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

27 Jul

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.

The June Doldrums in Monroe County Employment

20 Jul

Yesterday, the Herald Times published the story Monroe County’s jobless rate jumps 1.1% in June [subscription required]. The HT typically publishes a short story of this type monthly, after the unemployment numbers by county are released by the Indiana Department of Workforce Development. In particular, the (unsigned) story states that:

“Monroe County’s unemployment rate rose in June by more than a full percentage point to 6.3 percent, moving it into the bottom half of Indiana’s 92 counties in terms of employment. That is as far down the list as the county has fallen in recent memory. Monroe’s employment fluctuates with Indiana University’s calendar, but to fall to more than 6 percent unemployed during the summer months is highly unusual.” [emphasis mine]

This paragraph lends the story a bit of an ominous tone, as though our local economy is somehow teetering on the brink of another recession…that we are in uncharted territory with such a drop in June employment. In fact, the data shows that not only do we always have a drop in employment in June (as businesses cut back due to large numbers of students leaving for the summer), but that we have a drop of similar magnitude.

I created a chart of Monroe County’s unemployment rate from 2010 to the present (June 2014), and as you can see below, the exact same phenomenon happens every year — that April is an annual trough for unemployment, that unemployment peaks by about 2 percentage points by June, and then starts to fall again. In fact, even the Herald Times’ own article for the same period last year –Monroe County unemployment jumps with the season — shows our June (2013) unemployment rate at 8.5%! So how can they now claim that “to fall to more than 6 percent unemployed during the summer months is highly unusual”?

Monroe County Unemployment Rate 2010-2014 (June)

Monroe County Unemployment Rate 2010-2014 (June)

In fact, what is unusual about 2014, as shown from the graph, is how low the overall unemployment rate is! Even our peak June employment rate in 2014 is fairly close to the low point for the previous four years.

The data that I used for this chart can be found all the way back to 2000, from the STATSIndiana site.

State Releases Assessed Value Growth Quotient for Local Governments

1 Jul
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.






Monroe County Tax Abatement Compliance Findings for 2014

29 Jun
Factory Development in Westside of County

Factory Development in Westside of County

The Monroe County Council held its annual tax abatement compliance hearings at its regular June 10, 2014 meeting and after some good discussion about the value of tax abatements, found all tax abatement recipients in compliance with the terms of their abatements. This post will give a little more background about the process.

What is a Tax Abatement?

A tax abatement is a phase-in granted to a company on the new property taxes owed on the increased assessed value generated by the company’s investment in either real property (buildings) or personal property (equipment). Tax abatements typically have a duration of 10 years (although abatements of any duration up to 10 years are allowed by law, and a new law provides for abatements for personal property of up to 20 years in 2015), and typically start at 100% for the first year of the abatement, and step down gradually, so that by the 10th and final year of the abatement, only 10% of the taxes on the new assessed value are abated. Tax abatements are only granted on new investment, and so will never result in a decrease in property taxes owed by a company.

What is the Purpose of a Tax Abatement?

The intention of a tax abatement is to incentivize a company to invest in real property and equipment in a way that creates or preserves jobs and increases wages and benefits. Generally, a company’s investment in real property and equipment should have two separate benefits.

The first is that the tax base increases. The primary benefit of an increased tax base is that the tax rate goes down (slightly) for all taxpayers in the district, and subsequently that the circuit breakers (tax caps) have a slightly lower impact on units of local government (see my previous posts on the circuit breakers here and here for more background). Additional assessed value also does result in a small amount of additional revenue for local government — but only for so-called rate-controlled funds like cumulative capital development funds.

Traditionally, increased assessed value was the primary motivating factor for economic development tools like tax abatements; however, contrary to popular understanding, Indiana’s system of property taxation means that additional assessed value doesn’t actually generate a lot of additional revenue for government. I wrote a posting a few weeks ago that dealt with this issue explicitly (Does New Development Generate New Property Taxes for Local Government?).

The second, and more important goal is to use that investment to create additional jobs and and wages to the community. This goal isn’t as simple as it might seem, and there is a lot of contested terrain here.

