Someone emailed me last week and wanted to know how Indiana's new law, coined the "2% circuit breaker" was going to affect the Wawasee school system. Evidently they had seen the TV coverage of the South Bend school system fretting about how this law could hurt them badly.
The "2% circuit breaker," passed by the Indiana General Assembly in 2006 is designed to cap property taxes at 2%. That sounds simple enough, right?
Yet, this law could have a devastating impact on some municipalities, towns, cities and schools but little or no impact on others.
Here is how it works. To make the example simple, let's assume you had a home and property that was valued for property tax purposes at $100,000 and your total property tax exceeded $2,000. In this example the "2% circuit breaker" kicks in and then anything over that $2,000 is noncollectable and the taxing entities would not receive their portion of that money.
What if you live in a town that has a library tax? What if your town provides sewer service? Maybe they collect your garbage or plow your streets and pick up your leaves? These services are provided for those that live in the taxing area. But if your total property taxes including school taxes exceeds 2% (or in the $100,000 example - $2,000) then the taxing entities do not receive their portion over the $2,000 amount.
This seems a little weird to me. Just because you live outside these municipal areas doesn't necessarily mean you don't use such services. Maybe you pay for your own garbage pick up. When the private gravel drive to your subdivision is drifted in you may have to pay separately to have it plowed. You probably pay every year to have it scraped and potholes filled. Maybe you pay for septic tanks to be pumped and when the systems go bad you may pay privately to put in a new system. These items are not covered on the property tax rolls but that doesn't mean you don't have to use those services. I suppose the thinking is that at least you have a choice. I suppose so. You could let the garbage pile up at the roadside I guess! :-)
But, here are the real problems with the "2% circuit breaker:"
1. These towns, municipalities and schools already have their budgets set and services developed long before they are informed about how much revenue is not collected.
2. The Indiana General Assembly passed the law without solid information on how and who it would affect.
3. They did not pass any alternative revenue sources.
As far as Wawasee Schools is concerned, it does not appear to have too much of a direct effect. Wawasee Schools tax rate is low enough that even adding all the other property taxes up inside the towns it should not have a major impact on our schools. But time will tell.
To see Wawasee's property tax rate and current ranking (Click here) then scroll down to "Delve deeper into data" and select "top 10 corporations," then select "tax rate (before CAGIT)" and you will see Wawasee ranked 292 of 293 school districts.
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13 comments:
Maybe the 2% circuit breaker was not researched enough before implementation, however, families are losing homes due to high property taxes. At least this was an attempt to control these taxes which on average have risen 25% over the last few years while incomes have risen only 14% over the same time. Indiana is 6th in the nation in home forclosure rates. The property tax system is in need of drastic reform! While it is not fair to short change schools, it is also not fair to tax a family out of their home! The system needs to be based on ability to pay (income taxes) or usage (sales taxes). Some will argue that these taxes are not as stable as property taxes. With this said, it is about time our gov's give attention to our incomes not just that of cities and towns, schools etc. Why are not cities and towns run like a business or for that matter like a houselhold? That is, during good times one expands and invests. During lean times, yes this is difficult, one cuts back and does not implement that new program or buy that new piece of equipment. You wait until you can afford it. One way of looking at this; Say my household needs new transportation, I do not have enough money this year, so I am just going to send my local gov a bill for this irregardless of their income etc. here is the bill and either pay up or get out! Of course, we as homeowners cannot do this, but essentially cities and towns can and do. This is wrong and in need of reform to a "ability to pay" or "usage" taxing system! At least the 2% breaker, while not very effective, was and attempt to control a out of control system. A "income" circuit breaker that indicates your property tax bill can be no more that "X"% of your earned income would be more effective. Hopefully our legislature will fix this NOW!
It never ceases to amaze me how school administrators view tax dollars as something they are entitled to receive. The 2% "circuit breaker" was designed to portect individual taxpayers - in other words, homeowners, your fellow citizens and YOU! Yet, Dr. Stock seems to think that pre-established budgets of his school system take precedent over that. "If you can't pay, then too darned bad! We have a budget to meet." Who cares, I suppose, about your presonal budgets. If you've lived in your house for thirty years and worked your tail off to get it paid off, well... too darned bad. Dr. Stock and his fellow adminstrators throughout the state don't care. Take the current market value of your home, multiply it times 2% and just ask, "Is this enough?" Dr. Stock says, NO! You should pay more. So, Dr. Stock, what would be a fair cap? Care to say?
