RU­RAL SCHOOL COSTS SPLIT FARMS, TOWNS

Star Tribune - - MINNESOTA - CLEVE­LAND, MINN.

SS­tory by JOHN REINAN and J. PA­TRICK COOLICAN • Photos by AN­THONY SOUF­FLÉ • Star Tri­bune staff

chool of­fi­cials in this south­ern Min­nesota town of 715 peo­ple will be ask­ing vot­ers on Mon­day for $18 mil­lion, a hefty sum for a ru­ral school district with only one school. They hope their re­quest — to add a gym and class­room space — goes bet­ter than the last time around.

Not quite a year ago, 70 per­cent of the Cleve­land district vot­ers who went to the polls re­jected a much larger con­struc­tion bond is­sue of $34 mil­lion. And they weren’t alone.

Across ru­ral Min­nesota last year, vot­ers in more than 20 school dis­tricts re­jected re­quests for more tax­payer money to build, many by over­whelm- Wayne Fah­n­ing, top, will de­cide Mon­day whether to sup­port a school bond that would cost his farm $65,000 over 20 years. Cleve­land’s $18M re­quest would add a gym, a band room and 11 class­rooms.

PROP­ERTY TAX RATES

Ag land and build­ings: 0.5% of first $2.14M; 1.0% on re­main­der

ing mar­gins. In all, vot­ers in out­state Min­nesota said “no” to nearly $600 mil­lion worth of school con­struc­tion and ren­o­va­tion projects.

At the root of the re­jec­tion, many say, is a di­vide be­tween farm­ers and city dwellers over who should bear the brunt of the fund­ing in ru­ral dis­tricts, where the tax base is heav­ily de­pen­dent on agri­cul­tural land.

“Prop­erty tax on school con­struc­tion bonds has be­come quite a bat­tle be­tween town peo­ple and farm peo­ple,” said Pat O’Toole, a farmer who is on the school board of the Rus­sell-Tyler-Ruth­ton district in south­west­ern Min­nesota.

In some dis­tricts, farm­land accounts for more than 90 per­cent of the tax Com­mer­cial and in­dus­trial: 1.5% of first $150K; 2.0% on re­main­der Sea­sonal re­cre­ational homes: 1.0% of first $500K; 1.25% on re­main­der

base for school con­struc­tion projects — even though farm fam­i­lies of­ten make up only a small sliver of tax­pay­ers and stu­dents.

When a district asks vot­ers for money to build a new school or to ren­o­vate an old one, in­di­vid­ual farms may wind up pay­ing sev­eral hun­dred thou­sand dol­lars in ad­di­tional taxes over the life of a 20- or 30-year con­struc­tion bond.

As Cleve­land awaits its vot­ers’ de­ci­sion Mon­day, Gov. Mark Day­ton and leg­isla­tive lead­ers from both par­ties are work­ing on a plan to sig­nif­i­cantly cut school con­struc­tion taxes on farm­land.

A pro­posal for a 40 per­cent cut in a tax bill passed by the Leg­is­la­ture last year died on Day­ton’s desk for un­re­lated rea­sons. Now, the ad­min­is­tra­tion is work­ing with law­mak­ers to get the same pro­posal passed this year. The tax break could be worth up to $34 mil­lion a year for more than 74,000 farm­ers.

Farm tax breaks plen­ti­ful

Min­nesota farm­ers al­ready get a host of tax breaks. Cer­tain types of agri­cul­tural ma­chin­ery are ex­empt from sales taxes, which will save farm­ers $67.6 mil­lion this year alone, while a break on re­pair and re­place­ment parts will save them $19 mil­lion. They also re­ceive an agri­cul­tural homestead mar­ket value credit.

Farms were never in­cluded in the statewide gen­eral tax on com­mer­cial and in­dus­trial prop­erty. Al­though farm­land pays some levies that go to­ward school oper­a­tions, farm­ers are ex­empt from voter-ap­proved school op­er­at­ing taxes. And on school con­struc­tion levies, farm­land is taxed at a lower rate than homes, busi­nesses and va­ca­tion prop­er­ties.

Those ex­emp­tions and other pref­er­en­tial prop­erty tax treat­ment will save farm­ers nearly $450 mil­lion this year.

The Leg­is­la­ture “has made the de­ci­sion that the abil­ity to pay, es­pe­cially for small farm­ers, is lower,” said Tom Melcher, di­rec­tor of the School Fi­nance Divi­sion of the Min­nesota Depart­ment of Ed­u­ca­tion. “And this has been the pol­icy for many, many years.”

De­spite ex­ist­ing tax breaks, farm­ers and their ad­vo­cates say they’re caught in a bind: The com­mod­ity boom of the early 2000s pushed up prop­erty val­ues, which boosted taxes. But in re­cent years crop prices have col­lapsed — by 47 per­cent on a bushel of corn, for in­stance. That means less rev­enue for farm­ers at a time when their prop­erty taxes are ris­ing.

Farmer: ‘Straighten it out’

In Cleve­land, 52-year-old Lance Fah­n­ing is the fifth gen­er­a­tion to run his fam­ily dairy farm, go­ing back to 1884. His fa­ther, Wayne, is still ac­tive on the farm at age 77 and served for nearly a decade on the Stu­dents cleaned up fol­low­ing Joel Boehlke’s shop class at Cleve­land Pub­lic School. The district’s bond re­quest would in­crease learn­ing spa­ces for sci­ence, tech­ni­cal ed­u­ca­tion and art.

lo­cal school board. Both men are proud of their school, one of a hand­ful in Min­nesota that houses stu­dents in all grades — preschool­ers through high school se­niors — un­der one roof.

