It just struck us as undermining the whole principal of Use Value Appraisal,” said Darby Bradley, the special assistant for donor and government relations at the Vermont Land Trust.
Bradley was one of the people who pushed hard for the Legislature to postpone any hasty decisions. Instead, the VLT, along with groups like Rural Vermont, the Vermont Farm Bureau, the Vermont Natural Resources Council and other groups to hash out ideas in an formal “study group.”
“We argued, ‘Before you make such a fundamental shift on a law that’s been around for 30 years, let’s understand the consequences,’” Bradley said.
The study group’s challenge was to come up with $1.6 million in either increased revenues or decreased expenditures for fiscal year 2011. The first step, Bradley said, was to study the problems they saw in the Current Use program as it exists today. The group hoped that they could eventually strengthen the program while at the same time drumming up more money.
“We’re trying to (raise this money) in the context of strengthening the effectiveness of Current Use,” Bradley said.
By early December some of the group’s recommendations — which included higher penalties for land taken out of Current Use, as well as more involvement from towns in collecting the increased taxes — went to the Legislature. The pace was quick, Bradley said, because the legislation will need to pass within the first 30 or 45 days of the session if the changes can be in place by FY11.
Some of the study group’s proposals were ultimately modified in the House bill, and others, like the moratorium, were added for the first time.
DETAILED CHANGES
The proposal on the table today would make a few key changes to the Current Use program.
Under the current system, when land is developed, owners must pay a Land Use Change Tax (LUCT). The value of the developed portion of the land is pro-rated from the value of the entire parcel. The landowner pays 20 percent of the pro-rated value if the land has been enrolled in Current Use for fewer than 10 years, and 10 percent of the value if enrolled for more than 10 years.
Under the proposed system, the LUCT would be set at 10 percent of the fair market value of the land that is actually being developed.
If a landowner were to sell two acres of a 100-acre parcel valued at $160,000, the LUCT under the current system would be either $400 or $800, depending on how long the land had been enrolled in Current Use.
Under the proposed change, the two-acre plot could be valued at $60,000 at fair market price, and the LUCT would jump to $6,000.
The bill would give landowners a 90-day window to withdraw their land from Current Use and pay the tax under the old system.
Though the penalty increase is high, Bradley said he thinks the change will help restore the original intent of the Current Use legislation. The deterrent could help prevent landowners from enrolling their parcels in Current Use simply to take advantage of the immediate tax benefits, though their intent could be to develop their land down the road.
OPPOSTION TO CHANGE
So far, the most strident opposition to the bill has come from woodland owners and forestry associations, though farm advocates have also voiced concerns.
Chief among those concerns is the proposed moratorium — a change that did not come out of the recommendations put forward by the study group last fall.
“Nobody likes the moratorium. We really need to have that off the table,” said Brian Moyer, the executive director of Rural Vermont.
Moyer said that property taxes make up a farmer’s biggest expense, and worried that the legislation could hurt new farmers who haven’t enrolled in the program yet.
So far, Bradley said, it’s impossible to know how many landowners could be affected by the moratorium. On average, around 700 landowners each year enroll land in Current Use.
Certainly, he added, landowners who invested in forest or land management plans in anticipation of applying for tax benefits will be upset that the option to enroll could be taken off the table. Even if the moratorium is extended beyond this year, those hoping to apply this year would be allowed to enroll land next year, Bradley pointed out.
Allen Karnatz, the regional director for the Champlain Valley at the VLT, said that farmers at the Vermont Farm Show in Barre last week were certainly interested in the proposed changes.
“I think everybody is very much interested in where this is going, because Current Use really is a critical piece in helping to maintain our working landscape,” Karnatz said. “There is a general sort of buzz about changes (out there).”
Though the proposals have raised some hackles, other individuals have pointed out that balancing the spending cuts necessitated by the $150 million state budget deficit with a commitment to programs like Current Use is challenging, to say the least.
“I think that groups are trying very hard to maintain the integrity of the program, and any change is difficult,” said Deb Brighton, a Salisbury resident who served as the director of the Current Use program in its early days. “I think that’s really the task before the Senate right now, to make sure that they can maintain the integrity of the program and also be fair to people.”