First of all, many local economies, such as that of Bloomington/Monroe County, are regional in nature. Our businesses and public-sector institutions like IU and Ivy Tech provide jobs for residents of surrounding counties as well as Monroe County (there is also some outbound commuting as well, for example, to Crane). However, because of the way that income taxes in Indiana work, local governments in Monroe County only receive income taxes from Monroe County residents, regardless of where they are employed.

Second, when communities have relatively low unemployment (Monroe County’s unemployment rate for May 2014 was 5.2%, one of the lower rates — but definitely not the lowest — in the state), it is questionable as to whether additional jobs actually go to existing residents or simply encourage people to either move here or encourage people to commute from surrounding jurisdictions, neither of which necessarily benefit existing residents.

Third, some believe that government incentives should only be used to create higher-paying jobs — for example, those that raise the overall median wage for the area. However, a counter-argument, is that it is important to have jobs at many wage levels, to provide entry-level opportunities for residents, especially those at the lower skill levels. For example, jobs in the life sciences and technology industries tend to provide higher wages, but also require much higher skill-levels. These jobs might raise the median wage for the area, but might also be inaccessible to large numbers of residents.

Many local governments in Indiana have been increasingly dependent on income taxes for revenue for basic services (and there are a number of reasons why they have been forced to do so, including many laws that restrict the increase in property taxes, regardless of the increase in costs of services). So the creation and sustainment of both jobs and payroll have become essential to the funding of local government.

Do Tax Abatements Work?

The academic literature on the effectiveness of tax abatements is mixed; most studies show that tax abatements have little effect on whether or not a company selects a particular region to locate (workforce and quality of life factors are more dominant)– but may have an effect on which jurisdiction a company locates within a region. Many local officials also feel that they need to make abatements available because other jurisdictions do. Tax abatements do also have some effect on expansion investments made by companies already in a particular location. I’m giving a little of short-shrift to this important topic, because I think that it deserves a posting on its own.

What is the Process for Assessing Compliance?

Tax abatement compliance hearings is a statutorily-mandated annual process for all companies with tax abatements granted by the county (the City of Bloomington uses the same process for their abatements that compares the proposals made by companies at the time of application for a tax abatement (the “statement of benefits”) with the actual investment made, jobs created or retained, and payroll of those jobs. In other words, did the company do what they said they were going to do at the time that they applied for the abatement?

The compliance process begins with submission of data from the abatement recipients (on investments made, jobs created, and the salaries of those jobs created). The data is submitted both on a state-mandated form (the CF-1), which is generally considered very difficult to follow, and a Monroe County-specific form meant to make the data easier to interpret.  The following are the Monroe County data sheets submitted by all Monroe County tax abatement recipients. These data sheets document the basic parameters of the abatement — when it began and when it ends, the number of jobs and payroll at the beginning of the abatement, and the number of jobs created (or lost) and the payroll at the present.

This data is then reviewed by the County’s Economic Development Commission (EDC), a three-person citizen panel, who then makes recommendations to the County Council on whether to find the companies in compliance with their proposals that they submitted when they applied for their abatements. These proposals specify the investment the company will make, the estimated number of jobs the investment in create or retain, and the payroll represented by those jobs. The roles and responsibilities of the Economic Development Commission are specified in IC 36-7-12.

If the company has actually achieved all of their commitments (i.e, created all of the jobs and wages that they had proposed in their application), then no additional review is required by the EDC — the company is in full technical compliance. However, even if the abatement recipient has not actually been successful at achieving all of their commitments, the EDC can find the company in substantial compliance, if the reasons that they are not technically in compliance are out of the company’s control, or if technical compliance no longer makes sense.

For example, because of the economic downturn and changes in their customers’ orders, Baxter Pharmaceuticals was unable to create the number of jobs that they had originally proposed. On the other hand, the payroll of the jobs they did create and sustain are substantially higher than proposed. Another example was BioConvergence, in which their initial business plan did not materialize because Cook essentially opened a directly-competing business right next door to them. Representatives from BioConvergence and Baxter have attended past Council abatement hearings and EDC meetings in person to explain their respective situations and answer questions.

