AN ECONOMIC APPRAISAL OF THE IMPACT OF PROPERTY TAXATION ON NET CASH INCOME FOR DAIRY FARMS IN A RURAL AND. URBAN FRINGE AREA IN MICHIGAN Thesis for the Degree of M‘ Se MICHIGAN. STATE UNIVERSITY WAYNE ALAN KNOBLAUC‘H 1972 L 18 i\ 1‘: A\ - Michigan Scarf: University __.. :rIt’S-‘ ,._ —‘ "Bx-Rome ‘a'v‘ ~; ~ ' NOAH & SONS ‘ I} BOOK BINDERY INC ‘ LIBRARY BINDERS lLstmeeom mommy )V1531_J RETURNING MATERIALS: Place in book drop to LIBRARIES remove this checkout from w your record. FINES W‘III be charged if book is returned after the date stamped beIow. ABSTRACT AN ECONOMIC APPRAISAL OF THE IMPACT OF PROPERTY TAXATION ON NET CASH INCOME FOR DAIRY FARMS IN A RURAL AND URBAN FRINGE AREA IN MICHIGAN BY Wayne A. Knoblauch The purpose of this study was to appraise the current dairy farm situation in a rural and urban-fringe area of Michigan, and to evaluate the present and future economic impact of property taxation on dairy farm stability and income. The objectives of this study were to determine the impact of three differing property taxation methods on the net cash incomes of dairy farmers with two herd sizes, two milk production levels, and four land values. Complete budgets were calculated for the dairy farms with two herd sizes and two production or management levels, and four land values as a base to determine the effect on net cash income of applying different property tax measures. The partial budgeting technique was used to assess the relationship and impact of differing property taxation methods on net cash incomes after taxes. Data for the budgets were obtained from the Telfarm Summary, an electronic record Wayne A. Knoblauch record keeping system of Michigan State University, and a property tax and Dairy Adjustment Survey of the Agricultural Economics Department of Michigan State University. The results of the study showed that all three methods: (1) preferential assessment, (2) removal of the school operating millage and increasing the state income tax to 6.2 percent, and (3) combining (l) and (2), yielded very similar patterns of percent and dollar increases in net cash incomes after taxes. Both preferential assessment and the removal of the school operating millage resulted in greater percentage increases in cash income for the farms with lower production levels and smaller herd sizes. Yet, increases in net cash incomes were greater in absolute terms for the larger herd size than for the smaller herd size. With preferential assessment, net cash income was increased from 6.4 percent or $1,522 for the $600 per acre land value, 86 cow herd with 15,000 pounds of milk production per cow to 133.4 percent or $5,069 for the $1,500 per acre land value, 40 cow herd with 12,000 pounds of milk produc- tion per cow. The elimination of the school operating millage from the property tax and the increase in the state income tax to 6.2 percent, resulted in the same pattern of increases in net income, ranging from 2.3 percent or $585 to 110.6 percent or $4,201. Wayne A. Knoblauch When (1) and (2) were combined, the same pattern of increases in incomes held true. However, the impact of both methods resulted in an additive effect. With this combina— tion, increases in net incomes ranged from 2.3 percent to 148.8 percent, and in absolute dollar terms these increases ranged from $585 to $8,378. In dollars gained, the 86 cow herd on the urban fringe would benefit most from all three alternatives. The implications of this study are: (1) it is generally more profitable to operate a dairy farm in a rural area (2) if the tax systems studied were implemented, a more stable dairy sector as far as number and location of farms are concerned would result. Alternatives available to the dairy farmer in a high rax area are enumerated with the corresponding implications of the actions. AN ECONOMIC APPRAISAL OF THE IMPACT OF PROPERTY TAXATION ON NET CASH INCOME FOR DAIRY FARMS IN A RURAL AND URBAN FRINGE AREA IN MICHIGAN BY Wayne Alan Knoblauch A THESIS Submitted to Michigan State University in partial fulfillment of the requirements ‘for the degree of MASTER OF SCIENCE Department of Agricultural Economics 1972 ACKNOWLEDGEMENTS The author wishes to thank all those who provided assistance and advice for this study. Special thanks to Professor C. R. Hoglund and Dr. L. J. Connor for their generous assistance, comments, and direction provided for the thesis. Aid was also provided by Dr. R. Barlowe, Dr. R. Hepp, Dr. A. House and Dr. L. Libby. Without the advice rendered by these faculty members and the information pro- vided by dairy farmers and county treasurers, this study would not have been possible. An appreciative thank-you is offered to Dr. D. E. Hathaway for the provision of a graduate research assistant- ship received by the author during the course of study. Also, a sincere thank-you to my wife, Barbara, my parents, and relatives for their continued concern and encouragement. ii TABLE OF CONTENTS Page LI ST OF TABLES O O O O O O O O O O O O O O 0 O O O O O V LIST OF FIGURES O O O O O O O O O O O O O O O O O O O Viii CHAPTER I. INTRODUCTION . . . . . . . . . . . . . . . . . l Michigan's Dairy Sector . . . . . . . . . . . 1 Population Characteristics . . . . . . . . . 2 The Taxation Problem . . . . . . . . . . 5 The Relationship of Land Use and Development Patterns . . . . . . . . . . 6 Tax Trends and Levels . . . . . . . . . . . 13 Impacts of Property Taxation . . . . . . . 14 The Thesis Problem . . . . . . . . . . . . . 18 Thesis Objectives . . . . . . . . . . . . . . 19 Data Sources . . . . . . . . . . . . . . . . 19 Method of Study . . . . . . . . . . . . . . . 20 Organization of Thesis . . . . . . . . . . . 23 II. TAXATION OF AMERICAN AGRICULTURE . . . . . . . 26 History of the Property Tax . . . . . . . . . 26 The Trend in Farm Taxes . . . . . . . . . . . 28 The Tax Situation in Other States . . . . . . 30 Legislative Situation in Michigan . . . . . . 45 III. DESCRIPTIVE DATA AND SURVEY RESULTS . . . . . . 52 The Areas of Study . . . . . . . . . . . . 52 Soils of the Areas of Study . . . . . . . . . 53 Background and Growth Data . . . . . . . . . 54 Survey Results . . . . . . . . . . . . . . . 65 Property Tax Survey . . . . . . . . . . . . 65 Dairy Adjustment Survey . . . . . . . . . . 68 IV. THE BUDGETARY ANALYSIS . . . . . . . . . . . . 86 Base Factors for the Budgets . . . . . . . . 86 The Budgeting Variables . . . . . . . . . . . 87 iii Page The Budgetary Results . . . . . . . . . . . . 88 The Impact of Preferential Assessment on Net Cash Incomes . . . . . . . . . . . 90 The Impact of the Removal of th School Operating Millage on Net Cash Incomes . . 92 The Impact of the Combination of Preferential Assessment and the Removal of the School Operating Millage and Adding 2.3 Percent to the State Income Tax Lends on Net Cash Incomes . . . . . . . . . . . .'. . 95 Property Taxes As a Percent of Net Cash Incomes . . . . . . . . . . . . . . 97 Rate of Return on Investment . . . . . . . 97 V. SUMMARY, CONCLUSIONS, AND IMPLICATIONS . . . . 100 smary I O O O O O O O O O O O O I O O O O O 100 Conclusions . . . . . . . . . . . . . . . . . 103 Benefits of Preferential Assessment and the Removal of the School Operating Millage and Replacing it With an Increased State Income Tax . . . . . . . 104 ImplicatiOns . . . . . . . . . . . . . . . . 105 Need for Further Research . . . . . . . . . . 112 A BIBLIOGRAPHY OF THE MOST IMPORTANT SOURCES . . . . . 114 APPENDIX A. Tax and Income Data . . . . . . . . . . . . . . 118 B. Background Data and Survey Results . . . . . . 119 C. Budgeting Data . . . . . . . . . . . . . . . . 131 iv 10. ll. 12. LIST OF TABLES Number of dairymen selling milk in the rural and urban fringe areas . . . . . . . . Value of dairy products sold in the rural and urban fringe areas, class 1-5 farms, 1959-1969 0 o o o o o o o o o o o o o o o 0 Summary statistics of land use and value, rural vs. urbanfringe, 1959-1969 . . . . . . Percentage rural population and population per square mile in the rural and urban fringe areas and for the state . . . . . . . Total population in 1970 and projected to 1980 and 1990 in the rural and urban fringe areas and for the state . . . . . . . . . . Land use in Michigan, 1960 and 1970, with a projection to 1985 . . . . . . . . . . . . Economic classes of rural and urban fringe area farms . . . . . . . . . . . . . . . . . Statistical tests of significance . . . . . . 1970 property tax data for the rural and urban fringe areas . . . . . . . . . . . . . Future plans of dairymen in urban fringe area by herd size and total for all farms (1975 projection date) . . . . . . . . . . . Future plans of dairymen in the rural area by herd size and total for all farms (1975 projection date) . . . . . . . . . . . Reasons for discontinuing dairying and Optimism and pessimism of dairy farmers, rural area . . . . . . . . . . . . Page 55 56 58 6O 61 62 64 66 67 69 70 71 l3. 14. 15. l6. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. Urban fringe area reasons for discon- tinuing dairying and optimism and pessimism of dairy farmers, 1970-1985 . . Reasons for optimism or pessimism, rural area 0 O O O O O O O O O O O O O O O O O 0 Reasons for optimism or pessimism, urban fringe area . . . . . . . . . . . . . . . Gross income of dairy farms by herd size and total for all farms . . . . . . . . . Area land use evaluation by herd size and total for all farms, rural area . . . . . Area land use evaluation by herd size and totals for all farms, urban fringe area . Dairy farmer plans for adding more land by herd size and total for all farms . . . . Cropland value per acre by herd size and total for all farms . . . . . . . . . . . Number of farms, cows per farm and total cows sold of those who quit dairying in the rural and urban fringe areas 1968 to 1970-71 . . . . . . . . . . . . . . . . The reasons given by those who quit dairying 1968-1970-71 o o o o o o o o o o o o o o 0 Plans for adding or decreasing herd sizes in the next five years . . . . . . . . . . Budgeting variables . . . . . . . . . . . . Net cash incomes of dairy farms with present tax rates . . . . . . . . . . . . . . . . Increases in net cash income after taxes due to preferential assessment . . . . . . . . Net cash incomes with the removal of the school operating millage and an additional 2.3 percent state income tax . . . . . . . vi Page 72 73 74 76 77 78 79 80 81 83 84 89 91 91 93 28. 29. 30. 31. 32. Increase in net cash income after taxes due to the removal of the school operating millage and increasing the state income tax 2.3 percent to 6.2 percent . . . . . . . . . . . . . . . . Net cash incomes after taxes using both preferential assessment and removing the school operating millage while in- creasing the state income tax to 6.2 percent . . . . . . . . . . . . . . . . Increases in net cash incomes after taxes due to using both preferential assess- ment and the removal of the school operating millage . . ._. . . . . . . . Property taxes as a percent of net cash income before taxes with and without the school operating millage . . . . . . Rate of return on investment . . . . . . . vii Page 94 95 96 98 98 LIST OF FIGURES Figure Page 1. Population of the United States by urban and rural groupings, 1790 to 1970 and projections to 2000 . . . . . . . . . 3 2. Use of land rent cone and of land rent triangles to show the relationship between urban and rural land uses on land rents and values in and around a central city . . . . . . . . . . . . 7 3. Use of land rent triangles to illustrate expected outward movement of urban and suburban land use zones with and with— out transportation constraints . . . . . . . . 8 4. Scatteration of urban and suburban de- velopments around a growing city . . . . . . . 9 5. Michigan farm real estate taxes vs. realized net farm income . . . . . . . . . . . 15 6. Farm real estate taxes, United States . . . . . 29 7. The rural and urban fringe areas of study . . . 53 8. Trends in Michigan urbanization, 1940 to 1990 . 63 viii CHAPTER I INTRODUCTION* Michigan's Dairy Sector In Michigan, the dairy industry is the largest single agricultural enterprise in terms of cash receipts. In 1971, dairy products accounted for 30 percent of Michigan's cash receipts from farm marketings, and when the sale of cull and surplus dairy animals is added, the total is 35 percent.1 However, the structure of the dairy sector is changing, as are all the sectors of the agricultural economy. The total number of milk cows is decreasing, with a simultaneous in- crease in dairy cows per farm and in pounds of milk sold per cow and man annually. During the ten year span from 1960 to 1970, the number of milk cows on Michigan farms decreased from 641,000 to 466,000, while the average milk production per cow increased to 9,903 pounds per year, up 23 percent over 1960.2 The number of cows per farm doubled in the ten years since 1960; 15 cows per farm in 1960 to 31 cows per farm in 1970.3 The number of Michigan dairymen selling milk *All references and footnotes appear at the end of each chapter. has also decreased. In 1958, there were 48,650 dairymen selling milk which declined to an estimated 13,500 in 1971.4 Even with all the increased expenses, gross and net returns to dairy farming are the highest in history. In 1958, the average value per farm of dairy products sold in Michigan was $3,842; while in 1971, the estimated value had risen to $20,667.5 Sixty percent of this increase was due to a larger volume of business and 40 percent to a higher price for milk. The price dairy farmers received for milk has increased by $1.58 per hundred or 37 percent since 1960.6 Milk production per man hour increased by 70 percent from 1950 to 1960, and by 100 percent from 1960 to 1970.7 It has been estimated that by 1980 only 20 percent as much labor will be needed in the milking and caring for cows as was true in the 1957 to 1959 period.8 Population Characteristics Not only is the dairy sector changing, but also the farm population and total population picture is changing in Michigan and the United States. Figure 1 shows the popula- tion measure of urbanization in the United States.9 The great increases in population in the urban categories com- pared to the rural categories represents an ever increasing demand for land resources. The farm population as a percent of the United States total has declined from 34.8 percent 300 300 , Population 250 /// "Millions" 200 Cities 150 } ver 50,030 100 ////#/7 OtAer #///)K//l Urban so i“ Ot W I 1800 1850 1900 1950 2000 Figure 1. Population of the United States by urban and rural groupings, 1790-1970 and projections to 2000. Source: Clawson, Marion. Suburban Land Conversion in the United States, Resources for the Future, p. 15. in 1910 down to only 4.8 percent in 1970.10 In Michigan, the same downward trend in percent rural population exists. The farm population of Michigan has decreased from 22.8 percent in 1920, to 4.5 percent in 1970.11 There are many eXplanations for the off-farm migration, ranging from the "push" of scientific and technological advances in agricul— ture releasing many farm families to the "pull" of oppor- tunities for highly paid jobs in the cities. However, this trend may not be as strong as it once was, as more people are moving to suburban areas. One reason for reduced migra- tion to the central cities may be the discouragement produced by high current rates of unemployment in the cities. This trend of migration from the rural area and the city to the suburban area has been prompted by a number of factors. The factors are: expressways, widespread ownership of the auto- mobile, high taxes in the cities, crime in the cities, and a desire for more open space, privacy and nature on the part of the city dweller. Yet, production and manufacturing are still highly concentrated in central cities. The rate of pOpulation growth is yet another factor which is changing. The population growth rate in the United States is about 0.9 percent annually, or approximately two million people per year.12 The urban pOpulation outside of the United States central cities is increasing at the annual rate of 3.3 percent or approximately 1.3 million people per year.13 Thus, some two-thirds of the annual increase in population has occurred outside of central cities. Of that, a large portion settled in the rural-urban fringe, an area where many farmers are affected. But, what is this rural-urban fringe? Steve Smith has defined the urban fringe as: . . . an ill defined zone. It is the zone where inter- acting influence of urban and rural land uses predominate rather than either one being exclusively dominant. It is a zone of transition, a border area in which the forces from different markets converge.l4 Thus, an area or zone exists where two or more uses are in conflict over the use of the land. Here, agriculture, which does not return as great a land rent as does develOped uses, is at a definite disadvantage in the struggle for the control of the land in the area. As a result, many problems arise in the allocation and use of this land, especially in the short-run period. Very often the land may be idle between the time of a viable farm operation and the time of develop- ment. The Taxation Problem Today, one of the more important questions concerning our land resource is what are the implications of shifting lands out of agriculture to the so-called more intensive uses? Several factors must be considered in this regard. They are: the need for additional urban space, concern over future food supplies, possibilities for effective land use planning, local property taxation, the fiscal situation, and concern for open Space and recreational lands. This thesis focuses primarily on the effects of the property tax and its alternatives on the net cash income of dairy farms. Cities were originally located near productive agri- cultural areas. Michigan was mainly an agricultural economy during the 1800's and food was produced near its market to avoid spoilage in the slow and inefficient transportation system. As technology advanced with increased transportation, processing and refrigeration, the reliance on nearby food production declined. Increasing farm mechanization and im- proved agricultural technology reduced the need for labor on farms, resulting in fewer but larger farms. Many people migrated to urban areas where jobs were concentrated. As a result, the urban areas have expanded covering much of our better farmland. The Relationship of Land Use and DeveI6pment Patterns Figures 2, 3 and 4 present the problem as it involves the relationship between property taxes and land use.15 Figure 2 assumes a central city (A) which is shown as occu- pying a circular shaded area surrounded by a circumferential band into which the city could easily expand. A profile of land rents or of land values for the city can be shown as a cone (BCD), the highest point (C) represents the city's 100 percent spot. The sloping sides represent the declining rents and values as the boundaries are approached, and the land is used for rural rather than urban uses. Triangle CAB or CAD depict a cross section of the land rents and values associated with the different uses, rural and urban, and at which approximate point a higher use might be expected to supplant a lower use. URBAN LAND RENTS ,_RURAL LANDRENTS Figure 2. Use of a land rent cone and of land rent triangles to show the relationship between urban and rural land uses on land rents and values in and around a central city (land values are correlated to property taxes.) Without transportation, the city would not reach out as rapidly and might discourage the expansion of the city. Population growth would call for shifting more land around the city's borders to an urban use; however, the areas taken would be expected to be those adjacent to the city and would be associated with very intensive land use and, therefore, higher rents. Without the transportation constraint, people are willing to move out and find it less difficult to live at a point G in Figure 3 and commute to the central city, than it would be to live at point C under a society which is in a \\\URBAN oumao SHIFT wm: \ \ TRANSPORTATION CONSTRAINTS . \ .. LEVEL U \U \U 0F \ \ LAND \\ /‘%‘IIIII§§39§'IIISI ‘c'cII's'NIms RENTS \ : 5\\ \ RURAL 3‘. IA *L-a. r’ J Y ADDITIONAL AREA ELIGIBLE FOR URBAN AND SUBURBAN USES WITHOUT TRANSPORTATION CONSTRAINTS ADDITIONAL AREA ADDED BY EXPANSION UNDER TRANSPORTATION CONSTRAINTS AREA USED FOR URBAN PURPOSES IN CENTRAL CITY DISTANCE FROM CENTER OF CITY ———-> Figure 3. Use of land rent triangles to illustrate expected outward movement of urban and suburban land use zones with and without transportation constraints. tranSportation constrained condition. Also, important cri- teria in the decision to move to point G would be such factors as more Open space, lower land costs, lower taxes, less pollution, a more favorable neighborhood and less noise and confusion. Transportation innovations, such as those visualized in Figure 3, have greatly expanded the areas around a city which are suitable for development. The area needed for eXpansion around a central city would require only the shaded area in Figure 4. However, the opportunities for development Figure 4. Scatteration of urban and suburban developments around a growing city. are often favorable in a much larger area. As a result, subdividers and speculators acquire land in scattered sites for urban uses. Many subdivisions are first laid out along major highways, but new developments often follow a very scattered pattern which involves a leap frog approach to urban development. The taxation effects of this scatteration are easily visualized. Prospective suburbanites are enthralled by the beautiful countryside, buy lots and build houses. Many others soon follow and local taxes must rise to provide additional school facilities and public services. It has been estimated that the costs of providing services such as roads, school sites, public services and school bus operations are 2.5 10 times as great for sprawled conditions as they are for a closely clustered development.16 With property taxes being the major means of financing such projects, naturally the tax rate must increase. And, the tax assessors note the rising land values associated with the sale of building sites in a rural area and, therefore, associate these higher values with the remaining land in the area. Higher tax costs add to the farmers' fixed costs and lead to a lower net income, until the farmer who is interested in farming finds it ad- visable to sell to a speculator or subdivider who will then wait for the higher use to predominate or ripen. The reasons given for movement to the urban fringe deserve closer inspection. The benefits and costs are often dissociated on the urban fringe. That is, rural-urban fringe residents often receive the same services that were available in the city, but their taxes are lower than if they lived in the city. Also, many peOple are leaving the city for the scenic beauty found on the rural-urban fringe and to escape the noise, confusion, violence, and pollution which are as- sociated with city life. Thus, it would seem that the in- vaders reap benefits for which farmers bear a disproportionate burden. As the area develops, the local government requires more revenue to provide the services and to the local govern- ment the property tax represents the major method of obtain- ing the needed revenue. However, if the development becomes Stalole and permanent, farm land owners may benefit from in- creased land values. 