Ohio grants property tax relief to farmers, but some fear homeowners will pay a price

Michael Carroll
Posted: Jul 21, 2017 11:25 AM

Ohio just modified how it calculates property taxes for agricultural lands in order to rescue farmers from soaring tax bills, but some fear the fix will eventually burden homeowners and provide less funding for some school districts.

The state’s operating budget, which was signed June 30 by Gov. John Kasich, alters a complex formula used to calculate the value of agriculture lands. The original goal of the Ohio tax program was to give farmers a property tax break and encourage the preservation of farmland by valuing such property according to its agricultural value, rather than its market value.

But a “perfect storm of circumstances” upended the formula in recent years, according to Jenna Beadle, director of state policy for the Ohio Farm Bureau. Farmers were hit with 300 percent spikes in their property tax bills at a time when farm income dropped by 50 percent, Beadle said.

“Nonfarm factors were inflating the CAUV values,” Beadle told Watchdog.org, referring to what is known as the Current Agricultural Use Value formula.

The CAUV reforms that passed Ohio’s Senate altered the formula in terms of appreciation of farmland values and equity buildup, which the author of the legislation, state Sen. Cliff Hite, R-Findlay, said was inflating the valuation of agricultural lands.

The state’s Farm Bureau reports that the average savings for farmers’ land reassessments in 2017 will be about 30 percent. The changes will be phased in over six years so that the funding effects on school districts and local governments are not felt too abruptly, according to Beadle.

But Dr. Howard Fleeter, a consultant with the Ohio Education Policy Institute, sees the farmland tax reforms cultivating problems in the future. There’s little dispute about farmers suffering tax spikes in recent years, Fleeter said, but since 2014, the CAUV valuations have been trending downward in a way that would have eventually provided some relief without a major formula change.

“The problem is that not all farmers are getting the benefit of that formula yet …” Fleeter told Watchdog.org. “There’s a three-year lag for CAUV values taking effect.”

The idea of having farmland reappraised annually to help stabilize fluctuations has been proposed , but that hasn’t happened, he said. In turn, Fleeter is concerned that the approved CAUV reforms – which he says over time will result in a $60 million property tax shift from agriculture lands to residential areas – will overly burden homeowners and reduce funding to school districts.

“The pendulum swung from one end of the spectrum to the other,” he said, noting that the CAUV formula placed relatively low values on farmland in 2005, providing an 85 percent tax break to farmers, prior to reaching a peak in 2014.

Although Fleeter said the goal of encouraging farmers to keep their lands in production is sound, he sees the latest reform as a blunt instrument that may cause unintended consequences.

“It is possible there may be a legal challenge to this,” Fleeter said.

Jim Rowan, the executive director of the Ohio Association of School Business Officials, echoed some of Fleeter’s concerns. If homeowners come away with a perception that they are being overly burdened due to the CAUV reforms, school districts may have a tougher time getting residents to approve tax increases in the future, Rowan said.

But John Fortney, spokesman for Senate President Larry Obhof, R-Medina, defended lawmakers’ votes on the CAUV reforms as appropriate because Ohio farmers’ taxes had been doubling every three years.

“We’re not in the business of putting family farms out of business,” Fortney told Watchdog.org.

Lawmakers have also included language in the two-year budget blueprint to set aside funds – $10 million in fiscal year 2018 and $7 million in fiscal year 2019 – to help school districts whose school funding formulas are affected by the CAUV changes, he said.

“The legislature was aware of the potential impact on districts that are in more rural areas and addressed that as part of the budget,” Fortney said.

Overall, effects on nonagricultural properties should be minimal, he said, adding that the tax spikes farmers had faced needed to be addressed head-on to ensure fairness and sustainability.

“But it is true that as the formula is adjusted on agriculture use values, there will be some type of change on the residential values,” Fortney said.

Another benefit for farmers in the newly passed budget is that farmlands placed in year-round conservation to protect water quality will no longer be taxed as if they are in production, according to the Ohio Farm Bureau.

Ohio’s policy to encourage farmers to preserve their lands for agriculture dates back to the 1970s. The tax program is classified as a “differential assessment,” a system used for agriculture in several other states, but agriculture officials in Ohio describe the details of the state’s program as “unique.”