Back in 2014, when Monroe County was considering a small increase in the Juvenile County Option Income Tax, I ran a comparison of Monroe County with the other 91 counties on overall income tax rates (Income Tax Rates in Indiana Counties — How Does Monroe County Compare?). Now that we are starting to hear some calls from public safety agencies for a public safety local option income tax (which would be passed by the Bloomington City Council, not the County Council, incidentally), I thought I’d re-run the comparisons using 2016 local option income tax rates.
Here is a table showing the total combined local option income tax rates for 2016 for each county in Indiana, along with each county’s percentile.
Monroe is at the 24th percentile rank, which basically means that Monroe County’s income tax rates are in (near the top of) the bottom quarter. Put differently, 76% of Indiana counties have a higher income tax rate than Monroe County.
So how do we compare to our neighbor counties?
Monroe County currently has the lowest income tax rates of any of its neighbor counties.
Finally, how does Monroe County compare with its “peer” counties?
Obviously the definition of “peer” county is somewhat subjective, but these counties are ones that Monroe County is typically compared against, in terms of population, urbanization, demographics, etc. In this comparison, we have the second-lowest income tax rates, second only to Vanderburgh County.
This past week, House Enrolled Act 1001 and Senate Enrolled Act 67 both passed the Indiana General Assembly, and are on their way to the Governor’s desk. Both have implications for local units of government around the state and here in Monroe County.
SEA 67: Returning Local Income Taxes to the Locals
First, let’s consider SEA 67. This act reduces the amount that the state is required to hold in each county’s income tax trust fund from 50% of the amount that is actually certified to be distributed to the local governmental units in the county to 15%. The trust fund is essentially an escrow account that holds the money collected from local option income taxpayers and that is used to pay out the annual distribution to local governments each year (referred to as “certified shares”). The theory is that local option income tax trust fund balances have been increasing over the years, and too much is being withheld from local governments.
Further, SEA 67 requires the state to make a one-time distribution of ALL of the excess trust fund balance as of December 31, 2014, to local units of government that receive local option income taxes (using the standard procedures for allocating local option income taxes to these units). This includes the county, cities and towns, public libraries, townships, and fire protection districts.
However: for the county and cities and towns, there is a restriction. 75% of the money must be spent on roads and aviation (or deposited in the rainy day fund, and later spent on roads and aviation). The remaining 25% can be spent on any lawful expense of local government. So basically, money that has been collected from local taxpayers, as authorized for particular purposes by local governments — is being given back to local governments by the state, but being restricted in use. And these restrictions only apply to the county, cities, and towns — townships and the public library have unrestricted use of these funds!!
The following table provides my very rough estimate of the amounts that each taxing unit in Monroe County will receive. Note that the total amount distributed to Monroe County ($6,892,000) is based on the latest fiscal note on SEA 67 (authored by Legislative Services Agency). However, it isn’t clear from the fiscal note whether the total is based on 88% of the December 31, 2014 trust fund balances (where the bill started out) or 100% (where the bill ended up). So please don’t take these numbers as definitive — they are simply estimates of roughly what the taxing units might be expecting.
As the chart shows — Monroe County Government could be receiving approximately $2.7M from its income tax trust fund — however, only $675K would be unrestricted. And remember — this is money that has already been collected from taxpayers.
HEA 1001: Additional Local Option Highway User Tax and New Local Road and Bridge Matching Fund
House Enrolled Act 1001, on the other hand, provides additional road funding to local governments through several very different mechanisms: (1) the provision for local units to increase their wheel tax/excise surtax; and (2) the creation of a new matching fund called the Local Road and Bridge Matching Grant Fund.
Wheel Tax/Excise Surtax
Sometimes referred to as a Local Option Highway User Tax (LOHUT), this refers to two separate taxes that must be adopted concurrently: a wheel tax and an excise surtax. Currently, this is the only local option tax available for road funding. The excise surtax portion is a surtax paid at the time of vehicle registration, and applies to cars, motorcycles, and trucks under 11,000 pounds. It is currently $25/vehicle in Monroe County. The wheel tax applies to all vehicles that aren’t subject to the excise surtax, including RVs, tractors, trailers, trucks, and buses. The wheel tax is currently $40/vehicle, except for vehicles under 3000 pounds (i.e., mopeds). Both the wheel tax and the excise surtax in Monroe County are at the statutory maximum (well, until HEA 1001).
Once collected, these taxes are then distributed to the county and to municipalities, and are earmarked for construction, reconstruction, repair, and maintenance of roads in each unit’s jurisdiction. The LOHUT (wheel tax/excise surtax) brought in $1,574,021 (2014) and $1,288,792 (2015) to Monroe County Government respectively.
