Property tax story quite complicated (04/26/07)

If you listened to the Indiana General Assembly this month, you might come to the conclusion that the only thing standing between you and wild over-spending by local government was your elected representative in Indianapolis.

Trouble is, it's far more complicated than that.

And your elected representatives in Indianapolis have - over a period of decades - been responsible for those complications.

How complicated is the property tax system in Indiana these days?

It's so bad even those involved in the system have difficulty explaining it. And for those of us in the news business, it's a constant struggle to try to get the facts straight.

Take a new story that broke just this week. The Legislative Services Agency reported that there would be a 24 percent average increase in property taxes for residential property this year. That's a whopping jump, and it merited all the headlines it received.

But our guess is that plenty of readers saw "24 percent increase" and assumed that translated into massive growth in local government spending. It doesn't work that way.

For starters, the 24 percent estimate only relates to residential property. Local officials believe that agricultural, commercial, and industrial property taxes will stay pretty much the same.

That's because assessed values on those other properties haven't risen as much as residential properties.

Instead of jumping 24 percent, local government spending is expected to grow by about 3 percent or less.

That's because local government tax levies - the total dollar amount raised by property taxes - were "frozen" or partially capped years ago when the county adopted a local option income tax.

School spending isn't capped exactly the same way, but its growth is limited. There are exceptions for capital projects and debt service to pay for bond issues.

In fact, growth in local spending has been relatively modest. Only a small chunk of the increase in residential property taxes can be laid at the feet of local officials.

So what's to blame for the surge in residential taxes?

There are two answers.

The first is, the courts. After years of litigation, followed by years of delay, Indiana is finally assessing property based upon market rates. That's what has resulted in the "trending" factor that drives residential property values higher.

The second is, the Indiana General Assembly itself.Over the past few years, lawmakers have made a number of decisions that have had a direct impact on what we pay in property taxes.

First, the taxing of inventory as personal property was eliminated, shifting the burden of raising those dollars to individuals.

Second, the property tax replacement credit is slightly smaller this year.

And, third, the increase in the Homestead Credit which softened the blow last year was a one-time deal. The Homestead Credit drops down to its old level this year.

All those things - small increases in local government spending, the move to market-based assessment which hits residential property harder than others, and the reduction in property tax relief coming from the state - have combined to create the present situation.

It's not a pretty picture. But if we're going to have an informed discussion of how to change things, it makes sense to have all the facts on the table. - J.R.[[In-content Ad]]