WHATDOWEKNOWABOUT

INDIANA'SPROPERTYTAXCAPS?

byLarryDeboerDecember2015

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WHATDOWEKNOWABOUTINDIANA’SPROPERTYTAXCAPS?

LarryDeBoerDecember2015

AbouttheAuthorLarryDeboerisaprofessorandextensionspecialistinAgriculturalEconomicsatPurdueUniversity.HejoinedthePurduefacultyin1984andstudiesstateandlocalgovernmentpublicpolicy,includingsuchtopicsasgovernmentbudgetandtaxingoptions,issuesofpropertytaxassessment,localgovernmentrevenueoptions,andthefiscalimpactofeconomicdevelopment.HehasworkedwiththeIndianaLegislativeServicesAgencyontaxandfinanceissuessince1988.HecontributestotheannualstaterevenueforecastsandhelpsmaintainamodelofthepropertytaxusedbytheIndianastatelegislaturetoanalyzetheimpactsofassessmentandtaxpolicychanges.DeBoerearnedhisundergraduatedegreeatEarlhamCollegeinRichmond,Indianain1978,andhisPh.D.atSyracuseUniversityinSyracuse,NewYorkin1983.HetaughteconomicsatBallStateUniversityinMuncie,Indianafrom1982to1984,beforejoiningPurdue'sstaffinSeptember1984.SummaryIndiana’scircuitbreakertaxcapswereaproductofthe2008propertytaxreform.Theywerefirstappliedstatewidefortaxesin2009andsince2010havebeenusedatthecurrentcaprates.InNovember2010voterspassedareferendumtoaddthecapstothestateConstitution.Aftersixyearsatfullcaprates,wehaveenoughexperienceanddatatoestablishsomebasicfactsabouthowthetaxcapswork.Thetaxcapslimithomesteadtaxbillsto1percentofhomesteadgrossassessedvalue(beforedeductions),2percentforotherresidentialandfarmland,and3percentforbusinessrealandpersonalproperty.Taxratespassedbyreferendumareoutsidethecapsanddebtservicethatexistedasof2010arenotincludedinthecapcalculationsforLakeandSt.JosephCountiesthrough2020.Taxcapcreditsareusedtoreducetaxbillswhentheyexceedthecapamounts.Thesecreditsaretaxreductionsfortaxpayersandrevenuelossesforlocalgovernments.Taxcapcreditswere$727millionin2015,whichwas10.4percentofthetaxlevy.Thispaperusesseveraltaxbillexamplesasamodelforhowthetaxcapswork.ThetaxbillexamplesofferideasabouttheeffectsofthetaxcapsonIndianataxpayersandlocalgovernments,whicharecomparedtotheactualeffectsusingdatafrom2014and2015.Thetaxbillmodelisusedtocalculatethetaxratesatwhichhomesteadsjustmeettheircapamountsandbegintoqualifyfortaxcapcredits.Ahomesteadwithamediangrossassessedvalueof$110,000needsataxrateof$2.81per$100assessedvalue(2.81percent)toqualifyfortaxcapcredits.

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Highervaluedhomesqualifyfortaxcapcreditsatlowertaxrates.Atataxrateof$3per$100assessedvalue,homesteadswithgrossassessedvaluesofmorethan$100,000qualifyfortaxcapcredits.Atataxrateof$2,homesteadsvaluedatmorethan$200,000qualify.Non-homesteadresidentialpropertyandfarmlandreceivefewdeductions,soatratesabove$2almostallofthispropertybecomeseligiblefortaxcapcredits.Businesspropertythatdoesnotreceiveabatementsorotherdeductionsbecomeseligibleattaxratesabove$3.Theaveragebusinesspropertywithdeductionswouldneedarateofabout$3.75toqualifyforcredits.Moretaxpayersareeligibleformoretaxcapcreditsindistrictswheretaxratesarehigher.Taxcapcreditsarenegligibleindistrictswhereratesarelessthan$2.Creditsarealmost22percentofthelevyindistrictswhereratesareabove$3.Whendistrictratesriseabovethe$2and$3thresholds,newcategoriesofpropertybecomeeligibleforcreditsandmorelower-valuedhomesbecomeeligibletoo.Otherresidentialproperty(mostlyrentalhousing)inthe2percentcategoryistheprimarybeneficiaryofthetaxcaps.Otherresidentialpropertyownersowed27percentofthepre-credittaxbills,butreceived47percentofthetaxcapcreditsin2014.Rentalhousingdoesnotreceivethedeductionsthathomesteadsreceive,soitstaxbillsarehigher.Ithasalowercapthanotherbusinessproperty.Highertaxbillsandalowercapmakeformoretaxcapcredits.Taxpayersincitiesandtownsreceivemostofthetaxbreaksfromthetaxcapcredits,andlocalgovernmentsthatoverlapcitiesandtownslosemostoftherevenuefromthetaxcapcredits.Taxratesindistrictsthatincludecitiesortownshavehigherratesthanruraltaxdistricts.Mostrentalhousingisincitiesandtownsaswell.Asaresult97percentofalltaxcapcreditsstatewideareappliedtopropertyindistrictswithcitiesandtowns.Bythemselves,thehomesteadtaxcapcreditsareregressive,becausetheyreducethetaxbillsofhigher-valuedhomesbymorethanlower-valuedhomes.Anaverage$100,000homesawa5percentreductionfromtaxcapcreditsin2014;anaverage$500,000homesawa16percentreduction.Theregressivityisthedirectresultofthefixed$45,000standarddeduction.Thatdeductionisprogressive,becauseitprovidesgreaterpercentagetaxreductionstolowervaluedhomesteads.Atanynettaxrate,thecombinationofthestandarddeductionandthetaxcapsisprogressiveuptothegrossassessedvaluethatmakethehomesteadeligiblefortaxcapcredits,andproportionalatassessedvaluesabovethat.ThegeographyoftaxcapcreditsamongIndianacountiesisexplainedbyafewfactors.Taxdistrictswithcitieshavehighertaxrates,andcitieshavemorerentalhousing.Taxcapcreditsmakeupalargershareofthetaxleviesinurbancounties.Highervaluedhomesaremorelikelytobeeligiblefortaxcapcredits,socreditsarehigherintheIndianapolissuburban“donut,”wherehomevaluesarehigh.Taxratesarelowerinruralcounties,sotaxcapcreditsarelowerinruralcounties.Localgovernmentsthatoverlapcitiesandtownslosethebiggestshareoftheirrevenuetothetaxcapcreditsbecausesuchdistrictsusuallyhavehighertaxrates.Citiesandtownsthemselveslostalmost16percentoftheirleviestotaxcapcredits.Specialdistrictsandlibrarydistrictslosemoretocreditsbecausetheyaremorelikelytooverlapcitiesandtowns.Counties,schoolcorporationsandtownshipsloseasmallershareoftheirleviesbecausetheyincludethestate’sruralareasaswellastheurbanareas.Countiesloseonly8percentoftheirleviestotaxcapcredits.

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Similarjurisdictionsmaycollectdifferentamountsofpropertytaxesdependingonthetaxratesoftheiroverlappingunits.Thepaperprovidesanexampleoftwoadjacentschoolcorporationswithsimilarenrollments,assessedvaluesandtaxratesin2014.Oneoverlapsatown,soitstaxpayerspayhigheroveralltaxratesandreceivemoretaxcapcredits.Thetowncorporationreceives$247perpupillessinpropertytaxrevenuesbecauseofthetaxcapcredits.Ratechangesbyonelocalgovernmentunitcanaffecttherevenuesofoverlappingunits.Ifmostofataxdistrict’staxpayersareattheircaps,thepropertytaxis“maxed-out”,andtaxratesmerelydividethemaxed-outlevyamongthelocalunits.Whenthetaxlevyismaxed-out,theunitsthatincreasetheirratesthemostwillrealizerevenueincreases,andthosethatincreasetheirratestheleast,ordecreasetheirrates,willrealizerevenuedecreases.Thepaperprovidesanexamplefrom2014.Indistrictswithhighcombinedrates,eachunithasanincentivetoraiseitsrateandlevyasmuchascontrolsallow,tomaximizeitsshareofmaxed-outrevenue.Thisdoesnotincreasetaxbillsfortaxpayerswithpropertyatthecapamounts.Economicdevelopmentwhichaddsnewstructures,shiftslandtohigher-valueduses,andraisespropertyvalues,canreducetaxcapcreditsandincreaseafter-caprevenuesinplaceswheremanytaxpayersareattheirtaxcaps.Revenueislosttothetaxcapsbutdevelopmentreducestheamountofrevenuelost.Revenuescouldalsoincreaseduetoinflationorspeculativeboomsinpropertyvalues,increasesinthebaserateoffarmland,assessmentcorrections(orerrors)thatraisetaxableassessedvalue,reclassificationofhomesteadstotheotherresidentialcategory,orshiftsofpreviouslyexemptpropertytothetaxrolls.Recessionsthatreducepropertyvaluescanreducerevenuesaswell.

Localoptionincometaxesthatprovidepropertytaxreliefcanincreasepropertytaxrevenues,byreducingtaxcapcredits.LOITcreditssubstitutefortaxcapcreditswhenataxpayer’sbillisabovethecapamount.Ineffect,byadoptingaLOITfortaxrelief,thelocalgovernmentsubstitutestaxreliefwithreplacementrevenuefortaxreliefwithoutreplacementrevenue.Totaltaxpaymentsandtotalrevenuegoup.

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WhatDoWeKnowaboutIndiana’sPropertyTaxCaps?

