Brian Howey: Solutions are pending on the property tax crisis

INDIANAPOLIS - Two property tax proposals - by the Indiana Farm Bureau and Indiana Association of Realtors - were floated late last month. But the real drama will come later this month.

That’s when Gov. Mitch Daniels will weigh in, selecting one of several plans now before him. Several observers I’ve has talked with believe that the governor and a rather complex plan Sen. Luke Kenley is currently floating will likely meld together. Look for circuit-breakers, a shift to sales and/or income taxes, and moving assessing duties from townships to counties as almost certain hallmarks of any such plan. One source suggested that an income tax increase is giving the governor heartburn. He is said to desire a simplified system.

In addition to the governor and Sen. Kenley, other key players in this process are the state’s OMB Director Ryan Kitchell, Daniels’ assistant chief of staff Betsy Burdick, Pat Kiely of the Indiana Manufacturers Association and the Indiana Chamber’s Kevin Brinegar.

Lt. Gov. Becky Skillman told the Columbus Republic, “I expect the 2008 session to be consumed by the property tax debate. The governor will have a proposal on the table. It should be announced within the next 30 days or so. He talks regularly with the legislative leaders to try to reach some consensus on a long-term plan.”

At Valparaiso University, Gov. Daniels told students there he is thinking about seeking spending caps in the Indiana Constitution.

A long-term approach would include the local government reorganization that is being researched by the Kernan-Shepard Commission. Gov. Daniels has said repeatedly that property tax and government reform are inextricably linked.

The October unveiling is critical to give legislators time to react with their constituents to any plan prior to November’s legislative Organization Day.

Indiana Farm Bureau President Don Villwock called for the shift from local property taxes to the state late last month, but he was thinking long-term.  “Any solution must be permanent, must be substantial, and must be fair,” Villwock said. “Relief that is only targeted to one segment of our society and economy cannot and will not be permanent. Farm Bureau and our members are tired of Band-Aid approaches. Farm Bureau is asking the legislature and the governor to work with us to make sure property tax reform is truly permanent, substantial and – most importantly – fair. We know that we cannot do away with property taxes altogether in the short term.”

Farm Bureau specifically suggests that five categories of expenditures currently funded by local property taxes be funded instead by state sources. The five expenditures are the school general fund, which currently is estimated to be about $800 million; school utilities and insurance expenses from the school capital projects fund, estimated at $205 million; all remaining welfare levies, estimated at $350 million; levies used to support local court systems which may be as much as $350 million; and a set-aside for a new school “rainy day” fund, estimated at $400 million. When the school “rainy day” fund reaches a sufficient level, the plan calls for annual school debt reduction grants of $400 million. These five categories of expenditure total an estimated $2.105 billion in property tax liability.

According to estimates by the Legislative Services Agency, net property taxes in Indiana grew between 2006 and 2007 by about $800 million – an increase of more than 14 percent. This is nearly six times the current inflation rate of 2.36 percent. In contrast, the previous two years saw a combined increase of $470 million. “It is just not an assessing problem, it is a tax burden problem,” Villwock said. “We say enough is enough. We must fix the property tax system.”

Villwock said he fears Gov. Daniels may be looking at isolating homeowner relief, which he said shifts the burden to business and agriculture. “That would be our worst nightmare,” he said. He said the governor is “looking at the assessing process.”

Asked about the Chicago City Council pondering an 11 percent sales tax, Villwock said that Indiana’s neighbors may also end up increasing sales taxes. “Ohio already does that with their local sales taxes. Illinois is bankrupt,” he said.

The Indiana Realtors also floated a plan that called for the elimination of the township assessment system, the consolidation of local government, the movement of court, school and welfare costs from local property taxes to the state. Karl Berron, CEO of the Indiana Association of Realtors, said Indiana should move to a broad-based system centered on the ability to pay.

“The current property tax mess is the product of three decades of decisions by public officials in both political parties at both the state and local levels,” said Berron.  “When it comes to property tax reform, we, as Hoosiers, have resisted change for too long; we cannot afford to do so any longer.”

Any legislator who thinks maintaining the status quo or applying another bandage will run the risk of … unemployment. Having said that, any new system is likely to have a little castor oil for everyone. My advice: pay attention, keep an open mind, take in as much information as you can, resist making this a Republican vs. Democrat issue, and don’t leap to conclusions. 

Howey is publisher of The Howey Political Report at www.howeypolitics.com

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