True or false: Property taxes pay for your roads.
False, said Brown County Highway Superintendent Mike Magner. That’s an incorrect perception he has to correct nearly every day, he said.
He was one of six county officials and consultants who explained how local government is funded at a forum about taxes on Aug. 27.
Money to pave and maintain county roads comes from gas and excise taxes through the state, from a state grant program called Community Crossings, and from the wheel tax you pay when you register vehicles in Brown County.
[sc:text-divider text-divider-title=”Story continues below gallery” ]Wheel tax is paid locally and stays locally, he said. If you’re a “snowbird,” and you register your vehicle in Florida instead of Brown County, “you’re killing your own county,” Magner said.
“That goes into our road fund. So you can’t come back home in the summertime for a few months and say, ‘I want you to pave my road,’ because you’re not chipping into the fund.”
Local government units — schools, the county, the Town of Nashville, townships, conservancy districts, library and solid waste district — are funded by a range of taxes from state and local sources, as well as money that comes from permits, fines and other “user fees.”
Perhaps the most familiar types are property taxes and local income taxes, and those were the focus of the forum. Brown County Council President Keith Baker organized it to explain where the county is sitting financially and to gather opinions about the future of taxation.
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Since 2014, the Brown County Council has begun relying more heavily on income taxes to fund the county’s work and essential services, choosing keeping property taxes among the lowest in the state. That year, council members voted to freeze property taxes at the rate they were charging taxpayers at the time. That decision affected all taxing units in the county except for Brown County Schools.
Still, each year, the council has to decide whether or not it’s going to raise taxes by the percentage the state allows, called the “growth quotient.” Because Brown County is a “freeze” county, that growth, when the council has voted to use it, has been coming from income taxes instead of property taxes. If Brown County wasn’t a freeze county, that growth could come from property taxes, to the extent it is allowed by the state’s tax caps.
In 2017, the county council decided against seeking that growth for 2018. It has to make a decision about 2019 taxes by October.
When the council votes to leave the rate where it is, it is making a decision to take in less revenue than it could to run the government. Some county officials described that as “leaving money on the table”; resident “Brandy” Brandon described it as “leaving it in our own pockets.”
If the council doesn’t vote to use the growth quotient, it will get about $100,000 less for 2019 than it could charge taxpayers, according to Brown County Auditor Beth Mulry’s estimate. Each year the council decides not to do that, the gap widens, and it could reach $1 million by 2021, she estimated.
“So, in a nutshell, every year we leave the local income tax levy freeze rate alone and stable, Brown County government is probably leaving $150,000 on the table of unrealized revenue growth. … Every year you leave that rate alone, you compound the lack of potential revenue growth.
“I’m not lobbying for a growth … but what that does is it leaves us trying to pay for the services without growing our revenue base,” she said.
The council’s decision won’t just affect the county’s budget, but also the budgets of the town, townships, conservancies, solid waste district and library, Mulry said.
By a show of hands, a little over half of the 40 or so people at the forum said they wanted the council to continue with the freeze. One or two residents said they wanted the council to seek more revenue, and the rest didn’t raise a hand.
“My objective is that we all leave here kind of a little bit better on the same piece of paper and that understand a little bit more of where these things come from,” Baker said.
“I don’t want to pay taxes. Unfortunately we live in a world where we do have some requirements for that. The objective is to make it the best use we can for the dollars that we have, get the most bang for our buck and do it as fairly as we can.”
Why is the property tax rate “frozen”?
The reason the council decided to become one of only 11 “freeze” counties in the state was so that people who own property and don’t have rising incomes aren’t faced with rising property tax bills, Baker said. Baker wasn’t on the county council then; longtime member David Critser was president at the time. He’s now vice president.
The idea was that if more of the burden shifted to income tax, if we have an “employment boom” in Brown County, the county would see more revenue, Critser said. Otherwise, property taxes would be the primary way to raise that money, he said.
What effect that shift might have on people living in Brown County hasn’t been fully studied. A group of Indiana University graduate students did a preliminary study last semester and suggested that county leaders look more in depth at the complex relationship among taxes, property value, the population, personal income and the county’s budget.
How does a freeze affect government budgets?
The property tax levy is the amount of money a government can raise through property taxes.
The tax rate is how much each taxpayer pays per each $100 of assessed property value.
In counties with a freeze, it gets more complicated, said Jason Semler, the county’s financial consultant.
In freeze counties, the property tax rate is held at the same level each year, even though the state allows counties to grow their budgets by a certain percentage each year, no matter how large or small the population is. If the county council decides to increase taxes up to the maximum levy through the “growth quotient” — which would be 3.4 percent in 2019 — that additional tax money will come from income taxes instead of property taxes.
