A model house with one-dollar bills. (Getty Images)
Indiana lawmakers are drawing up changes to the state’s property tax system, with high value assessments last spring pointing toward potentially high bills this year. But their approach has been cautious, laden with warnings about a lack of data and negative consequences.
Taxable assessed values shot up 15% from 2021 to 2022 — even after tax abatements, deductions and credits — according to data from the Association of Indiana Counties. That’s compared to a 5% increase the year before, and increases under 5% in each year since at least 2014.
Association Executive Director David Bottorff said Indiana has several safeguards to protect property owners — caps, maximum levies, discounts — but said, “Admittedly, the system probably never anticipated this type of assessed value increase all in one year.”
And because of the system’s built-in delay, it’s 2022’s higher assessments that property owners will see reflected in their bills this spring. Sales one year influence assessments the next, which affect bills the year after.
But an increase in assessment doesn’t automatically portend higher tax bills as tax rates can be adjusted downward to bring in the same amount of money. One study by Sen. Brian Buchanan, R-Lebanon, estimates the bills themselves might increase just 7%.
Is there a problem to fix?
House Speaker Todd Huston, R- Fishers, has repeatedly pushed property tax relief as a legislative priority. He told reporters at the legislative session’s ceremonial start in November that Hoosiers “are going to want it.”
Lawmakers seek mild tweaks and vast overhaul
Senate Bill 45 — from Sen. Rick Niemeyer, R-Lowell — would eliminate annual, market-based adjustments to assessed values. The bill is detailed, at 60 pages long. Indiana moved to a market-based system just 20 years ago.
Senate Bill 46 would let county officials provide a credit against property tax liability. It doesn’t give those local governments a way to make up for the lost revenue. Sen. Jack Sandlin, R-Indianapolis, authored the bill.
Senate Bill 90, from Sen. J.D. Ford, D-Indianapolis, would freeze property taxes for Hoosiers aged 65 and older who’ve owned their home for at least 10 years. And it would let local governments recover the lost revenue directly from the state’s general fund — a return to a system in which Republican lawmakers have said they’re not interested.
House Bill 1051 would let local units provide an assessed value deduction for longtime owner-occupants of houses with assessed values under $200,000. Rep. Cherrish Pryor, D-Indianapolis, authored the bill.
But the potentially high bills are simply a byproduct of a market-based system, according to tax expert and Purdue University agricultural economics professor Larry DeBoer
“What we’re seeing is the assessment system working,” DeBoer told the Capital Chronicle.
“Assessors have been capturing actual changes in home prices, and we know this is true because home prices actually fell back in 2009 and 2010, and sure enough assessed values fell in 2011 and 2012,” DeBoer said. “… So, since 2021 was a big increase in home prices, then that’s why we’re seeing this increase in assessed value.”
And others have pushed against quick fixes.
“It’s probably premature to be looking for the panic button,” said Indiana Office of Management and Budget Director Cris Johnston while on a fiscal leadership panel at a legislative conference last month.
“We still have to see what the bills actually say,” Johnston added. “… What goes up is coming down. We’ll have to see that over over the next couple of years. My caution would be: let’s not take some sort of drastic action immediately.”
Senate Tax and Fiscal Policy Committee Chair Travis Holdman, R-Markle, said he’d had to warn committee members to “be careful with legislation.”
“It’s like pulling a thread,” Holdman said, as part of the same panel. “We have a complicated property tax structure in the state of Indiana, with property tax caps. And if we started pulling that thread, we can see that the whole blanket becomes unraveled. There’s not a quick fix.”
Bill drafts abound
Despite the warnings, several lawmakers have already introduced property tax relief bills, ranging from small tweaks to major changes.
Four were available online as of Thursday, including a lengthy Republican proposal to ditch the market-based yearly adjustments to assessed values and a Democrat attempt to freeze property taxes for elderly longtime homeowners.
And lawmakers are sitting on more bills.
Senate Ways and Means Committee Chair Jeff Thompson, R-Lizton, said multiple drafts with other property tax relief strategies exist, but hadn’t yet been put forth.
“We’ve not decided yet … because some of those may not be the right solution,” Thompson told the Capital Chronicle. “There’s multiple possible ways you might might sell this, but nothing’s concrete.”
“Once we get some hard data, that will really start to drive drive home what we’re going to do,” he added.
For instance, some suggestions focus directly on assessed values and ways to keep them low. But that could lead to artificial prices that caused the state’s property tax system to be found unconstitutional in the 1990s. Other approaches focus more on the bills themselves and how much they can increase in one year. But that limits revenue local government might need to provide services.
Good data, good decisions?
Thompson expected data from the Department of Local Government Finance to come in soon. Bottorff, of the Association of Indiana Counties, also said his organization was working to generate projected tax bill increases and distribute that information to lawmakers during the legislative session.
Bottorff said he wanted lawmakers to “wait until we get this data available to their hands, and make sure the decisions they make are based on facts that will address the unique situation.” He warned against “an overreaction that changes the system in the long run to a negative situation that we’ll never be able to, perhaps, recover from.”
The language from the unintroduced bill drafts could come into play weeks down the line in amendments, Thompson said. He wasn’t sure which lawmakers would carry the legislation.
An attempt could come from Buchanan, who told the Capital Chronicle he’d spent months reviewing historical property tax data going back 10 to 15 years. He declined to provide specific provisions from the bill drafts, but emphasized “sticker shock” from sudden and large bill increases as a key problem.
“We are not looking to completely overhaul the property tax system in Indiana,” Buchanan said. “… If anything, we may just need a few tweaks to stop those tremendous … fluctuations from year over year.”
Local governments worry
Property tax revenue goes to local governments — not the state of Indiana. And it’s those governments’ primary source of income.
Accelerate Indiana Municipalities (AIM), which represents the state’s hundreds of cities and towns, said its members fear state changes would hurt local finances and functioning.
CEO Matthew Greller noted that income tax is a local government’s second-biggest revenue source. If warnings of impending recession come true, those governments could be hit by a “double-whammy” of revenue declines.
Huston told reporters in November that he recognized “the concerns of local governments,” and would work with them to address those concerns.
Ball State University economics professor Michael Hicks said state lawmakers should strive to maintain high-quality public services to draw more people toward Indiana.
“Thirty years ago, there was no way to know if schools were good. There was no No Child Left Behind [and] there was no internet,” Hicks said on the December legislative conference panel. “Now, you can tell very quickly if they’re good or not. And so the quality of public services plays much more into the decision of households to locate someplace.”
And businesses often make decisions, he said, based largely on the quality and quantity of the human capital available someplace.
But public services also get more basic, said Rachel Blakeman, director of Purdue University Fort Wayne’s Community Research Institute.
“With fewer services, [if] you want your employees to get to work, that’s not happening because they’ve decided they’re not doing 24/7 snowplows,” Blakeman said as an example. “They stop plowing at 10 p.m. and we’ll get back to it at 6 a.m. Well, school buses start before then … or [in] emergencies, you would kind of like the ambulance to be able to get to your house.”
Blakeman urged further caution, asking, “Are we making this as a particular strategic decision about how we pay for services — and specifically, local services that people need and like — or are we doing this as a reactionary measure for a short-term political win?”
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