Agriculture is the No. 1 industry in Ohio, but Ted Finnarn told a group of farmers that he wonders about that.
“Is it still?” he asked, turning to the 40 farmers who were sitting before him at the Spencerville High School auditorium in Spencerville. “I put a question mark behind that.”
Finnarn is an attorney with the Ohio Farmers Union. His presentation in Spencerville was the first of several he’s organized to get political traction for legislation aimed at reducing the Current Agricultural Use Valuation, or CAUV, a complex formula used by the state since 1976 to come up with farmland property values. He and other farmers’ advocates say the CAUV has been gravely affected by near-zero interest rates, the lingering effect of record commodities prices several years ago, and the General Assembly’s decision in 2013 to eliminate certain property tax rollbacks.
“Ohio has some of the highest farmland taxes in the nation,” Finnarn told the group. “It didn’t use to be this way.”
The issue has the potential of pitting farmers against local governments and school districts, which have been enjoying increased property tax revenues. And lawmakers are moving cautiously, fearful that the effort to reduce the CAUV could backfire.
“It’s very sensitive,” said state Sen. Cliff Hite, R-Findlay, who was asked at a recent breakfast with business leaders in Hardin County about his bill to reduce CAUV values. “The worst thing that could happen is if it ever got to the point where people would want to go to the ballot. We would lose. We would lose overwhelmingly. So we don’t want to go there.”
What is the CAUV?
Ohio’s Constitution requires all real property be taxed on a uniform basis, no matter whether it’s residential, industrial or agricultural land. But there have been all sorts of conditions added to this provision because of tax revolts in the 1970s.
One of them was a constitutional amendment that created the Current Agricultural Use Value, which allows farmland to be valued according to its “use for profit” rather than its “highest, best use.” The intention was to preserve farmland, especially land near urban and suburban developments, and to encourage the conservation of woodland.
“It’s not a tax break,” argued Finnarn, who comes from a farming family in Darke County. Farmland, he said, has rarely, if ever, been assessed at fair market value. “It allows farmers to pay taxes the way they should.”
Farmers weren’t the only ones who got tax relief. As part of what Finnarn calls a “grand bargain” with Ohioans, the General Assembly created an income tax, promising to use it to pay for schools in lieu of local property taxes. They also passed property tax relief measures such as a 10 percent rollback, a 2.5 percent residential reduction, and a Homestead Exemption for elderly homeowners.
Those property tax relief measures are no longer in effect for new tax levies, such as the one voters approved last year for the Johnny Appleseed Metropolitan Parks system. Lawmakers ended these property tax relief measures in 2013 in order to fill an $8 billion budget gap. In the meantime, they also reduced income taxes, something that Gov. John Kasich has touted often during his run for president.
Finnarn said it all mounts to a broken promise to Ohio taxpayers and is setting the stage for a crisis in education funding.
A ‘perfect storm’
The CAUV is calculated by the capitalization of the net income produced by an acre of land, and those income estimates differ depending on soil type and quality. The formula includes corn, soybean and wheat yields, a weighted average of five years worth of crop prices, production costs and a capitalization rate.
Observers say the CAUV has “gone out of whack” because of near-zero interest rates imposed by the Federal Reserve since the fiscal meltdown of 2007.
“With interest rates being so low and using that as a denominator in the [capitalization rate] equation, it makes the land values skyrocket,” said state Rep. Robert Sprague, R-Findlay.
“Skyrocket” is a good way to describe what is happening to corn and soybean farmer Glenn Troyer’s property taxes. He owns 365 acres in Allen County near Elida. He said his taxes have risen from about $33 an acre in 2009 to $66 this year. While taxes have doubled, commodity prices have gone down.
“Let’s say you have an average of 50 bushels of soybeans and you get $9 a bushel, that’s $450,” he said, tapping at a calculator on his smartphone while taking a break from loading a herbicide sprayer. “And your tax runs $65 an acre. That’s 14.5 percent, just for the property tax.”
