taking down words

We've been waiting around all year for THIS?

John Byrne of the Post-Tribune writes an interesting article about the "Great! Grand! Biggest Tax Cut In Indiana History!" that is the Governor's property tax plan.  Final results of this brilliant legislation?  Very little.  He writes:

Too late now.

We know you meant to get to the store earlier, but starting today those goods and services you've been planning to buy just got 1 percent more expensive in Indiana.

The sales tax hike to 7 percent statewide will fund a tax relief package which will drive down residential homeowners' property tax bills about 25 percent this year in Northwest Indiana.

Before you switch from the champagne of beers to champagne, however, keep in mind homeowners will be giving a chunk of that property tax savings back to the government.

The sales tax increase will offset much of the property tax savings, leaving the median Indiana homeowner -- household income about $55,600 and home assessed at $120,700 -- with an overall tax savings of about 1 percent across the state, according to Purdue University economist Larry DeBoer.

Homeowners in areas with especially high property tax rates, like much of Lake County, will eventually see more tax savings because of property tax caps built into the plan beginning in 2009.

Don Ingersoll of Ogden Dunes welcomes the new tax system, which he said will drive down his property tax bill by about $2,000 per year.

"I don't expect to spend that on purchases after a 1 percent sales tax hike, so I'm all for the new set-up," Ingersoll said.

But Hoosier renters will feel the economic pinch.

They won't enjoy any property tax savings under the tax package passed in March by the General Assembly.

Yet they will pay more for everything but food and prescription medicine, which are exempt from Indiana's sales tax.

The median Indiana renter, who has an income of $24,592, will pay 5 percent more in total taxes under the new plan -- $139 per year.

Perhaps dealing with more pressing economic concerns, renters at a Merrillville apartment complex said Monday they hadn't made plans to change their spending because of the higher sales tax.

"I'm dealing with higher gas prices, higher food prices, everything," said Lisa Malo. "This is just one more thing, but dealing with it a couple cents here and a couple cents there, I don't think I'll change my spending habits."

The General Assembly did build savings for renters into House Bill 1001, increasing the renter exemption on state income taxes to $3,000 from $2,500 and the earned income credit for low-income families to 9 percent from 6 percent.

But DeBoer estimated those programs together will save a typical renter only about $40 per year.

And he expects Malo's reaction to be common among Hoosiers.

"Sales taxes nickel and dime people," DeBoer said. "It's difficult to change your spending habits when you can't tell the difference on a typical purchase. Of course, at the end of the year it adds up."

To sum it up, I think it would break down like this:

Homeowners:  More or less equalled out, unless you are rich in which case you see a darn good decrease in your total bill.

Renters:  Sorry about your luck, I guess that's the price you pay for being the "transient" population.  But at least the Governor gave you an extra $17 for the year.

Business owners:  Bend over, you'll be taking the brunt.

I wish this was an April Fool's day joke and that the Governor didn't spend the entire session passing a bill that has minimal effect and only helps the rich people in our state (like the Governor, oh wait, I wonder how much HE saves in taxes now), but that's what happened.  Your Government at work.

Final Note:  For those of you reading this article and thinking that coming out even isn't so bad, remember that this doesn't even take into account the likely County Income Tax that is almost assured to be raised to pay for the Governor's property tax plan.  Still coming out even?

Posted by tdwblog@gmail.com

Two Sets Of Talking Points: Guv Hates On Schools, Loves Education?

When you see, on one hand, the Guv talking about schools and local governments like they're the most wasteful entities on the face of the planet, you have to wonder how he can turn around and say things like this with a straight face:

Daniels said the state will continue to fund education properly.

"Schools and education come at the top of the priority list in Indiana," Daniels said. "I'm sure it will still be -- certainly for me -- a top priority regardless of budget circumstances."

That quote comes from this story by Associated Press writer Deanna Martin about the long-term effects of the Guv's tax "reform" plan on school districts, particularly those that don't have an affluent tax base on which to rely for funding:

Gov. Mitch Daniels says the state's new property tax restructuring plan "puts taxpayers first." But schools worry that coming in second could cost them millions, threaten programs and widen the gap between poor and rich districts.

