Property Tax Caps Municipal Impact

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Property tax caps will have NO significant impact on essential service delivery by the great majority of Indiana's cities and towns.

The latest report estimating the impact of the 2010 property tax caps on all local government units that impose a property tax was prepared by Indiana's Legislative Services Agency on December 1, 2009, and can be found at http://www.in.gov/legislative/pdf/CircuitBreaker_BASELINE_20091201.pdf.

One of the LSA estimates compares the caps impact only to those budgeted funds that receive revenue wholly or partly from property tax levies. The great majority of Indiana’s 565 city and town municipal governments - 484 or 85.7% - will have their budgeted funds that include property tax levies impacted 5.0% or less by the 2010 property tax caps. Anyone familiar with their local government spending knows that a 5% reduction will have NO impact on essential service delivery.

The remaining cities and towns will have their 2010 property tax funds impacted 5.1 % or more: 57 cities and towns will have 5.1% to 10.0% less for their budgets, 16 cities and towns will have 10.1% to 15.0% less, and 8 cities and towns rely so much on high property taxes that their budgets will be impacted 15.1% or more.

Please send an E-mail to taxless3@comcast.net if you wish to receive an Excel spreadsheet that lists the impact of the 2010 property tax caps on all 565 Indiana cities and towns.

Some cities and towns may need additional revenue to maintain essential government services, such as police and fire protection, because of the 2010 property tax caps. There are two local options currently allowed by the state to offset property tax cap revenue losses: (1) a county-wide local option income tax can be passed by county councils or county income tax councils to provide replacement revenue for high-tax cities and towns that are significantly impacted by property tax caps, (2) the Distressed Unit Appeals Board was established to receive petitions from political subdivisions that are expected to have a reduction in their property tax collections of at least five percent in a calendar year as a result of property tax cap revenue losses.

Because of property tax cap revenue losses, a local option income tax MAY be justified in the following 21 counties to maintain essential services for many citizens - Blackford, Carroll, Cass, Clinton, Daviess, Delaware, Fayette, Henry, Huntington, Knox, Lake, Lawrence, Madison, Pike, Randolph, Rush, St. Joseph, Sullivan, Union, Vermillion, Vigo. As of October 22, 2009, five of these counties increased their LOIT tax rate in 2009 - Carroll (0.35%), Clinton (0.50%), Huntington (0.35%), Lawrence (0.75%), St. Joseph (0.95%).

Property tax cap revenue losses did NOT justify the 2009 LOIT tax rate increases in the following eight counties: Bartholomew (0.25%), Clay (1.00%), Fulton (0.50%), Grant (1.00%), Hancock (0.05%), Monroe (0.01%), Posey (0.70%), Steuben (0.50%). A LOIT increase is not needed in the other 71 counties - anyone who uses property tax caps in these counties to justify the imposition of a LOIT is mistaken or is intentionally misleading you. It should be noted that three counties REDUCED their LOIT tax rate in 2009 - Marion (0.03%), Parke (0.25%), Wabash (0.08%)!

The problem with the county-wide LOIT is that it punishes low-tax county areas to subsidize high-tax county areas. An exception is the Lake County LOIT which can be imposed in such a way that only residents in higher tax areas are affected. State Representative (and House Ways and Means Committee member) Jeff Thompson has authored a bill that takes the Lake County approach a step further.

The Jeff Thompson Property Tax Replacement Plan allows every local government unit to impose a variable LOIT that replaces revenue lost to property tax caps. The variable LOIT is not imposed county-wide, but is imposed only within those taxing units significantly affected by property tax caps. The Thompson Plan also allows a local taxing unit to impose a LOIT that provides a 100% property tax credit for all real property owned by individuals residing within the local taxing area. Thompson Plan details can be found at http://www.finplaneducation.net/property_tax_replacement.htm.

The only municipality to petition the Distressed Unit Appeals Board for property tax cap revenue loss replacement is the City of Gary. Other municipalities that have not received additional revenue from the imposition of a LOIT have chosen to cut expenses, combine services, and/or raise fees. The Distressed Unit Appeals Board has three options to INCREASE THE PROPERTY TAXES of a local taxing unit irregardless of the property tax caps.

The Constitutional Amendment must be passed to keep the legislative property tax caps from being exceeded by the Distressed Unit Appeals Board. The constitutional amendment would make unconstitutional any Distressed Unit Appeals Board decision that would bypass a political subdivision's property tax caps.

Passing the Constitutional Amendment on November 2, 2010, is also necessary for working families to support local income tax increases that maintain essential municipal services. Without the Constitutional Amendment, the General Assembly is free to increase property taxes at the same time that local income taxes increase. The net impact will be that property tax relief disappears while income taxes increase on top of the recent statewide sales tax increase. Working families CANNOT support local income tax increases unless the Constitutional Amendment passes. A constitutional 1% homeowner property tax cap is necessary to make the tax burden of Hoosier working families more fair and affordable in these turbulent economic times.

This page was last updated on 03/31/13 .