Does CAGIT Really Reduce Property Tax Rates?

There is nothing so confusing about Indiana's local income taxes as the effect of CAGIT on local budgets and property tax rates.  The CAGIT law, I.C.6-3.5-1.1, says that the revenue collected by the first quarter of one percent of the CAGIT rate is "property tax replacement credits."  This revenue is directly subtracted from the property tax levy that local units can collect (see note below).  However, CAGIT reduces property taxes more than that.  The property tax controls law, I.C. 6-1.1-18.5, sections x and x, provide for a different set of property tax controls for local units that adopt CAGIT.  The calculations described in the law are very confusing, but they amount to this:  the local units' maximum levies will be reduced by the amount of the revenue raised by the second quarter of one percent raised from CAGIT.  The maximum levies will also be reduced by the amount from the third quarter above the amount of Federal General Revenue Sharing received in 1986.  The maximum levies will also be reduced by revenue from one half of the fourth quarter of one percent in the first year, less in subsequent years.

Thus, there are two ways CAGIT reduces property tax rates.  First, all local units, including school corporations, receive property tax replacement credits, which are subtracted from the property tax levy.  Second, all non-school units see their maximum levies reduced by a fraction of the revenue received from CAGIT.

We can see evidence of the effects of CAGIT on property tax rates in the two counties that have adopted CAGIT in one year and rescinded it the next.  LaPorte County adopted CAGIT in 1986, received the revenue from CAGIT in 1987, rescinded the tax in 1987, and so stopped receiving revenue in 1988.  Knox County adopted CAGIT in 1997, received the revenue from CAGIT in 1998, rescinded the tax in 1998, and stopped receiving revenue in 1999.

In these two counties, we can compare property tax rates before, during and after CAGIT.  In LaPorte County, the average property tax rate (calculated as all local levies divided by county-wide assessed value) was $9.58 per $100 assessed value in 1986, and $9.96 in 1988.  We can't tell for sure, but the rate without CAGIT in 1987 probably would have been between these two rates, maybe around $9.75.  With CAGIT, the rate was $8.10.  CAGIT reduced the property tax rate by about $1.65, which is 17%. 

In Knox County, the rate in 1997 was $8.42 and in 1999 $8.70.  Without CAGIT, the 1998 rate would have been about $8.60.  The actual rate with CAGIT was $7.74.  CAGIT reduced the property tax rate by about 86 cents, which is 10%.

CAGIT does reduce property taxes.

Note:  Property tax replacement credits are subtracted from the property tax levy on Budget Form 4-B.  The local unit calculates the property tax levy to line 12, enters the property tax replacement credits on line 13, and then, on line 14, subtracts line 13 from line 12 to get the net property tax levy.  The local property tax replacement credits funded with CAGIT should not be confused with the state property tax replacement credits, which are funded from the state sales tax and other state general funds.