Racinos, Riverboats, and Reform: The Human Services link to Property Taxes

1
Racinos, Riverboats, and Reform The Human
Services link to Property Taxes

• Presentation to the Indiana Coalition for Human
  Services
• Ann Cottongim IACT
• Angie Dvorak AIC

2
Topics of Discussion

• Review of Property Tax System
• Recent Changes How did we get where we are
  today?
• 2007 Legislation HEA 1478 HEA 1001

3
Review of Property Tax System

• Property Tax Terminology
• Assessments
• Local Budget Process

4
Property Tax Terminology

• Assessed Valuation (AV) The total dollar value
  assigned to all real personal property through
  an assessment of the property.
• Real Property is assessed locally, by township
  and county assessors with rules established by
  the DLGF.
• Property Tax Levy Set by local governments
  based on their spending needs for providing
  services. Since 2002, levy increases have been
  limited to a six year average increase in Indiana
  personal income.

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Property Tax Terminology

• Property Tax Rate Once the levy is set
  assessed values have been calculated, property
  tax rates can be set. Rates are re-calculated
  each year by dividing the levy by the assessed
  value.
• Tax Rate Estimate of Funds to be Raised (levy)
  / Net Assessed Value
• The rate is multiplied by the assessed value
  owned by each taxpayer to calculate the
  taxpayer's liability. 

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Property Tax Terminology

• All taxpayers pay a county rate, a township rate
  and a school corporation rate. 
• Depending on where they live, taxpayers may also
  pay a city or town rate, library district rate,
  etc.
• There are also rates for other special districts,
  such as solid waste management districts,
  transportation districts or fire protection
  districts. 
• Taxpayers receive one combined tax bill from the
  County Treasurer, and make one payment.  The
  county then divides the revenue among the local
  units.

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Property Tax Terminology

• Distribution of Property Tax Dollars (2005 DLGF
  Data)

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Assessments

• The DLGF is responsible for providing guidance
  and education to local assessors on proper
  assessing methods.
• It is also responsible for measuring the results
  of local assessment efforts, and helping local
  assessors make corrections where needed.

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Assessments

• A propertys assessed value is the basis for
  property taxes.
• Annually local assessing officials assess the
  value of real property on March 1 based on market
  value in use of the property.

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Assessments

• In December 1998, the Indiana Supreme Court
  declared Indiana's real property tax assessment
  rules to be unconstitutional.
• The DLGF rewrote the assessment rules to try to
  satisfy the Court's objections move toward a
  market value approach.

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Assessments

• Indiana's assessment standard is effectively
  market value.
• This means that Indiana assessors value property
  for tax purposes based on what the property could
  bring if it were sold in an "arms-length"
  transaction.

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Assessments

• As a part of Indianas move to a market-based
  assessment system, in 2007 assessors started to
  annually adjust property values.
• Referred to as Trending.
• Trending will update assessed values from 2002 to
  2007 values, essentially creating a
  mini-reassessment.

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Assessments

• The annual adjustments are calculated by
  comparing the prior year assessment with current
  sales data from a neighborhood.
• The difference, positive or negative, will be
  used to create a factor that assessing officials
  will apply to the propertys assessed value to
  bring it to current market value.
• More later on the impact trending is having on
  2007 tax bills

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The Local Budget Process

• How are local budgets set?
• Assessor is required to provide AV info to the
  county auditor who must certify the values to the
  various units by August 1.
• Also, by July 1, the Dept of Revenue must certify
  local income tax revenues to be received during
  the budget year.

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The Local Budget Process

• Departments propose their budgets during the
  middle of the calendar year. 
• By the end of July the initial budget proposal is
  set and must be published in the newspaper twice
  during August September.
• The council reviews the budgets and tax rates
  may make changes, though the total budget can't
  be more than the advertised amount. 
• Eventually the council adopts a budget and tax
  rates by majority vote.

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The Local Budget Process

• Next, from October 1 to December 31 the DLGF
  conducts hearings to review the budgets of local
  governments.
• If the council has passed a budget that exceeds
  property tax levy limits, and a levy appeal is
  not filed or is rejected, the DLGF requires that
  the budget be reduced.
• The DLGF must complete hearings and certify its
  actions on budgets, tax rates and levies by
  January 15 of the budget year. 

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The Local Budget Process

• Once the budget order is approved, the state
  provides information back to the county and tax
  bills are prepared and mailed out to taxpayers.
• Beginning in 2008, new information will be
  provided on tax bills a copy of the tax bill
  must go to taxpayers who escrow their taxes.

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Recent Changes How did we get where we are
today?

• 1998 Supreme Court Decision the move toward a
  market value system.
• 2002 Reassessment Tax Restructuring
• Trending
• Circuit Breaker Legislation
• Impact on Pay 07 Tax Bills

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Recent Changes - How did we get where we are
today?

