Major Public-Private Partnership Highway Project Under Consideration in Colorado: Sounds Like Deja Vu All Over Again

15 Jun

Central70Narrow2Dear MoCoGov readers, I am out in the Denver area for work, as I am frequently, and wanted to take the opportunity to bring to your attention an Interstate highway project out here that will, I think, remind you more than a bit of our own I-69 Section 5. In particular, the state of Colorado appears to be on the verge of going down the very same path that Indiana did not only in using a public-private partnership (P3) to build the road, but in using the very same type of P3. I have written about P3s before here.

The setting is a 10-mile segment of I-70 between downtown Denver and the Denver International Airport, a segment that sees over 200,000 vehicles per day. I myself have driven on this segment dozens of times.

The Central 70 Project

First, a little bit about the project, which has been named the Central 70, from the Central 70 Project Web Site:

The Central 70 project proposes to reconstruct a 10-mile stretch of I-70 east of downtown, add one new Express Lane in each direction, remove the aging 53-year old viaduct, lower the interstate between Brighton and Colorado boulevards, and place a 4-acre cover park over a portion of the lowered interstate. Construction begins in 2018.

The Central 70 project is quite different from I-69 Section 5 in several key areas. First, it is replacing an aging viaduct that has seen several failures and requires constant repair (http://www.bizjournals.com/denver/blog/earth_to_power/2015/06/cdot-says-i-70-east-viaduct-in-denver-is-crumbling.html). Second, it is adding 2 tolled express lanes, one in each direction. This appears similar to where Indiana is going with expansion of I-65 and I-70.

From an engineering perspective, the most fascinating aspect of the project is the creation of a 4-acre park over a lowered section of the highway (referred to as a “partial cover” in project documents). Here is a rendering from the environmental documents:

POITRA Visual photosimulation services -- I-70 East EIS Project

Proposed 4-Acre Park Over Below-Grade I-70

Ownership and maintenance of the park will be shared between Denver and Denver Public Schools, and in particular part of it will serve an adjacent elementary school (https://www.codot.gov/projects/i70east/fact-sheets-8-2.16/highway-park-and-design_eng-021417v3.pdf). Personally, I absolutely love the concept. I find it exciting and audacious, but I suspect that many will find it equally horrifying!

 

solidarityAs you might imagine, resistance from many residents to the highway expansion, which has been estimated to triple the highway’s footprint, has been stiff. See here and here for examples. The slogan “Ditch the Ditch” has been adopted by the opponents to the project.

The Federal Record of Decision (ROD) for the Central 70 project was issued in January of 2017, allowing Colorado Department of Transportation to move ahead with the project. The ROD and other environmental documents are available here: http://www.i-70east.com/reports.html.

The P3

But while the project is superficially quite different in many ways, the procurement vehicle will seem quite familiar to southern Indiana residents. Colorado has decided to pursue a particular form of public-private partnership: the Design-Build-Finance-Operate-Maintain model, the very same model used (and in the process of being abandoned) for I-69 Section 5.  In this model, the private contractor not only designs and builds the road, but also finances the project, operates the road (and in the case of Central 70 the tolling component), and maintains the road for the entire period of the agreement. Some of the more cynical among us refer to this model as a construction project hidden inside a maintenance contract, that allows politicians to do big projects while being able to say that they are not taking on debt. Supporters say that it is the only way to close the “infrastructure gap” and maintain a sustainable debt load (I mentioned that argument a few days ago here).

The private contractor will be compensated through a toll concession (of course not part of the I-69 Section 5 deal) along with so-called “availability payments”, periodic payments for having the road open to the specified level of service (which is a central feature of the I-69 Section 5 project).

The Central 70 project is also using a (seemingly identical) multi-stage process, in which four teams have been selected to submit final proposals. The following chart from the project Web site shows the four teams selected to submit proposals. You can see a similar chart for I-69 Section 5 here: I-69 Section 5 Actual Proposers.

Screenshot 2017-06-15 06.15.55

Teams Selected to Submit Proposals for the Central 70 P3

Fortunately Isolux-Corsan does not appear on this list! But many of these company names will sound very familiar. Plenary Group was one of the proposers for I-69 Section 5, as was Meridiam. AECOM and Parsons Brinckerhoff were on I-69 teams as well as design contractors. And Spanish infrastructure giant Cintra will be familiar to local readers as one half (along with Macquarie, who did the financial justification for the P3 for the Central 70) of the now bankrupt Indiana Toll Road Concession Company.

