November 2007 No. 46Table of Contents |
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Almost all (90%) Hoosiers surveyed by the IN Chamber of Commerce said “our property tax situation is a problem,” and a majority (56%) thinks it’s a “crisis.” 71% say the property assessment system is broken—neither uniform nor equitable; most (58%) say residential and business property with equal values should result in equal taxes. Two-thirds agree that market value should be its proper standard—a change that pushed costs of assessments up 75% since 1996; 60% prefer a sales tax increase over income or property tax hikes.
Many Hoosiers don’t understand what property taxes pay for or who controls their expenditures—20% said property taxes went to the state. Nearly half (46%) incorrectly said state spending caused property tax increases. Actually, 54% of property taxes go to local schools, 18% to county government, 16% to cities & towns, 5% to special local units, 3% to townships, 3% to public libraries, and 1% to the state.
Three-fourths favor a statewide overhaul of local government if it results in greater efficiency and/or lower property taxes. “It’s time to probably put some sacred cows out to pasture,” Chamber president Kevin Brinegar said, “and really get about the business of establishing a 21st century structure for local government.”
Most (62%) of property taxes come from homeowners, 22% from commercial and industrial businesses, 8.5% from agriculture, and 6% is exempt. Property taxes now fund some $7.9 Billion in local spending across Indiana, up 60% since 1998.
Local governments spend 55% of their share of property taxes on operations, 24% on debt repayment, 16% on capital projects, and 5% on child welfare. Lately, the portion of property taxes that pay for school debt service and capital projects has grown some 8%/year. There are 2,400 local taxing units in the state.
Governor Daniels. After weeks of traveling the state to hear Hoosiers’ ideas on the property tax mess, the governor finally entered the fray with his own tax reform plan that will likely drive the General Assembly’s 2008 deliberations. The expert opinions and analyses given the legislative Commission on State Tax and Financing Policy, chaired by Sen. Kenley, will fuel the debate. And the Governor’s special Commission on Local Government Reform is likely to have a thing or two to say about the financing side of its reorganization proposals.
Currently, Indiana property taxes rank 33rd nationally as a percent of mid-point household income: the Governor says his plan will cut Indiana property taxes by $1 Billion—ten times the property tax relief it now funds—dropping Indiana to 41st. Daniels’ plan:
Some suggest that the lack of priorities in this comprehensive plan gives Daniels deal-making options. Go to www.in.gov/gov/3105.htm for more Q&A.
Constitutional amendments. The Governor says that adopting the 1% homeowner, 2% rental, and 3% business property tax caps—all effective 2009—will require amending the Indiana state constitution. This change still may not address business’ criticism that the state’s 150-year old charter requires a “uniform and equal rate of property assessment and taxation” that does not allow differential property tax caps. Some think that Daniels wants to hold a constitutional convention in order to not only address property tax caps but to update the document to address 21st century issues.
Organization Day. The Republican-controlled Indiana Senate will drive the property tax reform process. Senate Pro Tem President Long told IN Legislative Insight that he will move the plan quickly, saying “nothing else really matters” in the 2008 non-budgeting General Assembly session that officially begins this November 20 and must conclude by next March 14.
Long promised a package of at least 10 bills to be introduced on Organization Day with at lease three Senate committees reviewing parts of this bundle before year’s end so they can have “second reading” by mid-January. The Commission on State Tax & Financing Policy has its last meeting on November 13 and is expected to nail down fiscal impact numbers that can undergird debates. A verdict on a lawsuit about property-tax-related issues is also due in mid-November.
The Democratic-controlled House must originate some of the final legislation, and there’s the rub. Compromise on many fronts must occur with the shadow of fall 2008 elections looming over the process. Who’ll get credit? Who’ll get the blame? Up to this point, Democrats have not pushed a package of their own.
Schools. IN Education Insight reports that school officials want to make sure that increased state funding doesn’t come with increased state strictures. They dislike the change in rules over construction projects, especially systems with growing student populations. Daniels replies that he wants to make it hard for schools to expand without getting taxpayer consent.
Rentals. It’s likely that owners of single- and duplex-home rental units will try to (1) get themselves separated from the multi-unit apartment complexes in the 2% capped property tax group and (2) combined into the 1% capped residential property tax group.
Business. The IN Chamber of Commerce, IN Manufacture’s Assn., and IN Farm Bureau support the Governor’s goals to make local government simpler and less-costly. They aren’t delighted over the 3% business property tax. Between doing away with property tax altogether and concerns over economic development, business groups are not assuaged by the predictability of the Daniels’ plan. In spite of regular meetings with an administration team, they were caught off guard by the televised announcement October 23rd, and they’ll be lobbying the legislature hard in 2008.
The Farm Bureau wants to cut taxes on all kinds of property by one-third in return for a sales tax increase. It had several other proposals that didn’t make it into the Governor’s scheme as well.
Assessor jobs are also at stake, and they’ve got proven political strength. The county assessors’ group proposes replacing the 92 of them with 10 regional administrators who would report to the IN Dept. of Revenue and in turn hand-pick certified township assessors.
The IN Dept of Local Government Finance now has a breakdown for each county’s 2007 property tax summaries—showing how property taxes are spent, with 10-year comparisons. These details, and more, are at www.in.gov/dlgf/5078.htm. Let the games begin.
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