By Ken de la Bastide, Kokomo Tribune enterprise editor
The dilemma facing Indiana’s property tax system is multi-faceted, but officials have differing views on what led to significant increases this year.
Most agree the problem began a decade ago when the Indiana Supreme Court declared the state’s property tax assessment system, based on depreciation, unconstitutional. The state has unsuccessfully attempted to implement a market-based assessment system for the past three years, according to members of the business and agricultural community and state officials.
The ensuing debate has resulted in a seemingly endless stream of finger-pointing, with much of the criticism aimed at locally elected township assessors.
“It’s working, just not working well for everyone,” Pat Kiely, president of the Indiana Manufacturer’s Association, said. “The problem is six layers deep and is the result of a combination of a number of things that happened over time. Adjustments by the General Assembly were well intentioned, but misdirected.”
The assessment manual developed by the Indiana Department of Local Government Finance should have been modified to prevent a major shift in the property tax burden to residential property owners, he said.
Kiely said lawmakers should turn their full attention in 2008 to the Homestead Deduction for homeowners and set a flat rate instead of a percentage.
“If we taxed every house at the same rate, there wouldn’t be a problem,” he said. “Every property should be taxed equally. You can’t create a graduated property tax system.”
Adding to the problem, he said, is that 60 percent of township assessors in Indiana are not qualified, which results in a softer increase in property taxes, Kiely said.
“No one trusts the system,” he said. “It’s not fair when houses are assessed at a different value from street to street and county to county.”
Kiely believes elimination of the inventory tax in 2007 on businesses was not a part of the problem.
He noted that local government spending went up by 6.7 percent this year, of which 3.4 percent can be attributed to the inventory tax elimination.
Ryan Kitchell, director of the Indiana Office of Management and Budget, has another idea about where some of the problem lies. He said the state has 1,100 separate elected officials who serve as township assessors. The number has to be reduced, he said.
Kitchell said half of the township assessors are not certified, while 91 of the 92 county assessors are certified.
The duties of the township assessors should be shifted to the county level, and the county assessor position should be appointed by the county commissioners, he said.
“We should use a full county model when it comes to assessment,” Kitchell said. “The bigger the area, the fairer the system will work.”
Kitchell said, by appointing county assessors, the same person could retain the position for a number of years — if they are performing the duties of the office. Currently, an assessor could be replaced every four years through the election process.
Concerning the growth in local spending, Kitchell supports limiting government spending to the same percentage as income growth for each taxing unit.
“Clearly some counties have not controlled spending,” he said. “School construction is a big driver of property tax increases. One of every four dollars collected is going to pay back debt. It is the fastest growing levy in local government.”
Kitchell said to ease pressure on property taxes, Gov. Mitch Daniels has proposed paying for child welfare and school transportation through the state.
For real tax reform to take place in 2008, Kitchell said property owners must demand change and make their voices heard.
“The special interests are trying to protect the status quo,” he said. “I’m surprised at how few regular taxpayers are attending the public hearings on property tax reform.”
Don Villwock, president of the Indiana Farm Bureau, said the organization’s ultimate goal is the elimination of property taxes.
“The system has to be more fair,” Villwock said. “The property tax system is very complex, and even those in state government don’t understand it.”
Villwock said Indiana farmers will see a 29 percent increase in the assessment of farm ground through trending, going from $880 to $1,140 per acre.
Capping property taxes for homeowners at 1 percent, as proposed by Daniels, will shift the burden to business and agriculture, he said.
Villwock said Farm Bureau supports going to a system based on sales and income tax increases at the state level rather than having each county enacting tax increases.
“For too long, we have gone from one Band-Aid solution to the next,” he said. “We don’t just want tax relief, we want tax reform.”
Sen. Tim Lanane, D-Anderson, admits that finding a solution to the property tax dilemma is no easy task.
“In certain parts of the state, there are problems with the assessment process,” he said. “We have to determine how to fix it.”
A knee-jerk reaction to solve the problems is not the approach lawmakers should take in 2008, according to Lanane.
“The assessment process is not right,” he continued. “The trending process, which reflects the replacement cost as of 1999, was a problem. The instructions being given to the assessors need to be changed. Lanane said a lot of finger-pointing is taking place. He believes the DLGF should take the lead and make sure local officials understand the process.
“The local people are not getting good guidance,” he said. “We have to develop clear rules and standards for the assessment process and to guide local officials.”
Lanane said if local units of government are spending too much, the state needs to make recommendations on how to control spending.
“One problem is a market based system,” said Sen. Luke Kenley, R-Noblesville. “People are paying taxes on an unrealized gain. There is no correlation between a person’s ability to pay taxes based on income of residential property owners and businesses.”
Kenley said the second problem is using property taxes to support local government.
“It is the only tool we gave local taxing units,” he said. “It is putting stress on the system. We need to change the dynamic of how much property taxes are used to finance local government.”
A blended system of financing local government using property, sales and income taxes is needed, according to Kenley.
Concerning the assessment process, Kenley said the base is different for communities throughout the state and reflects a local community’s ability to raise funds.
“This is bigger than any one community,” Kenley said. “The state needs to raise money and spend it where needed. Local taxes should be used for the amenities and investment in infrastructure and parks.”
Kenley said the DLGF has to become more pro-active and provide service and guidance to local assessment officials.
“We may have to increase the budget of the DLGF so that they can provide the help to the counties,” he said. “We need a system that is more reflective of the marketplace.”
Ken de la Bastide can be reached at (765) 454 -8580 or via e-mail at ken.delabastide@kokomotribune.com
