By KEVIN NEVERS
Here’s the background question: do the property taxes paid by homeowners
actually cover the cost of the services provided by a municipality?
Here’s the $64,000 question: can the Town of Chesterton afford to annex more
unincorporated property slated for residential development?
At a special meeting Thursday afternoon, the Town Council tackled both, with
the help of its contracted financial consultant, John Julien of H.J. Umbaugh
Julien’s answers to those two questions were roughly these:
•In the past business and industry shouldered a far greater property-tax
burden than homeowners did.
•Court-ordered reassessment, though, has gone far in distributing that
burden more evenly.
•Nevertheless, it still costs a municipality more—how much more exactly is
unclear—to provide services to homeowners than to business and industry.
•A municipality always has the option of seeking an excess levy appeal—an
increase in the total levy greater than that permitted by state statute—to
pay for the costs associated with providing services to annexed property.
•Yet even an annexation which, on paper, promises to cost a town more in
services than it would recoup in property taxes may still be worth pursuing,
if it were part of a comprehensive strategy of growth and economic
Julien’s analysis is by no means academic. The council will shortly be
considering at least two petitions for annexation: the first of the Duneland
Community Church of the Nazarene for the annexation of 12 acres on C.R.
1100N, east of 23rd Street and west of Rose Hill Drive; the second of Larry
and Christine Wright for the annexation of 39 acres in the area of C.R.
1050N and Ind. 49. Both acreages are located in unincorporated Liberty
Julien opened his analysis with some history. For years residential property
was only reassessed periodically, from once every four or five years to once
every eight or nine years. Commercial and industrial property, on the other
hand, was reassessed annually. Thus the assessed valuation (AV) of
commercial and industrial property tended to reflect its value more
accurately than did the AV of residential property.
But Julien noted further that the “human element” of reassessment should not
be discounted here. Although township assessors have their manuals and their
formulae—meant to ensure the uniformity and fairness of reassessment—they
may have “subconsciously” or “unconsciously” given homeowners the benefit of
the doubt and been more “generous” to them than to business and industry.
The result: over time a great deal of disparity emerged within and among
taxing units, such that similar homes in Lake and Marion counties, say,
might have widely differing AVs.
Hence the court-ordered reassessment. “The dust has now settled,” Julien
said, and “residential is now making up a larger portion of the pie than it
Even so, Julien hastened to add, the services provided to a residential
subdivision—police and fire protection, road maintenance, snow removal,
stormwater drainage—are still likely to cost a municipality more than those
provided to a commercial mall or industrial park of the same acreage. Not,
however, because the demand for services is greater among homeowners than it
is among business and industry, but because the density of a residential
subdivision is much less.
That is, a municipality is providing the same quantity and quality of
service in a subdivision but to fewer people.
The long and the short of it: x number of acres slated for residential
development will cost the town more after annexing than the same number
slated for commercial or industrial development.
So the key to weighing the costs and benefits of any annexation is the
fiscal plan, Julien told the council. Much of any fiscal plan is
boilerplate: a description of the area proposed for annexation, its current
zoning and land use, and existing utilities. But under Indiana Code a fiscal
plan must also include the following: cost estimates of planned services to
a newly annexed area; the methods of financing those planned services; new
revenues—real and personal property taxes, COIT, CEDIT, building permit
fees, sanitary sewer user fees—which would be collected or could be
increased as a result of annexation; a plan for the organization and
extension of services; an accounting of non-capital services to be provided,
such as police and fire protection; and an accounting of capital
improvements to be provided, such as street and sewer construction.
If a municipality does not expect the costs associated with a proposed
annexation to exceed the benefits, then a fiscal plan is something of an
inconvenience, Julien remarked. But—and this is important—if the
municipality does in fact anticipate the need to petition the Indiana Tax
Commissioner for an excess levy appeal, the success of that petition will
probably depend on the thoroughness and logic of the fiscal plan.
About those excess levy appeals, Town Attorney Chuck Lukmann began. Are
there codified rules and regulations governing them? How confident can a
municipality be that the Tax Commissioner, acting on the recommendation of
the Department of Local Government Finance, will actually grant its appeal?
Because, he explained to Julien, some years ago the Tax Commissioner
approved a much reduced excess levy appeal filed by the town and threw a
monkey wrench into everything.
“To a certain extent,” Julien observed, “you’re dealing with personalities
down (in Indianapolis) and changing personalities.” It’s entirely possible
that on the same day the Tax Commissioner slashed Chesterton’s excess levy
appeal he approved the whole of a fundamentally similar one filed by some
other municipality. “The best response is a plan,” he said. The town has two
choices: either to petition the Tax Commissioner for the entire excess levy
appeal in a single year or to spread it over several years. But if the town
were to choose the latter option, it had better inform the Tax Commissioner
that Chesterton will be back next year and the year after.
Julien made one last point. “Very few business transactions come with pure
benefit,” he said, and “there are benefits of having population stay within
your boundaries.” So an annexation which in dollars and cents looks to have
a “negative impact” on a municipality may still make a lot of sense for
other reasons. The larger a municipality’s population, the more it will
receive in various sorts of revenue distribution, for instance, and as
Chesterton’s population grows, so too does it its share of the revenues of
the county economic development income tax. The Chesterton Utility also
benefits from a growing population, as it collects more in user-fees and
tap-on fees. And, Julien added, new residents are also new customers who
shop and spend.
“So there’s more involved than just tax dollars versus services,” Lukmann
said. “Other benefits accrue.”