Annexation and Property Tax Rates 101

Screenshot 2017-03-07 19.05.08Introduction

As readers have no doubt heard, the City of Bloomington recently proposed to annex 7 areas of unincorporated territory in Monroe County, leading to a 65% increase in the area of the City. The City’s case for annexation (including maps and their fiscal plan) can be found here: http://bloomington.in.gov/annex.

I have developed a presentation that I have given in different forms at several community meetings about the annexation that deals specifically with the impact of annexation on property tax rates on annexed areas. Several constituents have suggested that I turn that presentation into a blog post, so this is my first attempt.

These annexations will have many effects on the community, the public, and other units of government (the county, townships, fire departments). The purpose of this presentation is to educate the public specifically on the likely effects of these annexations on property tax rates and property tax bills.

Big Disclaimer: This is based on what we know as of February 2017. This is not an official government document, and is only for community education and discussion. Your circumstances may vary — and many things can change between now and 2020.

Basic Terminology

A taxing unit is a unit of government that independently has the authority to levy property taxes. Monroe County includes the following taxing units:

    • Monroe County Government
    • School Corporations (MCCSC, R-BBSC)
    • Townships (Bean Blossom, Benton, Bloomington, Clear Creek, Indian Creek, Perry, Richland, Salt Creek, Polk, Van Buren, Washington)
    • Monroe County Public Library
    • Municipalities (Bloomington, Ellettsville, Stinesville)
    • Fire Protection Districts (Perry-Clear Creek Fire Protection District)
    • Monroe County Solid Waste Management District
    • Bloomington Transportation (the city bus is actually a taxing unit separate from the City of Bloomington)
    • Lake Lemon Conservancy District (only affects a small number of residents)

A taxing district is made up of all of the taxing units that provide services to a common geographical area. Property tax rates are uniform to all parcels within a taxing district. And property tax rates for a taxing district are simply the sums of all of the tax rates for all of the taxing units serving the district.

For example, tax rates for an unincorporated taxing district (i.e., a taxing district outside of one of the 3 incorporated municipalities of Bloomington, Ellettsville, and Stinesville) consist of:

= County Rate + Solid Waste District Rate + Public Library Rate + School Corporation Rate + Township Rate + (if in Perry or Clear Creek townships only) Perry Clear Creek Fire Protection District Rate

Tax rates for an incorporated taxing district (a taxing district within an incorporated municipality) consist of:

= County Rate + Solid Waste District Rate + Public Library Rate + School Corporation Rate + Township Rate – the fire protection component of the township rate + Municipal Rate + (if Bloomington) the Bloomington Transportation Rate

So basically the difference between unincorporated and incorporated rates are:

  • the fire protection component of the township tax rate (taxpayers don’t pay it in cities and towns, because fire protection is provided by the municipality)
  • the municipal tax rate (taxpayers don’t pay it outside of cities and towns)
  • Bloomington Transportation (taxpayers in the City of Bloomington pay a property tax rate for the city bus)

The following table shows the property tax rates for each of the taxing districts, from 2013-2017.

Screenshot 2017-03-07 07.24.46

Probably the thing you will notice first about this chart is the substantial increase in tax rates for unincorporated Bloomington Township (23.73%) and Washington Township (48.49%). These large increases are due to the newly created Northern Monroe Fire Territory, which upgrades the fire protection services provided to Bloomington and Washington townships.

Property Tax Rates and Annexation

Next I’m going to walk through the property tax rate calculations for three different townships: Van Buren, Richland, and Perry. The general format will be the same for each of these townships; only the numbers will change, so you probably won’t need to read through each one of them.

Also, I want to make sure to call attention to a couple of caveats/assumptions about the data.

This first caveat is worth spending a bit of time on. I am assuming that the City of Bloomington taxing unit’s property tax rate remains the same after annexation. To understand why this is an important assumption, consider how property tax rates are calculated: for most operating funds, the tax rate equals the tax levy (the amount collected in property taxes) divided by the total net assessed value of the area served by that levy. It is expressed in a rate per $100 of assessed value. If the levy stays the same and the assessed value served increases, then the tax rate naturally decreases.

The levy (technically the maximum levy — a unit can always choose a levy lower than the maximum, but in practice most units use the maximum) normally is only allowed escalate by a certain amount each year determined by the state. For 2017 that amount was 3.8%.

If a municipality annexes additional territory, they are permitted to automatically increase their maximum levy by the same proportion that their assessed value is increasing, under the theory that if the assessed value increases by X% then the cost of providing services presumably increases by X% — up to 15%. Above 15%, the municipality has to petition the Indiana Department of Local Government Finance (DLGF) to give them an excess levy.

