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Selectboard revisits tax stabilization

But not this year.
Written by Nick Clark

At Thetford’s 2021 Town Meeting, voters were asked two questions:

  1. Shall the town vote to give the Selectboard general authority to enter into tax stabilization contracts with owners, lessees, bailees, or operators of agricultural or forest property, open space land, and alternative-energy generating plants, pursuant to 24 V.S.A. § 2741(b)(1)?
  2. Shall the town give the Selectboard general authority to enter into tax stabilization contracts with owners, lessees, bailees, or operators of commercial or industrial property, pursuant to 24 V.S.A. § 2741(b)(1)?

The first question, requiring only a simple majority, passed, while the second failed, falling short of the two-thirds majority required under state statute. It was 6 votes shy.

The Selectboard, primarily Li Shen, has been working on a draft policy that would codify the use of the body’s new authority to enter into agricultural etc. tax stabilization agreements, but it hasn’t been a priority. There is no final or near-final draft on the Selectboard’s horizon.

At their January 3rd meeting, the Selectboard once again took up the discussion of commercial tax stabilization, however, specifically with an eye towards housing.

What is tax stabilization? If authority is granted to a Selectboard, it allows the body to enter into agreements for:

  1. fixing and maintaining the valuation of such property in the grand list;
  2. fixing and maintaining the rate or rates of tax applicable to such property;
  3. fixing the amount in money which shall be paid as an annual tax upon such property; or
  4. fixing the tax applicable to such property at a percentage of the annual tax.

Other than limiting agreements to a maximum of 10 years, state statute doesn’t say much else. For example, a Selectboard could temporarily reduce a tax burden for a farm during a drought, but then increase it in better years such that the total tax burden over the years was unchanged, even if the burden year-to-year might fluctuate. Or it could say the tax burden for a new business is a fixed amount, say $100, for the first three years of operation to help incentivize new economic growth.

There’s a catch, however. Any specific tax reduction – even if it’s “repaid” in later years – reduces tax revenue for the municipality, but it doesn’t reduce the Town’s budget. The shortfall is made up by other taxpayers. If you look on the budget summary page in any recent Town Report, you’ll notice a Local Agreements line item. This is money the Town raises from all taxpayers to offset revenue lost due to tax agreements with specific taxpayers. There currently aren’t many of them. The line item totals $1,000 and has been reduced over the years.

The Veterans Exemption, one line item above Local Agreements on the budget summary page, is an example of a specific exemption that Thetford voters approved. The budget raises money from all taxpayers ($8,500) to offset some of the property tax burden for Thetford’s veterans.

Ths idea of making other taxpayers pay for someone else’s exemption can be politically unpopular. Across Vermont, tax stabilization agreements are rare. However, when Interim Town Manager Tom Yennerell was with Thetford, he noted that tax stabilization agreements had been used successfully in Springfield to encourage economic growth. Tom had previously been Springfiels’s Town Manager. Tax stabilization agreements are also being used in Barre.

How would they work in Thetford? As far as agriculture, etc. goes, we don’t know yet. But commercial tax stabilization, in theory, could apply to rental units. Specifically, it could be possible for a property owner to add, for example, an Accessory Dwelling Unit to their property and then add that unit to the rental market and qualify for tax stabilization. Conversations like this first appeared as early as October in Planning Commission meetings. The Commission has been looking creatively at Thetford’s zoning bylaws and how they might impact local housing development. Incentives for housing development was one such idea.

Tax stabilization wouldn’t be a zoning bylaw change, however. It would require voter approval. And it doesn’t necessarily have to cost every other taxpayer more money. Commercial tax stabilization could be used to defer an increase in a property’s assessed value resulting from the addition of a rental unit. For example, if your home is worth $300,000 and you spend $50,000 on converting your garage into a rental unit, your property’s assessed value might increase to $350,000, thereby increasing your property taxes. If you could defer that increase for a set number of years, it would help you lower the cost of adding a new rental unit to the market without increasing the tax burden on everyone else or requiring a funded incentive.

There’s another state statute that could help incentivize local housing development:

Annually at town meeting, a town may vote to exempt from taxes the first $75,000 or a smaller amount of the appraised value of buildings used and occupied exclusively as homes, dwelling houses, or farm buildings whether for sale or rent, provided such buildings have been constructed or put in the process of construction during the 12 months immediately preceding the meeting or are to be constructed or put in the process of construction during the 12 months immediately following the meeting. The duration of such exemption shall not exceed three years, to be determined by the vote. The exemption shall first be applicable against the grand list of the year in which the vote is taken.

This too could act as a tax deferment, shaving up to $75,000 off the increase to an assessed value resulting from new construction (for up to three years). Again, because this would exempt new value, it would not reduce the town’s overall grand list and therefore not cost every other taxpayer more. However, while this Article could apply to all homes, not just rentals, it would have to be re-voted every year. Commercial tax stabilization is a one-and-done vote. However, unlike commercial tax stabilization, it would require only a majority, not a two-thirds vote.

Not everyone will like this idea. It could mean increasing Thetford’s population without increasing the town’s property tax base, putting a bigger strain on public services and infrastructure without increased revenue. Like anything, it also has the potential to be abused. The Selectboard could, in theory, grant tax deferments to developments that might not suit the character of a neighborhood. On the other hand, it could also help increase K-12 student enrollment. Voters will have to balance these considerations with the need for housing and economic development.

But not this year. While the Selectboard revisited the topic a few nights ago, they decided not to make any decisions on warning a tax stabilization Article for Town Meeting 2022.