Terre Haute, Indiana May 12, 2010

Association of Indiana CountiesRegional Public Forum on Declining Revenues:Challenges for Local Government

Terre Haute, IndianaMay 12, 2010

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Property Tax Basics• Property Tax Levy: Amount of money to be raised for a fund of a

taxing unit• Net Assessed Value (NAV): Value associated with real and

personal property which is taxable• Gross assessed value less exemptions and deductions

• Tax Rates: Rate charged to each applicable taxpayer in order to collect the approved levy• Expressed in dollars and cents per $100 dollars of NAV

• Levy/NAV = Tax Rate

• Example: Vigo County Parks & Recreation Fund• $1,194,048/($3,607,394,856/100) = $0.0331 Levy NAV Tax Rate

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Tax Rate Impact to Homeowner

Gross Assessed Value of Home 50,000$ 100,000$ 150,000$ 200,000$

Less Deductions:

Standard Homestead Deduction (30,000) (45,000) (45,000) (45,000)

Supplemental Homestead Deduction (7,000) (19,250) (36,750) (54,250)

Mortgage Deduction (3,000) (3,000) (3,000) (3,000)

Net Assessed Value 10,000$ 32,750$ 65,250$ 97,750$

Tax Rate - Vigo County Parks & Recreation 0.0331$ 0.0331$ 0.0331$ 0.0331$

Taxes Due 3.31$ 10.84$ 21.60$ 32.36$

Vigo County, Indiana

Parks & Recreation Fund

Tax Impact

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Legislative History

• Increase to sales tax to fund Property Tax Replacement Credits (PTRCs) reducing property taxes by 20% and creating the “property tax freeze” mechanism (1973)

• County Adjusted Gross Income Tax (CAGIT) PTRC mechanism and levy reduction mechanism to reduce property taxes in adopting counties

• Homestead Deduction and Homestead Credit to reduce property taxes for owner-occupied real property

• Creation of 2% circuit breaker for homestead eligible properties (2007)

• Elimination of personal property tax on business inventory• Expansion of 2% circuit breaker to all residential properties

and eventually to all property• Change to 2% circuit breaker for homestead eligible

property and 3% for non-homestead eligible property• Change in valuation methodologies for agricultural land

and large industrial properties

Tax Rate Impact

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Circuit Breaker• HEA 1001 (2008)

• The Indiana General Assembly enacted legislation which provides taxpayers with a tax credit for all property taxes in an amount that exceeds a certain percentage of the gross assessed value.

• For taxes due in 2010 and future years, the Circuit Breaker Tax Credit is as follows:

• One percent (1%) for homestead property• Two percent (2%) for residential property, long term care property and

agricultural land• Three percent (3%) for nonresidential real property and personal

property

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Circuit Breaker Effect on Taxpayers

• Homestead Property – Owner-Occupied ResidentialGross Assessed Value of Home 50,000$ 100,000$ 150,000$ 200,000$

Less Deductions:

Standard Homestead Deduction (30,000) (45,000) (45,000) (45,000)

Supplemental Homestead Deduction (7,000) (19,250) (36,750) (54,250)

Mortgage Deduction (3,000) (3,000) (3,000) (3,000)

Net Assessed Value 10,000$ 32,750$ 65,250$ 97,750$

Terre Haute City - Harrison Township

2009 Pay 2010 Tax Rate 3.6216$ 3.6216$ 3.6216$ 3.6216$

Estimated Tax Bill 362$ 1,186$ 2,363$ 3,540$

Circuit Breaker Cap 500$ 1,000$ 1,500$ 2,000$

Estimated Circuit Breaker Tax Credit -$ 186$ 863$ 1,540$

Percent of Tax Bill 0% 16% 37% 44%

Tax Rate at which Circuit Breaker

Tax Credit is Applicable 5.0000$ 3.0534$ 2.2989$ 2.0460$

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Circuit Breaker Effect on Taxpayers (Continued)• Non Homestead Property – 2% Circuit Breaker (Example:

Apartment)• Assessed Value = $1,000,000• Tax Bill = $36,216• Circuit Breaker Cap = $20,000• Circuit Breaker Tax Credit = $16,216

• Nonresidential Property – 3% Circuit Breaker (Example: Commercial)• Assessed Value = $1,000,000• Tax Bill = $36,216• Circuit Breaker Cap = $30,000• Circuit Breaker Tax Credit = $6,216

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Circuit Breaker Effect on Taxing Units• The Circuit Breaker Tax Credit results in a reduction of property

tax collections for each taxing unit in which the Circuit Breaker Tax Credit is applied.

