ANDERSON – Property tax caps first implemented in Indiana in 2009 reduced the city of Anderson's tax revenue by $10 million last year, compared to what the city's draw would have been in 2014 under the pre-2009 tax system.
A study, titled The Fiscal Health of Indiana's Larger Municipalities, completed by the Indiana Fiscal Policy Institute and released Tuesday, looked at 18 cities in Indiana, comparing the 2008 to 2015 taxing years.
The study found property tax revenues lost because of property tax caps to the 18 communities, combined, jumped from $30 million in 2009 to $161 million this year.
As a result of the implementation of the property tax caps, the Indiana General Assembly has provided local option income taxes as a means to replenish the lost revenues.
Anderson has seen a 35 percent increase in lost revenues since 2009 as a result of state tax caps that were set at 1 percent for homeowners, 2 percent for residential and farm property and 3 percent for businesses.
Anderson City Controller Jason Fenwick said the city will continue to experience a loss in property tax revenues in future years, but the loss won’t be as dramatic as it was over the past several years.
Before the tax cap imposition, the city funded the engineering, municipal development, IT, some economic development and street department through property taxes.
“As a result of the tax caps, the level of services had to be cut,” Fenwick said. “Our saving grace was the slot-machine fund from Hoosier Park, which now funds engineering, municipal development, IT and some economic development costs.”
Fenwick said that 70 percent of the city’s general fund, fed by property tax revenues, goes to police and fire costs. The remainder of the general fund is used for fixed costs — such as retiree and employee health insurance, and general operating expenses — that continue to increase.
Madison County has implemented a 1 percent county option income tax and a 0.25 percent public safety local option income tax.
“Both of those have been tremendously beneficial,” Fenwick said.
He said the local option income tax generates about $7 million per year for Anderson, all of which goes to the general fund.
The public safety local option income tax pays for the city’s share of the new combined dispatch center with Madison County and covers part of the expense of the city police and fire departments.
“They should consider increasing the public safety tax,” Fenwick said. “It would reduce the strain on the city’s general fund.”
Any increase in the public safety local income tax would require a majority vote by the Madison County Tax Council, which consists of the city and town councils throughout the county. Voting power on the council is determined by the percentage of each community’s population.
John Ketzenberger, president of the Indiana Fiscal Policy Institute, said cities such as Anderson, Muncie and Marion have struggled since the tax caps were imposed.
“They were once considered decent with a good property tax base,” he said. “The hollowing out of the industrial sector has impacted cities like Anderson.”
The decline of the automotive manufacturing industry, followed by the recession and then the tax caps, have decimated tax revenue in Anderson.
“The loss of $10 million in Anderson is taking a heavy toll,” Ketzenberger said. “There is a new reality in terms and types of taxes. The Legislature has changed how raising money is done.”
He noted that, when tax reforms took place during the administration of Gov. Otis Bowen in the 1970s, Anderson was a much different place than it is in 2015.
“They’re trying to catch up with the tax policy changes,” he said. “There is now a mix of how to raise tax dollars through local income taxes.”