Yield estimates change appears minor

A University of Illinois study addressing upcoming changes in the way farmland property tax assessments will be made concludes the difference "does not appear to be a particularly important one."

Dwight D. Raab, a University of Illinois Extension farm business analysis specialist in the Department of Agricultural and Consumer Economics, said the study stemmed from concerns voiced by Illinois landowners. Co-authoring the report, "New Yield Estimates for Farmland Tax Assessments," was Robert J. Hauser, a professor in the department.

"The change involves the use of a different set of crop yield estimates," said Raab. "A frequently expressed fear among land owners is that the use of the new yield estimates will raise their taxes."

Raab and Hauser examined the factors used in determining farmland tax assessments and the potential impact of the upcoming change.

"Illinois, like virtually all the other states, assesses farmland on its agricultural use value rather than its market value through a capitalization of net income," he said. "This capitalization process turns a future stream of net income into a current value. Market value plays no role in the assessment of farmland for real estate tax purposes. Likewise, the actual production history of a given tract is not a factor in farmland assessment."

An update of guidelines for crop yield estimates first established in 1978 was published in 2000 and will supersede the 1978 document beginning with the assessment calculated in 2004. The new guidelines incorporate the effects of numerous technological and managerial changes on crop production and soil fertility. The policy to be implemented this year incorporates a new method of calculating the average productivity index for Illinois
soils. This will reflect new and more accurate information on the productivity of those soils.

Raab and Hauser used a computer model to indicate how the new guidelines will impact farmland assessments.

"The clear message from the comparison is that the new yield formula does not necessarily lead to an increase in the assessment yield," said Raab. "In fact, for the 10 soil types we looked at, the average yield falls slightly.

"Of course, this result does not mean that every yield estimate will fall. Examination of the individual soil-type yields suggests that the changes will tend to be either a small increase or a small decrease."

While it is important that land owners keep an eye on the underlying assessment factors, care should be taken when interpreting the change from the old system to the new one.

"Many factors may lead to changes in farmland assessment during the next few years," said Raab. "However, in general, the change in the way yields are calculated does not appear to be a particularly important one."

The full report can be accessed online at: http://www.farmdoc.uiuc.edu/