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Chart: Bethlehem/ISG Tax Impact
By VICKI URBANIK For all its benefits, the recent tax agreement forged between International Steel Group and local units of government point to a stark reality. The rich tax coffers of Bethlehem Steel are a thing of the past. Bethlehem’s 2000 tax bill of $19.9 million was the last such payment of its kind. Due to its bankruptcy, Bethlehem paid about half as much in taxes the following year -- $10.2 million -- and nothing since then. Under the terms of the ISG tax agreement, which still must be approved by state agencies and the bankruptcy court, taxing units will divvy up a back tax settlement estimated at $10.9 million. Further, in lieu of taxes from Bethlehem, ISG will voluntarily pay an estimated $8.2 million to local taxing units in 2003 and again in 2004, plus paying Burns Harbor another $900,000 in each year. Add all those figures together and the difference -- between what Bethlehem would have paid if it kept paying what local taxing units were accustomed to and the actual amount they will get -- represents a significant shortfall from 2001 to 2004. A shortfall of $40.4 million. Some of that difference has been offset through austerity measures at every unit affected. Some of it has been offset through a patchwork of loans. And some of that difference has been and will continue to be passed on to to all other property owners through higher tax rates. But the higher tax rates don’t mean that local government has more money to work with, only that homeowners, businesses and farmers are picking up more of the tab from the county’s largest taxpayer. And, with projections that ISG will pay only half as much as Bethlehem once did when it starts paying property taxes in 2005, assuming that it becomes the new owner of the Burns Harbor plant, that burden will continue to be felt. Earlier this week, North Porter County Commissioner John Evans lamented the perception -- created in part by the media elsewhere -- that the ISG tax agreement will ease the county government’s funding crunch. Porter County Council attorney Dave Hollenbeck, who spearheaded the local negotiations with ISG, said even though the tax agreement is far better than the alternative, the overall return to Porter County units is still only 47 to 48 cents on the dollar. “It indeed doesn’t solve the problem. It indeed magnifies the problem,” Hollenbeck said. Added Westchester Public Library Director Phil Baugher: “We’ve lost more than we’re going to gain.” Questions Abound The tax agreement will allow government units to make a big dent in the debt they amassed due to the unpaid Bethlehem taxes. Consider the case of the county government: The $5.5 million that it borrowed from the state for the past 18 months of unpaid Bethlehem taxes will be nearly wiped out by the $5.2 million it stands to get from the ISG tax agreement through the end of next year. But that also means that, in effect, there will be no tax dollars coming in from the Burns Harbor plant this year or next – a repeat of the crisis situation that began when Bethlehem first declared bankruptcy in October, 2001. The tax agreement raises many questions, made all the more complicated by the fact that is an unusual tax year with statewide delays in reassessment, which in turn have delayed the certifying of assessed valuations and the setting of tax rates, two crucial pieces of the tax puzzle. Among the questions: Will the state approve the tax agreement, in effect relieving Bethlehem Steel of its tax responsibilities in the next two years? How will the shortfalls in 2003 and 2004 be made up? How will the state treat the “payment in lieu” of taxes -- as new tax money within the confines of the frozen tax levy or as delinquent taxes? And if tax rates go up due to the reduced Bethlehem valuation, how does the tax agreement’s language forgiving all tax appeals complicate the matter? Those and other questions are good questions that the state at this point cannot answer, said Beth Henkel, Commissioner of the Indiana Department of Local Government Finance. State Receptive The DLGF, as well as the Indiana Attorney General’s office, must approve the tax agreement. But, Henkel said, before the state is presented with a petition to that effect from Porter County, it’s premature to say how the state will react. She said she is certain the state will give the agreement “a swift turnaround.” It is her understanding that the state approvals will be secured before the deal is presented to the bankruptcy court. If the state rejects the deal, then it’s possible an alternative will need to be worked out. If, on the other hand, the bankruptcy court says no, “that would trump anything we did,” she said. One of the key issues for the state, she said, will be to analyze the benefits to Porter County taxing units. “If Porter County officials can get needed funding, I would have to look at it seriously,” Henkel said. When contacted early this week, Henkel had already been briefed about the tax agreement. She was also highly aware of some disastrous tax outcomes from other bankruptcies, noting in particular that the LTV Steel plant was deemed value-less, leaving Lake County taxing units with nothing in back taxes. In Porter County’s case, the alternative to the ISG tax deal could be nothing in payments -- taxes or otherwise -- this year and next and much less than the $10.9 million in estimated back taxes. “We have to look at the alternatives,” she said. Baugher agreed. “This whole agreement ... is more than we could have ever had hoped to