An annual state report produces some fuzzy math
By MARK MILLER
Part 4 of 4
Since 2005, the Indiana Department of Local Government Finance has been required to prepare an annual report on each political subdivision’s “expenditures per person” per IC 6-1.1- 33.5-7. The report is to be delivered to the governor, the Indiana Legislature and posted on the DLGF website.
It is presumed that all of those reports are available upon request, but the DLGF maintains only the past five years’ reports, formally called the “Report on Expenditures Per Capita,” on its website: in.gov/dlgf. In 2017, the oldest report posted, Wells County ranked 91st out of Indiana’s 92 counties in how much the county spends per person. That’s next to last. According to the report,Wells County’s expenditures were $714.32 per person; the average was $2,033.95. Wells County has moved up in the rankings over the past five years — to 86th for 2021.
“What services and benefits are Wells County residents not getting that others are?” we asked DLGF chief of staff Scott Maitland in early November. “This report makes it look like we’re either pretty smart or pretty deprived of a lot of something around here.”
“That’s a good question,” he replied. He promised to see what he could discover but also directed me to what generates the numbers. Each county submits an “Annual Financial Report” which is also on the DLGF website. It was mentioned that the News-Banner had been comparing Wells with neighboring Adams County among others. He suggested we start with that comparison.
“I should be able to get back to you next week,” he said.
Some basic numbers: In 2021, Adams County’s “EPC” — expenditures-per-capita — were $2,148.11, ranking them 58th among the state’s 92 counties, a little below average. Wells County’s was reported as $889.95, earning the distinction of 7th lowest in the state.
During the intervening weekend, we found those 2021 annual reports on the DLGF website and attempted to do a side-by-side comparison. Could it be deciphered as to whether Wells County is being cleverly frugal and responsible or amazingly cheap?
Three main discoveries:
• There does not seem to be any kind of common reporting format. It was even difficult to determine each county’s total payroll costs.
• While Wells County’s certified budget for 2021 was $15,257,492, the total disbursements for 2021 were $74,738,573.12. That’s not unusual by any means; other counties sampled had a similar ratio. There are good reasons for all of that, it turns out, but we were admittedly somewhat surprised as to how much money passes through the auditor’s office.
• The biggest puzzle is when one compares the two counties’ total receipts and expenditures and then compare those numbers to the DLGF conclusions in the EPC report (See accompanying chart).
The DLGF’s explanations of the data in the report notes that “The Department subtracts certain disbursements to estimate a net expenditure. To calculate net expenditures, certain disbursement types were removed as they are not expenditures.” To put that more simply, not all disbursements qualify as true expenditures. Essentially, a fair amount of money “passes through” the auditor’s office from the state (and other sources) to the cities, towns, schools, etc.
In 2021, Adams County’s total disbursements were about $79.1 million. Divide that by their population of 35,544 and that comes to $2,226.36 per capita. The process “disqualified” about $2.8 million, resulting in the DLGF’s official rating of $2,148.11 expenditures per capita.
Meanwhile, Wells County’s total disbursements were about $74.7 million. Divide that by our population of 28,010 — that equals $2,668.28 per capita, higher than Adams at this point. However, the official EPC for Wells County is listed at $889.85 which means that almost $50 million of Wells County’s disbursements were apparently determined to not be true expenditures and thus were disqualified.
Upon seeing those basic numbers, Maitland observed “that’s less believable. Let me see what I can find.”
That was November 3.
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The larger chart that accompanies this final installment was actually the first one completed in this latest sojourn, back in August. The initial desire was to compare county budgets as well as county-seat municipal budgets to see what might be learned.
• By far, Wells County and Bluffton has a lower dependence on property taxes for county and city revenues than any of the nine sampled. This results, as demonstrated earlier in this series, in Wells County residents generally paying lower property taxes (as a percentage of their property’s assessed value) than residents in the other counties sampled.
Where do we get the revenue the other counties are collecting via property taxes? County consultant Darren Bates can cite any number of other revenue sources that can make up the difference, beginning with the Local Income Tax. Wells County’s rate is 2.10 percent; Adams is 1.62 percent.
