Local governments in Indiana eagerly await the annual release of the so-called Assessed Value Growth Quotient (AVGQ), because it represents the maximum amount that most local property tax levies can increase to fund basic government services. Yesterday, the Indiana State Budget Agency (SBA) released the number for the 2020 budget: 3.5%, a slight increase from 3.4% in 2019, and overall a very healthy number for local governments.
The AVGQ is essentially the “cost of living adjustment” for property taxes for all local units of government — the maximum amount by which local units of government are allowed to increase their controlled property tax levies by. For Monroe County Government, 3.5% is the maximum that the following levies combined can be raised for 2015: General Fund, Health, Aviation, Elections, Reassessment, and Cumulative Bridge.
Is the AVGQ Really an AVGQ?
Although still named the Assessed Value Growth Quotient in the statute, the AVGQ is a bit of a historical artifact, and actually now has absolutely nothing to do with assessed value. It is calculated as the 6-year moving average of nonfarm personal income growth. The theory behind it is that the costs of government should not be increasing at a greater rate than the taxpayers’ incomes are going up. A more accurate term would be property tax levy growth quotient, a term already used widely at the state, but not yet actually officially incorporated into the statute.
Also note that the AVGQ is independent of the circuit breakers or so-called “tax caps” (see here and here for more background). The circuit breakers can kick in and prevent a local unit of government from actually receiving the full growth in property tax levies specified by the AVGQ. In addition, the AVGQ doesn’t affect property taxes collected to service debt for capital projects (although the circuit breakers do affect these property taxes).
The AVGQ is calculated uniformly statewide — so that the limit on levy growth is the same for every local unit of government, whether the local economy is booming or busting, and regardless of the demands (or willingness of the taxpayers to pay) for services. There are, however, procedures for appeal for what is called an “excess levy” for specific cases, including: annexation, excessive growth over a 3-year period, shortfalls due to certain errors, and emergencies.
Calculations for the AVGQ
The following table shows the 6-year calculation for budget year 2020.
Note that a very low income growth number — change in the growth from 2011-2012 to 2012-2013 (0.08%) will drop off of the 6-year average next year, so look for 2021’s growth to be even larger.
How Does This Affect My Property Tax Bills?
So does a 3.5% increase in a local property tax levy mean that your particular property tax bill will go up 3.5%? Not necessarily, because there are so many other things going on. First of all, 3.5% is the amount that most local property tax levies can increase by. The levy is the total amount of taxes that can be collected by a local unit of government. But the tax rate is calculated by dividing the levy by the total assessed value in the unit of government — so if there is a lot of overall growth, the rate can go down even if the levy goes up. And further, your own assessed value can change, depending on the local real estate market, improvements of the property, etc. So there is no way to know what will happen to your own property tax bill without the full assessed value picture. The AVGQ is primarily of interest to local units of government, not taxpayers.
Last night, Monroe County received its 2019 Budget Order from the state, which includes:
The budgets for all taxing units (i.e., county, cities and towns, school districts, townships, public library, special units)
The property tax levies and tax rates for all taxing units
The property tax rates for each taxing district (i.e., the tax rates that actually affect each property owner)
The following table summarizes the total 2019 property tax rate (per $100 of net assessed value) for each taxing district in Monroe County, sorted from highest to lowest. I’ve also included the 2015-2018 tax rates for comparison.
I highlighted the taxing districts that are within incorporated municipalities in aqua.
The following are my brief observations about the 2018 tax rates:
Most tax rates remained about the same from 2018 to 2019 (decreased or increased less than $0.01), with two exceptions (which follow)
The rates for the taxing districts served by the Richland-Bean Blossom School Corporation (Ellettsville, Stinesville, and unincorporated Richland and Bean Blossom Townships). went down substantially, almost $0.25 (per $100 of assessed value). This is a result of the correction in 2019 of a bond-related tax rate error that caused rates in the areas served by R-BB to increase substantially
Indian Creek Township‘s rate went up almost $0.09, as a result of joining the Monroe Fire Protection District (formerly known as Perry-Clear Creek Fire Protection District)
Tax increment finance (TIF) districts are the subject of a lot of public misunderstanding. In order to increase transparency about TIF districts, redevelopment commissions in Indiana were recently given some requirements for increased public reporting on the impacts of tax increment finance (TIF) districts on other units of local government. In the short 2018 special session, the Indiana General Assembly passed House Enrolled Act 1242, which, among other things, required that:
Each redevelopment commission shall annually present information for the governing bodies of all taxing units that have territory within an allocation area of the redevelopment commission. The presentation shall be made at a meeting of the redevelopment commission and must include the following:
(1) The commission’s budget with respect to allocated property tax proceeds. (2) The long term plans for the allocation area. (3) The impact on each of the taxing units.
