allen county fiscal summit presentation from umbaugh
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Impact of Circuit Breakers on
Local Taxing Unit Budgets2009 Allen County Fiscal Summit
July 21, 2009
2
What are circuit breaker tax credits?
Circuit breaker tax credits limit a taxpayer’s total
property tax liability to a fixed percentage of the
assessed value of the taxable property, before any
deductions.
For taxes payable in 2008, these credits were limited to
residential homesteads with a cap of 2.0%.
July 21, 2009
How are circuit breaker
tax credits funded?
Credits are funded by a reduction in property tax
revenues of all Taxing Units in proportion to their
levy.
Property tax rates may not be increased to offset
the shortfall.
Funds may not be borrowed to offset the shortfall.
3July 21, 2009
4
How does HEA 1001 change
these tax credits? Reduces the tax caps for residential homestead
taxpayers:
1.5% limit in 2009
1.0% limit in 2010
Expands the tax caps to all other residential,
agricultural land and long-term care facilities:
2.5% limit in 2009
2.0% limit in 2010
July 21, 2009
5
How does HEA 1001 change
these tax credits?
Expands the tax caps to all other property taxpayers to:
3.5% limit in 2009
3.0% limit in 2010
Creates additional limits for certain taxpayers over age 65
Debt service levies in St. Joseph and Lake Counties
created before July 1, 2008, and those created by voter
referendum in all counties are not subject to circuit
breaker tax caps.
July 21, 2009
Projecting Reductions in Property Tax
Collections Needed to Fund Credits
Certified assessed values, property tax levies and
property tax rates for taxes payable in 2009 are used
as the beginning point for the study.
2009 assessed values include adjustments for:
Loss of net assessed value from expansion of the
supplemental homestead deduction (16.1% reduction)
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7
Supplemental Homestead Deduction
Changes effective total property tax rates:
Reduces assessed values used to compute property tax rates by
creating new supplemental homestead exemption for
homeowners beyond current deduction
35% exemption for first $600,000 remaining assessed value
25% exemption for over $600,000 remaining assessed value
Reduces assessed value by $2.55 billion; a 16.1% reduction
Begins with property taxes payable in 2009
Note: Reductions in assessed value increase property tax rates
and circuit breaker tax credits.
July 21, 2009
Illustrative Changes in Assessed Value
Due to Trending and Reassessment
8
0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%
Utilities
Tax Exempt
Residential Vacant
Residential Mobile Home
Other Residential
General Residential
Commercial-Other Housing
Commercial Multifamily Residential
General Commercial
General Industrial
Personal Property
Industrial and Commercial Vacant
Agriculture
* Overall average of 1.72%.
July 21, 2009
9
Actual and Estimated Net Assessed Values for Allen County
(In millions)
July 21, 2009
$15,850
$13,298 $13,298 $13,230
$12,000
$12,500
$13,000
$13,500
$14,000
$14,500
$15,000
$15,500
$16,000
$16,500
2008
Actual
2009
Actual
2010
Estimated
2011
Estimated
Net
Ass
esse
d V
alu
e
(In
mil
lio
ns)
Year Payable
Projecting Reductions in Property Tax
Collections Needed to Fund Credits
2009 levies include adjustments for:
Assumption of certain property tax levies by State and
elimination of State property tax credits in 2009.
Increases in maximum controlled levy limits.
Loss of cumulative fund revenues due to reduction in
net assessed value from the supplemental homestead
deduction.
Changes in debt service levies
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11
Elimination of Certain
Property Tax Levies in 2009
Pre-School and School General Fund
County Welfare Funds
Pre-1977 Police and Fire Pensions
State Fair Board and Forestry
Note: Reductions in levies reduce property tax rates and reduce
circuit breaker tax credits.
July 21, 2009
12
State Assumed Levies
$135,128,820
$31,257,123
$103,491,286
$380,411
County Welfare School General/Pre-School State Funds
July 21, 2009
13
Other Factors Affecting Future Levies
Future Levy Growth
Controlled Levies
Assumes increase of 3.8% in 2010
Assumes increase of 3.6% in 2011
Debt Service Levies
Cumulative Fund Levies
Reflect loss of net assessed value due to expansion of homestead
deduction.
