Report: State leases with ski resorts out of date

MONTPELIER — A new report released Tuesday by State Auditor Doug Hoffer highlights the shortfalls in long-term leases signed by seven ski resorts that utilize state lands.

One key issue, the report found, is that lease payments to the state have not kept pace with revenues generated by the resorts as they expanded their offerings over the years.

According to the report, the long-term leases that range between 50 and 100 years, began in 1942, when Bromley Mountain struck a deal with then-State Forester Perry Merrill. The value of the leases have fallen this decade when adjusted for inflation.Screen Shot 2015-01-20 at 8.10.59 AM

The state originally used the leases to help resorts grow on and around state land while generating revenues for state forests and parks, according to the report.

But over the last 50 years, locally owned resorts that once had just a handful of lifts and a few facilities have become year-round enterprises. And many are now owned by large out-of-state corporations, according to the report. The resorts now feature new lodges, hotels, condominiums, retail stores, golf courses, waterparks and other amenities. Between 2003 and 2013, development at the seven resorts led to increases in sales of goods and services, property values and revenues from excise taxes.

“It’s clear that these leases are now over half a century old. I think it’s perfectly reasonable to look at them and see if they’re consistent with how the state is managing its land,” Hoffer said Tueday.

Screen Shot 2015-01-19 at 2.27.21 PMBut lease payments for the 8,500 acres of public lands used by resorts over this decade have not kept the same pace of growth as other tax revenues generated from the resorts. The leases, according to the report, were designed to capture a percentage of lift tickets, typically 5 percent of lift ticket sales. However, lift ticket sales have become a secondary source of revenue as the resorts evolved.

“I think it’s a fair question as to whether limiting lease revenues to that one source is suitable given the resorts’ growth,” Hoffer said.

Additionally, the leases were not crafted in any standard way and have inconsistencies including lengths, indemnity clauses, remedies for a breach of contract and audit provisions, according to the report.

“The lack of uniformity between the leases has produced a system that is difficult to administer and generates added costs for taxpayers,” the report states.

Other resorts leasing state land include Okemo, Killington, Stowe, Smuggler’s Notch, Burke and Jay Peak.Screen Shot 2015-01-20 at 8.13.32 AM

The report found additional problems with the leases, including:

— Since state lands are not subject to local property taxes, Vermonters pay for land and facilities used by the ski areas through the Payment in Lieu of Taxes programs, which reduce the value of the lease revenues to the State.

—There is variation in assigning title to property on state land, which has obstructed two towns’ power to tax and gives some resorts a tax advantage because property that belongs to the state is tax-exempt.

—Dated liability insurance language in the leases also poses potential risk for the State.

— The leases provide sole authority to extend contracts with the resorts, with the state having no authority to deny or amend requested extensions.

— When the State negotiated the lease agreements, it made a crucial error by not stipulating regular opportunities to update the agreements, as the federal government does in its standardized 40-year permits with ski areas.

According to the report, private property values at the seven ski areas grew by almost 150 percent between 2003 and 2013, generating about $5.3 million in property taxes for the state’s education fund.

During that same decade, the report found that inflation-adjusted sales of meals at these resorts grew by 40 percent, alcohol sales grew by 49 percent and rooms’ sales grew by 61 percent. That growth has resulted in greater tax revenue for the state, and most of that tax burden is paid by non-residents who come to Vermont as tourists.

During the same timeframe, however, the resorts’ inflation-adjusted lease payments to the State fell by 14 percent.

Because of how the leases are structured, the resorts are under not obligation to renegotiate.

“In the event that ski areas are not willing, or collectively willing, to negotiate new contracts, then the state has to wait,” he said. “Who knows, with enough pressure maybe they could be persuaded.”

Offer said it’s up to lawmakers to decide if they will renew conversations about the leases. He said it is justifiable since the original goal, to encourage growth in the ski industry, has worked well and resorts have “no doubt got a fair return.”

“As it turns out, I think it’s pretty clear that the Legislature could justifiable have a conversation about a number of aspects of these leases,” Hoffer said. “The question of the lease payments kind of jumps out.”

A full story will appear in Wednesday’s editions of the Rutland Herald and the Barre-Montpelier Times Argus.

Read the report below:

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