Tag Archives: ski resort leases

Searching for revenue in all the right places

Warning: This post is full of public-policy geekery. You should not operate heavy machinery during or immediately after reading. Still, I hope you’ll stick around; you’ll learn some useful stuff.

I spent Tuesday morning at a hearing of the House Ways and Means Committee, as it conducted an item-by-item overview of tax expenditures and tax deductions. The subtext is the state budget situation, with its projected $100-million-plus gap. Committee members engaged in a lot of poking and prodding, in search of ways to goose income or reduce outgo.

“Tax expenditure,” for those not in the know, is the technical term for a tax exemption. “Expenditure” is a nice insightful term; in granting an exemption, the state is forgoing tax revenue. In essence, it is spending that money without ever receiving it. In granting a sales tax exemption on food, for example, we are “spending” the uncollected revenue for a social purpose — making food more affordable, and limiting the regressive impact of the sales tax. The Earned Income Tax Credit, given to the working poor, is a tax expenditure. It’s the largest one, in fact, accounting for 49% of the foregone revenue from expenditures. (The second-highest, at 32%, is the Capital Gains Exclusion, which almost entirely benefits top earners.)

As for the sales tax exemption on major equipment at ski resorts… Well, you tell me what social purpose that serves. Beefing up resort owners’ profits, is my guess.

I learned a lot of interesting stuff about expenditures and deductions. The most crucial stuff is about deductions, and I will write about them in a subsequent post. For now, some notes on expenditures.

(For those interested in a whole lot of detail, the Joint Fiscal Office’s 91-page report on state tax expenditures is available online.

Sen. Tim Ashe, chair of the Senate Finance Committee, has his eyes set on the ski-equipment exemption as part of a broader reconsideration of the financial arrangements between the state and resort operators. Auditor Doug Hoffer recently reported that Vermont’s leases of public land to the resorts are outdated and don’t generate as much revenue as they could.

Ashe agrees. “Circumstances have changed dramatically in the industry,” he told me. “The lease conditions haven’t kept pace.” He sees an opportunity to reopen the leases as part of a “recalibration” of the state/resort relationship. On the government side, that might include more lucrative leases and an end to the equipment exemption. On the resort side, it might include changes in state regulation.

The door seems to be open. But as Sen. Ashe puts it, “Is the legislature interested in recalibrating the relationship?” This, and many other taxation issues, may not be settled until the session’s closing days, when the House, Senate, and Governor try to agree on a balanced budget acceptable to all parties.

Ashe also told me that his committee “went through every tax expenditure in the tax code” last year. Some were eliminated, all others were more clearly defined. This year, Ashe has introduced a bill that would require a determination that each tax expenditure is achieving its intended purpose. That might touch on some of the corporate tax breaks, such as the exemption for research and development. At the Ways and Means hearing, it was said that large corporations can simply assign a portion of their entire R&D expense to Vermont, whether or not the work was actually done here. There was some sentiment on the committee to rein in that exemption — define it more narrowly, or tie it more directly to job growth in Vermont.

Most tax expenditures are relatively uncontroversial. Purchases of home heating supplies — oil, gas, propane, wood — are exempt from sales tax. This is a big item, but who’d want to repeal it?

There was surprise around the table that the sales tax exemption on food is very broadly defined. It includes soda, candy, and nutritional supplements. That’s a lot of foregone revenue for stuff that is either harmful to health, or whose benefits are questionable. And it’s ironic, at a time when we’re considering a tax on sugar-sweetened beverages. But it’s difficult to draw a hard and fast line. Is a CLIF Bar “candy”? Pop-Tarts? Yogurt-covered almonds? Kettle corn? Vermont Maple Syrup?

So that’s a can of worms that no one will likely want to open.

One item that might be revisited is the exemption on clothing sales. Vermont used to cap the exemption at purchases of $110 or less. That cap went out the window when the state adopted something called the Streamlined Sales and Use Tax Agreement, a mutually agreed-upon standard for rules on sales taxes that includes 44 states and the District of Columbia.

