In The Perfect Storm, this summer’s movie blockbuster, New England fishermen set out on a hopeful voyage to fill their hold only to end up getting swamped by the towering waves of a North Atlantic typhoon.
The plot also describes aptly what happened last spring in Lansing when pro-development business interests swept away a promising package of bills aimed at conserving farmland and slowing sprawl by reducing agricultural property taxes. This faction, led by Senator George McManus (R-Traverse City), did so by blocking all attempts to close a dangerous loophole in the bills that turned the proposed farmland tax cut into a major subsidy to real estate speculators. In the end, farmers lost the big tax break they needed, and developers won a smaller version of what they wanted.

Good Idea to Start
This disappointing legislative story actually started off on a promising note early this year when Gov. John Engler announced his intention to back statewide farmland preservation efforts by reducing farmers’ property taxes, curbing development of farmland, and creating a fund for protecting endangered agricultural parcels. In particular, the Governor proposed to:

• Assess farmland property taxes on the land’s agricultural value instead of its development value. Currently Michigan taxes farmland the same as shopping mall land, even though farming is not as profitable as sprawling development.

• Eliminate the hit farm families take from the state’s “pop up” tax. Under current law, Michigan caps increases in property tax assessments so that escalating land values do not translate into unaffordable property taxes. When a land owner sells or transfers property, however, the assessment “pops up” to the higher market value.

• Establish an Agricultural Preservation Fund large enough to put a dent in farmland loss.

• Finance the preservation fund by levying a “recapture fee” on speculators who convert tax-advantaged farmland into condos and cul-de-sacs. It is fair and appropriate, when government provides preferential tax treatment to farmland, to recapture those publicly-funded benefits when an owner takes the land out of production for development.

Promise Broken
Gov. Engler’s proposal could not have come at a better moment. Michigan farmers are receiving some of the lowest market prices of the century. They also pay some of the highest property taxes in the country. This real estate pressure on farmers is a major reason why Michigan loses 75,000 acres of farmland a year — more than one million acres in the last 15 years, the eighth highest amount in the nation, according to the U.S. Department of Agriculture.

Gov. Engler, however, apparently didn’t really mean what he said when he announced his grand plan to conserve farmland and prevent sprawl from crowding farmers. After working with a broad range of agriculture interests to shape the package, the Governor’s aides entered into closed-door negotiations last spring with Sen. McManus, the Michigan Association of Home Builders, the Michigan Association of Realtors, and the Michigan Chamber of Commerce.

The result was a privately-brokered deal that undermined the entire legislative package by reducing the proposed recapture fee to an insignificant amount of less than 1% of the property’s market value. The Michigan Farm Bureau endorsed this position even though its membership has made clear, through formal policy statements, that it supports a fee on developments that pave over farmland. Other states require developers to pay as much as 20% of the land’s market value back to the public if they develop tax-protected farmland.

The Institute and other groups, such as the Michigan Environmental Council, Michigan United Conservation Clubs, and American Farmland Trust, urged the Legislature to close this loophole for speculators and approve a recapture formula that instead deterred speculation and generated significant revenue for the Agricultural Preservation Fund.

Lawmakers concerned about the package’s obvious potential to subsidize sprawl were unable to move even a modestly higher recapture fee of 5% of market value past the development interests. In order to avoid giving away major tax benefits to speculators through a negligible recapture fee, legislators ultimately turned down the proposal to tax farmland according to its value for agriculture.
Scott Everett, Director of American Farmland Trust’s new Central Great Lakes Region office in Lansing, said it was a shame legislators could not save the use-value proposal by strengthening the recapture fee. “A golden opportunity to both help farmers and protect farmland was lost,” he said.

Some Help to Farm Families
Lawmakers, however, did approve a recapture fee formula and applied it to the smallest of the farmland tax breaks originally proposed — the one that eliminates the “pop up tax” which occurs when farmland is sold. Under the new law, if farmland is converted to development, the owner must pay a portion of the back taxes, but without interest.

That provision will help keep a small fraction of the total farmland at risk in agriculture. Even so, in a letter to farmers after the June voting, Sen. McManus praised the legislation. “There will be fewer ‘for sale’ signs on Michigan farmland,” he said.

David Noonan, who farms 1,600 acres in Leelanau County and wants to pass the land to his son, is one grower who said the new law would help his family by saving $10,000 in property taxes and making the land transfer much easier. “With this new legislation, I can pass it down, and he’ll be paying the same tax [as I do now], rather than three times more,” the 45-year-old grower told the Associated Press.

Still, by offering developers the same lower tax rate available to farmers, several farm economists said the measure invites speculation that could accelerate the loss of farmland to subdivisions and new strip malls.

The Legislature also approved the Agricultural Preservation Fund. However it is currently financed only through modest payments made by farmers into an existing farmland protection program established in the 1970s.

CONTACTS: Scott Everett, American Farmland Trust, 517-324-3905; Sen. George McManus, 517-373-1725; Dennis Fox, Michigan United Conservation Clubs, 517-346-6487, e-mail dfox@mucc.org.