Farmer Mike Gilles has a succinct way of describing what a mess the 2008 Minnesota Legislature made of the popular Green Acres program: “Pretty much it’s a slap in the face to anyone who is conservation-minded.” It’s a slap that could leave bruises on the state’s landscape for decades to come.
Changes to Green Acres were passed toward the end of the 2008 Legislative session as part of an omnibus tax bill. Almost no public input was included in the formulation of what has turned out to be some pretty major shifts in the implementation of this program. That’s too bad. In one fell swoop lawmakers made wetlands, sloughs, woodlands, Conservation Reserve Program acres and other “nonproductive” natural treasures ineligible for new enrollment in Green Acres as of May 1 of this year. That means these areas can be taxed at the same levels as prime development acres. And in some cases, Green Acres now more than doubles the payback period on deferred taxes, a potentially significant disincentive for anyone considering enrolling, or re-enrolling, in the program.
Green Acres’ track record
Green Acres, known officially as the Minnesota Agricultural Property Tax Law, was created by the Legislature in 1967 in an effort to equalize taxes on farmland. It’s one way for farmers living in the midst of rapid, non-ag development to not be priced out of the region by property taxes that have nothing to do with the price of corn, beef or milk. The program allows those farmers to have their land valued based on its agricultural productivity, rather than how much it would fetch from the developer of a subdivision or shopping mall.
This can result in a significant reduction in taxes. Green Acres, combined with the Metropolitan Agricultural Preserves Act for the seven-county metro area and the Agricultural Land Preservation Program for greater Minnesota, reduced property taxes for enrolled landowners by $40 million in 2007 alone, according to the Legislative Auditor.
Minnesota has 29.5 million acres of land classified as agricultural, which is 58 percent of the state’s total land area. About 13 percent of that farmland is enrolled in Green Acres. For metro-area counties, Green Acres has been an invaluable tool for making sure farmers are paying taxes at levels similar to their counterparts in southwest Minnesota. In the Twin Cities area, the program in 2007 substituted an average agricultural use value of $3,600 per acre for the average estimated market value of $13,800.
Wright County, for example, has always faced significant development pressure because of its location along the I-94 corridor, and in recent years has consistently been among the top three Minnesota counties for growth and development. With its combination of crop acres, lakes, wetlands, woodlots and subdivisions, it’s no surprise Green Acres is used on more than half of the parcels in the county. Wright County assessor Greg Kramber told me recently that in the fast-growing Monticello area tillable land is valued at $21,000 per acre. Green Acres allows farmers there to pay taxes based on an agricultural value of $2,145 per acre, a significant savings.
“It’s been a big plus,” Kramber said. “I know without Green Acres a lot of those properties would have been forced to sell.”
‘Nonproductive’ natural habitat
But major changes have been wrought, changes that are forcing farmers to make some significant land use decisions in the next several weeks. If your property is currently receiving Green Acres benefits and it includes “non-productive” acres, you may choose to have those acres grandfathered into the program for future years, or you may choose by Jan. 2 to withdraw all or some of the non-productive acres.
Some landowners may have a major incentive to pull those woodlots, sloughs and meadows out of the program by Jan. 2, thanks to another change the Legislature made to Green Acres. Originally, when you sold, transferred or subdivided land enrolled in Green Acres, you owed three years worth of back taxes. But under the new Green Acres program, the payback period on back taxes has been increased to seven years for non-productive acres that are sold, transferred or subdivided after Jan. 2. For all other property, the eligible payback period remains at three years. The new year is just around the corner, and farmers, many of whom are already stressed out by a wet harvest season, are scrambling to figure out what to do before then.
These changes not only upset a lot of conservation strategies, but also estate plans that are often years in the making. What happens if you pass on the farm to your children? What about rough pastures that could possibly be grazed? What’s the difference between “productive” and “non-productive?” A lot of unanswered questions are floating around and there’s not much time to answer them.
Changing the rules of the game
But one thing is clear: many farmers feel they’ve been let down by the state.
“We lived up to our end of the agreement and then they changed the rules,” Mike Gilles told me last week after his evening milking.
Stephen Hacken is the Winona County assessor and president of the Minnesota Association of Assessing Officers. He said in his three decades of assessing property, this is the most significant curve ball he’s seen thrown at farmers when it comes to Green Acres.
“It’s like saying changes have been made to the fish after you’ve gutted and cleaned it,” he quipped.
For farmers whose land is made up mostly of corn and soybeans, or who are farming in an area with no development pressure, the Green Acres changes will mean little. But for farmers near the Twin Cities and in other areas where for various reasons nonagricultural pressures are pushing land prices up, this is, as politicians like to say these days, a “game changer.” Hacken said the two areas that have particularly gotten nailed by the changes are counties around the Twin Cities and in the southeast corner of the state. Good old-fashioned sprawl is pushing land prices up in the Twin Cities region. But in places like Winona and Houston counties, a different kind of non-ag development is pumping up land prices: people from the Twin Cities and even as far away as Chicago are buying up land for their own private hunting preserves or slices of paradise.
