Agenda Item No. 13. Land Use Taxation Program, Presentation.
Mr. Melvin Breeden, Director of Finance, said this report on the Land Use Value Taxation Program is in response to several questions from the Board on program implementation, as well as a request for more information about Sliding Scale Roll‑Back legislation. Staff included in its report a brief summary of the enabling legislation, 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 Roll-back legislation.
Mr. Breeden said the County currently has approximately 310,319 acres in the land use program, or approximately 65 percent of the County's total acreage. The annual tax deferral is approximately $7.2 million, a deferral that has been exacerbated over the past ten years by rapidly declining SLEAC values in horticulture and agriculture.
Currently, 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 reapplication. This does not provide a lot of revenue. In order to quality, a property owner must certify on the application that the property meets the standards of classification prescribed by the State Commissioner of Agriculture, the State Director of Conservation and Recreation, or the State Forester.
Mr. Breeden said the County can require certain items to help in determining eligibility for land use: USDA/ASCS farm number; Federal tax forms (1040F), (4835) or (1040E); a conservation Farm Management and/or Forest Management plan; or evidence that gross sales averaged more than $1000 annually over the previous three years. He said 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 there has been no revalidation of that information since then. (Note: Mr. Dorrier returned to the meeting at 3:51 p.m.)
Mr. Breeden said the major part of the program is the roll-back when land changes to a non‑ qualifying use. Between 1991 and 2000, there were 7787 acres on which there was a roll-back and the County collected $1,250,627 in roll‑back taxes. He said that for the year 2001, the deferral was $7.2 million. On a 76 cent tax rate ($676,000 per penny), that equates to 10.5 cents, so the tax rate could be reduced by that much if there were not land use taxation.
Mr. Perkins asked if there is a committee which works on the application process. Mr. Breeden said it only deals with some of the equalization and appeal processes. If it is determined that a parcel will be disqualified, the property owner can appeal to that board. Mr. Davis said it is an advisory board, and has no legal status. It was created to provide a citizen review of decisions in regard to land use valuation.
Mr. Breeden said the amount of the deferred tax over the years has increased from $4.0 million in 1991 to $7.2 million currently. Fair market values are steadily increasing, but SLEAC values have continually gone down. The decreases have at times been as much as 50 to 60 percent.
Mr. Perkins said the change from $4.0 million to $7.2 million may look alarming, but in looking at the Countyís current budget and the current assessment of property, it is really right in line. Mr. Breeden said the amount of the deferral will continue to increase. SLEAC values are only used each two years because of the biennial assessment cycle. If the County was using the 2002 SLEAC values, it would be looking at a 13 percent decrease on agricultural and a 31 percent decrease on horticultural values, with a small increase in forestry. He does not think the 2003 values will be much different.
Mr. Dorrier asked if these values are the same throughout Virginia and across the country. Mr. Breeden said they are consistent. It is hard to compare Albemarle County with others on forestry land because a lot of the SLEAC values are based on crop values. He said there are counties which have a lot of commercial crops, but there is not much of that in Albemarle County.
Mr. Breeden said staff also listed some options the Board can consider for the land use program. Staff does not recommend any of them, but did it only for the Boardís information. Option One would be to eliminate the Land Use Ordinance. Under State law, any land currently part of an agricultural/forestal district would qualify for land use taxation, but that is all the acreage that would qualify. Of the 310,000 acres in the land use program, only 66,000 acres are currently in those districts. The County would save about $5.2 million in deferred taxes, but, if the Board did this, there would probably be requests to put more land in agricultural/forestal districts.
Ms. Thomas asked if there are any properties that could not be in an agricultural/forestal district that are included in the 310,000 acres currently getting land use taxation. Mr. Breeden said he is not totally familiar with district requirements, but he believes there are some which would not qualify, lands in growth areas would not. Mr. Davis said that in the Rural Areas there are some basic size requirements that have to be met, and there need to be contiguous parcels. It is possible there could be some isolated parcels where land around it could not be in an agricultural/forestal district. Ms. Sherry Buttrick said the land has to be within two miles of the core of the district.
Mr. Breeden said Option Two would be to allow use value taxation only for the Open Space Classification. He said it would probably give the Board the most control because it would be able to approve or disapprove those applications. There would need to be a signed agreement by the property owner not to develop or change the use of the property for a specified period of time. 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 might 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.
