Editorial, 7/31: New farmland valuation method is a long-term solution | Editorial

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JOURNAL STAR EDITORIAL COMMITTEE

Farmland prices in Nebraska have reached record highs this year, rising by some estimates more than 30% from the first half of 2021.

The University of Nebraska-Lincoln’s Nebraska Agricultural Real Estate Report found that overall agricultural prices in the state have risen 16% this year, to an all-time high of $3,360 per acre. But this ratio is conservative, especially when prices are looked at regionally.

United Farm & Range Management says prices have risen 20% to 25% in central and southeastern Nebraska, where the most productive cropland is located.

The Federal Reserve Bank of Kansas City estimated fourth quarter land prices in Nebraska rose 31% for rainfed cropland, 21% for irrigated land and 23% for ranch land from a year ago. one year old.

And the Omaha-based Farmers National Company reports that the average price paid for Nebraska farmland in the first half of 2022 was $11,500, a jump of more than 30% from 2021.

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The increase in demand for farmland and the corresponding rise in prices is driven by rising crop prices, economic instability, investor interest and, until recently, historically low interest rates.

Investors and those worried about an economic downturn view farmland as a stable investment – USDA data shows that since 1970, farmland has generated an average annual return of 5.7% – which will be less volatile than, for example, the stock market.

This stability is reinforced by the high prices of crops produced in the state, which are expected to remain at least at current levels, even in a recessionary economy.

While they may be celebrated as a sign of a robust and stable agricultural economy, rising farmland prices as property reassessments are carried out by counties will exacerbate the property tax crisis in the province. ‘State.

The increase in prices will lead to a higher valuation of the neighboring land, which will increase the taxes collected on this property which will be used to pay for public education and local government.

The rising assessments will spark calls for school districts and local governments to reduce their levies and, to the Legislature, for even more “property tax relief” created by diverting state funds , collected from income and sales taxes, to owners.

The only lasting solution to this dilemma of rising land prices, however, would require a change in the way Nebraska assesses farm property, moving from an assessment based on prices, which will continue to rise, sometimes to very high rates, to a production-based model like the one used in Iowa.

A production-based system works on the estimated income that a piece of land could create and would still respond to the economy as rising commodity prices would be reflected in valuation calculations.

But increases in value would be more moderate than market-based jumps and therefore limit the property taxes charged to that land. That makes it a change that would benefit Nebraska landowners, especially small farmers, for decades to come.

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