Continuously serving Kosciusko County since 1854
For more than two hours Friday evening, District 33 Indiana state Rep. J.D. Prescott presented his bill to eliminate property taxes and replace them with a 7% services tax to area residents.
The approximate 50 people had lots of comments, suggestions, questions and concerns about how his bill, if it makes it through the General Assembly, would not only affect them personally, but also the small businesses, county, towns, townships and emergency services. The consensus appeared to be, however, that something needs to be done because the current system is broken.
Prescott was introduced by state Rep. David Abbott from District 18, which includes the two northeast townships of Kosciusko County.
“As you know, Senate Bill 1 (SB1) created a lot of questions about local governments and funding and property taxes. The idea was to reduce our property taxes for homesteads, residential properties. But that opened up a lot of questions and we’re going to be discussing that tonight,” Abbott said, noting he hasn’t taken a position on Prescott’s bill and was there to listen.
Prescott, who is in his eighth year as a state legislator and sits on the Ways and Means Committee, said he’s making the rounds around the state talking about property taxes.
“I’ve put together a proposal to repeal and replace the property tax system,” he said. “The property tax system affects every community around the state. Such a bold proposal is to try and repeal and replace it with a new system. I think it’s important to get out and talk and hear from citizens all throughout the state, and not just in my area, because if this is approved it’s statewide policy.”
Prescott said the problems with the current property tax system in the state are multiple.
“You’ve got an assessment system that’s inconsistent at best. You have similar properties that can be assessed at different values. You’ve got a system that’s a tax on realized gains. If we did that with any other type of product, people would come unglued,” he stated.
Any time there’s changes made at the Statehouse, Prescott said they’re really Band-Aids to the system and there really hasn’t been an overhaul to it.
“So, looking at that, looking at the problems of the property tax system, what would be a good replacement?” he said.
Constituents have come up to him and suggested the whole system be repealed. At first, he thought that was not possible because of the amount of funding that would take to do it - because bridges, roads, police, fire, EMS and schools have to be paid for. He said then he began to run the numbers.
“If we just went to 7% sales tax on services to start. Didn’t have any exemptions in it, just to see if it was possible. Then I started working through it and I thought, ‘This actually can work.’ So I started putting together more detail, more research. I’ve been working on this for a little over two years where it’s at today,” Prescott recalled.
Next year, an estimated $10.6 billion in property taxes will be brought in statewide, he said. Not a penny of that goes to state government, it all goes to local units of government. By 2028, it’ll be closer to $11.6 billion.
“Out of those funds, roughly 45% goes to schools to cover their operations fund, debt service; 20% goes to counties; 20% goes to cities; the remaining 15% gets split up amongst township government, fire districts, fire territories, airport authorities, TIF (tax increment financing) districts,” Prescott stated.
When he started his listening tour around the state, he said the bill really was 100% elimination of the property tax system over two years. Because of additional information he’s received, he said he’s modified the bill to where it’ll be 100% for homestead over two years and “the 2’s and 3’s will have to be phased out later.”
The replacement of the property taxes with the 7% sales tax on services will generate between $13 billion to $15 billion in revenue, with a few key exemptions, he continued, such as education, healthcare and social services. Any category that’s sales tax exempt on goods would remain sales tax exempt on services, with the exception of data centers.
“So that would bring in anywhere between $13 and $15 billion worth of revenue, so more than enough to replace the property tax system,” Prescott said.
The funding distribution formula is key, he indicated. “So this would have to be collected statewide and that would go off a formula: 45% would go to schools to replace the operations and the debt service dollars they collected on property taxes. That was easy to figure out. The dollars follow the students, just like they do on the education fund,” he said. “Twenty percent would go to counties, 20% would be go to city governments - two separate buckets there with similar formulas. Looking at a 75% emphasis on population, 25% emphasis on miles of roadway.”
Township government, fire districts, fire territories, libraries would be the next category.