July 21, 2009
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Actual and Estimated Property Tax Levies
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
$400,000,000
2009 Actual 2010 Estimated 2011 Estimated
County Cities/Towns Library Schools Townships Special
July 21, 2009
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Elimination of State Property Tax
Replacement Funds beginning in 2009
Phased out state funded property tax relief,
including property tax replacement credits and
state homestead credits in 2009. Temporary
homestead credits are phased out through 2010.
Note: Reductions in property tax credits increase
effective tax rates and circuit breaker tax credits.
July 21, 2009
16
Estimated State Property Tax Relief
$160,484,135
$85,847,943
$36,262,405
$38,373,787
State PTRC Homestead Credit Temporary Homestead Credit
July 21, 2009
Calculation of Effective Tax Rates
(Homestead Property)
17
2008
Certified
2009
Certified
2010
Estimated
2011
Estimated
Gross Tax Rate (1) $3.2651 $2.8565 $2.9026 $2.9967
Less: PTRC (0.6330) (0.0000) (0.0000) (0.0000)
Effective Tax Rate before HS Credits 2.6321 2.8565 2.9026 2.9967
Less: State and County HS Credits (1.4312) (0.4774) (0.4012) (0.2915)
Effective Tax Rate $1.2009 $2.3791 $2.5014 $2.7052
(1) Assumes tax rates and credits for Fort Wayne-Wayne Township Taxing District.
July 21, 2009
Calculation of Net Assessed Value
(Homestead Property)
18
2008 2009 2010 2011
Gross Assessed Value (1) $74,600 $74,600 $74,600 $74,600
Less: Standard Deduction (37,300) (44,760) (44,760) (44,760)
Less: Supplemental HS Deduction (10,444) (10,444) (10,444)
Less: Mortgage Exemption (3,000) (3,000) (3,000) (3,000)
Net Assessed Value $34,300 $16,396 $16,396 $16,396
(1) Median home value in the City of Fort Wayne, per 2000 U.S. Census Bureau.
July 21, 2009
Calculation of Tax Bills
(Homestead Property)
19
2008
Certified
2009
Certified
2010
Estimated
2011
Estimated
Net Assessed Value $34,300 $16,396 $16,396 $16,396
Apply Effective Tax Rate (1) 1.2009 2.3791 2.5014 2.7052
Property Tax Due Before C/B 411.91 390.08 410.13 443.54
Less: C/B Tax Credit 0.00 0.00 0.00 0.00
Property Tax Due with C/B $411.91 $390.08 $410.13 $443.54
July 21, 2009
(1) Assumes tax rates and credits for Fort Wayne-Wayne Township Taxing District.
Calculation of Tax Bills
(Other Residential Property)
20
2008
Certified
2009
Certified
2010
Estimated
2011
Estimated
Net Assessed Value $100,000 $100,000 $100,000 $100,000
Apply Effective Tax Rate (1) 2.6321 2.8565 2.9026 2.9967
Property Tax Due Before C/B 2,632.10 2,856.50 2,902.60 2,996.70
Less: C/B Tax Credit 0.00 (356.50) (902.60) (996.70)
Property Tax Due with C/B $2,632.10 $2,500.00 $2,000.00 $2,000.00
July 21, 2009
(1) Assumes tax rates and credits for Fort Wayne-Wayne Township Taxing District.
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How are tax credits funded?
