HomeMy WebLinkAboutAgenda - 04-21-1998 - 10aORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: Apri121, 1998
Action Agenda
Item No. ~G _ 4
SUBJECT: Present-Use Value Pro
DEPARTMENT: Assessor PUBLIC HEARING: (Y/N) Na
BUDGET AMENDMENT: (Y/N) Na
ATTACHMENT(S):
Report
INFORMATION CONTACT:
John Smith, ext 2100
TELEPHONE NUMBERS:
Hillsborough 732-8181
Chapel Hill 968-4501
Durham 688-7331
Mebane 227-2031
PURPOSE: To receive a report on the present-use value program of real property taxation.
BACKGROUND: At their March 17, 1998 meeting, the Board of Commissioners discussed
farmland preservation proposals that had been presented by the Agricultural Districts Advisory
Board. The Commissioners requested that staff prepare a report that addresses taxation of farm
property, to include trends in the present-use -value program, which results in taxation of qualifying
properties in an amount greatly reduced from taxes that would be due if those properties were
assessed at market value.
The Assessor, in collaboration with Planning staff, has prepared the attached report on the history of
the present-use value program in North Carolina and recent Orange County use value statistics. The
number of parcels and total acreage in the use value program in Orange County has increased in
recent years. The average market value of properties involved in the program has increased during
that period, while the average use value per acre has decreased.
Staff will make a brief presentation, be prepared to respond to questions, and can bring back
followup reports, as needed, if the Board requires additional information.
RECOMMENDATION(S): The Manager recommends that the Board receive the report for
information only at this time.
MEMORANDUM
TO: Orange County Board of Commissioners
FROM: John Smith, County Assessor
DATE: April 16, 1998
SUBJECT: Present-Use Value Program
BRIEF HISTORY OF THE PRESENT-USE VALUE PROGRAM
Enacted by the General Assembly in 1973, the present-use value program in North Carolina
became a part of the property tax system in 1974. While North Carolina law had always required
that real property be appraised at market value, it was assessed (also by statutory directive), at a
percentage of that market value. Historically, counties had adopted conservative rural land values
(de facto land use, which resembled the present-use value schedules to come). A legislative change
in 1971 added to the pressure being directed on the property tax system. Part of the legislation
governing the taxation of public utilities also provided the impetus to appraise and assess all
property at market value. This statutory change, along with the 4-R Act, required the counties to
tax the public utility property at the same approximate level as all other property.
In the early 1970's North Carolina was becoming a prime destination site as hundreds of large and
small companies located, relocated, or expanded in or near an affordable and reliable labor force.
With this commercial and industrial expansion came job opportunities, in turn luring thousands of
families to settle in or near these developing areas. Almost all of the new development; residential,
commercial, industrial, as well as the new roads necessary to handle this growth, took place on
what had been farmland located on the outskirts of towns and cities. Simultaneously, downtown
business districts (especially retail), suffered as they lost business to shopping centers also being
built on the outskirts of town.
All of these changes within the economy applied pressures on land values for which property
owners and assessors alike were unprepared to handle. In 1973, North Carolina had an overall
increase of 19% in land values. Land close in to towns and cities, especially where located on
major highways and interchanges experienced tremendous increases in value.
Skyrocketing land values, supported by sales where farmland was being converted to non-farm
uses, became the basis for land assessments. This set the tone for very unpleasant relationships
between farmers and counties. It was not uncommon for land values to increase several hundred
percent between reappraisals. Farmers, who had once been a large part of a stable economy as they
competed against other farmers in expanding their land holdings, now found themselves part of a
more robust economy competing against large corporations and land developers. Consequently,
farmers found they could not pay the new market prices and still compete with those farmers who
had or could make lower investments in land due to their location some distance away from all the
new development.