"We have a responsibility, an obligation and a duty to ensure that our students receive a quality education," said Indianapolis Public Schools Superintendent Eugene White. "We have to pay for that."

The tax plan Daniels signed into law Wednesday will cap property tax bills for most homeowners at 1 percent of their home's assessed value, with 2 percent limits on rental property and 3 percent caps for businesses.

More money in taxpayers' pockets means less cash for schools. And education budgets are already tight, said Nate Schnellenberger, president of the Indiana State Teachers Association.

"Anyone that thinks that teachers are overpaid or schools are overfunded simply hasn't been out in the real world in a while," he said.

More To Chew On: Pay Close Attention To The New Homestead Credit

The Gary Post-Tribune's John Byrne does a nice job explaining, via question-and-answer format, the different facets of the Guv's tax plan. This one is especially noteworthy:

Q: How does the tax revamp affect my homestead exemption?

A: Starting in 2009, there will be substantive changes in the way homestead exemptions are calculated for homes both extravagant and modest.

These exemptions help determine how much of a home's value gets taxed.

The standard deduction will stay at $45,000 for homesteads -- primary, single-family residences.

But a supplemental deduction of 35 percent of assessed value has been added for properties that qualify for the standard deduction, up to $600,000.

For a $600,000 home, the $45,000 standard deduction will first be applied, bringing the taxable value of the home down to $555,000.

Then 35 percent of the remaining value -- $194,250 -- is subtracted, so the home is taxed based on a value of $360,750.

If a home is valued at more than $600,000 after the application of the standard deduction, the supplemental deduction will be equal to 25 percent of the assessed value.

Homes valued at the lower end of the spectrum will see some benefit as well.

The alternate deduction, based on the assessed value of the home, will be slightly more beneficial to people with homes assessed at between $90,000 and $75,000.

Currently, homeowners deduct half the value of the property for taxing purposes, if that amount is less than the $45,000 standard deduction.

So homes worth less than $90,000 use the alternate deduction and get less than the full $45,000 removed for taxing purposes.

Starting in 2009, homeowners will instead deduct 60 percent of the value of the home if that amount is less than $45,000.

Under this new policy, homes valued at less than $75,000 will need to use the alternate deduction.

Homes assessed at between $90,000 and $75,000 will get the full $45,000, which they have not to this point.

One-Year Fix: How The Guv's Tax Plan Is Actually Going To Work Out

The Fort Wayne Journal Gazette, which actually spends quite a bit of time and thought on its editorial page, runs a lengthy and informative column by Karen Francisco this morning explaining why the Guv's tax relief plan isn't even close to long-term reform, no matter how many times he says it is:

Much of the complexity of the new law lies in the property tax caps the governor insisted were necessary to make tax relief permanent. A companion resolution, Senate Joint Resolution 1, triggers the process of amending the state constitution because its current language – requiring a "uniform and equal rate of property assessment and taxation" – doesn't work with a tax plan that taxes homes, apartments and businesses at different rates.

The proposed amendment must now be approved by a separately elected General Assembly in 2009 and then ratified by a majority of Indiana voters. By 2010, residential property taxes would be limited to 1 percent of their assessed value, so that the tax bill on a home assessed at $100,000 would never exceed $1,000. For apartments and other residential property, the cap is 2 percent. Commercial property would be capped at 3 percent.

The caps have been inaccurately described as circuit-breakers, but true tax circuit-breakers include a mechanism for making up revenue lost to the caps. In Indiana, local units of government and schools will simply lose the money they would have collected from property owners who hit the 1 percent mark. Business owners, with three times the tax exposure, are much less likely to benefit from the caps.

It's the classification of taxpayers that is bothersome. Moses said the higher tax caps for businesses could affect the state’s competitiveness.

"It has serious economic consequences," he said. "When we tax business property at a higher rate than others, our neighbors are going to use that against us. … This could be a very detrimental bill for jobs."

Trickling Down: Shifting The Tax Burden Means Biz Folks Will Take The Hit

The Indianapolis Business Journal looks at how the Guv's property tax "reform" plan was funded -- chiefly by raising the sales tax and shifting the tax burden to businesses.

