Local Government in Carroll County and the New County Income Taxes

Transcription

1 Purdue Cooperative Extension Service Local Government in Carroll County and the New County Income Taxes Larry DeBoer Department of Agricultural Economics Purdue University November 2007 For more information: Local Government Information website. 1

2 Carroll County Government Budgets, 2006 APPROPRIATIONS REVENUES & BALANCES Assessed Property Unit Name Total Gen. Fund Capital Other Total Prop. Tax Other Value Tax Rate COUNTY TOTAL 40,763,101 28,167,079 6,133,255 6,462,767 40,763,101 22,027,167 22,009, ,318, Carroll Cnty 10,636,274 7,312, ,323,306 10,636,274 3,995,899 6,640, ,318, Adams Twsp 29,900 14, ,500 29,900 9,653 20,247 23,775, Burlington Twsp 183,000 25,000 50, , , ,887 77,113 84,112, Carrollton Twsp 25,904 12, ,000 25,904 12,850 13,054 36,924, Clay Twsp 69,580 21, ,100 69,580 25,967 43,613 50,226, Deer Creek Twsp 161,150 42,384 20,000 98, , ,886 12, ,404, Democrat Twsp 87,568 25,670 25,000 36,898 87,568 71,156 16,412 45,292, Jackson Twsp 80,040 38, ,200 80,040 60,099 19,941 62,913, Jefferson Twsp 104,900 19, , ,900 55,014 49, ,123, Liberty Twsp 76,713 13, ,692 76,713 28,630 48,083 23,182, Madison Twsp 32,449 10,030 2,000 20,419 32,449 19,507 12,942 34,959, Monroe Twsp 49,850 26,850 1,000 22,000 49,850 41,931 7, ,797, Rock Creek Twsp 65,450 30, ,000 65,450 31,058 34,392 16,476, Tippecanoe Twsp 101,000 21,000 30,000 50, ,000 42,189 58,811 87,894, Washington Twsp 29,787 15, ,100 29,787 8,240 21,547 39,234, Delphi City 1,913,553 1,778,634 2, ,055 1,913,553 1,348, ,297 85,909, Burlington Town 367, ,900 40,973 89, , , ,671 18,988, Camden Town 274, ,335 13,326 54, , , ,551 11,474, Flora Town 2,026,865 1,648, , ,152 2,026, ,468 1,384,397 62,050, Yeoman Town 51,480 42,141 1,000 8,339 51,480 8,204 43,276 2,837, Carroll School Corp 9,261,526 6,511,224 1,967, ,451 9,261,526 4,201,155 5,060, ,361, Delphi School Corp 14,017,287 9,145,014 3,658,540 1,213,733 14,017,287 7,001,960 7,015, ,831, Rossville School Corp * , ,226, Twin Lakes School Corp * ,555, ,899, Camden Library 49,375 47,174 1, ,375 30,828 18,547 62,913, Delphi Library 731, , , , , ,780, Flora Library 335, , ,000 13, , , , ,797, NW Indiana Solid Waste * ,318, * Cross-county unit. If total appropriations are zero, the unit is assigned to another county. Cross county units assigned to this county will have additional property tax revenue and assessed value in another county. Zero total appropriations for units that are not cross county indicate missing data. Notes. Appropriations are authorized spending for the budget year. Capital appropriations include debt service, lease payments, cumulative funds, capital projects funds. Other appropriations include all non-general, non-capital funds, such as highway funds for counties and transportation funds for school corporations. Property taxes are gross levies, before subtracting state property tax replacement credits or homestead credits. Tax rate is gross payment per $100 assessed value. Other revenues/balances include miscellaneous revenues, such as income taxes, motor vehicle excise taxes, state aid, and fees. It also includes net changes in balances, and (for cross county units) gross property taxes collected in other counties. Source: Prepared by Larry DeBoer, Purdue University, from Local Government Data Base data. 2

