One way or the other, many Ohio farmers need a break on their rising real estate taxes. It appears that may finally happen after several years of debate on agricultural property values.
Last week, the Senate unanimously passed a bill sponsored by Sen. Cliff Hite, R-Findlay, that aims to update the Current Agricultural Use Valuation formula and set a more realistic and stable expectation of taxes owed by farmers.
Hite’s bill now goes to the House, which has approved its own CAUV legislation. Similar reform is also contained in an amendment to the state budget proposal.
One of the three measures should see the light of day. Rising property taxes mean some farmers face the prospect of having to sell the family farm.
Ohio’s CAUV program appears ripe for reform. It was approved by Ohio voters in a referendum in 1973, and has only undergone minor changes since.
The program allows farmland devoted exclusively to commercial agriculture to be valued according to its current use rather than at its “highest and best” potential use. By permitting values to be set well below true market values, the CAUV usually results in a lower tax bill for working farmers.
A farm’s tax rate is based on a variety of factors, including yields, crop prices, crop rotation patterns, production costs, soil types and net income per acre. Those figures are then divided by a capitalization interest rate.
The Senate bill removes two factors — land value appreciation and equity buildup — from a formula that can inflate the value of farmland based on market considerations.
The Senate version of the CAUV legislation would phase in the formula changes over three years, compared to six years under the House plan. The purpose of the phase-in is to reduce the financial impact of lowered farm property valuations on school districts and municipalities.
The Legislative Service Commission has projected losses of $20 million or more for local governments and school districts on the Senate’s version and $14 million on the House version. Either would create a “tax shift” that could put more of the tax burden on other non-farm property owners, but Hite said ag is too important to the state to not find a path to reform.
“Many farmers cannot afford to keep farming their land without CAUV reform,” Hite said last week after the Senate vote. “This legislation will make important adjustments to ensure agricultural property values are calculated in a manner that is more reflective of their land use.”
Hite noted the proposed changes will help “incentivize conservation practices,” an important consideration as the state encourages farmers to practice better fertilizer management to reduce algae blooms on Lake Erie. The current CAUV discourages conservation.
More discussion will be necessary in the Legislature before the bills become one, but Hite’s leadership should help move the important issue forward.
Agriculture is simply too critical to the Ohio economy, especially in the northwestern part of the state, for some sort of change not to occur before more farmers are forced out of business.
According to PolitiFact, agriculture is the state’s largest industry. It contributed $105 billion to Ohio’s total economic output of $898.7 billion in 2010 — an 11.7 percent share.
The CAUV has seen some tweaks over the years, but the formula used to calculate farmers’ tax bills is in need of overhaul. It needs to happen this year.
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