Law change brings windfall

Some landowners are receiving an incentive payment from the state that is more than double what they pay per acre in property taxes.

Approximately 1,700 owners of land enrolled in the state’s Sustainable Forest Resource Management program are the beneficiaries of an unanticipated consequence of a 2009 law change that has them receiving $15.67 per acre in fiscal year 2011, when, on average, their property tax is $6.16 per acre.

The Sustainable Forest Incentive Act was created by the Legislature in 2001 to encourage landowners to make a long-term commitment to sustainable forestry by meeting certain criteria. As an incentive, owners are eligible to receive a state payment, but not less than $7 per acre in any year.

According to a Department of Revenue memo distributed during the omnibus tax bill conference committee May 3, the windfall comes from a 2008 legislative change that the department tried to address after modifications were made to the 2b tax classification previously used for timberland calculations.

John Hagen, director of the department’s Property Tax Division, said the classification changed to include “all kinds of rural vacant land.”

He said the department realized that the 2b classification could no longer be used to provide an accurate measure of the timber land value. However, after the land was shifted to a 2c classification, the land value average for 2c lands came in at almost double the prior year’s value. “We had erroneously surmised that 2c managed forest lands would have a similar average value to that of the 2b time lands,” Hagen wrote in an October 2010 letter to program participants. “The unanticipated land value resulted in a near doubling of the SFIA payment.”

Both the House and Senate positions in the omnibus tax bill propose to modify the program. Senate Taxes Committee Chairwoman Julianne Ortman (R-Chanhassen) questioned Commissioner Myron Frans as to why the governor doesn’t support a similar modification.

“We understand there is a problem that needs to be addressed, but we don’t have a proposal at this time,” he said.

Ortman said her analysis shows that many of the property owners are from out-of-state. “So we are subsidizing them well beyond what they are paying. This is a troubled program.”