Amid record unemployment in recent weeks, Brown County Council members are concerned about residents’ ability to pay local taxes that fund government functions.

“We don’t know whether we’re going to have enough money to even run our stuff this year yet, do we? With the way everything is shut down?” asked council member Glenda Stogsdill Johnson at the April 13 meeting. This was the meeting when the council was talking about buying the Nashville Police Department building for another county annex.

Income taxes come to local governments a year after you pay them, while property taxes paid are collected the same year.

Both types of taxes support the work of the county and town governments, as well as township trustees, the library, the solid waste district and local schools.

Last week, Brown County Treasurer Mary Smith said that so far, many property owners have been paying their full year of property taxes — not just the spring installment. As of May 6, her office had collected $3,778,848.68 in property taxes and a little more than $500,000 in conservancy taxes.

“We still have a ton of mail, and most of our mortgage company payments to get applied, so I am feeling confident that we will be pretty close to normal collection amounts,” Smith said.

During the budget hearings last summer, the council worked to keep almost all departments to their 2019 budgets.

“We had hoped that, under a normal 2020, that revenues would actually be higher than what we anticipated for the budget that we submitted and was approved,” Brown County Council President Dave Redding said.

However, it’s unclear how that’ll look yet.

Redding, who works for Cummins, said he had his pay reduced by 20 percent, and he pays income tax locally. “We don’t know how pervasive that type of dynamic will be on our income tax receipts. We don’t know if we’re going to face property tax delinquency,” he said.

“I just got my property tax bill in the mail last week. I intend to pay fully on time, but that may not be the case (for others).”

Local governments also will have some extra expenses because of the pandemic itself. Redding said the council has several department heads are keeping track of those kinds of expenses to be reimbursed by the federal government, which should also help the budget.

Brown County Commissioner Diana Biddle said it’s still unclear where the reimbursement funding would come from or when.

Study says

A study from Ball State University released last month shows local governments in Indiana could see “major reductions” in income taxes for 2020 due to the worldwide COVID-19 pandemic.

The study examines two scenarios. In the “optimistic” scenario, local governments might lose more than $200 million in income tax revenue for 2020.

The “rosy” scenario shows a return to baseline economic conditions and normalcy in the second half of 2020. Scenario two is “more likely” and suggests that the economy will perform below the baseline for the rest of the year, according to a press release from Ball State.

In both scenarios, income tax revenue drops significantly, by at least $218 million statewide.

For all other taxes, like innkeepers or food and beverage, the first scenario shows a 90-percent reduction for a four-month period, followed by a return to the baseline in the second half of the year. The second scenario shows the same reduction for four months, but a return to 60 percent of the baseline for the second half.

Michael Hicks, director of the Center for Business and Economic Research at Ball State, said property tax collections could also be affected.

“This forecast does not deal with property taxes, which should statutorily be unaffected in the short run,” he said.

“However, the ability of taxing bodies to collect expected revenues from property taxpayers is questionable, given the reductions in the level of economic activity over the coming weeks.”

He also notes that the forecast did not include federal aid programs, which could lessen the negative effects of the pandemic. He also added that some costs covered by local taxes, like student transportation or public safety, may also be lower in 2020 over last year, but other expenditures could be “significantly higher.”

Councilman Darren Byrd said he anticipates the county and state will both have budget shortfalls.

“Our property tax may not be affected much in the next year or two, but I think income tax this year will take a huge hit, as well at the state level, that will affect our operating revenue for next year,” he said.

“I think we need to be very mindful on what we can possibly not spend this year of what we allocated so we can roll over. I think we’re going to be looking at a pretty significant shortfall next year.”

Gap funding?

At the April 15 council meeting, Redding said the Indiana Bond Bank was offering a survey to each county to assess county tax bases and expected revenue to see if they will need a tax warrant. That would help get them through until tax dollars are received in full, if residents are not able to pay on time.

“That allows us to go out and create access to a line of credit where, if we need those moneys to keep things liquid and flowing, that we can go out and borrow that money until our specific tax revenues are received,” Redding explained.

Redding said the gap funding is required since the county recently drew down its Rainy Day Fund. “We do need to make plans to access a line of credit in the event that we need it,” he said.

At that meeting, Biddle presented a draft of an ordinance authorizing a tax anticipation warrant for 2020. The ordinance would authorize a temporary loan to the general fund that would not exceed $2 million. The proceeds can be drawn from time to time, according to the ordinance draft.

The council did not vote on the ordinance and tabled it to look further into it. They meet next week, and it’s unclear if the ordinance will be discussed then.

At the April 15 Brown County Commissioners meeting, Biddle said that the tax anticipation warrant is similar to a line of credit from the Indiana Bond Bank, which would be considered “gap funding” until the county receives its full tax dollars for the first half of the year.

But last week, Biddle said the state is going to do a tax settlement in June of property taxes paid this year. Previously, it was thought that that settlement would be delayed. “But the way the statute is written, apparently they can’t do that. They will settle with what they have,” she said.

Property taxes were due May 11. Gov. Eric Holcomb issued an executive order waiving property tax late charges for 60 days following the deadline.

Certain governmental units, like the schools and solid waste, can send the auditor a letter to ask for an advance on their settlement if they don’t have enough money in the settlement for their unit. A second tax settlement will happen in the fall after the next round of property taxes are paid

At the council meeting last month, Biddle said she and Reeves had been talking with the county’s financial advising firm, Baker Tilly, which suggested the county talk to a local bank about the tax anticipation warrant. Biddle said she had reached out to Peoples State Bank.

“What Barnes and Thornburg (the county’s attorney) set up for us was the ability for us to do a line of credit and only borrow up to the amount we need, not a set amount, and then that warrant would mature and be payable no later than March 1, 2021 or as soon as settlement is received,” Biddle said of the tax warrant.

“We need to be prepared, because it’s one of those things where we don’t know we’ll need it until we actually need it,” Biddle said.

Because tax collections are coming in at a better rate than previously expected and there will not be a delay in the first settlement, Biddle said the tax anticipation warrant is now “ready to go when we decide whenever we have a problem.”

“As soon as we say we have a problem, we need to pull the trigger and then, 30 days, we have something,” she said.

“It’s on the table if we need it.”