Fayette County PVA pledges to restrict use of farmland preservation tax break

Fayette County Property Valuation Administrator David O’Neill will take immediate steps to restrict who can receive farmland preservation tax breaks, O’Neill announced Thursday in an opinion piece published by the Herald-Leader.

The move comes after the newspaper published an investigation that found most counties in Kentucky, including Fayette, automatically grant the tax break to any property of 10 acres or more that is capable of being farmed, with nobody asking questions about whether the land is being farmed or preserved.

The newspaper found scores of examples of the tax break benefiting suburban homes surrounded by vast lawns, qualifying as agricultural land that can knock as much as 40 percent off their tax bills, and large parcels rezoned for commercial or residential use, where plat maps have been filed with the city and bulldozers have arrived. As a result, other property owners must pay higher taxes to support schools, libraries, health departments and other public services.

In response, O’Neill said he plans to host a town-hall meeting at 5:30 p.m. March 3 at the Farish Theatre of the Lexington Public Library to answer questions and discuss the issue with concerned citizens.

O’Neill wrote that he will immediately stop granting the tax break to 10-acre residential estates unless the parcel is still 10 acres after excluding land that contains a house, lawns, driveways, flower gardens, swimming pools and other areas devoted to family recreation.

Part I: Tax relief intended to save Kentucky farms helps pave them instead

Part II: 10-acre lawns get benefit meant for working Fayette County farms

Part III: How other states guard against 'fake farmers' | Developers get tax break as bulldozers approach

Fayette PVA calls for reform of Kentucky’s farmland preservation tax break

However, if the land has been owned by the same person for five years, it will keep the tax break until it changes ownership. Properties that change ownership on or after Jan. 1, 2016, will be taxed at their full value going forward.

O’Neill said Thursday that he estimates the change could bring at least $400,000 to the school system this year and more in years to come.

According to a Herald-Leader analysis of Fayette PVA data, the farmland preservation tax break was given to 2,459 properties in Fayette County last year, including 841 that are between 10 and 11 acres. The tax break reduced the taxable value of those 841 parcels by a cumulative $183 million. If that property were taxed at its full cash value, Fayette County Public Schools would get about $1.4 million more each year.

O’Neill said he will request a legal opinion from the Kentucky Department of Revenue for “precise definitions” of what land should qualify for the tax break, but he will not follow the lead of Jefferson County, where people still must apply for the agricultural exemption.

“Simply put, there is no need for an application if there is no requirement for actual agriculture use,” he wrote. “In my opinion, Jefferson County’s application process creates nothing more than an ‘honor system,’ which I do not believe would be fairer than our current policy.”

He also does not plan to make major changes to how he deals with former farmland slated for development.

For example, the Herald-Leader found that The Summit at Fritz Farm, a shopping center under construction at the corner of Nicholasville Road and Man o’ War Boulevard, was taxed as agricultural land last year even though a development plan was filed with the city in 2013. The property sold for $13 million in June but only $1,775 in property taxes were paid.

“I don’t think there’s a problem with the way we’re handling a problem right now so much as there is a perception issue,” he said. “We just need to lay out exactly what is needed to change the designation.”

Before he can yank the tax break from farmland slated for development, O’Neill said the General Assembly must change the law to require actual agriculture production on such land. Otherwise, O’Neill said, he must wait until Jan. 1 of the year after construction begins before removing the tax break.

Explore a map of Lexington properties getting farmland tax breaks

When approved by voters in 1969, the farmland tax break came with rules to prevent abuse. Property owners had to apply for it; they had to show proof of farm income from the land; and because the whole point was preservation, if the land was converted to any use other than agricultural, they had to pay a penalty equal to three years of back taxes at fair cash value. But in 1992, the Kentucky Farm Bureau persuaded the legislature to eliminate those rules.

State Rep. Ruth Ann Palumbo, D-Lexington, said earlier this week that she plans to file a bill that would add restrictions to the tax break, but it’s not yet clear what she will propose.

O’Neill pledged to work with lawmakers and other stakeholders on the issue.

He also expressed regret that he had not made the issue a higher priority, saying he had focused his office’s limited resources on raising as much revenue as possible for schools and city government.

“The agricultural assessment issue actually speaks more directly to fairness than it does to revenue and that is a distinction and a mistake that I will not be making again any time soon,” he wrote.

Going forward, he expects plenty of input from the public.

“This is something that will have a sizable impact on a large number of people and I would imagine at minimum they will have questions,” he said.

This story was originally published February 25, 2016 at 3:30 PM with the headline "Fayette County PVA pledges to restrict use of farmland preservation tax break."