Each year local governments set up a budget based on the how much tax money they plan on collecting that year. However, there is a maximum amount cities are allowed to levy on its residents. This maximum is essentially a spending ceiling set by the Department of Local Government Finance (DLGF) based on the previous year's tax levy, plus an optional yearly increase. The optional increase is a percentage of the previous year's tax levy, and it is meant to adjust for yearly changes in inflation, consumer price index, and other economic factors. Each year the DLGF will inform local governments about the increase. Again, this increase is optional, but it is only available for that year. This is where the problem lies. If a local government does not wish to increase their maximum tax levy with the percentage increase it will not be available in future years. In order to not lose the increase in their maximum allowed levy, cities almost always increase their spending for that year. HB 1288 attempts to changes this. Here is an example. If an Indiana city levied their maximum of, let us say $100, in total taxes last year, and then the DLGF said they could increase their spending ceiling by 5% in 2011, that city's new spending ceiling would then be $105. As it stands now, if the city did not raise their tax levy and again levied $100 in 2011, and the DLGF again announced a 5% increase for the next year, their spending ceiling for 2012 would be $105. The same as it would have been in 2011. In short, the only way for cities to increase their spending ceiling is to spend more and more each year, even if it is not needed. HB 1288 changes that by allowing these yearly increases to remain optional, but make them bankable as well. As in, if you don't use your increase this year, you may apply it to future years if an unexpected increase in spending is necessary. Local governments do this because they do not want to lose possible funding increases year after year. So because cities constantly raise their spending ceiling, local taxes increase as well. As the years progress, the maximum levy increases at a rate that is more than likely faster than necessary. By allowing local governments to bank the yearly increases that the DLGF allows, local governments will not need to levy more taxes each year just to take advantage of an increase in 2011, it does not lose it, and it can apply it in future years. I spoke with Howard County Treasurer Martha Lake and Kokomo City Controller Jim Brannon when we introduced this bill and they said it would be beneficial for the county. "We just had to bill people at the maximum levy because you don't know," Lake said. "The economy is up, down and all around and we may need our levy money. When the economy is up and the interest rates are down we have the option of not billing taxpayers as much. It's an excellent change to bring back. It's going to give us more flexibility." Brannon echoed Lake, "This is a much needed correction from a few years ago. We should not be penalized if we do not take the maximum property tax levy increase. This is would be a great tool we can put in our toolbox for consideration when we do our budgets." -30- |
