Submitted by Pulaski County Community Development Commission Executive Director Nathan Origer:
Over a three-week period, I explained part of the county’s Local Income Tax (LIT) structure and then explored relationships between county revenue sources and the courthouse project, demographics, and economic development. One repeated theme was the centrality of the Property Tax Replacement Credit (PTRC) LIT; having dug deeper into the numbers, I thought that I’d follow up with a deeper analysis of the PTRC LIT.
Note 1. The exegesis hereunder is based on data from the County Form 105 submitted by the auditor for the December 2019 settlement and various reports available on the Department of Local Government Finance’s website. These numbers are not perfect, as Form 105 contains penalties, fees, and late payments from previous years that I did my best to exclude to provide numbers reflective of actual due-for-2019 revenues, as well as excise license revenues, and as there are formulas employed by the state too complicated for me to comprehend fully or to articulate, but they are suitably accurate and reliable for this exploration.
Note 2. A quick summary for readers who want the primary conclusion, but not the details, can be found in the last paragraphs, beginning with “Putting all of this information together.…”
Encore I: Investigating the Property Tax Replacement Credit Local Income Tax
As we know, Pulaski County has a total LIT rate of 3.38%; within that rate, the PTRC rate is 1.18% — 34.9% of the total. (Another 0.3% is our special justice-center LIT, and the remaining 1.9% comprises our expenditure-rate components.) In 2019, the PTRC LIT generated $2,351,015 in revenue for the county and other taxing units — 12 townships, four towns, four school districts, and three library districts.
The purpose of the PTRC, I remind you, is to “buy down” the county’s units’ property-tax maximum levies — the maximum amount of revenue each unit is allowed to generate from property taxes in a given year (with some exclusions, like debt-service property taxes, which are not subject to the maximum levy).
For instance, if Xyz County has a cumulative maximum levy of $1,000,000 split into individual units’ levies, and it is the wish of the Xyz County Council, then a PTRC LIT can be implemented so that all property-tax bills across Xyz County only total, say, $750,000. The remaining $250,000 is withheld from paychecks or otherwise assessed on income through the PTRC LIT.
Because they were frozen for more than a decade, Pulaski County’s maximum levies are some of the lowest in the state. In 2019, the last year before the levy thaw, Pulaski County property-tax revenues (actual tax-bill revenues plus PTRC LIT revenues) totaled roughly $11,620,889 (again discounting late payments, et c., as addressed in note 1, and excluding revenues for the justice-center debt). As noted above, the PTRC LIT generated $2,351,015 — a buy-down (or subsidy, if you prefer) of about 20.23%: property owners-as-property owners were only responsible for $9,269,874, 79.77% of revenues.
In 2019, the county government’s levy was $3,748,594. Add the revenue generated from the county’s share of the 1.9% LIT expenditure rate — $3,235,399 —, and we come up with certified local-tax–based revenues of $6,983,993 (plus an additional $713,292 from the special LIT).
Compare our situation to that of a neighbor: Cass County’s levy was just above $9.8-million. Although we lose otherwise taxable acreage to DNR properties, Pulaski County is about 20 square miles larger; we have about one-third of the population, however.
Cass County also has one of the highest PTRC LIT rates in the state, generating, with its larger population and a 1.0% rate, $7.1-million for the county and its units to buy down their levies — a 28.64% subsidy on a cumulative maximum levy of nearly $24.9-million. With its share of an expenditure LIT rate of 1.4% (compared to our 1.9%) and its maximum-levy revenues, the Cass County government generated $19,771,941 — still more than three times our income stream, despite Cass County’s lower LIT expenditure rate and lower per capita income.
Newton and Pike Counties, two of the closest to Pulaski in terms of population and area, had never-frozen levies of $6,622,484 and $6,974,202, respectively. With these maximum-levy revenues and their shares of the revenues from LIT rates of 1.00% and 0.75%, respectively, the Newton and Pike County governments generated certified local-tax–based revenues of $10,394,920 and $8,698,070, compared to our $6,983,993. Neither uses a PRTC LIT to buy down levies.
Parke, another county fairly similar to us in both population and size, is one of the few counties with a lower levy than ours: $3,212,633 in 2019. With a total LIT rate of 2.65% (compared, again, to our 3.38%), Parke also adopted a PTRC LIT to buy down its once-frozen levy, establishing a 0.5% rate, which generated about $1.4-million in 2019 — a subsidy of 31.12% on their cumulative maximum levy of almost $4.5-million. From its share of an expenditure LIT rate of 2.15% (again compared to our 1.9%, and including a Levy Freeze LIT rate of 0.65%, compared to our 0.4%), the Parke County government collected $5,988,008 in non-PTRC LIT revenues, providing for total certified local-tax–based revenues of $9,200,641 for the county government, compared, again, to our $6,983,993.
Putting all of this information together, we can draw a few conclusions.
1. Roughly 35¢ of every $1 collected in LIT revenue is generated not to fund government operations directly, but to subsidize property owners-as-property owners.
Even with one of Indiana’s lowest cumulative maximum levies after a decade-plus-long freeze, a small and dwindling population, and per capita-income growth (17.7%, 2011-2018) that has trailed the state (25.2%) and nation (27.6%), Pulaski County maintains the state’s highest PTRC LIT rate to tax resident income earners to subsidize approximately $1 of ever $5 owed on property.
It’s only fair to note that homesteads receive an annual discount of approximately 36%, so, depending on an individual household’s annual income and home value, the benefits of the PTRC LIT may offset the burden of paying the highest LIT rate in Indiana. This advantage, of course, is lost to those who don’t own their homes.
Non-homestead properties (including taxable personal property) benefit from relief of about 16%. Regardless of where a property owner resides, and whether or not the property is used for personal enjoyment or income generation, resident income earners-as-resident income earners subsidize nearly 16¢ of every $1 in taxes assessed on these properties.
2. Cass County, especially, and the comparable counties studied in this analysis confirm what we know intuitively: not only does having the highest LIT rate in Indiana make Pulaski County less attractive to residents, but having more residents allows a county to generate significantly more income even with a lower LIT rate — especially when little or none of that LIT rate is dedicated to buying down the maximum levy instead of being directly spent on operations.
3. As the example of Parke County shows, thawing the levy, increasing the Levy Freeze LIT to keep pace with annual maximum-levy growth, and dedicating less of the cumulative LIT rate to property-tax relief all could have allowed Pulaski County units to generate more revenue, thus diminishing the financial problems that we face — potentially while still having allowed for a cut to the cumulative LIT rate. The County Council has done the first, and the second is no longer available to Pulaski County. The third step remains a possibility, as I discussed in part II of this series.
Next week, encore II, the actual final installment of this series, will tackle the one relevant subject that I’ve yet to address in any depth: the spending side of the county’s fiscal equation.