Indiana’s Proposed Constitutional Amendment on Property Tax Caps: How Will It Affect Public Construction?

By: William E. Kelley, Jr., LEED AP

On November 2, 2010, Indiana voters will be asked to weigh in on a proposed constitutional amendment relating to property tax caps.  The proposed amendment would limit a taxpayer’s property tax liability to 1% of the assessed value for residential property, to 2% of the assessed value for agricultural property or residential rental properties, and to 3% of the assessed value for business property.  According to the proposed amendment, the property tax caps could be exceeded only where voters approve a local referendum that expressly authorizes the imposition of an additional property tax for some identified purpose, including large, local construction projects.

A poll released earlier this month indicates that nearly 62% of Indiana voters favor the proposed constitutional amendment.  The Indianapolis Star recently announced that it is endorsing the property tax caps as well.  However, there are also critics, including economist Morton Marcus, who has opined that the constitutional amendment would degrade the role of local government and unnecessarily shift power to the state government.

If Indiana voters approve the constitutional amendment, there will be lasting implications on public construction projects at the local level.  The amendment would make permanent the paradigm-shifting change to the public construction industry that occurred with the first referenda during the November 2008 election cycle.  The referendum process takes an element of control away from local government entities, and it requires large, local construction projects that will result in increased property taxes to be put up for a vote by the taxpayers.  For proponents of the constitutional amendment, the property tax caps and the referendum process bring consistency to the property tax system in Indiana, and they return an element of control to the taxpayers as to when and what local construction projects warrant additional property tax assessments.

For owners, designers, and contractors involved in public construction projects at the local level, Indiana’s proposed constitutional amendment process may create additional hurdles to gaining approval for major construction projects in the short term.  In the long term, it will remain to be seen whether the property tax caps and the referendum process will result in the desired cost savings and increased efficiency at the local government level, or if it will simply serve as a potential roadblock for new public construction projects in Indiana.  In any event, the success of the construction industry will be controlled by how quickly construction and design firms adjust to the change and claim market share in this fundamentally altered marketplace.