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HomeMy WebLinkAboutSouth Bend Legislative Impact Presentation FILEDCity of South Bend Legislative Updates and Impact Illustrations August 13, 2025 2 Setting the Scene –Timeline of Changes LEGISLATIVE HIGHLIGHTS 2025 •MLGQ for 2026 budget capped at 4% •County Council may adopt a LIT Expenditure Rate to fund homestead property tax credits •New controlled project/referendum thresholds for property tax debt effective 7/1/2025 2026 •Year 1 of phasing in of new homestead deduction formulas and new 2% property assessment deduction •BPP placed in service as of 1/1/2026 exempt from 30% depreciation floor •BPP de minimis exemption amount increase to $2 million for 1/1/2026 assessment •MLGQ formula for 2027 budget year reverts to current formula •Elimination of Excess Levy Appeal mechanism for growing communities 2027 •Year 2 of phasing in of new homestead deduction formulas and new 2% property assessment deduction •Final year of LIT distributions under current structure •Counties and eligible municipalities may adopt LIT under new structure 2028 •Year 3 of phasing in of new homestead deduction formulas and new 2% property assessment deduction •First year of LIT distributions for eligible entities under new structure •Expiration of LIT for Property Tax Replacement, which eliminates the LIT-funded property tax replacement credit for property taxpayers in applicable communities 3 Setting the Scene –Timeline of Changes (cont’d) LEGISLATIVE HIGHLIGHTS 2029 •Year 4 of phasing in of new homestead deduction formulas and new 2% property assessment deduction •New procedural requirements for budget year 2030 decisions on increases for property tax rates/levies 2030 •Year 5 of phasing in of new homestead deduction formulas and new 2% property assessment deduction 2031 •Year 6 (final year) of phasing in of new homestead deduction formulas and new 2% property assessment deduction •LIT rates adopted under new LIT structure expire 12/31/2031 absent adopting body approval of a readoption ordinance in 2031 4 Main areas of change affecting property taxes and income taxes in SEA 1-2025 •Property taxes •Increased automatic deductions based on property classification •Increased the de minimis business personal property exemption •Changed the calculation methodology for the agricultural land base rate •Elimination of the Property Tax Relief Local Income Tax •Budgeting -limited the maximum levy growth quotient for 2026, with re- worked formulas thereafter •Income Taxes •Local income tax structure change effective taxes payable 2028 5 Homestead Property Assessment Deductions & Credits SEA 1 HIGHLIGHTS 2025 2026 2027 2028 2029 2030 2031 Standard Deduction $48,000 $48,000 $40,000 $30,000 $20,000 $10,000 $0 Supplemental Homestead Deduction 37.5%40%46.0%52.0%57.0%62.0%66.7% Supplemental Homestead Credit Lesser of $300 or 10.0% of net property tax bill Lesser of $300 or 10.0% of net property tax bill Lesser of $300 or 10.0% of net property tax bill Lesser of $300 or 10.0% of net property tax bill Lesser of $300 or 10.0% of net property tax bill Lesser of $300 or 10.0% of net property tax bill 65 & over (Credit)$150 $150 $150 $150 $150 $150 Disabled homeowner (Credit) $125 $125 $125 $125 $125 $125 “65 and Over” Credit Qualification Threshold: •For a single filer, the adjusted gross income must not exceed $60,000. •For a joint filer, the adjusted gross income must not exceed $70,000. Income eligibility is based on the calendar year two years prior to the year in which the property taxes are due. 6 Homestead Property Assessment Deductions & Credits SEA 1 HIGHLIGHTS 2025 2026 2027 2028 2029 2030 2031 Home Value (1) $240,714 $240,714 $240,714 $240,714 $240,714 $240,714 $240,714 Standard Deduction $48,000 $48,000 $40,000 $30,000 $20,000 $10,000 $0 Supplemental Homestead Deduction $72,267 $77,086 $92,328 $109,571 $125,807 $143,043 $160,556 Net Assessed Value $120,446 $115,628 $108,386 $101,143 $94,907 $87,671 $80,158 Annual % +/--4.0%-6.3%-6.7%-6.2%-7.6%-8.6% (1) Indiana average home value per Zillow, Inc. Indiana Housing Market: 2025 Home Prices & Trends | Zillow. Note: The Gross Assessed Value would need to grow by 50% to $361,700 for the 2031 net assessed value to return to $120,446. 