The property tax credit program was changed in 2017 to weight agricultural land more heavily relative to other property sectors for purposes of distribution. With the change, agricultural land is valued at 90 percent of market value for credit calculations. As a result, beginning in 2017, the Dept. of Revenue started reporting credit amounts distributed to agricultural and non-agricultural property in each county. This segregation allows tracking of credit dollars distributed to agricultural property over time.
Statewide, credits applied to agricultural property were $4.5 million greater in 2020 compared to 2017. The increase, though, doesn’t tell the entire story. The Legislature appropriated an additional $51 million to the program beginning in 2019, raising the total credits distributed from $224 million to $275 million. With the increased funding, credits on agricultural land rose to $116 million in 2019, but then dropped to $109 million this year. Because the credits are distributed based on values, the decline in credits for agricultural property is the result of valuation changes between 2019 and 2020. Agricultural land values have been declining, while all other real property sector values have been growing.
In fact, despite the increase in total program funding, credit dollars on agricultural property declined in 27 counties between 2017 and 2020. This means the loss in agricultural land values in these counties exceeded the gain from the new money. There are two possible reasons for this: 1) agricultural property was converted to another use resulting in a loss of agricultural value; or 2) values on agricultural land shrank faster in these counties relative to other counties. In total, these counties received $1.3 million less in credit dollars in 2020 compared to 2017.
Changes in the effectiveness of the credit in reducing taxes over time can also be monitored. The effectiveness can be measured by the ratio of the credit amount to taxes levied. For agricultural property, the ratio ranges between 6-12 percent across counties this tax year. Ideally, taxpayers want the ratio to increase over time, or at least remain stable, indicating the credit is offsetting or matching the growth in taxes. This hasn’t been the experience for all taxpayers. Agricultural taxpayers in 20 counties saw reductions in the ratio between 2017 and 2020 (Figure 1). The reductions ranged from 0.1 percentage points to 2.0 percentage points with Loup and Holt Counties showing the greatest declines in the ratio. Twelve of these counties were part of the 27 counties with losses in credit dollars (discussed above) which probably explains the lower ratios. However, eight counties did not experience a decline in credit dollars suggesting the growth in taxes levied on agricultural land outpaced the increase in credit dollars.
Figure 1. Change in Property Tax Credit Share of Taxes Levied, 2017-2020
Source: NEFB calculations based on Nebraska Department of Revenue data