States eye ways to rein in property tax

( AP )- Maurice Gunyon thought he was set for his twilight years.

He bought a deteriorating house on Indianapolis' north side, had it torn down and a new one built. The 73-year-old retired from his government job in 2004, thinking he was financially secure. His income included his pension, personal savings, Social Security and rent from the other side of his two-family house.

Then he got his property tax bill that had nearly tripled. His bill in 2005 was about $2,900 and was $4,600 last year. This year's bill - $7,568.

"I almost had a heart attack," said Gunyon . "My reaction was one of pure anger."

His problem is not unique. The amount paid in local and state property taxes in the country increased 50 percent from 2000 to 2006, according to Census data cited by some U.S. Congress members when discussing the topic. During that time, inflation rose 17 percent and median household income dropped 2 percent.

Analysts cite a number of reasons for the dramatic bill increases including local governments and states leaning more heavily on property taxes to meet revenue shortfalls and rising home values pushing up assessments. Now, states are looking at ways to cut property taxes or at least give homeowners some relief by capping assessments and making up the revenue shortfall by raising sales taxes.

Gerald Prante , an analyst with the Tax Foundation, said rising property taxes are largely tied to a housing boom over the past five or six years. The sellers' market caused house values to rise, along with assessments.

The housing market has tapered off, he said. However, assessments take time, so a declining market value is not always reflected immediately.

Homeowners only know they have to find a way to pay the bills and are pressuring their legislative leaders to do something. At least five states this year cut property taxes and 21 tried to provide homeowners relief from higher bills, according to the National Conference of State Legislatures.

"This topic remains on the state fiscal radar nationwide," said Bert Waisanen , a senior policy specialist with the state legislatures group.

In 2008, more legislatures are expected to try to find solutions to rising taxes. Congress has gotten involved through proposals that would allow people who don't itemize to deduct all or portions of their local or state property tax bills from their federal income tax.

In Indiana, skyrocketing property taxes sparked protests that have included homeowners dunking their bills in rivers and lakes to mimic the Boston Tea Party. Taxes on homeowners in Indianapolis increased by an average of 34 percent, but in some cases more than doubled.

"I either have to not pay my taxes or not pay my mortgage or stop eating and turn off all the utilities in order to make it, and that would be true even if I were still working, or darn close to being true," Gunyon said. "And I'm not the only person in this situation."

Some states have provided at least some relief.

• In November, Washington state lawmakers reinstated a 1 percent cap on annual property tax increases that was included in a voter-approved initiative the courts had thrown out.

• New Jersey Gov. Jon Corzine signed a bill this year giving most homeowners a 20 percent cut in the nation's highest property taxes, which average about $6,333 per homeowner, and capping annual increases at 4 percent.

• Florida enacted a law in October that would implement property tax cuts if voters approve a revised, proposed state constitutional amendment that is on the Jan. 29 presidential primary ballot.

• Illinois lawmakers approved a 7 percent property tax assessment cap in the Chicago area that also provides a homestead exemption of $33,000.

In Indiana, lawmakers provided $550 million in help through rebates and homestead credits for homeowners over the next two years. But Republican Gov. Mitch Daniels and a divided General Assembly are looking to do much more in the 2008 session to reduce the state's reliance on property taxes.

Daniels has proposed a sweeping plan that would cap tax bills for homeowners, landlords and businesses. The plan would be funded in part by raising the state sales tax from 6 percent to 7 percent - which many politicians say will be the hardest aspect to sell. The state also would help local governments with some expenses including assuming all school costs.

Georgia's House Speaker Glenn Richardson wants to go further by eliminating most property taxes. The Republican says that could be done by imposing a 7 percent sales tax on virtually all services.

He says the property tax is antiquated and targets only a select group of society with no regard to ability to pay, with increases out of control.

"The logic of property taxes is fatally flawed," he said. "We should be taxing consumption, not the place where someone raises their family."

But Republican Gov. Sonny Perdue says overhauling Georgia's tax system is unnecessary. Many school groups and local officials also oppose it.

Jim Higdon, executive director of the Georgia Municipal Association, said it would take fiscal control away from local governments and give it to the state. And he said residents would be paying sales taxes on virtually everything.

"It would be bleeding to death from a thousand paper cuts," he said.

But Nancy Hollingshed , who lives with her 81-year-old mother in a three-bedroom, ranch-style house in Dallas, Ga ., likes the plan, saying it would spread the local tax burden to more people.

The house and 50 acres of farmland it sits on is about 40 miles northwest of Atlanta, and property values in the area are rising because of suburban sprawl. The tax bill has increased from $1,000 to $2,000 over the past three years, and would be about $1,000 more without a school tax exemption for homeowners over 70.

The land has been in the family for generations, but Hollingshed said she and her siblings expect the tax bills to keep rising, especially without her mother's tax break.

"After she dies and after the exemption is gone, we are worried about paying for what is our inheritance," she said.

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