Gary's property tax nightmare

Collection rate worst in state of Indiana

July 27, 2011

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(WBEZ/Michael Puente)
Holland Stansil of Gary says residents pay too much in property taxes in the city. His son stands next to him.
(WBEZ/Michael Puente)
Gary couple Russell and Darien Hayes say their property taxes are high to make up for those who don't pay.

Cities and towns of every size and scope are scrambling to make ends meet lately. Some are raising property taxes to pay for services, things like keeping cops on the beat and educating kids. Gary, Indiana, is in that situation, but it’s in a tangle. First, the state won’t let the city raise property taxes and, what’s worse, a good chunk of the public’s not paying up anyway.

It’s that time of year when local governments in Northwest Indiana review their budgets to see what they can or can’t pay in the coming months. So, government entities - cities, schools, sanitary districts - are all playing a kind of budgeting game, and it goes like this: The county sends out property tax bills, and the governments hope to collect, but they don’t collect 100 percent of what’s due.

CAMPBELL: You can never really set the budget at the level that you’d like in order to provide the services for your students because you’re really not certain of what will occur.

That’s Myrtle Campbell, superintendent of Gary’s public school system.

CAMPBELL: You try to do an estimate to ensure that you’re not cutting those programs that are dear to our children and their individual needs.

The problem is, the lower the property tax collection rate, the higher the risk to Gary’s own city government, its public schools, its libraries, even its sewers. The low collection rate is starving these governments. It’s one reason Gary’s laid off firefighters, garbage collection crews.. In all, some 400 city employees in the last five years.  

And the school district? Well, let’s say the low tax collection rate has got Campbell sweating this summer.

CAMPBELL: Anytime it’s below the 80 percent or 90 percent, of course it does affect our tax-based funds.  Then, dollars that are coming from that fund to support programs, then there’s a downsizing of those programs as well.

Here’s the practical effect: This summer alone, Campbell’s had to ditch a music band camp and other activities involving science, health and mathematics. She’s made some layoffs already and she’s considering more because she’s dealing with a $13 million budget deficit. If the collection rate were high, she could breathe easier.

But like it does in most years, the county is expected to collect less from Gary property owners than it does from any other city in the county.

The exact figure is 72.4 percent, the worst of any Indiana city or town. And, if you do a deeper dive into the numbers, you find nearly all businesses in Gary pay their taxes, but one in three Gary homeowners does not.

This figure doesn’t surprise Darien Hayes of Gary’s Ambridge neighborhood, but it still disappoints her.

DARIEN HAYES: You can’t live anywhere else close by and not pay your property taxes. The city entities and the municipalities just won’t let you do that but we let it happen here. They need to pay some measures in place to make them pay their fair share.

Fifteen years ago, Darien and her husband Russell built their gem of a two-story brick home just a few blocks from a stretch of bordered up houses.

What galls them is that they’re paying $4,000 a year in property taxes while living in Gary. If they lived in a more affluent city, they’d pay half as much and get more services. Darien Hayes says she sends her daughter out of Gary for summer activities, and they drive her 15 miles to school because the local elementary got shut down.

DARIEN: Not happy. We’re not happy. RUSSELL: The city has constantly taken away services from us. So many different things that we do not get for the tax dollars that we pay.

Darien’s husband Russell has a theory about why the county collects so little property tax in Gary.

RUSSELL HAYES: If they don’t pay, they simply don’t pay. There are no things set in place to say if you don’t pay we’re going to take ownership of that property. They simply don’t do it. Apparently it’s not important enough around here.

The full truth is a bit harder to get a handle on. Yes, county and city officials say there are property tax scofflaws, but economic figures suggest Gary has a fair number of property owners who can’t pay. Gary’s unemployment rate is 13.1 percent, or five percent higher than the rest of Indiana.

STANSIL: If they don’t have the money or don’t have a job, what else can you do?

Holland Stansil says he can sympathize with people who are out of jobs. After all, he's got some income from his railroad work, and he still has problems paying his share.  

STANSIL: The property taxes are too high in Gary. They are putting all the property taxes on the homeowners instead of on the companies like the steel mills. I couldn’t even pay the tax bill and that helped me get behind on my mortgage too.

People have a lot of opinions about the property tax collection problem in Gary … but ultimately, the buck stops with one elected official: Lake County Treasurer John Petalas.

Petalas says he doesn’t particularly like the fact that collections from Gary are so meager compared to other areas on his watch. He tries to collect, but his hands are tied.

PETALAS: You mail the bill and if they don’t pay we fine them and we go through a collection process and we put judgments on their properties and that’s as far as the law lets us go.

Petalas says he can hit non-compliant property owners with a penalty. But there’s a problem with that, too. The penalty doesn’t have teeth, it just gets tacked onto the original tax bill and makes non-payment worse.

Right now, if a Lake County property owner wants to pay the original tax, the owner is still held liable for the penalty. Petalas figures some property owners would come forward and pay something, if only he could give them a break.

PETALAS: The law does not allow any treasurer to waive those penalties.

So Petalas lobbied Indiana State lawmakers to approve a one-time property tax penalty “amnesty.” The idea’s to grab at least some of the $129 million the county leaves on the table, much of which would go to Gary.

PETALAS: The county and all the municipalities that are losing out on this money will be able to work with these funds that they’ve been missing for years.

But Petalas’ efforts have largely been ignored by the powers that be in the Indiana state Senate.

PETALAS: They wouldn’t even consider it. I got a phone call her from Luke Kenley and he basically humored me on the phone for about three minutes and that was the end of that.

KENLEY: Gary has always seen itself as a free standing state within the state of Indiana I think.

That’s Luke Kenley, chairman of the Indiana Senate Appropriations Committee. Kenley’s a Republican from near Indianapolis. He’s famous for writing the law that caps Indiana property tax rates. That cap is now in the state’s constitution.

Kenley says when it comes to a tax penalty amnesty, he says Lake County could do itself and Gary a favor by implementing an income tax. In other words, Gary should look for a fix closer to home.

KENLEY: It would be helpful probably to have legislators from that specific area say look, here is our problem, here is a solution we’d like to pursue, and that really hasn’t happened yet on any extended basis.

There’s no sense that the tax collection problem in the Democratic stronghold of Lake County, Indiana, and Gary specifically is going to get a lot of traction in the Republican-controlled Indiana State House. But Petalas isn’t giving up.  

PETALAS: I’ll try again next year but I think this legislature is a lot more difficult to work with than previous ones and I don’t know how far it would get.  

Petalas says, that’s why property tax season is such a demoralizing grind, and not just for Gary taxpayers, but for public officials who are supposed to serve them, too.