INDIANAPOLIS — The state of Indiana will allow local governments to raise their spending by up to 3.8 percent next year, a sharp jump after several years of much more restrained increases.
That should make it a little easier for counties, cities, towns, school corporations and library districts to afford giving raises to employees, buying new equipment or hiring new workers.
The Indiana Department of Local Government Finance set its statewide growth quotient at 3.8 percent for 2017, a noticeable increase from the 2.6 percent allowed in 2016. The growth quotient is determined by analyzing the state’s income growth and is used to guide how much governments can increase their budgets.
The percentage is meant to keep property tax growth within boundaries that Hoosiers can afford to pay, Purdue University agricultural economics professor and state tax expert Larry DeBoer said.
The rate increased sharply this year because the worst of the Great Recession years fell out of a six-year rolling average used to the determine the rate.
“That (2009) was the worst recession year. Income fell by about 3 percent that year. Without that negative number in the average, the growth quotient calculation is higher,” DeBoer said.
That should translate into more wiggle room for local governments to plan spending for 2017, which they haven’t had in recent years, DeBoer said. After several years of belt tightening, local governments will be able to let it out a notch or two.
“With the higher growth quotient, local governments will have more room to increase operating levies — taxes to pay for personnel, materials, services, etc. Schools will have more money for bus purchases, driver pay and fuel. The advantage for residents ought to be more and higher-quality public services,” DeBoer said.
The new 3.8 percent rate caught Noble County Coordinator Jackie Knafel by surprise, so much so she thought the figure was a typo. The state has been particularly stingy recently, and made Noble County cut its 2016 budget slightly even though it stayed within the 2.6 percent rate this year.
The ability to expand the budget could make it easier for the Noble County Council to fund pay increases or hire new employees that several departments are already seeking.
As last year proved, the rate isn’t a guarantee the county will get everything it asks for, and the final decision rests with the state after an analysis of expected revenue, Knafel said. But a larger overall growth rate will make financial planning a bit easier, she said.
“They just didn’t think we had the revenue stream (last year). We lost (Indiana Department of Correction) money, interest money is way down. All those revenue streams we depended on, right or wrong, went away. We’ve lost those revenue streams and you still have to fund it,” she said.
One potential downside of the higher growth rate is that additional spending by local governments could lead to local tax rate increases, DeBoer said. Whether tax rates go up will depend on whether property values increase as much as spending. If the growth in property values doesn’t increase as much as spending, tax rates will go up.
Assessed values in Noble County increased about 3 percent total last year, which means they’d need to rise a bit faster in order to keep pace in 2017.
“Tax rates are set by dividing the levy by assessed value, so if AV rises just as much as the levy, tax rates remain stable,” DeBoer said.