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CAUV Changes Pass as Governor Signs Budget Bill

Written by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

Governor Kasich signed HB 49 on June 30, 2017, otherwise known as Ohio’s Operating Budget. In addition to setting the budget for various agencies, HB 49 changes how farmland is valued under Ohio’s Current Agricultural Use Value program. HB 49 changes Ohio Revised Code Sec. 5715.01. The overall effect of the changes will likely be a downward trend in property tax valuation for Ohio farmers.

The budget bill prescribes the method for determining CAUV value for land devoted to agricultural use. The law requires appraisal methods to reflect and consider the following:

  • standard and modern appraisal techniques that take into consideration the productivity of the soil under normal management practices;
  • typical cropping and land use patterns;
  • the average price patterns of the crops and products produced;
  • typical production costs to determine the net income potential to be capitalized; and
  • other pertinent factors.

Under HB 49, the Tax Commissioner must annually determine and announce the capitalization rate used to compute CAUV values. The bill directs the Tax Commissioner to use standard and modern appraisal techniques in determining the land capitalization rate to be applied to the net income potential from agricultural use. In determining this yearly rate, the Commissioner must use an equity yield rate equal to the greater of the average of the total rates of return on farm equity for the last 25 years (as published by USDA), or the loan interest rate the Commissioner uses for that year to calculate the capitalization rate. The Tax Commissioner is required to assume that the holding period for agricultural land is twenty-five years for computing buildup of equity or appreciation with respect to that land.

HB 49 requires that land used in conservation programs be valued at the lowest soil productivity type. However, if land devoted to a conservation program ceases to be used for conservation purposes within three years of certification, the land will be valued at its actual soil type for all preceding years.

The Tax Commissioner must publish an annual report of CAUV values that can be sorted by county and by school district. The changes to CAUV begin in 2017, starting with counties undergoing reappraisal for the 2017 tax year. The budget bill, as signed by the Governor, is here—see page 2145 of that document for the changes to CAUV.

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Ohio Legislature Continues to Consider Two Separate CAUV Bills

Written by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

Two separate bills concerning CAUV continue to be debated in the Ohio Legislature: Senate Bill 36 and House Bill 49. Ohioans may see changes to the CAUV program, if either bill passes the Legislature. Both bills aim to address rising CAUV rates for Ohio farmers. SB 36 changes the CAUV formula, making alterations to the capitalization rate and addressing the rate used for conservation land values. SB 36 passed in the Senate and is under consideration by the House Ways and Means Committee. The other bill that would address CAUV values—HB 49, is Ohio’s bi-annual budget bill. HB 49 similarly addresses Ohio’s rising CAUV values through proposed changes to the CAUV capitalization rate.

The difference between the two bills is that the budget bill will undoubtedly pass. That being said, the budget bill’s CAUV provisions may be cut from the final version.  On the other hand, there is no guarantee that the House will pass SB 36. There are several scenarios that may occur regarding the two CAUV bills in the Ohio Legislature.

Scenario #1: HB 49 (the Budget Bill) Passes with CAUV Provisions Included

In an earlier post, we explained  HB 49’s proposed changes to the CAUV program. HB 49 proposes changes to the CAUV program similar to those proposed in the standalone CAUV bill, SB 36. Although HB 49 currently contains amendments to the CAUV program, it is subject to change.

Passing a budget bill is a long and complex process.  Budget bills must start in the Ohio House of Representatives. The main purpose of a budget bill is to set the state’s operating budget, but such a bill may also include changes to Ohio laws. After the House passes a budget bill, the bill goes to the Ohio Senate. The Senate can pass the bill as written by the House, or the Senate may amend the bill and send their amended version back to the House.

The Senate passed their amended version of HB 49 on June 21. However, the House did not agree with the amendments. Therefore, the Senate and the House will soon hold a conference committee where both houses will meet and settle the differences between the two bills. Ohio’s budget is based on a fiscal year which ends on June 30. If passed, a new budget will go into effect July 1, 2017. Ohioans may soon learn if the state’s budget bill will enact changes to the CAUV program.

Scenario #2: SB 36 Passes and Changes the CAUV Program

Ohioans will soon find out if changes to the CAUV formula will be passed as part of HB 49. However, the CAUV provisions of HB 49 could still be removed before the bill passes. If CAUV changes are not passed via the budget bill, the CAUV formula could still be altered via SB 36.

