Monday, August 4, 2008


By a vote of 6-3, the School Property Tax Control Board voted to reject the School City of Hammond's plan for a new Hammond high school.

The control board's nonbinding decision now goes to Cheryl Musgrave, the DLGF Commissioner for a final decision. Should Musgrave veto the project, voters would have the opportunity to approve the new high school by way of a referendum.

Four members of Team Hammond Taxpayers' Group made the trip down to Indianapolis to attend the control board hearing. Team Hammond would not attack the need nor the location or consolidation; their focus would be that the past performance of the SCH did not justify building a new school.

During Jim Premeske's presentation, he emphasized the degree to which the SCH adjusted their statements to support any position they might take: i.e. "...we need new schools because enrollment is increasing" or four years earlier "...with a declining enrollment we must...add schools." Example: justifying a new Maywood because it was too close to Wallace (four blocks), then building the new Maywood two blocks from Wallace. Jim also addressed Hammond's penchant for abandoning buildings prematurely (Orchard Drive), often bearing a demolition expense after half (or less) of its useful life. Jim then addressed the two $21 million schools built consecutively about one mile apart, while schools built to the same design were built for $11 million and $14 million elsewhere. Lake County's exclusion from the statewide property tax relief implementation schedule (and why), Hammond's declining population, and the negative impact of TIFs on property tax revenues were also covered by Premeske's presentation.

Jim Sheehan's presentation followed next. He explained the deception inherent in the SCH's financial package; that as much as $400 million was unaccounted for in their required legal advertisement and how the school board was misleading citizens into thinking their property taxes would not increase. Sheehan explained how the SCH had established a sham "multi-building school corporation" holding entity to avoid the limitations of Article 13 of the Indiana Constitution. The sham corporation bonds, builds, then leases buildings to SCH to avoid financial regulation by the state. SCH's debt limit is not more thn $52 million while their existing (pre-Hammond High/Gavit) debt is $362.7 million. During cross examination, it was discovered that to win approval the new debt had been backloaded: practically no principal would be paid in the early years of the debt, with a huge increase occurring during the last ten years of the bond.

The last Team Hammond presenter was George Janiec. He cited Hammond's unsatisfactory academic performance and the fact that existing statistics showed negligible improvement among students in Hammond's newer schools. He challenged the SCH's assertion that no additional construction was in Hammond's future by addressing the age and enrollment limitations of the Depression-era George Rogers Clark MS/HS, which will be nearly 100 years old when the largest volume of the proposed debt would be hitting the taxpayers. Much of SCH's justification hinged on a specific wheelchair bound student. George questioned why this would now be of immediate importance when the federal ADA mandated such compliance 16 years ago. George closed with an impassioned plea that the decision for additional debt belonged with the citizens; not with the five school board members and not with the out-of-town administrators, educators and consultants who would not be paying the bills.

Members of the property tax control board said although they sympathized with the need for a new high school, they objected not only to the $106.6 million cost of the construction project but also the estimated $60 to $70 million in interest costs over the life of the 20 year bonds.

Another sticking point with some of the board members was the fact that the bond payments would be backloaded. SCH would pay nothing in 2008 and 2009 according to the proposed financing scheduling giving taxpayers the false security their property taxes would not increase.
However, in 2010 annual payments would jump to $5.3 million and in 2020, payments would balloon to $13.9 million.

While we may have won the battle, the war is far from over. The final decision now rests with Cheryl Musgrave, DLGF Commissioner. Write, call, email or fax Ms. Musgrave at the DLGF in Indianapolis and let her know you oppose this building project. She has six months in which to make her decision.

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.