The Monroe County Economic Development Commission (EDC) consists of Greg Travis, Regina Moore, and Kirk White. For 2014, the EDC recommended that all abatement recipients be found in compliance with their statement of benefits, although several of the compliance findings were contingent on the provision of additional clarifying information.  The findings of the EDC are here:

These recommendations are then presented to the Council, and the Council votes whether or not to find the recipients in compliance. The Council conducted the hearings at the meeting on June 10th. The hearings are an opportunity for the council to discuss and vote on the recommendations of the EDC, and also for members of the public to be heard. We did not hear from any members of the public at the meeting on June 10th, although we have definitely heard from members of the public at past tax abatement compliance hearings.

Memorandum of Understanding

One of the common concerns about tax abatements is that it is difficult for a unit of government to seek recourse from companies who do not comply with the terms of their abatement. First of all, the company can’t be held accountable for circumstances beyond its control — and that can include a lot of gray area. Second, the only statutory remedy the government has is to rescind the abatement — and rescission will almost certainly result in litigation, which most units of government try to avoid like the plague!

In order to address these concerns, and also to generally provide more accountability between both parties, in recent years, the Council has begun making use of Memorandums of Understanding (MOUs). MOUs are binding contracts between the abatement recipient and the county spelling out mutual expectations much more specifically than are found in the state statute governing tax abatements. For example, each MOU the Council has drafted specifically defines what “substantial compliance” is, addresses when jobs are supposed to be created by, addresses the liquidated damages for non-compliance (commonly called clawback provisions) and specifies that any litigation be conducted within the Monroe County Circuit Court jurisdiction.

Signed CF-1 Forms

After the council voted (unanimously) to find all of our abatement recipients in compliance, I signed on behalf of the Council all of the compliance forms (called CF-1 forms) that are then filed and serve as documentation of compliance with the terms of the abatements.  The following are the signed CF-1s for 2014 for all Monroe County tax abatement recipients. Note that there can be more than one form for each company, for several reasons. First, a company can receive multiple abatements. An abatement is for a specific investment, and a company can make multiple investments, all of which are eligible to receive an abatement (of course, they cannot double-count the jobs or wages created by the investment!). Second, companies apply separately for abatements of real property and personal property (equipment), so a given investment  might have two separate compliance forms if it involves both real and personal property.

I hope this posting gives a little bit of context to the whole concept of tax abatements as an economic development tool, and also provides the public with easy access to the actual documentation that abatement recipients provide the county during the annual compliance process. I know I’ve only scratched the surface, and will attempt in future postings to address some of the criticisms that are often levied against tax abatements (some of them highly legitimate and others not much).

Additional References

Preview of Today’s Monroe County Council Meeting (2014-06-10)

10 Jun
Monroe County Courthouse at Night

Monroe County Courthouse at Night

The agenda and packet for today’s regular meeting of the Monroe County Council is available here:


Following are the highlights of the agenda:

  • In what will be the primary substantive issue of the evening, the Council will be conducting compliance hearings for companies who have received tax abatements from Monroe County.
    • This is an annual process for all companies with tax abatements granted by the county that begins with submission of data from the abatement recipients (on investments made, jobs created, and the salaries of those jobs created).
    • This data is then reviewed by the County’s Economic Development Commission (EDC), a three-person citizen panel, who then makes recommendations on whether to find the companies in compliance with their proposals that they submitted when they applied for their abatements.
    • These recommendations are then presented to the Council, and the Council votes whether or not to find the recipients in compliance. This item is a specifically advertised public hearing, and will begin at 6PM. Tax abatement recipients are welcome to address the Council, as are any members of the public.
    • In recent years, the Council has begun making use of Memorandums of Understanding (MOUs), binding contracts between the abatement recipient and the county spelling out mutual expectations much more specifically than are found in the state statute governing tax abatements. For example, each MOU the Council has drafted specifically defines what “substantial compliance” is.
  • Nancy Richman, the executive director of Volunteers in Medicine, will be providing an update to the Council on VIM.
  • The Department of Stormwater Management is requesting an additional appropriation to purchase a utility truck.
  • The County Commissioners are requesting an additional appropriation from the Energy Conservation Non-Reverting fund for additional light bulbs and other energy-saving equipment.
  • The Prosecutor is requesting a small $600 transfer from their travel and training line for Adult Protective Services into hourly salaries.
  • The Probation department is requesting to refill a vacant Juvenile Probation Officer, the appropriation of a grant to fund the Drug Court Coordinator position, and the annual salary ordinance amendment for their Community Corrections grant.
  • The Youth Services Bureau is requesting appropriation of two grants, the Youth Services Bureau grant and the Safe Place grant.