“You’re paying more of the services the county provides from income taxes rather than property taxes, with the goal of keeping property taxes as low as possible,” Semler said.
“Basically, instead of property taxes going up by that much … your income tax could go up by that much.”
However, at some point, the county will hit a cap on how much it can charge in income taxes, he said. That’s when another decision would have to be made.
The county council can never reduce the property tax rate from the level where it was frozen. It can “thaw” it, though, Semler said. In a thaw, “you can keep income tax where it is and go back to funding your budget through property taxes,” he said.
In recent years, the county council has chosen to not seek growth and keep its budget tight. But sometimes, changes have to be made. During budget hearings for 2019 last month, the sheriff and probation department asked for another probation officer and jail staff because of an increase in drug-related cases, Baker said. Even though the council had planned to hold staffing steady across the board, it had to find creative ways to fund those jobs, he said. For instance, to pay a new security officer at the courthouse, the council plans to use “riverboat” money, or the county’s share from statewide gambling receipts.
“I can’t, in good conscience, not give them what they need to help those kids.” Baker said about probation cases. “… How do I not pay for something we really, really, really do need?”
Brown County could raise its income tax rate by about a half-percent more before it hits its maximum, Semler said. Income tax here is now the seventh-highest among all 92 counties in the state.
“That should be enough to get you for a couple more years, but if you kept increasing your levy freeze to its max each year, you’re eventually going to be hitting this 2.5 percent (maximum), and that’s when you’re going to have to do that thaw and start pushing your increases and your budget back toward property taxes eventually,” Semler said.
What could happen if population declines?
Projections from STATS Indiana show Brown County’s population declining by more than 10 percent between 2015 and 2050 if past trends continue. Not only that, the residents who remain are projected to have a median age of over 50 — among the oldest of all counties. That has worried some county leaders, knowing of the county’s dependence on income tax.
Brown County Redevelopment Commission President Jim Kemp asked if any large cities, which also have been losing population, have gone into default because they’ve had to borrow money to fund their budgets.
Semler said that is what’s happening in some cities. “It’s getting harder and harder to fund their budgets because their assessed value is going down and they’re not getting growth, and they’ve got people leaving, so their income tax is going down; but at the same time, people still expect the same services,” he said. “They’re also competing for people and trying to offer more amenities, so it’s a real struggle.
“It’s hard to control assessed (property) value … so a lot of counties are increasing income taxes … not because they want to pay more taxes, but because that’s the last straw,” he continued. “Counties don’t really have many choices.”
How is my property tax bill figured?
Each year, every unit of government is required to put together an annual budget, which goes to the Indiana Department of Local Government Finance, or DLGF, for review. They’re made public on the state’s Gateway system online.
Those budgets are what drive the tax rate and property tax bills that property owners receive every six months, Semler said. If budgets are too high, the DLGF will reduce them to the level they can be funded.
The amount of property tax due on each property is based on two key factors: the property’s assessed value, or AV, which is determined by the county assessor, and the property tax levy, which is determined by the state.
The DLGF looks at the tax base and the AV of all properties in the county to determine the tax levies and rates for each unit of government, Semler said.
Starting in 2008, the state put a limit on what property owners have to pay in property taxes. Those caps are 1 percent of the property’s gross assessed value for residential property, 2 percent for rental and agricultural properties, and 3 percent for commercial properties. Those are known as “circuit breakers.”
Because Brown County’s property taxes are among the lowest in the state, circuit breakers rarely limit the property taxes that any owner here pays, Semler said.
Property taxes that come from referendums — like the one voters approved for Brown County Schools in 2016 — don’t count toward the caps.
Property owners can claim one property as their “homestead” and receive a substantial tax deduction.
Since Brown County is a big second-home market, the county auditor’s office checks for situations where someone might live in another county and claim the homestead deduction, then try to claim their Brown County property as a second homestead.
Unfair deductions like that bring the county’s assessed value down and change the amount of taxes that everyone has to pay, Mulry explained.
As the assessed value falls, the share of property taxes that everyone has to pay to fund the budget generally goes up, Semler added.
Why does my property tax bill go up?
A property’s assessed value is a key factor in how property tax bills are determined. How much the government is spending is another factor.
Every four years, an assessor visits each property in the county — except gated ones — to compare the condition of the property and any changes to it with what’s on record from the last visit, said Brown County Assessor Mari Miller. This year, the assessment team is working in Van Buren Township.
