A little-noticed provision in the Senate budget would redefine agricultural land for property tax purposes -- a measure that's making developers nervous and municipalities hopeful.

The provision would make land that is platted and zoned for residential, commercial or industrial use but used for agricultural purposes eligible for property taxes of the "highest and best" use of the land. Currently, the land is assessed based on the "use value" it would derive from being rented as farm land.

The Legislative Fiscal Bureau didn't have an estimate for how much acreage the change might impact.

Thomas Larson, director of regulatory and legislative affairs for the Wisconsin Realtors Association, charged the change would have a chilling effect on economic development statewide.

"Given the economic downturn there have been a lot of developments put on hold, stopped in their tracks because of poor economic conditions," he said. "We could see a lot of the same foreclosures we've seen in residential market beginning to occur in the commercial market."

The change was first proposed two years ago, when the Alliance of Cities brought it to then-Joint Finance Committee co-chair Russ Decker. Control of the JFC was split at the time between Assembly Republicans and Senate Democrats, and it was kept out of the JFC budget on an 8-8 vote.

Decker spokeswoman Carrie Lynch said the current definition allows for a huge tax shift to other property taxpayers. She said the use value law was intended to preserve farm land, not as a way to keep land at a lower valuation.

"This is about closing a loophole that developers are using to escape paying their fair share of property taxes and when that happens homeowners have to pick up the tab," Lynch said. "Developers are trying to hide behind farmers for a tax break."

The Alliance of Cities and League of Wisconsin Municipalities are supportive of the change.

But Madison development attorney Mike Lawton says the change will also hurt farmers who have land zoned for future development. And it could force developments to be rushed and of lesser quality as developers try to wait until they come up with the best fit for the land.

"It is unfair to those who developed in reliance on existing law. It could affect banks who will have to pick up the pieces and pay the taxes when they get land back in foreclosure," he said. "I expect this will lower the value of farm land on the edge of communities as the holding costs will force a decrease in prices for farmers."

UPDATE: The Wisconsin Farm Bureau Federation has issued a "call to action" regarding the use value budget provision. See their press release here.

-- By Greg Bump