Property tax caps bottle up Gary's school budget

Data from the Indiana Department of Government Finance shows the Gary school district lost more money to the caps than any district in the state: $13 million last year. Overall, Gary saw 83 percent of its $15.7 levy snagged by the circuit breaker.

Superintendent Cheryl Pruitt said the tax caps and low tax collections limit the district’s ability to construct new buildings and upgrade schools. She said school roofs, heating and cooling systems and athletic facilities have become compromised by the lack of maintenance.

Pruitt said the tax caps will also lead to a downsizing in staff and facilities.

With an enrollment of about 8,500 students, Gary still operates 16 schools and many are aging badly,

Administrators work in a central office that’s been condemned by building officials.

The district shut down the Bailly Preparatory Academy in December after a pipe burst. It moved more than 400 students to the Watson Academy for Boys.

Boiler problems have also plagued Webster Elementary, Wirt-Emerson School for Visual Performing Arts and the Roosevelt College and Career Academy. Several schools also have roof problems.

Losing big

Statewide, districts in Indiana lost $245 million in revenue to tax caps last year that might have gone to fix leaky roofs or balky boilers. Instead, that money stayed with taxpayers while schools had to ponder holding referendums just to stay afloat.

Lake Station Superintendent Dan DeHaven said there’s little wealth in his district; it is in the bottom 10 percent in assessed valuation. Lake Station is losing $509,889 to the tax caps — that’s about one-fourth of its levy of $2,080,887 to tax caps. He said Lake Station’s collection rate is about 75 percent.

“We’re being very conservative and conscious here,” said DeHaven. “It’s just a struggle for a lot of communities. I hope the state comes through with some relief.”

The history

The tax caps have varying impact from community to community, but cities in Lake County’s northern portion are typically hit hardest because of the 1998 court-mandated change to a fair-market assessment system. That ruling overturned the state’s previous assessment system, a Byzantine replacement-value method.

Heavy industries, such as steel mills and BP, received big reductions in their property values under the new system, creating a budget chasm for struggling local governments and school districts that had been dependent on those property tax collections.

When the new system kicked in, taxpayers began seeing vast shifts in their tax bills. That led the state in 2007 to spend more than $2 billion to stave off the tax burden.

Purdue economist Larry DeBoer, who studies property taxes, said homeowners worried they couldn’t plan ahead because of the wild tax swings.

That led former Gov. Mitch Daniels to implement temporary tax caps that became permanent in 2010, when voters embedded them into the state constitution.

How they work

The caps make sure a taxpayer does not pay more than a fixed percentage of a property’s gross assessed value in taxes, but the caps do not change the local tax rates. The caps function more like a “ceiling,” creating an unfunded portion of a government unit’s certified levy.

So-called “circuit breaker credits” kick in for taxpayers over the cap, reducing the property tax bill to the capped amount.

Because of Gary’s historically high tax rate and multiple layers of governments including library, sanitary district, township, and city, there’s little tax revenue left to divvy up.

“Pretty much everybody is at the caps,” said DeBoer. “The amount of credits gets really high. It’s the same reasoning for Muncie and South Bend.”

DeBoer said districts with declining enrollments have the toughest road.

“If you grow in a particular place, you know where you need an elementary,” he said.

“When you decline, it’s all over the place. So which schools do you close?”