Per the Request for Proposals, the High-Performance Transportation Enterprise (HPTE), the public entity that will actually be awarding the contract, is willing to issue up to $725M in private activity bonds (PABs). Per the Federal Highway Administration, PABs are:

…debt instruments authorized by the Secretary of Transportation and issued by a conduit issuer on behalf of a private entity for highway and freight transfer projects, allowing a private project sponsor to benefit from the lower financing costs of tax-exempt municipal bonds.

These bonds do not obligate the state or pledge the “full faith and credit” of the state.

I-69 Section 5 used a similar financing method, having issued almost $244M of PABs to I-69 Development Partners (the prime contractor). These bonds have been continually downrated, and were most recently downgraded by Standard & Poor to a CCC- rating. Recently, as the partnership has been collapsing, it has been reported in the media that the State of Indiana has been negotiating with bondholders to buy back the bonds and take over the financing of the project; thus far the bondholders have rejected the state’s offers.

At this point, it appears that the intention is to make the award during the summer of 2017, with commercial and financial close by October 2017, and construction beginning in 2018. This is an important project of regional and even national significance. I love the partial-cover/park concept that reunites neighborhoods long split by I-70. And I really hope the project moves forward (though I don’t look forward to the airport traffic during construction).

But I also hope that the good folks at the HPTE and the Colorado Department of Transportation talk to their friends at the IFA and INDOT. Surely there are some lessons learned?

Updated 2017-06-16 4:00PM: The State of Indiana just announced that they have an agreement to end the public-private partnership with I-69 Development Partners and take over the project: State has agreement to terminate public-private I-69 contract.

 

 

 

 

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How the Credit Rating Agencies See the World of State Finance

12 Jun

Screenshot 2017-06-12 06.35.32Amidst all of the discussion about public-private partnerships (P3s) as a means of financing infrastructure, and concern about the future of I-69 Section 5, I came across this presentation from S&P Global Ratings in 2016 to the National Conference of State Legislatures Legislative Summit: 2016_Prunty_Presentation,

The presentation presents a fascinating window into the narrow keyhole through which the credit ratings agencies see state governments (which is of course often very different from the way that the public sees the same state governments!) and also the bigger financial picture in which P3s are being promoted in order to close the infrastructure gap.

The first part of the presentation deals primarily with the relative state of fiscal health of the states from a debt perspective. As everyone is probably aware, Indiana joins 30% of the states at the top, with a AAA rating. Neighbor Illinois is an outlier at the bottom with a BBB+ rating. Indiana also joins the majority of states with a stable outlook. A handful of states have a negative outlook, meaning things are likely to get worse.

More interesting is S&P list of key credit risks that led to where the states were at the beginning of 2016: energy-producing states losing oil revenue, current year budget pressures from revenue shortfalls or political gridlock, future year budget pressures, and large unfunded liabilities (mostly pension debt or other employment-related liabilities).

S&P goes on further to identify key themes for 2016: 1. Slower Revenue Growth, 2. Tax Incentives (for economic development), 3. Spending Restraint, 4. Aid to Higher Education, and 5. Pension Pressures Persist. #3 and #4 in particular engage the tension between short-term and long-term success. In fact, later in the presentation, the author, while seeming to champion austerity as a way of managing their debt levels acknowledges that:

For states that have made these trade offs, the impact on credit quality is favorable in the near term (3-5 years). However, looking ahead, the reduced investment in productivity enhancing areas (infrastructure and higher education), paints a dimmer picture of their long term economic growth prospects

So — austerity may help in the short run, but balancing the budget on the backs of infrastructure and higher eduction ultimately harms in the long run.

The presentation then goes on to define debt and debt sustainability, from a ratings agency perspective, and comes to the conclusion that the state and local government sector debt trends are by and large sustainable — and in particular there has been a noticeable pullback on debt issuance after the Great Recession. Most states have seen increases in economic productivity in excess of increases in debt issuance (again with a few exceptions). S&P concludes:

During the recession: states had fiscal crises, not debt crises

However, they do warn that only looking at bonded debt gives a relatively rosy picture of overall state debt — and that to get a more realistic picture, other obligations such as pension and other post-employment-related benefits need to be taken into account.

So where does infrastructure and P3 come in? 

S&P attempts to make the case that while the US has a significant infrastructure gap (structurally deficient bridges, maintenance backlog on transit, construction backlog, water and sewer deficiencies, traffic congestion, and delayed freight), that states will not be able to close this gap through debt-related financing alone, without compromising their credit ratings, especially if the operations and maintenance (O&M) costs of infrastructure are included. P3s are suggested as a potential solution, and in particular:

P3s offer states a way to fold O&M expenses into the overall cost of financing a project,

This is of course the Design-Build-Finance-Operate-Maintain model used (at this point, unsuccessfully) for I-69 Section 5. And the author does acknowledge that:

… the P3 model can be complex and in certain cases, states attempting P3 projects have encountered political opposition.

