Wednesday, February 1, 2012

Does This Make You Laugh or Cry?

Here is a news report from today's Bismarck Tribune on the recent increases in Ag-land valuations. When I read this I don't know whether to laugh or cry. It almost makes my head explode, it is so incomprehensible.

Folks, this is what our opponents call "keeping it local." What do you call it?

"Staff from the North Dakota Tax Commissioner's office and the Agriculture Department held a meeting Wednesday afternoon to provide information on why owners of agricultural land are facing a nearly 30 percent increase in land values in 2012...Goehring said the primary reason for the increase in land value was because of a lowering of the capitalization rate for agricultural land.

Goehring said a statutory minimum capitalization rate, or "floor," was set by the Legislature in 2004 at 9.5 and had declined to 7.4 percent by 2011. The floor lapsed after 2011. When the capitalization rate is lowered, it results in higher land values.

Fong explained that when the floor set by the Legislature lapsed, the rate was determined for 2012 using the method used prior to the floor being set. The capitalization rate, therefore, was calculated using the 10-year average of mortgage rates on North Dakota farmland loans. The rate is determined by the Agribank mortgage rate of interest for North Dakota.

Using that form of calculation rather than the floor set by the Legislature, the rate was lowered from 7.4 percent to 5.864 percent for 2012.

"That contributes to 26 percent of the 29 percent increase," Fong said.

Two other factors also played a minor role in the increase, Fong said.

One factor is production data, which is the annual gross returns for cropland and non-cropland. After taking production data from the previous 10 years and dropping the high and low production year, an eight-year average is calculated. Higher production leads to higher values. For 2012, increases ranged from 5.9 percent to 17.4 percent for cropland. Non-cropland production increased by approximately 1.9 percent.

The other factor is the cost of production index. It is calculated by using input costs such as fertilizer, fuel and equipment as well as wages and taxes. After taking 10-year data, dropping the high and low years, an eight-year average is calculated. For 2012, Fong said, the cost of production index increased to 1.47, up from 1.39 in 2011. That resulted in a 5.4 percent decrease in land agricultural values for all North Dakota counties."

Read the entire article:

No comments:

Post a Comment