MONTPELIER — Legislators angling for an overhaul of the popular “Current Use” program, which provides tax breaks for owners of farm and forest lands, said their proposals would have trimmed costs from the state budget.
Gov. James Douglas disagreed, and he said so last week when he sent H.485 back to the Statehouse without his signature.
In his veto message, the Middlebury Republican said that legislators’ proposed changes to the program, officially known as the Use Value Appraisal Program, would have unfairly increased taxes while instituting highly nuanced, complicated and administratively complex changes to Current Use.
“Just when Vermont’s agriculture and forest products industries are facing the most daunting economic times in modern history, H.485 imposes additional taxes and burdensome bureaucracy on the owners of our state’s farm and forest land,” Douglas wrote. “This approach is in direct opposition to helping our traditional industries prosper in the 21st century.”
The decision drew ire from Sen. Claire Ayer, D-Weybridge.
“In my mind, it destabilizes the program,” Ayer said on Thursday afternoon. She disagreed with Douglas’s allegations that the Legislature ignored his administration’s objections, as well as those of many Vermonters. She pointed to at least one concession in the bill — which would have let landowners withdraw land from Current Use tax-free until Sept. 1 — which she said was made specifically in response to Douglas’ objections.
“We had widespread support for the changes that we made,” Ayer said. “I think it’s a big mistake to veto a program that provides tax relief to so many people.”
Current Use rewards landowners with lower taxes for keeping working farm or forestland free from development. It’s a hugely popular program, and backers say a third of the land in Vermont is enrolled. But it’s also expensive: Right now, the state reimburses towns $11 million each year to make up for lost tax revenue.
The high cost of running Current Use meant the program came under fire last year, when legislators were scrambling to approve a budget for fiscal year 2010. At the time, a few proposals were tossed out, including a possible cap on the assessed value of land in Current Use.
Proponents of the program argued any hasty changes could undermine the value of a program credited with preserving Vermont’s open spaces. So groups like Rural Vermont, the Vermont Farm Bureau, the Vermont Natural Resources Council and the Vermont Land Trust spent last summer and fall trying to come up with $1.6 million in savings, either in increased revenues or decreased spending.
That independent group presented the Legislature this winter with a number of proposals, some of which worked their way into the final version of H.485. Working in the last hours of the session, lawmakers proposed leveling a $128 “per participant” fee for every landowner in the tax abatement program.
Proposed changes also would have hiked penalties for withdrawing land for development — something proponents thought would right an alleged flaw in Current Use. Now, penalties are insufficient to discourage landowners from just temporarily enrolling land in the program, reaping the tax benefits, and then turning around and developing their parcel.
Another change called for raising the property transfer tax on Current Use parcels from 0.5 percent to 1.25 percent, the amount already used on other property transactions in the state.
In his explanation of the veto, Douglas pinpointed the change in the Land Use Change Tax (LUCT), or the penalty for withdrawing land, as perhaps the most troubling part of H.485. While proponents of the changes said such a change would strengthen Current Use, Douglas argued the opposite.
He worried higher penalties would encourage landowners to take large tracts of land out of Current Use, and that allegations of “parking” land in Current Use are minor and anecdotal.
Douglas, in an interview with the Addison Independent on Friday, said the $1.6 million hole in anticipated revenue that his veto creates is minor in the scheme of things, especially considering the state bridged a gap in the fiscal year 2011 budget “100 times that size.”
He said he was amenable to tiered changes that would make penalties for removing land from Current Use more aggressive, but that he balked at the idea of raising three taxes at a time when farmers and other landowners are struggling.
“For a lot of people … their wealth is in their land,” he said.
Further, the governor argued that the administrative changes recommended by the Legislature would be “extremely difficult, if not impossible” to implement within the timeframe necessary to have an effect on fiscal year 2011.
On the administrative front, Ayer argued the state can’t afford to continue with the status quo. The operation is a pen-and-paper one, and some of the increased revenues from the proposed changes would have gone to digitize maps and documents. With Current Use experts retiring or leaving the program, Ayer said it’s imperative the state invest in new technology that will keep the program running smoothly in the future.
Douglas agreed — but didn’t feel raising taxes is the answer for doing that.
“It doesn’t make any sense not to streamline this program,” Ayer said. She admitted that farmers she spoke with were unhappy at the prospect of higher taxes, but said that was to be expected.
“Everybody wants to pay less,” Ayer said. “But if you ask (landowners) about stabilizing the program and making it predictable year-to-year, that’s what they want. That’s what they need.”
Ayer also worried that the governor was protecting the interests of a small number of landowners — including some who might “park” land in Current Use to save money on taxes in the short term — at the expense of both Vermont taxpayers and the majority of those enrolled in Current Use.
Right now, the amount of land taken out of Current Use each year is 0.2 percent of the total land enrolled.
Legislators will have to regroup in the wake of the veto. While the proposed Current Use changes won majority support in the Senate on the last evening of the session, Ayer wasn’t sure the Senate could rally the necessary two-thirds of its membership to override the veto at the possible June 9 special session.
Douglas, meanwhile, said compromise may be possible, but that realistically that will have to wait until next year’s legislative session.
Reporter Kathryn Flagg is at [email protected].