I suspect that political opposition will only increase at this point.

Tolling on Indiana’s Interstates: Inching Closer?

11 Jun

imagesThe Indiana Department of Transportation (INDOT) inches closer to tolling several Interstate corridors with the June 2 release of a Request for Information (RFI) related to potential future plans for tolling of the I-65, I-70, and I-94 corridors: Request for Information Interstate Tolling Project Delivery.

INDOT is planning to release a Request for Proposals (RFP) to prepare environmental studies and project development documentation for the above corridors (the RFP refers to the following corridors: 1) I-65 from I-90 to I-465, 2) I-65 from I-465 to the Ohio River, 3) I-70 from the Illinois State line to I-465, 4) I-70 from I-465 to the Ohio State line, 5) I-65 and I-70 within I- 465, and 6) I-94 from the Illinois State line to the Michigan State line). The purpose of the RFI is to seek information that will shape the release of the RFP, in particular in the following areas:

  1. Asset inventory and management in these corridors
  2. Sequence of deployment of tolling among these corridors
  3. NEPA documentation type and analytical approach for these corridors, and for the improvements identified above
  4. Contracting and procurement approaches
  5. Public outreach and information strategy
  6. Any other topics the responder believes are relevant to this RFI

IMG_2157It is clear that Indiana intends to move forward with tolling the I-65, I-70, and I-94 corridors. It isn’t entirely clear if the intention is to toll only new expansion lanes, or existing lanes as well.

It will also be interesting to see the responses to questions about “contracting and procurement approaches”, in particular to see which public-private partnership models are being encouraged.

The most interesting part of the RFI, though, is the draft proposed work plan for an agreement that INDOT already has with engineering giant HDR, Inc. to meet the requirements of Indiana House Bill 1002 (now Public Law 218) to evaluate the feasibility of tolling Indiana’s Interstates. This work plan includes the following tasks:

  1. Project Management and Project Meetings
  2. Traffic and Revenue Analysis for 5 Corridors — to conduct a traffic and revenue analysis and model (including a risk component) for the five Interstate corridors: I-64, I-69, I-74, I-94, and I-465. Note that I-69 is included in the study. Along with traffic and revenue, the task will attempt to estimate diversion rates (i.e., rates at which vehicles use other roads to avoid tolls — often a concern to local communities whose roads bear the burden of division).  The study will also attempt to estimate the toll revenue from non-Indiana residents vs. residents.
  3. Risk Analysis for I-65 and I-70 — to expand a 2015 INDOT analysis to more explicitly quantify and model uncertainty
  4. Statewide Tolling Survey — to assess the public’s willingness to pay tolls. HDR is proposing here, because of the short deadline for the project, to perform a Willingness to Pay (WTP) study, which tests a participant’s sensitivity to various price points. Interesting note:

    “An approach that HDR has found to be successful in similar WTP studies is to tell survey takers that the purpose of the survey is to explore interest in improving travel times and safety on major highways. The concept of paying toll is not introduced until the end of survey so as not to bias the experiments as people generally have negative attitudes towards toll. “

  5. Assess Economic Impact — the study will include quantitative and qualitative studies of the potential impact of tolling on Indiana’s economy, including impacts both of increased investment in infrastructure resulting from tolls as well as impacts on Indiana households.
  6. Write Report — the final report is due by October 31, 2017.

The INDOT page for open RFIs is here: INDOT RFI Page.

 

MPO Meeting Today: Trail Project and Bike Bridge

9 Jun
Creek Crossing at the INDOT Mitigation Property

Creek Crossing at the INDOT Mitigation Property

Today’s Policy Committee meeting of the Bloomington Metropolitan Planning Organization (1:30PM, in City Council Chambers in the Showers Building) has a pretty light agenda decision-wise, but features two important active transportation/trail projects:

1. The County is asking the MPO to amend both the FY2016-2019 and FY 2018-2021 Transportation Improvement Programs (TIPs) to add a Monroe County greenway project running along the Illinois Central railroad corridor from the existing Clear Creek Trailhead at Church Lane to an INDOT I-69 mitigation property that could be the future site of a county nature park. The mitigation property is a property where INDOT was required to plant and maintain trees to compensate for the trees it cut down for I-69.  I have spoken about this exciting project many times. The purpose of this amendment is to allow the County to spend a $200,000 Recreational Trail Program (RTP) grant it received from the Indiana Department of Natural Resources to develop the trail, which will continue the existing Bloomington Rail Trail and Clear Creek Trail south. The County is putting up the value of the railroad corridor, which the County owns, as the match.

