COUNTY OF ALBEMARLE

 

                                                                                              EXECUTIVE SUMMARY

 

 

 

AGENDA TITLE:

Land Use Taxation Program

 

SUBJECT/PROPOSAL/REQUEST:

Update on Albemarle County’s Land Use Value Taxation Program/Options for Changing Land Use Policy and Implementation

 

 

STAFF CONTACT(S):

Mr. Tucker, Ms. White & Mr. Breeden

 

AGENDA DATE:                       ITEM NUMBER:

September 5, 2001

 

ACTION:       X                          INFORMATION:

 

CONSENT AGENDA:         

     ACTION:                             INFORMATION:

 

ATTACHMENTS:   Yes

 

REVIEWED BY:

 

BACKGROUND:

The attached report on the Land Use Value Taxation Program is brought to the Board in response to several questions on program implementation, as well as a request for more information on the Sliding Scale Roll-Back legislation.   This report includes a brief summary of the enabling legislation, the general policies and procedures and updated figures on the size and deferred value of the program.   A separate section discusses some of the same alternatives to the current land-use taxation program that were presented to the Board in a 1994 report, as well as a discussion of an annual revalidation process and the Sliding Scale Rollback legislation.

 

DISCUSSION:

Under the current land-use value taxation policy, the County has approximately 310,319 acres under land use, approximately 65% of the County’s total acreage. The annual tax deferral to the County is approximately $7.2 million dollars, a deferral that has been exacerbated over the past 10 years by rapidly declining SLEAC values in horticulture and agriculture. 

 

Following the program overview,  the second part of the report is divided into three sections to address several policy or implementation options:

 

The first section updates the three options for changing land use eligibility that were discussed in the 1994 Board report. Those three options were:

·         Eliminate all categories of use value taxation (only eligible land within agricultural forestal districts would qualify for land use).

·         Use value taxation for open space classification only.

·         Eliminate use value on forest land only.

 

The second section offers two options for tightening land use value taxation eligibility requirements:

·         Require periodic revalidation of land use properties.

·         Expanded review of parcels in the land use program by County staff.

 

The third section provides an analysis of the new Sliding Scale Roll-Back provision:

·         Allows a longer roll-back period in exchange for a higher tax deferment.

 

RECOMMENDATION:

This report is brought to the Board for information purposes only and does not require any action at this time. Should the Board be interested in pursuing any of these options, staff would be prepared to come back to the Board with a more in-depth analysis of the cost, impact, timeframe, etc. of that specific option.

 


 

Land Use Value Taxation

 

Statutory Provisions for Land Use

 

Under the provisions of Title 58.1-3230 of the Code of Virginia, a county, city, or town may adopt an ordinance that provides for use-value assessment under four categories: real estate devoted to agricultural use, horticultural use, forest use and open space use. Land used in agricultural and forestal production in an agricultural district, a forestal district, or an agricultural/forestal district is eligible for use value assessment in the absence of a local ordinance.  The State Land Use Advisory Council (SLEAC) was created in 1973 to estimate the use value of eligible land for each locality participating in a use-value taxation program. 

 

Once a local land use ordinance is adopted for a land use classification, any parcel that meets the state criteria for that category must be granted use value taxation. The County does not have the authority to impose additional eligibility requirements based on zoning restrictions or on the owner's future intentions for the use of the land.

 

The enabling legislation further states that before use-value assessment is granted, the local assessing officer must determine that the land meets the uniform standards for agricultural and horticultural use as defined by the Commissioner of Agriculture and Consumer Services, for forest use as defined by the State Forester, or for open-space use by the Department of Conservation and Recreation.

 

The County adopted all four categories of land use in 1975.  Each category of land use must meet prescribed standards and minimum acreage requirements:

 

·         Agriculture Use:  Land used for agricultural use must consist of a minimum of five acres and must meet prescribed standards for a bona fide production for sale of crops and/or livestock or be in an approved soil conservation program.  

