For the past several years, agricultural land values in Minnesota have risen at a rate above the regular real estate market. It’s a growing problem among Minnesota farmers, and something I have been working to resolve at the Legislature for several sessions.

 

Investors are buying land in agricultural areas to offset the payment of capital gains taxes, to use the un-tillable acres for hunting, or to rent out a frac-tion of the tillable land to local farmers to qualify for tax bre-aks. In many cases, this artific-ially increases agricultural pro-perty taxes above what’s fair.

These people also are willing to pay much more for this land than what the tillable land is worth. When assessors use these land sales to determine the value of surrounding land, they are being forced to value properties higher than market prices. My goal is to find a way to differentiate between land owned for farming and land owned purely for recreational and investment use, and use the Green Acres Program to keep the property taxes in check for the farmers.

The Green Acres Program is available to qualifying farmers to help to address high property values, but it is becoming obvious the program no longer works as well as it once did. Instead of valuing land at its “highest and best use,” or market value, the Green Acres Program allows assessors to value land accordi-ng to its agricultural value.

Many times, agriculture is not the highest and best use when recreation, investment and development are driving up surrounding land values. This program is intended to keep down property taxes and act as an incentive to keep farmers farming.

It’s suspected that in recent years, Green Acres has not been implemented uniformly, or been implemented at all in many regions in the state. Because of this, farmers are not always able to take advantage of the program, some property owners who shouldn’t qualify are reaping the tax benefits, and the program is not having the intended effect of keeping property taxes low for agricultural use.

To further investigate this issue, last year we asked the Office of the Legislative Auditor to conduct a study of the Green Acres Program. The final report, released earlier this month, gives us some reform suggestions to consider in the 2008 legislative session.

The OLA’s report says the Green Acres Program is effect-ively equalizing taxes for many agricultural landowners across the state. The problem is the report does not differentiate how the landowners are using the land. The market for all agri-cultural land is being set by peo-ple purchasing land for recrea-tional and investment purposes. By separating true agricultural land from recreation and invest-ment land that qualifies as farm-land, we can more fairly assess property taxes for farmers.

The report also shows the program doesn’t benefit all eligible agricultural landowners, and that many counties have not implemented the program at all. In addition, the study questioned the program’s eligibility criteria such as the income threshold and outdated definition of land that is “primarily” agricultural.

The obsolete definition is what is allowing investment and recreational owners to benefit from the program and drive up property taxes for other landowners.

Assessors are not taking into consideration how much of the land is used for agriculture in relation to other uses, which could help determine who should be eligible for the Green Acres tax break. The Green Acres Program may have a short-term effect of preserving farmland, but long-term, it is no longer achieving the intended goals of keeping farms in Minnesota and equalizing property taxes.

Property taxes are jurisdictional, and lowering property taxes for one landowner raises property taxes for others. It is important for all property taxpayers that we ensure landowners are not benefiting from property tax breaks when they shouldn’t be.

In last year’s tax bill, the House and Senate passed changes to the Green Acres Program to separate non-agricultural use landowners from true agricultural-use land owners. The governor vetoed the tax bill.

This year, at the very least, if we can’t lower property taxes, we need to make sure taxes are collected fairly. The OLA study recommends several reforms that the Property Tax Division will carefully examine this year.

Rod Skoe, DFL-Clearbrook, is a member of the Minnesota Senate and chairman of its Property Tax Division of the Senate Taxes Committee.