Farms Vanish As Land Values Grow

May 9, 2003
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GRAND RAPIDS — Of course, he was joking when he said the county's No. 1 crop was septic tanks.

But Kent County Equalization Director David Jager wasn't completely spinning a yarn about the current state of the local agriculture industry when he made that comment last month.

In fact, back in February, Jager told the Business Journal that 94 new subdivisions and site-condos sprang up across the county last year and that 2,139 new lots were registered with the county in 2002.

"That is nearly two plats a week recorded in Kent County. That is a lot," said Jager, while adding that he has witnessed similar recordings throughout his 15 years with the county.

Just the past two of those 15 years have been very meaningful for assessments. Farmland  value has risen by about 44 percent over those 24 months, going from $199.7 million in 2001 to $286.4 million this year. (See chart.)

Jager said assessments have jumped because people compete to buy ag land and because the state requires the county to assess these properties at highest possible use. More often than not, that's residential.

"You have competing interests from the farmer who wants to farm it and the developer who wants to develop it," said Jager. "We seldom see a sale that goes to a farm person who is trying to farm it. It's usually for a residential site."

Alpine Township Supervisor Cindy Heinbeck said the most recent rise in valuations has been sort of a boon to farmers because they pay on taxable values rather than State Equalized Values. But at the same time, she said an increase means farmers will continue to struggle for the foreseeable future.

"Because if they pass it on within their own family, the cap doesn't come off in Proposal A. But if they sell to another farmer who wants to continue and expand his farm operation, that uncaps it and that is where the problem lies," said Heinbeck.

Proposal A says the taxable value can only rise each year by the most recent rate of inflation or by 5 percent, whichever is lower. Because inflation remained low last year, about 1.5 percent, the taxable value didn't rise all that much.

But the SEV, officially known as half of the value of a piece of land, is based on property sales within an area. And the SEV doesn't wear a cap. Heinbeck said when developers buy ag land in a township and then build on it, that act raises the value of all property in a township, including farmland.

"So when a farmer sells to another farm owner who wants to expand his business and they're not within the family, then that uncaps the property and the taxable value is raised up to the State Equalized Value. And we're seeing a huge spread develop between those two values," she said, while adding the SEV is why most farmers and growers don't expand.

Heinbeck also pointed out that local producers receive very few, if any, subsidies when compared to other industries that get public money or tax breaks to expand, relocate or buy new equipment. Yet, she said, ag landowners pay high taxes and use fewer services than most other industries. She also said their business differs very little from manufacturing.

"I think we need some additional legislation to help the farm-property owners out for those future ramifications. Be it ag-security zones, transfer of development rights, or use-value taxation, we do need some additional tools to help the farm-property owners out."

Gaines Township Supervisor Don Hilton agreed that state lawmakers need to help the ag industry, even though only one township farmer asked for a review of his evaluation this year.

But Hilton also said that his office received calls from ag-business people not so much concerned about current assessments, but wondering where all this is heading. So he got them together with Jager and said after the meeting some concerns were eased.

"It affects their pocketbook and their ability to continue to operate and do agriculture," he said of the rising assessments.

Hilton strongly feels that use-value taxation is the key to resolving even more concerns held by farmers. He believes taxes should be figured on a property's actual use instead of its highest possible use, which is usually residential.

"I think that this is the thing that seems to be killing the agriculture in our area based on the increases in valuation," said Hilton.

"My understanding is Michigan is one of the few states that does not make assessments on use value. I hope that the Legislature addresses that issue. They can't necessarily just segregate agriculture. They'd have to look at everyone," he said. "But I think there is some way to be helpful to these ag people."

Hilton added that the property tax wasn't the only levy placing a strain on farmers. He said any millage passed by residents who own small parcels of land adds to the financial woes of ag people. A few of them, he said, have 5,000 or more acres that a millage can collect from, while most county residents only pay on a few hundred square feet.

Members of the work group that drafted the county's Purchase of Development Rights program noted that while the population in Kent had risen by 18 percent in the last 20 years, the amount of urbanized land grew by 78 percent over that same time frame. From 1982 to 1997, their report said the county lost 36,750 acres of farmland or 16.5 percent of the total ag acreage, and 388 farmers or 25.4 percent of the total ag community.

Kent farming has an annual market value of $120 million, the fourth-most valuable in Michigan. The PDR report cautioned, though, that a loss of 90,000 more acres would cut that market value in half and drop the county to 22nd in the state for ag value. Last year, the local ag industry employed almost 6,000 workers.

"One in four people who are employed are somehow related to the agriculture industry," said Jim May, president of the Kent County Farm Bureau.

May is also an Alpine Township farmer and said he only wants the same assurances that other types of business people want for their capital.

"As a business owner, I attempt to make a long-range plan on how to invest capital in a manner that will allow for a long-term return on my investment. I need to have some level of certainty that five, 10, 25 years from now my investment will still be profitable," he said.

Maybe the PDR program approved by the county late last year will give May some of the peace of mind he is looking for. Maybe he can also find some consolation in the fact that farm assessments only rose by 11.6 percent this year. That's still a high figure, especially with inflation being so low, but it's a number not nearly as troubling as the 34.4 percent jump that was recorded in 2002.

But Jager said he expects the development trend will continue, especially along the new South Beltline that is under construction and should be finished sometime in 2005. He felt ag land near the highway will be bought by developers and that will drive up the value of properties for farmers in Caledonia, Gaines and Byron townships.

For Jager, though, the push and pull that he feels from assessments is likely to continue. His difficulty is that farm owners who want to sell to developers welcome the higher assessments that raise a property's going rate, while those who are looking to farm the land want a lower evaluation so their property taxes don't rise. Jager said that leaves his office somewhere in between a rubbery rock and a stretchy hard place.

"We feel like we're a bungee cord stuck between the competing interests."           

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