House Enrolled Act 1001

Presented by the Association of Indiana Counties

May 2008

House Enrolled Act 1001 Overview

• Property Tax Relief• Property Tax Caps• Sales Tax Increase • State Assumes Levies & Costs• Spending Limits / Budget Review• Capital Project Approval• Changes to TIF• Local Option Income Taxes• Assessing Changes• Numerous Other Provisions

Property Tax Relief

• Additional $620 Million Homestead Credit expected to reduce 2008 tax bills by statewide average of 31% from pre-rebate 2007 tax bills. (26% Reduction after 2007 Rebate)

• New Homestead Credit - $140 Million for 2009 and $80 Million for 2010, funds distributed to counties within 2 weeks of issuance of tax bills.

• Increases the Renter’s Deduction from $2,500 to $3,000

• Increases the Earned Income Tax Credit from 6% to 9% and repeals expiration date

Property Tax Caps

Property Tax Caps Phased in to 2010• Homesteads

2008 = 2% 2009 = 1.5% 2010= 1%

• Agricultural Land, Rentals, Long-term Care2009 = 2.5% 2010 = 2%

• All Other Real & Personal Property2009 = 3.5% 2010 = 3%

• Relief for Schools: Provides $120 Million to offset the revenue loss for schools that have an impact of greater than 2% of their levy ($50 M for 2009; $70 M for 2010). Also, allows schools to have a referendum to offset the impact of the Property Tax Caps.

Property Tax Caps

• Lake & St. Joseph Counties – Payments for pre-July 1, 2008 bonds and leases are outside of circuit breaker calculation.

• Requires debt service to be funded; revenue losses must come from operating funds. (State Auditor may intercept revenues to pay debt service)

• After 2008, Debt approved at Referendums will be outside the Property Tax Caps.

• Individual Distressed Political Subdivisions can petition the Distressed Unit Appeal Board for Relief.– “Distressed Unit” = Units that expect to have at least 5% of their

property tax collections reduced as a result of the Property Tax Caps.

Distressed Unit Appeal Board

• Appeal Board may:– Increase the percentage thresholds at which the caps apply.– Provide for percentage reductions to credits otherwise provided

to taxpayers. – Provide that some or all of the taxes payable to bonds, leases, or

other obligations are not included when calculating the credit.

• Appeal Board Consists of Nine Members:– 4 State Agency Heads– Appointment by Speaker of the House– One non-elected gubernatorial appointment– Three gubernatorial appointments (elected officials),

recommended by AIC, IACT, and the Superintendents Association.

Property Tax Caps

• LSA Revenue Loss Estimates:– Overall Loss to Local Governments:

2008 = $3.9 M 2009 = $229 M 2010 = $524 M

– Loss to Counties:2008 = $615,283 2009 = $28 M 2010 = $74 M

(Report can be found at www.indianacounties.org / under “Legislative Center”)

Constitutional Amendment

• Senate Joint Resolution 1 also Approved by General Assembly

• Begins process of amending State Constitution to include 1%, 2%, 3% Property Tax Caps.

• Also includes exclusion for Lake & St. Joseph Counties.

• To amend Constitution, Identical Resolution must be approved by a separately elected General Assembly AND be approved by Hoosier voters.

Sales Tax Increase / Levy Pick-up

• $.01 Sales Tax Increase effective April 1, 2008

• Sales Tax Increase and existing PTRC and Homestead Credit dollars used by state to assume levies in 2009. (PTRC eliminated in 2009)

• Sales tax, income tax & gaming taxes previously deposited into Property Tax Replacement & Reduction Funds redirected into the State General Fund to pay for levies.

State Assumption of Levies & Costs

• State Assumes Full Cost for Remaining School General Fund & Pre-school Special Education

• State Assumes Full Cost for Child Welfare Levies– County Family & Children Fund– Medical Assistance to Wards (MAW)– Children’s Residential Psychiatric Treatment Fund (CRPT)– Children with Special Health Care Needs

• County Income Tax & Excise Tax Distributions Protected when State Assumes Levies.

• County is obligated to pay for welfare services delivered before January 1, 2009.• Excess money in Family & Children Fund and CRPT Fund shall be deposited in the

county’s Levy Excess Fund.• Excess money in the MAW Fund and Children with Special Health Care Needs

Fund shall be transferred to the state.

• Eliminates all State Property Tax Levies (State Fair, DNR Forestry)

State Assumption of Levies & Costs

• State assumes full cost for incarceration of juveniles in State Correctional Facilities*

• State assumes full cost for Hospital Care for the Indigent (HCI)*– Includes $40 Million for Marion County Health & Hospital

Corporation since Marion County does not have an HCI Levy.

