HIDE THE MONEY

© 2/28/10
All rights reserved.

[This was originally submitted to the Goochland (County, Va.) Gazette, which chose to ignore it.]

FOUR MILLION DOLLARS!

That's right: almost $4 Million is what was NOT collected in 2008 in Goochland County land taxes because of the Land-Use Tax deferral program that has been in place for about 30 years. The "nick" for 2009 is probably a bit higher.

BUT--those monies are not being forfeited into thin air by the County. The County gets its "pound of flesh" from other taxpayers: homeowners and business owners, for example. Because, what is NOT collected from one place MUST be collected from some other place, regardless of what the County is spending, because the County cannot print its own money. There is no "free lunch" in Goochland County.

Here are some interesting recent facts about the land-use tax "deferrals" in Goochland County:

The aggregate "deferred" land values are over $749 Million.
Almost $4 Million were the tax revenues not collected on those deferrals at 53¢/$100 assessed value.
The total "look-back" time for deferred recapture is limited to 5 prior years.

Any recapture of deferred tax revenues for lands discounted as "use valuation" assessments, is LIMITED to the amount of "deferred" tax revenues plus 10% simple (not compounded) interest per year, ONLY for the 5 prior years. Any deferral beyond 5 years is permanently lost.

As of December 31, 2009, there were at least 1977 parcels of varying sizes qualified for land-use tax deferrals. By those, there were 34,942 acres in the “Agricultural” deferral system, assessed at the lesser value of $220/acre, 67,677 acres in the "Forest" deferral system, assessed at the lesser value of $613/acre, and 67 acres in the "Horticultural" (e.g., vinyard) deferral system assessed at the lesser value of $400/acre. "Agricultural" and "Horticultural" uses must aggregate 5 acres minimum per application, and "Forest" use must aggregate 20 acres minimum. A single application can incorporate multiple adjacent otherwise-qualifying parcels owned by the same applicant.

Medians are much more statistically valid than "averages," and they are defined as the "midpoint" (half above and half below). The MEDIAN "Agricultural" acreage approved per application is 12.4 acres, the MEDIAN "Agricultural" value deferred was $140,380, and the MEDIAN deferred "Agricultural" tax revenues forgiven were $744. The MEDIAN "Forest" acreage per application is 20.74 acres, the MEDIAN "Forest" value deferred was $120,837, and the MEDIAN deferred "Agricultural" tax revenues forgiven were $640. The single "Horticultural" acreage approved in 2009 was 57 acres (added to 10 acres approved earlier), and its deferred value was $206,776, yielding deferred tax revenues forgiven of $1,096.

In all, there are currently in Goochland County 969 new and renewed deferral "accounts" each valued at or below $200,000, aggregating DEFERRED values of $101,934,200. There are 338 accounts each valued between $200,001 and $300,000, aggregating DEFERRED values of $82,742,300. There are 185 accounts each valued between $300,001 and $400,000, aggregating DEFERRED values of $63,822,100. There are 103 accounts each valued between $400,001 and $500,000, aggregating DEFERRED values of $46,392,100; and there are only 379 accounts each valued over $500,000, aggregating DEFERRED values of $454,444,700. The midpoint of the total deferred values is $374,667,700, which means that more than half of the aggregate deferred valuation is the upper 82% of the accounts exceeding the $500,000 valuation each. The midpoint of the total number of separate accounts is 987, which includes all the accounts of the lowest-valued parcels (under $200,000) plus just 18 more accounts in the next-higher category of $201,000 to $300,000. This seems to establish that the primary tax-deferral benefit under the current program disproportionately favors the higher-valued accounts.

All of us other Goochland County taxpayers presumably paid the 53¢/$100 tax rate based upon the full fair-market assessed values of their properties, including those whose lands are used for conservation but not otherwise qualifying as "Agricultural," "Horticultural" or "Forest."

(FULL DISCLOSURE: this writer owns approximately 45 acres currently in conservation use and, therefore, not qualifying for any land-tax subsidies.)

