This month I will continue the 2% property tax cap issues and try to demonstrate how the tax cap issues affect the Town of Merrillville and our ability to finance municipal government services.
2% Tax Cap 2008 and 2010 Impacts
How does the 2% property tax cap affect the municipal budgets in 2008 and 2010? I wish I could fully answer this question, but I can estimate some of the impact. I had the advantage earlier this year to review the sale documents for one apartment complex in Town. The market value of the land and buildings was $14.5 million dollars and the latest tax bill was $457,000.00. The complex is one of the larger facilities in Merrillville, but not the largest. Based on the new legislation of the 2% tax cap in 2008 this property will pay no more than $290,000.00, a tax bill reduction of $167,000.00. Using the percentages from 2002, the major taxing entities loss in tax collections would be as follows: the local schools ($91,850.00), the County ($30,060.00), Town of Merrillville ($26,720.00), and the remaining special districts, libraries, and townships of ($18,370.00) in aggregate. The Town of Merrillville has 18 apartment complexes currently and two new complexes under construction and another with possible expansions. The complexes are of various differing sizes and values so conservatively if we say the impact to the Town is $25,000 per complex and we have 15 complexes we are looking at a minimum financial loss of $375,000.00. I did not include the duplexes, three units, four units, and other apartment buildings not part of a complex. If we include these other multiple family units (and I am only guessing at a number) the financial impact in loss of income to run municipal services can exceed $500,000.00.
What does $500,000.00 mean to the Town of Merrillville? $500,000.00 is the equivalent of eliminating ½ of the EMS Department (basically six employees and one ambulance rig), or the payroll for 8 police officers, or 85% of the contractual amount the Town pays to the Ross Township fire service for fire protection services. I could give the impact on the Planning and Building Department or the Courts, but since these two departments bring in tens of thousands of dollars more each year in revenues than operating costs it makes no sense to eliminate profit making departments. The Park and Recreation Department and our existing bonds are outside the General fund and will be affected separately by losses in their respective tax collects. I have only described to you the figures for the 2008 impact. By 2010, I estimate another $1.2 to $1.4 million dollars will be deducted from municipal services when the 2% property tax cap is applicable to all other commercial and industrial properties.
Does the Indiana legislature have the right to control local financial affairs? Yes, and that right has been in existence since 1974 with the tax levy freeze.
Has the legislature provided other more unique financing tools to help with the levy freeze? Yes, but most of them have not been adopted by our County for various reasons and those that have been adopted locally with the issuance of bonds for public improvements are affected by the 2% tax cap.
HomeTown Matters
In 2005 the Indiana Association of Cites and Towns (IACT), of which the Town of Merrillville is a participating member, proposed legislation known as HomeTown Matters. I do not profess to be completely knowledgeable on the provisions of HomeTown Matters, but what I do know is that it is not a free-for-all to increase taxes, nor is it a complete reversal of the 2% property tax cap. There is a major focus with HomeTown Matters on property tax reductions that is mandatory in the proposal.
The idea stems from giving your local elected officials the ability to provide adequate municipal services using a variety of taxing formulas. Formulas developed locally taking advantage of local resources. What I mean here can best be explained by example, and I will use a few including the Town. The Town of Merrillville has more hotels, motels and restaurants than any other location in Northwest Indiana; I consider them a local resource. Merrillville has approximately 32,000 residents and over 60,000 local jobs. I consider them a resource. Hammond, Munster, and Dyer all have gas stations and cigarette stores located along the state border with Illinois. I consider them local resources for those communities. And finally, this whole northern part of Lake County is riddled with major highways carrying hundreds of thousands of vehicles a day. I consider this too a local resource. There are many local resources to consider as possible taxing sources. The point is to provide the best mix to take advantage of your resources and provide municipal services as expected by your citizens.
HomeTown Matters is asking the legislature to give local municipal officials the ability to mix and match from a variety of local resources a taxing package that will provide the citizens of the municipality the services they wish and desire.
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Municipal services by local elected officials are nationally the most cost effective way to provide police, fire, EMS, and administrative services. There are costs associated with these services whether provided by the municipality or contracted out by the municipality. The costs are directly associated with the level of service desired and expected by the citizens of the community (there are exceptions here). Merrillville cannot currently provide more police officers or other employees unless we close or layoff other departments or employees. Our current complement of 50 officers is short 6 by most recognized staffing recommendations. We have reduced spending and costs already due to the current legislation and DLGF budgets cuts.
You must recognize that the system is broken first before you can believe corrections are needed. The current legislation, if unchanged, will most assuredly have a negative impact to municipal services provided by the Town of Merrillville. What exactly that impact will be is a Town Council policy decision and not mine. The local municipal elected officials (Town Council) are the policy decision makers in all aspects of municipal services - except the budget and the budget determines the level of services that can be provided. The Department of Local Government and Finance has made it very clear to all municipalities that the tax income shortfalls due to the new legislation cannot be compensated with the issuance of new bond debt, nor can current bond debt such as Park Bonds or Redevelopment Bonds be accommodated by increased property taxes. Merrillville has outstanding debts i.e. bonds paid by property taxes for roadway improvements, new water lines, new equipment and all the other projects Merrillville has done over the last few years, and we cannot extend, lower, or otherwise raise taxes to pay these obligations. Not only will the Town receive less income in tax dollars to operate current municipal service levels. Any required budget reductions will be greater to offset the bond repayment schedules that paid for increased municipal services and maintenance of our roadway systems.
Is the HomeTown Matters the only solution? Certainly not, but it is the only solution that is available for review, discussion, debate, and implementation currently.
There has been a lot of press this summer and fall on the HomeTown Matters idea statewide. Most comments can be viewed on the IACT website. Most has been outside the Northwest Indiana area. Why, I am not sure. But I really like some of the comments by Mayor Leigh of LaPorte, Indiana. He talked about what I mentioned in the November newsletter about “hitting the wall”. The “wall” is the point of no return, where reductions of municipal services (i.e. layoffs, elimination of departments, and/or privatization of services) must be done in order to comply with the state imposed budgetary restraints. I would rather avoid this situation primarily because there are no true winners. Thank You. Timothy A. Brown, Town Manager
My Opinion
PS: I will now break my first rule. In my opinion, the impact of the 2008 and 2010 2% tax cap legislation, without any form of alteration, will cause drastic measures to comply with the imposed legislation. I foresee major layoffs, major reductions in services, closing of facilities, privatization of services, increased service fees (building permits, business licenses, and the like), new service fees (storm water, solid waste, dog licenses, copies, etc.), position eliminations, consolidation of services (radio and fire dispatching being combined, combining courts, etc), fewer re-paving projects, no new roadway projects or road widening projects (no new bonding), elimination of street lights, increased property liability and homeowners insurance costs (due to the reduction of public service employees and increased arrival times to service calls), increased auto insurance costs, more crime, fewer solved crimes, less code enforcement (weeds, dogs, junk, animals, unsafe properties), lower property values, more lawsuits (due to less staff and more crime), stagnated growth, more blighted areas, etc.,etc.etc.
Do any of the above items motivate you to become informed and involved, if so, then my opinions have served their purpose. Are any, all, or some of these items going to come true? Yes, No and Maybe, but I believe I have at least mentioned most of the issues that could occur and be applicable to the Town of Merrillville if nothing is done to correct the legislation.
What I am positive of is simply this: I will remain nervously concerned while watching what unfolds this legislative session, and I will make my opinions known to our local legislators (and anyone else who will listen) to protect, to preserve, and to enhance this Town’s ability to provide basic public municipal services in an environment that fosters continued and smart growth.
Thank You, Tim Brown
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