Mayor Informs Council About Tax Elimination Risks
January 19, 2022 at 3:22 a.m.
Mayor Informs Council About Tax Elimination Risks
By David [email protected]
During the Warsaw Common Council meeting Tuesday night, Mayor Joe Thallemer told them he had Baker Tilly (a financial consulting firm) do an analysis on the BPPT in the Warsaw community and he sent it out to the Council members.
“The reason we did this was that, right now, at the legislature, there’s a move to reduce, potentially eliminate, the business personal property tax in our community – in all communities, not just our community. It’s a reduction in revenue for all communities, and we wanted to see how it would impact specifically Warsaw,” Thallemer said.
He said the report he sent out to the Council gives them a “pretty good idea” of the impact.
“It’s an analysis of, if we lost 25%, 50% or all of the business personal property tax,” he said. “You can’t actually go in and do an actual analysis because it would be based on each tax form, based on the life and the age of the equipment. It’s a very painstaking process that really can not occur until maybe this does happen.”
However, he said, these estimates from Baker Tilly can provide an idea of how the tax elimination could impact the city.
“Essentially, what would happen is that our circuit breakers could go up significantly, from maybe $600,000 or $700,000 up to – if we lost all business personal property tax – it would go up to about $2.4 million. So that’s a loss, obviously, to the city,” Thallemer said. “It also has an impact on any residential taxpayer who is not at the circuit breaker at the 1%. Their residential property taxes would go up as well.”
He said he shared the Baker Tilly data with a few of the state legislatures to let them know where the city stands on the BPPT.
If 100% of the BPPT was eliminated, it would have the impact of dropping the city’s assessed valuation from $1.1 billion in 2021 to $791 million.
“So a pretty significant drop,” he said.
The city has been adding to its assessed valuation, which makes the tax rate go down and everyone pay less in property taxes, Thallemer said.
“Well, this is the exact opposite, so, by reducing the assessed value, our tax rate would go up significantly. In fact, I think there was an estimate. We’re at $1.27 (per $100 of assessed valuation), but our total rate in the community is $2.49. And that’s the county and all the other things we pay into. If we lost – let’s just say 25% of the assessed value – it would go up to $2.63, it would go up 14 cents. If we lost 50%, it would go up to $2.98, about 50 cents. And if we eliminate all the business personal property tax, it would go up to $3.21, about 72 cents. So there’s significant impact to our circuit breaker, our tax rate, our assessed value and the residential property taxes, for those residents who are not at 1%,” Thallemer explained.
He said there are several bills down at the state legislature, including a House Bill going to the floor, and a Senate Bill, but the House and Senate do not totally agree on the BPPT.
“I don’t know what’s going to happen, but as several years ago when there was a threat, AIM (Accelerate Indiana Municipalities) came out with a ‘Replace, Don’t Erase.’ In other words, if you’re going to eliminate business personal property tax, then you need to replace that revenue with something else,” Thallemer said.
He suggested the Council visit aimindiana.org/bppt for that whole campaign.
“There are counties, school corporations, libraries – I think there’s 26 state taxing unit organizations – that are on board with that. We’re all coming together,” Thallemer said.
The Warsaw Council will be asked at its next meeting to pass a resolution that it is opposed to the BPPT elimination. Thallemer asked the Council to review the Baker Tilly report and resolution by the next meeting.
“Again, I can’t tell you what exactly is going to happen if anything. There’s been some discussion that this should not occur until next year during a budget year because, to create a replacement mechanism that is going to impact budget policy, that’s not something that is typically done in an off-year, a short year. So I don’t know what’s going to happen. This thing could fail, but if you listened to the governor last week, in his State of the State, he talked about a reduction in business personal property tax,” Thallemer said.
Everyone will have to stay tuned to see what happens.
“We’ve got bonds that are pledged with these dollars, so we can’t just pull the rug out from under that,” he continued, noting that this state legislature session is “fast and furious” and things come up pretty quickly.
Council President Jack Wilhite asked, “The way this (BPPT elimination) would affect us is that we would not be getting as much revenue if that passed, am I correct? And if we don’t get enough revenue, we would either have to, most likely, raise our rates, if we could, because there’s also circuit breakers and other things that would prevent us from doing so?”
“Right,” Thallemer responded.
“This could potentially be very, very damaging to all communities,” Wilhite said.
Regarding the impact on the circuit breaker, Thallemer said right now the city of Warsaw is losing about $700,000 a year because of the circuit breaker. “That could go crazy because all these residences would be pushed up against their circuit breaker,” he said.
As an example, if a home is worth $100,000 now, and the property owner is paying $900 annually in taxes, that could go up to $1,000 but no more because that’s the 1% cap. “But if it went up more because the assessed value had shrunk down, we couldn’t collect that, which is what a circuit breaker is, which means now the city isn’t able to collect that revenue,” Thallemer said.
“It could potentially force us into a corner where we could not pay for the obligations we’ve already got,” Wilhite said. “That’s the worse-case scenario.”
Thallemer said that was an unintended consequence but the state is discussing the possibility of the state eating the loss through tax credits. The state is not only talking about replacement revenue, but also the BPPT slowly dropping down to zero over time, or just reducing the tax down to 25%. The Senate and House have different versions and will have to reconcile the bills before being sent on to Holcomb for his signature.
Thallemer said Baker Tilly did a “nice job” with the BPPT study and asked the Council to review the information.
“Take a look at what it will do to the county, to the city, to our taxpayers, to our circuit breakers. It’s what could happen,” Thallemer said.
Councilman Mike Klondaris asked when they will vote on it. Thallemer didn’t know, but said it’s a short legislative session and may have to be over by the end of February.