“They are paying prices farmers couldn’t afford in a thousand years,” said Hacken.
As a result, in Winona County nearly 3,000 parcels, or two-thirds of the county, are enrolled in Green Acres. Forty-eight percent of Winona County’s rural land is not tillable, which means a lot of nonproductive land in the area could no longer be eligible for the program, or at least exposed to a seven-year tax payback penalty.
The changes have been a bureaucratic nightmare for counties. Letters have been sent out to all Green Acres enrollees, and because information on who has land in federal programs such as CRP is not always public, separate surveys are being done to ferret out that information. Thousands of dollars will have to be spent on new software in many counties at a time when many can barely afford to keep the roads graveled.
“It kind of crippled us for awhile,” said Kramber, the Wright County assessor, noting that for a time 200 landowners a day were coming into his office to pepper him with questions about the Green Acres changes.
A closed legislative process
How did this come to be?
In February, the Office of the Legislative Auditor issued a report on Green Acres that cited several problems with the program. Among other things, the Legislative Auditor concluded that Green Acres was not being uniformly implemented in all counties (in some cases, it’s not offered to landowners who are eligible, according to the report). In addition, the Auditor found that there were cases where landowners were using the program to avoid paying higher taxes until they could cash-out by selling the land for development.
These are serious issues that need to be dealt with. Unfortunately, the solution was executed without opportunity for meaningful public input or by following the standard legislative committee process. This legislation never received a hearing in any agricultural or environment committee, even though it will have profound impacts in both these areas. Instead it was rolled into a large omnibus tax bill. Senator Rod Skoe (DFL-Clearbrook) and Rep. Lyle Koenen (DFL-Clara City) authored the bills and were on the conference committee that negotiated the omnibus tax bill.
The Land Stewardship Project testified against the changes when they were discussed before the House Property Tax Relief and Local Sales Tax Committee (the only hearing the Green Acres revisions were given), but overall there was very little opportunity to fix or stop the legislation.
“You get this impression from legislators that they didn’t even know what was in the bill,” said Winona County’s Hacken. Indeed, mostly they didn’t. A state legislative analyst admitted at a southeast Minnesota meeting in October that the full ramifications of the changes had not been vetted, according to the Winona Daily News. The phrase “unintended consequences” comes to mind.
This is a prime example of what happens when legislation is passed without being exposed to broad input and the standard legislative committee process. And unfortunately, this legislation is affecting thousands of people—and thousands of acres of land, while placing a serious and undue hardship on many of our state’s farmers.
It appears that no special interest group was pushing for these changes, and everyone familiar with the program seems to have been caught off guard by what we’ve ended up with.
“We knew they were talking about Green Acres, but this whole issue of productive versus nonproductive acres seemed to come out of nowhere,” said Hacken. “The Auditor’s report seems to be more interested in consistency. Well, they’ve consistently removed nonproductive farmland from eligibility.”
And that could literally change the face of the landscape. In Wright County, which is second only to Stearns in the number of Green Acres enrollees, roughly 40 percent of the land currently enrolled would no longer qualify under the new rules, according to Kramber.
“For me, I’m under the true belief that the whole farm is in fact of an economic unit, and you don’t go separating productive and unproductive and causing us $100,000 in paperwork,” he said.
On a philosophical level, the remodeled Green Acres program sends the message that conservation acres are not a “productive” part of society. That’s an archaic view that ignores all the ecological services provided by odd, “wild” parcels here and there, as well as the economic activity produced on “nontraditional” ag acres like woodlots (a lot of valuable hardwoods are harvested and sold on southeast Minnesota woodlots, for example).
Often enrollment in a conservation program such as CRP or Reinvest in Minnesota (RIM) constitutes the best agricultural use of the land, particularly if it is part of a larger acreage. Adding language that prohibits this land from eligibility creates a serious burden for any responsible landowner who ordinarily and voluntarily will keep these sensitive lands in a lower intensity use. It is essentially punishing those that are and have been doing the right thing for the resource.
Punished for doing the right thing
Mike and Joan Gilles are examples of farmers who have been doing the right thing. When they bought their Winona County farm in 1996, the county assessor recommended they enroll in Green Acres. The program has been a good fit for the Gilles farm, which produces milk with a 100-cow herd on rotationally grazed pastures. The whole operation is 230 acres, and only about 100 of that is tillable. The farmstead makes up about five acres; the rest of the untilled land is hardwood timber, rough pasture and open spaces the family has converted to native prairie. Green Acres has saved them a lot of property tax money over the years. Mike was reminded of that recently when they acquired 10 more acres of rough pasture—it was over three times the per-acre price they paid for the rest of the farm in 1996.
