Monday, March 24, 2008

with property taxes reduced, now the focus turns to local govt

In cases where property taxes were reduced, the flip side of that coin is that local governments will need to cut spending or raise local taxes.

Here's Lesley Stedman Weidenbener in Sunday's C-J on this angle-- covering the general issue and then thankfully applying it to a number of local contexts...

First, an overview...

Only days after the Indiana legislature approved new limits on property owners' tax bills, local government officials began debating how to deal with the millions of dollars in revenue they'll lose as a result.

In Floyd County, where New Albany is one of the hardest hit cities, the talk is turning to a possible increase in the local income tax.

In Crawford County, where the County Council will have to cope with a loss of more than $320,000 in 2010, it could mean cuts in programs or services.

And in Jefferson County, where Madison will lose nearly 5 percent of its total budget, elected officials are unsure how to proceed....

Statewide, 92 percent of the 2,255 local government taxing units — including cities, counties, fire districts, libraries and others — will lose money when the property-tax-reduction plan is fully implemented in 2010.

That's because the new law phases in limits on tax bills. The limits mean homeowners will pay no more than 1 percent of their assessed value — unless voters authorize more. The bills for rental property can't be higher than 2 percent of assessed value and 3 percent for commercial property.

Every dollar that taxpayers save because of limits is a dollar that local governments lose.

In all, local taxing units — not including schools — will collect $365 million less in 2010 when the limits are fully implemented, according to the Legislative Services Agency.

Back to specific examples...

In some cases, the losses are marginal. In Clark County, all local government units combined would lose only about $180,000, a fraction of their total budgets.

The same is true in Harrison County, where some taxing units wouldn't lose a dime.

But in Crawford County, where tax rates and tax bills are higher, the losses will be more substantial. There, the limits will reduce local government budgets by 5 percent to 11 percent in 2010, depending on the unit.

Crawford County Council President Jerry Brewer said he's thrilled with the legislature's action, despite the cuts it will cause.

"If we see a reduction in local property taxes, it will be well worth it," Brewer said. "The main thing everyone wanted to see is property-tax relief. So we'll be able to deal with this. It will be a little tough in places, but we'll have a couple years to get ready for it."

Homeowners in Crawford County will be among the state's bigger winners under the property-tax changes. Not only will their bills be reduced by the new limits, but the state is also taking over some costs — including child-welfare programs — that are especially high there....

An analysis by the Legislative Services Agency shows that increasing the income tax in Floyd County by 1 percentage point would all but wipe out any losses for local governments. It would also substantially cut property-tax bills.

But Daniels said increasing the income tax should not be local governments' first option for dealing with the reduced revenue.

"That's a very bad instinct. That should be their last resort," Daniels said last week. "Their first resort should be to trim the growth of spending, to look at cooperations, collaborations, consolidations."

New Albany Mayor Doug England said last week, however, that he would be open to a plan to increase Floyd County's income tax rate to reduce the losses caused by the new law. New Albany is projected to lose nearly $472,000 in 2010, about 2 percent of its annual budget....

Similar conversations are just starting in Jefferson County, where local governments (not including schools) are projected to lose nearly $750,000 in 2010.

In Madison alone, the cut will be more than $351,000.

"We don't want to raise taxes," said Armstrong, who was elected in November. "We have to try to save the best we can and cut where we can."


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