2010 Gen Assbly and Gov pg 4

"INDIANAPOLIS -- A popular bill to install Indiana's property tax caps in the constitution is steamrolling through the Republican-led state Senate, and even local lawmakers who find the measure premature believe there's little they can do to intervene.

...Sen. Karen Tallian, D-Portage, meanwhile, said the caps would shift property tax burdens to those whose property bills can be increased because they don't reach the limits set by the cap.

That includes, she said, renters whose landlords bill them for property tax costs through rent.

The caps also mean less revenue for local governments, and some Indiana cities are struggling to make ends meet. Gary officials are expected to plead for relief from the caps before the Indiana Distressed Unit Appeals Board today.

If the measure passes the General Assembly this year, Hoosiers will vote on the amendment in a November referendum. Tallian said she plans to help educate those voters about the caps if the bill passes.

'It's much more complicated than saying, 1, 2, 3, you know, like a little '60s jazz song,' Tallian said.

...'For the first time in state history, Hoosiers will have a permanent cap on their property taxes,' Bosma said..." (more)

You Can Help In Grassroots Effort To Inform Hoosiers About Tax Caps (Russ Phillips, 1/7/10)

I’m very interested in using this website between now and November 2^nd, the date that Hoosiers will have the opportunity to vote on whether or not to place the tax caps in the Indiana Constitution, to further inform the citizenry on the related issues.

First a disclaimer. As the “Home” page says I am solely responsible for what is published on this site. Initially this site had to do with Caston School Corporation where I am a School Board member. It is not sanctioned by my fellow Board members, Superintendent or school system. Occasionally I focus on other topics of interest.

Citizens should have the opportunity to vote on this next fall. However, I acknowledge that presently I lean towards not supporting placing the caps in the Constitution, yet, I know I have much to learn about the topic before I make a final decision.

I wish to focus primarily on “factual” information, particularly that which is not widely known or understood among the grassroots. I invite articles and “tips” for inquiry that may result in more helpful information. If your community newspaper or organization or you as an individual have an article that seems to provide unique insight about this topic I would like to know about it.

Facebook Town Hall Session Pleases Sen. Head (Rochester Sentinel, 2/18/10)
(This article originally appeared in the print only edition of The Rochester Sentinel on Friday, February 12, 2010.)

Tax Caps In The Constitution? Have You Done Your Homework? (retitled, Ind'pls Star, 9/20/10)
(This article by Mary Beth Schneider was originally titled "Tax caps in constitution? Voters decide" and published September 20, 2010 in the Indianapolis Star. Bold type and highlighting have been added by the Webmaster.)

Hoosiers who go to the polls Nov. 2 will decide more than which men and women will represent them in office.

They'll decide whether to change Indiana's Constitution to limit how much those and other officeholders can charge in property taxes.

Proponents call that an easy "yes" vote. But people on both sides of the issue say there's more voters should know before they go into the polling booth:

Court-ordered changes in how Indiana assesses property for taxation resulted in some Hoosiers' bills skyrocketing earlier this decade, igniting a taxpayer protest that reverberated in the Statehouse. Gov. Mitch Daniels and the legislature adopted a series of reforms aimed at providing immediate relief and long-term controls.

The state shifted some expenses from property owners -- including the operating funds of schools, child welfare, health care for the indigent, and police and fire pensions -- to the state general fund, and the sales tax was raised to 7 cents on the dollar to pay for that.

The homestead deduction, which lowers the amount of a home's taxable assessed value for a homeowner's primary residence, was increased.

And a new law created property tax caps, limiting a homeowner's bill to 1 percent of the home's assessed value. Rental and farm property is capped at 2 percent, and business property is capped at 3 percent of assessed value.

For homeowners, that 1 percent cap applies to their home, 1 acre of land and one detached building, such as a garage. Anything else, such as more land, a pool or a second garage, gets billed at up to 3 percent of assessed value.

Taken as a whole, the reforms have done what Daniels and the legislators wanted: cut property tax bills for homeowners by about a third since 2007.

Mary Jane Michalak, chief of staff for the state Department of Local Government Finance, said the statewide total taxes on homesteads -- government's word for a homeowner's primary abode, which doesn't include farms, apartments and businesses -- went down 36 percent from 2007 to 2010. Of that, she said, 11.6 percent is due to the tax caps.

Proponents say the caps mean certainty. Your tax bill will never be more than 1 percent of your home's assessed value, unless the citizens in your area vote to approve projects that raise taxes.

The state says that, with 90 of Indiana's 92 counties reporting their tax data, 13.4 percent of homeowners statewide have hit that 1 percent cap.

What the caps don't mean, though, is that your bill will never go up, even if you've hit that cap.

