Provide solutions for the impact of property tax caps

Property Tax Caps and Public Education

Goal #3 – Provide solutions for the devastating impact of property tax caps.

 Property tax caps were implemented through legislation in 2008 and then lowered to the current (2016) rate by Indiana legislative approval in 2009.  These property tax rates were established at 1% of homestead gross assessed value, 2% for non-homestead residential and farmland, and 3% for business (real and personal property).  You may recall that many legislative leaders were quick to encourage that these property tax limits be permanently inscribed into Indiana’s Constitution under then-Governor Mitch Daniels.  In 2010, some Indiana Hoosiers went to the polls and, on the ballot, some elected to vote “yes” or “no” on the following question:

 SHALL PROPERTY TAXES BE LIMITED FOR ALL CLASSES OF PROPERTY by amending the Constitution of the State of Indiana to do the following: (1) Limit a taxpayer's annual property tax bill to the following percentages of gross assessed value: (A) 1% for an owner-occupied primary residence (homestead); (B) 2% for residential property, other than an owner-occupied primary residence, including apartment; (C) 2% for agricultural land; (D) 3% for other real property; and (E) 3% for personal property. The above percentages exclude any property taxes imposed after being approved by the voters in a referendum. (2) Specify that the General Assembly may grant a property tax exemption in the form of a deduction or credit and exempt a mobile home used as a primary residence to the same extent as real property?

 And the result from the 2010 election day that I am sure you remember went like this…Eighteen (18%) percent of Hoosier citizens voted “yes”, and the constitutional amendment passed!?  To be clear, not all of Indiana’s 6,080,485 residents were allowed to vote.  Of course, those under 18 did not vote.  This is ironic since the impact to public education from this vote affected that age group the most.  Actually, 26% of all Hoosier registered voters selected “yes” on Public Question 1 (Property Tax Cap), and it passed.  But Indiana is part of a democracy, so we have rules.  Therefore, since only 41% of Indiana registered voters went to the polls November 2, 2010, and since only 36.1% of those registered voters elected to vote on Public Question 1, the official record reported that it was “officially” approved by “72%”. 

 As a result of this historic vote, Indiana reduced property taxes that were, and still are, used to fund local government entities including, but not limited to, county government, city government, schools, and libraries.  At the same time, the Indiana State legislature implemented a sales tax increase of 1% on April 1, 2008.  Both of these actions were regressive in nature.  In the first example, the property tax disproportionately reduced tax bills for higher-valued homes and provided greater savings to those with greater means.  Renters (estimated to be approximately 30% in Indiana in 2015 based on U.S. Census data from 2010-2014) saw no savings from the property tax reform.  Couple this reform with an increase in sales tax from 6% to 7% in 2008, which, like the property tax caps, was regressive in nature.  Increasing the sales tax provided a greater negative impact on those with lower incomes.  According to the IRS, sales taxes are regressive because they take a larger percentage of income from lower-income taxpayers than from higher-income taxpayers.  The net impact of these combined changes was a greater savings for higher-income earners in Indiana as part of Hoosier taxes.  Further, it created a significant reduction in revenue for county government and local schools while State government actually got more money.

 The result of these combined actions was a reduction of local property taxes through tax cap credits.  According to Indiana’s Department of Local Government Finance, tax cap credit reductions equaled approximately $430 million for Indiana in 2010 and approximately $705 million for Indiana in 2013.

 Locally, the picture is even more bleak as counties with Indiana’s larger cities, including Howard County, have higher tax cap credit losses.  For Howard County, this loss exceeded 15% in 2015.  The specific property tax cap credit losses for Howard County (in millions), according to the State of Indiana’s Department of Local Government Finance, are as follows:

2010 - $4.0 million

2011 - $7.9 million

2012 - $4.5 million

2013 - $10.3 million

2014 - $15.7 million

2015 - $18.9 million

2016 - $19.9 million

 For Kokomo School Corporation, the circuit breaker losses have grown exponentially since they were first experienced in 2010 when financial losses were $747,161.  For 2016, the losses were $3,639,424.  For 2017, Indiana’s Department of Local Government Finance has informed the school corporation that losses from circuit breaker are likely to be even more staggering.  The news just continues to grow worse each year.  As the State of Indiana continues to increase revenue and shift taxes to its coffers, local schools and local government entities are seeing reductions.  As Indiana continues to boast about $2 billion dollars in savings, as evidenced by the large billboards placed around the perimeter of the State as a beacon to those from Illinois, Kentucky, Ohio, and Michigan, local schools and local governments are struggling.  For Kokomo School Corporation, this tax shift has created tight limits on funding for transportation expenses such as bus driver salaries and safe buses; technology and infrastructure; utilities; and much more.

 These financial problems were created by property tax reform, and set in motion by Indiana’s elected leaders.  Local school districts and communities need these same leaders to find reasonable solutions to the problems that have been created. The solution to these problems must go beyond insult-laden rhetoric that criticizes decisions made by locally-elected school board members and administrative officials.  This solution REQUIRES an acknowledgement by State leaders that reduced dollars for schools in property-tax supported funds over the past half-decade, coupled with inflation and increasing operating costs, has created an unsustainable path going forward.

 Many solutions exist, but any fair and reasonable solution will require the combined efforts of local citizens, local leaders, and State-elected leaders.  We can no longer cite the 2010 constitutionally-imposed tax caps as justification for doing nothing. We must work together to find solutions to property tax cap funding losses, and the crises that have followed.

Dr. Jeff Hauswald, Superintendent

Kokomo School Corporation

Kokomo Perspective Article, Published September 13, 2016


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