LAND USE, LAND, VALUE, TAXES,

AND DEVELOPMENT

Land Use, Value, and Taxes: Main Points

• Rural land in Alabama is valued ($1500-1900 per acre) about the same as in Georgia and South Carolina, less than in Florida, more than in Kansas and Mississippi.

• The value of land here does not come primarily from its use in agriculture or from its innate productivity.

• Land in Alabama has held its value consistently, and is a “good deal” for investment.

• Land taxes in Alabama are the second lowest in the nation, lower than all our regional neighbors.

• Evaluation for land taxation is not done on the basis of current market value but on the basis of current use value. Current use evaluation results in a value of about $500 per acre.

Alabama Land Values Over Time

• The following slides come from Professor Walt Prevatt of Auburn University.

• They show the changes in Alabama land values over time, in comparison to the region and to the country.

Farm Real Estate Values,Alabama, 1950-2003

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Farm Real Estate Values,Alabama, 1950-2003

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1Alabama Farm Real Estate Values were deflated using the Gross Domestic Product Deflator, 1950=100.

Annual Percent Change In Farm Real Estate Values,

Alabama, 1950-2003

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Annual Percent Change

Farm Real Estate Values,Alabama & U.S., 1970-2003

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Alabama U.S.

Population Determines Rural Land Value

• The following slides, also from Dr. Prevatt of Auburn, show what influences the value of agricultural land. The “r2” indicates how strongly a factor influences land value.

• The first two slides show that cotton prices and calf prices have almost no influence on land value. Productivity is not key.

• The third slide shows that timber value accounts for about 35% of land value.

• The fourth slide shows that population accounts for about 61% of land value (96 – 35 = 61).

• Population has influence because of the demand for housing and other development. Land can be held for speculation because of the low tax.

Econometric Analysis Of Value

• Cropland Value

Cropland Value = f ( Alabama Cotton Prices )

Cropland Value = 1,362 - 525 CP

R2 = 0.0693

Econometric Analysis Of Value

• Pastureland Value

Pastureland Value = f ( Alabama Calf Prices )

Pastureland Value = 937 + 0.5019 CP

R2 = 0.0009

Econometric Analysis Of Value

• Timberland Value

Timberland Value = f ( Alabama Timber Prices )

Timberland Value = 9.2193 + 30.3644 PP

R2 = 0.3459

Econometric Analysis Of Value

• Farm Real Estate Value (FREV)

FREV = f ( Forestry Receipts & Population)

FREV = -1234 + 2.85 FR + 39.01 POP

R2 = 0.9617

Raising Taxes

• Alabama land taxes are low. Low land taxes allow land to be held by speculators, by successful timber growers and farmers, by poor farmers, and by poor rural residents.

• Raising taxes might gain some revenue for the state, and might cause the land to “move”.

• Raising taxes might also adversely affect poor farmers and poor rural residents.

• Land tax changes have to be part of a larger view about taxes and development.

Alabama Development Problems

• The following sequence of slides comes from Dr. Sumners of Auburn University. It shows that the traditional development policy in Alabama has not worked.

• The traditional development policy was low land taxes, little provided infrastructure, with a poor and undereducated work force (but hard working). This policy actually resulted in:

• High rural poverty• Poor education, including low test scores• No infrastructure development• Out migration• Break-down of the rural lifestyle• No Development

Economic Development Issues for Rural Alabama

Joe A. Sumners, Ph.D.

Director

Economic Development Institute

Auburn University

334-844-4704sumneja@auburn.edu

Alabama Rural Distress County June ‘03

Unemployment

1. Washington 17.4%2. Wilcox 15.4%3. Lowndes 13.8%4. Dallas 13.7%5. Sumter 12.9%6. Greene 12.7%7. Bullock 12.5%8. Choctaw 12.0%9. Perry 11.7%10. Lamar 10.9%11. Hale 10.5%12. Butler 10.1%13. Randolph 10.0%

