Historic or Scenic Property Raises Many Questions
(from Maine Townsman, February 2000)
by Michael Austin and Donna Moore Hays, Maine Equalization Consultants

Do you favor amending the Constitution of Maine to allow for reduced property taxes on property that will be maintained for historic preservation or for scenic views of significant vistas?

This was the question on the ballot in November 1999 and the majority of the voters in the State of Maine voted "yes" in favor of this amendment. Now that this constitutional amendment has been approved, it will be up to the municipalities in Maine to choose whether or not they want to provide this tax break to owners of historic property and properties with scenic views of significant vistas.

The legislature is now considering LD 2537, An Act to Promote Historic and Scenic Preservation, which is the implementing legislation for the constitutional amendment.

The opportunity this amendment and implementing legislation provide municipalities and municipal assessors reminds us of the old TV show the Twilight Zone starring Rod Serling. Each show would be opened with the statement, "You are about to enter the Twilight Zone . . ."

Municipalities will have the power to reduce taxes on real property if the owner agrees to maintain the property in accordance with criteria adopted by the local legislative body. The property owner will have to maintain the historic integrity of structures and their improvements or provide easements for properties with scenic views or significant vistas.

This legislation does not create a new exemption as set forth in the Maine Constitution, Article IV, Section 23. It gives municipalities the option of creating an exemption for these types of property. Because it will be a local option, a municipality which chooses to grant the exemption will carry its entire cost burden, meaning that the other property taxpayers in the community will make up the revenue difference.

If your town is anything like the towns we work in, then you have a situation where the buyers are paying more than the assessed value for properties that have "historic integrity" or provide "scenic views or significant vistas". Depending on the town’s ratio of assessment to market value we find that often the buyers will pay two or three times the assessed value to acquire one of these properties that may possess all of these features or benefits.

The "Catch 22" that we find ourselves in now is that this constitutional amendment and this LD suggest that the owners of these properties should be given a reduction in assessed value if they agree to certain restrictions against their property. There currently are no guidelines on how this will be done or who will determine the amount of the exemption other than that stated in LD 2537 which refers to the "National Register of Historic Places," and that the "municipality may reduce the property taxes imposed on a historic property or resource in accordance with the following provisions:

A. A municipality may establish a local review board to designate a historic property or resource within the jurisdiction of that municipality.

B. Property designated as a historic property or resource must be evaluated using criteria established in the National Register of Historic Places or by a local review board.

C. Any improvement to a property designated as a historic property or resource must comply with the United States Secretary of the Interior’s standards for the treatment of historic properties as specified in 36 Code of Federal Regulations, part 68, or with the standards adopted by a local review board.

As stated in LD 2537, "Historic property or resource" means a building, site, structure or object that is:

(1) Listed in or eligible for inclusion in the National Register of Historic Places; or

(2) Designated under guidelines established by a municipal ordinance as important because of its cultural, social, economic, political, architectural or archaeological history.

Many towns and cities in Maine currently have historic districts that already place restrictions on the use, repair, alterations, etc. of those properties. Some of the buildings are on the National Historic Register, others are not. The "Encyclopedia of Real Estate Appraising" Third Edition published by Prentice Hall indicates that "Historic Properties include: (a) those to which some historical significance is attached by association with important events or persons in history; (b) structures that are prominent examples of architectural style or unique methods of construction; and (c) buildings that are important to an area under rehabilitation because they contribute a sense of balance, scale, and proportion to a block or a neighborhood."

LD 2537 not only references the criteria of the National Historic Register but it also goes further to describe "improvements" to these properties as follows: "Improvements mean a change in the condition of real property brought about by the expenditure of labor or money for the preservation, rehabilitation, restoration or reconstruction of that property." Will this legislation be an incentive for the owners of these historic structures to make thoughtful alterations if they know these improvements could be exempted from local taxation? Once the renovations or alterations are complete how will their contributory value to the entire property be determined so that the amount of reduction in value can be calculated?

One of the towns we work in is the Town of Paris which has an area known as Paris Hill where nearly all of the properties have historic integrity and significance, and quite a few have scenic views and vistas. Most of the properties on Paris Hill could meet one or more of the criteria as set forth in this legislation. This is also one of the areas which has caused the town to set aside funds for a future revaluation since the sales are typically two or three times the present assessed values. Will this legislation encourage the owners to maintain these properties more than they currently do, or will it merely be a loss in future revenue for the town based on improvements to these properties and the use of restrictive easements ?

This legislation is designed to promote the preservation of historical properties, however, the owner will be required to encumber the property with deeds and restrictions that will be binding on all subsequent owners. These agreements require certain responsibilities for maintenance and preservation upon the owner. Will they also require the owner to provide to local officials periodic access to the property to verify that the property is being maintained in accordance with the restrictions as set forth in the National Register of Historic Places?

Such agreements can discourage potential investors who might seek to develop the site in ways not consistent with its historical nature. This may result in the present owners failing to pursue these exemptions because of possible negative impacts on market demand and value. What will be the consequence if the owner decides they no longer want to be a part of the local program, can there be a local penalty involved similarly to the Tree Growth and Open Space laws?

