IT'S ARIZONA'S BEST-KEPT tax secret and one of this state's biggest forms of corporate welfare.
Year after year, hundreds of millions of dollars in tax breaks are simply handed to developers and land speculators via agricultural exemptions present on lands already rezoned for high-density development. Year after year, this arrangement encourages urban sprawl and forces taxpayers to cough up ever more for schools, which--ironically--are increasingly hard-pressed by Arizona's exploding growth.
The culprits are many:
Members of the state Legislature who are responsible for the laws that allow this situation to continue.
The politicians of both parties at all levels of government who accept it as standard practice. Even those who are concerned about sprawl and the chronic degrading of government services are too craven to attempt to end this giveaway, or even to mention it.
Many environmental "leaders" who haven't caught on yet.
The media, which seem quick to endorse raising everybody's taxes while we continue to give wealthy land speculators a free ride.
This so-called "rent-a-cow" scheme is the relic of an earlier era, when the state was sparsely populated and ranching and farming were more important components of Arizona's economy. Adhering to this outdated worldview means Arizona taxes land based on its use, not its value, and agricultural land has always been given a tax break.
There are some, including many environmentalists, who don't believe in agricultural exemptions at all, particularly for ranchers, but that's another issue. The issue here involves a narrower topic:
Why are these exemptions still allowed after the property has been formally rezoned for development?
In these days of heady growth, many ranchland owners are in reality merely speculators or developers who contract with a real rancher to run cattle so that the agricultural use--and tax break--can be maintained. The land owner doesn't care how much he makes from the cattle lease; what he really cares about is the tax break.
IT TAKES LOTS of desert to maintain one steer. The general rule for most of Pima County is eight animal units (horse, cow, emu) per section. Even after that section has been zoned for, say, six houses per acre, the agricultural exemption stays in place for eight head of cattle while the owner/speculator has been cleared to build several thousand houses. The cattle may be on the land as briefly as two months a year.
And, no, you can't just plant some tomatoes in the backyard or stake out a couple of sheep and try for an exemption yourself--the process is designed only for large parcels of vacant land, and the easiest way to claim the exemption is on "prior use."
Pima County is roughly 9,200 square miles, of which about 1,200 square miles are privately owned. Of the privately owned land, roughly 400 square miles have been designated for agricultural use. Obviously much of that land deserves an agricultural designation. But no one seems to know how much of those 400 square miles have been rezoned by developers taking advantage of Arizona's sweetheart tax deal. It's obvious that such lands should be appraised in a separate category before the tax rates are determined under the original use. But these rezoned acres are still carried on the County Assessor's rolls at minimum value, and their owners pay practically nothing in taxes--usually less than a dollar an acre.
It's almost impossible to determine how much would be collected if all these acres were placed on the tax rolls for what they're truly worth--or for what many of the owners have paid for them, or received from borrowing against them to facilitate their development projects. But we can get some idea by reviewing a few of the larger specific plans approved by Pima County and other local governments in the last few years, and by making a reasonable guess at how much revenue must be made up by the rest of us.
A specific plan is simply a polite term for a giant rezoning that gives the owner increased flexibility to move homes and other structures around within the plan's geographic borders. As we discovered with the recent Canoa Ranch proposal, the term "specific plan" is a misnomer, in that it's often less specific than a simple rezoning. But in general, specific plans stipulate the number of homes and the acres of commercial use, as well as projects such as golf courses, that may go on a parcel.
Almost all specific plans end up being modified later at the request of the developer. We should also point out that the developer often is not the land speculator who has won approval for the initial plan--and who has benefited directly from the agricultural exemption.
Please note that for each of these agricultural-exempt plans, there has been a tax revenue shortfall every year since approval--a shortfall made up by the rest of us paying higher taxes. About 25 percent of these taxes undoubtedly would've gone to Pima County, currently in debt and facing a financial crisis in which county leaders are arguing whether to add a sales tax or increase the property tax rate for the rest of us.
ONE OF the largest specific plans already approved by local governments--in this case Pima County--is the old Rocking K Ranch well southeast of Tucson. It has 3,000 acres, with the capacity for 5,670 houses. Principal owner: Donald R. Diamond.
