| FOR IMMEDIATE RELEASE
To the Editor:
As Senate and House negotiators finalize House Bill 1001, a property tax relief package, several interesting points and concerns have developed. We are seeing concern and confusion about the property tax reform; some of which is the natural result of trying to understand a very complex issue and some of which is fostered by those not wanting reform. This is a critical time for Indiana as the deadline for a final vote on the reform package is Friday, March 14. The bill as passed will cut and permanently cap local property taxes and put government spending controls in place. Without these important changes included in the plan property taxes will continue their growth, which will hurt the Hoosier economy and negatively impact one of the State of Indiana’s greatest assets: affordable home ownership.
Here are some questions and concerns Hoosier taxpayers may share:
How did we get here? Why a sudden crisis? First, it is important to remember that all taxes are a result of government spending. Second, property taxes are determined, collected and spent at the local level mostly by schools, towns, cities, counties and libraries. Indiana’s property tax “crisis” results in large part from the sticker shock of a six-year implementation of a new court-ordered assessment system based on market values. And not just any court: the Indiana Supreme Court, which ruled Indiana’s property tax system unconstitutional, because it found like properties under like conditions were taxed differently.
Why protect homeowners over other property owners? Isn’t that unconstitutional? Historically, our federal and state governments were founded on the concept of private property, giving preferences in law and policy to home ownership. Our antiquated property tax system stems from the agrarian 1800s when land ownership translated into income. Today most parcels are residential and not income producing. Rental properties, farms and business properties are somewhat different. Senate Republicans recognize these distinctions and advocate phased-in caps on Indiana’s local property taxes -- 1 percent on owner-occupied homes; 2 percent on other residential and agricultural; and 3 percent on outright business parcels. Adding these caps to Indiana’s Constitution gives them permanence for taxpayers, and such amendments will eliminate any question about their constitutionality.
Won’t this put a squeeze on schools? Indiana’s Constitution guarantees the availability of a free education for every student and identifies state government as the entity to provide public K-12 schools. Traditionally, Indiana has funded public K-12 schools very well. Most recent figures show spending per Hoosier student was $10,672 on average in 2005-06, while the nationwide average was $8,973. State government already pays on average about 85 percent of school general fund expenses. Our Senate plan removes the balance of school operating expenses from property taxes while maintaining their management at the local level through administrators and school boards. To further help reduce other local fiscal obligations, Senate Republicans propose removing special education pre-school from property taxes. We advocate using $100 million in state funds to protect schools from the strain of phasing-in circuit-breaker caps on property taxes and creating a $400 million Tuition Reserve Fund to safeguard schools in times of economic downturn.
What about local government? Under current law, local governments have flexibility to move from antiquated property taxes to more modern Local Option Income Taxes, which are based on ability-to-pay and pay-as-you-go principles. LOITs may be used to fund additional property tax relief and public safety. Additionally, the phase-in of property tax caps gives local units time to identify and implement new cost-savings efforts. While many local officials prefer property taxes because they see them as stable and predictable, those who pay them see them as unpredictable, unfair and unaffordable – especially seniors on fixed incomes taxed on unrealized appreciation and young homeowners with moderate incomes taxed on mortgaged assets.
Will this plan hurt low-income Hoosiers? No. A report prepared by respected Purdue tax economist Larry DeBoer found more than 75 percent of Hoosier taxpayers would benefit from this plan. And even those who might see an overall rise in their tax liability would be minimally impacted. In addition, the Senate plan proposes increasing the Earned Income Tax Credits, renters’ and low-income senior deductions to make the plan more helpful to moderate and low-income Hoosiers.
Won’t property taxes just continue to rise?
Not necessarily. Increases in assessed value do not automatically mean an increase in tax bills. A person’s tax bill is a function of the assessed value and the tax rate. So as spending is controlled increases should be minimal. Local operating budgets are tied by law to the state average growth quotient which is related to growth in personal income. Capital projects, a major driver of property tax increases, will be tied to a referendum by the bill. But in any case, if the caps are placed into the Indiana Constitution, every Hoosier homeowner’s property tax bill will be permanently capped at 1 percent – unless taxpayers themselves locally choose to exceed the cap. Politicians would no longer have that right – only local taxpayers themselves through referendums on major government construction projects. Additional spending controls under the Republican proposal include closing loopholes, strengthening budget reviews and restricting government debt.
Gov. Mitch Daniels strongly endorses this plan. I feel that this plan is good for Hoosier homeowners and addresses the needs of schools, local governments and low-income Hoosiers.
Sen. Gary Dillon (R-Columbia City)
Indiana Senate
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