# Key Findings

The purpose of this report is to provide projections of property tax for agricultural land in Ohio for tax years 2019 and 2020. The projections apply for all soil types in Ohio enrolled in the Current Agricultural Use Value Program (CAUV). Further, the CAUV formula that is used to calculate CAUV values based on soil types is explained, along with the components of the formula and the assumptions that are used to make expected, high, and low CAUV value projections for 2019 and 2020. Legislation passed in 2017 altered CAUV calculations, which are detailed in this report. We explain the current methodology for calculating CAUV values and how these projections were made. We used Ohio Department of Taxation (ODT) descriptions of calculations, the Ohio Code of legislation on CAUV, and the phase-in legislation for the new calculations.

Key Findings

• Project a decrease in the average CAUV value across all soil types in Ohio to approximately $875 in the 2019 tax year. This represents a -14% change from the average 2018 CAUV value of$1,015, although counties receiving updates in 2019 last updated CAUV values in 2016 and we project a -33% change from the average 2016 CAUV value of $1,310. • The 2019 tax year is the third year of the phase-in from large-scale changes in the calculation of CAUV values. If the phase-in procedure was not in place, then the average 2019 CAUV values would have further dropped to approximately$730.
• Due to uncertainty in finalized input data used in our 2019 CAUV calculations, it is possible for the average CAUV value to change from 2018 average CAUV value by as much as -22% while it is also possible for the average CAUV value to rise by over 27%. However, an increase in CAUV values for 2019 is unlikely.
• Current CAUV projections for the 2020 tax year, which represents the first year without the phased-in procedure, expects a further decline in the average CAUV value to $585 which would be a -33% change from current projections in 2019. Counties receiving an update in 2020 last received an update in 2017 and we anticipate a -49% change from 2017 when the average CAUV value was$1,155.
• Due to uncertainty in finalized input data used in our 2020 CAUV calculations, it is possible for the average CAUV value to change from 2019 average CAUV value by as much as -42% while it is also possible for the average CAUV value to rise by over 8%. However, an increase in CAUV values for 2020 is unlikely.

# CAUV Value Projections for 2019 and 2020

In 2018, the average CAUV value across all soil types was $1,015 per Ohio Department of Taxation (ODT). Our projection for the average value of CAUV in the 2019 tax year is$873. Our projections are partially based on how the CAUV formula use Olympic averaging3 for certain components and it is possible for a potential high of $1,292 and a low of$788 for average CAUV values. However, eventual CAUV values are unlikely to have a substantial divergence from our expected projections based on the currently available data for components which use Olympic averaging.

Updates to CAUV values do not occur equally across Ohio as there is a rotating schedule for tax assessments in Ohio. Once every six years, a county receives a full reappraisal of their property with an adjustment in the third year in between. Each county receives an update to their CAUV values for the years a reappraisal or adjustment occurs. About a quarter of the state received a CAUV value update in 2018, another quarter in 2019, and about half of the state will see updates in 2020. Figure provides a reference for when a county receives an update to their CAUV values:

CAUV values contain 5 major components used as inputs for projecting values: capitalization rate, commodity yields, commodity prices, commodity acreage/rotation, and non-land input costs. The commodities used in CAUV are corn, soybeans, and wheat. Each of these components are projected into the future to obtain the projections for 2019 and 2020 CAUV values.

Our projections for the CAUV values in the 2019 tax year are for the components of commodity yields, commodity rotation, and capitalization rate to remain largely unchanged from 2018. Input costs are expected to decline, although this is counteracted with commodity prices similarly expected to decline. Under the expected scenario, the average CAUV value will continue to decline by a similar proportion as the fall in the CAUV values from 2016 to 2017 and then to 2018. Grouping soil types based on a productivity index can help display how similarly productive soils are expected to decline in our 2019 projections:

The projected CAUV values are partially offset by the current provision in the CAUV calculations that phases in the new formula for CAUV, smoothing the adjustment to lower CAUV values the one cycle of property reassessment rather than these declines occurring immediately. The 2018 values had an adjustment factor where only half of the difference was included between the 2017 CAUV value and what the pre-adjusted 2018 CAUV would have been. This also occurs for 2019, where if the calculated CAUV value in 2019 is lower than the 2018 CAUV value for a soil type then only half of the difference is factored into the actual 2019 CAUV value. While the projected average CAUV value for 2019 is $873, the value would have been$730 without the phase-in. Figure shows how much this adjustment for phasing in of the new calculations differ by soil types:

This adjustment procedure will not be present in the 2020 tax year and beyond as the phase-in was only intended to affect one set of phased-in values based on the triennial update of property assessments. Because of this, we have further pushed our projections for the 2020 tax year by extending each component in the CAUV calculation an additional year with as much of the available data as possible.

Our preliminary results indicate stable values for commodity yields, commodity rotation, and capitalization to remain similar to our projections for 2019. Further, the input costs and commodity prices are anticipated to further decline with a more pronounced decline for prices than input costs. At this time, our expected projections for the 2020 tax year are:

# Current Agricultural Use Value Program Overview

In 1974, Ohio enacted the Current Agricultural Use Value Program (CAUV) as a tax incentive for farmers to continue agricultural production on their land instead of selling it due to urbanization pressure. CAUV provides an appraisal method for valuing agricultural land by use of only agricultural inputs rather than the market value of land. Throughout the 1970s, other states adopted similar programs of differential appraisal methods of agricultural land and, as of 2014, all 50 states within the US provide some form of differential tax treatment of agricultural land. While each state has its own reason for enacting preferential tax treatment and its particular calculation, the intent behind differential taxation is generally understood as applying a net present valuation of agricultural production that is not tied to potential urbanization development pressures. Ohio is no different and has developed its own calculation method that depends on soil quality, commodity yields/prices/rotation, operational costs, and capitalization rate. The basic premise has been in place since the late 1970s although the program has become more sophisticated and received substantial updates in 2006, 2015, and most recently in 2017 that have affected the calculation of CAUV.

No matter what commodity a farmer produces, their CAUV value is determined solely based on their soil type and a formula from the Ohio Department of Taxation (ODT) which aims to represent the expected returns for an average farmer in Ohio. A simplified version of the calculation can be stated as:

The CAUV value is the expected net present value of an acre of land based on expected net income of the land used for agricultural purposes. To determine this, first a historical average of yields and prices for corn, soybeans, and wheat is used to determine gross income. Then historical non-land costs – provided by The Ohio State University Extension – are subtracted from gross income for a measure of net income. And finally, this net income is divided by a capitalization rate based upon historical values of farm interest and equity rates. This CAUV value will vary based upon the particular soil type(s) for a farm.