SB 36 recently passed the Ohio Senate and is currently under consideration by the Ohio House Ways and Means Committee. The bill would make changes to Ohio’s CAUV formula, including the capitalization rate calculation and the rate used for calculating the value of conservation lands. For more information on SB 36, see our earlier blog post here.

The Ohio House can consider SB 36 until the end of the legislative session. The current legislative session ends on December 31, 2018. The House Ways and Means Committee may vote on SB 36 before the end of the session, or the bill could expire if it does not leave the committee before the end of the session.

The Legislature will soon meet in a conference committee to try and reach a consensus on the budget bill. HB 49 could pass as written or in an amended form that does not include any changes to CAUV. SB 36 may pass as written or amended as well. Conversely, it is plausible that neither bill could pass.

Read S.B. 36 as amended here.  The Legislative Service Commission’s summary of the bill is here. The most recent version of HB 49, as amended by the Senate, is here.

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Ohio Senate Passes CAUV Bill

Ohio’s Senate has settled on its solution for fixing Ohio’s CAUV formula. The Senate unanimously passed S.B. 36  yesterday after the Senate Ways and Means Committee adopted two amendments to the bill.  The legislation aims to stem recent increases in property taxes for farmland enrolled in Ohio’s Current Agricultural Use Valuation (CAUV) program.   The Senate’s bill will ensure that the CAUV formula “sticks to valuing farmland based on agricultural production,” stated the bill’s sponsor, Sen. Cliff Hite (R-Findlay).

In addition to including new factors in the CAUV formula,  making changes to the capitalization rate calculation and addressing rates used for conservation lands (explained in detail in our earlier post on S.B. 36), the bill passed by the Senate yesterday contained two new provisions:

  • A three year phase-in of the changes to the CAUV formula, which would begin the first tax year after 2016 in which a county’s sexennial appraisal or triennial update occurs.  The purpose of the phase-in is to reduce the financial impact of lowered property valuations on school districts.
  • Replacement of the seven year rolling average determination of the equity yield rate with an equity yield rate that equals the 25-year average of the “total rate of return on farm equity” determined by the United States Department of Agriculture but that cannot exceed the loan interest rate used in the debt factor of the capitalization rate computation.

Last week, Ohio’s House passed legislation containing different solutions for revising the CAUV program in H.B. 49 (see our summary of H.B. 49 here).  Senate leaders yesterday indicated a willingness to work with the House to resolve the differences between the two bills.  H.B. 49 is now before the Senate Finance Committee.

Read S.B. 36 as amended here.  The Legislative Service Commmission’s summary of the bill is here.

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CAUV Changes Proposed Again, This Time in the State’s Budget Bill

Written by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

The Ohio legislature continues to consider Current Agricultural Use Valuation (CAUV) this session. However, the latest discussion is not of Senate Bill 36, introduced by Senator Cliff Hite on February 7, 2017 (read more about that bill here).  Instead, the current discussion centers on a new proposal in House Bill 49, Ohio’s “budget bill.”  The House Finance Committee is currently considering that bill.

The budget bill proposal would require the equity yield rate used in the CAUV capitalization rate to equal the greater of the 25-year average of the total rate of return on farm equity published by the USDA or the loan interest rate.  The capitalization rate is used to calculate a valuation from an annual profit for an average Ohio farm, considering only agricultural factors.   The bill also proposes a holding period of 25 years for calculating equity build-up and land value appreciation in the formula.

The budget bill proposal also places a ceiling on the taxable value of CAUV land used for conservation purposes by requiring land to be valued as though it included the least productive soil.  The proposed changes to the CAUV program would be phased in over two reassessment update cycles.  The bill would also reconcile the proposed changes with the current formula by specifying that during the first three-year cycle in each county (beginning with tax year 2017), the tax value of CAUV land would include one half of the difference between its value under the new versus the old formula.

Time may soon tell whether Ohio lawmakers will address the agricultural community’s concerns about property tax increases and if so, whether it will prefer the House’s budget bill or the Senate’s proposal.   The budget bill is available here–see page 652 of that document for the changes to the CAUV formula.  The Senate’s bill, which has received four hearings before the Senate Ways and Means Committee, is available here.

