The Basics of Local Government Budgeting

Transcription

1 The Basics of Local Government Budgeting Presented by: Jason Semler, CPA, Partner, Umbaugh Caitlin Cheek, Senior Consultant, Umbaugh August 27, 2018

2 Annual Budgets for Local Government Every political subdivision and special taxing district in the State is required to prepare an annual budget Counties, cities, towns, townships, school corporations, libraries, and other entities with tax levy authority Budgets are approved by the local fiscal body and submitted electronically (through Gateway) to a State agency (DLGF) DLGF approves appropriations (spending authority), tax rates and tax levies Property tax bills are based on certified tax rates (from the DLGF) 2

3 SUMMARY OF BUDGET PROCESS Property is assessed. County Auditor certifies NAV s to DLGF Local governments prepare and adopt budgets. Budgets are submitted to DLGF DLGF certifies property tax rates, budgets, and levies to the County 3

4 SUMMARY OF BUDGET PROCESS (Cont d) County uses certified tax rates to prepare property tax bills and send to taxpayers Taxpayers pay tax bill to County Treasurer County distributes property tax to local government Local government uses property tax (along with other revenue sources) to fund services 4

5 Basic Concepts 5

6 How does local government fund services? Taxes Other Taxes and State Distributed Local Receipts Property Tax Motor Vehicle Hwy Distribution Licenses and Permits Motor Vehicle and Commercial Vehicle Excise Local Road and Street Distribution Charges for Services Financial Institutions Tax Wheel Tax Fines and Fees Local Income Tax Riverboat Wagering Tax Earnings on Investments Cigarette and Alcohol Beverage Tax 6

7 Property Taxes Property taxes are an ad valoremtax, meaning that they are allocated to each taxpayer proportionately according to the value of the taxpayer's property What is the difference between a tax rate and a tax levy? A tax rateis how much a property taxpayer will pay per one hundred dollars of net assessed value. A tax levyis the amount, specific in dollars, that a taxing unit (city, town, township, etc.) may raise each year in property tax dollars 7

8 Illustration Property Tax Levy Net Assessed Value $ 2,125,188,206 Divided by $ Subtotal 21,251,882 Multiplied by Tax Rate Total Property Tax Levy $ 3,689,327 Formula: Tax Rate * (AV/100) = Tax Levy 8

9 Property Taxes (Cont d) How is the tax levy determined? The amount each taxing unit is allowed to collect each year is based on the unit's maximum levy limitation Growth in the max levy is based on an annual statewide growth factor derived from a 6-year average of non-farm personal income (3.4% for 2019) The maximum levy annual growth is not affected by changes in: Population Property Values Local Expenditures (Appropriations) Budgeted appropriations do not determine the maximum levy limitation! 9

10 Property Taxes (Cont d) How is the tax levy determined? A unit has the option of requesting the maximum levy or a lesser levy each year. If a unit chooses not to take its maximum levy in a given year, the unit s overall maximum levy is not impacted. Increases in Net Assessed Value typically results in a decrease in the tax rate since a taxing unit is capped at a maximum levy limitation. 10

11 Property Taxes (Cont d) How is my local tax rate determined? Each unit's levy is calculated and then a rate is determined by the Department of Local Government Finance. This is done by dividing the unit's levy by its net assessed value. Tax Rate = Total Tax Levy / (Total Net Assessed Value/100) 11

12 Property Taxes (Cont d) Total Property Tax Levy $3,689,327 Divide by Total Net Assessed Value $2,125,188,206 Times $100 Total Tax Rate $

13 Property Taxes (Cont d) How is my tax bill calculated? Tax bills are based on a district tax rate which is the sum of taxing unit rates within a particular district and may include the county, municipality, library, school, township, etc. The district tax rate is applied to the assessed value of property afterdeductions (like the homestead and mortgage deductions). 13

14 Property Taxes (Cont d) Residential Home Value $150,000 Net Assessed Value (after deductions) $65,250 Divide by $100 Total Tax Rate $ Gross Tax Rate (prior to circuit breaker) $1,909 14

15 Circuit Breaker Credits ( Tax Caps ) 15

16 Circuit Breaker Tax Credits Limit the total property tax bill to a percentage of the gross assessed value of the taxpayer s property Property Type Circuit Breaker Cap Residential homesteads 1% Other residential, agricultural property, and long-term care facilities Other real and personal property 3% Property taxes approved in a referendum process are notsubject to the caps 2% 16

17 How Property Tax Caps Work Computed property tax bill is compared to the cap Taxes over the cap are simply not paid The result is a shortfall in property taxes collected and distributed to taxing units Circuit breaker credits are allocated to taxing units based on the percentage the taxing unit s tax rate is to the overall district tax rate 17

18 Sample Tax Bill Residential Home Value $150,000 Net Assessed Value (after deductions) $65,250 Tax Bill with $ Tax Rate $1,909 Tax 1% $1,500 Circuit Breaker Tax Credit $

19 Allocation of Circuit Breaker Credits Taxing District Taxing Unit Rate % of Total Tax Rate Allocation of C.B. Credit County $ % $ 104 Township % 5 School % 138 Library % 16 Municipality % 125 Special District % 21 Total District Tax Rate $ % $