"This is not a freeze of property taxes," said Larry DeBoer, a Purdue University expert on property taxes. "This is just a ceiling on your property taxes. Passing the tax caps into the constitution isn't going to lower your property taxes any more than they already are."

But Karl Berron, a lobbyist for the Indiana Realtors Association, which is pushing for the caps to be in the constitution, called them an "insurance policy" so that property owners never again see a sudden, unexpected jump in their bills.

DeBoer said that by putting the caps in the constitution, "it not only means the legislature can't erode the caps themselves, but it really restricts other things they can do with property taxes."

"Suppose they want to reduce or eliminate one of the homestead deductions. That would send homeowner property taxes up, but only to 1 percent. So it's a real hard cap on what can be done with property taxes and how much we can rely on property taxes for local government revenue," DeBoer said.

Property values, said Kenley, R-Noblesville, do not reflect a person's ability to pay property taxes. He cited the senior citizen who bought a home for $40,000 and has seen the value grow to $200,000. It could take half of that person's monthly income, he said, just to pay the taxes.

And, he said, local governments, including schools, had been dependent on property taxes for 80 percent of their revenue.

"That's not healthy," he said, arguing that the cost of government should be spread among all classes of taxpayers.

The Indiana Farm Bureau and the Indiana Chamber of Commerce have protested that the caps treat their property differently from a home.

"It says that your potential tax burden can vary depending on how you use your property, not the value of the property," said Chamber President Kevin Brinegar.

The Indiana Constitution currently requires "a uniform and equal rate of property assessment and taxation."

House Minority Leader Brian Bosma, an Indianapolis Republican who strongly supports the caps, said that provision is a main reason why the caps should be put into the constitution: It will make the current law constitutional and ensure that it can't be overturned by a court.

Brinegar said the homestead deductions -- $45,000 per home, plus 35 percent on the remaining amount for homes valued at up to $600,000, or 25 percent on the remainder for more expensive homes -- already have slashed homeowner bills.

"A $200,000 home ends up getting taxed the same as a $100,000 business," he said. "We support property tax caps, but they ought to be uniform and equal."

Kenley, though, said that argument ignores the many breaks that farms and businesses get. The state eliminated inventory taxes a few years ago, a break that helped push homeowners' tax bills up. And with their property taxes capped at 3 percent, Kenley said, some businesses in high-tax areas, such as Lake County, will see their tax burden tumble.

The state estimates that 37 percent of rental and farm property statewide has hit the 2 percent cap -- in Marion County, a whopping 96 percent of rental properties have hit that ceiling -- with 40 percent of businesses statewide, and 45 percent in Marion County, at the 3 percent cap.

Not all businesses oppose the caps. Pat Kiely, president of the Indiana Manufacturers Association, said that although it doesn't like having businesses treated differently from homes, it supports the long-term certainty that the caps provide.

"As we move forward, we need the protection more than the homeowners do," Kiely said. "We'd be the ones that would be targeted (for a future tax increase) because we're not the visible face of the voter with the home."

An analysis by Ball State University's Center for Business and Economic Development found that the caps should boost Indiana's economy by increasing homeowners' disposable income and lowering costs for business.

Nothing good, at least at first. Cities, counties, libraries and schools have seen the caps cut into their revenues.

Statewide, local governments will receive $404.9 million less revenue in 2010 than they would have without the caps, according to a December analysis by the Legislative Services Agency. In 2011, that's expected to be $488.7 million less.

Noblesville Mayor John Ditslear said his community has lost about 10 percent of its budget. And with the recession, other tax revenue also is down.

"We're obviously going to have to make some decisions about what services we provide our citizens," he said.

So far, he said, the city has not laid off any employees but has left about 18 positions vacant, including two police officers and two firefighters.

Ditslear and other mayors said they're going to have to consider other options, such as cutting hours that offices are open, eliminating recreational activities and charging fees for such things as trash pickup. He said the state shouldn't lock the caps into the constitution before the full impact is known.

Libraries also are in a bind. The board of the Indianapolis-Marion County Public Library recently voted to close most branches two days a week, with the Central Library Downtown closed on Thursdays, to help plug a $4 million budget shortfall. It also plans to eliminate 35 to 40 jobs and reduce spending on books and other materials.

Susan Akers, executive director of the Indiana Library Federation, said that although everyone wants lower taxes, people also expect services. She and others argued that the public could find fees and fines proliferating to help make up for the lost property taxes.

"Oh my goodness," DeBoer said. "Everything that can be charged for will be charged for from now on. But on the other hand, there's an ability-to-pay problem here. You raise the price of a library card, if it has a price at all, and you price out of the library the very people who you would most like to serve."

