Indiana s Constitutional Referendum On Tax Caps, November 2010

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1 Purdue Cooperative Extension Service Indiana s Constitutional Referendum On Tax Caps, November 2010 Larry DeBoer Department of Agricultural Economics Purdue University September 2010 For more information DeBoer s Indiana Local Government Information Website:

2 The Tax Cap Constitutional referendum, on the ballot on November 2, 2010: PUBLIC QUESTION #1 SHALL PROPERTY TAXES BE LIMITED FOR ALL CLASSES OF PROPERTY by amending the Constitution of the State of Indiana to do the following: (1) Limit a taxpayer's annual property tax bill to the following percentages of gross assessed value: (A) 1% for an owner-occupied primary residence (homestead); (B) 2% for residential property, other than an owner-occupied primary residence, including apartments; (C) 2% for agricultural land; (D) 3% for other real property; and (E) 3% for personal property. The above percentages exclude any property taxes imposed after being approved by the voters in a referendum. (2) Specify that the General Assembly may grant a property tax exemption in the form of a deduction or credit and exempt a mobile home used as a primary residence to the same extent as real property? The Tax Cap Constitutional Amendment, to Article 10, Section 1 of the Indiana Constitution [Regular text shows the Constitution as it is now. Bold text is added, crossed-out text is eliminated] Article 10, Section 1. (a) Subject to this section, the General Assembly shall provide, by law, for a uniform and equal rate of property assessment and taxation and shall prescribe regulations to secure a just valuation for taxation of all property, both real and personal. (b) A provision of this section permitting the General Assembly to exempt property from taxation also permits the General Assembly to exercise its legislative power to enact property tax deductions and credits for the property. The General Assembly may impose reasonable filing requirements for an exemption, deduction, or credit. (c) The General Assembly may exempt from property taxation any property in any of the following classes: (1) Property being used for municipal, educational, literary, scientific, religious, or charitable purposes. (2) Tangible personal property other than property being held as an investment. (3) Intangible personal property. (4) Tangible real property, including curtilage, used as a principal place of residence by an: (A) owner of the property; (B) individual who is buying the tangible real property under a contract; or (C) individual who has a beneficial interest in the owner of the tangible real property. 1

3 (b) (d) The General Assembly may exempt any motor vehicles, mobile homes (not otherwise exempt under this section), airplanes, boats, trailers, or similar property, provided that an excise tax in lieu of the property tax is substituted therefor. (e) This subsection applies to property taxes first due and payable in 2012 and thereafter. The following definitions apply to subsection (f): (1) "Other residential property" means tangible property (other than tangible property described in subsection (c)(4)) that is used for residential purposes. (2) "Agricultural land" means land devoted to agricultural use. (3) "Other real property" means real property that is not tangible property described in subsection (c)(4), is not other residential property, and is not agricultural land. (f) This subsection applies to property taxes first due and payable in 2012 and thereafter. The General Assembly shall, by law, limit a taxpayer's property tax liability as follows: (1) A taxpayer's property tax liability on tangible property described in subsection (c)(4) may not exceed one percent (1%) of the gross assessed value of the property that is the basis for the determination of property taxes. (2) A taxpayer's property tax liability on other residential property may not exceed two percent (2%) of the gross assessed value of the property that is the basis for the determination of property taxes. (3) A taxpayer's property tax liability on agricultural land may not exceed two percent (2%) of the gross assessed value of the land that is the basis for the determination of property taxes. (4) A taxpayer's property tax liability on other real property may not exceed three percent (3%) of the gross assessed value of the property that is the basis for the determination of property taxes. (5) A taxpayer's property tax liability on personal property (other than personal property that is tangible property described in subsection (c)(4) or personal property that is other residential property) within a particular taxing district may not exceed three percent (3%) of the gross assessed value of the taxpayer's personal property that is the basis for the determination of property taxes within the taxing district. (g) This subsection applies to property taxes first due and payable in 2012 and thereafter. Property taxes imposed after being approved by the voters in a referendum shall not be considered for purposes of calculating the limits to property tax liability under subsection (f). (h) As used in this subsection, "eligible county" means only a county for which the General Assembly determines in 2008 that limits to property tax liability as described in subsection (f) are expected to reduce in 2010 the aggregate property tax revenue that would otherwise be collected by all units of local government and school corporations in the county by at least twenty percent (20%). The General Assembly may, by law, provide that property taxes imposed in an eligible county to pay debt service or make lease payments for bonds or leases issued or entered into before July 1, 2008, shall not be considered for purposes of calculating the limits to property tax liability under subsection (f). Such a law may not apply after December 31,