• State will aid cities by making pre-1977 pension, survivor and disability benefit payments*

• *Levies will be reduced by the amount of cost assumed by state

Schools & State Tuition Reserve Fund

To Address Concerns raised by Schools:

• Creates the State Tuition Reserve Fund and limits use of revenues to fund Tuition Support distributions.

• Requires Budget Agency to transfer $50 M from the State General Fund to the Tuition Reserve Fund by 12/31/10 (Will Provide for an approximate $400 M balance by 2010)

• Permits a School Corporation to file a Shortfall Levy Appeal for 2009 to cover a General Fund shortfall for 2008.

• Requires School Corporations to adopt budgets on a July 1 – June 30 basis beginning 2010.

Supplemental Homeowner & Senior Deductions

• Increases the Standard Deduction for Homesteads from the lesser of $45,000 or 50% of AV to the lesser of $45,000 or 60% of AV (Effective for Pay 09 Taxes)

• Creates a new Supplemental Deduction equal to 35% of the next $600,000 of AV remaining after the application of Standard Deduction and 25% of remaining AV over $600,000 (Effective for Pay 09 Taxes)

• Provides that property tax bills for seniors with individual incomes of less than $30,000 or joint incomes of less than $40,000 and AV that does not exceed $160,000 cannot increase from 2007 levels by more than 2% per year. (Effective for Pay 09 Taxes)

• Directs DLGF to adopt rules to prevent married couples from claiming more than one Standard Deduction.

Spending Limits / Budget & Project Review

• No changes to Spending & Levy Limits under Current Law

• Repeals Capital Project Review Boards

• County Council shall perform non-binding review of civil unit budgets.

• County Council or City/Town Council shall approve budgets of non-elected boards (excluding school corporations) if their budget increases by more than the Assessed Value Growth Quotient minus 1 (AVGQ – 1)

– City/Town Council approve budgets of units where AV of taxing unit is located entirely in the city/town OR if the unit was originally established by the city or town.

– County Council approve all other budgets of non-elected boards.

• County Council or City/Town Council shall also approve debt issuances or leases payable of non-elected boards

– City/Town Council approval if the taxing unit’s AV is entirely contained in the city or town, or the unit was originally established by the city or town.

– County Council approval of all other non-elected boards in the county.

Levy Appeals

• Repeals Most Excess Levy Appeals and Includes Six Maximum Levy Exceptions:– Appeal for lack of adequate funds to carry out functions

(Requires appeal to be due to a natural disaster, an accident, or unanticipated emergency)

– Appeal for correction of math errors and erroneous AV – Restructures the New Facility Appeal for Schools.– Shortfall Levy Appeal– Levy Appeal for Growth– Excess Levy for Annexation, Consolidation, or other

Extensions of Governmental Services• This levy is modified to allow units to phase in permissible levy

increases over four years.

“Controlled Projects” Subject to Petition & Remonstrance

• Controlled Projects are those that Cost the lesser of: – $2 Million; or– Greater of:

• 1% of gross AV; or

• $1 Million

“Controlled Projects” Subject to Petition &

Remonstrance• Exceptions from Controlled Project Definition:

– All of the current exceptions in statute– Projects that are in response to a natural disaster,

emergency, or accident and are approved by the county council

– Projects that were not controlled projects prior to July 1, 2008 and

• Have been approved by the DLGF; or• Have issued bonds or entered into a lease prior to July

1, 2008

Petition & Remonstrance

• Applies to projects that were Controlled Projects (as defined prior to July 1, 2008 for political subdivisions that make preliminary determinations prior to July 1, 2008)

• K - 8th Grade School Instruction Building Projects that are controlled projects and cost less than $10 Million

• 9 - 12 Grade School Instruction Building Projects that are controlled projects and cost less than $20 Million

• Any other project (county, city, etc.) that cost the lesser of:– 12 Million; or– Greater of:

• 1% of Gross Assessed Value; or• $1 Million

Petition & Remonstrance

• Retains Current Application Process• Registered Voters & Owners of Real Property may

participate• Notice of preliminary determination must also

include current debt service tax rate and the estimated debt service tax rate if the bonds are issued or the lease is executed

• Projects may not be artificially divided to avoided being subject to Petition & Remonstrance

Projects Subject to Referendum

• K - 8th Grade School Instruction Building Projects that are controlled projects and cost more than $10 Million

• 9 - 12 Grade School Instruction Building Projects that are controlled projects and cost more than $20 Million

• Any other project (county, city, etc.) that costs more than the lesser of:– 12 Million; or– Greater of:

• 1% of Gross Assessed Value; or• $1 Million

• Projects may not be artificially divided to avoid being subject to Referenda

Referenda Process

• Prohibits use of public resources to promote a position on referendum– Includes activities of professionals involved with the project.

