The Grandfather of Indiana’s Property Tax Reform
As I sat down and did my research on the late Governor Otis “Doc” Bowen, two things really fascinated me about his time in public service. One was his frankness about sex when he was the Secretary of Health and Human Services in the mid-1980s. The other, which I would argue had just as much impact, if not more so in the Hoosier state, was putting Indiana on the road to property tax reform.
In fact, I would submit to you that had it not been for Bowen, Indiana would probably not have gone down a path which would eventually lead to providing hundreds of thousands of Hoosiers with property tax relief.
When Bowen became Governor in 1972, Hoosiers had experienced a doubling of their property taxes in the previous decade. Bowen used a mix of policy and good old fashioned politics to provide Hoosiers with meaningful relief. According to an article by Dagney Faulk in the Indiana Business Review, Orr’s plan did four things…
- Doubled the sales tax from 2 percent to 4 percent (exempting groceries) and allocated the extra revenue to property tax reduction through the Property Tax Replacement Credit (PTRC);
- Permitted counties to levy local option income taxes (CAGIT) with most of the revenue used to reduce property taxes;
- Set limits on property tax rates and levies for counties adopting CAGIT;
- Established tax control boards.
Faulk also notes that school funding was treated separately and increased through a state school aid formula.
The measure was controversial, to say the least. Bowen used every political trick in the book to get it passed and even then it came down to a tie in the State Senate and it was Lt. Governor Bob Orr who had to cast the tie breaking vote. The end result, a 20 percent drop in Hoosiers property tax bills and a more equitable system of taxation.
Unfortunately, as Bowen noted in a 2008 editorial in the Indianapolis Star that by the time he left office in 1981, lawmakers had carved out 18 exceptions to the spending controls lawmakers had put in place.
The rest they say is history, in 1979 lawmakers limited tax levy growth to the same as the average growth in assessed value over the past three years. In 1993, the famous Town of St. John v. State Board of Tax Commissioners case was filed and by the year 2000 the Indiana Supreme Court has ruled it was time for a new property tax system based on more on market value of property rather than the replacement costs of property. In 2007 property finally began to be reassessed and the end result was a tax revolution that threw out an incumbent Mayor of the largest city in the state and scared lawmakers into passing property tax caps and giving Hoosiers permanent property tax relief that would be enshrined in the state Constitution.
It is unlikely much of this would have happened in the manner it did had it not been Otis “Doc” Bowen. Or as I like to refer to him, the grandfather of property tax caps.
