Preview of Tomorrow’s Monroe County Council Meeting (2014-04-08)

7 Apr
Monroe County Courthouse

Monroe County Courthouse

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

Following are the highlights of the agenda:

  • Proposed increase in the Juvenile County Option Income Tax rate. This is undoubtedly the highlight of the meeting.
    • The Juvenile COIT rate — a special income tax used to support juvenile treatment and services — is currently set at 0.05%. The Council will consider raising it up to a potential of 0.1% (the rate that was advertised), in order to keep existing juvenile services sustainable. The Council will consider moving other expenses that are already being paid in support of juvenile treatment from other funding sources into the Juvenile COIT fund.
    • These expenses include both capital and operating costs of maintaining the county’s juvenile services at the Binkley House and the Johnson Hardware building, as well as the costs of staffing the juvenile court system.
    • Any tax increase, if passed, would take effect on October 1, 2014.
    • This meeting has been advertised as a public hearing, required for raising any county income tax rates. Public comment will be taken (and is encouraged!).
  • Approval of an amendment to an interlocal agreement between the City of Bloomington and Monroe County, in order to use proceeds from the 2012 Edward Byrne Justice Assistance Grant (JAG) program to purchase electronic signage.
  • Request from the County Commissioners to transfer $33,456 from the County General fund to the Energy Conservation Fund.
  • Transfer of up to $2.6M from the Rainy Day fund to the County General fund.
    • $2M of this transfer is to rebuild the cash balance of the General Fund after having made several large one-time purchases from it, including $1.8M for equipping the new Unified Dispatch Center and $250K to hire a consultant (MKSK) to develop the comprehensive land use plan for the Bloomington Urbanizing Area (the former two-mile fringe / Area Intended for Annexation).  This transfer has been discussed and anticipated by the Council for over six months.
    • The remaining $600K of this transfer is to allow the County to pay out a settlement on assessed value with a taxpayer who has appealed their property tax assessment over a 7 year period. By statute, the County is required to pay out reductions in assessed value out of the general fund, and then recover the money from the other taxing units (i.e. the City of Bloomington, Perry Township, the Monroe County Public Library, Perry-Clear Creek Fire Protection District, etc.) at settlement in June.
    • Appeals of property tax assessments happen all the time…and sometimes they are successful. Normally noone (including the Council) ever hears about them; however, this one is large enough that the Council would actually need to transfer money into the General Fund in order to pay out the refund to the taxpayer. There are a lot of outstanding questions about this payout, and I would anticipate some pushback from the Council before allowing a payout of this magnitude.
  • The Highway Department will request $1,585,800 in annual appropriations from the Cumulative Bridge fund for bridge projects throughout the county.
    • The Cumulative Bridge fund is supported by a property tax levy; however, unlike most other funds, it is typically not budgeted during annual budget hearings, but instead is budgeted through additional appropriations in the spring of each year.
    • This request includes budget lines and appropriations for the following bridges: Stinesville Road, Mt. Tabor Road, Garrison Chapel Road, Kinser Pike, Mt. Gilead Road, Dutch Church Road, Mt. Zion Road, Ratliff Road, Brighton Road, Ketcham Road, Maple Grove Road, Thomas Road, Stansifer Lane, Bottom Road, Simpson Chapel Road, Lee Phillips Road, Wolf Mountain Road, Ratliff Road, and Burma Road.
    • The annual report will full details about the County’s comprehensive bridge program can be found here: 2014 Cumulative Bridge Program
  • The Health Department is requesting an appropriation of the $2700 it was awarded from the County Council’s Sophia Travis Community Service Grants Program, for STD tests at the Futures Family Planning Clinic.
  • The Auditor is requesting the reclassification of its Payroll Representative from a COMOT IV to a COMOT V classification, in order to more accurately reflect the work that the Payroll Representative does and to ensure better retention of this position, which has seen significant turnover recently.
  • The Clerk is requesting the creation of a new position, Training Specialist, to be classified as a PAT III. The Clerk is leaving two positions vacant in order to create this position.
  • The Planning Department is requesting that their Senior Planner position be amended from 35 hours per week to 40 hours per week (to match the Planning Director and Deputy Planning Director).
  • The County Sustainability Coordinator and Grants Administrator will present the key findings in the Monroe County Environmental Quality and Sustainability Annual Report for 2013.

