Ky. must act on billions in exemptions

A committee meeting Tuesday in Frankfort should serve as a cautionary tale for how resistant lawmakers are to take on special interests to reform even a small part of Kentucky’s tax system.

At issue was a tax exemption created by a constitutional amendment in 1969 to preserve farmland in Kentucky by lowering taxes on it.

Both an investigative series by the Herald-Leader earlier this year and a committee staff report showed that thousands of acres covered under the exemption aren’t farmed. Many are home to huge houses sitting on very large lots; others are zoned for development and awaiting a buyer.

This isn’t fair to other taxpayers and, of course, isn’t preserving farmland.

So, in a cash-strapped state with a governor eager for tax reform, you’d think the Program Review and Investigations Committee would jump on this low-hanging fruit and find a way to protect farmers while closing the loophole.

You’d think wrong.

“I don’t think it’s a big problem out there right now,” said State Rep. Rick Rand, D-Bedford.

Sen. Thomas Buford, R-Nicholasville, seemed to think it’s just too much trouble to sort out: “This is so convoluted that I don’t know there is a way to come up with language,” to fix it.

With friends like Buford, Gov. Matt Bevin may find overhauling Kentucky’s loophole-ridden tax code much more difficult than he imagined.

Kentucky exempts more taxes than it collects — about $12.3 billion in giveaways compared to $10.2 billion in revenue. There is no way to improve Kentucky’s revenue picture and create a simpler, more fair and modern tax code without doing just the hard work that Rand, Buford and other committee members didn’t want to take on.

It will be hard work. Few exemptions have “sunset clauses” requiring the General Assembly to examine whether they still serve their intended purpose before reauthorizing them, but almost all have special interests that will fight to preserve them. Each year more are passed, further draining state coffers.

The agricultural exemption is a good example. In the 30 years before the 1969 amendment, Kentucky lost over a fifth of its agricultural land to suburban development. Farmland had been taxed, like other acreage, based on fair cash value — what it could sell for.

Originally farmers had to apply for the exemption and document that it produced income from agriculture. In 1992 both requirements were dropped. Farm Bureau officials supported those changes and told legislative staffers they oppose reinstating either provision now.

Other changes have arisen from rulings by the Kentucky Supreme Court and Board of Tax Appeals. All this, as the legislative staff report notes, “may not have promoted reasonable and workable guidelines,” for county property-valuation administrators — the elected officials charged with keeping property-tax rolls up to date.

With everyone confused, some non-agricultural lots get the break, while some new types of agriculture — low-acreage lots used by beekeepers, part-time market gardeners, horticulturists, small scale livestock producers or others — probably don’t.

Like hundreds of exemptions baked into our tax code, the General Assembly has not looked closely at this one to see if, after 50 years, the millions in taxes Kentucky is giving up are accomplishing what voters intended.

This is work legislators can no longer avoid.

This story was originally published December 16, 2016 at 7:03 PM with the headline "Ky. must act on billions in exemptions."