NOTE: This post is the second in a three-part series titled “What is ‘Town Property’ in Little Compton? And who makes decisions about the ‘acquisition, … sale, mortgage, exchange, or lease’ of that property?” Part 1 is here.
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4. Counting the ways the LCACT is a legal and political component of the Town of Little Compton
Does the property owned by the Little Compton Agricultural Conservancy Trust (LCACT) belong to the Town of Little Compton? If not, to whom is the Trust legally and politically accountable? Legally speaking, what is the LCACT?
I believe the Trust is an integral component of the Town of Little Compton, as legally established by the Rhode Island Constitution, the laws of Rhode Island, and actions of Little Compton voters at Financial Town Meetings and through adoption of a Home Rule Charter. I am not a lawyer, but as a citizen I am of course free to offer my opinions about the Trust’s legal status. Here are a few of those opinions:
- What is the “Town of Little Compton”? Section 101 (“Incorporation.”) of the Home Rule Charter provides that
“[t]he inhabitants of the Town of Little Compton [emphasis added] in the State of Rhode Island, within the corporate limits as now established or as hereafter established in the manner provided by law, shall continue to be a municipal body politic and corporate, under the name of the Town of Little Compton in perpetuity, to be governed under the provisions of this Home Rule Charter as adopted and as it may be amended.
Legally and governmentally, then, the “inhabitants” of Little Compton comprise the “Town of Little Compton” as “a municipal body politic and corporate.”
- The LCACT is a unique legal and political entity, as set forth in its enabling legislation (as subsequently amended) and approved by Little Compton’s Financial Town Meeting. The Home Rule Charter provision (Article 13) of the RI Constitution specifically requires that any local tax may only be adopted by authorization of the General Assembly and qualifying local voters. As previously noted, the Block Island Land Trust is the only comparable legal and political counterpart in Rhode Island. But even those two agencies differ in fundamental aspects, as provided in the respective enabling laws under which they operate. For instance, the members of the LCACT are all appointed by the Town Council. In Block Island, the trust members are elected by voters. In Little Compton, the transfer-tax is calculated by a property purchaser and collected when a deed is recorded, requiring no prior review or approval by the Trust or any other town official. In Block Island, the Trust is specifically authorized to serve as collector of the transfer tax and to require prior approval of the calculated tax before a deed can be recorded.
- The Little Compton Agricultural Conservancy Trust is included as Section 705 in Article VII (“Boards and Commissions”) of the town’s Home Rule Charter, which was adopted by voters in November 1994 and took effect in January 1995. Section 705 specifically provides that “[t]he powers, responsibilities and procedures to be exercised and implemented by the Trust are as the same as set forth in” the Trust’s 1985 enabling legislation. The Rhode Island General Assembly ratified the Charter in 1995 (although the Home Rule Charter provision of the RI Constitution (Article 13) does not explicitly require such General Assembly ratification). Arguably, the inclusion of Section 705 in the 1994 Home Rule Charter adopted by Little Compton voters and the Charter’s ratification by the General Assembly effectively reconfirmed the powers and authority first granted to the Trust jointly by General Assembly and the town’s voters in 1985 and 1986.
- As noted, the “trustees” or members of the LCACT are all appointed by the Town Council. Five trustees are appointed for five-year terms. The other two members are the chairs of the appointed Planning Board and the Conservation Commission or “their member designees.” Section 2 of the Trust’s enabling law specifically provides that the “Trustees shall be resident electors [i.e., voters] of the town of Little Compton” and that “No trustee may be an elected officer or salaried employee of the town.” However, the title of “trustee” does imply some role and responsibility by Trust appointees for the beneficial interests of other individuals or entities, namely, the government (“a municipal body politic and corporate”) comprising the “inhabitants of the Town of Little Compton.”
- The Town Council retains authority to approve any standing rules or regulations adopted by the trust, pursuant to Section 4 of the enabling law, but the Council cannot unilaterally impose such rules and regulations.
