“That just seems way out of proportion,” he said. “Crop prices were high a few years ago. Today, you look at the prices and the expenses of putting the crop out, you’re not making the money you did three or four years ago.”
The increase in value of Mr. Giesige’s land is an extreme scenario.
But many farmers are banking that the state will address the issue in the next two-year budget that passed the House and is now in the Senate. It would shift the focus of a formula that determines the value of taxed agricultural land, relying more on U.S. Department of Agriculture data to reflect the land’s farming value.
“Our agricultural community has had some very difficult times. In fact, they’ve been caught between a rock and a hard place,” Rep. Kirk Schuring (R., Canton) said recently when House Republicans laid out their plans for the Current Agricultural Use Valuation formula.
“On one hand, their property values have gone up exponentially, over 300 percent in recent years,” he said. “On the other hand, farm income is down. ... So we need to modernize the CAUV formula.”
Such a change, however, would be a decision made in Columbus that would affect the bottom lines of local governments and school districts that rely on property taxes. It also could lead to a shift of the overall local tax burden away from agricultural and conservation land toward residential and business property.
The County Commissioners Association of Ohio is watching the developments but has yet to take a position. It has members on both sides, including some who are farmers.
“Every fiscal note and every analysis we’ve seen indicates there will be a loss of revenue to local governments. We don’t think there’s any debate about that,” said Brad Cole, the association’s managing director of research.
“Whether you think it’s a good idea or a bad idea, there will be a loss of revenue,” he said.
They are also watching Senate Bill 36, sponsored by Sen. Cliff Hite (R., Findlay), which is examining a different approach toward the same goal.
“We will spread [the formula change] out over six years, and that will dilute the impact it has on local governments [and] schools,” Mr. Schuring said of the budget provision. That phase-in period would cover two evaluation cycles.
A final budget must reach Mr. Kasich’s desk by the end of the fiscal year on June 30.
Voters amended the Ohio Constitution in 1973 to protect farmland as well as woodlands and conservation areas that don’t produce crops by basing their taxable values on their true uses rather than often higher fair market values for real estate development.
To qualify, farmers must set aside at least 10 acres exclusively for commercial agricultural use or, in the case of smaller farms, produce at least an average annual gross income of $2,500.
The value is set according to a complicated formula that takes into consideration, among other things, farm income based on soil type and price data on selected crops, land production costs, and mortgage interest rates.
In theory, it sets the value that someone wishing to continue to farm the land, rather than develop it, would pay.
The formula has been set by the state tax commissioner, and the current commissioner, Joe Testa, plans a hearing on June 10 in Columbus on the proposed 2017 values.
But farmers have argued that a combination in recent years of rising prices for the specific crops included in the calculation and mortgage interest rates, which have been held down since the 2008 recession by the Federal Reserve Bank, have resulted in inflated land values.
“It puts the formula out of whack,” said Ron Sylvester, spokesman for the Ohio Farm Bureau Federation. “The other thing that has added to the strain farmers have been under is that [crop] prices have gone into the tank over the last three to four years. The part of the formula that takes prices into account goes back seven years, and a lot of this is based on [past higher prices].”
He said the pressure is on for a legislative change because farmers felt they hadn’t made progress with Gov. John Kasich’s administration.
“It’s a legitimate push and pull between those who believe the income tax is the most fair tax and those who believe other taxes are the best way,” Mr. Sylvester said. “They were cutting income taxes at the same time that this was going since 2010 and 2011.
“We believe we were ignored by the administration because it was getting the benefit of farmers paying more,” he said. “We don’t think that was the plan. We think it was their good luck that they didn’t have to offset the income taxes more than they did,” Mr. Sylvester said.
But now lawmakers are looking at changing how agricultural land is taxed at the same time they are dealing with shortfalls in the collection of other state taxes, particularly income and sales taxes.
State Rep. Mike Sheehy (D., Oregon) said he broke with most of his fellow Democrats to support the House-passed budget, in part, because of the farm tax language.
“I represent farmers in Springfield and Jerusalem townships,” he said. “I was on Oregon City Council for 20 years. I know CAUV is important to those guys. Farmers I’ve known for years have seen their taxes doubled. … I promised them I would do everything in my power to see that CAUV gets adjusted.”
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