But the Fah­n­ings, who milk 109 cows, have been hit hard by low milk prices.

“It re­ally bot­tomed out this sum­mer,” said Lance Fah­n­ing. “We need a higher milk price to get caught up on our bills.”

The bond is­sue be­fore Cleve­land vot­ers, if ap­proved, would add a gym, a band room and 11 new class­rooms, in­clud­ing learn­ing spa­ces de­voted to sci­ence, tech­ni­cal ed­u­ca­tion and art.

Wayne Fah­n­ing es­ti­mated that, should it pass, the bond is­sue could raise the farm’s taxes by about $10 an acre. With

325 acres — a rel­a­tively small farm by to­day’s stan­dards — the Fah­n­ings could pay an ad­di­tional $65,000 or more over the 20-year life of the school bond.

Nei­ther Fah­n­ing would say how he plans to vote, but both ex­pressed sup­port for the school.

“We want a good school, for our kids and the com­mu­nity,” Wayne Fah­n­ing said. “But we’d like to make it a lit­tle more fair in how things are paid for. Whether we pass our bond or not, let’s get it straight­ened out.”

State help for con­struc­tion?

Some econ­o­mists ques­tion the wis­dom of spe­cial carve­outs in the tax code for agri­cul­ture or other in­dus­tries.

“The rev­enue has to get raised. So if you are giv­ing some­one a pref­er­ence, ev­ery­one else

pays more,” said Nor­ton Fran­cis, a tax econ­o­mist at the Ur­ban In­sti­tute in Wash­ing­ton, D.C.

Yet the is­sue goes be­yond a sim­ple ru­ral-ur­ban split, said Lin­den Ol­son, a farmer and mem­ber of the school board in Wor­thing­ton, where vot­ers last year re­jected a $79 mil­lion bond is­sue to build a new high school.

“The dif­fer­ence has much more to do with prop­er­tyrich and prop­erty-poor dis­tricts,” Ol­son said. “There are ur­ban dis­tricts that are fac­ing the same kind of in­equity, al­though I would say there are more ru­ral dis­tricts in that sit­u­a­tion.”

Ol­son has cre­ated a spread­sheet show­ing the cost of con­struc­tion bor­row­ing for ev­ery school district in the state, based on the num­ber of stu­dents and the prop­erty val­ues in the district. Ac­cord­ing to his cal­cu­la­tions, for ex­am­ple, the St. Louis Park school district could pass a build­ing bond in the same amount as Wor­thing­ton, yet it would cost the typ­i­cal home­owner in St. Louis Park only half as much as the home­owner in Wor­thing­ton.

Most credit the orig­i­nal push for ag tax re­lief to Rep. Steve Drazkowski, R-Mazeppa, who said he got the idea for re­form af­ter talk­ing with farm­ers in his district who saw their prop­erty taxes soar af­ter a school con­struc­tion levy passed.

But the Novem­ber elec­tions al­most cer­tainly in­ten­si­fied the bi­par­ti­san fo­cus on the is­sue, with many farm­ers, once loyal to the DFL Party, vot­ing for Repub­li­can can­di­dates in one ru­ral district af­ter an­other.

Lt. Gov. Tina Smith, a po­ten­tial DFL can­di­date for gov­er­nor with a de­cid­edly metro pro­file, has jumped on the farm tax cut band­wagon, giv­ing it still more mo­men­tum. Smith said the state should do even more, ar­gu­ing that its over­all ed­u­ca­tion fund­ing ef­forts have fallen short.

“If you look at the way the state has funded ed­u­ca­tion over many, many years, you’ll see that the state por­tion of ed­u­ca­tion spend­ing has de­clined over time,” she said.

Smith said the state should con­sider in­creas­ing its fund­ing di­rectly to schools, as well as boost­ing spend­ing on spe­cial ed­u­ca­tion, which has bur­dened lo­cal dis­tricts with a host of un­funded state and fed­eral man­dates.

Melcher, of the Depart­ment of Ed­u­ca­tion, pointed out that the state used to give lo­cal dis­tricts more help with con­struc­tion fund­ing. In the 1990s, the state cre­ated a debt ser­vice equal­iza­tion for­mula that paid about 11 per­cent of the debt ser­vice cost of lo­cal dis­tricts. The state’s share has dropped to about 3 per­cent to­day, Melcher said.

Rep. Paul Mar­quart, DFLDil­worth, sees the is­sue up close in his job as a high school so­cial stud­ies teacher in the Dil­worth-Glyn­don-Fel­ton district in north­west­ern Min­nesota. It’s a ques­tion of fair­ness, not only for farm­ers, he said, but also for ru­ral stu­dents.

“We have put farm­ers in a very un­fair po­si­tion when it comes to school build­ing bonds,” he said. “If ru­ral Min­nesota schools can’t pass these bonds to up­grade their ag­ing build­ings and have the tech­nol­ogy to build to­mor­row’s work­force, it’s go­ing to put ru­ral stu­dents be­hind the rest of the state.”

Min­nesota vot­ers have been re­ject­ing school con­struc­tion bond is­sues at a rapidly ad­vanc­ing rate. 50 64 41 Num­ber of bonds/year

HARD CAL­CU­LUS:

Photos by AN­THONY SOUF­FLÉ • an­thony.souf­fle@star­tri­bune.com

Hol­steins stood in a corral at Meadow Front Farms out­side Cleve­land, Minn. The Fah­n­ings, who milk 109 cows, have been hit hard by low milk prices.

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