7 2% Property assessment deductions SEA 1 HIGHLIGHTS 2025 2026 2027 2028 2029 2030 2031 Standard Deduction 0%6%12%19%25%30%33.4% Note: The agricultural land base rate changed and is anticipated to decrease land assessed value. 2% properties include agricultural, non-homestead residential, and long-term care facilities. 8 Business Personal Property SEA 1 HIGHLIGHTS Removes 30% personal property floor for equipment placed in service after January 1, 2025. Except for taxpayers in a TIF allocation area established prior to January 1, 2025. 2025 2026 2027 De minimis exemption from taxation - Acquisition cost of equipment $80,000 $80,000 $2,000,000 9 2025 Assessed Value Characteristics CITY OF SOUTH BEND 35% 32% 20% 14% Composition of Net Assessed Value 1% - Homestead property 2% - Rental residential, agricultural, and long-term care property 3% - Commercial / industrial 3% - Business Personal Property 81% 19% Assumed composition of Business Personal Property Assumed greater than $2 million of acquisition cost Assumed $2 million or less of acquisition cost Source: St. Joseph County 2025 Abstract Source: St. Joseph County Auditor’s office assessed value per parcel data. 10 Max Levy Growth Quotient (MLGQ) •MLGQ capped at 4% again in 2026. Was estimated at 5.6% without the cap. •After 2026 the MLGQ will be based on the current formula (6 -year average of non-farm personal income). •Beginning in 2029 (for budget year 2030), the budgeted property tax levy may not exceed the levy of the preceding annual budget unless the fiscal body adopts an ordinance affirming a tax rate and tax levy increase following a separate public hearing no later than 15 days before the regular budget public hearing. SEA 1 HIGHLIGHTS 11 Impact of increased tax rates, LIT changes on circuit breaker losses •What are circuit breaker credits? •What is the property tax replacement credit and how did it change? •Impact on the City’s illustrative circuit breaker losses 12 What are circuit breaker tax credits? CIRCUIT BREAKER CREDITS (“TAX CAPS”) •Credits that limit a taxpayer’s total property tax liability to a fixed percentage of the gross assessed value •Computed property tax bill is compared to the “cap” •Taxes over the cap are simply not paid •The result is a reduction in property taxes collected and distributed to taxing units •Circuit breaker credits are allocated to taxing units based on the percentage the taxing unit’s tax rate is to the overall district tax rate Property Classification Gross Assessed Value Capped percentage Maximum tax liability Residential Homestead $100,000 1%$1,000 Other residential, rental, agricultural land and long-term care facilities $100,000 2%$2,000 Commercial/industrial (real/personal)$100,000 3%$3,000 13 Sample property tax bill CIRCUIT BREAKER CREDITS (“TAX CAPS”) Gross tax bill with a $4.5722 rate $3,045 Less: Circuit breaker credits (1,045) Net tax bill paid by homeowner $2,000 Residential home value $200,000 Tax limit @ 1.0%$2,000 Net assessed value (after new deductions)$66,600 These credits are proportionally allocated to the taxing units (county, city, township, school, library, special taxing district) in the form of reductions to the property tax levy If a property is at the tax cap, an increase in the tax rate results in an increase in circuit breaker credits (levy reductions to taxing units) If assessed value increases, If assessed value decreases, Downward pressure on tax rates Upward pressure on tax rates 14 Property Tax Replacement Credit LIT PTRC •Currently, St. Joseph County has a 0.6004% Local Income Tax dedicated to Property Tax Relief (PTR). •This