HEA 1242 of Special Session 1 of 2018
Remember that TIF districts “capture” any growth in the assessed value of real property within the district and use it to support infrastructure in the district, rather than being used to lower the tax rates of the underlying taxing units that serve the district. These taxing units refer to other units of government, such as cities and towns, county, township, public library, etc., that have territory that overlaps a TIF district, and may have to provide services to the development within the district.
Monroe County currently has 4 TIF districts: Westside, Fullerton Pike, State Road 46 (also sometimes referred to as North Park), and Curry-Profile (which consists of two parcels of the former GE plant purchased by Cook and moved out of the Westside district into a newly created TIF).
This past Wednesday, the Monroe County Redevelopment Commission hosted the first annual public presentation of this information, in fulfillment of the statute. All taxing units were invited to attend. I’m including a link to the presentation that was given (by Financial Solutions Group) here, because it provides a good overview of the status of current and future projects, debt, and overall cash flow of each of Monroe County’s TIF districts, as well as their impact on other taxing units. The presenter acknowledged that this was the first report for Monroe County of this kind, and that the data will be improved and presented in more detail in future years.
In brief, the presentation outlined the following types of (positive) impacts that the underlying units of government see from the TIF districts (in greatly varying degrees):
Personal Property: TIF districts typically capture only the grown of assessed value of real property (buildings and structures), not personal property (equipment used in producing income). However, factories and other businesses typically employ a lot of personal property as well (machines, IT equipment, etc.). So the assessed value of the personal property does accrue to the other taxing units, and thereby goes to reduce their tax rates
Circuit Breaker: Due to the aforementioned growth in personal property typically associated with growth in TIF districts, the tax rates are slightly lower than they would have been, and therefore the circuit breakers (constitutional tax caps) are slightly lower, leading to a bit more revenue for the other taxing units. Note that this effect, while positive, is generally quite small.
Income Tax: With employment associated with growth in TIF districts comes local income tax (LIT), which benefits all taxing districts. Note that this income tax only goes to Monroe County taxing units if the employee earning the wages lives in Monroe County.
The presentation to the Redevelopment Commission is also available on CATS.
I want to mention a big caveat, though. There is a big omission in this type of analysis, and that is the additional costs to the other units of government caused by development in the TIF districts. To understand the impact of these costs would require a case-by-case assessment. For example, the impact on the Monroe County Public Library by the industrial development in the Westside TIF is negligible/zero. On the other hand, the same development puts significant additional responsibilities on the Ellettsville Fire Department (which serves Richland Township, by contract). A more comprehensive understanding of the impact of TIF on other governmental units needs to take these additional costs into account.
Note: in the presentation above, the Curry-Profile Allocation Area is referred to as the Cook Allocation Area. While Cook is the sole property owner in the TIF district, the official name is Curry-Profile.
The official advertisement (“Notice to Taxpayers”) provides a total budget and tax levy (the amount of property taxes to be collected) for each fund. Not all funds receive property taxes. Note that the tax levies are frequently advertised higher than the level at which the County Council will actually adopt them, in order to give the Council flexibility (after advertisement, budgets and levies can only be decreased, not increased).
While the Notice to Taxpayers includes a summary of the proposed budget by fund, the following report provides line-by-line detail of the budget to be considered:
The following is a summary of the major changes to the budget from 2018 to 2019:
Addition of 5 corrections officers to the Monroe County Jail, in order to alleviate understaffing concerns (paid out of the Public Safety Local Income Tax/PS-LIT). More staff means a more humane environment for everyone – the existing staff, those incarcerated, and the families of those incarcerated. We’ll have to look closely and see if that is enough. I suspect we’ll have to revisit the jail staffing levels over the next year.
Addition of 1 audit coordinator position in the Auditor’s Office, to improve internal compliance, along with a move of an employee in the financial division of the office from 35 hours to 40 hours.
Addition of 1 tech services (IT) technician who will focus on jail and justice-related applications.
Move of 2 probation officer positions in Community Corrections, along with some hourly staff and electronic monitoring fees out of unsustainable user fee funds into tax-supported funds. This was my number one priority for this budget. We need to support alternatives to incarceration, and base funding for Community Corrections is one of those ways that the Council can demonstrate our commitment. One of the reasons why the user fee funds are no longer sustainable is because of the partial elimination of the use of cash bail, which is a very positive development.
