Facts on the Ground: How Do We Value Rural Land?

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An expanse of property near Chesterfield Landing on Crozet Avenue, currently under land use valuation. Photo: Lisa Martin.

Of the roughly 450,000 acres of total land mass in Albemarle County, almost half is currently taxed under the state’s Land Use Tax Deferral program. Adopted by the county in 1975, land use valuation allows acreage to be assessed at its “use value” instead of its fair market value for real estate tax levies, the county’s largest revenue source. For qualifying farmland and forested or open land, the reduced assessment means that owners pay less tax on that property.

While the program’s planning and conservation benefits are lauded by county officials, its specific rules and costs are often opaque to citizens, resulting in a persistent debate over the plan’s efficacy and fairness.

What is the point of the policy? “The program was created to help keep agriculture alive in Virginia so we didn’t end up like New Jersey, painted over with development,” said Ann Mallek, White Hall District representative to the county Board of Supervisors. Virginia allows counties to adopt use value taxation to help preserve real estate for agriculture and scenic open space, to conserve natural resources, and to promote proper land-use planning. Three-quarters of Virginia counties and half of its cities have adopted the program.

Jeff Werner of the Piedmont Environmental Council. Photo: Lisa Martin.

“There is a lot of preservation through ownership,” said Jeff Werner of the Piedmont Environmental Council, “and use valuation helps people keep their land. A lot of folks in this county are land rich and cash poor, but they don’t necessarily want to put their land in conservation easement with all of the restrictions that entails, and they don’t want to sell to a developer.” Land use valuation is a kind of middle ground, based on a snapshot of assessed value every two years, that lets landowners pay taxes based on how their land is actually being used.

What kinds of “uses” qualify for the Land Use program? A property owner can qualify for Land Use taxation in one (or a combination) of four ways:

Agriculture—a minimum of five acres of land used in growing crops or raising livestock, as well as an average of $1,000 annual sales revenue over a three-year period. For a livestock qualification, there must be one cow, one horse, five sheep, five pigs, 100 chickens, and/or 66 turkeys for every five acres.

Horticulture—a minimum of five acres of land used in the production of fruits, vegetables, and ornamental plants or products, as well as the above revenue requirement. For both agriculture and horticulture use, the land must have a five-year history of continuous farming before qualifying; if left vacant or neglected for a year or more, the clock restarts.

Forestry—a minimum of 20 contiguous acres of land devoted to tree growth or standing timber with no livestock access. The least restrictive of the four categories, forestal use requires either a forest management plan or simply a letter of intent stating the land will be forested, but no active timbering operation.

Open space—open land of at least 20 acres, which must be in (a) a designated agricultural-forestal district, (b) a perpetual conservation easement, or (c) subject to an Open Space Agreement with the county (lasting from four to ten years, prohibiting division or construction).

Of the four categories, Forestry is the most popular, making up 40 percent of parcels in the program and almost two-thirds of the total acreage under Use Value assessment. Agriculture and combined Agriculture/Forestry parcels comprise the bulk of the remainder, with only a small number of Horticulture and Open Space uses in the total.

How much does the program cost Albemarle County? Because it is not listed as a line item in the budget or stated explicitly on the county website, the cost of the Land Use program is mostly invisible to county residents. On average, land-use parcels are assessed at 10-15 percent of their market value assessment, and the landowner pays taxes only on that reduced value. In 2016, these reductions added up to $1.4 billion in “deferred value”—land value not taxed—which translates to almost $12.5 million in foregone revenue for the county.

$12.5 million represents about 3 percent of the county’s annual budget for revenue, and detractors of the plan point out two perceived consequences of the policy. The amount paid to Charlottesville under the Revenue Sharing Agreement is based on the full market value of county property, not its use value, so some residents argue that use valuation causes the county to owe the city more money. The issues, however, are independent—the RSA is an obligation, and how the county chooses to raise revenue to pay its obligations is a policy choice. If the county discontinued land use taxation, it would have more tax revenue, but the RSA payment would not change.

In similar fashion, Virginia calculates state education funding for each county using a “composite index” which is based on full market property values as a measure of a county’s “ability to pay” for education. Thus Albemarle County appears to be wealthier than it is, and as a result receives a smaller allocation of state funding than it would if the state allowed actual tax revenue to be used in the index. But, as in the RSA example, dropping land use taxation would not change our education funding from the state, because that formula is fixed.

Are landowners whose property is assessed at use value receiving an unfair advantage? Although it encompasses half of the total county acreage, use value is assessed on just ten percent of county parcels, about 4,600. Critics of the policy describe it as forcing growth area residents to “subsidize” the rural area, arguing that if all land were assessed the same way, a lower overall rate would fulfill the county’s current revenue requirements. Conservationists, however, tend to stress the program’s limited reach. “What people really misunderstand about use value taxation is that the value of the house, outbuildings, and surrounding grounds are taxed at market value, just like everybody else,” said Werner of the PEC. “It’s only the qualifying land that receives the tax break.”

A popular phrase in community development circles is: “Cows don’t go to school,” referring to the fact that agricultural and forestal land requires far fewer services—police, fire, rescue, schools—than does residential or commercial property, and implying that the rural land deserves the reduced taxation. The Virginia Department of Forestry points to PEC studies showing that, for every dollar of tax revenue received, counties spend ten times as much for services to residential land as they do for farm and open space land.

