2018 Local Income Tax (LIT) Numbers for Monroe County Show Strong Economic Growth

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:

Screenshot 2017-08-01 19.29.30

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.

 

 

Transit Tax Passes in Indy

indygo_bus_indiana_aveLast week, the Indy Star reported that a proposed 0.25% local income tax in Marion County to support public transit expansion advanced (the article and my comments are here: Public Transit Income Tax Advances in Indy).

The tax passed the City-County Council last night. This 0.25% income tax will inject an estimated $54M per year into the public transit system, often thought of as one of the nation’s worst for a major city. 6 counties (Marion, Hamilton, Hancock, Johnson, Delaware and Madison) currently have the option of holding a referendum on a local income tax for transit expansion. This tax will bring the total local income tax rate for Marion County from 1.77% to 2.02%.

Today’s Indy Star article: http://www.indystar.com/story/news/local/marion-county/2017/02/27/indy-council-approves-transit-tax/98490222/

 

Public Transit Income Tax Advances in Indy

5858d1eb856ac-imageToday’s Indy Star reports that a proposal for a 0.25% local income tax in Marion County to support public transit expansion passed a key committee vote yesterday, sending the vote to the full City-County Council on February 27th:

http://www.indystar.com/story/news/local/marion-county/2017/02/21/marion-county-transit-tax-gets-committee-approval-heads-full-council/98200340/

Back in November, this tax increase to fund public transit passed in a referendum handily by 59.3% to 41.7%.

In the past we have discussed a potential income tax dedicated to public transit expansion here in Monroe County. The revenues would be shared between Bloomington Transit and Rural Transit, and would potentially fund both expansion of transit within the existing city boundaries (both in terms of additional routes and stops, and potentially more frequent service and/or Sunday service), as well as additional point to point service in the rural areas. Of course, the extent of city boundaries may change with a potential annexation, which could have a large impact on the services able to be provided by Rural Transit (a topic for a different post).

Such a tax in Monroe County would require additional state legislation. Senator Mark Stoops has introduced several pieces of legislation (and has been for several years) that would give Monroe County the ability to (but not require it to) pass an income tax between 0.1% and 0.25% to fund transit expansion. Senator Stoops’ proposed bills for the 2017 session are:

  • Senate Bill 371, which is specific to Monroe County
  • Senate Bill 391, which applies to all counties except those that already have the authority under existing legislation

Neither of these bills would require a referendum/public question. Also, it appears so far that neither of these bills will receive a committee hearing this session.

This is where I am interested in hearing from Monroe County constituents. What do you think about a potential increase in income tax dedicated to public transit expansion? Please let me hear your thoughts.

Just for reference, here are our existing local income taxes:

  • Expenditure – Certified Shares (all-purpose local income tax, distributed county, cities and towns, townships, public library, fire protection districts, Bloomington Transit): 0.9482%
  • Expenditure – Public Safety (distributed to the county, Bloomington, Ellettsville, and Stinesville): 0.2500%
  • Property Tax Relief (replaces property tax): 0.0518%
  • Special Purpose (Juvenile services): 0.095%
  • Total Income Tax Rate: 1.345%

 

 

Indiana 2017 Local Income Tax Rates: Where Does Monroe County Stand?

Monroe County Courthouse at Night
Monroe County Courthouse at Night

The Indiana Department of Local Government Finance just released the final 2017 certified distributions and rates of local income taxes for Indiana counties. Local income taxes are what used to be called COIT, LOIT, CAGIT, CEDIT, etc., before a new law that went into effect in 2016 that simplifies local income taxation. All local income taxes are now simply referred to as Local Income Taxes (LIT). The full report from DLGF is available here: 2017_certification_calculations.

Under the new system, there are essentially 3 broad categories of local income tax rates: expenditure, property tax relief, and special purpose. Expenditure rates are there to raise funds for local government expenditures. Property tax relief rates use the money raised from income to offset property taxes. Note that this does not necessarily mean that taxpayers will see lower property taxes — these property tax relief rates are often used in communities where the constitutional circuit breakers (tax caps) have lowered property tax revenues. So the property tax relief rate would simply replace property tax revenue that had been lost through the tax caps; since the taxpayers in this case  would already be  at the circuit breaker, they wouldn’t necessarily actually see lower property taxes. Thus in reality the property tax relief rate may generate expenditure revenue as well. Finally, the special purpose rates are used for a variety of purposes, all of which require special legislation. Our local example is Monroe County’s Juvenile County Option Income Tax (JCOIT), a 0.0950% income tax that supports juvenile services, including the Binkley House Youth Shelter, juvenile probation, and the juvenile courts. Other examples include jail and juvenile facilities for a number of counties, library property tax replacement for Hancock County,  and courthouse renovation and maintenance and firefighting equipment in Randolph County.

