New bill may change the way Nebraska's ag land will be evaluated

By Colin Sinn, Nebraska News Service

A new bill may change how agricultural land is valued for tax purposes in Nebraska.

The bill, LB338, was proposed by Gov. Pete Ricketts and was introduced on his behalf by Sen. Lydia Brasch of Bancroft.

The bill is called the Agricultural Evaluation Fairness Act. It would base ag land values for property tax purposes on the land's income potential rather than on sale prices as is currently the case.

Brasch introduced the bill Wednesday to the Legislature's Revenue Committee, and Ricketts was on hand to explain the bill himself.

"This is something that will not only be more fair to our farmers and ranchers, but is more standard across ag states," Ricketts said.

Ricketts said that South Dakota, North Dakota, Kansas, Iowa, Illinois, Indiana, Wisconsin and Ohio all use this form of ag land valuation. He said it is a fairer way to put a value on farm land that takes the property tax burden off farmers.

Ricketts said that if the bill were enacted this year, the total land valuation for Nebraska would drop by 2 percent.

Ruth Sorensen, property tax administrator for the Department of Revenue, was also at the hearing to help explain the fundamentals of the bill.

Sorensen said that using income potential would slow the growth of land prices. She said since 2006, total ag land prices have increased 264 percent, compared to only 43 percent for commercial land.

According to Sorensen, ag land valuation would be based on a capitalization rate related to the value of the land's use. This is where the bill gets complicated.

The capitalization rate - or cap rate - is a number that would be used in new valuations. According to Brasch and Sorensen, property tax administrators would set the cap rate for each county. The cap rate would be used with the land's income potential to arrive at valuation for tax purposes.

The process would involve a complex formula, yet to be finalized, that would take into account current commodity prices, type of land, 10-year average yield and three-year sale price averages.

There were many proponents and opponents at the hearing, enough that it lasted more than 3 hours. Most of the proponents and opponents agreed that the bill was on the right track, but opponents said it didn't do enough.

John Hansen, president of the Nebraska Farmers Union, previously told the Omaha World-Herald the bill was "better than a poke in the eye with a sharp stick, but not as good as sliced bread." But he was on hand Wednesday to speak against the bill.

Hansen said it doesn't do enough to help farmers' high property taxes. Also, the bill's projected 2 percent decrease in land prices is far from where it needs to be.

"To do what amounts to 2 percent by 2020 is like calling the ambulance two years after the funeral," Hansen said.

Other opponents pointed to the fact that school districts are funded by property taxes. If the property taxes declined, so would school funding.

The proponents of the bill said it isn't an instant fix, but that the legislation is on the right track.

Former Lt. Gov. Lavon Heidemann spoke in favor of LB338 but said he understands the proposed legislation is complicated and is still not perfect.

"This is a part of the solution, not the total solution," Heidemann said.

Brasch is still confident that the bill is the right way to go for Nebraska, and it will eventually become the long-term solution. But she said the point is that farmers need change now.

"We can't do it the same way we've been doing it," Brasch said. "Bad is just getting worse."

Source: Nebraska News Service


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