Mike Gilles finds it particularly galling that the Department of Revenue now considers farm timber pretty much worthless. In recent years, the Department of Natural Resources has put a lot of effort into convincing landowners like Gilles that woodlots are a productive part of the farm—they can produce valuable timber as well as firewood and recreational opportunities, not to mention ecological services such as reducing runoff. Gilles has been urging his neighbors not to graze their woodlands for fear of damaging the trees.
“Now the Revenue Department is saying, no, it’s not productive land,” Gilles said. “I’d be a fool to tell my neighbors now not to graze their woodlands because that means they’re going to pay higher taxes. If I were smart, I’d get the bulldozer and take out the trees and put it in pasture. And that’s going to be the attitude of a lot of the farmers.”
Gilles and Hacken also see as a real face-slapper the extension of the tax period payback from three to seven years for nonproductive land. Hacken offers up an example of 200 acres of woods that through Green Acres was receiving a break on the tax assessment. In this particular case, if the landowner is required to pay back the amount of taxes that were deferred over a seven-year period, that could add up to as much as $23,000 in penalties.
“That’s a lot of money,” said Hacken.
“It’s possible some farms could pay back more than they benefited from Green Acres,” said Wright County’s Kramber.
A farmer like Mike Gilles is not receiving a higher price for his milk than he was a year ago, so why should he have to pay higher taxes on the land? If farmers know that seven years worth of back taxes are owned upon selling their land someday, they are more likely to sell it to the highest bidder, rather than a beginning farmer or neighbor. In many cases, the potential buyer with the deepest pockets is going to be a developer.
Such a shift will have a major impact on small- and medium-sized family farms that have a diverse mix of “productive” and “nonproductive” acres—the kind of mix that creates edges and wild corners—a dream come true for hunters, birders, wildlife biologists and even watershed conservationists. Like many such farmers, Mike Gilles does not separate out his productive and nonproductive acres with clear lines of delineation. He sees it all as part of a whole, no matter what the taxman says.
“I keep these natural areas because it’s the right thing to do,” he said. When I commended him for in fact doing the right thing, the farmer responded with a wry laugh: “Tell somebody at the Revenue Department that.”
Gilles concedes that there is a problem even in his area of wealthy landowners who aren’t farmers using Green Acres as a way to reduce their tax bill. He agrees that better lines of eligibility need to be drawn up for Green Acres to make sure it’s not being abused, but these recent changes were “a step backward that made the problem worse.”
Not to worry: Mike and Joan Gilles aren’t firing up the D9 Cat just yet—they love their woods and prairie meadows too much to do that. And Mike said many of his neighbors enrolled in Green Acres feel the same way and are hoping the Legislature “wises up ” during the 2009 session and fixes things. But some county assessors express concerns that landowners who recently acquired a farm and who do not have an emotional attachment to that small woodlot or slough in the back forty may not be so patient, and may decide to haul out the blade and plow to make natural areas into crop fields that can qualify for lower taxes with a minimal payback penalty.
Fixing Green Acres
So what to do? If you’re a landowner enrolled in Green Acres, contact your county assessor’s office before Jan. 2 and fill out a Green Acres Commitment Form outlining your choice to make no changes or expressing the intent to withdraw all program acres, withdraw some nonproductive acres, or withdraw all nonproductive acres.
This gets on the record your intentions as far as future enrollment in the program. Filling out such a form doesn’t mean your plans are written in stone. Statements on any tax payback amounts owed will be sent to Green Acres enrollees during the summer of 2009. Following this notification, landowners must make a final determination as to whether they wish to formally withdraw any part of their land from Green Acres. Any deferred taxes are not owed until November 2009.
But even more importantly, contact your Senators and Representatives and tell them to repeal the 2008 changes and begin the orderly process of reviewing the Green Acres program in a way that includes public input. LSP will be working on fixing Green Acres during the 2009 Legislative session, so if you are a program enrollee or just someone who is concerned about its future, contact LSP’s Bobby King at firstname.lastname@example.org or 612-722-6377 to find out how you can help.
It turns out there actually is a good chance that the Legislature will “wise up” on this one, and making your voice heard during the next few weeks could make a real difference. Citizens across the state have been showing up en masse at meetings to complain about the changes, and lawmakers are getting an earful from farmers, conservationists and assessors. In Sherburne County alone, 450 people turned up to a meeting on Green Acres. A handful of counties have passed resolutions calling for Green Acres to be fixed.
Before the election, some legislators pledged to fix the Green Acres mess. Let’s make sure those promises weren’t just made in the heat of battle to get a few rural votes. Give lawmakers a call and let them know that kicking natural lands out of the program and more than doubling the eligible payback period for taxes are changes that are bad for farmers as well as our rural communities.
Mike Gilles has another piece of advice for lawmakers: “When fixing things, don’t make it worse.”