Property Tax Perplexity

By Sara Gentry

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[caption id="attachment_4544" align="alignleft" width="225" caption="Click to view large"][/caption] Property tax bills are out, and even with the hubbub of the last few years, many taxpayers don’t know much more about them than their due date. You probably know that they’ve been capped for homeowners at 1 percent, but what does that mean — and what does that cut? Here on the south side, reduced property taxes mean a building freeze at Perry Township Schools and layoffs and tightened purse strings at Franklin Township. The cap almost meant no buses (and therefore, more layoffs) at Beech Grove City Schools. Citizens — Beech Grove citizens, in particular — have been overheard wondering why bus service was threatened if Main Street can be rebuilt. Or why the city budget is suffering, if funds are available for redevelopment. The best way to understand this may be to examine property taxes and where they go. Both school district and city budgets go through an agency called the Department of Local Government Finance (DLGF). The DLGF’s job is to make sure the tax assessments and budgeting are done in accordance with Indiana state laws. [ad#single-post] “The DLGF publishes property tax assessment rules and annually reviews and approves the tax rates and levies of every political subdivision in the state, including all counties, cities, towns, townships, school corporations, libraries and other entities with tax levy authority,” their Web site explains. “The DLGF works closely with local officials in preparing their annual budgets and to monitor and enforce statutory compliance with Indiana law. Additionally, the DLGF conducts ongoing research and analysis in all areas of property taxation to ensure the fair distribution of the property tax burden in Indiana.” Basically, the agency reviews every budget put forth by a local governmental entity with their authoritative fine-toothed comb and checks each report’s legality. Certain incomes are allowed to pay for certain outcomes. City budgets and redevelopment Where city budgets are concerned, a maximum levy limitation is given by the DLGF to a city’s clerk-treasurer before the budget is planned. “The maximum levy limitations are determined by the Department of Local Government Finance and represent the maximum amount of property taxes that may be raised in a given year,” the DLGF’s budget manual explains. In other words, the city is given a number that represents the most they could have to work with, knowing that they might get less than that when all is said and done. The clerk-treasurer and other city officials then get to work on making the needs of the city or town balance with the property tax levy. According to a presentation prepared by DLGF Budget Division Assistant Director Dan Jones, the budget had to be adopted by the city council by Nov. 1. An advertised public hearing with time for public comment must be held at least 10 days before the adoption meeting. After that, the budget is filed with the auditor, who then submits the budget information to the DLGF. City redevelopment is paid for in a different way. In the case of Beech Grove, redevelopment funds are produced by tax increment financing (TIF). When a city or town decides to redevelop an area using TIF funds, they need to create a redevelopment commission, who prepare a plan, approve it and present it to the local legislative body (city or town council) for approval. Plans include what area will be designated as a TIF zone (generally an area with recent economic growth) and what will be redeveloped with the funds (an area in which they hope to encourage growth). In another presentation by Jones and attorney Micah Vincent, TIF is defined as “a tool for development and redevelopment which captures increases in taxable assessed value in an allocation area and the revenue generated from that development (or growth) is used to finance public improvements.” The property taxes paid on TIF zones are then distributed to the redevelopment committee and the other taxing units (recipients of property taxes, as in graph). The other taxing units receive the base (the levy that would be generated by the TIF zone before implementation) and the redevelopment committee receives the increment (the difference between the levy on the current assessment and the base). If the TIF zone produces a larger levy than the plan requires, any excess is redistributed to the taxing units. According to Jones’ report, TIF proceeds can be used for: • expenses incurred by the redevelopment committee for local improvements in the allocated area or for the allocated area • principal and interest payments on bonds issued to finance the project • reimbursing the unit (city, town or county) for expenses made for local improvements. Because of the recent tax caps, redevelopment committees may still be receiving proceeds from TIF zones when school and city budgets suffer. Proceeds from TIF, however, must be spent in or on the allocation area according to state law. More information on property taxes, city and school budgets and TIF can be found at www.in.gov/dlgf.

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