The Michigan Legislature missed an historic chance early this summer to both give farmers a major, and much-needed, property tax break and build a significant state fund for investing in local farmland preservation efforts.

Legislators did pass a smaller farmland tax break. They also created a new, but unfunded, trust for preserving agricultural land. However, the big benefits that legislators promised would help keep farmers farming and sprawl from spreading did not materialize. The reason? Two powerful players, Sen. George McManus (R-Traverse City) and the Michigan Farm Bureau, refused to fix a key part of the package that, as proposed, would have fueled the very speculation that is now driving up property taxes and paving over cropland.

The major tax break, which did not achieve a required two-thirds majority vote, was a proposal to tax Michigan farmland on the basis of its agricultural "use value" instead of its higher potential market value. Michigan is one of only two states that still taxes agricultural land the same as shopping-mall land. Changing to use value assessment is a key component of any plan to save farmers and open space from development pressures.

But legislators scuttled this plan in early June because it did not include a strong enough provision for protecting the public’s tax-cut investment in farmland from real estate speculators. What was meant as a support for agriculture would have turned into a major subsidy for development. To avoid this problem, other states require landowners, who go ahead and develop farmland that has benefitted from tax breaks, to pay back the avoided taxes. But the legislation that was supposed to "recapture" farmland tax breaks in Michigan, Senate Bill 1246, would have required essentially no payback from speculators and, therefore, would have generated no meaningful funding for the new farmland preservation fund. Instead, the low payback requirements in S.B. 1246 actually offered speculators a financial incentive to buy up farmland, hold it at extremely low tax rates, and pay essentially nothing in return for this interest-free tax loan.

Sen. McManus and the Farm Bureau opposed the alternatives put forth by the Institute, the Michigan Environmental Council, Michigan United Conservation Clubs, and the Great Lakes chapter of American Farmland Trust among others. These advocates supported changing the recapture fee in S.B. 1246 so that it was high enough to recoup back taxes, deter speculation, and provide a meaningful flow of money into the new state farmland preservation fund. But Sen. McManus and the Farm Bureau fought such alternatives primarily because they refused to acknowledge that, once agricultural land won use-value assessment, any farmland owner would also qualify for additional property tax benefits that the public has created to help farmers stay on their land . Other legislators, however, accounted for this full-spectrum of benefits and realized the danger of handing speculators an incredible development subsidy.

Because Sen. McManus and the Farm Bureau blocked improvements in S.B. 1246, legislators ultimately voted against use-value assessment in order to keep S.B. 1246 from making a travesty of the tax cut and its farmland protection purpose.

The Legislature did, however, approve S.B. 1246 independently. The speculation-fueling danger of S.B. 1246 is now limited, however, because it applies to only one small farmland tax break instead of the statewide use-value benefit.

The farmland tax break that S.B. 1246 now applies to is contained in Senate Bill 709, which the Legislature also approved in early June. S.B. 709 gives farmers the ability to pass their land on to other farmers without having to pay the state’s "pop-up" tax. This "pop-up" tax has been a problem, especially for farmers, because it saddles new landowners with much higher tax costs.

Under state law, assessments on land cannot increase faster than the annual rate of inflation as long as the property remains in the hands of the same owner. However, when the owner transfers the property to a family member, for example, the assessment "pops up" to the higher market value. S.B. 709 eliminates the pop-up tax for new farmland owners who sign affidavits that they will keep the land in agriculture. This is an important tax break for some farm families, but it affects only a small fraction of the total farmland at risk in Michigan, which loses 75,000 acres of farmland each year æ the eighth highest rate in the nation.

It is unfortunate that Legislators could not amend S.B. 1246 so that it was strong enough to recapture farmland tax breaks, deter speculation, and build a meaningful agriculture preservation fund. However, the opportunity still remains for legislators to fix it in the future in order to make a new "use value" tax proposal more acceptable to voters