Similarly, move of 1/2 a position in the Prosecutor’s Office to the General Fund, out of Pretrial Diversion fees. This represents the conclusion of almost a decade-long effort to move essential positions in the Prosecutor’s Office out of unsustainable user fee funds.
Increase in the costs of providing employee health care from $9800 to $10,200 per full-time employee.
Cost of living increase for county employees (including elected officials) of 1.7%. This number represents the change in Consumer Price Index (CPI) for the midwest region from December to the previous December. This is the benchmark that the County Council uses for cost of living. We have spent a lot of effort over the past two years increasing employee salaries in various ways, and it is important that we don’t let county employees’ salaries erode due to inflation.
Addition of 3 shift supervisor positions and funding of capital equipment projects in the Unified City/County Dispatch Center. The positions will actually be City of Bloomington employees.
Funding of the 2019 municipal election. Each year, the budget of the Election Board is different, depending on the specifics of each election year. In municipal election years, a substantial portion of the costs of the election will be reimbursed by the City of Bloomington and potentially the Town of Ellettsville.
Addition of a second K-9 unit in the Sheriff’s Department, funded by the PS-LIT.
If there is anything that attracts your interest that I didn’t cover in this summary, please let me know, and I’ll be happy to explain!
As I mentioned at the beginning of this post, a public hearing will be held on this proposed budget on Tuesday, October 2, 2018 at 5:30 PM in the Nat U Hill Room of the Monroe County Courthouse. The public is invited to read the above proposed budget, and make comment, either at the public hearing, or beforehand to any or all of their County Council representatives.
Last Friday, Monroe County received its 2018 Budget Order from the state, which includes:
The budgets for all taxing units (i.e., county, cities and towns, school districts, townships, public library, special units)
The property tax levies and tax rates for all taxing units
The property tax rates for each taxing district (i.e., the tax rates that actually affect each property owner)
The following table summarizes the total 2018 property tax rate (per $100 of net assessed value) for each taxing district in Monroe County, sorted from highest to lowest. I’ve also included the 2015-2017 tax rates for comparison.
I highlighted the taxing districts that are within incorporated municipalities in aqua.
The rates for most taxing districts went up, at least partially because the maximum civil levy statewide increased by 4% (this is sort of like a cost-of-living increase for local government operating funds), and because the County established a new Major Bridge Fund for 2018 (with a tax rate of $0.0333).
The two exceptions, in which the rates went down for 2018, were Bloomington Township (unincorporated) and Washington Township. This is because of the Northern Monroe Fire Territory, which first began in 2017. The first year’s tax rates of a new fire territory are typically the highest, both because the territory needs to collect more than it needs for the year in order to create an operating reserve, and because the local income tax (LIT) associated with the new property taxes of the fire territory doesn’t come in until the next year. Bloomington and Washington Township residents thus saw a large increase in property taxes for 2017 over 2016.
Because during the second year of the fire territory (a) the territory doesn’t need to collect extra for reserves and (b) the township providing fire services (Bloomington Township) receives additional LIT, the property tax rates for the second year can be reduced, and thus both Washington Township and Bloomington Township saw overall reductions in their 2018 property tax rates over 2017.
The Monroe County Council will be adopting the 2018 budget for Monroe County this week and next. First reading of the budget, along with property tax rates and levies, will be Tuesday, October 24th, 2017 at 5:30PM in the Nat U Hill Room of the Monroe County Courthouse. Second reading and final vote will be Monday, October 30th, 2017, also at 5:30PM in the Nat U Hill Room. Public comment will be taken at both readings!
The Council will be voting on a $70.5M budget, spread across 51 different funds. Each fund has its own set of revenue sources associated with it, including property tax, income tax, public safety income tax, gas tax, fees for service, stormwater fees, etc.
The following table summarizes the total proposed budget to be voted on by fund. Note that for property tax funds, because of a quirk in the way that the state systems report on the property tax circuit breakers (“tax caps”), the revenue loss from the circuit breaker is actually represented as a budgetary expense.
If you have any questions or concerns about this budget, please contact me or any other member of the Monroe County Council. And again you can make public comment on this budget Tuesday evening (10/24) and Monday evening (10/30).
