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Lawmakers Look to Restrict Farmland Tax Break to Working Farmers

The state's farmland-assessment program is very generous about what qualifies as agricultural acreage -- and for a sizable tax discount.

Percent of property with farmland assessment

None

Less than 2%

2% - 15%

15% - 50%

More than 50%

The percentage of land assessed as farmland in 2012. Click on a municipality to see details about farm lands. The individual dots are the approximate locations of some properties with farmland assessment whose primary purpose is likely not farming -- for instance, a corporate office park or the home of a congressman or celebrity. Click on a dot to get more information about the property.

Source: N.J. Department of Taxation report and NJ Spotlight analysis of individual property assessment and tax data.

farm
Credit: Daniel Case

Rockers Bruce Springsteen and Jon Bon Jovi, Congressmen Jon Runyan, Scott Garrett, and Rodney Frelinghuysen, and Forbes magazine publisher Steve Forbes are all famous New Jerseyans to one extent or another.

They have something else in common: All own property assessed as farmland that gets a large tax break on the acreage due to its agricultural use -- through raising honeybees, selling Christmas trees, breeding miniature donkeys, or leasing to a farmer.

Legislators in Trenton have finally sent the governor a bill seeking to weed out what one state senator calls “fake farmers” by requiring some farmers to generate more income to qualify for a tax break. Whether the bill will succeed in its goal is unclear.

There are no current statistics to indicate how many farmland-assessed properties would be affected by a provision in the bill (S-589) to double the minimum farm-income threshold to $1,000.

Properties with a woodlot management plan, which outlines how the owner will manage forest acres, would not be affected by the $500 increase. And the bill does not address either corporations that get a tax break by leasing their land for farming or land speculators who keep property in farmland or woodlot status until the time is right to develop it.

Under the farmland-assessment program, enacted after voters overwhelmingly passed a constitutional amendment allowing for differential assessments 50 years ago, a property of at least five acres used for agriculture or woodland management with at least $500 in sales and payments can be assessed at a fraction of market rate. The amounts ranged from $10 to $1,032 an acre last year, depending on soil quality. An analysis of state tax list data shows that roughly 990,000 acres -- about 18 percent of the state’s land -- is farmland assessed.

Sen. Jennifer Beck (R-Monmouth), a cosponsor of the bill, said she worked with the New Jersey Farm Bureau to refine the measure over the past five years and get agreement on its passage.

“There are still a lot of fake farmers doing the bare minimum and getting this tax break,” Beck said last June before a crucial vote by the Senate Budget and Appropriations Committee. “To me, it’s a violation of the public trust.”

Beck has been crusading to amend the state’s farmland-assessment law since joining the Senate in 2008. She defeated then-Sen. Ellen Karcher, a Democrat, in part by criticizing the differential assessment Karcher got on her 8.5 acres for selling Christmas trees and wood.

But Jeff Tittel, head of the Sierra Club in New Jersey, said the final bill was not worth the wait.

“The only thing worse than no reform is fake reform,” Tittel said. “This is going to have a very minimal impact.”

He predicted the bill, if signed by Gov. Chris Christie, will not affect wealthy owners of large tracts of land, real estate speculators, or corporations because they will be able to meet the new income requirement.

Click to enlarge.

That’s OK, said Bob Williams, a forester with Land Dimensions in Glassboro. There are benefits to both companies and the wealthy receiving a farmland tax break for leasing their land to farmers to till or stewarding a forest.

“It does help perpetuate open space,” Williams said. “Although the taxes are significantly reduced, it does still provide tax revenues on land that needs little or no services.”

Much has been written in the past about rich and famous New Jerseyans like Springsteen, Bon Jovi, Forbes and Whitman getting a preferential farmland assessment, but it's not just the rich and famous who are getting a break on their taxes. A number of companies whose primary purpose is not farming, including those with instantly recognizable names -- including Exxon, Merck, and Merrill Lynch -- are all benefitting from lower assessments on hundreds or thousands of acres of land.