Expenditure rates themselves are divided into 3 “buckets”: certified shares, public safety, and economic development. Certified shares are divided  up among all civil taxing units in a County (civil taxing units include the county, any municipalities, townships, fire protection districts, and public libraries), and the revenue can be used for any lawful purpose of the local unit government. Revenues from the public safety rates are distributed to the county and any municipalities in the county, and can only be used for public safety purposes (including police, jail, probation, fire, and EMT). Revenues from economic development rates are distributed to the county and any municipalities in the county, and can be used for a variety of economic development purposes, as well as any other expenses of the local unit of government.

Monroe County’s local income tax (LIT) rates are as follows for 2017:

  • Expenditure – Certified Shares: 0.9482%
  • Expenditure – Public Safety: 0.2500%
  • Expenditure – Economic Development: 0%
  • Property Tax Relief: 0.0518%
  • Special Purpose: 0.095%
  • Total Income Tax Rate: 1.345%

So how does Monroe County’s income tax rate of 1.345% stack up against other counties? I took the data from the DLGF and ranked counties by total income tax rate:

County Name Total 2017 LIT Rate Rank
Pulaski 3.3800% 1
Wabash 2.9000% 2
Jasper 2.8640% 3
Morgan 2.7200% 4
Parke 2.6500% 5
Tipton2 2.6000% 6
Miami 2.5400% 7
Brown 2.5234% 8
Jennings 2.5000% 9
Cass 2.5000% 9
Jay 2.4500% 11
Fayette 2.3700% 12
Randolph 2.2500% 13
Clay 2.2500% 13
Grant 2.2500% 13
Warren 2.1200% 16
Rush 2.1000% 17
Wells 2.1000% 17
Jackson 2.1000% 17
Montgomery 2.1000% 17
Elkhart 2.0000% 21
Clark 2.0000% 21
Clinton 2.0000% 21
DeKalb 2.0000% 21
Washington 2.0000% 21
Fulton 1.9300% 26
Perry 1.8100% 27
Benton 1.7900% 28
Steuben 1.7900% 28
Marion 1.7700% 30
Union 1.7500% 31
Daviess 1.7500% 31
Huntington 1.7500% 31
Noble 1.7500% 31
Putnam 1.7500% 31
Lawrence 1.7500% 31
Madison 1.7500% 31
St. Joseph 1.7500% 31
Starke 1.7100% 39
Carroll 1.7039% 40
Hancock 1.7000% 41
Howard 1.6500% 42
Adams 1.6240% 43
Fountain 1.5500% 44
Blackford 1.5000% 45
Franklin 1.5000% 45
Shelby 1.5000% 45
Wayne 1.5000% 45
Boone 1.5000% 45
Hendricks 1.5000% 45
Delaware 1.5000% 45
Henry 1.5000% 45
Martin 1.5000% 45
Lake 1.5000% 45
Whitley 1.4829% 55
Scott 1.4100% 56
LaGrange 1.4000% 57
Ripley 1.3800% 58
Allen 1.3500% 59
Monroe 1.3450% 60
Decatur 1.3300% 61
White 1.3200% 62
Owen 1.3000% 63
Bartholomew 1.2500% 64
Greene 1.2500% 64
Marshall 1.2500% 64
Ohio 1.2500% 64
Orange 1.2500% 64
Vigo 1.2500% 64
Floyd 1.1500% 70
Tippecanoe 1.1000% 71
Crawford 1.0000% 72
Dubois 1.0000% 72
Hamilton 1.0000% 72
Harrison 1.0000% 72
Johnson 1.0000% 72
Knox 1.0000% 72
Kosciusko 1.0000% 72
Newton 1.0000% 72
Switzerland 1.0000% 72
Posey 1.0000% 72
Vanderburgh 1.0000% 72
LaPorte 0.9500% 83
Spencer 0.8000% 84
Pike 0.7500% 85
Gibson 0.7000% 86
Dearborn 0.6000% 87
Porter 0.5000% 88
Warrick 0.5000% 88
Jefferson 0.3500% 90
Sullivan 0.3000% 91
Vermillion 0.2000% 92

As this table shows, Monroe County ranks 60th in overall income tax rates in Indiana, out of 92 counties. This puts us essentially at the top of the bottom third of Indiana counties in terms of overall income tax rate.

One concern with this ranking methodology that has been raised is that some of these local income taxes have been passed for property tax relief, and since these taxes offset property taxes, the property tax relief taxes really shouldn’t “count” against a county in its overall income tax rate for the purposes of comparison. I don’t necessarily agree with this logic, since, as I mentioned above, property tax relief rates don’t necessarily actually give the taxpayers any “relief”, and are instead just used to offset losses to local government from the tax caps. But nonetheless, in the following table I eliminated the property tax relief rates from the calculation, and re-ranked counties.

