Shelby County – Lease of public property for private use – taxes – legality

Shelby Co. (ECWd) –

When Benjamin Franklin said we have “A Republic, if you can keep it“, he knew keeping it would take work.   “We The People” are the ones responsible for that work and when we ignore our local government and their actions we find that they tend to do what they have always done rather than doing what the law outlines they are to do.

Public Officials need to know that just because they are being questioned, it does not mean they did something malicious or criminal.  More often than not, they simply did what they thought was right because that is how they always did it, and since no one ever questioned it, they assume it was right. We believe that is why Shelby County is in the mess it is in, years of doing what they want with no real legal direction provided as to what they were supposed to do based on the law.

The important part of a public officials’ duty is to ensure once they are made aware of a violation they take appropriate steps to fix it.  It appears those steps are being taken as matters are being identified.   We thank them for fixing what is broken.

In order for local government to actually fix what is broken, they must first “know” what the actual rules are based on the law.  This takes work as well as a willingness to question the advice they are given by those in the office before them and even from those advising them.

Let’s take you step-by-step as to what the law is as it relates to publicly owned property, the lease of such property, and the tax ramifications of the leased property.

Public Property is Tax exempt with specific exceptions- (35 ILCS 200/15-60)

Sec. 15-60. Taxing district property. All property belonging to any county or municipality used exclusively for the maintenance of the poor is exempt, as is all property owned by a taxing district that is being held for future expansion or development, except if leased by the taxing district to lessees for use for other than public purposes.

Shelby County leases out their farm ground, which if legal, makes the property taxable.  The question is, who paid the actual property tax vs. who should have paid the property tax?

According to public records, the county (taxpayers), has paid $15,110.20 in property tax on the farm ground they own for 2016-2018, the only years we looked at.

According to the Illinois Department of Revenue (see page 6), “Leaseholders pay property taxes on real property leased from an owner whose property is exempt (e.g., the state owns agricultural property and leases it to a farmer).”

So if the leaseholder is the one who is supposed to pay the property tax according to the Department of Revenue, why is the county paying the property tax for farm ground it leases for private use?

The purpose of the leaseholder paying the tax is tied to revenue generation for the County.  If the County is paying the property tax, there is no revenue being generated. In fact, it’s nothing more than a paper tiger.  Think about it. The county cuts a check from the General Fund to pay the property tax and that check goes where?  Back into the General fund, thus no revenue has been gained, only a lot of extra worthless work for the employees and officials of the county.

Once the tax-exempt property is leased out for private use, it constitutes a change in use and or leasehold.  This information can be found in the Property tax code, specifically paragraph (f) of that section.

Why is such notice needed?

Because the law outlines the tax bill is to be mailed to the person in whose name the property is taxed!  (35 ILCS 200/20-5)

 Sec. 20-5. Mailing or e-mailing tax bill to owner.
    (a) Every township collector, and every county collector in cases where there is no township collector, upon receiving the tax book or books, shall prepare tax bills showing each installment of property taxes assessed, which shall be filled out in accordance with Section 20-40. A copy of the bill shall be mailed by the collector, at least 30 days prior to the date upon which unpaid taxes become delinquent, to the owner of the property taxed or to the person in whose name the property is taxed.

With all the information above taken at face value, logic says the farm ground is to be taxed and the tax bill is to be mailed to the person named on the lease and it is their obligation to pay the tax, not the taxpayers of the county.

Logic does not always work in Illinois

We have always encouraged public officials to ask a simple question before taking any action.

“Where in the law does it give me the power to do what I am about to do?”

Apply that to the lease of county-owned farm ground:  Where in the law is the County given the power to lease county-owned farm ground for private use?

The first place to look for such power is the County Code, specifically section 55 ILCS 5/5-1005

“2. To sell and convey or lease any real or personal estate owned by the county.”

Another commonly overlooked law is our Illinois State Constitution, specifically Article VIII section 1 – “Public Funds, Property, and Credit shall only be used for public purpose. “

According to the Attorney General opinion S-995, County Boards can not lease farmland for private purposes.  At the time of that opinion, they cite Public Act 79-955, which contains the same language as the revised Publis Statute cited above. Every County Board member should read that opinion.

It should be noted that the very opinion dealt with farm ground which was originally part of a County Farm which is covered under the Counties Code for County Homes.  We understand Shelby County no longer maintains such a County Home, thus the applicable sections of that code no longer apply.  This conclusion is drawn from the fact the Attorney General was addressing this very issue, farm ground owned by the county that use to be tied to a Poor Farm.  If such a County Home is maintained, there is a provision for lease for private use.

Please don’t take our word for it and please realize we are simply the messenger of what the law says and how the courts and our Attorney General have interpreted those laws. 

Within that AG opinion is case law, Yakely v Johnson, from the Illinois Appellate Court Third District.  Every County Board member should read that case.  What did the high court say about the lease of public property for private use?

“Neither by statute nor under adjudicated Supreme Court cases has a county the power to lease public property for private purposes (Ill. Rev. Stat. 1937, ch. 34, §§ 24, 25, 163; Jones Ill. Stats. Ann. 33.024, 33.025, 33.117, 33.118). ”

According to the Casetext research on that particular case, it has not been overruled or negatively treated to date, as reflected in the underlined portion of the citation.

There are specific provisions in the law for certain private use of public property in the County, such as the “lease of space on a telecommunications tower to a public or private entity”.  See item #22 under County Powers.

While we understand some will say it’s OK to lease county-owned farm ground to a private farmer, the law is silent on that point, the Attorney General opinion says it’s not allowed, and case law says it’s not legal.

We understand a portion of the County-owned farm ground is on the County-owned airport.  As of this publication, we have not found any provision for the private use of County Airport farm ground either.

We also note that there are no records of the farm ground ever being bid out, a topic for another article.

As a point of interest on Airport property, if the airport leases hangar space, such space can be a revenue source for the county.  A very detailed analysis of that type of situation can be found in the Whiteside County Airport Administrative Hearing on property tax exemptions.  In that case, the leasing of hanger space was taxable and that triggers the leaseholder as the one who has to pay the tax according to the Department of Revenue.

For those that are not convinced of the taxation of public property for private use, we urge a review of the Depaul Law Review on Taxation and lease of exempt property for private use.

While this information may initially create panic with the public officials who are leasing out county property for private use, there are simple solutions but it will require some work.

Our suggestion to fix this problem, which we know is happening in numerous counties in Illinois:

• Legislative language that permits counties to lease farm ground, provided it is for a public purpose, bid out every year and the revenue created from that lease is used to offset the property tax burden of all property taxpayers in the County.

As of this publication, we have not found any law, legal opinion, or case law that contradicts the information in this article.  If it exists, we urge those with knowledge of such to forward it to us for publication.

Another step that can be taken is to have the State’s Attorney ask the Attorney General for an opinion on the matter.  It appears the last opinion on private use of the public property was issued in 1976 in Dupage County and in that opinion, they could lease the public property as it was identified to have a public purpose in that case.

The leasing of farm ground to a private entity is not a public purpose as the farmer is the one profiting from such use.

The goal? 

Identify the proper way to run local government and then do so for the benefit of the public.
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