11 The land on the urban fringe is often bought in erratic patterns. This scatteration and leapfrogging then causes land values to increase farther from the central city than if the development were on an organized and planned program. Taxes often increase until farmers can no longer pay them from their annual farm income. Farmers may hesitate to borrow to pay taxes, even on a good land investment. Many farmers avoid doing so and do sell their farms. Public planning and control could greatly reduce the areas involved in land speculative pressures and could provide, even within areas of speculation, for use value taxation. Taxes rise as communities develop because of assess- ment based on the ad valorem principle and because at in- creased tax rates as public services are expanded. Article 9 of the Michigan Constitution states in Section 3, "The legislature shall provide for uniform general ad valorem taxation of real property." Originally the property tax was to reach all forms of wealth, but in Michigan it does not reach intangibles or many exempt classes of taxable property. The ad valorem tax base is determined by the market value, i.e. the price at which property would change hands between a willing buyer and a willing seller in an "arm's length" transaction. Therefore, as the demand for land in a developing area forces higher prices on land, the tax assessor has no alternative but to increase the valuation Wiii-1h no regard to the owner's desire or interest in selling, 12 or the future effect on the area and community. The depend- ence on the property tax for local revenues, coupled with the high degree of geographic fragmentation associated with gov- ernment on the local level, causes problems in land allocation through what has been called fiscal zoning. By using fiscal zoning in an effort to increase revenue, many units of govern- ment desire high tax-yield commercial and industrial land uses even where open space uses may be fully recognizable as more appropriate to the land characteristics and the needs of the citizens of the area. Also a reversal may be true. High valuations of land simply force land to be developed-- land which both the owner and land use planner might have preferred to keep open. The disappearance of many scenic, environmental,17 and agricultural lands adjacent to growing urban and suburban areas can be attributed to these factors. The interaction between landowners and speculators or de- velopers as they attempt to capture large appreciations in land values often places a great strain on land use planning and zoning efforts in their attempt for orderly land devel- opment and open land preservation. A study conducted in the Lake States Dairy Region has shown that land was sold for subdivisions at five times as great a price per acre as the farm value, at six times as much for rural residences, and at nine times as much for 18 commercial and industrial sites. Those who are buying farm real estate are obviously not entirely farmers. In the I l nth "I «U 13 year ending March 1, 1971, farmers in the United States composed of tenant operators, owner operators, and retired farmers accounted for 62 percent of the buyers of farm real estate, while 38 percent of the buyers were non-farmer, 19 local or absentee. It has been estimated that the acreage in urbanized areas will increase from the 16.6 million acres of 1950 to 30.3 million in 1980 and to 41 million in 2000.20 Not all of this acreage will be developed for residential lots, but the figures give a rough idea of the acreage di- rectly affected by the price appreciation that reflects urban demands. Tax Trends and Levels Taxes on farm real estate in the United States have been increasing steadily in recent years. Taxes on agri- cultural land increased by 8.4 percent between 1966 and 1967, by 14.8 percent between 1968 and 1969, and by 9 percent by 1970, which was the 28th annual increase in property taxes.21 During the 1970 period, taxes in 14 states increased by more than 10 percent, and in 2 states by more than 15 percent.22 Farm real estate taxes absorbed 19.6 percent of total net farm income in 1970 in the United States.23 Michigan farm property taxes have also increased dramatically during the 20-year period from 1950 to 1970. Total taxes on Michigan farm property were 13.7 million dollars in 1950 and had in- creased to 76.5 million dollars in 1970.24 Taxes per acre 14 increased from $.80 in 1950 to $5.67 in 1970, and property taxes as a percent of Michigan net farm income were 4.2 25 The increase percent in 1950 and 23.4 percent in 1970. in farm real estate taxes in Michigan and Michigan's net farm income are shown in Figure 5. It is apparent that property taxes are increasing steadily while net income is lower in 1970 than it was in 1960. In 1966, net farm income hit its peak, while property taxes have been increasing steadily. Exact figures are given in Appendix A, Table A-1. Thus, prOperty taxes are taking a larger and larger share of net farm income. These mounting property taxes have resulted from increases in both tax rates and assessed values of farm real estate. The United States Department of Agriculture surveys from 1964 to 1968 show that per acre taxes on farm- land in counties adjacent to large metropolitan areas averaged more than three times those in adjacent counties which were beyond any influence from metropolitan growth and pressure. Inadequate controls may cause limited and valuable lands to be used for purposes that may have a short-term gain to a few, but result in a long-term loss to the income and growth potential of the economy. Impacts of Property Taxation Rising property taxes have been the subject of much controversy. As the population increases and cities and suburbs continue to expand into rural areas, it is inevitable 15 150 140 , Farm Real Estate 130 Taxes‘,,.at7 120 k- INDEX 110 _ 100 _ 90 ’ V 80 // ' Realized Net Farm Income 70 _’ 60 , 1 l I I g I L 1 I l I 1960 61 62 63 64 65 66 67 68 69 70 Year Figure 5. Michigan farm real estate taxes vs. realized net farm income, Michigan 1960-1970. 1967 = 100 Source: Farm Real Estate Taxes, E.R.S., U.S.D.A., January 11, 1972, pp. 7,8; and Farm Income Situation, E.R.S., U.S.D.A., EIS-218, July 1971, p. 44. Actual figures are in Appendix A. 16 that additional farmers will be faced with higher land assessments and tax rates. A serious consideration is just how long producers will continue to bear the increased prop- erty tax load. It is expected that increased land values and tax rates will accelerate the migration of farmers off the farm or drastically reduce their net returns. The present migration from cities to suburban areas, and from agricultural areas to the suburban areas, coupled with the lack of effective zoning ordinances or development plans for subdivisions and commercial areas, have often re- sulted in tremendously high property assessments and real estate taxes for farmers. Scattered subdivisions with ex- pensive public services, the shifting of prime agricultural lands into residential uses when other lands are available that could adequately serve the urban needs, and a failure to utilize multiple purpose lands are evidences of the need for concern and action. When much farmland in some areas of Michigan can be sold for close to $1,000 per acre and real estate taxes reach $20 to $25 per acre, a heavy pressure to sell is placed upon these farmers. If there is no ready market, no off-farm opportunity, or no desire to move or change occupa- tions, the tax burden can become great. Because one farm in an area is worth many thousands of dollars per acre when sold for the purpose of being subdivided, does not necessarily mean all land in the area 17 is worth an equal amount. Assessors should understand the market well enough to estimate the rate at which land will be demanded and the willingness of owners to sell. For unlike other forces that cause farm land to in- crease in price, urban expansion ordinarily does not increase returns to farming. Nor is the farmer in most cases to borrow on the speculative value of his land to meet the taxes based on this same value. And if he is forced to move, it usually involves moving not only his place of business but his home as well; it involves severing ties in one community and building new ones in another. Especially for the farmer nearing retirement such a move may be very difficult to ad- just to. The farmer who sells is compensated by the accumu- lated increase in land value. However, farmers who choose to remain will pay higher taxes as more land is sold at the speculative prices. There are many benefits of open land that all people may enjoy. Among them are the ability to grow and cultivate food crops, the aesthetic beauty of the land, the oxygen produced by the green vegetation, and a means whereby water can be absorbed and filtered back to the water table and then on to lakes and streams rather than flowing down a street and through a sewer carrying refuse into lakes and streams. These are qualities on which a market related price cannot be determined, yet they are very important in considering the use of land resources. 18 Environmentalists and agriculturalists believe that high farm taxes will lead to a loss of open space and re- duced agricultural land. An old doctrine states that prop- erty taxes on land on an ad valorem basis are neutral in their effects on land use. The reasoning being that if assessment is accurate and the value of the land is set by its productivity in its most profitable use, then taxes will be the same whatever use actually is made of the land. It follows that it is the opportunity of receiving a high price, rather than high taxes that causes land to be shifted to more profitable uses. This doctrine has been modified to read that land taxes are not neutral, but speed conversion of land from lower or less profitable uses to higher or more profitable uses. This is otherwise known as "taxing into use."26 The Thesis Problem As a result of these facts and trends concerning taxation, and with increasing farm property taxation occur- ring in rural and in urban fringe areas of Michigan, an appraisal of the economic impact of property taxation upon net cash incomes of dairy farms in both rural and urban fringe areas is needed. New property tax proposals and new proposals for legislation concerning land use regulation require an analysis of the impact of existing and alterna- tive tax systems on dairy farm income. l9 Thesis Objectives The objectives of this study are as follows: (1) To appraise the current dairy farm situation relative to property taxation in two areas of Michigan. a. An urban fringe area surrounding metropolitan Detroit. b. A rural five-county area in south central lower Michigan. (2) To evaluate the economic effects of pr0perty taxation on costs and returns and the stability of dairy farms in urban fringe and rural areas. (3) To analyze the possible future effects of present and prOposed property tax legislation on dairy farm income in the rural and urban fringe areas. Data Sources Preliminary work on this study began in June 1970. At this time the author was employed by Professor C. Raymond Hoglund as an interviewer of dairy farmers. From the Hoglund Dairy Survey, such data as number of acres per farm, produc- tion per cow, number of cows in the milking herd, retirement and other plans of the dairymen, their attitudes about profitability of dairying and value of cropland were obtained. Thus, the physical setting of the dairy farms was obtained from the Hoqlund Survey. 20 Information concerning the tax rates, assessments, total tax per acre, and any area planning or zoning informa- tion was obtained from the respective County Treasurer and Planning Commission offices. Additional information needed for the budgets was obtained from the Telfarm Summary for Southern Michigan Specialized Dairy Farms, 1970, No. 205, August 1971. 27 Method of Study The methods of analyzing the data collected in this study are as follows: 1. Comparison of the rural and urban fringe area on 12 points of evaluation. Changes in land use in the area. Present and past tax rates. Present and past land values for agriculture. Present, past, and future herd size. Present and past number of dairy farms in the area. Number of acres per farm. Tax per acre. Income levels of the dairy farms. Levels of assessment and assessment per farm. Soil quality for agriculture. Number who have quit dairying and for what reason. Farmer opinion of dairying. Farmer estimates of his future operation. 21 Budgeting of representative farms in the 30-49 cow herd category and the 75-99 cow herd category to determine the impact of present and proposed property tax legislation on net cash incomes. Representative farms are those which have the same general internal and external characteristics as do the farms in the area. The internal characteristics which are assumed equal are soil type, size, and enterprise combina- tions. The external factors which are assumed similar are markets for products and inputs and institutional restraints. The assessment and feasibility Of solutions to the dairy farmer's problems regarding the property tax in rural and urban fringe areas. a. The assessment and feasibility Of management alternatives available to the dairy farmer in a high tax area. Such management strategies as: (1) Increase in production, labor, and overall efficiency; (2) Minimize new investments and hope to sell at a high price later; (3) Push for zoning, preferential assessment, or the removal of the school Operating millage and replace with an increased state income tax; (4) (5) (6) (7) 22 Sell some land, and buy feed requirements; Relocate in a lower tax area; Sell out and retire or increase herd size and production per cow; Sell out and take Off-farm job; are possible solutions. An assessment of the applicability Of these practices to the small and large dairy herds in both areas is done in this study. b. Assess the feasibility Of legislative actions, such as: (l) (2) (3) (4) (5) Zoning, state planning, or Green Belt formu- lation; Preferential assessment; Deferred taxation; Restrictive agreements; Proposed legislation on conversion of the school operating millage to an increase in the state income tax; on the small and large herd size categories in both the urban and rural areas. Determining the impact of legislative actions on the costs, returns, incomes, migration of farmers, loss of agricultural land, and effectiveness of the proposals in controling the loss of dairy farms and troublesome urban scatteration is also accomplished. 4. Assess the impact of present and proposed legisla- tion on the dairy industry. 23 Organization Of Thesis Chapter II contains a history of property taxation in the United States, a review of the legislative situation in other states, and the present and proposed property tax legislation in the state of Michigan. Chapter III presents the situation in a rural and an urban fringe area of Michigan, giving the changes in land use, dairy products sold, population, and the prOperty tax situation. Also, dairy farmer Opinions and reasons for changes in the operation are presented. Chapter IV contains the budgetary analysis and shows what impact herd size, production, level, land value and property and state tax rates have on dairy farm net cash incomes. Chapter V contains the summary and conclusions from the study. Also, the alternatives available to dairy farmers and the implications of changes in management and legislative actions are examined. 100 11. 12. CHAPTER I Footnotes Michigan Department Of Agriculture, Michigan Agricultural Statistics, July 1972, p. 32; and U.S. Department of Agriculture, Farm Income Estimates, 1949-1969, FIS 211 Supplement, E.R.S., Washington, D. C., August 1970, p. 96. C. R. Hoglund,, and G. McBride, Michigan's Changing Dairy Farming, Research Report 96, Michigan State University, Agricultural Experiment Station, January 1970, p. 4. Ibid. Ibid. C. R. Hoglund,_ "What's Ahead in Dairying?," unnumbered Mimeo Report, December 1970, p. 2; and Michigan Agricultural Statistics, 1972, p. 32. C. R. Hoglund, "The Dairy Farm Enterprise," Project '80 & 5, unnumbered Report, Michigan State University, p. l. Ibid. "What's Ahead in Dairying?," pp. 3-4. Marion Clawson, Suburban Land Conversion in the United States--Resources for the Future, Johns Hopkins Press, 1971, p. 15. Also, Bureau of the Census, 1970 Census of Population, p. 32. U.S. Department of Agriculture, 1970 Handbook of Agri- cultural Charts, Agriculture Handbook NO. 397, E.R.S., 1970, p. 52, Figure 58. Michigan Department of Agriculture, Michigan Agricultural Statistics, July 1971, p. 36 and General Social and Economic Characteristics,.L(&) PC(l)-C24, Michigan, U.S. Department of Commerce, Bureau of the Census, p. 269 Population Estimates and Projections, Bureau of the Census, Series P-25 NO. 487 August 1972. 24 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 25. 27. 