• Referenda trigger and application process is similar to current petition and remonstrance process

• Signature of 100 people or 5% of registered voters needed to get question on the ballot. (Must verify only the first 125 signatures)

• If petition requesting referendum is certified, a referendum will be held on the next general, municipal, or primary election.

Referenda Process

• If no election will be held within 6 months of the certification, a special election will be held within 90-120 days of the certification if requested by the issuing political subdivision.

• If a special election is requested in a year in which an election will be held, a special election will be held only if the political subdivision requesting it agrees to pay the costs.

• If a majority of voters vote in opposition the political subdivision may not seek to finance a similar project within one year of the referendum.

DLGF Role in Financings

• After June 30, 2008:– Political Subdivisions will not be required to

petition DLGF for approval of bond issue or lease– DLGF will have no role in approving construction

projects

School Construction

• Requires Department of Education to establish guidelines for selection and construction of school buildings and facilities.– Requires Schools to submit building plans to DOE for

review and requires DOE to provide written comments back to schools concerning whether the plans meet the guidelines

– Requires schools to have a public hearing on the plans and DOE’s written findings.

– Requires DOE to establish a clearinghouse of prototype designs for schools to reference and use.

Changes to Redevelopment Commissions

• Adds school board member to redevelopment commission as nonvoting advisory member.

• Rather than County Executive making all appointments to Commission, appointments will be made as follows:

• Seven Member County Redevelopment Commissions: – County Executive shall appoint 4 Members– County Council shall appoint 3 Members

• Five Member County Redevelopment Commissions:– County Executive shall appoint 3 Members– County Council shall appoint 2 Members

TIF Changes

• Reduces term of allocation areas from 30 years to 25 years

• Eliminates “expedited” process to approve changes to declaratory resolutions and plans; requires every amendment, including boundary expansions of less than 20%, to complete the full process.

• Requires Redevelopment Commission to annually notify the County Auditor and the County or Municipal Fiscal Body of the amount of “excess” AV that may be reallocated from the Redevelopment Commission to other taxing units.

TIF Changes

• Provides that an allocation area may only be enlarged if there are insufficient revenues for the “original project” or if the Indiana Economic Development Corporation (IEDC), prior to action to enlarge the area, makes findings about job creation or retention, benefit of project, etc.

• Requires legislative body to approve Redevelopment Commission’s use of eminent domain.

• Requires legislative body to approve ALL bonds issued by a redevelopment commission, regardless of the principal amount.

• Requires Legislative Body to give consent to Redevelopment Commission’s decision to grant property tax deductions for investments made in an allocation area.

TIF Changes

• Provides that TIF revenues may only be used to finance public improvements that are located in or are physically connected to the allocation area.

• Provides that bonds may be issued to pay for economic development area activities if no other revenue sources are available for that purpose.

• Expands information required for redevelopment/economic development plans to include properties “affected by” the plans.

• Removes ability to capture TIF after expiration of the term of the allocation area.

TIF Replacement

• TIF Replacement Formula expanded to include any action taken by the General Assembly or an administrative agency that reduces TIF

• Replacement Mechanism no longer automatic – Governing Body must hold public hearing to determine

type of replacement mechanism to be used.

• TIF Replacement Mechanisms expanded:– Special Benefits Levy– Special Assessment– Reduction of Base Assessed Value

Changes to Debt / TIF

• With respect to Bonds payable from property taxes, special benefit taxes, or TIF revenues:– Prohibits issuing refunding bonds after June 30, 2008 that

have a maximum maturity longer than the maximum maturity of the bonds being refunded.

– Prohibits the use of savings from a refunding for any purpose other than funding a reserve, reducing levies, or reducing outstanding debt.

– Provides that local issuing bodies may use surplus bonds proceeds or investment earnings only to maintain a debt service reserve, to pay debt service on other bonds, or to reduce taxes.

Changes to Debt / TIF • Requires issuers to pay principal & interest on a substantially equal

schedule, except to:– Maintain substantially equal payments, in the aggregate, in any period

in which the local issuing body pays the interest and principal on outstanding obligations

– Accelerate repayment of principal– Provide for level principal payments over the term of the obligations,

in order to reduce total interest costs– Account for variations in collections of TIF revenues

• Reduces Maximum Term of Bonds– 25 years for Bonds payable from TIF (excluding coal gasification

plants)– 20 years for other Bonds– Maximum term permitted under federal law for bonds purchased or

guaranteed by federal agency

Local Option Income Taxes (LOIT)

Department of Revenue – LOIT Reporting

• Requires employers (and individuals filing estimated payments) to separate amounts paid between state and county liability.