LarryDeBoerDecember2015

IntroductionIndiana’scircuitbreakertaxcapswereaproductofthe2008propertytaxreform.Theywerefirstappliedstatewidefortaxesin2009,andsince2010havebeenusedatthecurrentcaprates.InNovember2010voterspassedareferendumtoincorporatethecapsintothestateConstitution.Theyareheretostay.Wenowhavesevenyears’experiencewiththetaxcaps,sixwiththecapsattheircurrentConstitutionalrates.That’senoughexperience(andenoughdata!)toestablishsomebasicfactsabouthowthetaxcapswork.Thefactsare“basic”becausetheyemergedirectlyfromtheoperationofthecaps,andcanbeobservedfromdatageneratedbyIndiana’spropertytaxsystem.Otherimportanteffectsofthe2008taxreformwillnotbeaddressed,forexampletheeffectsofthesalestaxincrease,theincreasesinhomesteaddeductions,thecapitalprojectsreferendumrequirement,ortheeliminationofpropertytaxesfortheschoolgeneralfunds.Indirecteffectsofthetaxcapssuchastheeffectsoneconomicdevelopmentorbusinesstaxincidence,alsowillbelefttoanotherday,Whatremainsisimportant,however.OnlythetaxcapswereamendedintotheConstitution.Otherpoliciesenactedbythe2008taxreformcanbechangedwithlegislation.Thetaxcapscannot.Indirecteffectsontheeconomyandtaxpayersareimportant—buttheyresultfromthedirecteffects.EstablishingafoundationoffactsaboutthedirecteffectsofConstitutionaltaxcapsisthesubjectofthispaper.TheOriginsoftheCircuitBreakerTaxCapsItstartedinDecember1998.TheIndianaSupremeCourtdecidedtheTownofSt.Johncase,throwingoutthestate’s“truetaxvalue”assessmentsystem.Thecourtdeclaredthatassessmentsmustbebasedon“objectivemeasuresofpropertywealth.”Thecourtdidn’tforceashifttomarketvalueassessment—assessmentsbasedonpredictedpropertysellingprices—butwhatotherobjectivemeasurewasthere?AftermoreproddingbytheIndianaTaxCourt,thestatemovedtoimplementmarketvalueassessmentfortaxesin2003.Butastudyhadshownthatmarketvalueassessmentwouldmeanalargeshiftintaxburdenfrombusinessestohomeowners.Thetruetaxvaluesystemunder-assessedhomestoagreaterdegreethanotherproperty.Amovetomarketvaluewouldincreasehomeassessmentsmore.So,inaspecialsessioninJune2002,theGeneralAssemblypassedaseriesoftaxreformsintendedtolessentheimpactonhomeowners.Thereformsincludedalargeincreaseinhomeownerdeductions,andanincreaseinstate-fundedpropertytaxreplacementcredits.Sometaxpayerssawbigtaxhikesanyway.Ownersofolderhomes,ownersofrentalhousingandownersoffarmlandsawsubstantialpropertytaxincreases.Businessownerssawtaxcuts.

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Changescontinuedinmid-decade.Thepropertytaxoninventorieswasphasedout.Trendingbegan,sothatassessedvalueswouldbeadjustedforchangesinpropertypricesandbuildingcostsinbetweenstatewidereassessments.Arecessioncausedthestatetolimittheamountofpropertytaxreplacementcreditsitpaidtolocalgovernmentsforpropertytaxrelief.Anerrorwasdiscoveredintheapplicationofthehomesteadcredit;thecorrectionwouldreducetaxrelief.In2007allthesefactorswouldcometogethertothreatenhomeownerswithanotherbigtaxhike.TheGeneralAssemblyhadpassedsomestopgapmeasuresin2006tolessenthistaxincrease.Deductionsandcreditswereraised,andanewideawasintroduced:a“circuitbreaker”limitonthetaxesthathomeownersandallothertaxpayerscouldpay.Thelimitwassetat2percentofassessedvaluebeforedeductions.LakeCountyhadbeenauthorizedtousethisideapreviously,inresponsetoverybigtaxshiftstohomeowners.Nowthelimitswouldbeexpandedtothewholestate.Thosecapsnevertookeffect.DespitetheGeneralAssembly’sefforts,manyhomeownerssawbigtaxincreasesin2007.Protestsbegan.AgiantteabagwasflungintotheBroadRippleCanal.TheGeneralAssemblyrespondedwithhearingsinthesummerandfallof2007,exploringmanyfundamentalquestionsaboutpropertytaxes.Then,in2008thegovernorproposedandtheGeneralAssemblypassedthebiggesttaxreformindecades.Propertytaxesfortheschoolgeneralfundwereeliminatedandreplacedbyaddedstateaid.Anew35percentsupplementalhomesteaddeductionwascreated.Referendawererequiredtoborrowforbigcapitalprojects.And,circuitbreakertaxcapswereintroducedforpropertytaxesin2009.Inthatyeartaxesonhomesteadswerelimitedto1.5percentofgrossassessedvalue,taxesonotherresidentialpropertyandfarmlandto2.5percent,andtaxesonbusinessproperty,3.5percent.In2010thecapswouldtightento1percentforhomesteads,2percentforotherresidentialandfarmland,and3percentforbusinessproperty.InNovember2010thecapswouldbeputtoastatewidevote,todecidewhethertheyshouldbeincorporatedintothestate’sConstitution.In2009the“half-caps”producedtaxreliefandrevenuelossesof$175million,whichwasabout2.9percentofthetaxlevy.In2010thefullcapratesbecameeffective,andtaxreliefjumpedto$473million,6.3percentofthetaxlevy.ThatNovembervotersapprovedthetaxcapreferendum,with72percentvotingyes.Article10,section1ofthestateConstitutionnowincludedthetaxcaps.Meanwhile,theimpactofthecapsontaxpayersandlocalgovernmentsincreased.Taxcapcreditswere$623millionin2011,$636millionin2012,$775millionin2013and$792millionin2014.In2014taxcapcreditsreducedrevenuefromthetaxlevyby10.8percent.Themarketvalueassessmentprocess—includingtrending—capturedpropertyvaluedecreasescausedbytheGreatRecession.Lowerassessmentsproducedhighertaxrates,whichmademoretaxpayerseligibleformoretaxcapcredits.Manytaxpayerswereprotectedfromrecession-relatedtaxhikes.Buttherecessioncausedsubstantialreductionsinpropertytaxrevenueforlocalgovernments.Article10,Section1oftheIndianaConstitutionWhenIndiana’sConstitutionwaswrittenin1851,Article10Section1contained58words.Afterthreeamendments,in1966,2004and2010,itnowcontains700words.Thetaxcapamendmentin2010added479ofthesewords.

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Paragraphs(c)and(e)providedefinitions.Ahomesteadisanowner-occupiedprincipleplaceofresidence(thoughtheword“homestead”isnotmentioned).Otherresidentialpropertyisnon-homesteadpropertyusedforresidentialpurposes.Thisismostlyrentalhousing,butalsoincludessecondhomes,vacationhomes,retirementhomesandsoforth.Agriculturallandislanddevotedtoagriculturaluse.Otherrealpropertyisallotherlandandbuildings,whichismostlybusinesslandandbuildings.Personalpropertyisnotreallydefined,butasof2015itisalmostentirelybusinessequipment.Paragraph(f)setsthetaxcaprates.Homesteadpropertytaxesarelimitedto1percentofgrossassessedvalue,whichisassessedvaluebeforedeductions.Otherresidentialpropertytaxesarelimitedto2percentofgrossassessedvalue,asaretaxesonagriculturalland.Taxesonotherrealpropertyandonpersonalpropertyarelimitedto3percentofgrossassessedvalue.Thephraseusedtodescribethelimitsis“maynotexceed,”whichprobablymeansthatthecapratesaremaximumrates,butthatthelegislaturecoulddecidetosetlowerrates.Paragraph(g)exemptstaxespassedbyreferendumfromthetaxcaps.TheConstitutiondoesnotpreventvotersfromchoosingtoraisetaxesonproperty.The2008taxreformrequiredvoterstoapprovetheuseoftax-supporteddebtforbigcapitalprojects.Onereasonforthisparagraphistoprotectbondholders.Therearenotaxcaplimitsontheabilityoflocalgovernmentstopaydebtservicepassedbyareferendum.Paragraph(h)allowstheGeneralAssemblytoexemptexistingdebtserviceorleasepaymentsfromthecapsin“eligiblecounties”until2020.ThiswasincludedtocushionlocalgovernmentsinLakeandSt.JosephCountiesfromsomeofthelargerevenuelossestheywouldhaveseenhadthecapsbeenappliedtoalltaxes.Notethatthetaxreformrequiresreferendaforbigcapitalprojectborrowing,andparagraph(g)exemptstaxespassedbyreferendafromthecaps.Eventuallyallcountiesshouldseeasubstantialshareoftheirdebtexemptfromthecaps,asolddebtispaidoffandnewdebtispassedbyreferendum.TherestofthestatewillconvergetotherulesthatapplytoLakeandSt.Josephnow.ATaxpayerModelOnewaytounderstandhowthetaxcapsworkistolookatataxbill.Table1showsassessmentsandtaxbillsforthreehypotheticalhomesteads.Considerthemiddle-valuedhomestead.Itsgrossassessedvalueis$110,000.ThisisnearthemedianhomesteadassessmentinIndianafor2014.Thegrossassessedvaluerepresentstheassessor’sestimateofthepotentialsellingpriceofthehome.It’saplausibleestimate.AccordingtotheU.S.BureauofCensusAmericanCommunitySurvey(ACS),fortheyears2008to2012themedianvalueofowner-occupiedhousingunitsinIndianawas$123,400.TheACSsurveyvaluesareself-reported,sothey’reprobablysomewhatoptimistic.It’slikelythatthemediangrossassessmentiswithin10percentoftheactualvalue.ArecentstudyofIndianahomesteadassessmentsfoundaverageassessedvaluestobewithin10percentofsellingprices(FaulkandHicks,2015).

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Table1.