In some counties without the outside influence of development, it was possible for farmland to be
worth $500 per acre. However, with a new road and availability of public utilities (water and
sewer), that same land might suddenly be worth $5,000 per acre. Following the move of several
commercial or industrial properties to nearby sites, the value of the farm property, though
unchanged as to its use, would continue to appreciate rapidly. It was only a matter of time before
the farmer accustomed to paying taxes of $1.50 per acre (based on a $500 value and a $.30 tax
rate), would begin to question his ability to survive as a farmer, especially as his taxes started to
rise to $15 (based on a $5,000 value and a $.30 tax rate) and even more. Not surprisingly, prior to
the creation of the Use-Value Advisory Board, the majority of the public pressure and appeals
arising from reappraisals came from the rural property owners especially farmers, in response to the
"shock" of the new assessments.
The enabling legislation was designed to not force the farm family off their land because of
property taxes. As passed, only individuals could apply and if they did not live on the property for
which they were applying, they had to have owned it for seven years. The penalty for either selling
the land or converting it to anon-qualifying use was severe; afive-year roll-back provision.
Another primary requirement was that the land had to have highest and best use other than its
present use as agricultural, horticultural, or woodland.
Following enactment of the present-use value legislation, some of the reappraisal "shock" began to
be eliminated for owners of qualifying property. The shock shifted to other classes of property-
especially single-family residential, and general commercial/industrial properties. Though not able
to avail themselves of the benefits of the program for present-use value, they were nonetheless
forced to contend with escalating land values.
Numerous amendments have changed the scope and direction of the early legislation. Virtually
every session of the General Assembly has addressed a change or amendment to the general
statutes that deals directly with present-use value. New classes of ownership, less restrictive
periods of ownership, and more owner-friendly requirements have greatly increased the potential
number of participants and reduced the tax base. The manner by which a property may be deemed
qualified has broadened while the average present-use (assessed) value per acre has dropped.
As present-use value schedules are typically much lower than market value schedules for the same
land, virtually all land will receive significant tax breaks if it meets the requirements of the
program. Dropping the requirement that the property have a higher and best use different from its
present use, coupled with the lower present-use value schedules, has opened the program up to a
greater majority of land owners.
Among the more significant legislative changes have been the relaxing of the ownership
requirements (now open to certain corporations, limited-liability companies, and trusts), the
statutory mandate of a 9% capitalization rate, a move to the "unit concept" to include small tracts
that might not otherwise meet the program requirements, and the creation of the Use-Value
Advisory Board. Given the continuing appreciation in the market value of land, these changes
have resulted in anever-widening gap between assessments for market and present-use value.
4
Some of the original legislative goals, such as preserving the family farm, have been met. Property R
taxes have not forced farm families to abandon the farm. The rollback provision for deferred taxes,
originally thought to be a deterrent to conversion of the land to other non-qualifying uses or to
selling the property has not proven to be much of a deterrent. If a property owner has an
opportunity to make a nice profit on the sale of his land, paying the taxes due, including interest on
the deferred amount accruing over the last three years, has slowed few, if any, in deciding whether
or not to sell.
(The preceding section of this report has been excerpted from the North Carolina Department of
Revenue's publication "Assessor's Manual for the Administration of the Present-Use Value
Program, Fall 1997')
LAND IN THE USE-VALUE TAXATION PROGRAM IN ORANGE COUNTY
Following is a detailed summary of data related to the Orange County "Use Value Taxation
Program". The compiled comes from existing hard copy and electronic data and represents the
most accurate and extensive information currently available from our records. The summary has
been developed in a joint effort between the tax office and the Planning Department (Don Belk).
Orange County, as with most counties in North Cazolina, has chosen to employ the per acre
present-use values that are developed annually by North Carolina State University based on various
soil types. During each four year revaluation cycle, the Orange County Board of Commissioners
adopts a "schedule of values" that incorporates the then current per acre value for each soil type.
The change in total land in the Use-Value Taxation Program was calculated for year-end 1996 and
yeaz-end 1997. At yeaz-end 1996, 108,190 acres were enrolled in the Use-Value Taxation program.
