On Local Government Indiana’s Property Tax, 2008 Larry DeBoer Purdue University February 1, 2008

Homeowner Property Taxes, 2008 Total estimated average increase in homeowner taxes, statewide 8% Trending from 2005 to 2006 prices 1% Cap on state tax relief 1% $50 million homestead credit reduction to $250 million 4% Increases in local government tax collections 3% Farmland base rate increase from $880 to $1,140 -1%

Tax Plans for the 2008 Session Current SystemGov. DanielsHB 1001 Levy Takeovers by State Property taxes support school and welfare funds State takes over school general fund, transportation operating and welfare levies Passed House, added takeover of juvenile incarceration levy Credits and Deductions PTRC and Homestead credits up to $2.1 billion; added $550 million in ‘07-’08 PTRC and Homestead credits redirected to levy takeovers Passed House Replacement Revenue Increase sales tax 1 point to 7% Passed House

Tax Plans for the 2008 Session of the Indiana General Assembly Current SystemGov. DanielsHB 1001 Credits and Deductions $45,000 homestead deduction Added 35% homestead deduction 35% up to $200,000 AV

Change in Taxes due to: HomesteadsNon-Homestead Residential Apartments Levy Takeovers; 35% Homestead Deduction -31.4%0.1%3.8% Change in Taxes due to: Other Real Property Personal Property Total Levy Takeovers; 35% Homestead Deduction 1.2%-10.2%-13.9% Estimated Impact of HB 1001 (Gov’s Proposal)

Indiana Home Values and Incomes American Community Survey, U.S. Census Sample of 2.4 million households in Indiana 72% are homeowners; 28% are renters Median income for homeowners is $56,000 Median home value is $121,000 Most renters have incomes less than $35,000; median is $25,000

Indiana’s Median Homeowner DollarsPercent Change Home Value120,700 Income55,634 Changes In: Property Tax % Sales Tax % Federal Income Tax634.0% Other Taxes200.2% Total Change %

An Indiana Lower-Income Renter DollarsPercent Change Home Value0 Income27,500 Changes In: Property Tax00% Sales Tax % Federal Income Tax00% Other Taxes00% Total Change1495.5%

Tax Changes for 60 Households Household Income 15,00027,50042,50062,50087,500150,000 Renter Home15, Value40, ,000(35)(16) ,000(75)(56)(34) ,000(103)(84)(61) ,000(143)(124)(102)(28) ,000(443)(424)(401)(282)(242)(98) 225,000(1,010)(991)(968)(765)(724)(523) 375,000(2,399)(2,380)(2,358)(1,945)(1,905)(1,565)

Tax Changes for 60 Households Household Income 15,00027,50042,50062,50087,500150,000 Renter Home15, Value40, ,000(35)(16) ,000(75)(56)(34) ,000(103)(84)(61) ,000(143)(124)(102)(28) ,000(443)(424)(401)(282)(242)(98) 225,000(1,010)(991)(968)(765)(724)(523) 375,000(2,399)(2,380)(2,358)(1,945)(1,905)(1,565)

Tax Changes for 60 Households Household Income 15,00027,50042,50062,50087,500150,000 Renter Home15, Value40, ,000(35)(16) ,000(75)(56)(34) ,000(103)(84)(61) ,000(143)(124)(102)(28) ,000(443)(424)(401)(282)(242)(98) 225,000(1,010)(991)(968)(765)(724)(523) 375,000(2,399)(2,380)(2,358)(1,945)(1,905)(1,565)

Tax Plans for the 2008 Session of the Indiana General Assembly Current SystemGov. DanielsHB 1001 Replacement Revenue Renters deduction capped at $2,500 Raises renters deduction to $5,000 Indiana Earned Income Credit 6% of Federal credit Raises Indiana EIC to 9% of Federal credit