recover from Bethlehem,” he said. Local taxing units came to realize that they were dealing with a new company, Baugher said, and the Bethlehem “as we knew it may not continue to exist anymore.” “Everyone involved on the taxing unit side had to come to grips with that,” he said. The tax agreement is highly favorable for the town of Burns Harbor, which used to get about 85 percent of its total levy from Bethlehem. Clerk Treasurer Esther Nickel noted that ISG isn’t just offering the $8.2 million payments this year and next – even though it has no legal obligation to do so – but is also considering additional payments for “hardship” cases. Burns Harbor stands to get its $450,000 treatment plant debt forgiven, as well as $900,000 payments in each of the next four years, substantially easing the town’s funding shortfalls. Hollenbeck said he is not aware of any legal impediments that would stand in the way of the ISG tax agreement. While Henkel said she can’t address any legal roadblocks that might arise, she did indicate that the tax agreement is far from clear cut. “This does require creativity,” she said. Tax Rates to Rise Though the state sets tax rates and certifies budgets by Feb. 15 of each year, no reliable tax rates are expected for some time. As it was pointed out at this week’s Duneland School Board meeting, the state does not have certified assessed valuations from any of the 92 counties, all due to the reassessment delays. “I don’t have a crystal ball, but I believe the tax rates are going to go up for 2003 and 2004,” Baugher said. That’s because this year’s local budgets were calculated to take into account the full amount of Bethlehem’s massive appeal. In 2001, tax rates climbed when only part of that tax appeal was taken out of the assessed valuation. Burns Harbor’s rate soared 466 percent; Duneland Schools’, 20 percent; the county government’s, 25 percent. But, in yet another complication, the ISG agreement lifts all pending tax appeals, in turn meaning that local units of government won’t face the prospect of having to refund Bethlehem an estimated $20 to $34 million in back taxes. How does that language affect the setting of this year’s tax rates? If the Bethlehem appeal isn’t factored into the AV in 2003 or ‘04, and local units can’t raise their tax rates to offset even some of the loss from Bethlehem, then they’re in for an even bigger budget shortfall. Hollenbeck said that very question will definitely be among the many questions the state will have to answer. He has characterized getting final approval of the agreement as a train making many stops. “That is one of the stops on the train,” he said. But on one other question, Hollenbeck is more certain: Can the entire Burns Harbor plant be removed from the local AV, not just the amount under appeal, this year and next? That would allow taxing units to raise the tax rates high enough to offset the lost tax dollars from the Burns Harbor plant. But Hollenbeck said the law is clear that the entire plant could only be removed from the tax rolls if it shuts down. Baugher raised a different concern: The possibility that the state will view ISG’s $8.2 million payments as new tax money. If the amount is higher than what Bethlehem would normally have been billed this year, the state could consider it an excess levy, leading to further budget cuts on the already strained budgets. Hollenbeck doubts that will occur. The tax agreement may be good for local units of government, “but it isn’t that good” and it won’t generate more than what the units are entitled to. A State Bailout? Given the fact that Porter County taxing units continue to face funding shortfalls, can the state provide a true bailout this time around? State Rep. Ralph Ayres, R-Chesterton, said no one should count on it. If Porter County units had sought help from the state this year, as they did last year, they likely would have been rejected, he said. When asked the possibility of the state forgiving the loan secured last year to offset the unpaid Bethlehem taxes, Ayres said that “would never happen.” “I highly doubt another loan or (loan) forgiveness would occur,” Ayres said, noting that the state revenues are down $80 million for the month of January from what was projected. “The funds just aren’t there.”
Bethlehem/ISG Tax Impact
Calendar Year: 2000 2001 2002 2003 2004 Taxes paid by Bethlehem $19,940,278 $10,227,594 0 0 0
‘01 & ‘02 Back Tax Settlement $10.9 million
ISG Payment in Lieu of Taxes $8.2 million $8.2 million
ISG Payment to Town of Burns Harbor only (to be paid again in ‘05 and ‘06) $900,000 $900,000
Distribution: 2000 2001 2002 2003 2004 Duneland Schools $13.2 million $6.8 million 0 $7.2 million 0 (of $19.5M owed) + $5.4 million +$5.4 million
Porter County Government $3.7 million $2 million 0 $2.07 million 0 (of $5.5M owed) + $1.6 million +$1.6 million
Westchester Library $777,670 $404,967 0 $427,680 0 (of $1.2M owed) +$319,800 +$319,800
Burns Harbor $1.19 million $617,546 0 $654,000 0 (of $1.8M owed) +$492,000 +$492,000 +$900,000 +$900,000
Notes: Other taxing units affected, but to lesser degrees, are Westchester Township; towns of Chesterton, Porter, Dune Acres; county airport; Portage Twp.; Portage Schools; Portage city. The amounts listed in the 2003-4 columns represent the unit’s share of the back tax settlement plus its share of the payment in lieu of taxes (plus, in Burns Harbor’s case, the $900,000 payment) All figures are approximates and/or estimates. Sources: Porter County treasurer, auditor, ISG, Chesterton Tribune
Posted 2/7/2003
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