Current use system raises questions on fairness, cost

Lyme selectman says law unfairly hurts rural towns


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For nearly half a century, the current use law has been the primary means New Hampshire and other states use to preserve open spaces and protect natural landscapes. Public support, at least in the Granite State — anchored by the timberland owners, farming community and a broad array of environmental and conservation organizations — is wide and deep, based in large part on claims that the program not only bears no cost to taxpayers but also more than pays for itself. 

But Bradford “Rusty” Keith, a selectman from Lyme, while supporting the conservation and environmental purposes of the current use program, challenges what he called “the tax scheme” underpinning it.

“I agree with the deal,” he remarked, “but we’ve never measured the cost of the deal.” 

He estimates the program costs property taxpayers some $118 million a year, a burden borne disproportionately by the property taxpayers of small rural municipalities. Like the funding of an adequate public education, Keith contends that since current use is a state program that municipalities are required to administer, its cost must be “proportional and reasonable” as the state constitution prescribes. 

Keith recently spoke before the House Municipal and County Government Committee in support of House Bill 1210, which would convene a committee to study “the effect of current use taxation on small and rural municipalities.”

The bill’s sponsor, Rep. Francis Gauthier, R-Claremont, told the committee that because 70 percent of the land in Claremont is enrolled in current use, it generates a total of just $50,000 in property tax revenue. The program brings “hurt and pain to low-income property owners” left to shoulder the tax burden, he said. “Please do something about the property taxes.”

The owner of a $46,750 property in Orford pays more for current use than the owner of a $25 million property in Nashua.

At the suggestion of Sen. Bob Giuda, R-Warren, one of the sponsors, the committee, by a 14-0 vote, amended the bill by referring the issue to the Department of Revenue Administration and the Assessing Standards Board. The bill directs the agencies to report on the valuation and assessment of land enrolled in current use and the financial impact of current use on small, rural towns.

The bill also instructs the agencies to consider whether the practice of taxing lands under permanent conservation easements as if they were enrolled in current use is constitutional. The agencies are required to report by Nov. 1.

Rural vs. urban

The NH Legislature enacted the current use law in 1973, five years after voters approved a constitutional amendment to allow land to be taxed according to its current use rather than its ad valorem, or fair market, value. The program was introduced as rapid population growth increased land values, prompting owners of farmland and woodlots to sell properties on which the property taxes eroded or exceeded the economic returns. 

The program is administered by the Current Use Advisory Board, which is composed of state officials and gubernatorial appointees. Each year, the board prescribes a range of values for the assessment of land enrolled in the program.

Parcels of at least 10 acres of farm or forest land, along with wetlands and unproductive land, may be enrolled in current use.

Farmland is currently assessed between $25 and $425 per acre. White pine forest with documented stewardship is assessed between $66 and $99 per acre and without stewardship between $110 and $165 per acre. Hardwood forest with stewardship is assessed between $28 and $43 per acre and without between $47 and $71 per acre. Unproductive and wetlands are assessed at $20 per acre. If land in current use is not posted but open to recreation — hunting, fishing, hiking, skiing, snowshoeing and nature observation — it qualifies for an additional 20 percent reduction in assessed value. 

There is no buyout provision in the program. When land in current use is sold or transferred, it remains enrolled. But if the land is either developed or put to a disqualifying use, a land use change tax equal to 10 percent of its “full and fair value” is charged.

Today, 3,008,456 acres — more than half the land area of the state — is enrolled in current use, and virtually half of it qualifies for the recreational discount. Forest land, with and without stewardship, covers 2,623,405 acres, or 87 percent, of the land in current use. The 204,353 acres of farmland account for 7 percent of the total, while 180,698 acres of unproductive land and wetland make up the balance.

Land in current use represents at least 60 percent of the area of 85 municipalities, mostly small, rural towns. On the other hand, some cities and larger towns may have a third or a quarter of land in the program, but others less than 10 percent or as little as 2 percent.

‘Principal underpinning’

Advocates of the current use program cite cost of community services studies to quantify its benefits. These studies conclude that development, especially residential development, stokes demand for municipal services — schools, roads, waste disposal, water and sewer systems, police and fire protection and so on — the cost of which exceeds the property tax revenue generated by developed properties. On the other hand, even the modest revenue from open space enrolled in current use exceeds the cost of the services it requires. 

Moreover, they refer to other studies that stress the economic value of land conservation.

Jasen Stock, executive director of the NH Timberland Owners Association, told the House committee the program is “the principal underpinning of timberland ownership,” which supports an industry with an annual output worth $1.9 billion that employs more than 6,000 people.

Rob Johnson II of the NH Farm Bureau Federation described current use as “the foundation of working farms,” adding that more than 4,000 commercial farms manage 470,000 acres and report annual direct sales of more than $479 million.

According to the Trust for Public Land, every $1 invested in land conservation returns $11 in the value of natural goods and services. The Outdoor Industry Association estimates that outdoor recreation sustains some 79,000 jobs and produces $528 million in state and municipal tax revenue. 

Keith, the Lyme selectman, does not dispute these findings, but instead calls them “irrelevant.”

The property tax, he explained, “is not a consumption tax,” explaining that taxpayers do not pay only for the municipal services they receive. Instead, he said, “the property tax is a distribution tool for sharing the costs of town services among all property owners according to the value of their property.”