Tax Plans for the 2008 Session of the Indiana General Assembly Current SystemGov. DanielsHB 1001 Replacement Revenue Renters deduction capped at $2,500 Raises renters deduction to $5,000 Indiana Earned Income Credit 6% of Federal credit Raises Indiana EIC to 9% of Federal credit $2,500 added deduction, x 3.4% = $85 Added 3% of Federal EIC = $78 Total $163

Tax Plans for the 2008 Session of the Indiana General Assembly Current SystemGov. DanielsHB 1001 Tax Bill Limits2% circuit breaker limit for homeowners in ‘08; 3% limit for all other property in ‘10. Constitutional amendment to limit tax bills to 1% of AV for homeowners, 2% for rental housing, 3% for business property Added 2% limit for agricultural property; freeze for homeowners over 65

Change in Taxes due to: HomesteadsNon-Homestead Residential Apartments Circuit Breaker 1/2/3 Limits -6.0%-18.2%-21.5% Change in Taxes due to: Other Real Property Personal Property Total Circuit Breaker 1/2/3 Limits -5.2%-5.5%-8.1% Estimated Impact of HB 1001 (Gov’s Proposal)

Indiana’s Median Homeowner (in a high-tax rate county) DollarsPercent of Home Value Home Value120,700 Income55,634 Taxable AV72,700 Property Tax2,0001.7% Taxable AV46,205 Circuit Breaker Credit43 Property Tax1,2071.0% Percent Change-39.7%

Circuit Breaker Credits by Home Values (in a high-tax rate county) Low ValueMiddle Value High Value Home Value60,000150,000375,000 Percent Change, Tax Bill-39.9%-46.5%-53.7%

Estimated Circuit Breaker Tax Credits Total Credits ($ mil) Percent of Prop. Tax Levy Counties % Cities/Towns % School Corps % Other Units % Total %

Estimated Circuit Breaker Tax Credits Total Credits ($ mil) Percent of Prop. Tax Levy 11 Counties most affected % % All Other Counties126.00% - 9.8% Total %

Circuit Breaker legislation has changed security on debt to limited tax from unlimited tax Outlook for Indiana debt is negative

Tax Plans for the 2008 Session of the Indiana General Assembly Current SystemGov. DanielsHB 1001 Replacement Revenue Three new local option income taxes to reduce property taxes and add to public safety funding One local option income tax to reduce property taxes or replace revenue lost to circuit breakers

Tax Plans for the 2008 Session of the Indiana General Assembly Current SystemGov. DanielsHB 1001 Levy LimitsPetition- remonstrance process for capital projects; referenda for added school levies Referenda required for larger capital projects and excess levy increases Referenda for large sports facilities only

Bond Issue Approval Procedures in the United States, 2007 ProcedureNumber of States Petition/Remonstrance1 (Indiana) Constitutional Referendum Provision32 Citizen Action Required8 (includes Indiana) Automatic Referendum40 Simple Majority36 Super Majority11 Town Meeting Approval2 No Voter Role2

Six Studies of School Referenda Results VariableStudies Using Indicator Positive Effect on Spending Negative Effect on Spending Tax Price 505 Over-65 Population 504 A cost-benefit calculation by voters

Tax Plans for the 2008 Session of the Indiana General Assembly Current SystemGov. DanielsHB 1001 Assessment Practice Combination of 92 county assessors, 1008 township elected and township trustee assessors, private contractors Eliminate township elected and trustee assessors; consolidate duties with appointed county assessor Eliminate township elected and trustee assessors; consolidate duties with elected county assessor

Policy to Improve Assessment Practice, and Research Results Policy Recommendations Research ResultsIndiana Current Practice Proposed Policy Changes Assessment at 100% of Market Value Strong SupportFull value assessment since 2001 Full-time AssessorsStrong SupportCounty and elected township assessors are full time; trustee-assessors are not Remove part-time and full-time township assessors Advanced Assessing Tools Strong SupportTools used in some jurisdictions, not in others Consolidation and certification Consolidation to larger units Larger units reduce costs; improved uniformity raises costs Townships are basic assessing unit; counties assess in many counties Consolidate assessment to counties