County % Over 65

1. Covington 17.9%

2. Crenshaw 17.1%

3. Tallapoosa 16.6%

4. Clay 16.5%

5. Henry 16.4%

6. Geneva 16.3%

7. Fayette 16.1%

8. Etowah 16.0%

9. Lamar 15.9%

9. Randolph 15.9%

9. Cherokee 15.9 %

Alabama Rural Distress

Counties with Lowest SAT Scores1. Bullock 1. Macon 1. Perry 1. Sumter 2. Barbour 2. Greene 2. Lowndes 2. Wilcox 3. Marengo 4. Butler 4. Coosa 4. Pike4. Russell 5. Chambers 5. Clarke

County Median Family Income

1. Wilcox $22,200

2. Sumter $23,176

3. Bullock $23,990

4. Greene $24,604

5. Perry $26,150

6. Macon $28,511

7. Lowndes $28,935

8. Dallas $29,906

9. Butler $30,905

10. Crenshaw $31,724

History of Economic Development in Alabama

• Throughout the 20th Century, Alabama’s economic development strategy was built on low taxes and unskilled, low-cost labor.

• In the later 20th Century, the U.S began to export low wage, polluting industries; new focus on high technology.

• Alabama was poorly positioned to compete when question became not “what does labor cost” but “what does labor know.”

“The State of the South 2002: Shadows in the Sunbelt Revisited” (MDC, Inc.)

“National recovery won’t bring jobs back to the rural South. Production has moved to other countries with lower wages, or plants have substituted technologically advanced machines for people. Tens of thousands of jobs are not coming back.”

Gone forever is the kind of economic development strategy that Alabama and other Southern states used for decades to lure industry: “Enticing companies from afar to relocate with the bait of cheap land, low taxes and a surplus of hardworking but undereducated workers. That old recipe no longer works.”

Tax BurdenTOTAL PER CAPITA STATE AND LOCAL TAX REVENUE (FY

2000)STATE TAXES NAT. RANK

1. Georgia $2,841 252. North Carolina 2,664 313. Florida 2,624 354. Kentucky 2,517 395. Louisiana 2,436 416. South Carolina 2,379 447. Arkansas 2,230 478. Mississippi 2,214 489. Tennessee 2,185 4910. Alabama 2,117 50

National Average $3,100 Alabama: 68% of Nat. avg; 75% of Georgia’s tax burden

Property Tax Revenue 2002 (Per Capita)

PROPERTY TAX REVENUE PER CAPITA (FY 2000) STATE PROP TAXES NAT. RANK

1. Florida $882 222. Georgia 725 333. South Carolina 668 364. North Carolina 572 39 5. Mississippi 514 406. Tennessee 507 417. Kentucky 426 458. Louisiana 390 469. Arkansas 361 4810. Alabama 301 50  National Average 885

Alabama: 34% of Nat. avg.; 54% of other southern state avg. ($561)

Education Spending

EDUCATION SPENDING PER K-12 PUPIL (2000-01)STATE SPENDING NAT. RANK

1. Georgia $7,620 192. Kentucky 7,047 253. South Carolina 7,012 264. North Carolina 6,364 395. Florida 6,254 406. Louisiana 6,010 417. Mississippi 5,699 448. Tennessee 5,693 459. Arkansas 5,684 4610. Alabama 5,210 47

National Average $7,463Alabama: 70% of national average; 82% of other southern state avg.

Rural Schools• Local funding for education in Alabama’s rural school

systems is only 57% of the local support provided to school systems in the state’s metropolitan areas.

• County and city school systems in Alabama’s 45 rural counties average $793 per student in local support.

• County and city school systems in the state’s 22 counties located in metropolitan statistical areas average $1,386 per student – a difference of $593 per student.

• (Source: Public Affairs Research Council of Alabama, Samford University, “Local Support for Public Schools: Tax Rates and Revenues Per Student, 1999”).

Economic GrowthECONOMIC GROWTH

(% change in employment 2002-03) STATE NAT. RANK

1. Florida 42. Tennessee 103. Mississippi 124. Arkansas 165. Louisiana 186. Georgia 257. Kentucky 288. South Carolina 329. North Carolina 4010. Alabama 41

Economic GrowthINDEX OF STATE ECONOMIC MOMENTUM (September 2002)

STATE NAT. RANK1. Florida 52. Tennessee 123. South Carolina 204. Georgia 225. Arkansas 236. Kentucky 247. Mississippi 258. North Carolina 279. Louisiana 3310. Alabama 38

The Index looks at one-year changes in: 1) employment, 2) personal income, and 3) population