This meeting, as with all regular meetings of the Monroe County Council, will be broadcast on CATS. Public comment will be taken. The public is especially encouraged to attend and make comment. Hope to see you tomorrow at 5:30PM at the Nat U Hill room in the Monroe County Courthouse!

 

 

Uncertainty in Civic Amenities: Carmel’s Center for the Performing Arts

6 Apr

Today’s Indy Star featured a long article on the economics underlying Carmel’s Center for the Performing Arts (Carmel’s Center for Performing Arts plan vs. reality: miles apart). The story of the Center is a cautionary tale for all of us (very much including myself) who have supported large civic projects.

Some of the highlights:

  • The initial “sales pitch” and presentation of the Center projected a worst-case government operational subsidy of $309K/year became a $2.5M annual subsidy.
  • The initial concept of operations was that the Center would be a for-hire venue, with concert promoters bearing the risk and costs of show production. However, many supporters — including Mayor Jim Brainard — wanted the Center to be a venue for shows that went beyond those that are commercially viable (i.e. many classical concerts) that would help Carmel be more nationally competitive for high-end businesses and affluent workers (boosters compared the proposed Center to Carnegie Hall!)– and pushed the Center in that direction.
  • The mayor assured the community that a $40M endowment could be raised privately to support operations and enhancements. Unfortunately, the economic downturn occurred right in the middle of construction, and the endowment never materialized.
  • The Center faced a number of contractor disputes, including a recent $575K settlement with Bloomington contractor Crider & Crider.

All in all a must-read about the unanticipated risks and vagaries of large civic  projects.

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

2 Apr

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

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

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

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

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

School Corporations Get a Short-Term Reprieve on School Bus Funding

31 Mar

Protected Taxes and School Transportation

In January, I wrote Circuit Breakers, Protected Taxes, and Idled School Buses, about the Indiana statute that required schools who have lost revenue from the circuit breakers (including the 1%-2%-3% tax caps in the Indiana Constitution) to prioritize debt funds over  any other fund when applying the losses from the circuit breakers. This is due to what in the statute are called protected taxes.

The legislation underlying protected taxes measn that school corporations facing circuit breaker losses had to first fully fund debt funds, even beyond the amount needed to make required debt service payments, which typically meant that capital projects and transportation funds had to bear the full brunt of the circuit breaker losses. This has even led to some school corporations considering ending school bus service entirely.

HEA 1062 Gives a Temporary Reprieve

This week, however, the Indiana General Assembly passed, and the Governor signed, House Enrolled Act 1062, giving school corporations hit heavily by circuit breakers a three-year reprieve. HEA 1062 allows school corporations that are experiencing at least a 10% hit to their transportation funds due to circuit breaker losses to apply circuit breaker losses proportionally to all funds, rather than funding debt service first, for the years 2014, 2015, and 2016.

Rearranging the Deck Chairs?

Welcome as this statute is, it is only a short-term fix for what will be an ever-growing crisis for school corporations around the state. All this action does is give school corporations a little flexibility in how they arrange the deck chairs on the Titanic. In 2013 (the latest year for which the numbers have been determined), the circuit breakers sucked $245M of funding out of our school systems, a number that will undoubtedly increase in years to come, and is nearly impossible to reverse, given the fact that the 1%-2%-3% circuit breakers have been enshrined in the Indiana Constitution.

Just for an illustration of the harm that the circuit breakers are doing to our schools, I pulled together some of the higher circuit breaker cuts for various school corporations around the state (for 2013).  I also included their 2014 amounts budgeted for transportation for comparison.

2013 School Circuit Breaker Losses

2013 School Circuit Breaker Losses

We are fortunate in Monroe County that, due to our relatively low property taxes and high assessed values, our school corporations have been relatively insulated from the effects of the tax caps.  Just for comparison, here are the same numbers for our two Monroe County school corporations:

2013 MC Circuit Breaker Losses

2013 Monroe County Schools Circuit Breaker Losses

However, we can’t assume that we will always be insulated from this erosion of revenue. The 2014 circuit breaker numbers will be released shortly, and we will be able to assess the impacts on all local units of government.