3 Administrative Rules and Procedures for the Three Local Option Income Taxes Three New Local Income Taxes To fund the annual increase in civil government operating levies, freezing the property tax levy To provide property tax relief o For property owners generally o For homeowners only o For homeowners and rental housing owners To fund county, city and town public safety expenditures Adoption dates for all local income taxes: April 1 to July 31 (extended to December 31 in 2007) For newly adopted taxes or rates, tax withholding starts on October 1 (if adopted by July 31) Revenue collected and/or property taxes reduced in the following calendar year Counted as part of property tax levy for distribution of other local income tax revenue Income Tax to Freeze Annual Civil Operating Levies Department of Local Government Finance (DLGF) o estimates the increase in a county s non-debt service levies for all civil units o Calculates the income tax rate needed to fund this increase, rounded up to next tenth percent o Maximum rate is 1% o Notify county by July 1 Carroll County s rate was set at 0.3% for 2008 and 2009 Carroll has CAGIT, so the county council decides whether to fund the increase with income or property taxes each year. Adopt by July 31 (December 31 in 2007), withholding starts Oct. 1 (later if adopted after July 31), revenue distributed in the following year If adopted, that year s levy increase will always be funded with an income tax The property tax levy is frozen for that year The income tax rate cannot be decreased or rescinded COIT Council can fund future levy increases with property or income tax In the first year of adoption o Civil operating levies are frozen for two years o Tax rates are set for two years to replace each year s levy increase o First year s income tax rate is doubled o Extra revenue used to start stabilization fund 3

4 Stabilization Fund o Administered by county auditor o Receives half the revenue from first year and excess revenue above levy increase in following years o Used if Income tax revenue is less than levy increase Income tax revenue declines (not counting the second year) Income Tax to Provide Property Tax Relief County council decides o Income tax rate, up to 1%, in 0.05% increments o How property tax relief is allocated To all taxpayers To homeowners only, as local homestead credits To homeowners and owners of rental housing Any combination of the three Decision must be made by July 31 (December 31 in 2007), withholding starts on October 1 (later if adopted after July 31), property taxes reduced in following year Income Tax for Public Safety Costs County council decides o Income tax rate, up to 0.25% o To add to budgets for public safety, broadly defined Police, firefighting, ambulance services, emergency medical, probation, corrections, juvenile detention, jail, emergency communications Operating costs, capital costs, pensions Must adopt the tax freeze and tax relief income taxes to be eligible to adopt the public safety income tax Distributed to county, cities, towns Adopt by July 31 (December 31 in 2007), withholding starts Oct. 1 (later if adopted after July 31), revenue distributed in the following year 4

5 Some Questions to Consider Revenue adequacy: Will the income tax provide the same revenue as the property tax? This question is important for the first local income tax, the levy freeze income tax. If adopted this year, the non-school, non-debt service property tax levy increases in 2008 and 2009 will be funded with an income tax instead. DLGF has set each county s levy freeze income tax rate for both 2008 and These rates must be used if the levy freeze income tax is adopted. Will the income tax raise enough revenue to fund the levy increase? Suggested analysis Estimate how much the DLGF rates will raise, by comparing this rate to the existing local income tax rate and revenue in your county. Project forward to 2008 and 2009 based on past trends. Estimate how much the non-school, non-debt service levy will increase in 2008 and Budget documents for 2008 could be used for this purpose. Compare the increase in 2008 to the revenue raised in 2008 from the new income tax rate. Compare the combined levy increases in 2008 and 2009 to the revenue raised in 2009 from the new income tax rate. If the income tax revenue exceeds the levy increases, revenue should be adequate. This analysis is done for Carroll County, 2007, on pages 8 through 13. Pages 8 through 12 show the civil operating funds that would be subject to the levy freeze. School funds are about two-thirds of the total levy, so the civil levy is a small share of the total, about 30%. DLGF set the Carroll levy freeze income tax rate at 0.3%. The table on page 13 shows that in 2007 an income tax rate of 0.07% would have been enough to fund the civil operating levy increase. Doubled in the first year, and rounded up to the tenth, gives a rate of 0.2%. DLGF s rate appears to be somewhat high for Carroll. In 2007 the civil operating levy increase was about $226,000. A 0.2% income tax would raise about $660,000 in Carroll County. In 2007 a 0.2% income tax rate would have generated more revenue than needed to fund the civil operating levy increase. The remainder would establish a stabilization fund of about $440,000 by the end of the first year. 5