In the years when physical inspections aren’t being done, the county assessor’s office does annual adjustments based on “trending,” Miller explained. Those are based on property sales. Using that data, assessors estimate the values of other like properties to determine the assessed value, she said.
“If you sell your house for $200,000, and we have it assessed at $150,000, that’s quite an increase,” she said. “So we have to trend that.”
If a house like yours sold for more than it was last assessed, your home’s assessed value is likely to go up, she said. That’s what’s happening in the Cordry-Sweetwater lakes community right now, because “sales are through the roof,” she said. “So if you’re wondering why your AV isn’t the same, that’s why.”
A property’s AV could go down if sales prices for homes like it drop, or if the home hasn’t been maintained with age, she said.
If a property sells through a tax sale — when it’s auctioned for much less than its worth, but at least as much as is owed in back taxes — that doesn’t affect the assessment of other properties like it, because it’s not a willing sale, Miller said.
Commercial properties are assessed differently than residential properties, said deputy county auditor Diane Davern. They’re based more on the business’ income than on property sales data.
“Taxpayers may see an increase or decrease in their assessments after the annual adjustment of their assessment,” says a handout from the DLGF which Miller gave to the crowd. “The resulting tax bill may change in part due to the assessment change and also due to expenditures by local government.”
What happens if I don’t pay my property taxes?
The deadlines to pay property tax bills are May 10 and Nov. 10.
When owners don’t pay three installments of their property taxes, those properties become eligible for tax sale, said Brown County Treasurer Mary Smith.
The annual tax sale list is certified on June 30, and those properties are advertised three times in the Brown County Democrat. (See the preliminary sale list in this week’s Marketplace section.)
Anyone who wants to buy those properties can bid on them in an auction each October. The minimum bid is the amount of taxes due, plus a $95 fee and the full tax installment of the current year.
Even if a parcel is sold, the owner still has a year to “redeem” it by paying what was owed, plus interest, Smith said.
How is the school district funded?
The majority of Indiana public schools’ budgets come from sales tax through the state, Semler said.
The schools’ transportation and capital projects budgets still come from local property taxes, he said. For 2014, the most recent report posted on the state’s Gateway portal, Brown County Schools received 52.9 percent of all property taxes paid in Brown County, at a little over $7 million. County government received the next-largest chunk, at 35.6 percent, or $4,745,464.
In 2016, Brown County voters also approved a referendum that added 8 cents per $100 of assessed value onto property taxes. That will be charged for seven years, and it funds teacher salaries and other general fund needs and the Brown County Career Resource Center.
Referendums don’t count toward property tax caps.
School debt also is payable through property taxes, and some local income taxes also go to Brown County Schools, Semler said.
Mulry estimated that about 78 percent of local income tax goes to county government and the other 22 percent is split among other local government units, including the schools, which get about $300,000 to $400,000 a year.
What are some other potential sources of local government funding?
A big limit on the amount of funding Brown County can get through taxes is the amount of land that isn’t taxed. Brown County State Park, Yellowwood State Forest and Hoosier National Forest are the largest untaxed land masses, owned by the state and federal governments.
Baker said the county has been providing police and emergency medical services to park and forest visitors for years, and that costs money.
For years, town and county leaders have been trying to get revenue from the state to make up for the lack of property taxes coming from that land. That’s known as PILT, or payments in lieu of taxes.
The state legislature would have to approve any changes. “Each year, we get a little closer,” Baker said.
Kemp, the redevelopment commission president, said a group of Brown Countians needs to start a lobbying group to get more money for roads and bridges from the state because of the number of tourists who use them.
Brown County also has joined six other counties in a class-action lawsuit alleging that they’ve been denied revenue due to them for Hoosier National Forest land, Baker said. “They’ve been paying money, but at a much reduced rate than they should have been paying,” he said.
In the search for funding, “we’re leaving no stone unturned,” Baker said.
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Brown County Council members welcome comments on how you feel about taxation. President Keith Baker said he’s leaning toward continuing the “levy freeze” currently in place, but he’s only one of seven votes.
District 1 (Hamblen 1 and 3, Jackson 2): Debra Guffey, [email protected], 812-272-2274
District 2 (Hamblen 2, Jackson 1 and 3): Darren Byrd, [email protected], 812-320-4599
District 3 (Washington 1-3): Keith Baker, [email protected], 404-664-6350
District 4 (Jackson 4, Washington 4 and Van Buren): Art Knight, [email protected], 812-988-7522
At large:
- David Critser, [email protected], 812-360-0137
- John Price, [email protected], 812-703-3390
- Glenda Stogsdill, stogsdillgkbrowncounty-in.us, 812-325-9081
All council members: [email protected]
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