FROM THE DESK OF SENATOR DAVID LONG
The Indiana State Legislature will convene in an unusual Special Session beginning Tuesday, November 18th, to discuss the statewide problems with the reassessment of property taxes. This Session could last into the second week in December, depending upon how long it takes to reach consensus between the Senate and the House on a variety of property tax related issues.
Normally, the third Tuesday in November is a formality called Organization Day, where the Legislature convenes for the new Session, but then recesses until the beginning of the next year. But the concerns that many legislators have, not only with the rise in property taxes experienced by some homeowners, but also with the increases in property tax levies we’ve seen from local governments across the board, has caused this Special Session to occur.
1. A reminder of what property taxes are: they are a purely local tax. The State doesn’t get property taxes. Instead, they are raised by and go only to local government, schools, libraries, townships, etc.
2. A reminder of what property tax reassessment is: every four years, counties are required to reassess (revalue) real and personal property within their boundaries in order to take into account new construction, as well as the increase in value of homes, farms and businesses. The last reassessment was in 1995. Since then, politics and lawsuits have delayed the 1999 reassessment until now. Some counties, like Marion County, have already reassessed, but there are many still lagging behind. Marion County has had a particularly bad experience due to the increases in taxes for their older, nicer homes, as well as an unconscionable increase in property tax levies by every one of their 120 government units that can raise property taxes.
3. A reminder of what is different about this particular reassessment: the Indiana Supreme Court has ruled that the way property was assessed in the past violated the state constitution, because the assessment rules favored residential property over business, utilities, and agriculture. The constitution requires that all property be fairly, and uniformly, assessed (meaning one type of property can’t get special treatment at the expense of another type ). Therefore, the Court has ruled that new assessment rules had to be created that would decrease taxes for business, utilities and agriculture, and increase them for residential.
4. A reminder of why the state government is involved in a purely local government tax issue: because while the State does not get the money from property taxes, the State Legislature does put caps on the amount that local governments can raise property taxes each year, and the Governor’s office generally writes the reassessment rules that local government must follow. In addition, the State provides significant property tax relief to all property owners by paying State tax dollars raised from income taxes and sales taxes to local governments to replace the dollars those local governments otherwise would have had to raise from property taxes.
In Allen County, we are so far behind in the reassessment process that the tax bills that were due in 2003 will not come out until late February or early March 2004. Lake County (Gary/Merrillville) and St. Joseph County (South Bend/Mishawaka) are in similar situations. Those are three of the four largest counties in Indiana. Therefore, no one is sure what the impact of the property tax reassessment will be for these regions.
In Allen County, the tax bills you received this year are based upon 70% of last year’s taxes ( that’s the limit they can bill you when reassessment delays normal billing cycles). The tax bill you receive next March will be for the other 30%, plus the amount that those 2003 taxes should have been increased had the reassessment been completed on time. After that, you will receive another bill around July 2004 for the first installment of the 2004 tax year, followed by yet another bill in November 2004. That means four property tax bills in the space of 12 months! This is the ultimate cost of all those political and legal delays I talked about earlier. However, at that point, the property tax system will return to the normal May/November billing cycle for the 2005 tax year and beyond.
Now that you’ve absorbed all that and come back down into your seat, lets talk about this upcoming Special Session. There are a number of proposals on the table, some of which I agree with and some which I don’t. For example, the Speaker of the House wants to retroactively go back and put limits on county and city governments’ ability to raise property taxes. Placing better, stronger limits on local property tax increases is a good idea so long as we implement these changes for future budgets. However, to retroactively require county and city governments to implement these limits would mean they would have to re-open their budgeting process and make significant additional cuts in their services. That would create total chaos.
Many believe the Speaker of the House is trying to punish local government officials for increasing their local taxes, and then trying to make it seem as if those increases were caused by the reassessment, when in fact it was their own doing. Worse, the Speaker is angry that some of those same local officials then tried to blame the State Legislature for those increases as well, when in fact the Legislature had nothing to do with them. I think it is likely that cooler heads will prevail, and that by February of next year, those new, stronger caps for local government increases could be in place, but only for future budgeting processes. Such a scenario would be a victory for all of us beleaguered property tax payers, while avoiding any more chaos for our local governments.
Other ideas likely to be considered in this Special Session include one in particular that I agree with: providing a depreciation deduction for older homes. The loss of this deduction is the chief reason that property taxes are going up more for older homes than newer ones in the counties where reassessment has occurred. Yet it definitely costs more to maintain an older home. Take a $150,000 new home and an older home that is also worth $150,000. The older one is much more expensive to keep up. That is the concept behind the depreciation deduction. Reinstituting this deduction will help owners of older homes, and in the process better protect our cities and their neighborhoods from the devastation of urban flight.
One idea that all homeowners should agree with is extending their ability to sign up for the homestead credit until the end of this year. Anyone who owns a home and does not get this credit is throwing their money away. This credit has been greatly increased by the State Legislature (using state tax dollars) in order to help homeowners with the expected increases caused by reassessment. On average, we calculate that if local governments did not raise their property taxes this year at all, the average homeowner’s tax bill would go from a 13% increase to a 13% decrease as a result of this larger homestead credit (a 26% decrease in your tax bill!). Of course, local governments have increased their property tax bite, so that tax break will not be as good as it could have been. Nevertheless, without that increased credit, your bill would be 26% higher on average than it will be next year.
Normally, you have until March 1st of each year to sign up for the homestead credit. By extending this deadline until December 31st, more people can take advantage of these property tax reductions.
If you have refinanced your mortgage, you may also have lost your mortgage exemption unless the new mortgage holder signed you up. Some do, and some don’t. By extending this deadline as well, we can make sure that our taxpayers can take full advantage of the maximum deductions allowable.
To make sure that you have signed up for both of these property tax reducers, take a trip down to the County Assessor’s Office in the City County Building to find out. Bring your most recent property tax duplicate with you, since the Assessor will need to know the tax key number for your property.
I’m not sure what will come out of this Special Session, but some help for homeowners is certainly going to occur. The more significant and long term help will be coming in January and February, when we are in regular Session, and have more time and more information to make smarter and better decisions for our property tax payers.
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