A Tale of Two Borders: Use‐Value Assessment, Land Development, and Irrigation Investment

Abstract

Since 1960, all 50 states in the US have adopted some form of preferential tax treatment for farmland. These provisions often take the form of use‐value assessment, where farmland is taxed on the basis of its value in agricultural production, as opposed to its full market value. While the main goal of use‐value assessment is to slow the conversion of farmland to non‐agricultural uses, other channels of influence are also possible, such as those stemming from reinvestment of foregone tax expenses. Despite its widespread nature, there is little empirical evidence pertaining to the influence of use‐value assessment on land‐use or investment decisions. Using a postmatching difference‐in‐differences framework, we exploit the temporal and spatial discontinuities surrounding the adoption of use‐value assessment in Kansas in 1989 to measure how use‐value assessment affected plot‐level land development and irrigation investment decisions. The results of our analysis indicate that, as intended, the use‐value assessment policy curtailed development in the Kansas City metropolitan area. Evidence regarding the potential investment‐spurring effects of use‐value assessment is more mixed, suggesting that farmers may have increased irrigation in some areas because of use‐value assessment‐induced tax savings.

A major shift in U.S. land development avoids significant losses in forest and agricultural land

“…The NRI data have been used in a number of previous empirical studies of land-use change (e.g. Lewis and Plantinga 2007, Lubowski et al 2008, Lawler et al 2014, Bigelow and Kuethe 2020. We aggregate the plot-level NRI data to the county level (the finest geographic resolution possible) to generate our main findings concerning the spatial and temporal pattern of land development across the U.S. Data on other variables that enter the analysis come from well-known publicly available sources, such as the U.S. Census Bureau and Energy Information Administration, and are described in greater detail in SM appendix A.…”

The impact of preferential farmland taxation on local public finances

“…UVA policies vary along several dimensions, such as the income or acreage qualifications required for participation, whether or not qualifying farmland owners are automatically enrolled, and the presence of development penalties which require repayment of foregone tax expenses if the enrolled land is developed in the future. In addition to the small literature studying the effects of UVA on local public finance, other studies have examined how UVA affects farmland preservation (Morris, 1998;Bigelow and Kuethe, 2020), land values (Carman and Polson, 1971), farm investment (Conklin and Lesher, 1977;Bigelow and Kuethe, 2020), and the incidence of benefits derived from UVA (Dinterman and Katchova, 2019). In addition to farmland, preferential property tax policies in a number of states also apply to forestland, open space, and historical sites (Bell, 2012).…”

A survey of literature examining farmland prices: A Canadian focus

“…They find that the ALR, which is designed to prevent urban development on farmland, affects farmland prices. This effect varies over time and depends on whether or not the land is 17 Bigelow and Kuethe (2020) show that a preferential tax treatment policy in Kansas had the intended effect of curtailing development in the Kansas City metropolitan area. They also find that the use-value assessment may have increased irrigation investment in some areas due to tax savings.…”