INDIANAPOLIS – Critics uniformly assailed a proposed assessed value cap Wednesday as regressive, unconstitutional and even an insincere attempt to curry favor with voters.
But authors of the bill defended it as a way to give property taxpayers certainty on their bills – certainty the current property tax cap system doesn’t provide.
This is the second part of a promise most of us have made to our constituents, said Rep. Dale Grubb, D-Covington.
He was referring to tax caps that limit a property tax bill to 1 percent of assessed value for homeowners, 2 percent for farmland and rentals and 3 percent for business.
One, two, three is a false promise until assessed value is constrained in some manner, Grubb said.
Although he and other lawmakers anecdotally mentioned taxpayers being confused by assessed value growth, countywide statistics around the state don’t bear out large assessed value shifts.
And there has been no outcry against property taxes similar to 2007 that prompted massive overhaul of the system.
Property tax bills are a combination of factors. First, a levy control limits how much local government can raise in property taxes each year. Then, the overall assessed value of an area is applied to a tax rate to reach that amount.
Depending on the assessed value, the tax rate will rise or fall to compensate.
Tax caps put into place by legislators control the total property tax bill somewhat but are meant to rise and fall with values.
House Bill 1004 would go a step further by limiting a homeowner’s assessed value growth to 1 percent each year and farmland to 2 percent. There is no limit in the legislation for commercial property.
Virtually everyone at the Ways and Means Committee hearing Wednesday testified that capping the assessed value would gut the fair-market value system Indiana was forced to go to in 2002 after its previous property tax system was found unconstitutional.
Allen County Assessor Stacey O’Day said the Indiana Supreme Court and the Indiana Tax Court directed state officials to use objective and verifiable data in the assessment system. But this bill would move away from that directive.
This is a total distortion of the assessment system, said Bill Waltz, tax expert for the Indiana Chamber of Commerce. Capping (assessed value) at such a low level makes a mockery of the fair-market value system we’ve been trying to put in place.
He also acknowledged that because there are no assessed value caps for business, there would be a shift in taxes to that property to make up the difference.
I can assure you it would be challenged in court, Waltz said.
More troubling to legislators seemed to be a shift in the tax burden within the residential category from higher-value property to lower-value property.
Rep. Randy Borror, R-Fort Wayne, said higher-priced properties continue to appreciate more consistently. But if that assessed value doesn’t rise with the market, it pushes the tax rate up for everyone, he said, including owners of homes with stagnant prices.
We’re doing not much more than price-fixing, he said.
Others at the hearing noted that because tax rates would rise, some homeowners would hit the tax caps much more quickly, causing more revenue trouble for local governments.
But Rep. Terry Goodin, D-Crothersville, said taxpayers are confused and are asking why the tax caps aren’t working and their bills are still going up.
This proves the failure of the 1-2-3 caps, he said. They are supposed to be limited taxes, but it’s not working.
The committee will vote on the assessed value caps proposal on Monday.