25 Travis A. Poole,, J. Paxton Marshall and W. L. Gibson, Use-Value Assessments: A Study Based on Loudoun County, Virginia, Department of Agricultural Econo- miCs, Virginia Polytechnic Institute, 1966, p. 3. Steve Smith,, "Land Use Problems," Farm Policy Forum, Vol. 14, No. 4, 1961-62, p. 9. Raleigh_Barlowe,. "Taxation of Agriculture," Property Taxation U.S.A., Michigan State University, pp. 15-18. Howard County Planning Commission, Howard County, 1985, April 1967, Maryland, pp. 38a, 99a. Environmental land is green belt land, i.e., land which is supporting oxygen producing foilage. Allan A. Schmid,. Converting Land from Rural to Urban Uses, Resources for the Future, Inc.TTJOhns Hopkins Press, 1971), p. 23. U.S. Department of Agriculture, Farm Real Estate Market DevelOpments, E.R.S., CD 76, August I971, p. 36. Marion Clawson, R. Burnell held and Charles H. Stoddard, Land for the Ruture, Resources for the Future, Inc., TThe Johfis Hopkins Press, Baltimore, Maryland, 1960), p. 110. U.S. Department of Agriculture, Farm Real Estate Taxes, E.R.X., Ret. 11, January 1972, p. 4. Ibid., p. 17. Ibid. 1970 Handbook of Agricultural Charts, p. 17. U.S. Department of Agriculture, Farm Real Estate Taxes, Ret. ll, E.R.S., January 1972, p. 7-8; and U.S. Department Of Agriculture, Farm Income Situation, E.R.S., FIS-218, July 1971, p. 44. Actual figures are in Appendix A. Raleigh Barlowe, Land Resource Economics, 1958, p. 533 Telfarm is an electronic recording keeping system de- veloped by Michigan State University and used by farmers throughout the state. CHAPTER II TAXATION OF AMERICAN AGRICULTURE History of the Property Tax Dairymen as well as many farmers and environmentalists are becoming increasingly concerned with property taxation. The ad valorem prOperty tax as we know it in the United States today is the result of our laissez faire, agriculturally dominated history. The property tax began in the early post- Revolutionary War eta. In 1796 the constitution Of Tennessee provided for "uniformity" in the taxation process by stating I At this that all land "shall be taxed equal and uniform." time, agriculture was the nation's dominant industry, with agricultural land and personalty providing most of the base for the general property tax and even today property taxes represent the major tax paid by most farmers.2 At its inception, the property tax concept was favored for three reasons: (1) tax levies were ordinarily quite low (2) most of the tax revenues were used for local government services and improvements, and (3) land ownership was highly correlated with the wealth of the individual and tax—paying ability. In most cases property taxes were only a few pennies per acre. But even at these very low rates, the property tax posed many problems to land owners. In 26 27 the 1800's they represented a burden much as they do today. Tax levies, however low comparative to today's standards were often high relative to the owners' incomes. Delinquencies were common, with many properties being forfeited for non- payment of taxes, especially in the depression periods of 1837, 1857, 1872, and 1893.3 Again in the 1920's and 1930's prOperty tax delin- quencies were a problem for many farmers. High taxes are always a burden, but more so on low quality soil or loca- tionally disadvantaged sites. These farmers on marginal or near-marginal land for agricultural use were suffering even more so due to their already reduced incomes.4 From 1890 to 1920, rising farm incomes and land values were associated with an upward trend in property taxes. However, farm in- comes and farm values declined following the agricultural depression of 1920, but the prOperty taxes on farms continued to increase. This lead to many tax delinquencies in both marginal and productive areas. By the 1930's property tax delinquency was a common occurrence in many areas and millions of acres of land were foreclosed for nonpayment of taxes and the inability of farmers to pay interest and principal pay- ments on their properties. Only recently has the concept developed and been implemented of land taxation at something less than full value. In the 1920's and 1930's interest in reducing the tax burden on recreational areas produced several articles 28 which prOposed the idea of preferential taxation.5 It was not until the 1950's that any state adopted a plan based on land use considerations. In 1953 Minnesota passed a statute that allowed for the preferential taxation of selected lands in exchange for the "hunting and fishing rights" of those lands.6 And, in 1956 Maryland became the first state to adopt a statute giving agricultural lands preferential tax treatment.7 Since 1956 many states have enacted various derivations of preferential taxation with varying degrees of success 0 The Trend in Farm Taxes The trend in farm real estate taxes from 1910 to 1970 expressed in terms Of average tax levies per acre and average levies per 100 dollars Of farm real estate value is shown in Figure 6.8 This shows an increase in average tax levies per acre during the World War I period, slower increases during the 1920's, a decline in average tax levies during the early 1930's followed by a steady upward trend from 1944 to the present. In terms of land values, tax rates went up from 1910 until 1933. The ratio of taxes to land values then declined until 1944 when it has tended to increase at a rapid pace. In Michigan, the average tax per acre has increased from $3.13 in 1965 to $5.67 in 1970.9 The average tax per 100 dollars of full value has increased during the same 29 Dollars I x I 2.00 _ Per cre / II I I 1.50 <1 .’ I Per $100 of 1” Market Value < I I I I L .1 1910 1920 1930 1940 1950 1960 1970 Figure 6. Farm real estate taxes, United States. Soutce: Farm Real Estate Taxes, Table l, U.S.D.A., ERS. Feb. Ret 10. 10 period from $1.40 to $1.50. The state average value Of land and buildings per acre has increased from $232.82 in 11 0 o o c There is an eV1dent increase in 1964 to $326.31 in 1969. property taxes and land values occurring in Michigan. Taxes on farm property more than tripled between 1950 and 1969,12 while operator's net cash incomes increased by less than 30 percent.13 Farmers find themselves the victims Of an unfortunate set of economic conditions. As Frederick D. Stocker has observed:14 property taxes are a fixed cost Of agricultural production. The owners' tax bill does not vary with output or with the price of farm products. Even if 30 he allows his land to lie idle, his taxes are not affected in the short run, at least. Moreover, the farmer is likely to feel particularly helpless in the face of rising property taxes because, unlike other costs that are subject to his personal control, property taxes are governed by the will of the community. Finally, opportunities for "shifting" the property tax are limited. Because the farmer typically sells his product in a market in which his individual influence is negligible, he cannot pass the tax on to the consumer in the form of higher prices. The Tax Situation in Other States In studying the statutes concerning differential taxation, it is found that four general forms of use-value assessment are in existence. These are 1) preferential taxation and preferential treatment, 2) tax deferral, 3) tax deferral with a contractural arrangement, and 4) classifi- cation of taxable property. When preferential assessment or plain use-value assessment is used, property owners receive an assessment based on use-value for tax purposes and normally have no Ob- ligation to the public. This enables a lower tax to be realized without any compensatory agreement to maintain the land in a specific use. Laws granting preferential assess- ment generally provide that the farm land is to be assessed on the basis Of value for agricultural use and that other 31 potential uses shall be ignored. The amount of tax relin- quished on a farm under this system is lost too and cannot be recovered by the local government. Land owners pay a lower tax, and the public recovers nothing when the use of the land is changed. The preferential assessment system usually allows a farmer to participate from year to year and sell his property without restraint. Use-value taxation is designed to prevent nearby changes in land use from having an effect on the assessed value of the property. Ten states have adopted plain use-value assessment for use on agricul- tural or Open space lands. These are: Arkansas, Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Louisiana, New Mexico, and South Dakota. In Connecticut, the law was originally enacted in 1963 and has as a standard of the statute (l) farm land, (2) open space land, and (3) forest land. These lands are to be assessed on the value based on current use only. In an evaluation of the effectiveness of Connecticut's Public Act 490, Irving F. Fellows believes that re-evaluation toward the end of the decade has brought a high level of participa- tion by farm and forestland owners.15 He continues to say that within and at the boundaries of the urban sprawl areas, land under Public Act 490 appears to be holding the line against encroachment. However, this could also be a result Of high interest rates, high building costs and uncertain 32 employment. Fellows adds that the forces which influence growth are so complex that amassing statistically valid evi- dence is difficult. Land owners in Fairfield County (close to New York City) are convinced that large acreages Of forestland are being regulated under this act and will continue to remain in forest use.16 However, evidence is accumulating to sup- port such Observations, but is not complete as of yet. Couple this lack of data with the Opinion of the framers of the Act that use-value assessment is not the only answer, but one part Of an answer to the rational development Of an area and it becomes difficult to View use—value assessment as an answer to the problem by itself. The major problem with preferential assessment is simply that of devising an appropriate technique for deter- mining use value.17 The appraisal process used in assessment normally is dependent upon the use Of sales value compari- sons. With this basis for assessment no longer available, a method Of determining the value of land for agricultural or other Open space use complicates the assessment procedure. The technique accepted in several states involves advisory committees to provide guidelines on acceptable ranges of soil classifications, cropping patterns, and resource use programs. 33 A;second flaw is that plain use value taxation bestows benefits on one class of taxpayers without giving them con- comitant responsibilities.18 It can be justified as an ex- pression of public concern for an easily exploited citizen group. But more likely the best interests of local communi- ties may be ignored and many acres of land may receive favor- able tax treatment when the capital values are appreciating because of nearby suburban growth and the provision for additional government services may be deferred for lack of a sufficient tax base. Also a problem of deciding whether preferential assessment really influences land use is a very crucial issue. Does the farmers' tax burden become less, or does it actually alter the pattern Of land use. Preferential assessment also encourages speculative holding of farm land since it does keep taxes down. The positive point for plain preferential assessment is that it has a goal of encouraging the continued use of agricultural lands and other Open space lands by assuring owners that their assessments will be for the use of the land at its present level. The next form of use-value assessment is deferred taxation. This method represents a type Of taxing alterna- tive in which two assessed values are placed upon each parcel Of qualifying land. One is the market value, which applies when the property changes use and ceases to be eligible for 34 deferral and the other is a use-value assessment which applies while the property is in agricultural, open sapce, conserva- tion or other specified uses. When the property is sold the amount equal to the difference between the market value and the use value becomes taxable. The current tax rate for each year that tax deferral applies tO the property is used in calculating the tax deferred, up to a time limit established by the state, i.e., roll back period. The land owner bene- fits by a lower tax due on an annual basis under the tax deferral plan. If the land remains in an elegible use for a longer period than the "roll back", the landowner gains absolutely and the public pays the foregone taxes as a cost of keeping the property in the eligible use. Thirteen states currently have deferred taxation. They are: "Alaska, Arkan- sas, Kentucky, Maryland, Minnesota, New Jersey, Oregon, Pennsylvania, Rhode Island, Texas, Utah, Virginia, and Washington. New Jersey is a good example of deferred taxation. New Jersey adopted their present legislation in 1964. The standards of the statute specify that lands which qualify are lands "actively devoted to agricultural or horticultural use."19 The criteria for qualification are that the parcel be at least 5 acres; used for agriculture the predeeding two years with gross sales to average $500 per year. With a tax roll back for two preceeding years it contains a deterrent 35 to speculative uses. The owner must apply for the tax de- ferral 90 days prior to the beginning of each calendar year. When the land use changes the previous deferred taxes become due. In a New Jersey study 65 percent of 20 county agents interviewed felt taxes of participating landowners had been reduced by farm land assessment and 70 percent said the New Jersey Act had been effective in their respective counties in slowing the sales of agricultural lands for other uses.20 The other seven said the development demand and high land prices were more important than reduced taxes.21 The Act was generally used by those for whom it was intended, bona fide farmers. There was no evident purchase of land for short term gain. Most participants had large investments in machinery, buildings, livestock, and irrigation equipment. Twenty-five percent of the program participants did receive offers to buy their land, with forty-three percent saying they would have sold for a higher price and fifty-seven per- cent saying no, they desired to continue farming operations.22 Samuel Garrison, the Coordinator of the New Jersey Division of Natural Resources, has stated that from a land use policy point of View, the act has contributed substan- tially to the retention of some of New Jersey's agricultural land resources, but only for the short run. It was only one of the steps that was needed to be taken.23 It is true with 36 deferred taxation as with preferential taxation that either method alone is not capable of complete control or preserva- tion of land in agriculture or other open land uses. The problem with a tax deferral arrangement is that two assessments must be made where only one was required before.24 There also may be some assessors who value proper- ties higher in the "true" market than they otherwise would. Also how much of a penalty should be collected if the land- owner changes use is a question of importance. Tax deferral can represent a penalty for shifting use, but when the roll back period is short only a slight deterrent exists for the speculator who holds his land at a low tax cost while waiting for a high price market to emerge. Also a long roll back period can conceivably discourage desirable shifts in land use. The benefits of deferred taxation are that payments of the deferred tax out of the seller's capital gain simpli- fies the owners holding of the land. And the payment of the roll back tax will come at the time when added revenue is needed by local government.25 The tax deferral and a contractural arrangement is another alternative of use-value taxation. Under a contrac- tural agreement, a qualifying landowner signs a contract agreeing to surrender the nonagricultural or nonopen space development rights of his land for the life of the contract. In return the land will be assessed only on the basis of its 37 value in the agricultural uses provided in the contract. A similar system would have the landowner sell an easement right to all nonagricultural development of his land for a specified number of years. In return, the assessor would consider the effect of the easement upon the value of the parcel when assessing for property tax purposes. Along with the contract or easement, in most states there is a penalty in the form of a fine or deferred taxes due if the landowner breaks the contract by selling or converting the land to a nonspecified use. Three states have adopted this alternative for agricultural lands. They are: California, Vermont and Washington. California adopted the Land Conservation Act in 1965. Lands can qualify for inclusion if they are designated as an agricultural preserve, a scenic restriction, or an open space easement area. Under the California Act the landowner accepts the limitations of the Act for a designated period of time and the landowners rights to his land are thereby diminished. This is accomplished by easement or by contract, in which the landowner commits his land to open space uses for an initial fixed period of time. The minimum time limit is ten years, with some extending twenty years. Once there are only nine years remaining, both local government and the landowner must agree to keep the easement or contract at ten years. This is accomplished by adding a year to take the place of the year just expired, thus a running ten year period is achieved. 38 The easement or contract can be terminated by three methods; termination, cancellation, or nullification. If either party wishes to break the contract, then the contract or easement will have a fixed termination date. As the termination date nears the property becomes less restricted by the easement or contract, and it then becomes to be valued on an unrestricted basis. Cancellation is possible on an immediate basis also. It, however, is not without cost to the landowner, since 12 l/2 percent of the new unrestricted market value must be paid as deferred taxes. Nullification is a situation in which the land is freed of the restrictions but the landowner is not required to make any deferred pay- ments. The two situations which qualify for nullification are annexation of the land by a city and condemnation. It is the opinion of Don V. Collin, a consultant of the California Senate Committee on Revenue, that although the experience with the Act has been rather short, develop- ments to date indicate that tax policy can be joined with other tools to carry out a public policy of assuring open- 26 Thus California combines deferred tax- space use of land. ation with an easement or contract to form a more complete land use program. However, the concept of land use planning is not contained in the previous examples. Contracts or easements can introduce stability in a fluctuating land use area. They also can be used in combina- tion with other governmental measures to channel developments 39 to other areas and to promote desired land use patterns. The acquisition of easements can prove to be expensive, but when coupled with use-value assessments can stabilize local situations, and enable local governments to purchase perma- nent easements.27 When contracts or easements are used in conjunction with planning commissions they can be effective. Individual owners by themselves are not always capable of determining what is the best choice of action for the community. With planning this over-all direction is provided. Planning or zoning and tax classification are very similar. The planning and zoning alternative combines the features of plain use-value assessment with official planning or zoning. A selective form of taxation exists in which planning or zoning restrictions establish agricultural or open-space zones where the provisions of plain use-value assessment apply. Thus if lands are zoned agricultural they are assessed on that basis. Areas outside these zones may not receive all the benefits of the tax relief measure. Three states have adopted this alternative. They are: Florida, Hawaii, and Oregon. Closely associated is the tax classification method, by which all taxable property is classified into a scheme. One of the classes usually applies to agricultural lands. The land in each of the classes is then assessed at a dif- ferent proportion of full cash value. Five states are 40 currently using this method. They are: Arizona, Minnesota, Montana, Ohio, and West Virginia. Zoning has proven to be unreliable by itself. Cali- fornia tried exclusive agricultural zoning as a basis by which assessors could determine values of properties for agricultural purposes. However, it lacked reliability and stability. Three votes on a five man governing board and 30 days later, any properties zoned exclusively for agriculture could be rezoned for residential, commercial, or industrial use.28 Hawaii was the first of the fifty states to have a General Land Use Plan for the state. It was approved in January 1961, and established the State Land Use Commission, calling for classification of all lands in the State and authorizing the adoption of rules of practice and procedure and regulations for land use within the various districts. The law, as amended in 1963, provides for four districts: Urban, Rural, Agriculture and Conservation determined by a nine member Land Use Commission appointed by the Governor and confirmed by the Senate.29 Of the four districts provided, urban districts are generally defined as lands in urban use with sufficient reserve to accomodate foreseeable growth. Agricultural dis- tricts include lands with a high capacity for intensive cultivation, with a minimum lot size of one acre. Conserva- vation districts are comprised primarily of lands in the 41 existing forest and water reserve zones. Rural districts are defined as lands composed primarily of small farms mixed with low density residential lots with a minimum lot size of one-half acre. The administration of the land use controls in Hawaii is complex. In the agriculture and rural districts the Land Use Commission established the regulations, and the counties are responsible for their administration. The problems do not end with the designation of lines on maps which repre- sent land use district boundaries. Once established, dis- trict boundaries can be changed by the Land Use Commission through a petition and public hearing process.30 An important section of the law provides for the dedication of land in any district for agricultural purposes, whereby land dedicated for a specific agricultural use for ten years may receive a reduction in assessment. Contrary to the anticipations of the State, the number of petitions for land use changes was not great. In the six year period from 1962 through 1967 there were 123 petitions for non-conforming uses of which 74 were approved.31 In Oahu County, where the pressure for urbanization was greatest, 25 petitions for special permits for non-conforming uses were 397 acres of which 13 petitions or 331 acres were 32 approved. . 