Thursday, March 13, 2008


Leaders in the Republican-controlled Senate and Democrat-controlled House have struck a deal on major property-tax reform legislation, including constitutional caps on the taxes for most homeowners and others.

A vote by both chambers is expected on Friday, if not sooner.

Top lawmakers in each chamber are today selling the proposal to their rank-and-file members. The legislature has until midnight Friday to pass House Bill 1001, the measure that includes the property-tax proposal.

All members of the House and Senate were meeting behind closed doors today to learn details of the agreement.

House Speaker B. Patrick Bauer, D-South Bend, however, did discuss a few elements of the plan before meeting with fellow Democrats. The proposal includes the framework of Gov. Mitch Daniels' property-tax plan, capping homeowners' tax bills at 1percent of assessed value, 2 percent for rental properties and farmland and 3 percent for businesses.

The agreement also would include placing those caps in the state's constitution, a concept Democrats have resisted. When asked this morning whether such a constitutional amendment would be part of the final deal, Bauer responded: "Probably."

There would, however, be exceptions.

House Minority Leader Brian Bosma said that under the agreement, the caps would not be applied to Lake and St. Joseph counties, two areas of the state that would have been hit the hardest under the caps. Bosma declined to detail what kind of standard those two counties would be held to.

"The speaker has been very insistent that those counties be treated in a different fashion," Bosma said. "That certainly would not be my choice."

Bosma did say, however, that Marion and all the rest of the state's remaining 90 counties would be held to the caps under Daniels' proposal.

The agreement also includes referendums on building projects. Bauer, however, said referendums only would be required for projects of a certain size. He did not detail what threshold would be required for a referendum.

"Up to a certain size, you can go ahead and build, but if it's up higher you have to do a referendum," Bauer said. "So we tried to keep really big projects under a referendum but the moderate ones not. The very, very big projects would have referendums."

Democrats had pushed to have all classroom and lab projects excluded from referendums while Republicans pushed for referendums on all building projects.

The agreement also would keep a Senate provision that would eliminate township assessors in townships with fewer than 15,000 parcels. In more populated townships, a referendum would determine whether to keep or eliminate township trustees.

Under the deal, local units of government that could not make ends meet due to revenue lost by the plan's property tax caps could appeal to a Distressed Unit Appeal Board, which would have the power to temporarily lift caps or take other steps to help a city, town or school district adjust to the property-tax caps.

The agreement also includes $50 million in 2009 and $70 million in 2010 to assist schools districts that would lose revenue under the caps.

"Those who need to govern can continue to govern. Those who need to educate can continue to educate," Bauer said of the deal. "I think we have a fairly good balance."

Lawmakers declined to discuss many of the additional details of the agreement, citing the need to discuss the matter with fellow lawmakers first.

"I'm encouraged that there is an agreement. Am I thrilled with the content of the agreement? No, I'm not," Bosma said. "It meets much of the framework the governor proposed in October and that the Republicans endorsed as well. It's absolutely better than nothing."

House Ways and Means Chairman Bill Crawford, D-Indianapolis, called the agreement "tolerable."

Crawford said he remains "extremely concerned" that the levies that are being moved off property taxpayers and to the state will prove too expensive for the state to maintain in an economic downturn. State revenues have fallen nearly $90 million behind expectations in recent months."

It's going to make budget-making next year extremely difficult," he predicted.

Among the levies that Republicans have wanted to be picked up are school general funds, child welfare, juvenile incarceration, school pension bond debt and the pre-1977 police and fire pensions.

Lawmakers did not detail this morning which levies the state would assume under the latest agreement, which Rep. P. Eric Turner, R-Marion, called a "great compromise."

A conference committee report reflecting the agreement is being drafted at the Statehouse. The next step would be for the conference committee considering HB 1001 to approve the deal. Then, HB 1001 would move before the House and Senate for final votes.

"If I had my druthers, I would do it tonight," Bauer said of a final vote. "We probably can't do it today. It takes a while to have this processed. I would hope we would be able to do it tonight, but it probably will be tomorrow."

Regardless of when a final vote is taken, Bauer said it's clear leadership in the Senate and House are on the same page. The remaining task is to convince their members to agree.

"We have an agreement, period," Bauer said. "It's basically compromise all the way through."

From the Indy Star
Thursday, March 13, 2008

Blunt Proof of the Feasibility to Permanently Abolish Property Tax

Media Contacts:
Melyssa Donaghy 317-938-8913
Max Katz 765-409-6669

Hoosiers For Fair Taxation, Senator Delph, Representative Noe, Representative Elrod and many other legislators along with Stop Indiana, attorney John Price, Eric Miller's Advance America, and the Statewide Taxpayer Alliance know that property tax abolishment, without substantial increases in sales tax and income tax, is realistic and possible. The economist Dr. Bill Styring's 2/2/2 Plan demonstrates that the state of Indiana can completely replace property tax without changing the state's current spending habits.

Dr. Styring's plan does not account for positive changes in Indiana's economy that will undoubtedly follow the elimination of property tax such as heavy real estate investment and increased consumer spending due to increased statewide disposable income. The real estate investment in Indiana alone would cause such an economic boom that it could likely end our abandoned property and foreclosure crisis. Property tax elimination would also likely cause a surge in Indiana's population as more people locate to Indiana to take advantage of real estate purchase opportunities without the burden of property tax. With the population surge would come more sales and income taxes.

