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.”

I-69 Section 6 DEIS Recommendations: Quick Summary

17 Mar

IMG_2712A few hours ago, INDOT released the Draft Environmental Impact Statement (DEIS) for I-69 Section 6, the final section of the Evansville to Indianapolis highway. Section 6 runs from just south of Martinsville to I-465.

Links to INDOT’s press release and the DEIS can be found here:

My (very) quick summary of the findings:

  • After 13 years of additional input and analysis, INDOT is sticking with the original route selected in the 2004 Tier 1 Record of Decision: the SR 37 corridor.
  • 4 lanes from Indian Creek (where Section 5 ends) to SR 144 north of Martinsville, 6 lanes from SR 144 to Southport Road, and 8 lanes from Southport Road to I-465
  • Using the existing SR 37 center median, with cable barriers or double sided guardrails at some locations. Note that an alternative that basically elevated I-69 through Martinsville was considered but not recommended.
  • The preferred alternative is referred to as C4.
  • Two options, with no recommendation, are provided for the interchange at Southport Road just south of I-465
  • The preferred alternative costs approximately $1.5B, assuming construction from 2020-2026
  • The final Record of Decision (ROD) and the Final Environmental Impact Statement (FEIS) from the Federal Highway Administration is anticipated for 1st quarter 2018.

The following map illustrates the preferred route, C4:

Screenshot 2017-03-17 21.24.06

The full DEIS is thousands of pages long. I strongly recommend you start with (and maybe stay with) the executive summary. S.6 provides a good summary of the rationale for the route selected. In addition Chapter 3: Alternatives: C4 Mapbook provides detailed and summary maps of the recommended alternative.

INDOT is accepting public comment through May 8 via the comment form at www.in.gov/indot/projects/i69/2463.htm or by mail to the I-69 Section 6 project office, 7847 Waverly Road, Martinsville, IN 46151. In addition, several public meetings are planned. For details, see the INDOT press release.

I-69 Section 6 Draft Environmental Impact Statement Released

17 Mar

The Indianapolis Department of Transportation (INDOT) just moments ago released the Draft Environmental Impact Statement (DEIS) for Section 6 of I-69, which will run from Martinsville to Indianapolis.  Public comments will be accepted through May 8, 2017.

  • INDOT’s press release can be found here.
  • The full Draft Environmental Impact Statement can be found here.

 

 

Annexation and Property Tax Rates 101

7 Mar

Screenshot 2017-03-07 19.05.08Introduction

As readers have no doubt heard, the City of Bloomington recently proposed to annex 7 areas of unincorporated territory in Monroe County, leading to a 65% increase in the area of the City. The City’s case for annexation (including maps and their fiscal plan) can be found here: http://bloomington.in.gov/annex.

I have developed a presentation that I have given in different forms at several community meetings about the annexation that deals specifically with the impact of annexation on property tax rates on annexed areas. Several constituents have suggested that I turn that presentation into a blog post, so this is my first attempt.

These annexations will have many effects on the community, the public, and other units of government (the county, townships, fire departments). The purpose of this presentation is to educate the public specifically on the likely effects of these annexations on property tax rates and property tax bills.

Big Disclaimer: This is based on what we know as of February 2017. This is not an official government document, and is only for community education and discussion. Your circumstances may vary — and many things can change between now and 2020.

Basic Terminology

A taxing unit is a unit of government that independently has the authority to levy property taxes. Monroe County includes the following taxing units:

    • Monroe County Government
    • School Corporations (MCCSC, R-BBSC)
    • Townships (Bean Blossom, Benton, Bloomington, Clear Creek, Indian Creek, Perry, Richland, Salt Creek, Polk, Van Buren, Washington)
    • Monroe County Public Library
    • Municipalities (Bloomington, Ellettsville, Stinesville)
    • Fire Protection Districts (Perry-Clear Creek Fire Protection District)
    • Monroe County Solid Waste Management District
    • Bloomington Transportation (the city bus is actually a taxing unit separate from the City of Bloomington)
    • Lake Lemon Conservancy District (only affects a small number of residents)

A taxing district is made up of all of the taxing units that provide services to a common geographical area. Property tax rates are uniform to all parcels within a taxing district. And property tax rates for a taxing district are simply the sums of all of the tax rates for all of the taxing units serving the district.

