Tuesday, February 19, 2008
Wrong tree, wrong dogs barking
As the chart above from the Indiana Department of Local Government Finance shows, 74.2% of the total county property tax levy is paid by residential property owners. While the implied argument for economic development as a method of property tax relief is strong as the development of additional businesses would reduce the portion of taxes collected from residential property, one factor that's not so obvious is the built-in landlord subsidy.
According to the 2000 census, there are 29,087 residential units in Floyd County at about 95% occupancy. Those units include single-family homes, trailers, apartments, and any other arrangement of separate living space. Only 68.6% (19,954) of them are owner-occupied, however. That leaves 7,557 of them as rental units. 26% of all housing units in the county are owned by someone other than their residents and are operated as rental businesses.
Why does this matter? Because the current property tax proposal being mulled over by our state legislature seeks to tax rental businesses at a different rate than other businesses. Owner-occupied residential property tax caps would be set at 1%, rentals at 2%, and other businesses at 3%.
It's difficult to exactly calculate how 7,557 rental units are divided up between various properties. One property could be comprised of 30 units while another could be a detached, single-family rental, i.e., one unit. For comparison's sake, let's assume a typical New Albany rental property of four units. 7,557 total rental units with four units per property is equal to 1,889 properties.
With that figure in hand, take into account the median county property value of $104,300. 1,889 properties multiplied by the median value equals $197,022,700 worth of taxable property.
That property, taxed at an as yet unjustified special rate of 2% would lead to $3,940,454 in revenue. If taxed at the same 3% rate as other businesses, however, the revenue would be $5,910,681. That's a difference of $1,970,227- a difference that would be made up by homeowners every year.
How would that affect individual households? Remember, as of the 2000 census, there were 19,954 owner-occupied homes in Floyd County. $1,970,227 divided among 19,954 homes equals $98.74 per homeowner each year. It may not seem like much on its surface, but those interested in fairness should take note. With the owner-occupied residential property tax rate set at 1% and the median home value at $104,300, the typical property tax bill will be $1,043. That means that if our "number of units per property" assumption is anywhere near correct, roughly 10% of every "average homeowner" property tax payment would be going to subsidize area landlords who refuse, via special interest lobbying efforts, to fairly pay the same tax rate as other businesses.
We've already been collectively subsidizing the rental property business for years by allowing owners to pay residential tax rates on their business property and have often been paid back with an alarming lack of property maintenance and the accompanying attraction of the criminal element into our communities. The newest take on property taxes further codifies that subsidy without requiring any additional responsibility from landlords in return for it.
At the very least, the Jim Bakers and Pat Harrisons of the area should be held publicly accountable for such a boondoggle, as should those public officials who would vote in favor of it.