The appraised value of farmland has skyrocketed in Montgomery County and 40 other counties that have conducted reappraisals or valuation updates this year, creating major anxiety among the state’s farmers.
In Montgomery County, one of 13 counties that conducted a full reappraisal of all properties, farmland values more than doubled from the last update in 2011 — from a median value of $1,438 per acre in 2011 to $3,207 per acre in 2014, according to a Dayton Daily News analysis of 2014 reappraisal data from County Auditor Karl Keith’s office.
That 117 percent hike in farmland is unprecedented in recent history, experts and farmers say.
And, because of the way the Ohio Department of Taxation sets effective taxation rates, the news for farmers will be even worse when the tax rates are calculated and mailed out in January, officials say.
This year Montgomery, Butler, Greene and 10 other counties underwent a six-year revaluation while 28 counties — including Darke and Preble — had what is known as a three-year triennial update. With those calculated new values, the state adjusts tax rates for the taxing authorities, such as school districts and local governments, putting residential properties and farmland in the same class.
When values as a whole are going up, the adjustments protect property owners from paying much more on the newly appreciated property. But when values are going down, such as they are on most residential properties this year, the tax rates have to go up to raise the same amount of money.
Because residential properties are worth so much more than farmland — 50 times more in Montgomery County — the decline in residential values will drive up tax rates for both homes and farms. As a result, farmers are facing both higher values and a higher tax rate.
“So it’s kind of like a very, very unfortunate double whammy,” said Shelley Wilson, executive administrator Ohio Department of Taxation’s tax equalization division. “And taxpayers in Montgomery County haven’t even seen this yet.”
‘Who let this spill through the cracks?’
Keener, 37, who lives and works on the family farm, saw the appraised value of the land skyrocket from $194,570 in the 2011 update to $468,990 this year, or an increase of 141 percent.
Keener said staff at the Montgomery County Auditors Office estimated his tax bill would increase from about $7,000 a year to $16,000.
“It’s going to totally bury our farm if we don’t have somebody change something pretty quickly,” he said.
The increased value for the Keener ranked 18th highest among the 3,429 farmland parcels in Montgomery County, the newspaper’s analysis found.
The biggest increase was on a 267-acre parcel on Wengerlawn Road near Brookville. The value on that farm soared by more than a half million dollars — from $390,400 in 2011 to $909,920 this year.
The second biggest increase came on a 323.9-acre parcel on Lutheran Church Road owned by Five Rivers MetroParks. That farmland also increased more than $500,000 — from $381,550 to $886,980.
Keener, who returned home from working on a ranch in Montana, has started a Community Supported Agriculture group or cooperative that supplies 50 families. He also raises grass-fed cattle and free-range chickens that he sells to local restaurants such as the Trolley Stop; Olive, an Urban Dive; as well as Antioch College and Dorothy Lane Market.
The increased taxes may force him to quit farming and get a “town job” to pay his bills, he said.
“It’s literally going to absolutely put a nail in the coffin for the small guys like us,” Keener said. “We can’t afford to keep continuing what we’re doing.”
Farmers blame a 41-year-old state formula that they say is now artificially inflating farm values. Keener joined a group of farmers around the state, Ohio Farmers United Against Unfair Taxation, that has been collecting signatures on petitions to change the formula.
Keener said he’s collected close to 500 signatures himself.
“Who was the brilliant person who let this spill through the cracks?” he said. “Did someone not see that? That’s what floors me.”
Reversal of fortune
The formula calculates the current agricultural use value or CAUV, and is designed to isolate the value of farmland from its potential for development. For much of its history, the formula worked well for farmers, keeping values and taxes low.
But that isn’t the case now.
Attorney and Greene County farmer Ted Finnarn, called by some “the Godfather of CAUV,” is one of the leading critics of the formula.
And that’s despite the fact that, back in 1976, he helped design it.
“I’ve argued the past three years that there should be a mechanism in there … to average that three-year change so we don’t have these dramatic increases and wouldn’t have dramatic decreases if that ever comes about,” said Finnarn, who has served on the Department of Taxation’s CAUV advisory committee for four decades. “But the tax department hasn’t taken me up on that.”
Finnarn has worked with the farmers’ protest group to gather signatures on petitions designed to put pressure on state government.
He partially blames the legislature for changes made in the state budget in 2013, which eliminated property tax rollbacks and greatly limited the homestead exemption, which he says hurts farmers.
“Rural taxpayers, not only farmers, but rural residential taxpayers are sort of up in arms about the whole thing,” Finnarn said. “And the General Assembly also cut local government fund reimbursement and a whole bunch of stuff. So you wrap all this together (and) you’ve got a massive tax shift back to local.”
Finnarn said the farmers group wants to get the attention of Gov. John Kasich.