For example, tax rates for an unincorporated taxing district (i.e., a taxing district outside of one of the 3 incorporated municipalities of Bloomington, Ellettsville, and Stinesville) consist of:

= County Rate + Solid Waste District Rate + Public Library Rate + School Corporation Rate + Township Rate + (if in Perry or Clear Creek townships only) Perry Clear Creek Fire Protection District Rate

Tax rates for an incorporated taxing district (a taxing district within an incorporated municipality) consist of:

= County Rate + Solid Waste District Rate + Public Library Rate + School Corporation Rate + Township Rate – the fire protection component of the township rate + Municipal Rate + (if Bloomington) the Bloomington Transportation Rate

So basically the difference between unincorporated and incorporated rates are:

  • the fire protection component of the township tax rate (taxpayers don’t pay it in cities and towns, because fire protection is provided by the municipality)
  • the municipal tax rate (taxpayers don’t pay it outside of cities and towns)
  • Bloomington Transportation (taxpayers in the City of Bloomington pay a property tax rate for the city bus)

The following table shows the property tax rates for each of the taxing districts, from 2013-2017.

Screenshot 2017-03-07 07.24.46

Probably the thing you will notice first about this chart is the substantial increase in tax rates for unincorporated Bloomington Township (23.73%) and Washington Township (48.49%). These large increases are due to the newly created Northern Monroe Fire Territory, which upgrades the fire protection services provided to Bloomington and Washington townships.

Property Tax Rates and Annexation

Next I’m going to walk through the property tax rate calculations for three different townships: Van Buren, Richland, and Perry. The general format will be the same for each of these townships; only the numbers will change, so you probably won’t need to read through each one of them.

Also, I want to make sure to call attention to a couple of caveats/assumptions about the data.

This first caveat is worth spending a bit of time on. I am assuming that the City of Bloomington taxing unit’s property tax rate remains the same after annexation. To understand why this is an important assumption, consider how property tax rates are calculated: for most operating funds, the tax rate equals the tax levy (the amount collected in property taxes) divided by the total net assessed value of the area served by that levy. It is expressed in a rate per $100 of assessed value. If the levy stays the same and the assessed value served increases, then the tax rate naturally decreases.

The levy (technically the maximum levy — a unit can always choose a levy lower than the maximum, but in practice most units use the maximum) normally is only allowed escalate by a certain amount each year determined by the state. For 2017 that amount was 3.8%.

If a municipality annexes additional territory, they are permitted to automatically increase their maximum levy by the same proportion that their assessed value is increasing, under the theory that if the assessed value increases by X% then the cost of providing services presumably increases by X% — up to 15%. Above 15%, the municipality has to petition the Indiana Department of Local Government Finance (DLGF) to give them an excess levy.

In this case, the 7 proposed annexations add up to a total 28.14% increase in assessed value. The City’s own fiscal plan for the annexation (p.69) makes clear that they are assuming that they will receive a corresponding 28.14% increase in their maximum levy. See the table below from the fiscal plan:

Capture

If the City receives this full excess levy, then the tax rate won’t change (because the levy AND the assessed value would be increased by the same factor, canceling each other out). If the City were to receive less than the full 28.14% excess levy, then the levy would increase by less than the assessed value under annexation, and thus the tax rate for the City of Bloomington would decrease; however, they wouldn’t have as much revenue as projected in the fiscal plan, and it isn’t clear that they would be able to provide the necessary services.

In these  calculations, however, I’m going with the City of Bloomington’s own assumption — that they will receive the full 28.14% increase in their levy to go along with the 28.14% increase in their assessed value.

