Landowners would be able to preserve tax breaks on large parcels dedicated for agricultural use, even when portions are rezoned for industrial or commercial use, under a proposal up for a final vote Wednesday before the City Council.

The land would have to be dedicated for a five-year period — as opposed to one-year dedications that occur now — and the tax breaks would continue only on land that remains in agriculture.

Currently, if any part of the parcel is taken out of agriculture use during the commitment period, landowners must pay back taxes for the entire parcel for the entire period.

Under the proposal, back taxes would be owed only on the portion of land that is taken out of agricultural use.

Bill 44 (11), Committee Draft 2, is seen as a compromise that promotes farming, gives landowners flexibility and frees up resources within the Real Property Assessment Division, which sought the change to do away with one-year dedications.

"Basically, dedications are a commitment to a certain use in exchange for lower taxes," Gary Kurokawa, the division’s administrator, said at a recent City Council Budget Committee hearing. "One year at a time is really not a dedication."

There are about 200 parcels with one-year dedications for agricultural use, Kurokawa said.

Bill 44 would apply mostly to landowners in the urban core whose properties eventually will be slated for other uses in the city’s long-range development plan.

"Those big landowners who have those properties were concerned that if we took away the one-year dedication and made them file for five or 10 years, they would have a hard time keeping the farmers on the property," Kurokawa said. "The one-year (dedication) gave them all the flexibility that they needed."

The agriculture dedication gives landowners a lower real property tax rate — $5.70 per $1,000 of property value, compared with $12.40 for commercial or industrial use. Longer-term dedications for specific agricultural uses also may qualify for tax rates paid only on a small percentage of the land’s assessed value.

Taxes typically are paid by the farmers who lease the land.

With a one-year dedication, if a landowner seeks to reclassify the land, all that is needed to avoid paying back taxes is to allow the current dedication to expire and then seek a new classification. Landowners raised concerns that having to go to a five-year dedication could hurt farmers by forcing them to pay the back taxes if a new classification was sought midway through the dedication term.

"The practical impact of disallowing agricultural dedications on land being rezoned or reclassified is the current farming tenants on our lands would realize dramatic increases in real property taxes as it is an expense paid by the lessee," Cameron Nekota, vice president of D.R. Horton Schuler Homes, said in testimony.

Under the compromise in Bill 44, if a landowner has 1,000 acres dedicated for agriculture and after two years chooses to rezone and develop 200 acres, the owner would owe two years of back taxes only for those 200 acres.

Farmers would be able to continue farming on the undeveloped land without having to pay additional taxes, Kurokawa said. In addition, the division would be able to free up personnel to check on compliance.

"We can be more proactive in looking at the dedications we have on the books, making sure people are compliant, instead of just trying to process applications every year," he said.

The financial impact to the city has not yet been determined, he added.

Among those who expressed concern over the bill was Fred Mencher, vice president of the Oahu Farm Bureau, who said the new law could have a negative impact on small farmers who have short-term leases. He suggested giving farmers some form of grace period to withdraw from a lease without penalty, to allow a period of adjustment to the new bill if needed.

Bill 44 is among the bills scheduled to be taken up Wednesday when the City Council holds its regular monthly meeting.