When talking about taxes in Pulaski County, especially about raising taxes, I am often told “the farmers won’t go for that.” As a counterpoint, I was also told that farmers get a discounted tax rate and thus won’t be affected by any increase in property taxes. While I cannot know for sure what every farmer in the county feels about taxes, I can figure out just how we’re taxing agricultural land and how much any tax increase would cost to farmers. So I sent a Freedom of Information Act request to the county to see 1) how much the County spends on the tax deferral program and 2) how it’s applied.
The second question turns out to be easier than the first. Since 1978, Pulaski County offers a “Land Use Program” for farms of at least 5 acres which allows the land to be taxed not at its normal valuation, but at some estimate of the use of the land for agricultural or forestry purposes. If an individual landowner seeks the benefit of the Land Use Program, then she must provide evidence of being a “bona fide” farm to the Commissioner of Revenue. If the Commissioner determines that the farm meets the criteria, then the land is valued at $520 per acre. In April of 2015, the estimate of the land use value per acre was supposed to be raised to $600 but opposition caused it to be rolled back to $520, a value that has not been changed in many years according to my research. While some counties and cities have a land use valuation that includes open spaces, Pulaski County only allows for agricultural or forestry uses. Other states require those seeking land use valuation to sell or defer their development rights. Virginia does not do so and only requires that if the land is developed in a non-agricultural manner that the past 5 years of taxes be paid in full.
So now the big question- how much does this cost us? While the land use program is technically a tax break for agricultural lands, I think it’s better thought of as an expenditure. In the county, the program applies to about $208 million dollars worth of land, with an additional $62.5 million dollars worth of buildings that should bring in a total of $1,730,072.32 in real estate taxes. (All information from the Pulaski County Land Use Book, compiled by the Commissioner of Revenue and provided to me on May 8, 2017.) Through the use of the land use program, that land is valued instead at $53.4 million dollars and with the buildings (which do not receive a tax break) generates only $741,662.72 in tax revenue.
That means the land use programs eliminates $154.4 million in property valuation and costs the County $988,409.60 every year.
So in the past 6 years that we have been debating the cost of building a new middle school, the Board of Supervisors has spent nearly $6 million to subsidize the continuation of agriculture in Pulaski County. To be clear, I am not blaming or criticizing any individual for using the program and reducing their tax bill. I think that with all of the talk about how the County should spend it’s revenue, we need to be aware of the spending priorities of the County, especially since these items never show up in a budget line item.
So what does this mean for any tax increase needed to fund the new middle school? Well, an $0.11 increase per $100 of assessed value at $520 per acre would mean an increase of about $0.57 per acre. The largest landowner I was able to find in the Land Use Book provided to me by the County is Randall J. Kirk who owns about 2,610 acres. (It’s an enormous text file, so it’s not the easiest to search). His tax bill would go up about $1,500 per year. To put that in perspective, he currently has deferred a little less than $32,000 in real estate taxes per year through the land use program. If you owned a smaller farm, like say Charles Bopp, of around 168 acres you’d expect to see an additional $95.76 in tax per year to help pay for the middle school. That’s compared to just over $1,900 in tax savings through using the land use program.
So the additional tax increase equals, over the 20 year life of the school bond, close to a single year of tax deferral for many landowners. The overall cost of the tax deferrals offered by the Land Use Program is about $0.04 per $100 in assessed value (assuming every $0.01 generates about $250,000 in revenue). This means that if the program were discontinued the average Pulaski homeowner (at $140,000 median valuation) would see a drop of about $56 per year in their real estate taxes. Considering that the Land Use Program does not show up as a line item in the County Budget, it’s important to put tax increases to fund our schools into context with this program.
Additional information about Pulaski County expenditures will be forthcoming after I receive some further information I’ve requested from the County.
Interesting, Mike! I never knew that land use tax was costing the county that much money in tax revenue. Hmmm.....also interesting to see that if there wasn't a land use taxation discount, the average house assessed at $140,000 would see a $56 REDUCTION annually in their taxes. Thanks for the info!
The amount of tax a farmer does or doesn't pay on his farmland doesn't 'cost' you or me a penny. Just like when the weather wipes out a crop or a predator takes down a cow. It doesn't affect either one of us. The farmer is assuming the risk ... you and I are not. Personally, I am happy to allow the farmers in the county to take all that risk in exchange for the tax adjustment on their land, which enables them to produce some of the food that you and I eat.
