Editorial: Lawmakers should keep fairness in mind in property tax changes

Gov.-elect Mike Braun, a Republican, will be inaugurated Monday, less than a week after the GOP-controlled Legislature returned to the Statehouse to begin working on the next two-year budget and pushing the new governor’s policy agenda.

Near the top of his list of priorities are measures that would reduce property tax bills.

The proposals are the result of recent increases in tax bills that can be blamed, at least in part, on a housing market that has driven home prices up significantly over the past five years. When home prices go up, so do property assessments, which are one part of the formula that determines what property owners pay.

Many other factors are at play, as well, but the assessment system is key—and a factor that could make legislative efforts to cut taxes more complicated.

Indiana’s property tax bills are based on a market-value assessment system that the General Assembly created in 2002. Lawmakers developed that system essentially at gunpoint, following an Indiana Supreme Court decision that declared the state’s previous assessment system unconstitutional. The court said the previous system—which in part discounted assessments on houses that were old, lacked a “meaningful reference to property wealth” and did not contain “objectively verifiable data”—did not create fairness among property owners.

The court did not order the state to impose a market-based system, meaning one that is based largely on the sales prices of similar homes. But at the time, 48 other states used a market approach to assessments that Indiana also adopted.

The result is that when home values rise, their tax bills do, too. That doesn’t mean local governments collect a lot more money. The total that governments raise from property taxes is limited by a state formula. But changes in property assessments shift who pays—those who own more expensive properties pay more than those who own less expensive properties.

The caps on tax bills implemented during former Gov. Mitch Daniels’ administration reduced tax bills for many property owners. However, those caps—which are based on a percentage of assessed value—also rise when property values increase.

This session, lawmakers are expected to consider a number of measures that could undermine the market-based assessment system. Rolling bills back to a previous year’s level or freezing them at 2025 levels are examples of proposals that could undermine the goals of a market-based plan. The same is true of proposals to limit the increase in tax bills.

That’s because freezing or limiting tax bills allows the owners of homes that are increasing in value quickly to pay less than owners of property that is valued similarly but grew to that level more slowly. The result would be the same kind of unfairness that led the Indiana Supreme Court to declare the previous tax system unconstitutional.

If lawmakers decide that property taxes should be reduced—which is an argument for another day—there are ways to do it without undermining a system that was meant to inject fairness among payers. Lawmakers should focus their energy on those solutions.•

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