Give Me a Break!
Millions of dollars in
property tax breaks intended to preserve farmland are going instead
to companies that bulldoze farms to build housing subdivisions,
malls and industrial parks, an investigation has found. It’s
happening from coast to coast, costing local governments badly
needed revenue or forcing them to increase the taxes of other
property owners.
The breaks can be
enormous, generally resulting in tax bills from two to 400 times
lower than they would be otherwise. In most states, the tax breaks
date back to the 1950s and ’60s, when lawmakers became alarmed at
the rate at which farmland was disappearing under concrete and
asphalt. But loopholes in the laws are producing unintended, though
perfectly legal, consequences.
Here’s what’s happening:
A developer buys land with the intention of building on it. During
the years when he readies the property for construction — preparing
architectural plans, acquiring financing and permits, even building
roads and laying water pipe — he runs some cows or cuts some hay.
Then he claims the tax break.
Because of the
loopholes, often even a pretense of farming can be enough to
qualify. Usually, the tax break ends only after construction of
buildings begins; sometimes, it doesn’t even stop then.
Some examples: In Iowa,
real estate developer Knapp Properties Inc. owns 239 acres near the
Des Moines Airport. The land, close by a Wingate Hotel and a Federal
Reserve check-processing plant, is subdivided for commercial
development and is for sale at a total price of $7 million. But
because Knapp allows local farmers to plant corn and soybeans on it,
the company paid $14,345 in property taxes last year instead of
$320,514.
In Denver, Delmer
Zweygardt is building a subdivision called Deer Creek Farms. As the
houses started going up, he grazed a few cows on the edge of the
property. City officials pointed out that zoning laws don’t allow
cows in a subdivision, but the state Board of Assessment ruled that
the presence of cows was enough to qualify Zweygardt for the tax
break anyway. This reduced his total tax bill on 48 house lots from
$22,000 a year to $60 until the subdivision was nearly completed in
2002, leaving no room for cows.
In Mobile County, Ala.,
Delaney’s Inc., has planted pine seedlings on 54 acres left over
after building a Hampton Inn, a Marriott Courtyard, a Lowe’s and a
Wal-Mart. This ‘‘tree farm’’ has been subdivided and laced with
paved streets in preparation for development, and local officials
insist the land is not suitable for growing timber. But the
developer’s lawyer pointed out that the law doesn’t require
Delaney’s to be a good farmer — just a farmer. The result: a 2003
tax bill of $152 instead of $64,230. Such cases are commonplace.
The investigation found
scores of them throughout the country — some with ‘‘Soon To Be the
Home Of’’ signs heralding future malls, industrial parks or housing
developments on property receiving tax breaks intended to encourage
land preservation.
In Polk County, Iowa,
which includes the city of Des Moines, about 10 percent of those
claiming farmland tax breaks are actually identified on the tax
rolls as developers. Jim Maloney, county assessor, said most of the
others are also developers and speculators.
All over the country,
local officials offered similar accounts. ‘‘Probably a huge
percentage of agricultural exemptions are not going to farmers.
They’re going to developers and land speculators,’’ said Bill
Carroll, chief of the Appraisal District in Williamson County,
Texas. Alaska State Assessor Steve Van Sant said, ‘‘We have a lot of
wannabe farmers who are out there trying to farm the system rather
than the property.’’ The phenomenon contributes to some statistical
oddities.
In Wake County, N.C.,
where the U.S. Department of Agriculture counts 250 full-time
farmers, more than 2,000 landowners, some of them developers,
received tax breaks for agricultural land in 2000, saving $7.5
million in property taxes. In Alabama, where the USDA says there are
8.9 million acres of farmland, nearly 17.5 million acres receive the
agricultural property tax break.
The Breaks
In Georgia, farmers and
ranchers have two ways to get property tax breaks on land used for
agricultural purposes: Preferential Agricultural Assessment This
program, created in 1983, gives property tax relief to landowners in
exchange for a commitment to ‘‘maintain the eligible property in
bona fide agricultural purposes for a period of at least 10 years.’’
Under that law, the land
is assessed at 30 percent of fair market value, rather than the
standard 40 percent. To qualify, landowners — individuals or
families — must prove that at least 80 percent of gross income
generated on that parcel came from agricultural production. The
program, aimed at helping farms of less than 2,000 acres remain
profitable, gave $5 million in tax breaks to about 20,600 parcels of
land in 2001.
Violating the commitment
can result in penalties up to five times the amount of tax savings
up to that point, plus interest. Conservation Use Valuation This
program was created by the Legislature in 1991 in response to the
rising value of land in areas of heavy development. It assesses the
land at 40 percent of ‘‘current-use value,’’ which is lower than
fair market value in heavily developed areas.
The program, which also
requires a 10-year commitment and caps each parcel at 2,000 acres,
gave almost $72 million in tax breaks to about 75,600 parcels of
land in 2001. Those who violate this commitment must pay penalties
of double the tax savings up to that point, plus interest. The
program includes stricter land requirements to qualify.
While language in the
preferential assessment remains somewhat vague, landowners in this
program — individuals, families or nonprofit groups — must get at
least 80 percent of gross income generated on that parcel from
specific designated uses, including:
-
Raising, harvesting,
or storing crops
-
Feeding, breeding,
or managing livestock or poultry
-
Producing plants,
trees, fowl, or animals
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