New tax credit for ag land might help rural schools increase funding

Farmer support is key to success for school bond issues in many rural districts

A woman explains graphics on a stand
Moorhead school district public relations director Brenda Richman explains the plan for a new high school as she tries to persuade voters to support a $110 million bond issue.
Dan Gunderson | MPR News

Dozens of school districts across the state are asking their residents to take on additional property taxes to pay for things like upgraded facilities, new school buildings, pools and technology.

Most of those requests, which will come in the form of referendums on Election Day ballots Tuesday — are in rural districts. Walker-Hackensack-Akeley is asking for $2 million to replace district vehicles and upgrade technology. Ada-Borup is asking for $9 million to update an elementary school and enhance school safety measures. Moorhead voters are being asked to approve an increase of $110 million for a new high school and career academy.

Aging buildings are common in rural communities across the state. Bonds — essentially, property tax hikes approved by voters — are the primary way Minnesota districts pay for new schools, operating costs and improvement projects, but it's been difficult for rural districts to pass bond referendums. A new tax credit that will expand over the next three years just might change that.

The Minnesota Rural Education Association estimates about half of rural school bond issues have passed in recent years.

"You have probably twice the success rate in the metro areas that you did in the rural areas in passing these," said state Rep. Paul Marquart, D-Dilworth, who chairs the Minnesota House tax committee.

Marquart said the practice of using property taxes to pay for new schools has put a disproportionate share of education funding on farmers — because they’re often the people who own the most land in rural districts. The Minnesota Rural Education Association estimates farmers often pay more than two-thirds of the total increase when taxes go up.

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a man gestures near a stairway and elevator
Moorhead High School Principal Dave Lawrence points to an out-of-date elevator as he gives local voters a tour while trying to persuade them to support a $110 million bond issue.
Dan Gunderson | MPR News

"I'm a teacher, but if I was a farmer, I wouldn't vote for these either,” Marquart said. “I mean, they just were so unfair and made it so untenable for farmers to support."

So in 2016, Marquart and colleagues proposed a bipartisan bill that might alleviate some of that pressure on large landowners by offering a tax credit from the state government to agricultural landowners who pay taxes for school bonds.

Rural schools, Marquart said, have fallen behind Twin Cities area schools: Buildings are older, technology is often limited. He said he thinks it makes sense for the state to pay a larger share of the cost — in the form of tax credits, paid for by the state general fund — because many students who graduate from rural schools become part of the metro-area workforce.

And while it’s been two years since the Ag2School tax credit became law, Minnesota Rural Education Association executive director Fred Nolan said he thinks districts will start to feel the impact of it this year. When owners of agricultural and private forest land received property tax statements in late 2018 they saw a a 50 percent credit for the school bond taxes payable in 2019.

"This is the first year where farmers actually saw a credit in their tax statements in 2018,” Nolan said. “I think now that farmers can actually see in their tax statement, I think it will be a better test."

The credit is retroactive, so it applies to all existing school bond debt — and over the next three years, it’s set to increase to 70 percent.

The annual cost to the state general fund will be about $80 million a year, said Marquart.

What that means for farmers is complicated by the fact that taxes and land values are variable.

Here’s an example: A school bond that would cost someone who owns a $100,000 home an extra $150 a year would cost a farmer or large landowner $10 per acre.

On a quarter section of farmland — 160 acres — that would be an additional $1,600 in taxes. But with the eventual 70 percent tax credit, that $1,600 in extra taxes per acre goes down to $480 in extra taxes. The average size of all Minnesota farms is roughly two quarter sections, but by comparison, large crop farms in western Minnesota are often 1,500 to 2,000 acres.

Marquart acknowledges farmers still pay a lot more than the additional taxes that a homeowner would pay — but after the tax credit, the payments get a little more compatible. He said he thinks the tax credit already played a role in several school bond votes that passed earlier this year.

a man listens with arms crossed
Moorhead High School Principal Dave Lawrence listens to a skeptical resident as officials give local voters a tour.
Dan Gunderson | MPR News

And Nolan said he thinks the ag credit is also encouraging more rural schools to put bond issues before voters. He said 22 of the organization's members — all of them rural Minnesota school districts — or about 10 percent, have a bond issue on the ballot November 5th.

While the number of farmers in most districts is often too small to directly change the outcome of an election, Nolan said farmers have deep family and business connections — and influence — in small communities.

"So that affects brothers, sisters, parents, cousins,” he said. “And also, the farmers are so connected with the economy, that the farm connection is huge in rural communities."

And when the farm economy is in a tough place — as it is now — voters might take into account the impacts on farmers, tax credit or not.

Moorhead Superintendent Brandon Lunak said that, while his district’s tax base has a lower percentage of ag land than many rural districts, the tax credit is a selling point — and something farmers are considering.

"I did talk to a farmer who said his property bill will go up, but then, over time, will start to fall and decrease to an amount that's less than what he's paying today," said Lunak.

a large boiler is used to heat a school
The existing heating system boilers at Moorhead High School have been in use since the school opened in 1967.
Dan Gunderson | MPR News

The district is depending on voters to approve its bond request in Tuesday’s election. Rising enrollment in lower grades is expected to push Moorhead High School well past capacity in the next three years — so that $110 million request would help build a new school on the current site, where existing athletic fields and a sports center can be incorporated into the new school.

A local task force deemed a full school replacement on the current site the best of several options for a building with a litany of structural complaints: A boiler that’s original to the 1960s-era building. A windowless basement classroom where sewer backup sometimes forces a student evacuation. Limited handicap accessibility in a school with rooms on a dozen different levels.

Principal Dave Lawrence worries overcrowding, cobbled together technology, and accessibility issues ultimately affect student learning.

"Here’s the thing. We have people here doing the best they can with what they have and this is what they know,” said Lawrence. “But I think our kids are certainly at a disadvantage in what they're receiving in this building and what kids are receiving in newer buildings."

The money would also help turn a closed Sam's Club into a career academy where students can test drive potential jobs in health, transportation or trades.

The district has no Plan B if the bond issue fails.

"We're just frankly going to run out of space,” Lunak said. “And we believe this plan and this facility that we're designing will help us for many years into the future."