Here is a map I made of the project:

Illinois Central Corridor Greenway Phase 1

Illinois Central Corridor Greenway Phase 1

Incidentally, although I refer to it as the Illinois Central Corridor Greenway, this trail does not yet have an official name.

2. The Bloomington Bicycle Club has long advocated for a bicycle-pedestrian-only bridge over I-69. They have put out some additional information here: http://www.bloomingtonbicycleclub.org/BikePedBridge/. There are also some maps and slides in the MPO Policy Committee Packet that are definitely worth looking at!

They are asking the MPO to formally support the project in principle; however, no funding is being allocated or requested here. I definitely support moving forward on the project (i.e., doing a feasibility analysis to determine usage and costs), and will be supporting the request of the bicycle club to endorse the project.

The packet for the MPO Policy Committee meeting is here: 2017-06-09 MPO Policy Committee Packet.

 

 

From the Budget to the Tax Rates: Northern Monroe Fire Territory

5 May

NMFT LogoEarlier this week I attended the meeting of the Executive Committee of the Northern Monroe Fire Territory. I am a non-voting taxpayer member of the Executive Committee. At the meeting we heard concerns from some residents both that the tax rate increase in creating the territory was too high and that they could not understand where that high tax rate came from. While the former is a values question that each taxpayer has to come to answer to on their own, I thought I would take a bit of time here explaining where that tax rate actually comes from and where that money goes.

Again, the purpose of this post is not to persuade anyone; it is just to educate the public about how their tax rates are determined. Hopefully with a little bit of shared knowledge and shared understanding, we can all engage in productive dialog about the services needed by our community and their costs.

Governance of the Territory

First, though, let me take a moment to explain the governance of the territory. The territory was established through specific processes set out by state law. The authority to create the territory is held  by the township boards coming together to form the territory. The Bloomington Township Board and the Washington Township Board passed identical resolutions that established the territory, and both boards also passed the Northern Monroe County Fire Protection Territory Agreement, which is essentially the by-laws that govern the territory.

Note that in a fire territory, by law one of the units (townships) has to be designated the “provider unit”. The budget for the territory then sits in the provider unit, and the provider unit’s  board has annual budget authority over the territory. So in the case of Northern Monroe, because Bloomington Township is designated as the “provider unit”, the Bloomington Township Board ultimately has authority over the territory budget.

That agreement established the 6-member Executive Committee, which consists of: both township trustees and one township board member from each township (4 voting members total) and one non-voting citizen representative from each township (I am the non-voting citizen representative from Bloomington Township and Mike Baker is the representative from Washington Township). The Executive Committee’s duties are as follows:

  • Recommend annual budget;
  • Recommend major purchases in excess of $50,000;
  • Contribute to the planning and development of possible future capital
    projects;
  • Receive and review annual reports from the Provider Unit and Fire Chief;
  • Recommend staffing and equipment allocations;
  • Appoint the Fire Chief;
  • Act as liaison with the township s/he represents, enhancing communication between the township board, the community, and the Executive Committee.

Budget

So now onto the discussion of how to get from the budget to the tax rates. The best source for budgets for ALL taxing units in the state of Indiana is the state’s web site Gateway Report Builder. From there, you can download budgets, tax rate information, and just about any other financial information you want about any local unit in the state. To get the budgets for the territory, go to Budgets -> Line Item Budget Estimate, and choose Monroe County and Bloomington Township. There are two separate funds that make up the fire territory: Special Fire Protection Territory General and Special Fire Protection Territory Equipment Replacement. General is the annual budget for operating the fire territory and Equipment Replacement is for accumulating funds to replace apparatus (fire trucks, etc.).

I’ve included copies of the 2017 budget reports here:

So from the perspective of calculating the tax rates, the most important thing about the budget is the bottom line. Here is the bottom line from the General Fund budget:

Screenshot 2017-05-04 19.14.38

The annual budget, as passed by the Bloomington Township (provider unit) Board for 2017 for the general fund (which, again, funds the operations of the fire department, including salaries, lease payments on a fire station, and pretty much any other expenses of the fire department except equipment replacement) is $2,776,423.

I will write another posting that will discuss this budget further — while the above budget reports give you some detail, the categories are sometimes broader than would be useful. For example, under administration salaries and firefighter salaries, most people would like to see how that actually breaks down in terms of the number of firefighters at what ranks, and how much they are paid. I’ll provide that information, but in a separate posting.

