Where’s the Property Tax Cap We Were Promised?
Indiana Writers Group column for immediate release
By Andrea Neal
Two years ago, after the last disastrous round of reassessment, Indiana lawmakers promised to cap rising property taxes. Most Hoosier taxpayers thought that they had.
A 2006 law established a limit — 2 percent — on the percentage of a home’s value you could be forced to pay in property taxes. If your home were worth $100,000, your bill wouldn’t exceed $2,000. If you owned a million-dollar mansion, $20,000 would be tops.
It was a great idea designed, in the state’s words, “to provide predictability in tax bills and equity among Hoosier taxpayers.” But much like the residents of River City awaiting a boys’ band in the “Music Man,” Indiana residents want to know, “Where’s the cap?” Though passed in 2006 in anticipation of the current crisis, the law doesn’t take effect until tax year 2007, payable in 2008. In the meantime, some Indianapolis residents, faced with 100 to 300 percent tax hikes, may lose their homes.
Even if it were in place now, the 2006 law might not provide the protection that was intended. That’s because caps like ours — called circuit breakers because they act as a tripping mechanism — only work when property assessment is accurate. Homes must be valued uniformly from street to street and county-to-county. Based on anecdotes from the just completed reassessment, the process is as arbitrary as it was in 1998 when the Indiana Supreme Court first called it unconstitutional. It’s no surprise that a class action lawsuit was filed this week challenging the system yet again. Indiana needs to have an accurate market value system, as plenty of other states seem to have.
Making matters worse, lawmakers watered down the cap in 2007 to exempt school operating funds from any limits. Yet those are one of the biggest expenditures funded by property taxes. Legislators feared a lawsuit if the cap affected student funding. If that’s the case, let’s just take school operating funds off the property tax — and use income or sales tax dollars to pay for schools — as quite a few lawmakers have been pushing.
The good news is: All these things can be fixed to help taxpayers. The bad news: It can’t happen in time to help Indianapolis folks who are experiencing not only the effects of reassessment but a whopping 10 percent rise in their tax levy, highest in the state.
Indianapolis Mayor Bart Peterson has urged the governor to call a special session of the legislature. But he knows there’s nothing lawmakers can do now to address 2006 tax bills currently due. Taxpayers owe this money to fund local budgets that have been enacted and spent. The best we can hope for is deadline extensions. When Marion County had the chance to raise its local income tax to offset rising property tax rates, it failed to do so. If it had, our bills would be 50 percent lower across the board today.
Many taxpayers are so fed up they’re calling for abolition of the property tax. Sen. Luke Kenley, R-Noblesville, chairman of the Tax and Fiscal Policy Committee, says it would require a 2 percent increase in the income tax (to 5.4 percent) and a 4 percent increase in the sales tax (to 10 percent) to make up for the loss of property tax dollars. That would make many other taxpayers furious.
Chris Golightly, whose tax bill went from $6,200 to $21,000, said he’s frustrated not only by the size of his bill, but the fact he’s not getting his money’s worth. “Of all the things that chafe me the most over this is that 50 percent of that money, or in my case $10,000, goes to the Indianapolis Public Schools. This is a school system that graduates less than 35 percent of its students. You want to talk about a horrific return on investment.”
The 2 percent circuit breaker would lower Golightly’s tax bill to $13,320, a more reasonable investment. There are thousands of other taxpayers whose bills would be affordable if the circuit breaker were in place. And the cap would force local government bodies in Marion County and elsewhere to put brakes on their own out-of-control spending.
Kenley, who pushed for the 2 percent cap in the first place, says it’s still “a great idea” and a “bright line guarantee to taxpayers they’re going to get some protection.”
Andrea Neal is a teacher at St. Richard’s School in Indianapolis and adjunct scholar with the Indiana Policy Review Foundation. Contact her at email@example.com.