The Louisville Courier Journal has what appears to be a fairly misleading headline: “Daniels casts Bauer as obstacle to property tax relief.” The article discusses Bauer as an obstacle to a vote on a Constitutional amendment with respect to property tax caps. The reason the headline is misleading is that the property tax caps are already law — hence, there is no “relief” to be had through the constitutional amendment. Proponents of the constitutional amendment would argue that it is necessary to prevent burdens in the future; but it wouldn’t do a thing to reduce property taxes from the levels already set by Indiana law. From reading the article, this error appears to be the paper’s and not Gov. Daniels.
SB 285 – Property tax notices by e-mail
SB 285 passed the Senate 43 to 0. Essentially, it allows a county to adopt an ordinance that creates an e-mail option for property tax notice. Once that has been done, then taxpayers in the county can opt to receive notices via e-mail.
I am all for doing as much as possible online and limiting snail mail to the extent possible. But, I’ve also had enough e-mail disappear into the ether that I’d be a little concerned about doing property tax notices that way. On the other hand, every property owner knows they have to pay property taxes. If they don’t get their notices, it isn’t too difficult to get your tax liability information at some point before their property goes up for tax sale.
Property Tax Caps: For What Period of Time?
I referred to this in a comment, but I thought I would put it up front and center in case my concerns had any merit. I was reading the text of Senate Joint Resolution 1 which seeks to write property tax caps into the Indiana Constitution.
It caps potential tax liability for residential property that is a taxpayer’s principal place of residence at 1% of assessed value; for other residential property and agricultural property at 2% of assessed value; and for personal property and other real property at 3% of assessed value.
The amendment does not appear to specify the relevant period of time for the calculation. I suspect the intent is that annual tax liability is capped at that percentage of assessed value, but I don’t think the resolution actually says this. Perhaps it could be read as daily tax liability or, more realistically, lifetime property tax liability.
This version has already been approved by a prior General Assembly. So, if the omission of the appropriate time frame was actually a goof, this General Assembly may face a choice of living with it and hoping for the best or starting all over.
Bad Headline
This article about proposals to engrave property tax caps into the Indiana Constitution by Lesley Stedman Weidenbener is fine, but the headline is just awful: “Indiana GOP wants tax caps formalized.”
The property tax caps are already part of the Indiana Code. That’s pretty darn formal, not just some handshake agreement or something scrawled on a napkin somewhere. The critical distinction between the Republicans and the Democrats on this issue isn’t formal versus informal as the headline suggests. It’s whether the property tax formulation developed last year is a good idea for the circumstances we currently face or whether it’s some sort of eternal verity. Democrats think the property tax caps at the rate of 1% of assessed value for owner-occupied residential real property, 2% for farmers, and 3% for businesses are a good idea for the foreseeable future; Republicans apparently think this particular formula will be a good idea forever.
The headline’s frame that suggests a law isn’t formal unless it’s part of the Indiana Constitution is pernicious. It suggests the current property tax caps can be changed on a whim rather than requiring the vote of a majority of Indiana’s elected representatives and the approval of the Governor.
SB 40 – Homestead Assessed Value Growth Cap
Senate Bill 40, introduced by Senator Zakas, limits the increase in a homestead’s assessed value to 5% per year for tax purposes unless there is an ownership change or the increase is attributable to a physical improvement of the property.
I understand the motivation behind this bill. Homeowners even more than other types of property owners need some predictability in their property taxes. But I wonder if it passes Constitutional muster.
Article 10, section 1(a) provides that the “General Assembly shall provide, by law, for a uniform and equal rate of property assessment and taxation and shall prescribe regulations to secure a just valuation for taxation of all property, both real and personal.” In the 1998 Supreme Court case of Town of St. John v. Indiana Board of Tax Commissioners, the Supreme Court held that the assessment process then in place – which was jiggered all over the place to benefit residential property owners – was unconstitutional. That is a big chunk of what led to the property tax debacle that has given Indiana such fits over the past several years.
I haven’t read the case closely enough to know whether SB 40 would violate the constitution, but treating assessment of homestead properties differently than assessment for other properties would seem to raise a red flag.
School Choice
Andy Gammil, writing for the Louisville Courier-Journal, reports on a lesser known consequence of the legislature’s recent property tax repeal. The State is going to pick up schools’ entire operating budgets instead of just a portion. In the past, apparently, if a student wanted to go to a school outside his or her district, the school would charge the parents up to $5,000 per year to recoup the cost of the student that would have been paid by property taxes if the student had lived in the district. Because the local property tax component of a school’s operating costs have been reduced or eliminated, schools won’t be able to charge this sort of tuition.
The new rules should give parents more opportunity to choose their child’s school.
Unless the legislature steps in, however, school districts have discretion to decide whether to accept transfer students and, if they do, which ones they will accept.
That raises questions about how schools can be fair in accepting students without crowding or inviting lawsuits for excluding poor or minority students.
If the only change was this tuition, it sounds like all these grey areas existed before, but they had to be addressed only when a student’s family was able and willing to pay the tuition.
Unintended Consequences
I just stumbled across what is potentially another unintended consequence of the property tax revision; not necessarily good, not necessarily bad, just unintended. Capital costs of government buildings can be supported by local income taxes more easily than the operating costs. The operating costs, I believe, are more likely to have to be supported by property taxes. With property taxes less available, the trend for construction projects payable out of income taxes may be to try to reduce operating costs by incurring more up front capital costs — for example, more expensive, but more energy efficient construction materials.
Just a thought. I might be very, very wrong.
Local Government: Budgetary Whipping Boy
I ran across a couple of items that, in juxtaposition, highlighted the difficulties of local government officials nicely.
Justice & Fortitude has a post that suggests runaway local government spending as the cause of our property tax woes:
“If we don’t do something about local government, putting caps on property taxes will be like slapping a Band-Aid on a more serious wound–or rearranging deck chairs on the Titanic.â€
(There is additional language in the post speaking of the need to engage repeal property taxes entirely to prevent the “enslavement” of Hoosiers through property taxes.)
Meanwhile, back at the ranch, the Indiana Court of Appeals rejected a claim by local government that the State ought to have to pay for detention expenses of the juvenile offenders sentenced by State judges. The General Assembly has since taken action to relieve local government of those expenses. But, as a general proposition, it isn’t really appropriate to criticize those expenditures of local government where local government is simply mandated to pay the bill without being given control of the amount of the expenditure.
The Governor, in particular, has let loose a drum beat of rhetoric criticizing local government officials for out of control spending without acknowledging the significant role played by the State in the matter or the fact that he “balanced” the State’s budget on the backs of local government.
Likely delay on property tax rule
The Associated Press has a story on a new property tax rule that is probably going to be delayed. The rule change would be to go from a “market value in use” system to a “market value in exchange” system. The latter is the predominant valuation in 48 other states.
“Market value in use” means that a property is assessed according to the value it has with its current, specific use whereas “market value in exchange” means assessing the property’s value based on its potential use. According to the article, the latter method of valuation would result in a substantial reduction in value for older industrial properties. If that happened, the tax burden would shift to the rest of the tax base — including residential property owners. Cheryl Musgrave, commissioner of the Department of Local Government Financing has announced her opinion that now might not be time for the change.