• Newsletters
  • Facebook
  • Twitter
°
Sunday, August 20, 2017
View complete forecast
News-Sentinel.com Your Town. Your Voice.

New tax caps could cause a tangle

More Information

Fiscal Summit

What: Fiscal Summit

When: 10 a.m.-noon July 21

Where: City-County Building's

Omni Room
Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.The Associated Press

Local governments try to anticipate consequences of “circuit-breaker.”

Thursday, May 28, 2009 10:20 am
When more than 65 percent of California voters rejected a $16 billion tax increase earlier this month, the result was dramatic and easy to understand: Denied more money, politicians will be forced to cut spending if they hope to reduce or eliminate the once-Golden State's $21 billion deficit.There's nothing even remotely simple about the tax-control law that will take full effect in Indiana next year, but the impact could be equally dramatic - or traumatic - for officials and taxpayers alike. Ostensibly designed to limit government spending by controlling property taxes, Indiana's so-called “circuit-breakers” could produce far-reaching and unintended consequences that may or may not be compatible with the law's intent.

The premise is basic enough: Starting in 2010, owner-occupied homes may be taxed at no more than 1 percent of their assessed values - a cap increased to 2 percent for farm and rental properties and 3 percent for business and personal property. That can't help but impose a welcome degree of fiscal discipline on elected and appointed officials.

But even if local governments can absorb the lost revenue - an estimated $8.3 million for Fort Wayne and $3.6 million for Allen County government, for example - urban property owners may benefit at the expense of their rural counterparts, according to County Council President Roy Buskirk.

That's because there is simply more government in developed areas. Fort Wayne residents pay taxes not only to the city but also to the county, their specific township, school district, public bus system and others. Residents of unincorporated areas pay to the county, townships and schools, but avoid municipal taxes.

But because city and rural residential taxes will both be capped at 1 percent, Fort Wayne residents will be getting more services for their money, Buskirk said.

The circuit breakers also make otherwise separate governments more intertwined than ever before. Because each property owner's tax is capped, increased spending by one government can reduce the money available to other in areas in which jurisdictions overlap (such as in New Haven, where residents pay taxes not only to the city but to the East Allen County Schools). Because the total property taxes collected by all governments in a given area cannot exceed the capped percentage, excess spending must be reduced across the board, based on each government's tax rate.

The law provides an alternative to that potential bureaucratic food-fight by allowing governments to ask voters' permission to exceed the caps for major capital projects. Smaller projects approved through traditional petition drives do fall within the caps, however.

County Auditor Lisa Blosser doubts local governments will try to grab every tax dollar they can, leaving less for other jurisdictions. Public opinion and County Council's authority to review bureaucracies' budgets should see to that, she said. Even so, Chief Deputy Auditor Tera Klutz said the law may tempt officials to consider capital projects large enough to qualify for cap-avoiding referendums. Assessors may also feel pressure to boost government income by increasing the taxable value of properties. “But taxpayers would pressure them not to,” she added.

Anticipating the need to cut spending dramatically in 2010, Buskirk said County Council cut more than $2 million in spending this year. The county's $15 million rainy day fund can also help offset the shortfall, at least for a while. But other governments may not be as prepared for changes in revenues that are not limited to property taxes. Because of the recession, for example, the county's share of income taxes is down about $1 million. And lower interest rates have decreased county investment income by another $1.5 million.

So Blosser will host a “fiscal summit” next month, explaining the changes and potential impact to representatives of about 38 local governments.

But until governments operate under the circuit breakers for a while, Buskirk said, the full impact will be more theory than fact.

“That's why I don't favor making (the property tax caps) part of the state Constitution just yet,” he said.

Such caution is justified, but there's a certain inevitability about the law's intent: Sooner or later, people can expect only as much government as they are willing to fund. It's a lesson the entire nation must learn.

More Information

Fiscal Summit

What: Fiscal Summit

When: 10 a.m.-noon July 21

Where: City-County Building's

Omni Room

Comments

News-Sentinel.com reserves the right to remove any content appearing on its website. Our policy will be to remove postings that constitute profanity, obscenity, libel, spam, invasion of privacy, impersonation of another, or attacks on racial, ethnic or other groups. For more information, see our user rules page.
comments powered by Disqus