Property Tax Caps: Referendum Implications

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Property taxes passed by local referendum are exempt from property tax caps. There are five categories of local referendum property taxes: (1) a school corporation may initiate a referendum to impose a 7-year property tax levy to replace property tax revenue not received because of property tax caps, (2) a referendum is required if a school corporation proposes a Kindergarten through Grade 8 school building capital project costing more than $10 million, (3) a referendum is required if a school corporation proposes a Grade 9 through Grade 12 school building capital project costing more than $20 million, (4) a referendum is required if a non-school political subdivision proposes a capital project costing more than the lesser of $12 million or 1% of the political subdivision's total gross assessed value (but at least $1 million), (5) citizens may initiate a referendum for a capital project proposed by any political subdivision that costs more than the lesser of $2 million or an amount equal to 1% of the total gross assessed value of property within the political subdivision.

Watchdog Indiana recommends a NO vote on all local referenda UNTIL the property tax caps are included in the Indiana Constitution. For the property tax caps to be included in the Indiana Constitution, the Indiana House of Representatives must pass Senate Joint Resolution 1 during the 2010 General Assembly session and Hoosiers statewide must approve the constitutional property tax caps in a November 2, 2010, referendum.

If the property tax caps are not included in the Indiana Constitution, the 1% homeowner cap will be subject to General Assembly increase and legal challenge. The property tax relief promised in return for the 2008 statewide sales tax increase will disappear just like the property tax relief promised by the 2002 statewide sales tax increase - the 16.3% homeowner property tax reduction promised in 2003 became just 2.4% four years later.

AFTER the property tax caps are included in the Indiana Constitution, it makes sense to consider future referenda on their merits. However, homeowners are not protected against runaway property tax increases until the property tax caps are included in the Indiana Constitution. It makes no sense to approve property-tax-increasing referenda without constitutional protection against future property tax increases.

Listed next is some analysis data for four November 3, 2009, Marion County referenda.

Wishard Memorial Hospital

Voters in all 590 Marion County precincts will decide the fate of the Wishard Memorial Hospital referendum. The Marion County Health and Hospital Corporation, a government-owned entity that is Wishard's parent organization, wants to issue between $604 million and $703 million in public bonds to build a new hospital whose cost is currently estimated to be $754 million.

Supporters of the Wishard referendum have received over $1 million from Indiana University and the IU Medical Group - a new Wishard Memorial Hospital would benefit the IU School of Medicine at the expense of property tax payers. The best way to oppose the Wishard Referendum is to vote against it on November 3. You can also help oppose the referendum by sending a donation to Taxpayers of Indianapolis, P.O. Box 0021, Beech Grove, IN 46107. The donation is not tax deductible. Watchdog Indiana is not affiliated with Taxpayers of Indianapolis. One of the leaders of Taxpayers of Indianapolis is Carl Moldthan, Executive Director of Indianapolis Taxpayers Association (carlfire@sbcglobal.net).

The following analysis details why the bond payments would require future property tax increases, which are not subject to the 1% homeowner property tax cap if the Wishard referendum passes. NOTE: The primary sources of information for this analysis include Wishard literature, an October 19 Indianapolis Star story, and various documents from Carl Moldthan (Executive Director of Indianapolis Taxpayers Association).

Wishard referendum supporters say "Building a new Wishard will require NO TAX INCREASE." However, the no-tax-increase numbers DO NOT ADD UP.

Let's start with a basic question - how much would a new Wishard Memorial Hospital cost? Wishard currently estimates that a new hospital will cost $754 million. Wishard has saved $150 million for its new hospital. If you subtract $150 million from $754 million, Wishard is saying that a $604 million bond issue is needed to build the new hospital. However, Wishard is seeking a bond issue that has a $604 million minimum and a $703 million maximum. What this means is that Wishard wants authority to issue bonds for a new hospital that costs up to $853 million. Since Wishard is a government operation - and governments are notorious for cost overruns - it is prudent to assume that a new Wishard hospital will cost $853 million and require a $703 million bond issue.

