Assessments and Residential Real Estate and State Government and Property taxes and Government & Economic Development

Dramatic tax hikes predicted for homeowners

June 4, 2007

Indiana's property-tax "perfect storm" is brewing again.

A former head of the Indiana Department of Local Government Finance says some Marion County homeowners soon could see property-tax increases of as much as 50 percent--far higher than government officials previously estimated.

In part, that's because of Indiana's decision five years ago to abolish the inventory tax across the state. While some counties already have phased it out, Marion County didn't eliminate it until this year--shifting what had been a huge tab shouldered by businesses onto homeowners.

Residential taxpayers also are poised to take a hit as assessors update property-tax values for the first time since 2003, when the state first tried to set assessments based on actual market values. Homeowners are expected to receive their bills in about a month.

"What's distressing is, we don't know what is going to happen in Marion County," said Beth Henkel, who served as commissioner of the Department of Local Government Finance from 2003 to 2005. "Property tax is not rocket science, but I wish it were. We'd slow down and not make so many changes."

Henkel, now a tax consultant with the Indianapolis-based law firm Schuckit & Associates PC, expects a concentration of problems in Marion County because it has more older neighborhoods, where properties are harder to assess. Some older properties haven't changed hands in decades. As a result, hard data on their true market value is unavailable.

Indiana has long struggled to move to a market-based property-value system. The old method updated property values just once every 10 years. Assessors hope to eventually make it an annual event.

The first go-around at reassessment, four years ago, touched off a political tempest. Assessors tagged property values--particularly for many older homes in historic neighborhoods--with market values far exceeding what owners anticipated. Retirees complained that the higher tax bills were pushing them toward insolvency.

Property-tax experts like Henkel see the same dark clouds looming again.

Anticipated problems with the market-value-adjustment process, known colloquially by assessors as "trending," already have startled state elected officials into action.

When the Legislative Services Agency reported this spring that trending might spur a 24-percent average increase in residential tax bills statewide, the General Assembly raced to blunt the impact, ultimately approving a plan to provide $550 million in rebates.

Lawmakers came up with the money by authorizing a total of 4,000 slot machines at the state's horse tracks in Anderson and Shelbyville. Most lawmakers went home from the Statehouse satisfied that they'd averted property-tax disaster, believing the rebates would offset most of the tax hike.

But not so fast, Henkel warns. She thinks that trending, the elimination of the inventory tax and several other technical factors suggest that a number of Marion County homeowners still will see brutal tax increases. Even factoring in the rebates, she said the hikes could reach 50 percent for some homes.

Indiana Association of Realtors CEO Karl Berron shares her concern. He noted that unhappy residential property owners will have to act fast--they'll have just 45 days to appeal.

"I think there will be some upset folks," he said. "Pay attention to the deadlines and preserve your right to appeal, because you only have one chance."

Location, location, location

Critics of trending say it continues to rely on faulty data. The last reassessment was based on property values as of Jan. 1, 1999. This year's will attempt to update those values to their market worth on Jan. 1, 2005--without physically analyzing every property. The economy went from red hot to ice cold and back to lukewarm during that time. Six years creates a large opportunity for assessment error.

It's compounded by the fact that assessors estimate home values by comparing them with similar properties nearby. In neighborhoods where few houses changed hands, there's not much data to work with.

Henkel expects Marion County townships where older properties are concentrated--such as Center and Washington--to take the hardest hit, as they did four years ago.

But she also anticipates "pockets" of unexpected tax hikes to be widespread.

Complicating matters: Assessors are still struggling with largely paper-based information. Modern computer technology is still a dream for assessors.

"Wouldn't it be great if you could have a system like TurboTax?" Henkel asked. "Wouldn't it be better if businesses knew what was going on?"

Adding to the confusion is a full reassessment of Marion County's commercial and industrial properties that the Department of Local Government Finance ordered earlier this year. That's widely expected to force businesses to pick up a larger share of the property-tax burden. But because the reassessment will take a year to conduct, it won't affect this year's rates.

Barry Wood, the DLGF's assessment division director, said it's impossible to predict whether there will be widespread problems with Marion County residential assessments this year. Some homeowners likely will see their tax bills fall, he said, particularly once they factor in rebates. Others might see no change.

Wood's department won't know the situation until after townships bill their residents.

But a simple way for homeowners to assess whether a valuation is accurate, he said, is to compare it with what they they could fetch if they sold their property.

If a homeowner would gladly sell his house for the value listed on the assessment, the figure probably is too high, and an appeal may be warranted.

Homeowners also should keep tabs of neighbors' assessments. If lots of nearby houses have lower valuations, that could be grounds for what's called an "equity appeal."

"In real estate, the three key words are location, location, location," Wood said. "The same holds true for assessments."

Long-term solution

The state could avoid the uncertainty and the threat of political disaster if it would finally overhaul the property-tax system, said Matthew Greller, executive director of the Indiana Association of Cities and Towns.

He's particularly irked by legislators' choice to paper over assessment problems with the cash available from racetrack slots.

"Our frustration is no long-term solution has been identified," he said. "In two years, that money's going to be gone, and we'll be right back where we are now."

Marion County Assessor Greg Bowes pointed out that higher assessments aren't the only cause of increases in property-tax bills. Just as important is the amount of spending local governments approve.

If local officials can keep their costs in check, Bowes said, there's less need to increase property-taxpayers' bills.

"It's not the assessment process that's the source of your burden. It's the increase in the appropriations," Bowes said. "If you want to change the property-tax process, your recourse is voting for legislators and councilors."

Berron of the Realtors Association hopes the latest round of angst over property-tax bills finally sparks a substantive debate on a solution.

"There is no free lunch. You either have to be willing to cut spending on things like public safety and K-12 education, or shift to other forms of local revenue. And that's always difficult politically," he said.

"I really hope [this] helps force discussion of consolidation of the assessment system, which, to me, is still our first battle. A little taxpayer unrest is healthy in that regard."

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