Property Taxes: The Clean-Up Has Only Begun

The Journal Gazette
March 14, 2008

When lawmakers adjourn at the end of what will inevitably be a marathon session today, they will likely have an agreement on property taxes. But one other point is certain: They won’t have done enough work repairing what ails the property-tax system .

The legislature’s work has focused more on relief and too little on what created the property-tax uproar – flawed assessments in some counties. After a reassessment by the Department of Local Government Finance in more than 20 percent of the state, it appears that $4 billion in assessed value will shift from homeowners to business and commercial property owners.

Those flawed property assessments and the resulting complaints from homeowners have driven the General Assembly’s work, as lawmakers concentrated on giving immediate relief to the wounded. It’s an inevitable result in an election year. Even with a dearth of contested races, lawmakers would rather woo voters with property tax cuts than enrage some with the government reform that’s needed.

The disappointing finish follows what looked like a healthy start. Many lawmakers have worked longer and harder in this short session than they have in any year. Some legislators – notably Sen. Luke Kenley and his bipartisan Commission on State Tax and Financing Policy – began last summer to study the underpinnings of the tax system. They heard 35 hours of testimony on the assessment system, tax-increment financing, deductions and credits, circuit breakers and remonstrance procedures. They looked at the history of Indiana’s property tax system, studied other states’ systems and even gave a respectable amount of consideration to the elimination of property taxes.

In addition, Gov. Mitch Daniels appointed a high-level commission to study local government reform. The panel, headed by former Gov. Joe Kernan and Chief Justice Randall Shepard of the Indiana Supreme Court, spent six months considering whether the state’s system of local government – including 117 cities, 451 towns, 92 counties and 1,008 townships – was the most effective way to deliver services. The report, by Shepard and Kernan’s Commission on Local Government Reform, offered 27 specific recommendations.

“In concert and quickly implemented, they will achieve their intended gain,” the Dec. 11 report cautioned. “Taken piecemeal or prolonged, we’ll be doing this again many years – and many dollars – from now.”

On its own, the local government reform commission report came too late to be implemented in full in a short session of the General Assembly. But it was complemented by the work by the tax commission, which highlighted the intricacies and foibles of the current system. The tax panel’s report made it clear that there would be no simple tax fixes, but that systemic repairs were essential. Kenley called it a “road map for the General Assembly to use in its deliberations.”

They didn’t follow it, however. The legislature’s focus was overwhelmingly on shifting or capping taxes rather than implementing measures to reduce the cost of government.

Fortunately, there is some  progress in implementing the Kernan-Shepard recommendations:

• The final bill includes a measure to eliminate township assessors in townships with fewer than 15,000 property parcels. That won’t affect Marion County, where a good share of the flawed property tax assessments and discontent originated. And the legislation sets a complex referendum procedure that must be followed to eliminate the position in larger townships.

• There’s also new legislation that sets up a procedure for replacing the three-member boards of county commissioners with a single executive, but it also requires a public referendum.

• The child-welfare levy is appropriately moved from counties to the state.

What’s missing is a key piece: An overhaul of the property tax-assessment system. The final package might ultimately result in some township assessments being replaced with a countywide assessment system, but the straightforward fix recommended by the local government reform commission was ignored. It’s like putting new tires on a car with a broken axle – it might look better, but it still won’t work.

The commission report was right – this piecemeal and prolonged approach means we’ll be doing this again many years – and many dollars – from now.