One of the numbers that nearly all local governments eagerly await each year before setting budgets is the amount of local income tax (LIT) it will be receiving for the ensuing year. While this information arrives in several stages of increasing refinement, the first indicator that counties receive is the estimate of local income taxes for the county as a whole for the budget year by the Indiana State Budget Agency.
Today, Indiana counties received their 2018 Certified Distribution estimates from the State Budget Agency. Here is a table summarizing these estimates and comparing them to the 2017 certified distributions for Monroe County:
These numbers represent very good news for Monroe County residents. The overall increase in local income tax collections for Monroe County is 4.27%, demonstrating robust growth in the income earned by Monroe County residents.
Just as a reminder, Monroe County’s local income tax (LIT) rates are as follows:
Expenditure – Certified Shares: 0.9482%
Expenditure – Public Safety: 0.2500%
Expenditure – Economic Development: 0%
Property Tax Relief: 0.0518%
Special Purpose (for Monroe County, this rate is for juvenile services): 0.095%
Total Income Tax Rate: 1.345%
The amounts shown in the table above will be distributed to various local government units:
Certified shares will be distributed to all civil taxing units except Solid Waste District, which means the county, cities and towns, townships, the public library, Perry-Clear Creek Fire Protection District, and Bloomington Transit
Public safety will be distributed first to the Dispatch Center (in a percentage determined by the Monroe County Income Tax Council), then to township fire departments (in an amount determined by the Income Tax Council), and then among the county and the three cities and towns (Bloomington, Ellettsville, and Stinesville).
Property Tax Relief will be used to offset the property taxes of homestead properties
Special Purpose goes to juvenile services in Monroe County, which includes youth services (including the Binkley House Youth Shelter), juvenile probation, and juvenile courts
The State Budget Agency will provide updated numbers to Indiana counties before October 1.
Amidst all of the discussion about public-private partnerships (P3s) as a means of financing infrastructure, and concern about the future of I-69 Section 5, I came across this presentation from S&P Global Ratings in 2016 to the National Conference of State Legislatures Legislative Summit: 2016_Prunty_Presentation,
The presentation presents a fascinating window into the narrow keyhole through which the credit ratings agencies see state governments (which is of course often very different from the way that the public sees the same state governments!) and also the bigger financial picture in which P3s are being promoted in order to close the infrastructure gap.
The first part of the presentation deals primarily with the relative state of fiscal health of the states from a debt perspective. As everyone is probably aware, Indiana joins 30% of the states at the top, with a AAA rating. Neighbor Illinois is an outlier at the bottom with a BBB+ rating. Indiana also joins the majority of states with a stable outlook. A handful of states have a negative outlook, meaning things are likely to get worse.
More interesting is S&P list of key credit risks that led to where the states were at the beginning of 2016: energy-producing states losing oil revenue, current year budget pressures from revenue shortfalls or political gridlock, future year budget pressures, and large unfunded liabilities (mostly pension debt or other employment-related liabilities).
S&P goes on further to identify key themes for 2016: 1. Slower Revenue Growth, 2. Tax Incentives (for economic development), 3. Spending Restraint, 4. Aid to Higher Education, and 5. Pension Pressures Persist. #3 and #4 in particular engage the tension between short-term and long-term success. In fact, later in the presentation, the author, while seeming to champion austerity as a way of managing their debt levels acknowledges that:
For states that have made these trade offs, the impact on credit quality is favorable in the near term (3-5 years). However, looking ahead, the reduced investment in productivity enhancing areas (infrastructure and higher education), paints a dimmer picture of their long term economic growth prospects
So — austerity may help in the short run, but balancing the budget on the backs of infrastructure and higher eduction ultimately harms in the long run.
The presentation then goes on to define debt and debt sustainability, from a ratings agency perspective, and comes to the conclusion that the state and local government sector debt trends are by and large sustainable — and in particular there has been a noticeable pullback on debt issuance after the Great Recession. Most states have seen increases in economic productivity in excess of increases in debt issuance (again with a few exceptions). S&P concludes:
During the recession: states had fiscal crises, not debt crises
However, they do warn that only looking at bonded debt gives a relatively rosy picture of overall state debt — and that to get a more realistic picture, other obligations such as pension and other post-employment-related benefits need to be taken into account.
So where does infrastructure and P3 come in?