20 Levy Freeze LIT 20

21 Levy Freeze Local Income Tax ( LIT ) Rate is determined jointly by the DLGF and the Department of Revenue Based on the amount of local income tax needed to make up new levy growth (levy replaced with allocation of LIT) If adopted, the controlled property tax levies of all taxing units (except schools) in the county are frozenat the current maximum levies Rate cannot be reduced or rescinded -the decision to fund levy growth with income tax is permanent 21

22 Scenario #1 LIT Rate Sufficient to Replace Property Tax Levy Growth Non-Levy Freeze County YEAR 1 YEAR 2 YEAR 3 Levy Freeze Non-Levy Levy Freeze Non-Levy County Freeze County County Freeze County Levy Freeze County Previous Year Max Levy $ 1,200,000 1,200,000 $ 1,245,600 1,200,000 $ 1,295,424 1,200,000 Times Growth Quotient Current Year Max Levy 1,245,600 1,200,000 1,295,424 1,200,000 1,339,468 1,200,000 Plus Levy Freeze LIT - 45,600-95, ,468 Total Levy plus LIT $ 1,245,600 $ 1,245,600 $ 1,295,424 $ 1,295,424 $ 1,339,468 $ 1,339,468 Change in Revenue (%) 3.8% 3.8% 4.0% 4.0% 3.4% 3.4% Change in Revenue ($) $ 45,600 $ 45,600 $ 49,824 $ 49,824 $ 44,044 $ 44,044 22

23 Scenario #2 LIT Rate Not Sufficient to Replace Property Tax Levy Growth Non-Levy Freeze County YEAR 1 YEAR 2 YEAR 3 Levy Freeze Non-Levy Levy Freeze Non-Levy County Freeze County County Freeze County Levy Freeze County Previous Year Max Levy $ 1,200,000 1,200,000 $ 1,245,600 1,200,000 $ 1,295,424 1,200,000 Times Growth Quotient Current Year Max Levy 1,245,600 1,200,000 1,295,424 1,200,000 1,339,468 1,200,000 Plus Levy Freeze LIT - 30,000-30, ,468 Total Levy plus LIT $ 1,245,600 $ 1,230,000 $ 1,295,424 $ 1,230,000 $ 1,339,468 $ 1,339,468 Change in Revenue (%) 3.8% 2.5% 4.0% 0.0% 3.4% 8.9% Change in Revenue ($) $ 45,600 $ 30,000 $ 49,824 $ - $ 44,044 $ 109,468 Revenue Shortfall $ (15,600) $ (49,824) $ 65,424 Total Revenue Shortfall Over 3 Years - 23

24 Scenario #3 LIT Rate Thawed in Year 2 Non-Levy Freeze County YEAR 1 YEAR 2 - LIT "Thawed" YEAR 3 Levy Freeze Non-Levy Levy Freeze Non-Levy County Freeze County County Freeze County Levy Freeze County Previous Year Max Levy $ 1,200,000 1,200,000 $ 1,245,600 1,200,000 $ 1,295,424 1,248,000 Times Growth Quotient Current Year Max Levy 1,245,600 1,200,000 1,295,424 1,248,000 1,339,468 1,290,432 Plus Levy Freeze LIT - 45,600-45,600-45,600 Total Levy plus LIT $ 1,245,600 $ 1,245,600 $ 1,295,424 $ 1,293,600 $ 1,339,468 $ 1,336,032 Change in Revenue (%) 3.8% 3.8% 4.0% 3.9% 3.4% 3.3% Change in Revenue ($) $ 45,600 $ 45,600 $ 49,824 $ 48,000 $ 44,044 $ 42,432 Revenue Shortfall $ - $ (1,824) (1) $ (1,612) (1) Total Revenue Shortfall Over 3 Years (3,436) (1) Shortfall because annual levy growth factor cannot be applied to Levy Freeze LIT. 24

25 Summary of Brown County Local Income Taxes Max Rates = >> 1.25% 2.5% (all counties except Marion*) Specified by Statute Property Tax Relief Expenditure Special Purpose School Distribution Public Safety Economic Development Correctional and Rehabilitation Facilities Certified Shares CAGIT Relief CAGIT Base CAGIT Public Safety CEDIT Base CAGIT Special COIT Relief CAGIT Levy Freeze COIT Public Safety COIT Special CEDIT Homestead COIT Base CEDIT Special COIT Levy Freeze * Marion County's maximum rate is 2.75%. Property Tax Relief Expenditure Special Purpose Brown County 0.50% % 0.25% 0.25% 0.00% 0.00% Maximum Expenditure Rate % Less: Current Rate % Note: The CAGIT Levy Freeze component of the Expenditure Rate is limited to a maximum rate of 1.00%. Expenditure Rate Available % 2018 H. J. Umbaugh and Associates, 2018 Certified H. J. Umbaugh Public Accountants, and Associates, LLP All Certified rights reserved. Public Accountants, LLP. All rights reserved. 25

26 Questions H. J. Umbaugh and Associates, Certified Public Accountants, LLP. All rights reserved. 26