• Requires Department of Revenue to develop reports and procedures to ensure that LOIT are accurately and properly distributed to counties.

Local Option Income Taxes (LOIT)

• Retains the LOIT options approved in 2007, with minor changes.

• Three Options:– Option A: Increase LOIT to pay for budget increases (instead of

increasing levies). Amount of LOIT increase determined by the state.– Option B: Increase LOIT up to 1% to provide dollar for dollar

property tax relief• Can make a decision each year to reallocate among homesteads, qualified

residential property, and broad based property tax relief.• Relief can be provided to one or more of these classes of property.

– Option C: Increase LOIT by up to .25% for public safety (Must adopt at least a .25% rate of Option A or Option B in order to adopt Option C)

Local Option Income Taxes (LOIT)

• Adopting Body:– CAGIT County: County Council– COIT County: COIT Council – Must hold at least one public meeting each year to discuss whether to

impose or increase the LOIT (Option A)• Political Subdivisions can agree to pool LOIT for Public

Safety to pursue a single project.• Provides three new alternative methods for allocating LOIT in

Lake County & Requires Commission on State Tax & Financing Policy to study LOIT allocation alternatives.

• Permits political subdivisions to continue to receive LOIT allocations that would otherwise be lost as a result of the elimination of levies.

LOIT Adoption Deadlines

Adoption Date Effective Date

Before October 1, 2008 October 1, 2008

After September 30 & Before October 16, 2008 November 1, 2008

After October 15 & Before November 16, 2008 December 1, 2008

After November 15 & Before January 1, 2009 January 1, 2009

• After 2008, LOIT can only be adopted between April 1 and July 31.

LOIT Withholding

• Provides that the DLGF may order the withholding of the entire distributions, or a percentage of the distributions, of CAGIT, COIT, or CEDIT, if:

1) Local assessing officials have not provided information to DLGF in a timely manner.

2) The County Assessor has not transmitted required parcel and personal property data to the DLGF by October 1.

3) The County Auditor has not timely paid to the DLGF a bill for a state-conducted assessment or reassessment.

4) The County Assessor has not timely forwarded sales disclosure form data to the DLGF.

5) The County Auditor has not forwarded duplicate copies of all approved exemption applications by August 1 as required in IC 6-1.1-11-8(a)

(continued…)

LOIT Withholding (cont.)

6) By the date the distribution is scheduled to be made, the County Auditor has not sent a certified statement of Assessed Values and other information that is required to be sent to political subdivisions by August 1.

7) The county does not maintain a certified computer system that meets the requirements of IC 6-1.1-31.5-3.5

8) The county auditor has not timely transmitted by March 1, to the DLGF, electronic data files of information contained on the tax duplicate for all parcels and personal property returns.

9) The county has not timely established a parcel index numbering system. 10) “A county official has not provided other information to the DLGF in a

timely manner as required by the DLGF.”

• If a county that has not adopted LOIT (Lake County), the DLGF may withhold other state revenues that would otherwise be distributed to the county or other taxing units in the county.

Assessing Changes

• Transfers the assessing duties of Trustee Assessors to the County Assessor effective July 1, 2008

• Transfers all duties of Township Assessors in townships with fewer than 15,000 parcels to the County Assessor effective July 1, 2008.

• Requires a referendum to be held in the 2008 General Election in all Townships that include at least 15,000 parcels to determine whether the assessing duties of the Township Assessor should be transferred to the County Assessor.– Before April 15, 2008 each County Auditor shall certify to the County

Assessor, the County Executive, the fiscal body, and the County Election Board the name of each township in the county that includes at least 15,000 parcels.

Assessing Changes

• In Townships Affected, assessing duties transfer to county assessor on July 1, 2008.– Township Assessor & Trustee-Assessors whose duties are

assumed shall organize their assessment records and transfer them to the County Assessor by July 1, 2008 (or January 1, 2009 for those affected by referendum).

– DLGF has until July 1, 2008 to determine a schedule and procedure for the transfer of records.

– Affected Township Assessors are entitled to remain in office until the end of their term, with their sole duty being to assist the county assessor in the transfer of records and the operations.

Assessing Changes

• The following are transferred to the County Assessor on July 1, 2008 : – The employment positions as of June 30, 2008 of:

• The elected township assessor; and• All employees of the elected township assessor

– Real & Personal Property used solely to carry out assessment duties of Township Assessors and Township Trustee-Assessors.