This one has had several major changes, but the original plan called for 5,670 units and 170 acres of commercial on 3,900 acres. Since 1990, Diamond has traded or sold hundreds of acres to the federal government, receiving several million dollars in cash as a result. Most of the land he dumped came from the least-valuable portion of the proposed development. About 3,000 acres remain, and the total tax bill paid to all jurisdictions last year was about $3,000--or a buck an acre.
In other words, for eight years Diamond has paid only token taxes on a piece of land that has already netted him millions--and only now, with the Senior Academy project, a development/nursing home for washed-up, ivory tower academics, has he moved to build a single housing unit. And as long as he keeps cattle on the land, he won't be paying much in taxes in the years ahead.
How much should Diamond and others like him pay? Obviously a helluva lot more than a buck an acre, or 50 cents for every future house.
Were there no cows in the picture, this land would be appraised either at its selling price or the price of comparative land around it. Appraisal is a subjective process--so subjective that one of the bigger ironies in the whole rent-a-cow process occurs when the owner of land near a rent-a-cow parcel finds his tax has been jacked up because the rent-a-cow land was just sold for a hefty increase over its prior value. The neighbor without the benefit of an agricultural exemption gets to pay higher taxes because the non-tax-paying rent-a-cow genius made a big profit!
It's obviously an imperfect method, but just checking a few parcels around Rocking K that don't have an agricultural exemption, we find the following:
A 25.1 acre parcel with a $2,161.96 tax bill;
A 7.35 acre parcel with a $1,291.80 bill;
An 8.87 acre parcel with a $1,514.78 bill;
A 30.68 acre parcel at $2,518.04;
And a 10 acre parcel at $668.12.
None of these parcels is zoned high-density or commercial. That's 82 acres with bills totaling $8,154.70, or about a $100 an acre. So forgetting the high-density and commercial zoning, Rocking K should have been paying at least $390,000 annually from day one, and at least $300,000 now, based on surrounding low-density property.
But under their current zonings, the various owners of those 82 acres are allowed to build about 20 homes--meaning they pay about $400 in annual taxes for every potential house.
Since Diamond can still put those original 5,670 homes on Rocking K's remaining 3,000 acres, that would mean about $2.2 million a year, not counting the 177 acres of commercial property, which should reasonably require him to pay at least another several hundred grand in taxes.
And we're being generous here: unlike the neighbors, Rocking K is a high-density development, which means additional public expense for roads, schools, sewers, police protection and other infrastructure costs. We'd like to see someone come up with a reasonable formula to figure a fair tax rate for that kind of intensive development.
In the meantime, a reasonable estimate on what rent-a-cow at Rocking K has cost local taxpayers since 1990 is a minimum of $3 million--not counting the current zoning; and, taking the rezoning into account, as much as $18 million. A quarter of that would have gone to Pima County, while most of the rest would have gone to local schools.
As the late U.S. Sen. Everett Dirksen remarked, "A million here, a million there, and pretty soon you're talking about real money."
BUT DIAMOND IS hardly alone in this lucrative game. There are others enjoying the rent-a-cow break all over this valley.
For example, the specific plan for Rancho Sahuarita, south of Rocking K, was approved in 1994. It covers 2,100 acres and allows for 12,000 housing units. Principal owner: Robert Sharpe. The total these lands have contributed to local taxes in 1998 amounted to roughly $12,264 or about $1.21 per acre, or roughly 17 cents for each potential home.
Two neighboring parcels are taxed at an average of $51.64 an acre, or $155.93 per house.
The taxes lost here by not removing the exemption are about $80,000 a year. Seems like chump change, until you factor in the zoning. The average of the two comparative parcels, figuring they could handle about a dozen homes under their current zonings, is $154.81. Try that times 12,000 homes and you get almost $1.9 million a year.
Another example is Vail Valley, located even farther east than Rocking K, with a specific plan created in 1987 which currently allows for 5,500 housing units on 1,600 acres, including 113 acres eligible for commercial use and one golf course. Principal owner: Fidelity National Title TR 10756. In 1998, the owners paid a total of $7,617.02 in taxes, or $4.76 per acre, or $1.38 for each potential home.