In addition, counties can adopt local option income taxes to raise revenue; so far, DeBoer said, 24 of Indiana's 92 counties have done so.

Cap supporters, including Daniels, say the budget pain is the tough medicine needed to force government to operate more creatively and more efficiently, and to stop treating property owners like an ATM. And, they say, it may spur local governments to adopt reforms, such as eliminating or consolidating townships, that they've resisted in the past.

In some cases, yes. The law provides for a referendum process to fund capital projects. If voters give the OK, their property tax bills would rise to cover the debt service on those projects, even for homeowners who have hit the 1 percent ceiling.

Only schools can seek voter approval to raise taxes to cover their operating budgets.

But it doesn't always work. Just ask Walter Bourke, superintendent of Franklin Township Schools, where voters last year rejected the district's request for $9 million to plug its budget. The district, hoping voters will reconsider, will try again in May.

Failure, he said, "would mean, right off the top, the complete elimination of transportation in this school district."

The district tried to add a fee for buses, but Indiana Attorney General Greg Zoeller issued an opinion that that would violate the constitution.

Voters, Bourke said, need to know that "when your property taxes go down, so do your services. And in our school district, the loss of those services will be significant and great if we don't replace them with a referendum."

"The critical difference about the caps is that when local spending units want to raise more money, they have to get the people's permission to do it," he said. "That's the way it should be."

Indiana Paid Nearly $94 Million For 16,315 'Ghost' Students In 2009 (IED, 9/30/10)

INDIANAPOLIS | Indiana taxpayers shelled out nearly $94 million to public schools last year to support "ghost" students no longer attending those schools.

State legislators learned Wednesday that, in 2009, schools got paid for 16,315 students no longer in attendance. How to change the formula to be more fair to all students was at the heart of a Statehouse committee meeting Wednesday.

"That's just absolutely horrendous that we're spending $94 million on students that don't even exist," said state Rep. Terry Goodin, D-Crothersville.

Indiana spends about $8.5 billion on elementary and secondary education each year.

State Superintendent of Public Instruction Tony Bennett told the committee Indiana needs a systemic change in the way it funds schools. The first-term Republican said education money should follow students and each student should be allowed to use those resources at any school in the state -- including private schools.

"I don't think the job of the state should be to continue to pour money into the way we've always done things," Bennett said.

But state Sen. Tim Skinner, D-Terre Haute, a high school social studies teacher, said Bennett's desire for wholesale change is moving too fast, could destroy public schools and has left state education "in turmoil."

"You think you have the right answers? I don't even think you have the right questions," Skinner told Bennett. "I think you are destroying the state of Indiana's most valuable assets."

When a student leaves a school, the state school funding formula provides that school with continued funding for that student at a declining rate for three additional years. This funding, known as the "de-ghoster," has been part of the funding formula since 1981.

The money is needed, say supporters like state Sen. Earline Rogers, D-Gary, because school corporations have to pay for programs and fixed expenses that continue even if enrollment drops.

"It's not money that's being wasted, it's money that's being used by those students that are left," said Rogers, a former Gary school teacher.

Critics of the de-ghoster say that money should be redirected toward schools with increasing enrollment.

State Sen. Ed Charbonneau, R-Valparaiso, is chairman of the General Assembly's study committee on the school funding formula. He said after learning how much Indiana pays for nonexistent students it may be time to consider changing the formula.

"Ultimately, I think everybody wants what's best for the students in Indiana. The different ways of coming at it -- that's the struggle," Charbonneau said.

The study committee is slated to meet again in late October to make recommendations for funding formula changes to the General Assembly.

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Property Tax Caps: A Comprehensive View Of Who Is And Is Not Helped And Pro/Con Views Of Putting Them In The Constitution (retitled, IED, 10/2/10)
(This article by Francesca Jarosz was originally published in the Indianapolis Business Journal and republished October 1, 2010 in the Indiana Economic Digest as "Property Tax Caps Spread Relief Around Throughout Indiana Except In Two Counties." Bold type and highlighting have been added by the Webmaster.)

Property tax caps—promoted as a way to relieve homeowners from skyrocketing property tax bills—have provided much more relief to a different group of taxpayers.

Owners of rental properties and second homes got the lion’s share of assistance from the caps, according to Larry DeBoer, a Purdue University professor who studies taxation and tabulated the caps’ impact in all but Lake and LaPorte counties this year.

The caps were passed in 2008 but this year went into full effect at 1 percent of assessed value for homestead property, 2 percent for farm and other residential property, and 3 percent for business property.

According to DeBoer’s report released this month, properties under the 2-percent category—rentals and farmland—got about half the $335 million in breaks the caps provided. But farmers see little of that money because their land is in areas where tax rates are low.

