The effects of farm property tax relief programs on farm financial conditions

Many states have adopted farm land use-value assessment schemes to provide tax relief to eligible farm landowners. Assessments are commonly based on the current agricultural use rather than market value. Another approach, called the circuit-breaker program, is employed by 2 states. An effort is made to estimate the effects of specific illustrations of use-value assessment and circuit-breaker schemes on the financial conditions of the farm operator and the nonfarm landlord. The illustrative programs are compared with market-based assessments by simulating the financial performance of an Illinois grain farm over a 10-year period. Results of the analysis indicate that: 1. The popularity of use-value assessment schemes over circuit-breaker programs may be related to the level and distribution of financial gain. 2. The reduced farm property tax burden was reflected in the wealth position of the farm operator and landlord. 3. Although the differential property tax treatments provided relief to both landlord and farm operator at the urban fringe, the simulated cash flow situations suggest that, for both to continue operating, asset liquidation would be highly likely.