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Allen County Fiscal Summit Presentation from Umbaugh

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  • 1. Impact of Circuit Breakers on Local Taxing Unit Budgets 2009 Allen County Fiscal Summit July 21, 2009
  • 2. What are circuit breaker tax credits?  Circuit breaker tax credits limit a taxpayer’s total property tax liability to a fixed percentage of the assessed value of the taxable property, before any deductions.  For taxes payable in 2008, these credits were limited to residential homesteads with a cap of 2.0%. July 21, 2009 2
  • 3. How are circuit breaker tax credits funded?  Credits are funded by a reduction in property tax revenues of all Taxing Units in proportion to their levy.  Property tax rates may not be increased to offset the shortfall.  Funds may not be borrowed to offset the shortfall. July 21, 2009 3
  • 4. How does HEA 1001 change these tax credits?  Reduces the tax caps for residential homestead taxpayers:  1.5% limit in 2009  1.0% limit in 2010  Expands the tax caps to all other residential, agricultural land and long-term care facilities:  2.5% limit in 2009  2.0% limit in 2010 July 21, 2009 4
  • 5. How does HEA 1001 change these tax credits?  Expands the tax caps to all other property taxpayers to:  3.5% limit in 2009  3.0% limit in 2010  Creates additional limits for certain taxpayers over age 65  Debt service levies in St. Joseph and Lake Counties created before July 1, 2008, and those created by voter referendum in all counties are not subject to circuit breaker tax caps. July 21, 2009 5
  • 6. Projecting Reductions in Property Tax Collections Needed to Fund Credits  Certified assessed values, property tax levies and property tax rates for taxes payable in 2009 are used as the beginning point for the study.  2009 assessed values include adjustments for:  Loss of net assessed value from expansion of the supplemental homestead deduction (16.1% reduction) July 21, 2009 6
  • 7. Supplemental Homestead Deduction  Changes effective total property tax rates:  Reduces assessed values used to compute property tax rates by creating new supplemental homestead exemption for homeowners beyond current deduction  35% exemption for first $600,000 remaining assessed value  25% exemption for over $600,000 remaining assessed value  Reduces assessed value by $2.55 billion; a 16.1% reduction  Begins with property taxes payable in 2009  Note: Reductions in assessed value increase property tax rates and circuit breaker tax credits. July 21, 2009 7
  • 8. Illustrative Changes in Assessed Value Due to Trending and Reassessment Utilities Tax Exempt Residential Vacant Residential Mobile Home Other Residential General Residential Commercial-Other Housing Commercial Multifamily Residential General Commercial General Industrial Personal Property Industrial and Commercial Vacant Agriculture * Overall average of 1.72%. 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% July 21, 2009 8
  • 9. Actual and Estimated Net Assessed Values for Allen County (In millions) $16,500 $15,850 $16,000 $15,500 Net Assessed Value $15,000 (In millions) $14,500 $14,000 $13,298 $13,298 $13,230 $13,500 $13,000 $12,500 $12,000 2008 2009 2010 2011 Actual Actual Estimated Estimated Year Payable July 21, 2009 9
  • 10. Projecting Reductions in Property Tax Collections Needed to Fund Credits  2009 levies include adjustments for:  Assumption of certain property tax levies by State and elimination of State property tax credits in 2009.  Increases in maximum controlled levy limits.  Loss of cumulative fund revenues due to reduction in net assessed value from the supplemental homestead deduction.  Changes in debt service levies July 21, 2009 10
