The council does not have any regular business to conduct tonight, so tonight will be for discussion only. The main topic will be preparation for the fall budget hearings. In particular, the council will discuss:
Dates for 2015 budget hearings (held in the fall of 2014)
State of County finances (the Auditor will present)
County employee compensation, including options for for increase (I will give a primer on the structure of the county employee compensation system, which I will post afterwards)
In addition, I will name the 3 Council members to serve on the Sophia Travis Community Service Grants committee. This year, $100,000 has been appropriated for community service grant awards.
As always, the meeting is open to the public, and will be held tonight at 5:30 in the Nat U Hill room of the Monroe County Courthouse. Unfortunately due to CATS staffing issues, the meeting will not be broadcast on CATS. Hope to see you at the meeting!
In short, one poster made a comment about the massive amount of property taxes that the county must be making from this new development. Another poster countered by saying that property taxes in Indiana have been “frozen” since 1973, implying that county government would not be seeing additional property taxes from the new development.
I weighed in essentially on the side of the second poster (with some exceptions), who argued that property taxes were “frozen”, and therefore new development doesn’t generate additional property tax revenues for local government. Since this is such a common topic of discussion and public misunderstanding, I thought I would address the question directly: do local governments get additional revenue from new development.
Property Tax “Freeze” in Indiana
In general, and contrary to popular belief, increased development does not result in an increase in revenue for local government in Indiana (with several exceptions, which I’ll mention below). The reason goes back to the property tax restructuring of 1973, during the Otis Bowen administration.
There are several excellent histories of property tax legislation in Indiana, including:
I will not attempt to reiterate them here, except to say that since the Bowen Tax Package of 1973, property taxes for local governmental units in Indiana have essentially been “frozen” at their 1973 levels, along with a limited number of methods by which property taxes can be increased. Although there have been many legislative changes to the property tax formulas and assessment methods over the years since then, the current formula was established in 2002 (HEA 1001).
In short, local units of government receive in property tax revenue what they received the year before, plus a “cost of living” (my term) adjustment that is determined by the six year moving average of non-farm personal income growth. This adjustment is determined statewide — so that every county and every local unit of government gets the same adjustment. The general principle behind this is that the cost of government shouldn’t increase at a faster rate that the taxpayers’ incomes are increasing. So each unit of government is allowed a maximum levy that is slightly more than their maximum levy the year before.
How Property Taxes Are Calculated in Indiana
So why doesn’t the new assessed value from additional development result in a windfall for local government? It is because, after the changes in property tax legislation I mentioned above, property taxes in Indiana are calculated in reverse from how most people think of taxes. Typically, with most taxes, you have a tax rate that is set by legislation, and then a tax base (what is taxed), and the total amount received by government is the tax rate times the base. For example, the Indiana gross retail sales tax rate is 7%. The government receives 7% of whatever the total retails sales are. If sales are high, government receives a lot of tax. If sales are low, not so much.
However, with property tax in Indiana, we start with the maximum levy that I described above — the total amount the unit of government is allowed to collect. The assessment of individual properties only determines how the tax that generates that revenue is divided up among property owners. So the tax rates are determined by dividing the maximum levy by the total assessed value. Think about this. Because we start with the maximum levy, rather than some fixed tax rate, even if every single property owner’s assessed value doubled overnight, local government still wouldn’t receive a dime more (with the caveats that I’ll describe below).
So because the maximum levy is still the maximum levy (last year’s maximum levy plus the “cost of living” adjustment), regardless of new assessed value, new development doesn’t mean more taxes collected — it means that every other taxpayer’s share of the total is slightly less than it would be without the new development. In other words, new development means that everyone else’s taxes go down slightly (or don’t go up as much as they would without the new development) — but revenues for local government don’t increase.
As Always, There Are Exceptions
Of course, there are exceptions. There are a couple of cases in which new development does result in additional revenue to local governments.
First, there are so-called rate-controlled levies. These behave more like traditional taxes, in that they are established with a fixed tax rate, and so more assessed value translates to increased revenue. Generally these levies support cumulative funds for infrastructure — cumulative capital development, cumulative fire equipment, cumulative bridge fund, etc. This makes sense– in general, more assessed value means more needs for infrastructure maintenance. However, even these rate-controlled levies are restricted in growth in various ways after the 1973 property tax changes.
The second big exception is with respect to the circuit breakers (“tax caps”) — the 1%-2%-3% limits on an individual parcel’s property taxes as a percentage of gross assessed value of that parcel that were placed in the Indiana Constitution in 2008. Because new development (i.e. new assessed value) decreases the tax rates for everyone, it gives local units of government more headroom before the circuit breakers kick in, and so can avert what otherwise would have been losses of revenue through the circuit breakers.