At year-end 1997, 110,814 acres were enrolled, reflecting a net gain of 2,624 acres. As the
following table shows, all townships experienced a net gain in total use-value acreage. The
exception was Chapel Hill Township, with a decrease of 714 acres. Bingham Township showed
the lazgest gain in use-value acreage, with 1,236 additional acres. (Change in acreage calculations
aze based on end of yeaz 96 compared to current year 1998, two years. However, the picture is not
accurate since at yeaz end 96 any use program properties that had split in 96 would be split status,
not active status, and therefore would not show up in the calculations. The only accurate way to get
a count from the computer would be to generate the data as of Mazch 99 and compaze those
numbers to these 98 numbers. (This way we will be comparing apples and apples.)
The total number of pazcels enrolled in the Use-Value Taxation Program stood at 2,421 at YE
1997, an increase of 126 over the YE 1996 total of 2,295. Hillsborough was the sole township with
a decline in the number of pazcels in use-value, from 118 at YE 1996 to 107 at YE 1997.
LAND IN THE USE VALUE TAXATION PROGRAM, BY TOWNSHIP
YEAR END 1996 AND 1997
Township Acres in Acres in Change in ...Total Parcels Total Parcels Change in
tValae, Use-Value, Acreage in i7se-Value, in Use-Value, Total
x996 1997 ~ 1996: ~ 1947 Parcels
Little River 15,252 15,585 333 331 343 12
Cedar Grove 30,071 30,666 595 609 654 45
Cheeks 13,389 14,220 831 391 311 20
Hillsborough 4,459 4,689 230 118 107 -11
Eno 9,580 9,694 114 159 168 9
Bingham 22,137 23,373 1,236 450 489 39
Chapel Hill 13,301 12,587 -714 337 349 12
TQTAL, 108,190 130,814 2,G24 2,294- 2,421 126
5
While total use-value acreage increased, total land value declined. Land enrolled in the use-value
program was valued at $22.67 million at YE 1996. However this figure declined to $21 32 million
at YE 1997. Market values for these parcels showed considerable increases from 1996 to 1997.
Total market value was $346 million at YE 1997, versus $273 million at YE 1996.
Average use-values per acre were also calculated by township. The YE 1997 average use-value
per acre stood at $192.36, a decrease from the YE 1996 average of $209.49. Conversely average
market value ner acre increased from $2,524.19 to $3.121.76.
LAND USE ACREAGE BY CATEGORY, YEAR-END 1996 & 1997
Total acreage in the use-value program was broken down into Agricultural, Horticultural, and
Forestry Land Use. The table below reveals that increases in Forestry and Horticultural land uses
are outpacing that of Agricultural Use. Of the total increase in acreage in land-use value (2,623),
72.1 % was in the Forestry category. Forestry and Horticultural also increased their share of total
land use acreage, while Agricultural Use declined slightly.
LAND USE ACREAGE BY CATEGORY
Land Use Category ." ;Year-; " Pct. of Year- Pt:t: Change,
<'End Total, End. ~~: Total Aires
; `']996 1996 1997 Total,
,
.;..:. T~. (acres} . (acres) 1997
Forestry 63,579 58.8 65,476 59.1 1,896
Agricultural 44,606 41.2 45,302 40.9 697
Horticultural 5 0.005 35 0.03 30
Total ~ °' " "108;190 100 110,813 140 2,623
REVENUES FROM USE-VALUE TAXATION PROGRAM
The 1996 levy of taxes from land in the use-value program totaled $997,314. The average tax bill
was $434.56. The average bill in 1996 included an average of 47.14 acres at an average use value
6
of $209.49 per use value acre plus any acreage at market value (average of $2524.19 per acre), such
as homesites, plus building values.
