Statewide report: Terre Haute ranks last in fiscal health among 18 cities

Terre Haute ranked last in a statewide report that examined the fiscal health of 18 Indiana cities. Factors studied include economic climate, changes in core revenue (property tax levies and income taxes) between 2008 and 2015, and changes in year-end cash balances in the general fund and the rainy day fund.

The other cities included in the study — 15 with a 2014 population greater than 50,000 and two in southeastern Indiana, for geographic balance — were Anderson, Bloomington, Carmel, Elkhart, Evansville, Fishers, Fort Wayne, Gary, Greenwood, Hammond, Jeffersonville, Kokomo, Lafayette, Muncie, New Albany, Noblesville and South Bend. Indianapolis was not included due to its unique unigov system.

"The indicators examined in this report paint a negative picture for the city of Terre Haute’s fiscal health relative to the group of 18 municipalities included in the study," states a portion of the report highlighting the Vigo County seat. It concludes: "Perhaps most indicative of its fiscal situation, the city of Terre Haute ranked last on this study's fiscal health index."

In an interview prior to today's public release of the findings, study author John Stafford told the Tribune-Star, "I suspect the study doesn't tell you much of anything you didn't already know." The Indiana Fiscal Policy Institute released that report along with a separate report on the effect of Indiana's property tax caps.

The newspaper consulted with Stafford, a retired director of the Community Research Institute at Indiana University-Purdue University Fort Wayne, during research for its "City on the Brink" series published Aug. 30-Sept. 7. That series of stories and accompanying graphics and editorials focused on Terre Haute's deepening financial crisis.

According to Stafford's study, the municipal governments in Indiana's larger cities have been financially impacted by the combination of both the "great recession" and the property tax caps enacted in 2008. Through a variety of indicators, the study sought to determine to what degree the impact impaired the fiscal health of these cities.

Over the period studied, Terre Haute lost 31.6 percent of its property tax levy to circuit breaker tax caps; its core income — property tax plus income tax revenue — is just 78.4 percent of what it was in 2008. Terre Haute "was pretty significantly impacted" by property tax cap losses, Stafford said.

In contrast, Bloomington lost just 0.8 percent of its property tax levy to tax caps.

Unlike several other communities, Terre Haute has not pursued a local option income tax (LOIT) or initiated a significant user fee, such as a trash fee. In Vigo County, a LOIT would require approval of the County Council.

"In the case of Terre Haute, you had a pretty significant (tax cap) impact, just under 32 percent of your certified levy, and had not done anything with the income tax, and your income tax revenue had actually gone down. And it certainly had gone down substantially after you adjust it for inflation," Stafford said.

The study points to several possible reasons why Terre Haute ranks last.

Among those is that Terre Haute operates in the third-most difficult economic climate of the 18 cities, based on such factors as population change, personal income and property assessed valuation.

"The difficulty of this climate is perhaps best typified by the 12.9 percent decline it the city’s gross assessed valuation between 2007 and 2014," the report states. Terre Haute has the fourth-lowest net assessed valuation per capita among the 18 municipalities.

Other key findings in the study:

• Terre Haute has the sixth-highest property tax rate among the 18 cities, a factor which takes on new meaning in the age of property tax caps.

• The local income tax rate in Vigo County of 1.25 percent has remained unchanged since at least 2008. Terre Haute has experienced a slight decline in income tax revenue since 2008, and is one of only three of the 18 to have experienced an actual decline in its income tax revenue over this period.

The combination of a relatively high loss of property tax levy due to the property tax caps and the actual decline in income tax revenue led to Terre Haute ranking as the third-lowest municipality in this study’s so called "fiscal capacity index."

• Also of concern is the nearly $10 million decline in the year-end combined balance in Terre Haute’s general and rainy day funds since 2009, ending 2014 with a negative balance in the general fund — minus $5.4 million — and a positive balance of $2,350,655 in its rainy day fund.

• Terre Haute was one of only three of the municipalities to end 2014 with a negative balance in the combination of these two funds. Its 2009-2014 decline in the combination of these two funds was the third most dramatic decrease among the 18 cities.

• Terre Haute had the third-highest level of disbursements per capita from all governmental funds, at $2,382 per resident.

According to the study, the older industrial cities, including Terre Haute, Anderson, Muncie, South Bend, Fort Wayne, New Albany and Elkhart, all faced a combination of significant circuit breaker credit losses, slower performing local economies, and in some cases, a failure to respond to the property tax caps with the property tax relief and public safety LOITs.

The 18 municipalities studied provide essential services to more than 1.4 million residents, nearly one-quarter of the state’s population. "Their ability to continue to function with a reasonable degree of fiscal stability is essential," the report states.

The study presents objective data without any intent to do so "in a condemning sort of way," Stafford said in the interview. It points to "the realities of what is happening out there," and the impact is not uniform. There are 18 municipalities with 18 different stories.