Homesteadsreceivetwolargedeductions.Thehomesteadstandarddeductionis$45,000oramaximumof60percentofthehomestead’sgrossassessedvalue,whicheverisless.Theremainingassessmentafterthisdeductionis$65,000.Next,thehomesteadreceivesthesupplementalhomesteaddeduction,whichis35percentoftheremainingassessment,upto$600,000,and25percentoftheremainingassessmentafterthat.Forourmiddle-valuedhomestead,35percentof$65,000is$22,750.Mosthomeownersalsoreceivethemortgagedeductionof$3,000.Therearemanyotherdeductionsthathomeownersmightreceive,butthesethreearethemostcommon.Thetaxableornetassessedvalueofa$110,000homesteadafterthethreecommondeductionsis$39,250.Supposethetaxrateappliedtothishomesteadis$2.81per$100assessedvalue(equivalentto2.81percent).Aswe’llsee,thisrateisjusthighenoughtoqualifythemiddle-valuedhomesteadfortaxcapcredits.It’sadistrictrate,whichmeansitisthesumofthetaxratessetbytheoverlappinggovernmentsinwhichthepropertyislocated.Thedistrictrateincludestheratesofthecounty,townshipandschoolcorporations,andpossiblyacityortown,librarydistrictorotherspecialdistricts.Therateismultipliedbythetaxableassessedvalue(anddividedby100)toderivethegrosstaxbill.Here,2.81percentof$39,250is$1,103.Forthemoment,let’signorethepossibilityoflocalpropertytaxcreditsfromlocaloptionincometaxes(LOITs),andmovestraighttothetaxcaps.Thetaxcaprateforhomesteadsis1percentofgrossassessedvalue,or$1,100forthemiddle-valuedhomestead.Thetaxbillpaidtoalltheoverlappinglocalgovernmentscannotexceed$1,100forthishomestead.Ifitdoes,thetaxpayerreceivesataxcapcredit

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bigenoughtobringthetaxbilldowntothecapamount.Thecreditisanamountofthetaxbillthatthetaxpayerdoesnotpay,anditispropertytaxrevenuethatthelocalgovernmentsdonotcollect.Thegrosstaxbillforthemiddle-valuedhomesteadwas$1,103,just$3morethanthecapamountof$1,100.Thetaxpayersreceivesa$3taxcapcredit,andpaysataxbillof$1,100.UsingtheModeltoCompareHomesteadTaxesTable1showsahomesteadtaxpayerexample,butitcanalsoserveasamodel.ItcanbeusedtoofferideasabouttheeffectsofthetaxcapsonIndianataxpayersandlocalgovernments,whichcanthenbecomparedtodataabouttheactualeffects.Inmoreexaltedterms,it’samodelthatcangeneratehypothesestobetestedwithdata.TheexampleinTable1impliesthathigher-valuedhomesteadsqualifyfortaxcapcreditsatlowertaxratesthandolower-valuedhomesteads.Themiddle-valuedhomesteadjustqualifiesforcreditsatarateof$2.81.Atthistaxratethelower-valuedhomesteaddoesnotqualifyforcredits.Thegrosstaxbillis$318whilethecapamountis$550.Atthistaxratethehigher-valuedhomesteadqualifiesforsubstantialcredits.Thegrosstaxbillis$3,112,thecapamountis$2,200,sothecreditis$912.That’sa29percenttaxbillreduction.Wecanusethismodeltocalculatethetaxratesatwhichhomesteadsjustmeettheircapamountsandqualifyfortaxcapcredits.Thisisdone(approximately)forthemiddle-valuedhomesteadinTable1.Atagrossassessedvalueof$110,000,ataxratejustlessthan$2.81setsthegrosstaxbillequaltothecapamount.Atahigherratethetaxpayerreceivestaxcapcredits.Figure1showstheresultofsuchacalculationforhomesteadgrossassessedvaluesfrom$20,000to$500,000.Homesteadswithgrossassessedvaluesandnettaxratesaboveandtotherightofthelinequalifyfortaxcapcredits.Nettaxratesaregrossrateslesslocalcredits.Homesteadsbelowandleftofthelinewouldnotreceivetaxcapcredits.Notethe“kink”inthecurveatagrossassessedvalueof$75,000andanettaxrateof$4.61.Uptothispointthestandarddeductioniscalculatedas60percentofgrossassessedvalue,sothevalueofthistaxbreakriseswithhomesteadvalues.Atagrossassessmentof$75,000thestandarddeductionreaches$45,000,whichisitsmaximum.Withthedeductionfixed,taxbillsrisemorerapidlywithgrossassessedvalue,sothetaxratesrequiredfortaxcapeligibilityarelower.Infact,itisthefixedstandarddeductionthatgivesthiscurveitsdownwardslope.Thestandarddeductionreducestaxableassessmentsby60percentuptoanassessmentof$75,000.Atanassessmentof$500,000,the$45,000deductionreducestaxableassessmentsbyonly9percent.Asaresult,taxbillsareahigherpercentageofgrossassessedvalueforhighervaluedhomes.Sincethetaxcapisonepercentofgrossassessedvalue,highervaluedhomesqualifyfortaxcapsatlowertaxrates.

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Figure1

It’snotshowninFigure1,buttherewouldalsobeakinkatagrossassessedvalueof$600,000.Homesteadassessedvalueabove$600,000receivesa25percentsupplementalhomesteaddeduction,insteadof35percent.OnthescaleintheFigurethiskinkwouldnotbevisible,however,andlessthanonepercentofhomesteadsinIndianaareassessedformorethan$600,000.Therearetwousefulandeasy-to-rememberpointsonthelineinFigure1.Atanettaxrateof$3per$100assessedvalue,homesteadswithgrossassessedvaluesofmorethan$100,000qualifyfortaxcapcredits.Atanettaxrateof$2,homesteadsvaluedatmorethan$200,000qualify.Atthelowerend,a$20,000homesteadwouldneedanettaxrateof$9.09toqualifyforhomesteadcredits.TherearenotaxratesthathighinIndiana.Attheupperend,atenmilliondollarhomesteadwouldqualifyforcreditswithanettaxrateof$1.35.Eighty-fourpercentoftaxdistrictsinIndianahaverateshigherthanthat.Figure1iscalculatedfromamodelofhomesteadpropertytaxbills.HowdoesitcomparewithactualIndianahomesteadtaxbillsandtaxcapcreditsfor2014?DataonhomesteadtaxbillsforeachtaxingdistrictinIndianawereobtainedfor2014.Thedatashow52categoriesofhomesteadgrossassessedvalues,fromlessthan$50,000tomorethanonemilliondollars.Dataareavailablefor2,009taxdistrictsinIndiana—about104,000datapointsinall.

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Districttaxratesareadjustedbylocaloptionincometax(LOIT)creditratestoproducedistrictnettaxrates.Thresholdtaxratesarecalculatedwithoutthemortgagededuction,becausemanyhomesteadsdonotreceivethisdeduction.Thereare10,564district-assessmentcombinationswithtaxcapcredits.Ofthose,only92violatethethresholdcombinationscalculatedbythetaxmodelandshowninFigure1.Thatmeans99.1percentofallactualdatapointsareconsistentwiththemodel.Figure2plotsallthedistrictnettaxrateandhomesteadassessedvaluecombinationswhichhadatleastonehomesteadeligiblefortaxcapcreditsin2014.AcurveresemblingFigure1isevident—withjustafewstraypointsbelowtheline.Figure2

Homesteads,OtherResidentialandBusinessPropertyHomesteadtaxesarecappedat1percentofgrossassessedvalue.Otherresidentialpropertyandfarmlandtaxesarecappedat2percentofgrossassessedvalue,andbusinessrealandpersonalpropertyiscappedat3percent.Thetaxpayermodelalsocanbeusedtocomparetaxbillsandtaxcapcreditsforpropertiesinthethreetaxcapcategories.Table2appliesthetaxpayermodeltopropertiesinthe1percent,2percentand3percentcategories.Forcomparisonthegrossassessedvaluesarethesameforeachproperty.Imagineahouseasanowner-occupiedprimaryresidence,orasarentalresidence,orconvertedtoaccommodateasmallbusiness.

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Table2

ThehomesteadpropertyisthesameasinTable1.Taxesfortheotherresidentialandbusinesspropertiesdifferfromhomesteadsintwoways.First,theydonotreceivethehomesteadstandarddeductionor35percentsupplementaldeduction.Thoseareappliedonlytohomesteads.Second,thetaxcaprateforotherresidentialpropertyis2percentofgrossassessedvalue,andthetaxcaprateforbusinesspropertyis3percentofgrossassessedvalue.Thegrosstaxbillis$3,007forboththeotherresidentialandbusinessproperties.Thisisnearlytriplethetaxonthehomestead,becauseoftheabsenceofthehomesteaddeductions.Theotherresidentialpropertyisinthe2percentcategory,however,sothecapamountongrossassessedvalueof$110,000is$2,200.Theotherresidentialpropertygetsan$807taxcapcredit,tobringthenettaxbilltothecapamount.Thebusinesspropertyisinthe3percentcategory,andthe$3,007taxbillislessthanthe$3,300capamount.Thebusinesspropertyreceivesnotaxcapcredits.Themodelimpliesthatotherresidentialpropertyinthe2percentcategorywillbetheprimarybeneficiariesofthetaxcaps.Atanidenticaltaxrate,alike-valuedhomesteadjustmeetsitscapamount,alike-valuedbusinesspropertyisstillbelowitscapamount,buttheotherresidentialpropertyseesa27percenttaxreductionduetothetaxcapcredits.Datafor2014confirmthatthe2percentcategoryistheprimarybeneficiaryofthecapcredits.The2percentcategoryreceived47percentofstatewidetaxcapcreditsin2014,thoughthiscategoryhadonly27percentofthepre-credittaxliability.Taxcapcreditsreducedtaxbillsinthe2percentcategorybyabout19percent.Homesteadsinthe1percentcategorysawa9percenttaxbillreduction,andbusinesspropertyinthe3percentcategorysawa7percenttaxreduction.