Option Three is to eliminate use value on Forest Land only. In Albemarle County, this would eliminate more than 64 percent of the land currently enrolled in land use (199,436 acres). The realized revenues from this change could be as much as $3.3 million in deferred taxes. However, the land in an agricultural/forestal district would continue to qualify for that option no matter what the local ordinance says.
Option Four is to require a periodic revalidation of land use properties. Albemarle County has never done this. By State law, a fee could be charged for doing a revalidation every sixth year.
Ms. Thomas asked if there is a fee which can be charged other than a revalidation fee because she had been told that Fauquier has an annual fee. Mr. Breeden said he does not know of any such fee. The Code allows a revalidation every year, but a fee can be charged only each six years, and it can be no more than the amount of the original fee. He said this would require more staff and place burdens on taxpayers to comply. Staff thinks it would cost a minimum of $50,000 to do that every year, and only $72,000 of that cost would be recovered each six years.
Option Five is an on-going review of parcels in the land use program by a County staff person devoted solely to assuring program compliance. That person would be monitoring (make sure properties enrolled in the land use program continue to meet classification standards) the parcels currently in the program. The property owner would have no new requirements placed on him. If this were done, the County might try to raise some of the original application fees to recover some of the costs. There have not been changes in the fee since the program was adopted in the mid-1970s.
Option Six would be to ask for information on the Sliding Scale Roll‑back Legislation. He said that 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 five years up to 20 years. In conjunction with this extension, the deferment is also increased up to 99 percent of the current use value. To participate, a property owner must enter into an agreement with the locality and by doing so, gives up the right to change the use of the property for up to 20 years. So far there has not been a lot of interpretation of this new legislation. Loudoun County has adopted something, but has not had much participation in the program. The program looks good, but about the only person who would take advantage of the option is the person who is not going to develop their land.
Mr. Dorrier asked the idea behind the legislation. Mr. Breeden said there are several options available for setting the contractual time frame. The deferment can be increased at a rate of five percent each year up to the twentieth year where it would be increased four percent and the deferment held at 99 percent thereafter. The scale could be set up to give a 50 percent reduction for the first 10 years of a 20‑year contract and increased to 99 percent for the last 10 years, or the scale could be set up to give 99 percent reduction every year during the 20‑year contract. It could also be set at a fraction of the 20‑year period, for example 10 or 15 years, with a prorated reduction in the deferment.
Mr. Dorrier asked why that legislation would not be good for Albemarle County. Mr. Breeden said he thinks it is good for the taxpayer if he gets a reduced tax, but he does not think it will stop development if that is the Boardís concern. The person who will develop property, once in the program for six years, if he stayed in the program for one additional year, would immediately wipe out any savings during the first six years with the additional deferment. He would have to pay six years of roll-back, plus an extra year of the full roll-back from fair market value down to the land use value.
Mr. Dorrier asked why Loudoun adopted an ordinance. Mr. Breeden said they have been trying everything possible to slow down growth. They have said that the only parcels applying are those in the part of the County where there is little growth going on at this time. He does not think it would work as a growth tool.
Mr. Davis said the statute does not set out a time frame. It just says there can be a longer period of time for a lower assessed value. Loudoun chose the eight to 20-year provision in their ordinance. That ordinance sets out one rate for the first ten years, and another rate for the second ten years. They did not do a true sliding scale, but a step scale. It is not a widely-used piece of enabling legislation. It has not been found to be very useful.
Mr. Perkins said if someone is going to sign up for the program, they will probably choose the twenty-year period. If someone is thinking about development, he does not believe they would sign up for the program at all. Mr. Breeden said the time periods can be set for different commitment periods. If someone adheres to the period they signed up for, then it goes to a five-year roll-back after they have met their commitment.
Mr. Bruce Woodzell said if someone in the program decided to stop farming within that time frame, the County has no choice but to apply the roll-back, and then the agreement is void.
Mr. Breeden said they still have to meet the classification standards and guidelines. If someone decided to sign up for agricultural use, and then decided to stop farming, the property is automatically disqualified and out of the program. He does not know if this information helps the Board, but staff will be glad to do further research on any of the options. He offered to answer questions.