 

·         Horticulture Use:  Land used for horticulture use must consist of a minimum of five acres and must meet prescribed standards for bona fide production for sale of fruits, vegetables, ornamental plants and/or ornamental products. 

 

·         Forest Use:  Land used for forestal use must be a minimum of twenty acres and must include standing timber and trees devoted to tree growth in such quantity and so spaced and maintained as to constitute a forest area.

 

·         Open Space:  Land in open space must be at least five acres or such greater minimum acreage, set by local ordinance, and be used to provide or preserve the land for park or recreational purposes, conservation of land or other natural resources, floodways, historic or scenic purposes or to assist in the shaping of the character, direction, or timing of community development, or for the public interest and consistent with the local land use plan.  In 1990, the Board set the minimum acreage for open space at 20 acres.

 

Application Process

 

A property owner must submit an application for taxation on the basis of use assessment at least sixty days prior to the tax year for which the reduced taxation is sought.   Anyone receiving use value taxation must submit a reapplication whenever a change in acreage or a change in land use occurs. Albemarle County charges a fee of $15 per parcel plus 15 cents for each acre over one hundred acres for initial applications and reapplications. 

 

    1. In order to qualify a property owner must certify on the application that the property meets the standards of classification prescribed by the Commissioner of Agriculture, the Director of Conservation and Recreation, or the State Forester. 

 

Land use guidelines provide that the following items may be helpful in determining eligibility for land use: 

 

1.                  The assigned USDA/ASCS farm number.

2.                  Federal tax forms (1040F) Farm Expenses and Income, (4835) Farm Rental Income and Expenses, or (1040E) Cash rent for Agricultural land.

3.                  A conservation Farm Management and/or Forest Management plan prepared by a professional or a letter of intent stating that the land will be forested.

4.                  Evidence that gross sales averaged more than $1,000 annually over the previous three years.

 

Although a number of localities require these items, the County requests these documents only if a physical review of the property is insufficient to determine eligibility.  It should be kept in mind that most of the property in the land use program originally qualified in the mid 1970s and no revalidation has been done since that time.

 

During the biennial reassessment, the County's real estate division does its best to ensure that land use properties continue to meet the classification standards set by the State. If continued eligibility of the property is suspect, the Assessor will require the landowner to submit proof that the land is either being farmed or forested.  If the County Assessor determines that the property no longer meets the classification standards, the property is removed from land use and roll-back tax is assessed. Any property owner denied use value assessment may appeal the County Assessor's decision to the local Land Use Advisory Board.

 

Roll-back

 

When land changes to a non-qualifying use, the property is then subject to roll-back taxes for the year of the change and for five years preceding the change, including 10% simple interest.  In the years 1991-2000, Albemarle County collected $1,250,627 in roll-back taxes on 7,787 acres (see Exhibit A).  Legislative attempts to increase the roll-back period from 5 years to 10 years have repeatedly failed in the General Assembly.  

 

State-Wide Utilization of the Land Use Program

 

There are 95 counties in the Commonwealth of Virginia, 69 of them allowed land use value taxation in 2001.  Of this number, 42 counties allow for agriculture, horticulture, forestry, and open space use.  Twenty counties allow for only three uses with the major excluded category being open space.  Six counties allow only agriculture and horticulture as qualifying uses:  Amelia, Floyd, Lancaster, Orange, Prince Edward and Wythe.   Only Amelia County has changed the status of its land use program (eliminating all categories except agriculture/horticulture) since the program’s inception in 1973.

 

Current Status of Land Use in Albemarle County

 

Based on current real estate assessment data, Albemarle County has 310,319 acres under land use, approximately 65% of the County's 473,600 acres.  Agriculture accounts for 103,087 of the County’s land use acres (33%), 204,719 acres (66%) are in forestry and the remaining 2,513 acres (1%) is in horticulture and open space.   Of the total amount of acres under land use, 21% (66,100 acres) are currently enrolled in agricultural/forestal districts.  Since 1994, the acreage enrolled in the land use program has declined 7%.

