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THE BREAKS OF THE GAME

THE HISTORY OF A TAX LOOPHOLE--AND HOW IT GOT PLUGGED.

Sooner or later, just about every politician vows to "close loopholes." This is important so "the rich don't get richer" and people "pay their fair share." But ever wonder how such holes become looped in the first place?

A visit to the state legislature last week helped explain it. In fact, lawmakers narrowly avoided allowing most residents of Larimer County--including every single homeowner in Fort Collins and Loveland--to get away without paying about 99 percent of their property taxes.

Here's what happened:
Colorado permits various agricultural landowners to pay lower property taxes. If they can convince a county assessor that their land is genuinely used for ranching and farming, landowners pay only a fraction--sometimes as little as one-hundredth--of the taxes they normally would pay if their property were assessed as residential or commercial land.

State politicians passed these laws for several reasons. They liked the idea of Colorado holding on to its rural character. And because making a living from the land is an unstable business, with incomes swinging wildly from year to year, it didn't make sense to tax farmers and ranchers more than they might earn off their soil.

These tax breaks don't mean any lost money for the state's counties, which collect the amount they need to operate no matter what. But the breaks do shift the tax burden to everyone else: If one person pays less, everyone else makes up the difference.

Despite this, nearly every legislative session sees some legislator trying to give out more agricultural breaks. In 1990 it was inviting tree farmers in on the tax break. Last year it was "conservation easements," which permit a farmer to keep his low tax rate even if he takes his land out of production. It was seen as a way to preserve open space from developers' appetites.

This year the legislator looking for an additional exemption is Joan Johnson, a Democratic senator from Adams County. It marks a conversion of sorts for her. In previous sessions, she advocated forcing farmers and ranchers to pay their full property taxes on at least the part of their spreads that don't grow anything--for instance, the houses they live in. "The last time I looked, you couldn't grow anything under a house or a swimming pool," she told Westword six weeks ago ("A Sweet Deal," January 3).

Recently, however, Johnson received a complaint from a constituent: His family had stopped farming their land for several years, but the man wanted to keep the land in the family. And the only way he could do it, he told the senator, was to continue to receive his agricultural tax break.

Skip Fisher, the Adams County assessor, saw a problem with this--the state law, which requires that in order for farmers to receive a tax break, they must have farmed their land for the three previous years. Fisher says Johnson's constituent hadn't; Johnson replies that Fisher "is lying." Nevertheless, last year Fisher raised the man's property taxes to normal levels. His tax bill jumped substantially.

The man complained to Johnson. The senator sympathized. Late last month she introduced Senate Bill 157.

Johnson says the bill had two purposes. The first was to allow farmers who couldn't farm their own land for several years to keep their tax break. The second, she claims, was to shock lawmakers into addressing the issue. "This issue has been debated for years and I'm tired of talking about it," says Johnson.

One legislator she ended up surprising, however, was herself. Hoping to target farmland broadly, the senator wrote into her bill that any land within a pest-control district should receive the agricultural tax break. It was a provision that would have had unintended consequences.

Pest-control districts, first written into law several decades ago, are chunks of land whose residents all agree that a certain irritation--in some areas it's a weed, in others it's a grasshopper--needs to be stamped out. The inhabitants vote to spray deadly chemicals on the property, and the county usually does the work. The residents then are billed for it.

The problem with Johnson including the districts in her bill is that many of them are quite large. For example, in Larimer County, pest-control districts encompass "basically...everything east of the foothills," says Steve Miller, who has worked as the county's assessor since 1989. "That includes Fort Collins, Loveland, Berthoud.

"We saw this as a glitch in the bill," he adds.
Consider Miller's problem another way. He says that, for property-tax purposes, all the land in Larimer County is valued at $1.7 billion. Of that, $1.2 billion--just over 70 percent--is in a pest-control district. That would mean the relatively few residents of the western third of the county would be asked to foot the vast majority of the county's operating budget, while most of Larimer's residents would pay next to nothing.

Larimer County is not alone. Large chunks of other counties--Mesa County on the Western Slope and Weld County to the northeast of Denver, for example--are in pest-control districts.

Despite the massive tax consequences, Johnson's bill went to the Senate Agricultural Committee two weeks ago. After emotional testimony from her constituent--and no mention of how much the measure would have cost--the bill whipped through the committee: Six senators voted for it, one against.

"No, that doesn't surprise me," sighs Alan Black, Eagle County assessor. "Nothing the legislature does anymore surprises me."

Because the bill is tax-related, last Tuesday it went before the Finance Committee. This time the state's assessors pointed out that Johnson's bill would exempt huge portions of their counties from paying full property taxes. Even though the bill passed on a four-three vote (Republicans for, Democrats against), the pest-control provision was dropped.

But some assessors still have their concerns. Ginger Chase, Douglas County's assessor, fears that wording in the bill would make it impossible for assessors to reclassify farmland--ever. "As I understand this bill, we couldn't increase the property taxes on farmland even if the farmer sold it to some developer for housing," she says.

Potentially worse, says Black, is that there is no language in the bill preventing residential or commercial landowners from demanding that their land be reclassified as agricultural. "And since everything in the entire state of Colorado was at one time agricultural," he notes, "we could have some problems.

"It just seems to me that the whole concept of this bill is going way beyond the food chain of conserving open space and saving the family farm," he adds.

Johnson, who says she'll be surprised if her bill becomes law, concedes that, "To a certain extent, [the assessors] have a point. Part of the bill was outrageous. But what they're doing is outrageous."

SB 157 next goes to the Senate Appropriations Committee.

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