Van Buren Township

The Van Buren Township taxing district’s 2017 property tax rate is $1.4645 per $100 of assessed value. That rate comprises the following:

Presentation on Property Tax Rates (1)

The township component of the tax rate ($0.3094  per $100 of assessed value) is actually made up of multiple components.

Presentation on Property Tax Rates (2)

Annexed residents don’t pay the fire component of the township tax rate ($0.2364). However, they still do continue to pay any fire debt until the debt is paid off.

And — annexed residents now pay two new tax rates: the Bloomington Civil City tax rate (actually, a little bit less — see below) and the Bloomington Transportation (city bus) rates. The two city rates are shown below.

Presentation on Property Tax Rates (3)

The one exception I just mentioned is that newly annexed residents don’t inherit the City’s existing debt before annexation. The following diagram illustrates the proportion that debt adds to the rate:

Presentation on Property Tax Rates (4)

So newly annexed taxpayers, in addition to the other taxes (County, schools, library, etc.) will pay the Bloomington Civil City rate of $0.8627 minus the debt rate of $0.0281 = $0.8346, along with the Bloomington Transportation rate of $0.0354 for a total of $2.0981 per $100 of assessed value.

Screenshot 2017-03-07 19.00.28

The following diagram compares the tax rates pre-annexation to post-annexation for Van Buren Township: an increase of $0.6336, or a 43.26% increase.

Screenshot 2017-03-07 19.02.51

Also note that these rates do not include any additional debt that the City of Bloomington will likely have to take on in order to provide infrastructure to serve the newly annexed areas. The City states in its fiscal plan (p.34) that it will need to bond these capital expenses, but does not include the additional tax rate needed to service this debt in its own estimate of tax rates.

So what do these post-annexation tax rates look like on an individual’s tax bill in Van Buren Township? I did a tax bill simulation on a couple of different scenarios here to illustrate the effects. Again, I’ll give a couple of caveats: First, this assumes that the annexation takes effect immediately; many things could happen between now and 2020. Second, these examples assume that the income tax collected for homestead property tax relief has the same effect on an individual’s tax bill as in 2016. These numbers don’t include any amount for additional City debt to pay for infrastructure for the newly annexed areas. And finally, there are some protections against substantial increases in property taxes for taxpayers over 65 years of age whose income and assessed value meet certain guidelines.

Screenshot 2017-03-07 19.12.09

 

Screenshot 2017-03-07 19.12.26

 

Screenshot 2017-03-07 19.12.35

As you can see, at around $250,000 of assessed value, the constitutional circuit breakers (“tax caps”) kick in. This keeps the increase in taxes down for the taxpayer — but causes other units like the school district, the public library, and the county to lose money. This is an important aspect of the tax caps to understand — the City, by raising taxes to a degree that causes the tax caps to kick in can actually cause other units like the schools to lose revenue. Not just not increase revenue by as much, but actually to see a reduction in revenue.

Finally, let’s look at a business:

Screenshot 2017-03-07 19.12.45

Richland Township

In this section, I’ll repeat the same argument that I did for Van Buren Township, so unless you are specifically interested in the numbers for Richland Township, you can skip this section. The one thing that is different about Richland Township is that because Richland-Bean Blossom School Corporation does not have the referendum tax rate that MCCSC does, it takes a much lower assessed value for properties to hit the circuit breakers (the referendum tax rate is exempt from the tax caps).

The Richland Township taxing district’s 2017 property tax rate is $1.7915 per $100 of assessed value. That rate comprises the following:

Screenshot 2017-03-07 19.21.02

The township component of the tax rate ($0.1673  per $100 of assessed value) is made up of multiple components.

Screenshot 2017-03-07 19.21.10

Annexed residents don’t pay the fire component of the township tax rate ($0.2364). However, they still do continue to pay any fire debt until the debt is paid off.

And — annexed residents now pay two new tax rates: the Bloomington Civil City tax rate (actually, a little bit less — see below) and the Bloomington Transportation (city bus) rates. The two city rates are shown below.

