SEPTEMBER
2007

 

By
Larry DeBoer
 
Professor of
Agricultural Economics
Purdue University

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09-27-07

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Have We Already Solved Our Property Tax Problem?


Is it possible that we've already solved our Indiana property tax problem, but we just don't know it yet? I'm not sure that I believe it either. But consider:

Many homeowners are demanding immediate property tax relief. The General Assembly has already passed $300 million in extra relief for this year and another $250 million for next year. Homeowners will receive rebate checks at the end of the year, or early next year, averaging about $240. Those who pay more taxes will receive bigger rebates. The checks should reduce that 24-percent-average-homeowner tax increase to 8 percent this year. Next year's relief will show up on tax bills as a bigger homestead credit.

Perhaps we rely too much on property taxes to pay for local services. Perhaps we should shift to other tax bases, like income or sales. The General Assembly has already created new local option income tax, which would shift taxation from property to income. If all the counties adopted at maximum rates, total property taxes would drop by at least 20 percent. If the tax relief was designated for homeowners only, homeowner property tax bills would be cut in half statewide. That would help retired homeowners on fixed incomes especially.

Some taxpayers get hit with particularly large tax bills. The "circuit breaker" credit, which takes effect in 2008 for homeowners and in 2010 for all taxpayers, will put a ceiling on what taxpayers owe. In 2008, no homeowner will have to pay property taxes above 2 percent of the market value of their home. In 2010, all other taxpayers will have their taxes capped at 3 percent of market value.

We're concerned that our local assessors may not be up to the task of doing assessments right. The General Assembly passed legislation this year that requires township assessors and trustee-assessors to be certified before they take office. Certification requires taking a course and passing a test administered by the state. Township trustees who aren't certified must cede their assessing duties to the county. The law takes effect in July 2008.

To do market value assessment right, we need a state agency to enforce the rules. Suddenly this summer the Department of Local Government Finance has begun aggressive enforcement. They've ordered reassessments or scheduled hearings in nine counties so far.

One of the worst problems with our property tax is its unpredictability. Homeowners don't know what their property tax payments will be in future years, which makes it hard to budget. Sudden tax hikes sometimes force homeowners to sell. Home buyers find it hard to know if they can afford a home.

Unpredictable jumps in property taxes happen when we finally adjust assessments after many years. That's partly what happened with the reassessment in 2003, and that's what's happening with trending this year. Assessments based on 1999 prices are being updated to 2005 prices. From now on, though, trending will make just a one-year adjustment, next year from 2005 to 2006 prices. And come the next statewide reassessment for taxes in 2012, no big adjustment will be needed. We'll have spread that big adjustment over the preceding years, in a bunch of little steps.

Big construction projects are another concern. The taxes required to pay back the borrowing for these projects can cause big increases in tax bills. A new law already passed will create a capital projects review board in every county in 2009. The board will be made up of representatives of local governments, plus two elected members. Most local government construction projects will require the board's approval before they can go forward.

That's seven new policies, but perhaps it still isn't enough. Do we want to shift more taxes from property to income or sales? Provide more relief for those on fixed incomes or for owners of rental property? Think about the appropriate division of taxes between homeowners and businesses?

Or, maybe it's time to let it alone for a while. Many county officials would welcome a chance to catch up with all the policy changes. Once we've caught up, we may find that we're further along toward a solution to the property tax problem than we think.

 

 

Writer: Larry DeBoer,
Editor: Olivia Maddox,