By Tim Vandenack, Truth Staff
tvandenack@etruth.com
With cities, schools and other Elkhart County taxing units forecasting deep dips in revenue due to new rules capping property taxes, the calls for consideration of an income tax increase are gaining steam.
No one has proposed a specific amount, nor made a formal pitch to the Elkhart County Council, the body that would have final say. Nevertheless, some officials are already sweating, wondering how they'll manage in 2010, when changes limiting the collection of property tax revenue really take a bite out of their revenue stream.
An income tax increase "is one of the tools in the toolbox that should be looked at," said Goshen Mayor Allan Kauffman. Goshen stands to lose $284,000 in property tax revenue in 2009 because of the new property tax caps, called circuit breakers, and $1.3 million in 2010.
Similarly, Doug Hasler, who handles finances for Elkhart Community Schools, warns that the more stringent caps "could do some real damage" to the district's budget. Without a corresponding inflow of revenue from somewhere else to offset anticipated property tax losses -- $2 million to $3 million in 2010 alone -- the district will be "flying by the seat of our pants" by 2011.
An increase in the local option income tax, as it's known, "is something that I think we as a county have to explore," Hasler said.
Arvis Dawson, the assistant to Elkhart Mayor Dick Moore and another proponent for studying the income tax option, argues that such an increase wouldn't impact the unemployed or retirees. Moreover, it wouldn't adversely affect individual homeowners' property taxes since it is based on earnings.
"It's a working man's tax," Dawson said. The city of Elkhart is in line to lose $1.5 million in property tax revenue in 2009 and $4.6 million in 2010.
Not so fast: Despite such talk, the Elkhart County Council has already expressed hesitancy over raising the income tax rate. The collective rate in the county currently totals 1.5 percent.
"We've made it very clear on the council that we're not in favor of raising taxes on anybody," said John Letherman, the council president.
Any taxing unit wanting to increase the income tax rate here -- whether school district, city or township -- would have to show that all other means of addressing revenue shortfalls, including cost cutting, have been exhausted. Letherman himself has banged the drum for increased investigation of consolidation of services across taxing units, like planning, zoning and parks operations.
The new rules: Property tax reform legislation approved by state lawmakers last spring places new limits on the property taxes property owners must pay. The aim is to reduce the burden homeowners shoulder, and the changes:
* Set the maximum allowable property tax bill in 2009 for homeowners at 1.5 percent of their homes' assessed valuation. The change, accompanied by caps of 2.5 percent for rental property and 3.5 percent for commercial property, is expected to cut the property tax revenue stream to Elkhart County cities, schools, the county and other taxing entities by $4.2 million.
* Reduce the cap in 2010 to 1 percent for homeowners. The change, accompanied by reduced limits of 2 percent for rental property and 3 percent for commercial property, is expected to cut the property tax revenue stream here by a collective $16.1 million that year.
What others say: Nappanee Mayor Larry Thompson says he'll likely propose implementation of garbage collection fees for the first time to help offset losses there brought on by the new property tax caps. Nappanee is in line to lose some $480,000 in 2010.
Such a fee, perhaps $7 to $8 per month per household, would offset half of the expected shortfall in 2010, Thompson said. The city would look inward, trimming overtime, perhaps, and cutting costs elsewhere to make up for the balance.
"I'm just like everybody else," Thompson said. "I don't like my taxes any more than the other guy."
Moore and Kauffman have also talked about implementing new garbage-collection fees.
Goshen Community Schools Superintendent Bruce Stahly, meanwhile, indicated that he first wants to see how the district weathers 2009. Goshen schools are expecting a $305,000 dip in property tax inflows in 2009 and a $750,000 to $1.3 million shortfall in 2010.
Even so, the school official questioned how much more the district could trim from within to offset anticipated losses. "We've felt like our belt's been tight all along," Stahly said.