Presentation on Property Tax Rates (3)

The one exception I just mentioned is that newly annexed residents don’t inherit the City’s existing debt before annexation. The following diagram illustrates the proportion that debt adds to the rate:

Presentation on Property Tax Rates (4)

So newly annexed taxpayers, in addition to the other taxes (County, schools, library, etc.) will pay the Bloomington Civil City rate of $0.8627 minus the debt rate of $0.0281 = $0.8346, along with the Bloomington Transportation rate of $0.0354 for a total of $2.0981 per $100 of assessed value.

Screenshot 2017-03-07 19.21.36

The following diagram compares the tax rates pre-annexation to post-annexation for Richland Township: an increase of $0.7326, or a 40.9% increase.

Screenshot 2017-03-07 19.21.46

Also note that these rates do not include any additional debt that the City of Bloomington will likely have to take on in order to provide infrastructure to serve the newly annexed areas. The City states in its fiscal plan (p.34) that it will need to bond these capital expenses, but does not include the additional tax rate needed to service this debt in its own estimate of tax rates.

So what do these post-annexation tax rates look like on an individual’s tax bill in Richland Township? I did a tax bill simulation on a couple of different scenarios here to illustrate the effects. Again, I’ll give a couple of caveats: First, this assumes that the annexation takes effect immediately; many things could happen between now and 2020. Second, these examples assume that the income tax collected for homestead property tax relief has the same effect on an individual’s tax bill as in 2016. These numbers don’t include any amount for additional City debt to pay for infrastructure for the newly annexed areas. And finally, there are some protections against substantial increases in property taxes for taxpayers over 65 years of age whose income and assessed value meet certain guidelines.

Screenshot 2017-03-07 19.21.58

Screenshot 2017-03-07 19.22.09

Note that the tax caps kick in with an assessed value of less than $150,000 in Richland Township. This keeps the increase in taxes down for the taxpayer — but causes other units like the school district, the public library, and the county to lose money. This is an important aspect of the tax caps to understand — the City, by raising taxes to a degree that causes the tax caps to kick in can actually cause other units like the schools to lose revenue. Not just not increase revenue by as much, but actually to see a reduction in revenue.

Finally, let’s look at a business, such as one of the many that are located in the westside economic development area in Richland Township:

Screenshot 2017-03-07 19.22.20

Perry Township

In this section, I’ll repeat the same argument that I did for Van Buren and Richland Townships, so unless you are specifically interested in the numbers for Perry Township, you can skip this section. The one distinctive feature of Perry Township is that fire protection is provided by the Perry-Clear Creek Fire Protection District, which is actually an independent taxing unit. The examples in Richland and Van Buren townships had the fire protection provided by the township (although in Richland Township it is provided by contract with Ellettsville Fire Department).

The Perry Township taxing district’s 2017 property tax rate is $1.3315 per $100 of assessed value. That rate comprises the following:

Screenshot 2017-03-07 19.32.05

Annexed residents don’t pay the fire protection district rate ($0.1540).

And — annexed residents now pay two new tax rates: the Bloomington Civil City tax rate (actually, a little bit less — see below) and the Bloomington Transportation (city bus) rates. The two city rates are shown below.

Presentation on Property Tax Rates (3)

The one exception I just mentioned is that newly annexed residents don’t inherit the City’s existing debt before annexation. The following diagram illustrates the proportion that debt adds to the rate:

Presentation on Property Tax Rates (4)

So newly annexed taxpayers, in addition to the other taxes (County, schools, library, etc.) will pay the Bloomington Civil City rate of $0.8627 minus the debt rate of $0.0281 = $0.8346, along with the Bloomington Transportation rate of $0.0354 for a total of $2.0981 per $100 of assessed value.

Screenshot 2017-03-07 19.33.00

The following diagram compares the tax rates pre-annexation to post-annexation for Perry Township: an increase of $0.7160, or a 53.77% increase in tax rates.