21
Taxing Unit Tax Rate Levy Reduction
Allen County $0.4957 ($164.87)
Wayne Township 0.1430 (47.56)
Ft. Wayne Community School Corp 0.8408 (279.65)
Allen County Public Library 0.1910 (63.53)
City of Ft. Wayne 1.2431 (413.45)
Ft. Wayne-Allen County Airport 0.0300 (9.98)
Ft. Wayne Public Transportation 0.0531 (17.66)
Total $2.9967 ($996.70)
July 21, 2009
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2009 Circuit Breaker Tax CreditsTotal of $4,759,622
$13,341
$4,552,442
$0
$193,839
$0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000
1.5%
2.5%
3.5%
Over 65
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2009 Circuit Breaker
Credits by Taxing District$71,660
$220,681
$968,917
$509,447
$2,315,231
$373,392
$226,164
$74,130
New Haven City-Adams Twp Trans Ft. Wayne-Adams Eacs
Ft. Wayne-St. Joseph Ft. Wayne-Washington
Ft. Wayne-Wayne Ft. Wayne-Aboite
Ft. Wayne-Perry All Other Taxing Districts
23July 21, 2009
2009 Circuit Breaker
Credits by Taxing Unit$780,484
$1,905,717
$1,128,208
$100,761
$303,242
$541,210
Allen County Fort Wayne
Fort Wayne Community School Corp East Allen County Schools
Allen County Public Library All Other Taxing Units
24July 21, 2009
25
2010 Circuit Breaker Tax CreditsEstimated at $23,633,000
$7,937,000
$15,551,000
$145,000
$0 $3,000,000 $6,000,000 $9,000,000 $12,000,000 $15,000,000 $18,000,000
1.0%
2.0%
3.0%
July 21, 2009
2010 Circuit Breaker
Credits by Taxing District$662,000
$791,000
$5,177,000
$2,390,000
$6,846,000
$5,357,000
$1,662,000
$748,000
New Haven City-Adams Twp Trans Ft. Wayne-Adams Eacs
Ft. Wayne-St. Joseph Ft. Wayne-Washington
Ft. Wayne-Wayne Ft. Wayne-Aboite
Ft. Wayne-Perry All Other Taxing Districts
26July 21, 2009
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2011 Circuit Breaker Tax CreditsEstimated at $29,001,000
$11,532,000
$17,268,000
$201,000
$0 $5,000,000 $10,000,000 $15,000,000 $20,000,000
1.0%
2.0%
3.0%
July 21, 2009
2011 Circuit Breaker
Credits by Taxing District$818,000
$892,000
$6,507,000
$2,928,000
$7,733,000
$6,776,000
$2,063,000
$1,285,000
New Haven City-Adams Twp Trans Ft. Wayne-Adams Eacs
Ft. Wayne-St. Joseph Ft. Wayne-Washington
Ft. Wayne-Wayne Ft. Wayne-Aboite
Ft. Wayne-Perry All Other Taxing Districts
28July 21, 2009
How do we manage the
revenue shortfalls?
Manage the revenue shortfalls within the
authorized levies
Reduce spending in anticipation of revenue shortfalls
Improved efficiencies and cost sharing with other units
Reduced level of public services
Develop fees and charges to replace lost revenues
Adopt user fees where appropriate
Consider payments in lieu of taxes for tax-exempt properties
based upon value of services provided
Changes benefit only the taxing unit making the change
29July 21, 2009
How do we manage the
revenue shortfalls?
Manage the revenue shortfalls by reducing authorized levies
Advantage is that resulting reduction in property tax rate reduces the circuit breaker tax credits of all overlapping taxing units
Disadvantage is that the taxing unit will only benefit to the extent that these levy reductions actually reduce tax credits; and then, only in proportion to their tax rate
May still experience a revenue loss, but with limited means to fund the shortfall
A reduction of a controlled levy cannot be fully replaced if circumstances change.
30July 21, 2009
How do we manage the
revenue shortfalls?
Increase the tax base to reduce tax rates
Release of excess captured assessed value within tax
increment allocation areas
Modification of guidelines for future property tax
abatement
Consolidation of service territories
Fire protection territories
Consolidation of services provided by multiple taxing units
Annexation
31July 21, 2009
How do we manage these credits?
New local option income taxes
Consider adoption of one of the three new LOITs
designed for property tax relief
Option A: 1.0% Levy Growth Replacement Tax
Option B: 1.0% Property Tax Replacement Tax
Uniform Credits
Residential Homestead Credits
Qualified Residential Credits
Option C: 0.25% Public Safety Tax, if enacted with Option A
or Option B above
32July 21, 2009
Contact Information
Todd Samuelson, CPA
Partner
UMBAUGH
Plymouth Office: (574) 935- 5178
Indianapolis Office: (317) 465-1500
www.umbaugh.com