County Name Revenue Total Revenue Rank
Tipton 2.4000% 1
Jennings 2.2500% 2
Pulaski 2.2000% 3
Parke 2.1500% 4
Brown 2.0234% 5
Jasper 2.0140% 6
Rush 2.0100% 7
Wabash 1.9000% 8
Jay 1.8500% 9
Warren 1.8000% 10
Randolph 1.7500% 11
Elkhart 1.7500% 11
Union 1.7500% 11
Perry 1.7254% 14
Marion 1.7193% 15
Morgan 1.7180% 16
Wells 1.7000% 17
Starke 1.6500% 18
Jackson 1.6000% 19
Carroll 1.5039% 20
Cass 1.5000% 21
Clay 1.5000% 21
Clark 1.5000% 21
Clinton 1.5000% 21
DeKalb 1.5000% 21
Washington 1.5000% 21
Benton 1.5000% 21
Steuben 1.5000% 21
Daviess 1.5000% 21
Huntington 1.5000% 21
Noble 1.5000% 21
Putnam 1.5000% 21
Blackford 1.5000% 21
Franklin 1.5000% 21
Shelby 1.5000% 21
Wayne 1.5000% 21
Boone 1.5000% 37
Miami 1.4796% 38
Fulton 1.4500% 39
Hancock 1.4500% 39
Fountain 1.4500% 39
Whitley 1.4500% 39
Hendricks 1.3500% 43
Owen 1.3000% 44
Monroe 1.2932% 45
Fayette 1.2500% 46
Grant 1.2500% 46
Lawrence 1.2500% 46
Madison 1.2500% 46
Adams 1.2500% 46
Delaware 1.2500% 46
Henry 1.2500% 46
Martin 1.2500% 46
Scott 1.2500% 46
LaGrange 1.2500% 46
Ripley 1.2500% 46
Decatur 1.2500% 46
White 1.2500% 46
Bartholomew 1.2500% 46
Greene 1.2500% 46
Marshall 1.2500% 46
Ohio 1.2500% 46
Orange 1.2500% 46
Vigo 1.2500% 46
Howard 1.1500% 65
St. Joseph 1.1496% 66
Floyd 1.0500% 67
Montgomery 1.0000% 68
Crawford 1.0000% 68
Dubois 1.0000% 68
Hamilton 1.0000% 68
Harrison 1.0000% 68
Johnson 1.0000% 68
Knox 1.0000% 68
Kosciusko 1.0000% 68
Newton 1.0000% 68
Switzerland 1.0000% 68
Allen 0.9821% 78
Tippecanoe 0.9589% 79
LaPorte 0.9500% 80
Posey 0.9440% 81
Vanderburgh 0.9035% 82
Spencer 0.7611% 83
Pike 0.7500% 84
Gibson 0.7000% 85
Dearborn 0.6000% 86
Lake 0.5000% 87
Porter 0.5000% 87
Warrick 0.5000% 87
Jefferson 0.3500% 90
Sullivan 0.3000% 91
Vermillion 0.2000% 92

From this ranking, excluding property tax relief income tax rates, Monroe County comes out at 45, right in the middle of Indiana counties. So depending on how you look at it, Monroe County is right in the middle or atop the bottom third of Indiana counties in terms of income taxes.

There  is a lot more to explore with this data. Next I will focus more specifically on our neighbor counties.

 

 

Public Hearing for Public Safety Income Tax

2016 County Council MembersThe Monroe County Council will be holding a public hearing at our work session this Tuesday to consider an additional county-wide income tax rate of 0.25% to fund public safety expenses (the “public safety local option income tax” or PS-LOIT). The public hearing will be held on Tuesday, 2016-05-23 at 5:30 PM at the Nat U Hill room in the Monroe County Courthouse.

There is a lot to this issue, and I’ll try to cover all of the salient points as briefly as possible. I’m sure I will forget something important, however!

What is the Public Safety LOIT?

Currently, our local option income tax rate is 1.095%, made up of a 1% County Option Income Tax (COIT), which is shared among the county, the cities and towns, the townships, the public library, Bloomington Transit, and Perry-Clear Creek Fire Protection District. The remaining 0.095% is a Juvenile County Option Income Tax (J-COIT), which is earmarked for county juvenile services, including the Binkley House Youth Shelter, the Juvenile Court, and Juvenile Probation. The revenue generated by the new public safety LOIT would be shared between the County, the City of Bloomington, and the Towns of Ellettsville and Stinesville. In addition, the fire departments that serve the townships are able to request a share of the funding — more about this later.

What Would the Money be Used For?

Screenshot 2016-05-21 21.41.05The revenue is statutorily earmarked for public safety, which includes pretty much what you would think it does: police/law enforcement, fire protection, emergency ambulance, emergency medical services, emergency action, probation, community corrections, juvenile detention, jail, 911 communications systems, medical and health expenses for inmates, and police and fire pensions. More specifics on what expenses are permitted can be found in the enabling statute: Public Safety Tax IN CODE.

The discussion about the public safety LOIT here in Monroe County was initially sparked by discussions about putting the county’s unified 911 dispatch center on firmer footing. The operations of the dispatch center is funded through a mixture of the E-911 tax on phone service (currently $1/month for wireless and landline phone service and $1/transaction for prepaid wireless) and Monroe County and City of Bloomington general fund revenues. In 2015, Monroe County spent $291K out of its general funds for the dispatch center, and the City of Bloomington spent $1.14M. Only $574K came from E-911 taxes — an amount that is likely to either remain flat or decline. Neither the Town of Ellettsville nor any of the township fire departments currently pay directly for the operations of the dispatch center.