  • 11. Elimination of Certain Property Tax Levies in 2009  Pre-School and School General Fund  County Welfare Funds  Pre-1977 Police and Fire Pensions  State Fair Board and Forestry  Note: Reductions in levies reduce property tax rates and reduce circuit breaker tax credits. July 21, 2009 11
  • 12. State Assumed Levies $135,128,820 $380,411 $31,257,123 $103,491,286 County Welfare School General/Pre-School State Funds July 21, 2009 12
  • 13. Other Factors Affecting Future Levies  Future Levy Growth  Controlled Levies  Assumes increase of 3.8% in 2010  Assumes increase of 3.6% in 2011  Debt Service Levies  Cumulative Fund Levies  Reflect loss of net assessed value due to expansion of homestead deduction. July 21, 2009 13
  • 14. Actual and Estimated Property Tax Levies $400,000,000 $350,000,000 $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 2009 Actual 2010 Estimated 2011 Estimated County Cities/Towns Library Schools Townships Special July 21, 2009 14
  • 15. Elimination of State Property Tax Replacement Funds beginning in 2009  Phased out state funded property tax relief, including property tax replacement credits and state homestead credits in 2009. Temporary homestead credits are phased out through 2010.  Note: Reductions in property tax credits increase effective tax rates and circuit breaker tax credits. July 21, 2009 15
  • 16. Estimated State Property Tax Relief $160,484,135 $38,373,787 $85,847,943 $36,262,405 State PTRC Homestead Credit Temporary Homestead Credit July 21, 2009 16
  • 17. Calculation of Effective Tax Rates (Homestead Property) 2008 2009 2010 2011 Certified Certified Estimated Estimated Gross Tax Rate (1) $3.2651 $2.8565 $2.9026 $2.9967 Less: PTRC (0.6330) (0.0000) (0.0000) (0.0000) Effective Tax Rate before HS Credits 2.6321 2.8565 2.9026 2.9967 Less: State and County HS Credits (1.4312) (0.4774) (0.4012) (0.2915) Effective Tax Rate $1.2009 $2.3791 $2.5014 $2.7052 (1) Assumes tax rates and credits for Fort Wayne-Wayne Township Taxing District. July 21, 2009 17
  • 18. Calculation of Net Assessed Value (Homestead Property) 2008 2009 2010 2011 Gross Assessed Value (1) $74,600 $74,600 $74,600 $74,600 Less: Standard Deduction (37,300) (44,760) (44,760) (44,760) Less: Supplemental HS Deduction (10,444) (10,444) (10,444) Less: Mortgage Exemption (3,000) (3,000) (3,000) (3,000) Net Assessed Value $34,300 $16,396 $16,396 $16,396 (1) Median home value in the City of Fort Wayne, per 2000 U.S. Census Bureau. July 21, 2009 18
  • 19. Calculation of Tax Bills (Homestead Property) 2008 2009 2010 2011 Certified Certified Estimated Estimated Net Assessed Value $34,300 $16,396 $16,396 $16,396 Apply Effective Tax Rate (1) 1.2009 2.3791 2.5014 2.7052 Property Tax Due Before C/B 411.91 390.08 410.13 443.54 Less: C/B Tax Credit 0.00 0.00 0.00 0.00 Property Tax Due with C/B $411.91 $390.08 $410.13 $443.54 (1) Assumes tax rates and credits for Fort Wayne-Wayne Township Taxing District. July 21, 2009 19
  • 20. Calculation of Tax Bills (Other Residential Property) 2008 2009 2010 2011 Certified Certified Estimated Estimated Net Assessed Value $100,000 $100,000 $100,000 $100,000 Apply Effective Tax Rate (1) 2.6321 2.8565 2.9026 2.9967 Property Tax Due Before C/B 2,632.10 2,856.50 2,902.60 2,996.70 Less: C/B Tax Credit 0.00 (356.50) (902.60) (996.70) Property Tax Due with C/B $2,632.10 $2,500.00 $2,000.00 $2,000.00 (1) Assumes tax rates and credits for Fort Wayne-Wayne Township Taxing District. July 21, 2009 20
  • 21. How are tax credits funded? Taxing Unit Tax Rate Levy Reduction Allen County $0.4957 ($164.87) Wayne Township 0.1430 (47.56) Ft. Wayne Community School Corp 0.8408 (279.65) Allen County Public Library 0.1910 (63.53) City of Ft. Wayne 1.2431 (413.45) Ft. Wayne-Allen County Airport 0.0300 (9.98) Ft. Wayne Public Transportation 0.0531 (17.66) Total $2.9967 ($996.70) July 21, 2009 21