A Cumberland County producer of sand and construction aggregates has more than 11,000 farm-assessed acres. Others with farmland assessments include PSE&G, Six Flags Great Adventure, and the Hercules brownfields site in Roxbury. Numerous land development companies and realty firms also own thousands of acres assessed as farmland.

The 2006 Constitutional Reform and Citizens Property Tax Constitutional Convention criticized the last group in its report, stating, “The farmland-assessment program was never intended to serve as a property tax break for land speculators to the financial detriment of other property taxpayers in a community, as is often the case now.”

An Unknown Quantity

Because of the complexity of the issue, it is impossible to put a figure on the amount of money in tax breaks being given to so-called fake farmers, in part, because there is little agreement among those involved in the debate over what constitutes one.

Tittel said that a 1999 study in which the Sierra Club participated found that abuse of the farmland-assessment program cost municipalities $300 million a year. Today, that could be closer to $600 million, he said.

Having a farmland assessment is something politicians tend to not want to discuss. After all, they have been questioned on it time and again. Unlike Karcher, though, having a farmland assessment has not always meant defeat.

For instance, Christine Todd Whitman defeated Gov. Jim Florio in 1993 despite the Democrat’s making hay of Whitman getting a farmland assessment on the 200+ acres known as Pontefract that straddles the Tewksbury-Bedminster border. The properties are now listed in the name of her husband John and children Kate and Taylor.

Still, no one from the offices of any of the three congressmen who receive the preferential treatment -- U.S. Reps. Jon Runyan (R-3rd), Scott Garrett (R-5th), and Rodney P. Frelinghuysen (R-11th) -- returned requests for comment.

Here’s what tax records show about their properties:

Runyan, a former football player, and his wife Loretta have 20.3 farmland-assessed acres in Mount Laurel on which they paid $124 in taxes in 2011 and 2.8 acres that include their home on which they paid $61,627. He reportedly raises miniature donkeys and sells firewood from his property.

Garrett, a former state assemblyman considered the state’s most conservative congressman, and his wife Mary Ellen have 9.9 acres in Wantage assessed at $617 per acre last year and a house on 1 acre, with the land assessed at $137,500, so they paid $6,324 on the home and $125 on the farmland in 2011. He wrote on his campaign website that he and his wife “are raising our family on this land” known as Shale Hills Farm that his brother Mike farms and from which he sells Christmas trees.

Frelinghuysen, a former state assemblyman rated the nation’s 16th wealthiest congressman by Roll Call newspaper last year, lives on 7.2 acres assessed at a market rate of $2.3 million in Harding. He is also listed as the owner of 17.9 farmland acres in Frelinghuysen Township that were assessed at $8,300, or $463 an acre, and on which he paid taxes of $175, or $10 per acre in 2011.

There is farmland-assessed property in the family of Assemblyman John Burzichelli (D-Gloucester) and a cosponsor of the bill that would increase the income required to qualify for the lower assessment.

Burzichelli said his grandmother owned the 6.4 acres in Greenwich, Gloucester County, and had leased it to a farmer for $300 a year for decades because she enjoyed living on the large property and the extra income helped her afford to stay there. She died and his father and aunt now co-own the land through his grandmother’s estate and are trying to get it preserved. The famer who leases the land grows soybeans and earned more than $1,000 in income last year, so the property is likely to continue to keep its farmland assessment.

“It looks like Thanksgiving dinner is still on,” Burzichelli joked.

Burzichelli cochaired the 2006 Joint Legislative Session that had recommended changes in the farmland-assessment program and said lawmakers had wanted to act back then but the issue was too contentious. He said he is glad the Legislature was able to pass the bill this year as an “incremental” step in cracking down on “fake farmers” while keeping real farmers in business.

“The spirit of the bill is absolutely correct,” he said. “We want to keep land in active farming. There is a trade off with taxes but there’s a benefit we all get out of it.”

