Budget Woes Trump Property Tax Issues

December 4, 2005

Andrea Neal column for Nov. 23 and thereafter
710 words

INDIANAPOLIS – If you’re one of the many Hoosiers hoping for big property tax relief in 2005, prepare for disappointment. The Property Tax Replacement Study Commission, after six months of research, has decided now’s not the time to dramatically reduce our reliance on what many consider an archaic revenue source.

In its Nov. 15 report, the commission declined to endorse any plan that would cut half or more of the property tax burden. The members couldn’t reach agreement on how to do it.

Committee members representing local governments opposed big change because their budgets rely so heavily on the property tax now. The members who supported change felt timing was bad with Indiana facing an $800-million deficit. "There is little confidence," the report said, "in state government’s ability to provide adequate replacement funds."

To translate, there’s no way to do it without massive tax hikes or cuts in government programs.

Hoosiers currently pay $5.6 billion a year in property taxes. To halve that amount, without spending any less on government programs, would require — as one example — raising the individual income tax from 3.5 percent to 3.9 percent and the sales tax from 6 percent to 7 percent, plus placing a sales tax on certain services not now taxed, such as hair salons.

With a new governor in office, and a fiscal mess to address, it’s not going to happen in 2005.

Looking ahead to 2006? The commission, chaired by Sen. Luke Kenley, R-Noblesville, and former Rep. John Frenz, D-Vincennes, at least laid the groundwork.

The commission identified numerous problems with the tax system in the wake of the court-ordered shift to a more market-based system of valuing property: Assessment continues to lack uniformity from county to county, and from township to township. In urban neighborhoods, which bore the brunt of tax increases in 2003, homeowners are struggling to pay bills and property values are dropping. Local budgets and tax rates are as confusing as ever to taxpayers, who have no way to know if they’re getting their money’s worth.

The commission also came up with a modest set of recommendations, including: A phased-in reduction in the number of government services funded by property taxes so that the state can gradually shift to other revenue sources. A "circuit-breaker" mechanism that would protect homeowners from sudden, exorbitant tax hikes. Creation of a uniform report for all local units of government so taxpayers can compare their per capita budgetary costs, and by extension their efficiency. A first-ever report examining local debt, the servicing of which accounts for 22 percent of all property taxes.

"I happen to think philosophically we need to move away from the property tax system over time," says Kenley. "But until the deficit is under control, I don’t think any of these (property tax ideas) are going to receive a priority."

That’s sure to disappoint people like Robert Van Buskirk, who with his wife owns 18 rental properties hit with 40 percent tax hikes in the historic Irvington neighborhood of Indianapolis. "I plan to liquidate all of our rental property to avoid the future property value decreases," he says.

Or Virginia Hormel’s granddaughter, who bought a home east of Noblesville and "was so happy to be a first-time homeowner … until she got the new tax rate for her home. Taxes tripled on her home. She took a part-time job, working every night for $7 an hour in order to try to keep her home. This cannot continue or she will lose her house, which would be a real tragedy for her."

Or retirees Paul and Jan Jacobs in Angola, whose taxes went up 32 percent — a typical increase in the northern Indiana lakes region where many homeowners are vacationers or retirees. "The one thing different up here versus Indy is that when I sell and move, it will not be to another Indiana lake area, it will be to another state farther south and a lot more tax-friendly," Paul Jacobs says.

Sadly, for folks hit hardest by reassessment, relief won’t come in time to prevent painful choices.

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