STYRING: Bowen held line on property taxes

June 1, 2013

Bill StyringIndiana has said farewell to former Gov. Otis Bowen. Much has been written in tribute to “Doc,” and all of it deserved. He surely was the most popular governor in anyone’s memory. Even his political enemies respected him as a thoroughly decent human being.

It will do no harm to his legacy, then, to take a quick look at his specific policy successes … and failures.

I was his tax and school numbers guy when he was governor. I had one of the best seats in the house. Doc wouldn’t have wanted any maudlin glossing over any lessons we can learn.

Doc’s name will forever be tied to property tax replacement. His whole 1972 gubernatorial campaign was a pledge to produce “substantial, visible and lasting” property tax relief. In the 1973 Legislature, Doc got that done.

Styring barsThe price was high. He doubled the sales tax from 2 percent to 4 percent and used the new money to give an across-the-board 20-percent property tax credit.

A little-known, behind-the-scenes deal was that, to buy enough Democratic votes in the Senate, he had to agree to give public schoolteachers collective bargaining, a trade he would later privately lament.

Doc promised that the new sales tax revenue would all—well, almost all—go for property tax replacement. Voters are always skeptical of any political pledge to “let me raise this tax so I can cut this other tax,” fearing rightly that the result will be tax X indeed goes up, but tax Y never goes down.

Doc delivered on the tax X up and tax Y down for as long as he was in office and could control events.

Consider the chart showing inflation-adjusted Indiana property taxes. If 1973 is 100, property taxes immediately dropped 20 percent in 1974. But they kept on declining for Doc’s remaining six years in office.

The reason? The 1973 package also contained strict property tax controls. Except for debt service, school property tax levies (dollars collected) were frozen. All new school money would come from the state. For civil units, property tax rates were frozen.

If assessed property tax values rose, dollars collected could go up by the same percentage, but no more.

We had a ton of inflation in the mid- to late-1970s. With property tax revenue severely limited, we “inflated away” part of its value. By the time Doc left office in January 1981, real property taxes were a full 40 percent lower than in 1973. Success by any measure.

The “lasting” part of “substantial, visible and lasting” proved more ephemeral.

Doc’s property tax controls were all statutory. Future legislatures could undo them. Without Bowen around to veto, they did just that.

By 1987, property taxes were back above their 1973 levels and headed higher.

Lesson: If you want property tax increases lastingly limited, put those limits in the state Constitution, where future legislators will find it hard to tinker.

Mitch Daniels learned that lesson from Doc. Daniels’ property tax limits are ensconced in the Constitution.

Doc’s property tax replacement grade should read “substantial,” “visible” and “as lasting as he could make them last.”

All in all, a pretty good epitaph.•


Styring is an economist, a former Indiana Chamber of Commerce lobbyist, and a former senior fellow at the Hudson Institute. Comments at ibjedit@ibj.com.


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