When beginning farmers like Jason Ward try to rent or buy farmland, they can face some stiff competition. In some cases, Ward explains, established farmers can easily outbid beginners with less equity. But it’s even more difficult to compete with developers who plan to convert farmland to other uses, he notes. “In my search, I have found that land is usually sold to developers that can offer a higher cash value for land, as they don’t have to cash-flow property.”
Ward and other beginning farmers are hoping tax credits proposed by the Ohio Legislature will improve access to land and other farm assets for beginning farmers. Ohio House Bill 183 and Senate Bill 159 would give Ohio income tax credits to asset owners who sell or rent to beginning farmers. The program would cover farmland as well as buildings, machinery and livestock. The proposed legislation also requires the beginning farmers involved to participate in a financial management program, and it provides them with a tax credit to offset the cost of participating.
State Rep. Susan Manchester, R-Waynesfield, co-sponsored the House Bill with state Rep. John Patterson, D-Jefferson. Manchester saw the need for a program to help beginning farmers take on farm operations from older farmers. “I was beginning to see, even in my small community, that many farmers maybe don’t have a family successor,” she says. The legislation is designed to help beginning farmers step in. “There can be huge costs around making that transition.”
In the legislation, beginning farmers are defined based on experience, not age, Manchester adds. The financial management component is intended to increase their potential for success. “We really want to give beginning farmers an opportunity and set them up well for the future,” she says.
House Bill 183 made its way through the legislative committee process in 2019 and is expected to come to a vote in the House in early 2020 with little opposition. State Sen. Bob Peterson, R-Washington Court House, introduced a similar bill in the Ohio Senate, but since the House version is further along in the legislative process, he expects the Senate will consider the House bill in 2020. He doesn’t expect to see much opposition in the Senate, either, so the bill is likely to be enacted sometime in 2020.
Peterson, who farms in Fayette County, favors the tax incentives as a way to help new farmers get started and provide a more orderly transition of farms from one generation to the next. One thing he’s not concerned about is a shortage of new farmers to carry the industry forward, he adds. “There is a great crop of young people ready, willing and interested.”
Similar to Minnesota
The Ohio legislation is patterned after a similar program in Minnesota that was signed into law in 2017. In 2018, the first year for the Minnesota program, 390 beginning farmers benefited from tax credits for financial education totaling $361,000. There were 447 farm asset owners who claimed tax credits totaling $2.2 million. For 2019, figures aren’t finalized, but the Minnesota Department of Agriculture estimates about 580 asset owners are participating, with a total of $2.35 million in tax credits; and about 535 beginning farmers will be claiming around $410,000 in tax credits for education.
The results in Minnesota demonstrate the demand for such incentives, but the Ohio Legislature wants to test the idea in Ohio before setting up a permanent program in the state. The latest version of HB 183 would establish the incentives as a pilot program that would end in 2025. The revised bill also limits the total amount of tax credits to $10 million to put a cap on the revenue loss to the state.
Another difference between the Minnesota program and the legislation proposed for Ohio is that Minnesota prohibits participation if assets are being transferred to family members, while the Ohio program allows prospective beginning farmers and asset-owning family members to claim the tax credits as long as they meet other eligibility requirements.
As HB 183 worked its way through the House Agriculture and Rural Development Committee, it was supported with proponent testimony from Jason Ward and other beginning farmers, as well as the Ohio Farm Bureau, Ohio Ecological Food and Farm Association, various commodity organizations and several ag lenders.
Ward, who lives in Clark County and began his own farming operation three years ago, started out at age 12 as a farmhand for a neighbor, Robert Rhodus. After Rhodus passed away in 2015, Ward was able to buy Rhodus’ equipment and take over the leases on 40 acres. He’s added more leased land since then, and he currently farms dozens of small parcels spread across 20 miles in four counties. Most fields are farmed organically, although some are in transition to organic, and a few landowners he leases from prefer conventional production.
In his testimony, he explained the difficulty he’s seen in finding land to farm. “The availability of farmland continues to decline at an alarming rate, yet there is currently no incentive for landowners to take a chance on beginning farmers, such as myself,” he told lawmakers.
Bennett Musselman, who farms with his wife, Liza, and his parents in Pickaway County, also testified in favor of the bill. Bennett works off the farm as vice president and agribusiness banker for Heartland Bank, and he and Liza are co-chairmen of the Ohio Farm Bureau’s Young Agricultural Professionals Committee. Even though they have been farming long enough they would not qualify for the tax credits, they see the need for such incentives to help other farmers of their generation.
“This could really open up a lot of doors for them,” Bennett says. Often, he adds, older farmers can’t afford to retire and sell their assets, because their assets are fully depreciated. “Their deferred tax liability is huge.”
Offering a tax incentive can help retiring farmers transfer land, equipment and other farm assets during their lifetime, Bennett points out. “Hopefully, it creates some mentorship opportunities, too,” he adds. “That’s probably the most exciting part of this.”
Additional details on the legislation are available online at bit.ly/ohiobegfarmtaxcredits.
Keck writes from Raymond, Ohio.