 

Tax Implications of Land Use in Albemarle County

 

Exhibit A. below shows the deferred assessment, the deferred tax and the roll-back taxes collected since 1991. Assuming 2001 deferred tax revenues of $7.2 million, the FY2000/2001 real estate tax revenue at $686,700 per penny, and a tax rate of $0.76, the additional cost to ineligible properties is approximately 10.5 cents on the tax rate.

 

 

Exhibit A.

Text Box: CalendarYear
Number of Parcels
Number of Acres
Tax Rate
Deferred Assessment
Deferred Tax
Roll-back
    Collected            Acres
1991
4,388
329,843
0.72
583,345,000
4,192,884
111,407
1,931
1992
4,417
*
0.72
581,014,040
4,183,301
119,111
665
1993
4,550
331,147
0.72
751,753,780
5,412,627
139,016
783
1994
4,611
*
0.72
741,335,980
5,337,619
200,901
814
1995
4,613
332,472
0.72
764,241,670
5,502,540
105,755
797
1996
4,680
*
0.72
763,538,570
5,497,478
99,822
547
1997
4,784
321,195
0.72
759,462,599
5,468,131
99,097
648
1998
4,841
*
0.72
761,253,899
5,481,028
108,493
509
1999
4,743
315,309
0.72
761,784,400
5,484,848
176,061
656
2000
4,953
*
0.76
781,041,450
5,935,915
90,964
437
2001
4,983
310,319
0.72 / 0.76
 
950,530,600
7,222,437
 ** 146,091
  **  750
 
*Acreage report is done in reassessment years only.
** Information is year-to-date.

  

 

 

 

 

 

 


 

      

 

 

 

 

 

 

 

 

 

 

 

 

Exacerbating the burden on ineligible properties in the past few years, particularly 1999 and 2001, has been the increasing disparity between the rising fair market values on rural land and the decreasing SLEAC land use values. Attachment A shows SLEAC values for land use properties in Albemarle County over the last ten years.   The suggested 2002 SLEAC values when compared to 2001 values indicate an average decrease of 13% in the agricultural rates, a 31% decrease in horticulture rates, and a 10% increase in forestry rates.  The 2002 suggested SLEAC rates are being furnished for comparison purposes only, as new SLEAC rates in Albemarle County will not take effect until 2003, the next general reassessment.

 

Factors driving the decline include continued low negative returns, a 7% decline in government payments from TY 2001 to TY 2002, an increase in long-term interest rates (SLEAC rates are determined using data that is at least two years old) and increased machinery costs in some counties where producers are switching tillage types in an effort to increase yields.   Orchard values are experiencing extreme declines – on average nearly 50%, due to continued losses resulting in net zero returns.  A large number of orchards are going out of business in Virginia as market preferences change.  The varieties of apples grown in Virginia are no longer in demand and most apples in Virginia are being processed or used for juice.  Orchards that are staying in business are deriving their income from real estate transactions or retail “niche” stores.  Exhibit B. below summarizes SLEAC value trends in the preceding decade.

 

As stated above, properties ineligible for use value taxation bear a greater share of the property tax as a result of the land use program. It is implicit in the concept of land use taxation that the tax burden is shifted to other taxpayers, as well as implicit in the program intent that the redistribution of the tax burden is in the public interest both to the direct beneficiaries of land use and to the other taxpayers who derive indirect benefits from land preservation. Whether one can demonstrate that land will ultimately be preserved or protected for the long run benefit of the community is a separate question.

 

Land Use Value Taxation Policy and Implementation Options

 

This part of the report is divided into three sections:  the first section presents three options for changing categories of land eligible for land use.  The second section offers options for tightening eligibility requirements - one through an annual revalidation and the other through a dedicated staff person to monitor land use.  The third section provides an analysis of new legislation that allows a longer roll-back period in exchange for a higher deferment.

 

Land Use Eligibility

 

Option 1:  Eliminate all categories of use value taxation

Result:  Only eligible land that meets the SLEAC criteria within agricultural/forestal districts would qualify for land use.

