Can you spell BI-PARTISAN!

Today E2SHB 1437 passed out of the House of Representatives with a vote of 92-1.   The floor debate was thoughtful and compelling.  Take a look at TVW to hear Representatives Reykdal, Nealey, and Wilcox explain why this makes good sense.  (13 minutes 40 seconds into the video)

The Senate now has to decide whether to consider this proposal.

We think they should, for the reasons set out below.

Quick Recap of The Proposal

This proposal is about the current use program.

Under this property tax program participating farms are valued based on how they are used (current use), not fair market value.  This takes the high taxes off of the farmer and reduces the pressures to develop the land.  It lowers the cost of doing business and keeps the farmer competitive.

The current use program is just about land – not buildings – not houses – not barns.  Large farms get all of the land on the farm valued at current use, including land under the farm residence.  Small farms do not get the land under the farm residence taxed at current use.

This proposal treats large and small the same – with conditions.  Under existing law farms under 20 acres must meet income thresholds.  E2SHB 1437 keeps those requirements, and adds a new requirement for farms 10 acres and under.  In order for those farms to have the land under their residence taxed at current use they must prove a gross income of at least $10,000 a year.   Farms over 10 acres do not have to show any special income in order to qualify for the residence tax treatment.  All sizes of farms must establish that the farm residence is an integral part of their farm operation.

The proposal is a pilot project for Thurston County. The legislature has directed JLARC (Joint Legislative Audit and Review Committee) to do an evaluation of the Thurston County experience. This will provide useful information with which to craft a state-wide program for all small farms.

The proposal has a very modest fiscal impact.  Thurston County will lose under $7,000 (seven thousand) dollars in revenue and individual taxpayers will pay less than a dollar extra each year.  This is a small investment for such a big impact – preserving small farms.

Why Support this Pilot Program

• Local community: Small farms have an important role in the local community and increase access to food.
• Farmers Markets:  Small farms are the backbone of farmers markets.
• Public interest: Tax preferences are of great public interest.  It makes sense to start with one county and see whether this program will improve the viability of small farms.
• Readiness: Thurston County is ready for this program.  Its local government officials have testified in support of this proposal.
• Public value:  Preserving farmland is a commonly held objective.
• Food banks:  Small farms make significant contributions to food banks.
• Good food:  Small farms grow good food.

Pitch in.  Go to Things to do, and do them.

We All Eat.

The Thurston County local paper ran an editorial today supporting the small farm legislation.  2SHB 1437 is in House Rules, and is awaiting referral to the floor.

I have to agree with what the paper said – we can’t afford to lose any more farms and we need to keep small farms competitive.  The existing practice of taxing one acre of a small farm at fair market value, while taxing the remainder at current use, is driving the wrong behavior.  The small farm really doesn’t have a one acre piece that is set aside – it all contributes to the farm.  This practice is putting small farms at risk.

The Olympian calls it the “local food community.”  There is a local food community, and it consists of farmers, their customers, the retailers and markets that sell their product, and the businesses from which they buy their feed, seed, and hardware.  We all know there is a change in how consumers view food, access to food, and the value of land.  Folks are increasingly aware of where their food comes from.  The scale of this conversation spans continents, oceans, and our state, and embraces topics from climate change to microeconomics to hunger.

This is a bi-partisan issue.  No one wants to lose farmland, especially farmland where the farmers have a great desire to farm and be productive.  These small farms create jobs and bring value to their communities and regions.  Some folks are skeptical about this and question how much food small farms can bring to the table.  The truth is there is more than one way, and we need to support diversity in our farming community.  This website is “we need small farms.”  We need large farms too.  Both have a place and a role, and this legislation recognizes that.

2SHB 1437 might represent a compromise in that it starts with one county, in order to establish and test the unknowns, and prove the concept.  This is not necessarily a bad thing and it is very practical.

The proposal also attempts to address productivity levels and the public’s interest in assuring that any favorable tax treatment produces results.  Results can be as simple as preserving land or as complex as requiring high wage jobs and exports.  For this legislation the results we are looking for is keeping farmland as farmland, and identifying those very small farms that are engaged in highly productive activity.

Lets get this change into state law and figure out how to expand the program to the rest of the state.  As my  friend Nancy Laich says, we all eat.

The Knowns, the Known Unknowns, and the Unknown Unknowns.