The enabling statute for the public safety LOIT specifically allows a percentage of the revenue to be earmarked “off the top” (i.e., before the rest is given to Monroe County, the City of Bloomington, and the Towns of Ellettsville and Stinesville. The current proposal is for 30% of the revenue to be earmarked for the operations of the dispatch center.

IMG_4350
Monroe County 911 Dispatch Center

However, while the needs of the dispatch center sparked the initial discussion,  all of the public safety providers in the county have substantial long and short-term unmet demands that this additional revenue could help address. The City of Bloomington administration has said that replacing aging vehicles and capital equipment (fire and police) would be their top priority for the funding.

While we as a County Council have not yet discussed our priorities as a body, previous discussions have identified both additional police officers and a community corrections center/work release center as very high priorities. The need for additional community corrections capacity in particular is necessitated by recent changes in the state law that push the responsibility for lower-level felons to counties. This is an important topic that deserves its own detailed discussion. And our sheriff’s deputies are spread far too thin out in the county. Adding additional deputies is a particularly high and urgent priority for me.

In a state that makes it nearly impossible for local governments to raise revenues to meet the demands and costs of service, this LOIT may represent our only opportunity for our community to raise revenue for critical public safety needs.

 

How Much Revenue Would the Public Safety LOIT Raise?

The statute allows for an income rate of up to 0.25% to be adopted. The current proposal is to adopt the maximum of 0.25%, and earmark 30% for the dispatch center. Using 2016 county option income tax receipts to estimate. the LOIT would bring in approximately $6.96M annually. Of course, as this is an income tax, the actual receipts depend on the income earned by Monroe County residents, and thus could go up or down.

If the proposal for 30% for dispatch is adopted, the dispatch center would receive approximately $2.1M annually. Combined with the E-911 tax on phones, this would fully fund the dispatch center, eliminating the need for the county and city to subsidize the dispatch center out of their respective general funds. The ordinance that would impose this tax makes it easy to change the 30% number, depending on the actual budget requirements of the dispatch center. This topic may see some debate during the Council’s public hearing.

After the $2.1M for dispatch is deducted, approximately $4.87M would be available for distribution to the county and the three cities and towns. Although the public safety tax is an income tax, revenue is distributed according to a formula based on the relative property tax footprints of each unit. My estimates are as follows:

Screenshot 2016-05-21 22.53.59

So the county would receive approximately additional revenue $2.3M for public safety expenses, as well as the approximately $300K that it currently spends on the dispatch center that it would no longer need to spend.

Who Passes the Public Safety LOIT?

Here it gets a little weird. The body that is empowered to pass the public safety LOIT (as well as other local option income taxes specifically for counties that have adopted the County Option Income Tax (COIT) is a little-known institution called the County Income Tax Council.

The County Income Tax Council is not a regular deliberative body with individual members. Instead, it is  a “virtual council” that rarely, if ever meets. It is defined by statute as follows:

Every county income tax council has a total of one hundred (100) votes. Every member of the county income tax council is allocated a percentage of the total one hundred (100) votes that may be cast. The percentage that a city or town is allocated for a year equals the same percentage that the population of the city or town bears to the population of the county. The percentage that the county is allocated for a year equals the same percentage that the population of all areas in the county not located in a city or town bears to the population of the county. On or before January 1 of each year, the county auditor shall certify to each member of the county income tax council the number of votes, rounded to the nearest one hundredth (0.01), it has for that year. (IC 6-3.5-6-3)

In other words, this council is made up not of individuals, but of fiscal bodies of other units of government.

In Monroe County, the county income tax council is thereby made up of the fiscal bodies of the county (the Monroe County Council) and the fiscal bodies of each of the municipalities in the county — the Bloomington City Council, the Ellettsville Town Council, and the Stinesville Town Council.  As described above, the votes are allocated amongst these bodies in proportion to their populations (and the county is given the population only of the unincorporated areas). For 2016, this means that each body gets the following “votes” on the income tax council:

  • Monroe County Council: 36 votes
  • Bloomington City Council: 59 votes
  • Ellettsville Town Council: 5 votes
  • Stinesville Town Council: 0 votes

Poor Stinesville winds up rounding down to 0!

All votes are cast by the body as a whole — in other words, all of the Bloomington City Council votes as a single bloc, Monroe County Council as a single bloc, etc.

What is notable about this is that the Bloomington City Council has a simple majority of votes on the income tax council — therefore, it has the power to pass, or deny, taxes that apply to the entire county. The rest of the votes of the bodies on the income tax council, including those of the County Council, are essentially symbolic. I have criticized this arrangement in the past as coming close to taxation without representation: The Phantom Council and Personal Property Taxes.

But What About the Fire Departments?

