Education & Workforce Development and Government

Property taxes could dominate session: Lawmakers face difficult chore of addressing flaws in market-assessment system

December 5, 2005

Indiana has been struggling for more than a decade to move its property tax system to a market value standard. Expect the property tax reform debate to take center stage once again in the 2006 Indiana General Assembly.

"The more things change, the more they stay the same," said Karl Berron, vice president of the Indiana Association of Realtors.

There are some who would like to scrap the property tax system entirely and replace it with some other form of tax. Republicans occasionally float ideas such as a statewide sales tax, but Democrats call such notions regressive.

Democrats, on the other hand, call for a graduated income tax similar to the federal one. But Republicans say that would just punish initiative.

Given the limited time in the short session, at best, proponents of a property tax system overhaul simply hope to set the table in 2006 for debate in future years. Senate Minority Leader Richard Young, D-Milltown, has seen that strategy play out before.

"I think we need to do more than just debate 'em. And I'm afraid in reality, what'll happen is more debate and less action," Young said. "It's one thing to talk about it. It's another thing to do the things that will get the votes."

But next year, there's a good chance the question of fair property tax assessment will receive real attention.

In October, the nonpartisan Indiana Fiscal Policy Institute released the results of a two-year "Indiana Statewide Property Tax Equalization Study."

The study's findings were eye-popping for legislators.

The IFPI discovered that, despite the Legislature's previous efforts, the assessment system is still racked with inconsistencies and limited accountability across assessing jurisdictions.

The state constitution requires uniformity in assessment practices, even from a market-based system that leans heavily on privately employed assessors.

"The courts, in the St. John decisions, mandated a market-based standard of real property assessment be used to meet the constitutional requirement of uniformity and equity," said IFPI President Steve Johnson on Oct. 20. "The next issue was to determine if the administrative system of assessment could meet that standard.

"At the 30,000-foot level, the results look good. But at ground level, the results are problematic. Clearly, there is still a great deal of work to be done at every level of property tax administration."

To correct the inconsistencies it found, IFPI recommended moving responsibility for property tax assessment from the township to the county government level. It also called for increased training and testing standards for assessors. And it suggested instituting financial penalties for assessors who fail to meet the state's mandate.

Senate Majority Leader Robert Garton, R-Columbus, isn't surprised to see property taxes again emerge as such a highprofile issue. But given the complexity of the situation and the short length of the 2006 session, he'd rather see the General Assembly address the property tax system as a whole later.

At best, he sees time for improvement on the system's margins.

"I prefer a long-range solution over a temporary fix that may not last a year or two," Garton said. "But the Indiana Fiscal Policy Institute did yeoman's work for us pointing out in succinct fashion we're not following the constitution. You need uniform assessments."

The need to improve the assessment system may actually enjoy bipartisan support. House Minority Leader Pat Bauer, D-South Bend, noted the General Assembly's many previous efforts to address the situation. He sounded game for another attempt.

"We tried to put in education. We tried to put in uniformity. But I think we need to go to the next level," he said. "We need a uniform system. We tried to do that. We continue to try to do that."

House Republicans say property tax relief is one of their top priorities. In an election year, however, the majority caucus is typically sensitive to voter wrath. Republicans hold a slim majority in the lower chamber. If homeowners blame them for higher property tax bills, they could lose the gavel.

In the end, expect to see a great many hearings on the property tax question. But since 2006 is an off-budget year, Berron doesn't anticipate any major changes-even to correct the assessment system-until 2007.

"The implications are pretty significant in terms of the state budget," he said. "I just don't see how you can do it separately."
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