Some in Elkhart County eyeing income tax hike to offset property tax losses

Leaders across Elkhart County back a proposal allowing implementation of a new local income tax to offset tax cap losses.
Posted on Jan. 11, 2014 at 12:00 a.m. | Updated on Jan. 11, 2014 at 5:28 p.m.

Losses due to property tax caps have taken a toll on the county and the cities, schools and libraries here.

The hand-wringing and worry has been a near constant, with officials wondering how they'll manage over the long haul, without drastically reducing service offerings.

Now leaders across Elkhart County are expressing support for creation of a new income tax mechanism that would let them recoup some of that money via an increase in the local option income tax rate, or LOIT. In the most recent show of support, the Goshen City Council on Tuesday, Jan. 7, agreed to provide up to $2,500 to cover the cost of lobbying efforts to promote passage of the necessary enabling legislation at the Indiana statehouse.

Still, implementation of a new income tax here in Elkhart County — on top of the existing overall income tax rate here of 1.5 percent — is far from a sure thing. The new tax would generate perhaps $29 million a year to start with.

Here are some questions and answers about the proposed tax — dubbed the Circuit Breaker Relief Local Option Income Tax by Elkhart County Commissioner Mike Yoder, a backer. The proposal, an initiative of officials from across Elkhart County, has been in the works here since last August:

Q. What's the aim?

A. The proposal, in its draft form, would allow Indiana counties to implement a new local option income tax to offset up to 75 percent of the losses from property tax caps. Caps limit how much homeowners and other property owners have to pay in property taxes. Since gradual implementation of new caps starting in 2009, the county, cities, schools, townships and libraries here have experienced a dramatic a reduction in property tax revenue — $38.62 million in 2013 — forcing spending cuts and other belt-tightening.

Schools have been particularly hit, having to scale back busing expenses and school maintenance projects. In fact, voters in the Goshen school district last year approved a property tax hike to generate up to $17 million for a range of projects. Elkhart school officials plan to put two similar property tax hike questions to voters in the May primary to raise up to about $48 million in extra funds.

Q. Who backs the plans?

A. There are the members of the Goshen City Council, judging by Tuesday's action, while Goshen Mayor Allan Kauffman, in an interview, called the income tax plan “absolutely” a good idea. The Elkhart County Council in December agreed to provide up to about $20,000 to cover the cost of lobbying for passage of the necessary legislation by Indiana state lawmakers.

Wayne Stubbs, superintendent of Concord Community Schools, said in a phone interview that he “definitely” backs the proposal. Yoder said other superintendents in Elkhart County have also endorsed the concept.

Arvis Dawson, assistant to Elkhart Mayor Dick Moore, said the city's interested and he thinks it would be a help.

Q. Any foes?

A. Indiana Rep. Wes Culver, R-Goshen, for one, has expressed opposition, in no uncertain terms. He and Elkhart County Commissioner Mike Yoder, a backer, traded barbs over the proposal in competing opinion pieces in the pages of The Elkhart Truth.

Culver says many are still recovering from the economic recession and that it's unfair for the government to impose a new tax in such circumstances. He suspects local government could still trim some spending.

“I think there are efficiencies that can be found yet,” he said.

Q. How much would it generate?

A. A draft proposal crafted by Indiana Rep. Tim Wesco, R-Osceola, would permit a new local option income tax large enough to recoup up to 75 percent of property tax revenue lost to tax caps, but not bigger than 1 percent.

In 2013, Elkhart County's varied taxing entities — including the county, cities, schools, townships and libraries — collectively lost $38.62 million to tax caps. Under Wesco's draft, Elkhart County could recoup 75 percent of that, or nearly $29 million, which, according to estimates from accounting firm Umbaugh and Associates, would necessitate a new local option income tax of around 0.75 percent.

The collective income tax rate in Elkhart County now sits at 1.5 percent — a 1 percent adjusted gross income tax, a 0.25 percent economic development income tax and a 0.25 percent special jail income tax. So if the Wesco proposal became law and Elkhart County officials implement an income tax hike, the rate would conceivably go to perhaps 2.25 percent.

Other means are already available for county officials to raise the local option income tax rate by fixed amounts. But the Wesco proposal — devised by leaders here under the auspices of the Elkhart County Intergovernmental Forum, a loose coalition of area officials — allows for automatic adjustment in the specific rate from year to year depending on the varying level of tax cap losses. What's more, Yoder said the Wesco plan allows school districts to get reimbursements, unlike other existing mechanisms.

Ultimately, if the assessed valuation of property here increased enough, allowing generation of more property tax revenue, the new tax would be reduced. Ultimately, it could theoretically be phased out.

If the new LOIT were implemented, an Elkhart schools rep has said the system would ratchet back the new property tax rate, if approved by voters in May.

Rep. Michael Karickhoff, a Republican from the Kokomo area, has also crafted draft legislation on the matter, according to Yoder.

Q. What will it take for the tax proposal to move forward?

A. First it needs backing in the Indiana House and Senate. A Wesco spokesman said the lawmaker would not be available to comment on the matter.

Presuming passage in Indianapolis, it would then be up to the Elkhart County Council to decide whether to actually allow the income tax hike. Council members have discussed the possibility of an income tax hike over the years to generate new funds to help make ends meet. They also allocated the bulk of the funds necessary to hire the lobbyist to push the new plan.

Still, they've hardly embraced the idea of a new tax.

Q. How does the Elkhart County income tax proposal jibe with Gov. Mike Pence's proposal to ax the personal property tax?

A. They're not directly related.

Pence proposes eliminating the personal property tax — the tax on business machinery and equipment — to reduce the cost of doing business here and spur business development.

However, if the personal property tax were eliminated, local officials here have said that would exacerbate their budget woes.

Follow reporter Tim Vandenack on Twitter at @timvandenack.


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