Mayor’s Friday release of income tax details makes for Labor Day weekend of study for Bloomington city councilmembers

Late Friday, after a noon work session, Bloomington city council members received some additional details from the city administration about a proposed increase to the local income tax (LIT). They’ll start considering it at a special meeting on Wednesday, Sept. 9 and could take a vote as soon as Sept. 16.

Bloomington’s mayor, John Hamilton, has modified the rate and the focus of the local income tax that he pitched on New Year’s Day. It’s now proposed to be a 0.25-point increase instead of 0.5 points.

And instead of focusing just on sustainability initiatives like transit, affordable housing, energy, and local food—which Hamilton described in his State of the City address—it now includes a range of other projects.

Among the additional programs that Hamilton wants to fund with the extra LIT revenue are social services, jobs programs, bicycle-pedestrian infrastructure, curbside composting, health care, and parks capital development projects.

No longer a part of the mix is funding for public transit. Funding for the public bus system had been been a major part of the original proposal, about half of it. For many, it was a compelling reason to support an increased tax.

Several elements in the LIT draft spending plan release on Friday turn out to be continuations of initiatives that are included in the recently proposed 2021 budget, or programs that won the council’s approval in early August as part of a roughly $2 million appropriation ordinance.

In several cases—like increased Jack Hopkins social services funding—the same initiative would be supported by three funding sources, in sequence: the August appropriation ordinance, the 2021 budget, and the additional LIT revenue. The three phases of funding form the banner of Hamilton’s “Recover Forward” plan, which he sketched out in a mid-July announcement.

As soon as Sept. 16, the city council could take a final vote to enact the 0.25-point increase, which would apply to all Monroe County residents.

Statements by city elected officials and city staff have caused some councilmembers to conclude that their vote needs to be taken by Sept. 16 in order for an Oct. 31 deadline to be met.

Based on interviews with members of the local legal community, the Oct. 31 deadline could be met, even if the city council’s vote were taken a few weeks after Sept. 16.

If the tax is enacted by the Oct. 31 deadline, then Monroe County workers would start paying it on Jan. 1, 2021. If Bloomington’s city council were to vote with a big enough majority (9-0 or 8-1), that would be enough to enact the tax. On that scenario, the wording of the statute indicates that neither the county council nor the Ellettsville town council would need to vote.

If Bloomington’s city council fell short, then based on public statements by county electeds, the chances that it would pick up the needed votes on the county council or the Ellettsville town council could be considered remote, whether their votes were taken before or after Oct. 31.

The tax would generate roughly $4 million for Bloomington and a bit more than $4 million for Monroe County government and the town of Ellettsville. The way the money gets divided depends on the method chosen—it can be based on population or on property tax footprint.

City council president Steve Volan said at Friday’s noon work session that councilmembers should limit themselves for that meeting to asking questions about the income tax proposal, and save debate for their meetings on Sept. 9 and Sept. 16.

Fielding their questions were deputy mayor Mick Renneisen and the city’s corporation counsel, Philippa Guthrie. In large part, the questions didn’t get answers during Friday’s work session—the idea was to allow time for staff to give detailed answers by next Wednesday.

Released late Friday, after the city council’s noon work session, the spending plan for the roughly $4 million in revenue is still in draft form—it’s meant to be “illustrative.” It’s not intended to be finalized until after the tax is enacted. According to the city council’s information packet, if the tax is enacted, the administration would finalize the capital improvement plan before Monroe County residents start paying the increased tax, on Jan. 1, 2021.

Draft capital plan for LIT

The table below was compiled by The Square Beacon from city documents. The individual programs lumped together under shorthand categories are included with their longer descriptions in a shared Google Sheet.

[Draft LIT Capital Improvement Plan (one page)]

[Sept. 9, 2020 Bloomington city council meeting information packet]

Square Beacon shorthand general category Phase I: 2020 App Ordinance (2019 Reversions) Phase II: 2021 Budget (Reserves and Rainy Day) Phase III: LIT collected 2021 expended 2022 Phase III: 2023 and beyond
buildings: energy saving $250,000 $250,000 $1,000,000 yes
curbside composting starting 2023 yes
local food $75,000 $175,000 $200,000 yes
pedestrian/bike $650,000 $450,000 $1,175,000 yes
arts $100,000 $150,000 $300,000 yes
digital/IT $35,000 $50,000 $300,000 yes
health care $25,000 $50,000 yes
home ownership $450,000 $400,000 yes
jobs $475,000 $425,000 $425,000 yes
parks capital improvements $150,000 yes
social services $250,000 $250,000 $700,000 yes
transportation demand mngmt
$250,000 yes
urban forestry $350,000 yes

At Friday’s work session, deputy mayor Mick Renneisen pointed to some of the trail and bicycle improvements as having big price tags and “no funding source without this new tax.”

