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County approves income tax, but service cuts loom

 

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How much will it raise?

EDIT tax pros and cons

By VICKI URBANIK

Beginning July 1, Porter County wage earners will begin paying an income tax – though the tax adopted just 50 minutes before Monday’s midnight deadline will come no where close to solving the county government’s fiscal crisis, won’t offer property tax relief, and won’t be available to spend until next May.

The 0.25 percent County Economic Development Income Tax was enacted by a 4-2 vote by the Porter County Council after Chesterton killed the county’s preferred tax plan for a County Option Income Tax.

Following Chesterton’s defeat of COIT, the county council in turn deadlocked 3-3 at a late night meeting Monday on the other major form of the income tax, the County Adjusted Gross Income Tax, which would have cost wage earners up to three times as much as the COIT plan without raising significant new revenue.

Porter County Porter County Council President William Carmichael said without the revenue that COIT would provide, the county now will have no choice but to make severe cuts.

“We’re going to have a shutdown,” he said.

Though so far there have been no firm decisions, county officials have suggested shutting down county departments a few days a week, meaning that many employees could either be terminated or demoted to part-time status and lose their health coverage; closing the North Porter County Government Complex in Portage; and/or increasing fees and charging municipalities new fees for county services, such as holding their prisoners at the county jail.

Carmichael said the council will now need to meet with the Porter County Commissioners to establish where the county goes from here.

When asked if the council will try again next year for the COIT -- which would mean that new revenues wouldn’t become available until January, 2005 -- Carmichael said he personally won’t initiate the tax again.

“I’m not going to go through that whole business again,” he said, although he also made it clear that the fact that his council seat is up for election next year would have no impact on his tax stand.

EDIT Pros, Cons

With an EDIT tax, Porter County will join all but four of Indiana’s 92 counties that have some form of the income tax.

One benefit of the EDIT is that it eliminates all interest payments on the state loan secured to offset the Bethlehem Steel bankruptcy, saving the Duneland School nearly $1 million and the county government, $500,000 over the 10-year loan repayment period.

And the EDIT tax revenue – estimated at $3.15 million annually for the county government and $545,000 annually for Chesterton – can be spent on a variety of capital projects that must be delineated in a plan established by each city and town and the county government.

But unlike COIT, Westchester Public Library and the Porter County library system won’t get a share of the money. Nor will the townships or the county airport.

And unlike COIT, the money can’t be used for general operating expenses of government, the area where county government and municipalities are most hurting.

Somewhat ironically, though the county council last week endorsed a COIT-EDIT tax totaling 0.4 percent, the EDIT tax rate that will take effect July 1 is slightly higher – 0.25 percent higher – than either the stand-alone COIT rate or the stand-alone EDIT rate the county favored.

EDIT, CAGIT Votes

If the council had not passed either the CAGIT or EDIT on first reading last week, it would have been nearly impossible to consider any back-up tax following Chesterton’s vote, since a unanimous decision would have been needed to adopt an ordinance in one meeting.

The EDIT tax that was adopted at 11:10 p.m. was significantly altered from the initial form it took last week. Last week, the council agreed 6-1 to use the EDIT revenue toward early elimination of the inventory tax paid by businesses. Only Robert Poparad, D-1st, voted no, though he spearheaded the idea of axing the inventory tax.

Since last week’s vote, however, it became apparent that eliminating the inventory tax would leave hardly any new revenue from EDIT.

On Tuesday, council member Rita Stevenson, D-Portage, made a motion to remove the inventory tax language, in effect freeing up the revenue for capital projects for the county, towns and cities. The motion passed 4-2, with Poparad and Carole Knoblock, D-4th, the only ones voting to keep the business tax cut intact.

The same vote division took place on EDIT itself: Poparad and Knoblock voted no, while Stevenson, Carmichael, John Ruge, R-at large, and Al Steele, R-3rd voted yes.

Council member Karen Conover, R-at large, was absent. Carmichael said she is in Montana with family members.

The council opted to distribute the EDIT revenue based on population, not by property tax levy as the state would also allow. Even though all but one municipality gave the county no help on COIT, the county council handed most towns and cities a bonus by choosing the population distribution formula. The county government itself would have actually come out ahead -- by about $600,000 -- had it chosen the levy distribution.

CAGIT, which would have been imposed at the maximum 1 percent rate failed, with Carmichael, Ruge and Steele voting yes, and Knoblock, Poparad and Stevenson voting no.

With Conover absent, the two “swing” votes on CAGIT were Steele and Stevenson. Last week, Steele voted against the CAGIT, while Stevenson voted for it. They switched their respective stands on Tuesday night. Stevenson appeared to have firmed up her position just before Monday’s meeting, since after the Chesterton vote, she indicated support for CAGIT.

She was the last council member called to cast the vote, thus killing CAGIT.

Audience Pleas

Despite the late hour of the special meeting, a good-sized audience attended the council meeting, presenting a flurry of last-minute emotions and viewpoints for or against CAGIT.