In this case, the 7 proposed annexations add up to a total 28.14% increase in assessed value. The City’s own fiscal plan for the annexation (p.69) makes clear that they are assuming that they will receive a corresponding 28.14% increase in their maximum levy. See the table below from the fiscal plan:

Capture

If the City receives this full excess levy, then the tax rate won’t change (because the levy AND the assessed value would be increased by the same factor, canceling each other out). If the City were to receive less than the full 28.14% excess levy, then the levy would increase by less than the assessed value under annexation, and thus the tax rate for the City of Bloomington would decrease; however, they wouldn’t have as much revenue as projected in the fiscal plan, and it isn’t clear that they would be able to provide the necessary services.

In these  calculations, however, I’m going with the City of Bloomington’s own assumption — that they will receive the full 28.14% increase in their levy to go along with the 28.14% increase in their assessed value.

Van Buren Township

The Van Buren Township taxing district’s 2017 property tax rate is $1.4645 per $100 of assessed value. That rate comprises the following:

Presentation on Property Tax Rates (1)

The township component of the tax rate ($0.3094  per $100 of assessed value) is actually made up of multiple components.

Presentation on Property Tax Rates (2)

Annexed residents don’t pay the fire component of the township tax rate ($0.2364). However, they still do continue to pay any fire debt until the debt is paid off.

And — annexed residents now pay two new tax rates: the Bloomington Civil City tax rate (actually, a little bit less — see below) and the Bloomington Transportation (city bus) rates. The two city rates are shown below.

Presentation on Property Tax Rates (3)

The one exception I just mentioned is that newly annexed residents don’t inherit the City’s existing debt before annexation. The following diagram illustrates the proportion that debt adds to the rate:

Presentation on Property Tax Rates (4)

So newly annexed taxpayers, in addition to the other taxes (County, schools, library, etc.) will pay the Bloomington Civil City rate of $0.8627 minus the debt rate of $0.0281 = $0.8346, along with the Bloomington Transportation rate of $0.0354 for a total of $2.0981 per $100 of assessed value.

Screenshot 2017-03-07 19.00.28

The following diagram compares the tax rates pre-annexation to post-annexation for Van Buren Township: an increase of $0.6336, or a 43.26% increase.

Screenshot 2017-03-07 19.02.51

Also note that these rates do not include any additional debt that the City of Bloomington will likely have to take on in order to provide infrastructure to serve the newly annexed areas. The City states in its fiscal plan (p.34) that it will need to bond these capital expenses, but does not include the additional tax rate needed to service this debt in its own estimate of tax rates.

So what do these post-annexation tax rates look like on an individual’s tax bill in Van Buren Township? I did a tax bill simulation on a couple of different scenarios here to illustrate the effects. Again, I’ll give a couple of caveats: First, this assumes that the annexation takes effect immediately; many things could happen between now and 2020. Second, these examples assume that the income tax collected for homestead property tax relief has the same effect on an individual’s tax bill as in 2016. These numbers don’t include any amount for additional City debt to pay for infrastructure for the newly annexed areas. And finally, there are some protections against substantial increases in property taxes for taxpayers over 65 years of age whose income and assessed value meet certain guidelines.

Screenshot 2017-03-07 19.12.09

 

Screenshot 2017-03-07 19.12.26

 

Screenshot 2017-03-07 19.12.35

As you can see, at around $250,000 of assessed value, the constitutional circuit breakers (“tax caps”) kick in. This keeps the increase in taxes down for the taxpayer — but causes other units like the school district, the public library, and the county to lose money. This is an important aspect of the tax caps to understand — the City, by raising taxes to a degree that causes the tax caps to kick in can actually cause other units like the schools to lose revenue. Not just not increase revenue by as much, but actually to see a reduction in revenue.

Finally, let’s look at a business:

Screenshot 2017-03-07 19.12.45

Richland Township

In this section, I’ll repeat the same argument that I did for Van Buren Township, so unless you are specifically interested in the numbers for Richland Township, you can skip this section. The one thing that is different about Richland Township is that because Richland-Bean Blossom School Corporation does not have the referendum tax rate that MCCSC does, it takes a much lower assessed value for properties to hit the circuit breakers (the referendum tax rate is exempt from the tax caps).

The Richland Township taxing district’s 2017 property tax rate is $1.7915 per $100 of assessed value. That rate comprises the following:

Screenshot 2017-03-07 19.21.02

The township component of the tax rate ($0.1673  per $100 of assessed value) is made up of multiple components.

