Property taxes are going up and so is the debate at the Statehouse. But is there really a problem to fix?
Perhaps you should revoke my Hoosier card, but I am not a property tax hater. I sometimes over the years have felt my property tax bill wasn’t high enough to support services. And I realize that the cost of services — from roads and sewers to the firefighters waiting to save my home if it gets struck by lightning — goes up with inflation.
Local units of government can’t just cut spending all the time. They have to pay their employees more and cover rising health care costs and other inflationary expenses.
How we got here
I’ve been here long enough to remember when Indiana’s property tax system was found unconstitutional. Constant tinkering by the state back then had put so many credits and deductions in to keep property taxes low that it was completely inconsistent.
The Indiana Supreme Court ruled in 1998 that the state’s assessment manual lacked “meaningful reference to property wealth,” did not contain “objectively verifiable data,” and violated the state constitution.
Some with modest homes in blue-collar neighborhoods were paying more in property taxes than those with homes in gated communities.
The decision ultimately led to a new market-based assessment system, which essentially means your property value increases or decreases based largely on sales of similar properties.
When assessments jumped according to the market prices in the early 2000’s the furor got loud and Gov. Mitch Daniels introduced a plan to cap property taxes.
“It is not acceptable that any citizen cannot afford to keep the home they may have worked all their lives to buy. The status quo is not tolerable and we must act to fix it,” he said back then.
His idea was that a homeowners’ tax bill could not exceed more than 1% of its assessed value. Those caps were 2% for farmland and 3% for businesses, respectively.
These weren’t hard caps for two reasons — there were no limitations on how fast the assessments could rise and school referendums approved by voters were outside the caps.
Post-cap world
In the years since caps were enacted, the property tax system has been pretty stable. They have edged up and then come back down. For instance during times of low economic activity and recession housing values drop and so do assessments.
Until now.
As the housing market exploded post-COVID, so did the prices people paid for property, and those sales inform assessed values. My husband and I saw our assessed value go up steadily in recent years: 8%, 10%, 11%. And then in May 2022 we received our Form 11 assessed value and were shocked by another 15% spike.
Up until that moment we begrudgingly admitted our home was worth that much should we try to sell. But another double digit increase was too much. Plus, we had coincidentally performed a private appraisal a few months before for a home equity line of credit. The difference between the county assessment and the appraisal was about $95,000.
So, we appealed and won. In fact, the final determination of assessed value for 2022 is lower than the 2021 value. Because of that we aren’t expecting a massive 15% tax increase some will see. And even if the increase is lower, some Hoosiers might not be able to afford it.
Possible changes
A number of bills are floating through the Statehouse.
Some would focus on the assessment side: capping how much the value can go up in one year, freezing assessed value for senior citizens or the disabled, etc. Other bills would temporarily reduce the property tax caps, saving homeowners hundreds of millions.
But that also means local units of government won’t receive money to maintain parks, replace roofs or buy new police cars.
I don’t think sticking it to schools and local governments is the way to go. I think a better solution would be to focus on the assessments.
First, make it easier to contest your assessed values without the need of paying hundreds for a private appraisal. We were lucky for two reasons. We could afford that appraisal, and I had covered the property tax system for decades and know the ins and outs. But average Hoosiers might not have a clue where to start.
I also think limiting the annual growth of assessed value so that the system is more stable, rather than roller coaster swings up and down, would be a significant help. But there is one key reservation — doing so starts us down the slippery slope to an inconsistent property tax system, especially if some classes of property owners are treated differently than others.
We don’t want to end up back where we were in 1998.