When Governor Quinn signed P.A. 98-109 into law, media reports focused on the legislation pushing forward a Peotone airport, but the 371 pages of legislation also contain a number of other changes. Notably, the legislation makes significant changes to the Property Tax Code that affect both the assessment of farmland and the granting of property tax abatements.
Assessment of Farmland
To say that the assessment of farmland is technical and confusing is an understatement. In general, farmland is assessed based on the productivity of the soil as certified by the Illinois Department of Revenue. The formula uses a “soil productivity index” (“PI”) and production costs developed by the Department to determine net profits, which are then capitalized using the Federal Land Bank farmland mortgage interest rate. The resulting assessment is then converted into an equalized assessed value through multiplying it by 33.3%
Almost 30 years ago, a 10% cap on annual increases or decreases in the equalized assessed value of farmland was imposed. The result over time has been that assessments of farmland with a lower PI have grown much slower in terms of real dollars than farmland with a higher PI. According to several published sources, farmland with the highest PI is currently assessed at over 40 times the assessment of farmland with the lowest PI.
P.A. 98-109 attempts to correct this disparity by slowing the growth in the assessments of farmland with a high PI and increasing the growth in the assessment of farmland with a low PI. The addition of the phrase “of the median cropped soil” to the section imposing the 10% cap means that instead of limiting the change in a farmland assessment to 10% over or under the prior year’s assessment, the change in the equalized assessed value of farmland will be limited to 10% of the median PI for the entire State of Illinois. The anticipated result is that the disparity in farmland assessments will be diminished considerably over the next 15 to 20 years.
Section 18-165 of the Property Tax Code authorizes any taxing agency upon a majority vote of its governing body to order the county clerk to abate any portion of its taxes on a property, provided that certain conditions are met. While the Property Tax Code identifies over 19 different types of abatements, P.A. 98-109 modifies the provisions for an abatement on commercial or industrial development of a certain size. Previously, any commercial or industrial development in excess of 500 acres could receive an abatement lasting up to 20 years so long as the total amount of property taxes abated by all taxing agencies did not exceed $120 million. Now, commercial or industrial developments of 225 acres or more can receive the same abatement, provided the development applies for and is granted designation as a High Impact Business under the Illinois Enterprise Zone Act.