Renneisen also said the new tax is needed in order to maintain existing operations. Without the additional revenue, Renneisen said, “We won’t be keeping the lights on and not doing many of the investments in our community that I know you all would like to make.” He added that those additional investments would be important, under the platform of climate justice, economic justice, and racial justice.

Councilmember Sue Sgambelluri told Renneisen: “The more specific you are, the mayor can be, in proposed expenditures for this, the better.”

Sgambelluri said the inclusion of transit funding was one the most compelling reasons she found in the mayor’s original proposal for a 0.5-point increase. She contrasted two different messages that the council is now hearing from the administration—that the tax increase is necessary to “realize our bold vision” and also to “preserve existing services.” Sgambelluri said, “Those are two kind of different things.”

Timing: Legal requirements

At Friday’s noon work session, the question of the quick timing was raised by councilmember Susan Sandberg. “Is this being fast-tracked? And why? And what impact does that have on the ability to solicit community input?” Sandberg asked.

Sandberg wanted to know: “Why is this absolutely necessary to have this resolved by the 16th of this month?”

The statutory deadline in question falls on Oct. 31. If the tax increase were enacted before Oct. 31, then it would take effect starting Jan. 1, 2021. If the tax increase were enacted after Oct. 31, then Monroe County workers would not start paying the extra 0.25 points until October 2021.

The Sept. 16 date assumes a goal of making the tax effective starting Jan. 1, 2021, which means the Oct. 31 deadline is important.

One scenario for the Bloomington city council vote, whenever it happens, is that a big enough majority to enact the tax increase is achieved without any additional votes from county council members or Ellettsville town councilmembers—based on the allocation of voting weights on the tax council. The voting members of the tax council are the Bloomington city council, the Monroe County county council and the Ellettsville town council.

Either a 9–0 or an 8-1 tally on the Bloomington city council would achieve the necessary majority on the tax council. Under the state statute, after the other members are notified by the auditor that the Bloomington city council has achieved the required majority, the other members of the tax council “need not vote on the proposed ordinance.” [IC 6-3.6-3-8]

On that scenario, it doesn’t appear to matter if the city council were to vote in late October—the required majority would be achieved by Oct. 31 and the other members wouldn’t need to vote.

The Sept. 16 date might come into play on the other scenario: If the Bloomington city council were to fail by itself to achieve the necessary majority to enact the tax.

Where does Sept. 16 come from? It comes from reckoning about 40 days backwards from Oct. 31.

As described by city council president Steve Volan at Friday’s work session, a vote by the city council on its resolution triggers a process for the other voting members of the tax council. According to Volan, following the process means “there needs to be 30 days where each unit of the income tax council can consider it and vote on it.” Volan added, “The auditor needs 10 days to circulate it.”

Volan’s description doesn’t square up with the wording of the statute, which describes maximum time limits for action, not minimums. [IC 6-3.6-3-8]

About the timeframe for other members of the tax council to act, the statute says the requirement is to take a vote “within thirty (30) days” after receiving the notification from the county auditor. The time for the auditor to distribute the ordinance to the other members of the tax council for their vote, after a vote of the city council, is described in the state statute as “within (10) days.”

“The auditor could certainly distribute the ordinance faster than the 10 days,” city council attorney Stephen Lucas wrote in an emailed statement to The Square Beacon, the day before the council’s work session.

In the same way, the county council could take its vote without letting the maximum 30 days elapse.

A city council vote on Sept. 16 appears to have the effect of forcing the other members of the tax council to vote before Oct. 31, based on the maximum of 40 days that are laid out in the statute.

Without saying he thought that the other members of the tax council would be obligated to vote, Lucas wrote to The Square Beacon: “…I don’t think obligating them to [vote by Oct. 31] is the reason for the City Council acting by September 16. It’s possible the other fiscal bodies may want to discuss a proposed ordinance at more than one meeting, much like the city council intends to do.”

In a press release issued in late July, six of seven county councilors took a position against a LIT increase at this time. The only councilor not included on the press release was Marty Hawk, who is a Republican—the rest are Democrats. Hawk is also unlikely to support a LIT increase. Chances look remote that any extra votes could be picked up—on either the county council or the Ellettsville town council.

Economic Development Tax: Legal requirements on spending?

At Friday’s city council work session, deputy mayor Mick Renneisen noted that the LIT proposal follows the Indiana local income tax statute under the category of economic development. That’s the same proposal that mayor Hamilton made on New Year’s Day.

