PLEASE PASS THIS ON. This is a redundant note that I'm sending to every member of the Indiana General Assembly including the Governor. This would be the perfect place for the "can you hear me now?" cliche...if it weren't so painful. This is an open letter from the CEO of the Indiana Association of Realtors with a rather stunning admission in paragraph four.
"In some (Indiana) counties over 40% of closed transactions are foreclosed properties."
Let's hope someone is listening.
July 13, 2007
Dear IAR Member:
As more counties have completed the property assessment process and mailed tax bills, the flaws in the current property tax system have once again been brought to light. I wanted to take a minute and update you on my perspective on the situation, as well as what your Association is doing to address it.
Some of the tax increases were expected due to the elimination of the inventory tax, the implementation of the assessment process known as trending and other factors, but the magnitude of the increases has been higher than anticipated. Urban areas have been particularly hard hit.
IAR has been in daily contact with the Governor, his staff and leadership in both the House and Senate for the past several weeks, urging immediate action. Our two-part message has been to convey the seriousness of the situation for our markets statewide and to reinforce our long-standing policy goals found in this Property Tax Reform Guiding Principles document.
I don’t need to tell you all the tenuous nature of the residential market. Many counties continue to report declining market activity, and perhaps more distressing, foreclosure rates of an extreme level. In some counties, over 40% of transactions are foreclosed properties. Instead, I would like to spend the rest of the letter outlining our goals in order to help prepare you for conversations with your clients and elected officials.
Short term, we have advocated a restructuring of the rebate that is now in place. Rather than spread those dollars over all taxpayers, it makes more sense to target them to those seeing the largest increases. We think the State could offset increases in excess of 20-25 percent with the dollars currently set aside for the circuit breaker. Local government has a role to play in the short term, as well. The State has given local government the ability to adopt an income tax, a tool that could provide substantial, lasting relief. Urge your local unit of government to use that tool.
Long term, meaningful and lasting reform MUST happen. It also must be rational. One of the most frustrating aspects of our property tax system is its complexity. Discussions of levies, rates, circuit breakers, assessed value, trending, homestead credits, homestead deductions, gross this and net that can make one’s head spin.
The media is often unable to cover the debate in a meaningful way, and elected officials at all levels use the complexity to avoid blame and confuse the issue.
Here are my thoughts on how to ensure the viability of our markets and ensure economic opportunity for homeowners, investors and businesses alike:
1. Eliminate township level assessments, move to county assessment
The wild and inequitable inconsistencies in assessments, documented by the Indiana Fiscal Policy Institute study supported by your Association, remain part of the problem and are a contributing factor to the unacceptable increases we are seeing now. Assessment responsibility should fall on the County Assessor.
2. Update technology and adopt a uniform data system statewide
The State must enforce 21st century data and appraisal practices in assessment offices statewide, as well as effectively monitor and evaluate results. Should the State find the standards and/or results lacking, they should act to correct practices and equalize assessments where necessary.
3. Modernize the local government structure
Indiana has the third most units of local government in the nation. We have the third most townships at 1,008, the third most sub-county governments at 1,575 and the fourth most municipalities at 567. Many of these elected officials effectively answer to no one and spend taxpayers’ money with little or no oversight. Eliminating them will simplify local government and provide a much clearer picture to taxpayers as to who exactly is spending their property taxes and what they are buying.
4. Reduce reliance on property tax
This is perhaps the most difficult piece of the reform puzzle. There are two choices. Since about 75% of the property tax dollar goes to education and public safety, dramatic cuts would need to be made in those services to achieve substantial savings. Such dramatic cuts are not generally supported, as they would have an adverse affect on the quality of life and economic development potential of the state. The second choice is to provide local governments with alternative sources of funding. This is the more viable long term solution, and IAR will continue to advocate for broad based taxes such as sales and income as a substitution for property taxes.
We also need to understand that the call to reduce reliance on property taxes carries risk for our industry. Two specific examples come to mind. Some legislators have mentioned a real estate transfer tax as a substitution for property taxes. Others have mentioned broadening the sales tax base to tax services, including real estate services. In both cases, the housing market would be harmed, and IAR will remain vigilant on your behalf to insure that these ideas do not gain traction.
In closing, feel free to share these thoughts with your local and state elected officials. It is crucial, after more than three decades of trying and failing, to finally reform Indiana ’s property tax system. Homeowners and all other property owners are counting on it.
Karl F. Berron
Indiana Association of REALTORS®