Growth area residents often wonder why housing developers are allowed to buy and hold land in the designated growth area, yet still take advantage of land use taxation before they build. This is the case, for example, with the 18 acres just south of Chesterfield Landing on Crozet Avenue, which are owned by a developer in the growth area and zoned as residential property, but taxed under use valuation (qualified as agricultural/forestal land). The answer to why lies in the land’s current use, not its intended use.

“During the period that the land is in use value, it’s achieving the stated purpose, regardless of who owns it,” said Werner, who added that the assessment may encourage a developer to pause rather than rush to develop. “If you want to eliminate use value based on a person’s intent, then the community has to decide that [and request a legislative change to accomplish it].”

Ann Mallek, Albemarle County Board of Supervisors representative for the White Hall District.

Does Land Use valuation really stave off development, given that a farmer can sell at any time and a developer could develop the property by right? Yes and no, said Werner. There is a tension between the Comprehensive Plan, first established in 1971 and meant to be a planning guide for development areas, and the zoning regulations set in 1980, which are law. The vast majority of county land (outside of designated growth areas such as Crozet) was zoned by the Board of Supervisors as “Rural Area,” which sets minimum lot size at 21 acres with a maximum of five (2-acre) development rights on each parcel. The greater housing densities assigned to the growth areas are meant to dissuade developers from sprawling construction all over the county’s 750-square-mile area.

So while use value taxation may slow growth by providing incentives for landowners to hang on to undeveloped land, it cannot permanently protect that land. “If the intent is to have less development in the county, then use valuation is a tool in the toolbox,” said Werner, “but if the county cannot accept more houses in a specific area, then that’s a function of zoning. Zoning trumps planning every time.”

What happens if a landowner stops using land in qualified ways? The land reverts to market valuation, and the owner must pay “rollback” taxes—the difference between market value and use value taxation—for the last five years, plus interest. “The rollback can be a large amount of money, and it’s a shock to most people,” said County Assessor Peter Lynch. “Suddenly there’s a tax bill due and you have a month to pay it, so we try to warn people, to remind them how the program works.”

In practice, the original landowners don’t always bear the penalty. Developers may purchase land and keep it in the land use program for a period of years, only paying the rollback taxes when the land is reclassified for development. The developer may then capitalize the penalty into the cost of the new homes, which increases their price as well as assessments on surrounding property.

Peter Lynch, Albemarle County Assessor. Photo: Lisa Martin.

How does the county verify proper Land Use? A revalidation process was established in 2009 whereby landowners must certify every two years that their land still qualifies under the Land Use parameters, and the revalidation is followed up with an on-site visit by an appraiser.

“I have a staff of ten full-time appraisers, eight of whom are assigned properties in the rural area that include land use parcels,” said Lynch. “That equals approximately 575 properties per appraiser.” Despite the workload, Lynch estimated that only 10 to 20 percent of the appraisers’ time is spent reviewing the validity of land use parcels in the year following submitted applications.

In the first year of the revalidation process, almost $1 million in rollback taxes was collected from ineligible properties and those parcels were reclassified. “We are working to clean up those incidents where the landowner is not using land use valuation properly,” said Lynch. “Another tool, besides just going out and looking, is aerial pictometry, where we can have a current picture of, say, farmland, to see if it’s actually being farmed.”

Supervisor Mallek said the county works to keep the program squeaky clean, and is particularly on the alert for developers holding land qualified for Land Use as agriculture but not farming it. “It’s not fair to run the program in a sloppy fashion, or we may risk losing it altogether,” she said.

Henley Orchard land, under land use valuation for agriculture. Photo: Lisa Martin.

What would happen if the land use valuation program were discontinued? Some residents argue that the county should abolish the program, tax all parcels at market value, and use the gained revenue to buy conservation easements on the land it wishes to preserve. Because easements are generally permanent, extending through heirs into perpetuity, landowners are often reluctant to make that leap. Mallek, a farmer herself whose land is in conservation easement, believes the results would be disastrous.

“It’s a virtual impossibility that most farmers would be able to pay [market value] taxes on their land, so most would have to sell,” she said. “So a huge proportion of those farms would hit the market in a short period of time, resulting in catastrophic loss of value in the county for all property owners. It’s just basic supply and demand.”

What changes could be considered to lessen the financial impact and/or increase the effectiveness of the Land Use program? Short of discontinuing the program, a variety of changes have been suggested by economists and residents to increase the policy’s inherent value: (1) Increase the penalty for pulling a parcel out of land use to ten years of rollback taxes instead of five; (2) Limit the program to only working farms with verifiable output; (3) Insist on a professional forestry plan for land that uses the forestal qualification; (4) Encourage the Virginia legislature to change the measures used for the education funding payments to acknowledge land use deferral; (5) Disallow land use parcels in designated growth areas.

“To me, land use policies help us to provide services to residents in the most financially reasonable way, in these centralized [growth] areas,” said Mallek. “It’s just better stewardship of taxpayer dollars.” For many, the debate will continue over whether land use valuation really helps keep the rural area rural.

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