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.

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5 Responses to “Circuit Breaker (Tax Cap) Impacts for 2014: Part 2”

  1. Lillian Henegar June 10, 2014 at 2:42 pm #

    Thanks for these two pieces on circuit breakers, Geoff! Very helpful – I appreciate how you break it down for ordinary folk! Even a $46 per student cut translates into a poorer education – especially when it’s laid on top of years of cut backs and micro management of our local educational systems. The penny wise and pound foolish/every one for him self approach to our civic infrastructure does not serve us well.

Trackbacks/Pingbacks

  1. Monroe County Tax Abatement Compliance Findings for 2014 | in53 - MoCoGov - June 29, 2014

    […] 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 […]

  2. State Releases Assessed Value Growth Quotient for Local Governments | in53 - MoCoGov - July 1, 2014

    […] 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 […]

  3. End of the Year Fiscal Update for Monroe County Government | in53 - MoCoGov - January 30, 2015

    […] The circuit breakers (tax caps) are taking an increasing (but still not yet alarmingly large) bite out of property tax revenues in Monroe County. I have written about circuit breakers before here and here. […]

  4. Circuit Breaker (Tax Cap) Impacts for 2015 in Monroe County | in53 - MoCoGov - April 16, 2015

    […] 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 two types of circuit breakers: the 1%-2%-3% circuit breakers (which limit property tax liability to a certain percentage of assessed value) and the Over 65 circuit breakers (which limit property tax increases to lower-income seniors). I wrote about the circuit breakers for 2014 in more detail here and here. […]

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