1996 Use Value bill might break down this way:
45.14 acres at use value ($209.49/acre) _ $ 9,456.38
2.00 acres at market ($2524.19/acre) _ $ 5,048.38
Homes and Farm Buildings = $ 25,758.24
Average 1996 Use Program Value $ 40,263.00
Average 1996 Use Program Bill $ 434.56
Average 1996 Tax Rate* $ 1.08/ $100 of valuation
* (average tax rate reflects Countywide, fire district, and CHCCS special district)
Compared to a 1996 market value bill:
47.14 acres at market value ($2524.19/acre) _ $118,990.31
Homes and Farm Buildings = $ 25,758.24
Average 1996 Market Value $144,748.55
Average 1996 Market Value Bill $ 1,562.28
Average 1996 Tax Rate* $ 1.08 / $100 of valuation
In 1997, the levy was $1,098,782, with an average tax bill of $453.95.
1997 use value bill might break down this way:
43.77 acres at use value ($192.36/acre) _ $ 8,419.60
2.00 acres at market ($3121.76/acre) _ $ 6,243.52
Homes and Farm Buildings = $ 33,465.43
Average 1997 Use Program Value $ 48,128.55
Average 1997 Use Program Bill $ 453.95
Average 1997 Tax Rate * $ .943 / $100 of valuation
Compared to a 1997 market value bill:
45.77 acres at market value ($3121.76/acre) _ $142,882.95
Homes and Farm Buildings = $ 33,465.43
Average 1997 Market Value $176.348.38
Average 1997 Market Value Bill $ 1,662.96
Average 1997 Tax Rate* $ .943 / $100 of valuation
(Note: Buildings are taxed at market value. It appears that the typical building valuation is low;
calculated to approximately $33,000 in 1997 valuation when spread across every parcel in the
program. This is due to the fact that large amounts of unimproved acreage are in the use program.
(Many or most have no building value.) This indicates that those in the use program with extensive
building value would receive larger then average tax bills and larger than average valuation
increases at revaluation.)
Payment of deferred taxes to Orange County is shown in the table below. The 1997 total reflects
the removal of the Meadowmont tract from the use-value program, which resulted in nearly
$300,000 in deferred taxes.
Tax Year Deferred Taxes,
County Portion
~~)
1990 43,594.50
1991 ~ 52,387.16
1992 27,077.79
1993 204,119.49
1994 155,690.10
1995 159,830.56
1996 235,360.97
1997 491,471.63
REVENUES FROM FARM EQUIPMENT TAX
According to the 1997 billing, the total value of farm equipment was $7.1 million, and was taxed at
a rate of .00873. The County received $61,983 from taxes on farm equipment.
1997 1993 1997 1993 LAND-USE 1997 1993 MARKET 1997 1993 PARCEL 1997 1993 1997 1993
TOTAL TOTAL ACREAGE LAND-USE LAND-USE VALUE MARKET MARKET VALUE PARCEL PARCEL COUNT USE-VAL USE-VAL MKT-VAL MKT-VAL
TOWNSHIP ACRES ACRES CHANGE VALUE VALUE CHANGE VALUE VALUE CHANGE COUNT COUNT CHANGE AVG/ACRE AVG/ACRE AVG/ACRE AVG/ACR
Little River 15,585 15,252 333 3,129,982 3,322,228 -192,246 37,025,470 28,711,887 8,313,583 343 331 12 200.83 217.82 2375.71 1882.5
Cedar Grove 30,666 30,071 595 5,497,969 6,088,032 -590,063 65,024,539 43,772,744 21,251,795 654 609 45 179.29 202.46 2120.41 1455.6
Cheeks 14,220 13,389 831 2,849,422 2,872,880 -23,458 36,352,102 28,213,453 8,138,649 311 291 20 200.38 214.57 2556.41 2107.2
