Mark Hunter (ozma914) wrote,
Mark Hunter

Next Week's Column: Getting Shocked by the Tax Circuit Breaker

My apologies to those of you who aren't from Indiana ... although I suppose taxes are a worldwide issue.


I was shocked recently to discover many people still haven’t heard of the property tax circuit-breaker. (Shocked – circuit-breaker. Get it? That might be the last lame joke of this column.)

It’s a bill passed by the Indiana State Legislature, which is poised to have a profound effect on the state of Indiana. (The law. Not the Legislature.) People involved in local government have discussed it in detail; I’ll try to pass on those details in a way that will make sense, and won’t involve too much math.

But I doubt it.

This feel-good piece of legislation seems like a very good thing, until it’s examined more closely. The idea is that, if your property tax gets too high, the law automatically kicks in and you won’t have to pay as much. This is a great idea, especially if you’re a person who owns a lot of property but has a thin profit margin, such as a farmer. After that, things start breaking down.

First, let’s go into more detail. Settle down, it won’t be too painful:

The law limits a tax bill to 2% of a property’s assessed valuation. If your property tax on a $100,000 home is estimated at $3,000, the law would kick in and your bill would automatically be cut to $2,000. Whether you own a shack in the projects or a mansion on the hill, your property tax is capped at 2%.

Supporters calculate this will result not in a tax decrease, but a flattening of tax bills, because of property tax reassessment. Okay: as part of the bill, in 2006 homeowners will get a one time, 5% tax break, which will be offset by higher homestead credits and cost the state about $100 million.

In 2007, the homestead credit will increase from $35,000 to $45,000, which is supposed to shift the tax burden onto businesses for that year only. The idea of this is to keep homeowners from seeing one big jump in bills caused by the market-based reassessment, something which, you might remember, was forced on the state by the courts, after the legislature procrastinated like a turtle on Valium.

The law also included a portion specifically for Lake County, where apparently the residents are extra special. (Actually, tax rates there are unusually high, even compared to the rest of the state.)

Whew. Thank goodness the state of Indiana employs lots of accountants. That way they don’t have to come up with something simple.

In 2010 the circuit-breaker becomes required for all property, effectively lowering the tax base across the state. By the way, it was a bipartisan legislation, meant as a temporary solution (as usual) and championed by Governor Daniels. Like it or hate it, people on both sides of the aisle are for it, unless they’re against it, depending on the time of day and/or wind direction.

I saw this as a good thing, assuming it’s the same for everyone, and assuming the legislatures came up with a fair way to make up moneys lost to local government. But it isn’t, and they didn’t.

According to several lawmakers, their legislative leaders (there’ll be a pause for the derisive laughter), assured the body that there would be no ill effects from the circuit-breaker legislation. (Okay, more derisive laughter.) Within weeks of its passing, horrified cries emerged from where this will really have an impact: cities, townships, towns, and counties. Local government. Crap rolls downhill, to paraphrase a rather famous saying.

I suppose I don’t have to add that this new law was slipped quietly into a massive bill just before the legislature voted on it. Say it with me: “Gee, we didn’t realize …”

Because the bill’s aftereffects make lenders nervous, it’s now harder to get loans even for governments that don’t raise taxes. That means governments must pay higher interest rates or more insurance on financing, if they can get the financing at all. If they can’t get loans, even to fund infrastructure improvements that are often required by the state, they have to raise taxes. Which the state won’t let them do.

In this agony of financial uncertainty, interest rates are rising on projects new and old because of downgraded bond ratings. In Southwest Allen County, a $5 million project to ease elementary school overcrowding will now cost another $100,000 because of those ripples, and cost that school district over a million and a half bucks over the next four years.

That system’s voters approved a referendum to improve their schools, but what they said won’t matter; the improvements will disappear under the tax cap.

The cost of a project in Muncie will go up $400,000.

Fort Wayne Community Schools estimates it will lose $11.8 million when the law comes fully into effect in 2010.

The Allen County library system stands to lose about a million and a half.

The Allen County Auditor estimates that if the circuit-breaker had been in effect in 2005, the county government alone would have brought in $3.5 million less. You really can’t make that up by using paper clips instead of staples.

Multiply that across Indiana, and it becomes clear that in the long run this will cost taxpayers more, not save them. But who actually gets the tax break?

Well, here’s a fun fact: The statewide property tax average is already below 2%. The law doesn’t help homeowners who are low to middle class and have homes of lesser value, because of exemptions that keep them from reaching the limit (that would be me and you). The owners of high valued homes would be the ones to benefit, because they don’t get the exemptions. (That would be … well, generally that would be wealthy people.)

Huh. Go figure. Until the moment I first wrote that sentence, it didn’t occur to me that this was a tax cut for the rich. Crafty devils.

But can local government entities simply do without the money? If not, is there a better way to get it than property taxes?

Next week: Popping the circuit breaker, or -- alternative forms of energy.
Tags: new era, slightly off the mark, weekly column

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