2008 Legislative Wrap-Up HEA 1001

1. 2008 Legislative Wrap-Up HEA 1001

2. HEA 1001 Legislative Wrap-Up Welcome & Opening Remarks Mayor John Ditslear, City of Noblesville Christine Altman, President, Hamilton County Commissioners Matthew Greller, IACT Executive Director David Bottorff, AIC Executive Director

3. HEA 1001 Legislative Wrap-Up These materials are intended for general information purposes only and do not constitute legal advice. The materials should not be used or relied upon as a substitute for a review of applicable statutes, regulations, rulings and court decisions. The reader should consult legal counsel to determine how laws apply to specific situations. These materials were prepared in April, 2008, and consequently, will not reflect changes in law subsequent to that date. These materials are not intended for reproduction without permission from Association of Indiana Counties (AIC) or the Indiana Association of Cities and Towns (IACT).

4. HEA 1001 Legislative Wrap-Up HEA 1001 Subject Items (Ann Cottongim) • Circuit Breaker • Special Taxing Districts • Distressed Unit Relief Appeal Board • Local Option Income Taxes • Reasons for State Withholding of Income Taxes • Levy Exceptions and Appeals • County Council Role with Municipal Budgets • Police and Fire Pension Funds (State Assumption)

5. HEA 1001 Property Tax Caps • What is the property tax cap (aka: circuit breaker)? • Property tax cap based upon gross assessed value • A taxpayer’s NET tax liability cannot exceed a certain percent of the GROSS assessed value of the property • Capped percentage depends upon the property’s classification – homestead, residential, real and personal (commercial & industrial) properties

6. HEA 1001 Property Tax Caps • Definition of Net Tax LiabilityGross tax minusthe homestead, replacement or other local credits: Gross tax $4,000.00 • Replacement credit ($1,000.00) • Homestead credit ($ 500.00) • Net Tax $2,500.00 • Definition of Gross Assessed Value (AV) • Dollar value assigned to property by the local assessor • “Gross" AV does not include exemptions and deductions that most property is eligible for (except business inventory)

7. HEA 1001 Property Tax Caps

8. HEA 1001 Property Tax Caps Phased in property tax cap [Sections 221 and 222] 2009 2010 • Residential homesteads 1.5% 1.0% • Agricultural, long-term care 2.0% 2.5% non-homestead residential, • All other real and personal 3.5% 3.0% property

9. HEA 1001 Property Tax Caps Phased in property tax cap • LSA estimates revenue loss at $524 million • Requires debt service to be funded first [Section 226] revenue losses will be borne by operating funds • Referendum approved debt is outside circuit breaker • Shortfalls cannot be made up by setting higher tax rates or by borrowing • Impact depends on the mix of properties in a taxing district, assessed value and tax rate

10. HEA 1001 Property Tax Caps Potential Circuit Breaker Tax Credits

11. HEA 1001 Property Tax Caps Potential Number of Affected Taxing Units

12. HEA 1001 Property Tax Caps Inventory Assessed Value [Section 50] • Makes inventory AV exempt (not a deduction) • Important in areas that are subject to 3% cap, such as a TIF or retail area. • Before HEA 1001, inventory (as a deduction) was part of gross AV and eligible/included in circuit breaker formula.

13. HEA 1001 Property Tax Caps Fire Protection Territory [Section 177] • Applies to territories established after July 31, 2001 • Before HEA 1001, fire territories did not have a maximum levy limitation for the first three years (year 4 capped at year 3 levy) • After HEA 1001, Fire Territory levy limited to growth factor as other fund levies are limited • New Fire Territories will be asked for an initial max levy in their first year just like any other “new” taxing unit • Fire Territory Growth cannot exceed AVGQ minus 1. • How will DLGF interpret AVGQ minus 1? • If AVGQ is 4.0%, growth cannot exceed 3.0% (4.0 – 1.0) • If AVGQ is 1.04, growth cannot exceed .04 (1.04 - 1.0= .04)