As I mentioned before, any public safety LOIT revenues not earmarked for the dispatch center get divided up among the County and the three cities and towns. However, while fire protection within the city or town limits is the responsibility of the respective cities and towns, and thus the city or town can simply spend some or all of its share of the revenues on their fire departments, fire protection outside of the city/town limits is NOT funded by county government.

Screenshot 2016-05-21 21.44.44Instead, fire protection is funded by property taxes (and some share of income taxes) at the township level, unless the townships have  combined their fire protection responsibilities into a fire protection district or fire territory. Monroe County has one fire protection district (Perry-Clear Creek Fire Protection District, which includes Perry Township and Clear Creek Township) and is in the process of creating a fire territory (Northern Monroe Fire Territory, which includes Bloomington Township and Washington Township). However, the Northern Monroe Fire Territory will not be established in time for the purposes of the public safety LOIT this year.

Indian Creek, Bean Blossom, Benton, Van Buren, and Bloomington Township all have fire departments. The City of Bloomington Fire Department by contract provides fire protection to Salt Creek and Polk Townships. The Ellettsville Fire Department provides fire protection to Richland Township.

So why does this all matter? The public safety LOIT statute allows fire departments providing service to political subdivisions not already entitled to a distribution of public safety LOIT revenues (i.e., the fire departments serving the townships) to request funding from the income tax council on an annual basis for the subsequent year.

In practice, this means requesting funding from the Bloomington City Council, since they have the majority of votes on the income tax council. So the township fire departments are requesting funding from the Bloomington City Council, and the Bloomington City Council does not represent a single resident served by these township fire departments. Yet another problem with the whole concept of the income tax council! Incidentally, there was a bill in the recently-concluded session of the general assembly that would have entitled the townships to a distribution from the public safety LOIT as well as the cities and towns — however, it didn’t pass.

In any case, by statute, the fire departments must make their requests for funding to the income tax council before July 1 for the subsequent year. The decision by the income tax council must be made before September 1. Therefore, the tax itself would need to be established before July 1, in order for the fire departments to have any revenue in place for the 2017 budget.

So How Much Is This Going To Cost You?

Currently the Monroe County local option income tax rate is 1.095%. To see how this compares to other counties, see 2016 Local Income Tax Rates — How Does Monroe County Compare? If this public safety LOIT passes, our rate will be 1.345%. It would cost a taxpayer with an adjusted gross income of $50,000 an additional $125/year.

Public Hearing

The statute that allows this public safety LOIT can be found here: Public Safety Tax IN CODE. Here is the County Council packet that includes the resolution that will be considered, that casts the County’s votes on the income tax council in favor of establishing the public safety LOIT: Council_Work_Session_Packet_20160524. The packet also includes a resolution that the County Council will consider that clarifies some procedures regarding any requests by fire departments for funding for service in the townships.

As far as the process goes: the Town of Ellettsville will be taking their final vote on a resolution casting its votes on the income tax council in favor of the public safety LOIT proposal tomorrow evening, Monday, May 23rd. The Monroe County Council will be holding our public hearing Tuesday, May 24th on our resolution for the LOIT. And the Bloomington City Council is scheduled to vote on its resolution (the one that matters!) on June 1st.

 

Hope to see members of the public at the public hearing on Tuesday. And if you have any comments or questions, please feel free to send them to me. I hope I’ve explained the gist of the proposal here — but I’m sure there will be additional questions.

2016 Local Income Tax Rates — How Does Monroe County Compare?

WestsideBack in 2014, when Monroe County was considering a small increase in the Juvenile County Option Income Tax, I ran a comparison of Monroe County with the other 91 counties on overall income tax rates (Income Tax Rates in Indiana Counties — How Does Monroe County Compare?). Now that we are starting to hear some calls from public safety agencies for a public safety local option income tax (which would be passed by the Bloomington City Council, not the County Council, incidentally), I thought I’d re-run the comparisons using 2016 local option income tax rates.

Here is a table showing the total combined local option income tax rates for 2016 for each county in Indiana, along with each county’s percentile.

Screenshot 2016-03-17 07.26.43
2016 Local Option Income Tax Rates by County

Monroe is at the 24th percentile rank, which basically means that Monroe County’s income tax rates are in (near the top of) the bottom quarter. Put differently, 76% of Indiana counties have a higher income tax rate than Monroe County.

So how do we compare to our neighbor counties?

Screenshot 2016-03-17 07.31.47
2016 LOIT Rates for Monroe County Neighbors

Monroe County currently has the lowest income tax rates of any of its neighbor counties.

Finally, how does Monroe County compare with its “peer” counties?

Screenshot 2016-03-17 07.35.43
2016 LOIT Rates for Monroe County Peer Counties

Obviously the definition of “peer” county is somewhat subjective, but these counties are ones that Monroe County is typically compared against, in terms of population, urbanization, demographics, etc.  In this comparison, we have the second-lowest income tax rates, second only to Vanderburgh County.