42 Farmers have dedicated their land to the program for reasons of security and tax savings. While the program does provide security and tax relief for farmers, doubts still exist as to its effectiveness in preserving land for agri- culture and if the cost to the state is justified, and no assessment has been made of the effect of land dedication on land appreciation.33 There also exists many states in which there is no tax relief for agricultural or other open land. Such states as Alabama, Idaho, Montana, Nebraska, and Michigan have no preferential taxation legislation. Six arguments against preferential taxation have been enumerated by Larry Libby.34 First, critics of preferential taxation argue that land taxes are really insignificant in total farm costs. Also that the farmers' decision to sell his land is deter- mined more by other farm costs, personal factors such as age, health, lucrative off-farm job opportunities, his son's interests, or by an attractive offer for his land rather than high taxes. The critics claim special tax treatment merely lowers the farms cost of speculation. Secondly, the opposition to preferential taxation points out that as land prices around the landowner are bid up by a growing community, the landowner has done nothing to bring about this increase but he reaps all the benefits of land value appreciation. Many followers of the Henry George school of thought feel that the taxes should be higher on 43 the unearned increment, rather than lower as preferential assessment advocates. They feel all the gain in value should go back to the society, for they are responsible for the higher values. A third contention is that underdeveloped land is under assessed in comparison to developed land. That is, in parts of Michigan the assessment-to-sales ratio is higher on developed than undeveloped land, largely because of poor assessment practices in rural areas. They believe that home- owners are subsidizing holders of open land who will even- tually reap capital gains. The fourth argument is in administrative procedures. Such questions as what is a farm and who is eligible for the program are not answered decisively. Opponents argue that speculators are allowed to maintain "token" farms in order to take refuge under preferential assessment. A fifth complaint is the inequity of the whole con- cept. Should farmers receive a tax break when they have an interest in rising land prices and are therefore "speculators" who are being subsidized at public expense? Many feel that little is obtained in return for the retention of land in agricultural uses. The sixth point is a question as to what extent do preferential assessment laws conform to a general planning process. This is a basic point which has been answered in many states by requiring the law to be in the public interest, 44 not simply a tax relief for farmers. And also the consti- tutionality of preferential assessment is a deterrent. Many state attorney generals have stated the preferential assess- ments violate the uniform tax provision of the constitution. The arguments for preferential assessment are quite obvious. First, agriculture, recreation, forest lands, and open spaces cannot compete with developed uses in terms of rent to the land factor. Land is a vital resource in farming, not simply a location on which a factory, the industrial means of production, can be placed. The factory requires little land resources and is capable of paying many times over the agricultural use value to obtain the needed space. However as one can reason, agriculture is "better" than only one use, idle land. It is therefore, ridiculous to say that land and food production is an unimportant activity. Secondly, farms and other open land uses arevaestheti- cally pleasing and offer many other benefits which are not captured in price. Parks, cattle grazing in fields of clover, and a "lack of buildings" are highly desirable quali- ties, yet are ones which do not reflect their true value in dollars and cents. Food production is vital, yet the land on which it is grown is constantly being removed from pro- duction by alternative uses. Thirdly, taxes are based on highest and best use in a quantative sense, which does not take into consideration 45 the externalities of open land. An acre of open land is not always worth less than is the higher valued developed acre when judged on a basis of benefit to society in the form of food and scenic beauty. Legislative Situation in Michigan At present, Michigan does not have differential assessment laws. However, attempts have been made to enact laws which might have provided for differential treatment of farm property. None has been successful. The first attempt was made in 1959. The bill was to provide for a constitu- tional amendment, but failed to get out of committee. The significant section of the bill read as follows: Sec. 3A. The legislature may provide by law that any city, when provided for by its charter, may create dif- ferential taxing districts within the city for opera- tional expenses as long as the rate of taxes within the district is uniform.35 Other bills have also been discussed, one solely for agriculture and another for agricultural and open space land.36 House Bill No. 4100 which would have amended Act. No. 206 of the Public Acts of 1893 of the State of Michigan and would have given Michigan a deferred taxation law with a three year roll back period. This bill also never was enacted into law. "The Open Space and Farmland Preservation Act of 1971" would have applied to all open land; wetlands, beaches, parks, forests, wildlife preserves, and historic sites, as well as farm and agricultural land. Under this 46 proposal upon application to the State Tax Commission, and certified by a local, area or regional planning commission that the land is zoned "Open space", "farm and agricultural" or "timberland," or in the absence of a land use plan, certi- fication from the local assessor that the land has been used for such uses for three of the preceding calendar years it becomes eligible for deferred taxation. This proposal would have provided for a five year roll back period with taxes due on the difference, plus a twenty percent penalty of the difference in taxes, plus interest. This prOposal passed both House and Senate, but in different forms and is now in committee. There has also been discussion as to the constitu- tionality of the property tax as a tool for financing public schools. As of yet no action has been taken on this, however there is a petition drive underway at present which supports the idea of removing the school operating millage from the prOperty tax and replacing it with an increased state income tax. Whether the increase in state income tax will be graduated or not is an undetermined question. This alter- native is discussed in detail in Chapter IV along with preferential assessment. In the 75th legislature, House Bill No. 3582 was approved by the Governor, August 11, 1969. This bill stated that in determining the value, the assessor shall also con- sider the advantages and disadvantages of location, quality 47 of soil, zoning, existing use, and present economic income of structures.37 However zoning regulations can be altered by powerful concerns and the determination of value in an existing use is very subjective. The latest proposal is House Bill 6229. If land is in one ownership with 80 or more acres and has been devoted to agriculture or horticulture during 3 of the past 5 calen- dar years or is using 5 acres or more but less than 100 with a gross income of $100.00 or more per acre during 3 of the five calendar years, that land will qualify for classification under this act. The land is taxed on the basis of USDA Soil Conservation Service capability classes with Class I land @ $9.00 per acre, Class II and III @ $7.00 per acre, Class IV @ $5.00 per acre, Class V, VI and VII @ $3.00 per acre, and Class VII @ $1.00 per acre. Thus no valuation as to dollars per acre is required for taxation. However, assess- ment is required for determining the penalty when the land changes use. The penalty is accumulated difference between the actual tax paid and the amount which would have been paid if not under this method of taxation, plus 6 percent compounded interest for 2 to slightly less than 3 years. Of if one desires to change the land use immediately 6 percent of the appraised value or sale price whichever is higher is collected as a penalty. This proposal is still in committee, but prospects for passage are uncertain. 48 Environmentalists and Agriculturalists have attempted to persuade legislators in stopping the unorganized encroach- ment of our valuable land resource and the loss of many farms.39 However, no definite program has been initiated in Michigan. The Governor's Special commission on land use has presented a policy statement and support of the principal of preferential assessment. The governor has agreed with the report and the need for appropriate legislation. The next chapter discusses the situation in the rural and urban fringe areas of this study and presents descriptive data and survey results. A definition of the area, the dairy farms in the area, the tax rates, and future estimates are also enumerated. 10. ll. 12. 13. 14. 15. CHAPTER II Footnotes Tennessee Constitution, Sec. 26, 1796. Raleigh Barlowe, Taxation of Agriculture, paper presented at the conference "Property Taxation--U.S.A." Milwaukee, June 15, 1965, p. l. Ibid., p. 2. Ibid., p. 2. Charles W. Eliot, "Open Spaces in the Regional Plan", The American City, (1929) Minnesota Statutes, chapter 688, 1953, Minn. Stat. Ann, 272.59 (supp. 1963). Maryland Ann Code, Article 81, sect. 19, (1969), enacted, 1956. FarmflReal Estate Taxes, Table 1, U.S.D.A., E.R.S., Feb. Ret 10,51971, p. 5. Agricultural Statistics, U.S. Government Printing Office, Washington, D.C., I970, p. 485. Ibid., p. 485. 1969 Census of Agriculture, U.S.D.A., p. 1, Table l. Farm Real Estate Taxes, U.S.D.A. E.R.S. Feb., Ret 10, 1971, Table 1, p. 5. The Farm Income Situation, Bureau of Agricultural Ec0r nomics, U.S.D.A. Jan.-Feb. 1951, P. 3, July 1971, p. 4. Frederick D. Stocker, "How High are Farm Property Taxes?" The Farm Cost Situation, U.S.D.A., ARS 43-75, RCS-24 (May, 1958). Irving F. Fellows, The Impact of Public Act 490 on Agri- culture and Open Space in Connecticut, Professor of AgriCultural Economics, University of Connecticut, paper presented at the Seminar on Taxation of Agri- cultural and Other Open Land, M.S.U., April 1-2, 1971, p. 51. 49 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.- 27. 28. 29. 30. 31. 32. 33. 50 Ibid., p. 52. Raleigh Barlowe, James Ahl, Gordon Bachman, "Use-Value Assessment Legislation in the United States". p. 12. Ibid., p. 13. New Jersey, Stats. Ann. 54:4-23.l to 23.23 enacted 1964. A. Robert Koch, Harriet H. Morrill, Arthur Hausaman, Implementation and Early Effects of the New Jersey Farmland Assessment Act, Rutgers--The State Univer- sity of New Jersey, 1967, p. 13. Ibid., p. 13. Ibid., p. 13. Samuel Garrison, Director of Rural Resources, New Jersey, Department of Agriculture, "Problems and Impact of the New Jersey Farmland Assessment Act of 1964", April 1, 1971, p. 29. Barlowe, p. 13. Ibid. ' p. 13. Don V. Collin, Consultant, California Senate Committee on Revenue and Taxation, paper presented at M.S.U. Seminar on Taxation of Agricultural and Other Open Land, "The California Land Conservation Act: The Easement and Contract Approach to Open Land Planning", April 1-2, 1971, p. 66. Barlowe, p. 14. Collin, p. 55. State of Hawaii Land Use Districts and Regulations Review, Land Use Commission, State of Hawaii, June 1970. Ibid. David T. Lum, Samuel G. Camp, III, and Karl Gertel, Hawaii's Experience in Zoning, Research Report 172, Hawaii Agricultural Experiment Station, University of Hawaii, p. 39. Ibid., p. 39. Ibid., p. 40. 34. 35. 36. 37. 38. 51 Larry W. Libby, An Overview of Farm Land Taxation, Agri- cultural Economics Miscellaneous 1971-3, Michigan State University, Jan. 1971, p. 9-11. House Joint Resolution 8, Regular Session of 1959. House Bill No. 4100 and The Open Space and Farmland Act Not Preservation Act of 1971. No. 276, Public Acts of 1969, State of Michigan, August 11, 1969, Sec. 27. only are high property taxes a problem for dairy farmers, but also the problem of manure handling, eSpecially odor is increasing in magnitude. The movement of urban people to the suburbs has inten- sified the problem, with both urban residences and the public in general becoming concerned with odors and possible pollution of ground water and streams resulting from livestock manure. With non-farm neighbors surrounding many dairy farms today, and especially in the urban fringe area a dairyman who sold a tract of land for an urban home may be later confronted with complaints about pollution and odors. CHAPTER III DESCRIPTIVE DATA AND SURVEY RESULTS The Areas of Study The rural area studied consisted of a sample of the dairy farms in Clinton, Eaton, Ingham, Ionia, and Shiawassee Counties in south central Lower Michigan. The area is pre- dominantly rural, yet does contain some degree of urban in- fluence from the cities of St. Johns, Charlotte, Lansing, Ionia, and Owosso. This five county area was used as an example of a largely rural dairy area in Michigan. The urban fringe area of study is also a five county area surrounding the city of Detroit. The counties from which dairy farms were sampled include: Macomb, Monroe, Oakland, Livingston, and Washtenaw. Omitted from the survey were the western two tiers of townships in Livingston and Washtenaw Counties and the western-most tier of townships in Monroe County. These townships are more nearly rural, and were thus excluded. This five county area is experiencing urban influence on the agricultural lands in increasing in- tensity. There exist many suburbs, industrial complexes, and commercial centers which are reaching outward for more 52 53 acreage needed for expansion, and by doing so are contributing a great deal of urban pressure on the outlying agricultural lands. Both areas of study are depicted in Figure 7. M60374 ISAIELLA IMO H — wraw WHO? “61M" Legend Rural 7 Area ”A man M / uw Fringe mount: . «wow At I: m Area 31733»me immature: i - Figure 7. The rural and urban fringe areas of study. Soils of the Areas of Study The soils of the rural area are predominantly Miami and Conover, with some Hillsdale, Bellafontaine, and Spinks.l The Miami and Conover series are nearly level to rolling and are deep, relatively high in fertility, and are durable under cultivation. The Hillsdale and Bellafontaine are somewhat rolling soils which are easily tilled, moderately productive, and require fertilization for high crop yields. The yield goals for these soils under good management with adequate 54 drainage range from a low of 75 bushel of corn on the Spinks to a high of 120 bushel or more cn the Conover soils. The soils of the urban fringe area are composed of Bellafontaine, Hillsdale, and Boyer soils on quite hilly con- ditions, along with Miami and Conover, Blount, Brookston and Hoytville soils.2 These soils are also quite productive with corn yields ranging from 75 to 130 bushel. Background and Growth Data To put the study in perspective, a history or back- gfiround along with growth data of the two areas was developed. Tfiie trend in the number of dairymen and the value of dairy products sold will be presented first. Michigan dairymen tmbtaling 41,662 in 1960 declined by 67.6 percent or to 13,927 £111 1971. This same downward trend occurred for both the rural iiIId urban fringe areas. In 1960, the five county rural area <2c>ntained 4,295 dairymen who were selling milk. This decreased ’tx: 2,849 in 1965 and to 1,530 in 1971, a decline of 64 per- cnant and 1,319 dairymen over the eleven year period. The lirflaan fringe area contained 2,548 dairymen in 1960; 1,419 in 1965, and only 745 in 1971, a decline of 70 percent and 1,803 dairymen over the same period. These summary figures are Presented in Table l and as the data within each area are 130*: homogeneous in all categories the data is given by counties in -Z¥ppendix C, Table C-l. 55 Table 1. Number of dairymen selling milk in the rural and urban fringe areas. 1960 1965 1970 1971 RURAL AREA Number of Dairymen 4,295 2,849 1,692 1,530 URBAN FRINGE AREA Number of Dairymen 2,548 1,490 788 745 Source: Michigan Department of Agriculture, Animal Health Division, BRT Counts, 1960, 1965, 1970, and 1971. The value of dairy products sold in the rural area was $17,896,270 in 1959 and increased to $30,958,371 in 1969. Thisrepresents a 76 percent increase in the value of dairy products sold over the ten year period. The value of dairy products sold in the urban fringe area increased from $14,282,892 to $16,621,717 an increase of 14.3 percent over the same ten year period. However, the average sale of dairy products per farm was greater in the urban fringe area. In 1959, the rural area averaged $3,976 per farm while the urban fringe farms averaged $5,679 per farm. Dairy product sales per farm were also higher for the urban fringe farms in 1969, $18,615 for the rural compared to $19,463 for the urban fringe INJt the differences were only one-half as great as for 1964. Whereas the rural area produced 14.2 percent of Michigan's 56 dairy products in 1969, the urban fringe contributed only 7.6 percent. Thus, a decrease of 1 percent of the state total occurred in the urban area, while the rural area gained 0.2 percent of the state total. This data is presented in Table 2, and detailed information is given in Appendix B, Table B-2. Table 2. Value of dairy products sold in the rural and urban fringe areas class 1-5 farms, 1959 and 1969. Percent 1959 1969 Increase RURAL AREA Value of dairy prod- ucts sold in dollars 17,896,270 30,958,371 76.0 Average per farm 3,976 18,615 368.2 Percent of state total 10.8 14.2 URBAN FRINGE AREA Value of dairy prod- ucts sold in dollars 14,282,892 16,621,717 14.3 Average per farm 5,679 19,463 242.7 Percent of state total 8.6 7.6 Source: 1964 and 1969 Census of Agriculture From the preceding information it is apparent that diiiferences exist between dairy farms in the two areas. The diiiferences are not limited to dairy farms as the following data on farm characteristics show. As is shown in Table 3 57 and detailed in Appendix B, Tables B—3 and B-4, in the rural area from 1959 to 1969 the number of farms decreased 21.9 percent, with the number of farms in the urban fringe area declining by 31.4 percent over the same period. The same trend occurred for land in farms. Land in farms declined by 203,790 acres or 13.4 percent from 1959 to 1969 in the rural area. The urban fringe area showed a de- crease of 259,659 acres, a 22.6 percent reduction over the same ten year period. The percent of land in farms also followed a similar pattern, only that the rural area contained a higher percent- age of farmland than did the urban fringe area, 73.2 percent compared to 45.2 percent. The percent of land in farms de- creased 11.2 percent from 1959 to 1969 in the rural area, while the urban fringe area decreased 12.7 percent. Accompanying the decrease in number of farms and land in farms was an increase in the average value of land and buildings, average farm size, and value per farm. Here we find the most pronounced differences, with the average value of land and buildings per acre increasing 65.4 percent from 1959 to 1969 in the rural area and 90.5 percent in the urban fringe area over the same period. Thus, in 1969 the average value per acre of land and buildings in the rural area twas $342.29 compared to $681.33 in the urban fringe area or dcnlhde that of the rural area. These differences would have 58 been greater if the data for the western tiers of townships in Livingston, Monroe, and Washtenaw Counties had been elim- inated. Table 3. Summary statistics of land use and value, rural vs. urban fringe, 1959-1969. Percent Change 1959 1969 1959 to 1969 RURAL AREA Number of farms 10,892 8,501 -21.9 Land in farms 1,520,138 1,316,348 -l3.4 Percent of total land in farms 84.4 73.2 -ll.2 Average value of land and buildings per acre $207.01 $342.39 +65.4 Average farm size 140.1 155.7 +1l.1 Average value per farm $29,177 $53,294 +82.6 URBAN FRINGE AREA Number of farms 9,699 6,658 -3l.4 Land in farms 1,146,670 887,011 -22.6 Percent of total land in farms 57.9 45.2 -12.7 Average value of land and buildings per acre $357.71 $681.33 +90.5 Average farm size 121.0 130.7 +8.0 Average value per farm $39,241 $85,097 +116.9 Source: 1964 and 1969 Census of Agriculture 59 The average farm size increased by 11.1 percent over the 1959 to 1969 period or a total of 14.6 acres per farm in the rural area, while the urban fringe increased 8.0 percent from 1959 to 1969. The average farm size increased 9.3 acres in the urban area, resulting in an average farm size of 130.7 acres compared to an average farm size of 155.7 acres in the rural area. The average value per farm in the rural area in- creased 82.6 percent from 1959 to 1969. In 1969 the average value of a farm in the rural area was $53,294. Whereas in the urban fringe area there was an increase of 116.9 percent over the same period, giving an average farm value of $85,097 in 1969. (See Table 3, page 58.) The percentage of the population which was classi- fied as rural in the rural area by the Bureau of the Census was nearly the same, or 56 in 1960 and 1970 (Table 4). The corresponding populations per square mile for the two years were 141.0 and 173.8 respectively. For the urban fringe agea, 42.7 percent of its population was classified as rural in 1960 but only 38.7 percent in 1970. The concentrations of population per square mile was 359.8 persons in 1970, a 38 percent increase over 1960. The population per square mile in the urban area was more than double that of the rural area in 1970. Detailed information is presented in Appendix B, Table B-5. Table 4. Percentage rural population and population per square mile in the rural and urban fringe areas and for the state. Urban Rural Fringe State Area Area Percent Rural 1960 55.8 42.7 26.6 1970 56.0 38.7 26.2 Population per Square mile 1960 141.0 259.8 137.7 1970 173.8 358.9 156.2 Percent increase in population density 23.3 38.1 13.4 Source: 1960 and 1970 Census of Population. The population of the two areas in 1970 and projected to 1980 and 1990 are shown in Table 5. In 1970, the popula- tion of the rural area was 487,346 compared to the urban fringe population of 1,944,729. The population is increasing much more rapidly in the urban fringe area than in the rural area. The rural area population increased 22.8 percent from 1960 to 1970 and has a projected increase of 14.8 percent from 1970 to 1980. increase is 6.8 percent. From 1980 to 1990 the projected population The urban fringe area increased in population by 38.5 percent from 1960 to 1970 and has a pro- jected population increase of 11.3 percent from 1980 to 1990. 