State lawmakers pass property tax reform


Big victory for governor and homeowners 

Indiana taxpayers received good and bad news at the end of this year’s General Assembly.

The property tax relief bill — House Enrolled Act 1001 — was overwhelmingly passed and will result in an estimated 30 percent drop statewide in local property taxes. It also caps future property tax bills and provides for voter referendums on large local and school construction projects. That’s the good news.

In order to make up the deficit caused by the property tax reduction, sales tax in Indiana will increase in less than two weeks from 6 percent to 7 percent. School districts and local governments will likely see revenue shortfalls as early as 2010, which could mean service cuts or higher local option income taxes.

“I voted for it. It’s a step in the right direction,” Rep. David Orentlicher (D-Indianapolis) said. But he also admitted the legislation is far from perfect.  “We could move from being a high property tax county to being a high local income tax county.”

Coming into this year’s shortened legislative session, election-conscious state lawmakers witnessed a near tax revolt in the state that was most visibly obvious in Marion County last spring when homeowners were hit with two-, three- and four-fold increases in their property tax bills.

The governor rolled back the tax increases but not before there were demonstrations in front of the Governor’s Mansion, tax revolt signs popping up in front yards and citizens organizing to fight back. Voter outrage over taxes was partially the reason for incumbent Mayor Bart Peterson’s defeat to newcomer Greg Ballard last November.

That certainly got lawmakers’ attention. “No bill is more important this session than House Bill 1001,” Rep. Cindy Noe (R-Zionsville) said before the legislation was passed.

On Friday afternoon, the last day of the session and with the governor threatening a special session, the state Senate voted 41-6 and the House 82-17 to approve the tax relief bill and sent it to Daniels, who proclaimed this a “new era” for Indiana taxpayers. The legislation grew out of a proposal he made last fall.

The legislation cuts property taxes statewide by $524 million. In addition, the state will pick up the cost of pre-1977 police and fire pensions, and health care for the indigent, child welfare and juvenile incarceration.

Sen. Luke Kenley (R-Noblesville), a key architect of the legislation, said the tax reform “will propel us into the 21st century as a leader across the nation in terms of how a tax system should be constructed.”

“I think it is a good thing,” Robert Black, who lives in Pike Township, said of the property tax relief measure. But he also worried about the negative impact.

Lawmakers approved a constitutional amendment that, if passed for a second time next year or in 2010, would cap homeowners’ property tax bills at 1 percent of assessed value, as well as 2 percent for rental and farm property and 3 percent for businesses.

“I would have preferred if it were based on income instead of assessed value,” said Black, who is an accountant. “That would be more equitable.”

Since 50.2 percent of the property taxes in Marion County go to fund schools, school officials are understandably concerned about a revenue shortfall.

“If we do nothing, [Indianapolis Public Schools] will see a $13 million drop in revenue in 2010,” Orentlicher said.

Without that revenue or an increase in local income taxes, “We will have to cut programs or cut people,” IPS spokeswoman Kim Hooper said. Either would have a direct and negative impact on classroom instruction.

Also of concern to school and local government officials was the provision for a referendum on construction projects. Taxpayers could force any construction project of more than $20 million to be approved by referendum.

However, the referendum would not be automatic, Orentlicher said. One hundred residents would have to sign a petition to request it.

Opponents of that provision pointed out that other states that have required a referendum for school construction projects have seen some necessary projects voted down.

“I don’t believe we are going to put up a wall and say, ‘No more buildings,’” Noe said. School boards “will be forced to be more frugal.”

Before this new legislation, a building project could be halted if taxpayers mounted a successful petition drive. But Republican Sen. Teresa Lubbers, whose district includes Indianapolis, says the newly approved bill provides for stronger community input into costly projects.

“I do think people will be supportive of new buildings,” Lubbers said, adding that in states with referendums 50 percent of the projects are approved.

The bill also eliminates township assessors except in townships with more than 15,000 parcels. That was a key provision that Noe sought because assessors without any certification can produce widely varying assessments, which in turn can create spikes in tax bills.

It is estimated that 57 percent of assessors in Indiana have no certification.  

“If we do not get the assessments right, we are doing nothing but building a second story on a vacant lot,” Noe said two weeks ago during a tax relief forum at Meridian Street United Methodist Church.

Due to the size of townships in Marion, however, most assessors will keep their jobs. The exception in Marion County is Decatur Township.

Heading into the session, the goal of the Democrats was to balance the demands of property owners and the needs of government, Orentlicher said.

“There were three goals,” he said. Make sure that property taxes were affordable, enact permanent reforms and establish fairness and equity in the tax system.

The legislation succeeded except as relates to fairness, he said. Tax rates can vary tremendously from one geographic area to the next, and between owner-occupied property and non-owner-occupied property.

“We need to do much more,” he said. “But this is a step.”