Agreement Reached on Airport Tax Litigation

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Thursday August 18, 2016

After 5 years of debate and mediation, the city councils of both Burlington and South Burlington have reached an agreement that settles a dispute over property taxes paid to the City of South Burlington by the City of Burlington for the Burlington International Airport (BIA) property. The councils took this action almost simultaneously at regular meetings held the evening of August 15.

In a press release, South Burlington Council Chair Helen Riehle said, “This was an enormously complex property tax case that involved a variety of land uses and narrowly written statutes that apply to airports and property owned by one community but located in another. I want to express my appreciation to the staff and attorneys of both cities, who worked tirelessly to arrive at this negotiated settlement and to Councilor Meaghan Emery who attended the mediation sessions on behalf of the council.”

Property tax assessments and valuation have been at the heart of this long-standing litigation. The City of Burlington appealed their BIA property taxes, assessed by the City of South Burlington, beginning in 2012-13 — and each year since.

The City of Burlington owns the land and buildings that make up Burlington International Airport (BTV) which is located in South Burlington. The total area of BIA is 871.782 acres, of which 44.564 acres are Noise Compatibility Program (NCP) or Chamberlin neighborhood properties. Burlington also owns land and buildings outside the perimeter fence.

The crux of the tax issue was a dispute between the parties regarding the interpretation of Vermont statute 32 V.S.A. 3659. The statute sets out a formula for taxation of property owned by one municipality, but located in another. Given the number of different properties owned by the airport, the statute had many layers that needed to be investigated. The properties include the NCP residential properties around the airport acquired through the FAA noise mitigation program, the airport terminals, runways, commercial property, and property Burlington leases to parties like the Vermont Air National Guard.

Burlington and South Burlington’s experts differed widely on their value of the airport property and if V.S.A.3659 even applied to the situation — and if so, how? At one point South Burlington valued the property at $73 million while, in stark contrast, Burlington believed the value should be set at $16.9 million. In a March 2016 summary judgement, Judge Toor clarified how specific property tax statutes apply to various elements of the BTV property. Now, at last, a settlement has been reached.

The key points of the settlement are considered an all around win-win. The agreement states that beginning in the 2015-16 tax year, the total assessed value of the BTV land and buildings is approximately $52 million. By virtue of resolving the 15/16 tax appeal, Vermont law says that number will carry forward for 3 years, so the value will remain in effect for 2016-17 and 2017-18. This is a reduction from the current assessment of nearly $77 million. The valuation of airport land is $25,750 per acre, Chamberlin neighborhood residential land acquired through the buyout is valued at $280,000 per acre, and commercial space within the property is assessed at $6.214 million. Airport holdings outside the perimeter are valued at $3.295 million.

Burlington’s overpayment claims will be dismissed. The City of Burlington won’t receive a refund, but will instead receive a credit on its municipal property taxes in 2016-17 and 2017-18 of $59,000 each year. The combined taxes for Burlington will be $717,000 annually, $238,000 of which will go to the City of South Burlington and the remainder to the state education fund. In following years, the amounts payable both as Payment In Lieu Of Taxes (PILOT) and property taxes will be based on the land owned by Burlington in each category and the values per acre as well as the effective tax rates.

Based on the Superior Court’s decision, Burlington will pay property taxes on some BTV land and improvements and PILOT on others. This provision dates back to World War II where municipalities were incentivized for building airports and thus were exempted from paying taxes on those properties that were purchased with federal dollars.

South Burlington and Burlington have also reached an agreement on property taxes for the 10 year period of 2018-19 through 2027-28 which states that the $52 million base value will continue for BTV property, with adjustments made based on property acquisitions or other changes. Taxes and PILOT payment will continue with the assessed taxes and PILOT based on effective tax rates over the 10 year period.

Overall, the agreement brings to a close a lot of hard work, energy, and funding put forth by both parties over the years and provides a measure of stability going forward. At the August 15 council meeting City Manager Kevin Dorn expressed gratitude for the outstanding representation attorneys Bob Fletcher and John Klesch provided during the process as well as the role of Tom Hubbard who evaluated and re-evaluated financial figures.

SOURCE: Corey Burdick, Correspondent