14. HEA 1001 Property Tax Caps Special Taxing Districts and Property Tax Caps • Caps are applied to “all units of local government and school corporations” – this includes special taxing districts • Not exempt from caps set forth in HEA 1001 • Park Districts - Storm Water Districts • Sanitary Districts - Solid Waste Districts • Redevelopment Districts - Water Districts • Conservancy Districts

15. HEA 1001 Property Tax Caps County/Municipal Relief [Section 221 and 222] • Lake and St. Joseph Counties – debt and lease payments issued prior to July 1, 2008 are outside of the circuit breaker calculation [Section 858 non-code] School Relief [Section 456] • Provides $120 million to offset the revenue loss for schools that have an impact of greater than 2% of the levy • $50 million for 2009 • $70 million for 2010 • Allows schools to have a referendum to offset Circuit Breaker impacts [Section 495]

16. HEA 1001 Distressed Unit Appeals Distressed Unit Appeal Board • Revises legislation enacted last year (HEA 1478) • Changes name from Circuit Breaker Relief Board [Section 201] • Adds two new appointments to the Board [Section 203] • Allows a single distressed political subdivision to petition for relief [Section 205] (instead of two or more units within county)

17. HEA 1001 Distressed Unit Appeals Distressed Unit Appeal Board [Section 202] • Definition of a distressed political subdivision • A political subdivision that expects to have at least a 5% reduction in property tax collections as a result of the application of the circuit breaker

18. HEA 1001 Distressed Unit Appeals Nine member appeal board [Section 203] • Director of OMB • Commissioner of DLGF • Commissioner of Department of Revenue • State Examiner for the State Board of Accounts • Appointment by the Speaker of the House (4 yr term) • One non-elected gubernatorial appointment • Three gubernatorial appointments (elected officials) • Nominee of IACT • Nominee of AIC • Nominee of Superintendents Association

19. HEA 1001 Distressed Unit Appeals Appeal board relief options [Section 207] • All affected units within the county must adopt a resolution agreeing to the distressed unit’s financial plan • Board can authorize any of these relief mechanisms • Increase the circuit breaker percentage in the distressed political subdivision (Ex: From 1% to 2%) • Allow for percentage reductions to other local credits provided in the political subdivision • Remove some or all of the taxes payable to bonds, leases or other obligations when calculating the credit

20. HEA 1001 Distressed Unit Appeals Judicial Review of Board’s Determination [Section 209] • Distressed unit may petition to Indiana Tax Court for judicial review of Distressed Unit Appeal Board decision • Petition must be filed in tax court within 45 days after board makes final decision • Tax court will grant relief if distressed unit has been prejudiced by certain actions of the Board

21. HEA 1001 Local Option Income Tax • Local Option Income Tax (LOIT) [Section 332] • Retains LOIT options from HEA 1478-2007 for: • Replacement of allowable levy growth (1% maximum) • B. Property tax relief (1% maximum) in the form of local ptrc, homestead credits or general property tax replacement relief for all taxpayers • C. Public safety expenditures (up to .25%) • Permitted only if LOIT is also adopted for either option A or B • Permitted if A and B are adopted at a minimum of .25% combined

22. HEA 1001 Local Option Income Tax • Public Safety LOIT Eligible Expenses [Section 332] • Police/law enforcement systems • Firefighting and fire prevention systems • Emergency ambulances and emergency medical services • Emergency action (environmental clean up) • Probation programs • Community corrections programs • Juvenile detention centers and facilities • County jail • Communications/enhanced emergency telephone systems • Medical and health care expenses for inmates • Pension payments

23. HEA 1001 Local Option Income Tax • LOIT Adoption (no change from HEA 1478) • CAGIT Counties – Adopted by County Council • COIT Counties – Adopted by COIT Council • No municipal adoption mechanism • Lake County – County Council is adopting body for any local income tax options • Requires adopting body to hold annual public meeting to impose or increase rate for levy replacement LOIT or Option A [Section 331]

