Recent bills in the Indiana General Assembly, which supporters say will lessen the property tax load for home and business owners, have city leaders from around the state crying foul.
One of the bills, passed by the General Assembly in 2002, does away with the state's inventory tax beginning this year.
The inventory tax is a personal property tax that businesses pay each year based on their inventories including equipment, office furniture and fixtures. Fewer than a dozen states still have the inventory tax in place and many, like Ohio, are working on plans to get rid of it.
The other bill, House Enrolled Act 1001, puts a limit on the amount of property taxes a homeowner can be required to pay based on their property's assessed value, dubbed a "circuit breaker."
Beginning in 2008, property owners cannot be taxed above 2 percent of their property's assessed value. For example, if a person's property is assessed at $100,000, they cannot be taxed more than 2 percent of that amount, or $2,000.
"As good as it is for the public and for businesses, it's terrible for local government," Greencastle Mayor Nancy Michael told the BannerGraphic Monday.
She believes that over time, these lost property tax revenues could have a negative effect on city services such as police and fire or street maintenance.
"We are tight right now and we don't have a lot of fluff," Michael said of the city's current budget. "But we may have to start cutting."
For that reason, Michael has joined other leaders in the state, including mayors from Terre Haute, Lafayette, Brazil and Crawfordsville, in a search for alternate sources of funding for city and town governments.
"We're all on the same page," she said of the other mayors.
Last week Michael joined other local leaders in attending a special meeting of the Indiana Association of Cities and Towns (IACT), conducted in West Lafayette.
Michael sits on the organization's legislative committee and has been following the tax issues for the past year and a half. She said the committee plans to eventually take their ideas to the state legislature, hoping they will take them under consideration.
The group has titled its initiative "Hometown Matters." They have scheduled 16 meetings throughout the state to discuss ways for cities and towns to reduce their reliance on property taxes.
Their next meeting is set for 6-8 p.m. Oct. 23 in the Ohio Building in Terre Haute. The mayor is encouraging residents, business owners and local government officials to attend.
IACT, according to its website, is suggesting four alternative revenue sources to property taxes. They include a local sales tax, supplemental income tax, local innkeeper's tax and local food and beverage tax.
Individual cities and towns would be able to adopt these taxes on their own if the county commissioners did not, according to the proposal.
The group is also proposing that communities:
-- Authorize the sharing of fire chief, town marshal, police chief, planner, city engineer and other employees,
-- Authorize municipal public safety agencies to conduct training for other agencies,
-- Permit local governments to share tax base, responsibility for service delivery (as currently available for fire protection) of other services, and
-- Streamline the interlocal agreement cooperation process and permit more flexible revenue commitments.
Michael said she wishes state lawmakers would have done more to involve local governments in deciding the legislation concerning property taxes.
"There seems to be this feeling that local government spends too much," she said. "By just going in and cutting taxes, they're cutting services. They didn't give us any alternative ways to make up for that money."
Cities aren't the only ones that stand to lose at least some portion of their annual revenue in the coming years. Schools, libraries and county government all rely, in part, on property and income taxes to operate.
The issue apparently sparked quite a large debate in Ohio where lawmakers voted to phase out the state's inventory tax over a 25-year period. One school district near Cincinnati claimed, according to local newspapers, that it would lose nearly $19 million a year based solely on the inventory tax.
However, a 2000 study conducted by the Ohio Department of Taxation found that the effects of eliminating the inventory tax were minimal to a majority of school districts in the state. Most school districts, according to the report, would experience an annual loss in revenues of less than 1 percent.