By Leslie

A much scaled-down version of SHB 1437 passed out of House Finance on Thursday February 28th.

2SHB 1437 takes the exact same language as SHB 1437, but limits participation in the homesite tax treatment to persons farming in Thurston County.  It also requires a JLARC (Joint Legislative Audit and Review Committee) evaluation and report back to the legislature.

This means that small farms in 38 counties will continue to be assessed at fair market value on a one acre lot around and under their residence.

What is so special about Thurston County?

Nothing.  It is about what could get out of committee.  It was a very practical result.

I take that back.  In this context, there was something special about Thurston County.  The Thurston County Commissioners supported the legislation and testified in front of the legislative committees.   The County Assessor was willing to work on resolving differences.  For a program with local impacts, the support of local government officials made a big difference.  And the residents of Thurston County are involved in a local food movement, emphasizing sustainability and community.  Maybe the difference is that Thurston County is eager for this.

Hey – other counties are special to!

They are indeed, very special, and we need to continue to push for a state-wide bill.  Food and farming are state-wide concerns.  We have to translate the community interest in small farms to the state as a whole, because this is a little bit of a chicken and egg thing.  Communities need small farms, yet small farms are under pressure and their continued existence is at risk if they do not have access to the full tax treatment under the current use program, which is a statewide program.  The chicken and the egg business is about do we wait for a crisis and lose our small farms or do we go to the legislature and fix the policy that we know does not work for today’s environment.  Which comes first, the loss of small farms or the fix – and if we wait too long, it is too late?

Can we live with this Thurston County only version?

Sure we can.  If someone had come to us out of the blue and said “would you like to test a current use program expansion in Thurston County?”  we would have said “heck yes!  Great opportunity, bring it on.”

But, that is not the sequence of events here.  We started out with a state-wide proposal because small farms all over the state are under pressure and it is our preference to get a state-wide proposal.

But being a current use test bed is not a bad thing either.  It will advance the public debate.  So we do not oppose the version that came out of House Finance.

Why the scaled down bill?

The bill as introduced  caused concerns in the House Agriculture and Natural Resources Committee, so it was amended to add an income requirement for very small farms.

The House Finance Committee then evaluated the legislation on the basis of the program’s effectiveness and administration.  Apparently there were concerns that  allowing small farms to apply for current use tax treatment for the land under and around their homes would create a workload issue for County Assessors.  There continued to be concerns regarding the viability of small farms and whether any nonfarmers could somehow take advantage of the program to the detriment of the public.  The County Assessors Association continued its opposition based on the tax shift.  The fiscal impact of the proposal also involves a loss of funds for some counties, and this is a concern to the committee, although this was not voiced at the hearing.

It is helpful to listen to the executive session on TVW.   HB 1437 is the second to the last bill, so scroll through most of the material.  You will see that this was a thoughtful process and that there are signals of more discussion to come.

Pay attention to the final vote – 12 to 1.  That means something.  This proposal has strong bi-partisan support.  We need that going forward.  We will need that in the Senate.

The Known Unknowns

It appears the legislature is not convinced about the importance of small farms in this state.  Those of us with personal knowledge regarding small farms might find this surprising, but it is fair to say that role of small farms as an emerging element of a healthy local economy is new information to some people.

County governments are making decisions about farmland preservation on a programmatic level.  They might not consider the current use program one of their “tools” and might be more interested in conservation futures or land use planning.  Current use pencils out to be a good investment because it keeps the land in private hands and requires little government input, aside from the Assessor’s office.  We need to remind the counties of this.

The Unknown Unknowns

The public policy debate is encouraging, even with the unknown unknowns.  Progress is measured in increments and success has many forms.  Expect the unexpected.

The Knowns

This proposal is in front of the legislature specifically because the legislature has control over this program.  What is being grappled with now is whether small farms are a state-wide concern or a local concern.

This is a process.  Brings facts and information to bear on any issues that need clarification.   Reach out.  Your legislators actually do want to hear from you.  Their constituents matter a great deal to them.  Contact them.  Get them specific information.  Contact us.  Lets talk.

Don’t stop thinking about tomorrow!

by Leslie

Eye on the Prize

We have to keep our eye on the prize, which is enactment of SHB 1437 by the State Legislature and signing into law by Governor Inslee.  The outcome is property tax fairness for small farmers in Washington State and healthy and vibrant communities on both sides of the Cascades.  No kidding; the more we learn the more we come to understand that small farms are one of the building blocks of healthy communities.