- Voters at the Financial Town Meeting are granted sole authority to amend the rate of the transfer tax and the level of the exemption applied to each taxable property conveyance, pursuant to the enabling law’s Sections 7 and 8. The tax rate may not “exceed the amount of five (5%) percent of that amount of the total purchase price which exceeds three hundred thousand ($300,000.00) dollars.” Voters may also amend the exemption, provided that “[said] exemption shall not be less than three hundred thousand ($300,000.00) dollars.” The current transfer fee rate is 4 percent, but FTM voters could increase the rate to 5 percent–or reduce it to zero percent.
- By the provisions of Section 7 of the enabling legislation, LCACT’s funds are all held in a revolving account established “by the treasurer of the Town of Little Compton.” The LCACT’s balance of funds as of July 31, 2022, the most recent figure provided in available LCACT minutes, was $3,033,654.87.
- The LCACT’s funds and property assets are included and identified by the town’s auditors in the annual 2021 fiscal year audit of the Town. The auditors describe the LCACT as “a component unit of the Town and meets the criteria” for such component units as defined in various formal statements of the Governmental Accounting Standards Board (GASB). (Strictly speaking, GASB standards are not legal standards.) “This component unit is reported in a separate column [of financial statements in the audit] to emphasize that it is legally separate from the Town,” according to the audit (p. 24), “but is included because the Town is financially accountable for and is able to impose its will on the organization [emphasis added].” For the fiscal year ending June 30, 2021, the most recent audit available, the Trust’s “net position” totaled $35,181,523, including “land and land easements” valued at $30,557,746 and “unrestricted” financial assets totaling $4,623,777. To the best of my knowledge, the Trust’s financial holdings and operations are not audited by any other professional entity or agency than the accounting firm retained on behalf of the Town by the Town Council.
- The property interests held by LCACT are treated as exempt from property taxation, as is other Town- owned property (e.g., Town Hall, school, South Shore Beach, Town Landing, etc.). Other property held by public and private land-conservation organizations, such as SPA, TNC, DEM, Audubon Society of RI, various federal agencies, etc., is also tax-exempt, as provided by Section 15-1 of the Town Code and Section 44-3-3 of the Rhode Island General Laws.
- The LCACT is not a tax-exempt organization under Sec. 501(c)(3) of the Internal Revenue Code, as are, for example, such private non-governmental conservation organizations as The Nature Conservancy, Sakonnet Preservation Association, or Audubon Society of Rhode Island. Such organizations, for example, as I know from direct experience from service on the boards of several 501(c)(3) organizations, must file an annual federal Form 990 tax return, available to the public, which includes specific and comprehensive reporting requirements for land-conservation organizations. LCACT does not file an annual Form 990 tax return.
- However, donations of land, money, or securities to the LCACT may be tax-deductible under Sections 170(b)(1)(A)(v) and 170(c)(1) of the Internal Revenue Code, which allow such charitable deductions for contributions to governmental units such as municipalities. Indeed, as an example, the Deed to Development Rights for conservation-protected parcels at Sakonnet Vineyard specifically describes the Trust, which holds the deed, as “an agency of the Town of Little Compton . . . designated as a governmental unit under Section 170(b)(1)(A)(v) of the Internal Revenue Code.” Moreover, I am aware from my experience on the Town Council that relatively recent donations of appreciated securities to support the purchase of property by the Trust were routed through a designated Town brokerage account so that the donations would qualify as tax-deductible pursuant to the same section of the IRS Code.
- Although it is described as a “trust” in its title and enabling legislation, LCACT apparently is not recognized by the Rhode Island Attorney General as a “charitable trust” as defined by state law (Title 18, Chapter 9 of the Rhode Island General Laws). If it were, it would be subject to oversight by the Attorney General. Indeed, in 1998 Town Solicitor Richard S. Humphrey provided an extensive letter to town officials and the Office of Attorney General questioning whether the Trust qualified as a charitable trust. “I have never known of a charitable trust that has the power to tax,” Mr. Humphrey noted at the time. To the best of my knowledge, the Attorney General has never recognized the LCACT as a Rhode Island “charitable trust” under state law.
- LCACT is not listed as a “Charitable Organization” in the RI Department of Business Regulation’s data base. Nor is the Trust listed in the RI Secretary of State’s Corporate Data Base as a corporation, LLC, partnership, or other common form of business or corporate organization.
- The appointed members of the Little Compton Agricultural Conservancy Trust are “municipal public officials” as defined by and subject to the Rhode Island Code of Ethics, including the filing of annual financial disclosure forms with the Rhode Island Ethics Commission.