61 Again, detailed information is presented in Appendix B, Table B-6. When compared to the population growth rate of the state, both the rural and urban fringe areas are increas- ing at a more rapid rate. (See Table 5.) Table 5. Total population in 1970 and projected to 1980 and 1990 in the rural and urban fringe areas and for the state. 1970 1980 1990 RURAL AREA Population 487,356 559,580 642,144 Percent increase from previous 10 year figure 22.8 14.8 6.8 Percent of state population 5.5 5.7 5.8 URBAN FRINGE AREA Population 1,944,729 2,464,534 3,080,604 Percent increase from previous 10 year figure 38.5 26.7 11.3 Percent of state population 38.9 25.1 27.7 STATE Population 8,875,083 9,838,875 11,107,485 Percent increase from previous lo year figure 13.4 10.8 6.1 Source: J. Allen Beegle, Project 80 & 5, Michigan's popula- tion, p. 3. 62 Table 6 shows the uses of Michigan's land resource. The trend toward increases in the acres of land in cities and suburbs will continue, while the land in farms will decrease. The number of acres in urban and suburban lands increased by 43.8 percent from 1960 to 1970 and by 1985 will have increased by an additional 30 percent. Harvested cropland was reduced by 23.1 percent from 1960 to 1970 and it is estimated that it will decrease by 12.8 percent from 1970 to 1985. Table 6. Land use in Michigan, 1960 and 1970 with a projec- tion to 1985. Type of Use 1960 1970 1985 (thousands of’acres) Urban and suburban lands 1,600 v2,300 3,000 Land in farms 14,783 11,901 9,000 Forest and recreation lands 18,031 20,000 22,500 Other rural lands 2,078 2,291 1,992 Total land area 36,492 36,492 36,492 Source: Raleigh Barlowe, Project 80 & 5, Trends in Land and Water Use in Michigan, (Michigan State UniVersity, 1972), p. 50. Trends in urbanization in Michigan are shown in Figure 8 from 1940 to 1970 and projected to 1990. The shaded areas represent those townships in which more than 40 percent of the land area was used for non—farm purposes. In southern lower Michigan the number of townships so classified was 79 in 1940 and 285 in 1970. As can be seen from the map, almost 63 Figure 8. Trends in Michigan urbanization, 1940 to 1990. Key: - |940 The shaded area represents townships in which greater than 40 percent of '970 the land area in the township is used for non-farm purposes. 7/1 I990 Source: Raleigh Barlowe, The Effects of Taxes on Land Use with Special Reference to Michigan. Seminar on Taxation of AgriCultural and Other Open Land, MSU, April 1-2, 1971, p. 18. 64 the entirety of the urban fringe area was so classified in 1970 with a very small percentage of the rural area classi- fied as greater than 40 percent non-farm. The number and percentage distribution of commercial farms by economic class are shown in Table 7 for the two areas studied. The percentage distribution of the four in- come class farms is almost identical for both areas, differ- ing only in the actual numbers of farms. The rural area contained 11,867 farms while the urban fringe area contained 9,268 farms in 1969. Detailed information is in Appendix B, Table B-7, and the data for the State in Table B-8. Table 7. Economic classes of rural and urban fringe area farms. Classification Urban Rural Area Fringe Area Commercial farms with: Product sales of $5,000 or more Product sales of less than $5,000 Part-time farms Residential and part- time farms Commercial farms with: Product sales of $5,000 or more Product sales of less than $5,000 Part-time farms Residential and part- time farms 5,016 3,358 3,347 2,504 5,857 5,143 6,230 4.154 2,850 2,636 2,940 1,947 990 730 1,070 663 Percent Distribution 33.9 28.3 24.6 27.0 39.5 43.3 45.9 44.8 19.3 22.2 21.6 21.0 6.7 6.2 7.9 7.2 Source: 1964 and 1969 Census of Agriculture. 65 Survey Results PropertyiTax Survey A survey was taken of dairy farmers to determine the property taxes paid in the two areas using the farms in the Hoglund Dairy Adjustment Survey as the sample. The data is based on tax and land valuation figures from the various county treasurers contacted. The statistical significance of the results are shown in Table 8 and the actual data in Table 9. A significant difference exists between the tax per acre and the assessed value per acre between the urban fringe and rural areas. The tax per acre varied within both areas, however, the assessed values were not significantly different at the .05 level within the areas. This suggests that the rate of taxation must vary within the areas. This suggests that the rate of taxation must vary within the areas, but assessed values are quite similar within each area. In Table 9, a summary of the actual data is presented, with the detailed data presented in Appendix B, Table B-9. The tax per acre was $7.05 in the rural area compared to $10.99 per acre in the urban area. As was shown in Table 9, the coefficient of variation of tax per acre is the same for the two areas. Table 8. Statistical tests of significance. 66 Approximate F Significance of Statistic Probability of F Between Rural and urban fringe area: Tax per acre 43.96 less than 0.0005 Assessed value per acre 54.20 less than 0.0005 Within counties of the rural area: Tax per acre 7.72 less than 0.0005 Assessed value per acre 0.65 0.626 Within counties of the urban fringe area: Tax per acre 5.74 less than 0.0005 Assessed value per acre 2.11 0.086 Source: Property tax survey. 67 .mm>nsm xmu muummoum "monsom mm.mv vo.mm~ ma.oa vaa.~m Hmm ms wage mmdfium swans mh.am mm.mmm om.va v¢N.mH mmh mm psmaxmo mm.mm mn.mmm vm.w mom.¢a mom om soummcfl>wq Hm.mm no.mmm mm.HH oam.m~ omm mm £30062 wm.om mn.mmm mm.~H Hom.mm mmH.H em SMGmunmmz Ho.Hm mw.mmm NH.m mHo.mH mam Nu ooucoz mm.mw mH.mmH mo.h ovH.mH mam moa mmufl Honda mm.mv ow.mo~ mm.> Hv~.>a mmm Hm coucflau mm.hm mv.HmH om.v mmm.va ohm up macoH mm.me mo.mma mm.m mmm.mH mvm moH coumm mm.mm mm.vom mm.w mmm.mm omw mma wwmmmSMflnm mm.mm ah.mhaw ma.a m mmm.mam mmm w maa EmzmsH whom mom xma muod mno¢\xme cowum>ummno pawn x89 mend mo coHuMHHm> me msam> mom msHm> muummoum coflum>ummno ,Ho mo namwoflmmmou pmmmmmmd pmmmmmmd Hopoa “mm mmuod mucsoo mmSHm> :mmz .mmmum mmcflnm scams cam Hons“ mnu Hem sump xmv huummoum chad .m magma 68 Dairy Adjustment Survey This data was obtained from the Hoglund Dairy Adjust- ment survey conducted in 1970 and 1971. The purpose of this study was to determine the impact of the physical and economic environment on present and future anticipated adjustments of dairy farmers in various areas of Michigan. This data is presented for its value in giving additional insight into the present dairy situation, dairy farmer opinions, and future plans of dairymen. The future plans of dairymen are shown in Tables 10 and 11. The rural area dairy farms reported that 54.7 per- cent would continue to milk the same number of cows compared to 75.2 percent in the urban area. Also, 13.1 percent of the dairymen were going to increase herd size in the urban fringe area compared to 34.8 percent in the rural area. More ex- pansion is evident in the rural area, with comparable rates of exit from dairying in both areas. When asked, "How do you size up prospects for profit- able dairy farming over the next five to ten years?" only slightly more dairymen were optimistic in the rural than urban fringe area, 86.8 to 81.4 percent. This data is shown in Tables 12 and 13. When comparing the rural and urban fringe dairy areas in the response to the question, "If you plan to dis- continue dairying, what are your major reasons?" 40 percent Table 10. 69 Future plans of dairymen in the urban fringe area by herd size and total for all farms (1975 projection date). <30 Cows Future Plans 30-49 Cows 50-74 Cows Herd Size 75-99 Cows >100 Cows Totals All Farms Milk same number of cows: 76.9 Milk more cows: Same labor: -- Hire more labor: -- Take a partner: -- Subtotal: -- Milk fewer cows: -- Sell cows-continue farming: 23.1 Sell farm: -- Turn farm over to son or son- in-law: -- Totals: 100.0 68.6 11.4 100.0 1 00.0 100.0 100.0 75.2 I—‘Nm O O O mum 13.1 100.0 Source: Hoglund Dairy Adjustment Survey. 70 Table 11. Plans of dairymen in the rural area by herd size and total for all farms (1975 projection date). Herd Size Future Plans <30 30-49 50-74 75-99 >100 Totals Cows Cows Cows Cows Cows All Farms Milk same number of cows: 58.8 46.2 44.4 61.5 62.5 54.7 Milk more cows: Same labor: 11.8 30.8 22.2 30.8 18.8 22.6 Hire more labor: -- 7.7 -— -- 15.6 6.6 Take a partner: -- 7.7 11.1 7.7 3.1 5.6 Subtotal: 34.8 Milk fewer cows: -- 3.9 -- -- -- 1.0 Sell cows-continue farming: 23.5 -- 5.6 -- -- Sell farm: 5.9 -- 16.7 -- -- 3.8 Turn farm over to son or son- in-law: -- 3.7 -- -- -- 1.0 Totals: 100.0 100.0 100.0 100.0 100.0 100.0 Source: Hoglund Dairy Adjustment Survey. 71 Table 12. Reasons for discontinuing dairying and optimism and pessimism of dairy farmers, rural area. Herd Size <30 30-49 50-74 75-99 >100 Totals Cows Cows Cows Cows Cows All Farms If discontinuing Percent Distribution dairying, Why? Age and retire- ment 40.0 100.0 25.0 -- -- 40.0 Too demanding 20.0 -- 25.0 -- -- 20.0 Cannot hire labor 20.0 -- 25.0 -- -- 20.0 Do not desire to expand 20.0 -- -- -- -- 10.0 Other reasons -- -- 25.0 -- -- 10.0 Totals 100.0 100.0 100.0 100.0 Number discon- tinuing dairying 10 Optimism or pes- simism on the profitability of dairy in the next 5-10 years Optimistic 88.3 84.6 88.9 92.3 84.4 86.8 Pessimistic 11.7 15.4 11.1 7.7 15.6 13.2 Source: Hoglund Dairy Adjustment Study. 72 Table 13. Urban fringe area reasons for discontinuing dairying and optimism and pessimism of dairy farmers 1970-75. Herd Size <30 30-49 50-74 75-99 >100 Totals Cows Cows Cows Cows Cows All Farms Percent Distribution If discontinuing dairying, Why? Age and retire- ment -- 20.0 25.0 100.0 -- 23.1 Too demanding -- 20.0 25.0 -- -- 15.4 Cannot hire ' labor 33.4 40.0 -- -- -- 23.1 Do not desire to expand 33.3 -- - Other reasons 33.3 20.0 50.0 -- -- 30.7 Totals 100.0 100.0 100.0 100.0 100.0 Number discon- tinuing dairying Optimism or pes- simism on the profitability of dairy farming in the next 5-10 years Optimistic 76.9 82.8 78.8 92.9 77.8 81.4 Pessimistic 23.1 17.2 21.2 7.1 22.2 18.6 Source: Hoglund Dairy Adjustment Survey. for the rural area and 23.1 percent for the urban fringe area said it was a result of their age and retirement plans. The other reasons of too demanding, labor problems and no desire to expand were similar in the two areas. 73 .mm>usm unmEpmsflp4 muflmo panamom "mousom Hm coaummsw wasp ou mammm woa mEHMM mo uwnfidc Hmuoe .Emaeflmmwm paw Emflfiflumo How mcommwn may muflm pnwm ou mmsommmucoc on map ma paw NH moanma 0p psommwunoo you op mmusmwm mmm£9« m.mH oaumflfiammmm Hmuoa N.H n.m II II II II amen oou mumoo II In In In II II musmama on .m>Hu0HnummH 009 In I: II I: In In ucmEUmmqu amen ooa m.m n.m II II m.m II mmsam> pcma paw mwxmu sown m.m h.m II II II 5.5 mc0flumadmmn Spaces paw unmecuw>om Name 009 m.w 6.5 II In m.m v.5 use pmonom mEme HHmEm m.m II In m.m m.m II mmmm3 Gowns spa? oummfioo uoccmu "Emfieflmmmm How mGOmmmm v.mm ofipmflsflumo Hmuoe m.mm m.mm o.ov m.mm G.Hm m.om 6500:“ memmum .moflum xafls coco m.m v.h 0.0H II m.m 5.5 G3op ummx we vamp paw maoacm>cfl MH m.~ II o.oa II II h.n mucmmm mcflcflmmumn paw mcwumxumfi ucmmmnm m.m h.m o.oa m.m m.oa v.ma ucmfimmmcmfi boom paw HOQMH haflfimm m.mm o.hm o.om o.om m.mm o.mm manomm whoa uneasy Hmzmm cowusnfluumflm usmonmm "Emwfiaumo How mGOmmmm mEHmm Had m300 m300 m300 m300 m300 mamuoa ooaA mmlmh vulom mvuom omv .mmum Hanan .efimfififlmmmm Ho Emflfiflumo How mGOmmwm .vH OHQMB 74 .mm>usm ucmfivmsnpm MHHMQ panamom "mousom mm cowumwsv menu on Mammm mad manna mo amass: Hmuoa .Emwfiflmmmm paw Emflfiwumo Hem maommmu may on mmcommwucoc ou map ma paw NH mmanma ou pcommwuuoo no: 0p newsman mmmnae m.nm OflumHEwmmmm Hmuoa II II II II II In swan oou mumou m.H II I: II m.v II whamwwa on .w>wuownummn 009 m.o o.OH In H.HH nu m.wH ucmsumm>cfl nah: ooe m.m~ o.om s.mH m.mm mo.ma m.vH mmsflm> cqma can mmxmp swam m.H .. e.ma .. u- I- mqoflumasmmn endow: paw ucmficnm>om mama 009 II II In I: II II #50 peoHOm mfiumm HHmEm m.H II II II In m.vH momma cows: news mummfioo uoccmo "Emafiflmmmm MOM mcommmm m.~m oeumflsnumo Hmuoa m.oq 0.04 s.ma m.mm «.mm m.m~ msoocfl memmum .ooflum xafls coco II II II II II II G306 ummx ma unmp paw mH0pcw>cH MH II II II II II II muammm mcwnflmmumn paw mnflumxnmfi pammmum o.m o.oa s.oa o.m m.v m.va pamsmmmams Boom can gonna madame m.ea o.oa m.mm m.m o.mH m.eH manomm macs .msumM umzmm coauSQHHumHo ucmoumm "EmHEaumo wow maommmm manna Hafi m300 m300 m300 m300 m3ou mamuoa ooaA mmlmb welom mvlom omv mnwm puma .wmum mmcfium Conn: .efimHEHmmmm Ho Emflaapmo How mnemmmm .mH OHQMB 75 When the reasons for optimism and pessimism are com- pared, more dairymen in the rural area were Optimistic than in the urban fringe area, 86.4 percent compared to 62.8 per— cent. A great difference exists between rural and urban fringe areas in the pessimistic reasons of high tax rates and land values. Nearly 26 percent of the urban fringe area dairymen gave high tax rates and land values as reasons for being pessimistic and only 2.5 percent of the rural area dairymen gave them as reasons. Table 16 shows the gross income distribution by herd size of dairy farms in the rural and urban fringe areas. There does not exist a great deal of variance between the two areas. In the area land use evaluation, the rural area had 67.9 percent of the farms classified as Commercial #1, com- pared to only 5.3 percent of those in the urban fringe area. In the future, this is more pronounced by the fact that 41.6 and 34.5 percent of the farms will then be in nonfarm or suburban uses respectively in the urban fringe area compared to only 1.0 and 2.7 percent for the rural area. The defini- tions of Commercial #1, Commercial #2, Marginal, Nonfarm and Suburban as used in this study are presented at the bottom of Table 17. 76 Table 16. Gross income of dairy farms by herd size and total for all farms. Herd Size Gross Value of <30 30—49 50-74 75-99 >100 Totals Sales Per Farm Cows Cows Cows Cows Cows All Farms Percent Distribution Rural Area <$10,000 5.9 -- -- -- -- 1.0 $10,000-l9,999 47.0 15.4 5.6 -- -- 12.3 $20,000-29,999 35.3 57.7 11.1 7.7 -- 22.6 530,000-39,999 11.8 11.5 38.9 -- -- 11.3 $40,000-49,999 -- 7.7 22.2 7.7 -- 6.6 >$50,000 -- 7.7 22.2 84.6 100.0 46.2 Totals 100.0 100.0 100.0 100.0 100.0 100.0 Urban Fringe Area <$10,000 7.7 -- -- -- -- 1.0 $10,000-l9,999 69.2 35.4 -- -- -- 18.9 $20,000-29,999 23.1 32.4 15.2 7.6 -- 18.0 $30,000-39,999 -- 14.7 36.3 -- -- 15.2 $40,000-49,999 -- 11.6 18.2 30.8 -- 12.6 >$50,000 -- 5.9 30.3 61.6 100.0 34.3 Totals 100.0 100.0 100.0 100.0 100.0 100.0 Source: Hoglund Dairy Adjustment Survey. Table 17. Area land use evaluation by herd size and total 77 for all farms, rural area. Herd Size <30 30-49 50-74 75-99 >100 Total Cows Cows Cows Cows Cows All Farms Percent Distribution Present land use of area: Commercial #1 70.6 38.5 83.3 76.9 78.1 67.9 Commercial #2 29.4 50.0 16.7 15.4 21.9 28.3 Marginal -— 11.5 -- -- -- 2.8 Nonfarm -- -- -- -- -- 1.0 Suburban -- -- -- 7.7 -- -- Totals 100.0 100.0 100.0 100.0 100.0 100.0 Expected land use of area in 5 to 10 years Commercial #1 58.8 30.7 77.8 76.9 75.0 62.3 Commercial #2 35.3 53.9 16.7 7.7 25.0 30.2 Marginal 5.9 11.5 -- -- -— 3.8 Nonfarm -- -- 5.5 -- -- 1.0 Suburban -- 3.9 -- 15.4 -- 2.7 Totals 100.0 100.0 100.0 100.0 100.0 100.0 Key for Table: Commercial #1: Land use is totally agricultural. Commercial #2: Land use is predominantly agricultural. Marginal: An occasional farm in a predominantly forest or nonagricultural use. Low quality land. Nonfarm: Land partly or totally idle awaiting develop- ment. Suburban: Predominant land use is housing. Source: Hoglund Dairy Adjustment Survey 78 Table 18. Area land use evaluation by herd size and totals for all farms, urban fringe area. Herd Size <30 30-49 50-74 75-99 >100 Totals Cows Cows Cows Cows Cows All Farms Percent Distribution Present land use of area: Commercial #1 -- 2.8 9.1 -- 11.1 5.3 Commercial #2 46.1 51.4 51.5 78.6 61.1 55.8 Nonfarm 38.5 28.6 30.3 14.3 16.7 26.6 Suburban 7.7 8.6 9.1 7.1 11.1 8.8 Other -- -- -- -- -- -- Totals 100.0 100.0 100.0 100.0 100.0 100.0 Expected land use of area in 5 to 10 years Commercial #2 15.3 17.1 18.1 21.4 33.3 20.4 Marginal -- 2.9 —- -- -- 0.9 Nonfarm 53.9 42.9 42.4 57.2 16.7 41.5 Suburban 30.8 37.1 36.4 21.4 38.8 34.5 Other -- -- -- -- 5.6 0.9 Totals 100.0 100.0 100.0 100.0 100.0 100.0 Key for Table: Commercial #1: Commercial #2: Marginal: or nonagricultural use. Nonfarm: ment. Suburban: Source: Predominant land use is housing. Hoglund Dairy Adjustment Survey Land use is totally agricultural. Land use is predominantly agricultural. An occasional farm in a predominantly forest Low quality land. Land partly or totally idle awaiting develop- 79 Table 19 shows that more dairy farmers in the rural area are planning on adding more land to the dairy operation than are those in the urban fringe area. In the rural area, 18.6 percent of the dairy farmers interviewed stated that they would try to buy more land compared to 8.3 percent in the urban fringe area. This fact could be attributed to the optimism of the rural areas farmers and the lower land prices in the rural area due to less urban influence. Table 19. Dairy farmer plans for adding more land by herd size and total for all farms. Herd Size <30 30-49 50-74 75-99 >100 Total Cows Cows Cows Cows Cows A11 Farms Percent Distribution Plans for adding more land: Rural Area None 93.7 69.2 80.0 69.2 71.9 75.5 Try to buy 6.3 23.1 13.3 15.4 25.0 18.6 Totals 100.0 100.0 100.0 100.0 100.0 100.0 Urban Fringe Area None 92.3 87.5 93.5 100.0 66.7 87.9 Try to buy -- 9.4 6.5 -- 22.2 8.3 Try to rent 7.7 3.2 -- -- 11.1 3.8 Totals 100.0 100.0 100.0 100.0 100.0 100.0 Source: Hoglund Dairy Adjustment Survey. 