Nature of revenue and budgets make tax hikes or cuts difficult to predict

It’s a question that defies easy answers, although that doesn’t stop campaigners for and against a consolidated Evansville-Vanderburgh County government from offering them.

The true answer, local government finance experts say, is virtually unknowable for a new form of government that would not take office until January 2015.

Before they can submit budgets to the Indiana Department of Local Government Finance so that agency can set tax rates, local governments must have assessed values and budgets in place with details about projected expenses and levies — the amount of revenue needed from property taxes.

“Until you know those things, I don’t think anybody can tell you one way or the other, to be honest, what’s going to happen,” said Joe Gries, Vanderburgh County Auditor since January 2011 and chief deputy auditor for five years before that.

Gries said he cannot project assessed values, budgets or tax levies for next year — let alone 2014, when elections would be held for mayor of a consolidated government and a new Common Council’s 15 seats.

“It’s always a rolling process, and in that rolling period of time we project what we’re going to need and what we’re going to possibly get from revenue,” he said. “We look at those numbers at the next budget season and say, ‘OK, how much was spent? How much wasn’t spent? Did the revenue come in close to what projections were?’

“You never just say, ‘OK, I’ve got $100 million in the bank, and I’m going to spend that $100 million this year.’ It doesn’t work like that. It’s hard to predict. Things go up and down.”

The question of whether property taxes would rise in a merged government has been a flash point for opposing sides in the campaign leading up to the Nov. 6 Vanderburgh County referendum vote on consolidation.

Convinced the merger would trigger tax hikes for residents outside the current city limits, Citizens Opposed to Reorganization in Evansville called that possibility a “slam dunk” in a recent posting on its website. The anti-consolidation group says with less certainty that studies indicate city taxes “also tend to go up” in consolidated governments.

CORE, which points to the increased property taxes recently annexed Knight Township residents saw in return for more services, argues spending on such “transitional costs” as employee salary and fringe benefit equalization would cost more, and concludes higher taxes are to be expected.

Pro-consolidation group Yes! for Unification says with reduced spending comes the likelihood of lower taxes. The group points to $781,579 in savings Crowe Horwath, an Indianapolis-based public accounting and consulting firm, pegs to elements of the reorganization plan. Yes! leaders say those savings would swell by millions of dollars in operating efficiencies that would be identified and affected — appropriately, the advocates say — by a merged government’s elected officials.

Saying it is unlikely those elected officials would agree to equalize city and county personnel costs to the highest numbers, Yes! also cites what it calls safeguards against budget-busting spending in a consolidated government, including state law’s requirement for referendums on local spending of property taxes on some large projects.

In an analysis produced for consolidation planners in 2010, Crowe Horwath said economic conditions could affect property tax levies, income tax revenues and other revenues available to provide services in a consolidated government.

Crowe Horwath analyst Tom Guevara pounded home the point a merged government’s budgets — and the accompanying tax levies and rates — largely would depend upon the policy decisions of the individuals elected to Common Council seats and the mayor’s office.

“(The council) will have a lot of leeway with respect to how revenues may be allocated and what services may be put into what (taxing) districts,” Guevara said.

“That just can’t be stressed enough.”

‘Pure consolidation’

A series of hypothetical scenarios for the provision of government services and distribution of expenses constructed by Crowe Horwath in 2010 amply demonstrates how property tax burdens can shift depending on the priorities of a consolidated government’s elected officials.

Crowe Horwath created a half-dozen scenarios using such variables as net and gross assessed value.

But a firestorm erupted when the Courier & Press reported the shift in tax burden that resulted in a theoretical baseline scenario that reallocated current city expenses and property tax levy from city taxpayers to all taxpayers. The resulting spreading of the burden of paying for local government over a larger assessed value base was the key contributor to a net decrease in city residents’ overall tax rate.

In the baseline scenario, the overall tax rate for Vanderburgh County taxpayers outside the city increased by almost 28 cents per $100 of net assessed value and city taxpayers’ tax rate decreased by almost 13 cents.

Here’s how: City taxpayers as well as county taxpayers now pay tax rates that support the Vanderburgh County Sheriff’s Office. At the same time, county-only taxpayers pay nothing to fund Evansville Police Department operations. But the baseline scenario allocated all tax rates supporting the 2010 budgeted expenses of both departments — and the county jail — to all taxpayers.

Standing at $29.4 million at the time, the Evansville Police Department’s budget accounted for slightly more than 39 percent of the city’s $74.9 million General Fund budget.

Guevara and consolidation planners said repeatedly the baseline scenario did not represent a likely outcome of government consolidation.

“It’s just a basic, pure consolidation of offices and services between the two (taxing districts) unless there’s a rationale for keeping them distinctly separate,” Guevara said then. “It’s if you were simply saying, ‘We’re going to meld these two (local governments) together without regard to looking at specific cost savings and/or methods of financing.’

“… Obviously, (the baseline scenario’s county tax rate increase) is clearly driven primarily by the police, because it’s so large.”

But even though the 2010 baseline scenario ultimately was rendered moot by the decision of city and county elected officials to exclude law enforcement from the current consolidation plan, anti-consolidation activists still use it to argue taxes would go up outside the city.

CORE co-chairman Bruce Ungethiem cited the scenario as recently as July 26, while speaking during a United Neighborhoods of Evansville public forum.

