Property tax caps cost Madison County entities $38.7 million

The Indiana Constitution was amended in 2010 when voters approved a measure on the General Election ballot by a 72-to-28 percent majority. The measure placed a 1 percent cap on residential property, 2 percent on farm ground and 3 percent on businesses.

What the measure meant for homeowners that their property tax bill would never exceed 1 percent of the assessed value. 

The decrease in revenues generated through property taxes has resulted in local government entities to reduce spending in an effort to maintain services to residents.

The only option available to generate additional revenue is an increase in the county’s local option income tax rate.

Currently the Madison County local option income tax is 1 percent and raises $21.5 million. Those funds are distributed to all local taxing units and a portion goes to provide property tax relief. The maximum tax rate is 3.75 percent.

As could be expected, the lost revenue as a result of the property tax caps affects the city of Anderson and Anderson Community School Corp. the hardest.

According to data from the Indiana Department of Local Government Finance, Anderson lost $9.9 million from the general fund.

Anderson Mayor Thomas Broderick Jr. said the circuit breaker for this year was equal to 37.7 percent of the city’s operating funds and the estimate for 2018 is 42.4 percent, or $11 million, lost through the caps.

“That’s the loss from what we would have received under the old formula before the tax caps were enacted,” he said. “We knew we wouldn’t have those revenues.”

Broderick said the city is expecting revenues to be flat for 2018 and the city is looking at making no long-term fiscal commitments to stay within the projected funds in the future.

“The state has really stuck it to local units of government,” he said. “It has limited our ability to raise funds.”

Broderick said lawmakers gave local units of government the option to raise local income taxes, but cities and towns are leery about raising taxes.

The Anderson schools lost $7.9 million in revenues mainly in the transportation and capital improvement funds.

“That’s cash money that is gone,” Kevin Brown, business manager for ACS, said. “It impacts all the tax-supported funds, which is causing us to supplement the transportation and capital improvement project funds from the general fund.”

Prior to the implementation of the tax caps, Brown said, the property tax levy for transportation was generating up to $6 million per year, which covered the costs.

“We’re now losing half of those funds,” he said. “We have cut costs to $4.5 million per year, but we have to supplement the transportation fund from the general fund.”

Brown said the tax caps are affecting the school system's fixed costs.

“This is impacting what is happening in the classroom,” he said. “It is painful for everyone affected.”

Brown said ACS wants to expand the curriculum but is having problems finding the funding.

“There are only three ways to generate more money,” he said. “Pass a referendum to increase property taxes, increase the local income tax or enroll more students.

“The rug has been pulled out from under us,” Brown said.

Other cities scrimping

Elwood Mayor Todd Jones said the $1.4 million his city lost through the circuit breaker has had a negative impact on the community in terms of improving infrastructure and providing services to residents.

“The overall impact is we have to do more with less,” he said. “We have to prioritize the projects we can do at any one time.

“We have to carefully manage the budget,” Jones continued. “That’s money lost that we could use to provide more services to the city residents.”

Alexandria Mayor Ron Richardson said the loss of $600,000 is a lot for the community.

“There are a lot of things we could do with $600,000,” he said. “Our No. 1 priority is to deliver services to the residents. We have to scrimp where we can.”

Richardson said the city is working on separating storm and sanitary sewers and working to complete the Washington Street project.

Madison County loses $4.9 million as a result of the circuit breaker, but Commissioner John Richwine said most of that funding has been made up.

He said when the tax caps went into effect the Madison County Council increased the public safety local option income tax rate.

“Things have been tight for years,” Richwine said of county finances. “Twenty years ago when I was on the council we were pinching pennies.”

With the state providing additional funding for roads starting in 2018 through the 10-cent per gallon increase in the gasoline tax, Richwine said it took pressure off the general fund.

“The biggest problem is the upkeep on some of our buildings,” he said. “It’s more costly to maintain the properties.”