As with all County Council meetings, this meeting is open to the public. Public comment will be taken at the beginning of the meeting, as well as in conjunction with all items on the agenda. The meeting will also be broadcast live on CATS. Hope to see you there!

Circuit Breaker (Tax Cap) Impacts for 2014: Part 2

9 Jun
Courthouse Fish

Courthouse Fish

Last week I wrote about the impact of the circuit breakers on Monroe County  — Circuit Breaker (Tax Cap) Impacts for 2014, Part 1 — which summarized the overall impacts on Monroe County (an overall revenue loss of $819,507 for 2014, an increase of $272,558 over 2013). This reduction in revenue for local governments is spread across all units of government in Monroe County that receive property tax revenues (the County, all three municipalities in Monroe County, the two school corporations, 11 townships, the public library, the Perry Clear Creek Fire Protection District, the Solid Waste Management District, and Bloomington Transit). In this post, I’ll break the $819,507 revenue loss by unit of government.

Circuit Breaker Losses for Monroe County Units of Government

The data for all units of government in Indiana for 2014 is available here:

The following table shows the circuit breaker losses for each unit of government in Monroe County. In addition to the 2013 and 2014 circuit breaker losses, I added two columns to compare the circuit breaker losses to the overall property tax levy for each unit of government.


2014 Circuit Breaker Impact by Taxing Unit in Monroe County

2014 Circuit Breaker Impact by Taxing Unit in Monroe County


Overall, both in terms of absolute values and percentages, the impact on units of government in Monroe County (with a couple of exceptions) is relatively minimal. This means that, in 2014 at least, the circuit breakers are not harming local governments too severely; alternatively, this can be rephrased to say that the circuit breakers are delivering minimal reduction in property tax to the taxpayers.

Ellettsville and Richland-Bean Blossom

The two exceptions appear to the be the Richland-Bean Blossom School Corporation, in which the $127,271 circuit breaker loss represents 1.6% of their overall property tax levy, and the Town of Ellettsville, in which the $100,002 circuit breaker loss represents a substantial 6.0% of their overall levy. Why is this?

The primary reason that both of these units took a relatively large hit from the circuit breakers is that the overall tax rate for the taxing district referred to as “Ellettsville Town” (the portion of Ellettsville that is located in Richland Township) is relatively high — $2.4241 per $100 of assessed value. This is the highest tax rate in Monroe County (in comparison, the tax rate for the portion of the City of Bloomington in Bloomington Township is $2.0762). The Ellettsville Bean Blossom taxing district (the portion of Ellettsville in Bean Blossom Township) is only slightly less, at $2.4220. The reasons why taxes are so high in Ellettsville are a topic for a different day!

From Tax Rates to Circuit Breakers

A tax rate of $2.4241 (essentially 2.4241%), is naturally going to generate some circuit breaker impact, and the reasoning is intuitive. Since the circuit breaker limit for non-homestead residential properties is 2% of assessed value, any tax rate of over 2% is bound to affect non-homestead residential properties. Similarly, any tax rate of over 3% will affect business properties. Since Monroe County has no tax rate over 3%, we should not expect to see any business property affected by the circuit breakers (and indeed we are not seeing any affect at all from the 3% circuit breaker). Note that homestead properties (the 1% circuit breaker) are more complicated — the homestead deduction and supplemental homestead deduction ensure that homestead properties are taxed at a net assessed value substantially less than their gross assessed value.

So we know that the (relatively) high tax rate of the Ellettsville Town (and Ellettsville Bean Blossom) taxing districts will ensure that the circuit breakers will impact some taxpayers in those two taxing districts. So how is that circuit breaker loss allocated to the units of government that serve that district? Let’s consider an example: a rental property in Ellettsville Town, assessed at $100,000. The tax rate of $2.4241 would result in a property tax liability of $2421.10 for the owner. However, the circuit breaker for non-homestead residential properties is 2%, which would mean $2000 for our example. This means that the circuit breaker would reduce the owner’s property tax liability by $424.10 (note that this doesn’t reduce the property owner’s demand for government services!!).