Some thinking just truly, truly amazes me.
I guess I would have to agree with Anonymous number two. After reading his/her thought free screed, I would guess that practically any thinking would amaze him/her.
I don't particularly think I would be advertising that fact, however.
Anonymous Number 1, please provide a link that documents that families in Indiana are losing their homes due to high property taxes. While you are at it, please provide the links that show property taxes have risen 25% over the last few years. Also, I would like to see a link to the study showing that the reason Indiana is 6th in the nation in home foreclosure rates is caused by, or even correlated to property taxes.
One of the beauties of the internet is that when you make statements, you can back up what you say with links that everyone else can peruse. That way we can all increase our knowledge.
Let's see, Dr. Stock...
You seem to speak out of both sides of your mouth on a regular basis.
In this case, you have said that the 2% cap won't hurt Wawasee because it has such a low tax basis to begin with; however, it seems that you regulary complain that Wawasee is unfairly compensated because it receives such a low percentage compared to the high tax rate.
How can both of these arguments merit consideration?
Stapleton:
The Indiana home forclosure rate came from a Indy Star article dated 1/28/2007 Entitled " Indianapolis National Ranking Among Cities With Highest Forclosure rate". The article simply indcated Indiana's rank in the nation. There is another Indy Star article entitled "Taxed Out' that spoke about Hoosiers Losing homes due to property taxes. Also WNDU 16 (4/21/2006) did a article entitled "Home Vacancies in South Bend Continue to Dissuade Investors". This articles indicates the vacancy problem largely appears to be fallout from the property tax reassessment in 2003. You can also reference the Wed Sept 20th, 2006 Mail Journal to see a listing of tax sales in this area alone. Regarding the 15% avg income increase and 25% tax increase, first, I made a mistake the income increase is 14% and the avg property tax increase of 25% was correct. This can be found in the Sunday Sept 10th Indy Star and is entitled "Property Taxes set to Balloon". I can also share personal experience, my property taxes have increase 4 fold to the point they exceed my mortgage payments and if the 15% to 20% increase predicted this year alone occurs I will have to sell. Others I have spoken with have indicated 50%. Some are paying 25% of their income in property taxes! One local elderly lady had to sell a car to pay her taxes. Also, do you recall when the reassessment occured? Local banks were advertising "property tax loans". If property taxes reflect "ability to pay" why were loans needed? Drastic reform is needed! What are we supposed to do just sign our paychecks over to our gov and schools? Were are not talking about a $100 dollars any more, we are talking about $1,000's. We need to move away from assessed value to a system based on income (ability to pay) and usage (sales taxes)
pyc must be one of Dr. Stock's fellow school administrators. How else could someone be so dismissive of clear and genuine concerns?
What some of these articles fail to mention is the constant loss of manufacturing sector jobs in the state, and the increasing amount of layoffs. People who were working in these areas no longer have a stable income to rely on to manage their expenses. True, in the last re-assessment for property taxes, a lot of homes did increase, but this is the price we pay for living in this area. I believe that the majority of the problems mentioned in the South Bend area dealt with landlords not being able to afford their rental properties because they are taxed in St. Joe county the same as owner occupied. Just my 2 cents. No one likes the idea of paying taxes, but they are inevitable. If they decrease property taxes, there will always be another tax to take its place-no matter what party is in control of the state or country.
Anonymous #3 said:
In this case, you have said that the 2% cap won't hurt Wawasee because it has such a low tax basis to begin with; however, it seems that you regulary complain that Wawasee is unfairly compensated because it receives such a low percentage compared to the high tax rate.
How can both of these arguments merit consideration?
It sounds confusing because it is.
Wawasee does not have a low tax "basis" (your words)it has a low tax "rate" (my words.) Tax "rate" is low when property values are high. This is because it doesn't take a very high rate to raise enough revenue to fund the state's school funding formula for the General Fund. School districts that have low property values are compensated by the state with additional revenue to help keep their property taxes a little lower than they would have been.