Screenshot 2017-03-07 19.21.10

Annexed residents don’t pay the fire component of the township tax rate ($0.2364). However, they still do continue to pay any fire debt until the debt is paid off.

And — annexed residents now pay two new tax rates: the Bloomington Civil City tax rate (actually, a little bit less — see below) and the Bloomington Transportation (city bus) rates. The two city rates are shown below.

Presentation on Property Tax Rates (3)

The one exception I just mentioned is that newly annexed residents don’t inherit the City’s existing debt before annexation. The following diagram illustrates the proportion that debt adds to the rate:

Presentation on Property Tax Rates (4)

So newly annexed taxpayers, in addition to the other taxes (County, schools, library, etc.) will pay the Bloomington Civil City rate of $0.8627 minus the debt rate of $0.0281 = $0.8346, along with the Bloomington Transportation rate of $0.0354 for a total of $2.0981 per $100 of assessed value.

Screenshot 2017-03-07 19.21.36

The following diagram compares the tax rates pre-annexation to post-annexation for Richland Township: an increase of $0.7326, or a 40.9% increase.

Screenshot 2017-03-07 19.21.46

Also note that these rates do not include any additional debt that the City of Bloomington will likely have to take on in order to provide infrastructure to serve the newly annexed areas. The City states in its fiscal plan (p.34) that it will need to bond these capital expenses, but does not include the additional tax rate needed to service this debt in its own estimate of tax rates.

So what do these post-annexation tax rates look like on an individual’s tax bill in Richland Township? I did a tax bill simulation on a couple of different scenarios here to illustrate the effects. Again, I’ll give a couple of caveats: First, this assumes that the annexation takes effect immediately; many things could happen between now and 2020. Second, these examples assume that the income tax collected for homestead property tax relief has the same effect on an individual’s tax bill as in 2016. These numbers don’t include any amount for additional City debt to pay for infrastructure for the newly annexed areas. And finally, there are some protections against substantial increases in property taxes for taxpayers over 65 years of age whose income and assessed value meet certain guidelines.

Screenshot 2017-03-07 19.21.58

Screenshot 2017-03-07 19.22.09

Note that the tax caps kick in with an assessed value of less than $150,000 in Richland Township. This keeps the increase in taxes down for the taxpayer — but causes other units like the school district, the public library, and the county to lose money. This is an important aspect of the tax caps to understand — the City, by raising taxes to a degree that causes the tax caps to kick in can actually cause other units like the schools to lose revenue. Not just not increase revenue by as much, but actually to see a reduction in revenue.

Finally, let’s look at a business, such as one of the many that are located in the westside economic development area in Richland Township:

Screenshot 2017-03-07 19.22.20

Perry Township

In this section, I’ll repeat the same argument that I did for Van Buren and Richland Townships, so unless you are specifically interested in the numbers for Perry Township, you can skip this section. The one distinctive feature of Perry Township is that fire protection is provided by the Perry-Clear Creek Fire Protection District, which is actually an independent taxing unit. The examples in Richland and Van Buren townships had the fire protection provided by the township (although in Richland Township it is provided by contract with Ellettsville Fire Department).

The Perry Township taxing district’s 2017 property tax rate is $1.3315 per $100 of assessed value. That rate comprises the following:

Screenshot 2017-03-07 19.32.05

Annexed residents don’t pay the fire protection district rate ($0.1540).

And — annexed residents now pay two new tax rates: the Bloomington Civil City tax rate (actually, a little bit less — see below) and the Bloomington Transportation (city bus) rates. The two city rates are shown below.

Presentation on Property Tax Rates (3)

The one exception I just mentioned is that newly annexed residents don’t inherit the City’s existing debt before annexation. The following diagram illustrates the proportion that debt adds to the rate:

Presentation on Property Tax Rates (4)

So newly annexed taxpayers, in addition to the other taxes (County, schools, library, etc.) will pay the Bloomington Civil City rate of $0.8627 minus the debt rate of $0.0281 = $0.8346, along with the Bloomington Transportation rate of $0.0354 for a total of $2.0981 per $100 of assessed value.

Screenshot 2017-03-07 19.33.00

The following diagram compares the tax rates pre-annexation to post-annexation for Perry Township: an increase of $0.7160, or a 53.77% increase in tax rates.

Screenshot 2017-03-07 19.33.29

Also note that these rates do not include any additional debt that the City of Bloomington will likely have to take on in order to provide infrastructure to serve the newly annexed areas. The City states in its fiscal plan (p.34) that it will need to bond these capital expenses, but does not include the additional tax rate needed to service this debt in its own estimate of tax rates.

