Farm boom leaves behind property tax shadow in Nebraska

Property taxes have been a growing cost for Nebraska farmers like Larry Tegeler. Taxes collected on Nebraska agricultural land nearly tripled from 2004-2014. (Photo by Grant Gerlock, NET News/Harvest Public Media)
November 18, 2015 - 6:45am

The value of farmland is riding high, and so are the taxes farmers pay on that property. But as those numbers remain steady, the actual income farmers make from the land has tumbled. Some farmers are pushing for a discount on their tax bill.

Larry Tegeler raises corn and soybeans along with some cattle in northeast Nebraska. He started farming about thirty years ago, and the first land he ever bought was a field near the small town of Meadow Grove.

On a windy fall afternoon, Tegeler looked over the 160 acres of rolling, sandy soil he purchased in 1987.

“At that time we were just coming out of kind of a financial collapse that we had here in the early 1980s,” Tegeler said. “I brought this quarter for $600 an acre.”

A lot has changed since then. Today, Tegeler estimates the same farm would bring $8,000-$9,000 per acre. These days, it’s a million-dollar farm.

That’s the kind of wealth farmers who own land built up as land values spiked over the last ten years. And, because their land is worth more, farmers are also paying a lot more property taxes.

In Madison County, where Tegeler farms, nearly $20 million in property taxes were collected from ag land in 2014, three times the property taxes paid on farmland in 2004.

Larry Tegeler bought this corn field near Meadow Grove, Nebraska for $600/acre in 1987. Today he estimates it would be worth $8,000-$9,000/acre. (Photo by Grant Gerlock, NET News/Harvest Public Media)

Tegeler says paying the property tax bill wasn’t such a big deal when commodity prices were still high.

“You didn't hear anybody complaining too much, you know, when we had seven-dollar corn,” Tegeler said. “And now we're having a tougher time paying for it.” 

Farm income has plummeted over the last couple years. Grain prices are break-even at best, and farm debt is on the rise. Even with government payments and crop insurance, some producers will struggle to turn a profit.

“There's an asymmetry here and people get upset because [land] values aren’t falling as fast as they think they should,” said John Anderson, who teaches public finance at the University of Nebraska-Lincoln.

Anderson says property taxes are important because they’re the main source of funding for local services like schools, police, and fire.

“In agriculturally dominant states it's especially important because most of the tax base is primarily property,” Anderson said.

Ag land counts for nearly a third of property taxes in Nebraska (29 percent), and the largest share of that money – 60 percent – goes to local school districts.

Mike Lucas, superintendent at York Public Schools, agrees districts rely too much on property taxes, but that’s how the state’s funding formula is designed. It’s meant to ask districts with great land wealth to make the most of property tax funding. And it’s not necessarily a windfall for the school.

“Even though our property taxes are much higher than they were, the total revenue we have to work with because of cuts at the state and the federal level, basically makes it a wash,” Lucas said. 

Nebraska’s funding formula only provides additional state aid to about a third of school districts. The rest, especially rural schools, rely almost entirely on property taxes for their budgets.

York receives some state aid, but Lucas says state funding keeps falling as land values and property taxes climb.

“We're down over $660,000 this year [compared to] where we were last year,” Lucas said. “And because of that, even though we've lowered our property tax levy by two-and-a-half pennies, we are still having to bring in more property tax money to make our district go.”

The Legislature’s revenue and education committees have been studying ways to lower property taxes. They’re expected to propose changes when the new session starts in January.

The list of possible changes is long. The state could guarantee a portion of local income or sales tax be returned to offset property taxes. There could be an income tax credit for people who pay high property taxes. The state could lower the percentage of agricultural land value that’s taxed. Right now it’s 75 percent.

State senator Kate Sullivan of Cedar Rapids serves on both committees. She says the problem for lawmakers is that lowering property taxes ultimately leaves a gap for school funding.

“Where will that money come from? It's either going to have to be additional new sources of revenue, which quite frankly doesn't set well with a lot of people, or you simply take that revenue away from other programs that are currently being supported by state dollars,” Sullivan said.

Farmer Larry Tegeler isn’t looking to slash school budgets. He was actually a math teacher before he was a farmer.

But he and the state’s biggest farm organizations, like the Farm Bureau, say they’re bearing too much of the property tax burden. Even in a farm state like Nebraska, though, property tax cuts could be hard to pass.

“There aren’t that many of us out here anymore,” Tegeler said. “We don’t have very many votes.”

If the farm economy turns around or if land prices start dropping, changes in property taxes could move to the back burner. But neither of those are likely in the short term, meaning farmers will push to keep their most valuable asset – their land – from becoming a financial burden.



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