The school funding formula was first put into place in the early 70's. Before that time local school boards controlled the GF tax rate. Schools that had low tax rates then were frozen and then the school funding formulas were instated. The new formula replaced local school board control of the GF with a state controlled formula. Since the 70's Wawasee has usually been lower than most school districts in funding per child, something that your local board does not control any longer.
My point about the 2% cap is that it is not likely to cause a Wawasee tax patron to exceed the 2% because there are enough high property values around that it drives the rate well below 2%. Our school rate is currently .89.
Even adding the local town's tax rates to ours is not likely to exceed 2% and if it did it would not be by much. A few financial institutions have run these numbers. The reports I heard did not show Wawasee having much of an impact. Others towns, cities and/or schools like South Bend could be in trouble.
Thanks for the references, Anonymous. Some thoughts.
1. The article, "Taxed Out" deals with the reassessment and specifically applies to property owners on the north side of Indianapolis. That area was hit hard because the old assessment rules ended up assessing those homes very low, when in reality the properties were worth hundreds of thousands of dollars (in some cases many hundreds of thousands.)
2. The article about Indianapolis ranking high among cities with foreclosures doesn't say anything at all about property taxes. Of course it doesn't say anything about predatory lending practices either, although some believe that is a contributing factor.
3. The article entitled "Property Taxes Set to Balloon" was interesting. Some things that were pointed out in the article include the fact that significant property tax hikes were seen in 2002 because many older homes had been largely undervalued (cf. number 1). Property taxes have risen in part because the inventory tax on business was eliminated. That's good for business, but bad for homeowners. When compared to other states, Indiana ranks 26th highest in the nation, or right about in the middle. Now, whether the fact that our property taxes rank us in the middle of the pack nationally constitutes a crisis is another question. I'll leave that to someone smarter than me.
4. The other articles I either couldn't find or don't really seem to relate. For instance a list of properties up for tax sale simply reflects that people didn't pay the tax on time. There could be various reasons why. The point is that simply because a property is listed doesn't indicate that high property taxes were the cause.
I think most people are open to a discussion of a better way to fund government if there is one. Perhaps your suggestion of determining some way to tax based on ability to pay is the way to go. But if so, shouldn't someone have thought up a plan to make that happen before they started taking funds away? (I could make a snarky remark about Republicans and plans, but that is off topic) Anyway, it's an interesting discussion.
PYC- yes this is a very interesting discussion. I do not think the ranking has much to do with our problems. I believe Indiana is also in the upper half regarding "total tax burden". (do not happen to have that reference) Most of the current issues were caused by very poor planning during the switch over to a market value system. Folks that purchased homes 40 years ago, at a price they could afford at the time, now to be told there property is worth hundreds of thousands and by the way your tax bill is going from $1,500 per year to $6,000 per year is unfair. I do not believe any family should be taxed out of their primary residence hence my wish to move towards a better metric of ability to pay such as income taxes. The current system was established when owning land really meant wealth as one could produce more corn, cattle etc. They actually made money from their land. For most of us this is no longer true until we sell and not always then either. This is a outdated system. As a matter of fact the Indiana Fiscal Policy Institute released a study on Oct 20, 2005 that indicates among other things that" The type, quantity, and quality of data currently collected will not support a market value assessment system". So now we are trying to use a old system, based on a meaningless metric that is not sufficient to create a fair tax. Again, poor planning. The entire "pay up or get out" mentality harkens back to fuedal times! With the above in mind, just as we do at home, our gov needs to cut spending!!!!
Anonymous, you raise some good issues. And again, whether taxing property is the best way to fund governmental services is something that I will leave to people smarter than myself. My guess, however, is that if it were simple, a new system would already be in place. Rather, it seems to me that because the situation is rather complex, whatever solution is reached will need to address all of those complexities. And unfortunately, in many places, the realities of the loss of funding as a result of 2% cap, is much closer than that solution.
Thanks to all who left comments on this subject. I do not feel like I know the subject well enough to enter in on the debate but I love reading how others feel about it. This is why I like Dr. Stock's blog so much. I feel like I learn more here than I do from reading the newspaper. Again, thanks to everyone for this learning experience! Keep the topics coming Doc Stock!!
An avid reader
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