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Legislature to Weigh Property Tax Permanence

As Indiana lawmakers work to craft a new two-year state budget, discussion of funding formulas is expected to be front-and-center.

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As Indiana lawmakers work to craft a new two-year state budget, discussion of funding formulas is expected to be front-and-center.  But the debate may well center on a law passed last session.

When House Bill 1001 was passed last year, it instituted a rise in sales taxes to compensate for a gradually decreasing cap in property taxes.  Over the course of three years, property taxes will fall to a maximum of one percent of a home’s assessed value.  That means that in year one of the plan municipalities will be funneled less money from assessments, leading to cuts in a number of services as well as the institution of higher fees.

“We’ve changed our trash pickup, we’ve tried to streamline government, we’ve changed employee benefits.  We’re working on the internal fixture first,” said Kokomo Mayor Greg Goodnight.  “But I’ve heard that we’re going to put some restrictions on outside fees and some of these other things that are another revenue source.  We’ve haven’t tapped into those yet.”

Many cities’ pinched pocketbooks were pushed to the breaking point when gas hit all-time high prices during the summer, forcing extra fuel appropriations to everyone from police and fire departments needing fuel for vehicles to parks departments purchasing diesel for lawnmowers.

Eventually, each agency came up with its own solution for belt-tightening.  Vigo County Sheriff Jon Marvel asked for the right to up the fee for any ticket issued for a moving violation by 15 dollars.  And the city of Terre Haute’s lawnmowers are simply run half as often, meaning grass and weeds were often twice as high.

Mayors and county leaders the state over reacted with almost universal dismay to House Bill 1001.  While counties were also given the option to implement Local Option Income Taxes and Economic Development Taxes, few found it a prudent course of action to further tax their constituents in an election year.  By his own admission, Columbus Mayor Fred Armstrong says he started whining about his plight, especially as flooding in June sapped city resources further, leading to cuts in daycare and police programs which served children in the city.

“You know, you can always whine like I did previously about the legislation – House Bill 1001 and all the other things which happened previously, but you know it’s here, it’s with us – let’s get off the crying block and the whining block and let’s go forward,” Armstrong said.  “We know that the state’s not going to be there to help us, so let’s help ourselves.”

Armstrong’s comment is obviously meant as a dig at lawmakers who pushed Governor Mitch Daniels’ property tax relief plan, but it might not seem that way to former Tax and Fiscal Policy committee chairman and incoming Appropriations committee chairman Luke Kenley of Noblesville.  Kenley says restoring previous property tax limits or upping state sales taxes even further both appear unlikely in a recession.

From my perspective, it’s counter-intuitive that it’s going to be beneficial to raise a tax on the public at large when we’re all kind of hurting together to benefit certain situations.  So I don’t think that it’s going to be in the cards that we’re going to raise taxes in Indiana,” Kenley said.

But making the current tax structure permanent is another story.  During his successful re-election campaign, Governor Daniels blanketed the state with television ads asking for votes on a platform which included a promise to push for a constitutional amendment mandating residential property taxes not exceed one percent of a home’s value.  That idea — and Daniels’ four-year record as Governor — are enough for Kenley to declare he’s happy to stand firm with previous legislation.

“Who wants to be the judge of who needs it the worst in these situations?  So we’ll have to do our best with the programs that we have.,” he said.  “Fortunately, we’ve got a fairly conservative governor who’s been thinking ahead about these issues, and that gives us a little bit of a head start.  Hopefully the recession won’t be so bad that we can’t weather it.”

Bloomington Mayor Mark Kruzan says his city has not yet been hurt by the gradual drawdown in property tax revenue, but when the caps reach their peak – and if they stay at the one percent figure – a constitutional amendment will only prolong the pain…

“Just about the third year, we’ll start to feel the pressure here more than we’ve been feeling it,” Kruzan said.  “I was very sorry to see the Daniels administration even talking about the constitutional amendment.  It just struck me as an election year ploy more than it was…Then though I did see after the election was over they’re talking about that being at the top of their legislative agenda.  I think it’s unfortunate.  I think it’s unnecessary. We don’t even know yet what the full impact of this plan is going to be, and to be talking about putting in into the Indiana Constitution — which I guess I do view as somewhat of a sacred document and you ought not be messing with it unless you’re awfully sure about what you’re doing — It would remove the flexibility of local government and of the state of Indiana in even more difficult economic times to be able to have options available to it.”

Kruzan, a Democrat, will likely find support from mayors on the other side of the aisle, as well, including Republican Terre Haute Mayor Duke Bennett, who says a more important task for lawmakers is finding alternative ways to generate cash…

“I’m sure – and they’re going to hear it from a lot of people, especially mayors  — that this new property tax reduction plan is a big burden on all of us,” he said.  “I think we got to figure out a way to help us find other revenue sources that will offset some of that – not to make it equal because government does need to cut back and we’re going to have to live with less money – but there has to be some ways out there that we can all kind of share and do some things together that will  reduce our costs and help us generate some additional revenue.”

No legislator has stepped forward to say they’ll author a bill proposing permanent property tax changes, and even if such legislation is passed, it’ll still have to withstand a voter referendum in 2010.  With state revenue forecasters predicting a $900 million shortfall statewide, legislators may have to decide which needs a lid on it first – property taxes or rising discontent from other elected officials.

Stan Jastrzebski

WFIU/WTIU News Senior Editor Stan Jastrzebski spent time as a reporter with WGN Radio in Chicago and as an editor at Network Indiana, an Indianapolis news service. Stan is the winner of awards from the Associated Press, the RTDNA, the Indiana Broadcasters Association and the Society of Professional Journalists. He hosts WFIU's Ask the Mayor and anchors WTIU's InFocus.

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