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Propertyinthe2percentcategoryreceivesthelargestshareoftaxcapcreditsbecauseitstaxbillsarehigheranditscapamountsarelowerthanotherproperty.Propertyinthe2percentcategorydoesnotreceivehomesteaddeductions,soitsgrosstaxbillsarehigherthanhomesteadtaxbills.Itscapamountsarelowerthanbusinessproperty’s3percentcap,soitsnettaxbillsarelessthanbusinesstaxbillswhentaxratesexceed$2.TaxCapCreditsatHigherandLowerTaxRatesTable3showsthetaxcapcreditresultsfromthemodelforvariouspropertytypesandgrossassessedvalues,andfourtaxrates.Themodelimpliesthathighertaxratesmakemorepropertieseligibleformoretaxcapcredits.Itshowsthatonlyhomesteadscanbeeligiblefortaxcapcreditsatratesof$2orless.Homesteads,otherresidentialpropertyandfarmlandcanbeeligibleatratesbetween$2and$3,andallpropertytypescanbeeligibleatratesgreaterthan$3.Table3

Thisimpliesthatthe$2and$3taxratesarethresholds.Whendistrictratesriseabovethesethresholds,newcategoriesofpropertybecomeeligibleforcredits.Whenthresholdsarepassed,taxbreaksfromthecapsjump,andsodolocalgovernmentrevenuelosses.Recallthatata$2rate,onlyhomesteadswithgrossassessedvaluesover$200,000willreceivetaxcapcredits.Ata$3rate,homesteadswithgrossassessedvaluesover$100,000receivetaxcapcredits.Table3reflectsthisrule-of-thumb.Inourmodelpropertyinthe2percentand3percentcategoriesdonotreceivedeductions.In2014deductionsforotherresidentialpropertywerelessthan2percentofgrossassessedvalue,anddeductionsforagriculturewerelessthan1percentofgrossassessedvalue.(Forcomparison,homesteaddeductionswere57percentofgrossassessedvalue.)Thecapratesareappliedtogrossassessedvaluetogetthecapamount.Taxratesareappliedtonetassessedvaluetogetthegrosstaxbill.Becausegrossandnetassessmentsarenearlyidenticalforpropertyinthe2percentcategory,thetaxcapratescanbedirectlycomparedtothetaxrates.Almostalloftheotherresidentialpropertyandfarmlandindistrictswithratesabove$2iseligiblefortaxcapcredits.In2014deductionsforbusinessrealandpersonalpropertyinthe3percentcategorywere20percentofgrossassessedvalue.Thisimpliesthatmuchbusinesspropertywillbeeligiblefortaxcapcreditsonlyatrateshigherthan$3.Ifabusinessgetsa20percentabatementonitsgrossassessedvalue,itbecomeseligiblefortaxcapcreditsattaxratesabove$3.75.Businesseswithoutabatementsorotherdeductionswillbecomeeligibleforcreditsatratesabove$3.

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Figure3

TheseimplicationsofthemodelareconfirmedbyIndianadata.Figure3showstaxcapcreditsasapercentageoftheleviesstatewidefor2015.Thebarontheleftshowsthattaxcapcreditsaccountedfor10.4percentofpropertytaxesleviedbyalllocalunitsonalltaxpayers.Theaveragetaxpayersawa10.4percenttaxcutfromthecaps,andtheaveragelocalgovernmentlost10.4percentofitspropertytaxlevytothecaps.Thelion’sshareofthecreditswenttothe2percentcategory,asexpected.Thenextthreebarsshowcreditpercentagesbydistricttaxrates.Indistrictswithrateslessthan$2per$100assessedvalue,onlyhomesteadsvaluedat$200,000ormorecanbeeligibleforcredits.Only14percentofIndianahomesteadsaresovaluable.Itisimpossibleforpropertyinthe2percentor3percentcategoriestoreceivecreditsattaxratesthatlow.Thisaccountsforthenear-zerocappercentageofthelevywhenratesarelessthan$2.Athresholdispassedwhenratesexceed$2.Almostallpropertyinthe2percentcategorybecomeseligibleforcredits.Inaddition,homesteadswithgrossassessmentsbetween$100,000and$200,000starttobecomeeligible.Forty-twopercentofIndianahomesteadshavegrossassessmentsinthisrange.Creditsasashareofthelevyare5.8percent,withthe2percentcategorycomprisingthelargershare.Ofcourse,nobusinesspropertyreceivedcreditsindistrictswhererateswerelessthan$3.

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Taxcapcreditsweremuchlargerindistrictswithratesgreaterthan$3.Anotherthresholdispassed—businesspropertybeginstobeeligibleforcredits—andhomesteadsvaluedatlessthan$100,000begintobeeligible.Recall,though,thathomesteadsassessedatlessthan$50,000receivecreditsonlyatratesabove$5(seeFigure1).Thirty-fourpercentofIndianahomesteadshavegrossassessmentsbetween$50,000and$100,000,and10percentarevaluedatlessthan$50,000.Creditsasashareofthelevyare21.7percentindistrictswithratesabove$3.Propertyinthe2percentcategoryaccountsforthemost,butbusinesspropertyaddsalargeamount.TaxCapCreditsinCities,TownsandUnincorporatedAreasTaxratesintaxdistrictsthatincludecitiesortownstendtobehigherthantaxratesindistrictsinunincorporatedareas.Adistricttaxratethatincludesacityortownincludesthemunicipality’sratealongwiththecounty,township,schoolandotherrates.Adistricttaxrateoutsideofacityortowndoesnothavethatextrataxrate.Table4

Table4showsthedistributionofIndianataxdistrictsinsideandoutsidecitiesandtowns,bytaxrate,for2015.Districtsthatincludecitiesandtownshavehigherdistricttaxrates.Ofall2,030districtsin2015,47percentincludecitiesandtowns.Almost99percentofthedistrictswithratesabove$3includecitiesandtowns,andalmost83percentofdistrictswithratesbelow$2donotincludecitiesandtowns.Eightypercentofdistrictswithcitiesandtownshavetaxratesgreaterthan$2;one-thirdhavetaxratesabove$3.Eighty-fivepercentofunincorporateddistrictshaverateslessthan$2.InthemodelsinTable3,then,theexampleswithrates$3ormoremustrepresentdistrictswithcitiesortowns.Theexampleswiththe$2ratearemuchmorelikelytobeunincorporated.Taxpayersincitiesor

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townsaremorelikelytohavetheirtaxbillslimitedbythecaps.Citiesandtowns,andlocalgovernmentsthatshareterritorywithcitiesandtowns,aremorelikelytoloserevenuetothetaxcapcredits.ThelasttwobarsinFigure3confirmtheresultsofthemodel.Taxbillsandrevenuecollectionsindistrictswithcitiesandtownsarereduced13.7percentbythetaxcaps.Theyarereducedonly1.1percentindistrictswithoutcitiesortowns.Putanotherway,97percentofalltaxcapcreditsstatewideareappliedtopropertyindistrictswithcitiesandtowns.Bothotherresidentialandagriculturalpropertyareinthe2percentcategory.Clearly,though,mostofthetaxcapcreditsinthe2percentcategorymustgotootherresidentialproperty,andlittlegoestoagriculture.In2014,94percentofagriculturalgrossassessedvaluewasinunincorporatedareas,outsideofcitiesortowns.Thisisnosurprise.Thismeans,however,thataverylargeshareoffarmlandwasintaxdistrictswithrateslessthan$2.Itwouldnotreceivetaxcapcredits.Otherresidentialpropertyisdominatedbyrentalhousing,soitisalsonotsurprisingthat68percentofthispropertyisinsideofcitiesandtowns.Commercialapartmentsmakeupone-fifthofotherresidentialvalue,and88percentofthegrossassessedvalueoflargercommercialapartmentsisincitiesortowns.Since80percentofcityortowndistrictshaveratesabove$2,andotherresidentialpropertydoesnotreceivemuchindeductions,muchoftheotherresidentialpropertyinIndianamustbeaboveitstaxcapsandreceivingtaxcapcredits.TheIncidenceofHomesteadTaxCapCreditsThemodelinTable1andthemodelresultsinTable3implythathighervaluedhomesteadsreceivebiggertaxcutsfromthetaxcapcredits.Evenata$5taxrate,a$55,000grossassessedvaluehomesteadreceivesonlya$15taxcapcredit,whilethe$220,000homesteadreceivesa$3,338credit.Thetaxcapcreditsbenefithighervaluedhomesmore.ThisisconfirmedbythedataplottedinFigure4,whichshowstheactualaveragepercentagereductionintaxbillscausedbythetaxcapcreditsforhomesteadsofvariousgrossassessedvaluesin2014.Homesvaluedat$50,000orlesssawtaxbillreductionsof1.5percentonaverage,acrossalltaxdistrictswiththeirvaryingrates.Homesvaluedfrom$100,000to$110,000sawtaxcapcutsaveraging4.5percent,andhomesvaluedfrom$210,000to$220,000sawcutsof10.3percent.Homesteadsinthe$475,000to$500,000rangesawaveragereductionsof16.0percent.Thisisregressiveincidencebecausewealthiertaxpayersreceivebiggerpercentagetaxreductions.Note,however,thatthisregressivityisthedirectresultofthefixed$45,000standarddeduction.Thatdeductioniseffectivelyprogressive,becauseitprovidesgreaterpercentagetaxreductionstolowervaluedhomesteads.Afterdeductionswealthierhomesteadspayagreaterpercentageofgrossassessedvalueinpropertytaxes.Highertaxbillsaremorelikelytobecapped.

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Figure4.