Helen Boothe of Dune Acres fired the opening salvo by asking how council members would personally benefit by either CAGIT or EDIT – specifically how Knoblock, a large landowner, would benefit by the tax break for farmers offered by CAGIT and how Poparad, a business owner, would benefit by eliminating the inventory tax.

Poparad said he would indeed get a break by not paying the inventory tax. But with a 1.25 percent CAGIT-EDIT rate, “I’ll pay a helluva income tax.”

"It’s not like I’m getting away scotch free,” he said.

Knoblock, too, agreed that CAGIT’s tax cut would benefit her as a farm owner.

Hebron Town Council member Chris Stalbaum – whose town convened a public hearing on COIT Monday but opted not to take a vote once it learned that Kouts endorsed it, 3-2 – told the council that CAGIT won’t generate anywhere near the revenue the county government needs.

He said no taxing unit will be able to survive this year, due to the delayed reassessment that at best will allow taxing units to collect only up to 70 percent in taxes compared to last year.

Since the county and municipalities are “already out of luck,” he urged the council to adopt CAGIT at its lowest level possible.

But Carmichael, who noted that CAGIT will raise significant new revenue in about five years, said enacting an even lower rate will only prolong the funding problems.

Hebron is facing numerous budget problems of its own, Stalbaum said. “I’m not in your boat, but I will be after this night is over,” he said.

Another Hebron resident, Valerie Kubacki, questioned what she characterized as threats by the county of what may be in store now that COIT failed. She specifically questioned the suggestion that the county begin charging municipalities for jail services.

“You’re not paying the full costs,” Carmichael said of the towns and cities.

“You will not provide services for us because we’re a town,” Kubacki responded.

Carmichael also called on audience member Gus Olympidis, a prominent business owner who has been one of the leaders against COIT.

Olympidis only commended the council for the process. “The very future of our county depends on your deliberation,” he said.

Several representatives of the Porter County Farm Bureau, Inc. spoke in favor of CAGIT. Farmers and businesses would have benefited the most by CAGIT.

However, once EDIT was enacted, a farm bureau official urged the county to ensure that the money be used for county government -- not as a tax break for businesses.

 

How much will it raise?

The following are the projected estimates of how much a 0.25 percent EDIT tax will raise annually for the county, cities and towns. The money will be distributed based on population and must be used for economic development or capital projects only. As the law now stands, the money won’t be available until May, 2004.

County government: $3,150,000

Chesterton: $545,000.

Porter: $255,000

Burns Harbor: $40,000

Dune Acres: $11,000

Beverly Shores: $37,000

The Pines: $41,500

Portage: $1,700,000

Valparaiso: $1,400,000

Ogden Dunes: $68,500

Kouts: $88,500

Hebron: $187,500

Source: Larry DeBoer, Agricultural Economics, Purdue University.

 

EDIT tax pros and cons

Some pros and cons of the Economic Development Income Tax adopted Monday night:

•According to information provided by the Ice Miller law firm of Indianapolis, EDIT can be used to pay bond payments or any capital project for which the county and municipalities could issue a general obligation bond or establish a cumulative fund. These include new buildings, computers, police cars, voting machines, airport or park improvements.

•Many of the county government’s capital expenditures, such as police cars and computers, have already been taken out of the county’s general fund, paid for instead through the Cumulative Capital Fund, which has its own tax rate.

However, the county government must meet a federal mandate and purchase new voting equipment, estimated at $1.4 million.

•As with the other two income taxes, wage earners will pay the EDIT tax based on their Indiana adjusted gross income. But unlike the other two income taxes, non-residents pay the full resident rate for EDIT.

•EDIT may be used to finance or pay for economic development projects, such as acquiring land, renovating buildings, or paying administrative expenses associated with a specific economic development project. It cannot be used for operating expenses except those that plan or implement economic development projects.

•EDIT funds can be shared among the county, cities or towns. Theoretically, Chesterton or Porter could give all their EDIT funds for use by the county government.

•EDIT funds are not distributed to libraries or townships, unlike the County Option Income Tax.

•The county government and each city and town must prepare a plan, which will include a public hearing, outlining how they will spend their EDIT money.

•EDIT provides no property tax relief, unlike COIT or the County Adjusted Gross Income Tax. EDIT can be enacted in conjunction with COIT or CAGIT.

•Wage earners will begin paying the EDIT rate on July 1, but the county, cities and towns will not actually receive the money until May of next year, under current state law.

•The EDIT revenues can be used to eliminate the inventory tax on businesses earlier than 2007, which is when the state will require that the tax is eliminated in its entirety. However, the inventory tax elimination might not take effect until 2005, based on new information provided Monday by council attorney Dave Hollenbeck. Also, virtually all of the EDIT funds would be used to offset the inventory tax.

•EDIT may be rescinded, increased or decreased within certain parameters allowed, but only between January 1 and April 1 by the adopting body. The EDIT rate can go up to a maximum of .5 percent.

 

 

Posted 4/1/2003

 

 

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