More from the series
Harvesting Tax Breaks
How tax relief intended to save Kentucky farms helps pave them instead.
Preventing land developers and suburban homeowners from collecting a tax break meant to preserve Kentucky’s farmland will not be a high priority in the upcoming legislative session, several lawmakers said Tuesday.
A new legislative study found that the tax break costs the state $44.7 million each year, but most property valuation administrators never check to see if the 324,000 tracts of land receiving the benefit are actually farmed.
The study was sparked by a Herald-Leader investigation earlier this year that found most counties in Kentucky 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 actually produces agricultural goods.
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.
The report delivered Tuesday to the legislature’s Program Review and Investigations Committee could not conclude how much money the state lost in property tax revenue because of misidentified agricultural property, but suggested that changes in the law could reduce the number of misclassified farms. It also noted that the Kentucky Farm Bureau opposes changing the law.
Lawmakers appeared unimpressed by the report’s findings and suggestions.
“I don’t think it’s a big problem out there right now,” said State Rep. Rick Rand, D-Bedford. “We might have some localized problems in Fayette County and Jefferson and maybe other counties that are developing and land values are on the rise. But we should be able to go in those counties and resolve those situations.”
To receive the farmland preservation tax break, landowners must have a tract of at least 10 acres that is agriculturally “in use,” though most county PVA’s don’t require any proof that the land is being farmed.
Lawmakers on the committee admitted that those provisions are “vague,” but said changing them would be difficult.
State Sen. Tom Buford, R-Nicholasville, said trying to tighten rules for the tax break would likely result in litigation.
“This is going to be a difficult thing, I believe to get through the General Assembly,” Buford said. “…This is so convoluted that I don’t know there is a way to come up with language.”
Democratic state Reps. Ruth Ann Palumbo and Kelly Flood, both of Lexington, proposed a bill to address the issue in the 2016 General Assembly, but it did not get a hearing.
Other lawmakers on the panel said clarification of the law isn’t necessary.
“What I heard today is we have all the tools in the tool box that we need if one of the larger counties needs to use one of those to make their assessment more in line with what they need, then they can do that.” said State Rep. David Meade, R-Stanford, who was recently elected to the Republican House leadership team. “But in my opinion I just don’t feel like we have a problem at this time.”
Fayette County Property Valuation Administrator David O’Neill disagreed, saying he doesn’t have the tools needed to fix the problem he’s facing in Fayette County, which had the largest share of farmland preservation tax breaks in 2015.
“I think that we can be a little clearer on what the minimum requirement of agriculture activity is,” O’Neill said. “Right now there is no quantifiable measure of how much activity you have to have to qualify for agriculture.”
O’Neill has moved ahead with reforms to the way Fayette County assesses agricultural land. Starting in January, he will require an application for the tax break from new property owners, who must state the land is being used for agriculture production. He also will exclude the portions of an agriculture property that are used for housing and recreation from the total acreage, which means some 10-acre residential lots in rural Fayette County will no longer qualify for the tax break.
“They’re actually to bring us into compliance with the way the statute is currently written,” O’Neill said. “There’s nothing that I have proposed that’s above and beyond what’s specifically in the statute.”
But his actions ruffled feathers on the committee.
“I know with the Fayette County PVA trying to implement these following procedures they listed, I think you’ll see the General Assembly meet and stop that,” Buford said. “I don’t think we want to have a different set of rules in different counties for different properties.”
State Sen. Stephen West, R-Paris, concurred.
“What I don’t want to see is a PVA coming up with their own requirements or their own application,” West said. “We would not want to be a part of any activity that would (limit) our agricultural use.”
Palumbo said the intention of her bill was never to make life more difficult for farmers, but to address 10-acre tracts that may receive undeserved tax exemptions.
For the most part, her colleagues urged restraint.
“I think we need to think very cautiously about this,” Rand said. “This exemption is very important to agriculture in Kentucky and for good reason. It helps keep land in production, it really does.”