“So I would keep an eye on that,” he said.
During the Warsaw Common Council meeting Tuesday night, Mayor Joe Thallemer told them he had Baker Tilly (a financial consulting firm) do an analysis on the BPPT in the Warsaw community and he sent it out to the Council members.
“The reason we did this was that, right now, at the legislature, there’s a move to reduce, potentially eliminate, the business personal property tax in our community – in all communities, not just our community. It’s a reduction in revenue for all communities, and we wanted to see how it would impact specifically Warsaw,” Thallemer said.
He said the report he sent out to the Council gives them a “pretty good idea” of the impact.
“It’s an analysis of, if we lost 25%, 50% or all of the business personal property tax,” he said. “You can’t actually go in and do an actual analysis because it would be based on each tax form, based on the life and the age of the equipment. It’s a very painstaking process that really can not occur until maybe this does happen.”
However, he said, these estimates from Baker Tilly can provide an idea of how the tax elimination could impact the city.
“Essentially, what would happen is that our circuit breakers could go up significantly, from maybe $600,000 or $700,000 up to – if we lost all business personal property tax – it would go up to about $2.4 million. So that’s a loss, obviously, to the city,” Thallemer said. “It also has an impact on any residential taxpayer who is not at the circuit breaker at the 1%. Their residential property taxes would go up as well.”
He said he shared the Baker Tilly data with a few of the state legislatures to let them know where the city stands on the BPPT.
If 100% of the BPPT was eliminated, it would have the impact of dropping the city’s assessed valuation from $1.1 billion in 2021 to $791 million.
“So a pretty significant drop,” he said.
The city has been adding to its assessed valuation, which makes the tax rate go down and everyone pay less in property taxes, Thallemer said.
“Well, this is the exact opposite, so, by reducing the assessed value, our tax rate would go up significantly. In fact, I think there was an estimate. We’re at $1.27 (per $100 of assessed valuation), but our total rate in the community is $2.49. And that’s the county and all the other things we pay into. If we lost – let’s just say 25% of the assessed value – it would go up to $2.63, it would go up 14 cents. If we lost 50%, it would go up to $2.98, about 50 cents. And if we eliminate all the business personal property tax, it would go up to $3.21, about 72 cents. So there’s significant impact to our circuit breaker, our tax rate, our assessed value and the residential property taxes, for those residents who are not at 1%,” Thallemer explained.
He said there are several bills down at the state legislature, including a House Bill going to the floor, and a Senate Bill, but the House and Senate do not totally agree on the BPPT.
“I don’t know what’s going to happen, but as several years ago when there was a threat, AIM (Accelerate Indiana Municipalities) came out with a ‘Replace, Don’t Erase.’ In other words, if you’re going to eliminate business personal property tax, then you need to replace that revenue with something else,” Thallemer said.
He suggested the Council visit aimindiana.org/bppt for that whole campaign.
“There are counties, school corporations, libraries – I think there’s 26 state taxing unit organizations – that are on board with that. We’re all coming together,” Thallemer said.
The Warsaw Council will be asked at its next meeting to pass a resolution that it is opposed to the BPPT elimination. Thallemer asked the Council to review the Baker Tilly report and resolution by the next meeting.
“Again, I can’t tell you what exactly is going to happen if anything. There’s been some discussion that this should not occur until next year during a budget year because, to create a replacement mechanism that is going to impact budget policy, that’s not something that is typically done in an off-year, a short year. So I don’t know what’s going to happen. This thing could fail, but if you listened to the governor last week, in his State of the State, he talked about a reduction in business personal property tax,” Thallemer said.
Everyone will have to stay tuned to see what happens.
“We’ve got bonds that are pledged with these dollars, so we can’t just pull the rug out from under that,” he continued, noting that this state legislature session is “fast and furious” and things come up pretty quickly.
Council President Jack Wilhite asked, “The way this (BPPT elimination) would affect us is that we would not be getting as much revenue if that passed, am I correct? And if we don’t get enough revenue, we would either have to, most likely, raise our rates, if we could, because there’s also circuit breakers and other things that would prevent us from doing so?”
“Right,” Thallemer responded.
“This could potentially be very, very damaging to all communities,” Wilhite said.
Regarding the impact on the circuit breaker, Thallemer said right now the city of Warsaw is losing about $700,000 a year because of the circuit breaker. “That could go crazy because all these residences would be pushed up against their circuit breaker,” he said.
As an example, if a home is worth $100,000 now, and the property owner is paying $900 annually in taxes, that could go up to $1,000 but no more because that’s the 1% cap. “But if it went up more because the assessed value had shrunk down, we couldn’t collect that, which is what a circuit breaker is, which means now the city isn’t able to collect that revenue,” Thallemer said.
“It could potentially force us into a corner where we could not pay for the obligations we’ve already got,” Wilhite said. “That’s the worse-case scenario.”
Thallemer said that was an unintended consequence but the state is discussing the possibility of the state eating the loss through tax credits. The state is not only talking about replacement revenue, but also the BPPT slowly dropping down to zero over time, or just reducing the tax down to 25%. The Senate and House have different versions and will have to reconcile the bills before being sent on to Holcomb for his signature.
Thallemer said Baker Tilly did a “nice job” with the BPPT study and asked the Council to review the information.
“Take a look at what it will do to the county, to the city, to our taxpayers, to our circuit breakers. It’s what could happen,” Thallemer said.
Councilman Mike Klondaris asked when they will vote on it. Thallemer didn’t know, but said it’s a short legislative session and may have to be over by the end of February.
“So I would keep an eye on that,” he said.
Have a news tip? Email [email protected] or Call/Text 360-922-3092