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December 20, 2009

STEPHANIE SALTER: Think property tax caps are a no-brainer? Think again

By Stephanie Salter

TERRE HAUTE — Let’s see. State revenue forecasts are so bad, the governor has announced we must finally break into our $1.3 billion reserves and cut $300 million out of the K-12 public school system’s budget for the next two years. Higher education already has been slashed 6 percent and state agencies 20 percent.

That 20 percent includes the Department of Child Services, which is now part of a lawsuit filed by a coalition of Indiana residential child care agencies seeking to halt the cuts in the name of vulnerable children.

Meanwhile, the nonpartisan Legislative Services Agency has forecast that Hoosier income tax distributions will be considerably less for 2011 than they were this year or should be next year. (Extended unemployment, layoffs and furloughs have been known to do that to income tax distributions.)

Oh, and that estimated $953 million in property tax savings that tax caps are supposed to provide for Indiana home, farm and business owners for 2010 and 2011? Well, the other side of that coin is, those “savings” will produce an equal deficit of operating funds available for city and county governments and school districts.

So, what better time to make property tax caps permanent through a state constitutional amendment?

When you’re stumbling downhill toward a fast-moving river of unknown depth, by all means, tie your hands and feet as tightly as you can before you hit the water. And why not put a big chunk of concrete in your backpack?

Am I the only person left in Indiana who wonders what “conservatives” in the state Legislature are drinking that’s fueling their fevered drive to make tax caps permanent?

I am a homeowner. I understand what it means to have bareheaded property tax levels, as opposed to levels wearing caps. The cold winds of economic change can blow the tax on your home, agricultural land or business property upward instead of sideways or down.

However, that is a risk property ownership carries. Those possessions also can carry tax breaks on the other end, particularly if your parcel is financed by a mortgage and you deduct some of the interest on your loan.

Of course, reasonable rises should be built into property taxes. I’m not suggesting Indiana legislators allow them to head for the stratosphere with no holds barred. Like many folks, my own funding sources are trending downward, not up. The last thing I want to face is sky-high property taxes.

But there is a sizable stretch between sky-high increases and what the governor and his like-minded colleagues desperately want: a constitutionally frozen 1 percent cap for homes, 2 percent for agricultural property and 3 percent for business.

Remember how we got here? The sticker shock thousands of Hoosiers suffered a few years ago when property tax levels skyrocketed in many areas was caused by a chronically delayed, bad situation that the Indiana Supreme Court ordered the House and Senate to remedy:

Hoosiers’ property assessments, and their resulting tax rates, were all over the map. Lots of folks in high-end neighborhoods, in fact, were operating with maps that better reflected the economy of the Eisenhower era than that of the Third Millennium.

In answer to a lawsuit, the court said, “Fix it,” and lawmakers jumped. Instead of assimilating a gradual rise to reasonable, timely levels, though, many Hoosier property owners were catapulted into the 21st century.

The resulting fallout — the loudest from wealthy homeowners — cost a few mayors around the state their jobs and made short-sighted, even crippling versions of “tax reform” a hot ticket in the Legislature.

Cap, baby, cap!

Then, Part II of the great experiment began to materialize. Lost services.

Here in Vigo County, the cost-conscious public library system had to undergo radical amputations after $900,237 was chopped from the library’s already lean annual budget. Layoffs of 14 staff and other cost-cutting measures couldn’t close the funding gap. Library officials had no choice but to shutter every branch in Terre Haute, leaving only West Terre Haute’s open.

The operative phrase at the time about the library’s lost funding was, it was an “unintentional consequence” of the precipitous drop in property tax revenue.

It may have been unintentional, but it certainly shouldn’t have been unforeseen.

When your income is drastically reduced, your ability to pay your usual bills is drastically reduced.

Slap a 1.5 percent individual property tax cap on an entire state for 2009, plus a 2.5 percent cap on agricultural property and a 3.5 percent cap on business land and buildings — and negative consequences for the public entities that rely on such tax revenues are guaranteed.

Combine those funding declines with the nation’s worst economic dive in 80 years — a dive that will not end until employment enjoys the sort of resurrection the banking industry and Wall Street are experiencing — and worse consequences are guaranteed down the road.

Opponents of the permanent property tax caps liken them to an illusion created with smoke and mirrors. Money isn’t really saved, cost is simply shifted to another entity or labeled something else.

So, the Legislature and governor trumpet property tax savings and institute a 1 percent sales tax hike, a regressive tax that has affected all Hoosiers, wealthy and poor, since April 2008.

Their answer for all the revenue that will be lost to permanent property tax caps? Cities and counties should adopt a local-option income tax to keep their basic services operational.

In other words, let the poor schmoes at the local level deliver the bad news while the fiscal conservatives at the state level keep repeating, “Read our lips, we don’t raise taxes.”

Despite what Hoosiers are being told by the tax caps junkies, property tax levies and any permanent limits on them are complicated business. Wednesday, you will hear from a man whose responsibility is to protect Vigo County taxpayers. With years of research under his belt, his focus isn’t politics, it’s fair taxation.

He isn’t against property tax caps, but, like me, he thinks pushing for a Constitutional amendment to make the proposed caps permanent in this economy is not at all a good idea.



Stephanie Salter can be reached at (812) 231-4229 or stephanie.salter@tribstar.com.

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