• By far, Wells County’s average tax rate (Certified AV divided by the levy) is lower than the other counties; likewise with Bluffton’s city rates. This is also consistent with the data in examining individual property tax bills among the counties.
Wells County Economic Development Director Chad Kline feels this factor gives Wells County a healthy advantage in attracting new industry as well as new investments and expansions of existing businesses.
“From a company’s perspective,” he told the News-Banner, “it’s taxes and utilities — what is the cost of doing business?”
The “No. 1 factor,” in the current market environment, he continued, “is having a workforce available, and what’s the No. 1 factor for workforce?” he asked and answered: “Quality of life.” He cited such factors as the quality of local schools, health care and property taxes.
• While the DLGF numbers to the right are somewhat more consistent and believable for the cities, Wells County seems to be quite the outlier — whether for better or worse is the question.
Kline does not believe this particular statistic of how much the government spends per-person is important to companies looking for a new location. “I don’t think it’s used that much, and I’m not sure they’d understand it,” he said.
But what if those people looking to re-locate and are seeking information about Wells County’s quality of life — how might they interpret such a low number?
“That’s another question.”
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A promised call-back from the DLGF official did not happen the week of Nov. 7, so an attempt was made to re-connect on the 14th. Neither a voice mail nor an email were answered until the following week, promising to run down some answers and get a date set up. As Thanksgiving approached, Maitland sent a more user-friendly Excel document of the 2021 Annual Financial Reports for all Indiana counties with a promise to call or email with some possible dates to schedule an online meeting.
The News-Banner pulled out the reports for Adams and Wells from this new document and were able to merge and sort them by Fund Name. This document produced the following conclusions:
• There is no apparent Chart of Accounts. Counties do not always utilize the same Fund Codes (equivalent to an “account number”) and Disbursement Codes. For example, Adams County uses one specific Fund Code to clear out payroll withholding payments (federal withholding, FICA, child support, etc.); Wells County uses somewhere between six and 10 different Fund Codes for the same purpose.
• Each different account in the report is assigned a Disbursement Code. These are the critical codes that determine whether the disbursement is a genuine “expenditure” as opposed to a transfer of funds. The best example is the “Settlements” fund, through which the county disburses property tax revenue to all of the other government entities in the county — schools, cities, towns, etc. This is clearly not an expense but a pass-through of the money from the state to the other government entities.
In 2021, Wells County’s “Settlements” account distributed about $27 million and had the correct Disbursement Code of “D703,” flagging it as a transfer of funds. Meanwhile, Adams County had very nearly the same amount but the Disbursement Code was “D707” which is simply titled “Other Disbursements” and is not flagged as a transfer. At least nine other funds with the same name (but not always the same account number) utilized a Disbursement Code by Wells County that “disqualified” the disbursement as an expenditure; Adams County’s were coded as “Other Disbursements.”
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After no contact during the week of Thanksgiving and then a couple more attempts, a meeting was finally accomplished Friday, Dec. 9, five weeks after the first one.
“Why are these obvious transfers of property tax revenue not coded correctly in Adams County?” we asked.
“I don’t have the answer to that,” he replied.
“Who assigns these Disbursement Codes that determine whether an expenditure is an expense or a transfer?”
“I believe that is self-entered data,” he answered, meaning the codes are entered at the county level. “But I’d have to check on that.”
“Some account numbers match up, but many do not. Is there not a set Chart of Accounts?”
“I’m afraid I’m not the right person to answer your questions. These (the counties’ annual financial reports) are sent to the State Board of Accounts, they aggregate the data and send it to us and then we publish the reports,” he responded.
“Is the data vetted?”
“I don’t know.”
He was apologetic and referred us to a colleague at the SBOA. As it turned out they were knee-deep in overseeing a recount of House District 62 this week, so no immediate response was possible.
