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Productivity & Rollbacks

Productivity & Rollbacks. Jeff Robinson - Fiscal Services Division Legislative Services Agency House Commercial Property Tax Study Group February 19, 2007.

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Productivity & Rollbacks

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  1. Productivity & Rollbacks Jeff Robinson - Fiscal Services Division Legislative Services Agency House Commercial Property Tax Study Group February 19, 2007

  2. Share of Taxable Value by ClassQuestion from Last Week – Has commercial’s share of the burden been increasing? – Commercial’s share has increased, but so has residential’s.

  3. Percent of Value Due to New Construction Since AY 1988 – Not as bad as it seems. Part of the reason commercial’s share has grown relates to new construction.

  4. Tax Increment Financing Growth – Commercial’s share is not what it seems - Commercial and industrial property benefit from substantial growth in TIF.

  5. Taxable Value Limitation (Rollback) • Iowa law limits growth in taxable value due to revaluation of existing property to no more than 4.0% per year. • The rollback calculation determines the percentage of a property’s actual value that will be taxable that year (productivity, not actual value for ag). • The limitation is calculated from statewide property values. • The limitation applies individually to residential, commercial, industrial, and agricultural land, including ag buildings. • Residences on ag property are included in the residential calculation. • Any increase for a class above 4.0% growth in taxable value produces (or adds to) a rollback. • The calculated rollback applies to new construction values also. • Example: If commercial taxable value due to revaluation grows 6.0%, the rollback will limit growth to 4.0% and the 2.0% difference will produce a commercial rollback to 98.00%.

  6. Taxable Value Limitation – Ag Tie • In addition to the 4.0% limit, residential and ag property will be further limited if the taxable value growth due to revaluation in the other class is less than 4.0%. • So far, residential growth has never limited ag taxable values, and should not limit ag growth in the foreseeable future. • Examples: • If residential taxable value grows 6.0% and ag taxable value grows 2.0%, residential taxable value will be allowed to grow only 2.0%. • If residential grows 6.0% and ag property falls 4.0%, residential taxable value will not grow.

  7. Rollback History - Actual

  8. Rollback History – Ag Tie Impact

  9. Rollback/Ag Tie – Did it prevent a shift or cause a shift?History - Actual

  10. Rollback/Ag Tie – Did it prevent a shift or cause a shift?History – No ag tie and no 4% limit

  11. Rollback/Ag Tie – Did it prevent a shift or cause a shift?History – 4% Limitation with no ag tie

  12. Rollback/Ag Tie – Did it prevent a shift or cause a shift?Summary • Iowa’s taxable value limitation has shifted some burden to commercial. Without it, the shift would have been to residential property.

  13. Ag Productivity Formula • Establishes the taxable value of an average acre of farmland for each county, including the farm buildings. • The average value times the number of farm acres equals the total taxable farmland value for the county. • Five year average. • Fiscal Year 2007 is based on crop years 1999 through 2003. • Only the calculations for equalization years (odd numbered years) really matter.

  14. Ag Productivity Formula • Data sources: • Acres harvested, yields, price (USDA) • Pasture acres (USDA) • Federal farm payments (USDA) • Operating expenses (Iowa State University) • Cost of insurance (Iowa Division of Insurance) • Property taxes paid on farmland (Iowa Departments of Revenue & Management)

  15. Ag Productivity Formula • Basic Procedure • Determine the five-year average value of the crop on “enumerated acres” within the county and divide by 2. • Subtract landlord’s share of expenses per acre. • Add the five-year average of federal farm payments, minus any landlord expenses, and divide by 2. • Subtract cost of insurance. • This provides the net income for the county. • Divide the net income by the total farm acres of the county. • Add a factor for “other acres” (17%). • Adjust for the contribution of the residence (-10.6%). • Subtract average property taxes paid per acre. • Divide by the capitalization rate of 7.0%. • The result is the average productivity value per acre for the county. • The assessor spreads the value to all farm property within the county, excluding the farm residence.

  16. Ag Productivity Formula • Enumerated acres • Include only harvested acres for the following crops: • Corn • Soybeans • Oats/Wheat • Hay • Pasture • Farm programs • Does not include the value of livestock.

  17. Ag Productivity Formula • Most Important Factors: • Value of the corn crop (price X bushels) • Value of the soybean crop (Price X bushels) • Federal payments • Landlord production costs • Property taxes paid

  18. Ag Productivity Formula– Had ag productivity been 1% higher in AY 05, FY 2007 taxable value of both ag and residential would have been 1% higher.

  19. Ag Productivity Formula– Ag productivity could increase by more than 8% for FY 2009. If that happens, both ag and residential taxable value will grow 4.0% for both FY 2009 and FY 2010.

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