Approval of local government consolidation could lead to tax changes

The advent of a new government could set off a fresh reexamination of local property tax obligations — especially if elected officials seize all the opportunities available to them to change the manner and proportions in which taxes are imposed.

Some of the changes, such as a possible shift of tax burden from property taxpayers to income earners, would represent fundamentally different approaches to governance. Others would be simple reallocations of tax dollars that would, nevertheless, announce the new government's arrival.

Take, for example, three new high-ranking positions to which the mayor of a consolidated Evansville-Vanderburgh County government would make appointments — deputy mayor, director of budget and finance and public information officer.

In fact, only the titles are new: The job descriptions correspond to those of Evansville Mayor Lloyd Winnecke's chief of staff, city controller and director of communications, respectively. What would be new is the spreading of the tax burden of paying for the three high-profile positions from city property taxpayers to all taxpayers in a consolidated government.

"County-only taxpayers get no benefit from (the three mayoral staff positions), but in a consolidated government they would," said City Controller Russ Lloyd Jr., a former mayor and member of the County Council. "If you have a unified government, you still need somebody to do those things."

It is the kind of explanation that likely would have to be offered again and again in a consolidated government as residents acclimated themselves to one government for one community. And with the explanations would come reminders about other changes designed to save money.

The three "new" jobs would bring an additional tax burden to taxpayers outside the city. But that burden arguably would be offset in a new tax rate allocation mix that would see the city clerk position eliminated. In addition, seven County Council members, nine City Council members and three county commissioners would be replaced with a 15-member elected Common Council. Four full-time staff jobs now supporting the commissioners and the County Council also could be eliminated.

While the changes to a new government's public faces might create a stir, they could be just the beginning.

Shifting the load

Consolidation could change the way property owners and income earners share Vanderburgh County's tax burden, conceivably lightening the load on property owners. But the new government's officials would have to be willing to think anew.

The county already imposes the maximum possible county-option income tax (COIT) of 1 percent of an individual's adjusted gross income. Indiana residents pay income taxes based on where they live, not where they work. COIT is paid by workers and is heavily dependent on employment levels.

Imposition of COIT is actually carried out by the county income tax council, a panel composed of City Council, County Council and Darmstadt Town Council members.

But whichever body replaced the county income tax council in a consolidated government could also impose one or more of three available forms of local-option income tax (LOIT) in a bid to shift the tax burden — or, if the economy improves, to boost revenue.

The revenue derived from one of the LOIT forms could be used to provide property tax relief while capturing extra revenue from income earners who live in property-tax exempt housing. That includes university- and church-owned property, nonprofit retirement communities, federally owned housing units, nursing homes and assisted living facilities and college dormitories.

One school of thought holds that individuals who are earning incomes have the means to pay a tax, whereas property taxpayers may have little income with which to pay property taxes. Farmers in Southwestern Indiana, for example, are obligated to pay personal property taxes on equipment and real estate property taxes on farmland even when their income-producing crops fail.

Randy Kron, a northern Vanderburgh County farmer who serves as vice president of the Indiana Farm Bureau, said a shift to income taxes would be more fair.

"On the farm, if you're paying income taxes, it means you've probably had a fairly decent year. You've made some money and you could probably afford to pay it," Kron said. "A year like this year, the property taxes are due, and it's just going to add to the red ink."

But because local income taxes are so heavily dependent on employment levels, they fluctuate and are consequently considered more of a gamble than property taxes. Local governments in Indiana prefer to have the brunt of the burden borne by more stable property tax revenue. Next year's separate Evansville and Vanderburgh County government COIT receipts are expected to top $27 million combined, compared withmore than $105 million in property taxes.

The current lineup of county council members has resisted imposing local-option income taxes, believing it would generate a relatively small amount of extra revenue while unfairly redistributing the tax burden from property owners to income earners.

County Council President Tom Shetler Jr., said officials looked at LOITs a few years ago, when he was the council's finance chairman, and decided it would hit struggling workers too hard.

"It actually ended up with more income coming from wage earners, which — particularly in today's economy — I think it would still be somewhat ill-advised because most families are struggling with the revenue that they're bringing home," Shetler said.

Tax rate complaints

Among Vanderburgh County's more than three-dozen property tax rates are several that taxpayers in certain tax districts believe they should not have to pay.

A consolidated government may or may not be able to influence those tax rates, depending on a host of variables. Debts backed by property tax payments, for example, may be part of previous agreements between entities that bought the bonds and others who issued the debt, and those agreements may prohibit a shifting of tax burden.

Some tax rates routinely are questioned by taxpayers.