So how does that reduction in revenue of $424.10 get doled out to the units of government that serve that property? In proportion to the contribution of each unit of government to the overall tax rate. Again, consider our example for Ellettsville Town. The tax rate for Ellettsville town is the sum of all of the tax rates of units of government that serve that district. The following table shows those individual tax rates:

2014 Tax Rates for Ellettsville Town

2014 Tax Rates for Ellettsville Town

So from this table, you can see that 37% of the tax rate comes from the Town of Ellettsville, and 42% of the tax rate comes from the Richland-Bean Blossom School Corporation. This means, for our hypothetical property owner, that about $156.91 (37% of the 424.10 circuit breaker) comes out of Ellettsville and $178.12 (42%) comes out of the Richland-Bean Blossom School Corporation. This jibes with the overall circuit breaker impact for Ellettsville of $100,002 the slightly higher impact for Richland-Bean Blossom School Corporation of $127,271.

So How Bad Could it Be?

Let’s just consider the case of the Richland-Bean Blossom School Corporation. A hit of $127,271 on a school corporation that is already, like almost every other school district, starved for resources, will never be easy to absorb, and certainly will mean real cuts. Remember that the circuit breakers do not in any way reduce the demand for or cost of services; they only reduce the resources that the governmental unit has to provide those services!!

However, there are other school corporations that have been hit much harder. For example, consider the Hamilton Southeastern School Corporation. Their circuit breaker impact for 2014 was an enormous $3,141,623 — over $3M to cut from the school budget just in 2014 as a result of the tax caps! Per the National Center for Educational Statistics, the Hamilton Southeastern School Corporation has around 19,053 students — meaning a $164.89 cut per student from the tax caps. In comparison, the Richland-Bean Blossom School Corporation has 2770 students, meaning that the circuit breakers cost only $45.95 per student.

In conclusion, we are fortunate in Monroe County to have high property values and low tax rates, which work together to keep the impact of the circuit breakers low — even in the more highly-taxed Ellettsville taxing districts. However, even a $100K cut — essentially a $100K unfunded mandate — can seriously hurt. And we should stand behind our fellow school districts, and other units of government, that are facing backbreaking unfunded mandates that can seriously jeopardize their ability to provide basic services.

Circuit Breaker (Tax Cap) Impacts for 2014, Part 1

5 Jun
Courthouse Fish

Courthouse Fish

Although this doesn’t exactly rate as breaking news, the Indiana Department of Local Government Finance recently released the 2014 reports on the impacts of the circuit breakers for all units of local government in Indiana, including Monroe County. Today’s post is part one of a two-part series on the circuit breakers in Monroe County. Today I will discuss what the circuit breakers are, and how much they are costing Monroe County (or conversely, saving Monroe County taxpayers) in 2014.  Tomorrow’s post will break the numbers down a little further and discuss the impact on individual taxing units within Monroe County, as well as consider what the trends mean for the future.

What Are Circuit Breakers?

The circuit breakers — also referred to as “tax caps” — refer to various statutory (and constitutional) limitations on the property tax responsibility of individual property taxpayers in Indiana. There are actually two types of circuit breakers: the 1%-2%-3% circuit breakers and the Over 65 circuit breakers. Note that circuit breakers are limitations on an individual’s property tax bill, and represent a loss of revenue to the local units of government; local units cannot shift this loss to other taxpayers.

1%-2%-3% Circuit Breakers

1%-2%-3% Circuit Breakers are caps in the amount of property tax owed by taxpayers as a percentage of the gross assessed value of their property. These circuit breakers apply to the following property types:

  • 1% of homestead properties
  • 2% of other residential properties, long-term care facilities, and agricultural land
  • 3% of all other properties (i.e., business and personal property)

For example, the property taxes of an owner-occupied (homestead) house that is assessed at $150,000 are capped at 1% of that assessed value, or $1500. If the house is not a homestead (i.e., is a rental property or vacation home), the limit would be 2%, or $3000. Only property taxes that are passed by referendum are exempt from the circuit breaker calculations. For example, voters in 2010 passed an operating levy via referendum for the Monroe County Community School Corporation (MCCSC). These taxes do not count towards the amount used to determine the circuit breaker.