Why do I say “eye on the prize?”  Because getting a law changed is not easy, it has many steps and processes, and we can’t rest now.  Each juncture requires input from advocates, supporters, well wishers, constituents, and friends of farms.

Status

SHB 1437 had a hearing on 2/26 at 8am in House Finance.  Watch the hearing at TVW.

Action Needed Now

The next stage is for the Finance Committee to take up the measure in executive session.  The crux is a 5pm deadline on Friday.  We need the Committee to take action soon.

Simply email the Finance Committee members and request that SHB 1437 be exec’d as soon as possible.

Here are the email addresses:

Reuven.Carlyle@leg.wa.gov, Steve.Tharinger@leg.wa.gov, Terry.Nealey@leg.wa.gov,Ed.Orcutt@leg.wa.gov, Cary.Condotta@leg.wa.gov, Joe.Fitzgibbon@leg.wa.gov, Drew.Hansen@leg.wa.gov,Kristine.Lytton@leg.wa.gov, Gerry.Pollet@leg.wa.gov, Chris.Reykdal@leg.wa.gov, Larry.Springer@leg.wa.gov,Brandon.Vick@leg.wa.gov, JT.Wilcox@leg.wa.gov

Recap of the Hearing 

A good hearing is a thing of beauty, and today’s hearing was lovely.  Great testimony from small farmers,  Commonground Farm, County Commissioner Sandra Romero, the State Grange, the Farm Bureau, the South of the Sound Farmland Trust, the Thurston County Agricultural Advisory Board, the Shellfish Growers, farming professors, and others.  Signing in as supporting were the League of Women Voters, the State Conservation Commission, Calliope Farms, Lisa Smith, and the Washington State Realtors.  This broad coalition is an indication that the proposal is reasonable, timely, and has the public’s interest in mind.

The Public’s Interest

The public’s interest is preserving farmland and farm productivity, while assuring that the favorable tax treatment results in real value to the public.  To do that the current use program has eligibility criteria based on size of farm.  The larger the farm, the less degree of risk to the public.  The public is looking for two things - maintaining a farmland base and active farming.  To establish commercial farming a farm under 20 acres has to prove income levels in order to participate in the program.  This makes sense and SHB 1437 continues this principle and uses the same three-tiered approach for tax administration found in the program today.  SHB 1437 is about the tax treatment of the land under the residence on a farm parcel.  To address any issues with abuse the proposal includes an income threshold of $10,000 for very small farms who seek to get their homesite valued at current use.  This is a bright line and underscores the public’s interest in assuring active farming by the homeowner.

Growth in Grass Roots Support!

We are hearing from farmers in Jefferson, Clallam, Lewis, Chelan, Spokane, Thurston, Grays Harbor, Wakiakum, King, Pierce, Skagit, San Juan, Mason, Kitsap, Pacific, Cowlitz, Whatcom, Snohomish, and elsewhere.   Keep spreading the word.  All politics is local and it would be great if every Representative and Senator could hear from a constituent about this issue.

Visualize a tomorrow that includes tax fairness for small farmers.

Small Farms – Why the Controversy?

by Leslie

The House Agriculture and Natural Resources Committee took executive action on Valentine’s Day and passed SHB 1437 out of committee.  It was a tight vote, which indicates a tad bit of polarity and controversy.  And I suppose it shows this is an issue worth bringing to the legislature for a public debate.  There is a lot of hard work ahead.  Please take a look at “things to do” for how you can assist in this effort.

First a Recap

So as not to get lost in the forest, the objective of this legislation is to allow small farms the same tax treatment as large farms under the current use property tax program.   The proposal does not exclude any size of farm or any type of activity, but it does address ”risk” through income requirements.  The risk the proposal addresses is to make sure that the very small farms who are afforded this special treatment are engaged in highly productive agriculture.  See the chart at the end of this post.

And remember, this is about farmland preservation and addressing the emerging trends regarding the viability of small farms.

