Tax Caps Aren’t to Blame for Local Woes.jap

September 27, 2010

For release noon Sept. 28 and thereafter (655 words)

In Indianapolis, a library volunteer blamed “our shortsighted taxpayer revolt and cap” for reduced hours at the Central Library Downtown.

In Anderson, the business manager for the public schools blamed property tax caps for a $7.8-million shortfall.

In Columbus, a street department supervisor said the caps were the reason the city ran short on sand and salt last winter to melt snow-covered roads.

And in Muncie, a city council member faulted tax caps, in part, for an increase in water fees to cover fire-hydrant upkeep.

Tax caps have become an easy scapegoat for local government officials struggling to balance budgets during the economic downturn. In some cases, the blame is deserved. But in the vast majority of Indiana school districts and local governments, caps are having little effect. That’s what voters deserve to know Nov. 2 when they consider this question: “Shall property taxes be limited for all classes of property by amending the Constitution of the State of Indiana?”

The ballot question is the direct result of the citizens’ rebellion of 2007 when Hoosiers took to the streets to protest skyrocketing tax bills, especially in older urban areas.

In 2008, the legislature responded by setting caps at 1 percent of assessed valuation for homes, 2 percent for apartments and farmland and 3 percent for businesses. To pay for lost revenue, lawmakers raised the sales tax from 6 to 7 percent and took over school funding, police and fire pensions and a few other items previously funded by local governments. On Election Day, voters have the chance to make the caps permanent.

Even with the sales-tax increase, Ball State University’s Center for Business and Economic Research has found the caps will have “a positive effect on the Indiana economy in the long run, increasing employment, income and investment.”

Listening to critics, you’d think they’re causing most schools to lay off teachers, cities to lay off firefighters and garbage to rot in the streets. Here is the reality, compiled by the citizens group, Watchdog Indiana, using data from the Legislative Services Agency.

Altogether tax caps will cost schools $148 million during this fiscal year, or 1 percent of K-12 spending. Only 22 of 293 Indiana school systems will face revenue losses of 2 percent or more of their 2009 budgets. These districts (all districts for that matter) can ask voters for permission to exceed the caps under a special seven-year levy.  Many have. The constitutional amendment exempts property taxes approved by referendum from the tax-cap limitations.

Of Indiana’s 565 cities and towns, 81 – about 15 percent – will experience shortfalls of 5 percent or more of budgeted funds due to tax caps. The impact on the rest is not enough to affect essential services.

Cities and towns count on property taxes for 55 to 70 percent of spending. As in the case of schools, those facing hardship have another option. They can go to their county councils and ask for a local option income tax to replace lost revenue.

Even in schools and municipalities that are strapped for cash, caps have proven to be a good thing. For one, spending bodies have been forced to look carefully at budgets to eliminate waste. Second, they no longer have free rein to raise levies. They either must ask voters for their support through a referendum or go to county councils for tax increases subject to public hearings.

Hoosiers have shown they will pay more in taxes when spending bodies make a strong case for them. Of 16 school referenda on the ballot in May, voters approved half.

As Gov. Mitch Daniels pointed out at a rally, “When local spending units want to raise more money, they have to get the people’s permission to do it. It’s no longer the case that they can raise it at their own discretion, and that’s the way it should be.”

That’s the way it will be — if Hoosiers vote to place property-tax caps in the Indiana Constitution.

Andrea Neal is a teacher at St. Richard’s Episcopal School in Indianapolis and an adjunct scholar with the Indiana Policy Review Foundation. Contact her at


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