Indiana counties vary in how to utilize the process of collecting revenue and encouraging economic growth
By MARK MILLER
Part 3 of 4
One of the most significant discoveries in our quest for answers earlier this year into why Wells County homeowners have seen such significant increases in their property tax bills over the past five years, was how much more of the total property tax levy homeowners were paying. In 2018, records showed, homeowners were paying about 30 percent of the total tax levy. That portion grew to about 38 percent in 2022.
This latest exercise, an attempt to tell “more of the story,” began by trying to compare that trend with our neighboring counties. As it turned out, the best source for an apples-to-apples comparison with other counties was tax consultant Darren Bates, who has been working with the county since 2004. His background and a brief description of what he does was included in Part 1 of this series.
Bates’ data is more detailed in the different categories of property tax “buckets.” (See accompanying chart.) His current definition of “Homestead” includes only those properties that totally qualify for the Homestead deduction. (Residential properties that have any kind of an outbuilding, for example, do not totally qualify. That portion of the property does not receive the full Homestead deductions; its numbers are now included in the “Other residential/rentals” category shown on the chart as “Res/rental.” Portions of some rural residential lots might be transferred to “Ag Land.”)
While his categories are more detailed in some ways, his data combines all business, commercial and industrial real estate and personal property into one “Non-residential” group.
Finally, there are some differences in total tax levies between the chart accompanying this article and the one republished August 6. Just as with every aspect that involves property taxes, there are complications. In this case, tracking these numbers can vary depending on definitions of whether it was the total tax levy authorized, the total tax levy actually billed or the total tax levy actually collected.
Despite those differences, Bates’ numbers essentially confirm the earlier data except that “Homestead” properties under this definition actually saw a slightly larger increase as a portion of the total “pie” of the property tax levies from 2018 to 2022.
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With that as an introduction, the accompanying spreadsheet has more stories and information — and creates more questions — than there is space or time.
In regards to its original purpose, comparing how the different categories’ shares of supporting the county’s total tax levy have changed, Wells County property taxpayers in all categories have not seen anything unusual. Generally speaking, in all of the sampled counties, homeowners are paying a bigger piece of the pie in 2022 than they were in 2018; farmland is paying a significantly smaller portion of the burden; rental properties and the “Non-residential” business group are generally paying the same share.
Interestingly, Wells County’s total tax levy has declined since 2009 while all other counties in this study increased, some quite significantly.
The tax levies of 2007 are included in the chart on page 3 since our studies of individual property tax bills included 2007. The totals are significantly different between 2007 and 2009 primarily because in the interim, school general funding and welfare funding was removed from local property tax support and funded at the state level from a variety of sources including the Local Income Tax.
Some other observations:
• Wells County’s property tax levy continued to decline after 2009 in the wake of the county’s decision to adopt a property tax freeze. The funding was primarily replaced with an increase in the Local Income Tax from 1.7 percent to 2.1 percent. At that time, Wells County had one of the higher LIT rates in the state; today we are much more average.
• The differences and changes — perhaps better called “evolution” — of how and how much revenue is collected in the different counties raises the most questions. Bates, who works with all of these counties, can often answer questions as to what caused the differences without doing specific research. For example, Wabash County’s small increases in their Total Tax Levy between 2018 and 2022 reflect their continued implementation of the tax levy freeze; they just recently “thawed” their freeze, “because they simply had to,” he said. “They have to be able to pay their bills.”
He related a decision there of a county hiring-and-wage-freeze that had what he called a “predictable impact” on employee morale and the county’s ability to retain and hire talent.
• Conversely, Wells County has had the higher rate of growth since 2018 in the wake of the property tax freeze “thaw” in 2017.
• The growth in the percentage that Homestead properties pay of the total tax levy has also been more pronounced in Wells County than the others. It is likely no coincidence that, as seen in prior charts, the Total Assessed Value of residential properties has risen at a higher rate as well.
TIFs and tax abatements
Throughout this series, we have often heard questions or concerns from readers about the impact of tax abatements and Tax Increment Financing districts on property taxes. While researching other numbers on consultant Darren Bates’ website (datapitstop.us), the statistics for each county’s abatements and TIF districts is included. Since our purpose was to compare Wells County with others, these two lines were added to the accompanying chart.
A very brief review: Abatements and TIFs are two economic development tools with rules established by the state, both designed to incentivize business investment to create and retain jobs.
Tax abatements are generally utilized when a business purchases new equipment that will retain existing jobs or create new jobs. The personal property tax on that investment is “abated” — not paid — over a 10-year span, with a 100 percent abatement the first year, 90 percent the second year, etc. The business begins paying the full value for that equipment after 10 years.