S&P attempts to make the case that while the US has a significant infrastructure gap (structurally deficient bridges, maintenance backlog on transit, construction backlog, water and sewer deficiencies, traffic congestion, and delayed freight), that states will not be able to close this gap through debt-related financing alone, without compromising their credit ratings, especially if the operations and maintenance (O&M) costs of infrastructure are included. P3s are suggested as a potential solution, and in particular:
P3s offer states a way to fold O&M expenses into the overall cost of financing a project,
This is of course the Design-Build-Finance-Operate-Maintain model used (at this point, unsuccessfully) for I-69 Section 5. And the author does acknowledge that:
… the P3 model can be complex and in certain cases, states attempting P3 projects have encountered political opposition.
I suspect that political opposition will only increase at this point.
Earlier this week I attended the meeting of the Executive Committee of the Northern Monroe Fire Territory. I am a non-voting taxpayer member of the Executive Committee. At the meeting we heard concerns from some residents both that the tax rate increase in creating the territory was too high and that they could not understand where that high tax rate came from. While the former is a values question that each taxpayer has to come to answer to on their own, I thought I would take a bit of time here explaining where that tax rate actually comes from and where that money goes.
Again, the purpose of this post is not to persuade anyone; it is just to educate the public about how their tax rates are determined. Hopefully with a little bit of shared knowledge and shared understanding, we can all engage in productive dialog about the services needed by our community and their costs.
Governance of the Territory
First, though, let me take a moment to explain the governance of the territory. The territory was established through specific processes set out by state law. The authority to create the territory is held by the township boards coming together to form the territory. The Bloomington Township Board and the Washington Township Board passed identical resolutions that established the territory, and both boards also passed the Northern Monroe County Fire Protection Territory Agreement, which is essentially the by-laws that govern the territory.
Note that in a fire territory, by law one of the units (townships) has to be designated the “provider unit”. The budget for the territory then sits in the provider unit, and the provider unit’s board has annual budget authority over the territory. So in the case of Northern Monroe, because Bloomington Township is designated as the “provider unit”, the Bloomington Township Board ultimately has authority over the territory budget.
That agreement established the 6-member Executive Committee, which consists of: both township trustees and one township board member from each township (4 voting members total) and one non-voting citizen representative from each township (I am the non-voting citizen representative from Bloomington Township and Mike Baker is the representative from Washington Township). The Executive Committee’s duties are as follows:
Recommend annual budget;
Recommend major purchases in excess of $50,000;
Contribute to the planning and development of possible future capital
Receive and review annual reports from the Provider Unit and Fire Chief;
Recommend staffing and equipment allocations;
Appoint the Fire Chief;
Act as liaison with the township s/he represents, enhancing communication between the township board, the community, and the Executive Committee.
So now onto the discussion of how to get from the budget to the tax rates. The best source for budgets for ALL taxing units in the state of Indiana is the state’s web site Gateway Report Builder. From there, you can download budgets, tax rate information, and just about any other financial information you want about any local unit in the state. To get the budgets for the territory, go to Budgets -> Line Item Budget Estimate, and choose Monroe County and Bloomington Township. There are two separate funds that make up the fire territory: Special Fire Protection Territory General and Special Fire Protection Territory Equipment Replacement. General is the annual budget for operating the fire territory and Equipment Replacement is for accumulating funds to replace apparatus (fire trucks, etc.).
I’ve included copies of the 2017 budget reports here:
So from the perspective of calculating the tax rates, the most important thing about the budget is the bottom line. Here is the bottom line from the General Fund budget:
The annual budget, as passed by the Bloomington Township (provider unit) Board for 2017 for the general fund (which, again, funds the operations of the fire department, including salaries, lease payments on a fire station, and pretty much any other expenses of the fire department except equipment replacement) is $2,776,423.
I will write another posting that will discuss this budget further — while the above budget reports give you some detail, the categories are sometimes broader than would be useful. For example, under administration salaries and firefighter salaries, most people would like to see how that actually breaks down in terms of the number of firefighters at what ranks, and how much they are paid. I’ll provide that information, but in a separate posting.
Financial Statement and Property Tax Levy
Now that we have the budget, though, how does this translate into a tax levy? That involves another state form known as the 4B (also known as the “16-line statement”) that each unit files during the annual budgeting process for each fund (i.e., for the Fire Territory, the general fund and the equipment replacement fund). The 4B is essentially an 18-month financial statement, covering from July 1 of the current year to December 31 of the year being budgeted for. It basically allows the unit to identify all of its planned expenditures, its available revenues from existing sources, and any property taxes it needs to levy for the budget year to be able to fund the expenditures.
