Governor Daniels flails about for solution to property tax problems

Governor Daniels, who was largely invisible (at least to the public) during the 2007 General Assembly, is flailing about for potential solutions to the substantial increases in property taxes. According to an article in the Indianapolis Star, his primary suggestions to legislators are: 1) Turn the planned rebates into credits; and 2) local “circuit breakers”.

This dithering puts local government in a bad position. Uncertainty is a problem all on its own. You have a huge infrastructure in place for the assessment, notification, and collection of tax bills. Every property in the state of Indiana has to be accounted for. So, either act or don’t. My recommendation is “don’t.” A hasty response is almost certain to produce unintended consequences of a very nasty sort. As far as I’m concerned, the legislature determined its course of action in 2007 (and, really, even more so in 2005). They should stick with their plan and deal with the consequences. The folks protesting now should have been paying attention and protesting months or maybe even years ago as this particular train was coming down the track.

As for the particular proposals of the Governor, the first problem I see is the uncertainty of the revenues that will be used for a rebate. These revenues are contingent on selling the slot machine licenses to the Anderson and Shelbyville race tracks. The money will probably come in, but spending it before we get it seems foolish.

As for the local “circuit breaker” idea, I didn’t hear the governor’s proposal on how local governments were supposed to make up the lost revenue. A “circuit breaker” just means that regardless of what the normal operation of law would do to a property taxpayer’s liability, the total liability is not allowed to increase more than x% from last year. That’s all well and good, but we have to keep in mind that the property tax levels didn’t just get jacked up for the heck of it. The increase happened because the State decreased its property tax subsidies and eliminated the inventory tax without significantly reducing its demands on local government. Local government expenses stayed about the same. Now, as I understand it, the Governor is proposing that funds to local government be further limited through “circuit breakers” without doing something to lighten the burden of demands placed on local governments.

The State has given local government the authority to raise income taxes, which may well be a better way to pay for local government than property taxes — depending on how the tax is structured to avoid being regressive, I suppose. But, this is frankly a crappy thing to do to local officials: take away their traditional revenue sources (inventory tax, property tax replacement credits, homestead credits), in the case of the latter two using the money to “balance” the state’s budget; and then put the onus on county officials to do the tax raising. As I recall, Senator Kenley had a proposal that seemed to take an honest approach to the dilemma. It would have had the state assume juvenile detention fees and department of child service expenses but would have phased out the property tax replacement credit entirely. I can’t recall the specifics of how Sen. Kenley’s plan to assume some of these major county expenses ended up falling by the wayside. I recall one of the major property tax bills fell by the wayside when Rep. Fry decided to play hardball, his caucus tried to call his bluff, and he didn’t blink. But, that one might have been somewhat different.

Now that the consequences of legislative sessions past are coming home to roost, taxpayers are screaming, state officials are panicking, and local officials are going to get left holding the bag . . . again.

Update: Lesley Stedman Weidenbener has a good column on the subject in the Louisville Courier Journal. She notes the Governor’s continued insistence that this is a county problem and that the reason for property tax increases is increased county spending. She politely notes that this is not, in fact, accurate — noting the new assessment rules imposed on the counties, noting the inventory tax revenues taken away from the counties by the State, and noting the reduction in property tax subsidies taken away by the State. She also noted the relative lack of concern during the most recent session of the General Assembly:

That’s not to say I think the governor doesn’t care about Hoosier homeowners. But he had shown little sympathy for their plight early this year when — despite projections for property-tax increases — he proposed to limit property-tax replacement credits, which are the dollars the state pays to local governments to keep property-tax bills lower.

The Governor is probably going to want the help of local government officials as he goes county to county seeking reelection. Perhaps he should think twice about burning those particular bridges.

Update #2: The Evansville Courier Press has an editorial urging a “studied approach” with no special session. The vitriolic reactions were limited to Marion and a few other particularly troubled counties where the tax increases were stratospheric. In Vanderburgh County, negative reactions were muted once taxpayers actually saw what they would owe. The increases prompted only a modest number of appeals.