Indiana Gov. Mitch Daniels and state lawmakers answered a property tax crisis with landmark legislation this year that caps home taxes at 1.5 percent in 2009, at 1 percent in 2010 and beyond, and provides $870 million in tax relief this year.
It further restricts tax hikes for some 65+ homeowners and boosts the earned-income tax credit for low-income workers.
Among other things, the package relies on strict local spending controls and a 1 percentage point sales tax increase, to 7 percent.
Daniels spoke to AARP Indiana about the changes.
Q. Your goal was “fair, far-reaching and final” property tax reform. Are we there?
A. Yes, unequivocally. It is far-reaching, upwards of 30 percent, and for those hardest hit it will generally be more. It is as fair as I think it can be made. Everyone gets relief and it is delivered through the same mechanism for everyone. I believe we have made assessment more consistent in the future, which will be part of fairness. And I want to say that some of the amendments offered by Democrats, and some Republicans, improved the fairness: the freeze for seniors; the increase in the earned-income tax credit for low income people, which will include some seniors; the increase in the renter’s deduction, which will share the benefits a little more evenly with those who don’t live in a home they own.
So I think the fairness of the plan, nothing’s perfect, but I think the fairness of the plan is reflected in the more than 2:1 majorities it got in both parties in both houses for both measures, the bill and the resolution. Which gets to final. Final, maybe I was sacrificing precision for alliteration a little bit, because nothing’s ever final, and I don’t doubt that over the years we and others will find ways to make adjustments. But by final, I really meant lasting, and the (constitutional) amendment process, which we all have to participate in eventually to make law, I believe, is very important in protecting the tax cuts here and the relief against future politicians or a judge overturning it.
But yes, is it far-reaching? Make certain every reader knows there’s a $1.72 of tax cut for every dollar of new sales tax here. Even if some localities somewhere, they choose as part of their adjustment to use the local option income (tax), there’ll still be a major net tax reduction out of this bill and that’s what we started out to do.
Q. The law puts significant new spending obligations on the state. What’s the long-term state budget impact?
A. We just simply have to manage it as we have the last three years. You have to decide what your priorities are. Our priorities will now include, certainly from me, the full funding of public education. The state was already paying 85 percent of operations, now it’ll be 100 (percent), and these other costs, like child welfare, that we’ve picked up. My view is that if it means lesser priorities have to be economized on, that’s what we’ll do and I’m sure future governors will do. It’s a very reasonable problem to take on in return for delivering major tax relief to Hoosiers.
Q. For many homeowners, taxes soared astronomically last year. How happy can they be with a promised 30 percent cut to their 2007 bills?
A. If your bill went up that much, you'll probably get more relief. And the caps, as they come in, will give you dramatic relief. That’s one reason we went for the caps – one ceiling, maximum ceiling for everyone. So if someone was in one of the places where bills became unaffordably high, they will get much more than 30 percent relief. There are homeowners out there who wound up with bills at 3 and 4 percent of their homes’ value. As we impose a 1 percent cap, they’ll be getting two-thirds or three-fourths relief. The 30 percent is just an average figure across the state.
And it’s exactly those people – some of these were modestly priced houses and some were expensive houses – but it’s exactly those people who got a bill for 2 and 3 and 4 percent of their home’s value and couldn’t afford it that we started out to protect.
Q. They’ll get that relief when they pay their 2007 bill?
A. They’ll get the first installment of relief on the bills of May and November this year. The caps will be at 1.5 percent for homeowners next year, 1 percent in 2010. I wanted to get to 1 percent next year, (but) that was one of the compromises we made. Many of the hardest hit taxpayers will get three rounds of relief: one installment this year, a second next year, and if they’re still above 1 percent, they’ll get a third cut the year after. At that point, every taxpayer in Indiana, every homeowner, will be protected by the same limit, 1 percent of your home’s value, which to me was the essence of fairness. I believe we will now have – again, there is no perfect system – but I believe we’ll have one of the best in America. Our property taxes will be in the lowest 10 states in America, and only one other state has a 1 percent true cap like we will have.
Q. What role did homeowners play in bringing this about?
A. Their role was indispensable. They exercised their citizen’s rights to raise a little Cain and get the attention of policymakers. They cast some votes in the mayoral elections that got the attention, and not just in one place but in many, that got the attention of legislators, and they came to the Statehouse to balance the debate. I said the lobbyists for the spending units were here every day, getting paid to be here, (so) it was essential to have citizens make time, find time – many seniors were a part of this – to come here, and as I say, bring some balance to the debate and remind the legislators that this was about putting taxpayers first.
Q. Anything else?
A. I hope that every taxpayer who wrote a letter, made a call, attended a single meeting or more feels some sense of accomplishment. It would not have happened without them.
Incidentally, the most effective arguments I ever had when I was meeting with legislators were to be able to tell them about seniors, for instance, that I had met, and a specific impact on a specific person. I stood in the yard of a widow in Elkhart, we talked about her bill, and talked about what a 1 percent cap would mean, allow her to keep the home that her family lived in. My friend Dixie Huff came down from Muncie and stood out here with me and we walked through what it meant to her, the ability she will have, I hope, to keep her home. That personal activism was really important.
Now let me go back just for a second, your question’s a good one, you know, about the state (budget) and so forth. Of course it will sometimes be difficult to pay for these obligations that state government is taking on and keep the books in balance. But here’s a fundamental point. The way we’ve always done property taxation, the various spending units decided what they wanted to spend and then passed out the property tax bills no matter how big the total got. Here, now, in state government, we live under a balanced budget requirement. And that will force the kind of tradeoffs and prioritization that was not taking place under the old system. See what I mean? So, yes, I’m sure there’ll be times, and it could be the next budget, when it’ll difficult to make everything fit into a balanced budget. It’s supposed to be. (But) it is going to be a vastly better system now that we are adjusting spending to what the taxpayer can afford, as opposed to raising taxpayer bills until they provide the money that the spenders think they need.