He noted that less than a quarter of households in Lyme include children of school age, but the other 78 percent are also taxed to fund public education. 

“There is a lack of transparency,” Keith said. “The taxation scheme dramatically impacts the determination of the local property tax rate, but the cost is hidden in the calculation of the tax rate and it is not reported.” 

The Lyme example

The impact on the property tax rate, Keith said, is a function of the extent of land enrolled in current use in a municipality and the difference between the fair market value and current use assessed value of that land.

Municipalities report the fair market value of property annually to the Department of Revenue Administration, which conducts the equalization process to ensure equitable allocation of state and county property taxes. Lowering the assessed value of land enrolled in current use reduces the tax base and increases the tax rate.

For example, in Lyme there are 26,440 acres, or 92 percent of the taxable land area of the town, assessed at current use rates. This acreage includes 6,961 acres subject to perpetual conservation easements, which are treated as if enrolled in current use. Keith questions whether land whose owner has surrendered the right to develop it and is forever protected against development should qualify for a tax incentive intended to forestall its development. 

In the 2017 tax year, the market value of all property was $459,917,450, of which $81,513,250 represents the market value of the land enrolled in current use. 

The discounted assessment of this acreage amounts to $79,216,850, a reduction of 97 percent, shrinking its assessed value to $2,296,400.

Keith calculates that the discounted assessment represents $1,751,680 in shifted property tax burden. “In the town of Lyme, that is the taxpayers’ cost of the current use benefits,” Keith said. “It adds $5.08 to the 2017 tax rate.”

Like other municipalities, Lyme provides exemptions for the blind, elderly and disabled as well as a credit for veterans. The exemptions amount to $4.9 million, and $42,000 is appropriated for a veterans’ credit. In addition, there is tax-exempt property in the town with a market value of $30.3 million.

Altogether the exemptions, credits and tax exempt property represent $1.81 of the tax rate, less than half the cost of the current use discount. 

‘A state tax’

According to Keith, the cost of current use is shared among all property owners, including those with land enrolled in the program, since all must pay the additional $5.08 per $1,000 of assessed property value. He has calculated that the 316 property owners with land in current use pay $759,733 of the $1,751,680 while the balance of $991,947 is borne by remaining property owners in town. 

That means, according to Keith, current use raised the tax rate in Lyme by $5.08, from $22.11 to $27.19. Consequently, he said, while the property taxes of 205, or 65 percent, of those with land in current use realize a net tax savings, the tax liability of the remaining 111, or 35 percent, is greater than it would be without the current use program. 

For instance, without current use a property in Lyme with a market value of $460,000 would be taxed at a rate of $22.11 and have a tax bill of $10,170. But the same property with a current use discount of $60,000, but taxed at the higher rate of $27.19, would have a tax bill of $10,876.

“The tax scheme works against itself,” Keith said.

The property taxes generated by the acreage in current use amounts to $62,439, or 0.6 percent of the more than $9.4 million to be raised by property taxes by the 2018 budget.

Lyme is among a number of small, rural municipalities with large but varying shares of land in current use. Since the current use discount reduces municipal valuations disproportionately, it increases municipal tax rates disproportionately.

While adding $5.08 to the tax rate in Lyme, the program adds only a penny to the tax rate in Nashua. “The owner of a $46,750 property in Orford pays more for current use than the owner of a $25 million property in Nashua,” Keith said.

Keith said that the current program is a state program. “Towns can’t opt out,” he explained. “The current use board is attached to the Department of Revenue Administration. It makes the rules and sets the range of assessments.” 

That makes it “a state tax,” Keith said. As such, he claims, current use taxation is contrary to Part II, Article 5 of the Constitution, which the Supreme Court has taken to mean that “all taxes be proportionate and reasonable.”

He added that in deciding the school funding suit brought by Claremont, the justices held “no state tax that uses different methods or rates of taxation from town to town can ever pass muster under the New Hampshire Constitution.” 

‘Potentially regressive’

University of New Hampshire Professor Richard England, writing in “Land Lines,” published by the Lincoln Institute of Land Policy in Cambridge, Mass., noted that “when the properties of farmers, ranchers and forest owners are assessed far below market value, local governments collect fewer property tax receipts unless they raise the tax rate that is levied on all taxable properties. If they raise their property tax rates to maintain public expenditure levels, rural towns and counties increase the tax bills of non-use value assessment owners, primarily homeowners.”

He added that “this potentially regressive impact of use-value assessment programs has been known for decades” and that in 1976 the President’s Council on Environmental Quality “stated clearly that these state programs result in tax expenditures of significant magnitude that redistribute income among taxpayers.”

In a working paper, Jane Malme of the Lincoln Institute for Land Policy wrote that a number of states, including Vermont and Maine, reimburse local governments for the loss of revenue associated with current use taxation.

Keith said the flaws in the current use program can be overcome by distributing its costs equitably throughout the state. 

He estimated the statewide cost of funding the current use program at approximately $118 million, while the total assessed value of property is more than $154 billion. He calculates that a tax rate of 77 cents per $1,000 of assessed value in every municipality would distribute the cost of the program proportionally as the Constitution requires

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