There are a few other exceptions. And of course if the new development actually produces new wages for county residents then local governments would receive additional revenues in the form of increased income taxes on those wages.
But it should be clear now that new development definitely does not result in a windfall for local government — or potentially even any increased revenue at all — and of course local government has to fulfill the increased demand on services that often accompanies new development — a subject for a separate discussion.
Josh Voorhees from Slate just wrote a must-read article on the poor condition of our country’s road infrastructure (18th in the World Economic Forum, behind Saudi Arabia and Luxemburg), and the failure of our leaders on both sides of the aisle to be willing to address a long-term solution: The Solution That Shall Not Be Named.
In particular, Voorhees points out that it is almost universally understood among lawmakers that the current federal gas tax rate of 18.4 cents per gallon of gasoline (24.4 cents per gallon of diesel) is not nearly enough even to keep the federal highway trust fund from going broke, much less actually funding our infrastructure at a level at which repairs and replacements keep up with wear and tear. However, at the same time, almost every legislator (and representative of the executive branch) refuses to exhibit the political will to even publicly consider a desperately needed increase.
Read the article — and then defend the current political cowardice that has led to a nation of crumbling roads and bridges.
Just for a quick recap of the history of our federal gas tax:
1.5 cents, June 1933 (National Industrial Recovery Act, President Hoover)
1 cent, January 1934 (Revenue Act of 1934)
1.5 cents, July 1940
2 cents, November 1951 (Revenue Act of 1951)
3 cents, July 1956 (Highway Revenue Act of 1956)
4 cents, October 1959 (Federal-Aid Highway Act of 1959)
9 cents, April 1983 (Surface Transportation Assistance Act of 1982, President Reagan)
9.1 cents, January 1987 (Superfund Amendments and Reauthorization Act of 1986)
9 cents, September 1990 (Superfund leaking underground storage tanks trust fund achieved its revenue goals)
14.1 cents, December 1990 (Omnibus Budget Reconciliation Act of 1990, President H.W. Bush)
18.4 cents, October 1993 (Omnibus Budget Reconciliation Act of 1993, President Clinton)
18.3 cents, January 1996 (Taxpayer Relief Act of 1997, President Clinton)
18.4 cents, October 1997 (Leaking Underground Storage Tank Trust Fund reinstatement)
Also, to put the federal gas tax in context of the total cost of gasoline, in Indiana, for each gallon purchased, a motorist pays:
The retail price of the fuel
7% Indiana gross retail sales tax on the retail price of the fuel
18.4 cents Federal gas tax
18 cents Indiana gas tax
For a little more context on the various taxes on fuel, see my previous blog posts Gas Taxes in Indiana and Gas Taxes in Indiana Part 2.
A simple $5K appropriation request at Tuesday’s County Council meeting led to a long discussion about funding and county policies related to travel and training, a topic that has dominated county news over the past couple of weeks. This prompted me to make a few comments about how training and travel of elected officials are paid for in county government.
Elected Officials Training Fund
At Tuesday’s County Council meeting, the Council appropriated $5000 from the Elected Officials Training Fund to support state-mandated travel and training. This is the first time that this fund will actually be used, although it was created by statute several years ago. It is funded by certain document recording fees in the Recorder’s Office. The fund can only be used by certain elected officials (Auditor, Treasurer, Clerk, Recorder, and Surveyor), and only for certain types of training (basically, that training that is actually mandated by statute). The fund can only be used by the elected officials themselves (i.e., no staff or deputies), and all county travel policies for reimbursement of expenses still apply.
Note that this training fund is not available to county councilors or county commissioners, nor is it available to Assessors (who have the Sales Disclosure fund available for their training).
During the discussion for this appropriation, the Auditor and the Council mentioned “state-called meetings” several times. State-called meetings are annual meetings of so-called “local fiscal officers”,which includes county auditors, treasurers, and clerks, and which the State Board of Accounts is authorized and required to convene, under the statute IC 5-11-14-1. In addition, the State Board of Accounts is authorized (but not required) to convene meetings for other elected officials, such as members of County Councils.
Although these state-called meetings are not mandatory for local elected officials to attend, they are strongly recommended, as they are called to give local elected officials important information about new legislation, new procedures, etc., or to address common problems or areas of concern. If the elected official chooses to attend the state-called meeting, the local government is required to pay for the travel expenses of the elected official: one night’s lodging if the official lives more than 50 miles from the meeting location, and a mileage and meal rate determined by the local fiscal body (i.e., the County Council, for county officials). The
When travel is paid for travel to state-called meetings, the county is required to pay for it out of unappropriated moneys in the general fund. This means that the travel expenses are paid out of cash that is sitting in the general fund but has not been budgeted or appropriated by the county council.
