Ways & Means hears testimony on land-value taxation as tool to spur infill, ease building taxes

The House Ways & Means Committee heard nearly two hours of testimony on Wednesday, Feb. 19, about using a land-value tax in Vermont as a way to shift property tax burden off buildings and onto land to encourage infill and redevelopment.

The discussion centered on whether municipalities could pilot higher tax rates on unimproved land while reducing rates on buildings, how assessments would be set and the implications for the state education property tax and designated downtown programs. No formal action or vote was taken; several legislators expressed interest in commissioning a study or pilot program.

Josh, a guest witness who identified himself as representing a 501(c)(3) educational research foundation based in Philadelphia, framed the idea as distinct from ordinary property tax reform: "Land is very different. It's immobile," he said, adding that taxing land rather than improvements avoids penalizing owners who invest in buildings. He said property taxes account for "about a third of Vermont's state revenue" and that, in many Vermont towns, only about 20–35% of property-tax revenue currently comes from land value rather than buildings.

The witness described experience from Pennsylvania cities that have used higher land-value tax shares. He cited Harrisburg, Allentown, Aliquippa and Johnstown as examples where shifting taxation toward land correlated with higher building-permit activity and downtown reinvestment after adoption. He gave a numerical example based on a Hartford, Conn., city block that, under current taxation, produced about $193,000 in annual tax for a parking-lot parcel and argued that taxing land more heavily changes the economics of holding vacant lots.

Katie Gallagher, director of the Sustainable Communities Program at the Vermont Natural Resources Council, told the committee that the Council views land-value taxation through a smart-growth lens and as a possible tool to support downtown revitalization, adaptive reuse and "missing middle" housing types such as duplexes and four‑unit buildings. "Land value taxation is something that...could really advance our Smart Growth land use goals," she said, adding that focusing a program on designated downtowns and village centers could limit impacts on rural working lands.

Committee members raised implementation questions. Representative Odey asked whether a higher land tax would lower the sale price of land; the witness answered that increasing annual holding costs provides incentive to sell or develop. Several legislators asked how land values would be set; the witness said assessors would calculate land values using market sales and replacement-cost methods and referenced IAAO best practice to value land "as if vacant" then account for improvements.

Legislators also queried the interaction with the statewide education funding formula and property-tax equalization. One member asked whether municipalities would need separate valuations for municipal and education taxes; the witness said the education share could be calculated from land values in the same manner as current formulas, but emphasized that starting with municipal-level pilots in specific communities would be the safest approach.

Concerns included uneven data quality across towns, limited local infrastructure that constrains where growth can occur, and the possibility that shifting incentives could lead to unintended market outcomes (for example, profitable but low‑value retail uses occupying freed parcels). The Vermont Joint Fiscal Office (JFO) staff noted that JFO could staff a legislative study but could not participate as a private partner in a study outside legislative processes.

While witnesses and members discussed next steps, no bill or motion was introduced. Multiple legislators and witnesses recommended a formal feasibility study or targeted pilot — focused on designated downtowns or a small number of municipalities — as the next step to analyze assessment capacity, impacts on the education fund, local infrastructure constraints and transaction costs.

The hearing drew examples and data points that committee members said they wanted to see quantified for Vermont: estimated shifts in municipal revenue under different land/building rate splits, parcel-level analyses in candidate towns (several speakers suggested Bennington and Newport as possible pilots), and a review of how current designated downtown boundaries and zoning would interact with any tax change. Several presenters and members suggested keeping rural, permanently conserved or current‑use lands outside program scope.

The committee recessed for a short break after the testimony; members asked witnesses to provide follow-up materials and parcel-level data for further study.