• 2002 Tax Restructuring
• Raised the sales tax from 5 to 6, raised the
  cigarette tax from 15.5 cents a pack to 55.5
  cents, raised the gasoline tax from 15 cents a
  gallon to 18 cents.
• Reduced property taxes by nearly a billion
  dollars by inventing a new state aid program for
  schools, to replace 60 of school general fund
  property taxes, and by increasing the homestead
  credit from 10 of tax bills to 20.
• Phased out the inventory tax, which is the
  property tax on business inventories, eliminating
  it by 2007.
• Made Indiana a market value assessment state
  (joining 48 other states)

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Recent Changes - How did we get where we are
today?

• 2002 Tax Restructuring (cont.)
• Increased the standard property tax deduction for
  homeowners from 6,000 to 35,000
• Overhauled the state's corporate income tax
  structure
• Created a more generous earned income credit for
  low income households
• Increased the income tax renters deduction from
  2,000 to 2,500
• Authorized dockside gaming for riverboats, and
  raised the wagering tax
• Revised the property tax controls on non-school
  local governments, restricting annual levy
  increases to about 5

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Recent Changes How did we get where we are
today?
Circuit Breaker Tax Credit

• What is it?
• How will it affect property taxpayers?
• How is the credit funded?
• How does it impact borrowings?
• What next?

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What is it?
Recent Changes How did we get where we are
today?
Circuit Breaker Tax Credit

• A taxpayer credit limiting a taxpayers property
  tax liability to 2 of the gross assessed value,
  before exemptions.
• Became effective in Lake County in 2006 and 2007
  for residential homesteads.
• Becomes effective statewide for taxes payable in
  2008 for residential homesteads.
• Becomes effective for taxes payable in 2010 for
  all other taxpayers, including both real and
  personal property.

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How is the credit funded?
Recent Changes How did we get where we are
today?
Circuit Breaker Tax Credit

• Credits must be funded by all local taxing units
  from other revenues, fund balances or budget
  reductions, in proportion to their levy.
• Taxing units may not increase property taxes or
  borrow funds to offset any shortfall in revenues.
• DLGF has taken the position that each taxing unit
  must first set aside sufficient property tax
  collections to pay debt service, before using
  property tax receipts to fund costs of government
  services.

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Impact of Circuit Breaker on Borrowing Costs
Recent Changes How did we get where we are
today?

• Changes the security for property tax supported
  bonds from an unlimited promise to levy property
  taxes to pay debt to promise to levy a limited
  property tax to pay debt.
• While the impact on some issuers of property tax
  supported debt is minimal, others have received
  lower bond ratings or have been denied access to
  bond insurance.
• Result is higher interest costs.

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Other factors that can trigger future circuit
breaker tax credits
Recent Changes How did we get where we are
today?

• Actions by other taxing jurisdictions
• Circuit breaker tax credit is funded by all
  taxing jurisdictions, not solely the taxing unit
  that may have increased its levy.
• Annexations add another layer of tax, increasing
  the overall rate.
• Actions by the State
• Increases in Family and Children levy or
  unfunded mandates that result in increases in
  property tax levies.
• Reductions in property tax replacement funds.
• Actions by taxpayers
• Reduction of assessed value from loss of major
  taxpayer.

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Circuit Breaker - What next?
Recent Changes How did we get where we are
today?

• The task of managing local governments will be
  much more difficult with the Circuit Breaker Tax
  Credits.
• Must continue to grow property tax base to keep
  effective tax rates low, using incentives such as
  TIF and abatement when needed.
• Must be aware of business plans of large
  taxpayers and provide assistance when possible to
  ensure their continued investment.

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Circuit Breaker - Whats next?
Recent Changes How did we get where we are
today?

• Must fully utilize existing revenue tools, such
  as local option income taxes, to provide
  alternative revenues for government services and
  capital investments.
• Must cooperate with other taxing jurisdictions,
  realizing that an increase in the property tax
  levy of one may effect all others.
• Must be careful of entering into long-term
  financial commitments that are inflexible.

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Recent Changes How did we get where we are
today?

• In April, LSA predicted a 23.8 increase in
  homeowners property tax bills
• Based on data collected from 33 counties
• Key Contributors
• 10.1 - Update of AV through Trending
• 3.7 - Cap on State Property Tax Relief
• 3.6 - Inventory Tax Shift
• 1.9 - Annual Expected Growth due to
  Local Government Spending
• 1.7 - Local School Districts Tapping
  Property Taxes for Utility Insurance Costs

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Recent Changes How did we get where we are
today?

• To alleviate the property tax increases to
  address the consequences of the circuit breaker
  law the legislature passed HB 1001 HB 1478 this
  session.

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2007 Legislation HEA 1001

• 550 Million in Property Tax Relief
• 300 Million issued in late 07/early 08 as a
  Rebate
• Remaining 250 Million Relief Provided in 2008
  Tax Bills
• This relief should reduce the average homeowner
  tax bill hike to about 8 in 2007 and 2008.

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HEA 1001

• Why a Rebate?
• Property Tax Relief Funded through the sale of
  licenses to allow slots at the two horse tracks.
• Licenses sold for 250 Million each
• Paid in two installments Each track must pay
  150 Million by November 1, 2007, and 100
  Million by November 1, 2008.