For comparison, we looked at 128.27 nearby acres paying a total of $6,685.89 in taxes, or about $52.17 an acre, or--again approximately--$185.69 for each potential home.
On this one, taxpayers have lost only about $75,000 this year due to the agricultural exemption, and not considering the value of the rezoning. If computed at the per-home rate above, however, the loss to taxpayers would amount to more than a million bucks a year. And that doesn't count the 113 acres of commercial zoning or the golf course.
And then there's Rancho Vistoso. Now in the Oro Valley Original plan, this development is a product of the go-go 1980s era of rapid-fire growth. As a result, Vistoso's specific plan has been amended countless times, almost at the will of the owners, by the sprawl-happy Town of Oro Valley.
Rancho Vistoso and the principal players, Vistoso Partners, are fascinating because much of this land has already been used to pillage taxpayers during the great savings-and-loan scams of the 1980s. Vistoso composes a large portion of the properties Charlie Keating and friends used to bilk their own banks. Basically, they sold huge chunks of this land back and forth to one another at increasingly inflated prices.
One of the principal scammers was a guy named Conley Wolfswinkel, who was found guilty of fraud and given--what else?--probation.
His family has since reacquired much of the land involved in that fraud rap by repurchase through the Resolution Trust Corporation at about 30 cents on the dollar.
Much of Rancho Vistoso has already been built out, but as of 1998, there were about 4,000 vacant acres rezoned for an indeterminate number of homes. The total tax bill on all that land was $2,426.46, or about 63 cents an acre.
Some of this land has already been divided into high-end, one-acre estate lots that go for at least a quarter million each.
Oro Valley Planning Director Don Chatfield actually had the temerity to question ranch use in an urban environment. Apparently he was sympathetic toward environmentalists who wanted to move the rented cows out of what's left of the endangered riparian habitat of Honeybee Canyon. Chatfield maintained that Oro Valley had the power to ban cattle from the city.
Fat chance. Vistoso's lawyers argued the town didn't have that discretion. Vistoso's rights to run cattle and pay little in the way of taxes were "grandfathered" because the land was once a ranch. The Oro Valley Town Council and staff, as usual, behaved like the trained seals at Marineland and rolled over for the developer. Vistoso removed a couple of cows from Honeybee (or at least claimed it did).
It's difficult to determine just how big the tax loss on Vistoso has been to jurisdictions like Pima County and the Amphi School District. Many millions over the years is a conservative guess. Currently those 4,000 acres at 63 cents apiece, when compared to several other parcels that average about $300 each per acre and which are zoned low-density, are ducking a bundle. Using the per house estimate, these folks are paying about $700 a year for the privilege of owning land on which they can build one house, while Rancho Vistoso pays 63 cents an acre--or as low as a dime a year each--for parcels on which they can build as many as six homes!
Just removing the agricultural exemption and putting those 4,000 acres at the same $300-a-year rate several neighbors pay would generate $1.2 million for local governments. Taxing those acres based on their new zoning would clearly bring in several million more, and would have certainly done so over the many years the project has been on the books.
OR TAKE DOVE Mountain, formerly known as RedHawk. This project, granted by the Town of Marana to a group of folks led by David Mehl, was born in controversy. In the early '80s the state Land Department traded several thousand acres to the Mehl brothers (David and his late brother George) in exchange for a comparatively crummy parcel of 39 acres adjoining the Mehls' La Paloma resort development in the Catalina Foothills.
Many environmentalists and taxpayers howled. To this day no one quite seems to understand what the state could possibly want with those 39 acres. One thing is perfectly clear, however: the Land Department was itching to promote the growth in the virgin Tortolita Mountains that the Mehl project would supply. The three elected officials charged with approving such deals--which included then-governor Bruce Babbitt, now U.S. Secretary of the Interior--eagerly accommodated them.
Gullible environmentalists who believe Babbitt's blather about stopping urban sprawl should take a drive out on Tangerine Road. They'll find a four-lane divided highway leading into Dove Mountain and assorted other high-density developments, all squatting in the midst of sensitive land that Babbitt could have saved. But he didn't lift a finger to stop the carnage when he had the chance.