4 Property Tax Calculations for Four Taxpayers Lower Valued Homestead Higher Valued Homestead Rental Apartment Business Gross Assessed Value 90, , , ,000 Deductions Homestead Standard 45,000 45,000 35% Supplemental 15,750 71,750 Mortgage 3,000 3,000 Net Assessed Value 26, , , ,000 Tax Rate per $100 AV Tax Bill before Credit 656 3,256 6,250 6,250 Tax Cap Rate 1% 1% 2% 3% Tax Cap 900 2,500 5,000 7,500 Tax Cap Credit ,250 - Tax Bill after Credit 656 2,500 5,000 6,250 Tax Cap Credits with Alternate Tax Rates Tax Rate: , ,408 2, ,059 3,750 1,250 Assumes no local property tax credits. Assumes no tax rates passed by referendum, which are outside the tax caps. Debt service tax rates in Lake and St. Joseph Counties are outside the tax caps. Percent of Homesteads Eligible for Tax Cap Credits by Gross Assessed Value and Net Tax Rate, 2010, Indiana (89 counties) Net Tax Rate Range Gross Assd. Value Less than $2.00 $2 to $3.00 $3 or More Total Number Less than $110, % 3.4% 18.9% 4.2% 808,801 $110,000 to $250, % 41.4% 67.8% 17.0% 659,399 More than $250, % 81.4% 94.8% 31.2% 119,573 Total 1.8% 22.4% 31.2% 11.5% 1,587,773 Number 907, , ,831 1,587,773 3

5 Credit Percent of Levy Tax Cap Credits by Property Type, 2010 Indiana (90 Counties) Business Real/Personal (3%), $73,047,348 Over-65 Homestead 2% Limit, $2,269,501 Homesteads (1%), $90,486,195 Rentals/Farmland (2%), $169,177,776 20% Tax Cap Credits as a Percent of Total Levy, by District Tax Rate and Property Type, 2010, Indiana (90 Counties) 18% 16% 14% Business Real/Personal (3%) Rentals/ Farmland (2%) Homesteads (1%) 12% 10% 8% 6% 4% 2% 0% $3.00 or More $ $3.00 Less than $2.00 All Districts District Tax Rate 4

6 Credit Percent of Levy Credit Percent of Levy Tax Cap Credits as a Percent of Total Levy, by City/Town Districts and Property Type, 2010, Indiana (90 Counties) 9% 8% 7% 6% Business Real/Personal (3%) Rentals/Farmland (2%) Homesteads (1%) 5% 4% 3% 2% 1% 0% Districts with Cities/Towns Districts without Cities/Towns All Districts Tax Cap Credits as a Percent of Total Levy, by Unit Type and Property Type, 2010, Indiana (90 Counties) 12% 10% 8% Business Real/Personal (3%) Rentals/ Farmland (2%) Homesteads (1%) 6% 4% 2% 0% Counties Townships Cities / Towns School Corporations Libraries Special Districts TIF Districts All Units Taxing Units 5

