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Minnesota tax credit provides relief to farmers, greater chance for rural schools to build

by Carolyn Orr ~ May 2017 ~ Stateline Midwest »
In Minnesota, the chances of a local school district getting the money it wants to build a new facility or improve existing buildings can depend greatly on where it is located: In metropolitan areas, most school construction projects get approved by local voters; in rural districts, these proposed tax increases tend to fail.
This discrepancy led to legislative action this year. As envisioned under a section of HF 1 (Minnesota’s omnibus tax bill that still needed final approval as of late May), new state tax credits would offset 40 percent of a school district’s bond debt load that is attributed to agricultural property-tax payers. Some 240,000 parcels of land would qualify for the credit.
By providing relief to farmers, lawmakers hope that this group of local taxpayers will be more likely to vote “yes” on local referenda and less burdened by the costs of approved school projects.
In some districts, farm families make up only a small percentage of the taxpayers and a local school’s students, but their land accounts for a majority of the tax base that must pay for a project. As a result, individual farms may wind up paying several hundred thousand dollars in additional taxes over the life of a 30-year construction bond.
According to the Minnesota Farm Bureau, farmers in some agriculture-rich school districts are required to pay up to 10 times as much as other taxpayers in those same districts.
The Ag2School credit would apply to all current and future capital referendums, Minnesota Rep. Paul Anderson says. If a farmer’s levy for a school building referendum was $25 per acre, for example, the state would provide him or her with a credit of $10 per acre (40 percent). He adds that the measure has bipartisan support, and would have become law last year if not for a “one-word error” that led to a gubernatorial veto.
According to the Minnesota Rural Education Association, about half of the state’s schools were built before 1976, and 25 percent are between 54 and 125 years old. School buildings have a 60-year life span.
Over the past 20 years, Minnesota has reduced its assistance to local districts for school construction funding.
In the 1990s, the state paid about 11 percent of the debt-service costs for local districts, but its share has dropped to about 3 percent today. At the same time, Minnesota farmers have seen more than a 150 percent increase in their property tax levies since 2005.
Minnesota’s main method of providing tax relief to farm producers is through Green Acres, a tax-deferral program that assesses farmland based on its agricultural value rather than its market value (the property would be valued higher for residential or commercial use). When farmland is sold for residential or commercial use, the deferred tax for the prior two years must be paid to the county.

Article written by Carolyn Orr, CSG Midwest staff liaison for the Midwestern Legislative Conference Agriculture & Natural Resources Committee.