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Tax hike proposal is debate fodder

Mayor: Property owners won’t take hit, services could

Stafford
Harper

– When is a tax hike not a tax hike?

There has already been much debate over Mayor Tom Henry’s proposal to raise property taxes 5.7 percent, and there will be more debate Tuesday when the City Council takes up the issue.

But for four of every 10 property-tax payers in the city, the question seems academic: They will see no increase regardless of what the council decides.

The circuit breaker now enshrined in the Indiana Constitution limits property taxes on residential properties to 1 percent of the assessed value, and 39 percent of homesteads in Fort Wayne have reached that cap. That means that no matter what tax hikes are approved, their bills will stay the same, relative to their home’s value.

Since Henry has said that without the increase, services will have to be cut to make up for rising costs, homeowners protected by the tax cap have an easy choice: Back a tax increase that doesn’t raise their taxes, or lose services.

“You want (the council) to vote for all the services you would want, because someone else is going to pay the additional costs,” said John Stafford, executive director of the Community Research Institute at IPFW.

Of course, that depends on whom you believe.

“You’re presuming there’s going to be a loss of crucial services and I don’t think that’s so,” Councilman Mitch Harper, R-4th, said.

And as for people in his district who ask why he would not support keeping services that would not result in a cost increase for them, Harper said his constituents are more sophisticated than that. They will be more interested in why the city has borrowed itself into a corner.

“Certainly in my district they’ve been losing services for years. There’s been a lack of emphasis on capital improvements,” Harper said. “For those folks, they’re going to look at borrowing priorities.”

Of course, for 61 percent of homeowners, a tax increase means a tax increase.

“For them, you’ve got both sides of the argument,” Stafford said. “You’ve got, ‘I’m going to pay a little more, but I’m also going to retain the services I’m now enjoying.’ ”

But clouding the issue is how much of a tax increase those people would see.

For decades, no matter how complicated the property tax system was, it hinged on a simple principle: The government asked for a certain amount of money, and officials divided that among taxpayers, using property values to figure out each taxpayer’s share. That’s like a restaurant handing a table of diners a bill. The full amount must be paid regardless of how it’s divided.

That changed with tax caps.

Now, the same process happens, only there’s a limit on how much each diner’s bill can be. And if the bill is bigger than the diners’ share, the restaurant is left holding the bag. So the city, if it seeks the maximum amount it can charge in property taxes, will ask for $112.2 million – but expects to get $15 million less than that.

Some fear the amount lost to tax caps is made up by those below the cap, making their tax increase bigger. But Stafford said that is not the case. “Under the new system, no one pays it,” Stafford said. “The taxing body simply doesn’t get that money.”

So while officials fret the tax increase will hit those with lower-value homes, and presumably lower income, Stafford said a 5.7 percent increase is a 5.7 increase for anyone not covered by the cap, not an 11 percent or 18 percent increase to make up for someone else’s tax break.

Still, it is a tax hike on lower-value homes, while those with higher values will be protected.

“I don’t like regressive taxes,” said Councilman John Shoaff, D-at large. “That really troubles me.”

On the other hand, Stafford said, the system has been designed to ensure property taxes are affordable.

Each year, taxing bodies can increase their levy by an amount set by the state known as the growth quotient. For next year, taxes can go up 2.8 percent, and Stafford said the city of Fort Wayne is the only area taxing body he’s aware of that is even debating it. The mayor’s proposal is to increase property taxes 2.8 percent, plus the 2.9 percent it could have asked for this year but did not. City Councilmen have proposed not taking either increase.

“You don’t hear this discussion, ‘Should we keep the levy flat or take the growth quotient?’ ” Stafford said. “You don’t even hear the discussion.”

Stafford said the growth quotient is based on a rolling average of personal income in the state, which means it reflects people’s ability to pay and also gives taxing bodies a hedge against rising costs.

“If you never allowed an increase in the levy, eventually jurisdictions couldn’t keep pace with inflation,” Stafford said.

dstockman@jg.net

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