Allow me to offer a Pulaski County finances crash course to improve residents’ understanding of what’s happening to your money.

“Levy Freeze? What the heck is that?”

Pursuant to state regulation, the property-tax revenue that a county and its various units, like towns and schools, may generate in a year is capped; this is the maximum levy — ‘levy’ being a shorter, fancier way of saying “money you may collect on an assessment”.

If, for example, the maximum levy is $1 million, and the net assessed value (NAV) of all taxable property in the district is $20 million, then the tax rate can be no higher than five cents on the dollar (with some exceptions). Would the NAV increase, then the tax rate would decrease so as not to generate revenue beyond the levy. (Occasionally, revenues accrued exceed the max, in which case the surplus, rather than being deposited into a normal fund, legally must be moved to the special Levy Excess Fund, subject to additional stipulations.) Annually, the state determines by how much the maximum levy may grow, in which case the tax rate might increase, depending on NAV.

Because, in the later 2000s, the county council froze our levy, it does not grow normally, shifting only as the state makes adjustments. Instead, the council adopted a .40% levy-freeze local income tax (LF LIT) to offset frozen–property-tax losses. In other words, the county reduced landowners’ share of the bill by increasing the amount taken out of paychecks.

Just as an unfrozen maximum levy is allowed to grow each year, the LF LIT may be raised to a set rate not to exceed 1.00%. Having the highest income tax in Indiana, Pulaski County has declined ever to increase the LF LIT rate, which is less than half of the cap.

By neither thawing the freeze nor upping the LF LIT, we have failed to generate a certain amount of money each year — approximately $2.8 million from 2017 through 2019; the county has battled increasingly insufficient income because of this gap since at least 2011. The four towns, 12 townships (and their fire-protection funds), and three libraries have also been shortchanged; the Pulaski County Public Library has had to cut staff to avoid limiting services, and the Town of Winamac has missed out on more than $360,000 from 2017 through 2019. Until 2016, the LIT Stabilization Fund was used to offset shortfalls, but addressing the growing disparity between potential and actual revenues drained it.

Among other recommendations financial consultant Jeff Peters has offered is the advice to thaw the freeze — to allow the total permissible amount of property taxes to resume normal annual growth, thereby creating additional income. In forecasting an annual deficit of $2.7-million, Mr. Peters assumes that we thaw the levy this year; i.e., the future will be even bleaker if we don’t do this.

“Why are my [income] taxes so blankety-blanking high?”

Our income-tax rate is 3.38%, divided into multiple components, with some revenues limited to very specific uses, and others more flexible.

Property-tax relief, applied at the individual parcel level (as opposed to the LF LIT, which is applied collectively), accounts for 1.18% and replaces revenues lost to owner-occupants’ Homestead Deductions, other residential exemptions, and general relief. One potential adjustment to the county’s tax schedule is the removal of one or more of these property-tax discounts to boost annual property-tax collections and the shift of part of the 1.18% relief rate to one of the expenditure-rate segments of the income tax.

The expenditure rate includes all income taxes other than property-tax relief and special-purpose taxes and is capped at 2.50%; with ours resting at 1.90%, only about half of the relief rate could be shifted before we would hit that limit. This 1.90% rate is subdivided into three sections.

1. General-purpose funding, financed by the .40% LF LIT and a 1.00% base tax, comprises school distributions and certified shares; the former have an obvious purpose, and the latter are the funds directed toward operations at multiple levels of local government.

2. County and town public-safety expenditures account for .25%.

3. Economic development covers the last .25%, funding the CDC office, half of the annual justice-center bond payment, other projects and departments as needed, and distributions to towns.

The final .30% of the income tax is the special-purpose tax for operating and maintaining the justice center. This tax expires at the end of 2020, at which point the income-tax rate should drop to 3.08%.

(Whether county finances will eventually be corrected enough to lower the income-tax rate further remains to be seen.)

“No, seriously, why are my taxes so high?”

In short, two reasons: we have lessened property taxes by taking more from paychecks (LF LIT and property-tax relief), and our small population is dwindling and aging, with fewer workforce participants whose earnings we can tax.

“Wait, you said something about $22 million!”

At the close of 2018, Pulaski County reported a cash-and-investments balance of $22,585,497.92.

However, government finances prove to be much more complicated than household money management and business budgeting. More funds than not are severely restricted to specific purposes by law. For example, the grant-based Revolving Loan Fund may only be used to lend to businesses, while the limitations on Local Road and Street are self-evident. It is more than possible to have surpluses in limited funds A-M while nearing poverty in flexible funds N-Z.

The four primary local-tax funds — General, Economic Development, Public Safety, and Justice Center — had a combined balance of about $6.6 million (and the two latter of these are restricted). Rainy Day and Riverboat add $1.6 million. Combined, these six funds began 2018 with a balance just shy of $9.1 million; expenses exceeded income by roughly $900,000. (To what extent this spending was necessary or excessive could only be determined through an examination of multiple departmental budgets, so I cannot answer this.) (Also, don’t forget that the Justice Center tax disappears after 2020; this is the largest contributor to the forecasted deficit.)

“So, what does this all mean?”

Our income-tax rate is high, and the decision neither to raise it, anyway, nor to thaw the property-tax levy freeze has contributed to our financial woes. Unfortunately, the upcoming annual operating deficit is not limited or attributable to just one fund: General, LIT - Public Safety, and Justice Center are all predicted to be in the red, with LIT - Economic Development being the lone major, local-tax, operational fund to remain solvent. Also unfortunately, the council may find raising enough revenues and cutting enough spending to escape a $2.7 million yearly shortfall to be a nearly impossible task when that amount is about a quarter of the aggregate annual budget of these funds.

I doubt that this explanation reassures residents, but I hope that it at least helps y’all to understand what has happened, is happening, and may happen and will inspire y’all to ask the right questions of your public servants. To what extent Pulaski County’s problem has been one of unnecessary spending, inadequate revenue, or both cannot be addressed here — or at all without rigorous analysis, but answering this question is crucial to righting the ship.

Nathan Origer has served as executive director of the Pulaski County Community/Economic Development Commission since April 2011. A native of North Judson, he holds a bachelor's degree from the University of Notre Dame, studying there on a Lilly Endowment Community Scholarship. He earned his master's degree in community planning from the University of Maryland where he focused on economic development and urban design and benefitted from an interdisciplinary curriculum that helped him to understand the contexts in which planning happens and how to work with stakeholders to develop plans for a community that reflect residents’, business owners’, and elected officials’ desires and needs. Before his employment at the CDC, he was a full-time community development planner at Kankakee-Iroquois Regional Planning Commission.