As Local Governments Feel the Squeeze, Are Tax Caps in Trouble?

Local governments are crying foul after seeing large amounts of their budgets disappear in the wake of property tax reform legislation that established caps on assessments. They say they won’t be able to provide needed services. On the other hand, supporters of the caps say local governments will finally be forced to live within their means.

So who’s right?

In 2008, the Indiana General Assembly passed property tax relief legislation that established circuit breaker caps on property taxes. When fully implemented, homestead property taxes will be capped at 1 percent of assessed value, agricultural land and rental property will be capped at 2 percent, and business property taxes will be capped at 3 percent. The governor has advocated placing the caps in the Indiana Constitution in order to provide permanent property tax relief.

Those in favor of placing the caps in the constitution say that the caps are already working, even though they won’t be fully implemented until the 2010 tax year. They say that without the caps, local government spending will be unrestrained and local entities will simply pass the increases on to the taxpayer. Supporters of the caps contend that if the caps are codified in the Constitution, local governments will be forced to keep spending low. They also say that without a constitutional amendment, the Legislature could repeal the caps or the courts could find them unconstitutional.

Those who oppose placing property tax caps into the constitution contend that many cities and towns are facing budget crises as a result of the caps. They say that many property owners will see a loss of local government services such public safety or sanitation as officials are forced to make drastic cuts. Additionally, they say the caps have not been fully implemented and we do not yet have enough data on the effects of the property tax caps.  Tax cap opponents also say that changing the constitution is a major step that requires more study.

Tax cap proponents counter that there already is a means in place for local governments in crisis to seek assistance.  Local governments can file an appeal with the Distressed Unit Appeals Board.

The issue of constitutional property tax caps is teeing up to be real donnybrook.  Let your legislators know where you stand before the 2010 session.  Complete your NFIB member ballot when in arrives in November.