80 Land values are shown in Table 20. The differences in land values are even more pronounced when the values are farmer opinion than when that of tax assessors as presented in Table 10. In reply to the question, "What is the going price for cropland like yours in the community, the rural area land value per acre was $414 compared to $1,143 in the urban fringe area. It appears that urban fringe land values are underassessed more so than are rural land values. This can be determined from comparing the land values in Table 10 to those in Table 20. The assessed value per acre for the rural area was $189.16 based on a market value of $378.32 per acre and the farmer Opinion was a market value of $414 per acre. However, in the urban fringe area the assessed value per acre was $299.04 based on a market value of $598.08 per acre compared to the farmer opinion estimate of $1,143 per acre. Table 20. Cropland value per acre by herd size and total all farms. Herd Size <30 30-49 50-74 75-99 >100 Total Cows Cows Cows Cows Cows All Farms Rural Value of crop- land per acre $364 $447 $401 $436 $411 $414 Urban Fringe Value of crop- land per acre $1,380 $1,006 $1,117 $800 $1,525 $1,143 Source: Hoglund Dairy Adjustment Survey. 81 Table 21 presents the number of dairymen, herd size, and total number of cows sold from each area. More cows (1,327) were sold in the urban fringe area than were in the rural area (512). Cows per farm (36) or the size of the farm which went out of business was also greater in the urban fringe than rural area (28). Table 21. Number of farms, cows per farm and total cows sold of those who quit dairying in the rural and urban fringe areas 1968 to 1970-71. Number Cows Total of per Cows Farms Farm Sold Rural Area Eaton 4 31 124 Ingham 6 25 148 Ionia 4 18 76 Clinton 4 35 143 Shiawassee 2 ll 21 Total or Average 21 28 512 Suburban Area Oakland 11 39 405 Macomb 7 33 234 Washtenaw 5 29 146 Monroe 2 18 36 Livingston ll 46 506 Total or Average 36 36 1,327 Source: Hoglund Dairy Adjustment Survey. 82 Table 22 presents the reasons why dairy farmers quit dairying. Since 1968, 19 percent of the dairy farmers in the rural area had quit dairying compared to 31 percent for the urban fringe area. The reasons for quitting the dairy business were similar for all categories except taxes and nearness to a subdivision. In this category, 9 in the sub- urban and none in the rural area said that was a reason for their discontinuance of dairying operations. As was shown in the prOperty tax survey property taxes and assessed values are significantly higher in the urban fringe area and are one major factor responsible for the decline of dairy farms in the areas. Also, those who planned on expanding the herd were more prevalent in the rural area, 39 farms in the rural area were expanding and only 15 were expanding in the urban fringe area. Reasons for this may be skepticism on the part of many dairymen regarding increasing urban influence on land values, and also waste management problems. The differences in the rural and urban fringe areas are many. The most pronounced differences are the number of dairymen, land values, property taxes per acre, population, and degree of urbanization. Considering these factors, it is apparent that the dairymen in an urban fringe setting experience higher property taxes and more problems with pollution. It was evident in the Hoglund Dairy Adjustment 83 .>m>usm ucwEumsnp¢ muflma panamom "mousom Hm mm \0 mm HH ('0 vH Hm Ha N mm H ma Hm m vm NH NN N mH Hm r-l pmmm>H5m mamfimm mo unwouwm manpoa pocflfiuwuwp no: no Hmnuo cOHmH>flpQOm mmOHo Ho mmxme QOn Emmmnmmo co Oxma pcmmxm uoc HHfl3 HO poacmu mouom HOQMH OHQmuHSm mo xomq mmfinmuopcm Show m>wmcmucfl mmma m on O>OE suammm munmflma mHOE Inm:HESm:OO mfiflu OOB usefimuflumm paw mom tenoi eoxuow uois -5UIA11 meueiqseM pustxeo qmooew T9301 uoiuito SGSSPM 'eTqS meqbuI eruoI uoieg .Hnlonma Op mmma .maflmnwmp pang 0:3 mmosu an am>fim chmmmn 0:8 .mm OHQMB 84 Survey that more dairy farms are discontinuing dairying in the urban fringe area and 25 percent of those who have quit did so because of high taxes or the nearness to a subdivision. Chapter IV contains the budgetary analysis and shows what impact herd size, production level, land value and prOperty and state tax rates have on dairy farm net cash incomes. Table 23. Plans for adding or decreasing herd sizes in the next 5 years. Herd Size <30 30-49 50-74 75-99 >100 Number Cows Cows Cows Cows Cows of Farms Rural If add more cows, how many cows will you total: 28.5 69.0 94.5 106.6 193.5 39 If milk less cows, how many cows will you total? -- 37.0 -- -- -- 1 Urban Fringe If add more cows, how many cows will you total? -- 58.3 113.3 100.0 310 15 Source: Hoglund Dairy Adjustment Survey. CHAPTER III Footnotes E. P. Whiteside, I. F. Schneider and R. L. Cook, Soils of Michigan, Extension Bulletin E-630, Michigan State University, 1968, p. 46. Ibid. 85 CHAPTER IV THE BUDGETARY ANALYSIS Complete and partial budgeting techniques were used to calculate receipts, expenses, and net incomes after taxes for several alternatives studied. The input data were ob- tained from Telfarm Summary records, the Property Tax Survey, and the Hoglund Dairy Adjustment Survey. The budgets were constructed to determine the impact of varying land values and property tax rates on the net cash incomes for dairy farmers with differing herd sizes, and milk production levels. Base Factors for the Budgets The following items were used as a base for computing the budgets: Item 40 Cow Herd 86 Cow Herd Acres of CrOpland Owned 209 352 Rented 56 105 Man Equivilents 1.73 2.72 Milk Price, net 3.5 percent $6.00/cwt $6.00/cwt butterfat Value of Buildings $12,000 $30,000 86 87 The acres of cropland and man equivalents of labor were taken from the Telfarm Summary and are averages for the herd sizes given. The milk price was assumed to be $6.00 per cwt. on the basis of past and expected future milk prices. Buildings used for the budgets of the 40-cow herd included a 40-cow stanchion barn, various outbuildings, and a 20 x 60 concrete silo with a total value of $12,000. The dairy facilities for the 86-cow operation include a 90-cow free stall barn, a herringbone milking parlor, 2-24x70 con- crete silos, and other buildings with a total value of $30,000. For each 1,000 pounds of additional milk produced it is estimated that livestock expenses will increase by 5 percent, hired labor by 5 percent and purchased feed by 10 percent. The Budgeting Variables The budgeting variables included (1) herd size, (2) land values, (3) management or production levels, and (4) prOperty tax millage and income tax rates. The 40-cow herd size was selected to represent a one-family operation. In five to ten years a 40-cow operation will be considered a small herd and a minimum number of cows necessary to earn a reasonably satisfactory living with good management. The 86-cow herd was chosen to represent a minimum size two- family operation which would provide an acceptable income at 1970-1975 expected prices and costs as derived from the 88 prOperty tax survey. The average land value in the survey was $350 per acre and the maximum value was $850 per acre for the rural area. The same is true for the medium and high land values in the urban fringe area. The production levels of 12,000 and 15,000 lbs. of milk per cow were chosen to represent a medium and a high level of management. The millage rates for the rural and urban fringe areas are actual data averaged for the areas obtained from the Michigan Department of Education, Bulletin No. 1012. The income tax level for the state of Michigan is 3.9 percent and is increased to 6.2 percent for the purpose of removing the financing of public schools from the prOperty tax and replacing it with an increased income tax rate of 6.2 percent. However, this would not be the entire amount to be substituted, also another source would be required, such as an increased income tax levy beyond 6.2 percent, or the levy of a value added or similar consumption tax. The Budgetary Results The analytical procedure consisted of setting the millage rates, school operating millage, and state income tax levels at present rates for the first alternative and then using those calculations to determine the impact of preferential assessment on net cash incomes after taxes. The two remaining alternatives were judged from this base. The second alternative determines the effects of the removal Table 24. Budgeting variables. 89 Budgeting Variables Land values per acre Rural Medium High Urban fringe Medium High Milk sales per cow Medium High Millage rates Rural Total mills School operating millage Urban fringe Total mills School operating millage 40-Cow Herd $350 $850 $600 $1,500 12,000 lbs. 15,000 lbs. 36.00 22.00 44.60 29.60 86-Cow Herd $350 $850 $600 $1,500 12,000 lbs. 15,000 lbs. 36.00 22.00 44.60 29.60 of the school operating millage from the property tax and the increase of 2.3 percent in state income taxes. The third alternative considers the effect of both preferential assess- ment and the removal of the school Operating millage from the prOperty tax and adding 2.3 percent to the state income tax. For each of the above three alternatives, herd sizes of 40 and 86 cows, production levels of 12,000 lbs. and 15,000 lbs. of milk per cow and land values of $350, $600, 90 $850, and $1,500 per acre were included to determine the impact of the three taxing alternatives on net cash incomes after taxes. The data used for computing net cash incomes and an example of how they were computed are contained in Appendix C, Tables C-1 and C-2. The Impact of Preferential Assess- ment on Net Cash Income Table 25 presents the income situation as it exists at present, that is, with the present state income tax rate of 3.9 percent, present property tax millage rates, and no preferential assessment. This table clearly shows the great impact of land values and corresponding prOperty taxes on farm incomes. A profitable dairy farm can be placed in a very low income situation because of increasing land values and property tax rates which cause increased expenses. Assuming the preferential assessment will result in valuation of all agricultural land at its agricultural use- value of $350 per acre, a comparison of the increases in incomes for the two herd sizes at differing land values is presented in Table 26. For example, the calculation made using the 40-cow herd size, 12,000 lbs. of milk production level, and a land value of $1,500 per acre, would result in an increase in net cash income of $5,069 ($8,869-$3,800) as a result of the preferential assessment. 91 Table 25. Net cash incomes of dairy farms with present tax rates. Land Values* Herd Size of Production Level 40 Cows @ 40 Cows @ 86 Cows @ 86 Cows @ 12,000#/ 15,000#/ 12,000#/ 15,000#/ Cow Cow Cow Cow I $350/acre II $600/acre III $850/acre IV $1,500/acre NET CASH INCOME $8,869 $13,054 $17,705 $25,463 $7,574 $11,950 $15,864 $23,941 $7,272 $11,670 $15,859 $23,846 $3,800 $8,505 $10,183 $19,109 fLand values I and III are the rural area values and land values II and IV are the urban fringe values and are taxed by the millage rates in the respective area. Table 26. Increases in net cash income after taxes due to preferential assessment* Herd Size and Production Level Land Values 40 Cows @ 86 Cows @ 12,000#/ 15,000#/ 12,000#/ 15,000#/ Cow Cow Cow Cow ------- Dollars - - - - - - - I $350/acre -- -- -- -- II $600/acre $1,295 $1,114 $1,841 $1,522 III $850/acre $1,597 $1,384 $1,846 $1,617 IV $1,500/acre $5,069 $4,549 $7,522 $6,354 Percent Increase I $350/acre -0- -0- -0- -0- II $600/acre 17.09 9.33 11.61 6.36 III $850/acre 21.96 11.86 11.64 6.78 IV $1,500/acre 133.39 53.49 73.87 33.25 *Preferential assessment will revalue all land at its agri- cultural value of $350. The figures in the table are computed with all tax rates at present levels. 92 Preferential assessment favors the smaller herd size and smaller production levels in terms of percent increases in net cash income after taxes, but not in absolute figures. For each land value, the lower production levels for both herd sizes received the greatest percent increases in income. Also, the 40-cow herd size received greater percentage in- creases in incomes than did the 86-cow herd size. However, the 86-cow herd size received the greatest dollar amount of increased income. The lower production levels and smaller herd sizes receive the greatest percentage increase in net cash incomes after taxes as a result of preferential assessment. The lowest percent increase in income (6.4 percent) was for the 86-cow herd size with 15,000 lbs. of milk per cow and $600 land value while the greatest percent increase (133.4 per- cent) was for the 50-cow herd, 12,000 lbs. of milk per cow, and $1,500 land value per acre. The same pattern exists throughout the table when dollar increases are compared the 86-cow herd receives the most. And the 86-cow herd with 12,000 lbs. of milk per cow received the greatest increases for all land values. The Impact of the Removal of the School Operating Millage on Net Cash Incomes Table 27 presents the net cash income structure of the dairy farms under consideration if the school operating millage was removed from the property tax and the state 93 income tax was increased 2.3 percent. Here, also, land values have a great impact on farm incomes; yet the removal of the school operating millage does eliminate some of the effects of high land values. Table 27. Net cash incomes with the removal of the school operating millage and an additional 2.3 percent state income tax. Herd Sizes & Production Levels Land Values* 40 Cows @ 40 Cows @ 86 Cows @ 86 Cows @ 12,000#/ 15,000#/ 12,000#/ 15,000#/ Cow Cow Cow Cow I $350 $9,456 $13,511 $18,561 $26,048 II $600 $9,124 $13,193 $18,042 $25,594 III $850 $8,895 $12,972 $17,848 $25,422 IV $1,500 $8,001 $12,147 $16,335 $24,079 *Land Values I and III are rural values and II & IV are urban fringe values and are taxed accordingly. The same analysis is used in Table 28 to show the increases in net cash incomes which are due to the removal of the school operating millage and an addition of 2.3 percent to the state income tax level. For example, a 40-cow herd, 12,000 lbs. of milk production level, with $350 valued land, would have an increased income of $587 ($9,456-$8,869). The same type of relationship is found with the removal of the school Operating millage and the increase of state income taxes, as was the case for preferential assess- ment. Here, also, the lower production levels and herd sizes 94 Table 28. Increases in net cash incomes after taxes due to the removal of the school operating millage and increase in the state income tax 2.3 percent to 6.2 percent. Herd Sizes & Production Level Land Values 40 Cows @ 86 Cows @ l2,000#/ 15,000#/ 12,000#/ 15,000#/ Cow Cow Cow Cow I $350/acre $587 $457 $856 $585 II $600/acre $1,550 $1,253 $2,178 $1,653 III $850/acre $1,623 $1,302 $1,983 $1,576 IV $1,500/acre $4,201 $3,642 $6,152 $4,970 Percent Increase I $350/acre 6.62 3.50 4.83 2.30 II $600/acre 20.46 10.49 13.73 6.90 III $850/acre 22.32 11.16 12.50 6.61 LV $1,500/acre 110.55 42.82 60.41 26.01 received the greatest percentage increase in net cash incomes after taxes, but not in absolute figures. The 40-cow herd again received the greater percentage increase in net cash income after taxes than did the 86~cow herd size. But, the 86-cow herd received the greater dollar amount of increase in net cash income after taxes than did the 40-cow herd. The lowest increase of 2.3 percent was again for the 86-cow herd, 15,000 lbs. of milk production and a land value of $1,500 per acre, and the greatest dollar increase was $6,152 for the 86-cow, 12,000 lbs. of milk per cow, and $1,500 land value. 95 The Impact of the Combination of Pref- erential Assessment and the Removal of the School Operating Millage: and Adding 2. 3 Percent to State Income Tax LeveIs on Net Cash Incomes Table 29 presents the situation if both preferential assessment and removal of the school operating millage from the property tax were implemented. This table is simply the tOp row of Table 27 because under preferential assessment all land would be valued at its use value of $350 per acre. Table 29. Net cash incomes after taxes using both preferen— tial assessment and removing the school operating millage while increasing the state income tax to 6.2 percent. Herd Size and Production Level Land Values 40 Cows @ 86 Cows @ 12,000#/ 12,000#/ 12,000#/ 15,000#/ Cow Cow Cow Cow All land values $9,456 $13,511 $18,561 $26,048 $350 to $1,500 per acre When both preferential assessment and the removal of the school operating millage plus the increase of 2.3 per- cent in the state income tax are combined, the same pattern of percentage increases exists as was the situation for the two alternatives individually. Again, the low production level and small herd size received the greatest percentage increase in incomes with the 86-cow herd receiving the greater dollar increases. When using both dollar increases 96 Table 30. Increases in net income after taxes due to using both preferential assessment and the removal of the school Operating millage. Herd Size and Production Level 40 Cows @ 86 Cows @ 12,000#/ 15,000#/ 12,000#/ 15,000#/ Cow Cow Cow Cow I $350 $587 $457 $856 $585 II $600 $1,882 $1,571 $2,697 $2,107 III $850 $2,184 $1,841 $2,702 $2,202 IV $1,500 $5,656 $5,006 $8,378 $6,939 Percent Increase I $350/acre 6.62 3.50 4.83 2.30 II $600/acre 24.85 13.16 17.00 8.80 III $850/acre 30.03 15.78 17.04 9.23 IV $1,500/acre 148.84 58.86 82.27 36.31 in incomes and percentage increases in incomes as a criterion of judgment, the combination of the two methods proved to be the alternative in which net cash incomes after taxes in- creased the most. Keeping in mind that $350 and $600 per acre land values are averages for the rural and urban fringe areas respectively, and that the $850 and $1,500 per acre land values are maximum land values, it can be seen from Tables 26, 28, and 30 that the urban fringe area will gain more net cash income in percentage and absolute terms from preferen- tial assessment, the removal of the school operating millage, 97 and the combination of the two than will the rural area. This is a result of the fact that higher assessed land values exist in the urban fringe area, thereby giving a larger base from which deductions can be made, reducing expenses more so than in rural areas. Property Taxes as a Percent Of Net Cash Incomes Property taxes as a percent of net cash income are presented in Table 31. It is apparent that dairy farmers with lower production levels will pay a greater percent of their incomes out in the form of property taxes. The dairy- man with the 40-cow herd with a 12,000 lb. production level and a high land value of $1,500 per acre would pay 65.6 percent of his income out in the form of property taxes whereby the dairyman with the 86-cow herd with 15,000 lbs. production level would pay only 8.0 percent of his income out in the form of property taxes. The corresponding reduc- tions in the percent of income paid out in property taxes are given in Table 31. Here property taxes are at a much lower percent of income than they are with the school oper- ating millage included in the property tax. Rate of Return on Investment Table 32 shows the rate of return on investment for the various herd sizes and production levels at the present tax levels. The rate of return on investment is negative 98 Table 31. Property taxes as a percent of net cash income before taxes with and without the school oper- ating millage. Herd Size and Production Level Land Value 40 Cows @ 40 Cows @ 86 Cows @ 86 Cows per acre 12,000#/ 15,000#/ 12,000#/ 15,000#/ Cow Cow Cow Cow With the school operating millage Millage rate at 36 for I and III land values and at 44.6 for land values II and IV I $350 13.9 9.4 11.9 8.0 II” $600 27.8 18.8 23.2 15.6 III $850 30.9 20.9 23.2 15.6 IV $1,500 65.6 44.4 53.6 36.0 Without the school operating millage Millage rates of 14 for land values I and III and 15 for land values II and IV I $350 5. 4 3. 7 4. 