Now let's answer another basic question - how much will the annual payments be for a $703 million bond issue. Because the anticipated bond issue amount is the $703 million maximum, it is prudent to assume the annual bond payments will be the maximum estimate of $55 million.

Wishard says there will be no tax increase because its current funding resources - including federal reimbursement revenue and Wishard Foundation philanthropy - will provide the revenue needed to make the $55 million annual bond payments. This brings up the next question - how much annual revenue will Wishard have available to make the $55 million annual bond payments?

Wishard's owner, the Marion County Health and Hospital Corporation, estimates a surplus of $25 million at the end of 2009. Wishard Health Services will contribute $12.5 million, HHC's nursing homes operation $10.5 million, and $2 million will come from other sources. Special attention needs to be given to the HHC nursing homes.

Because HHC is a municipal corporation, its 37 nursing homes receives an extra $55 per day for each Medicaid resident above the $125 a day that a private nursing home gets.This type of extra Medicaid payment has been under investigation by the GAO and Congress the past 8 years. Political pressure from private nursing homes and the national push to control health care costs put the extra Medicaid payment in jeopardy. If the extra Medicaid payment is eliminated, the HHC nursing homes surplus will disappear. It is prudent to assume for the long haul there will be no HHC nursing homes surplus revenue; therefore, Wishard will have only $14.5 million surplus revenue available most years to help pay the $55 million annual bond payments.

How will this prudent worst-case scenario affect Marion County property tax payers? It is estimated that a property tax rate of $0.1490 per $100 of net assessed value would be necessary to make an entire $55 million annual bond payment. Therefore, a $0.1097 property tax rate is needed to finish making the $55 million bond payment after the $14.5 million surplus Wishard revenue is used. In other words, a Marion County owner of a $100,000 home would have to pay $109.70 extra in annual property taxes.

Will Marion County property tax payers be hit with extra annual property taxes in the best-case scenario? Under the best-case scenario, the lowest estimated annual bond payment for a $604 million bond issue would be $38 million. After using $25 million in surplus HHC revenue, a property tax rate of $0.0352 would be needed to make up the $13 million annual bond payment shortfall. A Marion County owner of a $100,000 home would have to pay $35.20 extra in annual property taxes.

Wishard referendum supporters are wrong when they claim that "Building a new Wishard will require NO TAX INCREASE." A Marion County owner of a $100,000 home would have to pay from $35.20 to $109.70 in extra annual property taxes that are exempt from the 1% homeowner property tax cap.

NOTE: By copy of this E-mail to Sarah Parkman, Community Outreach Liaison (sarah.parkman@wishard.edu), Watchdog Indiana challenges Wishard Memorial Hospital to dispute the results of this analysis.

Beech Grove City Schools

Voters in 10 Marion County precincts will decide if the owner of a $100,000 home will pay "slightly" more than the 1% property tax cap for seven years to close a projected $1.5 million gap in operation costs. (Note: voting YES will enable the City Schools to increase the property tax on a $100,000 home up to $350 a year.)

Perry Township Metropolitan School District

Voters in 60 Marion County precincts will decide if the owner of a $127,000 home will pay $132 a year above the 1% property tax cap for the duration of a $98.9 million bond issue for construction and repairs to all district schools. (Note: voting YES will enable the Metropolitan School District to increase the property tax on a $100,000 home up to $264.10 a year.)

2010 Franklin Township Community School Corporation
NOTE: A different 2011 referendum will be on the ballot.

Voters in 25 Marion County precincts will decide if the owner of a $100,000 home will pay $131 a year above the 1% property tax cap for seven years to fund schools at levels the administration deems "essential." (Note: voting YES will enable the School Corporation to increase the property tax on a $100,000 home up to $333 a year.) Listed next are the results of a March 11, 2009, Public Debate Challenge.

