Favoring farmers … again

by E.J. McMahon |  | NY Torch

Governor Cuomo today signed a bill imposing a 2 percent cap on increases in property tax assessments the “base agricultural assessment value” for farms. **UPDATED: See postscripts**

A press release from the governor’s office says the base value of agricultural land has doubled in the past seven years, and that tightening the assessment cap to 2 percent from the previous 10 percent “will help maintain agricultural lands in both high pressure development areas as well as rural areas, and save farmers thousands of dollars in property taxes every year.”

Business groups including NFIB and Unshackle Upstate are applauding the action, as is the Farm Bureau.

But with all due respect to farmers, the tighter farm property assessment cap is a really bad idea.

If a property tax system is to function properly, assessments need to be kept as fair and up-to-date as possible. Capping assessments for one class of property throws the system out of whack by shifting more of the tax burden to all others in a community.

With this bill as a precedent, Cuomo and the Legislature will have a weaker excuse for resisting proposals to cap assessments for other types of property–which would be a truly terrible move, in terms of both equity and efficiency.

Then there’s the notion that agricultural land must be preserved from “high-pressure development.”

If anything, the economic statistics suggest that New York, especially upstate, suffers from adearth of development. Economically speaking, if a given piece of farmland is more valuable for residential or commercial development than for agriculture, that means that (a) more people will benefit, and (b) more taxes will be generated for the entire community if it is converted to that use. Oh, and the farmer who sells the land will make some money–maybe a lot of money, if he or she lives in one of those “high-pressure development” areas.

Farmers should be wary of such proposals, because the political mindset behind initiatives to “save family farms” also can be easily become a rationale for preventing farmers from developing their land in the way they would choose.

It’s not as if farmers don’t already get favored tax treatment in New York, including a special exemption allowing land used primarily for farming to be taxed based on agricultural value than commercial value; i.e., a cornfield on the main drag in a growing suburb isn’t taxed on the basis of its much higher value as a potential shopping mall site. In addition, farmers can qualify for a refundable state income tax credit equivalent to up to 100 percent of their school property taxes, on up to 250 acres of qualified land used for agricultural purposes.

And on top of that, farmers benefit from Cuomo’s tax cap just like everyone else.

Signing this bill is just another way for the governor and Legislature to placate a highly visible constituency while ignoring the need for local mandate relief–which New York still needs.

PS—Denise Trudell, assessor of the town of Clayton, has posted a comment below correcting the phrasing of the original blog post to point out that what is being capped under this bill is not an individual farmer’s assessment, but the statewide “base agricultural assessment” calculated by the state tax commissioner, as further explained here.  This base assessment, in turn, is used to calculate, as Ms. Trudell puts it, “the ceiling value of the (property tax) exemption” for agricultural land.  She adds, however, that land is still being assessed at market value for current use.  However, this would imply that farmers won’t be saving anything from the change, when obviously that’s the purpose of the bill.   Stay tuned for more, possibly in another post.

PPS — The state’s special assessment program for agricultural land is explained in detail on this page. Keep in mind that the “base agricultural value” for a particular farm is based on a number of factors including soil types, farm income and agricultural productivity in New York.  The base value, in turn, establishes the agricultural assessment. As the tax department website explains: “Any assessed value above the agricultural assessment is exempt from real property taxation.  In other words, taxes on eligible farmland are based on the land’s agricultural assessment rather than its full assessment.”

The base value of agricultural land had been bumping up against the previous annual cap of 10 percent.  And if the value of non-agricultural land has not been rising as fast, that would mean the value of the agricultural property tax exemption has been decreasing.

So the purpose of imposing a tighter, 2 percent cap is to halt erosion in the value of the existing tax break for farmers, by lowering that “ceiling value of the exemption,” as described by Ms. Trudell in her comment. But that doesn’t change the point of the original blog post here: if the neutral, objective factors used to establish the base agricultural value indicate the value of agricultural land is rising faster than that of land used for other purposes, the value of the exemption should be allowed to decrease. (And no one appears to be arguing that nonagricultural land is under-assessed.)

Bottom line: lowering the cap on base agricultural assessment values to 2 percent is still a bad idea.

- E.J. McMahon is the President at the Empire Center for Public Policy.