• A taxing unit may not increase its property tax levy or borrow money to make up for any property tax revenue shortfall due to the Circuit Breaker tax Credit.

• Per the County Auditor’s Office, the 2009 Pay 2010 Circuit Breaker Losses for certain taxing units in Vigo County are anticipated to be as follows:• Vigo County: $3,023,721 (12%)• Terre Haute: $6,433,572 (23%)• Harrison Township: $140,713 (23%)• Vigo County School Corporation: $3,225,507 (12%)• Vigo County Public Library: $595,471 (12%)

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State Budget Analysis

Revenue Source

Actual RevenueYTD thru

April

Forecast RevenueYTD thru

April

Actual RevenuePrior YTD thru April

DifferenceCurrent

Year Actual to Prior

Year Actual

Sales & Use Tax $4,918.9 $4,906.7 $5,185.3 -5.1%

Individual Income Tax 3,158.4 3,078.2 3,550.3 -11.0%

Corporate Taxes 422.1 419.7 618.0 -31.7%

Total General Fund Revenue 9,753.6 9,698.5 10,635.1 -8.3%

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Personal Income and Its Impact on Revenues• Nonfarm personal income - Income that is received by all persons from

all sources, including salaries and wages, supplements, adjusted proprietors' income, adjusted rental income, dividends, interest, and transfer receipts minus farm income, which is comprised of the net income of sole proprietors, partners and hired laborers arising directly from the current production of agricultural commodities, either livestock or crops

• In Indiana, nonfarm personal income makes up over 99% of personal income

• Offsets to losses in wages and proprietor’s income mostly due to current transfer receipts, e.g., social security payments

• Transfer receipts are largely non-taxable or low tax for the purposes of income taxes

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Property Tax Levy Limitations• Taxing units limited in increasing their property tax levy by the

Assessed Value Growth Quotient (AVGQ)

• Six-year average of changes in nonfarm personal income

• Percent Change in Nonfarm Personal Income From Previous Quarter

• Annual Percent Change in Nonfarm Personal Income

2008: Q1

2008: Q2

2008: Q3

2008: Q4

2009: Q1

2009: Q2

2009: Q3

2009: Q4

1.2% 1.1% -0.2% 0.0% -2.2% 0.7% -0.4% 0.8%

2004 2005 2006 2007 2008 2009

3.7% 3.1% 5.9% 3.2% 2.8% -1.5%

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Assessed Value Growth Quotient• FY 2010: 3.8%

• Current Forecast of Indiana Personal Income Growth for 2010 = 1.07%

• Results in the following estimated AVGQ:

• FY 2011: 2.9%

• FY 2012: 2.4%

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Vigo County Budget and Revenue History

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Terre Haute Budget and Revenue History

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Sullivan County Budget and Revenue History

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Options Available to Taxing Units• Available options:

• Adjust budget – may result in reduced services• Find efficiencies• Adoption of Local Option Income Tax (LOIT)• Increase other revenue sources – fees

• LOIT Options:• Property Tax Relief – Reduces taxes payable by taxpayer to reduce number of

taxpayers hitting their Circuit Breaker cap• Levy Growth Replacement – Replaces annual increases to levies• Public Safety – Revenues must be used for public safety activities. At least

one of the other LOIT options must also be implemented.

• Amount of taxpayer relief from the LOIT options will depend on the income of the taxpayer and the value of the home

Terre Haute, Indiana May 12, 2010

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