At the time Vermont adopted the SSUTA, it did not include limits on clothing purchses. It has since been amended, and Vermont could reimpose a limit so that, say, fur coats would be subject to sales tax.

However, Sara Teachout of the Joint Fiscal Office warned the committee that much of the potential revenue would be unrealized because so many clothing purchases are conducted online. And I’m sure brick-and-mortar retailers would scream if lawmakers considered limits on the clothing exemption.

The terms of some tax expenditures are outdated, or in imminent danger of becoming so. For example, there’s a sales tax exemption for newspapers. But does it apply to digital subscriptions? No one in the hearing room had a clue.

There’s an exemption for movie theaters’ purchases of films — on the grounds that ticket sales are taxed, so taxing the film purchases would be a form of double taxation. But these days, virtually all theaters are showing digital movies. They don’t get cans of film; they get a “black box” that contains a playable (but not reproducible) digital copy of the movie. That copy is set to expire and become unplayable at the end of a movie’s run. Can it be said that the theater is actually buying anything?

Mobile and modular homes have a partial tax exemption. But these days, almost all home building includes modular elements, pre-constructed at a factory. Has the tax code kept pace with the industry?

Those were the most interesting tidbits about tax expenditures, at least to my eyes. The JFO’s report includes a wealth of information; for each expenditure, there are figures for the total estimated cost, the number of taxpayers who take advantage, and a short explanation of the reasons for the expenditure.

Coming in the near future: tax deductions — the #1 creator of unfairness in Vermont’s income tax system.  This may become the battleground over how, or whether, to raise additional revenue and limit the scope of necessary budget cuts.

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Hey, maybe those ski leases are on the table after all.

I heard something very interesting on the latest edition of “Vermont This Week,” the usually bland and boring (see below) Statehouse news roundup on Vermont PBS.

One of the topics was Auditor Doug Hoffer’s report on the state’s outdated and not very lucrative public-lands leases with our biggest ski resorts. One of the guests was Tim McQuiston, editor of Vermont Business Journal. He ought to have his finger on the pulse of the Vermont business community, right?

Conventional wisdom is that the leases can’t be reopened, because resort operators would have to agree to the move, and the Powers That Be don’t seem to be inclined to push the issue. McQuiston thinks otherwise:

I would suspect, in knowing a lot of these people, that they would come back to the table under reasonable circumstances. They know their industry has changed a lot.

Interesting. And what kinds of circumstances are we talking about?

There’s a lot of environmental law they have to comply with. Act 250 is still out there. They’re very involved with other regulatory entities.

So they might be willing to negotiate better lease terms if they get their way on some regulatory matters. That’s one of those good news/bad news situations, isn’t it? Redoing the leases would bring the state more revenue, but it opens the door to some backroom weakening of environmental standards.

Postscript. I say “Vermont This Week” is bland and boring because, well, it usually is. It comes across as overly scripted, and the panel acts like they’re walking on eggshells. Maybe this is a natural consequence of our political media tending to be on the young side, and having relatively little experience in a panel setting. But I do wonder if part of the problem is how the show is planned and produced. If there was more free interchange, if they tossed out the script once in a while, it’d become appointment television for geeks like me. As it is, I rarely watch. This morning, I was channel-surfing and happened to catch the rebroadcast. I don’t go out of my way for it.

How to get those ski leases reopened

Last Tuesday, State Auditor Doug Hoffer issued a report on Vermont’s leases with ski resorts. The leases, he said, were outdated and were not bringing a fair return for the resorts’ highly profitable use of public lands.

At the time, you may recall, the state Parks and Rec Commissioner Michael Snyder basically threw up his hands and said there was nothing the state could do until the leases expire — decades from now.

Well, I’ve been reminded by someone more aware of state finances than I (which probably includes a substantial percentage of my readership) that the state does, indeed, have a hammer it could hold over the resorts’ heads.

It’s a tax exemption, granted in 2002, on ski lifts and snowmaking equipment. This exemption cost taxpayers $1.42 million in foregone revenue in fiscal year 2012.

