Continuously serving Kosciusko County since 1854
Indiana Sen. Ryan Mishler’s dad served in the House in the 1980s.
While Mishler was looking over his dad’s old notes recently, he found the number one issue in 1982 was property taxes.
“And so, it just doesn’t seem to go away, and we keep making tweaks, and it still doesn’t go away,” Mishler told the 230 people from across the state Tuesday who filled the Zimmer Biomet Center Lake Pavilion in Warsaw to hear his proposal on property taxes during an approximate 90-minute public forum.
“I’ll start off with this: There’s a lot of talk about, it sounds good to say we’re going to eliminate all property taxes. I’m just going to say this: You can not use the word eliminate and I’ll give you several reasons why you can’t,” he said. “We’re working with bond attorneys, and we will be sued if we eliminate all property taxes because bonds were sold with the idea of being backed by property tax money. And so if we change that agreement midstream, they will get sued, and they can even call on some of our bonds and then the locals would have to come up with money to pay the $52 billion in debt. Our credit rating would tank, and so there’s one reason right there.”
Debt within local taxing units across the entire state of Indiana is $54.3 billion, according to Rep. Craig Snow, who sat on the panel with Mishler.
Mishler used Kosciusko County specifically as another reason all property taxes can’t be eliminated because it would be the county most effected negatively.
“I knew they would be high but not this high. So single-family homes in this county pay $81.3 million in property taxes. Of that, $44.4 (million) are homesteads and $36.9 (million) are not homesteads, residences or properties. So 45% of the single-family homes in this county are owned by people who don’t live in this county, and I bet everybody here knows why - it’s called lakes. Summer homes. And it’s because their assessed values are typically a lot more than the average home. You’re talking multiple millions of dollars for a single property on some of these lakes. So there’s one reason why Kosciusko County would go broke if (you eliminated property taxes) because the local year-round people would have to pick up that $36.9 million, but there’s more to that to eliminate all of them,” Mishler explained.
There’s another $3.1 million from apartments, $8.4 million for agriculture, $25 million for commercial real property and $20.6 million for commercial and personal property.
So if all property taxes were eliminated, Mishler said the people who live in Kosciusko County would have to pay in an extra $94 million to make up for lost revenue. It would be a 100% shift for people who live in this county.
“So that right there should be a reason why this is one county that definitely wouldn’t want the total elimination because you, that are year-round, would be paying a 100%,” Mishler stated.
The total elimination of property taxes would also encourage out-of-state ownership. A person living in Tennessee, where they have zero income taxes, could buy as much property in Kosciusko County as they can and not pay any property or income taxes because they would probably be a pass-through entity. “So this county would get zero. So what would happen is private equity would start buying up all of our real estate because ‘We can go to Indiana and buy real estate and pay nothing.’ You’d be crazy not to, and then they’re going to pay their taxes and their services in the states that they live in, so that’s another detriment to the total elimination,” he said.
Focus On Homestead
One option would be to focus on homesteads because with homesteads, Mishler stated, “you’re going to capture a replacement in the same county that you’re getting the credit. So, if you leave the other property taxes - those that have a nice lake home and live in Hamilton County or Marion County - would still pay a tax in this county on their home.”
On the homestead, he said as an example, there’s about a $40,000 exemption. “If you take away the homestead exemption and you make it a credit - so, you start with a 20% credit on your homestead and over five years you phase it in, so you get up to 100%. ... All you do, you bump it up to 105 years. What does that mean? You’d still get a property tax bill because, again, remember, you can’t eliminate because of the bonds. But if you have a 100% credit, what’s a 100%? Zero. So you would get a property tax bill for zero dollars once it hits 100%,” Mishler explained.
The only exception would be if there’s a current approved referendum so there would be a fee on the property tax bill for that.
“The other concern is, it would shift to the others. If you do the credit on homestead, it will to the non-homesteads - the ag, the commercial. By doing a credit, you can’t shift it. So with a credit, you can’t shift the property tax burden on to the 2’s and 3’s, the 2%, the 3%, the commercial, investment properties, ag. You can’t shift it if you use a credit. That’s why the keyword here is using a tax credit, not an exemption,” Mishler said.
The question then is, how do you replace it?
“This is the most basic part of it. It’s already there,” Mishler stated. “We don’t need to do anything.”
He said they looked to see where the counties were on the Local Option Income Tax (LOIT, or LIT).
“If you shift it to a Local Option Income Tax, the counties right now - all but 14 counties in the state of Indiana - have capacity to go 100% now” to cover the replacement for the property tax, Mishler said. “It is totally a local decision. Locals, right now, can raise their income tax. So, if we do this with the homestead - and I’m really kind of looking to see if this is something you want to do, that’s what I’m asking. If it’s something you want to do, we can make it work.”
Kosciusko County would have to decide if it wanted to raise the LIT enough to cover the $44 million.