FTCSC POSITION: Dr. Walter D. Bourke, Superintendent. The Franklin Township Community School Corporation (FTCSC) is facing difficulties in two areas as a result of recent property tax cap legislation. The direct impact of the legislation is that FTCSC will have revenue shortfalls that will impact the Capital Projects Fund, the Transportation Fund, and the Bus Replacement Fund, thereby affecting the services provided by those funds. The indirect impact of the legislation affects the General Fund and the services it provides. The General Fund has been underfunded by the State’s funding formula for years, but FTCSC has been able to remain solvent and provide consistent services by using its Rainy Day Fund. The availability of using the Rainy Day Fund to supplement the General Fund is coming to an end because the property tax cap legislation has eliminated the possibility of us having any surplus funds in the future to transfer to the Rainy Day Fund.

Because we feel the citizens of Franklin Township, Marion County, Indiana, deserve, demand, and expect consistent and quality educational opportunities for its young people the Franklin Township Community School Corporation has decided to pursue a November 2009 referendum to offset the annual revenue shortfalls that will begin in 2010 resulting from the property tax caps that were enacted by the Indiana General Assembly. Without the revenue replacement that will be generated by a successful referendum the quality of the educational experience of the township’s students will diminish because class sizes will increase to intolerable levels, services will be severely limited or eliminated, and it will become difficult to properly maintain the facilities that have been constructed by the taxpayers. While being sensitive to the fact that a successful referendum will reduce the savings of property taxpayers, the Board of School Trustees of the Franklin Township Community School Corporation voted unanimously on February 23, 2009, to give the voters of Franklin Township the opportunity to express their desire to maintain the quality educational experience to which its residents have grown accustomed and expect.

WATCHDOG INDIANA POSITION. Voters should vote NO in the November referendum to increase 2010-16 homeowner property taxes by 17.4% above the 1% cap level to replace the revenue that FTCSC will lose to property tax caps. The actual 2011 FTCSC property tax caps revenue shortfall is likely to be much less than the estimated $3,482,377 because of a school levy replacement grant from the state. The $998,292 that FTCSC will likely lose to property tax caps in 2010 is only 0.9% of the total $107.24 million that FTCSC spent in 2007. FTCSC has unethically imposed higher than needed property tax rates for years to bolster its Rainy Day Fund for use in a failed attempt to bring its ratio of student instructional expenditures up to par.

The FTCSC School Board ignored the $1.5 million in federal stimulus funds that it will receive when it voted to approve the November referendum. The FTCSC School Board also ignored General Assembly legislation currently being considered (House Bill 1723) that would limit property tax cap revenue loss to 0.15%.

To protect themselves from runaway property tax increases, voters should NOT vote for a referendum property tax levy before the property tax caps become a permanent part of the Indiana Constitution. FTCSC should resort to joint purchasing, shared services, and other cost-saving opportunities to deal with their minimal property tax cap revenue loss before resorting to a property tax increase.

FTCSC FACTS. The most recent estimates show a revenue shortfall for 2010 resulting from the property tax caps in the amount of $3,314,224, of which the State of Indiana will provide replacement dollars in the amount of $2,315,932, leaving a net shortfall of $998,292. That shortfall represents 10.4 percent of the dollars spent in the Capital Projects Fund, the Transportation Fund, and the Bus Replacement Fund in 2007. The estimated net revenue shortfall in 2011 is $3,482,377, which represents 36.2% of the dollars spent in the three funds noted above in 2007. Those funds that are impacted are used to pay for computer technicians and bus drivers, to maintain and improve our facilities, to pay utility costs, to replace and repair equipment, and to replace buses. Reduced funding will require corresponding reductions to the operations and the services we provide.

While the 2008 General Fund deficit has yet to be determined because we have not yet received all of our 2008 property tax dollars, it is projected to be as much as $2,400,000. Such a deficit would require the elimination of the equivalent of forty-eight (48) teaching positions without Rainy Day Fund dollars to supplement the General Fund, or without additional dollars that would be provided by a successful referendum.

