MAY
2005

 

By
Larry DeBoer
 
Professor of
Agricultural Economics
Purdue University

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05-26-05

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A Property Tax List


Property taxes are going to increase more than usual over the next two years. Here's a list of reasons why.

Property taxes rise every year. Counties, cities, school corporations and other local governments increase their levies to cover inflation, to cover cost increases for things like insurance and fuel, and to maintain infrastructure. Taxes also increase because local governments want to provide more and better services.

The state reduces property taxes by paying property tax relief. You can see it on your tax bill. The state homestead and replacement credits are subtracted from what you owe. You pay less, and the state makes up the difference with payments to local governments from its budget.

Property tax relief is now the second-largest item in the state budget. It cost $2 billion in 2005, and it's been growing fast. To help balance the state budget, the governor and the General Assembly decided that this growth had to stop. So they "flat-lined" property tax relief.

Over the next two years, property taxes will continue to rise, but state tax relief payments will not. The state will pay about $436 million less in property tax relief than it would have paid had relief not been frozen. Property owners will pay instead.

The state pays about $3.7 billion to school corporations-that's the largest piece of the state budget. To balance the budget, though, the governor and General Assembly could not increase aid to schools much. Instead, they wrote new rules to let schools increase property taxes more. Schools are likely to raise property taxes by about $300 million more than they would have under the old rules.

Counties must pay half the cost of committing juveniles to state corrections facilities. Fifty-seven counties have fallen behind on these payments and owe about $100 million. The state wants its money. It told counties to come up with a payment plan, or the money would be taken out of property tax relief. If that happens, property taxpayers will pay more. The state authorized counties to borrow as part of a payment plan. Property taxes would rise to repay such loans.

These are added taxes everyone will pay. If you're a homeowner, though, there's more.

In about two-thirds of the counties, business inventories will become exempt from property tax payments starting in 2007. Inventories are already exempt in the other one-third. Counties can pass an added income tax to offset the effect of this new exemption. If they don't, the taxes that inventory owners paid will shift to other property owners, like homeowners. 

Starting with taxes in 2007, the assessments of land and buildings will be updated each year. Assessments of business equipment always have been updated. Equipment assessments would rise, building assessments would not, so taxes would shift from owners of buildings to owners of equipment. Now that won't happen, which means that taxes on personal property will increase less, and taxes on land and buildings will increase more. The biggest share of land and buildings are homes.

Farmland assessments will be updated annually, too. The prices of corn and soybeans have fallen in recent years, so the update was going to reduce farmland assessments, by about 16% percent. The legislature decided that this part of the annual update should take place in 2006, not 2007. That's a tax break for farmland owners. Someone has to pay, though, so the taxes will shift to all other property owners.  Urban and suburban taxpayers won't see much difference, because farmland is so small a part of their counties' property tax base. In rural counties, where the tax base has not much else but farmland and houses, homeowners will notice the tax increase.

Local governments don't have to raise their property taxes, and probably some will increase taxes less than they're allowed. But there are a lot of items on this list beyond local government control. Property taxes, especially taxes on homeowners, are likely to be an ever more important issue over the next two years. Perhaps it's time to give some thought to just how we want to pay for local government.

 

 

Writer: Larry DeBoer,
Editor: Olivia Maddox,