Wednesday, September 5, 2012

Elimination of Homestead Credit - City Gains, Schools Lose

Mayor Ballard has suggested that the Homestead Credit given to Marion County homeowners be eliminated in order to help balance the City's 2013 budget.

While the City-County government stands to gain $8.6 million if the local Homestead Credit is eliminated from property tax bills, other units of government are not universally so lucky.  In fact, the public school districts in Marion County stand to lose a combined $3.5 million should the Credit be eliminated.

I have uploaded the analysis of the impact of eliminating the Homestead Credit to Google Docs.  This analysis was conducted by the City's Office of Finance and Management and sent to me by City Controller Jeff Spalding.

The local Homestead Credit (listed as "local property tax credits" on your property tax bill) is funded with $13 million of County Option Income Tax revenue.  Because of the distribution formula for COIT money, the lion's share of the Homestead Credit is funded by the City-County government.

If eliminated, those homeowners who have not reached the property tax caps will see an increase in their property tax bill equal to the amount of Homestead Credit they now get - which apparently ranges from zero to over $100, but typically less than $40.  The vast majority of homeowners who have hit the property tax caps, will see no change, as the tax caps will increase to cover the loss of the Credit.

Its the last part that causes the complications.  Property tax caps (also known as circuit breaker credits) are the property tax revenues that do not flow to the units of government, and that serve to reduce the amount of property tax money the unit does receive.  Each unit sets a budget and calculates the amount of property tax revenue it will need for the next year.  That amount of revenue is split among all property owners by the calculated tax rate.  When you hit the tax caps, the amount of your tax cap credit is deducted from the amount of money requested by the unit of government.  So, if they requested $10 million and their share of the property tax cap credits issued is $1 million, the unit only gets $9 million.

The analysis of the impact of eliminating the Homestead Credit looks at the gain in COIT money each unit will get because it no longer would be diverted to fund the Credit, and the loss of property tax revenues due to the increase in property tax cap credits ("CB" in the analysis) that would replace the Homestead Credit for many homeowners.

The net increase or decrease in revenues falls out like this:

City-County government -- increase revenue $8.6 million

School Corporations -- lost revenue $3.5 million
MSD Decatur  -- lost revenue $191,490
Franklin Township -- lost revenue $454,301
MSD Lawrence -- lost revenue $660,177
MSD Perry -- lost revenue $303,524
MSD Pike -- lost revenue $134,271
MSD Warren -- lost revenue $240,560
MSD Wayne -- lost revenue $332,732
Beech Grove -- lost revenue $ 70,713
IPS -- lost revenue $818,569
Speedway -- lost revenue $3,049
Township governments are mixed.  The three westside Townships, who still have their fire departments, would see increased revenue, while the rest would lose money.
Center -- lost revenue $11,061
Decatur -- increased revenue $40,623
Franklin -- lost revenue $19,085
Lawrence Tnsp -- lost revenue $7,273
Perry -- lost revenue 3,108
Pike -- increased revenue $221,706
Warren -- lost revenue $1,137
Washington -- lost revenue $8,467
Wayne -- increased revenue $282,500
The excluded Cities would see increased revenue, while the Towns would see lost revenue -- I'll leave you to click on the link for the exact numbers.

IndyGo would lose $254,781, the Indianapolis-Marion County Public Library would lose $428,227, and Health and Hospitals would lose $648,399.

I am hearing that the elimination of the Homestead Credit is receiving a tepid response in the Council.  The hit that the schools would take will not help improve the mood.


Nicolas Martin said...
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Nicolas Martin said...

When I checked a couple of years back, IPS's budget averaged out to about the same cost per pupil as the tuition at Park Tudor. How can the government schools, providing their endlessly shoddy education, ever hope to get by on less per student than one of the few elite schools in the state? Perhaps firing some of the army of administrators is a start.

Anonymous said...

So, assuming you could still redirect the lost money back to the schools and municipal corporations (OK, I'm not a big fan of Twp. Government) you'd still have a net increase to the City of about $4 million/