Financial Statement and Property Tax Levy

IMG_1980Now that we have the budget, though, how does this translate into a tax levy? That involves another state form known as the 4B (also known as the “16-line statement”) that each unit files during the annual budgeting process for each fund (i.e., for the Fire Territory, the general fund and the equipment replacement fund). The 4B is essentially an 18-month financial statement, covering from July 1 of the current year to December 31 of the year being budgeted for. It basically allows the unit to identify all of its planned expenditures, its available revenues from existing sources, and any property taxes it needs to levy for the budget year to be able to fund the expenditures.

Because the Fire Territory was only created in 2017, the 4B statements for the two fire funds are simpler than they usually are. To generate the 4B reports, go to Gateway Report Builder and run a Budgets -> Budget Estimate – Financial Statement – Tax Rate report for Bloomington Township for 2017. You’ll have to page down until you find the report for the fund we are looking at — Special Fire Protection Territory General. I’m including a copy of this report below. While we could spend all day discussing this form, I just want to focus on the reason I’ve written this posting — going from the budget to the tax rates. You only want to pay attention to the right-most column, labeled “Certified Amount” — these are the numbers that are actually used to calculate the final tax rate.

Screenshot 2017-05-04 19.25.44

The top part of the statement relates to planned expenses of the territory. Note the line #1 — total budget estimate for incoming year. This is the $2,776,423 that I referred to above — the estimated amount required to run the fire territory for the year.  The second section refers to revenue, including cash on hand. Because the territory is new for 2017, there isn’t any cash on hand. Line 8b states that the Fire Territory expects to receive $575,484 in miscellaneous revenue. Miscellaneous revenue is basically all revenue except property tax. You can actually see a breakdown of this number again through Gateway Report Builder and run a Budgets -> Miscellaneous Revenue Report for 2017 for Bloomington Township, Special Fire Protection Territory General.

I’ll include that report here, since it is short:

Screenshot 2017-05-05 18.32.28As you can see, there are only a few sources of miscellaneous revenue for the fire territory. Vehicle and Commercial Vehicle excise taxes are distributed to every fund that receives property tax. Bloomington Township is also budgeting $363,837 of its share of local income tax (LIT) towards the territory. Because of the increased property taxes, the township will receive a significant increase in its share of income taxes as well, and the Township is able to use that additional income tax to lower the property tax rate. The other miscellaneous revenue line of interest is $130,000 for Fire Protection Contracts and Service Fees, which comes from providing fire protection to Benton Township.

Let’s go back to the 4B above. So we know the territory needs $2,776,423 in budget to run the territory (general fund), and expects $575,484 in miscellaneous revenues. Therefore, it needs at least $2,776,423 – $575,484 in property taxes to fund that budget. That number, $2,200,939 is found on line #10.

Finally, the fund needs what is known as an operating balance, which is essentially a cash balance that is needed in the fund to be able to make payroll each year before the first property tax settlement of the year comes in June. I won’t get into details on what that number should be, but in this case, it is set to be $366,818, and is included on line #11. Another way of interpreting the operating balance is that it is what the fund will have at the end of 2017, to begin 2018 (and make payroll, etc. before the first 2018 property tax settlement comes in June).

So to recap:

  • Territory needs $2,776,423 in 2017 for operations
  • Territory will get $575,484 in miscellaneous revenue
  • Territory needs to end 2017 with $366,818 left

So working backwards from these numbers, you can tell how much needs to be raised in property taxes:

Screenshot 2017-05-05 18.47.22

The total amount of property tax required to fund the budget for the General fund of the territory is $2,567,755. This number is also provided in line #14 on the 4B statement, and is known as the levy. This is the amount of property taxes that will be raised from taxpayers.

Calculating the Tax Rate

Finally, we need to divvy that levy ($2,567,755) among all of the taxpayers in the Fire Territory. To do that, we calculate a tax rate by dividing that levy by the total net assessed value (net means after deductions and exemptions) of all property in the territory — both Washington Township and the unincorporated Bloomington township.

To get that total net assessed value, I’m going to send you to yet another report. Unfortunately the 4B statement above is created in the budget process before the total net assessed value is known — so the assessed value on that form is always an underestimate of the actual assessed value.

