The Phantom Council and Personal Property Taxes

There is a lot of attention  during this session of the Indiana General Assembly on personal property taxes (i.e., taxes on business equipment), spurred by a call from Governor Pence for their elimination. I’ll talk about the impact of the Governor’s proposal, as well as several of the bills in the Indiana General Assembly, on local governments in a separate post. My purpose here is to talk about a little-known institution called the County Income Tax Council — a body that has been referred to as the “phantom council.”

The connection is that one of the primary legislative vehicles for reduction or elimination of the personal property tax is House Bill 1001, which gives counties the option of eliminating personal property taxes on newly acquired personal property. This option, at least in the version of the legislation on the floor as of today, is exercised, not by the County Council, which normally exercises fiscal authority over county-wide taxation, but instead by the County Income Tax Council.

What is the County Income Tax Council?

The County Income Tax Council is a body created by statute (IC 6-3.5-6-2) for each county in Indiana to exercise oversight over the County Option Income Tax (COIT), one of 6 local income taxes allowed by Indiana statute. Its statutory duties and powers are: to impose or rescind the county option income tax, increase, freeze, or decrease the tax rate, and increase the COIT homestead credit for the county.  The County Income Tax Council also has some powers with respect to the wheel and vehicle excise taxes. And now — the General Assembly is proposing to give this body the power to eliminate personal property taxes on newly acquired personal property. For reasons I will explain below, this is highly problematic — in fact, the whole existence of the County Income Tax Council is problematic.

In keeping with the monicker “the phantom 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.

How Does This Play Out in Monroe County?

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 2014, this means that each body gets the following “votes” in the phantom council:

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

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.

Taxation Without Representation?

The important thing to notice about this breakdown is that the Bloomington City Council has an absolute majority on the County Income Tax Council. This is generally going to be the case in any county that has a single large municipality. In other words, it doesn’t matter what the County or Ellettsville or Stinesville say — the Bloomington City Council has the power to set income tax policy for the entire county. This raises a serious issue of representation. While every resident of Monroe County, including all residents of cities and towns, are represented by 4 (out of 7) members of the Monroe County Council (1 district and 3 at-large members), there are many residents of Monroe County — in fact, all residents outside of the City of Bloomington corporate limits — who are not represented by any City Council member.

Taking this argument one step further, because elimination of the personal property tax doesn’t simply reduce tax revenue — it actually shifts the tax burden to other property owners (i.e. raises the taxes of homeowners, to the benefit of businesses), we are actually faced with a situation in which a city council could vote to raise the taxes on residents who have NO representation on that council. This is a loophole that needs to be eliminated.

When Does the Income Tax Council Meet?

 So when does the Monroe County Income Tax Council — controlled by the Bloomington City Council — meet? In practice — never. The statute (IC 6-3.5-6-13.5) states that “A county income tax council must [emphasis mine] before August 1 of each odd-numbered year hold at least one (1) public meeting at which the county income tax council discusses whether the county option income tax rate under this chapter should be adjusted.” However, at least in the time that I have served on the County Council (since 2009) there has definitely not been a meeting of the Income Tax Council, and I believe that there has not been a meeting quite a bit before that. In fact, the most recent evidence I can find of a vote of any kind from the Income Tax Council is from 1995 (interestingly, in the form of a vote from the Bloomington City Council, then presided over by current Monroe County Commissioner Iris Kiesling). This lack of meeting, despite statute saying that the council “must” hold a public meeting on odd-numbered years, is similar to the experience of officials in other counties I’ve spoke with about the matter, and bolsters the notion of the income tax council as a “phantom council.”

What, Then?

 Most broadly, the county income tax council needs to be eliminated. The current situation allows, in some situations,county tax policy to be dictated by municipal councils who don’t represent the entire county. The obvious broader fix is simply to replace the county income tax council with the county council — the county fiscal body that is already empowered with oversight of all other countywide fiscal policy. As I mentioned above, the county council already represents all residents of the county, including those in cities and towns. The converse is not true. There is actually a bill this session, Senate Bill 258, that replaces the county income tax council with the county council; however, it doesn’t appear to be going anywhere this year.

Even if the General Assembly can’t find its way to close this loophole this session, it should still at least amend HB1001, which looks likely with a republican supermajority to pass in some form, to give the ability to opt out of personal property taxes, to the county council — the county’s fiscal body representing all county residents — rather than the phantom council.

2013 Budget Orders for Monroe County Released – Property Tax Rates for Monroe County

Stinesville City Limit
Stinesville City Limit

Monroe County and other local units of government in the county just received their 2013 budget orders from the Indiana Department of Local Government Finance. This is the official notice of state approval of the budget, property tax levies, and property tax rates for all funds that receive property tax revenues. A look at the property tax rates for each taxing district (area of the county in which tax rates are uniform within the area) shows few surprises:

Taxing District 2012 Rate 2013 Rate Increase (Decrease) % Change
Bloomington City – Richland Township 2.3710 2.2895 (0.0815) -3.44%
Ellettsville – Bean Blossom 2.4539 2.2131 (0.2408) -9.81%
Ellettsville Town 2.4504 2.2100 (0.2404) -9.81%
Bloomington City – Van Buren Township 1.9766 2.0582 0.0816 4.13%
Bloomington City – Perry Township 1.9390 2.0196 0.0806 4.16%
Bloomington City – Bloomington Township 1.9395 2.0194 0.0799 4.12%
Stinesville Town 1.7597 1.6146 (0.1451) -8.25%
Bean Blossom Township 1.6685 1.5393 (0.1292) -7.74%
Richland Township 1.6680 1.5390 (0.1290) -7.73%
Bloomington Township 1.4208 1.4652 0.0444 3.13%
Van Buren Township 1.3719 1.4180 0.0461 3.36%
Polk Township 1.3944 1.4060 0.0116 0.83%
Clear Creek Township 1.3016 1.3393 0.0377 2.90%
Perry Township 1.2695 1.3073 0.0378 2.98%
Salt Creek Township 1.3506 1.2318 (0.1188) -8.80%
Indian Creek Township 1.2017 1.2293 0.0276 2.30%
Benton Township 1.1679 1.2194 0.0515 4.41%
Washington Township 1.1583 1.1929 0.0346 2.99%

The district with the highest rate is the tiny area of Richland Township within the corporate limits of the City of Bloomington. This is a small, all-commercial district, and is atypically high, for that reason. Of the districts that include residential properties, the two Ellettsville districts have the highest tax rates, followed by the Bloomington districts and then the tiny Stinesville district. After that are the unincorporated areas of the county, with Washington Township showing the lowest rates. As I have mentioned before,  it is to be expected that taxing districts that include a municipality will have higher tax rates than those outside of a municipality, because the municipal districts will include all of the tax rates of the township that the district is in PLUS the tax rate for the municipality.

The other thing of note in the data is that, although some rates increased and some decreased from 2012 to 2013, the decreases far outpaced the increases. This is typical of a community that is growing steadily (adding assessed value) but not taking on substantial new debt or receiving excess levies. The substantial (8.8%) decrease in the Salt Creek Township tax rate was also an anomaly; a dispute between the township and the City of Bloomington Fire Department, which provides fire protection caused no fire protection tax rate to be assessed in 2011. 2012’s tax rate included both 2011 and 2012 fire protection services, so 2012’s rate for Salt Creek Township was artificially high. 2013 saw a return to a more typical tax rate for the district.

The full Monroe County 2013 Budget Order is available here: Monroe County 2013 Budget Order

TIF Neutralization for Monroe County Approved for 2012

Aerial View of Printpack Factory in Westside Economic Development Area (TIF District)

Monroe County just received notification that its annual TIF Neutralization calculations were accepted by the Department of Local Government Finance, the final step before the certification of our county’s net assessed value (NAV) — the value of all real and personal property in the county, after all deductions, abatements, and exemptions. The forms and calculations are available here: 2012Pay2013 TIF Neutralization.

But what is TIF neutralization and why does it matter?

To answer this question, remember what Tax Increment Financing (TIF) is. TIF is a technique for spurring economic development in a particular defined area (the TIF district) by investing in infrastructure that serves that area, and then using the additional property taxes generated by the new development as a result of that infrastructural investment (called the “increment”) to pay for that investment. The infrastructural investment is frequently primarily in roads, trails, and sewers — but can also be in the form of parks or other amenities that serve the TIF district — and can even be  in the form of training assistance and other intangibles.

This increment — the additional property taxes owed on new assessed value in a TIF district as a result in the infrastructural investment — is revenue that does NOT go to the other units of local government that serve the TIF district (e.g. the county, the public library, the township, the city or town, the school corporation, etc.). This is the source of the greatest controversy associated with tax increment financing — the development that occurs in TIF districts may result in an additional burden on the units of government that serve the TIF district, yet the revenue from the TIF district is siphoned off to support new infrastructure and development in the TIF district.

A related concern with tax increment financing is that a TIF district will capture (and siphon off from other units of government) the increment from increased property values — even from property values that are and would be increasing anyway. Why would they be increasing anyway? Maybe the real estate market is hot in the area. Maybe the area has become much more desirable for any one of a number of reasons. In any case, the annual TIF neutralization process attempts to address this concern by identifying the total increase in assessed value in a TIF district in a given year and then determining whether or not it is:

  1. an increase that would have occurred anyway, due to increasing property values in the area; or
  2. an increase that is beyond that of the surrounding area, and therefore attributable to the investment in the TIF district.

The increased assessed value from (1) — the increase that would have happened regardless of the investment — belongs to the units of government that serve the TIF district. The increased assessed value from (2) — the increase that occurred due to the infrastructural investment, i.e.,the increment — belongs to the TIF district.

Although you can read the TIF neutralization forms in detail if you want, the following table summarizes the property taxes that each TIF district will receive in 2013 (actually, the maximum possible property taxes that each TIF district will receive). Again, in principle, this is the increment that is attributable to the investment in infrastructure in the TIF district (but is therefore not available to the other units of government that serve the TIF district).

2012 Pay 2013 Monroe County TIF Neutralization Summary

Jurisdiction TIF District Potential Tax Increment for the TIF District
City of Bloomington
Thompson Original  $897,051.00
Thompson Expanded  $210,286.00
Walnut-Winslow  $86,887.00
Original Downtown  $2,040,770.00
Expanded Downtown  $373,043.00
Adams Crossing  $596,531.00
Kinser-Prow  $91,094.00
Whitehall/Gates  $1,162,094.00
Tapp Road  $248,226.00
Monroe County
Westside  $1,634,763.00
State Road 46 (North Park)  $160,017.00
Fullerton Pike  $297,560.00