- The LCACT is a “public body,” as defined by and subject to the state Open Meetings Act and Access to Public Records Act.
I would only belabor my point by adding to this catalogue of the numerous ways the LCACT is or may be an integral government component of the Town of Little Compton rather than a private, independent entity or enterprise. I offer this background not to knock down a straw-man argument I have attributed to some members of the current Charter Review Commission and other individuals. But I offer this background as my own exercise in understanding–and challenging– arguments and assertions I’ve personally heard offered.
How should the LCACT be overseen and held accountable by town officials and citizens?
I think it is true, however, that the Trusts falls into something of a legal, political, and regulatory crack. It is clearly a public body created under the authority of both the General Assembly and voters of the Town of Little Compton assembled at Financial Town Meeting. Its enabling legislation does not explicitly describe, define, or classify the Trust as a “private” organization. Nor, to my knowledge, does any extant court decision do so. It is not accountable to the federal government as a 501(c) (3) tax-exempt conservation organization comparable to the Sakonnet Preservation Association or The Nature Conservancy. The fact that the deeds and other recorded legal instruments by which it acquires and hold property interests may name as grantee of those interests the “Little Compton Agricultural Conservancy Trust” (rather than the “Town of Little Compton”) does not therefore demonstrate that the LCACT is a “private” organization or that it is not an entity of the Town.
As a practical, political, and legal matter, then, how is the “Town … financially accountable for and … able to impose its will on the [Trust],” as the Town’s auditors assert? Based on the bullet-point list offered above, I believe that such accountability and control can be most effectively exercised by town officials and citizens through these currently authorized means:
- Appointment of Trust members by the Town Council: The Town Council has sole authority to appoint LCACT trustees. As noted, five of the seven members serve five-year staggered terms. The other two are the Chair of the Planning Board and the Conservation Commission, or “their member designees.” It has generally been the practice of the Town Council, the majority of whose members have served for many years, to re-appoint incumbents. Thus, there is limited turnover among the trustees. The political upshot of this situation is that if voters aren’t happy with Trust appointees, they can attempt to elect Council members who may appoint alternative members to the Trust.
- Town Council approval of Trust standing rules and regulations: As noted, the Trust may adopt and amend rules and regulations, but only with Town Council approval. By my observation, the Council’s authority in this regard is rarely exercised and of limited utility, partly because neither the Trust’s enabling law nor its current rules and regulations include any meaningful form of their enforcement.
- Town voters’ control of the transfer fee rate and exemption level at FTM: As a practical and political matter, the voters’ power of the Trust’s purse strings at Financial Town Meeting represents potentially the most powerful check on the scope of the Trust’s activities. In fact, voters have exercised this authority from time to time since the Trust’s inception:
- At the 1986 FTM at which the LCACT’s enabling legislation was approved, voters debated and voted on various transfer fee rates. A motion to set the fee at 4 percent was defeated. A subsequent motion to set the fee at 2 percent was approved. The exemption was set at $75,000 as provided in the enabling law.
- In 1994, a citizen placed an article on the annual Financial Town Meeting warrant, as provided in the enabling legislation, to cut the transfer fee in half, from 2 percent to 1 percent. This proposal was roundly defeated by FTM voters.
- About 20 years ago, the LCACT took the initiative in securing General Assembly passage and FTM approval of an amendment to the Trust’s enabling legislation, permitting an increase and future flexibility in altering the amount of the original $75,000 transfer fee exemption. The 2004 FTM approved the following motion:
To increase the current exemption amount of $75,000 to $150,000 and to increase the tax collected on all transfers where the consideration exceeds $225,000 at a rate of 4%. The current 2% tax rate will remain in effect for transfers on amounts between $150,000 to $225,000.