 

Advantages:

 

·         Eliminating all categories of land use would have a large impact on County revenues. With only 66,100 acres currently enrolled in agricultural/forestal districts with $1.3 million in deferred taxes, the immediate benefit to the County could be approximately $5.9 million annually.  Roll-back taxes would continue to be collected on parcels that were previously in land use, but not in the agricultural/forestal districts, for up to five years, if the use changed to a non-qualifying use.  Realized revenues may be substantially lower, since some rural properties would likely join an agricultural/forestal district.  (Since this would have such an immediate and negative impact on the farming community, it is assumed that the effective date of such a policy change would be deferred to allow rural parcels to either join an existing agricultural/forestal district or create a new one.)

 

·         Since agricultural/forestal districts are permitted only in the rural areas, land use in the growth areas would be eliminated. Currently there are 4,371 acres in growth areas with deferred tax revenues of $334,160 (see Exhibit C.).  Of land use acreage in growth areas, 2117 acres are in the urban ring, 797 acres are near airport road, 1269 acres are in Crozet and 188 acres are east of town, near Boyd’s tavern.

 

Exhibit C.

Zoning

Acreage

Ra

1,500

R1

1,923

R2

  273

R4

  361

R6

  190

 R15

   97

  prd

   27

 

 

These properties are still in the program because they were rezoned by governmental action where the property owner had no decision in the rezoning.  The vast majority were zoned during the original zoning process, which went into effect in the late 1960s.  Although this option would eliminate land use in the growth areas, targeted properties over 25 acres with environmental, recreational, scenic or historical benefit to the County could receive land use by being designated a mini-agricultural/forestal district within the growth area.

 

·         Requires a 4 to 10 year commitment from bona fide agricultural/forestal parcels and ultimately gives local government more control over the location and extent of land use taxation.

 

Disadvantages:

 

·         Eliminating all categories of land use may have a destabilizing and devastating effect on the bona fide agricultural community, because uncertainty will be created around long-term investment return. The impact on the small farmer may be devastating, since tax increases may rise to levels exceeding a farmer's annual income.

 

·         Potential loss of important natural resources.

 

·         Property owners no longer qualifying for land use may pose the threat of opening up their land to immediate development. Although some support this view, others argue that development is linked to demand and that the rate of growth would not change significantly.

 

·         Administrative problem to rapidly organize and implement new agricultural/forestal districts.

 
Option 2:   Use Value Taxation for Open Space Classification Only

Result:  This option would eliminate use value taxation for agricultural, forestal and horticultural classifications and allow only the open space designation. Based on a 1989 amendment to the use-value taxation law, a locality may authorize use-value for open space only.  This option could achieve a similar effect as Option 1, which would eliminate use value except for eligible parcels within the agricultural/forestal districts.  It may also encourage property owners to grant an easement to a public body in return for the benefit of use value taxation and the assurance that the property will be preserved as open space. 

 

If this option is chosen, the property must meet one of the following three requirements:

 

1.                  be within an agricultural, a forestal, or an agricultural/forestal district;

2.                  be subject to a recorded perpetual easement that is held by a public body, and promotes the open space use classification;

3.                  be subject to a recorded commitment entered into by the landowners with the local governing body not to change the use to a non-qualifying use for a time period stated in the commitment of not less than four years nor more than ten years. The withdrawal procedures for this commitment are similar to those of the ag/forestal districts.

 

Advantages:

 

·         May be best alternative from a planning perspective, because it increases local government's capability of directing land use taxation toward the goals of the comprehensive plan.

 

·         Involves governing body in decisions about land to be included in agricultural/forestal districts or subject to a contractual agreement. Allows more Board control over the range and extent of use value taxation through the contract option.

 

·         Requires a commitment from the property owner to preserve the land for a specific period of time in exchange for the tax benefits of land use.

 

Disadvantages:

 

·         Would require current recipients of land use to make a commitment not to develop their land for a specified period of time. However, length of commitment could be based on proximity to the path of development with a minimum agreement period of 4 years.