Some may choose to point out that the federal government is going to make stimulus funds available to public schools. It is reasonable to assume that FTCSC will receive some additional federal dollars due to the pending program; however, the amount is uncertain and the purposes for which it may be used has not yet been finalized. The temporary impact of any federal stimulus dollars does not rectify the permanent nature of the issues we face as a result of the property tax cap legislation.

Additional supporting information can be found in the FTCSC 2008 Financial Update available at http://www.ftcsc.k12.in.us/super/media.php.

WATCHDOG INDIANA FACTS. Watchdog Indiana is pleased that FTCSC has accepted as accurate the updated January 5, 2009, property tax cap revenue loss data from the state’s nonpartisan Legislative Services Agency (http://www.in.gov/legislative/pdf/CircuitBreaker_2009_BASELINE_20090105.pdf). The 2010 FTCSC net property tax cap revenue shortfall of $998,292 is likely to be realized, but the actual 2011 revenue shortfall is likely to be much less than $3,482,377 ¬ the 2011 LSA projection is made without factoring in a school levy replacement grant from the state. Current state law provides school levy replacement grants for 2009 and 2010, and there will be considerable political pressure for such grants to continue after 2010.

According to the Indiana Department of Education (http://mustang.doe.state.in.us/TRENDS/fin.cfm), the total 2007 FTCSC grand total expenditures from all sources – local, state, and federal – was $107,248,984.14. The Indiana Office of Management and Budget (http://www.in.gov/omb/2007-08_Student_Instructional_Expenditures_(Summary).pdf) reports that the 2007-08 statewide ratio of student instructional expenditures to all other expenditures was 60.6%; the FTCSC ratio was only 56.6%.

The Indianapolis Star (February 14) estimates that FTCSC will receive $1.5 million in federal stimulus funds.

The constitutional property tax caps in Senate Joint Resolution 1 must pass the Indiana House before Hoosier voters can vote in 2010 to make the caps a permanent part of the Indiana Constitution. Without constitutional property tax caps, the other governing units within the FTCSC district can use the Distressed Unit Appeals Board to bypass the caps and raise property taxes. Also, if the property tax caps are not included in the Indiana Constitution, the legislative caps can be ruled unconstitutional and property taxes will quickly return their previous high levels.

BACKGROUND. The FTCSC Debt Service, Severance Debt Service, Capital Projects, Transportation, and Bus Replacement funds will be supported by property taxes in 2010. The two debt service funds must be fully supported, so any losses caused by the 1% property tax cap must be absorbed by the other three funds. Rainy Day Funds have been used by FTCSC for several years to maintain employment levels and remain solvent, but the 1% property tax cap will result in no available money to transfer to the Rainy Day Fund. Indiana Code 20-46-1 allows a school board to place a referendum on the ballot to replace property tax revenue that a school corporation will not receive because of property tax caps. A referendum property tax levy may be put into effect only if a majority of the individuals who vote in the referendum approves the property tax increase. A referendum property tax levy cannot be imposed for more than seven years, but the levy may be reimposed via another referendum. Based on FTCSC calculations, a resident with a gross assessed value of $150,000 paid $3,476.87 in property taxes in 2007. In 2010, that person would pay $1,761.35 if the referendum is approved. That is $261.35 above the 1% property tax cap.

Lebanon Community Schools Corporation

The Lebanon School Board approved a $40 million capital projects referendum for the November 2010 ballot. Both the Lebanon School Board and the Support Lebanon Students Political Action Committee have done a crummy job of educating voters about the referendum - they have merely been advocates for the dreams and schemes of the Lebanon Schools administration and the Greater Lebanon Community Vision Committee. To provide taxpayers The Whole Truth about the 2010 Lebanon Community Schools Referendum, Watchdog Indiana has put up the web page http://www.finplaneducation.net/the_whole_truth.htm.

This page was last updated on 03/31/13.