Wheel tax, income tax boost likely for Porter County as burden of government support shifts

Chicago Tribune

4 days ago

Discussion of the impact of property tax reforms passed by the Indiana General Assembly taxed Porter County Council members' brains Tuesday.
'Understand that nobody up here wants to pass an increase in taxes,' Council President Andy Vasquez, R-4th, said. 'We're stuck between a rock and a hard place.'
Putting local government on a property tax diet, something Gov. Mike Braun strongly urged the Legislature to do, leaves two choices: Reduce services or raise income taxes and other taxes to make up the difference.
'We're getting pushed from property taxes to local income taxes,' said consultant Jason Semler, a principal for Baker Tilly Municipal Advisors, as he walked the council through the long, complicated math of the new state law.
The result ends up shifting more of the burden of financing local government from businesses to individuals, Semler said.
A wheel tax for Porter County is virtually a certainty as a way to get the full amount available in the state's Community Crossings matching grant program. Technically, the wheel tax remains optional, but the new law requires it for the county to receive the full amount of matching grant money.
And although the county's income tax rate is the lowest in the state, at 0.5%, that's likely to increase as the property tax revenue shrinks.
'If you have to raise the income tax, this is a good time to do it,' Semler said.
'They're kind of forcing us to increase LIT (local income tax) anyway,' so consider gradual increases to cushion the blow, he suggested. 'We know we're going to need it down the road.'
Under the new law, cities and towns with more than 3,500 residents could adopt their own income tax in the future, up to 1.2%. Based on current population statistics, that would include Portage, Valparaiso, Chesterton, Hebron and Porter.
If those municipalities enact their own income tax, their residents would be taxed twice – by the county and by the municipality, Councilman Andy Bozak, R-At-large, said.
That would be the case for the wheel tax, too.
Councilman Jeremy Rivas, D-2nd, speculated that Porter County might eventually see people moving into unincorporated areas from cities and towns to avoid this double taxation.
'Everybody's looking to escape the tax,' Vasquez said.
One option might be for the county to work with the municipalities to give them a share of the county's income tax in exchange for not enacting their own tax, Semler said.
For Porter County, $3.5 million a year in dues for the Northwest Indiana Regional Development Authority has to come from income tax revenue, so that needs to be factored in. After that, the county can figure out where the income tax revenue should be divvied up.
The county has been pondering some important needs for information technology, road repairs and EMS service.
Councilman Red Stone, R-1st, said on his way from Portage to Valparaiso, driving on county roads for Tuesday's meeting, his vehicle was bouncing up and down because of the poor road conditions. Porter County's roads are in worse shape than the state average.
Among the drawbacks of shifting to more reliance on income tax revenue is that it's less stable. 'If there's a downturn in the economy, we're going to feel it much more than with property taxes,' Semler said.
The county shouldn't hoard money, but healthy fund balances are important when revenues plunge but needs increase.
Rivas and others blasted state legislators for setting themselves up as heroes for lowering property taxes even as they knew local officials would look like bad guys for raising income taxes to make up for the lost revenue. 'The legislators, this was a disingenuous action they took,' he said.
The council has until Oct. 31 to decide what direction to take.
'I think that's why some counties are looking at increasing their income taxes. They know they're going to have to do it eventually,' so they're acting this year so it goes into effect next year, Semler said.
Stone said in his meetings with department heads, he's looking for ways to reduce spending.
'I would strongly urge the council to put the work in,' he said.
Some funds and areas can't be touched, under state law, but he wants to dig deep to see what can be cut.
'I think this would be a good exercise for the public. If there's places to cut, let us find them,' he said.
Bozak disagreed with Stone's approach. 'We don't want to get too much into the weeds,' he said. A better way would be to tell department heads to decide where to make 3% cuts, hopefully not in salaries. That might be the result of cleaning less often or other ideas, Bozak said.
'Let's get in the weeds. Let's look at take-home cars,' Stone said. If there are people taking cars home who don't need to take them home, stop that.
'As far as who's taking cars home and all that, that's the commissioners,' Bozak said.
Rivas said the council has been cautious for years, which is why cash balances are high and tax rates are low.
'The reason we are the lowest-tax county is because of the work we put in,' he said.
'I think the rubber's going to meet the road,' Stone said. 'If someone can come up with an extra $7 million for paving the roads, I'm all ears.'
'We are going to have to be very creative and work together the best we can and come up with some solutions,' Vasquez said.
Councilwoman Michelle Harris, R-At-large, has high hopes for department heads. 'I think they're going to come up with ways to be so efficient, I think they're going to just wow us,' she said.
Vasquez said he would be open to a data center being located in an area already zoned for light industrial, bringing a big boost to the county's tax coffers.
'Like all things, time will tell, and I pray God we will hold the line the best we can,' he said.
Semler walked the council through the implications of Senate Enrolled Act 1 to see how Porter County will be affected as the property tax reforms are phased in.
'A lot of these are going to be phased-in impacts, and a lot of the significant impacts are going to hit us two, three years down the road,' he said.
The math is long and complicated, but the upshot is that the property tax base will shrink, and as tax rates increase, more and more properties will qualify for the circuit breaker that caps the property's total tax bill.
For a single-family, owner-occupied home, that's 1% of the home's value. Rental properties, utilities, assisted living homes and some other types of property have bills capped at 2% of the property's value.
'You can see how those tax bases are going to be greatly reduced' in downtowns and other areas where these properties are concentrated, Semler said.
County government loses $1.8 million a year to circuit breaker relief for property owners, Semler said, but that will increase in the future. 'You lose about 3.5% of your revenue because of the circuit breaker cap,' he said.
For business personal property, the tax currently begins after the first $80,000 in value. But that's changing, too, with only the value above $2 million being taxed. It's a boon to corporations but not to local government and citizens who will pay more in taxes to make up the difference.
Stemler said he expects this new law to result in some discussion about consolidation. 'I can see some small cities and towns throughout the state have some difficulty surviving,' he said.
Schools don't get any income taxes under this new scenario, so they'll face difficulties, too.
The massive, sweeping changes resulting from the new law have increased demand for advisors like Baker Tilly. 'We don't need a marketing department. We've got legislators,' Stemler said. 'This is not what we prefer to be doing, but we're happy to help out.'