Thestandarddeductionisprogressive;thetaxcapsareregressive.Atanynettaxrate,thecombinationofthetwoisprogressiveuptothegrossassessedvaluethatmakethehomesteadeligiblefortaxcapcredits(seeFigure1).Thecombinationisproportionalatassessedvaluesabovethat,becausetaxbillsareonepercentofgrossassessedvalueatthetaxcap.Whatofthetaxcapsforrental,agriculturalandbusinessproperty?Ingeneral,wealthier,higherincomepeopleownsuchproperty,sotaxreductionswouldbenefitdirectlyhigherincomepeoplemorethanlowerincomepeople.Tosomedegree,however,thetaxcapcreditschangethebehaviorofbusinessowners.Taxreductionsmakeowningrentalhousingmoreprofitable.Ownerswillbuildmore,andthegreatersupplyofrentalhousingshouldreducerents,orcausethemtoincreasemoreslowly.Renterstendtohavelowerincomesthanhomeowners,sopartoftaxreductiononrentalhousingwouldbenefitlowerincomepeople.Lowertaxesmakebusinessesmoreprofitable,andmoreprofitablebusinessesexpand.Addedproductreducesproductprices;addedjobopportunitiesincreasewagesandbenefits.Partofthetaxcuttobusinesseswillaccruetoconsumersandemployees.

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Figuringhowmuchofthebusinesstaxcutispassedtoemployees,customersandtenantsisbeyondthescopeofthispaper.Suchresultsarealwaysuncertain,becausesomanyfactorsotherthantaxesaffectprices,wagesandrents.Andwemaynothaveenoughdatayettodeterminetheeconomiceffectsofthetaxcaps.IntheaftermathoftheGreatRecession—whichhitbottomintheyearthattaxcapsbecameeffective—discerningtheindirectincidenceofbusinesstaxcutswouldbeespeciallydifficult.TheGeographyofTaxCapCreditsThemapinFigure5showsthetaxcapcreditsasapercentageoftotallocalgovernmentleviesineachcounty.Herearesomeobservationsabouttaxcapcreditsinthe92counties,informedbytheanalysisabove.ThecountieswithIndiana’sbiggercitiesgenerallyhavehightaxcapcreditpercentages.Marion,Delaware,Howard,St.JosephandVigohavepercentagesgreaterthan15percent.Allen,LakeandVanderburgharenearorabove10percent.Soaresomecountieswithsmallercities,suchasKnoxandWayne.Citiesaddtheirtaxratestothedistrictrateswhichdeterminetaxcapcredits.Bigcitiescoverlargepartsoftheircounties,somanytaxpayersareaffectedbythehigherrates.Citiesalsohavemorerentalhousing,whichhasa2percentcapandreceivesfewdeductions,soismorelikelytobeeligiblefortaxcapcreditsthanhomesteadsorotherbusinessproperty.Lakehassomeofthehighesttaxratesinthestate,yetitstaxcappercentagewasonly11.3percentin2015.Onereasonistherecentadoptionofpropertytaxrelieffundedbylocaloptionincometaxes.AnotheristheConstitutionalexceptionmadeforLakeandSt.JosephCounties,whichexcludesdebtservicethatexistedasof2010fromthetaxcaps.SeveralsmallercountiesineastcentralandnorthcentralIndianahavehightaxcapcreditpercentages.Cass,Fayette,HenryandMadisonhavesmallcitieswhichaddtotheirtaxrates.Theyalsohaveseendeclinesintheirindustrialtaxbases.Itmaybethatdecliningorslowergrowingassessedvaluesresultedinhighertaxrates,whichcausedmoretaxpayerstoqualifyfortaxcapcredits.Mostofthesuburban“donut”countiesaroundIndianapolis/Marionhaverelativelyhightaxcapcreditpercentages,inthe5percentto15percentrange.Mostdistricttaxratesinthesecountiesarenotparticularlyhigh.Instead,thehighcreditpercentagesareexplainedbythehighgrossassessedvaluesoftheirhomesteads.Hamilton,BooneandHendricksallhadaveragehomesteadassessmentsof$174,000ormorein2014,rankinginthetopfiveamongIndianacounties.Figure1showsthattaxratesaround$2arehighenoughforsuchhomesteadstoreceivecredits.TheC-shapedareafromSteubeninthenortheast,toFountainandParkeinthewest-central,toSwitzerlandinthesoutheast,mightbecalledIndiana’s“ruralcrescent.”Theseruralcountieshavesmallercitiesandtownsandlowertaxrates.Fewtaxpayersqualifyfortaxcapcredits.Theirtaxcappercentagesarelessthan5percent.Fivecountiesshownotaxcapcreditsatall.Two,BrownandOhio,haveverylowtaxrates,evenindistrictswithtowns.Three,Jasper,MorganandPulaski,havehigherlocalincometaxrates,withmuchoftherevenueusedforpropertytaxreliefforallpropertycategories.Taxpayersdonotqualifyforcreditsbecauseoftheresultinglowtaxbills.

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Figure5

InterdependentLocalGovernmentsLocalgovernmentssettheirpropertytaxratesbasedontheirownbudgets,othersourcesofrevenueandthenetassessedvalueswithintheirborders,subjecttomaximumlevylimits.Butthetaxcapcreditsdependonthesumofthetaxratesofalltheoverlappingunitsthatmakeupataxdistrict.Thiscanmakelocalunitsofgovernmentinterdependentinawaythatwasnottruebeforethetaxcapswereenacted.Table5addslocalgovernmentunitstothetaxpayermodel.Thehomesteadtaxpayerbillshowsthehighervalued$220,000home,taxedatratesof$2and$3per$100assessedvalue.Bothtaxpayerspaythecapamount,$2,200.Atthe$2ratethetaxpayerneedsa$15credittobringthetaxbilltothecapamount.Atthe$3ratethetaxcapcreditis$1,123.

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Table5

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The$2rateinthisexampleresultsfromataxingdistrictthatisoutsideofacityortown.Thecounty’srateis$0.50,theschoolcorporation’srateis$1.00,andtheratesofallotherunits—township,librarydistrict,specialdistricts—sumto$0.50.Thedistrictrateisthesumoftheratesoftheoverlappinglocalgovernments,$2.Theratesoftheindividualunitsaresetbythebudgetprocessandthemaximumlevyorratecontrols.Eachunit’slevyisdividedbythenetassessedvalueinthedistricttogettheunitrate.Thegrosstaxbillofthehomestead,then,representstheamountthatthehomesteadownermustpayifeachunitistoreceiveitsfulllevy.Thegrosstaxbillisabovethecapamountforthehomeowneratthe$2rate.Eachunitreceivesashareofthenettaxbillequaltoitspercentageofthetotalrate,25percentforthecountyandotherunits;50percentfortheschoolcorporation.Putanotherway,therevenuelossesfromthetaxcapcreditsaredividedamongtheoverlappingunitsbasedonpercentagesinthedistricttaxrate.Ofthe$15taxcredit,$7.50islostbytheschoolcorporation,and$3.75islostbythecountyandotherunits.Nowconsideradistrictwithacityortown.Thecounty,schoolcorporationsandotherunitshavethesamelevies,assessedvaluesandratesasbefore,butnowthereistheadded$1.00rateforthemunicipality.Thedistrictrateis$3.Thetaxpayercontinuestopay$2,200.Now,however,anextragovernmentsharesinthisfixedtaxbill.Thecity/townhas33percentofthetaxrate,andreceives$733fromthistaxpayer’sbill.Thecounty,schoolcorporationsandotherunitsnowhaveasmallershareofthetotaltaxrate,sotheyreceiveasmallershareofthetaxbill.ThelastpartofTable5showsthedifferencebetweenthe$2and$3scenarios.Witha$3ratethecounty,schoolcorporationandotherunitsallreceivelessoftheirlevy,andlosemoretothetaxcapcredits,thantheydidatthe$2rate.Themunicipalityreceives$733,whichislessthanitspre-creditlevy.Thelevyamountisneededtofullyfundunitbudgets.Noneoftheunitsreceiveenoughpropertytaxrevenuetofullyfundtheirbudgets.Anumberofimplicationsemergefromthismodel.First,localgovernmentunitsthatoverlapcitiesortownswilllosemoretothetaxcapcredits;unitsthathavemoreterritoryinunincorporatedareaswillloseless.Citiesandtownsaregenerallyintaxdistrictswithhigherrates(seeTable4),sotheywilllosethebiggestshareoftheirrevenuetothetaxcapcredits.Specialdistrictsareoftenestablishedbycitiesandtowns,andsoaremorelikelytooperateindistrictswithhigherrates.Librarydistrictsdonotcovertheentirestate,buttheareasthatarenotcoveredtendtoberural,solibraryterritoryissomewhatmorelikelytobeinhighratedistricts.Specialdistrictsandlibrarydistrictsshouldlosehigherthanaveragerevenuesharestotaxcapcredits.Countiesandschoolcorporationscovertheentirestate,andsohavemoreterritoryinlowertaxdistrictswithoutcitiesortowns.Townshipscovernearlytheentirestate(asidefromahandfulofconsolidationswithotherunits).Counties,schoolcorporationsandtownshipsshouldlosesmallersharesoftheirleviestotaxcapcredits.Theevidencesupportsthesepropositions.Figure6showsthepercentagesoflevieslosttotaxcapcreditsbyunittype.Citiesandtownslosethemost,asexpected.Specialdistricts,whicharemorelikely

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tooverlapcitiesandtowns,arenexthighest.Librarydistrictsarenexthighest,becausethereareruralareaswithoutdistricts.Figure6

