Productivity-based ag land valuation system debated

Lawmakers debated a bill April 4 that would value farmland for property tax purposes based on the income it can produce.

Under LB483, introduced by Bayard Sen. Steve Erdman, agricultural and horticultural land would be assessed based on its agricultural productivity value, which in turn would be based on that land’s capitalized net earning capacity.

Beginning with tax year 2020, county assessors would determine capitalized net earning capacity using an agricultural land valuation manual created by a new Agricultural Land Valuation Board.

Erdman said the current market-based system of valuing agricultural and horticultural land produces skewed valuations because it relies on too few sales. He said the proposed method would have prevented large increases in farmland valuation over the past decade that have resulted in farmers and ranchers paying a disproportionate share of the property taxes used to fund local governments and public schools.

The proposal is not meant to reduce the amount of property taxes farmers pay, Erdman said, but to create a system that values farmland in a way that reflects what that land is capable of producing.

“My goal is not to have them pay less,” he said. “My goal is to make it a fair way to value ag land.”

The agricultural productivity value would be determined by:

• dividing agricultural and horticultural land into major use categories described in the bill and then dividing those categories into subclasses based on soil productivity classifications;
• computing a net revenue based on an eight-year Olympic average of annual net incomes, in which the highest and lowest one-year values are discarded; and
• dividing the net revenue by a discount rate determined by each county’s eight-year Olympic average of annual precipitation.

The five major use categories would be irrigated cropland, dryland cropland, irrigated grassland, non-irrigated grassland and wasteland, including forests and shelter belts.

The bill would require the state Department of Revenue’s Property Assessment Division to calculate net revenue per acre for both irrigated and dryland cropland, as well as other data that would be forwarded to the board for inclusion in the land valuation manual.

For tax year 2020, the board would set the discount rates so that the total agricultural productivity value of all agricultural and horticultural land is the same as the total assessed value of that land for 2019.

The board would set the discount rates for tax year 2021, and each following year, so that the total agricultural productivity value of all horticultural and agricultural land deviates from the total agricultural productivity value from the prior tax year by no more than 15 percent.

Sen. Mike Groene of North Platte supported LB483, saying it would prevent large swings in valuations. Valuing farmland based on what it can produce—which he said can be determined with readily available data—would be fairer than the current system, Groene said.

Several senators raised concerns and questions regarding the proposal.

Bellevue Sen. Sue Crawford cautioned that because Agricultural Land Valuation Board members would be appointed by the governor and represent agricultural interests, they would have a political incentive to raise discount rates in order to reduce agricultural land valuations.

Sen. Steve Lathrop of Omaha said the bill’s provisions might not meet constitutional requirements to value agricultural and horticultural land uniformly and proportionately for tax purposes.

After three hours of debate on general file, the Legislature adjourned for the day before voting on LB483. Per a practice implemented by Speaker Jim Scheer, the sponsor of a bill that is facing a potential filibuster must demonstrate sufficient support for a cloture motion before the measure will be scheduled for additional debate.