He said the “real good years” that saw record grain prices in 2012/2013 were long gone.
Mel and Linda Borton, of Ottawa, said the property taxes on their farmland in Fulton County has shot up 329 percent, from $2,821 in 2008 to $9,289 in 2016.
The Bortons were among eight Northwestern Ohio farmers who met with Hite at the State Capitol in Columbus during a recent CAUV lobbying effort.
“You’re our state senator,” she reminded Hite, “and we expect you to do something about it.”
Hite’s legislation, Senate Bill 246, and its companion in the House of Representatives, House Bill 398, would allow woodland in conservation programs to be taxed according to their lowest possible value. The bills would also alter the computation of the capitalization rate.
If those proposed rate changes were in effect last year, CAUV values would have dropped 12 percent, from $4,770 an acre to $4,190 an acre, according to Finnarn.
Farmers’ advocates would like to see even more changes, like delayed payment plan options for those hit with big tax increases, and three-year averaging on crop prices instead of five. But Hite said small changes were the best approach.
“I don’t think anyone is going to be thrilled if we get incremental change, because it’s so drastic for so many people,” he told farmers at the State Capitol. “But incremental does mean we’re going in the right direction.”
Tweaking the formula
Such small changes would still make big waves.
The bills, if implemented as is, would reduce property tax revenue by $68 million to $141 million, according to the Ohio Legislative Services Commission, a nonpartisan legislative research agency. School districts could see losses of up to $14 million. Townships, counties and other local governments could face a $16 million decline.
“We don’t have an income tax or a sales tax and so we’re heavily reliant on the property tax,” said Matt DeTemple, executive director of the Ohio Township Association. “This is going to impact our bottom line.”
Dennis Fuge, superintendent of the Spencerville school district, said in eight years, his rural school district has seen its property tax revenues increase from $440,000 to $1.3 million. He said he’s been able to raise teachers’ pay, buy a new bus and make plans for a new bus garage.
“Would we have built the bus garage without this? Probably not,” he said. “I’m not going to ask for new money for that.”
Chris Pfister, superintendent of Waynesfield-Goshen schools, another rural district, said he’s hired two new teachers and was able to waive all extracurricular participation fees next school year because of an additional $400,000 in property tax revenue.
“We certainly appreciate the income generated through agricultural valuations here,” he said, “But I also would want to be fair to the farmers in our community.”
A tax war?
Bubbling underneath the debate over what to do about farmers’ sky-high property tax increases is anxiety about triggering a tax war between farmers and homeowners.
According to the Ohio Legislative Service Commission, the proposed changes to the CAUV would mean homeowners would end up paying more, especially on levy renewals in which taxing districts seek to raise the same amount of tax revenue from year to year.
Right now, though, it’s farmers who are bearing a larger tax burden. In Allen County, for example, a 62 percent change in agricultural land values from 2014 to 2015 meant an additional $225,000 to the Allen County Board of Developmental Disabilities, according to Allen County Auditor Rhonda Eddy-Stienecker in her first quarter 2016 report to county commissioners. Residential property taxes, however, only edged up by 1.29 percent. That resulted in a $214,000 savings for homeowners for their portion of the Developmental Disabilities levy.
Ted Finnarn said that without changes to CAUV valuations, farmers “are being put in a position to vote against tax levies,” like they did during the property tax revolts of the 1970s. He said he’s already seeing signs of this in Darke County, where farming tracts voted “100 percent” against a 5.9 mill levy for the Northmont school district. The levy passed narrowly, by 50.7 percent.
Hite said that, because of these possibilities, he fully expects amendments to his bill.
“I’m going to need help, guys,” he implored farmers during their recent lobby day on the CAUV. “I think you can tell this isn’t going to be a smooth, hunky-dory transition. This is going to be tough.”
Reach Amy Eddings at 567-242-0379 or on Twitter @lima_eddings.