Briefly, farms 20 acres and over are eligible to have all of the land on their farm, including the land under the farm residence assessed at “current use.”  Under existing law this tax treatment is not available for farms under 20 acres.  The proposal extends the tax treatment to all farms.  The eligibility requirements use the existing acreage thresholds and provide that farms 5 acres and over are eligible for the same tax treatment as large farms; and farms under 5 acres must show an income of at least $10,000 per farm to be eligible for the tax treatment.  The unique income requirement for very small farms is included to address any risks with hobby farms.  This is described below in more detail.

Four Issues Under Debate

Let’s talk about the controversy.  There are at least four things going on here.  You need to make your own decision of course on this, and see if on balance you think the proposal warrants your support.  Enacting legislation is about making choices.  It is not about perfection; it is about accommodation.  If you have suggestions for improvement or a differing viewpoint, please comment or contact us.  This proposal is not a take it or leave it approach.  We want it to work for small farmers and for the communities in which they live and work.

• Are small farms real farms?  This is an interesting discussion and focuses on a couple of points.  One, should a farm qualifying for the current use program be the sole source of income for the farmer?  The answer is no.  This is not a requirement under existing law for large or small farms and does not make sense in the farm economy or today’s economy.  Second, can a small farm provide enough income to contribute to an individual’s or family’s economic well being?  The answer is yes.  Just like with large farms there are a variety of incomes and productivity levels on any one farm.  The current use program requires the farmer be engaged in “commercial activity,” which requires sales of products for cash money.  To be eligible for current use tax treatment for land under the residence requires the residence be used in manner integral to the classified lands.
• Hobby farms and how to reduce the risk of including them in the program.  The current use program was put in place to preserve farmland and to maintain the farmland base.  It is about farming for profit, not farming for fun.  Hobby farms are not included in the program today; however no tax compliance program can be managed so tightly or with such extreme definitions that it does not have gray areas.  One such gray area, and an area of concern to the public and the local governments is whether the current use program is available for farms that are really not engaged in farming as a commercial activity.  The tax administration issue is balanced against the desire to preserve farmland.  The question comes up of whether these small parcels are worth preserving.  To address this issue, PSHB 1437 requires that any farm under 5 acres, in order to receive current use valuation on the land under the farm residence, must prove an income of at least $10,000.  This is significant and substantial.  It is a lot of carrots, many many dozens of eggs, row crops upon row crops.  The belief is that $10,000 will identify those small farms that are intensely farming.  Very small farms not able to establish this income will continue to have a one acre area around their farm residence valued at fair market value.
• The impact on local government budgets and taxpayers.  The property tax system is different from the sales and excise tax system.  Basically the county government backs into the amount of money raised through property taxes  – which means that when property values change, then tax rates are modified to reflect the change in the mathematical equation.  So under the current use program, when value is reduced in a taxing district,  tax rates go up.  This is referred to as a shift.  It shifts to all of the taxpayers, including the farmer whose land is under current use valuation.  Under this proposal some taxpayers in the state will have shifts of pennies, others dollars.  It depends upon the property in the taxing district.  And, some county budgets will actually lose money.  This is because some districts will be at their rate limit.  The public policy debate here is whether this loss of money and shift of taxes is a good investment in farmland preservation.
• Should we regulate agricultural activities, like aquaculture, through the current use program?  The existing current use program is available to all types of agricultural activities, without exception.  It has been suggested that this extended tax treatment for the land under the farm residence should not be available to small farms whose agricultural activity is aquaculture.   We suggest this is the wrong approach and here is why.  First and foremost, the current use tax program is not a tool to be used punitively or a tool for leverage on other issues, such as shoreline management or air pollution.  It could be used this way, but there are other avenues to solve those problems, other tools, other forums.  The current use statute does not require organic versus non organic production; there is no requirement for turkey confinement or free range; there is not a streamside vegetation buffer requirement for current use participants.  The current use program is a straightforward – farm land should not be taxed at fair market value.  It is a mistake, in our view, to tackle the shoreline issues through the property tax code.  Farming is farming.  Aquaculture activities have their pros and cons.  So do dairies, poultry farms, orchards, and so forth. Lets tackle those issues directly through the statutory authority and regulatory framework designed  to resolve those types of disputes. Second, large farms get the tax treatment for the land under their residence regardless of agriculture activity.  This proposal is about fairness regarding tax treatment.  It’s not the environment versus jobs versus farming with this proposal.  It is a simple proposition –  current use valuation for property that is used integral to a farm.

