Purdue Cooperative Extension Service On Local Government Property Tax Reform, 2008 Larry DeBoer Purdue University April 25, 2008

HEA 1001: Property Tax Reform Eliminate Property Tax Levies State Assumes Local Costs State takeover of school general fund and county welfare Property Tax Relief State Sales Tax Added state costs paid with existing property tax credits, added sales tax; homestead deductions direct relief to homeowners

HEA 1001: Property Tax Reform State Balances and Revenue Distributions School rainy day fund to sustain spending in recessions Circuit Breaker Property Tax Credits Limits property taxes to fixed percentage of gross assessed value; local revenues are reduced State Income Taxes Provisions to partly offset tax hikes to renters, low income households

HEA 1001: Property Tax Reform Local Option Income Taxes All three 2007 LOITs still available Referenda for Capital Projects and Budgets For larger projects, replaces the remonstrance process; referendum-passed taxes are outside the circuit breakers Township Assessors and Assessment Administration Puts most duties in the county assessor’s office Review of Taxes, Budgets and Capital Projects New responsibilities for the county council

HEA1001 Directs Tax Relief to Homeowners BeforeAfter 1. Levy HEA1001 state takeovers $ Net Assessed Value New homestead deductions $ Gross Tax Rate$3.09$2.56

HEA1001 Directs Tax Relief to Homeowners BeforeAfter 4. State Credits PTRC / Homestead eliminated $2.0none 5. Net Levy$7.1$ Net Tax Rate$2.41$2.56

HEA1001 Directs Tax Relief to Homeowners BeforeAfter 7. Percent Change in Net Rate 6% Percent Change in Homeowner AV -37% Approximate Change in Avg. Homeowner’s Tax Bill -31%

Estimated Impact of Indiana's New Tax Reform (HEA 1001) on Property Tax Payments, 2010 Home- steads Non- Home- stead Res- idential Com- mercial Apart- ments Other Real Property Per- sonal Prop- ertyTotal Change from Taxes Under Current Law due to: Levy Takeovers, 35% Hmstd. Deduction-31.7%6.1%7.3%6.5%0.0%-10.4% Source: Legislative Services Agency, "Estimated Impact on Net Property Tax, HB1001 (2008) CC08 Update", March 13, 2008.

Homeowners, 2008 Tax bills fall Added homestead credits

Homeowners, 2009 Most credits eliminated State levy takeovers Added homestead deductions Tax bills could rise or fall

Circuit Breakers Tax Bill Limits Homesteads: 1% of Gross Assessed Value Rental Housing, Farm Land: 2% of Gross Assessed Value Other Real and Personal Property: 3% of Gross Assessed Value If your house has an assessed value of $120,000 before deductions, you cannot pay a tax bill of more than $1,200

Estimated Impact of Indiana's New Tax Reform (HEA 1001) on Propert y Tax Pa y ments, 2010 Home- steads Non- Home- stead Res- idential Com- mercial Apart- ments Other Real Property Per- sonal Prop- ertyTotal Change from Taxes Under Current Law due to: Levy Takeovers, 35% Hmstd. Deduction-31.7%6.1%7.3%6.5%0.0%-10.4% Circuit Breaker Limits-4.6%-18.7%-21.3%-4.3%-4.4%-7.2% Total-36.3%-12.6%-14.0%2.2%-4.4%-17.6% Source: Legislative Services Agency, "Estimated Impact on Net Property Tax, HB1001 (2008) CC08 Update", March 13, 2008.

The Median Homeowner Income 55,634 Home Value 120,700 DollarPct. BeforeAfterChange Property Tax 1, (420)-32% Sales Tax 1,200 1, % Income Tax 2,192 2, % State Excise Taxes % Federal Income Tax 3,149 3, % Federal Other Taxes 4,661 -0% Total Indiana Taxes5,4345,226 (209)-4% Total Taxes13,24413,095 (149)-1%

The Median Renter Income 24,992 Home Value none DollarPct. BeforeAfterChange Property Tax Sales Tax8941, % Income Tax (71)-10% State Excise Taxes % Federal Income Tax (1,638) -0% Federal Other Taxes 2,246 -0% Total Indiana Taxes 2,154 2, % Total Taxes 2,762 2, %

60 Households (with 3 people) Household Income 15,000 27,500 42, ,500 87, ,000 Renter Home15,000(1) Value40,000(66) ,000(118)(50) ,000(157)(89)(30) ,000(183)(115)(56) ,000(222)(154)(95)(24) ,000(508)(440)(299)(267)(228)(86) 225,000(929)(862)(657)(626)(586)(402) 375,000(2,145)(2,078)(1,691)(1,659)(1,620)(1,314)

Estimated Households with Tax Cuts and Tax Hikes All Households Tax Cuts of More Than $5057% Changes of Less Than $5021% Tax Hikes of More Than $5023% Homeowners Tax Cuts of More Than $5078% Changes of Less Than $5013% Tax Hikes of More Than $508% Renters Tax Cuts of More Than $500% Changes of Less Than $5040% Tax Hikes of More Than $5060%

Circuit Breakers Circuit Breaker credits for taxpayers are revenue losses for local governments Estimated Losses: 2008$4 million, a small fraction of budgets 2009 $229 million, 2% of budgets 2010$524 million, 5% of budgets

W hat’s Next ? Adopt Local Option Income Taxes? By the end of the year Three LOIT options Three distribution options – To homeowners only – To homeowners and owners of rental housing – To all property owners W hich option will reduce circuit breaker credit losses the most? Is additional relief needed for homeowners to smooth out “boomerang ” tax increases in 2009? How will net taxes on homeowners and other taxpayers change with an income tax increase and a property tax cut?

W hat’s Next ? Postpone 2008 State Homestead Credits? For counties that adopted the new LOIT taxes in 2007 Homeowners will receive significant property tax relief in 2008 with the property tax replacement income tax Taxes “boomerang” in 2009 in some counties Should the county petition to postpone some or all of the additional 2008 state homestead credits to 2009 or 2010, to smooth homeowner property tax changes?

W hat’s Next ? Budget Process — how to handle interdependent budgets? “No one can budget until everyone budgets ” HEA1001 re quires that all civil units submit their tax, levy and budget proposals to the county council at least two weeks before they are fixed County council is to make non-binding recommendations County council could act as a clearing house for the information needed for each unit to budget Analysis would re quire simulated tax bill runs for all county property taxpayers, to estimate circuit breaker credits for each jurisdiction