Pillen plan to shift valuation of ag land gets static, even from farm groups

LINCOLN — Gov. Jim Pillen’s plan to relieve property taxes paid by farmers and ranches got a rough reception Friday, even from some farm groups.

The head of the state’s largest agriculture group, the Nebraska Farm Bureau, said Pillen’s plan to shift the valuation method from being based on recent sales of land to its production capability — as is done in Iowa, South Dakota and Kansas — needs more work to avoid increasing taxes.

“There is a sense that this isn’t ready for prime time,” said Mark McHargue, a Central City farmer and president of the Farm Bureau.

He joined representatives of the Nebraska Farmers Union and a handful of school groups in saying that such a complicated, and momentous, change needs more discussion.

Hold harmless

For one, McHargue said, making sure farmers and ranchers are “held harmless” and don’t see unintended tax increases is essential.

Under Legislative Bill 820, the Agriculture Valuation Fairness Act, the state would change the way it values agricultural land from the current market approach — which is based on recent sales of nearby ag land — to basing it on the productivity and income-producing potential of the land.

A committee of five people would be formed to devise how land would be valued on its income-producing potential. Under the bill, statewide increases in valuations of ag land would be capped at 3.5% a year.

State Sen. Joni Albrecht of Thurston, who introduced the bill on behalf of Pillen, said it would be a fairer and more stable approach to valuation.

Right now, she said, farmers are looking at an estimated 12% rise in property valuations and expecting steep increases in taxes, after seeing increases of more than 200% in ag land values since 2006.

Pillen, a hog producer and the first farm-related Nebraska governor in decades, said it’s not right that land is valued on “artificially” inflated purchases of nearby land, purchases unrelated to its productivity. He cited purchases for hunting and other recreational purposes.

“This change brings common sense back to the land assessment process,” Pillen said.

Most counties would see higher ag land values

But the mood in the hearing room of the Legislature’s Revenue Committee seemed to change after a state property tax official passed out estimates on how property valuations might change under LB 820.

In 64 of the state’s 93 counties, the change would increase ag land valuations, with 12 rural counties seeing rises of more than 10%, with Keya Paha County getting a 27% increase. Overall, it was estimated that LB 820 would decrease ag land valuations by about $7.5 billion. Currently, ag land is valued at $89.4 billion.

Jerry Keebler, the Johnson County assessor and a part-time farmer, said farmers express a lot of “excitement” about possibly changing the valuation system to a income-potential basis, but when they see what might happen, they see some “unpleasant surprises.”

Still, all farm groups said something must be done, despite their concerns about the current proposal.

Scott Peterson of Valentine, of the Nebraska Cattlemen, said the property taxes on property he owns in South Dakota — where land is valued as is proposed in LB 820 — is half of what it is on similar land in Nebraska.

Producers at a disadvantage

The disparity, he said, hurts the competitiveness of Nebraska ranchers and makes producers wonder why they continue to ranch and buy land in the state.

But Lincoln Sen. Eliot Bostar, after looking at the data provided by the state property tax administrator, asked one proponent how lawmakers could sell a change that would raise valuations for many farmers and ranchers.

Jessica Shelburn of Americans for Prosperity-Nebraska said Bostar was raising a valid point and  suggested that an educational program was needed.

Elkhorn Sen. Lou Ann Linehan, a co-sponsor of the bill, said it’s not guaranteed that higher valuations would result in higher taxes because taxing entities could lower their property tax levies.

But Albrecht, at the conclusion of the hearing, conceded that more discussion is needed about LB 820 before it’s ready to advance.

“I do believe that we have a little bit of work to do,” she said.