“We really don’t think the governor was aware of the ramifications coming from the budget bill in the General Assembly,” Finnarn said. “And wasn’t aware of what was happening in the tax department.”
The CAUV formula was initially designed to preserve farmland, Finnarn said.
“The idea was, let’s keep farmers on the land producing food, and let’s not tax them out of existence so they have to sell out to urban sprawl, commercial development, big corporate farms,” he said. “And that’s always been the trade-off.”
“The legislature has just moved away from that, and we’re back to where we were in the 70’s with farmers especially paying sky-high taxes,” he said.
‘Out of whack’
The complicated CAUV formula attempts to estimate farmland value by using crop prices, planting patterns, production costs, soil types and prevailing interest rates.
Unfortunately, said Larry Gearhardt of the Ohio State University ag extension office, “two of those five factors are completely out of whack.”
“We have historically high crop prices and we have historically low interest rates,” said Gearhardt, a field specialist in taxation for the extension office. “And those two factors together create a perfect storm for CAUV.”
The formula takes the last seven years’ crop prices, eliminates the high and low values and averages the remaining five. But crop prices have been high during the whole period, he said, at least until recently. That means the formula used to compute values, and thus determine taxes, is using crop price averages that are no longer in place.
Corn prices reached $7.45 a bushel in 2012, Gearhardt said. On Friday, the price was $3.53 a bushel.
In addition, the Federal Reserve has kept interest rates at historic lows, Gearhardt said, and that’s been factored into the higher values as well.
Gearhardt said the formula deserves some “very deep review,” especially when looking at the interest rate, which is not being allowed to change with the market.
“It’s about 40 years old now,” he said of the formula. “And the question becomes, is it antiquated?”
Gearhardt acknowledged he got few complaints when the formula was working to the benefit of farmers.
The average farmland price in 2005 was artificially low — about $123 an acre, Gearhardt said. This year, it’s $1,668.
“I didn’t have anybody complain to me in 2005,” said Gearhardt, who farms 40 acres in Miami County outside Covington. .
Despite the concerns, Gearhardt said he hasn’t heard talk of farmers selling out.
“No I haven’t seen that yet,” he said. “And the reason being is we have enjoyed very high crop prices. Even during the recession when everything else bottomed out, the ag economy was very strong.
“Now we’re not going to tell anybody this: Farmers made money,” he said. “But we don’t want anybody to know that.”
‘It’s going to be tough’
Jackson Twp. farmer Tim Hewitt says the spike in land values won’t put him out of business.
“It’ll eventually go back down,” Hewitt said, “but the problem is this span between the going up and coming down. It’s going to be tough.”
Hewitt also owns farms in West Carrollton and Germantown, and he expects a tax hit in January. The 287 acres on his three farms rose from an appraised value of $338,000 in 2011 to almost $772,870 this year.
The 55-year-old Hewitt, who also is employed as a maintenance worker for Springboro City Schools, said he’s worried for those who have retired and are living off the rent they charge farmers to grow on their land.
Higher taxes mean the owners will need to charge higher rents, but lower crop prices means farmers won’t be able to make money, Hewitt said.
Then, there are farmers who may be overextended. “There’s some of these people who are going to be hurting because they got these big tractor payments,” Hewitt said. “You know, it’s nothing for a combine to be $300,000 now, and a tractor to be $150,000 or $200,000 now. Those are the guys who are going to hurt.”
Heavy lifting
Gearhardt, who travels around the state giving presentations and classes on tax issues, says relief for farmers is “very unlikely,” at least in the short term.
The new values are likely to stay in place for the next three years, he said.
“What is playing in the background here is the (Ohio) constitution requires us to treat all real property taxes uniformly,” he said. “So we’re looking for some help here in the agricultural community, and as soon as we carve out the agricultural taxes and not treat the other taxes the same, that’s an immediate lawsuit there.”
Wilson, with the state Department of Taxation, agrees.
The CAUV treatment of farmland was voted into the state constitution in 1973, and that limits what the department can do, he said.
“The constitution said we are charged with the duty to calculate a use value,” Wilson said. “And I think some of the things that I hear farm taxpayers lobbying about fall outside what we are capable of doing.”
The current average farmland value across the state — while more than 10 times the low of $123 an acre in 2005 — is still conservative, she said. While the average for all the 3,514 soil types in Ohio in now $1,668, Wilson said, the USDA says the average acre of Ohio farm ground is worth $5,700.
One possible solution would be to put farmland in its own class, separate from residential values, Wilson said. That way, if farmland values doubled, as they are doing in Montgomery County this year, the taxation rates would be cut in half.
But, she pointed out, that would take a constitutional amendment.
“That’s some real heavy lifting there,” Wilson said.
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