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CAUV formula:
still a good deal in growing economy
Ohio Senate President Keith Faber
Ohio Representative Jim Buchy
Farmers are no doubt familiar with the Current Agricultural Use
Valuation (CAUV) formula. For those who are not, the CAUV was
enacted through a voter-passed 1973 amendment to the Ohio
Constitution. This formula was adopted so that qualifying
agricultural land would be taxed at a value based on the farm’s
potential income production from agricultural activities rather than on
fair market value.
The CAUV, which is composed of five factors, is updated yearly by the
Ohio Department of Taxation and every three years by county
auditors. Darke County’s triennial update is currently taking
place. These five factors are: cropping pattern, crop prices,
crop yields, non-land production costs, and capitalization (interest)
rates.
The increase in this year’s CAUV update is largely due to significant
increases in crop prices and a simultaneous decrease in interest
rates. These two factors simply mean that agricultural land in
Ohio has a much higher value now than it did three to six years ago.
Regardless, these changes are dictated by the workings of the CAUV
formula authorized by the Ohio Constitution, and not by any action of
the General Assembly.
The statewide CAUV average has risen since reaching historic lows in
the mid-2000s. In Darke County, CAUV value is on average 28
percent of the fair market value that would otherwise be used to
calculate the tax. For example, a homeowner in Adams Township in
the Greenville City School district valued at $200,000 would pay $2,645
in taxes, while CAUV-qualified farmland in the same taxing district
with a market value of $200,000 would pay $761. This is one
reason why the Ohio Farm Bureau Federation has publically stated that
“Ohio has the best CAUV formula in the country.”
The bottom line is that this equation is working as intended and it
still represents a good deal for Ohio farmers.
As the increasing CAUV indicates, the strengthening agricultural
economy reflects Ohio’s improving overall economic health. Today,
our recovery is being fueled by significant tax reforms championed by
Governor Kasich and the Ohio General Assembly.
Ohio’s economy in 2011 is instructive when considering these
policies. At the time, our state faced an $8 billion budget
shortfall, the rainy day fund held just 89 cents, and the private
sector had lost over 350,000 jobs.
Fast forward to 2014 and Ohioans (including farmers) are seeing a
completely different picture. We have closed the budget gap
without raising taxes, our rainy day fund sits at $1.5 billion, and
about 250,000 private-sector jobs have been created.
These results came about because of smart, pro-growth tax policies
implemented by Governor Kasich and the General Assembly. To that
end, the state of Ohio has cut taxes by more than $3 billion over the
past three and a half years, significantly benefitting farmers.
In fact, the current operating budget delivered one of the largest
single-year income tax cuts in state history. That cut included a
10% personal income tax reduction and a 50% income tax deduction for
small businesses (including most farmers) on their first $250,000 of
income as a means of encouraging future growth. We just increased
this cut to 75% for the 2014 tax year.
Governor Kasich and the Ohio General Assembly also worked successfully
to eliminate the state’s death tax. This was done for one simple
reason; no one should have to visit the undertaker and the taxman on
the same day. Ohioans have a right to pass on their property
without subjecting their children to unfair taxation. Killing the
death tax was a key to accomplishing this goal.
Finally, Ohioans expect their government to invest wisely. We are
happy to report that the Ohio Bureau of Workers Compensation (BWC) has
done just that while managing the state’s workers’ compensation
fund. This October, the BWC will provide a second $1 billion
rebate to businesses, equaling the amount returned to Ohio employers
last year. This program, which benefits local farmers, is a clear
testament to the growth-oriented tax policies and strong fiscal
management of the past four years.
Not all of Ohio’s recent tax reforms are clearly understood-changes to
the state’s “rollback” provisions are one such example. Since
1971, Ohioans have paid a higher income tax in order to finance a 12.5%
state “rollback” on all local property taxes. Every time local
communities increased or passed a new property tax the state would
automatically pay an additional 12.5%. Under this system,
wealthier areas received more taxpayer dollars to subsidize their
high-millage levies, while more modest areas (such as ours) received
less. This, for example, effectively allowed Cleveland
millionaires to subsidize their initiatives with tax dollars from west
central Ohio. The result was an ever-increasing $1.3 billion
annual state spending shift. In practice, this forced the state
to raise (or at least maintain) our already high state taxes to
continue the subsidy.
At the same time, the state’s 12.5% payment masked the real total cost
of local tax levies. (Let’s not forget that things paid by
the “State” are still paid by us voters and taxpayers of Ohio!)
To promote “truth in taxation” and increased transparency, we froze
this program for all new levies while continuing the full 12.5 percent
“rollback” on all existing levies. This includes the renewals of
existing levies at their current rates. Now, local
communities that pass new tax levies will pay the entire amount without
help from other Ohio taxpayers who did not get to vote on the
increase. Finally, we hope this new freeze will encourage
increased efficiency among local officials and prevent the property tax
increases that accompany new levies. We know it will help keep
your state taxes from increasing.
In the end, it is understandable why farmers may be alarmed by
increasing CAUV numbers. However, as the Ohio Farm Bureau
Federation has noted, this is the same formula that produced record low
rates in the mid-2000s; it is simply working as intended. Even at
these levels, landowners are still receiving a significant discount
compared to what they would pay under fair market value.
On the other hand, Governor Kasich and the Ohio General Assembly have
implemented pro-growth tax policies that benefit all Ohioans; we
believe that those solutions are having an impact. While much work
remains, the bottom line is that today our outlook is brighter and the
economy is stronger because Ohioans have come together to tackle our
shared problems.
We invite you to contact us should you have any questions or comments.
Representative Buchy’s office can be reached at (614) 466-6344 or at
rep84@ohiohouse.gov, while my staff is available at (614) 466-7584 or
at faber@ohiosenate.gov.
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