SHB 1437 Strikes the Right Balance

The current use program as it exists today manages risk through a three-tiered approach based on size.  SHB 1437 continues that approach.  The following chart lays out how this will work.  We think it makes sense.  It addresses the need for scrutiny and it acknowledges that the public’s need for accountability increases as the size of the farm decreases.  Lets get on board and go forward with this proposal.  This proposal makes land accessible and available to young farmers, existing farmers, new farmers, and old farmers.  There is nothing wrong with that.

Size of farm	Farms under 5 acres	Farms 5 acres to 20 acres	Farms 20 acres and over
Commercial Activity in the form of Cash Money	yes	yes	yes
Farm residence must be integral to the classified lands	yes	yes	yes
Income requirements for the underlying program	$1500 per farm	$200 per acre
Income requirements if seeking “integral” treatment	$10,000 per farm

Preserving Small Farms – Its Common Sense

By Leslie

The Small Farms Proposal is Good Tax Policy
The legislature will soon be considering if the existing tax policy regarding small farms is fair, and if it is not, what to do about it.

This will be a complex policy discussion and a thoughtful one. When HB 1437 and SB 5327 come up for a hearing many issues will be raised. There are plenty of reasons the small farms proposal is good tax policy. But nothing is obvious and there are arguments on the other side. To get ready for this general discussion lets start with some building blocks.

Tax Policy – Making Choices for Fairness
What is tax policy? Politics and policy making are about making choices.  Tax policy is about making choices regarding taxation. Nothing is perfect, and tax codes are not perfect. Their imperfections are addressed through exemptions, credits, deferrals, and other methods to adjust their impact. For example, the state legislature enacted a law many years ago to take the state and local sales tax off of food. That makes good sense. Likewise, the state legislature has enacted a statute providing unique taxation for manufacturing, because that keeps this state competitive. And the people through a Constitutional Amendment decided that farmland is different from other land.

In 1968 we made adjustments in the tax code to reflect the pressures on farmland.  This is the current use progam, which is the subject of HB 1437 and SB 5327.  The current use property tax progam has an enrollment of over 12 million acres of farmland. Those 12 million acres are a good measure of the success of this program to date. Some of these acres are at risk of leaving the program because of unfair treatment in the tax code. For more information on the issue for small farms, see “Think Outside the Farm” on this blog.

Farmland Preservation is a Hot Topic
Farming continues to bubble up in policy discussions, and for good reason. Throughout the state County Commissioners, County Executives, and City Mayors are taking stands on farmland preservation. Why now? Because so far we as a State have not been able to maintain our farmland base. Farmland is being converted to other uses on a daily basis. This is a pressing issue for a number of reasons, top among them quality of life. By quality of life I don’t mean electronic gadgets and big screen TVs. We are talking clean air, water, and access to food. Food for families, for schools, for farmers markets, for restaurants, for food banks, and on and on. Food and farming are inextricably linked.

Tools for Farmland Preservation
There are a number of ways farmland is preserved. Some farmland is purchased outright by government or nonprofits and leased back to farmers. Some governments or nonprofits purchase development rights in order to preclude any possibility the farmland will be converted to residential or industrial uses. Land use planning and zoning are also used to preserve farmland.

The Current Use Farm and Agricultural Program is another way to preserve farmland. For information on this program see the Resources page in this blog. Farmland enrolled in the Current Use Program is taxed based on how it is used – which means it is taxed as farmland, not as potential residential or industrial land. This is huge. And it works. It keeps farmers farming, and it keeps the land in private hands.  The current use program is a good way to keep stewards on the land and to reduce the cost of governmental services to the land.

None of these tools are free, but the investment is crucial to farmland preservation.

Today’s Current Use Farm Program is Not Perfect, Nor Fair.
SB 5327 and HB 1437 address the imperfections in the existing law.  In a nutshell, small farms do not get current use valuation for all of their land.  Instead an entire acre (which is a big chunk of a small farm) is taxed at fair market value.  This one acre is carved out around the farmhouse.  Fair market value for this land is not reasonable because it is being used for farming, is not being developed, and fair market value is based on the surrounding developed land. For more detail see “Think Outside the Farm.” It all boils down to fairness for program participants and effectiveness of the program. Small farmers are working hard to compete in the marketplace. They compete nose to nose, and hoe to hoe, with large farms on many products. We need to make the competition (and tax code) fair and provide the same tax treatment to all farms, large and small.

