INDIANAPOLIS — There are no names listed next to the question on the ballot, but many groups of Hoosiers say the decision on whether to enshrine property tax caps in Indiana's Constitution hits close to home.
Homeowners who saw their tax bills soar in 2007 say the caps are the only way to guarantee they'll never again be faced with such a burden. Real estate agents say the caps might offer an incentive to buy a home in Indiana. Watchdog groups say they force local government to trim the fat.
Meanwhile, farmers and businesses complain that their tax rates — under the caps, homes could be taxed at no more than 1 percent of assessed value, while the limit is 2 percent for farms and rental property and 3 percent for businesses — are uneven and put them at a disadvantage.
Origin of the caps
In 2007, homeowners in some Indiana counties — especially Marion, the state's most heavily populated — saw their tax bills soar.
It was the result of a "perfect storm" that hit at exactly the wrong time. Courts had ordered changes to the way the value of property is assessed. The economic downturn was in its early stages. Schools and local government units were searching for more money.
An early "tea party" group formed in Marion County and held protests against the high tax bills. Their major shot across the political establishment's bow came in November 2007, when popular two-term Indianapolis Mayor Bart Peterson, a Democrat considered a shoo-in for re-election in a heavily Democratic county, was defeated by Republican Greg Ballard.
So in 2008, when the Indiana General Assembly convened for its 10-week session, the top item on the agenda of Gov. Mitch Daniels and most lawmakers was providing immediate property tax relief.
They came up with a two-step solution.
First, they enacted legislation that shifted some costs — by far the largest was funding schools, followed by child welfare, pensions for public safety workers and health care for those who could not pay — to the state level.
To pay for it, they increased the state's sales tax by 1 percent, from 6 cents on the dollar to 7 cents. They also increased the "homestead deduction," lowering the amount of their property's value for which homeowners are taxed.
Second, they passed the 1-2-3 property tax caps. Only fully phased in this year, those caps are already law. But lawmakers in 2008 also started the process of amending them into the constitution.
That's a process that occurs in three steps. First, the General Assembly must approve the exact same language for a constitutional amendment in both chambers. Second, after the next election, the General Assembly must again approve the exact same language in both chambers.
The caps passed early in 2008. An election was held that November. Lawmakers approved the caps again this year, in the exact same form, completing their role.
The third and final step, set for November 2, is for the proposed amendment to win voter approval through a statewide referendum.
Daniels, Lt. Gov. Becky Skillman and other tax cap advocates say it's essential that voters grant that approval. A constitutional amendment would be stronger in the event of a legal challenge — and one was possible, because many say Indiana's Constitution seems to prohibit the 1-2-3 classifications and taxing levels — so Daniels says it's the only way to ensure the property tax relief that is already state law is permanent.
But those who question the wisdom of writing the caps into the constitution say if it turns out changes are needed, making those changes would be an arduous process.
According to the Indiana Department of Local Government Finance, the total amount of property taxes collected on homesteads — the homes in which people actually reside, not including second homes, rental property, businesses and more — has decreased by 36 percent from 2007 to 2010.
Of that, 12 percent is because of the caps. Thirteen percent of homeowners across the state have hit the 1 percent cap.
The debate
At times, some homeowners have found the caps confusing. The 1 percent rate applies only to one acre of land, the home and a single detached building — likely a garage or a shed. But something like a pool, or land beyond one acre, can be taxed at up to 3 percent.
Still, public opinion polls find the caps have the support of more than 60 percent of Hoosiers.
"Twelve percent of people getting a benefit is still a benefit. Any time the government puts a limit on its ability to tax, that's a good thing for homeowners," said Chris Dickson, president-elect of the Evansville Area Association of Realtors.
Groups such as his have campaigned for the tax caps in part because they offer predictability for homebuyers and companies considering moving into the state, he said. He cited a Ball State University study that found the caps could create as many as 100,000 jobs because of the dollars they will free up.
The caps are opposed by some business groups, such as the Indiana Chamber of Commerce and the Chamber of Commerce of Southwest Indiana. Those groups say it is unfair for businesses to be taxed at a rate three times as high as homeowners.
"We basically have the same position as the state chamber, and we also oppose because of the strain that caps could possibly put on local government," said Steve Schaefer, the vice president of public policy for the Chamber of Commerce of Southwest Indiana.
The Indiana Farm Bureau also opposes the caps. But all those groups ultimately decided not to campaign against them.
"We gave it our best fight in the General Assembly this year, and it fell flat," said Bob Kraft, director of state government relations for the Indiana Farm Bureau. "There comes a time when you fold your cards and count your money, and we've hit that point."
The decision by the Farm Bureau and the Chamber of Commerce leaves only a loose coalition of lesser-funded groups led by the Indiana Urban Schools Association to fight the proposal — and those groups lack the money for commercials or mailings.
They will rely instead on public meetings and low-cost advertising to spread their message that the property tax caps will hamper the ability of local governments and schools to deliver services, said Charles Little, executive director of the urban schools association.
Schools are harmed by the caps, those groups argue, because as the recession deals a blow to state revenues, school districts have no way to raise the extra revenues to avoid teacher layoffs and program cuts. Meanwhile, small libraries might also struggle to keep the doors open.
"The public needs to go into this with their eyes wide open," Little said. "Polling indicates this thing is going to be overwhelmingly adopted, but the implications will go well beyond this election."
Sixty-four percent of Indiana residents surveyed in December by Ball State University's Bowen Center for Public Affairs favored the constitutional amendment, which needs a simple majority of votes to pass.
Bill Waltz, vice president for taxation and public finance at the Indiana Chamber of Commerce, said those numbers have influenced most opponents that it's not worth spending money to try to defeat the proposal.
The caps' cost to local government is large — about $400 million this year and almost $500 million next year, according to estimates.
Still, many local government officials say they favor the caps.
"As a county councilman for the last four years, two of the last four years we were able to cut the budget almost half a million dollars," said Tom Shetler Jr., a Republican who is the Vanderburgh County Council's finance chairman.
"When you cut the taxes, the workingman, the businessman, everybody benefits. When businesses look to relocate in your town, what they're looking at is the total cost sheet ... and taxes are a very large component of that."
The caps' advocates say if government units need more money, they should look elsewhere — such as local-option income taxes.
"As a last resort, the government units can resort to income tax increases," wrote Aaron Smith, an activist who has campaigned for the tax caps, in a recent e-mail to a list of other advocates that he has maintained in recent years.
"Homeowners benefit by moving away from property taxes toward a tax burden that is based on the ability to pay."
Staff writers Thomas B. Langhorne and Susan Orr and The Associated Press contributed to this report.