7 Percent Change in Property Tax Payments by Property Type Porter County and Indiana (90 Counties) Total Business Personal Comm/Industrial Real Agriculture Apartments Non-Hmstd Residential Homesteads -3.7% -9.8% -5.8% -1.0% -17.1% -21.4% -24.7% -16.1% -26.5% Porter Indiana 38.7% 15.2% 28.2% 14.7% 21.4% -30% -20% -10% 0% 10% 20% 30% 40% Percent Change in Property Tax Payments by Property Type Lake County and Indiana (85 Counties) Total Business Personal -19.2% -21.3% -10.2% -6.2% Lake Indiana Comm/Industrial Real -9.2% 9.8% Agriculture 6.7% 10.3% Apartments -14.8% -9.7% Non-Hmstd Residential -21.2% -12.8% Homesteads -25.7% -27.0% -40% -30% -20% -10% 0% 10% 20% 30% 40% 6

8 Porter County Tax Districts and Tax Rates, BOONE TOWNSHIP HEBRON (BOONE) CENTER TOWNSHIP VALPARAISO (CENTER) JACKSON TOWNSHIP LIBERTY TOWNSHIP CHESTERTON-LIBERTY TWP MORGAN TOWNSHIP PINE TOWNSHIP-MICH CITY SCH PINE TOWNSHIP-DUNELAND SCH BEVERLY SHORES (PINES) PINES TOWN (PINES TWP) PLEASANT TOWNSHIP KOUTS (PLEASANT) PORTAGE TOWNSHIP PORTAGE CITY-PORTAGE TWP OGDEN DUNES (PORTAGE) PORTER TOWNSHIP UNION TOWNSHIP WASHINGTON TOWNSHIP WESTCHESTER TOWNSHIP PORTAGE CITY-WESTCHESTER TWP CHESTERTON-WESTCHESTER TWP BURNS HARBOR (WESTCHESTER) DUNE ARCES (WESTCHESTER) PORTER TOWN (WESTCHESTER) CHESTERTON-JACKSON TWP PORTER TWP-W PORTER FIRE VALPARAISO-WASHINGTON TWP

9 Porter County Tax Cap Credits by Property Type and Government Unit Taxing Unit Name (1%) Homesteads Circuit Breaker Credits by Property Type (2%) Other Residential and Farmland (3%) All Other Real/Personal Elderly Total Levy Circuit Breaker as % of Levy Non-TIF Total 1,130,279 2,596, ,301 3,764, ,607, % TIF Total , ,664 14,345, % County Total 1,130,629 2,657, ,302 3,826, ,952, % Porter County 201, , , ,038 36,239, % Boone Township 1,871 7, , , % Center Township 2,760 6, ,741 1,482, % Jackson Township , % Liberty Township , , % Morgan Township , % Pine Township , % Pleasant Township , % Portage Township 8,664 25, ,266 35,318 2,163, % Porter Township , % Union Township , % Washington Township , % Westchester Township 565 1, , , % Valparaiso Civil City 149, , , ,590 16,643, % Portage Civil City 107, , , ,360 14,646, % Chesterton Civil Town 123, , , ,701 5,558, % Beverly Shores Civil Town 1, , , % Burns Harbor Civil Town ,861, % Dune Acres Civil Town , % Hebron Civil Town 13,856 47, , , % Kouts Civil Town , % Ogden Dunes Civil Town 5, , , % Porter Civil Town 27,440 95, , ,885 2,070, % Pines Civil Town , % Michigan City Area School Corp 5, ,484 2,424, % Boone Township School Corp 53, , ,663 3,759, % Duneland School Corp 150, , , ,994 20,535, % East Porter County School Corp 12,462 13, ,948 8,471, % Porter Township School Corp ,343, % Union Township School Corp ,368, % Portage Township School Corp 113, , , ,879 17,614, % Valparaiso Community School Corp 100, , , ,009 16,322, % Westchester Public Library 19,670 37, ,885 2,417, % Porter County Public Library 26,522 62, ,128 5,324, % West Porter Township Fire Protection , % Porter Co Solid Waste Mgt Dist Porter Co Airport Authority 3,560 7, , , % Valparaiso Redevelopment Comm Burns Harbor Town Redevelopment Porter Redevelopment Comm Portage Redevelopment Comm Chesterton Redevelopment Comm TIF - TIF #1-026 Porter (11) 106 7, , , % TIF - TIF #2-016 Portage (8) 2 2, ,246 5,976, % TIF - TIF #2-022 Portage West (24) % TIF - TIF #3-004 Valparaiso (01) 0 44, ,845 3,188, % TIF - TIF #4-004 Valparaiso (01) , % TIF - TIF #5-029 Wash Valpo (29) , % TIF - TIF #6-029 Wash Valpo (29) ,261, % TIF - TIF #7-023 Chesterton (10) 242 3, , , % TIF - TIF #7-007 Chest/Chest Liberty (26) 0 1, , , % TIF - TIF #7-027 Chest/Chest Jackson ( TIF - TIF #8-024 Burns Harbor (25) , % TIF - TIF #9-004 Valparaiso (01) , % TIF - TIF # Hebron (17) , % 8

