Larry: Hi, I'm Larry Deboer,
professor of Agricultural Economics,
and Extension specialist with Purdue University
I'm here at the Brown Street levee
in West Lafayette, Indiana
because this video is about levies
If this were a civil engineering video, we'd talk about
the use of levees for flood control
But, this is a video about property taxes
And in property tax terminology, the levy is
the revenue that counties, cities and towns,
school corporations,
and other local governments intend to collect from the
property tax
You can't drive your Chevy to the property tax levy
But, you can drive it to a school, or a library,
or a fire station
that the levy supports
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Larry: The property tax levy is the amount of revenue
that the local governments intend to collect
from property tax payers
It results from the local government budget process
First, the departments and agencies
of the local government
estimate their budget for the coming year
They calculate what will be needed for
employee wages, salaries and benefits, for supplies,
insurance, utilities, maintenance, and so forth
all the costs to deliver local government services
A budget is set for each of the local government's funds
Next, the government estimates miscellaneous revenue
That's the non-property tax revenue like
local government income taxes,
motor vehicle excise taxes,
state and federal aide fines and fees, service charges,
interest earnings, and so forth
Miscellaneous revenue is
subtracted from budget estimates
and the result is the
amount we raised for the property tax,
The property tax levy
For most funds, that amount is checked against the
maximum levy
Which is a limit posted by the state
The state's department of local government finance
does the checking
This process means the
property tax levy is different from other taxes
with the incumbent sales taxes
we start with a tax rate
The revenue depends on how much income or sales
are taxed
With the property tax, you start with a tax revenue,
the levy, and set the rate to raise that amount
of payments on taxable assessed value
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Larry: The big property tax reform in 2008
was not the first attempt to limit the growth of
property taxes
Back in 1973 at the start of Yoda Bell's administration
Indiana adopted a series of policies
to reduce property taxes
The state's sales tax was increased
and the money was used to fund property tax credits
A local income tax was created to allow counties
to cut property taxes some more
and a maximum levy was imposed
to limit the increase of property taxes each year
The maximum levy cannot increase
more than a certain percentage called
the growth quotient
The growth quotient is calculated based on the
growth of Indiana personal income
First of all, income is the sum of the wages, salaries,
rents, dividends, pensions, and other income received
by Indiana residents
The state's department of local government finance
which oversees the property tax
calculates the growth quotient as the 6 year average
of percentage changes in Indiana personal income
The same quotient is used for all units of government
in Indiana
The idea is to make sure property taxes
grow only as fast as the ability of Indiana residents
to pay out of their incomes
here's a chart showing personal income changes,
the blue bars,
and the growth quotients, the red line,
In past years, the growth quotient usually has been
between 3 and a half and 5 percent per year
But, lately it's been less than 3 percent per year
Since it takes awhile for the federal government to
record personal income numbers, the end of the
growth quotient 6 year average only after 2 years
The recession cut Indiana income in 2009
that drop was included in the growth quotient average
for 2011, and that's when the quotient dropped
below 3 percent
that big negative year will stay in the calculations
for 2016
until then, the growth quotient probably
will stay near 3 percent or less
The general fund in most operating levies
are subject to the maximum levy
That service funds are not
subject to the maximum levies
Local governments sometimes borrow in the bonfire
They forbid construction projects and then
services money to repay those loans
Debt services exempt from the maximum levy
because bonfires get nervous anytime there's a
restriction on the ability
of governments to pay back debt
if they see restrictions like a maximum levy
they'll think local governments are riskier
and charge them higher interest rates
So exempting debt service from the maximum levy
keeps debt service interest rates lower
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The property tax levy is set to be bankable
That doesn't mean it's getting into the bank
It does mean that the growth quotient increases
the maximum levy even if the local government
has set its actual levy less than the maximum
In the 1970's through the early 2000's
the levy was bankable
For most of the 2000's, the levy was not bankable
if a local government set its levy less than the maximum
the growth quotient applied to the actual levy
This might set a tighter limit on property taxes
but it also provided an incentive for local governments
to always set their levies right at the maximum
If they set it lower, they would collect less this year
and permanently lose some of their ability to tax
in all future years
Recently, the levy has been made bankable again
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Here's a pie chart showing
how the Indiana property tax levy divides up among
units of government
School corporations collect by far the largest share
more than 40 percent
which is about as much as
counties, and cities and towns combined
when you add schools, counties, and cities and towns
You get more than 80 percent of the total
Townships, library districts, and other special districts
will get the rest
The total levy is more than 6.5 billion dollars
before credits
The state tax cap credits
and the local credits funded by local income taxes
The levy after credits is closer to 6 billion dollars
Up until the tax reforms of 2008
the school share was even bigger
School general fund levies
were eliminated by
the local tax reforms
and replaced by extra state aid
Until 2008, the results of the small property tax levy
for the state government
that's gone now
These days, the property tax funds only
local governments
Local government budgets are divided into funds
Funds are categories of spending devoted to
different functions of government
property taxes pay for a large part of those funds
The general fund is the biggest
with more than one third of the total
General fund pays for most of the operating costs
of local governments
much with employee pay
Debt service is the next biggest
about a quarter of the total
this is money for repayment of borrowed funds
usually for construction projects
the capital projects funds are a tenth of the tax
and are mostly for school equipment purposes
and small construction projects
School transportation is for
purchase and operation of school buses
Cumulative funds save for future construction and
equipment purchases
And there are hundreds of other funds
for all sorts of purchases
That's how the property tax levy is set
Once it's set, it's divided by the taxable assessed value
to get the tax rate
tax rates are applied to taxable property values
tax credits are subtracted, and then tax bills are sent to
property owners
And that money funds our local services
Thanks for watching, I'm Larry Deboer
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