24. HEA 1001 Local Option Income Tax LOIT Adoption [Section 867] Adoption Date Effective Date Before Oct 1, 2008 Oct 1, 2008 After Sept 30 & before Oct 16, 2008 Nov 1, 2008 After Oct 15 & before Nov 16, 2008 Dec 1, 2008 After Nov 15 & before Jan 1, 2009 Jan 1, 2009 NOTE: After 2008, LOIT can only be adopted between April 1 and July 31

25. HEA 1001 Local Option Income Tax LOIT Allocations • Permits units to receive LOIT allocations that would otherwise be lost as a result of the elimination of levies [Section 228] • Removes welfare levies from the levy freeze LOIT distribution formula [Section 331 and 334] • Allows a unit to dedicate public safety LOIT to another taxing unit or to pool together for project [Section 332 and 342]

26. HEA 1001 Local Option Income Tax Department of Revenue – LOIT Reporting [Sections 321 and 322] • Requires employers (and individuals filing estimated payments) to separate amounts paid between state and county liability • Requires Department of Revenue to develop reports and procedures to ensure accurate distributions to counties • Requires Commission on State Tax & Financing Policy to study LOIT allocation alternatives

27. HEA 1001 LOIT Withholding • The DLGF may order the withholding of the entire distributions, or a percentage of the distributions, of CAGIT, COIT, or CEDIT, if: • 1) Local assessing officials have not provided information to DLGF in a timely manner. • 2) The County Assessor has not transmitted required parcel and personal property data to the DLGF by October 1. • 3) The County Auditor has not timely paid to the DLGF a bill for a state-conducted assessment or reassessment. • 4) The County Assessor has not timely forwarded sales disclosure form data to the DLGF.

28. HEA 1001 LOIT Withholding • Continued….the DLGF may order the withholding of CAGIT, COIT, or CEDIT, if: • 5) The County Auditor has not forwarded duplicate copies of all approved exemption applications by August 1 as required in IC 6-1.1-11-8(a) • 6) By the date the distribution is scheduled to be made, the County Auditor has not sent a certified statement of Assessed Values and other information that is required to be sent to political subdivisions by August 1. • 7) The county does not maintain a certified computer system that meets the requirements of IC 6-1.1-31.5-3.5 • 8) The county auditor has not timely transmitted by March 1, to the DLGF, electronic data files of information contained on the tax duplicate for all parcels and personal property returns.

29. HEA 1001 LOIT Withholding • The DLGF may order the withholding of the entire distributions, or a percentage of the distributions, of CAGIT, COIT, or CEDIT, if: • 9) The county has not timely established a parcel index numbering system. • 10) “A county official has not provided other information to the DLGF in a timely manner as required by the DLGF.” • If a county that has not adopted LOIT (Lake County), the DLGF may withhold other state revenues that would otherwise be distributed to the county or other taxing units in the county.

30. HEA 1001 Excessive Levy Appeals “Old” Levy Appeals (6-131-18.5-13 through16) Annexation Operation of a New Court Three Year Growth Volunteer Fire Expenses Fire Contract with Muni Police & Fire Pensions Township Assistance Public Transportation Hazardous Material Disposal Property Tax Shortfall Correction of Error Firefighting Services Voting System Solid Waste New Jail/Juvenile Detention Facility

31. HEA 1001 Excessive Levy Appeals • Repeals Most Excess Levy Appeals/Six Remaining [Section 180 (IC 6-1.1-18.5-13)] • Appeal for lack of adequate funds to carry out functions • Requires appeal to be due to natural disaster, an accident or unanticipated emergency • Restructures the new facility appeal for schools • Shortfall levy appeal • Appeal for correction of math errors and erroneous AV • Levy Growth Appeal • Excess levy for annexation, consolidation or other extensions of governmental services (allows four year phase in of permissible levy increases)

32. HEA 1125 Excessive Levy Appeals • Appeal for FY 2007 Shortfalls [Section 68] • Permits a unit to file excessive levy appeal due to shortfall of 2007 property tax collections by May 1 • http://www.in.gov/dlgf/pdfs/2007_Excessive_Levy_Appeal_Memo.pdf • Some taxing units may not have received final tax draw for 2007 and would not know if they have a 2007 shortfall by May 1.