These circuit breakers were placed into the Indiana Constitution by referendum in 2008 (wisely, Monroe County voted against!). The following is the section of the Indiana Constitution that refers to the circuit breakers:

Indiana Constitution, Article 10: Finance

This subsection applies to property taxes first due and payable in 2012 and thereafter. The following definitions apply to subsection (f):         (1) “Other residential property” means tangible property (other than tangible property described in subsection (c)(4)) that is used for residential purposes.         (2) “Agricultural land” means land devoted to agricultural use.         (3) “Other real property” means real property that is not tangible property described in subsection (c)(4), is not other residential property, and is not agricultural land.     (f) This subsection applies to property taxes first due and payable in 2012 and thereafter. The General Assembly shall, by law, limit a taxpayer’s property tax liability as follows:         (1) A taxpayer’s property tax liability on tangible property described in subsection (c)(4) may not exceed one percent (1%) of the gross assessed value of the property that is the basis for the determination of property taxes.         (2) A taxpayer’s property tax liability on other residential property may not exceed two percent (2%) of the gross assessed value of the property that is the basis for the determination of property taxes.

       (3) A taxpayer’s property tax liability on agricultural land may not exceed two percent (2%) of the gross assessed value of the land that is the basis for the determination of property taxes.

        (4) A taxpayer’s property tax liability on other real property may not exceed three percent (3%) of the gross assessed value of the property that is the basis for the determination of property taxes.         (5) A taxpayer’s property tax liability on personal property (other than personal property that is tangible property described in subsection (c)(4) or personal property that is other residential property) within a particular taxing district may not exceed three percent (3%) of the gross assessed value of the taxpayer’s personal property that is the basis for the determination of property taxes within the taxing district.     (g) This subsection applies to property taxes first due and payable in 2012 and thereafter. Property taxes imposed after being approved by the voters in a referendum shall not be considered for purposes of calculating the limits to property tax liability under subsection (f).     (h) As used in this subsection, “eligible county” means only a county for which the General Assembly determines in 2008 that limits to property tax liability as described in subsection (f) are expected to reduce in 2010 the aggregate property tax revenue that would otherwise be collected by all units of local government and school corporations in the county by at least twenty percent (20%). The General Assembly may, by law, provide that property taxes imposed in an eligible county to pay debt service or make lease payments for bonds or leases issued or entered into before July 1, 2008, shall not be considered for purposes of calculating the limits to property tax liability under subsection (f). Such a law may not apply after December 31, 2019.

Over 65 Circuit Breakers

The Over 65 Circuit Breaker is a different limitation on property tax liability. It is aimed at limiting the annual increases on individual tax bills for homesteaders on fixed incomes. In particular, it applies to homestead properties (dwelling plus up to one acre of land) occupied by owners over 65 years of age earning up to $30,000 per year ($40,000 including spouse’s income) that are assessed at $160,000 or less. This circuit breaker limits the annual increase in property taxes to qualifying homesteads to 2%.

Monroe County Circuit Breaker Impacts: 2013 vs. 2014

The following table summarizes the impacts of all of the circuit breakers in Monroe County for 2014, and compares them to their 2013 values.

Circuit Breaker Type 2013 2014 2013-14 Change
1% $276,551 $437,807 $161,256
2% $75,343 $184,441 $109,098
3% $0 $0 $0
Over 65 $195,054 $197,258 $2,204
Total $546,948 $819,507 $272,558

The big takeaways are:

  • The circuit breakers overall are responsible for the loss of $819,507 in revenue for Monroe County, spread across all units of local government (Part 2 of this series will explore how this breaks down across units)
  • Monroe County does not (yet) have any 3% circuit breakers that apply — this means that our property taxes are still relatively low compared to our assessed values, and no property owner’s taxes are higher than 3% of the assessed value of the property.
  • Homesteaders (the 1% circuit breaker) overall are receiving the majority of the benefit of the circuit breakers (and conversely the 1% circuit breaker is responsible for the majority of the revenue loss for Monroe County governmental units)
  • Both the 1% (homestead) and 2% (other residential, and agricultural) circuit breakers increased substantially from 2013 to 2014. This means that the tax rates overall are rising at a faster rate than the assessed values.
  • The Over 65 circuit breaker resulted in a substantial tax benefit to seniors at $197,528, and did not increase significantly from 2013-2014. This is to be expected. Property taxes did not rise substantially from 2013-2014, and the number of seniors in the community is relatively stable.