Virginia law limits localities primarily to levying or collecting land taxes, personal-property taxes, business licenses and sales taxes. A local income tax would arguably make more sense these days instead of the land tax, but it is not allowed under the "Dillon Rule" and state law. The total land tax ($24.9 Million in FY 2009-10) accounts for almost 40% of Goochland County's total budget ($62.5 Million for FY 2009-10), approximately half of which is allocated to education, the real estate tax thus amounting to almost 80% of education expenses. To the extent that some large landowners are excused from paying land taxes on full valuations, it MUST be made up by nonqualifying taxpayers (such as homeowners, business owners and conservationists) whose land taxes are assessed on full values.

The primary arguments heard by this writer in defense of the land-use tax deferrals are that "corn" and "cows" and "trees" don't send children to the public schools, that the reduced tax burden facilitates otherwise unprofitable farming, and that the potential recapture of the deferrals inhibits development of desirable open spaces arguably enjoyed by all.

Although some modest-income folks will surely be harshly squeezed by a moratorium on or repeal of the land-use-tax deferrals, and the few legitimate farmers will be forced to pay taxes on full land values thereby, this writer is mostly unimpressed by those arguments. Most developers will not be inhibited from paying the 5-year recapture costs as they are a "drop in the bucket" compared to development costs overall. They are simply not an effective deterrent to development if a parcel be otherwise desirable. Developers will seek to develop whatever acreage suits their purposes and those recapture costs are passed through to the lot purchasers.

This writer also believes that relatively little of the deferred acreage in Goochland is being operated at a profit anyway. Instead, most Goochland and central Virginia farms seem to be "hobby farms," defined here as farms and lands INTENTIONALLY operated at a loss to offset taxable income from other sources, such as dividends and capital gains. The US Internal Revenue Code requires farms to show a profit only any 2 out of every 7 years. According to Va. Employment Commission statistics, only 81 out of almost 11,000 workers in Goochland County are employed in agriculture, forestry, fishing and hunting combined. Though there are a lot of tax-subsidized Goochland acres in farming or woodlands, that is a miniscule portion of the total Goochland County workforce. Can it, therefore, be said that Goochland is REALLY an "agricultural" community?

While true that "corn," "cows" and "trees" do not, per se, burden the public schools, neither do business properties send kids to the public schools, yet they pay taxes on the full fair-market value of those properties. The imposition of a relatively higher tax burden on homeowners and business owners (many of whom do not have kids in the schools) nevertheless amounts to an unseemly "use fee" imposed on such taxpayers for their non-use of the public schools. A tax break or reduction for some is ALWAYS an additional tax burden for others.

No taxpayer should fail to take advantage of any tax break or reduction legally allowed; however, given the very difficult budgetary choices now being faced by Goochland County departments and officials (like police, fire and rescue services, currently cut to the bone), the question is begged as to whether it makes good economic sense AT THIS TIME to allow such arbitrary tax subsidies to relatively few, mostly well-off landowners in this current atmosphere of severe budget belt-tightening.

(FULL DISCLOSURE: this writer serves, without compensation, an organization that receives the benefit of County tax revenues for services rendered.)

The Board of Supervisors should immediately move to recapture the $4 Million+ "deferral" in the upcoming budget by revoking or suspending the land-use-tax deferrals and instead use those revenues to fully fund needed County services in FY 2010-11. Any taxpayer not eligible for the substantial subsidies of land-use-tax deferrals should demand it. Any Supervisor currently taking advantage of the land-use-tax deferrals should abstain from debating or voting thereon due to an obvious conflict of interest.

SOURCES: The Goochland Co. Commissioner of Revenue, the Va. Dept. of Taxation, the Goochland County Website, the Weldon Cooper Center Website, and the Va. Employment Commission Website.

The writer, a resident of Goochland County, Virginia since 1998, has been in the general practice of law for over 36 years and was a brief, skeptical member of the original land-use tax deferral "committee" in Orange County, Virginia many years ago. He is also a diplomate of the Va. Tech Planning Commission Certification Program and also the Va. Tech Board of Zoning Appeals Certification Program.