When Hoosier voters cast their ballots next month, they'll be asked if there should be a limit on their property taxes.
Political polls and human nature suggest their answer to Public Question No. 1 will be an overwhelming "Yes."
"They seem to have those minds pretty well made up," Bill Waltz, a vice president at the Indiana Chamber of Commerce, said.
More than two years after Indiana's General Assembly wrote its "1, 2, 3" property tax caps into state law, voters will have their chance to write them into the state constitution in November.
Not much will change if they do, and that's the point. Gov. Mitch Daniels says the caps, already law, should go in the constitution so they'll be harder for lawmakers to tinker with during annual sojourns to Indianapolis.
"This is kind of an insurance policy," Karl Berron, president of the Hoosier Property Tax Reform Alliance, said.
Because the caps are in effect, property owners should not expect their bills to go down if it passes. Some bills might still go up. But the caps are so popular among Indiana voters that groups opposed to them, like the Indiana Chamber of Commerce, aren't bothering to campaign against them.
"Around 65 to 70 percent of the voters are in favor of it," Waltz said.
Given how tough it would be to get rid of the constitutional caps, it's worth taking a look at what they mean for Indiana's property owners and local governments.
Indiana's property tax caps limit the size of Hoosiers' property tax bills based on assessed value. The Hoosier Property Tax Reform Alliance say they've already saved Hoosiers $500 million since 2008.
Here's how they work: Homeowners' tax bills are capped at 1 percent of a property's assessed value, bills for landlords and farmers are capped at 2 percent, and business' bills are capped at 3 percent.
So property owners whose taxes once surpassed their respective cap should already be saving money.
But owners whose bills fall below the cap could still see their taxes rise. A bill could also rise if a property's assessed value increases.
"You only qualify for a cap if your property taxes happen to be high," Larry DeBoer, a professor of agricultural economics at Purdue University, said. "Most people are not at the cap."
There's also an exemption to the caps for property owners in Lake and St. Joseph counties. Debt service (loans governmental units have taken out) that existed before July 1, 2008 is exempt from the caps in those two counties until 2020. That won't be mentioned on the November ballots.
Going forward, governments would need voters' permission to embark on new capital projects, creating debt service that would be exempt from the caps.
Finally, advocates often say constitutional caps offer "permanent" relief. That's not entirely true. Just as the caps can be written into the constitution, they can be taken out.
It wouldn't be easy, though.
Amending the constitution requires approval from two separately elected legislatures and a voter referendum. Some opponents predict it would take five years to undo the caps.
"I've heard no earlier than four," Susan Akers, executive director of the Indiana Library Federation, said.
Akers' ILF is one of a handful of groups lobbying against the passage of the tax cap referendum. They want more time to examine the caps' full effects as state law before making them so hard to eliminate.
"Why is the big rush?" Akers said.
DeBoer points out one potential reason to hurry: Indiana's constitution now calls for "uniform and equal rate" of taxation. The tax caps, with their "1, 2, 3" design, do the opposite and might be challenged.
"It's completely unconstitutional what the legislature did," Sen. Karen Tallian, D-Portage, said.
Sen. Sue Landske, R-Cedar Lake and an advocate of the caps, said the referendum will likely put that argument to rest if it passes. She also said enough time has passed to examine the caps' effects.
"I don't think we've really rushed into it," Landske said.
Tax fad spreading
Indiana's referendum is one of several taxpayer-protection initiatives on ballots around the country this year. They appear in Colorado, Missouri and Louisiana, and all take different forms.
New Jersey Gov. Chris Christie, a Republican, convinced his state's Democrat-led legislature to pass a 2 percent cap on property tax increases this summer. The state stopped short of a constitutional amendment.
In the lead-up to passage of the New Jersey law, much scrutiny was given to a 30-year-old 2.5 percent tax increase cap in Massachusetts. The Manhattan Institute of Policy Research and the Common Sense Institute of New Jersey praised it, pointing out real-dollar property tax growth was 22 percent in Massachusetts from 1980 to 2007. Nationwide, it was 68 percent.
At the same time, the Center on Budget and Policy Priorities released its own study of Massachusetts' cap. It said it put arbitrary limits on local government and exacerbated disparities between poor and wealthy communities. Instead of becoming more efficient, it said, local governments simply eliminated valued services.
Phil Oliff, an author of the latter study, points out Massachusetts' law limits growth in how much governments can collect. Indiana's cap allows communities booming with economic development to collect more money because there is no cap on property value increases. However, he said they could lead to similar consequences.
"They really constrain the ability of local government to raise revenue without any regard to the actual cost of providing local services," Oliff said. "Putting those caps in the constitution makes it an even more inflexible tool."
A call to the Manhattan Institute for comment on its study wasn't returned.
A government diet
The plight of local government, as described in Oliff's study, has been central to opponents' arguments against the tax caps. Less taxes paid means less money for cities and towns.
"You might think that's a good thing," DeBoer said.
But the caps are already forcing local governments to consolidate, cut services and staff, and generally run leaner. They've also begun charging new fees for services like fire hydrant use and trash collection. More could be on the way, even in the public schools.
"The constitution says, 'free public education,'" DeBoer said. "You can only charge for things that are outside the core definition."
Dennis Costerison, executive director of the Indiana Association of School Business Officials, said schools' operating funds shouldn't be affected because they rely on state taxes. However, because schools' debt service, transportation and school bus replacement funds are filled with property tax money, they could still hurt.
Schools could ask citizens in a referendum for permission to collect property taxes to make up for tax cap losses, though.
Costerison's organization is opposed to constitutional caps, and he said schools that have trouble making ends meet could cut services.
"Most folks don't realize," Costerison said, "school transportation is not a requirement."
But the caps affect all communities differently based on local tax rates. Valparaiso Mayor Jon Costas, for example, said his city "is in the best financial shape" it's been in for more than a quarter of a century. It even has a rainy day fund of more than $3.5 million.
"Clearly we've not been hit as hard as other cities," Costas said.
Gary, meanwhile, just passed a 2011 salary budget that eliminates the jobs of 31 firefighters. It's the latest in a series of drastic cuts forced on the region's largest city by the caps.
The tax cap referendum has an additional consequence in Gary, the only city to petition the Indiana Distressed Unit Appeals Board. The DUAB has raised the caps for Gary property owners for two years in order to create budget relief for City Hall. It will likely do so again in 2011.
If the referendum passes, the DUAB will be powerless to raise the caps in 2012. That means Gary will be forced to live within them, just like every other government in Indiana.
"Hopefully by 2012, we'll have it where we can manage government and, of course, give the services the people deserve," Gary Mayor Rudy Clay said.