6 3.1 II. $600 9.3 6.3 7.8 5.2 III $850 12.0 8.1 9.0 6.1 IV 22.1 14.9 18.0 12.1 Table 32. Rate of return on investment* Herd Size and Production Level Land Value 40 cows @ 40 cows @ 86 cows @ 86 cows @ 12,000#/ 15,000#/ 15,000#/ 15,000#/ Cow Cow Cow Cow $350 -l.0 3.3 6.3 14.0 $600 -l.6 1.6 2.5 5.9 $850 -l.3 0.9 1.8 4.9 $1,500 -l.9 -0.5 -0.1 1.7 *Present tax rates, including operator and family labor at $2.50 per hour. 99 for the 40-cow herd with a milk production level of 122000 lbs. and was low or negative even at the 15,000 lbs. produc- tion level. The rate of return was higher for the 86-cow herd but with a milk production level of 12,000 lbs. was low or negative with land values of $600 or more and with a 15,000 lbs. production level was low at land values of $850 or more. It is apparent from this table that investment in a small dairy farm is not a very profitable venture at present tax arrangement. However, if preferential assess- ment were implemented, the rate of return on the $350 per acre land would be the relevant land. This would help considerably as rates increase. However, a problem then arises as one's land and this will have a great impact worth statement. A brief look at the future income of in Appendix C, Table C-3. investment for values for all of return would to the value of on one's net dairy farms is Chapter V presents the summary, conclusions and implications of the study. CHAPTER V SUMMARY, CONCLUSIONS, AND IMPLICATIONS Summary The specific objectives of this study were to de- termine the impact of three differing property taxing methods on the net cash incomes of dairy farmers with two herd sizes and two milk production levels. The general objectives of this study were to appraise the current dairy farm situation in a rural and urban fringe area of Michigan, and to evaluate the present and future economic impact of prOperty taxation on dairy farm stability and income. Complete budgets were calculated as a base to judge changes for the dairy farms, and the partial budgeting technique was used to evaluate the impact of two herd sizes and production or management levels, and four land values on net cash income after taxes. Partial budgets were also used to assess the relationship and impact of differing property taxation methods on net cash incomes after taxes. Data for the budgets was obtained from the Telfarm Summary, the Property Tax Survey conducted by the author, and the Hoglund Dairy Adjustment Survey. 100 101 It was found that all three methods (1) preferential assessment, (2) removal of the School operating millage and increasing the state income tax to 6.2 percent, and (3) combining l and 2 yielded very similar patterns of percentage and dollar increases in net cash incomes after taxes. The results show that both preferential assessment and the re- moval of the school Operating millage provided greater per- centage net cash income increases for lower production levels and herd sizes. However, the larger herd sizes received the largest absolute increases in net cash incomes. With preferential assessment incomes increased from 6.4 percent or $1,522 for the $600 per acre land value, 86 cow herd with 15,000 pounds of milk production per cow to 133.4 percent or $5,069 for the $1,500 per acre land value, 40 cow herd with 12,000 pounds of milk per cow. However, the dairy farmer with land valued at $350 per acre, which is the agricultural use value, would receive no increase in income with preferential assessment, yet would receive an increase in net income with the removal of the school oper- ating millage. When the school operating millage is removed from the property tax and the state income tax is increased to 6.2 percent the same pattern of increase in income exists as was the case for preferential assessment. Here also the lower production level and smaller herd size received the greatest percentage increases in net cash incomes after taxes. These 102 increases ranged from 2.3 percent to 110.6 percent. But here again the larger herd size and production levels gained the most in absolute terms. For example the 86 cow herd with 12,000 pounds per cow production and $1,500 land values had an increased net cash income of $6,152. When 1 and 2 were combined, as would be expected, the same pattern of increases in income again holds, however, the impact of both methods are felt so that an additive effect exists and the levels of income increases for the combination of methods is higher than that for either inde- pendently. When asked which alternative one would choose, 1, 2 or 3 if the objective were to increase net cash incomes, the response would be No. 3, the removal of the school oper- ating millage and the increase in the state income tax coupled with preferential assessment. This choice is made for the reason that for all herd sizes, production levels, and land values, dairy farmers would receive the greatest increase in net incomes with alternative 3. However, if the distinction was between alternatives 1 and 2 only, the answer is more complicated. The answer would generally be for land values $600 per acre or below regardless of size and production level use the preferential assessment Option to increase net cash income the most. With land valued at $600 or more per acre the removal of the 103 school Operating millage would be the best alternative. This is a result of the fact that at higher land values the de- crease in millage rates outweighs the revaluing effect of land to its use value. Conclusions It can be concluded from the study that preferential assessment, the removal of the school operating millage, and the combination of the two, results in increases in net cash incomes after taxes which in percentage terms are biased in favor of the lower herd.size and lower production level dairy herds. However, when absolute amounts of the in- creases in net cash incomes are compared, the larger herd size and production levels benefit the most. Increases in net cash incomes after taxes were apparent for all categories and all alternatives except the $350 land value category when applying preferential assessment. All three alterna- tives can be viewed as favorable changes from the present set of tax rates and tax methods for property taxation and state income taxes when dairy farmers' net cash incomes are used as a criterion for judging. It can also be concluded from the study that dairy farms in the rural area are more profitable than are those in the urban fringe, i.e., ceteris paribus. Also dairy farms in the urban fringe area stand to gain more net cash 104 income in percentage terms than do those in the rural area as a result of the implementation of preferential assessment and the removal of the school operating millage. Benefits of Preferential Assessment and the Removal of the School Oper- atigg Millage and Replacingit with an Increased State Income Tax From society's point of view the current pattern of land use is costly. If a zoning plan or green belt area could be develOped, coupled with the preferential assessment and the removal of the school operating millage and an in- crease in the state income tax, our land resource could be orderly preserved and wisely used. With preferential assess- ment and zoning or other methods of removing the tax pressure from farm and open space land, a more orderly development and conversion of our land resource could be achieved. For converting land from farm to non-farm uses would be more favorable if it were not done in random and scattered manner. If land were added to the urban area as it was required in an orderly fashion with less tax pressure on lands located further from the city, our lands could be wisely used-and open land preserved. Accompanying the planned use of our land resources would be a decrease in cost of such public expenditures as, lighting of streets, sewage treatment, water supply, and many other public services. Also, there would be added income to the dairy farmers and all farmers' incomes as well as an equitable means of financing public education. 105 However, if one group benefits from a new policy, the question arises whether anyone is harmed by such action. The answer to this question involves determining who will be picking up the taxes that farmers and landowners have foregone to enable the same level of state and local spending. It is clear that non-land owning or those with limited land ownership will pick up the extra revenues required. However, the impact upon this limited land ownership group as well as other types of farming enterprises is not known. Implications The implications of this study can be divided into three sections: (1) implications of present trends, (2) implications of differing taxing methods on dairy farms' in- comes and the stability of dairying, and (3) implications of the study for alternatives which are available to dairy farmers in high tax areas. With an ever increasing population it is inevitable that additional land resources will be required for the urban fringe area. These additional urban lands will develop at the expense of land in lower rent uses, such as open space, recreational, or agricultural lands. And as commer- cial or residential growth occurs in this transitional area, land prices will increase. As land prices increase, so do property taxes. The budgets in Chapter IV present the fact that small herd sizes and low production levels are responsible 106 for an early exit from the dairy business. The first farms to terminate the business are those with small herd sizes and/or low production levels because they do not have suffi- cient income to pay property taxes and still maintain a high level of family living when faced with increasing land values. Dairy farms as well as all other low intensity land uses will be forced to vacate their prOperty on the urban fringe when land values reach the threshhold where they can no longer effectively compete with other more intense uses. The question then arises, will high taxes on property cause a dairy farm to leave the area? The answer cannot be generalized, rather depending on alternative farm plans, off-farm jobs, selling prices of the farm and anticipated gain from the sale of the property. In differing situations, one of the above may be the reason for the sale, but cannot always be generalized. Urban sprawl is detrimental to society, only those who are involved in the transaction are moving to the rural area, or profit from the misallocation of the land resource through increased costs will benefit. Urban sprawl will continue unless legislation, zoning or other measures are undertaken to forbid the practice of scatteration of housing and other land developments. It is more profitable to operate a dairy farm in a rural area, especially where land values in the urban fringe area are greater than the agricultural use value, thus 107 increasing fixed costs. Urban fringe dairy farms can compete only if management practices are excellent and herd sizes and production levels are also high. By high production levels and larger herd sizes the dairy farmer in effect in- tensifies his operation in order to withstand pressure from other highly intensified uses which exert pressure to change the land use. The implications of this study on dairy farm net cash incomes is quite simple. The three alternatives studied for relieving property tax pressure all decreased expenses so as to increase net cash incomes. And these increases were substantial amounts in all cases. The implications of increased incomes are towards a more stable dairy sector as far as numbers of dairy farmers and location of the farms are concerned. The second implication of the study is concerned with alternatives which are available to dairy farmers in the quest for reduced property taxes or increased incomes. The alternatives which are available and feasible for dairy farmers to use in this quest depend on five factors. These factors are: (1) age and family plans, (2) the financial position of the dairy farm, (3) the present herd size and efficiency of operation, (4) the dairy farm location, and (5) off-farm job opportunities which are available. Keeping these five factors in mind, the dairyman facing high land values and high tax rates has several 108 alternative plans of action which may enable him to remain competitive in the dairy industry. The following are offered as suggestions and are not a cure-all in themselves. First, increase efficiency to be competitive in the short run. This alternative should be practiced by any dairyman who wants to increase profits or remain competitive. It involves buying feed in low price periods or in large enough quantities to receive volume discount. In reducing unnecessary labor or adding a new milking system to reduce labor requirements. The dairy farmer could rent or buy additional land to lower machinery costs per acre or unit. Any number of such management decisions could be made to increase efficiency. What should be kept in mind, however, is the importance of increasing milk production per cow to levels above 12,000 pounds. This will help to distribute costs over more pounds of milk produced and as a result have more pounds of milk to sell, thus increasing efficiency. It must be remembered that increasing herd size and more mechanization do not necessarily contribute to increased efficiency in the dairy operation but must be accompanied by increased output per cow and man. This alternative should be placed above all others as a starting point from which to build or add strategies or other alternatives to in order to increase net cash income. However, for the dairy farmer nearing retirement age with a very small herd size in an urban fringe location, this may not be a viable alternative. 109 Second, minimize new investments and hope to sell the farm at a high price on a later date is a possibility. This alternative could prove to be a large financial gain to certain individuals who are lucky enough to sell their farms for $1,000 or more per acre. However, the capital gains tax and a new place to live or job to find elsewhere may compli- cate the situation. For if more than 30 percent of the selling price of the farm is paid in cash during the year of sale, the seller must pay capital gains tax on the entire net profit at the end of the year. Or finding a new home in a different area is not always a cheaper way to live than in the individual's present location. Also a farmer of age 50-60 may find it very difficult to find off-farm employment, thus further increasing the complications. Selling the farm with a life-lease of the house at retirement age, with the farm payments being made over a number of years may be a wise choice. By doing this the dairyman insures himself of an income and a place to live during retirement and minimizes capital gains taxes. Minimizing new investments as an alternative relies on the fact that the farmer is nearing retirement age, or if notnot, has off-farm job opportunities. And if the farmer does sell, there also is the possibility of finding a new home and the financial position of the farmer bears heavily on this factor. 110 Third, pushing for zoning, preferential assessment, or the removal of the school operating millage and replacing it with an increase in state income tax, may be an answer in some areas. This cannot be accomplished by one farmer alone, but may be advanced if the farmer is involved and gets others involved also. Zoning and preferential assessment can be of help to many farmers on the rural-urban fringe by reducing the competition for the dairyman's farm land or by giving him special treatment in tax rates. However, there are many unique characteristics of both systems and should be explored in detail to fit the exact situation which the individual dairyman is facing. Before considering any further alternatives, the possibility of obtaining zoning and the most helpful of the two, preferential assessment should be explored in detail. Preferential assessment and the removal of the school oper- ating millage and replacing it with an increased state income tax is a very good alternative, yet the possibility of ob— taining such legislation is uncertain. Fourth, selling some land and buying most of the feed requirements may be another alternative; however, the feasibility of which is questionable. Selling some land for a subdivision may meet with resistance from the developers if the dairyman plans to continue his dairy operation. For there are very few dairy farms in the center of residential 111 subdivisions for obvious reasons. It is, however, a possi- bility at further distances from the rural-urban fringe, but its feasibility of really helping alleviate the problem of high land values and tax rates is questionable. This alternative is a temporary one at best and for the younger dairy farmer who wants to grow this alternative is quite poor. Fifth, relocate in a low tax rate area or a lower land value area at a greater distance from the rural-urban fringe. Here many factors come into focus. These are the age of the dairyman, his financial position, any sons to take over the business, the cost of the transition, and social or community opportunities available in the new loca- tion. It may be neither desirable nor profitable for a dairyman reaching retirement age with no sons to take over the business to relocate the dairy operation in another area. However, if there is a reason to keep the business viable, then relocation in a lower land value or tax rate area may be the answer. Sixth, the possibility of intensifying the land use may be a solution. Moving from corn or hay to a vegetables or fruit may be a way to increase returns from the land. The problem with this alternative is many dairy farmers do not possess the necessary management or technical skills to grow fruits and vegetables. Also, if the farmer wishes 112 to remain in dairy farming the loss of feed for the herd from the conversion may be detrimental to the dairy oper- ation. There are also alternatives which may be advisable if the dairy farm Operation is to be discontinued. First, there is the possibility of selling out and retiring. This is quite feasible for a dairyman nearing retirement age, with no one to take over the operation. The prospect of selling out and moving to Florida is in the mind of many dairymen. Or, he may want to acquire a job in a city or town, which the feasibility of has already been dis- cussed as not promising for older persons. The age and off- farm job Opportunities play a very important role in this alternative as well as the financial position of the dairy- man. Second, the opportunity for an off-farm job may look promising to those with the necessary skills and located near other employment or would be willing to relocate. Third, selling the land and retaining the home is an alter- native which could be desirable if the dairyman was able to find local off-farm employment or was nearing retirement. Need for Further Research This study deals entirely with short-run (one to five year) adjustments in net cash incomes of dairy farmers. Much research needs to be done on the long-run (five to forty years) preferential assessment and the removal of 113 school Operating millage on improving land use to an orderly and planned conversion process. The data is not conclusive what the impact of various property tax relief measures and planning programs will be upon the scatteration of agricul- tural land development and conversion over the long-run. Will these programs alleviate the property tax pressure on farm lands on the urban fringe and enable farms in the transition area to earn satisfactory incomes until their land is needed for urban expansion? This question needs to be answered by further research. A BIBLIOGRAPHY OF THE MOST IMPORTANT SOURCES Act NO. A BIBLIOGRAPHY OF THE MOST IMPORTANT SOURCES 276, Public Acts of 1969, State of Michigan, August 11, 1969, Sec. 27. Barlowe, Raleigh, The Effect of Taxes on Land Use With Special Reference to Michigan, Michigan State University, Seminar on Taxation of Agricultural and Other Open Land, 1971. , Taxation of Agriculture, paper presented at the Brown, conference Property Taxation--U. S. A.", Milwaukee, University of Wisconsin Press, June 15,1965. , Project 80 and 5, Trends in Land andeater Use in Michigan, Michigan State University, February, 1972. , James Ahl, and Gordon Bachman, "Use-Value Assess- ment Legislation in the United States", Unpublished paper, Michigan State University, December, 1970. L. H. and John Speicher, Telefarm Summary for Southern Michigan Dairy Farms, 1970, AgriculturaliEconomics Report Number 205, August, 1971, Michigan State University. Clawson, Marion, Suburban Land Conversion in the United Collin, States--Resources for the Future, JOhn HOpkins Press, Baltimore, MaryIandI~l97l. , R. Burnell Held and Charles H. Stoddard, Land for the Future, Resources for the Future, Inc., T e Johns HOpEins Press, Baltimore, Maryland, 1960. Don V., Consultant, California Senate Committee on Revenue and Taxation, paper presented at M.S.U. Seminar on Taxation of Agricultural and Other Open Land, The California Land Conservation Act: The Easement andiContract Approach to Open Land Planning, April 1:2,~197l. Eliot, Charles W., "Open Spaces in the Regional Plan", The American City, (1929). 