At tomorrow’s meeting (5:30 PM, 12/13/2011, in the Justice Building room 253), the Monroe County Council will be voting on a request by the Monroe County Public Library to approve a bond issue of $1.8 million over 3 years to cover capital improvements, maintenance, and equipment. This would require a tax rate of approximately $0.01 per $100 of assessed value. The resolution that the council will be voting on is here: Resolution 2011-55 Library Bond Issue.
The reason that the library is requesting the bond is that they are expecting approximately a $500K drop in their income tax (COIT) revenues for 2013. For a point of reference, their 2012 income tax revenues are set at around $1.98M. The cause of the drop in 2013 income tax revenues isn’t what you would expect (i.e., declining income tax collections) — instead, it has to do with the way that income taxes are distributed among all of the taxing units of government in the county.
County option income taxes (COIT) are collected at a county level into a big pool, and then that pool is distributed out among the various taxing units that receive COIT: Monroe County, Bloomington, Ellettsville, Stinesville, the townships, the public library, Bloomington Transportation, and the Perry-Clear Creek Fire Protection District. The total, after removing a portion as a homestead property tax credit (more on that in a future posting), is divided up amongst those taxing units in proportion to their previous year’s property tax levy + their previous year’s COIT – any property tax levy associated with a new (post-2005) debt issue (the county’s share is also adjusted to account for their 1999 and 2008 welfare levies).
The 2005 date in the above formula is important. Prior to 2005, debt service levies (i.e. property tax levied to pay off a bond) were counted in the taxing unit’s slice of the COIT “pie”. However, from a fiscal policy perspective, this isn’t a great idea; taxing units could actually increase their revenues (at the expense of other units) simply by taking on more debt. So in 2005, the Indiana General Assembly changed the law, such that any new debt taken on after 2005 would not serve to increase a unit’s share of the COIT revenues. Overall, this is clearly a much fairer way to allocate income tax revenues.
The library currently has a debt service levy that was taken on prior to 2005 (the mortgage for their building) that has counted towards their share of the COIT revenues — approximately $0.03 per $100 of assessed value. However, that mortgage will be paid off in 2012. While overall this is clearly a positive development, it means that the library will lose some of their COIT revenue (because that debt service will no longer count towards their share), and because of the change in the law in 2005, no new debt service would count towards their share of the COIT. Of course, what is the library’s loss will be the gain of the other taxing units; Monroe County and the City of Bloomington will be the primary beneficiaries. But nonetheless, it will represent a substantial loss in revenue to the library for 2013 and beyond.
Despite having cut staff through attrition and made other budget cuts, the library has determined that they cannot absorb this $500K cut without making material cuts in hours of operation. Coincidentally, however, the library also has a separate tax rate, referred to as the library Capital Projects Fund (CPF), which also generates about $500K per year, and is restricted to capital expenditures. This tax rate has been voted on and approved by the County Council since 2007, and while controversial when it was first established, it enjoyed unanimous support on the council in 2011. A change in the law in 2008 allows the library to combine their regular operating tax rate and their CPF tax rate into one unrestricted tax rate. In order to replace the $500K that is being lost through COIT, the library is proposing to combine what was formerly earmarked for capital projects through the CPF into their operating levy.
However, that move then leaves the library without a means of paying for necessary capital improvements, including chiller replacement, computer replacement, and other building repairs. This is where the new proposed bond comes in. The idea is that the library can borrow for its capital improvements – and assess the $0.01 tax rate to pay for the debt service.
In essence, this is a tax increase — but it is coupled with what will be a $0.03 tax decrease (because the library is paying off its bond on the building, so that $0.03 tax rate for debt service will go away), so the net effect on the taxpayer will be a $0.02 tax decrease. Of course, if the bond is not approved, the taxpayers would see a $0.03 tax decrease instead of a $0.02 tax decrease. And as a tax rate that isn’t created through a referendum, this tax rate to service a new library bond would count against the property tax caps now embedded in the Indiana Constitution (though it is coupled with the tax decrease, so the net effect will still be a net decrease in the library’s overall tax rate).
On a personal note, I strongly support this library bond request. The library is a vital community institution that provides service across the community, from young to old, from rich to poor. The administration and board of the library have demonstrated that they are willing to cut costs, and they have done so both through attrition and restructuring and through effective investments in technology. And in a world of technological change, they have managed not only to remain relevant but to remain essential. The use of small amounts of debt to finance capital improvements is a responsible government practice. And at the very least, this arrangement gives the library 3 more years to find other new revenue sources and/or to continue to find new efficiencies in operations. The library’s bond proposal is a sensible and responsible way to maintain its commitment to the public and to remain sensitive to the struggles of taxpayers across the community.
Unfortunately I will be out of town on business and will not be able to attend the Council meeting. I sincerely hope my colleagues on the Council will support the library’s request.
Note: Materials provided to the County Council on the bond issue can be found here: MCPL Council Packet Materials.