 

·         Administrative problems to either enroll current eligible properties into agricultural/forestal districts or develop individual contracts for Board approval.

 

Option 3:  Eliminate Use Value on Forest Land Only

Result:   In Albemarle County, this would eliminate more than 64% of the land currently enrolled in land use (199,436 acres).

 

 

 

Advantages:

 

·         Would have initial large increase in revenues. Although it is not possible to break out the deferred taxes on forest land only, assuming the value of forest land at half that of agricultural land, the realized revenues could be as much as $3.3 million. However, since much of the forestland might eventually be incorporated into an agricultural/forestal district, recovered revenues could be significantly less.

 

·         Parcels in agricultural/forestal districts could still qualify for land use taxation, if eligible under the forest classification.

 

Disadvantages:

 

·         Forestland provides non-market benefits to the community, i.e. temperature moderation, reductions in non-point source pollution, critical slopes, natural beauty and animal habitat.

 

·         The comprehensive plan purposefully established the 21-acre rural lot size in order to qualify for all types of use value taxation, including forestal.

 

 

Land Use Eligibility Standards

 

Option 4:  Require periodic revalidation of land use properties

Once the property has qualified, the governing body may require any property owner to revalidate annually on any land previously approved for taxation on the basis of land use.  The code also allows a locality to impose a revalidation fee every six years.  The revalidation fee cannot exceed the original application fee.  Currently in Albemarle County there is no revalidation requirement or revalidation fee.  

 

The four types of documentation listed in the application section could be required in a periodic revalidation process.  Currently appraisal staff visits all properties on a biennial basis, and the parcels are field checked at the time of the appraisal review for compliance to State standards. Thus, receipt of these documents has never been strictly enforced, and the need to revalidate land use parcels on an annual basis has never been required.

 

It has been the policy of the County Assessor’s office to monitor all parcels in the land use program to ensure they meet and maintain all State and local land use standards.  However, it is becoming more difficult for appraisal staff to provide the ongoing supervision required by the program.

 

Advantages of requiring revalidation:

 

·         May ensure that necessary qualifying information concerning land use parcels is accurate on an annual basis.

·         Revalidation fee would be a source of revenue. (The current fee would produce approximately $72,000 every sixth year.)

·         Process would notify all property owners (especially new owners) on an annual basis that they are enrolled in a tax deferral program.

·         Proof could be required from the land use participants of a farming/forestry/horticulture operation (i.e., Schedule F, income receipts, farm numbers, etc.)

·         Acts as an annual reminder of the standards of qualifying uses.

Disadvantages of requiring revalidation:

 

·         Revalidation fee can only be charged every sixth year.

·         Additional cost to administer the program (i.e., increased staff, office space, storage space).  At a minimum this expense is estimated to be $55,000 per year, compared to $72,000 in revenue every sixth year.

·         Appraisal staff currently visits land use parcels on a biennial basis, which makes revalidation seem redundant.

·         Possible confusion resulting from filing land use application and revalidation form in the same year, if property is subdivided after revalidation.

·         Failure to meet deadline(s) would result in parcel being removed from the program, resulting in taxpayer complaints.

 

Option 5:  Ongoing review of parcels in the land use program by a County staff

 person devoted solely to assuring program compliance

Currently, County real estate assessors do their best to make sure properties enrolled in the land use program continue to meet classification standards.  County personnel devoted solely to the land use program were phased out approximately twenty years ago as the number of new land use program applications declined.

 

Advantages of specialized land use compliance inspections:

·         Increased expertise of inspectors and increased effectiveness of inspections (e.g. scheduling inspections of agricultural tracts during growing season) could be more effective in identifying non-complying parcels.

·         More cost effective than annual revalidation.

·         Places a lesser burden on landowners than revalidation.

 

Disadvantages:

·         Additional cost to administer the program (i.e., hiring an assessor dedicated to land use compliance).

·         Possible redundancy with assessor staff visits.

