By ANN HINCH
Assistant Editor

INDIANAPOLIS, Ind. — About 51 counties in Indiana have sent or are preparing to mail out property tax bills, and Ryan Kitchell said homeowners are seeing a significant difference between last year’s invoices and this year’s.

“We’re more than halfway through (all counties),” said Kitchell, director of the Indiana Office of Management and Budget (OMB), adding the average statewide real property tax reduction for homeowners is projected at about 30 percent less than last year’s bills.

Earlier this year, the state legislature approved and Gov. Mitch Daniels signed what Kitchell described as an approximately-800-page bill setting forth reductions on real property taxes for homeowners and business owners over a three-year period. The bill provides $870 million of state-funded property tax relief this year and places caps on these taxes, which has resulted in reductions for some Indiana homeowners.

Kitchell said this year, residential property taxes are capped at 2 percent of assessed valuation – this means if a home and its residential land have been assessed at $100,000, the bill should not be more than $2,000. Next year, that cap will drop to 1.5 percent ($1,500) and in 2010, he said it will go down permanently to 1 percent ($1,000).

Commercial property – including some agricultural equipment, according to Matt Harrod, assistant director of research and policy for the Indiana State Department of Agriculture – will be capped at 3.5 percent in 2009 and 3 percent permanently in 2010. Real property taxes for land used for agriculture and residential rental properties, as well as assisted living facilities, will be capped at 2.5 percent next year and at 2 percent permanently in 2010.

“If I’m a farmer, I probably have three different caps,” Kitchell explained. “I have a 1 percent cap on my house, a 2 percent cap on my land and maybe 3 percent on my tractor” in 2010 and beyond.

“It’s even more specific than the county level,” Harrod said of how assessed valuation may vary in different parts of a county. “It’s each individual tax district; there are as many outcomes as there are tax districts.”

In Henry County, east of Indianapolis (and home to Farm World offices), a recent press release from the OMB claimed a 38 percent cut on average to homeowner’s 2008 real property tax bills. Kitchell said of the 51 counties already sending out bills, the total reduction average is 38 percent, quite a bit higher than the statewide projection of 30 percent.

“We don’t know until we get all the counties in,” he pointed out.
One reason the average is likely high so far, he explained, is because a handful of those counties voted to lower their own property taxes last year and instead institute a local income tax. Those reductions, coupled with the state-mandated cap, would make for a number significantly higher than 30 percent.

For example, Howard and Pulaski counties are each seeing an average reduction of 55 percent in property tax bills. Morgan County’s have dropped by an average of 64 percent, and in Wabash County it’s 93 percent.

Debt service

There are areas where homeowner property tax bills won’t be lowered as much this year, if they have outstanding debt for a building project. Kitchell said there is a law that the state will not subsidize local major projects approved after 1995.

By “subsidize,” he is referring to the form this year’s property tax relief is taking. The reason property taxes will go down more next year is because the state will take over some operating expenses that have, up until now, been the responsibility of counties or their municipalities – such as schools and child welfare services.

Kitchell said this amount is about $3 billion this year. To make up the loss of property tax income, the state raised its sales tax from 6 to 7 percent as of April 1, 2008.

He also said as of July 1, the decision for a county or municipality to indebt itself for a major capital project (such as a school) must go to the voters and not be decided by a governing body. Any debt service the county incurs after July 1 must be paid back entirely by local efforts, which could mean taxes higher than the state-mandated cap for the life of the debt/loan.

“The theory being, voters approve it,” Kitchell said. “(That) they knowingly went above the caps because they felt the project was worth it.”

Permanency

Though this year’s legislation describes the caps in 2010 as permanent, Kitchell said Daniels is aware a future General Assembly or governor could work to pass a new law negating these caps – which is why Daniels and some legislators want to incorporate them into the state constitution. The vote to do so has to pass two General Assemblies, which it has done in 2008 and it is up for a 2009 vote as well.

If it passes next year, Kitchell said the measure will go on a ballot for public referendum in late 2010. A simple majority will write the caps into the constitution.

“People who’ve been around a lot longer than me would say the legislation … is the most comprehensive and encompassing (passed) in 30 years,” Kitchell said.