So what do these post-annexation tax rates look like on an individual’s tax bill in Richland Township? I did a tax bill simulation on a couple of different scenarios here to illustrate the effects. Again, I’ll give a couple of caveats: First, this assumes that the annexation takes effect immediately; many things could happen between now and 2020. Second, these examples assume that the income tax collected for homestead property tax relief has the same effect on an individual’s tax bill as in 2016. These numbers don’t include any amount for additional City debt to pay for infrastructure for the newly annexed areas. And finally, there are some protections against substantial increases in property taxes for taxpayers over 65 years of age whose income and assessed value meet certain guidelines.

Screenshot 2017-03-07 19.33.39

Screenshot 2017-03-07 19.33.46

Screenshot 2017-03-07 19.33.56

Note that the tax caps only actually benefit much more expensive properties in Perry Township. But once they take effect, as with other taxing districts, they cause other units like the school district, the public library, and the county to lose money. This is an important aspect of the tax caps to understand — the City, by raising taxes to a degree that causes the tax caps to kick in can actually cause other units like the schools to lose revenue. Not just not increase revenue by as much, but actually to see a reduction in revenue.

Finally, let’s look at a business in Perry Township:

Screenshot 2017-03-07 19.34.05

As you can see, because the circuit breaker limit for businesses is 3%, the circuit breakers have no impact for business properties.

Summary of Tax Rate Changes Under Annexation

Now that I’ve gone through detailed examples for Van Buren, Richland, and Perry Townships, here is a summary of the impact of annexation on the tax rates of all of the unincorporated areas that the proposed annexation affects:

 

screenshot-2017-03-07-19-34-17.png

Potential New City Debt

As I mentioned earlier, the City states in its fiscal plan that it will take on debt to provide infrastructure for the newly annexed areas. It provides 4 estimates of the debt service payments: a maximal and minimal estimate of the total amount required for the capital investment and a 10 year and a 20 year debt service schedule. Using the City’s fiscal plan’s own estimates for the annual debt service payment and their estimate of the additional assessed value from the annexation, I attempted to quantify the additional tax rates required to provide the capital infrastructure necessary to support the annexation:

Screenshot 2017-03-07 19.34.27

As you can see, the debt would add an additional between 2.5 cents and 6.35 cents per $100 of AV. Note that this debt would be paid by all city taxpayers, not just newly annexed taxpayers. In addition, the additional tax rates would have some small additional circuit breaker impact, leading to some additional revenue loss for other units of government.

Conclusion

I hope that if you made it all the way through, you found this explanation of the impacts of annexation on tax rates helpful and informative. I will undoubtedly be writing quite a bit more about annexation and its impacts on taxpayers as well as the county and other units of government such as townships and fire protection districts. If there is something you find unclear or incomplete about this explanation of tax rates, please let me know and I will gladly rewrite or expand!

Dangerous Intersection at State Road 45 and Pete Ellis Drive/Range Road

The intersection of State Road 45 (10th Street) and Pete Ellis Dr (to the south) and Range Rd (to the north) is unsafe and needs to be addressed. And as bad as it is now, in five years when IU Health Bloomington Hospital moves to the area north of Range Road, it will be 10 times worse, as this intersection will be the backup/alternate route to/from the hospital. Because this intersection is on a state road (SR 45), the road is in the state’s jurisdiction (i.e., not in the jurisdiction of the City of Bloomington or Monroe County).

The following map shows the intersection that I am concerned about:

Map of Range Road Area
Map of Range Road Area

The following diagram illustrates the problem with this intersection. Basically, there are a lot of cars traveling on SR45 (10th Street) going westbound that stop at the traffic signal to make a left turn (there is no left turn lane or leading light). However, many motorists traveling behind the stopped car (or cars) will attempt to pass on the right, despite lack of a passing lane. When the car at the intersection turns left, it creates an unsafe and ambiguous situation, in which the car behind the car making the left turn will move ahead and go straight through the intersection (properly), while at the same time a car is passing them on the right in an area that isn’t large enough to merge back in safely.

SR45 - Range Road/Pete Ellis Intersection
SR45 – Range Road/Pete Ellis Intersection

The crash statistics bear out the perception that this is a dangerous intersection. Per the 2012-2014 Draft Bloomington/Monroe County Metropolitan Planning Organization Crash Report:

  • This intersection ranks 14th in overall crashes from all the intersections in the MPO boundary, up from 32nd, and averaging 18 crashes per year.
  • When weighted by traffic volume, the overall crash rate (crashes per million entering vehicles) is ranked 22nd among all intersections
  • And ranked by severity of crash, it is 16th in the county.

