Purdue Cooperative Extension Service On Local Government Property Tax Reform, 2008

1. Purdue Cooperative Extension ServiceOn Local GovernmentProperty Tax Reform, 2008 Larry DeBoer Purdue University April 25, 2008

2. 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

3. 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

4. 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

5. HEA1001 Directs Tax Relief to Homeowners

6. HEA1001 Directs Tax Relief to Homeowners

7. HEA1001 Directs Tax Relief to Homeowners

8. Estimated Impact of Indiana's New Tax Reform (HEA 1001) on Property Tax Payments, 2010

9. Homeowners, 2008 Added homestead credits Tax bills fall

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

11. 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

12. Estimated Impact of Indiana's New Tax Reform (HEA 1001) on Propert y Tax Pa y ments, 2010

13. The Median Homeowner

14. The Median Renter

15. 60 Households (with 3 people)

16. Estimated Households with Tax Cuts and Tax Hikes

17. 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

18. 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?

19. 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?

20. 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