By SCOTT SMITH, Kokomo Tribune staff writer
scott.smith@kokomotribune.com
Chrysler may or may not pay a $24 million property tax bill, but Kokomo Mayor Greg Goodnight has ruled out a property tax increase to cover the shortfall.
Goodnight decided Friday against both of the two options available to recover the possible lost Chrysler revenue.
Instead of raising property taxes, Goodnight signaled he'll try to stretch existing revenues.
City and county officials will have two choices if Chrysler doesn't pay some or all of an estimated $24 million in personal property taxes sometime soon.
Kokomo city controller Jim Brannon said borrowing to make up for the massive revenue loss will be inevitable. Howard County Council president Dick Miller said the same thing.
But what the city, county and school districts do after they borrow the money could be crucial, particularly when local officials try to guess how a general property tax increase might affect an already economically depressed area.
To make up for the Chrysler non-payment, local taxing units will have to turn to the state's Rainy Day Fund for a loan.
Friday, Brannon said local officials are now expecting the state will charge around 2 percent interest on the loans.
But paying back the loan is where it gets interesting.
There are three things the locals can do:
• Ask the state for a new debt service tax rate. That would allow for a minimal tax increase, raising just enough to make the annual payments on the money borrowed. The additional rate - which would not count toward the property tax cap - would be in effect for however long it takes to pay back the Rainy Day Fund (up to a maximum of 10 years).
If local taxing units adopt the new rate this year, locals would begin paying it next year.
Goodnight has said he won't ask for a new rate this year, meaning the earliest the tax could start for city residents would be 2011.
Brannon said he already has worked out an annual payment, based on paying back $5.9 million over 10 years. That's what the city will lose in one year if Chrysler pays nothing owed. The city's loss will be double that if Chrysler doesn't pay for two straight years.
At 2 percent, the city would levy an additional $668,000 per year in property taxes to pay back the $5.9 million, he said.
• Ask the state for a one-year "excess levy appeal." That would basically be a one-year tax hike. It would be over with quickly, but the effect could be reminiscent of the huge, statewide property tax spike in 2006.
Brannon said the biggest problem with an excess levy appeal is that by taking the property tax hit all in one year, local taxing units would quickly run into the property tax cap ceiling.
That means that one taxing unit - by asking for a large excess levy appeal - could force all of the taxing units collectively into hitting the property tax caps.
Local officials already have begun discussing this potential problem, making it less likely any of the taxing units - including Kokomo-Center Schools and Northwestern School Corp. - will "go it alone" and press for an excess levy appeal.
• Borrow the money and make enough cuts in other spending to make the annual debt payments - with no tax increase. This is what Goodnight has decided to do.
Brannon said part of the reason for taking that approach is the fact General Motors will be repaying $2.4 million in past due property taxes owed the city since Delphi Corp. declared bankruptcy in 2005. That money - to be repaid by March 2011, with interest - will help the city's bottom line.
"We're trying to develop a fair strategy with the taxpayers," Brannon said. "We don't feel comfortable putting an additional tax burden on people who are already suffering."
Howard County officials appear most likely to start a debt service rate, although they too are hoping Chrysler officials will pay at least part of the tax bill.
After bankruptcy, lawyers for the newly restructured Chrysler questioned whether the new company was responsible for tax assessments made while the company was controlled by a now defunct limited liability corporation.
Brannon said if Chrysler pays the majority - perhaps around $4 million of the $5.9 million owed this year - the city might be able to make it through without borrowing.
"We haven't given up on [collecting Chrysler's taxes for] either year, but we are prepared to look at the debt service rate," Brannon said.
While local officials ponder the question, they have until February to make a final decision. And they're still trying to set up a second meeting with Chrysler officials. As of Monday, there still was no official word on when, or if, that meeting will happen.