To get the assessed values, again go to Gateway Report Builder and run an Assessed Value -> Certification of Net Assessed Values by District for Monroe County for 2017. Here is what you will see:

Screenshot 2017-05-05 20.52.52

Because this report is very busy, I highlighted the two relevant numbers here — the net assessed value for Bloomington Township (the unincorporated part) and Washington Township. Those numbers are:

Screenshot 2017-05-05 20.57.04

So now that we have the levy (the property tax that needs to be raised) and the assessed value (the assessed value over which the levy is distributed), we can calculate the tax rate:

Screenshot 2017-05-05 21.00.07

So for the Northern Monroe Fire Territory General Fund, the tax rate for 2017 is $0.5972 per $100 of net assessed value. Note that this rate for the General Fund is spread across both Washington Township and Bloomington Township, and, crucially, is uniform across both townships.

Note that this rate is particularly high for the first year of the territory, for several reasons: first, the additional income tax that Bloomington Township receives because of the territory doesn’t come in until the second year of the territory; this additional income tax can be used to reduce the property tax rate in 2018 and subsequent years; and second, as you can see in the above calculations, the territory had to request property tax levy above what was actually required for the first year in order to create an operating balance. This will only need to be done for the first year.

Equipment Replacement Fund

So we’ve talked about the General Fund for the Fire Territory, and how its tax rate was calculated. The Equipment Replacement Fund is much easier. The General Fund is what’s known as a levy-controlled fund; as you could see through these calculations, you start with the levy, and then calculate the rate by dividing the levy by the assessed value. The Equipment Replacement Fund is called a rate-controlled fund; the unit of government simply sets a fixed tax rate, which is limited by statute. In the case of the Fire Territory Equipment Replacement Fund, it is $0.0333 per $100 of assessed value.

Total Fire Territory Tax Rate

Finally we are in a position to calculate the entire tax rate of the Northern Monroe Fire Territory for 2017, simply by adding together the tax rates of the General Fund and the Equipment Replacement Funds:

Screenshot 2017-05-05 21.47.16

So for 2017, taxpayers in the fire territory will pay $0.6305 per $100 of net assessed value of their property (i.e., assessed value after any deductions and exemptions) for the fire territory.

How Does This Compare to Previous Fire Rates?

There is no doubt that this tax rate is high, and represents a substantial increase over 2016 tax rates for fire service. Professional firefighting and EMT services are expensive! And neither Washington nor Bloomingon Township have been adequately able to fund their firefighting needs in the past, because of state limits dating back to the 1973 Otis “Doc” Bowen property tax restrictions.

But the statutes governing the creation of a fire territory unfortunately also create a particularly high first-year expense for the territory, for several reasons, including the need to establish an operating balance (cash reserves) for the first year, and the fact that the additional income tax doesn’t get allocated to the township until the second year of the territory.

The following table shows the 2016 fire rates vs. the 2017 fire rates for both townships:

Screenshot 2017-05-05 21.58.51

How Does This Fit in to the Overall Tax Rates for a Taxpayer?

Finally, these tax rates for the Northern Monroe Fire Territory need to be pub into context to see their overall effect on the taxpayer.

First, the fire territory tax rates are combined with other township-level tax rates. The following chart shows the overall change of township tax rates:

Screenshot 2017-05-05 22.23.27

But of course the township tax rate is only part of the overall property tax rate that a taxpayer pays in a particular district (Washington Township is one taxing district and unincorporated Bloomington Township is another). Taxpayers also pay a tax rate associated with Monroe County, the Monroe County Community School Corporation, the Monroe County Public Library, and the Monroe County Solid Waste Management District.

The following chart shows the overall change in property tax rates for residents in Bloomington and Washington Townships from 2016-2017:

Screenshot 2017-05-05 22.27.53

As you can see, the overall tax rates went up 48.5% in Washington Township and 23.7% in Bloomington Township. You can also see that this increase is almost entirely due to the increased costs of the fire territory; rates for other taxing units went up minimally (or even decreased).

What this means is that, all other things being equal, a taxpayer in Washington Township could expect to see a 48.5% increase in their tax bill over 2016, and a taxpayer in Bloomington Township could expect a 23.7% increase. Of course, all things aren’t always equal — the assessment of the property could have changed, the use of the land could have changed (making it, for example, no longer eligible for the homestead deduction), and assessment methods may have changed (for example, acreage that is not being farmed may no longer be assessed as agricultural land).

Conclusion

I hope this was at least slightly informative. Again, my intent here was not to persuade anyone about the territory — it was purely to inform taxpayers where the tax rates that they just saw on their new tax bills came from. It may be more detail than most of you want, but I wanted to make sure I went through the math in enough detail that you can see how your rates are calculated. I plan to make a few more postings providing more explanation in several areas; the next posting will focus on the budget, and how staffing levels for firefighters drive the budget numbers.

When Going Up Means Going Down: How Do the Property Tax Circuit Breakers Actually Work?