PTR Credit pays a portion of the property taxes levies by taxing units •Reduces a property owner’s gross tax bill •The reduced gross tax bill also lowers the Circuit Breaker losses allocated to units of government •Pursuant to SEA 1, this income tax expires following 2027 15 Sample tax bill - Revisited CIRCUIT BREAKER CREDITS AND LIT PTRC Tax bill with a $4.5722 rate $3,045 Less: Circuit breaker credits (1,045) Net tax bill paid by homeowner $2,000 Residential home value $200,000 Tax limit @ 1.0%$2,000 Net assessed value (after new deductions)$66,600 Due to the LIT PTR Credit, the Circuit Breaker losses allocated to taxing units decrease from $1,045 to $589. Gross tax bill with a $4.5722 rate $3,045 Less: Portion of tax bill paid by income taxes (456) Net Tax bill 2,589 Less: Circuit breaker credits (589) Net tax bill paid by homeowner $2,000 With a LIT PTRCWithout a LIT PTRC 16 Legislative Services Agency (LSA) SEA 1-2025 Fiscal Analysis Notes SEA 1 HIGHLIGHTS •The final LSA-published fiscal analysis for SEA 1 is dated April 9, 2025 •The baseline LSA data uses 2024 tax rates and levies, and a combination of 2025 deduction and 2026 gross assessed value information on a parcel level •The model accounts for the various changes to the property tax system, including •Changes to the de minimis exemption level for business personal property, which were subsequently modified by HEA 1427 •New Homestead Deduction and 2% Property Category Deduction calculations •New Homestead Credits (lesser of one-tenth of property tax bill or $300 per parcel) •Assumptions of future assessed value growth based on the above changes, combined with historical trend data •Assumed MLGQ of 4.0% for 2026, 5.7% for 2027, and 5.3% for 2028 •Expiration of the Property Tax Relief LIT following 2027 •There is no LSA estimate of LIT revenues under the new LIT structure 17 LSA SEA 1 Fiscal Analysis Data CITY OF SOUTH BEND $0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 2020 2021 2022 2023 2024 2025 2026 2027 2028 Net Levy Circuit Breaker Credits Est. Reduction from Pre-SEA 1 Est. Net Levy Source: Historical levy and Circuit Breaker losses are per the 2020 – 2025 St. Joseph County Circuit Breaker Reports prepared by the DLGF. Estimated figures per the LSA “Estimated Net Levies SB 1 (2025) – 2nd Reading Amendment Adopted by the House of Representatives” report dated April 9, 2025 Actual Estimated 18 Baker Tilly County-Level Property Tax Model Notes CITY OF SOUTH BEND •Based upon 2025 assessed values, tax rates, and levies as provided by the DLGF and the St. Joseph County Auditor’s and Assessor’s offices •Incorporates •New 1% & 2% property category deduction formulas from SEA 1 based on County Auditor data and assumptions based on Census data for property values •Assumption for increase in de minimis qualifying business personal property from SEA 1 and HEA 1427 based on County Assessor data •Expiration of Local Income Tax Property Tax Replacement Credit in 2028 pursuant to SEA 1 •Assumptions •Assumed 5% annual real property assessed value growth factor based on historical county-wide average •Assumed 4% annual maximum levy growth factor •Assumed proportional allocation of Circuit Breaker Tax Credits to taxing units based on 2025 actuals •Assumes no change to the 2025 levies in property tax debt funds and no change to 2025 rates for rate-controlled funds 19 Historical and Illustrative Net Assessed Values 2021-2031 CITY OF SOUTH BEND $0 $500,000,000 $1,000,000,000 $1,500,000,000 $2,000,000,000 $2,500,000,000 $3,000,000,000 $3,500,000,000 $4,000,000,000 $4,500,000,000 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Historical Net Assessed Value Illust. Net Assessed Value Source: Historical net assessed values are per the 2021 – 2025 St. Joseph County Abstracts. 