"Property taxes are a real hot button issue. We want all Hoosiers to be educated about the issue when they vote this fall," said Lisa Travis, Team Leader of CAA Network Support.
In March 2008, the Indiana General Assembly enacted legislation overhauling the State's property tax system. The purpose of the "1-2-3" legislation as it has come to be known, was to cap property taxes for homeowners, rental property owners, and businesses at 1%, 2 %, and 3% of assessed value, respectively. In 2009, the caps were in the process of being phased-in and were set at 1.5%, 2.5%, and 3.5%. Under the 2009 caps, 2.7% of all property tax cap credits were distributed to homeowners with the vast majority of the tax cap credits (97.3%) being given to owners of rental properties and businesses taxed under 2.5% and 3.5% caps.
Beginning in 2010, the 1%, 2%, and 3% caps will be in full effect, which means the use of the tax cap credits could change dramatically in 2010. A March 2009 analysis, by the Indiana Legislative Services Agency (LSA), estimates that the cost of the homestead tax caps could grow by nearly 600% when the homeowners' cap is tightened from 1.5% to 1%.3
While property taxes were reduced for many Hoosier homeowners, these tax cuts were paid for through an increase in the state's sales tax and the elimination of a number of existing property tax relief mechanisms. As a result, renters are shouldering a large portion of the cost of property tax relief for homeowners. One estimate found that as many as 60% of Indiana renters would pay more in taxes under the restructuring, while close to 80% of homeowners would pay less.
The next stage of the property tax debate requires deciding whether or not to place the tax caps in the State constitution. Voters will have their say at the polls this November. However, the property tax caps are already in Indiana state statute. Adding the caps to the constitution will not result in increased property tax cuts for homeowners. Instead, it will tie the hands of future Hoosiers and their representatives to adjust the property tax caps in times of economic distress (as it takes two legislative sessions to remove an amendment from the State constitution).
"The full impact of the caps on local services such as schools, fire and police protection, and road maintenance will not be clear until much later. Protecting these untested provisions from future alteration is unnecessary and irresponsible," said Lisa Travis, Team Leader of CAA Network Support.
To view the policy brief in its entirety, please visit www.incap.org.