Indiana General Assembly Changes to Funding and
Financing Present Both Opportunities and Challenges

Submitted by: Gary Malone, Partner

This article is the first in a series about recent changes to property taxes and revenue streams enacted in the 2007 Indiana General Assembly. We thank Buddy Downs and Karen Arland from Ice Miller LLP for their research and insights.

Property tax relief and new revenue streams for local governmental units were clearly high on legislators' priority lists in the 2007 session of the Indiana General Assembly. Many different plans were considered, but the final changes to funding and finance were not agreed upon until the final day of the session. The end of the session left affected entities scrambling to determine exactly what was changed and what to do next.

Most of the relevant changes are in two bills: House Enrolled Act 1478 and Senate Enrolled Act 287. Here is an overview of those changes:

HEA 1478

• Authorizes every county to impose additional rates of County Option Income Taxes (COIT) and County Adjusted Gross Income Taxes (CAGIT) for levy growth, property tax relief and public safety costs effective May 11, 2007. The distribution formulae for these are not the same as current COIT, CAGIT or Economic Development Income Taxes (EDIT).
  
  
• Freezes tax levies of all political subdivisions in counties that choose to fund levy growth with income tax effective May 11, 2007. Levies will be frozen at the current maximums.
  
  
• Freezes tax levies of all political subdivisions in Lake County at 2007 levels unless action is taken to adopt a 1% income tax rate dedicated 100% to property tax relief.
  
  
• Limits the 2% circuit breaker to homestead properties beginning with property taxes payable in 2008 (2007 for Lake County).
  
  
• Applies a 3% circuit breaker to all other real and personal property beginning with property taxes payable in 2010. Legislative Services Agency projects that the estimated revenue losses to cities, towns, schools and other entities will be greatly reduced because of the two changes to the circuit breaker, but 722 taxing units are still expected to be affected.
  
  
• Eliminates the loss of property tax revenue due to the circuit breaker tax credits for school tuition support funds.
  
  
• Allows redevelopment commissions to exclude a TIF replacement levy in determining a taxpayer's property tax liability for purposes of computing the circuit breaker credit effective May 11, 2007.
  
  
• Creates new county tax control boards effective in 2009.

SEA 287

• Changes the petition and remonstrance process effective May 11, 2007 to include registered voters as well as real property owners. 

We'll explain in more detail what these changes mean to different types of taxing authorities in subsequent articles in this series.