Property Tax Relief Is Anything but Certain

June 30, 2008

For release July 2 and thereafter (730 words)

by ANDREA NEAL
      
    Some Indianapolis taxpayers feel double-crossed after receiving their final property tax bills for 2007. Not only did their taxes rise, but they’re paying an extra penny sales tax for property tax cuts they’ve yet to enjoy.    The sentiment is partly justified and partly stems from confusion over what Gov. Mitch Daniels and the 2008 legislature accomplished.    First, to clear up the confusion: Last July, Gov. Daniels froze tax bills in Marion County at 2006 levels and ordered a new reassessment because of evidence that business property had been undervalued, creating a higher-than-expected burden on homeowners.  At the time, residents in some neighborhoods were facing tax hikes of 50 to 300 percent and a rebellion was in full swing.
    The revolt helped underdog Greg Ballard beat incumbent Democratic Mayor Bart Peterson last fall. And the freeze convinced many taxpayers – rightly or wrongly – that their 2007 taxes wouldn’t go up much over 2006. So when they received their new assessments and catch-up bills this month, many were stunned to see increases only slightly lower or in some cases higher than the original bills sent out last year. These taxpayers have until July 10 to pay the difference.
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     A second point of confusion: The sales tax increase, which took effect April 1, was never intended to reduce bills based on the new Marion County reassessment. But it should bring down taxes statewide beginning with 2008 charges.
    Even so, taxpayers are rightly wondering whether the sales tax hike will bring that much relief. Under HB 1001, property taxes for homeowners are capped in 2009 at 1.5 percent of a home’s assessed value and 1 percent thereafter. But the caps are far from rigid because local officials can appeal to exempt from the caps money spent on debt service, a hefty part of many government budgets.
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    Also, the caps are not set in stone. Once in effect, homeowners should save $1.72 in property taxes for every dollar of new sales tax, according to state estimates. But there’s nothing to stop lawmakers from changing the caps if they decide local governments need more money. The only guarantee of relief is a constitutional amendment capping taxes permanently. The 2008 legislature passed such an amendment but it’s hardly a done deal. The exact same version must be passed again by the 2009 or 2010 legislature and approved by voters in a referendum. The soonest it can take effect is 2012.
     “The legislative caps may hold up reasonably well until 2012 only if SJR 1 is passed by the General Assembly next year,” predicts Aaron Smith of Watchdog Indiana, a citizens group that monitors taxes and spending.  “Otherwise, all property tax relief momentum will be lost and the property tax spenders will regain the upper hand. Without SJR 1 property tax relief will disappear and we will be left with nothing but another sales tax increase.”
     Watchdog Indiana is trying hard to put every candidate on record to promise to vote for SJR 1 in 2009. So far, only 77 of 191 Indiana General Assembly candidates have committed. That worries Smith, who believes special interests are already at work to erode the protections taxpayers demanded.
    Charles J. Collet is an Indianapolis taxpayer who could use the 1 percent cap now. At 68, Collet says he can’t yet retire because his property taxes are close to $500 per month on a house he bought for $22,500 in 1970. It’s now assessed at $250,000.
    The freeze made things worse for him as it did for thousands of other Indy taxpayers. Collet owes $2,535 – the difference between his 2006 property tax and the 2007 “reconciled” figure. His property assessment rose 18 percent over last year’s “erroneous” assessment. “The real estate taxes the last three to four years have been mind boggling,” Collet says. “We have savings but I hate to get into savings. I’ll just have to stay alive and keep working.”
    If some people feel double-crossed, it’s easy to see why. When it comes to relief, the only sure thing is a constitutional amendment and 2012 seems a long way off.Andrea Neal is a teacher at St. Richard’s School in Indianapolis and adjunct scholar with the Indiana Policy Review Foundation. Contact her at aneal@inpolicy.org.

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