Testimony by Teresa Lubbers
Commission on State Tax and Financing Policy
July 23, 2007
My thanks to Sen. Kenley and other members of the commission for dedicating today’s meeting to an investigation of what’s wrong with the property tax system. Simply stated, it’s totally broken.
As I prepared my thoughts for today’s meeting, I was again overwhelmed by the enormity of this problem and the inadequacy of my words to capture the sentiments of Hoosiers and especially the people in the district I represent – frustration, distrust, anger, fear, and disbelief – to name a few. As I have said on many occasions, this crisis is not about people who are unwilling to pay their fair share. It is about people who face such skyrocketing increases that they may lose their homes, choose or be forced to move (if they can sell after the property taxes have devalued their homes) or make major changes in their lives. It is about a system that punishes people who take care of and add value to their homes. It is about a system where there is little relationship between the taxes levied and the services received.
In the limited time I have today I won’t reiterate the multiple reasons why we are in this mess. They have been highlighted everyday since the bills arrived in our mailboxes. Regardless, the explanations do little to calm an enraged and engaged public. The Governor’s actions to provide immediate relief are important, especially for those who have been hardest hit and face personal devastation. But all of us understand that any short term relief is inadequate unless it is followed by the kind of reform that removes the growing reliance on property taxes as the funding source for local government.
In my conversations with people, I listen to their stories first and then I ask them their best thoughts on how to fund local government. Their recommendations are good ones, worthy of our consideration as we move forward.
The first recommendation is usually -- cut spending. A system that funds local government by first deciding how much it will spend and then taxing people accordingly is backwards. The local budgeting process must be reversed. We must reform the process so that governments live within a budget rather than adopting higher and higher levies and then setting tax rates to feed that budget. There is little incentive for a taxing unit to cut or reduce its budget.
Multiple taxing units which are essentially unaccountable to the public complicate the problem even more. We need to reduce the number of independent taxing entities and allow more public input of the ones that remain. The current process favors those who spend rather than those who pay.
While I understand the desire to be a first class city, I do not understand how we can achieve that status by breaking the backs of those who choose to live here.
While I understand the need for adequate public safety funding, I do not agree with raising the income tax in Marion County without first using a local income tax increase for property tax relief. It’s unimaginable to request a $100 million tax hike on top of the outrageous property tax bills that homeowners face.
While I understand the desire for 21st Century school buildings and facilities, I do not believe $14 million dollar swimming pools or back to back bond issues for school construction will provide the turnaround in student performance that we want.
After my constituents call for restraint in spending, they talk about the partial or complete elimination of property taxes. The property tax should be reasonable, knowable and fixed for every homeowner or it should be abolished. Today it is not any of these three things.
Their counsel usually falls into one of the following:
- Eliminate property taxes and replace them with an increase in sales tax, income tax or a combination. Of course, they understand that this will create significantly higher taxes in these areas but they still believe that property taxes are inherently unfair.
- Move to a system like California or Massachusetts where property taxes are limited to a percent of the homes assessed value (1-1.5%). Indiana’s 2 percent circuit breaker is a move in this direction but it will never be reasonable, knowable and fixed so long as assessment is based on a market value that can rise without any action on the taxpayer’s part or the assessment is not valid.
- Fund local government through a combination of property taxes (which would be fixed at a flat level), and increases in sales and income taxes. The right balance of these three should be the main topic of our discussions of long-term reform.
As we shift from discussions of immediate relief to reform, I offer some additional thoughts.
The current complex system of assessment is unworkable. It must be simplified and transparent. We have to provide other ways for local government to raise revenue, but this will only be credible with the public if people are convinced that budgets are accessible and visible to them.
The state should provide relief to local government by picking up the total operating costs of schools and costs associated with welfare and juvenile incarceration.
The Control Boards (which were an important part HB 1478) and were designed to reduce excessive construction/debt for new capital projects should be strengthened. There are too many members of the board who are a part of the system and too few people who represent taxpayers. The remonstrance process, while much friendlier to taxpayers than before, remains tilted in favor of schools and civil units over taxpayers.
The lawsuit that resulted in the state decision to move to a market-based assessment policy was based on this appeal to fairness – people who live in identically valued homes should pay the same property taxes. The very same appeal to fairness – equal taxation for equal value is grossly violated across tax district lines. If some remnant of the property tax survives this long term review, we must make good on the promise of fairness.
Finally, let me offer my commitment to the ongoing work of this commission and the task of re-designing the system which funds local government. And to those who I have the privilege of representing, I pledge my best efforts – knowing as I was recently reminded that ….it’s really results that matter.
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