- The tax rate and exemption schedule adopted in 2004 remained in effect until 2016. That year I placed on the FTM a warrant article proposing to reduce the transfer fee rate to 3 percent, while raising the $150,000 transfer-tax exemption real-estate proceeds on amounts between $150,000 to $225,000 (thereby eliminating the 2 percent tax rate on that increment). At the FTM, I accepted and the voters overwhelmingly approved an alternative amendment offered by the Trust that increased the exemption to $300,000, while retaining the 4 percent tax rate on proceeds over that amount. This remains the current structure of the LCACT tax rate and exemption.¹
- Vocal and organized citizen advocacy directed to LCACT and the Town Council: The LCACT provides detailed agendas and minutes for its meeting, has a useful, recently re-designed website, and produces an annual report (though a terse and rather perfunctory one) as required by its enabling law. In my experience, except when a controversy arises, relatively few members of the public attend the Trust’s meetings. In fact, it can be somewhat difficult to understand what is taking place at such meetings. The public is not usually provided the materials the trustees are consulting, the trustees generally do not use the sound system available in the Council chambers, and much of their business is conducted in executive session. However, citizens, either as individuals or as organized groups, always have the opportunity to exercise their rights as citizens to appear before the Trust and the Town Council to ask questions or raise concerns about the Trust’s policies and practices. I know from experience that this can be a slow, frustrating process, but such advocacy is the necessary right and price of citizenship.
- Amendment of LCACT’s enabling legislation: Like all laws, the Trust’s enabling legislation is not set in stone. In fact, by my count it has been amended four times since first enacted by the General Assembly in 1985. (My chronology of the enactment and amendment of the law by the General Assembly and the Little Compton Financial Town Meeting is available here.) These amendments have attempted to 1) tighten loopholes and ambiguities in calculating and collecting the transfer fee and 2) authorize the FTM to amend the amount of the exemption in addition to the rate of the fee. Town officials and citizens can seek more substantial amendment of the enabling law. Possible amendments might include:
- A provision that allows some percentage of the Trust’s revenues to be used to acquire real-estate interests for “affordable housing.” It can be debated whether LCACT is the appropriate legal vehicle for this purpose, but this is surely the question I have most frequently been asked concerning the Trust’s operations and authority.
- Expansion of the Trust’s authority to acquire real-estate interests or to make expenditures related to other natural resource purposes, such as climate change adaptation and control of coastal erosion.
- Election of trustees rather than appointment. Public land trusts in Block Island, Nantucket, and Martha’s Vineyard elect their members.
- Authorization of more specific procedures and powers concerning calculation, collection, dispute-resolution, and other matters relating to the transfer fee.
I have sometimes heard it argued that the town should avoid raising such issues with the General Assembly, for fear that state legislators might somehow unilaterally eliminate the LCACT or amend its authority. I am not a constitutional or legal expert, but I believe this argument is a total red herring, as a matter of both practical politics and state constitutional authority.
After more than 35 years of its operation, I believe that town officials and voters have good reason to review whether the Trust’s legal and political structure provides sufficient accountability concerning LCACT’s substantial and consequential activities on behalf of the Town of Little Compton.
Such a review of the powers and authority of the LCACT will, however, require an open, public, and, one hopes, civil discussion and debate. No such public discussion of the LCACT’s activity and mission has really taken place since the sometimes highly charged debates and events of the 1990s.
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In Part 3 of this series, I will address the proposed amendment of Section 710 of the Charter regarding the Little Compton Housing Trust. If approved, the amendment would empower the Town Council to authorize real-estate transactions by the Little Compton Housing Trust rather than voters at Financial Town Meeting, as is the case at present. The origin, important mission, and legal authority of the Housing Trust differ significantly from those of the Agricultural Conservancy Trust. I will also address concerns about whether, pursuant to Charter Section 103 (“Town Property”), Financial Town Meeting approval is required for other pending town transactions involving South Shore Beach and municipal solar-energy contracts. ♦
¹ Other than the passage of more than two decades, why would I have opposed a cut in the transfer tax rate in 1994 then proposed a cut at the 2016 Financial Town Meeting? For one thing, the Trust itself, by means of a well-promoted public education and political campaign, had secured voter approval at the 2004 Financial Town Meeting to raise the tax rate to 4 percent, which remains the current rate. I personally opposed the increase at the time, partly because it represented an added burden for homebuyers of modest means. But I did not publicly voice opposition to adoption of the higher rate, which appeared politically inevitable at the moment given the Trust’s effective public relations effort. I simply thought then–and still do–that the 4% rate is too high, not least because of its clear impact on housing affordability, even with the current $300,000 exemption.