COLUMBUS — Some county auditors weighed in on the CAUV reform bill April 27, during a hearing of the Ohio Senate Ways and Means Committee.
Known as S.B. 246, the bill seeks to improve the capitalization rate used to calculate Current Agricultural Use Value by excluding specific non-farm factors, such as equity buildup and appreciation, and the bill also seeks to value certain conservation ground at the lowest value allowable.
This was the fourth hearing in the Senate committee, and the first that drew witnesses other than proponents.
Testifying as an “interested party,” Union County Auditor Andrea Weaver, who also is co-chair of the County Auditors Association of Ohio property tax and valuation committee, argued that more time should be given — to allow changes made to the formula in 2015, to take effect.
More time needed
She reasoned that beneficial improvements have already been made to the CAUV — and that because CAUV is based on a seven-year rolling average — more time is needed for the benefits to show up.
“Finally, a downward trend seems to be starting,” she said. “We truly believe that the already-occurring market changes, along with the adjustments made by Ohio Department of Taxation last year, have not yet been fully realized. They are certain to cause a downward pressure on real estate values without any further changes.”
Tax shift
Weaver also discussed the potential consequences of the bill. While it might lower taxes for farmers, she said it would likely cause a tax shift that would affect residential properties, and local school districts.
Each district would have its own situation, but she said “generally, when agricultural use values go down, residential values go up and homeowners pay more in taxes.”
The Ohio Legislative Service Commission made similar conclusions in its fiscal analysis of the bill, with the net revenue loss to school districts and local governments of $15-$30 million, and an increase in residential taxes of $34-$71 million.
But farmers and the farm groups that support the changes say the burden placed on them was wrong to begin with.
“Farmland owners and woodland owners want to pay their taxes, but they want to pay fair taxes,” said Ted Finnarn, a Darke County attorney and a member of the tax department’s agricultural advisory committee. “They (rural landowners) don’t want a tremendous shift in rural areas, onto them and away from other aspects of real estate taxation.”
Local funding
Finnarn has argued that the state, in recent years, has built its budget on reducing income taxes, while forcing school districts and local governments to come up with more of their own funding. At a meeting on CAUV in Medina County, April 22, Finnarn said relying too heavily on property taxes to fund schools can reach a point where it becomes unconstitutional.
He did not blame the state tax department, instead saying the ODT has “done a fine job of administering the law,” but that the law — as it concerns capitalization rates — needs more clarity.
The biggest problem, he said, is the historically low interest rates of the past few years, which no one foresaw, and that lowered the capitalization rate and dramatically increased land values.
Final issues
Finnarn assured the Senate committee that if the bill is successful, he’ll be done trying to change CAUV. But he said the ag advisory committee will continue to meet and do its work.
He said there is “a sense of urgency” to the bill, because if it can be passed within the next few weeks, it could become effective for the 2016 tax year.
Farmers who testified also hope for quick action, as they’ve seen their farmland values and taxes spike several-hundred percent in recent years — all at a time when commodity prices and farm profitability are in steep decline.
“It is tough to find something that is having a bigger negative impact on Ohio agriculture than our CAUV rates,” according to Chad Kemp, president of the Ohio Corn & Wheat Growers Association.
For the long-haul
Beth Ellis, Clinton County farmer, said she and her husband have farmed together for more than 20 years, and her husband’s family has been farming the same area since the mid 1800s. Today, they grow corn, soybeans and wheat, and also operate a pheasant hunting preserve.
“We are in this for the long haul,” she said. “We want to see farms stay in families long-term and be a viable way of life.”
Tony Bornhorst, Shelby County commissioner and farmer, said he believes farmers who have land in permanent pasture, and other qualifying conervation, should pay the least amount allowable for their CAUV.
Bornhorst said he realizes local taxes could be impacted, but he feels the changes “will ultimately be in the best interests of both the agricultural community and also the residents of the state of Ohio.”
Complex formula
In a joint testimony, Athens County Auditor Jill Thompson and Athens County Commissioner Lenny Eliason, said the biggest problem with CAUV is the complexity of the formula, and that rates lag behind the year-to-year realities of the farm economy.
The auditor and commissioner both used a 35-acre property from Franklin County, to show that, even with land value increases, “CAUV landowners are paying taxes on values substantially below fair market value.”
That 35-acre tract of land had a CAUV value of $528,600 in 2015, the auditor and commissioner noted, and sold in February 2016 for $1.7 million.
Farm value
But Sen. Bob Peterson, who chairs the committee, said that same tract of land is also located in an area pressured by development. He said from his own farming experience, certain factors can elevate a farm above its agricultural value, including competition from neighbors who want the same property.
“I think from my perspective, that’s the exact reason why we have CAUV — to allow farmers to purchase ground at whatever price the market may bear, but still be able to pay taxes on it … at what farmland value is,” Peterson said.
The last auditor to speak, Delaware County Auditor George Kaitsa, said the state tax department “has done a commendable job of administering the CAUV formula,” but because of recent market conditions, including the low interest rates, some reform is necessary.
“In my opinion, the adjustments proposed by the Ohio Farm Bureau and contained in S.B. 246 would modernize the capitalization rate and are worthy of consideration,” Kaitsa said.
Related coverage:
- High real estate taxes pressuring woodland owners and farmers (April 26, 2016).
- First proponent hearing on the Senate CAUV bill (April 12, 2016).
- Ohio lawmakers seek additional CAUV changes (November, 2015).
- Landowners sue Ohio over CAUV calculation (June, 2015).
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