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CAUV Bills Awaiting Committee Action

Legislation proposing changes to Ohio’s current agricultural use valuation (CAUV) program has remained on hold in the General Assembly since last fall.  To read this post, visit our new blog site at aglaw.osu.edu/blog.

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Ohio General Assembly passes bill to modify tax on energy projects

Bill makes wind and solar in Ohio competitive with neighboring states

Passed by both chambers of the Ohio legislature early morning on Friday, June 4, S.B. 232 provides tax exemptions for certain sources of new power generation. The bill was sponsored by State Senator Chris Widener and enjoyed bipartisan support. A press release from the Governor’s office makes clear he intends to sign it into law as soon as he receives it.

The new law will eliminate both the tangible personal property tax and the real property tax on new advanced energy projects. Qualified energy sources include wind, solar, and all other renewable energy resources as defined in Ohio Revised Code Section 4928, in addition to clean coal, nuclear energy, and the cogeneration of electricity from waste heat sources.  To qualify, new projects involving wind, solar and other renewables must be under construction by January 1, 2012 and in service by January 1, 2013. All other qualified energy sources must be under construction by 2017.

One impetus for this change in tax treatment is that the current tangible tax rate energy companies pay is not competitive with other states. In Ohio, the tax rate for wind facilities stands at approximately $40,000 per megawatt, while solar is approximately $100,000 per megawatt. This compares to a range of $3,000 to $9,000 per megawatt in neighboring states.

The Ohio Department of Development will certify the exemption and base new payment rates (payment in lieu of taxes) on the number of Ohioans employed in the construction and installation of a qualified facility. Energy companies will have to comply with several other requirements including road repair, first responder training, and the establishment of university partnerships to promote the education, training and curriculum development of renewable energy industries.

The new rates will be as follows:

  • Solar – $7,000 per MW

All other facilities:

  • $6,000 per MW when 75% or more Ohio-domiciled employees are employed during construction and installation.
  • $7,000 per MW when 60% or more Ohio-domiciled employees are employed during construction and installation.
  • $8,000 per MW when 50% or more Ohio-domiciled employees are employed during construction and installation.

The bill also addresses Current Agricultural Use Valuation (CAUV) property and provides that the installation of an energy facility will not cause the remaining portion of a CAUV tract to be ineligible for CAUV.

The new law may signify the beginning of wind development in Ohio’s rural communities. Three wind projects have already received an Ohio Power Siting Board certificate and may be the first projects situated to apply for the new tax exemptions. Information regarding the three approved wind projects and four pending projects can be found on the Ohio Power Siting Board website

Full text of S.B. 232 is available here.

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Bill introduced to address on-farm bioenergy production

Proposal would ensure that on-farm bioenergy activities qualify for CAUV and are exempt from zoning regulation.

A legislative proposal in the Ohio House of Representatives would include on-farm bioenergy production activities in two key provisions of Ohio law:  qualification for differential tax assessment under the Current Agricultural Use Valuation program and exemption from local zoning authority.  Representatives Pryor and Domenick introduced  House Bill 485 in mid-April with assistance from the Ohio Department of Agriculture.  The bill was referred to the House Agriculture and Natural Resources Committee, but no other action on the bill has taken place.

The proposal addresses “biodiesel production, biomass energy production, electric or heat energy production and biologically derived methane gas production”  where at least 50% of the starting material or feedstocks are from the same tract, lot or parcel on which the energy production takes place.  This 50% requirement targets on-farm energy production, where a farm is producing and processing the energy inputs, as long as no more than 50% of the supplementary inputs derive from other properties.

The bioenergy production activities that meet the 50% rule would be included in the CAUV’ program’s definition of “land devoted exclusively to agricultural use” in ORC 5713.30, thus guaranteeing eligibility for the CAUV property tax rate.  The bioenergy production activities would also become part of the definition of “agriculture” for purposes of county and township zoning, ORC 303.01 and ORC 519.01.  Because counties and townships have  limited zoning authority over “agriculture,” the proposal would ensure that a county or township could not use zoning authority to prohibit the qualifying bioenergy production activities. 

H.B. 485 is available online, here.

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