In the last blog we explored how the taxing of owner-occupied property compared to that of agricultural property is inequitable in our state. This has led to agricultural property receiving an unfair, discriminatory subsidy and—to put it simply—not paying its fair share. This has caused an injustice to owners of owner-occupied properties and has caused our school districts to be underfunded. This blog will take a look at how this unfair taxing practice caused South Dakota schools to lose out on nearly $78 million in funding last year—funding they should have received.
For taxes payable in 2015, the education tax levy on agricultural properties was $1.782 per $1,000 of assessed value and it was calculated that agricultural properties statewide would pay $56,073,439.08 in property taxes for education state wide.
Had, in fairness, the tax levy on agricultural properties matched the—still reduced—owner-occupied tax levy of $4.252, we would have had an additional $77,719,782 available to fund education statewide.
When researching data on education funding, I came across two pieces of information which, when combined, provide an eye-opening view of how our state taxes real estate: The first was an Associated Press article reporting on a survey of leased agricultural property and second were the results of the SDSU survey on farm real estate.
Last month the Associated Press reported on the U. S. Department of Agriculture survey, The Tenure, Ownership and Transition of Agricultural Land, which found that 17.3 million acres of South Dakota farmland are leased. It also reported that only 11,853 of our state’s 40,260 farmland landlords are actually farmers. This makes me wonder how many owners of this leased land fit our image of the “family farmer?” Also, how many of the 28,407 non-farming landlords live out-of-state?
To help us get our minds around the size of 17.3 million acres, it is larger than the combined land mass of five of the original thirteen colonies: Rhode Island, Delaware, Connecticut, New Jersey, and New Hampshire1.
That is a lot of land. And that land is not only taxed at an unfairly low rate, the very value on which it is taxed is undervalued. How do we know that? Let’s turn next to the SDSU report on farm real estate.
The South Dakota Agriculture Land Market Trends 1991-2015: Results from the 2015 SDSU South Dakota Farm Real Estate Survey, reported the average per-acre value2 of South Dakota agricultural property as $2,505.
When take the information about the number aces of leased land and the average per acre value of agriculture land, we see something amazing: the true value of just the 17.3 million acres of leased agricultural property is greater than what the state reports as the total assessed value all agricultural property in the state.
As shown in the table above, the total assessed value of all of agricultural property statewide is 5,370,526,149 less than the true, fair value leased agriculture land alone! There are nearly 43.8 million acres of agricultural property in the South Dakota3. That, taken with the taxable value of agricultural property used by the state, shows that we are taxing agricultural property at an average of $718.43 per acre. That is a very different value than the average value of agricultural property of $2,505 from the SDSU report—$2129.25 after the 0.85 adjustment4. What does this mean for how our state is calculating the taxable value of agricultural property?
This discrimination, to the advantage of agricultural property, in property tax assessment has caused 68 of our 151 school districts—fast approaching half—to “opt-out.” That is 45% of our school districts which have determined that they cannot support even reasonable education with the current funding level allowed by the state, and decided to “opt-out” of the cap on the maximum tax levy allowed for education. Those opt-out school districts serve 54,584 students, nearly 42% of all the students in the state.
This tax levy for education is only one of the many subsidies given to the agricultural industry. When on the appropriations committee, I remember the total subsidy coming to approximately $200 million. This included such things as no fuel tax on agricultural equipment usage, no sales tax on agricultural equipment parts, subsidy to ethanol, and so forth.
How can South Dakota expect to continue to be a special place when the greed of some has led us to be cheap about how we fund education? How have we allowed greed to cause us to underinvest in our next generation?
We have allowed the inadequate to somehow become acceptable. The level at which we currently fund education is not acceptable and it is time for us to make a change.
We shouldn’t be engaged in a contest to see how little we can pay in taxes—that is greed. We, as responsible South Dakotans, should find the right level of taxes where we honor the duty to invest in our next generation—a duty previous generations honored when investing in us.
Keep tuned to this “station” because we will discuss the meaning of the nearly $78 million and how school districts would benefit.
1 Rhode Island (0.677 million acres), Delaware (1.251 million acres), Connecticut (3.562 million acres), New Jersey (4.492 million acres), and New Hampshire (5.74 million acres). Source: http://www.statemaster.com/graph/geo_lan_acr_tot-geography-land-acreage-total.
2 As of February 2015.
3 Source: http://stuffaboutstates.com/agriculture/farm_by_total_acres.htm.
4 $2,505 (average value/acre from SDSU report) x 0.85 (for adjustment) = $2,129.25.