6 Revenue stability: Will income tax revenues be less stable or predictable than property tax revenues? This question is important for the first local income tax, the levy freeze income tax. Income taxes are less stable than property taxes. This is why the levy freeze income tax requires the accumulation of a stabilization fund, which can be used if income tax revenue falls short of the levy increase, or if income tax revenue declines from one year to the next. Counties have experience with declines in income tax revenue most saw decreases in the period. The state has changed the method it uses to distribute local income taxes, so such declines may not be frequent in future years. Still, the stabilization fund exists to support levy increases when income taxes fall short. Will the stabilization fund be big enough? Suggested analysis Calculate the size of the stabilization fund as suggested above, by subtracting the first year s levy increase from the first year s income tax collections. Calculate the largest single year decline in income tax revenue experienced by the county during the period. Adjust this decline for the DLGF certified income tax rate (for example, if the DLGF certified rate is 0.5%, and the county rate was 1% during , take half of the biggest decline during that period.) If this income tax decline occurs again, will the stabilization fund be large enough to cover it? If so, the stabilization fund protects local budgets from the greater instability of the income tax. (Note that the greater instability of the income tax has a cost to taxpayers: the added income tax rate needed to accumulate the stabilization fund. The amount of revenue in the fund is money that could have been used for added public services, or returned to taxpayers in lower taxes, if the income tax was as stable as the property tax.) This analysis is done for Carroll County, 2007, on page 13. The analysis assumes a levy freeze income tax rate of 0.2%. At that rate, by the end of 2007 Carroll County would have accumulated a stabilization fund of about $440,000. The biggest decline of income tax revenues in Carroll occurred in Adjusted to a 0.2% rate, the decline would have been almost $160,000. The stabilization fund is more than enough to cover the worst decline in Carroll income taxes experienced in this decade. 6

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8 Carroll COUNTY GROSS PROPERTY TAX LEVIES, Civil Dollar Percent Share in Operating Change Change 2007 Levy Total, All Units 22,142,130 23,078, , % % Total, Civil Operating (Non-School, Non-Capital) 6,762,294 6,996, , % 30.31% STATE UNIT STATE FORESTRY TAX 15,557 15, % 0.07% STATE FAIR BOARD 7,779 7, % 0.03% STATE UNIT 23,336 23, % 0.10% CARROLL COUNTY CUMULATIVE BRIDGE 522, ,386 15, % 2.33% COUNTY HOSP CARE INDIGENT # 108, ,929 4, % 0.49% COUNTY WELFARE CSHCN # 24,308 25,312 1, % 0.11% COUNTY WELFARE FAMILY AND CHILDREN # 321, ,270 (37,567) -11.7% 1.23% PLANNING # 19,116 49,551 30, % 0.21% COUNTY WELFARE MAW # 4,862 4, % 0.02% GENERAL # 2,638,872 2,712,244 73, % 11.75% 2006 REASSESSMENT # 114, ,744 5, % 0.52% CHILDREN PSYCHIATRIC RESIDENTIAL TREATME # 28,197 10,709 (17,488) -62.0% 0.05% CUMULATIVE CAPITAL DEVELOPMENT 174, ,646 59, % 1.01% HEALTH # 38,893 66,200 27, % 0.29% CARROLL COUNTY 3,995,899 4,156, , % 18.01% ADAMS TOWNSHIP GENERAL # 4,113 4, % 0.02% TOWNSHIP ASSISTANCE # 0 0 FIRE # 5,540 5, % 0.02% ADAMS TOWNSHIP 9,653 10, % 0.04% BURLINGTON TOWNSHIP GENERAL # 34,991 21,106 (13,885) -39.7% 0.09% LIBRARY (NON-LIBRARY UNIT) # 4,963 14,978 10, % 0.06% RECREATION # 16,738 22,723 5, % 0.10% RAINY DAY # 0 0 FIRE # 25,594 25,482 (112) -0.4% 0.11% CUMULATIVE FIRE (Township) 11,657 11, % 0.05% TOWNSHIP ASSISTANCE # 11,944 12, % 0.05% BURLINGTON TOWNSHIP 105, ,288 2, % 0.47% CARROLLTON TOWNSHIP TOWNSHIP ASSISTANCE # 0 0 GENERAL # 7,459 7, % 0.03% FIRE # 5,391 5, % 0.02% CEMETERY # 0 0 CARROLLTON TOWNSHIP 12,850 13, % 0.06% 8