Counties,schoolcorporationsandtownshipslosetheleast,becausetheyaremorelikelythanotherunitstooperateindistrictswithoutcitiesortowns.Townshipshavethebiggestlossesamongthesethree.Thereasonisthattownshipsinurbanandruralareasareofverydifferentsizes.Thebiggesttownshiplevy—inWayneTownshipinMarionCounty—hasalevybiggerthanthesmallest650townshipscombined.Thetwentylargestaccountformorethanhalfofalltownshiplevies.The700smallesttownshipshaveonly11percentofthetotaltownshiplevy.Townshipscoverthewholestate,buttheirleviesaredominatedbyurbantownships,wheretaxratesarehigherandtaxcaprevenuelossesarelarger.AsecondimplicationofthemodelinTable5isthatsimilarjurisdictionsmaycollectdifferentamountsofpropertytaxesdependingonthetaxratesoftheiroverlappingunits.InTable5,supposethetwoschoolcorporationsareidentical—thesameenrollment,budget,levy,assessedvalueandtaxrate.Thecorporationintheruraldistrictwiththe$2ratereceives$367morefromthetaxpayer’staxbillthandoesthecorporationintheurbandistrictwiththe$3rate.Identicalunitsthatoverlapcitiesortownswillreceivelessrevenueafterthetaxcapcredits.Forexample,considertwoschoolcorporationsinDelawareCounty,showninTable6,usingdatafor2014.DelawareCommunitySchoolshadanenrollmentof2,577,apropertytaxlevyof$5,851,777,and

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ataxrateof$1.1368per$100assessedvalue.Thelevyperpupilwas$2,224.YorktownCommunitySchools(alsoknownasMt.PleasantSchools)hadanenrollmentof2,403,apropertytaxlevyof$5,343,602,andataxrateof$1.1656.TheYorktownlevyperpupilwas$2,271,only$47morethaninDelaware.Thesearetwosimilarschoolcorporationsinthesamecounty.Table6

DelawareCommunitySchoolscoversafourtownshipareathatincludestwosmallertowns,AlbanyandEaton,andalargeamountofunincorporatedterritory.Thedistricttaxratesintheseunincorporatedtownshipswereunder$2in2014.YorktownCommunitySchoolscoversasingletownshipthatincludesYorktown,alargertown.ThedistrictrateinYorktownwas$2.7294.SmallpartsofbothcorporationsoverlaptheCityofMuncie,wheredistrictrateswereabove$4.Theaveragedistrictratesumsthetotallevyofallunitsineachdistrict,dividedbythesumoftheassessedvalueineachdistrict.TheaveragerateinDelawareis$2.12andtheaveragerateinYorktownis$2.73.Thedifferentdistrictratescreatedifferenttaxcapcreditrevenuelossesforthetwocorporations.DelawareSchoolslost3.8percentofitslevytothecapcredits,whileYorktownSchoolslost14.9percentofitslevytothecredits.Aftercreditsaresubtracted,Delawarereceived$2,185inpropertytaxesperpupil,andYorktownreceived$1,892.Whatbeganasa$47differenceinleviesperpupilbeforethecapsbecamea$293differenceafterthecaps.Thetwocorporationsaresimilar,exceptinthetaxratesoftheiroverlappingunits.Thisdifference—overwhichtheschoolcorporationshavenocontrol—createsa$575thousanddifferenceinpropertytaxrevenuesreceived.Noteafurtherimplication.Annexationofaschoolcorporation’sterritorybyacityortowncanhaveimportantconsequencesforschoolfunding.Annexationwillincreasetherevenuesofacityortown,anddecreasetherevenuesoftheoverlappingunits.Overlappingunitshavearevenuestakeinamunicipality’sannexationdecisions.AthirdimplicationoftheTable5modelisthis:ratechangesbyoneoverlappingunitcanaffecttherevenuesoftheotheroverlappingunits.Ifoneunitincreasesitstaxrate,andtherearetaxpayersatorneartheirtaxcapamounts,theoverlappingunitswillloserevenue.ThispossibilityisimpliedinTable5.Thecity“increases”itstaxratebyonedollarbetweenthe$2and$3scenarios.Thecitygainsrevenueandtheotherunitsloserevenue.Table7showsanactualexamplefromanIndianataxdistrictin2013and2014.ThedistrictistheTerreHauteCity,HarrisonTownshipdistrictinVigoCounty.Itwaschosenforseveralreasons.Thedistricttaxrateisover$4,whichmeansthatmanytaxpayersareattheircaps.ThedistricthasnoLOIT-fundedlocalcredits.In2014thedistrictlost30.5percentofitslevytothecaps,whichisaverylargeamount.Thetaxrateincreasedfrom2013to2014,andtherateincreasewasduemostlytoanincreaseinoneunit,

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TerreHauteCityinthiscase.Therateincreasewascausedbyalevyincrease,whileassessedvaluewasnearlyunchanged.TheexampleisveryclosetothescenarioinTable5Thelevyandratebothincreasedbyabout2.7percentfrom2013to2014.Localunitsbudgetedforanadded$1.3millioninpropertytaxrevenuesfromthetaxpayersinthisdistrict.Thehighrateputmanytaxpayersattheircapamounts,however.At$4.1220per$100assessedvalue,mostbusinesspropertiesinthe3percentcategoryandallrentalpropertiesinthe2percentcategorymustbeattheircaps.Homesteadsassessedatmorethan$80,000payattheircapamountstoo.Ineffect,thepropertytaxinthisdistrictisnearly“maxed-out.”Mosttaxpayerscannotpaymorethantheyalreadypay,nomatterthetaxrate.Withsomanytaxpayersattheircapamountsthemainresultofthelevyincreaseistoincreasetaxcapcredits.Taxbillsriseby$1.3million,butcreditsriseby$1.2million.Taxpayersdidnotpaymostoftheaddedbills,andthenetrevenueaddedwasonly$109,726.Only8.3percentoftheaddedlevywasrealizedasaddedrevenue.Contrastthisresultwithacomparabledistrictwithalowtaxrate,alsoshowninTable7.TheTurkeyCreekTownshipdistrictinKosciuskohasnetassessedvaluesimilartotheVigodistrict,$1.2billion,andsawaremarkablysimilarrateincreaseofnearly11centsfrom2013to2014.Butthedistrictrateisunder$1—thereisnomunicipality—whichmeansthattherearenotaxpayersattheirtaxcaps,andthedistricthasnotaxcapcredits.Therateincreasegenerates$1.3millioninaddedlevy,justliketheVigodistrict,butallofthisrevenueispaidbydistricttaxpayersandrealizedbylocalunits.Thepropertytaxsystemworksasitdidbeforethetaxcapswereimposedindistrictswhereratesarelow.Whywouldadistrictbothertoraiseataxrateifitcannotgeneratemuchnewrevenue?Becausethe“district”doesnotmakebudgetdecisions;individualunitsdo.ThelowerpartofTable7showswhathappenedtotheunitsintheVigodistrictfrom2013to2014.Morethan8centsofthe11centrateincreasecamefromthecity.Thisincreasedthecity’sshareofthedistrictratefrom55.0percentto55.6percent.Aftertherateincreasethecityreceivedalargershareofthe(almost)maxed-outpropertytax.Itsnetrevenueroseby$259,897;thenetrevenuesoftheotherunitsfell.Mostofthecitylevyincreasewaslosttotaxcapcredits,butthecitygainedrevenue.Theotherunitsincreasedtheirratesandleviesfrom2013to2014,butrealizedlessrevenue.Notethatthisisnotjustacityphenomenon.Whenthetaxlevyismaxed-out,theunitsthatincreasetheirratesthemostwillrealizerevenueincreases,andthosethatincreasetheirratestheleast,ordecreasetheirrates,willrealizerevenuedecreases.

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Table7

Indistrictswithhighcombinedrates,eachunithasanincentivetoraiseitsrateandlevyasmuchascontrolsallow,tomaximizeitsshareofmaxed-outrevenue.Thisdoesnotincreasetaxbillsfortaxpayerswithpropertyatthecapamounts.Whenalargenumberoftaxpayershavepropertyatthecapamounts,taxratedecisionsbylocalgovernmentscantakeonstrangefeatures.Thisisafourthimplicationofthemodel.Supposeadistrictrateishigh,sothatalmostallpropertiesareattheircaps.Thepropertytaxhasbeenmaxed-out,raisinganamountequalto1percentofhomesteadgrossassessedvalue,plus2percentoffarmland/other

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residentialgrossassessedvalue,plus3percentofbusinessgrossassessedvalue.That’sthemostitcanraise.Inthiscase,thetaxratesoftheindividualunitsmerelydivideupthemaxed-outlevyamongtheunitsinthedistrict.Thisalsomeansthatagovernmentcannotreduceitstaxrateinordertoreducethebillsofitstaxpayers.Iftheratereductionissmallrelativetothetotaldistrictrate,taxpayerswillremainattheircaps,payingtheircapamounts.Theywillreceivenotaxcut.Instead,revenuethathadbeencollectedbythetax-cuttinggovernmentwillbecollectedbyotheroverlappingunits.Table7canillustrate.Supposein2015TerreHauteCityhaddecidedtogiveitstaxpayersabreakbyreducingitsratebackto2013levels.Morethan90percentofthecity’sratecutwouldreducetaxcapcredits.Mosttaxpayerswouldnotseetaxbillreductions.Butoverlappingunitswouldgainrevenue,becausetheirshareofthemaxed-outlevywouldincrease.Wherethedistrictrateishigh,mosttaxpayersareattheircapamountsandrevenuesaremaxedout,ataxcutbyasingleunitisagiftofrevenuetooverlappingunits,notabreakfortaxpayers.AssessedValueChanges:DevelopmentandRecessionIn2007Indianaassessorsbegantrending,whichistheannualadjustmentofassessedvaluesbasedonpricesandcosts.Inthepastassessmentsofexistingpropertieshadchangedonlyinstatewidereassessmentyears.Trendingdidnothavemucheffectonrevenuespriortotheintroductionofthetaxcaps.Mostofthelevyfellunderthemaximumlevycontrols.Iftrendingincreasedassessedvaluemorethanthemaximumlevygrowthquotient,taxrateswouldfall.Iftrendingincreasedassessedvaluelessthanthequotient,orifitdecreasedassessments,taxrateswouldrise.Eitherway,localunitswouldreceivetheirbudgetedlevies.Thissituationchangedwiththeintroductionofthetaxcaps.Whentaxratesarehighenough,anincreaseinratesmakesmoretaxpayerseligibleformoretaxcapcredits,soasmallershareofthelevyisreceivedbylocalunits.Likewise,adecreaseinratesincreasestheshareofthelevyactuallyreceived.Thecombinationoftrendingandtaxcapsmeanthatchangesinpropertyvaluescanhaveeffectsontherevenuesoflocalunits.

