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INDIANAPOLIS – A new era of citizen control over property taxes starts Tuesday when a law requiring schools and governments to receive referendum approval for large, publicly financed projects takes effect.
That means voters will more directly decide the fate of their own property tax bill – giving a thumbs up or down to many schools, fire stations, libraries and more.
“There are some things I think are pretty central, and I think a referendum process – trusting the people and letting them make decisions before they are taxed for big borrowing – is pretty important,” Gov. Mitch Daniels said earlier this year in a meeting with reporters.
He also has said repeatedly that he doesn’t think a referendum process will mean the end of infrastructure improvement in Indiana.
Schools will likely be the most affected: On average 54 cents of every property tax dollar collected in Indiana goes to schools, and nearly 11 cents of that pays for school construction debt.
“My gut reaction is not a lot will be approved at first,” said Dennis Costerison, executive director of the Indiana Association of School Business Officials. “With a petition, a person has to sign ‘yes’ or ‘no.’ Under a referendum, it’ll be interesting to see if those who say they will vote for a project actually do.”
Currently, state law uses a petition and remonstrance process in which those in the community gather signatures in a dueling petition drive that decides a project’s fate.
This system will still exist for less expensive projects, but many will now go to the ballot box.
For schools, the referendum threshold for a building that houses students in grades K-8 is $10 million; $20 million for grades 9-12 and $12 million for other buildings that don’t fit exactly into those categories.
As for other governmental or taxing units, the threshold varies depending on a community’s overall assessed value. For instance, a city the size of Fort Wayne would have $12 million as the threshold that requires a referendum.
But a smaller city or town might be at $1 million.
Even in those cases, a referendum isn’t automatic. Citizens still need to gather 100 signatures for a referendum.
According to statistics provided by the Indiana Department of Local Government Finance, 320 of 518 school capital projects in the past five years have been $10 million or less. Similarly, 178 out of 196 local government buildings have been $10million or less.
The new law also prohibits entities from artificially breaking down one large construction plan into smaller units to avoid a referendum.
Rhonda Cook, director of government affairs for the Indiana Association of Cities and Towns, said she thinks the new system could create a bottleneck of proposals waiting to get onto the ballot
This could in turn push up costs as many projects jockey for the same contractors, architects, bond counsel and materials.
But Kathy Friend, chief financial officer for Fort Wayne Community Schools, said educating the public on the benefits of proposed new construction or renovation will be even more crucial in the new system.
And she noted there is an odd incentive in the law that actually makes going to referendum more beneficial. That’s because lawmakers agreed not to count debt incurred through referendum under property tax caps they passed.
Generally, the new caps – also called a circuit breaker – when fully implemented in 2010 will limit a homeowner’s property tax bill to 1 percent of the assessed value of the home. This is great for taxpayers but means hundreds of millions in lost revenue statewide to school districts and government.
But anything approved in a referendum would be held outside the cap, which would ultimately limit the budget cuts that might have to be made.
“It’s a strange thing to balance,” Friend said. “For us, that makes the referendum process more attractive because the circuit breaker affects not only our budget but every unit’s budget in our district.”
Cook also said that some communities might actually increase the size of a project to hit the referendum level.
“I think it’s just a different strategy. Before you wouldn’t have wanted to be bogged down by a referendum,” she said. “But now it would be outside the caps.”
FWCS could use the new referendum soon as the corporation is currently studying a new building plan after last summer’s petition drive killed a $500 million districtwide proposal.
There are no general elections in 2009, and a quirk in the law would require the county to pay for a special election if necessary.
But Fleck said strict prohibitions in the new law mean the district won’t be able to use any corporation money to promote a referendum project in the future.
“It’s really like a political campaign when it goes on a referendum but we don’t have a way to pay for it,” she said.
Costerison’s biggest concern is whether the referendum process creates a larger gap between wealthy and poor school districts.
He thinks that districts with high assessed values will see more projects approved because the tax rate on new projects will be lower than in districts with low assessed values.
“It will be interesting to analyze in a few years to see if they were approved in rich areas and not in poor areas,” he said.
“It just makes common sense.”
nkelly@jg.net
