Every few years, property taxes shove their way to the front of Hoosiers’ buckets of concerns. The General Assembly generally responds with some kind of fix, and the yelling becomes quiet grumbling until the next surge. In 2008, responding to an outcry largely inspired by pricey high school football stadiums in Carmel and Franklin Township, state legislators decided to require voter referendums for a bigger share of local school projects. Since then, they’ve established two additional types of referendums.
(Full disclaimer: the “new” Plainfield High School was the state’s last big school project to be approved before the new law kicked in. We didn’t plan it that way … just good timing. But our $103 million project had minimal impact on our taxpayers because of the way we structured the financing. Taxpayers faced a slight increase for one year before the rate plunged below what they had previously been paying. It’s continued to drop ever since.)
In essence, a referendum is a voluntary increase in property taxes for a specific purpose. By “voluntary,” I don’t mean that every taxpayer can decide whether they want to pay – the “volunteering” takes place in an election. The majority of votes makes the decision for everyone. A pain point about referendums is that their portion of your taxes isn’t subject to property tax caps, so even if your taxes have already hit the cap, you’ll be forced to pay more.
The state’s first type of referendum was created for capital projects, which is how financial types refer to buildings and other facilities. If your school district wants to invest $30 million to expand the local high school and doesn’t have enough money on hand, it can choose to ask the voters for a referendum covering the cost of the project. After the Indiana Department of Local Government Finance approves the language explaining the referendum, it’s placed on the ballot. If a simple majority of the voters says “yes,” the project moves forward. If not, the project is dead, although the district can bring the idea back in a future election.
The second type is known as an operating referendum, which covers the costs of educating children. An operating referendum can allow districts to hire more teachers to reduce class sizes and raise teacher salaries, among other things. The final type is a safety referendum, through which districts can pay for safety technology or staffing.
Referendums create strong emotions on both sides. Many residents – particularly folks on fixed incomes whose kids graduated long ago – instinctively oppose them. But defeating a referendum can actually hurt them economically in the long run.
Nobody likes to pay more in taxes, and I don’t hang out with anyone who has access to unlimited funds. But there’s something you need to think about. Beyond the physical and curb appeal characteristics of your home, one of the biggest determinants of its market value is the reputation of your local school district. Ask your newest neighbors why they chose to live in Hendricks County or your community, and they’re likely to mention schools.
The extra dollars you’ll pay in property taxes when your community approves a referendum are a long-term investment in that reputation. Whether the referendum is for teacher salaries, student safety, or some building project, it’s going to either preserve or enhance what makes your local school district appealing to whoever will buy your home one day.
What happens when referendums fail? Pitched battles over referendums do more than turn friendly neighbors into bitter enemies. They can leave long-lasting scars in communities, derailing economic development efforts and causing prospective residents (and current teachers) to choose other communities they perceive as more supportive of education. While defeating a referendum can keep taxes from going up in the near term, delaying needed projects can have consequences like overcrowded classrooms that impact the quality of education and push buildings beyond normal wear and tear. Construction costs have long increased faster than inflation, so pushing a building project back 5 or 10 years could easily double or triple its eventual cost to taxpayers like you.
What does that mean to you? Whether you plan to sell your home in the foreseeable future or are counting on it to help you fund your retirement, a failed referendum may take more money out of your pocket over the long run. Although you may be opposed to higher property taxes, paying a bit more may actually turn out to be in your long-term best interest.