Minnesota Lawyer
Senate property taxes chair Rod Skoe says the combination of escalating land values and the end of Minnesota’s limited market value rules spell a need for tax rate reductions. (Staff photo: Peter Bartz-Gallagher)
State lawmakers and agriculture lobbyists are debating how to deal with the escalating property tax bills that are hitting Minnesota farms. And the differences of opinion reach all the way down to House and Senate DFL committee chairs.
Property tax payments on farmland have grown dramatically in recent years owing to a confluence of factors. In the words of Rep. Paul Marquart, DFL-Dilworth, the chair of the House Property and Local Sales Tax Division, “We’ve had this perfect storm that has happened that has escalated property taxes.”
According to the state Department of Revenue (DOR), Minnesota agricultural land increased in value by an average 30 percent between October 2007 and September 2008. That led to a whopping increase in tax bills that were payable in 2009.
DOR doesn’t expect as steep an increase for taxes payable this year, but ag interests have descended on the Capitol to plead for mercy. The “perfect storm” to which many of them allude is a function of both the economy (residential property values have plummeted while ag land has stayed even or appreciated in value) and state tax law (Minnesota is phasing out a law that for years minimized the tax impact of rising land values).
Of those factors, it’s the simultaneous rise of ag property values and decline of home values that has caused the most alarm. Whether it requires a retooling of property tax laws is a point of disagreement between the chairs of the House and Senate property tax committees.
Senate Property Tax Division Chairman Rod Skoe, DFL-Clearbrook, would intervene on behalf of farmers by lowering the classification rate on agriculture land. “There’s been a pretty significant shift from residential value off of homes on to agricultural land,” Skoe noted.
Marquart, in contrast, thinks that problems in the marketplace shouldn’t lead legislators to change tax policy. “I’m not in support of that,” he said, “because I don’t think we should be making changes based on short-term trends.”
Farmland valued at $1,010,000 or less, which falls into the 2a category, is taxed at the rate of 0.50 percent. The tax rate for farmland doubles when the value of the farm exceeds the $1,010,000 threshold. Farmland value increases in recent years have pushed many more farming operations into the higher rate.
Skoe advocates, and Marquart opposes, a proposal that would reduce the classification from 0.50 percent to 0.45 percent. And that proposal, though it divides the two property tax chairs, seems to be the one that stands the best chance of passing.
Other proposals are generating more controversy, such as a refund program sponsored by Sen. Lisa Fobbe, DFL-Zimmerman.
Her bill is similar in concept to the so-called “circuit breaker” that cuts off property tax increases on homes if they spike in value in a short time. Under Fobbe’s bill, a refund would kick in if a farmer’s 2010 property taxes exceed 2009’s taxes by 25 percent. The refund would be 65 percent of the amount above 25 percent or $250, whichever is greater.
The problem? Fobbe’s bill would be paid for with state funds. And with Minnesota facing a $5.5 billion to $8 billion deficit for the upcoming 2012-13 biennium, it will be hard to appropriate dollars for Fobbe’s refund proposal even if legislators agree on the policy, according to Sen. Rick Olseen, DFL-Harris, who is one of the bill’s co-sponsors.
While economics is the largest vector in the perfect storm, state policies are also part of the issue. In particular, ag interests point to the state’s phased elimination of the limited market value (LMV) program.
LMV dates to the early 1970s, when it was put in place to moderate the impact on property owners of rapidly inflating property values. LMV has been applied to homes, farms, cabins and timberland. One effect of LMV was to shift the property tax burden in communities from homes that were escalating rapidly in value to properties that weren’t rising in value as fast, or were actually declining in value.
In 2005, lawmakers started phasing out the program. For the first time in decades, the property taxes payable this year are assessed at full market value. Since LMV is no longer around to protect farmers from the tax impact of rising valuations brought on by the gyrations in the marketplace, owners of agricultural land are without insulation from the impact of the market.
Olseen has introduced legislation that would limit the taxable portion of increasing land values. Reintroducing LMV is flatly opposed by interests lobbying for Minnesota counties. They were glad to see LMV phased out, said Association of Minnesota Counties policy analyst Joe Mathews, and they won’t support another attempt to bring back LMV for agricultural land.
“We’ve always advocated for allowing the marketplace to determine assessed value,” Mathews said.
Farm lobby groups at the Capitol remain interested in applying LMV to agricultural land. But Thom Petersen, director of government relations for the Minnesota Farmers Union, said that undoing the LMV phase-out this session probably isn’t realistic.
“We’d like to see it. But more realistic might be lowering the first tier of agricultural classification from 0.50 percent to 0.45 percent,” Petersen said.
Marquart’s committee has already taken testimony from DOR property tax officials on the situation. Skoe plans to hold a hearing on agriculture property tax issues Thursday.