Property tax reform is now Indiana law. Hoosier homeowners are thrilled. But many corporate leaders grumble the historic deal was brokered on the backs of business.

Topping their concerns is the new 3-percent property tax cap for commercial and industrial properties, which they fear will slow business expansions and discourage companies from moving headquarters to the state. Lawmakers granted far greater relief to homeowners, whose tax bills will be capped at 1 percent of their homes' values. They set the cap at 2 percent for rental property.

Some business leaders also are uneasy with provisions in the reform bill that hike the state sales tax from 6 percent to 7 percent. The increase won't pinch just consumers, they point out, since 20 percent to 40 percent of all transactions are business to business.

And they're frustrated that lawmakers put off tackling major reforms to make government more effective and efficient—moves that are key to putting tax bills in check.

The Legislature passed the political hot potato of whether to eliminate township assessors in urban areas like Marion County to voters, who will consider the question in a November ballot referendum.

Though lawmakers next year plan to tackle reforms proposed in last year's Kernan-Shepard government-efficiency report, business leaders fear lawmakers' resolve will wane now that they've quieted the hue and cry from homeowners.

The IBJ also pens this editorial on the issue of actual government reform:

Lawmakers got a start this year by agreeing to take over some expenses, such as child welfare and certain public safety pensions, previously the responsibility of local government. Make no mistake, though, the heavy lifting will begin next January. That's when legislators will be asked to streamline local government or give locals the flexibility to do it on their own. The people who govern our cities and towns should expect no less from a state government that professes its desire for local spending restraint.

Luckily, legislators already have a blueprint for change in the form of the Kernan-Shepard report on local government reform. Delivered last December, it recommends dramatic reductions in the number of governmental units and elected officials as a way to lower costs and enhance accountability.

The Guv got what he wanted, and he might be able to fool people into thinking it's the end-all-be-all solution, but it most assuredly isn't. He once again did what he's famous for doing: avoiding a truly bold decision for something that's politically easy. (See also: his Iraq war spending estimate.)

In this instance, not only did he not solve the problem, but was held completely unaccountable for helping create the problem he's allegedly been up in arms about since he found out people were pissed at him. Short-term, reactionary thinking at its finest.

Taxpayers, Take Note: It Was The Guv Who Set This Ball In Motion

Local officials already are having to respond to the Guv's burden-shifting property tax plan. The Fort Wayne Journal Gazette reports that Mayor Tom Henry is mulling ways to make up a massive budget shortfall caused by the "relief" plan:

Saying the state’s property tax plan has forced his hand, Mayor Tom Henry plans to discuss raising local income taxes with members of the City Council.

On Monday, Henry said the recent General Assembly-approved bill to cut property taxes by 30 percent across the state will force the city to look at raising income taxes to prevent layoffs and service cuts. The bill still must be signed by Gov. Mitch Daniels, which is expected this week.

While a 1 percent sales tax increase finances part of the property tax cut, the proposed legislation also includes tax caps on property that limit the amount of money local governments can collect.

The state estimates Fort Wayne will not be able to raise $2.1 million in 2009 and $9.5 million in 2010 because of the caps.

Henry said that anticipated shortfall, combined with the council's $3.7 million property tax freeze for this year, hampers the city's ability to provide all the services residents expect. Because the law also allows communities to raise income taxes to curb the sting of the caps, Henry said the city has to examine that option.

Diversifying the tax base may be a good thing because it reduces the burden on property taxpayers, but Henry said he understands some people will end up paying more with the tax shift. He said the changes offer the city little choice.

"They (the state legislature) are essentially forcing our hand to diversify our tax base," he said.

Work In Progress: Make Sure You Use Pencil To Write In Those Caps

Another newspaper, this time the South Bend Tribune, notes that the Guv's tax plan included no long-term solutions and urges lawmakers to defeat the plan's constitutional caps next year:

The bill approved by the legislature barely touches on the serious need for local government streamlining in Indiana. HB 1001 provides for consolidation of assessor functions but it exempts townships with 15,000 or more property units. Much remains to be done in the area of local government reform.