Although INDOT has, at some point, planned to reconstruct state road 45 from the bypass east to Russell Road, at this point they have no plans to address the situation. As serious as the situation is right now, the situation will become dire if not addressed before IU Health Bloomington Hospital relocates in the Range Road area.

Here is a brief history of INDOT’s purported plans in this area. from what I can ascertain from searches of local media:

  • INDOT announced in 2005 that widening SR 45 from the bypass to Russell Road was on their 10-year priority list for the area (Source: Herald Times)
  • Governor Mitch Daniels announced in September of 2005 that the widening of SR45 from the bypass to Pete Ellis Dr was planned for 2006 (Source: Herald Times)
  • In a “final” 10-year plan for Major Moves projects, the widening of the bypass, plus widening SR 45 from the bypass to Pete Ellis would be completed in 2008-2009, and from Pete Ellis to Russell Road would be completed by 2011 (Source: Herald Times)
  • INDOT held a public hearing on the proposed SR45 improvements at University Elementary School on September 18, 2008 (I attended and spoke at this public hearing about providing better pedestrian access to University Elementary School)
  • In October 2008, INDOT launched a Web site dedicated to the potential widening of SR45 from Pete Ellis to Russell Road: www.in.gov/indot/div/projects/sr45/. Unfortunately this Web site no longer exists. However, due to the wonders of the Internet Archive Wayback Machine, the contents of this site are still available! Most importantly, INDOT updated the site on 2010-03-24 to say:
    • “Due to an extensive “re-racking” process recently completed by INDOT and state of Indiana leadership, the road improvement project on State Road 45 (E 10th Street in Bloomington) from Pete Ellis Drive to Russell Road has been shelved. This means that the scheduled Begin Construction date is now TBD (To Be Determined). This effectively means that the project will not be considered for possible re-activation until 2020 at the earliest.”
  • In January of 2013, the Hotline column of the Herald Times reported that Beth Hamilton from INDOT stated that the expansion of SR45 from the bypass to Pete Ellis was “still an active project”, but that there had been no bid-letting date scheduled, so no date was available (Source: Herald Times)
  • In October of 2015, Brandi Fischvogt from the INDOT Seymour District (the district that has jurisdiction over Monroe County) wrote me to tell me that she had been informed that “INDOT does not currently have any projects planned in this area”.
The upshot is that INDOT does not have any plans at all to address this dangerous intersection, whether through a broader road reconstruction, or a more targeted solution. This is not acceptable. We as a community need to work together and work with INDOT to make sure that this situation is addressed before a major new regional hospital moves in.
I am already working to put together a group to raise the profile of this issue, and would very much appreciate any suggestions or ideas from other members of the community.

Tale of Two Cities: Embezzlement in Bloomington IN and Covington, KY

Just as the story was breaking about the embezzlement of around $800,000 by a City of Bloomington public works employee, the news broke of the guilty plea of the finance director of the City of Covington, Kentucky (the city right next to my home town of Fort Thomas, Kentucky) for embezzling — get this — around $800,000 from the City of Covington. Unlike the alleged perpetrator in the Bloomington case, the Covington ex-official both admitted his crime and expressed significant remorse.

Cincinnati.com just reported today on some of the security and accountability controls that Covington is putting in place in the wake of the scandal (In light of theft, Covington patches things up). Although many of the details of the Bloomington incident have yet to be released. just from the media accounts it appears that the Covington theft was far less sophisticated than the Bloomington one.

Most significantly, in Covington, the same official had complete control of the city’s finances and of the city’s information technology. This control allowed the finance director to create checks in the financial system to fake vendors (and/or himself and relatives) and then cover up his tracks by changing the data in the financial system to make it look like the checks were written to legitimate vendors. From the outside, it is hard to imagine how such a system had been allowed to exist. Separation of duties is essential to maintaining accountability in any financial system.

The use of computer databases adds particular additional managerial burden, since without adequate controls in place, it can be easy both to commit malfeasance and to cover up the evidence. Covington has since created both an internal auditor and a separate information technology manager.

I would like to make one comment about both embezzlement cases, and the justifiable outrage expressed by the public surrounding them. While some of the security controls in place — particularly in the Covington case — seem almost laughably lax (or absent), there will never be one set of processes or officials or board members that will forever be foolproof. There will never be an unpickable lock or an unbreachable vault. There will never be a board or commission that is able to exercise perfect oversight. As long as there is money to be made, there will be smart criminals who will figure out a way around any system of security controls. Financial crime will always be a cat-and-mouse game; sometimes the cat will have the advantage and sometimes the mice.