Larry DeBoer

Professor of Agricultural Economics,
Purdue University

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Can we fund local government without property tax assessments?

Your property tax rate changes every year. That's because local units fix the revenue that they'll receive from the property tax first, and then set the rate so they'll collect that amount from the tax base. And that is a problem for the Indiana property tax in 2003.

The tax base is the assessed value of taxable property. Back in December 1998, the Indiana Supreme Court found the assessment rules that we've used up until now to be unconstitutional. After that, it took the state a long time to come up with constitutional rules. The counties got a late start on this reassessment, and there's a lot to learn. The reassessment was supposed to be done last year, but none of the counties made it. By the end of March 2002, only a few counties had finished.

The Department of Local Government Finance is the state agency that oversees the reassessment. It did a survey at the end of 2003 and found that just 44 of the 92 counties expected to send out their "Form 11s" by the end of May (you can see the press release online at Form 11s are the notices sent to property owners showing them their new assessments. They're sent when the reassessment is done.

Here's the problem. If there are no assessed values, tax rates can't be calculated. If there are no tax rates, tax bills can't be mailed. If tax bills aren't mailed, taxpayers can't pay their property taxes. And if taxpayers can't pay their property taxes, counties, cities, school districts and other local governments won't have the revenue they need to deliver services.

Property tax payments are made in two equal installments. The first usually is due on May 10. It looks like less than half the counties will have their assessments done by then, let alone the tax bills mailed. The revenue from these tax payments is usually distributed to local governments in June. In most places, it won't be this time.

Local governments won't shut down. Instead, they'll issue "revenue anticipation notes." That means they'll borrow the money for a short time, promising the lenders (banks and bond buyers) that they'll repay when property tax revenues arrive. Repay, plus interest, of course. That interest will be an extra expense for local governments. If more than half the counties miss the tax bill deadline, the added interest payments could easily total tens of millions statewide.

Or maybe not. The General Assembly is considering a bill, House Bill 1219, that could help. You can read it at by typing "1219" into the "Go To Bill" box. Or try reading the fiscal note for a nice summary of what the bill does.

HB1219 lets county treasurers send out provisional tax bills equal to 95 percent of what the taxpayer paid in 2002. Once assessments are finished and tax rates are calculated, the treasurer will send a reconciling statement to each taxpayer. If the actual tax bill is more than the provisional bill, the taxpayer will pay the difference. If the actual bill is less than the provisional bill, the treasurer will refund the difference, or simply reduce the taxpayer's bill the following year.

This will be costly for the treasurer's office. It will take extra time to compare the provisional tax bills to the actual tax bills, and extra money for printing and postage to send out the reconciling statements. The treasurer in each county will have to decide whether the added administrative costs would be less than the added interest on all that borrowing. My guess is that the borrowing would be way more expensive.

House Bill 1219 passed the House unanimously on Feb. 17. The Senate Finance Committee passed an amended version unanimously on March 21. If the full Senate approves, then the House must either agree to the amendments, or both houses must work out a compromise in a conference committee. So far, at least, no one has objected.

Looks like the county treasurers soon may have a decision to make. And, perhaps, Indiana local governments will save millions in interest payments.


Writer: Larry DeBoer
Editor: Olivia Maddox