OpenSky Column — Valuing agricultural land at lower rate not the answer to property tax challenges

As the Legislature recently concluded the 2015 session, a measure to reduce the taxable value of agricultural land remained stalled in the Revenue Committee amid lawmaker sentiment that it is not the best answer to Nebraska’s property tax challenges.

Our research shows the sentiment is warranted.

The proposal would cause large revenue shortfalls for schools and other localities. Furthermore, the largest tax cuts under the measure would not go to the most rural parts of Nebraska, but rather to farmers and ranchers near urban areas where the lost agricultural property tax revenue can be made up with higher taxes on nearby business and residential properties. Such tax shifts cannot occur to the same extent in more rural areas where there are fewer business and residential properties.

These communities would have to make up the lost revenue through levy increases – wiping out much of the reduction from valuing agricultural land at a lower rate – or through cuts to schools and other local services. To illustrate, if the measure were enacted, in North Platte there is enough residential and commercial property to allow school property taxes on the relatively small amount of agricultural land in the district to decrease significantly ($117 per $100,000 of market value) while increasing only slightly on other property types (less than $1 per $100,000 of value).

Just up the road, however, the McPherson County Schools property tax levy under the measure would have to increase more than 11 cents to fill in for the lost revenue as a result of lowering the taxable value of agricultural land. This would result in only about $10 of tax decrease per $100,000 of agricultural land while increasing school property taxes $112 per $100,000 on residential and commercial property.

These numbers also assume that an increase in state aid that would be triggered under current law would be fully funded by lawmakers. If lawmakers did not fund the increase, the shortfalls faced by schools would be even larger, meaning levies may need to be increased even more. To effectively address property taxes, Nebraska lawmakers must consider the intrinsic link to the way we pay for K-12 schools. About half of K-12 funding in Nebraska comes from property taxes.

Furthermore, compared to other states, Nebraska is 2nd most reliant on property taxes to fund K-12 education. Measures that don’t address this link – such as taxing agricultural land at a lower rate — are unlikely to bring meaningful, sustainable solutions to Nebraska’s property tax challenges.

York Public Schools Superintendent Mike Lucas had it right when he said the measure “sounds good in the coffee shop” but is not the property tax solution some think it is.

Audio

The following audio clips were released along with this column: