Last week, I wrote that property tax caps might not be a good idea because there was the potential to starve local taxing units of revenue.
The Indiana legislature - paying no mind to my column, by the way - has put the process of adding property tax caps to the state constitution and on a fast track. It's already passed the House and a Senate committee. The full Senate will likely pass it early next week.
So the question of whether to amend the state constitution to cap property taxes will almost certainly be on the ballot this fall during the general election.
And the citizenry of Indiana, when asked if property taxes should be capped, will almost certainly vote yes.
Earlier this week I talked to a guy who probably knows way more than a person should about property taxes.
He is Bernard Ridens, the executive director of the Taxpayer Association of Vigo County Inc.
His organization is a "non-profit, non-political research agency supported voluntarily by its members. This year marks the 74th anniversary of the organization, which was chartered on March 21, 1936. The association monitors the expenditures of local tax dollars collected from Vigo County taxpayers with a primary emphasis on achieving both effective and economical government supported by an equitable taxing system."
If you want to see what I perceive to be a highly functioning, highly effective taxpayer association, go checkout taxtopics.org
But I digress.
The reason I called Ridens is because he, like me, has serious reservations about the property tax caps being amended into the state constitution.
He has concerns about the likely dwindling revenue stream and the ways local taxing units will try to replace the revenue. He believes lower-income taxpayers and working families will be hit hard by those eventualities. That's the kind of stuff I wrote about last week.
Beyond that, however, he has serious concerns about assessed valuation and trending.
His prediction, if the constitutional amendment passes, is "In a couple years they're going to start pounding their foreheads with their fists when they see the result of this."
The property tax system in Indiana is charged with being "fair and equitable."
Ridens is concerned that the property tax caps, as currently configured, will be anything but "fair and equitable."
He notes that in order to achieve the fair market value of property, assessors use a process called trending.
Much of trending is based on neighborhoods, which, on the face of it, seems to make sense. If you live in a nicer neighborhood, your taxes would be higher.
But the problem is that the state uses township boundaries to delineate neighborhoods.
Ridens used his own property to illustrate the problem.
"I live in a township, on a township line," Ridens said. "My neighbor lives in a different township. My property taxes have trended up 11 percent and his have trended down 4 percent. We literally live next door to each other in similarly valued houses, yet there's a 15-percent disparity in our assessed valuation."
Ridens pointed me to his organization's Web site where he did comparisons from Vigo County. It's quite fascinating.
He compared properties in Harrison Township and Honey Creek Township.
Properties were a homestead, a six-unit apartment rental property and a commercial property.
He chose one type of property in each township assessed at $175,000, $275,000 and $375,000.
The disparities were striking. The $175K homestead tax bills varied from $1,429 to $2,625. The $275K homestead from $2,570 to $4,125 and the $375K homestead from $3,710 to $5,625.
So you've got two properties that are worth the same money - according to the assessor - and are within a couple miles of each other. Yet one property owner pays 60 percent more in taxes.
The rental unit and the commercial real estate were similarly skewed.
In addition, in all three price ranges, the chart shows the caps helped out homesteads and rentals the most.
At the bottom of the chart, Ridens notes:
"For each of the above tables, we see the capped savings for rental properties and farmlands are 8.4 greater than for commercial properties. Again, is this fair taxation?"
Ridens told me this week, "If people thought the way property was assessed was unfair before, when they go forward, they will see it become really unfair."
Essentially, Ridens said, with the current configuration of trending in the proposed amendment, property owners can wind up paying more than their fair share regardless of the caps.
Property owners might also see their neighbors pay less than their fair share even though all the properties have been assessed at "true market value."
"This trending concept has got to be changed," Ridens said.
This is why Ridens and his taxpayers group are against the property tax cap amendment. He is not totally against the idea of capping property taxes, but he firmly believes the current configuration is deeply flawed.
And before it becomes part of the state constitution, those flaws need to be rectified.I urge readers to check out taxtopics.org
There is lots of good information there with regard to taxation. But for purposes of this issue, click on "publications" at the left of the homepage. Scroll down a bit an you'll find "Tax Matters." Under that, click on #09-48 December 17, 2009.
On page 2 of that document you will find the table I'm referencing in this column. Interesting stuff.
