William H. Phillips is an associate professor of educational administration at the University of Illinois at Springfield.
School districts face many budgetary issues, including more requirements to meet with a minimal increase in funding. While districts get money from three sources — local, state and federal taxes — more than 55 percent of all money is received from local taxes.
Local taxes primarily are based on the value of personal property, commercial property and farmland. If a district is in an area with a high equalized assessed value (EAV) of properties and has a high agricultural economic value then the district will receive a higher amount of local money.
In a rural school district, farmland assessment is crucial because it may comprise more than half of the land area within the district. While board members may be aware that a portion of their tax money comes from farmland, how farmland assessments work and the various distinctions between types of land can remain a mystery for many, especially as valuation appeals are filed.
A little knowledge of the process can go a long way to help demystify farmland assessments.
How farmland is assessed
In the early 1980's, the Illinois Farmland Assessment Law created what are now called "use-value" farmland assessments. A major concern from Illinois farmers was the fairness of the property tax on farms.
Although the Illinois Farmland Assessment Law is several decades old, it is still a mystery to many taxpayers. The law is an income capitalization formula to calculate assessed values for farmland based on the productivity of soils. All houses and buildings are assessed separately from the land and then added to the land's use-value assessment to arrive at an assessment for the entire farm.
The premise behind the use-value system is simple, according to David Chicoine, the dean of the University of Illinois' Department of Agriculture:
"The value of farmland for property tax purposes should be directly connected to the value of land for agricultural purposes. Illinois assesses farmland based on its agricultural use-value rather than its market value, Section 10-115 of the Property Tax Code [35 ILCS 200/10-115], which provides for an ‘agricultural economic value.' This value is based upon land use under average level management, relative productivity of soils, and the present worth of the net income accruing to the land from farm production."
In order to qualify for farmland assessment, Illinois law states the property in question must have been used as a farm for the previous two years.
The statute defines a farm as:
"Any property used solely for the growing and harvesting of crops; for the feeding, breeding, and management of livestock; for dairying or for any other agricultural or horticultural use or combination thereof; … the keeping, raising and feeding of livestock or poultry … fur farming, bees, fish and wildlife farming. A farmland assessment cannot be given to property that is primarily used for residential purposes even though some farm products may be grown or farm animals bred or fed on the property incidental to its primary use."
Types of farmland
Illinois recognizes several types of farmland and ways to assess that land including: cropland, permanent pasture, other farmland and wasteland. Depending on the type of land, the assessment process may be different.
A key factor in calculating the value for these different types of farmland is the productivity of the soil, which is defined as: "the capacity of soil to grow crops or plants under specified environmental conditions and is influenced by soil properties, climatic conditions, and management inputs." The University of Illinois at Urbana-Champaign conducts all testing to determine the productivity of soil per county in the state. These values are known as the soil productivity index.
In 2000, a publication was released that updated the values given on soil productivity in Illinois, replacing values that were in place since 1979. A new publication will be released every 10 years with new soil productivity values.
Cropland is defined as "all land from which crops were harvested or hay was cut; all land in orchards, citrus groves, vineyards, and nursery and greenhouse crops; land in rotational pasture and grazing land that could have been used for crops without grasses, but not harvested and not pastured; land on which crops failed; land in cultivated summer fallow; and idle cropland."
The productivity index for cropland takes into account factors such as slope, drainage, ponding, flooding, and field size and shape. Each negative factor would lower or "debase" the value.
Land used for permanent pasture is assessed at one-third of the debased productivity index equalized assessed valuation as cropland. It includes any pastureland except woodland pasture, which is not normally tilled.
"Other farmland" includes woodland pasture, woodland including wood lots, timber tracts, cutover, deforested land and farm building lots other than home sites. This land is assessed at one-sixth of its debased productivity index equalized assessed valuation of cropland.
Wasteland is that portion of a farm tract that cannot be in cropland, permanent pasture or other farmland. It is assessed based on its contributory value to the farm property.
One strength of Illinois' law is uniformity in assessments across the state. Land with the same productivity is assessed the same whether you are in Cook County or a county in southern Illinois, whether your land is adjacent to the Mississippi River or the Wabash.
Another is that the assessments reflect as accurately as possible the economic conditions of the farm sector. Five-year averages change assessments over time as the farm economy changes. Thus, when the price of grain drops, farmland assessments will soon follow with lower values.
Timelines and protections
Farmland is reassessed annually and reflects the most current farm economic conditions. But because the assessment of land and the determination of property taxes all take time, the impact from the numbers is delayed. For example, the property tax bill a farmer paid in 2006 was based on 2005 assessed values. Those 2005 assessed values came from the calculations done in 2004, which used data from the previous five years, 1999 to 2003.
In 1986, Illinois law was improved to provide more protection from swings in the farm economy to both local taxing bodies, especially school districts, and farmland taxpayers. The change restricted annual increases or decreases in the values provided to local assessing officials to 10 percent. This limit protects the property tax income of schools districts. Both farmland owners and school districts and other local governments are somewhat insulated from dramatic changes in the farm economy by this limitation.
Farmland provides a very important source of revenue for school districts in Illinois so that they can continue to support their educational programs. The way farmland is currently assessed is effective and accepted by farmers in Illinois. Due to the success of the assessment, change in the law is certainly not expected anytime soon.