CAMBRIDGE, Mass. (November 24, 2015) – The use of preferential tax treatment to protect rural land from development in the U.S. has been largely ineffective, with the benefits often outweighed by the costs, according to a new report published by the Lincoln Institute of Land Policy.
The use of use-value assessment – the undervaluing of rural properties to reduce the tax burden – has been modestly successful in protecting some land, but the policy has been implemented poorly in many states, often with unintended consequences.
“While well-intentioned, use-value assessment often does little to protect farmland and open space, while unfairly shifting the tax burden to residential and commercial property owners,” said John E. Anderson, who co-authored the report, Use-Value Assessment of Rural Lands: Time for Reform? with Richard W. England.
The report is based on a book published in 2014, and has been condensed to give policymakers and their staffs, as well as property tax experts and practitioners, a snapshot of the history and consequences of use-value assessment, as well as options for reform.
In a practice that began in the 1960s amid concerns about rapid urbanization, nearly every U.S. state now permits, and even requires, local assessors to value some rural properties below their fair market value to encourage their continued use for agriculture, or preservation as forestland or open space.
Despite their stated purpose of protecting farms and other rural properties from development, these policies often benefit “fake farms” intended for future development, or “hobby farms” that are not true commercial enterprises. These policies also employ inconsistent or inaccurate methods for assessing the use-value of a property, or the value of the farm as currently used (in contrast with the market value, which is typically higher because it considers the potential for development).
In addition, many state policies do not adequately penalize landowners who enjoy tax benefits for many years, only to sell their land for development. Finally, use-value assessment often fails to evaluate the public benefit of preserving a particular piece of land or type of property.
The authors recommend several reforms to improve use-value assessment, including weeding out fake farmers by tightening eligibility and reporting, disqualifying landowners who have pending applications for rezoning, stiffening penalties that are either nonexistent or weak, standardizing the practice of assessing a property’s use-value, and taking the public value of a property into consideration.
About the Authors
John E. Anderson is the Baird Family Professor of Economics at the University of Nebraska–Lincoln. Tax policy is the focus of his research; he has advised government agencies in the United States and around the world and served from 2005 to 2006 with the President’s Council of Economic Advisers in Washington, DC.
Richard W. England is professor of economics at the University of New Hampshire– Durham. His research concerns property taxation, land development, conservation, and housing markets. Together with Richard F. Dye, he edited the Lincoln Institute book Land Value Taxation: Theory, Evidence, and Practice (2009). Anderson and England are both visiting fellows at the Lincoln Institute of Land Policy.
The Lincoln Institute of Land Policy is the leading resource for key issues concerning the use, regulation, and taxation of land. Providing high quality education and research, the Lincoln Institute strives to improve public dialogue and decisions about land policy.
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