“The way township government is structured across the state and funded across the state is very inconsistent. So I’ll be honest, really no formula works great there, so probably need to have a more in-depth discussion on township government, whether they should be funded directly or go through the county for those services,” Prescott said.
“And then TIF districts would be your last category. TIF districts would be phased out. So upon passage of the bill, there could be no new debt tied to the property tax system, no new TIF districts and no new school referendum. Out of the revenue coming in, we would pay off the debt, the bond obligations through the TIF district. Once those bonds are paid off, the TIF district would be dissolved. If there’s no property tax system, there’s no property tax allocation area, there’s no reason for a TIF,” Prescott said. “You’d still have economic development, it’s just going to be going through your county and city councils versus going through a TIF district. So it would be up to those city and county fiscal bodies to decide on how much they want to allocate toward economic development out of the revenue coming in.”
Before any of the revenue was split up, 10% would go into a reserve account to build up a healthy surplus.
“That way you’ve got stability through economic downturns. Property tax systems is a very stable taxing structure. Sales tax on services is economic dependent, so it’s a variable tax, you’ve got to have a very healthy surplus,” Prescott said.
In the Q & A session, a couple small business owners expressed concerns about Prescott’s bill targeting their livelihood. One woman asked when they were going to see any spending cuts coupled with the taxing shift.
A woman asked Prescott what he was basing the $13-$15 billion revenue from sales tax on.
“So that would be off the LSA (Legislative Services Agency) fiscal analysis. They’re the ones who do all of our fiscal analysis. They took all the data that they have available,” she said.
She asked him if he didn’t see his bill hurting small businesses. He said no because no one would be paying property taxes.
Another woman asked why the state wasn’t tackling the Indiana codes that “are ruining us. I don’t think somebody who’s lived in their house for 40 years and that’s their retirement home should have to keep paying on the gains at all. But when it goes to sell, that’s a different story.”
Prescott said he’s addressing all of that and wants to eliminate the assessor’s office completely.
He had what he said was a fiscal analysis for every unit of government in the state, based on last year’s bill, which was the complete elimination of all property taxes in a two-year period and replacement with the 7% sales tax on services based on the funding distribution formula he outlined earlier.
“For Kosciusko County, for your general fund 2028, this estimate from the LSA has you at $19,745,000, with property taxes for all the net levies from 2028. Based on that distribution formula with 75% on population, 25% on miles of roadway, Kosciusko County’s, on the low side of the estimated projections, $30,381,000; on the high side, $35,550,000. So Kosciusko County general fund would see an increase of $10-$15 million,” Prescott said.
Another woman asked what happened to all the lottery money that was supposed to fund the schools in the state. She wanted to know how much money was the state getting from the lottery and why wasn’t more of that taking care of the schools.
Former state Rep. Dave Wolkins, who now sits on the Kosciusko County Council, said, “When they put that in, they promised that to everybody. The money actually got used to lower your excise tax on vehicles. I think it’s still going to that.”
He said the state told “everybody” they were going to get part of the lottery money and that just didn’t happen.
Amy Roe, Rochester City Council, expressed concern with the various government agencies being able to budget year to year because while property tax revenue was relatively stable, a sales tax on services would not be. Prescott said that’s why they would have a 10% reserve account, in case of economic downturn.
Monica Boyer said state Sen. Ryan Mishler has a property tax bill and asked Prescott if he’s seen it and if there was any potential for Prescott and Mishler to work together. Prescott said he could see such a scenario. Abbott pointed out that once Prescott’s bill goes through committee, it’ll go to the Appropriations Committee where Mishler is the chair, “so obviously it’s going to be reviewed by the two no matter what.” Prescott said if Mishler’s bill is passed in the Senate, it’ll come to the House’s Ways and Means Committee.
“It think our visions are similar. It’s just how do we get there,” Prescott said.
Boyer said Mishler said Mishler was presenting his bill to the public Sept. 29.
Many other questions and concerns were brought up in the town hall meeting.