33. HEA 1001 Control Boards and Budget Oversight • *No changes to spending and levy limits under current law • Repeals County Board of Tax and Capital Projects Review [Section 801] • Revives Local Government Tax Control Boards (TAB) • - Removes sunset date of December 31, 2008 [Section 178] • Reinstates County Board of Tax Adjustment [Section 260] • County Council shall perform non-binding review of civil unit budgets [Section 148]

34. HEA 1001 Control Boards and Budget Oversight • County Council non-binding review of civil unit budgets [Section 148] • Does not apply to units in a county with the TAB or to Marion County/Indianapolis and non-elected boards • All other civil units files the following with County Council • Proposed tax rate and levy for ensuing budget year • Copy of civil unit’s proposed budget for ensuing year • Must be filed 15 days before civil unit fixes tax rates and levies and adopts its budget

35. HEA 1001 Control Boards and Budget Oversight • County Council non-binding review of civil unit budgets [Section 148] • County Council must review and issue recommendations • Recommendation must include increase comparisons for • Increases over statewide and county 6 year average increase in nonfarm personal income; and • Increases in budgets/tax levies of other units within the county • HB 1001 does not provide deadline for County’s response or who they issue it to (taxing unit, DLGF or both?)

36. HEA 1001 Control Boards and Budget Oversight • Budget Oversight of Non-Elected Boards [Section 163] • County Council or City/Town Council shall approve proposed budgets of non-elected boards (excluding school corporations) if their budget increases by more than the Assessed Value Growth Quotient minus 1 (AVGQ – 1) • City/Town Council approve budgets of units where AV of taxing unit is located entirely in the city/town OR if the unit was originally established by the city or town. • County Council approve all other budgets of non-elected boards. • Board Examples: Library, Airport, Redevelopment Commissions, Park Boards, Sanitary District Board

37. HEA 1001 Control Boards and Budget Oversight • Debt Approval of Non-Elected Boards [Section 164] • County Council or City/Town Council shall approve debt issuances or leases payable of non-elected boards (excluding school corporations) • City/Town Council approval if the taxing unit’s AV is entirely contained in the city/town OR if the unit was originally established by the city or town. • County Council approval of all other non-elected boards. • Board Examples: Board Examples: Library, Airport, Redevelopment Commissions, Park Boards, Sanitary District Board

38. HEA 1001 Police and Fire Pensions State Assumption of Pre-1977 Police and Fire Pensions [SECTION 840] For property taxes first due and payable after December 31, 2008, the department of local government finance shall reduce the maximum permissible ad valorem property tax levy of any civil taxing unit and special service district by the amount of the payment to be made in 2009 by the state of Indiana under IC 5-10.3-11, as amended by this act, for benefits to members (and survivors and beneficiaries of members) of the 1925 police pension fund, the 1937 firefighters' fund, or the 1953 police pension fund.

39. HEA 1001 Police and Fire Pensions • State Assumption of Pre-1977 Police and Fire Pensions • *Expecting written response from DLGF on pension interpretation • State will fund 100% of pre-1977 police/fire pension funds • Cities/towns will administer and process payroll (current practice) • DLGF indicates reducing a unit’s maximum levy by the additional dollars assumed above current state relief * • Unknown (at this time) whether all current expenditures in addition to members/survivors/beneficiaries will be included in state funding until notified differently by DLGF* • Administrative Expense – Pension Secretary, postage • Health Insurance • Death Benefit (Amount set by state statute at $12K) • DROP Lump Sum Payments

40. HEA 1001 Police and Fire Pensions

41. HEA 1001 Police and Fire Pensions

42. HEA 1001 Legislative Recap HEA 1001 Subject Items (Rhonda Cook) • Controlled Projects, Petition Remonstrance • Referenda (County, Municipality, School) • Refunding Bonds and Surplus Proceeds • TIF and Redevelopment Provisions • TIF Replacement • Debt Limitations

