Chesterton Tribune

Town mulls annexation: Do houses pay their way

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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 & Associates.

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 development.

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 Township.

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 used to.”

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.”


Posted 1/13/2006