Chicago Tribune covers Meridian Kessler property tax crisis

Property tax wallop spurs backlash

In Indiana and across the U.S., homeowners are 'hitting their limits'

By E.A. Torriero Tribune correspondent
February 3, 2008

INDIANAPOLIS - With its stately Tudor-style houses, grand Colonials and cozy cottages, the Meridian-Kessler neighborhood seems an unlikely setting for revolt.

But when homeowners opened their reassessed property tax bills last summer, they were aghast to find their taxes jumped an average of 35 percent and in some cases more than doubled, about equaling the yearly price of fancy college tuition.

At the Mournighan household, property taxes soared nearly threefold to an astounding $35,302 annually, as the assessed value jumped more than 70 percent to $1.35 million. Just five years ago the Mournighans paid a property tax of $5,200.

"We figure it would cost us almost $100 a day in taxes just to remain in our home," said Kathy Mournighan, who raised three children in her big Colonial in the last two decades. "We could dump the house and live on a cruise ship with what we would pay in property taxes."

The Mournighans and their neighbors protested. And the spreading sticker shock as homeowners opened bills statewide erupted into an angry backlash that led to the unseating of longtime incumbents and is now forcing swift legislative relief.

Nationwide issueThe Hoosier backlash is symbolic of growing unrest nationwide over rising property taxes, including in the Chicago area, where bills based on a county reassessment will begin reaching some taxpayers this month.

With foreclosures rising across the U.S., property values declining and tax revenues in a nose dive, governments are finding taxpayers in no mood to shell out more money on property taxes. Property tax controversies and reforms have hit at least 20 states, including New Jersey and California. Floridians last week passed a constitutional amendment overhauling the state's property tax system and cutting taxpayers' bills by about $240 per homeowner.

Nationwide, property tax payments jumped 50 percent from 2000 to 2006, U.S. Census Bureau data show, as governments took in $339 billion in property taxes -- their top revenue source."

There is a feeling among taxpayers they are hitting their limits," said Laurence Msall, president of The Civic Federation, a tax policy research group based in Chicago. "There is not a lot of slack in these uncertain economic times for generating more revenue from taxes."

With property taxes rising by so much and so quickly in Indiana, the state legislature in recent days barreled through more than 100 amendments to fine-tune a relief proposal by Gov. Mitch Daniels. Proposals facing compromise committees in the Senate and House would raise the state sales tax from 6 percent to 7 percent, cap the residential property tax at 1 percent of assessed value, limit local government spending, and shift some of the education, transportation and child welfare burdens to the state.

By March, Indiana legislators expect to pass a property tax relief package likely to provide an immediate reduction for homeowners by an average of a third. In the meantime, Daniels has ordered a temporary freeze in taxpayers having to pay the increases until a "do-over" reassessment in several counties, among them Marion, which includes Indianapolis.

The swirling political tide in Indiana swept out two dozen mayors in November -- including Bart Peterson, the two-term Democrat in Indianapolis -- after angry taxpayers took to the streets holding signs and staging rallies hearkening back to the days of the Boston Tea Party."

They're listening to us little guys because we wiped out anybody in our path," Mournighan said.

Facing a housing market downturn, and with many struggling to pay mortgages, homeowners in Meridian-Kessler say rising property taxes would send them to the poor house."We look at protecting our home like saving one of our children," said Christine Muller, who saw taxes on her cottage in Meridian-Kessler jump threefold to more than $6,000 in the last six years."

A home is a place of memories and where we have spent most of our lives," she said. "But to government, a house is just some taxpaying agent."J.B. Miller, who moved to the Meridian-Kessler area in 2004 from Oak Park, Ill., said he expected high taxes in the Chicago region, where he last paid about $17,000 annually. But he figured Indiana taxes would not be anywhere near the Chicago region's."

The jump comes out of the blue, and you wonder what you are paying for here," said Miller, who said his bill soared from $5,000 to $13,000.Indiana changed its property tax structure in 1998 when the state Supreme Court ruled assessors' way of taxing property on replacement cost minus depreciation was unconstitutional.

Homeowners slammed

With a new system in place by 2003, many homeowners in Meridian-Kessler say their taxes virtually doubled under the new assessments based on market value. Since then, increased local government spending, the elimination of an inventory tax on business, and inflation factors built into the assessments have walloped homeowners.

Civic and business groups fear that Daniels and legislators will shift the tax burden in ways that will leave less for state coffers. Under the proposals, business property will have a higher tax cap than residential properties. And the proposed sales tax would be higher than in most locales in nearby states, so shoppers might leave Indiana.

"In caving in to the demands of the homeowners, they are putting it on the back of the business community, which will suffer unfairly," said Kevin Brinegar, president of the Indiana Chamber of Commerce.

Municipal officials fear that less tax money will be generated and that with curbs imposed on their spending, cities and towns would be forced to lay off staff or curtail services. School systems predict that they will lose millions if the state does not bridge the gap.

But angry homeowners are in no mood to compromise on property taxes.

At a recent town hall meeting in the House chambers -- shown live on an Indianapolis television station that pre-empted the popular game show "Deal or No Deal" -- residents called for a repeal of property taxes, limits on the building of new schools and cuts in government spending.

Interviews with several homeowners in Meridian-Kessler found a neighborhood in panic. Retirees on fixed incomes say they have no way to pay their tax bills. Young families have little reserves to tap into. And the well-off are talking of dipping into retirement accounts.

Few can escape by selling their houses. At least 100 Meridian-Kessler houses are on the market.

"It's the perfect storm: Houses won't sell, lenders won't lend and people are stuck with outrageous property bills," said Kathy Mournighan's husband, Ed, an insurance broker. "It makes for a lot of sleepless nights."