Saturday, September 25, 2010

Homeowners Get Little Relief From Property Tax Caps

The property tax cap law our governor and legislators have boasted are providing significant property tax relief to homeowners turns out to be something quite different. An analysis of the property tax cap law's impact by Purdue Professor Larry DeBoer show the lion's share of the relief going to apartment owners (almost 50%) and businesses (22%) according to a story in the latest edition of the IBJ. Only 28% of the tax relief realized by the property tax cap law aids homeowners, even though the caps on homesteads is 1%, compared to 2% for rental properties and farmland and 3% for business properties. Statewide, the tax caps are providing only $335 million annually in property tax relief. Here's how that relief breaks down:

Rental and farm property ($169.2 million)
Homesteads ($92.8 million)
Business ($73 million)

A lot of people don't realize the property tax relief they received since the property tax cap law first went into effect two years ago was the result of beefed up homestead exemptions, which have been phased out as the property tax cap law has been phased in. Lawmakers used one-time revenues from the sale of the slot machine licenses granted to the state's two horse race tracks in Anderson and Shelbyville to pay for the higher homestead exemptions. Some homeowners are actually going to see increased property tax bills even with the 1% property tax cap on their assessed value. On a $200,000 home, for example, your property tax bill cannot exceed $2,000; however, if taxing units within your area have successfully gone through the referendum process to levy higher property taxes, your tax bills can exceed the 1% cap. The savings you've seen the past two years came from the temporarily higher homestead exemption, not the property tax caps. To the extent you see property tax relief, it is more likely the result of lower assessments resulting from unprecedented drops in home values during the worst economic downturn since the Great Depression. At the same time, all Indiana taxpayers are permanently paying a 1% hike in the state sales tax as a trade-off for the property tax caps. A question appears on this November's ballot to make the property tax cap law permanent by making it a part of the Indiana Constitution.


Downtown Indy said...

Am I correct in saying if the referendum fails and the cap is lifted, that the 1% sales tax hike remains in effect?

Gary R. Welsh said...

No. The cap could only be exceeded if the voters approved a levy increase that allowed the property tax cap to be exceeded. The sales tax increase remains in effect whether the cap is exceeded or not. Of course, a tax levy increase proposed on the ballot will never explain to the voter he or she is agreeing to be taxed at a rate higher than the tax cap under current law.

dcrutch said...

With the array of spenders & methods still available to tax (such as individual school district referendums)-I support voting in the cap. It may be imperfect, but it beats not having one and encourages getting closer to the buried roots of who, what, where, when, & why re tax dollars. A topic bureaucracy is loathe to visit.

Would we instead pursue alternatives like consolidating school districts or counties? I think we know the answer to that one. I wish we didn't have to pursue "term limits" for taxes. But, I have faith that other ways to tax and spend can be found when needed.

artfuggins said...

I Don't mind the cap but I think it is ill advised to make it a part of the constitution. It is already law and we know that it would take a major crisis for the legislature to abolish it. That is why I am voting against making it part of the constitution. Those of us who live downtown have gotten major tax relief from the tax cap.

Unknown said...

Very thoughtful piece and very informative. Thank you

Gary R. Welsh said...

I'm still waiting for my tax relief. The condos in my building were deliberately assessed much higher than their market value by Greg Bowes office. We are going to have to wait at least 2 years for his incompetent office to get to our appeals because that is how old the backlog is in his office for appeals.