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Meanwhile Wells County Auditor Lisa McCormick pulled up her 2021 Annual Financial Report form Monday morning and determined that the Disbursement Codes were assigned by their “administrator,” which is Low Associates of Indianapolis, another vendor the county utilizes.
“Adams County’s reports were prepared by a different vendor last year,” she noted, but quickly added that she is aware they have switched over to Low this year. “So I’m betting their numbers are going to change.”
McCormick also found it curious that Adams County’s “Settlements” account is mis-coded. “It’s not unusual during a state audit for them to have me change these codes when they think it is incorrect,” she said.
She did explain that there is indeed a set Chart of Accounts provided by the state, “but I understand the DLGF and the SBOA have different account numbers.”
“That’s absolutely correct,” county consultant Darren Bates of Data Pit Stop confirmed. “They’ve been talking about that for 15 years.”
Bates has long questioned these reports and told the News-Banner he has often questioned people at the state agency about how it is compiled.
“I’ve never looked into the specifics,” he said, “but they just don’t look consistent.” He feels it is more accurate to simply divide the county’s certified budget by the population, although that may not tell the whole story.
“But looking at your chart, I’d have to wonder about what they’re doing in Jay County,” he shared, noting that Jay is not one of his clients so he is unfamiliar with the details. He is, however, familiar with Wabash County and feels their low number is accurate.
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To give credit where credit is due, the SBOA chief of staff called Friday morning once the recount was finished, quickly determined that she did not have the expertise to answer the questions and promised to connect me to someone who could as soon as possible.
Within 10 minutes, Lori Rogers, Director for Technical Assistance for Counties reached out. She quickly grasped the details.
“We try to educate the units on the proper codes but they don’t always use them as consistently as we’d like,” she explained.
Rogers seems well aware that the data has inconsistencies but “I’ve never seen that per-capita report,” and therefore does not, she admitted, have an awareness of how flawed the report might be.
“We’ve been working for several years,” she continued, on getting the SBOA account numbers to transfer correctly to the DLGF. But the differences in how counties, cities, libraries, schools, etc. operate and utilize funds, “it gets very, very complicated.”
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The initial observation that Wells County’s low per-capita number of about $890 as “unbelievable” turns out to be backwards. Adams County’s number of $2,148 calls into question other counties’ numbers and thus the entire report.
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The original goal was to put some key numbers side-by-side with our neighbors and other comparable counties and see what might be learned.
The most striking number on this chart is 26.48 — the percentage of Wells County’s budget that comes from property taxes. The only county that even comes close, Wabash, also utilized the Tax Levy Freeze, as detailed in a prior article.
One can interpret the data in different ways. For example, Bluffton’s and Wells County’s Certified AV (Assessed Value) seems healthy when you factor in population. Does that indicate we have more investment by business and industry and that our housing is generally better? Or does it mean our assessment process produces higher assessments?
The “Exp pp*” (Expenses per person: The Certified Budget divided by the population) column will not be found on any government website, at least to our knowledge. We assumed it might give us an indication of how each county compares. It was when we put the DLGF’s “Expenditures Per Capita” computations side-by-side that we began to ask questions. Note that the two explanation boxes are from the DLGF website.
Based on what we learned, city budgets are less consistently constructed than county budgets causing those wide variations in the “Exp pp” city numbers. While the DLGF’s “Non-Enterprise” calculations for cities have less variation than the counties’ they do seem somewhat more believable. It might be interesting to nail down exactly how Auburn and Kendallville spends more than twice as much per person than Bluffton or Decatur. It is more likely however, that inconsistent coding in the reports produce inconsistent numbers, just as was found in the county data.
As explained in the accompanying article, an examination of the data that was utilized to determine that Wells County spent $890 per person in 2021 while neighboring Adams spent $2,148 exposed a flawed system. County consultant Darren Bates’ opinion that the simple process of dividing the budget by the population is much more accurate seems reasonable. And to find that these numbers place the county very much in the “average” range while simultaneously depending on property taxes to a lesser degree is noteworthy.
— Mark Miller
miller@news-banner.com