Burzichelli estimated 40,000 acres of land statewide that is currently farmland assessed likely would not qualify in 2015, the effective date of the bill, due to the more stringent income requirement.

The legislation would increase the amount of income derived from the first five acres of farmland from $500 to $1,000 on lands in agriculture and horticulture -- crop, pasture, and boarding -- and maintain the additional requirement of $5 in income for each additional acre.

But that would not increase on woodlots, which would stay at $500 in income for the first five acres and $.50 per additional acre, or forest stewardship land, which has no income requirements. It also would require a state committee to review the minimums at least every three years with an eye toward increasing them when appropriate.

The current $500 amount has not changed in the 49 years the law has been in place. Adjusted for inflation, that would equal about $3,700 today, according to the U.S. Bureau of Labor Statistics.

Other provisions of the bill would establish penalties of $5,000 for intentionally misrepresenting an application to qualify for an assessment; waive the rollback tax for those who no longer qualify due to increased income; require state agriculture officials to draft guidelines to help tax assessors determine what land qualifies; and mandate additional training for assessors on the issue.

A 2008 report by the Food Policy Institute of Rutgers University, which called New Jersey’s farmland-assessment program “a critical agricultural retention policy,” estimated that a $1,000 minimum income threshold would lead to the exclusion of about 10,500 crop, pasture, and equine acres and 33,800 in woodland acres, but the latter is not included in the bill that passed both houses last week.

Thus far, Christie’s office has been mum about whether he will sign the bill.

Down on the Farm

Peter Furey, head of the New Jersey Farm Bureau, said the bill will impact the owners of all farms smaller than a dozen acres in some way, even if just in additional scrutiny.

“The bill calls for the adoption of guidelines with input from the NJDA [agriculture department] that will set forth minimum standards for ag production practices on small acreage parcels,” he said.

“The goal is to weed out property owners who are ‘faking it,’ regarding farm practices. The bill itself with its underlying language will signal to assessors and the courts that the Legislature wants to toughen the standards for small parcel qualification. It does so with the farm community's support. The show of support is what assessors need to motivate them in issuing denials to dubious applications for the farm tax preference.”

Furey said the bill is not targeting small farmers, though.

“Owners of small parcels have nothing to fear if they adhere to normal production practices for small farms,” he said. Still, “some will fail and be dropped; others will do what will be needed to stay in compliance.”

The Rutgers report, called “Evaluating Changes in the Eligibility Provisions for Farmland Assessment in New Jersey,” also looked at farmland laws in other states in the northeast. Those ranged from Connecticut, which has only minimum size requirements and no minimum income requirements, to New York, which requires income of $50,000 or more on farms of less than seven acres and $10,000 on larger farms. Pennsylvania’s program requires 10 acres and a minimum of $2,000 in income.

The report made this cautionary statement: “Any conversion of agricultural and forested land into nonagricultural uses would result in both land use and fiscal consequences for impacted communities. While the fiscal implications of such land-use transitions will be location-specific, it is well established that agricultural land, even under farmland assessment, is a good tax-ratable. In contrast, residential development often strains local finances, increasing local and educational expenses disproportionately more than it increases local tax revenues.”

But when a property is assessed at a lower rate than the properties around it, the other land owners have to pay proportionally more in taxes to support the services in a community.

Scott Olson, a councilman in Byram, said the farmland assessment given to Western World Inc. for 48.6 acres on Route 206, known as the Village Center, is an example of a “major fault” with the program.

“For the 16 years that I've lived here, it has been zoned for intense highway business/residential use,” said Olson. “This is very valuable property, along a major state highway just off an interstate, that is being ‘banked’ as farmland until it is developed. The residents of the town are paying taxes and creating equity for the property owner by building and maintaining local schools, roads, and other infrastructure, and therefore increasing the value of the raw land.

When the land is finally sold to be subdivided and developed, the property owners will profit greatly on the ‘tax investment’ made by long-term residents, with only a minimal portion of that investment paid back through the assessment rollback.”