The opposite ends of this spectrum are towns where the downtown areas, some on the waterfront, are typically all historic properties with significant integrity to the town. However, because of the depressed downtown area, and the local economy these properties are given large amounts of physical, functional, and economic depreciation. Is the town now going to be required to allow additional reductions in the assessed values because of this amendment particularly if the property is improved and the improvements might be subject to this legislation? At what point does this exemption become a negative for the town? Can any of these properties become totally exempt because of this legislation?

Think of the downtown areas in Hallowell, Gardiner, Bath, Bangor, Kennebunkport, or any other major city or town that is made up of nearly all properties that have some degree of historic integrity. Who will be able to determine exactly what portion of these properties will be subject to this new exemption? If a downtown commercial building is fully leased and occupied should they be given a partial exemption? What purpose does this serve? Is the local legislative body going to be able to logically set guidelines that will implement the various items that need to be taken into consideration to see if a property should be given a partial exemption?

This historic preservation area is only the tip of the iceberg; the greater problem with this legislation is the "scenic view" or "significant vistas." There are no towns that we currently serve or have done consulting in that do not have some areas that have "scenic views with significant vistas". This is very subjective; beauty as the saying goes, is in the eye of the beholder; so who will determine what is a scenic view or a significant vista even if the owner meets the requirements of the legislation and records an easement against the property running with the land. Will the municipalities use schedules similar to the Open Space law that allows up to 95% reduction in the land values?

Easements have always been looked on as a restriction against a property. However, in some cases they have been found to enhance a property’s value.

Maine Revenue Services has a Property Tax Bulletin, Number 24, on the "Effects of Easements on Just Value." Item number 6 of this bulletin covers the "Valuation of Properties either Subject to Easement or Adjacent to Properties Subject to Easement".

6-A. There is no rule of thumb which establishes the just value of property subject to easements.

6-B. Each easement must be carefully reviewed by itself to determine how each condition stated in the easement may affect the just value of the subject property or other properties. An easement which allows limited development rather than no development may still have an impact on the total value of the property.

6-C. After reviewing the conditions of each easement, the assessor must decide whether the specific conditions increase or decrease just value or actually have no effect on the just value of the subject property or other properties.

6-D. The conditions of the easement may affect the just value of the subject property, adjacent properties or properties located in the vicinity of the subject property.

Item 6.C. above is the one that raises the most concern. The assessor must decide whether the easement increases, decreases, or actually has no effect on the subject property based on the criteria the town adopts. It would seem that with the passage of LD 2537 that we are now going to have a number of other players entering this arena that are going to give opinions and write criteria that will in effect removes the assessor’s opinion on the value of these easements and replace it with that of the "governing legislative body of the municipality."

We oversaw a revaluation in a town a few years ago where the company completing the project used such words as "extraordinary view" or "panoramic vista" to describe some of the locations of the property, only to be rebuffed by the taxpayers when they saw the notes on their property record cards. They asked that those remarks be removed from their property record cards. They felt that if someone other than us looked at those notes in the future that they might consider increasing their assessed values based on those comments. Now depending on new criteria to be set by the local governing body these individuals will be better off if they return to the town and place restrictive easements on their property, but how will it affect their resale value?

Again this brings us to the area of the legislation that raises the most concern. "A municipality may reduce the valuation of property with a scenic view or significant vista if the owner of the property agrees to permanently forgo development of that property to preserve the scenic view or significant vista through use of an easement properly recorded as part of the deed and running with the land." Who is going to determine what is a "scenic view of significant vista" and the amount of value that the easement establishes?

If each town sets it owns criteria, there will be differences for coastal towns, as opposed to inland towns, or mountain towns. There is the possibility that every town will have a different set of rules based on their own particular location, and the desires of the local legislative body to preserve what they will consider a scenic view or significant vista.

Under the current Open Space law we have reduced the assessed value on one coastal property from more than one million dollars down to approximately fifty thousand dollars. This taxpayer did record all the necessary restrictive easements to meet the 95% reduction under the current open space law. One taxpayer in a small coastal town did not make a significant difference in the town's valuation, however, if there are numerous individuals who file similar easements the town might want to weigh the cost/benefit ratio before implementing this legislation.

This is an issue that everyone should watch closely as the impact can be far reaching on all municipalities in Maine. It is also questionable if the local governing body will want to directly be involved in identifying and developing criteria that establishes the amounts of exemptions on these classes of property. We expect that towns and cities will appoint local boards to establish the criteria and the formula to determine the amount of the exemption.

We also did a search of the Internet and reviewed historic preservation ordinances from various towns, cities, and counties all over the United States and found variables in each situation. This indicates to us that the implementation of this legislation is going to take a major commitment from the local governing bodies of each jurisdiction in Maine. The State Legislature may pass LD 2537; however, it will be up to the local jurisdictions to decide if they want to give a tax break to these types of property. Each municipality will have to weigh the benefit as opposed to the cost to the other taxpayers in their towns.

Each town in Maine will have to review the impact this legislation has on their town. Will there be a significant revenue loss; will the benefit of these exemptions bring prosperity to the towns, or will it create some resentment between the haves and have-nots? Will the local lifelong resident be able to take advantage of this reduction in property taxes with the consultation of an attorney to draft the easement and complete the application process? This will be a learning process for everyone involved, from drafting the ordinance, reviewing the applications, and most importantly determining the amount of the exemption.

Not an easy task but one that may be placed before the towns and cities in Maine in the near future.