10 Lake County Tax Districts and Tax Rates, Calumet Township Calumet Township Gary Sanitary Gary Corp Calumet Twp Lake Ridge Sch Gary Corp Calumet Twp Gary Sch Lake Station Corp Calumet Twp Griffith Corp Calumet Twp Cedar Creek Township Lowell Corp Cedar Creek Twp Eagle Creek Township Hanover Township Cedar Lake Corp Hanover Twp Saint John Corp Hanover Twp Hobart Township Gary Corp Hobart Twp River Forest Sch Hobart Corp Hobart Twp Hobart City Sch Hobart Corp Hobart Hobart City Sch Gary Sanitary Lake Station Corp Hobart Twp River Forest Sch Lake Station Corp Hobart Twp Lake Station Sch New Chicago Corp (Hobart) Hammond Corp (North) East Chicago Corp (North) Whiting Corp (North) Highland Corp (North) Munster Corp (North) Ross Township Crown Point Corp Ross Twp Merrillville Corp Ross Twp Merrillville Corp Ross Twp Gary Sanitary Saint John Township Griffith Corp Saint John Twp Dyer Corp (Saint John) Saint John Corp Saint John Twp Schererville Corp (Saint John) West Creek Township Lowell Corp West Creek Twp Schneider Corp (West Creek) Center Township Crown Point Corp Center Twp Cedar Lake Corp Center Twp Winfield Township Hobart Corp Hobart Twp River Forest Sch Hobart Corp Ross Twp Winfield Corp (Winfield) Hobart Corp Ross (TIF Only, see CMT added 049*) Saint John Township Schererville Water Winfield Corp Winfield Water District SAINT JOHN TWP SAINT JOHN WATER CROWN POINT - ST. JOHN TWP CEDAR LAKE - WEST CREEK TWP CEDAR LAKE - CEDAR CREEK TWP ST. JOHN - CENTER TWP