HEA 1001 provides a couple of additional options for local governments with respect to the LOHUT:
It doubles the maximum rate for the wheel tax/excise surtax for counties (i.e., counties would be permitted to adopt up to $50 excise surtax and $80 wheel tax), IF the county is using a transportation asset management plan (see the section on the Local Road and Bridge Matching Grant Fund, below).
It allows municipalities (cities and towns) with a population of at least 10,000 to adopt the wheel tax/excise surtax (maximum of $25 for the excise/surtax and $40 for the wheel tax). Formerly only counties could adopt the wheel/excise surtax. To adopt these taxes, municipalities must also be using a transportation asset management plan.
Local Road and Bridge Matching Grant Fund
HB 1001 also creates a new program called the Local Road and Bridge Matching Grant Fund. The new fund provides a competitive 50-50 match to local units of government for local road and bridge projects that “repair or increase the capacity of local roads and bridges” and that are “part of the local unit’s transportation asset management plan” (a new requirement that local governmental units have a plan for transportation assets and drainage systems and rights-of-way that affect transportation assets). INDOT (the administrator of the program) is instructed to “give preference to projects that are anticipated by the department to have the greatest regional economic significance for the region in which the local unit is located.” In addition, at least 50% of the grants in each fiscal year are required to be made to local units in counties with populations of less than 50,000.
The grant program is funded from state reserves and one percentage point of the 7% gross retail sales tax (for fiscal year 2018) and 1.5 percentage points of the sales tax for fiscal years 2019 and after.
The local unit must provide their 50% match out of the following sources:
revenues from an increase in the wheel tax/excise surtax rate (see above)
any special distribution of local income taxes (again, see above); or
any money in the unit’s rainy day fund.
Since most local counties and municipalities, including Monroe County and the City of Bloomington, will receive substantial cash infusions into their rainy day funds from the excess trust fund balances, the goal will be to use this revenue to lever the same amount of money in the new Local Road and Bridge Matching Grant Fund, and effectively double its spending power on local roads.
This Tuesday’s regular session of the Monroe County Council (2016-03-08 5:30 PM in the Nat U Hill Room) will feature several important topics, including a first reading for a tax abatement application for the 3D Stone mill at 6700 S Victor Pike and appropriation of grant funding for the County’s Futures Family Planning Clinic. The full packet for the meeting is available here: Council_Packet_20160308.
The Council will be hearing the first reading (of two) for a personal property tax abatement application from Lily and Kurt Sendek (doing business as L & K Real Estate Investments) for an expansion of their 3D Stone business at 6700 S Victor Pike, in southern Monroe County.
The property is shown below. Note that the property crosses Victor Pike, and includes a parcel that a proposed County greenway (going along the Illinois Central rail line) goes through.
The site currently has 44 full-time employees. The owners are proposing to add a second production shift to the business, which will add approximately 32 new full-time permanent positions, ranging in starting wages from $11 (General Labor) per hour to $20 (Stone Cutter) per hour, plus a supervisor at $25 per hour. Benefits include employee profit-sharing plan and health/dental/vision insurance. The abatement application in the council packet (Council_Packet_20160308) provides more details on positions, wages, and benefits.
The owners are requesting the tax abatement only on personal property (i.e., business equipment) — on the approximately $800,000 in equipment they propose to purchase for the business expansion (including CNC cutting equipment, saws, forklifts, and IT production management system).
Here is a picture of the business. Note that the red lines are caused by an error in the county’s GIS.
The County Council will be hearing this tax abatement application for the first reading. It has already been reviewed and received a favorable recommendation by the Monroe County Economic Development Commission (EDC). If the County Council votes in favor of this tax abatement at the meeting, a public hearing will be conducted and the Council will take a final vote (“confirmatory resolution”) on the abatement.
Other items up for discussion at the meeting include:
The Health Department is requesting the appropriation of funding (as well as creation of budget lines and other housekeeping) for the County’s Futures Family Planning Clinic from Title V, Title X, and Temporary Aid to Needy Families (TANF)
The Legal Department is requesting the appropriation of $40,000 in fees that the county attorneys are allowed to receive in penalties and fees collected from delinquent personal property taxpayers. County attorneys are able to supplement their regular salary by working off-the-clock to collect unpaid personal property taxes. The amount they receive is on top of the taxes actually collected on behalf of the county, so the county does not lose any tax revenue.
The Probation Department is requesting the appropriation of $50,000 in grant funding from the Annie E. Casey Foundation’s Juvenile Detention Alternatives Initiative (JDAI), which supports alternatives to incarcerating youth.
The Veterans Affairs department is requesting an additional appropriation of $41,503, primarily because the county’s Veterans Service Officer position was reclassified and upgraded to full time after the 2016 budget had been set. In addition, $5000 of new training funding is being requested.
As always, the meeting is open to the public, and will be held this Tuesday evening (March 8, 2016) at 5:30 in the Nat U Hill room of the Monroe County Courthouse, and it will be broadcast on CATS. Public comment will be taken. Hope to see you there!