Homeowners got about 28 percent of the relief and businesses got about 22 percent.

DeBoer’s findings call into question whether the caps are necessary for homeowner relief as taxpayers prepare to vote Nov. 2 on whether they should be inked into the state constitution.

They also validate the concerns of groups such as the Indiana Chamber of Commerce and the Indiana Farm Bureau, whose leaders oppose a policy that, by design, provides more help to particular groups.

“I think the General Assembly thought what they were doing was for homeowners, but the real beneficiary of [the caps] has been apartment owners,” said Bob Kraft, director of state government relations for the Indiana Farm Bureau, which opposes adding the caps to the constitution. “There may be some unintended consequences that no one is fully aware of. This is one of those.”

Deductions cloud picture

That doesn’t mean homeowners haven’t benefited from the total package of tax reforms state lawmakers passed in 2008. That included the caps and changes such as beefed-up deductions for homeowners.

According to DeBoer’s report, homeowners have seen a 27-percent drop in property tax payments since 2007, when huge increases in tax bills sparked outrage among taxpayers statewide.

But most homeowner relief was driven by other forces—including the increased homestead deductions that were part of the 2008 tax reform.

For homeowners, the caps work this way: A home’s assessed value, which is based loosely on the amount for which it would sell, is multiplied by 1 percent. A homeowner’s tax bill can’t exceed that amount—$1,000 for a home assessed at $100,000, for instance.

A homeowner’s bill is based on a different amount: the assessed value minus a $45,000 deduction. Another 35 percent of that amount also is subtracted.

Based on that formula, for a $100,000 house, the tax bill would be based on an assessed value of $35,750, multiplied by the tax rate.

So unless that house was in an area where tax rates were really high, it would be difficult for the bill to hit the $1,000 cap.

DeBoer’s study bears that out. Statewide, roughly 12 percent of homeowners—about one in eight—were eligible for the cap.

Most of those eligible own higher-value homes or live in areas where tax rates are high, exceeding $3 per $100 of assessed value.

Owners of rental properties, by contrast, have a much easier time meeting the cap. While their cap is higher—2 percent of the assessed value—their bills also are higher because they don’t get the deductions that help make bills low for homeowners.

Businesses, meanwhile, see little relief from the 3-percent caps. About three-fourths of businesses that got the 22 percent share of relief this year are in six counties with high tax rates: Marion, Delaware, Vigo, Elkhart, Madison and St. Joseph.

Overall, both businesses and farmers paid about 15 percent more in property taxes this year than in 2007 before the tax relief was passed.

Apartment owners, however, have paid 17 percent less, and owners of rental properties or second homes have paid 25 percent less, according to DeBoer’s report.

Sound policy?

Some say the inequities highlight a downside of the caps. Because the caps differ, clear winners and losers emerge.

“When they’re not the same, you get situations like this—where different groups are impacted or relieved differently,” said Kevin Brinegar, president of the Indiana Chamber of Commerce.

But some—such as Sen. Luke Kenley, R-Noblesville—dispute that the unevenness of the caps makes them unfair.

Kenley, who was instrumental in creating the caps, said that, while businesses get less relief from the caps, they have benefited from previous breaks borne by other taxpayers—specifically a $600 million inventory tax elimination passed in 2002.

He also noted that the state sales tax hike, adopted to offset the property tax loss, has fallen mostly on homeowners’ shoulders. The increase boosted the rate from 6 percent to 7 percent.

But if deductions—rather than caps—are driving homeowners’ relief, why are the caps necessary?

Supporters and some opponents of the constitutional amendment agree that answer may be more evident in time. As tax bills rise in coming years, a majority of homeowners likely will benefit from the caps eventually.

“We think a cap in the constitution is the last line of protection for everybody,” Kenley said. “That’s what the real point of the cap is—the real top-end liability that we want homeowners to have or businesses to have.”

Lynne Sullivan, executive director of the Indiana Apartment Association, sees a more immediate benefit. She said rental properties largely have been passed over as past relief has benefited homeowners and businesses.

The help caps provide, she said, is much needed for owners of the 200,000 apartment units her group represents, given the mostly stagnant rents in a weak economy.

“It’s evening out the property tax relief,” Sullivan said. “We have to provide affordable housing for all Hoosiers, and rental housing is affordable housing.”

Others, though, see a big trade-off in making the caps part of the constitution. Rep. Peggy Welch, D-Bloomington, voted for putting the caps in law but worries putting them in the constitution limits flexibility for local government units that lose money under them.

“We just haven’t gotten to the point where we’ve felt the true impact to local government,” Welch said. “You can’t undo it easily when the public says, ‘Oops.’"

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