 

Additional costs that would be incurred by implementing Option 4 or 5 could be partially offset by raising the County’s land use program application and/or reapplication fee.   Albemarle County currently charges an initial application and reapplication fee of $15 per parcel plus 15 cents for each acre over one hundred acres.  This fee has not been changed since the County adopted the land use program in 1975.  The table below compares the application fee in Albemarle with those of surrounding jurisdictions. 

 

                        Exhibit D.

Locality

Application Fee

Albemarle County

$15 plus $0.15 per acre over 100 acres

Augusta County

$12 plus $0.15 per acre over 100 acres

Fluvanna County

$10 plus $0.10 per acre over 100 acres

Greene County

$15

Louisa County

$10

Nelson County

$50 plus $0.25 per acre over 100 acres

Orange County

$15 or $0.15 per acre

Rockingham County

$50 plus $25.00 for adjoining parcels

 

Exhibit E. below indicates the amount of fees received by Albemarle County for land use applications and reapplications for the past five years.  Relatively few new parcels come into the land use program because most eligible parcels are already enrolled in the program. 

 

        Exhibit E.

 

Year

Number of Applications

     New       Reapply

Application Fees Collected

     New                Reapply

   Total

 

# of Apps.            Fees

1996

27

252

   $  405

 $  3,783

    279

 $ 4,188

1997

89

174

     1,335

     2,608

    263

    3,943

1998

30

251

        585

     3,772

    281

    4,357

1999

41

162

        685

     2,435

    203

    3,120

2000

32

254

        480

     3,809

    286

    4,289

Total

 219

 1,093

   $3,490

 $16,407

 1,312

$19,897

 

 

Legislative Option

 

Option 6:  Sliding Scale Roll-back Legislation

In recent years the majority of urban localities have experienced rapid growth and have looked at additional methods of containing sprawl.  In  2000 a bill was introduced in the General Assembly and ultimately signed into law that allows localities, upon adoption of a local ordinance, to provide for a Sliding Scale Roll-back.  The Sliding Scale Roll-back extends the roll-back from 5 years up to 20 years.  In conjunction with this extension, the deferment is also increased up to 99% of the current use value.  To participate, a property owner must enter into an agreement with the locality and by doing so, gives up their right to change the use of the property for up to 20 years.

 

There are several options available for setting the contractual time frame.  The deferment can be increased at a rate of 5% each year up to the 20th year where it would be increased 4% and the deferment held at 99% thereafter.  The scale could be set up to give a 50% reduction for the first 10 years of a 20-year contract and increased to 99% for the last 10 years or the scale could be set up to give 99% reduction every year during the 20-year contract.  It could also be set at a fractional part of the 20-year period, for example 10 or 15 years, with a prorated reduction in the deferment.

 

To date, only Loudoun County has adopted the Sliding Scale Ordinance.  They chose to set their scale at 50% reduction for 10 years and 99% reduction for the next 10 years.  A copy of Loudoun County’s ordinance is attached accompanied by some of their statistical information regarding program participation (Attachment B). At this time only 9 % of the eligible applicants have signed up for the program. This equates to about 11% of the land available for the program.  On average, each applicant saves an additional $246 annually.  Albemarle County would need to conduct its own analysis to determine the costs of implementing the Sliding Scale Roll-back.

 

Advantages of the Sliding Scale Roll-back:

 

·         Properties under this agreement might not be developed for up to 20 years.

·         The additional tax deferment could be insignificant to the locality.

·         The roll-back could be up to 20 years versus the current 5 years, thus a source of additional revenue.

 

Disadvantages of the scale:

 

·         Data will have to be maintained for up to 20 years, as opposed to the current five years.

·         The current sliding scale roll-back legislation does not require a participant to continue in the land use program for the entire 20-year period.  The sliding scale agreement is revocable on the part of the landowner at anytime during the entire agreement period.  For example, if the owner chose to change the use of the property to a non-qualifying use, the parcel would have to be removed from the program and a roll-back bill issued.

 

 

Return to Attach C

Go to next attachment