Changes in Illinois' farmland assessments not foreseen
By DAVID CHICOINE

   One of the most dramatic changes in property tax policy in the 20th century in the United States was the way farmland was valued or assessed.
   The motives for state after state to adopt farmland assessment procedures based on use and not on market value ranged from concerns for farmland protection at the urban fringe to the fairness of farm property taxation.
   When Illinois legislated what are now called use-value farmland assessments in the early 1980s, it followed 45 other states.
   A major concern in Illinois that brought about change was the fairness of the property tax on farms.
   The idea behind use-value assessments is simple. The value of farmland for property tax purposes should be directly connected to the value of land for agricultural purposes. Nothing more, nothing less. And this use value should be calculated often to capture the most current economic conditions of the farm sector.
   The Illinois Farmland Assessment Law, now two decades old, is still a mystery to many taxpayers, local public officials and legislators. But it is a rather straightforward approach. It uses an income capitalization formula to calculate assessed values for farmland based on the productivity of soils. The farmhouse and farm buildings are assessed separately from the land, and when added to the land's use-value assessment, determine the assessment for a farm.
   Each year the Illinois Department of Revenue completes per-acre calculations of assessed values for cropland based on the productivity of soil and provides these values to local assessing officials. The officials use the values to assess each farm based on the soils on that farm.
   The farmland-assessment formula subtracts from gross-income-per-acre-nonland-production costs and then divides the result by an interest rate or capitalization factor.
   Price, cost and interest rate data used in the calculations are five-year averages. This limits the impact of any one year's economic conditions and smoothes year-to-year changes.
   Crop yields are those determined by the productivity of soil types and not actual yields from any farm. Because this is done each year and farmland reassessed each year, farmland assessments and the property taxes based on the assessments reflect the most current farm economic conditions. There is a lag, though, just because the calculations, the assessment of land and the determination of property taxes all take time.
   For example, the property tax bill a farmer will pay in 2001 is based on 2000 assessed values; 2000 assessed values came from the calculations done in 1999 using data from five years from 1994 to 1998.
   A strength of Illinois' law is the uniformity in assessments across the state. Land with the same productivity is assessed the same whether in eastern or western Illinois. Using detailed soil maps, soil productivity indexes and modern aerial photographs, essentially all Illinois counties have computerized the farmland assessment process. This makes assessments accurate and more easily done.
   Another strength of the formula is that assessments do reflect as accurately as possible the economic conditions of the farm sector.
   The five-year average data change assessments over time as the farm economy changes. So when corn and soybean prices drop, farmland assessments will soon follow prices down. When prices increase, assessments will increase.
   The strong commodity prices of the early 1990s moved assessments up. Today's low prices will reduce assessments as they are incorporated into the assessment calculations.
   In 1986, the Illinois law was improved to provide more protection to both local taxing bodies, especially school districts, and farmland taxpayers from swings in the farm economy. This improvement provided more stability in farmland assessments by restricting annual increases or decreases in the values provided to local assessing officials to 10 percent.
   The limit protected the property tax income of rural school districts during the weak farm economy in the 1980s and will again be important as the current poor farm economy affects assessments.
   This was important to farmland owners beginning in 1993 and 1994 as the strong farm economy increased assessments. But by 1999, average per-acre property taxes for an Illinois grain farm reached $25 ($30 per acre in central Illinois), reflecting both higher farmland assessments and higher tax rates, particularly for local schools.
   Now, with two decades of experience with the farmland assessment law, major changes independent of universal property tax reform or tax swaps to finance schools are very unlikely.
   Farmland assessments from the use-value formula are seen as fair since they do reflect the productivity of soils and have certainly changed with swings in the underlying economic conditions of Illinois agriculture.
   Both farmland owners and rural schools and other local governments are somewhat insulated from dramatic changes in the farm economy by the 10 percent limitation. This provides more stable property tax bills and more stable tax revenues.
   The fairness of the property tax as a source of funds for local schools is still questioned by many. Also, the property tax burden on farms to finance rural schools continues to be questioned.
   But, the school finance reforms of the late '90s coupled with increased state funding for schools because of the general strength of the Illinois economy have dramatically softened the call for tax swaps and major school finance reform.
   Whether the current calm on the property tax front will hold far into the 21st century is difficult to predict. But, independent change in Illinois' farmland assessment law is certainly not expected.

   David Chicoine was named dean of the University of Illinois College of Agricultural, Consumer and Environmental Sciences in 1996. He's been at the UI since 1979. Honored early and often in his career, he has also been a consultant on property assessment and other public finance issues in Illinois. He was raised on a farm in South Dakota.

   The News-Gazette welcomes comments from readers on the issues raised in this article. Please send your comments to: Editor, The News-Gazette, 15 Main St., P.O. Box 677, Champaign, IL 61824-0677. Send comments by e-mail to news@news-gazette.com.