The U.S. Department of Agriculture estimates that 2017 net farm income will fall 8.7% from 2016 levels, thus marking the fourth straight year of sinking agriculture income. As a result, states that depend heavily on farming have experienced significant shortfalls in tax collections producing economic stress, particularly for rural areas of agriculturally dependent states.
Even with sharply lower agriculture income, local taxing bodies have continued to raise property taxes on farmland. For example, between 2013 and 2014, assessed values of farmland for the 10-state Rural Mainstreet region actually expanded by an incredible 11.4% as farm earnings fell by 18.0%. Over that same period, local governments across the 10-state region increased elementary-secondary school spending per student by a median 3.3%. Not surprisingly, the percent change in property taxes for 2013-14 for the ten states were: NE 7.3%, SD 6.7%, CO 3.1%, KS 2.6%, IA 2.0%, ND 0.9%, IL 0.7%, MO -0.1%, WY -3.6% and MN at -5.6%.
While more recent data are not available, anecdotal evidence indicates this same pattern has continued with lower farm income, higher K-12 education spending, and ballooning property tax burdens on farmland with significantly lower, and even negative net farm income.
In order to avoid strangling the economic viability of farmers in the region, several solutions should be advanced, evaluated and potentially adopted:
1. Slow the growth in K-12 education spending;
2. Base property taxes on the income of the farmer rather than estimated or historical farmland values;
3. Change the state aid to education formulas to be more transparent and less detrimental to rural residents; and
4. Allow counties to collect local option sales taxes to support local spending.
Shifting the property tax burden to state sales and income taxes via state aid to local units has not and will not work. Historical evidence shows that cutting property taxes lasts for only two or three years and that it is followed by excessive property tax growth plus higher income and/or state sales taxes.