9 Civil Dollar Percent Share in Operating Change Change 2007 Levy CLAY TOWNSHIP TOWNSHIP ASSISTANCE # 0 0 FIRE # 12,707 13, % 0.06% CUMULATIVE FIRE (Township) 0 17,615 17, % GENERAL # 13,260 14, % 0.06% CLAY TOWNSHIP 25,967 44,945 18, % 0.19% DEER CREEK TOWNSHIP RAINY DAY # 0 0 CUMULATIVE FIRE (Township) 23,516 25,595 2, % 0.11% GENERAL # 19,573 23,763 4, % 0.10% FIRE # 61,805 64,397 2, % 0.28% RECREATION # 21,996 23,947 1, % 0.10% TOWNSHIP ASSISTANCE # 21,996 18,973 (3,023) -13.7% 0.08% DEER CREEK TOWNSHIP 148, ,675 7, % 0.68% DEMOCRAT TOWNSHIP FIRE # 20,880 21, % 0.09% CUMULATIVE FIRE (Township) 8,289 8,240 (49) -0.6% 0.04% RAINY DAY # 0 0 FIRE EQUIPMENT DEBT 28, % GENERAL # 12,501 12, % 0.06% TOWNSHIP ASSISTANCE # % 0.00% DEMOCRAT TOWNSHIP 71,156 43,782 (27,374) -38.5% 0.19% JACKSON TOWNSHIP FIRE # 18,261 18, % 0.08% GENERAL # 38,503 38, % 0.17% RECREATION # 881 1,994 1, % 0.01% TOWNSHIP ASSISTANCE # 2,454 2, % 0.01% JACKSON TOWNSHIP 60,099 62,601 2, % 0.27% JEFFERSON TOWNSHIP TOWNSHIP ASSISTANCE # 0 0 GENERAL # 9,412 9,312 (100) -1.1% 0.04% FIRE # 45,602 45,461 (141) -0.3% 0.20% JEFFERSON TOWNSHIP # 55,014 54,773 (241) -0.4% 0.24% LIBERTY TOWNSHIP CEMETERY # 0 0 TOWNSHIP ASSISTANCE # 0 0 GENERAL # 11,568 12, % 0.05% FIRE # 17,062 17, % 0.08% LIBERTY TOWNSHIP 28,630 30,378 1, % 0.13% MADISON TOWNSHIP CUMULATIVE FIRE (Township) 6,607 6, % 0.03% RAINY DAY # 0 0 TOWNSHIP ASSISTANCE # % 0.00% GENERAL # 3,985 4, % 0.02% FIRE # 8,286 8, % 0.04% MADISON TOWNSHIP 19,507 20,675 1, % 0.09% 9

10 Civil Dollar Percent Share in Operating Change Change 2007 Levy MONROE TOWNSHIP GENERAL # 15,401 16, % 0.07% CUMULATIVE FIRE (Township) 9,029 9, % 0.04% TOWNSHIP ASSISTANCE # 14,706 15, % 0.07% FIRE # 2,795 2, % 0.01% MONROE TOWNSHIP # 41,931 44,262 2, % 0.19% ROCK CREEK TOWNSHIP RECREATION # 6,080 4,670 (1,410) -23.2% 0.02% TOWNSHIP ASSISTANCE # 4,185 3,404 (781) -18.7% 0.01% FIRE # 8,732 9, % 0.04% GENERAL # 12,061 15,737 3, % 0.07% ROCK CREEK TOWNSHIP 31,058 32,921 1, % 0.14% TIPPECANOE TOWNSHIP TOWNSHIP ASSISTANCE # 2,461 2,420 (41) -1.7% 0.01% FIRE # 8,702 8, % 0.04% RAINY DAY # 0 0 RECREATION # % 0.00% CUMULATIVE FIRE (Township) 13,887 13, % 0.06% GENERAL # 16,436 17, % 0.08% TIPPECANOE TOWNSHIP 42,189 43,197 1, % 0.19% WASHINGTON TOWNSHIP TOWNSHIP ASSISTANCE # % 0.00% GENERAL # 5,650 6, % 0.03% FIRE # 2,119 2, % 0.01% WASHINGTON TOWNSHIP 8,240 8, % 0.04% DELPHI CIVIL CITY POLICE PENSION # 0 4,991 4, % GENERAL # 1,348,256 1,409,949 61, % 6.11% MOTOR VEHICLE HIGHWAY # 0 0 DELPHI CIVIL CITY 1,348,256 1,414,940 66, % 6.13% BURLINGTON CIVIL TOWN GENERAL # 97,811 87,419 (10,392) -10.6% 0.38% CUMULATIVE CAPITAL DEVELOPMENT 5,279 5, % 0.02% CUMULATIVE FIRE SPECIAL 3,532 3, % 0.02% CASINO/RIVERBOAT # 0 0 MOTOR VEHICLE HIGHWAY # ,992 14, % 0.06% BURLINGTON CIVIL TOWN 107, ,410 4, % 0.48% CAMDEN CIVIL TOWN RAINY DAY # 0 0 MOTOR VEHICLE HIGHWAY # 0 0 CUMULATIVE CAPITAL DEVELOPMENT 2,731 2,676 (55) -2.0% 0.01% CUMULATIVE SEWER 4,590 4,479 (111) -2.4% 0.02% CASINO/RIVERBOAT # 0 0 GENERAL # 115, ,568 1, % 0.51% CAMDEN CIVIL TOWN 123, ,723 1, % 0.54% 10