19 Apr
Monroe County Courthouse at Night

Monroe County Courthouse at Night

During the discussions about the City of Bloomington’s proposed annexation, I have received a lot of questions from readers about the property tax circuit breakers (“tax caps”) — like, how do they actually work, how do they affect the taxpayer, and how do they affect the local unit of government? I thought I’d answer that question first by going through a very simple (artificially simple) example.

Before I even begin with the details, let me emphasize the most mind-bending aspect of the property tax circuit breakers — an increase in property tax rates can actually make the revenue to units of government serving the property go down. How does that work?

For our example, we have to pick a taxing district. Let’s choose unincorporated Richland Township (i.e, the part of Richland Township that is outside the Town of Ellettsville). For 2017, the following table shows the tax rates that make up the overall tax rate for unincorporated Richland Township:

Screenshot 2017-04-19 19.34.56

The overall property tax rate for unincorporated Richland Township for 2017 is $1.7915 per $100 of Assessed Value. The above table shows how that rate is divided up among the various taxing units (units of government) serving that district.

So now we need to pick a property to use as an example — and I’ve picked a very specific property — a homestead with a gross assessed value of $318,600. Why have I chosen this value? Because given the above tax rate ($1.7915) and certain simplifying assumptions (no property tax relief from the income tax), this property is exactly AT its circuit breaker tax cap for Richland Township.

How do we know this? Let’s do a few calculations. First of all, the circuit breaker tax cap for a homestead property is 1% of its gross assessed value. In our example, it is $3186 (1% of $318,600). That means that the taxpayer cannot be made to pay more than $3186 in property taxes. Second of all, let’s calculate the net assessed value that the taxpayer is actually taxed on. Since this property is a homestead, it is eligible for a $45,000 homestead deduction and a 35% supplemental deduction of the remaining value, leaving a taxable net assessed value of $177,840. This means that our $318,600 property will be taxed on $177,840. Note that there may be additional deductions that this taxpayer is eligible for; however, for this example, we’ll stick with the homestead and supplemental deductions.

Applying our tax rate of $1.7915 per $100 of assessed value to our net assessed value of $177,840, we have a total property tax bill of $3186. Note that this tax bill is exactly at its circuit breaker limit of $3186!

Based on the above tax rates, each unit of government that serves this property receives the following property tax revenue:

Screenshot 2017-04-19 20.08.53

And again — this property is right at its 1% circuit breaker limit of $3186, so currently it cannot be forced to pay more than $3186.

So now let’s consider a very artificial situation. Let’s say that for 2018 every taxing unit’s property tax rate stays exactly the same except that Monroe County takes on some additional debt for capital projects, raising its property tax rate from $0.3832 to $0.4300. The following table shows what the 2018 property tax rates are in this hypothetical example compared to the 2017 rates.

Screenshot 2017-04-19 20.19.16

As I mentioned before, in this very artificial example, only the Monroe County property tax rate has changed from 2017 ($1.7915 per $100) to 2018 ($1.8383 per $100).

So first, let’s calculate this taxpayer’s 2018 property taxes overall. The following chart illustrates the taxes that would be collected by each taxing unit from this taxpayer for 2018:

Screenshot 2017-04-19 20.42.54

In 2017 they were $3186. In 2018 they are $3,269.23 ($1.8383 per $100 of AV, with the AV at $177,840). This is an increase $83.23.

But….remember that the circuit breaker is at $3186 — so $3186 is the most this taxpayer will pay! So even though the individual tax rates of each of the units of government serving this property would call for $3269.23 in taxes, the taxpayer only pays $3186. This means that there are $83.23 of taxes that the taxpayer does not pay and that the local units of government do not collect. This $83.23 is known as the circuit breaker credit — good for the taxpayer, not so much for the units of government serving the taxpayer.

CIRCUIT BREAKER CREDIT = $83.23

But how is this circuit breaker credit divided up among the units of government? Even though it was only Monroe County that raised its tax rate (in this very hypothetical example), all of the units of government share in the loss of revenue in proportion to their tax rates.

So let’s allocate the circuit breaker credit (revenue loss to the units of government) based on each unit’s proportion of the total tax rate:

Screenshot 2017-04-19 21.06.20

Before even looking at the numbers in detail, the following fact should jump right out at you:

EVEN THOUGH ONLY ONE UNIT OF GOVERNMENT RAISED TAXES, ALL UNITS SHARE IN THE PAIN!

Now the last step in the process is to calculate the actual amount collected for each unit in 2018. So let’s put it all together:

Screenshot 2017-04-19 21.20.09

The column labeled “2018 Net (Taxes – Circuit Breaker) represents the actual taxes collected from this taxpayer for 2018. Note that it sums up to $3186. This should not be a surprise, as the tax cap for this taxpayer was $3186 — they cannot be taxed more than $3186 with an assessed value of $318,600!!