Conveniently enough, he County Council just this morning received an invitation to a state-called meeting for councilors, to be held on June 21, 2014 in Shelbyville, IN. Here is the agenda and letter that describes the authorization of State Board of Accounts to call the meeting, and to require counties to pay for the travel expenses:
You can also get an idea from the agenda the types of issues that are discussed in these state-called meetings. Among other things, the new legislation related to Business Personal Property Taxes will be discussed at this meeting.
Funding of Travel and Training for Elected Officials
In summary, when elected officials attend training activities (and travel to these activities), the following funding sources are used to pay for it:
F0r state-called meetings, the County is required to pay for it out of unappropriated monies in the General Fund
For other training that fulfills statutory training requirements for the Auditor, Treasurer, Clerk, Surveyor, and Recorder, it may be paid from the Elected Officials Training Fund, which must be appropriated by the County Council
For training that fulfills the statutory training requirements of the Assessor, it may be paid for from the Sales Disclosure Fund
All other training would have to be paid for from the appropriated budgets of the individual departments
The Council will be considering an increase in the Juvenile COIT tax rate from 0.05% to 0.095%. This issue has been discussed for several Council meetings and work sessions, and this meeting is a reconvening of the April 8, 2014 public hearing. The Juvenile COIT tax supports juvenile services in Monroe County, including juvenile probation and the Youth Services Bureau.
The Council will be considering, and will likely vote on, ORDINANCE 2014-14, which would increase the Juvenile COIT (income tax) rate from 0.05% to 0.095%
This tax increase would take effect on October 1, 2014
Troy Hatfield, the Chief Deputy Probation Officer, has provided an analysis of the costs of juvenile services that currently are and will be supported by this tax rate: JCOIT and Per Diem 5 Year Projections for Council 5-12-14. Note that the Council will NOT be deciding at this time exactly which services will be paid for by the Juvenile COIT tax. These decisions are made during budget hearings in the fall (and cannot be made at the same time as the decisions on the tax rate). However, these projections provide the Council the information necessary to make the decision on the proposed tax increase.
The Monroe County Public Library will be requesting an additional appropriation of $500,000 from their Rainy Day Fund in order to complete library building renovations.
This money was originally transferred from the Library Capital Projects Fund (LCPF) to the Rainy Day Fund as the LCPF was closed out. This money was initially raised for building renovation in 2012; however, the construction project wasn’t ready. Now that renovation is expected in 2014, these funds need to be appropriated out of the Rainy Day fund. This does not involve any increase in taxes or expenditures over what was already planned and raised for this purpose.
The Community Corrections program will present the results of an Indiana Department of Corrections audit, that gave the program a score of 98.8% out of 100%. Community Corrections is a program that includes home detention and drug testing, and has been tremendously effective in keeping people out of jail and prison while at the same time maintaining public safety.
The County Commissioners are requesting approval to fill the Office Manager position, which has just been vacated. Jessica McClellan, we will miss you!
The County Commissioners will also be requesting an appropriation of around $2700 from the Energy Conservation Fund, in order to install motion-sensing light switches in the Charlotte T. Zietlow Justice Building, as well as to install a switch for the building’s generator, in order to participate in Duke Energy’s Energy PowerShare program.
The Parks and Recreation Department is requesting a full-time Office Assistant position. Currently, 2-3 part-time employees fill this role; however, the department is having huge problems with quality control and turnover at this position, and is petitioning the Council to create a new full-time position to replace the part-time positions. The full-time position will still result in a net cost increase, even when eliminating the part time hours.
The Emergency Management Department is requesting both an appropriation of a Indiana Department of Homeland Security grant, as well as a reclassification of the Emergency Management Office Assistant to Deputy Director.
The Prosecutor is requesting an additional appropriation of $25,o00 for additional postage, printing, trial preparation, and extradition. These expenses are unpredictable and depend on the specific nature of the cases filed; typically they are funded out of Pretrial Diversion; however, a long-term decrease in pretrial diversion revenues is prompting the Prosecutor’s Office to request these funds be paid out of County General.
The Auditor has several requests:
Appropriation request for $5000 from the County Elected Officials Training Fund. This fund is a newly created (by the State) fund to pay for mandatory training for elected officials, and was initially funded by leftover money in the fund that was used to redact county documents to protect the personally identifiable information of taxpayers. This fund has over $26K of cash in it, and should be used for mandatory training, rather than the general fund.
Last month, the Auditor requested a position upgrade for the Payroll Deputy position. The Council approved the upgrade; however, it specified that it would not take effect until the end of the year. Several councilors have since requested that that decision be reconsidered, as requiring the reclassification to wait until the end of the year is inconsistent with other personnel decisions made by the Council.
Lots of important issues to consider at this meeting! As with all County Council meetings, this meeting is open to the public. Public comment will be taken at the beginning of the meeting, as well as in conjunction with all items on the agenda. The meeting will also be broadcast live on CATS. Hope to see you there!