11 Civil Dollar Percent Share in Operating Change Change 2007 Levy FLORA CIVIL TOWN GENERAL # 569, ,881 28, % 2.59% CUMULATIVE CAPITAL DEVELOPMENT 16,940 17, % 0.07% CUMULATIVE SEWER 31,273 40,205 8, % 0.17% MOTOR VEHICLE HIGHWAY # 24,944 24, % 0.11% CASINO/RIVERBOAT # 0 0 RAINY DAY # 0 0 FLORA CIVIL TOWN 642, ,137 37, % 2.95% YEOMAN CIVIL TOWN GENERAL # 8,204 9, % 0.04% MOTOR VEHICLE HIGHWAY # 0 0 YEOMAN CIVIL TOWN 8,204 9, % 0.04% CARROLL CONSOLIDATED SCHOOL CORPORATION TRANSPORTATION 354, ,384 30, % 1.67% CAPITAL PROJECTS (School) 779, , , % 4.21% GENERAL 2,174,329 2,195,915 21, % 9.51% BUS REPLACEMENT 190, ,227 (11,662) -6.1% 0.78% PRE-SCHOOL SPECIAL EDUCATION 6,106 5,881 (225) -3.7% 0.03% DEBT SERVICE 695, ,332 (370,415) -53.2% 1.41% CARROLL CONSOLIDATED SCHOOL CORPORATION 4,201,155 4,062,783 (138,372) -3.3% 17.60% DELPHI COMMUNITY SCHOOL CORPORATION GENERAL 2,746,505 2,836,053 89, % 12.29% DEBT SERVICE 1,751,520 2,203, , % 9.55% SCHOOL PENSION DEBT 168, , % 0.74% CAPITAL PROJECTS (School) 1,245,790 1,339,643 93, % 5.80% BUS REPLACEMENT 123, ,018 (20,531) -16.6% 0.45% TRANSPORTATION 957,508 1,027,738 70, % 4.45% PRE-SCHOOL SPECIAL EDUCATION 8,237 8,144 (93) -1.1% 0.04% DELPHI COMMUNITY SCHOOL CORPORATION 7,001,960 7,688, , % 33.31% ROSSVILLE CONSOLIDATED SCHOOL CORP [detail not available] ROSSVILLE CONSOLIDATED SCHOOL CORP 717, ,019 25, % 3.22% TWIN LAKES COMMUNITY SCHOOL CORPORATION BUS REPLACEMENT 69,893 65,297 (4,596) -6.6% 0.28% DEBT SERVICE 538, ,575 (27,976) -5.2% 2.21% CAPITAL PROJECTS (School) 393, ,861 (32,994) -8.4% 1.56% TRANSPORTATION 222, ,726 11, % 1.01% PRE-SCHOOL SPECIAL EDUCATION 3,589 3, % 0.02% GENERAL 1,248,623 1,295,966 47, % 5.62% SCHOOL PENSION DEBT 79, ,764 61, % 0.61% TWIN LAKES COMMUNITY SCHOOL CORPORATION 2,555,994 2,610,850 54, % 11.31% CAMDEN PUBLIC LIBRARY LIBRARY CAPITAL PROJECTS # 5,033 1,232 (3,801) -75.5% 0.01% RAINY DAY # 0 0 LIBRARY IMPROVEMENT RESERVE # 0 0 GENERAL # 25,795 26, % 0.12% CAMDEN PUBLIC LIBRARY 30,828 27,917 (2,911) -9.4% 0.12% 11

12 Civil Dollar Percent Share in Operating Change Change 2007 Levy DELPHI PUBLIC LIBRARY GENERAL # 438, ,322 10, % 1.95% DELPHI PUBLIC LIBRARY 438, ,322 10, % 1.95% FLORA PUBLIC LIBRARY GENERAL # 76,079 80,598 4, % 0.35% DEBT SERVICE 118, ,957 (3,504) -3.0% 0.50% LIBRARY IMPROVEMENT RESERVE 0 0 LIBRARY CAPITAL PROJECTS # 0 14,236 14, % FLORA PUBLIC LIBRARY 194, ,791 15, % 0.91% NORTHWEST INDIANA SOLID WASTE MANAGEMENT SPECIAL SOLID WASTE MANAGEMENT # 0 0 NORTHWEST INDIANA SOLID WASTE MANAGEMENT 0 0 BACHELOR RUN CONSERVANCY DISTRICT GENERAL # 91,627 91, % 0.40% BACHELOR RUN CONSERVANCY DISTRICT 91,627 91, % 0.40% ROCK CREEK CASS-CARROLL CONSERVANCY DIST GENERAL # 4,361 0 (4,361) % ROCK CREEK CASS-CARROLL CONSERVANCY DIST 4,361 0 (4,361) % Data Source: Department of Local Government Finance, Calculations by Larry DeBoer, Purdue University, November