43. HEA 1001 Controlled Projects • HEA 1001 sets a new threshold for projects to fall under the “Controlled Project” definition • Current Law: • A project meets the Controlled Project definition if: • -The project is financed by bonds or leases • -The project is payable by property taxes • -The project costs more than $2 Million • HEA 1001: [Sections 188 and 189] • A project meets the Controlled Project definition if: • -The project is financed by bonds or leases • -The project is payable by property taxes • -The project costs the lesser of: • $2 Million; or • Greater of: • -1% of gross value; or • -$1 Million

44. HEA 1001 Controlled Projects • Current Law: • Controlled projects subject to petition/remonstrance • Must be approved by a DLGF order after a hearing before the DLGF Local Government Control Board • HEA 1001: • Controlled projects are still subject to petition/remonstrance • After June 30, 2008, no DLGF approval is required for controlled projects [Section 197] • Controlled projects meeting the referenda threshold are subject to the referenda process [Section 193]

45. HEA 1001 Controlled Projects • Exceptions from the Controlled Project requirements: • Exceptions under existing law remain: [Section 188] • When property taxes are only used as a back-up • A project that is being refinanced in order to result in a savings to the taxpayer • A project required by a court order holding that a federal law mandates the project • New exception for projects that are in response to a natural disaster, emergency or accident when approved by the county council • Exceptions for projects that were not controlled projects prior to July 1, 2008 and • - have been approved by the DLGF; or • - have issued bonds or entered into a lease prior to July 1, 2008

46. HEA 1001 Controlled Projects Project payable by property taxes Cost of the project meets the “controlled project” definition Project subject to petition and remonstrance If cost of project meets the referenda threshold Project subject to referendum • The petition and remonstrance process applies to projects that meet the controlled project definition up to the threshold when the referenda provision applies • Referenda provisions apply to projects that cost the lesser of $12 Million or 1% of gross AV, if that amount is at least $1 Million [Section 188] • Debt approved by referendum is outside of the circuit breaker calculation. Debt approved by Pet/Rem is inside the circuit breaker calculation

48. Does the project meet the minimum controlled project threshold? • Costs the lesser of: • -$2 Million; or • -Greater of: • 1% of gross AV; or • $1 Million Example 1: Town A has a gross AV of $36,500,000 Greater of: -1% gross AV = $365,000 -$1 Million Lesser of: -$2 Million -$1 Million A controlled project for Town A is a project costing at least $1 Million Example 2: Town B has a gross AV of $112,000,000 Greater of: -1% gross AV = $1,120,000 -$1 Million Lesser of: -$2 Million -$1,120,000 A controlled project for Town B is a project costing at least $1,120,000. CONTROLLED PROJECT: (subject to petition and remonstrance) For units with gross AV over $200,000,000  Controlled project is one costing $2 Million For units with gross AV under $100,000,000  Controlled project is one costing $1 Million For units with gross AV between $100,000,000 and $200,000,000  Controlled project is one costing 1% of gross AV

49. HEA 1001 Controlled Projects & Petition Remonstrance • Petition and Remonstrance process stays the same as is under current law. • To initiate a petition and remonstrance drive, first there must be an application made by: • - one hundred (100) persons who are either owners of real property within the political subdivision or registered voters residing within the political subdivision; or • -       five percent (5%) of the registered voters residing within the political subdivision • Public notice • State Board of Accounts oversees the petition and remonstrance period where forms are printed and distributed, signatures are collected for/against the project, signatures are certified • The project is defeated for one year if there are more remonstrators against the project than petitioners for the project

50. HEA 1001 Controlled Projects & Referenda So, your project is a controlled project and is subject to Petition and Remonstrance . . . now, let’s see if it is subject to Referendum? For local units of government, projects costing the lesser of $12 million or 1% of gross AV, if that amount is at least $1 Million, are subject to referenda. [Section 188] • Projects may not be artificially divided to avoid the referendum application process • NOTE: School projects are also subject to referenda, but have different thresholds: • - Elementary school construction projects  $10 million or more • - High school construction projects (grades 9-12)  $20 million or more