Higher Property Taxes: A Lose Lose Situation
by State Senator Teresa Lubbers
Property tax bills based on the new assessment are far exceeding expectations.
In seven of Marion County’s nine townships, a majority of homeowners
saw their taxes go up. Taxes went down for most people living in relatively
new homes, and taxes went up if you live in an older home. And if you live
in an older home in certain neighborhoods, you got crushed. For example, the
taxes on our home in Meridian-Kessler increased more than 175 percent –
a near tripling of the tax.
Every family facing this surprise is having their economic life disrupted.
And many will have their economic lives devastated. The elderly widow celebrating
50 years in the home she raised her family will see 25 percent of her annual
social security income disappear in the increased tax. The brand new parents
who spent the past four years reclaiming a home from 40 years of neglect may
be forced to sell.
The tax experts can argue until they are blue in the face that their new
market based system is more “fair.” But the argument is lost on
us. If you earn twice as much, it is fair for your income taxes to double.
If you buy twice as much, it is fair for your sales tax to double. But an
immediate and permanent doubling of property taxes is not “fair”
under any definition of the word.
How did this happen?
The questions that people want answered are: How did this happen and is there
anything that can be done about it?
First, it is important to know that it did not have to happen. We have all
heard the defense that the change to a market based assessment system was
mandated by the courts. This is not true.
The State Tax Court did find Indiana's previous system unconstitutional,
and ordered it replaced with a “fair market value system.” However,
the Indiana Supreme Court reversed the Tax Court’s decision. In fact,
the high Court explicitly upheld as constitutional Indiana law that states
“true tax value does not mean fair market value.” The court did
agree with the Tax Court finding that the cost schedules used in previous
reassessments made the system unconstitutional. The Court gave specific guidance
on how to fix the system. It said that a new reassessment system had to be
based on “objectively verifiable data.” Further, it said that
a market value system was not required and that different assessment methodologies
are permitted.
The Supreme Court decision was handed down in December 1998. Throughout
1999 and 2000, the Tax Board juggled three alternative assessment methods.
Then, in May 2001, the State Tax Board adopted a reassessment manual based
completely on market value. So, even though the Court granted substantial
latitude in designing the assessment process, the administration approved
the method that delivered the large tax increases to older homes.
The property tax experts testified that the increase in taxes for the homeowner
under the market based method would average 33 percent. To mitigate this increase,
we passed a series of property tax relief measures. The homeowner exemption
was increased from $6,000 to $35,000. The state homestead credit was doubled
from 10 percent to 20 percent. This credit is on top of the 20 percent Property
Tax Replacement Credit that we retained. And lastly, the state now pays 60
percent of school general fund budgets, shifting the burden off the property
tax. After these fixes, the experts told us that the average property tax
bill would go down 13 percent. We recognized that older homes would see tax
increases, but nothing in the range of what has happened.
None of these legislative "fixes" make a homeowner feel better
if the reality is a doubling, tripling or quadrupling of the taxes owed. To
tell taxpayers that it could have been worse is hardly an acceptable response.
To add insult to injury, these homeowners are expected to make the payments
immediately, while it took years to complete the assessment process.
So what happened?
Far and away the most important factor is the market based system. If your
property taxes skyrocketed, you almost certainly live in an older neighborhood
with a huge difference between your former assessed value and the market value
of your home. Aside from the state’s virtually total disregard for people
in this situation, there are several problems with this. First, the neighborhood
factors have been based on a handful of price comparisons and could be far
off for many. Second, there is no recognition in the assessment method of
the fact that older homes require a great deal more maintenance and improvement
to hold their value. And finally, market value method is circularly destructive.
The new taxes are based on yesterday’s market prices, which were based
on low taxes. Raise the taxes, and market values will fall. Every $1000 of
annual property tax increase is equivalent to more than $15,000 decrease in
principal value on a five percent, 30 year mortgage.
Not all the gigantic increase is the result of the market based method.
The state’s recently discovered error in homestead credit calculations,
for example, cost homeowners $280 million of relief. Marion County’s
share of this lost amount was $32 million.
And as is always true, tax increases are the result of too much new spending
– the levy of the local taxing units. Total levy in Marion County is
up $141 million or 13 percent -- about 10 times last year’s inflation
rate!
Where do we go from here?
I have been meeting with many other elected officials, community leaders
and homeowners to explore solutions. I know local officials are doing the
same. A few actions under consideration include the following: new deductions
or exemptions for those who reside in older homes; immediate relief for senior
citizens and others who are unable to pay property taxes; additional time
or an installment plan for payment; review of the assessment practices, especially
the application of the neighborhood factor; and controls on local levies.
In the largest cities of our state, most especially Indianapolis, the gigantic
tax increases are falling on neighborhoods that are critical to their survival.
It is crucial that we find a way to solve this problem. That work begins immediately
with the commitment from the Commission on State Tax and Financing Policy
to take up the issue.