The cost of Marana's constant revisions for Mehl--who holds an exaulted position in Marana similar to Wolfswinkel in Oro Valley--is hard to gauge, but as of 1998 there were at least 1,000 acres on the agricultural exemption list. And here there's an even bigger form of corporate welfare involved:
Part of Dove Mountain's specific plan involves the state Land Department, which holds 1,840 acres in the middle of the development. They'll eventually be sold to the developer, but in the meantime the state owns them and the developer pays no taxes at all. In other words, it seems you can cut a deal with the State of Arizona to develop land the taxpayer owns before you buy it.
Oh, and let's not forget Forest City. This Cleveland-based corporation developed the Tucson Mall and currently holds about 400 acres near Tangerine and Thornydale roads. Like the Dove Mountain folks, they also have a deal with the Land Department for 1,200 more acres they've planned for tract homes and shopping centers--all smack dab in the heart of pygmy owl habitat and an ancient ironwood forest. The company had one 400-acre parcel rezoned for a huge shopping center more than 10 years ago, and has since collected the option from a willing Pima County Board of Supes to slap more than 1,000 homes on the property. Again, how much rent-a-cow has cost taxpayers is tough to figure, but here the total has to approach several hundred thousand a year.
It should also be mentioned that Forest City are the folks who originally filed suit against the Town of Tortolita, arguing the area was "too rural" to be incorporated and that the residents had a "bad attitude" toward development. The Land Department subsequently got then-Attorney General Grant Woods to pick up the lawsuit at taxpayer expense. (Yes, the same Grant Woods who now claims to hate urban sprawl. Like we believe that crocodile.)
SO HOW MUCH, bottom line, does the rent-a-cow scam cost local governments in Pima County? Based only on those lands with agricultural exemptions rezoned for other purposes (a conservative approach), a minimum of $50 million a year. The real figure is probably closer to $100 million.
Concurring in that estimate are Pima County Administrator Chuck Hucklelberry, former Pima County Assessor Arnold Jeffers, and some staff members of the Pima County Assessor's Office who prefer to remain anonymous.
Unlike most politicians, Republican Jeffers was a regular critic of rent-a-cow throughout his tenure as assessor--and not because he was some kind of tree-hugger. Jeffers is a staunch pro-growther. He just happens to suffer from a big streak of fairness, and during his government tenure attempted to make a few changes in how the law was interpreted. Rent-a-cow was one of his favorite subjects, so much so that his staff gave him a large cow replica, which now sits in his backyard.
"Every time I went to the Legislature to clarify what could be counted under the agricultural exemption provisions, they clarified it in favor of the land owner and made it tougher for the assessor," recalls Jeffers, who says the most powerful lobby was neither the developers or the ranchers. "It was the mines. They own large tracts of land they currently keep grazing leases on."
Jeffers is skeptical that any large-scale reform is possible. "Arizona taxes land on its use. It would require a major revision of the entire tax code to change that."
Maybe, but that taxing principal was in place before there were any zoning laws. It doesn't seem that complicated to amend state statutes to simply redefine use to include the owner's plans when a rezoning is approved. At the very least, one could modify the use portion to nullify the exemption at the time a change in use--that is to say, a rezoning--is granted.
It's clear the Legislature will never allow this to happen unless--or until--there's a groundswell of public anger at being stiffed every year by this archaic scam while the rest of us cough up our property taxes like the law-abiding chumps we are. As the demand for more revenues for rapacious local governments continue to grow, how long will the taxpayers continue to allow this massive loophole to exist?
Part of the problem is the general ignorance concerning the magnitude of the problem. Anywhere from $50 million to $100 million a year in new revenue in Pima County alone would be a major relief to hard-strapped local governments, mostly in that position because of the very actions of the same land speculators who cash in on the exemptions. A mere $12 million to $25 million a year would certainly solve our current law-enforcement needs.
Perhaps the best solution would be to run an initiative on the issue. Undoubtedly it would pass easily, no matter how many millions the developers would throw up against it. Environmental types now trying for additional controls via urban growth boundaries would be wise to consider that option. As one of the group's more sophisticated local members, Rich Genser, notes: "Pulling the agricultural exemption on rezoned land would do more to slow down sprawl and restrain growth than most of the controlled-growth proposals combined."
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