Friday, January 25, 2008

Tax Caps Do Exist With Referendums

The JG editorial exploring the potential problems with combining a referendum with property tax caps brings up a valid point - namely that voters who are already at the 1% cap may decide to approve a project because they know it won't affect them. However, they have a couple of statements in their editorial that are incorrect:

But it’s also true that Indiana has adopted a unique circuit-breaker feature that caps taxes at a percentage of a property’s assessed value.

This is incorrect. The Center on Budget and Policy Priorities found that in fact there are 14 states that currently use property tax caps. The JG also adds:

The states that currently hold voter referendums don’t cap tax bills, so voters who support a bond issue understand they are approving a tax increase. A referendum process combined with a circuit-breaker is a different animal.

This is also incorrect. Of the 14 states that use caps 10 of them also have override provisions which allow voters to override the cap via referendum. In these cases the government body wanting to issue the debt must decide if the tax caps will prevent them from doing so. If it does, then they can initiate a referendum for the project to be exempt from the cap - this is similar to Senator Kenley's amendment that made it into Senate Bill 18.

Property tax caps have their problems. The CBPP's paper (linked above) on the issue highlights them in detail and is a good read for those that want to anticipate what problems might arise. If nothing else our state legislators should read it as it defines the difference between a cap and a circuit breaker...

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