  • 22. 2009 Circuit Breaker Tax Credits Total of $4,759,622 Over 65 $193,839 3.5% $0 $4,552,442 2.5% 1.5% $13,341 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 July 21, 2009 22
  • 23. 2009 Circuit Breaker Credits by Taxing District $74,130 $71,660 $226,164 $220,681 $373,392 $968,917 $509,447 $2,315,231 New Haven City-Adams Twp Trans Ft. Wayne-Adams Eacs Ft. Wayne-St. Joseph Ft. Wayne-Washington Ft. Wayne-Wayne Ft. Wayne-Aboite Ft. Wayne-Perry All Other Taxing Districts July 21, 2009 23
  • 24. 2009 Circuit Breaker Credits by Taxing Unit $541,210 $780,484 $303,242 $100,761 $1,128,208 $1,905,717 Allen County Fort Wayne Fort Wayne Community School Corp East Allen County Schools Allen County Public Library All Other Taxing Units July 21, 2009 24
  • 25. 2010 Circuit Breaker Tax Credits Estimated at $23,633,000 3.0% $145,000 2.0% $15,551,000 1.0% $7,937,000 $0 $3,000,000 $6,000,000 $9,000,000 $12,000,000 $15,000,000 $18,000,000 July 21, 2009 25
  • 26. 2010 Circuit Breaker Credits by Taxing District $748,000 $662,000 $791,000 $1,662,000 $5,177,000 $5,357,000 $2,390,000 $6,846,000 New Haven City-Adams Twp Trans Ft. Wayne-Adams Eacs Ft. Wayne-St. Joseph Ft. Wayne-Washington Ft. Wayne-Wayne Ft. Wayne-Aboite Ft. Wayne-Perry All Other Taxing Districts July 21, 2009 26
  • 27. 2011 Circuit Breaker Tax Credits Estimated at $29,001,000 3.0% $201,000 2.0% $17,268,000 1.0% $11,532,000 $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 July 21, 2009 27
  • 28. 2011 Circuit Breaker Credits by Taxing District $818,000 $1,285,000 $892,000 $2,063,000 $6,507,000 $6,776,000 $2,928,000 $7,733,000 New Haven City-Adams Twp Trans Ft. Wayne-Adams Eacs Ft. Wayne-St. Joseph Ft. Wayne-Washington Ft. Wayne-Wayne Ft. Wayne-Aboite Ft. Wayne-Perry All Other Taxing Districts July 21, 2009 28
  • 29. How do we manage the revenue shortfalls?  Manage the revenue shortfalls within the authorized levies  Reduce spending in anticipation of revenue shortfalls  Improved efficiencies and cost sharing with other units  Reduced level of public services  Develop fees and charges to replace lost revenues  Adopt user fees where appropriate  Consider payments in lieu of taxes for tax-exempt properties based upon value of services provided  Changes benefit only the taxing unit making the change July 21, 2009 29
  • 30. How do we manage the revenue shortfalls?  Manage the revenue shortfalls by reducing authorized levies  Advantage is that resulting reduction in property tax rate reduces the circuit breaker tax credits of all overlapping taxing units  Disadvantage is that the taxing unit will only benefit to the extent that these levy reductions actually reduce tax credits; and then, only in proportion to their tax rate  May still experience a revenue loss, but with limited means to fund the shortfall  A reduction of a controlled levy cannot be fully replaced if circumstances change. July 21, 2009 30
  • 31. How do we manage the revenue shortfalls?  Increase the tax base to reduce tax rates  Release of excess captured assessed value within tax increment allocation areas  Modification of guidelines for future property tax abatement  Consolidation of service territories  Fire protection territories  Consolidation of services provided by multiple taxing units  Annexation July 21, 2009 31
  • 32. How do we manage these credits?  New local option income taxes  Consider adoption of one of the three new LOITs designed for property tax relief  Option A: 1.0% Levy Growth Replacement Tax  Option B: 1.0% Property Tax Replacement Tax  Uniform Credits  Residential Homestead Credits  Qualified Residential Credits  Option C: 0.25% Public Safety Tax, if enacted with Option A or Option B above July 21, 2009 32
  • 33. Contact Information Todd Samuelson, CPA Partner samuelson@umbaugh.com UMBAUGH Plymouth Office: (574) 935- 5178 Indianapolis Office: (317) 465-1500 www.umbaugh.com