Panel studies SD cropland valuesAs crop prices push up land prices, South Dakota's new tax system can’t keep up.
By: Bob Mercer, The Daily Republic
PIERRE — South Dakota’s new productivity approach to setting tax values for agricultural land seems to be working for most pastures.
But two circuit-breakers built into the new laws are causing the tax values for cropland to lag increasingly behind the rising real values of cropland and the higher prices for most commodities that farmers have seen the past few years.
The Legislature’s special task force that is overseeing the new system spent Monday tunneling through data and trying to decide what should be done next.
One observation the panel’s members made was that different factors are being used to determine the values of the two types of land.
The values of pastureland are based on cash-rent information collected by the federal government from landowners and livestock producers.
Cropland values are built on a combination of soil type, harvest yields and crop prices over a rolling eight-year period.
Whether to switch to cashrent for cropland, and whether to base the value for each parcel on its actual use, are two changes the task force decided to discuss Oct. 11 when it meets for the final time this year.
The task force’s recommendations will be forwarded to the Legislature for possible action next year.
The new system is in its second year as a replacement for the market-based approach that relied on sale prices of comparable land.
When the Legislature approved the new system, lawmakers decided a key ingredient to smooth swings in tax values year to year for cropland was to use an eight-year average of commodity prices.
To further cushion shifts in taxes, the Legislature decided taxable values for either type of agricultural land in a county couldn’t shift by more than 10 percent annually during a phase-in period that runs until 2017.
The latest data presented Monday show the 2012 assessments for pastureland are within the 10 percent range in 46 of the 66 counties, but for cropland only one county — Lincoln — is within 10 percent.
In many cases, counties are seeing the gaps grow larger for cropland, with taxable values dropping farther and farther behind where they would be without the 10 percent annual limit. Here are five examples:
• Brown County’s 2011 assessed values for cropland totaled $794.6 million. With the 10 percent limit, they will rise to $874.1 million for 2012. But without the limit, they would be $1.376 billion for 2012, or a 73 percent increase from 2011.
• Codington County’s 2011 assessed values for cropland totaled $1.071 billion. With the 10 percent limit, they’ll go up to $1.178 billion for 2012. Without the limit, they would be at $1.234 billion, or an increase of 15 percent from 2011.
• Davison County’s 2011 assessed values for cropland totaled $1.002 billion for 2011. With the 10 percent limit, they’ll be $1.102 billion for 2012. Without the limit, they would be $1.291 billion in 2012, an increase of 29 percent from 2011.
• In Hughes County, the 2011 assessed values for cropland were $538 million. With the 10 percent limit, they’ll reach $592 million for 2012. Without the limit, they would total $799 million for 2012, an increase of 48 percent from 2011.
• Lawrence County’s 2011 assessed values for cropland were $295 million for 2011. With the 10 percent limit, they’ll reach $325 million for 2012. Without the limit, they would be $498 million for 2012, an increase of 69 percent from 2011.
The task force’s seemingly unanimous worry is what will happen after the 10 percent annual limit expires in 2017 and cropland owners face very large increases in many counties.
That’s why some are wondering whether the panel should suggest the Legislature allow larger annual increases before 2017 — Rep. Paul Dennert, DColumbia, offered such legislation, without success, in the 2011 session — or even take the 10 percent limit off altogether.
Cropland represents approximately 85 percent of the total agricultural property value statewide.
Task force member Larry Gabriel, a rancher from Cottonwood, supported the 10 percent limit. Now, he’s ready to scrap it. He called upon agriculture organizations Monday to work on a solution to the problem of the growing gap for cropland.
“I made a lot of mistakes in my life,” said Gabriel, who has been state secretary of agriculture, and earlier was the House Republican leader and tax committee chairman during various times while he was in the Legislature.
“I’m one who tries to rectify that mistake, rather than keep riding a dead horse.”
Farmer and former state Sen. Jim Peterson, D-Revillo, said he’s not ready to give up on the productivity approach but suggests the annual limit should be higher than 10 percent. He said 43 other states use some version of productivity for valuing agricultural land.
“It wasn’t conceived willy-nilly,” Peterson said. “If you think seven-dollar (per bushel) corn is going to be around the next three years, I’d be very surprised.”
The rolling statewide average prices used for calculating values show how much and how fast farm economics change.
Sorghum that brought $2.18 in 2002 and $2.24 in 2003 was at $2.74 in 2009 and $4.48 in 2010.
Oats that were at $1.99 in 2002 and $1.43 in 2003 came in at $2.15 in 2009 and $2.90 in 2010.
Soybeans that were $5.33 in 2002 and $6.96 in 2003 were $9.05 in 2009 and $11.20 in 2010.
Sunflowers that brought 12.1 cents a pound in 2002 and 11.4 cents in 2003 brought 12.8 cents in 2009 and 18.9 cents in 2010.
Millet that was $7.05 per bushel in 2002 brought $3.30 in 2003, $2.60 in 2009 and $4.25 in 2010.
Corn for grain that was $2.17 in 2002 and $2.28 in 2003 came in at $2.60 in 2009 and $4.25 in 2010.
Wheat was an average for all types of $3.81 in 2002, $3.46 in 2003, $5.10 in 2009 and $6.05 in 2010.
The rising prices for commodities, more than harvest yields or acres planted, are driving up land values, according to Burton Pflueger of the South Dakota State University economics department. He’s working on contract for the task force.
He said agriculture land values increased an average of 16.5 percent in South Dakota in the past year.