But the final kicker comes from looking at the rightmost column, labeled 2017-2018 Change. This is the change in revenue from each taxing unit from 2017 to 2018. Of course the total should be $0 — since the property was at the 1% circuit breaker, no net additional revenue could be collected.

But look more closely at each individual taxing unit. Only the unit that increased taxes — Monroe County in this artificial example — actually increased its revenue from 2017-2018 — and not as much as it would have increased it without the tax caps. But every other unit, even though it did not increase its tax rates — shared in the circuit breaker loss caused by the one unit that did increase its tax rates.

So just to pick out one example — the additional debt taken on by one unit of government (Monroe County) actually caused another unit (such as R-BB School Corporation) to lose revenue.

Monroe County’s gain ($63.76) is actually R-BB School Corporation’s loss ($50.52).

So hopefully this little exercise was useful — hopefully you can now see that with the property tax circuit breakers, one unit that raises its tax rates can actually cause a real loss to the other taxing units.

Public Information Meeting on 2018-2021 Transportation Projects Tomorrow at 5:30PM

28 Mar

 

Capture

B-Line Extension Project (Illustrative Only)

For whatever reason the City of Bloomington doesn’t have an official press release out yet, so I am trying to do whatever I can to publicize a public information meeting scheduled for tomorrow evening (Wednesday, March 29, 2017 at 5:30PM at the Downtown Bloomington Transit Center, corner of N. Walnut and E. Third Streets) sponsored by the Bloomington/Monroe County Metropolitan Planning Organization (BMCMPO). This meeting will provide the public with information and take feedback on the transportation projects being considered for the 2018-2021 Transportation Improvement Program (TIP).

The MPO coordinates the allocation of Federal transportation funding coming into the area and includes projects from the City of Bloomington, Monroe County, INDOT, Bloomington Transit, Rural Transit, and IU Bus.

The proposed fiscal plan that is being presented to MPO committees is here: FY1821TIP_Memo_032217. This plan provides the breakdowns of local vs. federal funding by project/local agency and by fiscal year. It is just the starting point for discussions, and could change based on feedback from MPO committees and the public. This public information meeting provides one — but not the only — opportunity to provide feedback. But this memo only shows the financial breakdowns — it doesn’t actually provide any detail on the projects themselves.

I’m hoping that a more public-friendly version of the project descriptions can be made available soon — but for now all I could find is the packet for the MPO Policy Committee from February 10, 2017. I extracted the relevant section here: MPO Policy Committee Project Descriptions From 2017-02-10 (warning: it is a pretty big document!).

There are several projects that I think the public will be particularly interested, including the County’s Fullerton Pike project (Phases 1 and 2), the County’s proposed roundabouts to improve safety at Curry Pike/Woodyard Road/Smith Pike, the City’s Tapp Road & Rockport Road Intersection project, Henderson Street, Winslow Road, and Jackson Creek trail projects, and the project I’m most excited about — a proposed extension of the B-Line trail west, to connect to the multi-use path going over I-69 at 17th Street and ultimately connecting to the County’s Karst Farm Greenway.

Hope to see members of the public at the meeting!

Here’s a draft of a press release from the MPO:

“The Bloomington/Monroe County Metropolitan Planning Organization (BMCMPO) will hold a Public Information Meeting with the goal of gaining public input for development of the Fiscal Year 2018-2021 Transportation Improvement Program (TIP).

The TIP documents a comprehensive fiscally-constrained list of multi-modal federal-aid transportation projects programmed for Bloomington, Bloomington Transit, Ellettsville, INDOT, Indiana University Transit, Monroe County, and Rural Transit.

The Public Information Meeting will be held on Wednesday, March 29, 2017 from 5:30 p.m. to 7:00 p.m. at the Downtown Bloomington Transit Center, located at the corner of N. Walnut and E. Third Streets.

Development of the new TIP requires a public involvement process which includes a public review by the BMCMPO Citizens Advisory Committee, the Technical Advisory Committee, and adoption by the Policy Committee before submission to state and federal agencies.

Public Meeting attendees will provide feedback on the proposed list of TIP projects and to help shape the project funding priorities of the MPO for the next three (3) years. The BMCMPO staff looks forward to discussing these and other important transportation issues with residents at the public meeting.

For more information or written comments on the FY 2018-2021 TIP, please contact BMCMPO Director Josh Desmond at 812.349.3423 or desmondj@bloomington.in.gov.”