13 CARROLL COUNTY, LEVY FREEZE AND STABILIZATION FUND CALCULATIONS, 2007 Income Tax Revenue at 1.37%, ,646,022 Revenue from 1%, ,314,565 Civil Operating Levy Increase, ,075 Inc Tax Rate for Levy Increase, % Doubled, Rounded up for first year 0.20% * Income tax revenue from 0.20% 662,913 Less Civil Operating Levy Increase, ,075 Stabilization fund after first year 436,838 * The DLGF certified Carroll's rate at 0.3% for 2008 and CARROLL COUNTY, LOCAL INCOME TAX REVENUE, Dollar Revenue Change Rate EDIT COIT Total at 0.2% at 0.2% % 341,948 3,299,481 3,641, , % 360,631 3,480,952 3,841, ,470 36, % 398,183 4,108,175 4,506, , , % 329,650 3,296,497 3,626, ,299 (160,038) % 299,130 2,993,930 3,293, ,738 (60,561) % 288,940 2,895,784 3,184, ,041 (19,697) % 326,266 3,256,922 3,583, ,489 72, % 331,470 3,314,552 3,646, ,913 11,424 Source: Legislative Services Agency, Indiana Handbook of Taxes, Revenues and Appropriations Calculations by Larry DeBoer, Purdue University, November

14 Tax incidence: Which taxpayers pay more, which pay less if income taxes rise and property taxes fall? This question is especially important for the second local income tax, the property tax relief income tax. This income tax replaces part of the property tax dollar for dollar. Some taxpayers will pay less in total taxes, and some will pay more as a result. Who pays more and who pays less depends on the taxpayers mix of taxable income and taxable property, and the method that the county chooses to distribute the property tax relief. Data that combines taxpayers property tax payments and income tax payments would be needed to decide the net effect of the tax change. Unfortunately, such data are scarce. How can counties estimate who will pay more and who will pay less if a property tax relief income tax is adopted? Suggested analysis Calculate how much revenue a 1% local income tax would raise (any percentage could be used; 1% makes the calculation a little simpler) Calculate the total net tax payments of the three groups of taxpayers who could receive tax relief: all property owners, owners of homesteads only, or homesteads and rental housing owners. Use the tax payments after all deductions and credits. For all property owners, include both real and personal property, agricultural, residential, commercial, industrial and utility property. For homesteads, include payments on homestead residential real property only. For homesteads and rental housing, include homesteads, rental residential property, and commercial rental apartments. Divide the 1% income tax revenue estimate by the tax payments of each group. This gives the percentage decline in property tax payments that a taxpayer in each group would receive, if the tax relief is distributed uniformly to that group. (Statewide, distributing relief to all taxpayers cuts property tax bills by about one-fifth; to homesteads only, by about one-half; and to homesteads and rental housing, by about one-third.) Take a sample of typical taxpayers in each group. Reduce their net tax bills by the percentages calculated above. The taxpayer will see a net tax reduction if his or her income tax increase is less than this property tax reduction. Divide the dollar property tax cut by 0.01 (divide by 1% or multiply by 100). Taxpayers with taxable incomes less than this amount will pay less in added income taxes than the property tax cut they receive. They will see net tax cuts. Taxpayers with taxable incomes greater than this amount will pay more in added income taxes than the property tax cut they receive. They will see net tax increases. Some typical results of this analysis Farmers own much taxable land, but often have relatively low taxable incomes. If the tax relief is distributed to all property, including farm land, farmers tend to pay less in combined property and income taxes. If the tax relief is distributed to homesteads or rental housing, farm land does not receive a tax cut, but farmers pay some extra income tax. Farmers tend to pay more. 14