TIF districts, as explained in an earlier article, continue to pay property taxes on the area’s beginning assessed value; as improvements are made in that district, the additional revenue from that increased AV is reinvested in infrastructure within that district.
The general observations from elected and appointed officials as well as volunteers serving on economic development councils, as noted in earlier articles, is that since all other counties also utilize these tools, they are “necessary, but also useful,” as one elected official shared. “In the bigger picture,” another stated, “they work, they help drive local commerce, and do not have all that significant of an impact on what others pay.”
The numbers indicate that Wells County is, comparatively, under-utilizing TIFs but has more abatements that all others except Adams County.
“My observation is that Wells County has been late to the game (regarding TIFs),” said local economic development director Chad Kline. “We have only one TIF area that has been around long enough to have an impact,” he continued, referring to the industrial TIF created for the Adams Street improvements about 15 years ago. Kline began his duties here in 2015, shortly after another TIF was set up in Ossian’s industrial park. “But that one is a bit complicated by the number of abatements in that area,” he said, noting that abatements don’t work within TIF districts. “You can’t have both,” he said.
Bates is not shy about his lack of enthusiasm about TIFs. “The majority of them are mismanaged, over-bloated,” he said. “They’re (often) not doing what they should be doing or they go on and on for years.”
The more he’s observed in his work with counties and the more he’s learned about TIFs, the less he likes them. The rules are too flexible and can be applied in a variety of ways, he said.
“What you would need to do is look at what each entity charges in administrative fees,” he said, adding that each county has “different nuances. And I have no idea what they are,” he concluded.
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The data reveals that Wells County has significantly more tax abatements on its books than Huntington, Noble, Wabash, and Miami counties but also significantly less than neighboring Adams.
“We’ve had significant investments here in the past six or seven years,” Kline said after reviewing the numbers, “and that’s a good thing.” He noted that American Axle’s expansion was likely about half of one of the past year’s total. This abatement, which totaled about $50 or $60 million, are considered “competitive” abatements, as are most of Wells County’s.
“That means they (American Axle) didn’t have to do this in Bluffton, Indiana,” he explained. “They could have made this expansion and investment in any of their other facilities around the world. In the past seven years, we’ve seen one million square feet of new industrial apace. That’s significant for a county the size of Wells that is not on an interstate highway. We don’t have that advantage so we have to be more competitive.
“We’re also limited on our workforce, so a lot of these (investments) have been for automation,” he continued. “And I would add that our lower property tax rates help us in being competitive.”
Another factor, Kline said, is how tax abatements have changed in recent years. Rather than the standard 10-year program, the state legislature changed some rules a few years ago that gives counties more flexibility in how the abatements are structured.
The concept, Kline explained, is to shorten the abatement period, provide the most amount of savings up front, which creates lower compliance costs and less paperwork — and the taxpayers get the benefit of those assets being fully on the tax rolls sooner. “It’s a win-win,” he said.
Kline can only speculate for the most part about other counties’ situations with abatements although he has some knowledge about Noble County, from which he moved to Wells after being involved in economic development there.
“I know they’ve changed how they handle abatements; they’ve been somewhat more restrictive, demanding a higher dollar-amount of investments,” he said. “We’ve kicked that idea around here some, because the idea is to incentivize bigger investments. But we have a lot of smaller companies here so the current thought process of our elected officials is to keep things where they are right now.”
Meanwhile, county consultant Darren Bates dismissed any concerns about abatements.
“They are what they are,” he said, recognizing their purpose in economic development, but for homeowners to complain about what breaks industry gets, well…”
“So in Wells County,” he said after looking at numbers from a recent year, “homeowners got about $700 million in Homestead credits and businesses got like $65 million in abatements. Plus, homeowners cannot pay more than 1 percent of their AV, and businesses pay up to 3 percent. I’ve shared those kind of numbers with a dozen or so county councils when they’ve expressed concerns; no one’s really argued with me.
“The point should be obvious,” he concluded, “homeowners vote.”
Lots of data —
what does it mean?
This most recent chapter in what has evolved into a “property tax saga” began as an attempt to compare how Wells County’s increased dependence on homeowners’ property tax payments compare to our neighbors. As explained in the accompanying article, our experience has not been all that unusual.
Including the 2007 data is interesting but can have the unintended consequence of adding to the confusion created by the inherent complexity of the entire process. Comparing the 2007 numbers horizontally is essentially non-productive since so many rules have changed. Comparing them vertically however at least provides a perspective of how other counties have operated.
If you have other observations or conclusions from this chart, we’d welcome those comments and any questions as well: miller@news-banner.com
— Mark Miller
Next: How does all of this impact our local budgets, and why does Wells County have such a low Expenditures-per-capita rating?
miller@news-banner.com