The tax squeeze built into HB 1001 may well be, in the minds of some lawmakers, intended as an incentive to local governments to cut their spending by consolidating services. The fact is, any significant consolidation would have to be initiated by the legislature, not local officials. Much of county government structure is written in state law.

It is evident that much work remains to be done -- possibly on refining the tax reform just accomplished and certainly in tackling the issue of local government structural reform.

In conjunction with HB 1001, the General Assembly took the first step of a multi-stage process to imbed in the Indiana Constitution property tax caps of 1 percent on homes, 2 percent on rental properties and farms, and 3 percent on businesses.

It should be evident that no work in progress -- as this session's work very apparently is -- ought to be written into the Constitution. The General Assembly must be free to respond to unintended consequences in coming sessions and to address taxation issues as they develop in the future.

We hope that the resolution to amend the Constitution will be defeated in 2009 and that the legislature will instead focus on continuing the work it has begun.

Shift That Burden: Biz Owners To Pay For Residential Property Tax Relief

While we're talking taxes, consider that the Guv's Totally Rad Property Tax Solution increases the burden on businesses to fund relief for homeowners. (When's the last time you saw a business walk into a voting booth?) Further compounding the problem, the Indianapolis Business Journal's Peter Schnitzler brings us this story today:

In 2005, assessors valued the 559-acre Indianapolis Motor Speedway at $34.4 million for property tax purposes. According to the latest figures from the Marion County reassessment, it now has a market value of $170 million.

If the new assessment stands, the track’s annual gross property tax bills would increase fivefold, to more than $5 million, assuming tax rates remain constant.

Thousands of other Marion County businesses also would see extraordinary spikes in property values, according to an IBJ analysis of the latest assessment data submitted to the Indiana Department of Local Government Finance.

Gov. Mitch Daniels last year ordered the reassessment, saying he believes Marion County’s nine townships historically have done a poor job gauging the market value of commercial and industrial properties, leading their owners to pay unfairly low property taxes.

But IBJ’s analysis suggests the new effort also was plagued with problems. Many businesses saw huge jumps in assessments that appear difficult to justify. And officials have continued to revise the data, even though they were supposed to have submitted their final report to the state for approval last month.

“We still have problems,” Marion County Assessor Greg Bowes acknowledged. “There was too little time, frankly, to get everything done perfectly.”

In October, Portage, Mich.-based Manatron Inc. signed a $1.85 million contract to reassess Marion County’s 21,479 commercial and industrial properties. It delivered that data last month to the Marion County Assessor’s Office, which gave its report to DLGF in mid-February. Bowes then made further revisions with Manatron’s help and submitted a new report March 11.

The latest version assesses the county’s commercial and industrial properties at $20.4 billion, with $1.4 billion of the properties owned by tax-exempt organizations, such as hospitals. The $20.4 billion total represents a 41-percent increase from the $14.4 billion total listed for 2005.

One in four Marion County business parcels would see increases in valuation of 100 percent or more, according to Bowes’ latest figures. An unlucky 783 commercial and industrial parcels would increase more than 500 percent.

While a handful of business properties saw decreases or no changes in their valuations, nearly 90 percent increased. And much of the rise was concentrated among 2,208 business parcels whose assessments climbed at least $500,000. The Indianapolis Motor Speedway property was one of 178 parcels increasing $5 million or more.

Good luck recruiting businesses to Indiana -- and specifically to Marion County, which has largely driven and outperformed the statewide economy for the past decade -- when you treat them like that.

Then again, the Guv never really was focused on actual economic development. He just likes to cut ribbons and talk about creating jobs.

Pass The Skunk: He'll Call It Bold, But We Should Know Better By Now

The Guv will now spend the next six months talking about how he fixed the property tax crisis.

What he won't talk about is how he helped create the property tax crisis in 2005 and then wanted nothing to do with it for three years until the outcry reached a fever pitch and he absolutely had to do something, at which point, well, let's let State Sen. Lindel Hume describe the result:

Sen. Lindel Hume, D-Princeton, has pushed for repealing property taxes in the past. He called the plan "a skunk" tossed into the legislature by Daniels and gussied up with some deodorant.