15 Corporate businesses do not pay individual income taxes, so they do not pay the added local income taxes. When relief is distributed to all property, corporate property receives a tax break. Corporations pay less. When relief is distributed to homesteads or rental housing, corporations receive no tax break, and still pay no added income tax. They are unaffected. Small businesses (such as partnerships or S-corporations) pay the individual income tax. If the property tax relief is distributed to all property, small businesses will see a property tax cut. The suggested analysis can be used to estimate whether the property tax cut is enough to offset the income tax hike for a typical small business. If the property tax relief is distributed to homesteads only, small businesses do not receive a property tax cut, and so will pay more overall. If the tax relief also goes to rental housing owners, most small businesses will see overall tax increases. Renters do not own taxable property, and so do not receive a property tax break under any distribution formula. Renters with taxable income pay more in income taxes, and so pay more overall. However, if tax relief is distributed to rental housing owners, owning rental housing becomes more profitable. More such housing may be built, and the added availability of rental housing could reduce rents, or cause them to increase more slowly. Retired homestead owners own property. Some of their retirement income is tax exempt, so the reduced property taxes under each distribution formula are likely to exceed the added income tax payments. Retired homeowners are likely to benefit. Employed homestead owners own property and earn taxable income. The suggested analysis is most revealing for this group. An analysis for homestead owners in Carroll County is on page 16. A 1% local income tax raises almost $3.3 million in Total net tax bills after deductions and credits sum to $16.2 million. If the property tax relief is distributed to all property taxpayers, average tax bills would fall 20.5%. If the tax relief goes only to homestead owners, the average homestead owner tax bill would fall 54.0%. If the tax relief goes to homestead owners and landlords, the average tax bill would fall 34.0%. The average homestead owner in Carroll County has an estimated tax bill of $627, after all deductions and credits, including the end-of-year rebate. If tax relief is distributed to all taxpayers, this tax bill will fall by 20.5%, or $128. A homestead owner with a taxable income greater than $12,800 would pay more than this in added income taxes if the rate was 1%. Most Carroll homestead owners must have incomes above this amount, so most would pay more in total. If tax relief goes to homestead owners only, tax bills drop 54.0%, or $338. A taxpayer with a taxable income above $33,800 would pay more than this in added income taxes at 1%. The median household income in Carroll County was about $45,000 in 2004 (recall that taxable income does not include deductions). It s possible more than half of homestead owners would pay more in total taxes if tax 15

16 relief were distributed only to homeowners. A large number would pay less, however. Note that homeowners in places with higher tax rates in Carroll would receive bigger property tax cuts, so would more likely benefit with a net tax decrease. If tax relief goes to homestead owners and landlords, homeowners with taxable incomes greater than $21,300 would pay more in total taxes. That must include a majority of homeowners. CARROLL COUNTY, ESTIMATED EFFECT OF PROPERTY TAX RELIEF ON HOMEOWNERS Local Option Income Tax at 1%, ,314,565 Total Net Tax Bills, ,201,123 Homestead Tax Bills, ,140,295 Homestead & Rental Housing Tax Bills, ,750,070 1% Income Tax % of Total Tax Bills 20.5% 1% Income Tax % of Homestead Tax Bills 54.0% 1% Income Tax % of Hmstd & Rental Tax Bills 34.0% Estimated Average Homestead Assessed Value, ,109 Estimated Average Homestead Tax Bill, 2007 (after rebate) 627 Tax Cut, Relief to All Taxpayers (20.5%) 128 Break-Even Taxable Income* 12,800 Tax Cut, Relief to Homesteads Only (54.0%) 338 Break-Even Taxable Income* 33,800 Tax Cut, Relief to Homesteads & Rental Housing (34.0%) 213 Break-Even Taxable Income* 21,300 *Taxable income, after deductions, which would pay added income taxes at 1% equal to the property tax cut received on the average home. Taxpayers with taxable incomes see a net tax increase; those with lower incomes, a net tax decrease. Calculations by Larry DeBoer, Purdue University, November

17 Economic development: Will changing the tax mix affect business growth, location and investment in the county? This question is especially important for the second local income tax, the property tax relief income tax. Statewide, nearly half of all property taxes are paid by businesses. Perhaps 15% of individual income taxes are paid by small businesses. So, replacing property taxes with income taxes provides a tax cut for businesses, if the tax relief is distributed to all property. Lower taxes make a county a more profitable place to do business. Some research shows that lower property taxes can contribute to added business growth. Will property tax relief distributed to businesses aid business growth in the county? Suggested analysis Compare the net tax rates paid by businesses in the county to the rates paid in surrounding counties. Multiply the property tax rate by one minus the PTRC rates for business (there s a real property PTRC rate and a personal property PTRC rate). This is the net tax rate after the PTRC tax credit is applied. Calculate these rates for neighboring counties, and compare them to the county s rates. Reduce the county s rates by the percentage calculated in the previous section, when tax relief is distributed to all property owners. The statewide reduction is about one-fifth (20%). Any tax reduction is likely to benefit businesses. However, business tax relief might be particularly beneficial if the county s rates are comparatively high, and the relief brings the county s rates down to or below the rates of neighboring counties. Note that taxes are only one of the many characteristics of a county that businesses consider in their location or expansion decisions. Other factors include labor costs, transportation costs, utility costs, and the quality of public services, such as police and fire protection and education. Carroll County s tax rates are compared to those in surrounding counties on page 18. Carroll s net business real tax rates are considerably lower than those in Cass and Howard, and just higher than those in Clinton, Tippecanoe and White. The minimum net business tax rate is of interest: this is the lowest rate a business can pay if it locates in the county. Carroll s minimum rate is second lowest in the region, slightly higher than White s. A 20.5% reduction in this minimum rate the reduction due to a 1% income tax distributed to all taxpayers, including businesses would make Carroll s rates the lowest among these five counties. Similar reductions in neighboring counties, however, would leave Carroll s rates second or third highest in the region. 17

