Property tax caps will create long, painful adjustment period in many Hoosier communities.
In many local government jurisdictions around Indiana, population and employment have decreased over the past several decades but the size of government has not — forcing many communities to make tough decisions when it comes to budgeting. However, the introduction of property tax caps are forcing many local governments around the state to painfully downsize.
The impact of these caps vary widely both among and within Indiana’s communities. A recent Ball State University study, The Impact of Property Tax Rate Caps on Local Property Tax Revenue in Indiana, details issues surrounding the impact of tax caps.
In 2010, Hoosier voters amended the Indiana constitution to include property tax rate caps as one component of much-needed property tax reform in the state. Caps were first implemented for taxes assessed in 2009, which households and businesses paid the following year. The current tax rate caps limit tax rates to 1 percent of gross assessed value on primary homes, 2 percent for other residential property, commercial apartments and farmland, and 3 percent for all other real and personal property (primarily business property). Additional spending for school and local government capital projects can be approved through voter referenda.
Since the implementation, the caps have affected local governments very differently across the state. In 2012, local governments in 11 counties experienced decreases in property tax revenue greater than 15 percent due to the tax rate caps. Local governments in Madison and Delaware counties were at the bottom end — suffering reductions of about 30 percent. In contrast, local governments in 19 counties experienced revenue losses of less than one percent.
The governments most impacted by the caps have experienced either dramatic decreases in the industrial tax base or unprecedented growth in population and employment. Manufacturing, which historically was a large share of the business tax base has decreased employment by more than 50 percent in Madison and Delaware counties over the past decade.
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