11 Lake County Tax Cap Credits by Property Type and Unit, 2009 Percent of Unit Name 1.50% 2.50% 3.50% Elderly T otal Levy Levy Lake County 276,206 2,561,642 3,449,798 16,347 6,303, ,561, % Calumet Township 154,669 1,313,198 1,407,006 5,018 2,879,892 15,159, % Cedar Creek Township , % Center Township , % Eagle Creek Township , % Hanover Township , % Hobart Township 38 6, , , % North Township 15, , ,616 1, ,938 4,871, % Ross Township ,091, % St. John Township , % West Creek Township , % Winfield Township , % Gary Civil City 869,197 7,293,491 7,936,640 15,684 16,115,012 63,064, % Hammond Civil City 42,055 1,910, ,738 1,963,805 39,830, % East Chicago Civil City 477,889 2,488,590 10,044,233 8,164 13,018,876 37,078, % Hobart Civil City ,444 1,837 15,446, % Crown Point Civil City ,519, % Whiting Civil City 34, , , ,366 6,386, % Lake Station Civil City , ,983 4,613, % Cedar Lake Civil Town ,506, % Griffith Civil Town ,557 3,808 5,860, % Highland Civil Town ,980 1,980 7,610, % Munster Civil Town ,657, % Merrillville Civil Town ,020, % Dyer Civil Town ,407, % Lowell Civil Town ,714, % New Chicago Civil Town , % St. John Civil Town ,988, % Schererville Civil Town ,713, % Schneider Civil Town 0 2, , , % Winfield Civil Town , % Winfield Civil City Hanover Community School Corporation ,439, % River Forest Community School Corporatio ,120 2, ,877 2,805, % Merrillville School Corporation ,649, % Lake Central School Corporation ,125, % Tri Creek School Corporation ,743, % Lake Ridge School Corporation 1,762 81, , ,669 5,737, % Crown Point Community School Corporation ,800, % East Chicago City School Corporation 112, ,626 2,371,726 1,928 3,074,123 24,303, % Lake Station School Corporation 12 38, ,986 2,246, % Gary Community School Corporation 360,928 2,970,900 3,158,737 6,534 6,497,098 28,527, % Griffith Public School Corporation ,837 1,966 8,398, % Hammond City School Corporation 13, , , ,507 36,229, % Highland Town School Corporation ,271, % School City Of Hobart School Corporation ,290, % Munster Community School Corporation ,986, % Whiting City School Corporation 10,392 54, , ,437 2,456, % East Chicago Public Library 71, ,243 1,510,489 1,228 1,957,827 5,095, % Gary Public Library 96, , ,614 1,739 1,729,029 6,619, % Hammond Public Library 3, , , ,968 4,757, % Lowell Public Library ,063, % Whiting Public Library 5,595 29,165 70, ,214 1,024, % Lake County Public Library ,392 11, ,960 11,861, % Crown Point Community Public Library ,320, % East Chicago Sanitary 152, ,223 3,197,504 2,599 4,144,459 11,753, % Gary Sanitary 98, , ,728 1,772 1,826,664 9,497, % Hammond Sanitary 1,913 85, ,092 7,867, % Highland Sanitary , % Whiting Sanitary 9,792 51, , ,159 2,794, % Gary Airport 23, , , ,134 1,657, % Gary Redevelopment 3,325 27,901 30, , , % Hammond Redevelopment , , , % Gary Public Transportation 37, , , ,447 3,889, % Merrillville Sanitary District Highland Water District Schererville Waterworks Winfield Waterworks , % Hobart Sanitary St. John Sanitary , % Lake Ridge Fire Protection 105 7, , , % Lake County Solid Waste St. John Water District , % Lake County Solid Waste Town Of Dyer Sanitary District , % Dyer Redevelopment Lake County Solid Waste Lake County Solid Waste Management Distr 11, , , ,340 4,719, % Gary Storm Water Management 13, , , , , % Dyer Water Works , % Gary Redevelopment Commission 5,180 43,470 47, , , % 10

12 Some Effects of the Tax Cap Constitutional Referendum The amendment will not provide additional property tax relief, since the provisions of the amendment are already in law, and are already restricting property tax bills. o It will prevent future adjustments in property tax relief from raising property tax bills above the caps (e.g., a reduction in the homestead deductions can only raise homeowners taxes to 1% of gross assessed value). The amendment will prevent Constitutional challenges to the tax caps. o Article 10, Section 1 of the Constitution says the General Assembly shall provide, by law, for a uniform and equal rate of property assessment and taxation.... The differential tax caps may not be consistent with uniformity, though the Constitution does allow differential tax breaks for homesteads. The amendment will make permanent the reduction in property tax revenues received by local governments. o Local governments will try to become more efficient, in order to deliver services at lower cost. Some of these efficiencies may involve changes in procedures (joint purchasing, for example), others may involve changes in structure (consolidation, even elimination of some levels of government such as townships). o Indiana residents may have to accept a lower level of services, if local governments have less revenue and efficiency cannot be improved enough. o Local governments may turn to other revenue sources, such as local income taxes and charges/fees. Local governments may ask the legislature for more nonproperty tax options. The amendment will place code language in the Constitution, rather than general principles or procedures. o A definitions section (e). o An expiration date (h). The amendment will eliminate the Distressed Units Appeals Board (at least in its present form). o There is no provision for appealing the tax caps in the amendment. 11