Because the Fire Territory was only created in 2017, the 4B statements for the two fire funds are simpler than they usually are. To generate the 4B reports, go to Gateway Report Builder and run a Budgets -> Budget Estimate – Financial Statement – Tax Rate report for Bloomington Township for 2017. You’ll have to page down until you find the report for the fund we are looking at — Special Fire Protection Territory General. I’m including a copy of this report below. While we could spend all day discussing this form, I just want to focus on the reason I’ve written this posting — going from the budget to the tax rates. You only want to pay attention to the right-most column, labeled “Certified Amount” — these are the numbers that are actually used to calculate the final tax rate.
The top part of the statement relates to planned expenses of the territory. Note the line #1 — total budget estimate for incoming year. This is the $2,776,423 that I referred to above — the estimated amount required to run the fire territory for the year. The second section refers to revenue, including cash on hand. Because the territory is new for 2017, there isn’t any cash on hand. Line 8b states that the Fire Territory expects to receive $575,484 in miscellaneous revenue. Miscellaneous revenue is basically all revenue except property tax. You can actually see a breakdown of this number again through Gateway Report Builder and run a Budgets -> Miscellaneous Revenue Report for 2017 for Bloomington Township, Special Fire Protection Territory General.
I’ll include that report here, since it is short:
As you can see, there are only a few sources of miscellaneous revenue for the fire territory. Vehicle and Commercial Vehicle excise taxes are distributed to every fund that receives property tax. Bloomington Township is also budgeting $363,837 of its share of local income tax (LIT) towards the territory. Because of the increased property taxes, the township will receive a significant increase in its share of income taxes as well, and the Township is able to use that additional income tax to lower the property tax rate. The other miscellaneous revenue line of interest is $130,000 for Fire Protection Contracts and Service Fees, which comes from providing fire protection to Benton Township.
Let’s go back to the 4B above. So we know the territory needs $2,776,423 in budget to run the territory (general fund), and expects $575,484 in miscellaneous revenues. Therefore, it needs at least $2,776,423 – $575,484 in property taxes to fund that budget. That number, $2,200,939 is found on line #10.
Finally, the fund needs what is known as an operating balance, which is essentially a cash balance that is needed in the fund to be able to make payroll each year before the first property tax settlement of the year comes in June. I won’t get into details on what that number should be, but in this case, it is set to be $366,818, and is included on line #11. Another way of interpreting the operating balance is that it is what the fund will have at the end of 2017, to begin 2018 (and make payroll, etc. before the first 2018 property tax settlement comes in June).
So to recap:
Territory needs $2,776,423 in 2017 for operations
Territory will get $575,484 in miscellaneous revenue
Territory needs to end 2017 with $366,818 left
So working backwards from these numbers, you can tell how much needs to be raised in property taxes:
The total amount of property tax required to fund the budget for the General fund of the territory is $2,567,755. This number is also provided in line #14 on the 4B statement, and is known as the levy. This is the amount of property taxes that will be raised from taxpayers.
Calculating the Tax Rate
Finally, we need to divvy that levy ($2,567,755) among all of the taxpayers in the Fire Territory. To do that, we calculate a tax rate by dividing that levy by the total net assessed value (net means after deductions and exemptions) of all property in the territory — both Washington Township and the unincorporated Bloomington township.
To get that total net assessed value, I’m going to send you to yet another report. Unfortunately the 4B statement above is created in the budget process before the total net assessed value is known — so the assessed value on that form is always an underestimate of the actual assessed value.
To get the assessed values, again go to Gateway Report Builder and run an Assessed Value -> Certification of Net Assessed Values by District for Monroe County for 2017. Here is what you will see:
Because this report is very busy, I highlighted the two relevant numbers here — the net assessed value for Bloomington Township (the unincorporated part) and Washington Township. Those numbers are:
So now that we have the levy (the property tax that needs to be raised) and the assessed value (the assessed value over which the levy is distributed), we can calculate the tax rate:
So for the Northern Monroe Fire Territory General Fund, the tax rate for 2017 is $0.5972 per $100 of net assessed value. Note that this rate for the General Fund is spread across both Washington Township and Bloomington Township, and, crucially, is uniform across both townships.
Note that this rate is particularly high for the first year of the territory, for several reasons: first, the additional income tax that Bloomington Township receives because of the territory doesn’t come in until the second year of the territory; this additional income tax can be used to reduce the property tax rate in 2018 and subsequent years; and second, as you can see in the above calculations, the territory had to request property tax levy above what was actually required for the first year in order to create an operating balance. This will only need to be done for the first year.
