Community Comment:

Property tax caps are the right idea at the wrong time

The question before the house is: Should the statutory property tax caps proposed by Indiana Gov. Mitch Daniels and passed last year by the General Assembly be added as an amendment to the Indiana Constitution?

It is not an easy question to answer, and depending upon your point of view, there is a lot to argue against tampering with our constitution at this juncture. Also, given recent statements of members of the General Assembly, it may be a moot point as far as this session is concerned.

As one of the original members of the Indiana Property Tax Repeal Alliance, I would say that the 1 percent cap on residential property taxes was considered a major policy defeat for the thousands of people represented by that loose confederation of groups from around the state.

Many of them, homeowners, Realtors, owners of rental property and businessmen alike, oppose property taxes from a philosophical perspective. They claim that as long as property taxes exist, the individual property owner is enslaved to the government for a fee imposed every year for the right to use his property. These taxes are based upon a subjective assessment of the property based upon its perceived market value if and when it is sold, not upon the income which is derived from ownership.

They argue that even if a 1 percent cap is imposed, the assessment remains subjective to market forces, and if local units of government find the need for more money, they will simply adjust the tax rates paid by property owners to increase revenue, regardless of whether they are a homeowner or own rental or commercial property.

When the caps were being considered last year, perhaps the most vocal aggrieved parties both locally and in Indianapolis were rental property owners. Many forcefully argued that the doubling of their property tax liability could not easily be passed on to renters, as they are among the people with the lowest income throughout our state.

Therefore, the 2 percent cap on rental property was viewed by many as extremely regressive, an undue burden upon those least able to afford higher rental fees. They claimed, in this environment, their alternatives are usually less money for renovations and operating costs and higher evictions and vacancy rates, which usually translate in less profit for the landlord.

For commercial property owners, perhaps the adage from Washington Post columnist George Will is most apt, namely, "Corporations are not taxpayers; they are tax collectors."

While I believe the 3 percent cap on business and commercial property is excessive, the truth of the matter is that it is also inflationary. Those businesses that are able will simply increase the price of the goods or services they render to customers to cover their ongoing tax liability.

Currently, the statutory caps passed by the General Assembly are on the face of it unconstitutional, as current law requires that property taxes be equal across the board. Many have predicted lawsuits being brought by such groups as the Indiana Manufacturers Association and others upset by the uneven tax burden placed upon businesses, vis-a-vis other classifications of property owners.

However, action in the General Assembly this year is unlikely. Speaker of the House Pat Bauer, D-South Bend, has suggested a delay until 2010 before the House taxes up the constitutional caps, stating that it is important to gauge the impact of the caps upon local governments before deciding to make them permanent.

Already, local units of government are feeling the impact. In Vanderburgh County, property tax receipts were off $500,000 to $600,000 last year and are expected to be off more than $1.5 million next fiscal year.

Local elected officials concede that now that they have had to live with the caps for one year and understand the new rules of the road, they will govern themselves accordingly and live within the fiscal constraints imposed by the caps.

But this, of course, does not take into consideration the more than 18 percent across-the-board national decline in the value of all real estate associated with the crash in credit and equity markets the past few months.

How and when property tax assessments will follow suit is anybody's guess, and predicting the impact upon local revenue streams is equally uncertain.

Daniels' efforts to restrain future property tax increases are to be commended. Unfortunately, all things considered, this is perhaps the worst time in post-World War II history to be attempting to make major, fundamental and permanent changes to the tax structure of this state.

With so much economic uncertainty, a wait-and-see approach is called for at the current time.

Those who crafted our state's constitution should equally be commended. They knew difficult times would come.

They also knew that amending our state's constitution is no small matter, hence the institutional and political complexity built into our state's founding legal document.

David Coker is an Evansville free-lance writer and former president of the Vanderburgh County Taxpayers Association.