18 CARROLL COUNTY, PROPERTY TAX AND CREDIT RATES, 2007 PTRC PTRC Net Net Gross Real Business Homestead Homeowner Business District Tax District Name Tax Rate Property Personal Credit Rate Real Rate 001 ADAMS TWP BURLINGTON TOWNSHIP BURLINGTON (BURLINGTON) CARROLLTON TOWNSHIP CLAY TOWNSHIP DEER CREEK TOWNSHIP DELPHI (DEER CREEK) DEMOCRAT TOWNSHIP JACKSON TOWNSHIP CAMDEN (JACKSON) JEFFERSON TOWNSHIP YEOMAN (JEFFERSON) LIBERTY TOWNSHIP MADISON TOWNSHIP MONROE TOWNSHIP FLORA (MONROE) ROCK CREEK TOWNSHIP TIPPECANOE TOWNSHIP WASHINGTON TOWNSHIP Median Maximum Minimum Comparisons to Neighboring Counties. Gross Tax Rates Median Maximum Minimum Carroll Cass Clinton Howard Tippecanoe White Net Homeowner Rate Median Maximum Minimum Carroll Cass Clinton Howard Tippecanoe White Net Business Real Rate Median Maximum Minimum Carroll Cass Clinton Howard Tippecanoe White Data Source: Department of Local Government Finance, Calculations by Larry DeBoer, Purdue University, November

19 The Public Safety Income Tax This tax can be used to support added services in public safety, broadly defined. Public safety includes police, firefighting, ambulance services, emergency medical services, probation, corrections, juvenile detention, jails, emergency communications, and other services. The revenue can be used to cover operating costs, capital costs, and pensions. Should a county adopt a public safety income tax? Suggested questions Generally, do county residents agree that the benefit of improved public safety is worth the cost of added income taxes? Is public safety in need of improvement? Do residents think that the added revenue will be used to improve services? Does the county have a public safety obligation that must be financed, such as unfunded pensions or overcrowded jails? Would improved police and fire protection reduce property insurance rates? Would improved police and fire protection benefit existing businesses, and potential new businesses? Would improved emergency medical services lead to an improvement in public health? 19

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21 Adoptions of the New Local Option Income Taxes as of mid-october, 2007 Primary Distribution of Relief Total Total Decision Levy Property Tax All Homesteads/ Public Added LOIT County Body Freeze Relief Taxpayers Homesteads Rentals Safety Rate Rate Benton County Council (CAGIT) 1.00% x 1.00% 2.290% Brown County Council (CAGIT) 0.20% 0.50% x 0.70% 1.950% Howard Kokomo City (COIT) 0.50% x 0.50% 1.600% Jasper County Council (CAGIT) 0.30% 1.00% x 0.25% 1.55% 2.925% Jay County Council (CAGIT) 0.40% 0.50% x 0.05% 0.95% 2.450% Marion City/County Council (COIT) 0.20% 0.45% 0.65% 1.500% Montgomery Multiple Units (COIT) 0.10% x 0.10% 1.150% Morgan County Council (CAGIT) 0.20% 1.00% x 0.25% 1.45% 2.720% Parke County Council (CAGIT) 0.30% 0.25% x 0.25% 0.80% 2.300% Pulaski County Council (CAGIT) 0.40% 1.00% x 1.40% 3.130% Wabash County Council (CAGIT) 0.30% 1.00% 50% 50% 1.30% 2.800% Warren County Council (CAGIT) 0.30% 0.25% x 0.25% 0.80% 2.085% Compiled by Association of Indiana Counties and Larry DeBoer, Purdue University 21

22 Data Sources Property tax rates for all counties. Department of Local Government Finance. Property tax levies by unit and fund, all counties. Department of Local Government Finance. Income tax rates and revenues for all counties. State Budget Agency. (scroll down to Revenue Data section) Income tax rates and revenues for all counties. Legislative Services Agency Handbook. Additional information on Indiana local government. Larry DeBoer s Local Government website. 22