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Table8

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ThetaxpayermodelinTable8illustratestheeffectsofassessedvaluechanges.Considera10percentincreaseinthegrossassessedvalueofthehomestead,from$220,000to$242,000.Thenetassessedvaluerises13percent(morethanthe10percentgrossassessmentrisebecausethestandarddeductionisfixed).Supposethatnetassessedvalueinthedistrictrisesbythatsame13percent,andthatlocalgovernmentshavefixedlevies,perhapssetatthestate-imposedmaximum.Allunitsreducetheirtaxratesproportionally,andthedistricttaxratedeclinesfrom$3.00to$2.66.Thelevyandgrosstaxbillsremainthesame(thoughtheyroundtoadollardifferenceinTable8).Lowerratesreducetaxcapcredits.Thetaxpayerpaysthecapamountbothbeforeandaftertheassessmentincrease.Butthecapamountincreasesby10percent,sinceitis1percentofgrossassessedvalue.Thetaxpayer’snettaxbillrisesfrom$2,200to$2,420.Eachlocalgovernmentseesa10percentriseinitstotalrevenueaftercredits,eventhoughallleviesremainedthesame.Assessedvaluegrowthcausesrevenuegrowth.Thisimpliesoneofthewonderfulironiesofthetaxcaps.Boththemaximumlevyandthetaxcapsaremeanttoreducepropertytaxes,andtheydo.But,ifthemaximumlevywastheonlylimitation,asitisinplaceswheredistricttaxratesarelow,theincreaseinassessedvaluewouldhavenoeffectonrevenues.Fromoneyeartothenextthelevywouldrisebythemaximumlevygrowthquotient,whichhasbeenlessthan3percentrecently,regardlessoftheassessedvaluechange.Withtheadditionofthetaxcaps,however,anincreaseinassessedvaluecancauseanincreaseinrevenue.Partofthelevywaslostwhenthetaxcapswereimposed.Assessedvaluegrowthreducesthatloss.Thiseffectcanbeseeneveninthemostaggregateddata.Table9showsaveragesforallunitsinthe92countiesin2014and2015.Notethattheseareunweightedaveragesofcountypercentages,sothetaxcapcreditpercentofthelevyisonly6.7percent,not10.4percent.Largercountiestendtohavebigcitiesandhighertaxcappercentages,butthatisnotreflectedinunweightedaverages.Levyincreasesaveraged2.9percentforallcounties.Thiswaslessthantheincreaseinnetassessedvalue,sotheaveragetaxratedecreased.Theratedecreasecausedfewertaxpayerstobeeligiblefortaxcapcredits,socreditsdeclined.After-caprevenuesincreased3.3percent,whichwas0.4percentmorethanthelevyincrease.ThelastlineofTable9showsthesameaveragesforthe13countiesthathadnetassessedvalueincreasesofmorethan7percent,andhadalargenumberoftaxpayersattheircapamounts,asmeasuredbyahighercappercentofthelevy.Caplossesaveraged11.8percentofthelevy.Thesecountieshadlevyincreasesaveraging2.0percent,butnetassessedvaluerosemuchmore,soratesandtaxcapcreditsdeclined.Asaresult,after-caprevenuesroseby3.8percent,whichwasmorethantheincreaseinthelevy.

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Table9

Comparethistothe10countieswithhightaxcappercentages,andsmallnetassessedvalueincreases.Inthesecounties,thelevyroseanaverageof4.3percent,whilenetassessmentsincreasedonly1.0percent.Taxratesincreased,sotaxcapcreditsincreasedtoo.After-caprevenuesroselessthanthelevy.And,comparetoallthecountieswithlowtaxcappercentages,inthemiddlesectionofthetable.Nomatterhowfastnetassessmentsgrew,after-caprevenuesincreasedbyaboutasmuchasthelevy.Thedifferencesbetweenthelevyandafter-caprevenueincreasesareminimal.Fewtaxpayersareattheircaps,socapcreditsmatterlittle.Economicdevelopmentwhichaddsnewstructures,shiftslandtohigher-valueduses,andraisespropertyvalues,canreducetaxcapcreditsandincreaseafter-caprevenuesinplaceswheremanytaxpayersareattheirtaxcaps.But,infact,anythingthatincreasesgrossornetassessedvaluescouldcausesuchrevenueincreases.Inflationorspeculativeboomsinpropertyvaluesalsowouldraiserevenues.Sowouldincreasesinthebaserateoffarmland.Assessmentcorrections(orerrors)thatraisetaxableassessedvaluecouldincreaserevenue—whichsometimesconcernspropertyowners.Andadministrativechangescanhaveaneffect.Shiftsofhomesteadstotheotherresidentialcategory,ormovingpreviouslyexemptpropertytothetaxrolls,canincreaserevenues.

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ThecombinationoftrendingandthecapsmakesIndianalocalgovernmentrevenuesnewlysensitivetodeclinesinassessedvalues.In2014,tencountieswithhightaxcappercentageshadnetassessedvaluedecreasesfrom2013.Netassessmentsdeclined2.5percentonaverageinthesecounties.Thelevyincreaseaveragedamodest0.7percent,buttheassessmentdeclinemeantthatratesincreasedonaverage.Moretaxpayersbecameeligibleformoretaxcapcredits,sothesecountiesrealizeda2.2percentdecreaseinafter-caprevenues,2.9percentlessthanthebudgetedlevyincrease.Thedropinpropertyvalueswascapturedbytrending,andthecapscausedrevenuereductions.TheLegislativeServicesAgency(2011)offeredananalysisoftheeffectofthe2007-09recessiononIndianaassessments,leviesandtaxcapcreditsinitsDecember2011statewidepropertytaxreport.Thisreportfoundthatinpay-2011grossassessmentsfell,orincreasedless,incountieswhichweremostaffectedbytherecession.Trendingcapturedthenegativeeffectsofrecessiononpropertyvalues,newconstructionandequipmentacquisition.In7counties,Allen,Boone,Fayette,Grant,Henry,MarionandScott,thelevyincreasedandtaxableassessedvaluefell,sotheaveragetaxrateincreased.Higherratescausedtaxcapcreditstoincreasebymorethanthelevyincrease,sopost-creditrevenuedeclined.Abroaderdefinitionoftheserecessioncircumstancesaffectedmorecounties.In30counties,netassessedvalueincreasedbylessthantwopercentwhileafter-creditpropertytaxrevenuedeclined(LSA,2011,p.7).

Duringthemostrecentrecessionnearlyone-thirdofcountiessawafter-creditpropertytaxrevenuereductions.Trendingandtaxcapsmakepropertytaxrevenueslessstableinrecessions.Notethatthislossofpropertytaxstabilityisabenefittomanytaxpayers.Informeryears,propertytaxrevenuewasstableinrecessionsbecauseitignoredreductionsintaxpayerability-to-pay.Taxpayerpropertyvalueswoulddecline,butassessmentswouldnot.Ifsomehowassessmentsdiddecline,taxrateincreaseswouldmaintaintaxbills.Taxpayersinreducedcircumstanceswouldseetheirtaxbillsremainthesame,orevenincrease.Withtrendingandtaxcaps,lowerpropertyvaluescanleadtolowertaxbills.LocalOptionIncomeTaxesandtheTaxCapCreditsAfulldiscussionofthelocaloptionincometaxes(LOITs)belongsinanotherpaper,buttheLOITsinteractwiththetaxcapsinimportantways.LOITsaffecttaxcapcreditswhentheincometaxrevenueisusedtoreducepropertytaxbills.LOITcreditsarepercentagereductionsintaxpayments.Thelostpropertytaxrevenueisreplacedinlocalgovernmentbudgetswithincometaxrevenue.LOITcreditscanbeappliedtohomesteadtaxbillsalone,tohomesteadplusotherresidentialproperty,ortoallpropertyaspropertytaxreplacementcredits.ThecreditratesarecalculatedbydividingtheavailableLOITrevenuebythepropertytaxleviespaidonthepropertytypetobecredited.ToinsertLOITsintoourtaxpayermodelweneedtoknowthetypicalLOITcreditrates.AverageexpectedLOITcreditratescanbecalculatedfromstatewidedata.Sharesinnetassessedvalueareusedtoassignsharesofthepropertytaxlevytothehomesteadandhomesteadplusotherresidentialpropertycategories.Thetotallevyisusedforallproperty.Stateincometaxrevenueper1percentrateisthendividedbytheseleviesbypropertytype,togivetheaveragestatewideLOITcreditratesif100percentoftheLOITrevenuewereassignedtocreditsineachpropertycategory.Theresultingaveragecreditratesare63percentforhomesteads,40percentforhomesteadsplusotherresidential,and21percentforallproperty.Inotherwords,ifanaveragecountyadoptsa1percentLOITandusesitonlyforhomestead