Equipment Replacement Fund
So we’ve talked about the General Fund for the Fire Territory, and how its tax rate was calculated. The Equipment Replacement Fund is much easier. The General Fund is what’s known as a levy-controlled fund; as you could see through these calculations, you start with the levy, and then calculate the rate by dividing the levy by the assessed value. The Equipment Replacement Fund is called a rate-controlled fund; the unit of government simply sets a fixed tax rate, which is limited by statute. In the case of the Fire Territory Equipment Replacement Fund, it is $0.0333 per $100 of assessed value.
Total Fire Territory Tax Rate
Finally we are in a position to calculate the entire tax rate of the Northern Monroe Fire Territory for 2017, simply by adding together the tax rates of the General Fund and the Equipment Replacement Funds:
So for 2017, taxpayers in the fire territory will pay $0.6305 per $100 of net assessed value of their property (i.e., assessed value after any deductions and exemptions) for the fire territory.
How Does This Compare to Previous Fire Rates?
There is no doubt that this tax rate is high, and represents a substantial increase over 2016 tax rates for fire service. Professional firefighting and EMT services are expensive! And neither Washington nor Bloomingon Township have been adequately able to fund their firefighting needs in the past, because of state limits dating back to the 1973 Otis “Doc” Bowen property tax restrictions.
But the statutes governing the creation of a fire territory unfortunately also create a particularly high first-year expense for the territory, for several reasons, including the need to establish an operating balance (cash reserves) for the first year, and the fact that the additional income tax doesn’t get allocated to the township until the second year of the territory.
The following table shows the 2016 fire rates vs. the 2017 fire rates for both townships:
How Does This Fit in to the Overall Tax Rates for a Taxpayer?
Finally, these tax rates for the Northern Monroe Fire Territory need to be pub into context to see their overall effect on the taxpayer.
First, the fire territory tax rates are combined with other township-level tax rates. The following chart shows the overall change of township tax rates:
But of course the township tax rate is only part of the overall property tax rate that a taxpayer pays in a particular district (Washington Township is one taxing district and unincorporated Bloomington Township is another). Taxpayers also pay a tax rate associated with Monroe County, the Monroe County Community School Corporation, the Monroe County Public Library, and the Monroe County Solid Waste Management District.
The following chart shows the overall change in property tax rates for residents in Bloomington and Washington Townships from 2016-2017:
As you can see, the overall tax rates went up 48.5% in Washington Township and 23.7% in Bloomington Township. You can also see that this increase is almost entirely due to the increased costs of the fire territory; rates for other taxing units went up minimally (or even decreased).
What this means is that, all other things being equal, a taxpayer in Washington Township could expect to see a 48.5% increase in their tax bill over 2016, and a taxpayer in Bloomington Township could expect a 23.7% increase. Of course, all things aren’t always equal — the assessment of the property could have changed, the use of the land could have changed (making it, for example, no longer eligible for the homestead deduction), and assessment methods may have changed (for example, acreage that is not being farmed may no longer be assessed as agricultural land).
I hope this was at least slightly informative. Again, my intent here was not to persuade anyone about the territory — it was purely to inform taxpayers where the tax rates that they just saw on their new tax bills came from. It may be more detail than most of you want, but I wanted to make sure I went through the math in enough detail that you can see how your rates are calculated. I plan to make a few more postings providing more explanation in several areas; the next posting will focus on the budget, and how staffing levels for firefighters drive the budget numbers.
During the discussions about the City of Bloomington’s proposed annexation, I have received a lot of questions from readers about the property tax circuit breakers (“tax caps”) — like, how do they actually work, how do they affect the taxpayer, and how do they affect the local unit of government? I thought I’d answer that question first by going through a very simple (artificially simple) example.
Before I even begin with the details, let me emphasize the most mind-bending aspect of the property tax circuit breakers — an increase in property tax rates can actually make the revenue to units of government serving the property go down. How does that work?
For our example, we have to pick a taxing district. Let’s choose unincorporated Richland Township (i.e, the part of Richland Township that is outside the Town of Ellettsville). For 2017, the following table shows the tax rates that make up the overall tax rate for unincorporated Richland Township:
The overall property tax rate for unincorporated Richland Township for 2017 is $1.7915 per $100 of Assessed Value. The above table shows how that rate is divided up among the various taxing units (units of government) serving that district.