"I'm sorry," he said, "but this is not true, lasting, substantial property tax relief."

No, Senator, it's definitely not. It's contrived election year relief, and you can bet that either next year or the year after, this issue will be right back front and center.

The relief the Guv is promising will mostly affect people who live in large homes in areas where assessments jumped because of trending and the new court-ordered assessment procedure. Renters and businesses will pay more.

And then there's the sales tax, that tiny penny more you'll pay on every dollar worth of goods you purchase. If you've got enough money to be hanging out on blogs on the weekend instead of wondering how you're going to feed your family in this economy, chances are you won't notice it.

But lots of people will.

And finally there's the issue of local governments, who are going to have to cut even more off the bottom line to make do with less revenue -- $524 million less statewide, to be exact.

The Guv goes up on the air with campaign ads on Monday, and he'll no doubt criss-cross the state raving about his awesome, bold leadership. He may be able to snow voters again.

But they're a little gun-shy when it comes to his promises, having been burned as many times as he's burned them. (See also: hiring Hoosier companies; hiring honest, ethical people to run government; selling off our critical assets; fixing the economy.)

Remember this as the months progress: Someone has to pay for this property tax plan that mostly helps out rich homeowners. Whether it's businesses, renters, retirees, low-income Hoosiers or local governments, this thing wasn't free, nor was it long-lasting.

It was just another short-term fix from a short-term thinker who didn't anticipate ever being blamed for property taxes going through the roof. Shift that burden, write some new talking points and carry on, Guv. We're used to your act by now.

Short Of Sight: Guv Pushed For Quick Fix Over Long-Term Tax Reforms

The Fort Wayne Journal Gazette, which actually pays attention to details at the Statehouse, points out this morning that the Guv, in his fervor to fix the tax problems he created back in 2005, largely ignored the recommendations of the commission he empaneled to deal with the heart of the property tax crisis: local government reform.

The disappointing finish follows what looked like a healthy start. Many lawmakers have worked longer and harder in this short session than they have in any year. Some legislators – notably Sen. Luke Kenley and his bipartisan Commission on State Tax and Financing Policy – began last summer to study the underpinnings of the tax system. They heard 35 hours of testimony on the assessment system, tax-increment financing, deductions and credits, circuit breakers and remonstrance procedures. They looked at the history of Indiana’s property tax system, studied other states' systems and even gave a respectable amount of consideration to the elimination of property taxes.

In addition, Gov. Mitch Daniels appointed a high-level commission to study local government reform. The panel, headed by former Gov. Joe Kernan and Chief Justice Randall Shepard of the Indiana Supreme Court, spent six months considering whether the state's system of local government – including 117 cities, 451 towns, 92 counties and 1,008 townships – was the most effective way to deliver services. The report, by Shepard and Kernan’s Commission on Local Government Reform, offered 27 specific recommendations.

"In concert and quickly implemented, they will achieve their intended gain," the Dec. 11 report cautioned. "Taken piecemeal or prolonged, we'll be doing this again many years – and many dollars – from now."

On its own, the local government reform commission report came too late to be implemented in full in a short session of the General Assembly. But it was complemented by the work by the tax commission, which highlighted the intricacies and foibles of the current system. The tax panel's report made it clear that there would be no simple tax fixes, but that systemic repairs were essential. Kenley called it a "road map for the General Assembly to use in its deliberations."

They didn't follow it, however. The legislature's focus was overwhelmingly on shifting or capping taxes rather than implementing measures to reduce the cost of government.

The editorial highlights a few small repairs embraced by lawmakers that are reflected in the Kernan-Shepard report, but it concludes thusly:

What's missing is a key piece: An overhaul of the property tax-assessment system. The final package might ultimately result in some township assessments being replaced with a countywide assessment system, but the straightforward fix recommended by the local government reform commission was ignored. It's like putting new tires on a car with a broken axle – it might look better, but it still won't work.

The commission report was right – this piecemeal and prolonged approach means we'll be doing this again many years – and many dollars – from now.