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GOVERNOR DANIELS RELEASES PROPERTY TAX PLAN

On October 23, 2007, Governor Mitch Daniels unveiled his long-awaited proposal for overhauling Indiana's property tax system. Some have called for the outright elimination of property taxes. While the Governor's office indicated this had been considered, they quickly concluded that total elimination of property taxes was not a fiscally viable alternative.

Early reaction to the Governor's proposal has been mixed, though it is widely regarded in most circles as at least a first step to solving Indiana's property tax issues. Highlights of the proposal include the following:

  • Permanent Caps. Through constitutional amendment, the plan would establish permanent tax liability caps of 1% of assessed value for homeowners, 2% of assessed value for residential rental property owners, and 3% of assessed value for business property taxes. Agricultural land would continue to be assessed as it presently is assessed. Currently, Indiana's Constitution requires a "uniform and equal rate of assessment and taxation for all property, both real and personal."

  • Phased Relief.
    • In 2008, an expanded homestead credit will take effect for residential property owners and will be funded from a combination of sources, including horse track license fees and a one-cent increase in the state sales tax.
    • Additional relief would come in 2009 through an expansion of the residential homestead deduction, state assumption of certain local government costs, and the first application of the proposed 1% cap on homeowner property taxes.
  • Limits on Local Spending Increases. The Governor's plan would empower a Tax and Capital Control Board in each county to serve as a single point of accountability for approval of annual budgets for all taxing units within that county. This is intended to solve the problem of seemingly uncontrolled increases in local tax rates due to the lack of coordination between individual taxing districts and their spending decisions. Additionally, total local spending increases would be limited to the county's average personal income growth rate over a six year period, unless higher increases are approved by taxpayers through referendum. Finally, all "significant local construction projects" (which is, as yet, undefined) would have to be approved through local referendum.

  • Elimination of Elected Assessors. The Governor's plan would eliminate the township and county assessors in Indiana. Instead, each county would have a single professional assessor appointed by the County Council. This change is intended to improve uniformity and quality of assessments throughout counties and throughout the state.

  • Meeting Fiscal Obligations. Any remaining local spending obligation not covered after application of all caps on tax liabilities for taxpayers and limitations of rate increase would either have to be offset by cuts in local spending, or by adoption of a county option income tax.

Some (General) Assembly Required
There are some components of the governor's plan that can be enacted without action being taken by the Legislature. For example, a percentage of the revenue generated from the new slot machines at Indiana's horse tracks will be used to provide the tax rebate check promised to all Hoosier taxpayers in the Budget Bill passed during the final hours of the '07 session. The balance of the slot machines revenue will be discretionary spending for the Governor to use for parts of his plan. Also, revenue created by the new licensing fees from the two horse tracks that will be paid in November 2007 and November 2008 is money the Governor may use at his discretion for parts of the plan.

Some components of the Governor's proposed property tax plan will require action by the General Assembly in '08 before they may be enacted. For example, the proposed 1% increase in the state sales tax will require new legislation as will the proposed increase in the Homestead Deduction Credit. The General Assembly will need to pass legislation to eliminate local assessors as well as to establish one central assessing authority in each county in the state.

Finally, and the most time consuming, is the process that has to be followed to amend Indiana's Constitution before the proposed caps on property taxes can go into effect. To amend Indiana's Constitution, legislation creating the caps will have to pass two consecutive sessions of the General Assembly (presumably in 2008 and in 2009) and then receive the support of voters in the next general election year (which would be 2010). The property tax caps would go into effect beginning in 2011.


Legislative Conference ~ November 28, 2007
The 16th Annual Bingham McHale Legislative Conference in association with INGroup is set for Wednesday, November 28, at the Indiana Convention Center, including a discussion of the Governor’s proposed plan, lead by State Rep. Bill Crawford, Chair of the House Ways & Means Committee; State Rep. Jeff Espich, Ranking Member of the House Ways & Means Committee; State Sen. Luke Kenley, Chair of the Senate Tax & Fiscal Policy Committee; and South Bend Mayor Stephen Luecke.

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