Monroe County vs. Other Counties

So how does the impact of the circuit breakers on Monroe County stack up against other counties? The following table shows the total 2014 circuit breaker amounts for each of the counties in Indiana (except for LaPorte, for which information isn’t yet available).

County 2014 Circuit Breaker Credits Rank
Adams  $1,325,779 45
Allen  $41,832,625 5
Bartholomew  $4,316,169 25
Benton  $328,682 68
Blackford  $1,729,236 37
Boone  $6,940,803 19
Brown  $6,734 87
Carroll  $646,942 60
Cass  $4,834,561 22
Clark  $14,649,111 13
Clay  $10,309 85
Clinton  $1,722,315 38
Crawford  $1,002,107 50
Daviess  $3,129,441 29
Dearborn  $1,352,580 44
Decatur  $748,888 56
Dekalb  $1,509,653 40
Delaware  $38,692,470 6
Dubois  $1,439,246 42
Elkhart  $42,631,061 4
Fayette  $4,642,186 23
Floyd  $3,136,453 28
Fountain  $240,270 71
Franklin  $70,859 78
Fulton  $77,569 76
Gibson  $2,732,445 31
Grant  $4,446,594 24
Greene  $1,570,395 39
Hamilton  $34,397,933 7
Hancock  $7,560,564 18
Harrison  $46,086 81
Hendricks  $23,977,928 10
Henry  $6,231,667 20
Howard  $15,738,686 12
Huntington  $4,081,931 26
Jackson  $1,125,336 49
Jasper  $5,231 88
Jay  $665,183 58
Jefferson  $1,290,981 46
Jennings  $890,363 52
Johnson  $13,498,733 14
Knox  $5,414,035 21
Kosciusko  $1,402,124 43
LaGrange  $256,193 70
Lake  $87,265,079 2
LaPorte #N/A
Lawrence  $2,754,204 30
Madison  $31,344,790 8
Marion  $186,706,689 1
Marshall  $1,464,948 41
Martin  $93,961 75
Miami  $1,831,297 36
Monroe  $819,507 54
Montgomery  $2,376,956 32
Morgan  $38,705 82
Newton  $406,660 65
Noble  $1,145,910 48
Ohio  $425 91
Orange  $73,313 77
Owen  $170,191 74
Parke  $58,054 80
Perry  $1,946,042 35
Pike  $416,415 64
Porter  $12,387,578 15
Posey  $888,970 53
Pulaski  $789 90
Putnam  $230,993 72
Randolph  $3,359,707 27
Ripley  $24,301 84
Rush  $2,003,785 33
St. Joseph  $72,088,709 3
Scott  $1,272,741 47
Shelby  $1,965,594 34
Spencer  $66,323 79
Starke  $617,573 61
Steuben  $272,726 69
Sullivan  $772,974 55
Switzerland  $8,301 86
Tippecanoe  $7,931,537 17
Tipton  $405,963 66
Union  $439,901 63
Vanderburgh  $20,276,320 11
Vermillion  $934,495 51
Vigo  $24,132,421 9
Wabash  $176,141 73
Warren  $2,283 89
Warrick  $663,090 59
Washington  $686,041 57
Wayne  $8,921,491 16
Wells  $28,138 83
White  $400,544 67
Whitley  $459,789 62

From this comparison, we can see that the impacts on Monroe County, ranking 54 of 91, are relatively low compared to many other counties.  It isn’t surprising that the circuit breakers hit the biggest counties/municipalities the greatest — Marion, St. Joseph, Elkhart, Lake, Allen. There are several anomalies in the list — for example, Delaware County, ranked 6th, saw a disproportionate hit from the circuit breakers. Tippecanoe County saw a much greater impact, at almost $8M, than did Monroe, at less than a million.

Of our neighbors, Lawrence County saw the highest impact, at $2,754,204, while Brown County saw the lowest impact, at a paltry $6,734.

Overall, Monroe County continues to see low property taxes, and relatively high assessed values (meaning strong real estate value). However, the increases from 2013-2014 are concerning, not because they have a particularly high impact in 2014 (they don’t), but because they could cause bigger problems in the future if the trend continues.




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