Tax caps contribute to county shortfall


With the county facing a sixth consecutive budget shortfall, the Dubois County Council will have to move forward knowing it has few taxing options at its disposal.

Property tax caps and the elimination of the inheritance tax have put a dent in the tax revenue the county has collected recently, but it doesn’t add all the way up to the $1.6 million dollar shortfall recorded last year.

According to the Indiana Department of Local Government Finance, Dubois County government is projected to get hit with a $233,652.55 circuit breaker for its property taxes this year with the entire county expecting a $1,660,566.32 circuit breaker. Since the property tax caps were enacted in 2008, Indiana has used what it calls “circuit breakers” to track the difference in what would’ve been collected in property taxes before the tax caps were implemented and what is now collected. The state instituted property tax caps in an effort to make the property tax system simpler, encourage local governments to diversify the way they tax and stem rising property taxes, said John Stafford, who authored two 2015 reports on the fiscal health of 18 Indiana cities for the Indiana Fiscal Policy Institute, a nonpartisan government watchdog.

The circuit breaker figure for Dubois County government has risen more than $100,000 since 2011. Dubois County Council President Greg Kendall has been vocal about how property tax caps and the loss or reduction of other taxes such as the inheritance tax, which the county used to sometimes collect more than $100,000 before its elimination in 2013, have contributed to the county’s shortfalls. Last year, legislation was also introduced for personal property tax exemptions that could take away another $50,000 to $75,000 in taxes.     

“The state has seen to it that certain taxes are removed,” Kendall said at the State of County address last month. “You can see why we’re at a shortfall in our funds.”

Stafford noted that counties with larger cities have been hurt the most by tax caps. For example, the city of Muncie lost 45 percent of its certified levy to property tax caps, whereas Dubois County lost about 3 percent of its certified levy. However, Stafford mentioned that Dubois County’s stagnant growth is an area that can exacerbate the harm of the tax caps, which restrict property tax bills to 1 percent of a homeowner’s assessed value, 2 percent on farm land and apartments and 3 percent on business real and personal property. According to the U.S. Census, Dubois County has grown by fewer than 500 people since 2010.

“One way to lower the impact of the property tax caps is to see growth in assessed valuation,” Stafford said. “As assessed valuation grows faster, it allows units of government to keep stable or even reduce their property tax rate. The lower the rate, the fewer the people who are going to fall under the property tax category or to the extent that their credits are higher. Growing assessed valuation is the best way to reduce the circuit breaker impact. That’s much easier said than done.”

Dubois County Treasurer Chad Blessinger and County Deputy Auditor Sandy Morton said that the higher the value of your home, the more of a break you’re going to get on property taxes. Under the tax caps, a $500,000 home has $5,000 maximum in taxes. Before the caps, if the tax rate was 1.9 percent, you would have had to pay $9,500.

“It’s in the benefit of the property tax payer on what they’re paying out, but it does leave less money for the government to provide services and pay the bills,” Blessinger said.

In addition to all of the reductions in taxes, the slow economic recovery after the recession has played its part in how Dubois County can combat the shortfalls. Blessinger manages a “jackpot fund” for the county, which accrues interest on about 98 percent of the funds held by the county. In 2007, the county was pulling in about $1 million in jackpot interest, but rates fell dramatically and the jackpot’s earnings dropped to below $100,000, with the rates just now starting to rise again.

“If we were earning as much today as the interest we were earning in 2007, I would think that those first three (shortfalls) wouldn’t have been deficits,” Blessinger said. “The fourth year would’ve been pretty close to being a wash and then this year we still would’ve been delinquent a little bit.”

With property tax caps here to stay, Stafford said county governments have to focus on income tax options or cutting their budgets. At the State of the County, Kendall said the county will have to think outside the box and explore possibly raising the county’s income tax, which sits at 1 percent as opposed to the 2 and 3 percent rate used by other counties. (Spencer County’s tax rate is 0.8 percent, Pike County’s rate is 0.75 and Daviess County has a rate of 1.75).

“Income taxes are probably one of the possibilities that might change,” Kendall said.

Stafford explained tax caps have “significant savings for property tax payers” but noted that they can put county government in a tough spot since the county either has to  spend cash balances — a temporary fix since eventually they run out —  reduce services or adopt one of the local income tax options.

He also added that after a cursory view of Dubois County’s finances, the county has shown strong fiscal management by maintaining adequate cash balances and keeping funds in reserve. The council has emphasized keeping the economic development fund at a $7 million threshold in case of a disaster or major project. But with each shortfall, the council has used money from EDIT and the number in reserve slowly falls closer to $7 million. With that in mind, budget cuts might be on the horizon.

“That’s always the issue in every budget. You can never meet all the needs of local government or what its constituents would want. The tough part of budgeting is making those choices,” said Stafford, who was the Fort Wayne mayor’s chief of staff from 1988 to 2000. “I’ve been involved in local government for 40 years and I’ve yet to meet a budget process where something didn’t get left on the cutting room floor. Some of them that were desirable things to do. Some that probably weren’t so desirable. We could never have tax rates high enough to do everything. Nor would we want to live in it.”

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