Impact of the Error in State Distribution of Tax Revenues in Monroe County

6 Apr

This story, in which the State just recently had to eat crow and admit to an error in which it had underdistributed $206 M of local option income taxes to 91 counties across Indiana, has been widely reported on in the Indianapolis Star here and in the Herald Times here (I was quoted extensively in the article; unfortunately it is behind a paywall) and on Channel 6 WRTV in Indianapolis here (I am also interviewed briefly in that broadcast).

Local option income taxes are income taxes that are paid by residents of a county (individuals only, not businesses). Monroe County’s local option income tax rate is 1.05%, with 0.05% earmarked for juvenile services and facilities, and the other 1% to the general fund. These taxes are paid to the state, which then collects them in a trust fund for a period from July 1st to June 30th, and then pays those collected taxes directly back to each county in 12 approximately equal payments (although there is usually a midyear adjustment in there) from the following January through December. These funds are not part of the state’s budget — they are simply being collected by the state and then distributed back to the county.

The county is then responsible for distributing the income tax down to all of the local units of government within the county that receive income tax. The following units in Monroe County receive a share of the income tax collected:



An earlier post that I made with more detail on COIT distributions can be found here.

The total amount that the state understated Monroe County’s income tax revenues for 2012 is:

2011: $2,821,726.19

2012: $3,801,187.21

Total: $6,622,913.40 (Source)

The total amount from 2011 ($2,821,726.19) and the 2012 amount from January – April ($1,267,062.40), for a total of $4,088,788.59 will be paid out in a single lump sum (Source).  In addition, the county will receive interest on the 2011 amount and the January-April 2012 amounts. The remaining 2012 underdistribution will simply be paid out monthly as normal from May – December.

I am going to be recommending to the Council that we  transfer the extra COIT from 2011 (once we know exactly what the County’s share is) to the Rainy Day Fund.

As for the 2012 amount?

We actually have a budget deficit on paper in the general fund of almost $2.8 M for 2012. That means that if the County spends exactly every penny that is currently appropriated, no more and no less — and all revenues come in exactly as projected, we would deplete our cash reserves by $2.8 M.

In particular, the 2012 budget includes:

$29,373,803 in appropriations (planned expenditures)
$12,089,919 in planned miscellaneous revenues (including income tax, excise tax, fees, etc.)
$14,518,778 in property tax revenues
For a total of $26,608,697 in projected revenues

This leaves a planned deficit of $2,765,106 for 2012.

However, in reality, the county will not spend all of its appropriations. It never does (or at least not in recent memory). Positions left vacant, for example, even temporarily, will cause appropriations to be unspent. Based on past trends, we would expect to see around $800,000 of unspent appropriations at the end of 2012. If past trends continued, this would have seen us depleting our reserves by about $2M in 2012. This is the $2M I was talking about in the article.

Of course, this news from the state will necessitate a (welcome) change in the revenue projections for 2012. Once we find out (after the homestead credit and the Juvenile COIT are removed) Monroe County’s share of 2012 revenues, we’ll add that to the revenue projections. Let’s say for the sake of argument that we will see an additional $1M in revenues for 2012 than projected. This would leave us a budgeted deficit of only $1,765,106, and if past patterns of unspent appropriations hold, we would deplete our reserves by about $1M in 2012.

Now obviously, although depleting our reserves by $1M a year is much better than depleting them by $2.7M, it still isn’t sustainable indefinitely. However, the 2012 budget includes a one-time expenditure of $634,000 for the reassessment. This expenditure will never again come out of the general fund (future reassessment comes out of a separate fund). So going forward to 2013, if all of the costs of and revenues to county government are the same, except that the reassessment expenditure drops out, we would be talking about depleting the reserves by less than $500,000 in 2013. Still in deficit — but starting to seem much less daunting to the departments that will have to be making cuts. While it will still be challenging to make the cuts that we need to, this recent news combined with our healthy reserves, will make a “soft landing” and a sustainable budget over the next 2-3 years much more achievable.


3 Responses to “Impact of the Error in State Distribution of Tax Revenues in Monroe County”

  1. Kurt Seiffert April 6, 2012 at 10:24 am #

    Wouldn’t a strengthening economic recovery improve that deficit picture in 2013 and on out? That is could not Monroe county partly grow out of that “structural” deficit?


  1. Additional Revenue to Local Governments After Correction of State Error « in53 – MoCoGov - April 21, 2012

    […] local option income taxes collected on behalf of location governments (see the previous posting here).  This error means that each unit of local government in Monroe County that receives County […]

  2. 2013 Income Tax Numbers Just In — Good News for Monroe County « in53 – MoCoGov - August 2, 2012

    […] taxes that were accidentally withheld from local governments. I have written about that situation here and […]

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