Lubbers Proposes Relief for 2007 Bills

Today I would like to present language for an amendment to SB 21.  I appreciate the Chairman’s willingness to let me speak on the issue, knowing that an amendment will not be voted on until January. The intent of the amendment is to address the problem of skyrocketing tax increases in 2007 bills.

The amendment I’m proposing would give Marion County a different method of distributing its share of the $300 million refund to homestead property taxpayers.  The amendment may apply to one or two other counties as well.

The bottom line is that the method we adopted last session does not make sense in my county, where the spread of tax increases is gigantic, with thousands of homeowners facing 100% increases in their property taxes.

Many people believe that this crisis is caused by runaway spending.  And certainly we all agree that local spending increases are way too high.  But local levies in Marion County are up 10%, driven by child welfare, police and fire pensions, and construction costs; yet the median property tax increase in the original 2007 bills was more than 3 times that at 36%.  And the aggregate tax bill to all homesteads was up nearly 4 times that at 40%. 

In this environment, the rebate formula doesn’t work – in fact, I believe it is wrong to distribute property tax “refunds” to the nearly 14,000 homeowners who had their property taxes go DOWN.  And in the Marion County situation, I believe it would also be the wrong decision to give refunds to the nearly 15,000 homeowners who had tax increases lower than the percentage increase in the total county levies – 10.2%. This doesn’t mean that a long term property tax solutions shouldn’t provide relief to these homeowners only that the rebate/credit proposal is not the solution.  

While I realize it is difficult to discuss the issue in terms of “right” and “wrong,” I am suggesting that there is a fairer way to distribute this property tax refund – at least in my county.   Like all of you, I believe we have an obligation to fix the problem to the degree possible.

I’ve learned in preparing this amendment how inadequate the data is on which to make decisions like this.  Perhaps that is why no one sufficiently forecasted the impact of changes that rattled the system and turned normally mild mannered citizens into angry and frustrated protestors.

Who can blame them?  I won’t revisit with you the hundreds of stories of people in my district and throughout Marion County whose plans for the future have been completely disrupted by 100% increases in their taxes.  The disparity of increases in Marion County is practically unique.   I am not here today asking for any additional money for Marion County; all I’m asking for it that we endorse a better concept for distributing the $51.7 million that has already been sent to Marion County.

It is only normal that any change in the distribution shifts the benefits.  I have not quantified the impact precisely, although we can and will do that.  Rather I have tried to apply some common sense and started with a simple principle of fairness.  The $300 million we put in the budget last session was to provide relief for increases in property taxes.  So, if your property taxes didn’t increase, a refund in not in order.

That was easy.  Now it gets harder.  In Marion County there is $51.7 million of relief to cover the $128 million of new taxes.  By the way, in Marion County the total of local levies increased by $131 million, so you can see that virtually 100% of the increased cost of local schools and government was borne by homeowners.

For several reasons, I propose that we distribute the bulk of the $51.7 million based on the amount of the increase.  First, because the money was appropriated to provide relief to homeowners affected by the shifting of burden off business and onto them.  Certainly it is right and fair that the money be used to relieve the most egregious of these shifts. 

Is there enough money to buy the very high increases down to the average?  The answer is “yes.”  It would take about $46 million to provide enough refund so that no taxpayer had an increase larger than 35%.  That relief, in amounts that vary depending on the size of the increase, would go to 108,500 homeowners – a little over half of all the parcels in Marion County.

Before I address some of the possible concerns about the plan, let me quickly finish the formula for distribution.  As noted before, I would exclude those with less than 10% increases on the basis that this increase is lower than the increase in levies of 10.2%.   

Lastly, I propose that the remaining $5.7 million be distributed as a discount on the 2006 to 2007 increase for those with increases between 10% and the 35% median.  Using the data that came out last year and which is now subject to the Governor’s ordered reassessment, this method would produce a  20% discount on the tax increase for taxpayers who see increases of between 10% and 35%.  So, if your increase was $100, your refund would be $20: if your increase was $500, you’d get $100.  Again, I favor this method of basing the relief on the increase because it was the surprising increase in property taxes that caused the problem.

Mr. Chairman and members of the committee, due to the reassessment ordered in Marion County, we will face an “April Surprise.”  That’s why SB 21 was originally offered. That means that the reconciliation bill that comes this spring will be for 100% of the increase in 2007 taxes.  In the worst cases, thousands of them with 100% increases or more – it will be a bill equivalent to an entire year – followed immediately by the half year 2008 bill.  This amendment would attack these huge bills, cutting them to no more than 35% of last year’s bill. 

Finally, let me take a minute to address potential objections.

Some will contend that people are paying “what they should be paying.”  We are living in a time of unintended consequences.  No one foresaw, forecast or forewarned the outcome that has presented itself.  No one would have suggested a public policy that has placed such disparity – not only in the amount of increase, but between and among taxing districts.  This short session is devoted to dealing with these unintended consequences.  My amendment addresses one little corner – albeit the worst of the worst of the consequences.

Second, some might say that it is unfair for some taxpayers to get a disproportionate share of the relief – that everyone should get the same share.  As I mentioned earlier, I believe it is appropriate to use the extra money appropriated by the General Assembly to ameliorate the size of the tax increase.

Finally, some might say that this plan helps the rich but not the poor.  This is not true, and I hope people will consider the proposal before making such a claim.  Because lower value homes get a disproportionate advantage from the homestead deduction, we already gave lower home value taxpayers a big head-start on tax relief by increasing the homestead deduction by $10,000 in the pay 2007 bills.  This fixed amount is a 10% tax reduction for a $100,000 home, a 5% tax reduction for $200,000 home, and a 3% tax reduction for a $330,000 home, in other words not a proportionate benefit.  Furthermore, the vagaries of the burden shifting have caused pain to rich and poor alike.  Almost 20% of the parcels in the over-35% increase group are in Center Township.  And all-totaled, 46% of them are in the old city limits.

Obviously, the data and statistics I have analyzed were from the original tax bills sent out last summer.  While I don’t personally believe that there will be much change in the new bills, it is clear that the numbers will change even if only a little.  I’m in favor of this plan regardless of where the chips end up falling. 

There are still questions that need to be answered but I believe, in concept, this amendment will provide important relief to those who need it most.