Note: the sources for these numbers were:

Follow-Up to County Council Work Session 2014-03-25

26 Mar

Yesterday I posted a preview to yesterday’s County Council work session. Here is a quick summary of the actions taken at that work session:

  • Public Defenders: After many months of discussion, the Council took the final actions to reclassify 7 Deputy Public Defenders from Executive I to Executive II level, and, per the County’s compensation policy, raise each of their salaries $9133, in order to provide equity between the Prosecutor’s Office and the Public Defender’s Office, per a mandate by the State Public Defender Commission. The vote was 6-1, with Councilor Langley voting “no”.
  • Plan Commission: Again, after many months of discussion, the Council amended the salary ordinance to pay each member of the Plan Commission $50 per month per meeting attended, up to $150 per month. This vote was closer: Councilors Dietz, McKim, Munson, and Yoder voted “yes”, Langley and Hawk voted “no”, and  Jones, who, as the Council appointee to the Plan Commission will directly benefit from this policy, abstained.
  • Juvenile COIT
    • The Council heard detailed presentations from Youth Services Bureau Executive Director Kim Meyer (and her staff) on the services provided at the Binkley House Youth Shelter, and from Judge Steven Galvin on the history of juvenile services in Monroe County and the need for an increase in the Juvenile COIT income tax rate
    • Both presentations were terrific and are a must-see for anyone interested in youth services in Monroe County. Their slides are available here:
    • Judge Galvin recommended that the Juvenile COIT rate be raised from the current 0.05% to between 0.08% and 0.085%, depending on the youth services costs that the Council would choose to move from other funds to the Juvenile COIT fund. 0.085% would likely be adequate to cover existing costs and mandatory annual increases for the next 3-5 years. Of course, the revenue that an income tax brings in depends on the income earned by Monroe County residents, and could go up or down; if the income tax brings in too little or too much money, the rate would have to be reexamined.
    • All councilors expressed strong support both for the judicial philosophy expressed by our juvenile justice and social services system — treatment over incarceration — and for an increase in the Juvenile COIT rate to support our youth services. The major area of discussion was whether certain expenses related to the maintenance of our youth services facilities (utilities, maintenance costs, facilities replacement costs, etc.) could also be paid for by the Juvenile COIT , and thereby relieving other overstressed county funds such as the General Fund and the Cumulative Capital Development fund. In order to develop a set of recommendations for the facilities maintenance costs that could potentially be moved from other funds to the Juvenile COIT fund, I created a subcommittee of Councilors Hawk, Jones, and Yoder, who will work with Council Attorney Michael Flory, the Courts staff, and the Commissioners’ Office to analyze past and future essential expenditures on the Youth Shelter property.
    • It is important to note that this proposed increase to the Juvenile COIT rate would only be sufficient to fund current services. As good an investment as youth services is to the future of the community, we are not even at a point where we can fund expansion; the best we can do is maintain current services and current expenditures in an environment in which costs are continually increasing and revenue (in particular the reimbursements we receive from the state for judicial placements in the youth shelter) is declining dramatically.
    • The Council has advertised a public hearing on the potential increase in the Juvenile COIT rate at its regular meeting on 2014-04-08 at 5:30PM.

This meeting was televised by CATS and be seen here:

And the Herald Times also published a wrap-up article on the meeting here:

Preview of Today’s Monroe County Council Work Session (2014-03-25)

25 Mar

courthouseThe agenda for this evening’s Monroe County Council work session is available here:

The following are the highlights:

