How Current Use Works in Alabama
L. Louis Hyman
Alabama Forestry Commission
Current use assessment for property (ad valorem) taxes was put in place by the Alabama legislature in 1982. The purpose of Current Use is to slow development and to allow landowners to keep their forests and farms in open land rather than being forced to develop them because of tax pressure. The people of Alabama felt that having open farmland and woodlots was more important than another subdivision or Big Lots.
Regular tax assessment looks at the market value of a tract based on its highest use. In other words what would be its highest realistic value. It might be a pasture, but it could be a shopping mall site, so it is worth the same as the other shopping malls. This forces open-land owners to sell their land to developers, which increases urban sprawl.
Current use looks at the value of the land based on how it is being used now. It is a house, not an office site, a farm not a mall, a forest not a subdivision. It bases that value on the productivity of the land, using 10 soil classes for farmland and 4 productivity classes for forest land. For forest land, the valuation formula uses an average forest growth rate for each productivity class. The current use value is calculated using the formula:
Growth X (Price – Expenses) ------------------------------ Farm Bank Interest Rate – 4.5%
In the law, the growth rates and expense ratio (15% of income) is fixed. There are only two fluctuating variables, price and interest rate. The price used is the weighted average pulpwood stumpage price for Alabama for the previous calendar year. This is calculated by the Alabama Forestry Commission using Timber Mart South stumpage price reports. The Farm Credit Bank loan rate varies greatly each year. By using a 10 year average the variation is dampened. Over the last few years this rate has declined sharply. Both sets of variables are shown in Table 1.
By using this formula, a current use value is developed. This rate has also changed over time. The value declined over the decade of the eighties, as interest rates went up and pulpwood prices declined. During the 1990, pulpwood prices jumped, while interest rates stayed level. This resulted in increased current use values. Average Forestland values went from $275 per acre in 1982 to a low of $175 an acre in 1988, back to $375 per acre in 1995 and $403 per acre in 2000.
In the most recent years, pulpwood prices have declined, but interest rates fell faster. As interest rates drop, the valuation will increase.
Regardless of any changes to the Current Use system, current use values will continue to increase over the foreseeable future, as interest rates stay at low levels and pulpwood prices recover.
TABLE 1 Current Use Input Factors Average Federal Land Year Pulpwood Bank Rate Prices 2001 $ 17.46 5.90 % 2000 20.75 8.65 1999 23.89 8.01 1998 28.56 7.68 1997 29.92 7.99 1996 25.09 7.84 1995 28.99 8.35 1994 24.76 7.46 1993 23.30 7.89 1992 18.92 8.85