A client of ours passed away recently, leaving as part of her estate 28 acres of agricultural property that qualified for many years under state law for the lower property tax classification of “Green Acres.”  The land had been in her family for three generations and upon her death transferred through her trust into her husband’s name. Of the 28 acres, 20 were tillable. This transfer occurred after the Minnesota Legislature’s adoption on May 21, 2008, of the new “Green Acres” law and immediately triggered the withdrawal of the eight non-tillable acres from the “Green Acres” provision. This subjected these eight acres to significantly different property tax exposure. Under previous law, the husband would have been able to keep all 28 acres under the “Green Acres” provision, but under the 2008 amendments, he will face either three or seven years of deferred taxes despite no change to the overall productivity of the 28-acre agricultural property.

The “Green Acres” program began in 1967 and was intended to equalize property tax burdens for agricultural land owners and protect agricultural use from higher taxes associated with encroaching development. For example, if a farm was located near a growing residential community its highest and best use may be as residential development, which would then create a higher land value and in turn higher taxes, potentially eliminating the feasibility of the farm operation. The provision deferred qualifying land from those higher taxes as long as the land continued to operate as qualifying agricultural land. The deferment amount was identified by valuing the property as agricultural use only, ignoring any external real estate influences.

In 2008, the Office of the Legislative Auditor issued a report that suggested a number of changes to the Green Acres law. The Auditor’s Office was critical of the “Green Acres” program in a number of respects, including the following: it did not help all who could have been eligible; it was short term and tenuous; it was unclear concerning the goals for including untillable land; the income threshold and definition of “primarily” agricultural land was outdated, difficult to implement fairly, or created inequities; and administration of the program was inconsistent. Based on these findings the report recommended significant changes to the “Green Acres” provision.

Acting on the report, in 2008 the legislature changed the “Green Acres” provision. The changes redefined the nature of “Green Acres” and immediately caused outrage and concerns throughout the agricultural and assessing communities. The changes resulted in assessors being charged with the duty of defining what land qualifies, and what does not qualify. As a result, the determination of what land is qualified became subjective and forced significant expenses on assessors to re-evaluate all land that was part of the program. Previously, non-productive land that was part of an overall productive agricultural property was allowed to be included in the “Green Acres” program; the 2008 legislation removed non-productive lands from the program. In addition, the payback period for non-productive land when it is withdrawn from the program was also changed. Under the new law, owners of non-productive land (land rejected based on the assessor’s definition of “primarily” agricultural) have two choices: the land may be removed from the program and the owner may pay three years of deferred taxes; or the non-productive land may be grandfathered in and the owner may pay up to seven years of deferred taxes upon transfer of the land in the future. This creates an increase in taxes for agricultural land owners that now find they have non-qualifying land as part of their overall agricultural property.

In response to the public outrage, new bills have been proposed this year in the House and the Senate to essentially repeal the 2008 law. The proposed bills would restore the income requirements for determining what is “primarily” agricultural, preventing the subjective determination of what is qualifying land. The bills would repeal the exclusion of non-productive land that is part of an overall qualified property, aiding the assessment process and protecting owners of wetlands, woods, and other natural land features from the higher taxes under the 2008 law. Furthermore, the bills also eliminate the new payback requirement, allowing landowners to preserve the favorable tax classification and maintain the benefit of operating a farm upon transfer of title. Overall, the 2009 proposed legislation, as currently proposed, would return the “Green Acres” provision to its previous standard, protecting property owners and assessors from the significant tax and administrative burden created by the 2008 legislation. If the 2008 amendments are repealed, our client’s husband will be able to continue operating all 28 acres as a qualifying agricultural property under “Green Acres” as it had been for decades.