114 115 Fellows, Irving F., The Impact of Public Act 490 on Agricul- ture and Open Space in Connecticut, Professor of Agricultural Economics, University of Connecticut, Paper presented at the Seminar on Taxation of Agrid cultural and Other Open Land, Michigan State Univer- sity: April 1-2, 1971. Garrison, Samuel, New Jersey Department of Agriculture, Prob- lems and Impact of the New Jersey Farmland Assess- ment Act of 1964, ApriI l, 1971. Hoglund, C. R., and G. McBride, Michigan's Changing Dairy Farmin , Research Report 96, Miéhigan State Univer- Sity, Agricultural Experiment Station, January, 1970. , "The Dairy Farm Enterprise)" Prpject '80 and_§, Unnumbered Report, Michigan State University, Febru- ary, 1972. , What's Ahead in Dairying? Unnumbered Mimeo Report, Michigan State University: December, 1970. Howard County Planning Commission, Howard County, 1985, Maryland: April, 1967. Libby, Larry W., An Overview of Farm Land Taxation, Agricul- tural Economics Miscellaneous 197153, MiEhigan State University: January, 1971. Lum, David T. E., Samuel G. Camp, III and Karl Gertel, Hawaii's Experience in Zoning, Research Report 172, Hawaii AgriculturaIIExperiment Station, University of Hawaii: June, 1969. Koch, A. Robert, Harriet H. Morrill, and Arthur Hausaman, Implementation and Early Effects of theNew Jersey Farmlandessessment Act, Rutgers--The State Univer- sity of New Jersey: 1967. Maryland Ann Code, Article 81, sect. 19, (1969), enacted, 1956. Michigan House Bill No. 4100 and The Open Space and Farmland Preservation Act of 1971. Michigan House Joint Resolution S, Regular Session of 1959. Michigan Department of Agriculture, Michigan A riculture Statistics, Crop Reporting Service: JuIy, I972. 116 Michigan Department of Agriculture, Michigan Agricultural Statistics, Crop Reporting Service: July, 1971. Minnesota Statutes, Chapter 688, 1953, Minn. Stat. Ann; 272.59 (supp. 1963). New Jersey, Stats. Ann. 54:4-23.1 to 23.23 enacted 1964. Poole, A. Travis, J. Paxton Marshall and W. L. Gibson, Use- Value Assessment: A Study Based on Loudoun County, Vir inia, Department of Agricultural Economics, Virginia Polytechnic Institute: 1966. Schmid, A. Allan, Converting Land from Rural to Urban Uses, Resources for the Future, Inc., Johns Hopkins Press, Baltimore, Maryland: 1971. Smith, Steve, "Land Use Problems," Farm Policy Forum, Vol. 14, No. 4, 1961-62. Stocker, Frederick D., "How High are Farm Property Taxes?" The Farm Cost Situation, U.S. Department of Agricul- ture, ARS 43-75, RCS-24: May, 1958. State of Hawaii, State of Hawaii Land Use DistricEs and Regulations Review, Land Use Commission, June, 1970. U.S. Department of Commerce, Bureau of the Census, Census of Agriculture,l964 and 1969, Michigan, Washington, D.C.: U.ST Government Printing Office. U.S. Department of Commerce, Bureau of the Census, Census of Population, 1969, Michigan, Washington, D.C.: U.S. Government Printing Office. U.S. Department of Agriculture, Economic Research Service, Agricultural Statistics, Washington, D.C: U.S. Government Printing Office. U.S. Department of Agriculture, Farm Income_Estimates, 1949- 1969, FIS 211 Supplement, Economic Research Service, Washington, D.C: August, 1970. U.S. Department of Agriculture, Economic Research Service, Farm Income Situation, FIS 126, January-February, 1951. U.S. Department of Agriculture, Economic Research Service, Farm Income Situation, FIS 218, July, 1971. 117 U.S. Department of Agriculture, Economic Research Service, Farm Real Estate Market Developments, CD 76, August, 1971. U.S. Department of Agriculture, Economic Research Service, Farm Real Estate Taxes, Ret. 10, February, 1971. U.S. Department of Agriculture, Economic Research Service, Farm Real Estate Taxes, Ret. 11, January, 1972. U.S. Department of Agriculture, Economic Research Service, Handbook of A ricultural Charts, 1970, Agricultural Handbook No. 97. Whiteside, E. P., E. F. Schneider.and R. L. Cook, Soils of Michi an, Extension Bulletin E-630, Michigan State UniverSity: 1968. APPENDICES APPENDIX A APPENDIX~A-l Taxes levied on farm real estate and realized net farm income, Michigan, 1960-70. Year Taxes on Farm Realized Net Real Estate Farm Income (Millions of Dollars) (Millions of Dollars) 1960 34.1 254.7 1961 36.2 269.2 1962 38.9 285.2 1963 40.3 259.7 1964 43.4 281.7 1965 41.7 296.1 1966 51.5 352.4 1967 51.9 291.9 1968 60.0 249.4 1969 68.9 286.0 1970 76.8 245.8 Source: U.S. Department of Agriculture, Farm Real Estate Taxes, Ret. ll, E.R.S., January, 1972 afid U.S. Department of Agriculture, Farm Income Situation, FIS-218, E.R.S., July, 1971. 118 APPENDIX B APPENDIX B-l Number of dairymen selling milk. 1960 1965 1970 1971 County June July Nov. Clinton 961 635 405 383 Eaton 909 576 284 249 Ingham 679 479 280 242 Ionia 939 665 403 375 Shiawassee 807 494 300 281 Total 4,295 2,849 1,672 1,530 Avg/County 859 570 334 306 Macomb 574 332 168 160 Washtenaw 769 483 278 251 Monroe 305 152 65 70 Livingston 572 389 210 205 Oakland 328 134 67 59 Total 2,548 1,490 788 745 Avq/County 510 298 158 149 State 41,662 26,713 15,100 13,927 Source: Michigan Department of Agriculture, Animal Health Division, BRT Counts, 1960, 1965, 1970, and 1971. 119 120 Table B—2. Value of dairy products sold "dollars" class Number Number of of Farms Farms 1959 1969 1959 1969 Clinton 4,193,475 7,865,197 1,021 397 Eaton 4,293,625 4,053,590 1,001 267 Ingham 5,391,755 6,551,269 748 297 Ionia 4,017,415 7,278,571 940 419 Shiawassee 4,357,105 5,209,744 791 283 TOTALS 17,896,270 30,958,371 4,501 1,663 $ per farm avg. 3,976 18,615 900 332 State Totals 166,068,949 218,698,356 % State 10.8 14.2 Macomb 2,794,115 2,718,299 582 164 Washtenaw 4,064,675 5,785,036 728 309 Monroe 1,311,015 1,107,554 291 82 Livingston 4,068,243 5,343,324 597 221 Oakland 2,044,844 1,667,504 317 78 TOTALS 14,282,892 16,621,717 2,515 854 $ per farm avg. 5,679 19,463 503 171 State Totals 166,068,949 218,698,356 % State 8.6 7.6 Source: 1964 and 1969 Census of Agriculture. 121 .mmma paw emma OHDHHSOHHmd mo momsmo "wousom mmm.mm h.mmH ov.~vm o.mn mvm.mam.a Hom.m mmmum>¢ no mamuoe mmm.mm H.Hma no.¢mm m.vn vmv.mmm oan.a 00mmmsmwsm Hem.ee m.HeH em.msm ~.ee ema.om~ mme.a mecoH «mm.me o.mea ee.mmm e.ee mem.om~ mam.a amnmcH maw.m¢ m.m¢H av.aam H.Hh mmm.mmm th.a coumm www.5vm m.¢va ma.mmmm v.mn mmm.mmm Hmm.a :Opcwau mmma sea.mm H.oea Ho.som v.4m mma.omm.a mam.oa 0mmu0>< no mampoe who.mm m.mma Ho.NmN m.mm m~>.mm~ mmm.~ 00mmmsmwnm mmm.mm m.mwa mm.mma m.mm mhm.mom hmo.m mHcoH mmm.am m.mva Hm.ovm m.mh omo.mmm mmm.a EmnmcH Hom.mm b.mma mm.mom m.mm ~vm.oam mmm.~ coumm enn.wmw o.~va hm.amaw m.mm «mm.vmm mmm.~ coquHU mmma muod Hem puma Sums muwm mmmum>< Hmuoa msumm msumm mucsou Hem Sham mmsfipawsm «0 Ga mo msam> mmmum>< paw pawn unmouwm pcmq Henssz .mmum Hanan .mmfiussoo an mOflumemuomnmno sham .mum manna 122 .OnsuHsOHHmd mo mamcmu mmma paw wwma ”mousom hmo.mm m.oma Hm.Hmm H.mv Hao.hmm mmm.m mmmum>4 no mamuoa hmH.mHH m.nHH mm.mhm «.mH omm.aoa mom psmaxmo www.me m.mma oo.mee m.ee neo.eea mme.a eoummcs>eq oam.mh m.mmH mm.mmm ~.Hh www.mmm ooo.~ wousoz ome.me H.mma mm.eom ~.em mm~.om~ mam.s amemuhmmz mmo.mmw N.>m H¢.mmmw m.am vmm.mm 5mm £80062 mmma va.mm o.ama an.nmm m.hm osm.mva.a mmm.m mommm>¢ HO mamuoa www.mv m.oma mm.vmm v.m~ oaa.mma onm.a pcmaxmo www.mm m.mmH oH.mNN m.mm va.m- hmv.a coummcfl>fiq Hm¢.vm «.mm om.omm H.mh th.omm omm.~ wOHcOz hmm.ov o.mma no.mmm m.mm hmo.omm moa.~ Bmcmuzmmz mHN.mmw m.mb Hm.momw H.mv mNN.HmH mmm.a QEOOMS mmma muo< Hem psmq Eumm Ouwm mmmnm>¢ Hmuoa msumm msumm mpcsoo Hmm Eumm mmcwpaflsm mo cw mo msHm> mmmum>< paw pawn unmoumm pawn umnssz .mmum wmcwum swans .mmwussoo an unflumflnmuomumso Show .vlm magma 123 .omlvm Op .malvm .m .wOHmEEOU mo #:mfiuummma .m.D .smmH30Hz .sOHumHsmom mo msmcmu onma "wousom h.mm mmmum>¢ HO mamuoa o.oH Hem.eoo emo.oo eem.oem oooaxoo o.oo som.om eee.~m moe.o ooumooe>ea m.Hm moa.emm ooH.Hm eoo.mma swampsmos o.mo one.msfi mmo.ee emv.ae monooz o.e oom.m~o emo.me meo.oem hsoomz o.mm wmmum>¢ Ho mamuoa m.~o meo.mo omm.om omo.m~ ommmozoeem o.oo mem.me oem.om oom.ma meeoH m.ea omo.aom smm.em ~oe.m- soeoaH o.em mom.mo eoo.mm moo.m~ eouom e.me ~oe.me ema.mm mmm.oa conceao oboe m.mmm h.mv mmmnm>¢ HO mamuOB H.~H H.em H.eeo.a m.HH om~.ooo moa.am ooo.ooo oeoaxoo ~.em o.mm H.moa m.em mm~.mm mem.mm Hom.e cosmoeeeeq m.o o.om m.omm o.om oee.mea omo.om eme.ama soaouemmz e.m o.oe e.NH~ m.me oNH.HoH ema.me moo.e~ moneoz o.en m.~o e.~om.a o.~H eom.moe oeo.om mmm.emm nsoooz m.mna m.mm wmmum>¢ Ho mamuoe e.om o.~ m.oHH m.om owe.mm eom.om ~mo.mm oommozoeem m.m ~.~ o.oe m.mo mms.me Hoe.m~ Heo.ea oecoH o.a- o.m~ o.eoe o.eH oo~.HHN mfie.em mem.mes sohooH m.Hm ~.om e.o~a ~.Ho emo.oe mom.om mom.oH oouom m.m~ e.em m.em ~.me moo.em Hmo.o~ mom.m couoHHo oooa on. was: amusm Gonna mnmsvm Hmnsm mucsov oeuoo. omeoao w 00m Hmuoe w Houoe Housm gonna .mmum mmsflnm swans paw HMHDH 0:» m0 moanmwnmuomumzo sOflumasmom .mlm manna 124 Table B-6. Rural and urban fringe population in 1970 and projected to 1980 and 1990. % Change 1970 From 1960 1980 1990 Rural Clinton 48,492 27.7 58,219 73,151 Eaton 68,892 38.7 88,702 113,284 Ingham 261,039 23.5 290,952 316,058 Ionia 45,848 6.3 48,506 52,920 Shiawassee 63,075 18.0 73,201 86,731 Totals or Average 487,346 22.8 559,580 642,144 State 8,875,083 9,838,875 11,107,485 % State 5.5 5.7 5'8 Urban Fringe Macomb 625,309 54.1 836,778 1,095,583 Monroe 118,479 17.2 133,432 154,281 Livingston 58,967 54.2 80,107 106,233 Washtenaw 234,103 35.8 302,218 365,005 Oakland 907,871 31.5 1,111,999 1,359,502 Totals or Average 1,944,729 38.5 2,464,534 3,080,604 State 8,875,083 9,838,875 11,107,485 % State 38.9 25.1 27.7 Source: J. Allen Beegle, Project 80 and 5, Michigan's Popu- lation, Michigan State University, p. 3. 125 Table B-7. Economic classes of rural and urban fringe area farms Classification Clin- Eaton Ingham Ionia Shia- Totals ton wassee Rural Area 1959 Number of farms 2,253 2,451 1,925 2,108 2,236 10,973 Part-time farms 550 635 515 555 595 2,850 Residential and part retirement farms 185 265 155 220 165 990 Product sales >$5,000 927 1,436 854 858 941 5,016 Product sales <$5,000 1,326 1,015 971 1,250 1,295 5,857 1969 Number of farms 1,981 1,782 1,399 1,629 1,710 8,501 Part-time farms 615 648 446 369 558 2,636 Residential and part retirement farms 157 174 132 131 136 730 Product sales >$5,000 811 605 532 771 639 3,358 Product sales <$5,000 1,170 1,177 867 858 1,071 5,143 Source: Census of Agriculture, Michigan, 1959 and 1969. 126 Oak- Living- Wash- Monroe Macomb land , ston tenaw Totals, Urban Fringe Area 2,808 1,883 1,307 1,482 2,097 9,577 955 505 480 460 540 2,940 320 210 165 175 200 1,070 823 708 412 562 842 3,347 1,985 1,175 895 920 1,255 6,230 2,000 997 863 1,099 1,699 6,658 570 241 288 387 461 1,947 154 109 111 107 182 663 737 441 234 387 705 2,504 1,263 556 629 712 994 4,154 127 Table B-8. Economic classes of Michigan farms, 1950-1969. Classification 1950 1959 1964 1969 Numbers Commercial farms with: Product sales of $5,000 or more 28,294 37,028 38,108 31,603 Product sales of less than $5,000 78,530 28,014 22,079 16,726 Part-time farms 24,023 34,148 23,683 22,637 Residential and part retirement farms 24,600 12,512 9,603 6,962 Abnormal units 142 63 31 18 Commercial farms with: Product sales of $5,000 or more Product sales of less than $5,000 Part-time farms Residential and part retirement farms Abnormal units Percentage distribution 18.2 50.5 15.4 15.8 33.1 25.1 30.6 11.2 40.8 23.6 25.3 10.3 40.6 21.5 29.0 Source: of this presentation. U.S. Census of Agriculture. definitions make direct comparisons between the four census years difficult. Modifications in class The classes listed in the table are generally comparable for the purposes One must recognize, however, that the inflation factor alone should have caused numerous Operators with less than $5,000 in product sales in 1950 to rise above this level in the three later years. 128 m~.HH mm.v NH.H um Hma Hem «a mqu\msam> cmmmmmma mm.o m~.m Hm. mm.a om.¢ ~m.m ma.m muom ”mm xme on.aem.a mm.v mm.a mmo.oa mmm.¢a oom.oe hov.v msam> cmmmwmmm Hmuoa mo.mm mm.v H5.H Ham mum ~¢H.H maa xmu muummoum Hmuoa mm ma.m ov.m ne.a me as com mm mmuom MHGOH m>.ma o~.m He. mm mma mam Hoa mHoM\msHm> wmmmmmma on.o mm.m nm.a mo.m mm.m ~m.ma mm.~ muom umm xme om.~oe.a mm.~ om. oam.m 4mm.ma oom.¢m mma.m msam> cummmmmm Hmuoe mH.am hm.~ mo. mmm mam Nmo.H mam xmu suummoum Hmuos ma mm.m e~.~ am. am moa men Hm mmuo< Goumm Hm.ma em.m no.H me mom omm em mnom\msam> wmmmmmme mm.oam.m em.~ Hm. mmm.NH mmm.m~ mam.mm onm.m msam> 66mmmmmm Hmuoa mo.maa hm.m mo.H Hmv cam mmm.a mom xmu suummoum Hmuoe ma mv.va mo.m om.H mm mma omm oe mmuod mwmmm3MH£m m~.mH m~.~ as. am and 5mm mm mu06\msam> ummmmmme mn.o me.m mm. Hm.m ma.m om.ma mm.~ muom mam xma mn.hmo.m mm.m -.N mma.ma mmm.ma ooo.mh oon.a msam> cmmmmmmm Hmuoa mm.>va av.m mm.m emu mmm mah.m on xmu munmmoum Hmuoe em mm.ma mH.m mm.a mm mHH oov ma mmnom EMSWGH mGOHfimkw Gmmz m3“. lummno no mo Houum mwmou mmm: cowumw>mo nmmz wsam> msam> muasou Hmnadz pumpcmum IHSM I3mxm pnmocmum ESEfixmz Esfiflcwz .mamuou mwum can mucooo an magma mumo >m>uom xmu muummoum .mlm magma 129 wm.mH om.H om. mm mam mmv Hod 6608\msam> cmmmmmma hm. mm.~ mm. mm.m m~.HH Hm.ma m¢.m mnom “we xma oa.mam.~ mm.m ma.n nam.oa oam.m~ woa.vs m-.¢ msam> mmmmmmmm Hmuoa em.ooa ov.~ mo.n mmv omm mon.a can xmu munmmoum Hmuoa ma em.m m~.¢ mH.H «4 «m oom om mmuoa £800.02 sm.mH mm.m me. om.am 6mm Hmm mma mu06\msam> ammmmmma me. m¢.m so. ~m.m mm.~a 4H.H~ om.e mnom umm x69 Hm.mmm.m no.4 n~.H oam.ma Hom.m~ ooo.mm amm.m msam> ommmmmmm Hmuoa ne.ova vm.v om.H mmn mma.a Hmm.m «ma xmu munmmoum Hmuoa mm om.e nm.~ om. mm em cod em mmuoa 3wcmu£mm3 Hm.¢m mH.m o~.m ma.m¢a mom ems mma muom\msam> cmmmwmme mm. mm.a no.u mm.~ ma.m om.HH «m.m muom umm x69 qm.mnv.~ mm.H mo. «Hm.oa mao.ma omm.¢m mm~.m msflm> mmmmmmmm Hmuoa v¢.mn om.a Ho. «mm mam omH.H mma xmu muuwmoum Hmuoe ma ma.o mm.H ma. am we «NH mm mmuo< mOHGOZ 46.6H vm.m NH.H mu mom mmv om muom\msam> 66mmmmm¢ ma.o mm.m mv.a HH.m om.n ms.na mm.~ muom umm xme om.mmm.a mo.~ om. oma.m ov~.na omm.mm amm.m msHm> wmmmmmmm Hmuoe om.vm am.H mm. mmm mmm nmo.a «am an» muummoum dance as wm.m mH.~ am. mm om mma em mwuoa conaflao mcowum> cmwz can luombo no mo uonum mwmou mmms coquH>mo :mmz msam> msHm> hucsoo Honfioz oumosmum IHSM I3mxm pumocmum ESwamz Edfiflcflz .6.u:oo .mum magma 130 RH.mH H~.¢ mm.o mo.m~a wo.mmm en.mvh hm muom\msam> wmmmmmma om.o m¢.¢ mm.o om.¢ oo.oa mw.om om.m @606 ”mm xma mn.hhe.a mp.m mm.a mm.me¢.¢a «NH.N~ ooo.mm onw.a msam> wmmmmmmm Hmuoa mm.hm «v.~ ~5.H ma.emm Ham Hmm.m mHH xmu muummoum Hmuoa om mm.m m¢.v om.a om.¢m me com om mmuom mend mmmwum swan: HH mmaa mm.» mm.m om.o mm.ae ea.mma mme mm muomxmsam> wmmmmmme mm.o mm.v mo.H H~.m mo.s om.mH ma.~ muom umm xme «H.8ma.a mm.m mm.a vq.¢om.aa o¢H.mH ooo.me oop.a msam> cmmmmmmm Hmuoe mm.mv om.ma mn.~ ~m.¢m¢ mmw mah.m ma xmu muummonm Hmuoa mm o~.m mm.oa we. mm.am HoH cow ma mmuom mm: HMHSM H mend -.h mm.m oo.o mm.ah na.mma mme mm mqu\msHm> 66mmomm¢ mm.o mo.¢ mo.H Hm.m mo.p om.mH ma.~ muom umm xma «H.mma.a mm.m mm.H w¢.¢om.aa oea.ma om~.mm mam.“ msam> 66mmmmmm Hmuoa «H.hma hm.a mm. mmv amp mme.a maa xmu muummoum Hmuoe Ha mo.m No.4 mo.H 6N mm oma om mmuoe unmaxmo m¢.mv Nv.m ao.a vma mmm mos mma muomxmsam> ummmmmme mH.H mm.m ms. ma.m «m.m mm.om om.~ mnom uwm x69 an.vmm.a mm.~ hm. omm.m moo.va mm~.mm oss.a msam> ommmmmmm Hmuoa mm.mo om.~ mm. mam mom mNH.H «4H xmu muummonm Hmuoe om om.v He.m me. am mm was om mmuom coummdfl>wq m:0aum> com: 0:» Inmmao no mo Hounm mflmou mmm: coauma>mo Gmmz msHm> moam> mpcsoo Hmnfidz cuqumum IHSM I3mxm pumpqmum Edawxmz afifiwnflz .u.ucoo .mum magma 131 Table C-l. Budgeting of 40 and 86-cow dairy farms 12,000 and 15,000 lbs. production/cow, 350 and 850 land values two millage rates and two state tax levels. Total Cropland Property PrOperty Cash Value Value per Tax @ Tax W.O. Decrease Rural of Land & Acre Assessed 36 Mills 22 Mills in Value Buildings Value of S.O.M. Property ‘ "l4 Mills" Tax 40-cow herd 12,000#/ cow 85,150 350 42,575 1,532 596 936 40-cow herd 15,000#/ cow 85,150 350 42,575 1,532 596 936 86-cow herd 12,000#/ cow 153,200 350 76,600 2,758 1,072 1,686 86-cow herd 15,000#/ cow 153,200 350 76,600 2,758 1,072 1,686 40-cow herd 12,000#/ cow 189,650 850 94,825 3,414 1,328 1,986 40-cow herd 15,000#/ cow 189,650 850 94,825 3,414 1,328 1,986 86-cow herd 12,000#/ cow 299,200 850 149,600 5,385 2,094 3,291 86-cow herd 15,ooo#/ cow 299,200 850 149,600 5,385 2,094 3,291 132 Federal Federal ? Income Income State State Total Total ‘ Tax @ Tax W.O. Income Income Tax Bill Tax Bill 1 36 Mills 22 Mills Tax Tax @ 36 Mills @ 14 Mills of S.O.M. @ 3.9% @ 6.2%* & 3.9% S.T. & 6.2% S.T. 646 765 11 241 2,189 1,602 1,540 1,667 217 569 3,289 2,832 2,438 2,724 325 869 5,521 4,665 5,516 5,815 766 1,568 9,040 8,455 372 645 000 196 3,786 2,169 1,200 1,519 59 524 4,673 3,371 1,890 2,484 92 806 7,367 5,384 4,755 5,492 527 1,505 10,667 9,091 *Computed without a property tax credit. 133 Federal Increase Net Taxable in Federal in State Decrease Income Income Income in Total @ 19 Mills Tax Tax Taxes Paid Federal Increase Taxable Income @ 36 Mills 40-cow herd 12,000#/ cow 40-cow herd 15,000#/ cow 86-cow herd 12,000#/ cow 86-cow herd 15,000#/ cow 40-cow herd 12,000#/ cow 40-cow herd 15,000#/ cow 86-cow herd 12,000#/ cow 86-cow herd 15,000#/ cow 4,137 8,724 12,713 23,549 2,500 7,933 10,319 21,171 4,766 9,308 13,855 24,433 4,129 8,631 12,896 23,474 119 127 286 299 273 594 594 737 230 352 544 802 196 465 714 978 487 457 856 585 1,623 1,302 1,983 1,576 134 Percent of Net Cash Net Cash Pr0perty Tax Income Income Reduction Not P.T./A P.T./A Acres After After Paid in Other @ 36 Mills @ 14 Mills Owned Taxes Taxes Taxes @ 36 Mills @ 14 Mills 62.7 7.33 2.85 209 8,869 9,456 48.8 7.33 2.85 209 13,054 13,511 50.8 7.83 3.05 352 17,705 18,561 35.8 7.83 3.05 352 25,463 26,048 82.0 16.33 6.35 209 7,272 8,895 65.6 16.33 6.35 209 11,670 12,972 60.2 15.29 5.95 352 15,859 17,842 47.9 15.29 5.95 352 23,846 25,422 Table C-l. Cont'd. 135 Urban Fringe Area Total Cash Value of Land & Buildings Cropland Value per Acre Assessed Value Property Tax @ 44.6 Mills Property Tax W.O. 29.6 Mills S.O.M. 15.0 Decrease: in Property‘ Tax - 40-cow herd 12,000#/ cow 40-cow herd 15,000#/ cow 86-cow herd 12,000#/ cow 86-cow herd 15,000#/ cow 40-cow herd 12,000#/ cow 40—cow herd 15,000#/ cow 86-cow herd 12,000#/ cow 86-cow herd 15,000#/ cow 137,400 137,400 241,200 241,200 325,500 325,500 558,000 558,000 600 600 600 600 1,500 1,500 1,500 1,500 68,700 68,700 120,600 120,600 162,750 162,750 279,000 279,000 3,064 3,064 5,378 5,378 7,258 7,258 12,443 12,443 1,030 1,030 1,809 1,809 2,441 2,441 4,158 4,185 2,034 2,034 3,569 3,569 4,817 4,817 8,258 8,258 136 \ Federal Federal State Total Total ZaIncome Income State Inc. Tax Tax Bill Tax Bill _Tax @ Tax W.O. Income @ 6.2% & @ 44.6 @ 15 Mills ;Mills 15.0 Mills @ 3.9% 15.0 Mills S.T. S.T. 420 690 000 214 3,484 1,934 .1,253 1,578 86 542 4,403 3,150 31,892 2,551 92 824 7,362 5,184 .4,652 5,577 532 1,523 10,562 8,909 000 489 000 127 7,258 3,057 580 1,300 000 455 7,838 4,196 600 2,030 000 676 13,043 6,891 L2,906 4,864 45 1,375 15,394 10,424 137 Table C-l. Cont'd. Net Decrease Taxable in Federal in State in Total Income Income Income Taxes @ 15 Mills Tax Tax Paid Federal Federal Increase Increase Taxable Income @ 44.6 Mills 40-cow herd 12,000#/ cow 40-cow herd 15,000#/ cow 86-cow herd 12,000#/ cow 86-cow herd 15,000#/ cow 40-cow herd l2,000#/ cow 40-cow herd 15,000#/ cow 86-cow herd 12,000#/ cow 86-cow herd 15,000#/ cow 2,815 7,331 10,326 21,163 (-)834 .3,764 3,884 13,930 4,370 8,901 13,163 23,741 3,230 7,577 10,953 21,188 270 325 659 925 489 720 1,430 1,958 214 456 732 991 127 455 676 1,330 1,550 1,253 2,178 1,653 4,201 3,642 6,152 4,970 138 ‘ Percent of Net Cash Net Cash Property Tax Income Income Reduction Not P.T./A P.T./A After After Paid in Other @ 44.6 @ 15 Acres Taxes Taxes Taxes Mills Mills Owned @ 44.6 Mills @ 15 Mills 76.2 14.66 4.93 209- 7,574 9,124 61.6 14.66 4.93 209 11,940 13,193 61.0 15.28 5.14 352 15,864 18,042 46.3 15.28 5.14 352 23,941 25,594 87.2 34.72 11.68 209 3,800 8,001 75.6 34.72 11.68 209 8,505 12,147 74.5 35.35 11.89 352 10,183 16,335 60.2 35.35 11.89 352 19,109 24,079 139 Table C-2. Forty-cow herd with 12,000#/cow production, the property tax at 36 mills and the land value at $350 per acre. INCOME: $33,795 + 1,770 Capital gains $35,565 EXPENSES: $20,956 Cash expenses (excluding property tax) 3,887 Machinery depreciation 1,434 Improvement depreciation + 1,532 Property tax on 209 acres @ $350/ acre and buildings at $12,000. $27,809 FARM PROFIT: $7,756 -2,600 Allowance for 4 dependents -l,008 Deductions - 11 State income tax $4,137 Federal taxable income Federal income tax $646.00 FARM PROFIT: $7,756 -4,800 Deductions $115.00 state tax $2,956 State taxable income -$104.00 property tax credit $7,756 + 1,770 $9,526 Net cash income - 646 Federal income tax - 11 State income tax $8,869 Net cash income after taxes NET CASH INCOME AFTER TAXES: $8,869 140 With expenses increasing, a look at what the future will hold for the dairy farmer if the milk price does not increase is found in Table C-3. Only two land values were used for they reason that they are significant to show the results. If the price of milk remains at $6.00 per cwt. decreases in income will result to the point where the profitability in dairy farming will be limited to only the very ifficient. Table C-3. Net cash income after taxes with a 15 percent increase in expenses with the milk price re- maining at $6.00/cwt. Land Values 40 Cows 86 Cows Per Acre 12,000# 15,000# 12,000# 15,000# Net Cash Income $350 $6,211 $9,558 $12,958 $20,900 $850 $3,011 $8,839 $ 9,393 $16,458 Decrease in Income $350 $2,658 $3,496 $ 4,752 $ 4,563 $850 $4,261 $3,101 $ 6,466 $ 7,388 "1111111111744 1111 T