Taxation, open spaces, and the great divide over current use
The current use tax policy is designed to protect open land from development, such as this field in Lyme. (Amanda Gokee | New Hampshire Bulletin)
When Rusty Keith looked at the numbers, it seemed wrong.
Then serving as a selectman in Lyme, Keith was taken aback to see that the poorest residents were subsidizing the taxes of the wealthiest landowners in the rural western New Hampshire town. Because of a tax policy called current use, it was completely legal.
“They get all these current use benefits, and they’re the wealthiest people in town,” Keith said.
Current use is a policy that allows agricultural land to be appraised at a lower value – the value of the land is based on how it is being used and not its value on the market where, for example, it could be sold for development. This is called use-value assessment. Having land in current use translates to a much lower tax bill for the landowner who, in exchange, promises not to develop the land.
It’s actually a wildly popular tax policy in New Hampshire, where over 50 percent of land is in current use in a state that prides itself on open, undeveloped space. In 2019, over 3 million acres in New Hampshire were in current use out of the 5.74 million total acres. That land is split among 42,096 individual landowners, or 3 percent of the state’s 1.38 million people.
Keith argues that current use is unfair to low- and middle-income taxpayers and rural towns that bear the disproportionate burden of the policy. Only parcels of 10 acres or more can be put into current use, leaving it out of reach for many. And in rural towns like Lyme, where 26,203 of the town’s 34,460 acres are in current use, it puts the community in a difficult fiscal position. Most critics of current use aren’t against its goal, but they question whether it’s the right policy tool to accomplish it. So for the past seven years, Keith has been crusading to change current use policy in the state.
While information about how the current use tax rate is formulated was not publicly disclosed, that’s about to change, in part due to Keith’s advocacy. A bill recently signed into law – Senate Bill 48 – requires greater transparency about how current use tax rates are established.
“This gives us the data to say, is there anything in the data source that is erroneous that gives out these extremely low rates,” said Keith, who estimates that in Lyme, land in current use is charged about 2 percent of the normal tax rate. For instance, a property that was purchased for over a million dollars was taxed at a value of $11,000.
The rise of current use
The tax policy was established in 1973, on the heels of a decade of growth in the 1960s, when property values were rising fast and property taxes along with them. Urban sprawl and rapid development loomed over the state, and lawmakers grappled with how to preserve small family farms, an endeavor that seemed increasingly precarious.
Some landowners in the state are adamant that, by that measure, the law has been a resounding success. David Babson is among them, and his support for current use stems from some of the same concerns that date back to the ’60s.
“The purpose of the law is so we’re not being overrun from people from out of state,” said Babson, who is on the board of directors for New Hampshire’s current use coalition, known as SPACE.
“I love the law,” he said. “I am a firm believer in it, and I don’t think we should touch it or tinker with it.”
Without it, Babson said he would have to sell the 300 acres he owns in Ossipee because the taxes would be too expensive. For Babson and other proponents of current use, the lower tax rate is a fair equation because agricultural land is less costly in public services. If land isn’t developed, there won’t be the cost of sending children to the local school, for example. Babson was supportive of the new transparency measure. Overall, he sees the policy as accomplishing its primary aim.
“It’s keeping land open,” Babson said. “It’s doing what it’s supposed to do.”
But economists who have looked for evidence of that claim disagree.
“We don’t find a lot of evidence that use-value assessment actually preserves the family farm in the long run, or stops development,” said John Anderson, a professor of economics at the University of Nebraska-Lincoln.
And Darshana Udayanganie, an economist who wrote a dissertation about current use in New Hampshire, agreed that current use is mostly successful at delaying development, not stopping it altogether.
Development pressure is usually strong enough that the potential to make money by developing the land is greater than the property-tax savings from current use. In part, that’s because the promise a landowner makes to not develop their land can be broken. The owner selling the land has to pay a fee: 10 percent of the market value. But a UNH study showed that the fee was lower than the profit of selling the land for development in each case that was examined.
“As a policy device, it really hasn’t had great success in terms of preserving family farms or preserving prime agricultural land,” Anderson said. And that’s not a contentious assertion – there’s relative consensus among economists that this is the case.
Economists say the issue of fairness Keith raises is valid.
“If you’re doing current use, you’re putting more of a tax burden on other people,” said John Halstead, an economist at UNH.
That shift in the property-tax burden can mean that low- and middle-income households are paying hundreds of dollars more per year, according to a 2013 report.
“That leads to all kinds of issues in terms of equity,” Anderson said.
Prime agricultural land is often flat, with good drainage – qualities that make it the most desirable for development as well.
What economists have found is that current use can work well in the margins, on the outskirts of an urban area, for example. But in the middle of farm country, the use value of the land is often the same as the market value. In other words, the land is valuable for farming purposes, as opposed to being sought after for housing, for example.
Current use criticism
Current use has also garnered criticism as a policy that invites so-called fake farmers, who take advantage of the policy to lower their tax bill. Corporations have also used the policy to their advantage. BMW, for example, reduced its tax bill on a 20-acre New Jersey campus to $373.52 thanks to an apple and peach orchard on the property. A nearby homeowner paid nearly 10 times that in taxes on a 1.2 acre property, according to reporting by The New York Times.
In New Hampshire, the Free State Project advertises current use policy on its website to attract prospective libertarian newcomers to the state.
“For many Free Staters, one of the most important features when looking for a home in New Hampshire is acreage,” a blog post from 2018 states. “But the downside of all that peace and space to roam can be a burdensome property tax bill.”
“In New Hampshire, there is a way to save on taxes if you own more than 10 acres: current use,” it reads.
Without a broad-based income or sales tax, New Hampshire is heavily dependent on property taxes. Joan Youngman, an attorney at the Lincoln Institute of Land Policy, found in her 2016 book on property taxation that current use “contributed to effective rates on fully taxable property that are among the highest in the nation.”
In the book, “A Good Tax,” Youngman argues that current use “should be considered a tax expenditure and evaluated in light of forgone revenue and the increased burden it places on remaining taxpayers.”
“Use-value assessment can produce enormous losses in property-tax revenues without achieving long-term farmland preservation,” Youngman writes.
Youngman and Anderson have pointed to interests that may be at play in preserving a tax policy that they see failing to deliver. They point to an “alliance between agricultural and environmental interests.”
“The cynical view would be that it’s simply a transfer to agricultural landowners, you know, who are often politically active, and organized,” Anderson said.
In her book, Youngman likens it to Bruce Yandle’s “Bootleggers and Baptists” paradox.
“In Yandle’s example, Baptists provide the moral case for prohibiting the sale of ‘demon rum’ on the Sabbath, whereas bootleggers lobby for the same goal because it protects them from competition,” she writes.
With current use, she likens environmentalists to the Baptists, making the moral case to keep land open, while the agricultural lobby works “behind the scenes to influence the political process.”
And Keith agrees. He points to the forestry industry in New Hampshire and the policies that are subsidizing them.
But outside of the State House, Keith sees the policy being otherwise misused. A property in town that Keith knows is in current use recently put up an $8 million house.
“There’s no forestry, there’s no agricultural activity going on. They mow the grass like an estate,” he said.
Keith has already sent a request to the state for the current use formula. He’s still waiting to hear back.
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