Sowing tax breaks, reaping development

At the loftiest level, tax breaks are a public tool to subsidize a desired activity. One group of taxpayers gets a break while all the others pay the bills.

Thanks to the thorough reporting and lucid writing of Linda Blackford and John Cheves, we’ve learned this week that in Fayette County and throughout Kentucky tens of thousands of ordinary people who own homes on average-sized lots are subsidizing developers and wealthy homeowners with large acreage, thanks to a break intended to preserve farms and farmland.

This is simply unfair.

Local and state officials can and must move quickly to level the tax burden.

In Fayette County, where the 2012 USDA agriculture census found 718 working farms, some 2,459 properties get the exemption, but don’t have to either apply for or justify it.

Property Valuation Administrator David O’Neill should follow the example of Jefferson County, which requires property owners to apply for the exemption and show proof of farm income.

The state Department of Revenue, which provides guidance to locally elected PVAs, also needs to up its game on this issue.

Last year in a manual distributed to PVAs, Revenue said the land must be used for farming but suggested no process for substantiating that use. Given that some counties in Kentucky, and other states, already have forms and processes for verifying that acreage qualifies for the exemption, Revenue could come up with a workable process in short order.

However, ultimately, the General Assembly must take up this issue to provide long-term clarity on who qualifies for the agriculture exemption, and how.

While the major beneficiaries of property taxes are local public schools, the state is foregoing about $98 million in the next two years, thanks to this break.

When passed in 1969, the idea of the farmland break was to help farmers, a species rapidly disappearing in the post-war economy. To qualify, property owners needed to prove the land was being used to produce crops or livestock, and if they later developed the land they had to pay a penalty.

Although apparently those rules were never universally or strictly enforced, in 1992 the General Assembly got rid of them altogether. Since then it’s been pretty much a county-by-county decision about how to apply the agricultural land exemption.

Most counties, like Fayette, automatically give the break to any lot that’s 10 acres or more that has not been placed in use for other purposes.

That’s why developers can buy land, go through the planning process to get approval for a development and begin work on it while still enjoying the agriculture break.

As a result, for example, Patrick Madden, who developed hundreds of acres of his family’s Hamburg Place horse farm, pays less — $644 — on a 77-acre lot at Man o’ War and Polo Club than the $1,715 in property taxes paid on a two-bedroom house across the street.

City and state government, as well as Lextran and the health department, get a share of property taxes but the bulk — 61 percent — goes to the Fayette County Public Schools, $11.8 million last year. We don’t know how much of that rightly benefits legitimate farmers but the schools are shorted millions to subsidize acreage that has no agricultural use.

That’s a disgrace, one that local officials, the Department of Revenue and the General Assembly should not tolerate.

This story was originally published February 23, 2016 at 3:00 PM with the headline "Sowing tax breaks, reaping development."