At Last: HB 1008 Offers Foundation for Tax Reform

December 4, 2005

Andrea Neal column for Jan. 27 and thereafter
770 words

(Editors: Please note spelling of Markt Lytle in graf 3 is correct. Also, date of House vote referenced in lead sentence was Jan. 22).

ImageINDIANAPOLIS — House Bill 1008, which passed the House on a 52-47 vote, is the best idea so far to come out of the property tax reassessment mess. The Senate owes it a careful look.

The bill reflects what ought to be the core principle guiding any property tax discussion: local control, with limits.

The measure, sponsored by Rep. Markt Lytle, D-Madison, would allow counties, cities and towns to adopt a new income tax of up to 1 percent. The combined rate of all local option taxes (county adjusted gross, county option income and county economic development income) could not exceed 2 percent of a taxpayer’s adjusted gross income. Most significant to Hoosier homeowners overwhelmed by higher-than-ever property tax bills: At least 75 percent of the new money would go to cutting property taxes.

This column has argued previously that it’s premature for the legislature to try and solve the property tax crisis brought on by the 2003 shift to a market-based assessment system. It’s a short session and an election year, not all counties have final reassessment numbers and at least two studies of the fallout are underway. It’s important that any solution be carefully crafted to ensure Indiana ends up with a balanced tax structure that is stable, distributes burden equitably and will last for a couple decades.

That said, HB 1008 contains the right elements for discussion. It would not lead to abolition of the property tax, but to much lower reliance on it. It would give local governments flexibility to raise additional dollars if they needed them, subject to citizen input at local council hearings. It would guarantee significant property tax relief in counties that chose to levy the maximum rate.

According to the Legislative Services Agency, the tax would raise $1.2 billion statewide if all eligible government units adopted the maximum, resulting in $898 million in property tax relief.

And yes, Rep. Jeffrey K. Espich, R-Uniondale, who opposed HB 1008, is correct in saying it could lead to "a $400 million tax increase" at the local level.

House Speaker B. Patrick Bauer, D-South Bend, is also correct in saying, "I think 1008 puts the solution where the problem is – locally."

A reminder of how we got to this point is in order.

First came the lawsuit arguing that Indiana’s property assessment system was unconstitutional because it treated property of comparable value differently depending on a variety of factors, including age. State courts agreed and ordered a more market-based valuation system. The state dragged its feet implementing a new system while a governor’s blue ribbon commission spent two years looking at possible reforms. It came up with no substantive suggestions. In the meantime, the courts grew tired of delays. Finally, legislators stepped in to try and cushion the expected blow on taxpayers. They tweaked the homestead credit and made other adjustments that led taxpayers to expect an average 13 percent reduction in property taxes. When tax bills started arriving in the mail last fall, many citizens were stunned to find 10 to 50 percent increases and, in some older neighborhoods of Indianapolis, hikes in the 200 to 300 percent range.

What happened? For one, the 13 percent figure was an "average," which meant not everyone would get relief. Second, the homestead credit didn’t end up as generous as intended. Finally, many school districts and local governments significantly increased their property tax levies hoping it would be overlooked in the chaos of reassessment.

The Indiana Association of Cities and Towns, which represents local officials of both parties, is eagerly supporting HB 1008 because it gives "just a small measure of fiscal flexibility for cities and towns." During last week’s House floor debate, Democrats generally supported HB 1008 and Republicans generally opposed it, with some exceptions. On the Senate side, the main sponsor is a Republican, Luke Kenley of Noblesville. Kenley says he doesn’t really expect passage of the bill in a short session, but would like a discussion of its features.

"I think people are beginning to realize maybe we’ve had too heavy a reliance on the property tax," Kenley explains. He calls the replacement of some property taxes with local income taxes a "logical outcome" of the reassessment crisis.

The bipartisan interest in this bill is a strong clue it contains sound public policy. But like Kenley, I don’t expect such a dramatic tax change to occur in a short session. While we await final assessment numbers and independent studies, we can afford to let HB 1008 percolate. Next week’s column will pose the question to taxpayers: Given a choice, would you rather pay income or property taxes?

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Andrea Neal is former editor of the Indianapolis Star editorial pages and adjunct scholar and columnist with Indiana Policy Review Foundation. Contact her at aneal@inpolicy.org.



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