Ms. Thomas said it bothers her that a lot of people are getting a tax break on 20 of their 21 acres which they cannot develop anyway because they have no more development rights on the property. There is not a land use planning tool in that sense, and they are not farming their land. To her, farming is a minimum of putting fertilizer on the land, keeping up the fences, and getting some produce off of the land, or letting someone else get produce off of the land. There are no incentives for the owner to do anything other than bale the weeds they mow, rather than bush hog the weeds they mow down. Because they are not putting any investment in their land, a farmer who rents pastures for his cows finds the pastures getting worse year by year because the landowner probably is not putting fertilizer on the land. Even a farmer who truly wants to farm in the old straight-forward way is having a hard time despite the fact that there is a lot of land getting the use value tax break.
Mr. Breeden said staff looked at that situation, but it is hard coming to any conclusions on parcels that are less than 21 acres. Of the parcels in the program, there are about 2000 parcels which contain less than 21 acres. This is less than 10 percent of the total acreage in the program. Of those parcels, about 500 contain less than five acres, and they qualify because they are contiguous to a larger tract. There are 15,000 acres (1400 parcels) in the program which range from five to 20 acres each.
Mr. Perkins said in reference to the 21-acre parcels, one acre is taxed at market value, but in the Rural Area there must be two acres for a lot. If a person has an undeveloped parcel and wants to create five, two-acre lots, the Health Department requires two acres, so why does the County allow one acre parcels. Mr. Breeden said the land use guidelines say that basically all land is eligible. Anything not used for personal use in the house/yard area would be eligible for the program. He said of the 21-acre lots, there are only 131 parcels of this size in the program.
Mr. Perkins asked if a person bought a parcel of 21 acres for $200,000 and could only use two acres of that parcel, what are the other 19 acres worth without a development right? Mr. Woodzell said that normally staff considers two acres as the site, and puts the majority of the value on those two acres. If the property sold for $200,000, the assessment on the site might be $125,000 with the rest being excess land. The remaining 19 acres would carry the other $75,000. Mr. Breeden said those 21-acre sites are a small part of the issue. If all of them were eliminated, it would not amount to many dollars.
Ms. Thomas asked if there is any way to use this as a tool to increase the agricultural activity going on in the community. Since 65 percent of the program is in forestry, there is only 35 percent in agriculture. She does not like people getting a generous tax break for claiming their land is in an agriculture use, when it is not. Mr. Breeden said in the 1970s, land use was tried as a farmerís tax break, and it never passed until it became more of an environmental issue. He said the actual number of legitimate farmers in Albemarle County is very small.
Mr. Dorrier asked if Mr. Kluge got tax breaks on the 10,000 acres he gave to the University of Virginia. Mr. Breeden said he did. Ms. Thomas said he was actually farming a lot of that land. Mr. Breeden said he had one of the most legitimate farming operations in the County.
Mr. Davis said if there is a legitimate agricultural, horticultural or forestry activity on the 21-acre lot, the State Code does not allow the minimum acreage to be changed. Five acres is the set minimum. The only category the County can increase acreage on is open space. Albemarle set that at 20 acres, but State Code minimum is five acres.
Ms. Thomas said she has heard farmers who make a business of farming, say that Fauquier focuses on getting an annual report to be sure a person is actually farming the land. Farmers donít have any problems doing that because they have other reports for their business, so it does not add a layer of reporting. For the people who are getting a tax break but barely farming, she would like the Board to think about whether this would impress on them that there are responsibilities for calling their land a farm. Mr. Breeden said he believes that most of the smaller parcels qualify because someone is already farming the property. Most of the parcels in the low twenties qualify as forestry, not as agriculture. In the current economy and farming environment, he does not believe there is anything that can be done from a tax standpoint to encourage farming.
Ms. Thomas said she was not saying the County should encourage someone to go into farming, but that they do something more responsible with the land. She thinks a lot of land is growing up into trees, while the remainder is being baled even though it is hardly edible as hay. Mr. Perkins said low use agriculture might be better environmentally than intensive agriculture. He wondered the intent of the General Assembly when the law was enacted. He thinks they expected valuable products to come off of the land, as well as other benefits; clean air, clean water, etc. He said the County might use Option 5 and select 25 parcels for an inspection. In the audit which Westvaco does of its forestry practices, they do not look at everything, but visit different job sites to see of their standards of sustainability have been met. The County might try doing the same thing. If it was found that one of 25 did not meet the criteria for land use, that probably means that one out of every 25 probably does not meet the criteria either. Mr. Breeden said the Board needs to keep in mind its philosophy of the program. If it is intended to encourage agriculture, it's a losing battle. If it's to encourage open space, whether a person is farming or not farming, it is still not being developed. The question is, how strict does the Board want to be about farming. The guidelines are set up for Abarely farming in order to meet the criteria.
