Thoughts on Property Tax Reform

Property tax reform dominated the 2008 legislative session and the plan which emerged, based largely on that proposed by Governor Daniels in December, promises major changes in the way Indiana funds government at the local level. The 1% cap on homestead property tax which the governor signed into law and which has begun the process of being embedded into our constitution will provide welcome relief for some Boone County taxpayers, but could spell increases in the future for others. And the 1% increase in the state sales tax will impact everyone, whether or not they own property. It’s too early to gauge the full impact of the 1-2-3 tiered cap plan, but it if the governor’s long-term goal was to force local government entities to think differently about how they fund services, it has already succeeded. While our county government at least in the near term will see few significant repercussions, the caps could mean big trouble for some of our cities and towns, libraries, and especially our schools. No doubt the new process will require additional tinkering for many years. It is my hope that in the end, no matter what the specific numbers might be, we can reach a system that is fair, consistent and most of all stable. For businesses and homeowners alike, perhaps the biggest tax-related fear is not just that taxes will rise, but that they will rise suddenly and dramatically. A system that allows taxpayers to plan accurately for future costs will also allow government to plan in order to make informed and logical decisions about spending, so that necessary cuts trim fat and not bone.

One of the rallying cries for those pushing property tax reform has been the elimination of the homestead tax altogether. While in principle I really like the idea, I just don’t see how it can feasibly be done without the kind of increases in other areas that would be crippling to our state’s economy. Additionally, I believe at a fundamental level that property taxes make sense. The system we currently use for determining, collecting and distributing property taxes is an absolute disaster, and the governor’s new plan won’t really do much to address many of its biggest flaws. But if the system could be implemented fairly – and I know that’s a big if – property taxes can be the most transparent and understandable of all taxes. Two factors support this belief. First, we all know exactly how much we pay for property taxes. How many of us know how much we pay in sales tax (each week let alone each year)? Under a better system we would also be able to know exactly where that money goes. What was your county option income tax bill last year? If I am elected to serve on the County Council and residents feel too much of their tax money is going to county government they will know exactly who to contact, and who to vote out office if their concerns are not addressed. Second, taxes on property – in a fair system – go directly to pay for services that increase the value of that property. Property in low-crime areas, with quality libraries and public schools, reliable infrastructure (streets/roads, sewers, utilities) and efficient delivery of services is worth more because of those factors. Under a fair property tax system, we get what we pay for; true, some who do not pay also benefit, but those who do pay benefit far more.

The “property tax crisis” that swept across Indiana last summer and fall had widely varying impact on Boone County residents. Nearly everyone’s tax bills increased, with those in our southeast quadrant hit particularly hard. A number of factors contributed to this increase – “trending” as the basis for reassessment, elimination of business inventory tax (which shifted more burden to other property tax payers), reduction of the state property tax replacement credit, etc. – but little of it had to do with county government. On average, only a bit more than 10% of Boone County property tax dollars go to fund county government, according to the state’s Department of Local Government and Finance, and only about $3 million of Boone County’s annual $15 million+ budget comes from property taxes. As in most counties, and to a greater extent in some areas of Boone than in others, most property tax money (71% county-wide on average) goes to fund our public schools. The current County Council and its predecessors have done a good job of managing our finances so that changes will not have much immediate impact, but better long-term planning will be needed to ward off future shortfalls or tax increases in other areas.