20 Historical and Illustrative City Unit Tax Rate 2021 - 2031 CITY OF SOUTH BEND $0.0000 $0.5000 $1.0000 $1.5000 $2.0000 $2.5000 $3.0000 $3.5000 $4.0000 $4.5000 $5.0000 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Historical Tax Rate Illustrative Tax Rate Source: Historical tax rates are per the 2021 – 2025 St. Joseph County Budget Order. 21 Historical and Illustrative Net Property Tax Levy, Circuit Breaker Credits, and Supplemental Homestead Credits CITY OF SOUTH BEND $0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 $160,000,000 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Net Levy Circuit Breaker Credits Supplemental Homestead Credit Source: Historical levy and Circuit Breaker losses are per the 2020 – 2025 St. Joseph County Circuit Breaker Reports prepared by the DLGF. Actual Illustrative 22 Local Income Tax •Establishes maximum LIT expenditure rate at 2.9% •Requires annual adoption to renew expenditure rate beginning in 2031 •Eliminates Local Income Tax (LIT) for Property Tax Replacement Credit (PTRC) beginning in 2028 •Eliminates Local Income Tax Councils Implementation beginning in 2028 (2027 Adoption Year) Rate Adoption County Services 1.2%County Council Fire Protection & EMS Services 0.4%County Council Non-municipal units (schools, townships, libraries, and binding review units with exceptions) 0.2% County Council upon petition from non- municipal units Municipalities <3,500 population general revenue 1.2% County Council upon petition from municipal units Municipalities = >3,500 population general revenue 1.2%Municipalities SEA 1 HIGHLIGHTS 23 Baker Tilly LIT Model Notes CITY OF SOUTH BEND •Methodology: •Based on the employed population: Adjusted Gross Income (AGI) based on a 2019 -2023 employed population of 46,933 and a 2019-2023 per capita mean income of $72,489 per the US Census Bureau. •Based on the number of households : AGI based on a 2019-2023 total number of households (less those with public assistance) of 33,683 and a 2019 -2023 household mean income of $72,489 per the US Census Bureau. •Assumes an adjustment of 94% to account for deductions/exemptions claimed by taxpayers. •Scenarios: •2025 Baseline Information: Based upon 2025 DLGF and State Budget Agency (SBA) data. •2025 Adjusted for Inflation: Based upon 2025 DLGF and SBA data, with an assumed annual inflation factor of 3.8%, based on US Bureau of Labor Statistics CPI data. 24 Illustrative Municipal Local Income Tax Revenues CITY OF SOUTH BEND $12,288,400 $24,576,700 $29,492,100 $11,475,700 $22,951,500 $27,541,800 $38,095,810 $38,095,810 $38,095,810 $6,810,500 $13,621,100 $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 0.50% Municipal Rate 1.00% Municipal Rate 1.20% Municipal Rate 0.20% Fire Protection/EMS LIT Rate 0.40% Fire Protection/EMS LIT Rate Calculation based on employed population Calculation based on number of households 2025 Certified LIT Revenues City's illustrative portion of the Fire Protection/EMS LIT Rate Note: 2025 actual data represents the City’s distribution of the Certified Shares, Economic Development, and Public Safety LI T Expenditure rates, per the DLGF. 2025 Baseline Information 25 Illustrative Municipal Local Income Tax Revenues CITY OF SOUTH BEND $13,743,200 $27,486,300 $32,983,600 $12,834,300 $25,668,700 $30,802,400 $42,605,900 $42,605,900 $42,605,900 $7,616,800 $15,233,700 $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 0.50% Municipal Rate 1.00% Municipal Rate 1.20% Municipal Rate 0.20% Fire Protection/EMS LIT Rate 0.40% Fire Protection/EMS LIT Rate Calculation based on employed population Calculation based on number of households 2025 Certified LIT Revenues City's illustrative portion of the Fire Protection/EMS LIT Rate Note: 2025 actual data represents the City’s distribution of the Certified Shares, Economic Development, and Public Safety LI T Expenditure rates, per the DLGF, and adjusted for inflation as noted. 2025 Adjusted for Inflation This information should not be construed as a recommendation or an offer of services. 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