The "Special Airport General" rate helps fund Evansville Regional Airport operations at the same 1.39 cents per $100 of net assessed value in all 19 of the county's taxing districts. The "Cumulative Airport Building" tax rate, which helps fund airport capital improvements, comes in at 1.29 cents per $100 of net assessed value across the board.

"I'm a farmer out in the county. I never fly, so why should I have to pay for the airport?'" Lloyd said, describing a typical complaint. "The answer is, the greater community good. An airport helps bring in economic development. Without a modern airport that's easily accessible to major cities, you'll be an economic backwater."

County Auditor Joe Gries said property taxpayers in unincorporated parts of Vanderburgh County often complain about the countywide "Parks & Recreation" tax rate, believing all parks facilities are inside city limits.

City and county taxpayers pay the "Parks & Recreation" tax rate at the same 7.71 cents per $100 of net assessed value. The tax rate helps fund the general operations of all parks except government-owned Burdette Park in western Vanderburgh County. Burdette is funded in county government's general tax rate at the County Commissioners' behest, although it could be reassigned in a consolidated government.

Gries said he does not argue with taxpayers — but if he were of a different mind, he might remind them that the Goebel Soccer Complex and the Angel Mounds and Dogtown boat ramps are outside the city. He could remind them as well that residents of the county's unincorporated areas have access to all parks facilities inside the city.

The auditor recalls a McCutchanville resident grousing to him recently about having to pay the countywide tax rate that supports the Evansville Levee Authority. The rate is 2.55 cents per $100 of net assessed value.

"He didn't know why he had to pay for the Levee Authority because he was up on a hill and (flooding) would never affect him," Gries said.

But Levee Authority supporters point out that flooding may affect residents' workplaces or places where they do business.

Tax rates are set by the Indiana Department of Local Government Finance based on budgets passed by local governments. Local elected officials typically can predict their governments' tax rates, but they do not set the rates. A local government can make policy decisions — closing a facility or eliminating services, for example — that would drive rates.

If a consolidated government's elected officials were so inclined, could they unilaterally relieve some taxpayers of the responsibility to pay certain tax rates?

Courtney L. Schaafsma, budget director for the Department of Local Government Finance, said it depends.

"It would have to come back to the statute that established the particular taxing unit and ultimately established their ability to have that tax in the first place," Schaafsma said. "You would have to go case-by-case on each fund or each tax rate and determine what the legislative language is pertaining to that particular fund.

"There's not a set yes or no answer."

Taxation without representation?

In some instances, residents of Vanderburgh County are paying fees and taxes set by elected officials for whom they cannot vote — or individuals appointed by those officials.

In these instances, taxes may or may not be higher, depending on such variables as assessed values, budgets and tax levies — but in a consolidated government they would be determined without one of two local governments having a greater say than the other.

When the public learned in 2009 that a group of city and county elected officials decided in 2008 not to renew a local homestead credit that amounted to more than $5.1 million for the county's homeowners that year, County Council members explained they could not have reversed the decision.

That's because the City Council held more than 70 percent of the votes on the county income tax council, to which state law gives responsibility for local homestead credits. But that body did not meet.

In a consolidated government, the county income tax council's Census-based city-county representation ratio would be dissolved in favor of a single body.

That does not mean the new entity could be counted on to annually renew future local homestead credits. But decisions about the credits, which are available to homeowners in every area of Vanderburgh County, would not be left to a body dominated by officials of a separate city government.

Consolidation advocates point to the countywide "Parks & Recreation" tax rate.

"Currently a number of city bodies have the authority to tax, spend, and make decisions for the entire county, yet only those residents within the city elect the public officials making these decisions," states the website of Yes! for Unification. "For example, the city established a Parks & Recreation taxing district that is countywide, but only city officials decide its goals and tax rates."

In fact, the five-member Evansville Board of Parks Commissioners, which oversees the Evansville Department of Parks and Recreation and Mesker Park Zoo and Botanic Gardens, is appointed by a combination of city and county government's executive officials.

A majority of appointments — but not all of them — go to the city. Three appointments are made by the mayor of Evansville, who also appoints the executive director of the Parks and Recreation Department. Two board members are appointed by the County Commissioners.

If a consolidated government takes office, the Plan of Reorganization lists parks and recreation among the services that would be funded in the countywide general services taxing district. That would constitute no practical change in tax burden.

The directors of Burdette Park and Mesker Park Zoo and Botanic Garden would be department heads and would report to the mayor. Each would "operate with the support of an advisory board and under the auspices of the Board of Park Commissioners," according to the reorganization plan.

A Board of Parks would have five members, all appointed by the consolidated government's mayor — its only executive officer and an official elected county wide.