New law for apartment assessments means less tax revenue

LAFAYETTE, Ind. — Tippecanoe County Assessor Eric Grossman organized a gathering of community stakeholders to break bad news: Expect fewer tax dollars because of a change in new assessing laws.

Fewer tax dollars translates into less money for schools, cities, townships, the county and libraries.

Indiana property assessment is supposed to be based on the estimated market value of the property. But the new law blocks the use of trending, which adjusts assessment values based on the recent sale prices of similar property.

Most property types — residential, business — have their property taxes based on assessments using both cost tables, which are adjusted up or down based on property sale prices of similar properties. This brings a property’s assessed value to market value.

But now apartment buildings are not assessed on market value, which might violate a 1990-era Indiana Supreme Court ruling.

The new law forces assessors to ignore the trending adjustments. This means rental property assessed values will drop significantly.

The lower assessed values means significantly lower tax bills for apartment owners. Lower tax bills translates into less revenues for public schools, cities, the county, townships and the libraries.

As an example, Grossman pointed to the Fuse Apartments building just across the street from Purdue’s campus on Northwestern Avenue in West Lafayette.

In 2016 a real estate investment trust purchased the apartment building for $80 million.

The 2023 property assessment of the property was $67.3 million based on the state’s “lowest of three” approach for all property types.

Grossman asked his guests to guess what the current assessment value for the property might be with 2024’s new law.

“Forty-million dollars,” one audience member said, like an episode of The Price is Right.

Too high, Grossman countered.

“Thirty-six million,” another audience member attempted.

Grossman’s answer: $39 million.

Repeating Indiana’s recent history of property assessment

In the late 1990s, property owners sued the State Board of Tax Commissioners, now known as the Department of Local Government Finance, claiming the organization’s cost tables for assessing property values was unconstitutional because it created different values for different types of properties, Grossman said.

As a result of the lawsuits, Grossman explained, the Indiana Supreme Court deemed the system unconstitutional, requiring Indiana lawmakers to scrap the old system of assessment and start over.

In 2005, newly elected Gov. Mitch Daniels challenged the Indiana General Assembly to rework the state’s property taxes, which resulted in the addition of the trending portion of assessment to reflect market value. It also added property tax caps, ultimately limiting property owners’ tax liability to no more than 1%, 2% or 3% of the gross assessed value, depending on the property’s use.

The 2023 law, Indiana Code 6-1.1-4-39, says assessors must use the cost table provided by the Indiana Department of Local Government Finance for evaluating property values of residential properties with five or more rental units. The goal of the law, which went into effect Jan. 1, is to protect apartment owners from large property tax bills in markets where sale prices and rents have increased rapidly over a short period.

State Sen. Ron Alting, R-Lafayette, sponsored House Bill 1454 in the Senate, which created this dilemma. The Journal and Courier emailed Alting on Wednesday for comment about the community feedback from the law. He did not reply.

The change to the bill now signed into law came at the eleventh hour, Grossman said, and by the time he and other county assessors realized what had been added, it was too late.

Three potential paths to fix the problem

In an effort to remedy the situation for Tippecanoe County, Grossman submitted proposals for new cost tables to the Department of Local Government Finance.

“They didn’t say ‘no.’ They didn’t say ‘yes.’ It’s a passive aggressive ‘no,’ when we would have had to implement that solution about a month ago,” Grossman said. “(The Department of Local Government Finance) just let the time expire and never said anything or replied to our requests for updates.”

Grossman presented stakeholders with three options for moving forward with the current law.

Solution 1: Drastically reduce apartments’ property values while continuing with market value for other classes of property, minimizing damage to the community despite being what Grossman called regressive and unconstitutional.

Solution 2: This is what Grossman refers to as “burn it all down,” would mean reducing all property assessments to a similar proportion of market value as now is required for apartments, ensuring assessments are fair and equitable across the board while implementing maximum damage to the community.

Solution 3: This looks to inflate grades for rental properties, one of the factors used in assessing property values for rental properties, while a collective effort by stakeholders to pursue legal change is enacted.

Solution 3 would allow more time to solve the greater problem at hand, though acknowledging that if the community failed to come together to demand changes to the current law, this would result in a metaphorical kicking of the can down the road, Grossman said.

Other counties are watching Tippecanoe County to see if Grossman’s inquiries to the Department of Local Government Finance would be answered, he said.

“So because we’re not all at the same starting point, we’re all reacting differently,” Grossman said. “We are in the worst place to deal with this because we are subject to market value. We have the furthest to fall.”

Tippecanoe County’s legal advice to Grossman

Matthew Salsbery, an attorney with the firm Hoffman, Luhman & Masson in downtown Lafayette, said his recommendation to Grossman is to follow the law to a T while searching for possible modifications.

“This language (in the law) bans the use of trending tables or other modifiers, so it effectively takes away one of the key tools in the cook’s kitchen needed to create the result that is intended to be a market driven result,” Salsbery said.

“They’ve only taken away the modifier on these apartment buildings,” Salsbery said. “They’ve already done it with agricultural land, that’s been in existence for a while, which gives me a little bit of concern in terms of a large-scale legal battle that you would be able to make a case that this new law regarding apartment buildings is singling out a single type of building and providing a benefit that’s not available to everyone.”

Stakeholders response

Many of the apartment owners and government officials who attended the meeting left before the J&C could interview them, while others declined to comment to the media.

Scott Hanback, Tippecanoe School Corp. superintendent, said he had no knowledge of the new law and the effects it could have on local taxes until he received Wednesday’s meeting invite from Grossman.

“We always try and stay involved in the legislative process, so we know what the impacts of changes or new laws will be to our operations, so this one flew under the radar,” Hanback said. “The change to the law was a seemingly simple line, but it has a pretty major impact on Tippecanoe County. So it’s frustrating when there’s not an opportunity for the public to weigh in and investigate and study what the potential impact of the new laws and changes would be.”

Hanback said during the meeting that he and Amanda Brackett, Tippecanoe School Corp. chief financial officer, began contacting the State Business Officials Association to ensure the changes accompanying this law were on their radar.

What’s next?

Grossman said next steps on his end are to work with Tippecanoe County Auditor Jennifer Weston on creating an analysis looking at potential losses caused by the new law.

For Hanback, his next steps walking out of the meeting were to get in touch with every figure of authority in the state of Indiana, hoping to gather enough steam behind their concerns to push for change.

“I think contacting our respective associations, cities and towns, school officials, and our Greater Lafayette area state legislators is where we go from here,” Hanback said. “To see if this was even on their radar, to share with them our concerns that we’ve learned, to see if there is anything we can do in the future to mitigate the potential negative impact.”

Jillian Ellison is a reporter for the Journal & Courier. She can be reached by email at [email protected]. Follow her on X, formerly known as Twitter, at @ellison_writes.

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