COLUMBUS, Ohio — CAUV values have been increasing at an enormous rate in recent years, more than 100 percent annually. Many farmers think the formula is flawed.
Not so; the formula for Current Agricultural Use Value is fine, said Larry Gearhardt, field specialist in taxation, The Ohio State University. "It is the numbers going into the formula that are causing these increases in values," he said.
"What has changed most drastically is the increase in crop prices. In 2005 we had the lowest CAUV values in history – the average CAUV value for the entire state of Ohio was only $123 an acre."
Of course, the price of corn back then was $1.80 a bushel and soybeans were about $4, he said. Interest rates were 8-10 percent.
"Starting in 2006, crop prices have gone up and interest rates have come down," Gearhardt explained. "The agriculture econ-omy flourished for the last seven years even though the economy tanked. As long as we have high crop prices and low interest rates, we’re going to have high CAUV values."
Also, the CAUV values are not necessarily consistent across the state, he said. The program is based on the productivity of the soil. Those values are calculated by the Ohio Department of Taxation (ODT) for each of the 3,500 soil types in Ohio. "We use a basic income approach to determine the value of the farmland based on its ability to produce income from the typical commercial agricultural products," said Gloria Gardner, assistant administrator for the ODT.
The formula is based on an income appraisal method – net operating income divided by capitalization rate (basically an interest rate) – Gardner said. The calculation uses crop yield, price and class data from corn, soybeans and wheat and it is done for each of the soil types with less than a 25 percent slope.
"This only impacts the counties that are undergoing reappraisals and update," she explained. "The county auditors are required to reappraise every parcel of land in the county every six years. They are required to establish a fair market value for the land but in addition, they also have to establish the CAUV value if it is enrolled in the CAUV program."
Every three years the auditors are also required to adjust the evaluation based on sales in the area, or the fair market value. They are also adjusting based on the CAUV value. So, essentially, the values are updated every three years even though the calculations are done every year, on a cycle. In 2014, 41 counties will be adjusted.
"The values have been increasing pretty dramatically and that is largely due to crop prices increasing and the low interest rates," Gardner said. "It is reflective of the farm economy, which has been doing so well. I think we’ll probably see some leveling off here but that remains to be seen."
Gearhardt agrees with crop prices dropping, and talk of the possibility of interest rates getting bumped up, CAUV values may have peaked. But don’t expect to see any quick changes.
"We try to smooth out the peaks and valleys by using a five-year average," he explained. "For example, the crop prices that we have are an average of the last five years of crop prices.
"The rub is, because we use averages, it is a little slow to go up and it is also slow to come down. It is going to take several years of reduced crop prices to cause CAUV values to start going back down."