Report Calls For Per-Parcel Fee On Landowners To Pay For $970 Million Water Cleanup

Jan 15, 2017

If lawmakers go along with the recommendations outlined in a long-awaited report released late Sunday night, then property owners across Vermont will pick up much of the tab for a water-quality improvement initiative expected to cost almost $1 billion over the next 20 years.

In 2015, lawmakers directed the treasurer’s office to come up with a plan to pay for one of the highest-cost environmental initiatives in state history. State Treasurer Beth Pearce has unveiled her recommendations, and she says a per-parcel assessment on property owners is the most sensible financing mechanism for the capital projects needed to reduce the flow of phosphorus into state waterways.

Since it’s land-use patterns that are contributing to the pollution problem in Vermont, Pearce says, it makes sense to link the financing mechanisms to the land.

“We’ve been hearing that nexus to the issue is an extraordinarily important part of how you select a potential revenue source,” Pearce said Saturday. “Usage fees around impervious surfaces and around parcels in a tiered structure have a linkage to the issue.”

Under Pearce’s plan, the per-parcel assessment wouldn’t take effect until July 1, 2019. She says lawmakers should reallocate money from existing sources to fund water cleanup in the meantime.

The report lays the foundation for what promises to be an intense debate in Montpelier this year over how to pay for the costly cleanup effort.

"The devil is in the details. But the bottom line for me is that it is an investment in a very valuable resource, a very valuable asset to this state." — State Treasurer Beth Pearce

Vermont is under heavy state and federal regulatory pressure to resolve a pollution problem responsible for toxic blue-green algae blooms in Lake Champlain and other waterways across the state. Pearce’s report says that abiding by those regulatory obligations will cost Vermont $48.4 million annually over the next 20 years, for a total of $970 million.

Pearce is recommending that a little more than half that money – $25 million a year – come from a per-parcel assessment. Pearce says it makes sense for the state to make a public investment in what she says is a public resource.

“We as a state need to recognize that we need to invest in all of our assets,” Pearce said. “And clear water is an important part of that. It’s an important part of our economic prosperity going forward.” 

It’ll be up to lawmakers to work out how, or whether, the state should proceed with the per-parcel proposal. Many elected officeholders say property taxes for public education have already exceeded most homeowners’ ability to pay; any proposal that adds to the cost of homeownership, or the cost of owning and operating a business, will be fraught politically.

Pearce says lawmakers could design a per-parcel fee based on acreage, or the amount of impervious surfaces – like pavement and roofs – on a given piece of land.

Pearce says she thinks the new revenue system should be structured in a way that links the size of the per-parcel fee to the amount of pollution a parcel contributes.

Even with $25 million annually from the per-parcel fee revenue, Vermont would still need an additional $23.4 million a year to fund mandated water-improvement activities. Pearce says that money should come from the private- and public-sector entities contributing to the pollution problems.

Farmers, developers and municipalities all face new regulatory obligations under state and federal law. A farmer, for instance, might have to install vegetation buffers near rivers. A big-box store, meanwhile, might have to redo its parking lot in a way that reduces runoff.

The $970 million figure represents what it’ll cost for everyone to institute the environmental retrofits needed to meet those obligations. And Pearce’s proposal would see the government use public funding to subsidize about half the cost of those activities.

“You could have any number of splits [between state and private contributions to the cleanup effort],” Pearce says. “That’s a target that we felt was appropriate. We can certainly go back and have another conversation and revise our estimates up or down.”

The question of how much of the water cleanup effort should be funded publicly is a thorny one. Also unclear is the extent to which changes at the federal Environmental Protection Agency might blunt the regulatory urgency now fueling the cleanup effort.

Precisely how the per-parcel fee would be administered and collected is a matter the Legislature will have to determine. There’s currently no mechanism at the Department of Taxes for collecting a per-parcel assessment. Pearce is encouraging lawmakers to consider establishing municipal or regional “stormwater utilities” that would collect the money locally, and use it to pay for clean-water projects in their borders.

Pearce says it will likely take two years to establish whatever administrative apparatus the Legislature ultimately uses to collect the per-parcel revenues. In the meantime, she says lawmakers and Gov. Phil Scott should reallocate existing funds to pay for the cleanup program.

That means pulling $50 million over the next two years from existing appropriations.

Pearce says lawmakers can get $30 million by revoking allocations made in last year’s capital bill. Pearce says many of the projects for which that money was allocated aren’t yet shovel-ready anyway. And taking away those appropriations now to use for water cleanup instead, she says, wouldn’t postpone needed projects.

The proposal would, however, have the effect of deferring future projects. Lawmakers would need to restore that $30 million in the next capital bill, and that’s $30 million that would not be available for projects that might have otherwise gotten funding.

Pearce would get another $10 million over two years by taking money from a special fund that pays for state and local transportation projects, and instead direct it toward water cleanup.

The remainder of the money needed for interim funding would come by extending a property-transfer surcharge that generates about $5 million a year. The surcharge is supposed to sunset July 2018; Pearce’s plan would leave it in place until the middle of 2019.

Pearce says she hopes the report is a jumping-off point for a debate in Montpelier.

“We’re going to move forward, have continued discussions with the Legislature on some of the details,” Pearce said. “The devil is in the details, but the bottom line for me is that it is an investment in a very valuable resource, a very valuable asset to this state.”

The $970 million all-in cost figure represents the absolute minimum Vermont will have to spend to meet its state and federal clean-water obligations, according to the report. But there’s an additional $300 million worth of projects above and beyond those minimum requirements that the report says Vermont might want to pursue over the next 20 years.

The report also outlines a number of steps Vermont could take to reduce the overall cost of the cleanup effort.

Expanding the use of anaerobic digesters on Vermont farms, for example, could extract phosphorus from manure, thereby choking off a major source of nutrients flowing into rivers, streams and lakes.

The report also contemplates financial benefits for farmers who adopt rigorous pollution-reduction practices.

Pearce says it’s never easy to talk about raising revenue in Montpelier. But she says the state has a vested interest in protecting one of its most critical economic assets.

Lake recreation is a key part of the state’s $2.5 billion-a-year tourism industry. And there’s already evidence that deteriorating water quality is degrading property values.

In 2015, the grand list in Georgia dropped by $1.8 million, after 37 lakeside properties were devalued as a result of declining water quality.

Since the new public-funding mechanism wouldn’t take effect until 2019, lawmakers won’t be under immediate pressure in 2017 to pass a financing bill. Several lawmakers, however, have indicated that they want to get a financing statute in place before the end of the 2017 session.

Gov. Phil Scott has said he’s opposed to any legislation that raises new revenues for water cleanup efforts, or anything else for that matter, in 2017.