“Again, this is schools, libraries, cities, counties. This is everybody that receives property taxes from that $44 million. So they would have to decide, do you want to raise it enough to do the 44? Do you want to raise it a little bit and give a break and try to cut back on some things? But it really gives the locals the ability to make that decision. It’s their money, it’s their decision to make and it’s already there, so we don’t need to do anything legislatively to allow them to raise their Local Income Tax,” Mishler said. “So that’s it. I think it makes locals become more efficient. The key thing here is simplify. ... It would take it down to zero. Again, don’t use the word ‘eliminate.’ And the locals have enough capacity to replace it with their current capacity of local income tax.”
Raising LIT
The first question posed to Mishler’s proposal was, “So you’re telling us locally, take care of yourselves, basically?”
“You can do that now,” Mishler responded.
“But eliminating the property taxes raises our local income tax,” the man said, and Mishler said that was correct.
Under the current Senate Bill 1, Mishler said some of it shifts to a LIT. “If you want to replace it, it goes to a LIT. The only way to do it is through a LIT. This just takes it further. Senate Bill 1 doesn’t get homesteads to zero. This gets your homesteads to zero, so you would have to replace more of it if you choose to replace the whole thing.”
The man then asked how the taxing units would get additional funding if they raised their LIT to the maximum and were short. Mishler said he didn’t know how they would be short because currently every county has enough capacity with LIT to replace what they would lose in homestead property taxes currently.
The 14 counties that currently don’t have capacity have levy freezes but over a five-year period those freezes would melt away and the counties would probably get their LIT capacity back.
“So, if you want more money, if you hit your cap, and you even want more money than that, then just like we do, our cap is 2.9%. If we want more money, we’ve got to bring more people into the state to pay income tax. So locals are just going to have to bring more people in to pay income taxes,” Mishler stated.
Mishler was joined on the panel by Rep. Craig Snow and Sen. Chris Garten.
Garten said, “If I’m a taxpayer, and I am a taxpayer, I think anyone here who is a local elected official should have to justify the need, why you need more money out of my pocket. Plain and simple. That’s my position as a state legislator.”
Financial Advisors
Harold Smith, Green County, said since SB1 was introduced, assessed values have gone up and his bill went from $8,400 to over $10,000 this year. He contested it and it was brought down, but he was trying to figure out why the counties were saying they’ve had a reduction of 20-30% in revenue coming from the Statehouse. As a result, he said they’ve reassessed property values. He said the folks at the Green County courthouse are telling him the folks at the Department of Local Government Finance have been given direction to assess the properties higher in Green County to cover the loss of revenue. He wanted to know if the counties have received a 20-30% reduction since SB1’s implementation. Because his tax bill went up, he raised the rent for all his tenants, which was a financial hit for them.
Garten asked if anyone present was from Baker Tilly first, and then he said, “So here’s part of the problem. About 80% of local units of government contract with a firm called Baker Tilly, and this is the problem we got into. If you use Baker Tilly and you’re a local unit of government, they owe you a refund. You should fire them.”
He said Baker Tilly created a scenario where they went around and started telling everybody the state legislature was going to bankrupt local government with Senate Enrolled Act 1 (SEA1).
“This is what they did in their formula, and this is where they were wrong,” Garten stated. “They calculated their formula equations with a zero percent assessment growth. That’s never happened in Indiana history. Ever. Zero percent growth is not a truth. But that’s how they calculated it. So when you calculate with a zero percent growth into all these local budgets, of course it looks terrible. It looks like we’re going to bankrupt everybody.”
He said the problem is local units of government are contracting with somebody who’s financially incentivized to tell them this is the problem. Garten said, “Our projections with our staff have actually been pretty accurate from Jump Street and we’ve tried to wheel like that the entire time. And the problem is, you’ve got local units who have spent real taxpayer dollars with companies like Baker Tilly. And so they feel like they have this moral obligation to believe them and trust what they’re saying. The reality is, it’s a bogus product. It’s wrong and you should fire them today.”
Snow said last year they tried - unsuccessfully - to hold Baker Tilly and other fiscal advisors’ feet to the fire.
“Basically, what they’re doing is, they’re going out and trying to get all the local units of government to get more debt on the books so the constituents have to pay for it,” he said, noting he got bent out of shape with them and told them they have to stop doing this. “Because it’s our taxpayers paying way too much money than they should to pay down debt that they shouldn’t have in the first place.”
He said not all debt is bad, but it’s a fiscal tool that not all units of government know how to use as a fiscal tool, and Baker Tilly enhances that. “They want you to do that because, who makes money? They make money when you have a bond, and that’s the biggest problem I see in this whole thing,” Snow stated.
He said the state legislature needs to write legislation that creates better behavior.
“I’m hoping we can get it across the table to where we can hold some of these actors accountable,” Snow stated.
