Standards for Historic Preservation, Scenic Views
(from Maine Townsman, February 2000)
by Kate Dufour, Legislative Advocate, MMA

In the November 2, 1999 referendum election, the people of Maine voted 55% to 45% in support of an initiative to amend Maine’s constitution authorizing municipalities to create property tax incentives for historical property. As presented to the voters the question asked, "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?"

MMA opposed the initiative for a number of reasons, none of which were associated with the merits of preserving historic property. The question to the voters was not entirely reflective of the actual change to the Constitution. Perhaps more importantly, tax breaks to narrow property interests further erodes the two essential principles of property taxation in Maine, which are equity and uniformity. How to implement the proposal was also entirely unclear, especially with regard to "scenic views of significant vistas".

In any event, the people of Maine have spoken, and the job now is to implement that directive by enacting quality enabling legislation. Unfortunately, LD 2537, An Act to Promote Historic and Scenic Preservation, the bill that will become the enabling legislation, is far too broad. The printed bill does little to provide standards that address qualifications, classification procedures, duration of requirement and withdrawal penalties. Even in some of the states with the most lenient historic preservation tax laws, there exist standards to monitor the program. As currently drafted, LD 2537 includes no standards to ensure some degree of equity and uniformity within the context of this new tax exemption.

Before this Constitutional change, there were just three exceptions to the general rule that all property in Maine, regardless of use, ownership or significance, must be assessed according to its "just" or market value. These exceptions are for forestland, farmland and open space, which can be assessed at "current use" rather than "market value". These exceptions to the "just value" principle provide landowners property tax breaks in exchange for keeping Maine’s open lands in productive use in support of the state’s natural resource-based incentives.

Enrollment in these programs however, requires a certain amount of commitment on behalf of the landowner. A person choosing to withdraw her property from the Maine Tree Growth Program faces a minimum penalty of the difference between the total taxes that would have been paid and the actual taxes paid in the five preceding years. If the landowner elects to withdraw the property from the program within a shorter period of time after enrollment (e.g., within 5 years) a stricter penalty applies. The maximum penalty for withdrawal from Farmland is currently 20% of the assessed fair market value at the time of withdrawal. The Open Space maximum penalty is 30% of the difference between the open space valuation and the fair market value of the property.

Now that the voters have allowed a local option on this historic preservation exception to the general rule of equal taxation, a discussion about the parameters of implementing the exemption must take place. According to the National Trust for Historic Preservation, 21 states have enacted legislation that provides property tax breaks to residents who own or are in the process of rehabilitating historic properties, and nine states have enacted legislation that provides state income tax credits (see Table I).

A review of the laws enacted in 10 states shows that most tax incentive programs include eligibility standards and an application process (see Table II). Other more stringent programs include provisions for time limitations as well as penalties for withdrawing from the preservation program.

A review of 10 states’ tax-exempt preservation programs was conducted with five criteria in mind. These 10 states were chosen for this study, because the information on the states’ programs was readily available and clearly written.

The first criterion was whether or not the state law included a local option provision, providing guidelines for the exemption, perhaps, but leaving the ultimate decision to adopt the measure to each local legislative body. Of the 10 programs examined, seven states provide local control over the exemption of historical property.

The second criterion examined was whether the property tax break provided was an abatement or an exemption. An abatement in this case would be a refund provided after the property owner had paid the full tax obligation and kept or maintained the historic property according to the rules. An exemption would provide more of an up-front benefit by reducing some portion of the assessment on the property. Only Connecticut uses an abatement program, the other nine states use an exemption program.

Of the nine exemption programs in the sampling, there are two different types of exemption. Some states base the exemption on the entire value of the property, and others base it on the renovated value only. For example, New York provides a gradually declining exemption that is applied only to the increased value of the historic property due to rehabilitation. In the first five years of the program 100% of the value resulting from renovation is exempted from taxation, in the sixth year, 80% of the renovated value is exempted, and so on until the tenth year when the entire value of the property is taxable. The New York system is something like a municipal Tax Increment Financing (TIF) system, which targets the tax benefit only to the expanded value of the subject property. Other states such as Alabama utilize a flat 10% exemption on historic buildings and sites.