The General Assembly does not have to adopt a specific plan until the year 2011. In the meantime, we recommend that the General Assembly approves the 27steps outlined in the report prepared by the Sheperd Kernan commission. While the Governor's commission cannot forecast the savings to the state once the plan is implemented, there is no doubt that the savings would be substantial--perhaps equivalent to the the entire property tax burden currently placed on Indiana's homeowners because our legislators have not had the political will to liberate Indiana's governing structure and her taxpayers from the 19th century.

Our citizen networks will work to replace all legislators who do not support property tax repeal in the November 2008 election.

The 2/2/2 Plan, to replace property taxes in Indiana based upon the latest revenue forecast (07/08 fiscal, estimate):

1) Current IN sales tax (state level rate of 6%): $5.601 billion2% increase would yield an additional $1.867 billion

2) Current corporate profits tax: ~$2 billion

2% increase would yield an additional $.286 billion ($286M)

3) A 2% statewide average of the COIT would yield $2.705 billion to cover local civil units of gov.

By adding these three together ($1.867 billion + $.286 billion + $2.705 billion), a total of $4.858 billion is realized; enough revenue to replace property taxes.

Indiana has a 70-plus year history of attempts to lower property taxes by raising other, non-property taxes. In every case these have failed miserably. The new taxes, or higher rates on old taxes, remain in place. And, in short order, property taxes rise back to their old levels, poised to roar even higher.

--1933. General Assembly imposes two new taxes: an individual gross income tax and a corporate gross income tax. The morgue of the Indianapolis Star indicates that the political leadership at the time said this was for property tax relief (1933 was the pits of the Great Depression, and people were losing their homes. Home prices declined by over 40% in the 1929-1933 period). Property tax relief was nonexistent. The state used the money to bail out the state's own finances.

--1963. General Assembly imposes a new sales tax at a rate of 2% and changes the 1933 individual gross income tax (from 1933) to an adjusted gross income tax (the one we have now) at a rate of 2%. Again, the ostensible reason was for property tax relief and again little PTR was forthcoming.

--1967. Those 1963 tax changes were raising more money than projected. The GA decides to give back 8% of sales and income tax revenue to local government for property tax relief. Local units spent the money. No PTR.

--1973. Gov. Otis Bowen launches the most determined PTR offensive yet. The sales tax goes to 4% and a new corporate supplemental net income (profits) tax is imposed. Strict property tax levy controls are imposed. It works... for a time. By 1980, property taxes adjusted for inflation are some 30% lower than in 1973. When Bowen leaves office the levy controls are relaxed. By the end of the decade, property taxes (adjusted for inflation) are back to 1973 levels. The doubling of the sales tax rate from 2% to 4% remains in place, along with the new corporate SNIT.

--2002. More fiddling with the sales tax in the hope of property tax relief. The results of this are obvious, or we wouldn't be debating the current property tax mess. All of this suggests that unless the property tax is totally ripped up by constitutional amendment, the assessment and collection mechanism dismantled, it will grow back. The PTR-inspired hikes in other taxes remain. That is our history. It is a terrible deal for taxpayers.

2. A vote in the 2008 legislative session for a constitutional amendment to repeal property taxes does not amend the constitution. It merely starts the amendment process. Amendments must be passed by two consecutively elected General Assemblies, then submitted to a referendum. Thus any amendment passed by the '08 Assembly must be passed by either the 2009 or 2010 legislatures, then submitted to the voters at the 2010 general election. The General Assembly does not need to decide on a "replacement revenue" package until the 2011 session.

3. What might such a "replacement revenue" package look like? The particular answer will come from the 2011 General Assembly and cannot be determined now (if for no other reason than forecasting state level taxes and property taxes out that far would be a most unreliable exercise. No one need be locked into any particular plan just yet. However, as an illustration that a replacement plan is feasible and less scary than many fear (we don't need to be talking about a 12% or 13% sales tax ... in fact, we should not be), consider just this one possibility.

Local sales taxes are generally very bad policy, for a whole host of reasons too numerous to mention in this short sketch. Sales and corporate taxes are best levied at the state level. It happens that roughly a 2% increase in the sales tax and a 2% increase in the corporate profits tax roughly take care of school propertytaxes. The loss of local control by the state assuming school property taxes is minimal. About the onlylocal control left is on building projects.

For local civil units, a statewide average increase in the individual adjusted gross income tax of about 2% suffices to replace local civil government property taxes, higher than 2% in some units, less than 2% in others.

Thus, a "2-2-2" plan~2% sales and 2% corporate profits at the state level for schools and a 2% average on personal income taxes for civil units—is about what would be needed. This is merely a ballpark projection to 2011.

There may be better plans, it's really a policy question for the General Assembly: do you want to make the trade of something like this in exchange for no-property-taxes-forever-on-anything? Everyone understands "zero."

4. Are there "practical problems? Of course. The two identified are how to make the civil government transition from a property tax base to an income tax base, and how to handle debt backed by property taxes. Without elaborating, the former can be handled using locator software (Map quest-type programs). The debt problem might be handled by treating the current state paid PTRC's as in lieu of property taxes (which they are) and paying PT-backed debt service from each unit's own PTRC.

Conclusion: Total elimination of the property tax via constitutional amendment is the only way to give property tax relief that will stick. The other tax action necessary to achieve this goal—in 2011-are large but not so scary as "a 13% sales tax." They are feasible. The question is for the General Assembly. Are we going to once again go down that 70-odd year path of failed PTR policies or are we going to rip the property tax up by the roots?

Posted by Hoosiers For Fair Taxation on Friday, January 4, 2008.