Screenshot 2017-03-07 19.33.29

Also note that these rates do not include any additional debt that the City of Bloomington will likely have to take on in order to provide infrastructure to serve the newly annexed areas. The City states in its fiscal plan (p.34) that it will need to bond these capital expenses, but does not include the additional tax rate needed to service this debt in its own estimate of tax rates.

So what do these post-annexation tax rates look like on an individual’s tax bill in Richland Township? I did a tax bill simulation on a couple of different scenarios here to illustrate the effects. Again, I’ll give a couple of caveats: First, this assumes that the annexation takes effect immediately; many things could happen between now and 2020. Second, these examples assume that the income tax collected for homestead property tax relief has the same effect on an individual’s tax bill as in 2016. These numbers don’t include any amount for additional City debt to pay for infrastructure for the newly annexed areas. And finally, there are some protections against substantial increases in property taxes for taxpayers over 65 years of age whose income and assessed value meet certain guidelines.

Screenshot 2017-03-07 19.33.39

Screenshot 2017-03-07 19.33.46

Screenshot 2017-03-07 19.33.56

Note that the tax caps only actually benefit much more expensive properties in Perry Township. But once they take effect, as with other taxing districts, they cause other units like the school district, the public library, and the county to lose money. This is an important aspect of the tax caps to understand — the City, by raising taxes to a degree that causes the tax caps to kick in can actually cause other units like the schools to lose revenue. Not just not increase revenue by as much, but actually to see a reduction in revenue.

Finally, let’s look at a business in Perry Township:

Screenshot 2017-03-07 19.34.05

As you can see, because the circuit breaker limit for businesses is 3%, the circuit breakers have no impact for business properties.

Summary of Tax Rate Changes Under Annexation

Now that I’ve gone through detailed examples for Van Buren, Richland, and Perry Townships, here is a summary of the impact of annexation on the tax rates of all of the unincorporated areas that the proposed annexation affects:

 

screenshot-2017-03-07-19-34-17.png

Potential New City Debt

As I mentioned earlier, the City states in its fiscal plan that it will take on debt to provide infrastructure for the newly annexed areas. It provides 4 estimates of the debt service payments: a maximal and minimal estimate of the total amount required for the capital investment and a 10 year and a 20 year debt service schedule. Using the City’s fiscal plan’s own estimates for the annual debt service payment and their estimate of the additional assessed value from the annexation, I attempted to quantify the additional tax rates required to provide the capital infrastructure necessary to support the annexation:

Screenshot 2017-03-07 19.34.27

As you can see, the debt would add an additional between 2.5 cents and 6.35 cents per $100 of AV. Note that this debt would be paid by all city taxpayers, not just newly annexed taxpayers. In addition, the additional tax rates would have some small additional circuit breaker impact, leading to some additional revenue loss for other units of government.

Conclusion

I hope that if you made it all the way through, you found this explanation of the impacts of annexation on tax rates helpful and informative. I will undoubtedly be writing quite a bit more about annexation and its impacts on taxpayers as well as the county and other units of government such as townships and fire protection districts. If there is something you find unclear or incomplete about this explanation of tax rates, please let me know and I will gladly rewrite or expand!

Transit Tax Passes in Indy

28 Feb

indygo_bus_indiana_aveLast week, the Indy Star reported that a proposed 0.25% local income tax in Marion County to support public transit expansion advanced (the article and my comments are here: Public Transit Income Tax Advances in Indy).

The tax passed the City-County Council last night. This 0.25% income tax will inject an estimated $54M per year into the public transit system, often thought of as one of the nation’s worst for a major city. 6 counties (Marion, Hamilton, Hancock, Johnson, Delaware and Madison) currently have the option of holding a referendum on a local income tax for transit expansion. This tax will bring the total local income tax rate for Marion County from 1.77% to 2.02%.

Today’s Indy Star article: http://www.indystar.com/story/news/local/marion-county/2017/02/27/indy-council-approves-transit-tax/98490222/