Clearly the author's point here did not question whether or not Pulaski County producers should receive a land use taxation discount. His point is that an increase in the property tax rate to service a school bond will have little financial impact on a group already receiving discounted tax rates. The secondary point, that the land use tax discount is actually a cost to local government and taxpayers, is accurate and fairly standard practice. The federal government, for instance, considers its two largest home-ownership assistance programs - the Mortgage Interest and Property Tax Deductions - as expenses that cost the government and taxpayers $90 billion annually.
Given that the author asked "So now the big question- how much does this cost us?", my take is that he sees the amount of tax someone else pays as actually affecting his personal bottom line. The cost of farming would only be a 'cost' to the author ... or you or me ... if we were to receive a bill when the farm in question went into the red. We don't. If it is the author's analysis that a tax increase will be a small burden to county farmers, I wonder why anyone feels he could make that judgment about someone else's finances. Regarding the the federal government, it doesn't 'consider' anything, because it isn't a cognitive being. Some people may consider the tax deductions you mentioned as 'costs', but those programs are designed to make home ownership possible for people on the margins, so they are actually investments in someone else's quality of life. When someone else has a better life because of money they were allowed to keep by the government, that is not a cost to me or you or the government. It is a benefit.
Bob, from an accounting perspective any discount given on a source of revenue is a supposed to be considered an expense according to generally accepted accounting principles. So if you ran a feed store, and gave some of your customers discounts you would have to record those discounts as an expense against revenue. If the county requires $40 million dollars to cover it's expenses, then any tax credit (whether that's given to a small business or to Volvo) requires additional revenue to be raise on the nondiscounted property. That's not really an analysis, it's just simple math. To be clear, since this seems to be a source of some confusion, I'm not advocating for the abolition of the land use program, I was simply providing information for taxpayers in order for them to make an informed judgment about County expenditures. I don't know how every individual would be affected by any tax increase, but the land use program does not take into account financial status when deciding to offer a discount on real estate taxation either. Also, the mortgage interest tax deduction does not help people on the margins as only about 1% of the $70 billion dollars in foregone revenue goes to families making less than $50,000 a year. I'm in favor of helping out our local farms, but I also think reasonable people can debate the most effective ways to do so. And reasonable debate requires information.
Taxing farmland at a different rate than residential property isn't a tax 'credit' and it isn't a 'discount', it's a tax policy designed to achieve a particular result. You seem to be of the opinion that every square inch of land in the county has the same value, and if any of it is taxed at a lower rate, then that landowner is getting a subsidy. That is only 'simple math' when it’s done on paper. In the real world, the math isn’t so simple when a farmer has to bury a cow or when he loses all his hay to the weather. Now, if the county requires $40 or $40 million to cover expenses, and it has determined the best way to allow farmers to continue to farm is to tax their farmland at a lower rate than residential real estate, then the county needs to cut expenses to match revenues, or encourage economic development that will generate additional revenue, or increase the tax on my house and yours. Regarding the mortgage interest tax deduction, I stated the program was ‘designed’ to make home ownership possible for people on the margins, and it appears you chose to argue that ‘it doesn’t’, which may or may not be accurate, but either way it’s beside the point.
Regardless of your philosophical view point on taxes, the fact is that GAAP does dictate that any discounted or free service or product provided by a for-profit, non-profit, or governmental entity is considered a cost. Regarding the MID, it was a simple example of another tax incentive that does actually cost the federal government. That cost is lost revenue as it attempts to encourage home-ownership. Here's a piece published yesterday about who the MID actually benefits and doesn't: https://www.theatlantic.com/business/archive/2017/05/shame-mortgage-interest-deduction/526635/
It's off topic from the original post, but here's another article about the Mortgage Interest Deduction entitlement program: https://www.nytimes.com/2017/05/09/magazine/how-homeownership-became-the-engine-of-american-inequality.html
Very interesting. I do agree with Bob regarding taxation in that it is clearly none of the litany of things it has been euphemistically called. Words such as contributions, investments and phrases like "cost to the government" and "fair share' all assume a willingness to disregard the fact that taxes as, generally understood, are preemptive arbitrary seizures of labor. Resistance to taxation is ultimately quashed by the use of government force. In the most extreme cases armed agents will seize property and or persons. To describe "taxation" as other than that not accurate.
Um, seems pretty extreme and not all that "generally understood" that "taxes...are preemptive arbitrary seizures of labor." I guess I appreciate when those arbitrary seizures are used to maintain the roads I drive on, or to educate my children, or to protect me and my private property from physical harm. But I may just be naive to how nefarious and reckless a government generally is with the revenues it raises.
Thanks for your comments Andy. Not sure of correct punctuation but the fact that taxes as, generally understood, are preemptive arbitrary seizures of labor. meaning taxes as generally understood. In my opinion, the moral and societal issues of when and how to apply taxes for the common good, completely separate issues.