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HEA 1001

• Counties will receive rebate money in November
  begin the process of issuing checks to taxpayers.
• Pay 08 Property Tax Relief factored into 08 tax
  bills (no refund)

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2007 Legislation - HEA 1478 Local Option
Income Taxes (LOIT)

• Allows the adoption of three types of LOIT
• Property Tax Relief
• Operating
• Public Safety
• Effective upon passage (May 2007).
• Adoption period is after March 31 and before
  August 1 with an effective date of October 1 of
  the year of adoption.
• Ordinance adopted by
• County Council CAGIT County
• County Income Tax Council COIT County
• Dept. of Revenue certifies revenue information
  to the Co. Auditor and DLGF
  no later than Sept. 1 of a year for
  the three LOIT types.

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HEA 1478 Local Option Income Taxes (LOIT)

• LOIT Property Tax Relief (1 maximum rate)
• Additional property tax replacement
  credits/homestead credits
• May be adopted by all counties without adoption
  of another new LOIT.
• LOIT Operating (1 maximum rate)
• Based on the amount of LOIT is needed to make up
  new levy growth.
• Property tax levy replaced with allocation of
  LOIT.
• May be adopted by all counties.
• LOIT Public Safety (.25 maximum rate)
• To be used for public safety purposes.
• Can only be adopted if a county has adopted the
  LOIT Property Tax Relief and
  LOIT Operating.
• Exception is Marion Co. which only has to adopt
  LOIT Operating.

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HEA 1478 Circuit Breaker

• Homesteads are capped at 2 indefinitely
  beginning in 2008.
• All property, except homesteads, are capped at 3
  in 2010.
• School general fund levies apply for purposes of
  calculating the 2 or 3 cap, but the actual
  credit is not reduced by the net school general
  fund portion so schools do not lose general
  operating funds.

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Estimated 2010 Revenue Loss from Circuit Breaker
Tax Credit
HEA 1478 Circuit Breaker
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Estimated Number of Taxing Units Affected by
Circuit Breaker Tax Credit in 2010
HEA 1478 Circuit Breaker
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HEA 1478 Circuit Breaker Appeal Board

• Creates a provision to allow political
  subdivisions that would lose more than 2 of
  their tax collections to appeal for relief.
  (Beginning in 2008)
• A Circuit Breaker Relief Appeal Board is
  established.
• The Board is composed of agency heads from OMB,
  DLGF, DOR, SBOA, (or other designee) and three
  governor appointees from IACT, AIC, and IASS.
• DLGF administers the Board.
• For taxes due and payable in 2008 and thereafter,
  the fiscal body of a county containing a
  distressed political subdivision (or the fiscal
  bodies of 2 or more distressed political
  subdivisions) may petition the Board for relief.

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HEA 1478 Circuit Breaker Appeal Board (Cont.)

• Petition must include proposed financial plan,
  comparison to other units, revenue and
  expenditure data and any other data needed by the
  Appeal Board.
• Two options for relief
• Increase the A.V. threshold at which the Circuit
  Breaker credit applies to a persons property tax
  liability.
• Provide for a uniform percentage reduction to
  Circuit Breaker credits otherwise provided in the
  county.
• If granted, Appeal Board shall conduct audits and
  reviews to determine whether the
  political subdivision abided by the agreement.

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HEA 1478 County Board of Tax and Capital
Projects Review

• Establishes a County Board of Tax and Capital
  Projects Review (County Review Board) in each
  county beginning January 1, 2009.
• County Review Board will have 9 members including
  representatives from the county fiscal body,
  municipal governments, schools, the County
  Auditor and two citizens elected by voters.
• County Review Board approves or rejects any civil
  or school project over 7 million.
• If the project is rejected, the executive of the
  civil unit or school can initiate a
  petition/remonstrance process to override
  the rejection.

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HEA 1478 County Board of Tax and Capital
Projects Review (Cont.)

• Allows the County Council to adopt an ordinance
  before January 1, 2009 or before July 2 of any
  year to not allow a the County Review Board to
  review budgets, rates and levies.
• If an ordinance is not adopted as described
  above, taxing units must submit budgets, rates
  and levies to the County Review Board for review.
• Taxing units must file excess levy appeals with
  the DLGF for forwarding to the County Review
  Board for recommendation. (Beginning January 1,
  2009)
• County Review Board sets property tax levies for
  new units of government. (ex
  Fire Protection District)

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HEA 1478 Capital Projects Plan

• Requires fiscal bodies to hold a public hearing
  and adopt a capital projects plan after January 1
  and before October 1, 2009 and every two years
  after.
• DLGF will adopt rules as to how the plan must be
  formulated.
• The plan must cover a period of 5 years.
• The plan must be submitted to the County Review
  Board.
• Cross-county units must submit the plan to each
  County Review Board.
• The County Review Board has 60 days after
  receipt of the plan to issue a written report.

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HEA 1478 Capital Projects Plan (Cont.)

• Contents of the Plan
• General description of the taxing unit.
• Description and use of the facilities owned.
• Location and general description of each proposed
  project and intended use of each project.
• Estimated total cost of each project.
• Identification of all sources of funds expected
  to be used for each capital project.
• Planning, development and construction schedule
  of each project.
• Any other information required by the DLGF.