  • Public Defender: The Council will hold a second reading of (and take a vote on) a salary ordinance amendment to provide a salary increase for 7 deputy public defenders who were reclassified from the Executive I (EXE I) classification to Executive II (EXE II), as part of a mandate from the State Public Defender Commission to provide for an equivalency between the Public Defender’s and the Prosecutor’s offices. I have written more about this here. The salary increases did not pass unanimously on first reading two weeks ago (Councilor Langley voted “no”), so they have to be voted on again.
  • Plan Commission: Again, the Council will hold a second reading of and take a vote on a salary ordinance amendment to provide a salary increase for members of the Plan Commission. The proposal is to pay each member $50 per month per meeting attended, up to $150 per month. I have written more about this here. Again, the salary increases did not pass unanimously on first reading two weeks ago (Councilor Langley voted “no”), so they have to be voted on again.
  • Juvenile COIT: The council will hear a presentation from Judge Steven Galvin, the juvenile court judge, and Kim Meyer, the Executive Director of the Youth Shelter, on the need to both reauthorize and increase the rate of the Juvenile County Option Income Tax (Juvenile COIT).
    • The Juvenile COIT is a special income tax rate only applicable to Monroe County (IC §6-3.5-6-33) of up to 0.25% specifically to fund a juvenile detention center and other juvenile services (including the youth shelter and the juvenile court).
    • The current rate is 0.05%. The County Council  has advertised the possibility of raising the rate up to 0.1%, although they can also set a lower rate (advertising sets the maximum rate that can be considered).
    • Tonight’s meeting will be discussion only; the Council will conduct a public hearing during the regular County Council meeting on April 8, 2014 at 5:30 PM in the Nat U Hill Room in the Monroe County Courthouse.
    • The reasons for the proposed increase are to continue to fund existing services and possibly to move some additional juvenile court-related expenses that are currently in the general COIT fund into the juvenile COIT fund.
  • County Council: Several County Council members will provide a brief financial update, with a more detailed update to come after the end of the first quarter (March 31).

The meeting will be tonight, Tuesday, 2014-03-25, at 5:30PM in the Nat U Hill Room of the Monroe County Courthouse. As always, all meetings are open to the public.  Although this is a work session, not a regular meeting, and so there is no general public comment on items not on the agenda, we will take public comment on the items for which votes may be taken: the proposed public defender reclassifications and the proposed increase in compensation for Plan Commission members.

Hope to see you there!

 

Business Personal Property Tax Bill Senate Enrolled Act 1 Final as General Assembly Adjourns

15 Mar

WestsideThe Indiana General Assembly adjourned sine die late this past Thursday, having passed Senate Enrolled Act 1 (SEA 1), a much-discussed bill on business taxes, including so-called business personal property taxes (i.e. taxes on business equipment).

The act wound up being much more tentative than initially filed, and far less than what the Governor had originally proposed (full elimination of the business personal property tax). The act is awaiting the Governor’s signature at the moment.

Business Personal Property Taxes

There are three primary effects of Senate Enrolled Act 1 with respect to business personal property. All are optional for local governments.

1. Counties have the option of exempting business personal property from taxation if the acquisition costs of the property is less than $20,000.

2. Counties have the option of exempting new (non-utility) business personal property from taxation. The county can also repeal the exemption; however, any business personal property placed into service while the exemption is in effect remains exempt.

Both of these options for exemption would be exercised by the County Income Tax Council — a body that is sometimes referred to as the “phantom council”, and that I have criticized before. In Monroe County, this means that any decision for exemption would be made by the Bloomington City Council.

In addition:

3. Counties may grant abatements for new business personal property placed into service on a case-by-case basis for up to 20 years, rather than the usual maximum of 10 years. These up-to-20-year-abatements have been referred to in the media as “super-abatements”. The usual annual reporting and accountability requirements (i.e., compliance with the Statement of Benefits filed when the abatement is applied for) apply for these super-abatements. In addition, a public hearing is required after the 10th year of the abatement to address compliance with the Statement of Benefits.

Blue Ribbon Commission

The act also establishes a commission on business personal property and business taxation. In principle, this is, in my opinion, the best part of the bill. However the composition of the commission also represents a missed opportunity.  The composition is as follows:

  • 2 members of the senate appointed by the president pro tempore of the senate (i.e., 2 Senate Republicans)
  • 1 member of the senate appointed by the minority leader of the senate (i.e., 1 Senate Democrat)
  • 2 members of the house of representatives appointed by the speaker of the house of representatives (i.e, 2 House Republicans)
  • 1 member of the house of representatives appointed by the minority leader of the house of representatives (i.e., 1 House Democrat)
  • The governor or the governor’s designee. An individual designated by the governor under this subdivision must be a state employee.
  • 1 member who is nominated by the Association of Indiana Counties and is appointed jointly by the chairman and the vice chairman of the legislative council.
  • 1 member who is nominated by the Indiana Association of Cities and Towns and is appointed jointly by the chairman and the vice chairman of the legislative council.
  • 1 member who is nominated by the Indiana State Chamber of Commerce and is appointed jointly by the chairman and the vice chairman of the legislative council.
  • 1 member who is nominated by the Indiana Manufacturers Association and is appointed jointly by the chairman and the vice chairman of the legislative council.
  • 1 member who is nominated by the Indiana Association of School Business Officials and is appointed jointly by the chairman and the vice chairman of the legislative council.
  • 1 member to represent agriculture who is appointed jointly by the chairman and the vice chairman of the legislative council.
  • 1 member who is nominated by the Indiana Association of Realtors and is appointed jointly by the chairman and the vice chairman of the legislative council.