SB 5327 and 1437 Fix a Real Problem for Real Farms
If the Current Use Program is aimed at preserving and maintaining the farmland in this state, then lets update it so that we keep small farmers farming.  Small farms are real, they offer meaningful work, food security, and income to the residents of this state.  The presence of small farms in our communities and landscape is something we can no longer take for granted. Its common sense.

What You Can Do – Communicate.
There are innumerable milestones in the legislative process and each step requires input and work.

Go to the Status page for information on what to do next. Reach out to friends and farmers and tell them about this issue.  Talk to the local government officials where you live. Your County Commissioner and County Assessor need to hear from you. The current use program is an important state-wide program, but it translates into results in communities.  What you think makes a difference.

We will update the status page on this website regularly.  And don’t forget to thank the sponsors of this bill, Senators Fraser, Hobbs, and Becker, and Representatives Reykdal, Blake, Haigh, Orcutt, Lytton, and Van de Wege!

Think Outside the Farm

By Leslie

Farmland Preservation Through Tax Policy

In 1968 the voters of this State passed a Constitutional Amendment authorizing the State Legislature to use tax policy to protect, preserve, and conserve farm lands.  The amendment was approved by 68% of the voters. It authorized the use of current use valuation, as opposed to valuation using ”true and fair value.”    Current use valuation relates to the productive and actual use of the land.  Valuation based on true and fair value uses comparable sales data, is based on speculative use, and results in a value based on “fair market value” and “highest and best use.”

The practical reality of the 1968 enactment was a finding by the voters that farming is the highest and best use of such lands.

Over the years various tweaks and amendments and improvements have been done to the program.

Forty years ago there was a clear need for farmland preservation.  The need remains, and might be even greater now.  And a few more tweaks are needed so the program is effective for the demographics of today.   The trend in farming is an increase in small farms, and an increase in new farmers.    If the tax policy is going to continue to be meaningful it has to be adapted to these changes in the Washington state agricultural economy.

Two Categories of Farms – Small and Large

The current use program divides the farm universe into two buckets – small farms and large farms.  Small farms are under 20 acres and large farms are over 20 acres.

Large farms are taxed based on the “current use” value for all of their land.  Small farms are taxed at “current use” on most of their land, but not the land under the farm residence.

Both small and large farms pay tax on their structures based on the true and fair value of those improvements.

The One Acre Tax Burden is Unfair for Small Farms

In establishing the assessed value of small farms the County Assessor carves out one acre around the residence and taxes the one acre at “fair market value.”  That means  this chunk of the farm is taxed at the going price for lots and developments and residential acreage.  And because many small farms are on the urban fringe, in developed areas, or in areas of sprawl, these “one acre” lots inside the farm come with a hefty tax assessment.  The hefty tax assessment increases the cost of doing business.  Small farmers are small business and this property tax treatment has a significant impact on their ability to compete.

Taxing the land under the farmstead does not make sense.  And it is not fair.  There really isn’t a one acre lot within the farm.  And there really isn’t a one acre piece the farmer can sell.   Large farms obviously depend on the land under their farm house to operate their farm and small farms do too.  They should be treated exactly the same.

We Need Small Farms

This issue impacts all of us.  If the small farmer can’t afford to live on his or her farm, they just might not farm.  The contribution of small farmers is a benefit to all of us, and we cannot afford to be without them.

Lets fix this.  The legislature can address this issue with some simple language, and it won’t cost very much.   The proposal just provides the exact same tax treatment to small farms that large farms have today.  The land under the farmstead will be taxed at current use, instead of being taxed as a residential one acre lot.  This will reduce the cost of doing business and will keep small farms in business.

Take a look at the table in the Summary, which shows that if the proposal is enacted the average homeowner in King County will pay an extra 53 cents a year, while the average homeowner in Spokane County will pay an extra $1.72 a year.  In addition, taxing districts will experience a small loss.  This is a small investment for individuals to make for a big return.  Like residents all over the state, the people of King County and the people of Spokane County appreciate farmers and value their contribution to the local economy.

Lets stand by the principles of preservation and protection.   We can provide an environment in which farmers can stay in business.  Lets think outside of the farm.