Everyone in the room empathized with the farm families that testified in support of HF 596 as they outlined the circumstances agriculture landowners find themselves in — yet no one knows how to fix it. Agriculture land values are rising, crop prices are stagnant and more rural schools need to be built or renovated. These three dynamics place an unfair tax burden on Minnesota farmers.
There are two potential fixes — one sponsored by the House and one by the Senate — neither one of them are perfect solutions.
The House Education Finance Committee heard HF 596 (authored by Rep. Steve Drazkowski). This bill would change the way a capital levy is collected from your local taxpayers. In the first version of this bill, it would treat capital levies like operating referendums — where farms are taxed only for a house, garage and one acre of land. All other farmland would be taken off the tax rolls.
Where would the money that was previously collected come from? This bill would shift the tax burden to residential property. It can be assumed that this would greatly decrease the possibility of passing a referendum and cause greater division within the community.
Then Rep. Drazkowski offered an amendment that would require school district capital referendums passed after June 30, 2015, to have one half of the funding to be levied on referendum market value and the other half spread on net tax capacity and reduce agriculture land tax rates. This amendment would also increase debt service equalization — which means the state would provide some revenue to provide tax relief. This approach is an improvement over the original bill but even with increased equalization there is a shift of local taxes to residential property.
While in the Senate they are wrestling with the same problem but a different solution.
The Senate Tax Reform Division (a division under the Senate Taxes Committee) discussed agricultural land during a recent hearing. SF 921 (authored by Sen. Rod Skoe) would create a targeted agricultural land property tax credit.
Agriculture landowners would qualify for the credit if the taxable market value increases more than 10 percent over the previous year and the amount of the increase is $1,000 or more. The maximum credit allowed would be $2,000. The average credit per parcel was estimated at $140.
The Senate approach addresses the issue without any negative affect on the school district capital referendum process or direct tax shifting. As MSBA worked with authors of these bills, it become clear that direct state aid for agriculture land tax increases is the best solution for school districts.
The next stop for this bill is the Senate Taxes Committee.