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credits,homesteadtaxbillsarereducedby63percent.Ifthetaxreliefisspreadacrosshomesteadsandotherresidentialproperty,theaveragecreditis40percent.Ifreliefgoestoallproperty,theLOITcreditis21percent.Theall-propertyaverageisnearlyidenticaltothemedianrateactuallyusedbycountiesthatdeliver100percentoftheirLOITcreditstoallproperty.Whenlocalincometaxratesarenormalizedto1percent,themedianall-propertycreditrateamongadoptingcountiesis20percent.Themedianactualnormalizedcreditratesarehigherforhomesteadsandhomesteadsplusotherresidential,however,at72percentand55percent,respectively.Countiesthathaveadoptedthehomesteadorhomesteadandotherresidentialoptionstendtohavehighertaxableincomerelativetopropertytaxeslevied,whichmayaccountforthehigheractualcreditrates.Table10showsthetaxmodelforthemiddlevalued$110,000homesteadata$3.50taxrate.Thetableshowsthepropertytaxbillbeforeandafteralocaloptionincometaxisadoptedat1percent,with100percentofLOITcreditsdistributedamongallpropertiesattheactualmediancreditrateof20percent.The20percentLOITreducesthehomeowner’sgrosstaxbillby$275.But,thehomeownerhadtaxcapcreditsof$274beforetheLOITadoption.TheLOITcreditssubstituteforthetaxcapcredits,andthehomeowner’spropertytaxbillisalmostunchangedat$1,099.Thehomeowner(presumingheorshehastaxableincome)haspaidtheadded1percentlocalincometaxrate.Thehomeownerstotalpropertyandincometaxpaymentcombinedhasincreased.Thelocalgovernmentsreceivethenearly-unchangedpropertytaxpaymentof$1,099.Localgovernmentsalsoreceive$275inLOITrevenuetoreplacethepropertytaxnotpaidbecauseoftheLOITcredits,equalto20percentofthegrosstaxbill.Thecombinedrevenuefromthepropertyandincometaxeshasincreasedfrom$1,100to$1,374.LostpropertytaxrevenuefromtheLOITcreditisreplacedwithincometaxrevenue.Lostpropertytaxrevenuefromthetaxcapcreditisnotreplaced.TheLOITcreditsubstitutesforthetaxcapcreditwhenthetaxpayer’sbillisabovethecapamount.Ineffect,thelocalgovernmenthassubstitutedtaxreliefwithreplacementrevenuefortaxreliefwithoutreplacementrevenue.Totaltaxpaymentsandtotalrevenuegoup.Supposethecountyused100percentoftheLOITrevenueforhomesteadcredits,notforcreditstoallpropertyowners.TheLOITcreditratewouldbe72percentforthehomesteadandtheLOITcreditwouldbe$989.The$274intaxcapcreditswouldbereplaced,andthehomesteadwouldreceiveanadditional$715intaxrelief.Thiswouldcutthetaxbillbytwo-thirds,from$1,100to$385.

Localgovernmentswouldreceivethe$385inpropertytaxes,andthe$989inLOITincometaxrevenuetoreplacetheLOITcredits,foratotalof$1,374.Thisismorethanthe$1,100receivedwithnoLOITcredit.Thedifferenceistheeliminationofthe$274taxcapcredit.

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Table10

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ComparedtoaLOITcreditforallproperty,ahomestead-onlyLOITcreditwouldprobablycostlocalgovernmentsrevenue,however.RentalhousingownersandbusinesspropertyownerswouldseetheirtaxbillsrisewithouttheLOITcredits,andsomemighthittheircapamounts.Insteadofreceivingtaxrelieffromacreditwithreplacementrevenueforlocalgovernments,theywouldreceiverelieffromacreditwithnoreplacementrevenue.Localrevenueswoulddecrease.

Thisimpliesthatboththedecisionofwhetherornottoadoptalocalincometaxforpropertytaxrelief,andthedecisionabouthowtodistributetherelief,canhaveeffectsonlocalrevenues.IfaLOITisadoptedandthereliefisdistributedtotaxpayerswithcappedtaxbills,taxpayersgetlesspropertytaxreliefandlocalgovernmentsreceivemorerevenue.Ifthereliefisdistributedtotaxpayersbelowtheircaps,taxpayersgetaddedpropertytaxreliefandlocalgovernmentsdonotreceiveaddedrevenue.

Table11uses2015taxdistrictdatatoprovideacheckthesepoints.Districtsfor92countiesareseparatedbytaxrateandthetotalLOITcreditrate,whichistheratethatappliestohomesteads.Thefiguresinthetableareunweightedaveragesofdistricttaxcappercentages.

Table11

Veryfewtaxpayersareeligiblefortaxcapcreditsatratesof$2orless.ThisimpliesthatLOITcreditratesmustbeprovidingpropertytaxrelief,sincetheycannotbesubstitutingfortaxcapcredits.Fortaxratesabove$2,higherLOITcreditratesreducetaxcapcreditsasapercentofthelevy.LOITtaxreliefproduceslowertaxbills,whichmeansfewertaxpayersqualifyfortaxcapcredits.ThesubstitutionoffundedLOITcreditsforunfundedtaxcapcreditsimpliedbythisresultmeansthatlocalgovernmentsarereceivingmorerevenueintotal.Whenallratesarecombined,thetableshowsaquirk,withmoretaxcapcreditsatthe1percentto30percentLOITcreditrangethanwhentherearenoLOITcredits.LOITcreditsareimportantdeterminantsoftaxcapcredits—butpropertytaxratesaremoreimportant.

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WhatDon’tWeKnowaboutthePropertyTaxCaps?ThispaperdiscusseswhatweknowaboutIndiana’spropertytaxcapsaftersixyears’experience.Theresultsarebasedmostlyonthesimple(andnotsosimple)arithmeticofassessments,levies,ratesandcapsforoverlappinglocalgovernments.Answerstowhatwedon’tknowaboutthecapswouldinvolveanalysesofhowthecapsalterthebehavioroftaxpayersandlocalgovernments.Changesinbusinesstaxbillscanaffecttheincomesofbusinessowners,buttheyalsocanbepassedforwardtocustomersaspricechanges,orbackwardstoemployeesaschangesinpayandbenefits.Afullanalysisoftheincidenceofthetaxcapsonrentalhousingandbusinesspropertyrequiresestimatesoftheeffectsonprofits,pricesandpay.Hasthereductionoftaxesonrentalhousingcausedanincreaseinrentalhousingconstruction?Ifithas,thenhastheincreaseinthesupplyofrentalhousingreducedrents,oratleastslowedtheincreaseinrents,totenants?Ifso,thenrentsarelowerthantheywouldhavebeen,andthetaxcutstolandlordshavebeenpassedforwardtotenants.Likewise,havetaxcapcreditscausedbusinessestoexpand?Havetheycreatednewjobopportunities,whichhasraisedpayandbenefitsasbusinessescompetetohirenewemployees?Ifso,thenthebenefitsofthetaxcapcreditsonbusinesseshavebeenpassedbackwardstoemployees.Suchquestionsrequiremodelsofthedemandandsupplyofproductsandlabor,whichmustsortouttheeffectsofthecreditsfromalloftheotherfactorsthatcouldchangeprofits,pricesandpay.Theeffectsofthetaxcapsoneconomicdevelopmentarearelatedquestion.Lowertaxbillsincreasebusinessprofitability.Thehigherreturnoninvestmentoughttocausebusinessestoexpand,increasingtheavailabilityofproductsandjobopportunities.ButthetaxcapsbecameeffectiveinthemidstoftheGreatRecession.TherecessionandrecoverysurelywerebiggerinfluencesonIndianabusinessactivitythanwerechangesinpropertytaxbills.AnsweringeconomicdevelopmentquestionswouldrequireamodeloftheIndianaeconomy,toidentifytheeffectsoftaxesduringeconomicturmoil.Answeringeconomicdevelopmentquestionsalsomaytaketime—wemaysimplyneedmoreyearsofdata,lessinfluencedbybusiness-cycleevents.Taxcapcreditsreducetherevenueoflocalgovernments.Howhavegovernmentsresponded?Perhapstheyhavebecomemoreefficient,deliveringthesameserviceswithlesstaxrevenue.Perhapstheyhavefoundnewsourcesofrevenue—likefeesorlocalincometaxes—toreplacethelostpropertytaxrevenue.Orperhapstheyhavecutservicesdeliveredtolocalresidents.Localgovernmentservicesarehardtomeasure,becausetheyrequiremeasuresoftheoutputoflocalgovernment.Thesemeasuresareoftencontroversial.Hasthelossofrevenuebyschoolcorporationsresultedinlowertestscoresforpublicschoolstudents?Hastherevenuelossbycitiesorcountiesresultedinmorecrimeaspoliceservicesarecut?Ifnot,doesthismeanlocalgovernmentshavebecomemoreefficient,deliveringthesameserviceswithlessrevenue?Howcanweaccountforalltheotherfactorsthatinfluencetestscoresorcrimeoranyothermeasureoflocalgovernmentoutputtheywemightselect?Therearemanyquestionstoanswer.Theresultsinthispapercouldbeafoundationforthesemoresophisticatedanalyses.

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ReferencesFaulk,DagneyandMichaelHicks(2015).“AssessmentQuality:SalesRatioAnalysisofResidentialPropertiesinIndiana,”BallStateUniversityCenterforBusinessandEconomicResearch,March4.http://projects.cberdata.org/reports/IAR-SalesRatio-030415.pdfIndianaLegislativeServicesAgency(2011).“2011StatewidePropertyTaxReportwithComparisonstoPriorYears,”IndianaLegislativeServicesAgency,December.http://iga.in.gov/static-documents/1/a/5/e/1a5ee658/2011ALLSTATE.pdfIndianapropertytaxdataareavailablefromIndianaDepartmentofLocalGovernmentFinance,“Reports,”http://www.in.gov/dlgf/8379.htm.IndianaLegislativeServicesAgency,“CountyPropertyTaxStudies,”http://iga.in.gov/legislative/2014/publications/property_tax/.