Sunday, March 20, 2016 5:23 am
Farmers get property tax win; others to cover loss
Niki Kelly | The Journal Gazette
INDIANAPOLIS – Farmers netted a big legislative win this year, but it comes at a cost to other property owners.
They have been fighting for several years to change the complicated formula used to value agricultural land that has led to a 63 percent increase in property tax bills for farmers since 2007.
After a freeze last year and studying the issue over the summer, lawmakers came up with a new solution. But that answer involves shifting the tax burden to other landowners combined with a loss in revenue for governments when Hoosiers are already at the property tax caps.
The shift in 2017 would be just $16.5 million statewide but would hit $49 million in 2018 and rise to more than $100 million by 2019, said Katrina Hall, lobbyist for the Indiana Farm Bureau.
"It does sound like an incredible amount of relief for us and it is. But we’re a really small part of the pie," she said. "We are really excited. We have been working on this a long time. It was at a point that it was critical that it get done."
Hall provided an analysis showing homeowners will see taxes rise $31 million statewide under the change in 2019 but that is only a 1.57 percent increase.
Indiana Farm Bureau sees the change – which Gov. Mike Pence must still sign into law – as a long-term fix, but lawmakers seemed less certain.
Ways and Means Chairman Tim Brown, R-Crawfordsville, told colleagues on the House floor that the potential $100 million shift or tax cap loss is an issue that might have to be revisited.
"This has been a long glide on trying to get the (assessed value) for farmland right," said GOP House Speaker Brian Bosma. "We’ll take another look at it. We seem to look at it every year."
Farmland values grew quickly when crop prices spiked several years ago because income is considered in the formula. But prices have dropped and the formula has remained higher than farmers can afford.
"Farmers just couldn’t handle that," said Roger Hadley, president of the Allen County Farm Bureau. "Farmland got nothing in the cap system."
Homeowners from 2007 to 2015 have seen property taxes drop 30 percent thanks to a supplemental homestead deduction and 1 percent cap, an analysis from Purdue University Professor Larry DeBoer showed. Farmland doesn’t get the deduction and many don’t reach the 2 percent cap because they are in rural areas with lower tax rates.
Hadley said if the formula assessing agricultural land wasn’t adjusted, by 2019 property taxes would be $70 per acre. Right now it’s about $40 and it was $23 in 2007.
Under Senate Bill 308, farmland assessments will be reduced by an estimated $1.4 billion for taxes payable in 2017, $4.2 billion in 2018, and $8.9 billion in 2019.
The base assessment rate for farmland currently is $2,050 for taxes payable in 2016, and is estimated at $2,130 in 2017, $2,220 in 2018, and $2,310 in 2019. Under the new law, the base rate is estimated at $2,020 for taxes payable in 2017, $1,900 in 2018, and $1,630 in 2019.
The fiscal impact statement on the bill said the reduction will cause tax rates to increase, shifting taxes from farmland to all other property types. The increased tax rates also will cause an increase in cap losses for local governments and schools in the areas where circuit breakers have been triggered.
For Allen County, that loss will be $215,000 in 2017 but reach almost $1 million by 2019.
The bill passed the Senate 44-6 with all area senators in support. The House vote was 84-12.
Rep. Martin Carbaugh, R-Fort Wayne, was the only area House member to vote against the measure.
"You just pull up my district, and I don’t have a lot of farming operations in my district and I’ve got to represent the interests of my constituents," he said. "This is not to say farmers don’t have an undue burden. But this will hurt my citizens."
Carbaugh said the House version of the bill was a $750,000 loss for Allen County over the three years but the final version – pushed by Senate Republicans as an agenda item – went much further.
"This is a million more than that," Carbaugh said. "I’m just really concerned with that shift."
Many Democrats voted against the bill but House Democrat Leader Scott Pelath of Michigan City said "Indiana is very agricultural state. We need that to be a vibrant economic sector of the state.
"I supported the final plan. It didn’t have universal support but I think it was a necessary decision to make and it’s one we continually have to re-evaluate. There is a balance that always has to be evaluated and put forth and I think we did the best we could."
Sen. Brandt Hershman, R-Buck Creek, was the architect of the plan. He said it permanently eliminates the use of the U.S. Department of Agriculture’s 2012 soil productivity factors, uses the most recent data available to determine the base rate for farmland assessment and changes the formula to limit the volatility in farmland property taxes.
"We are trying to eliminate or at least level out the zigs and zags and provide some relief to the agricultural community," he said. "I am confident this represents a significant long-term solution for ag land property taxation."
Hershman also noted Indiana farmers were being hit disproportionately compared to other nearby states.
Indiana Farm Bureau data shows Indiana farmers paying $35 to $42 per acre in property taxes. By comparison, Ohio is at $32; Illinois at $20 to $48 and Michigan is $17 to $30.