Data Source: Indiana Handbook of Taxes, Revenues, and Appropriations, Fiscal Year 2015

2015 Income Tax Projections for Monroe County Received – 2.8% Increase

On August 1st, the Indiana State Budget Agency released the estimates of local option income tax collection (County Option Income Tax, or COIT) for each county, to be distributed for the 2015 budget year. The projections show Monroe County’s collections of its 1% COIT at $26,909,660, an increase of $712,539, or 2.8%, over the collections for 2014. In addition, the special Monroe County Juvenile COIT, used to fund juvenile services, is projected to jump from $1,309,856 to $2,556,418, an increase of $1,246,562, resulting from a recent hike in the Juvenile COIT rate from 0.05% to 0.095% that takes effect October 1, 2014.

Income tax is one of the primary sources of revenue to fund non-highway general operations of County Government — property tax is the other. Along with the annual “cost of living” increase in the property tax levy (2.7% for 2015, see State Releases Assessed Value Growth Quotient for Local Governments), the annual certified local option income tax collection is one of the most carefully-watched numbers in local government, since those two numbers determine to a large degree what the budgets of local units of government look like for the ensuing year.

The COIT collections are important not only because of their importance  to local governments as a source of revenue, but also because they serve as a barometer of the local economy (albeit a bit lagged). The following chart shows the overall COIT collections (not counting the Juvenile COIT) from 2008 to the current projection for 2015 in Monroe County. As the chart illustrates, our COIT, and therefore the income of local residents, has been going up relatively slowly but steadily since 2011, after a relatively sharp plummet from 2010-2011.

Monroe County Option Income Tax 2008-2015
Monroe County Option Income Tax 2008-2015

The income tax numbers that were just released are only projections; the state is required to release the official income tax certification before October 1. However, in the past the official September certifications have not differed from the August projections significantly. In fact, the income taxes to be paid out for 2015 (local units of government receive approximately equal monthly payments throughout 2015) have actually already been collected from Monroe County residents during the period of July 1, 2013-June 30, 2014.

The $26,909,660 projected for Monroe County for 2015 will be divided among all of the local units of government in Monroe County that receive COIT: Monroe County Government, the City of Bloomington, the towns of Stinesville and Ellettsville, the Monroe County Public Library, Perry Clear Creek Fire Protection District, and all of the township governments. The total income tax for Monroe County is divided up among all of these local units of government; each unit’s share — called Certified Shares — is determined roughly in proportion to each unit’s property tax levy as a fraction of the whole (with an adjustment for new debt, so that taking on debt doesn’t entitle a governmental unit to a higher proportion of the income tax). This distribution of the total COIT among the various local units of government has not yet been released.

All in all, the COIT projections are good news for local governments; although we are not seeing the sharp annual increases that we did before the recession hit, we are seeing another year of modest but steady growth. Good for the local economy, good for residents of Monroe County who, on average, are earning more, and good for the local units of government tasked with serving the local residents.

For reference, I have written about local option income taxes in Monroe County several times in the past:

Is a Commuter Tax Fair? Comments on Tully’s Column and Application to Monroe County

Matthew Tully wrote a very thoughtful column in last Thursday’s Indy Star (Tully: Commuter tax is fair, like it or not) on the idea of a commuter tax, and in particular the unfairness of Indiana’s current system of taxation, in which the residents of Marion County/Indianapolis provide and subsidize the jobs and infrastructure that benefit the residents of surrounding counties whose residents commute into Marion County to work.

This is a topic that comes up from time to time, and various proposals are periodically floated to make the system more fair to counties (like Marion) that are net employment counties — counties into which large numbers of residents of other counties commute for work.  Indiana’s system of income taxation has all income tax collections going to the county in which an individual resides, regardless of where she or he works. There are fewer net employment counties (generally, but not always, urban counties) than suburban counties, and thus a more fair system of taxation has proved thus far to be politically unpalatable.

Tully makes the case (and I agree with him) that some sort of modification of this system — for example, in which a small percentage of the income tax collected from an employee would go to the county where the job is — would be more fair, and in fact, would benefit everyone by ensuring that the employing county would have the resources to maintain the infrastructure that benefits both the employer and the employee.

So how would a commuter tax — or at least some sort of income tax revenue sharing between employer counties and the counties in which employees live — look in Monroe County? The StatsIndiana site provides a nice tool with which to analyze commuting patterns — the Annual Commuting Trends Profile — using Indiana Department of Revenue data analyzed by the Indiana Business Research Center (IBRC).

The data from Indiana tax returns for 2012 (the latest year for which data is available)  shows that Monroe County is clearly a net importer of labor from other counties (and states). 15,613 workers live in other counties or states but work in Monroe County. Only 5,683 workers live in Monroe County but work outside of the county, meaning that almost 10,000 net workers commute into Monroe County for work.

The following chart illustrates the top five counties sending workers into Monroe County.

Commuters Into Monroe County (2012)
Commuters Into Monroe County (2012)

Another similar chart illustrates the top five counties receiving workers from Monroe County (“out of state” counts as a county, for this analysis).