The commission’s charge is the following:

(1) Study issues concerning the taxation of business personal property in Indiana and business taxation in general in
Indiana.
(2) Study issues related to the share of the overall tax burden borne by businesses in Indiana.
(3) Study the competitive advantages and disadvantages for businesses in Indiana that result from the structure of state and local taxation of business.
(4) Study any special elements of the taxation of business personal property.
(5) Study issues related to property taxes paid by taxpayers (including individual taxpayers) other than business taxpayers, and the relative share of the overall tax burden borne by these taxpayers.
(6) Study the impact on local government of reducing business personal property taxes.
(7) Study the existing mechanisms and tools that may be used by local governments to address the effects of the circuit breaker credits under IC 6-1.1-20.6, and the extent to which these mechanisms and tools have been or have not been adopted and used.
(8) Study the impact of tax increment financing, including the impact of tax increment financing on local government.
(9) Study the issue of what number or percentage of votes by a county option income tax council should be required to eliminate property taxes on new business personal property in a county, if the county option income tax councils are given the authority to eliminate property taxes on such property.
(10) Study any other topics assigned by the legislative council or as directed by the chair of the commission

The act also gives the commission a due date of November 1, 2014 for its report.

The broad topics to be addressed by the commission are critical to designing a fair and effective system of taxation in Indiana. The business personal property tax is a holdover, and should ultimately be phased out (primarily because it taxes different types of businesses differently, depending on whether they use expensive equipment). However, the piecemeal approach to property tax restructuring that the legislature has used in the recent past is not effective. We need to rethink the whole system. How much should businesses pay vs. other classes of property owners, all of whom depend on government services. How do we strike the right balance between attracting and retaining businesses with well-funded public services and amenities vs. low taxes? How do economic incentives, such as TIFs and tax abatements, affect the attraction and retention of businesses, and how much do these economic incentives cost us? And what is the right mix of tax bases — property, income (both corporate and individual), and sales?

However, I said earlier that I thought the commission represented a missed opportunity in terms of its composition. The commission essentially consists entirely of politicians and representatives of special interest groups. I think the commission should have had at least some room for citizen appointees — for example, retired legislators who are no longer in a position to have to run for office could offer some valuable perspective without the need to cater to particular constituents. In addition, Indiana has several experts at IU and Purdue on tax policy — as well as the Indiana Fiscal Policy Institute — who should be seated at that table.

Corporate and Financial Institution Taxes

The final effect of SEA 1 is to ratchet down two corporate taxes: the corporate income tax rate and the financial institutions tax (FIT), but over a longer period of time than initially proposed.

  • The corporate income tax rate will be reduced from 6.5% in 2015 to 4.9% after June 30, 2021.
  • The financial institutions tax rate will be reduced from 6.5% to 4.9% through calendar year 2023.

Both of these reductions, although relatively gradual, will result in reductions to state revenue, and thus will come at the expense of some other public service. Roads? Schools? Social services?

In addition, although it hasn’t been discussed at all, as far as I know, the reduction in the financial institutions tax will affect local governments somewhat. Currently, local governments receive 40% of the previous year’s financial institutions tax from the state.

Conclusion

This was one of the highest-profile issues in this year’s General Assembly session (other than a constitutional gay marriage ban, of course, which will thankfully not be on the ballot this November). But after a lot of discussion and debate, the end result was something that will likely have little benefit but also cause little harm. Although I think that having a county-by-county option for reducing or eliminating business personal property taxes may encourage a race to the bottom in some places, that effect will be very limited, and in any case I very much prefer having the option retained by local government rather than having the tax reductions forced on local governments. I look forward the report from the business tax commission — but wish that Larry DeBoer or someone of his caliber and expertise were sitting at the table. And finally I remain concerned about the long-term reduction of the corporate and financial institutions taxes, even though the reduction is phased in over a long period of time.

 

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