How Using Property Tax To Pay For Major Bridges Creates Winners And Losers

Jun 6, 2016

This bridge, on Haggerty Lane near County Road 750 East, is on the list to be replaced.
Credit Chris Morisse Vizza / WBAA News

Hoosiers changed the way property taxes are calculated, says Tippecanoe County Auditor Bob Plantenga, when voters in 2009 overwhelmingly approved a constitutional amendment setting permanent limits on all property taxes.

The total tax bill on residential property can’t exceed 1-percent of the home’s gross assessed value.

Tax bills on rental units, Ag land and long-term care facilities can’t exceed 2-percent of the value. The limit for business and industry is 3-percent.

Seven years later, 2,300 of the 4,000 owner occupied houses in West Lafayette have hit the cap.

If the bridge tax is enacted, they’re constitutionally forbidden from paying more, but the other 1,700 would, Plantenga says.

“If you are not at tax cap, this is a true tax increase, so you’re going to be paying more taxes,” Plantenga says.

The tax caps, or circuit breakers, have a different effect elsewhere in the county.

More than 12,000 of Lafayette’s 14,000 homeowners would see a tax increase, and all but about 200 of the 18,000 homeowners outside city limits in Tippecanoe County.

Every industry in the county also will pay full freight, Plantenga says, because none have reached the maximum, yet.

With an eye on future needs, and the memory of last summer’s debacle when the I-65 north bridge over Wildcat Creek forced the state to close the interstate several weeks, city and county leaders have said establishing the tax now is a reasonable way to accumulate the millions of dollars required to keep the county's bridges in good shape.

It’s the solution County Highway Director Opal Kuhl arrived at as she pondered the gap between available tax revenue, and the 27 large bridges scheduled for replacement during the next 50 years.

“And you could start building up some money for that so we won’t have to be looking at bond issues or putting off other projects to do those projects,” Kuhl says.

But the major bridge tax has a major drawback.   Remember those property owners whose taxes wouldn’t increase?

If the bridge tax is adopted, some of the money they currently pay would be shifted to the major bridge fund, and subtracted from other accounts that fund city and county operations.

As others absorb tax increases, more property owners will hit the maximum -- putting a lid on tax revenue, and essentially, reducing local government’s ability to fund services, says Plantenga.

That’s part of the tax cap plan, says State Senate Tax and Fiscal Policy Committee Chairman Brandt Hershman (R-Buck Creek).

He says Republican legislative leaders believe income, not property ownership, is a better indicator of a resident’s ability to pay taxes.

So, to encourage local governments to move away from property taxes, he says legislators created a new local option income tax, or LOIT, to help fund services and reduce property taxes.

Hershman says instead of the bridge tax, the new LOIT might be a better way to fund the county’s big bridge projects.

“The other thing they could do is take advantage of the local option tax levies that are available to them and fund this via an income tax," Hershman says. "It would have the side benefit of limiting the impact of circuit breakers on them for a longer period of time.”

Commissioner Tom Murtaugh says restrictions originally attached to the new local option income tax overshadowed any benefits.

But he says some of those restrictions may have been lifted.    

And, after WBAA relayed Hershman’s comments, Murtaugh said he was interested in taking another look at the income tax option.  

“You’re asking great questions. You really are," Murtaugh says. "And truly, I mean, your call here has caused us to take pause here. You know, maybe there is a better option out there.”

Murtaugh says the income tax would generate about the same amount of money as the bridge tax, but income tax revenue typically goes into the general operating fund.

He says the county went with the major bridge tax because county leaders want to make sure the revenue can only be spent on big bridge projects.

Murtaugh says he’ll ask the county attorney to research the income tax, and whether state law allows the county to allocate the revenue exclusively for major bridge work.

The answer, he says, will direct the next steps the commissioners and council take.