State Releases Property Tax Growth Rate for 2020

Monroe County Courthouse
Monroe County Courthouse

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.

State Releases Assessed Value Growth Quotient for Local Governments

Monroe County Courthouse Under Renovation
Monroe County Courthouse Under Renovation

Today, the Indiana State Budget Agency (SBA) released the Assessed Value Growth Quotient (AVGQ) for 2015: 2.70%, a slight increase from 2.6% in 2014.

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, 2.7% is the maximum that the following levies combined can be raised for 2015: General Fund, Health, Aviation, County Fair, Reassessment, and Cumulative Bridge.

Although named the Assessed Value Growth Quotient in the statute, the AVGQ actually no longer has anything 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.

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.

The following table shows the 6-year calculation for budget year 2015.

AVGQ Calculations for 2015
AVGQ Calculations for 2015

Note that the change from 2008-2009 is -2.91% — that means that during that year, personal incomes actually shrank. After two more years, that -2.91% will drop out of the 6-year calculation, and so unless we have another recession, we should see the AVGQ go back up to more historically normal levels.

The announcement is available here: 140701 – State Budget Agency Memo – Assessed Valuation Growth Quotient and the supporting calculations here: 140701 – State Budget Agency Memo – 2015 State Assessed Value Growth Quotient Worksheet.