Vermont Acts to Check Land Speculators, Developers

In recent years, the frantic pace of land speculation and development in rural areas of the Northeast has threatened to alter irreversibly the traditional character of New England. As urban environments deteriorate, residents of New York, Boston, and other cities have begun in increasing numbers to buy second homes in Vermont, New Hampshire, and Maine. Occasionally a locality has tried on an ad hoc basis to stem the tide of developers and their customers: In Steel Hill Development, Inc. v. Town of Sanborton,¹ the First Circuit upheld a zoning ordinance by which a village of 300 homes hoped to reduce the size of a 500-dwelling complex under construction on its outskirts.

Last fall, Thomas Salmon won the Vermont gubernatorial election largely on the strength of his promise to preserve the state against the encroaching developers. "Vermont," the governor declares, "is not for sale." His sentiments are echoed by many Vermonters concerned that the new part-time residents may put severe burdens on the state's ability to deal with such problems as air and water pollution and solid waste disposal. This Comment will examine two steps the state has taken in the last few months to impose economic costs on various aspects of the development process, steps which demonstrate the potential for using tax and fee structures on the state level to control or limit demand in the public sector.

On May 1, 1973, a steeply graduated capital gains tax on the resale of land within six years of its purchase went into effect.² The tax rate is determined both by the number of years the land has been held by the seller and by the percentage of profit realized on the sale. Atits highest, the tax is 60 percent on a sale within one year at a price three times or more the original purchase price. A speculator who buys a tract of land for $50,000, divides it into small lots, and resells the lots after six months for a total of $150,000 would thus pay $60,000 in state capital gains tax on the $100,000 gain realized. The seller would also be liable for federal capital gains taxation, so that the practical effect of the act will probably be to severely curtail such transactions. On resales at that level of profit, the tax rate declines ten percent with each year the land is held, until after six years, no tax is imposed under the state law. On transactions in which the resale price is between two and three times the original purchase price, the tax rate is 75 percent of that levied on resales at three times cost or higher; resales at less than twice purchase price are taxed at half the maximum figure.

At the same time that it moved to penalize speculators, the legislature enacted property tax relief provisions for year-round residents of Vermont, in part because the real estate boom has inflated the assessed value of lands throughout the state.³ The statute imposes a property tax ceiling ranging from four percent of annual income, for persons with incomes below $4000, to six percent, for those earning $16,000 and above.

The new statute was challenged almost immediately by a coalition of land developers. In a suit filed in Washington County Court, they charged numerous violations of the state and federal constitutions: seizure without compensation, ex post facto legislation, impairment of contracts, confiscatory taxation, and abrogations of the Equal Protection and Privileges and Immunities Clauses.

On June 7, 1973, Judge William Hill ruled that the complaint had not demonstrated facts sufficient to overcome the presumption of constitutionality attaching to acts of the legislature.⁴ The case has been appealed to the state supreme court, which is not expected to reach a decision before the end of the year. If that court sustains the law's constitutionality, a challenge in federal court seems likely.

Although its proponents see no constitutional barriers to the new statute, some observers, while sympathetic to the ends of the Vermont bill, are concerned that this particular means of stopping the developers may not survive court challenge. The requirement of year-round domicile for tax relief eligibility might be seen as going beyond the state's legitimate interest in benefiting bona fide residents, instead penalizing those with second homes or seasonal jobs elsewhere, in contravention of the Equal Protection Clause. The application of different property tax rates to Vermonters and out-of-staters may present further problems.

No such legal difficulties would appear to exist for the action of the Vermont Public Service Board in ruling that new extensions of electrical service must be paid for by the party requesting the extension. Previously, a standard charge was levied, so that developers could build houses in remote areas with the assurance that the cost of running power lines to the new construction would be subsidized by all consumers of electric power. The argument that a flat connecting fee promotes rural electrification is by now obsolete in Vermont; according to the executive secretary of the Board, power lines now reach, not only to all existing housing, but "out to the milkshed" as well.

General Order 52 specifies that a customer requesting electric service must pay the full cost of connecting his [3 ELR 10131] premises to an existing power line, less a minimal credit for what would be the cost of a simple "service drop" of 100 feet from an overhead power line. The manner of payment is flexible, allowing the consumer up to eight years to pay on a pro-rated monthly basis as part of his usual bill. Should more than one customer be connected to the same extension, the utility may not charge more than the total cost of the expansion of service, less the "service drop" credit. New arrivals who link up to an extension currently being paid for must cover a pro-rata share of the original extension for the remainder of the eight-year period. Appeals may be taken to the Board where customers feel that application of the order would operate unfairly.

The action of the Public Service Board appeared to respond to the growing resentment of Vermonters that they were made to subsidize expensive and environmentally harmful activities that confer no benefit on them or their surroundings. Existing users of electricity were paying up to 94 percent of the average $1000 cost of installing power lines to new seasonal homes. The average cost of connecting a year-round residential home, on the other hand, is only $23. In order to continue conferring this $940 house-warming present on the developer, 21 percent annual increases in electricity rates were expected.

The Board also gave explicit consideration to the possibility that advertising was creating an artificially high demand for electricity, based on an unrealistically low evaluation of the costs.Taking what has become the environmentalist's poitn on energy management, the Board decided to regulate demand rather than seek ways of increasing supply. Noting the difficulties of power plant siting, building, and licensing and the high cost of fuels, the Board found that the increasing demand for electrical power was rapidly outstripping the state's ability to expand generating capacity without serious impact on its environment.

The Public Service Board's action may possibly have a direct effect on land use patterns in the state, encouraging clustering where the 100-foot service drop is available, and discouraging incursions into previously open land. Vermont may in the long run fall prey to the developers and the speedboats, but at least Vermonters will have tried to avoid financing their state's despoliation.

1. 3 ELR 20018 (1st. Cir.).

2. 32 V.S.A. Ch. 236, § 10001 et seq., ELR 43030.

3. Act No. 81 of 1973 Vermont Laws, amending 32 V.S.A. §§ 5961, 5962 (e), 5967-68, 5973; adding 32 V.S.A. §§ 5976-77 and 32 Ch. 236; repealing 32 V.S.A. § 5966.

4. Andrews v. Comm'r of Taxes, No. C8773 (Washington Co. Ct. June 7, 1973).