Citizens sound off on Fayette PVA’s proposed changes to farmland tax break

After two hours of questions and comments from citizens Thursday night, Fayette County Property Valuation Administrator David O’Neill said he will consider tweaking new policies he’s proposed to regulate who receives a farmland preservation tax break.

“I am open to these concerns,” he said after a public forum at the Lexington Public Library downtown.

Many of the speakers urged him to go slow on reforms to make sure they don’t hurt farmers.

A Herald-Leader investigation last month found scores of examples of the farmland preservation tax break benefiting suburban homes surrounded by vast lawns, qualifying as agricultural land that can knock as much as 40 percent off their property tax bills, and large parcels rezoned for commercial or residential use, where concrete slabs are expected to be poured soon.

In a written response published by the newspaper, O’Neill said he would stop granting the tax break immediately 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. However, the new rule would not apply to land that has been owned by the same person for at least five years.

In addition, two Lexington lawmakers, Reps. Ruth Ann Palumbo and Kelly Flood, both Democrats, co-sponsored a bill that would limit the tax break to property “currently” used for farming. It would exclude land used for houses and lawns, as well as property slated for development.

Many citizens are angry that they pay more in property taxes on a single-family home than land developers pay for parcels worth millions, said Karen Caton.

“It’s an opportunity for them to hold onto property and speculate about development,” she said. “I’m not OK paying more than developers.”

But O’Neill and Flood, who attended Thursday night’s meeting, also heard from some who fear the new rules would hurt their farms.

David Rust said he bought a 10-acre lot that receives the farmland tax break three months ago. He said the lower tax burden is a key piece of his financial plan to start a farm.

“This is a massive reform,” Rust said. “Why not make it effective Jan. 1, 2017, for people like me who bought property or people who are looking to buy?”

Kim Oppenheimer said she bought a 16-acre lot two years ago, where she hopes to start a farm.

“Let’s be deliberate about what the real problem is and what we’re trying to solve,” Oppenheimer said.

Leslie Goode also urged O’Neill to apply the new rules only to property sold after Jan. 1, 2017.

“People who have planned for years to purchase property, this will wreck a family’s plan to farm,” she said.

O’Neill has asked for legal opinions from the Kentucky Department of Revenue about who should receive the tax break, which was created in 1969 to help protect farmers from rising land values caused by urban sprawl.

In 1992, the General Assembly eliminated rules to prevent abuse of the tax break, including a three-year tax penalty if the land in question was developed and requirements for landowners to apply annually and provide proof of farming income. Most counties now require only that a property have 10 or more undeveloped acres that potentially could be used for agriculture. Actual farming is not necessary.

O’Neill said PVAs need a better definition of what constitutes “current use” of land for farming. He’d also like guidance on when owners should start paying taxes on the full value of former farmland they plan to develop. Currently, O’Neill doesn’t change the tax rate until the year after the city approves a development plan and construction crews break ground at the site.

The Herald-Leader found dozens of instances in which the property tax bills for large lots slated for development were less than those for nearby single-family homes. For example, the newspaper found a 20-acre lot on Leestown Road in Lexington with a fair cash value of $2.59 million that produced $84 in tax last year.

One speaker, Roy Cornett, said out-of-state corporations sometimes hold onto barren land for years before developing it, all the while enjoying ultra-low property tax bills.

“I would re-evaluate that aspect of the policy,” he told O’Neill.

O’Neill said he estimates that there are 1,200 parcels not recognized as farms by the U.S. Department of Agriculture that receive the tax break in Fayette County, and that about 750 of those have some agricultural activity. He said those estimates were based on anecdotal evidence and a review of satellite images. If correct, that leaves about 450 parcels that receive the tax break but have no agriculture, he said.

Fully taxing those properties would produce about $1 million in new revenue for schools and other public services, he said.

“That’s what I meant when I said this (reform) isn’t a high priority from a revenue standpoint but is a high priority from a fairness standpoint,” O’Neill said.

And doubts about that fairness are a problem for PVAs across the state, he said.

“Everyone thinks this should be resolved, but it has not been aggressively fought,” O’Neill said. “The law has devolved to this standard in almost every county in the country.”

This story was originally published March 3, 2016 at 9:43 PM with the headline "Citizens sound off on Fayette PVA’s proposed changes to farmland tax break."