So now we need to pick a property to use as an example — and I’ve picked a very specific property — a homestead with a gross assessed value of $318,600. Why have I chosen this value? Because given the above tax rate ($1.7915) and certain simplifying assumptions (no property tax relief from the income tax), this property is exactly AT its circuit breaker tax cap for Richland Township.
How do we know this? Let’s do a few calculations. First of all, the circuit breaker tax cap for a homestead property is 1% of its gross assessed value. In our example, it is $3186 (1% of $318,600). That means that the taxpayer cannot be made to pay more than $3186 in property taxes. Second of all, let’s calculate the net assessed value that the taxpayer is actually taxed on. Since this property is a homestead, it is eligible for a $45,000 homestead deduction and a 35% supplemental deduction of the remaining value, leaving a taxable net assessed value of $177,840. This means that our $318,600 property will be taxed on $177,840. Note that there may be additional deductions that this taxpayer is eligible for; however, for this example, we’ll stick with the homestead and supplemental deductions.
Applying our tax rate of $1.7915 per $100 of assessed value to our net assessed value of $177,840, we have a total property tax bill of $3186. Note that this tax bill is exactly at its circuit breaker limit of $3186!
Based on the above tax rates, each unit of government that serves this property receives the following property tax revenue:
And again — this property is right at its 1% circuit breaker limit of $3186, so currently it cannot be forced to pay more than $3186.
So now let’s consider a very artificial situation. Let’s say that for 2018 every taxing unit’s property tax rate stays exactly the same except that Monroe County takes on some additional debt for capital projects, raising its property tax rate from $0.3832 to $0.4300. The following table shows what the 2018 property tax rates are in this hypothetical example compared to the 2017 rates.
As I mentioned before, in this very artificial example, only the Monroe County property tax rate has changed from 2017 ($1.7915 per $100) to 2018 ($1.8383 per $100).
So first, let’s calculate this taxpayer’s 2018 property taxes overall. The following chart illustrates the taxes that would be collected by each taxing unit from this taxpayer for 2018:
In 2017 they were $3186. In 2018 they are $3,269.23 ($1.8383 per $100 of AV, with the AV at $177,840). This is an increase $83.23.
But….remember that the circuit breaker is at $3186 — so $3186 is the most this taxpayer will pay! So even though the individual tax rates of each of the units of government serving this property would call for $3269.23 in taxes, the taxpayer only pays $3186. This means that there are $83.23 of taxes that the taxpayer does not pay and that the local units of government do not collect. This $83.23 is known as the circuit breaker credit — good for the taxpayer, not so much for the units of government serving the taxpayer.
CIRCUIT BREAKER CREDIT = $83.23
But how is this circuit breaker credit divided up among the units of government? Even though it was only Monroe County that raised its tax rate (in this very hypothetical example), all of the units of government share in the loss of revenue in proportion to their tax rates.
So let’s allocate the circuit breaker credit (revenue loss to the units of government) based on each unit’s proportion of the total tax rate:
Before even looking at the numbers in detail, the following fact should jump right out at you:
EVEN THOUGH ONLY ONE UNIT OF GOVERNMENT RAISED TAXES, ALL UNITS SHARE IN THE PAIN!
Now the last step in the process is to calculate the actual amount collected for each unit in 2018. So let’s put it all together:
The column labeled “2018 Net (Taxes – Circuit Breaker) represents the actual taxes collected from this taxpayer for 2018. Note that it sums up to $3186. This should not be a surprise, as the tax cap for this taxpayer was $3186 — they cannot be taxed more than $3186 with an assessed value of $318,600!!
But the final kicker comes from looking at the rightmost column, labeled 2017-2018 Change. This is the change in revenue from each taxing unit from 2017 to 2018. Of course the total should be $0 — since the property was at the 1% circuit breaker, no net additional revenue could be collected.
But look more closely at each individual taxing unit. Only the unit that increased taxes — Monroe County in this artificial example — actually increased its revenue from 2017-2018 — and not as much as it would have increased it without the tax caps. But every other unit, even though it did not increase its tax rates — shared in the circuit breaker loss caused by the one unit that did increase its tax rates.
So just to pick out one example — the additional debt taken on by one unit of government (Monroe County) actually caused another unit (such as R-BB School Corporation) to lose revenue.
Monroe County’s gain ($63.76) is actually R-BB School Corporation’s loss ($50.52).
So hopefully this little exercise was useful — hopefully you can now see that with the property tax circuit breakers, one unit that raises its tax rates can actually cause a real loss to the other taxing units.