The third criterion reviewed in this analysis was the type of standards states have adopted for determining eligibility. While tax rules vary slightly from state to state, for the most part they all require that the property in question be either listed on a federal, state or local authenticated list of historic properties. Other typical standards require that any renovations follow locally prescribed guidelines or other state and federal renovation regulations. Only Connecticut, in the samples reviewed, gives over to each municipality the complete discretion to control eligibility by ordinance. In Florida, qualifying property must be protected into the future by the execution of a covenant on the deed that presumably is enforceable for the duration of the tax break.

Time limits on the exemption are the fourth criterion. Seven of the state programs include time limits. The most frequently used time limit is 10 years. In Arizona, qualifying non-commercial property can receive a 95% exemption on the value of the property for 15 years, although a 15-year extension of the exemption is available.

Finally, the fifth criterion MMA reviewed involved the type of penalties assessed on historic landowners for either disqualification or for withdrawal from the preservation programs. Of the 10 states, six have provisions for penalizing landowners. In four instances, the penalty is back taxes and interest; that is, the difference between the full tax obligation and the actual tax paid in each year of the exemption, plus interest. Landowners in Arizona and Washington are required to pay an additional fine on the total back taxes plus interest. The fine in Arizona is an additional 15%, and there is a 12% surcharge in Washington.

The initiative supported by the voters of Maine also sought to protect scenic property and vistas. Information about the efforts of other states to protect scenic property and vistas was not easily attainable. The information found on scenic preservation in other states focused on special segments of public highways and the need to protect these scenic views from being broken up by sprawl development. According to the National Trust for Historic Preservation, the state will commonly protect these special scenic vistas through a range of strategies from simply identifying the scenic road segments to enacting directly protectionist land use regulations.

As printed, LD 2537 would enable municipalities to reduce the property tax value on properties with " a scenic view or significant vista" if the owner agrees to permanently forgo development on that property by putting a protective covenant on the deed that runs with the property. Again, as discussed with the historic property portion of the bill, this language is remarkably broad. The definition for scenic and significant vistas should fit within some commonly accepted parameters. Definitions will undoubtedly vary from person to person. The blooming potato fields of northern Maine and the working lobster piers of the coastal Maine might be considered vistas of significance, but should not necessarily be considered for tax reductions.

Also, this provision is certainly redundant to existing law. Currently, under the Farm and Open Space tax laws, persons can receive property tax breaks for protecting Maine’s open space. A landowner can receive a 20% reduction for any ordinary open space. If the taxpayer chooses to permanently protect open space, the reduction in property tax value is 50%. Permanently protected open space is defined as land that is subject to restrictions prohibiting building development under a perpetual open space preserve owned and operated by a nonprofit entity. A 75% exemption is offered for "forever wild open space." This open space is owned and operated by a nonprofit entity and made available for fishing, hunting, harvesting of shellfish and for low-impact outdoor recreation, nature observation and study. Finally, persons can receive up to a 95% exemption for providing public access to open space land. Public access open space is any area of open space land allowing public access under reasonable terms.

Regardless of whether or not you believe existing open space laws address the vista concern, if any new language is to be enacted it should include, at minimum, basic standards to administer the program and definitions providing guidance as to what should be considered a scenic view or significant vista.

If the intent of LD 2537 is to indiscriminately provide property tax breaks to people who are lucky enough to own some of the state’s historical and scenic property, the bill can be enacted in its hastily drafted form. If, however, the Legislature is interested in protecting the state’s historic property and retaining at the same time a modicum of uniformity and equity, ample time should be invested in developing common standards and definitions, and procedures to make sure the tax exemptions provided by the local taxpayers achieve long term benefits to the general public.