Farmers could see 40 percent tax credit relief

Ag2School heading toward House-Senate committee

MARSHALL — Farmers facing the prospects of Marshall Public Schools bond measures totaling $40 million being approved by voters on April 18 may get some relief from the Legislature and Gov. Mark Dayton.

In the past, agricultural landowners have been asked to shoulder a large portion of school referendums. But if the proposed Ag2School tax credit is approved by the Minnesota Legislature this year, it would create a more fair and balanced tax impact for taxpayers throughout the 284 school districts in Minnesota, according to legislative officials.

According Chad Urdahl, spokesman for Rep. Chris Swedzinski, the tax credit legislation will hopefully be heading to House-Senate conference committee by next week.

“The proposed Ag2School tax credit legislation, if passed, would reduce the tax levy impact on agricultural land by at least 40 percent on existing, proposed and future bond referendum debt service,” MPS Business Director Bruce Lamprecht said.

Brad Verly, who has worked at Farm Business Management for the past year, said that would be really good news for area farmers.

“I work with a lot of family farms, and with a lot of farmers, so I sympathize with them,” Verly said. “Something like that would really help. Otherwise, it’s going to hit the farmers pretty hard right now.”

Verly explained that the price of corn was more than double the last time the district passed a building bond referendum to construct the new high school in 2003.

“When the high school was built, corn was $7,” he said. “Now corn is $3, so it’s hard. I see all these farmers’ financial statements and stuff — that’s what I do for my job. It’s changed a lot. Our program has grown just because of the financial state of farmers, too. That’s kind of what we do, is help them with a lot of that stuff.”

Verly said he can understand the landowners’ hesitation to be burdened with more tax debt.

“They’re staring down going out of business,” Verly said. “I think a lot of people get the idea that all the farmers made a lot of money. I think a lot of them did make good money, but they invested it back into their farms. They invested in machinery or in land. They’re trying to grow. And some of them overextended.”

MPS board member Dion Caron, who was on a recent tour of Park Side Elementary with Verly and Park Side Principal Darci Love, said he’s hopeful that the Legislature will pass the 2017 tax bill, which includes the Ag2School bill.

“It’s underneath the tax bill,” Caron said. “Everybody wants it: the governor (Mark Dayton), the Senate, the House.”

Caron added that Ag2School had been passed by both the Senate and the House last year, but then it just sat there until this legislative session.

“We still have to have the tax bill pass, but the governor said he’s for it this year,” Caron said. “The nice thing is that it’s on current and future (debts).”

Dayton and Lt. Gov. Tina Smith presented the tax bill just days into the 2017 legislative session, noting that the 40 percent Ag2School tax credit would help address facility challenges for Greater Minnesota schools while relieving tax burdens for farmers.

“Right now, farmers in Minnesota face low commodity prices and high land values, while their property taxes have gone up more than 100 percent in the last 10 years,” Smith said in a news release. “I pledge to work with legislators on both sides of the aisle to keep more money in the pockets of Minnesota farmers this year, to grow opportunities for farmers, families, and communities across our state.”

Dayton and Smith have proposed investing $34 million into the tax relief for agricultural property owners. The tax credit would be available to all individual farm owners in Minnesota who pay property taxes for school district debt levies.

For the 74,000 Minnesota farmers who live on their land, it would mean an average relief of $243 on their annual property tax bill. Additional agricultural landowners would also see relief under the 2017 tax bill, which would provide $300 million in tax cuts across the state.

“There’s no guarantees that this will happen but if it does, it will retro back to the district’s current debt service levy for agricultural property,” Lamprecht said.

According to Minnesota Rural Education Association (MREA), Ag2School is needed because about half of the state’s schools were built before 1976 — prior to the digital revolution — and 25 percent are between 54-125 years old. School buildings have a 60-year life expectancy.

MREA also noted that local taxpayers contribute 97 to 100 percent to build and remodel educational facilities, and that bond elections are increasingly difficult to pass in rural Minnesota. In 2015-16, school districts asked voters 97 bond ballot questions. In rural Minnesota, only 41 percent of the questions passed, while 81 percent of metro area questions were successful.

MPS Superintendent Scott Monson noted that construction costs for potential future projects are anticipated to increase 4 to 7 percent annually if not more, making this year’s referendum even more significant.

“Our needs don’t change, so then that just keeps getting pushed out and then the cost becomes more,” Love said. “It’s a perpetual circle. We’ll just keep hoping they pass that bill.”


MPS Business Director Bruce Lamprecht said the tax impact varies based on the type of property and the estimated value of that property. Taking a $500,000 value for five different kinds of property, he gave examples of what the 2018 tax impact would be for each.

“A $500,000 value for residential homestead would be $486,” Lamprecht said. “Commercial/industrial property would be $898, apartment building $607, agricultural homestead $264 and agricultural non-homestead land $486.”

Lamprecht said approval of one of both ballot questions would cause a tax increase beginning in taxes payable 2018. The debt service tax levies would be in place for 20 years, he said.

“The estimated tax rate for debt service for payable 2018 taxes would increase by 9.71 percent, from 16.04 percent to 25.75 percent,” Lamprecht said. “The average value of a residential homestead in the district is $158, 500, and the tax impact on it, if both questions were to pass, would be $132 annually or $10.97 per month.”

Lamprecht noted that, if the referendum passes, the district would use a “wraparound” strategy to structure the debt for the proposed bond issue.

“This strategy will keep the school district’s taxes for debt service relatively stable over time,” he said. “Payments on the proposed new bonds would increase slightly beginning with taxes payable in 2024 and by a larger amount in 2027, but those increases would be offset by decreases in payments on the district’s existing bonds.”

Lamprecht added that while the portion of taxes paid on existing and proposed new debt fluctuates throughout the 20 years, total debt service taxes will remain relatively constant over time.

“Approval of the bond issue would eliminate or reduce the size of the decrease in taxes that would otherwise occur for taxes payable in 2024 and 2027,” Lamprecht said. “Because there are so many factors that can cause changes in tax impact over time, it is impossible to accurately project tax impact for specific parcels of property in later years, especially 10 to 20 years from now.”

Lamprecht said that there are various state and federal programs that may also reduce the net impact of the proposed property tax increase for some taxpayers.

“They include the Minnesota Tax Refund, Special Property Tax Refund, Senior Citizens Property Tax Deferral and the Deductibility of Property Taxes for state and federal income taxes,” he said.

For further data on tax impact please go to: https://www.marshall.k12.mn.us/domain/554 and then click on Tax Impact on the left. There, taxpayers are able to submit their information and have their estimated tax impact results calculated by financial advisers. Ehlers and Associates can also be contacted by calling 651-697-8500 (1-800-552-1171 toll free) or sending an email message to mnschools@ehlers-inc.com.