It’s been suggested that this is basically a giveaway to a lucrative industry. Sen. Tim Ashe, chair of the the Senate Finance Committee, has called for a cleanup of Vermont’s cluttered, nonsensical “tax expenditure” system, and cited the ski equipment exemption as a clear example of the problem. As he put it, “every time they pay less, we all pay more.”

Well, hey. Why not dangle that juicy tax break in front of resort owners, and say something along the lines of “Gee, it looks like you’re getting a sweetheart deal on your leases AND a questionable tax exemption. Tell you what, we’re feeling generous; you can have one or the other, but not both.”

Makes all kinds of sense, at a time when the Governor and lawmakers are scrambling to find revenue and/or cut the budget. Problem is, the underlying reality hasn’t changed since I last wrote about this. Resort owners are politically connected (how many trips has Gov. Shumlin made with Bill Stenger?), and generous with campaign contributions. It would be difficult, if not impossible, to take either of their windfalls away.

Need proof? How about the sound of silence from the Statehouse in the aftermath of Hoffer’s report? Nobody wants to touch this one. It’s a shame. I expect better from my Democratic majority.

Well, here’s another good idea we’ll never hear again

Earlier this week, State Auditor Doug Hoffer issued a report suggesting that the state is getting shorted on leases of public lands to ski areas. The long-term leases were negotiated in the Good Old Days, when ski areas were not much more than trails, lifts, and lodges. And they reflect that; lease payments are based on lift ticket sales.

Simpler times.

Simpler times.

Today, ski areas are ski resorts — with myriad amenities and all-season activities. Lift tickets are a small part of the whole. You could argue that that’s because of investments by private-sector operators; you could also say that none of it would exist without the public lands. The AP’s Wilson Ring put it this way:

The [Auditor’s] report says that inflation-adjusted lease payments to the state declined by 14 percent between 2003 and 2013, but property near the ski areas increased in value by about 150 percent, and meals, alcohol and room taxes have increased by between 40 percent and 61 percent.

Parker Riehle of the Vermont Ski Areas Association scrambled to justify his industry’s bargain-basement leases.

“The better that those sales are and the better that the ski rates are on state land the better that the lease payments are to the state,” Riehle said.

Is he really trying to tell us that rock-bottom leases are more lucrative for the state than reasonably-priced ones? Like the supply-side assertion that lowering taxes will increase revenue? How well does that work, Sam Brownback?

Of course, Riehle was reaching deep into the bottom of his rhetorical barrel; he also claims that the leases have led to the preservation of land and wildlife.

Yes, big expensive resports are nirvana for the ecosystem.

Hoffer doesn’t necessarily recommend trying to reopen the leases; he just wanted to provide information and raise the question.

It’s a very good question, with the state’s budget circumstances so tight that Gov. Shumlin has proposed leasing prison space to the feds (which will keep more state inmates in out-of-state for-profit prisons) and placing a three-year moratorium on the Current Use program, among many other things, to generate new revenue. His administration is effectively searching all the sofa cushions for spare change.

Nonetheless, it’s safe to assume that Hoffer’s report will be quietly shelved. Michael Snyder, Vermont’s Parks and Recreation commissioner, says the state’s hands are tied until the leases expire.

That strikes me as an awfully defeatist attitude. The state does hold the ultimate hammer — it’s our land, after all — and could force the ski resorts to reopen the deals if it wanted to.

Of course, ski resort operators (Bill Stenger, come on down!) are very well-connected people with top-shelf representation at the Statehouse and deep pockets for campaign contributions. I can just hear Our Lawmakers issuing heartfelt paeans to One Of Vermont’s Iconic Industries, a Bedrock of Our Vital Tourism Sector, and pooh-poohing any talk of Reneging On Agreements Made In Good Faith.

Too bad, ’cause if Shumlin’s budget is any indicator, we could really use the money. The resort industry has it to spare. And I’d say we deserve a fair return for the use of public property.

But naah, it ain’t happening. Better luck with your next report, Doug.