– Obligations outstanding on June 30, 2008 relating to assessment of property of Township Assessors and Township Trustee-Assessors.

– After the date of transfer, all Revenues received by the Township for the purpose of carrying out property assessment duties shall be transferred from the affected Township Assessor to the County Assessor. (Amount to be determined by the County Auditor)

(Note: Dates throughout this section are different for Transfer of Assessing that is decided by Referendum)

Assessing Changes

• Before July 1, 2008, the county assessor shall interview, or give the opportunity to interview, to each individual who:

– Is an employee, as of March 19, 2008, of (1) An elected township assessor; or

(2) A trustee-assessor in the county; and

– Applies before June 1, 2008.

Assessing Changes• To be a candidate for the office of County Assessor you must have attained

proper certification:– To run after June 30, 2008, must have Level II.– To run after January 1, 2012 must have Level III.

• Township Assessors must attain proper certification to take office. (Certification not required in order to run for office)– Must have Level II to take office after June 30, 2008– Must have Level III to take office after January 1, 2012.– If Township Assessor does not have Level II or Level III as required above, the

assessment duties transfer to the County Assessor but may transfer back to the Township Assessor if at a later election a person has attained the required level of certification.

• Employees of the County or Township Assessor who perform real property assessing duties must have Level II by June 30, 2008 and Level III by January 1, 2012.

Assessing Changes

• Effective December 31, 2008, each Appraiser employed by a contractor to perform assessment duties for a county must hold a Level II or III Certification.

• After June 30, 2008, the County Assessor may establish one or more satellite offices in the county.

• Any assessment, appeal, or other official action made by the Township Assessor or Trustee-Assessor before the transfer to the County Assessor is considered to have been made by the County Assessor.

Assessing Changes• Provides a process for removal of a County and/or Township Assessor

who fails to perform required duties.– If notified by DLGF of problems with assessment activities, Council

President SHALL provide this information to the County Commissioners who MAY adopt an ordinance determining the assessor has failed to perform their duties and as such forfeits office and is subject to removal.

• Upon adoption of Ordinance, the Prosecuting Attorney SHALL file an information with the circuit court of the county.

• Requires DLGF to conduct operational audits of assessors to improve quality/accuracy of assessments.

• Requires the DLGF and the Commission on State Tax & Financing Policy to study the possibility of eliminating the existing method of assessing and valuing property AND the use of alternative methods of valuing property for the purpose of property taxation.

Assessing Changes• Provides that a political subdivision may not make a payment to a vendor

for assessment related software unless the DLGF has certified the software.

• Repeals Township Assessor’s Authority to employ professional appraisers & provides that County Assessors may employ professional appraisers for assessments in all townships in the county.

• Provides that DLGF must be a party to all assessing and computer contracts.

• Directs the Commission on State Tax & Financing Policy to study whether it is reasonable to require counties to use a single state designed software system for Auditors, Treasurers and Assessors.

• Deletes language added in 2007 that would have delayed property tax due dates if a county hadn’t mailed Form 11 statements by March 26. (Effective July 1, 2008)

Assessing Changes• Simplifies the process by which a taxpayer can obtain a preliminary

informal meeting with the assessor to review an assessment.

• Provides that Assessors may not require taxpayers to present documentary evidence at a preliminary informal meeting.

• Permits counties with cross-county taxing units to submit AV info to DLGF as shown on the most current abstract. (So one county will not have to wait on the other to complete its work)

• Repeals County Land Valuation Commissions

• Increases the Productivity Factor for agricultural land strip mined after 12/31/07 from .5 to .75

• Converts the 100% Deduction for Inventory to an Exemption

• Provides that if a Township Assessor discovers he/she has made an error, the error must be corrected and reflected on the next tax installment.

Other Provisions in HEA 1001

• For Property Taxes Due & Payable in 2008, the Treasurer may choose to use a tax statement that is different from the tax statement prescribed by the DLGF.– A property tax comparison statement (TS1) in either black and white or

color must be mailed to taxpayers along with the tax bill.– Beginning with Pay 09 taxes, Treasurer must use the DLGF prescribed

tax bill.

• Delays from August 2009 to October 2010, the Budget Statement that Auditors must mail to taxpayers.

• Provides that “Rebate Checks” are void if the checks are:– Outstanding and unpaid for 180 days after issuance– For an amount that is less than $10.

Questions???

AIC Legislative Staff:

-David Bottorff / dbottorff@indianacounties.org

-Andrew Berger / aberger@indianacounties.org

Phone: (317) 684-3710