Under state law, when a farmland-assessed property is developed, the property owner has to pay the current year and two prior years’ worth of taxes at the market rate.

The joint committee in the 2006 report recommended expanding that, and a bill in the Legislature would increase the rollback amount to six years, but that measure has not even received a hearing.

Tittel termed the current rollback “a pretty small penalty” that does little to deter land development companies, which own thousands of acres in Hunterdon, Middlesex, Monmouth, and other counties. He said there is a developer in Ringwood who is getting a preferential farmland assessment on property that he is currently developing and he is using the trees on the property to build the houses and meet his agricultural quota.

The Sierra Club supports increasing expanding the tax rollback to 10 years and using the money to buy and preserve farmland, Tittel said.

The current bill “will not do anything to deal with the wealthy, the land speculators, and the corporate office parks doing this to escape taxes,” Tittel said.

Exxon Capital Corp. has a farmland assessment on 607 acres surrounding its office in Clinton Township. Located on Route 22 right off Route 78, the farmland is assessed at $608 an acre and paid a total of $7,670 in taxes in 2011, which is almost $2,000 less than the average Clinton Township resident paid in property taxes on his or her home that year.

According to papers it filed with the township, the farmers who work Exxon’s land grew hay, rye, soybeans, and wheat on about 455 acres and 237 acres were woodland or wetland. By contrast, the 24 acres of the complex assessed as vacant land, rather than farmland, were valued at $2.2 million and had a tax bill of nearly $47,000.

Furey said working large plots of land owned by companies and individuals is the only way many New Jersey farmers can continue to stay competitive.

“These lands are very important to farmers who lease them,” he said. “To disqualify non-farmer owned land from farm assessment, you would remove almost 50 percent of the farmland in the state. The farmers who rent that land would be crippled, unable to afford the higher rental rates and therefore unable to farm a critical mass needed to make a living or keep the business viable … Knock out farm assessment and the resulting higher taxes would either force development or sale to another non-farmer. Neither option is good for the farmer or the goal of preserving open space.

“Corporations pay full property taxes on their buildings and land under those buildings. The taxes they pay on the farmland, albeit reduced, still exceed the cost of municipal services, making it a positive ratable,” he added.

Tittel disagreed, saying that the rest of the taxpayers in a community have to pay to make up for the break given to a company.

“What they don’t pay, the rest of us pay,” he said.

He urged an amendment to the bill to require that farming has to be the “primary economic use” of a property in order for it to qualify for an assessment.

PSE&G, the utility serving about half the state, has about 1,800 acres, mostly in Cumberland and Salem counties, assessed as farmland. Karen Johnson, a company spokesman, said it was farmers who first approached the company seeking to farm the property and most of the South Jersey land was acquired as part of PSE&G’s Estuary Enhancement Program begun in 1994 to restore and preserve salt marsh and adjacent uplands. Most of the farmers are growing soybeans, as well as some hay and corn. She said the lower assessment is valid and helps the utility’s ratepayers.

“We have a responsibility to lower operating costs wherever possible,” Johnson said. “The current laws allow for property owners that either farm or have their land farmed to take advantage of the farmland-assessment program. It’s a beneficial use of the property.

Tittel questioned the validity of granting farmland assessment to Whibco, a large sand company in Maurice River that has more than 11,600 acres assessed at about $140 per acre as farmland.

“They are making millions of dollars destroying the land for gravel and sand and they get a farmland assessment,” Tittel said.

Wade Sjogren, president of Whibco, referred questions to Williams, who provides forestry services to the company. Williams declined to discuss the specifics of Whibco’s situation, but said that to keep New Jersey green, it is vital to continue to support those who own and keep land open through the farmland-assessment program.

“If you tax a cornfield like a condo, it’s going to become a condo,” he said. “The intention of the law is to keep agriculture viable . . . I disagree with all those jealous people who say they are fake farmers. I think the governor should sign the bill and let us all get on with our farming.”

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