I usually like to take a look at reports from State Auditor Doug Hoffer’s (D/P) office, because those give us the nuts and bolts feedback on how effectively economic policy is executed in state government.
I’m kind of behind on the most recent report, released January 20, on the performance of leases held by Vermont’s ski areas on public lands.
I am grateful to freshman Rep. Corey Parent (R) for the reminder his newsletter provided, although I can’t say I agree with his own conclusions.
The Auditor’s report suggests that the state may not be seeing the full value of the lands they lease to the ski industry, and in this time of budgetary challenges, any improved revenue opportunity should not be dismissed out of hand.
The primary reason why ski area leases appear to be underperforming for the state is because the terms under which the leases were created are now extremely dated and inconsistent. Not only do these inconsistencies make it difficult to reduce administrative costs through efficiency measures, but the leases are tied to a dated compensation system that does not reflect the diverse income streams that area operators are now enjoying.
Adjusted for inflation, total sales in all sectors at the resorts have risen by 65% since 2000, but lease payments have fallen by 4%. Since 2003, property values (not adjusted for inflation) rose by 140% while lease payments rose by a mere 11%
Over the last half-century, locally owned resorts with several lifts and a few facilities have been transformed into year-round enterprises – some of which are now owned by large out-of-state corporations. Today’s resorts feature new lodges, hotels, condominiums, golf courses, retail stores, waterparks, and other high-end amenities.
Between 2003 and 2013, development at the seven resorts spurred increases in sales of goods and services, property values, and revenues from excise taxes. But lease payments over this decade fell when adjusted for inflation. The leases were designed to capture a certain percentage of the primary revenue source, which 50 years ago was lift tickets. As the resorts have evolved, that revenue source has become one of many.
In short while Vermont’s been snoozing, the taxpayers have been losing…often to out-of-state interests whose investments are certainly appreciated but do not bring as much secondary value to the state as those of resident operators for whom the dated and inconsistent lease terms were originally intended.
One of the most problematic of the inconsistencies is the variation in assigning title to property on state land, which obstructs two towns’ power to tax and gives some resorts a tax advantage because property that belongs to the State is tax-exempt. Vermonters therefore pay for land and facilities used by the ski areas through the State’s Payment in Lieu of Taxes programs, which reimburses municipalities for taxes lost from state-owned property. These payments for property used and developed by the resorts reduce the value of the lease revenues to the State.
The Auditor’s Office concludes quite reasonably that the State made a huge error in not building periodic review and updates of lease terms into the system, and that antiquated language in liability insurance provisions associated with the leases may now leave the state vulnerable.
“Our review points to old lease terms that may not be suitable for today and questions whether taxpayers are receiving fair value for these spectacular public assets,” Auditor Hoffer said. “It is my hope that this report will stimulate a discussion about all of these issues.”
Sounds about right to me, but be prepared for an argument from some Republican legislators if any increase in lease rates is proposed. From Mr. Parent’s newsletter:
“While I agree that standardization of lease contracts makes a lot of sense, I’m not sure Vermont ought to seek higher lease payments because the broader economic growth has compensated the people of Vermont well…we ought to have a discussion about how we can grow business at our ski resorts in Vermont to help further economic growth and increase state revenues organically.”
I guess Mr. Parent is unimpressed with the state’s EB-5 efforts.