Commuters Out of Monroe County (2012)
Commuters Out of Monroe County (2012)

So while Monroe County employers clearly provides jobs — and local government provides the infrastructure and services required to support these jobs — local government in Monroe County does not receive any revenue associated with these jobs filled by commuters from other counties. No property tax, no income tax.

Unfortunately this data set only includes the number employees commuting in or out of Monroe County, not their income. It would be useful to have this information to determine whether or not a revenue-sharing arrangement would be beneficial to Monroe County. For example, 1076 employees commute to Marion County from Monroe County. While this number is much smaller than the number of employees commuting overall into Monroe County, one might surmise that the incomes of employees commuting to Marion County from Monroe County would be substantially higher than average. We would have to know the incomes of the employees commuting into versus out of Monroe County to know whether a commuter tax or revenue sharing arrangement would be beneficial. However, regardless of how beneficial it is, it is clearly a fairer system to apportion the revenues in some way between the county in which an employee lives versus where she works.

I’ve been playing around with some sort of metric that would measure the commuting patterns as a percentage of the overall economy of a county — that is, a good measure of whether a county is a net employer-county — and would allow good comparisons between counties for analysis of tax fairness.

My first attempt is the following: net in- versus out-commuters as a percentage of the total number of residents of a county who work (known as the implied resident work force). The following chart shows what this calculation would look like for a couple of Indiana counties that Monroe County is frequently benchmarked against:

Screenshot 2014-07-27 20.13.49

 

Clearly this metric does distinguish net employer counties like Marion — and Monroe and Tippecanoe and Vanderburgh– from suburban “bedroom” counties, like Hamilton and Hendricks and from rural counties like Greene. There are a couple of anomalies that show up. Despite including the second-largest municipality in Indiana, Allen County’s net in-commuting is a relatively small percentage of its work force. Martin County is also an anomaly, due to the large number of people who commute to the Crane Naval Surface Warfare Center from surrounding counties.

I hope that the discussion will continue during the upcoming General Assembly session, and I would expect this topic to receive some significant discussion by the newly-created blue ribbon commission on taxation. It is in everyone’s interest to promote economic development by ensuring that local governments can continue to provide the infrastructure and services to create and sustain good jobs.

Income Tax Rates in Indiana Counties – How Does Monroe County Compare?

As I have mentioned in previous postings, Monroe County is considering raising its income tax rate to support juvenile services from 0.05% to 0.095%. Several constituents have asked me how Monroe County’s income tax rate compares to other counties in Indiana.

First of all, there are six different types of local option income taxes available to all Indiana counties, in various combinations. They are:

  • County Option Income Tax (COIT) — Monroe County uses this, at a 1% rate
  • County Adjusted Gross Income Tax (CAGIT)
  • County Economic Development Income Tax (CEDIT)
  • Local Option Income Tax (LOIT) to freeze property tax growth
  • Local Option Income Tax (LOIT) to replace property taxes
  • Local Option Income Tax (LOIT) to support public safety

In addition, there are several special income taxes that are available through legislation specific to individual counties. Monroe County has one of these special income tax rates available for juvenile services (the so-called Juvenile COIT). We are authorized to raise the rate up to a maximum of 0.25%. The rate is currently 0.05%, and the County Council is considering raising it to 0.095%. If this passes, Monroe County’s total income tax rate would be 1.095%, up from 1.05%.

The other thing to remember about income taxes is that taxpayers pay income tax based on where they live, not where they work. So a Greene County resident who works in Monroe County, for example, would pay to Greene County an income tax rate of 1% (i.e., Monroe County would receive nothing). Incidentally, although not the topic of this posting, this system puts “employment center” counties (like Monroe, Tippecanoe, Marion, etc.) at a disadvantage relative to their neighbor counties.

So how does Monroe County’s total income tax rate stack up against other Indiana counties? The following table lists all of the counties in Indiana, along with their total income tax rate (combining all of the income taxes that the county has adopted) and their rank in the state, where 1 represents  the highest tax rate and 92 the lowest. For the purposes of this analysis, I used 1.095% for Monroe County (i.e., how we would compare IF we adopted the higher tax rate).

 

