When Governor Snyder unveiled his fiscal year 2011-2012 budget last March, one controversial feature was the elimination of tax credits for various industries (film industry, Brownfields, etc.). While the elimination of the Farmland and Open Space Preservation Act (PA 116) did not find its way into the recently adopted budget, it is still on the Governor's agenda and could be adopted next year.
In exchange for a promise to keep their lands in agricultural use for at least 10 years, farmers are provided with a credit against state income taxes owed. The formula is based upon the farmer's income and the amount of property taxes paid. Properties enrolled in the program are also exempted from special assessments of sanitary sewers, water, light or non-farm drainage adopted after the agreement is entered into. Unlike the Commercial Forest program (PA 451 of 1994) access for the public is not required.
The state of Michigan currently holds about 41,200 of these contracts on about 3.1 million acres. About 5,000 contracts expire each year. Repeal of the credit would not affect contracts already in place; meaning that farmers currently enrolled would continue to receive the credit, until their agreements expire.
Uncertainty over the future of the credit has resulted in a tidal wave of renewal requests. The Department of Agriculture and Rural Development estimates that it has received 10,000-12,000 contract renewal requests since March of this year. (By comparison, the Department typically receives about 3,000 requests for renewal in any given year.) Extensions of PA 116 Agreements are permitted even though an agreement does not expire for several years. Agreements may be extended for a minimum of seven year increments up to a maximum of 90 years.
Also, pending legislation in the state House of Representatives would significantly modify the penalties for early termination or expiration of PA 116 agreements entered into after January 1, 2012. Upon expiration or early withdrawal from the program, the state may recoup credits received during the last seven years of the agreement. Currently, after those are calculated, there is no interest charged on the amount owed and because of that, most farmers don't pay the lien until the property faces foreclosure. Under the proposed legislation, interest would accrue at the rate of one percent above prime until paid. The legislation assumes that the program will remain intact.
The deadline to file a request for renewal is November 1, 2011. The Department advises that due to reduced staffing and operational funding, processing of new applications and renewals has been delayed.
Smith Haughey will continue to monitor and report on proposed changes to the Farmland and Open Space Preservation Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.