Mr. Perkins said the Board has to forget that there are $7.2 million which could be collected. If there was no land use program, what would happen with that land? Also, the Board needs to look at the services the land requires, which are not many. In that regard, the land is more than paying its fair share. He has a concern that there were a number of parcels created in subdivisions of 21 acres, and they are getting land use taxation under forestry. But, individual regulations in these subdivisions do not allow them to cut the trees. He thinks that from a forestry standpoint, if there are trees which are dying and falling down because they donít want to cut them, that does not seem to be the intent of the General Assembly. They expected people to practice forestry and in order to do that, trees have to be cut every now and then. If that person is not following a forestry management plan, maybe they should not be accorded land use taxation.
Mr. Breeden said he agrees to an extent. However, staff has seen some plans which are as simple as a one-line statement approved by the Forestry Department that said Atrees should be grown on this property to avoid soil erosion. That would make it a legitimate, qualified use.
Mr. Perkins said Miller School planted 107 acres in trees this past year on some of the most productive acres in the County. They will be planting another 100+ acres in trees this coming year because they are tired of trying to find someone to farm their acreage. They can get more out of trees than renting the land to a farmer. He hates to see doing away with forest land taxation because he thinks the County gets the most environmental benefits from forest lands.
Ms. Thomas said she has no interest in removing the forestry category.
Mr. Woodzell said he agrees with Ms. Thomas. If a person has given up all of their development rights, so what more can they do with the property than what it is designed to do. There is nothing in State legislation that prohibits the County from not allowing them land use. If the program was written to prohibit people from developing their property, if the development rights are gone, what are they deferring?
Mr. Perkins said that was not the only intent. Mr. Woodzell said he believes the major intent, the second time the legislation was presented, was to make sure things remained in an open atmosphere, and to protect water and air.
Ms. Thomas asked if it is possible to distinguish between those parcels that no longer have any development rights. Could those parcels be checked to see if there are agricultural or forestal activities taking place? Mr. Breeden said those parcels could be targeted as the ones to look at, but as long as they meet the guidelines, there is nothing to be done. Ms. Thomas said the County could change its enforcement of the ordinance in some way. Mr. Breeden said staff is willing to investigate anything it becomes aware of. Occasionally, people do call in and ask questions.
Mr. Perkins asked about doing a selective audit; what would that cost? He suggested using the members of the Land Use Evaluation Advisory Board to do this. Mr. Woodzell said they could certainly go out with him to view the properties. Mr. Breeden said he thinks staff might conduct the review, and on the ones which were questionable, then use the Land Use Board.
Ms. Thomas said that before doing that, a package of information should be sent to each person in the program letting them know the review is about to take place, and explain the steps the property owner might take to be sure they still qualify for the program. She said the County has not communicated to the property owners that they have responsibilities if they want this tax break. Mr. Breeden said staff can look at what it would take to do that. He said that farm management plans are one way to show that a person is in a farming operation, but if the owner meets the other minimum requirements of the SLEAC Committee, they would probably qualify without a farm management plan.
Mr. Martin suggested putting together a strategy to do some minor education, and do some checking, and see what happens.
Mr. Woodzell said the appraisers are on the property every 18 months, and they do try to monitor land use. However, if they are on the property in the winter, there is no way to tell what goes on in the summer. If they feel there is a neglect of proper use, they do notify that person and give them an opportunity to correct that situation.
Mr. Tucker asked if the Board wants another report on what staff decides to do. He said a report can be put on the consent agenda in the near future.
Ms. Thomas asked if other Board members had problems with this program.
Ms. Humphris said she has always had a basic problem with the program. She has felt that it all worked to the benefit of the landowner when they had no obligation because there is no contract. They can go in and out of the program at will. She always felt there should be something. She realizes it is to the benefit of everybody in the County that these properties be kept undeveloped, but a lot of them do not have development rights anyway.
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