County  Income Tax Rate Rank
Pulaski County         3.130 1
Jasper County         2.964 2
Wabash County         2.900 3
Morgan County         2.720 4
Miami County         2.540 5
Cass County         2.500 6
Jay County         2.450 7
Fayette County         2.370 8
Parke County         2.300 9
Clay County         2.250 10
Grant County         2.250 10
Brown County         2.200 12
Warren County         2.120 13
Montgomery County         2.100 14
Wells County         2.100 14
Clark County         2.000 16
Clinton County         2.000 16
Washington County         2.000 16
Fulton County         1.930 19
Benton County         1.790 20
Steuben County         1.790 20
Daviess County         1.750 22
Huntington County         1.750 22
Lawrence County         1.750 22
Madison County         1.750 22
St. Joseph County         1.750 22
Starke County         1.710 27
Carroll County         1.704 28
Hancock County         1.650 29
Marion County         1.620 30
Howard County         1.600 31
Jackson County         1.600 31
Tipton County         1.580 33
Perry County         1.560 34
DeKalb County         1.500 35
Elkhart County         1.500 35
Lake County         1.500 35
Martin County         1.500 35
Noble County         1.500 35
Putnam County         1.500 35
Randolph County         1.500 35
Rush County         1.500 35
Union County         1.500 35
Wayne County         1.500 35
Scott County         1.410 45
Hendricks County         1.400 46
LaGrange County         1.400 46
Ripley County         1.380 48
Blackford County         1.360 49
Allen County         1.350 50
Decatur County         1.330 51
White County         1.320 52
Owen County         1.300 53
Bartholomew County         1.250 54
Franklin County         1.250 54
Henry County         1.250 54
Jennings County         1.250 54
Marshall County         1.250 54
Orange County         1.250 54
Shelby County         1.250 54
Vigo County         1.250 54
Whitley County         1.233 62
Floyd County         1.150 63
Adams County         1.124 64
Fountain County         1.100 65
Knox County         1.100 65
Tippecanoe County         1.100 65
Monroe County (*)         1.095 68
Delaware County         1.050 69
Boone County         1.000 70
Crawford County         1.000 70
Dubois County         1.000 70
Greene County         1.000 70
Hamilton County         1.000 70
Harrison County         1.000 70
Johnson County         1.000 70
Kosciusko County         1.000 70
Newton County         1.000 70
Ohio County         1.000 70
Posey County         1.000 70
Switzerland County         1.000 70
Vanderburgh County         1.000 70
LaPorte County         0.950 83
Spencer County         0.800 84
Dearborn County         0.600 85
Gibson County         0.500 86
Porter County         0.500 86
Warrick County         0.500 86
Pike County         0.400 89
Jefferson County         0.350 90
Sullivan County         0.300 91
Vermillion County         0.200 92

Pulaski County has the highest income tax rate in the state, at 3.13%, while Vermillion County, at 0.2% has the lowest. Monroe County’s rank is 68th.

So we are in the lower third of counties in Indiana for income tax rates. How do we compare to our neighbor and peer counties, though?

The following chart shows the 2014 income tax rates and rankings among Monroe County and its contiguous neighbors:

NeighborCountyTaxRates2014

Monroe County has the second lowest income tax rate of its neighbor counties.

Now how about our peer counties? Peer counties are counties that are generally similar to Monroe County in size and demographics (i.e., college towns, rural-urban breakdown, etc.). These counties are typically used in policy comparisons.

The following chart shows the 2014 income tax rates and rankings for Monroe County along with its peer counties.

PeerCountyTaxRates2014

If the proposed juvenile tax increase passes, we will be third-lowest of our peer counties. Currently we are actually tied with Delaware for second-lowest.

The final comment to make about local income taxes is that unlike property taxes, there is no guarantee that, despite the rates, the amount of tax actually collected will grow or remain stable over time. The amount of tax revenue for local governments is directly tied to the amount of income actually earned by county residents. and thus the overall economic development of the county.

 

 

Ohio Governor Proposes “Frack Tax” — But Concerns Lie Ahead

An article in the Cincinnati Enquirer today discusses the proposal of Ohio Governor John Kasich to create a new “frack tax” — a severance tax (a tax on the extraction of a nonrenewable resource) on the sales of oil and gas — that Kasich estimates will raise around $413M by 2017. The Governor, however, is proposing to use this new revenue to offset a proposed cut in individual and corporate income tax.

Of course oil and gas industry representatives claim this tax could result in less investment in oil and gas production in Ohio. This threat is almost certainly without merit, given the potential profits to be made from extraction from Ohio’s Utica shale (not to mention that there is a good argument to be made for disincentivizing fracking, although again, a tax is unlikely to do that given the potential profits).

But the interesting argument, from a tax policy perspective is that, as the article discusses, this tax as proposed could potentially put Ohio in a bind down the road a few years. As with any extractive industry, particularly one with such global price volatility, revenues are not predictable and will inevitably decline. If Ohio uses the frack tax to offset cuts in the (much more stable) income tax, the state could face a revenue crisis if and when oil and gas revenues decrease — and it is unlikely that state elected officials will find the political will to raise the income tax back up when the need arises.

Indiana will be facing the same situation with its gambling tax revenue.  Created to offset a number of other taxes, gambling revenue has been remarkably stable in Indiana in the past; however, new casino development in neighboring states — Ohio, in particular — will undoubtedly cause the revenue to decline substantially.

It is often politically more palatable to replace a broader-based tax (like income or property) with a more narrowly-based excise tax. But jurisdictions that do this frequently find themselves in a budget crisis down the road when the excise tax revenue becomes unstable or declines.

The frack tax is ultimately a positive development. However, it should not be used to allow corresponding cuts in income taxes. Instead it should be used for one-time investments (infrastructure repairs, for example) and to add to reserves, particularly since there may be long-term environmental costs of fracking that aren’t yet known.