“I took that Crowe Horwath report, and I looked at my property in the city, and I said, ‘OK, if that Crowe Horwath report, the typical scenario came true, then my property in the city, what would happen?’ The property taxes that I pay for the county — if you’re a city resident, you pay county taxes — would go up. The property taxes that you would pay for in the city would go down,” Ungethiem said.

“The net on my property was a 5.2 percent increase in my property taxes.”

Sheriff Eric Williams, who was representing the pro-consolidation side that night, reminded the forum audience changes in the structure of the Evansville Police Department and the Vanderburgh County Sheriff’s Office would be prohibited until 2024 if voters approve consolidation.

“All of those numbers are inaccurate based on this plan because that component of it (law enforcement consolidation) is not in the plan,” Williams said.

Second attempt

Beneath the surface of the debate over whether taxes would go up in a consolidated government are questions about how fair they would be — and whether the merger would create opportunities to address perceived inequities.

It all starts with the fact two-thirds of Vanderburgh County’s roughly $6 billion total assessed value — a key component in calculating tax rates — lies inside of city limits.

County sheriff’s office operations are funded by county government’s general tax rate, which city taxpayers pay at the same 52.83 cents per $100 of net assessed value as county taxpayers. It is no small expense: Of the $104.5 million spent by county government last year, more than $15 million went to sheriff’s office, jail and Vanderburgh County Community Correction Program operations.

But while the sheriff’s office’s jail and administrative services benefit the entire county, the lion’s share of its patrol and investigations budgets are spent outside city limits. City police are the primary 911 responders for law enforcement within city limits.

“So two-thirds of the money for the general fund for the county comes from within the city, and so you could probably say two-thirds of the sheriff’s budget — two-thirds of all budgets within the county general levy — would come from within the city,” Gries said.

Meanwhile, city taxpayers also pay 100 percent of the police department’s budget. That, too, is no trifling matter: Of the $225 million-plus city government spent in 2011, $30.2 million went to police operations.

The numbers apparently bothered some members of the citizens committee that crafted a proposal for consolidation in 2010. The committee asked Crowe Horwath to lay out scenarios shifting the burden for sheriff’s office operations to taxpayers outside the city.

Ed Hafer Jr., a key member of the Evansville-Vanderburgh County Reorganization Committee, stopped short of saying committee members felt it is unfair to have city taxpayers simultaneously fund all city police operations and most of the county sheriff’s operations.

“There were certainly people who questioned if that was the right thing to do,” said Hafer, the reorganization committee’s finance and tax subcommittee chairman.

The results of the scenarios were predictable.

One scenario allocated the sheriff’s office’s law enforcement-related expenses to a special services district that included only taxpayers outside of the city. Expenses associated with the county jail and community corrections program, which are run by the sheriff, would continue to be funded by all taxpayers in the county. City police expenses would be borne only by city residents.

The overall tax rate for Vanderburgh County taxpayers outside the city increased by more than 22 cents per $100 of net assessed value and most city taxpayers’ tax rates decreased by more than 10 cents.

The same scenario was adjusted to incorporate an estimated savings of 7 percent, attributable to unidentified efficiencies realized because of reorganization. The adjusted scenario produced an overall tax rate for taxpayers outside the city that was higher by almost 13 cents per $100 of net assessed value. Most city taxpayers’ tax rates decreased by more than 19 cents.

Looking ahead

The Plan of Reorganization says the sheriff’s office and the police department “shall not be modified or combined” in a consolidated government before 2024, but it says nothing about how the two agencies’ considerable tax burdens could be distributed — or redistributed.

Perhaps presaging a future debate if consolidation is approved by voters, anti-consolidation activists play up services the sheriff’s office provides within city limits. Their argument: City taxpayers benefit from sheriff’s office services too, so they should continue to share the burden of paying for them.

On Aug. 29, CORE posted a photograph on its Facebook page showing a sheriff’s deputy pulling over a motorist for an apparent traffic violation.

The photo was posted, said Vanderburgh County Treasurer Rick Davis, “to show people city residents are taxpayers, too, and they’re getting services for what they’re paying for.”

“City residents get many services from the sheriff’s department — not just a few, but many,” Davis said.

Davis cited the sheriff’s office’s operation of the jail, provision of security for the courts, its help in major emergency management situations and backup to city police. City residents benefit from these services, he said.

In response to Davis’ assertion most jail inmates are city residents, Williams acknowledged most arrests in Vanderburgh County occur within city limits.

Law enforcement is a somewhat different story.

“We still help in the city. We back (police) up, we take runs, we make traffic stops — we do all that when we happen to be there, but our primary motor patrol, or patrol jurisdiction, is outside of the city limits,” the sheriff said.

“If (police are) short or there’s a call for service — like a traffic stop, a break-in in progress, anything that would generate a police response — that comes out that is close to the (city-county) edge or we have a car nearby because we monitor each other’s traffic, then we show up to help.”

There would be no need for guesswork about the property tax policies of a merged government if the consolidation referendum passes on Nov. 6, said Mayor Lloyd Winnecke.

Winnecke, a consolidation advocate, said he would run for mayor of a combined government in the 2014 elections. That would be the time, he said, for voters to influence property tax policy by supporting candidates who share their priorities.

Individuals who staunchly opposed the consolidation referendum would be just as free as anyone else to run for office in the new government.

“I think the successful candidate should be prepared to talk in specific terms about budget efficiencies and what they can do to save money,” Winnecke said.

“To be successful, you’re going to have to be very specific about what your plans would be.”