Hillsborough 4,689 4,459 230 939,468 958,270 -16,802 20,482,937 14,359,128 6,123,809 107 118 -11 200.36 214.46 4368.30 3220.2
Eno 9,694 9,580 114 1,988,250 2,023,527 -35,277 31,773,630 25,038,632 6,734,998 168 159 9 205.10 211.22 3277.66 2613.6
Bingham 23,373 22,137 1,236 4,589,979 4,781,016 -191,037 64,537,344 50,991,975 13,545,369 489 450 39 196.38 215.97 2761.19 2303.4
Chapel Hill 12,587 13,301 -714 2,321,324 2,620,983 -299,659 90,738,442 82,001,304 8,737,138 349 337 12 184.42 197.05 7208.90 6165.0
TOTALS: 110,814 108,189 2,625 21,316,394 22,664,936 -1,348,542 345,934,464 273,089,123 72,845,341 2,421 2,295 126 192.36 209.49 3121.76 2524.1
s -
LAND USE
PARCELS
1997 Levy by
Rate Code
Rate 1997 Total 1997 Parcel Count
Code Rate Parcel Value Levy By Rate Code
00 0.00913 20,020,697 182,789 467
01 0.00931 8,806,371 81,987 200
02 0.0111 1,088,782 12,085 16
03 0.00903 12,376,722 111,762 305
04 0.0114 4,396,431 50,119 63
O6 0.00961 196,348 1,887 1
07 0.011035 3,444,127 38,006 38
08 0.009245 2,441,377 22,571 38
09 0.00924 7,391,950 68,302 119
10 0.00917 16,722,017 153,341 336
11 0.01096 597,583 6,550 18
15 0.009195 18,997,636 174,683 331
16 0.00936 17,070,017 159,775 443
17 0.01085 1,250,216 13,565 22
19 0.01085 1,248,654 13,548 18
0.016895 335,717 5,672 4
0.0159 134,588 2,140 2
$116,519,233 $1,098,782 2,421
Average 1997 $453.85
Bill:
1996 Levy
by Rate
Code
Rate 1996 Total 1996 Parcel Count
Code Rate Parcel Value Levy By Rate
Code
00 0.0104 15,607,023 162,313 445
01 0.010665 6,812,186 72,652 183
02 0.012565 975,463 12,257 16
03 0.010315 9,838,767 101,487 289
04 0.012785 3,959,158 50,618 65
O6 0.010885 156,160 1,700 1
07 0.012475 2,813,374 35,097 38
08 0.010575 1,712,312 18,108 29
09 0.010575 5,035,990 53,256 118
10 0.01049 13,032,517 136,711 305
11 0.01239 426,588 5,285 17
15 0.01044 15,118,859 157,841 318
16 0.010735 14,183,765 152,263 425
17 0.012255 1,061,532 13,009 22
19 0.012255 1,070,170 13,115 18
0.01935 277,811 5,376 4
0.017835 349,220 6,228 2
$92,430,895 $997,314 2,295
Average 1993 $434.56
Bill:
1993/1997 LAND USE
ACREAGE BY TYPE
TOTAUACREAGE AGRICULTURAL HORTICULTURAL FORESTRY
YEAR LAND-USE LAND-USE (TYPE 2) LAND-USE (TYPE 3) LAND-USE (TYPE 4)
1997 110,813 45,302 35 65,476
1993 108,190 44,606 5 63,579
INCREASE 2,623 697 30 1,896
1993/1997 MARKET
VALUE ON
BUILDINGS
ON LAND USE
PARCELS
1997 1993 BLDG-MKT
BLDG BLDG VALUE
MKT VAL MKT VAL DIFFERENCE
Little River 14,681,787 10,568,140 4,113,647
Cedar Grove 14,879,055 10,703,166 4,175,889
Cheeks 7,456,947 5,358,776 2,098,171
Hillsborough 3,700,351 2,639,482 1,060,869
Eno 8,134,404 5,767,462 2,366,942
Bingham 15,708,972 10,973,498 4,735,474
Chapel Hill 15,288,189 12,070,637 3,217,552
79,849,705 58,081,161 21,768,544
DEFERRED TAXES:
AMOUNT OF COUNTY PORTION # PARCELS
DEFERRED TAXES (GO) CODE INLAND -USE
1990 67,586.17 43,59430
1991 60,783.83 52,387.16
1992 35,067.39 27,077.79
1993 373,131.38 204,119.49 2171
1994 181,696.92 155,690.10 2215
1995 204,728.68 159,830.56 2289
1996 322,300.22 235,360.97 2295
1997 811,525.50 491,471.63 2397