An alternative would be to enact the tax under the certified distributive shares category. The choice between those two options has two different implications for the distribution of the money. Who gets it? What’s the formula for the calculation?

Under the economic development category, the additional revenue would be distributed to Bloomington, Monroe County government, and the town of Ellettsville.

If Bloomington chose to enact the tax increase under the regular certified distributive shares category, then a portion of the extra revenue would be allocated to several units of government in Monroe County, not just the city of Bloomington, Monroe County government, and the town of Ellettsville. The township governments would also get a share, as would the public transit agency, the public library, the fire protection district and the solid waste management district.

Under the economic development category of local income tax (but not under the regular certified shares category), there are two different options for distributing the revenue. One is based on a property tax footprint. The other is based on population. Using a population-based approach would give Bloomington about 58 percent of the revenue. Using the property tax footprint would give Bloomington a little less than 50 percent.

At Friday’s city council work session, the conversation did not include the contrast between income tax categories. Instead, the focus was on how money generated through the economic development category can be spent. Is it constrained to be spent just on economic development purposes?

Deputy mayor Mick Renneisen told council members, that the state legislature had adopted some different language, which now allows expenditures on economic development or “anything else that you would normally spend money on a city budget.” Renneisen said, “It’s really opened the door. It’s kind of contradictory to the way they originally set it up, but it appears that it can be used for a lot more than it was originally intended for.”

Philippa Guthrie, the city’s corporation counsel elaborated on Renneisen’s description: “I would just add that the catch-all that says you can use it for any other lawful purpose that you use your other funds for, I think was added—at least we think it was added a few years ago—because the EDIT [economic development income tax] was so restrictive. And communities were asking for more leeway. And it’s pretty clear. It’s broadened it immensely.”

Hearing that explanation, councilmember Isabel Piedmont-Smith expressed confusion about whether a capital improvement plan was really required under the statute.

Guthrie told Piedmont-Smith:

Sometimes when the legislature, I can only surmise, when they amend statutes, they don’t go all the way back to the beginning and make sure everything works together. So they still require a capital improvement plan. And our tax counsel has just advised that we put whatever we are doing in that capital plan whether or not it looks like a purely capital expenditure.

In the current statute [IC 6-3.6-10-2], the catch-all for permissible use that Guthrie described is the final point (11) in a laundry list of possible uses:

IC 6-3.6-10-2 Economic development purposes; use of revenue
Sec. 2. A county, city, or town may use revenue allocated for economic development purposes under IC 6-3.6-6-9 for any combination of the following purposes:

(9) Funding of a revolving fund established under IC 5-1-14-14.
(10) For a regional venture capital fund or a local venture capital fund.
(11) For any lawful purpose for which money in any of its other funds may be used

The catch-all and the capital improvement plan both been a part of Indiana Code for at least 10 years. The Square Beacon is working to piece together the longer history.

The General Assembly’s 2015 overhaul to the income tax code, which entailed replacement of a large swath of the statute with a new version, included both the catch-all for use of economic development income tax as well as the requirement for the capital improvement plan.

Also in the 2014 version of Indiana Code, both the catch-all and the capital improvement plan are included. But the catch-all “any lawful purpose” doesn’t appear in the same laundry list. Rather it appears as a separate point on its own:

IC 6-3.5-7-13.1 Economic development income tax funds; deposits; uses
Sec. 13.1.
(a) The fiscal officer of each county, city, or town for a county in which the county economic development tax is imposed shall establish an economic development income tax fund. …
(b) …revenues from the county economic development income tax may be used as follows:
(1) By a county, city, or town for economic development projects, for paying, notwithstanding any other law, under a written agreement all or a part of the interest owed by a private developer or user on a loan …
(2) By a county, city, or town for:
(A) the construction or acquisition of, or remedial action with respect to, a capital project for which the unit is empowered to issue general obligation bonds or establish a fund under any statute listed in IC 6-1.1-18.5-9.8;

(F) to the extent not otherwise allowed under this chapter, funding substance removal or remedial action in a designated unit; or
(G) funding of a revolving fund established under IC 5-1-14-14.
(3) By a county, city, or town for any lawful purpose for which money in any of its other funds may be used.

It looks like the idea for the list during the 2015 overhaul was to bump the catch-all into the previous item by adding it verbatim to the end of the list. That meant the phrase “By a county, city, or town” was redundant—because it is already included in the heading of the list. So the redundant phrase was stricken from the catch-all item through a clean-up amendment in 2017.

The coexistence of the catch-all and the capital improvement plan date back at least to the 2009 code. The Square Beacon is working to track down the longer history of the statute.

In a recent interview with Republican state house representative Jeff Ellington, he told The Square Beacon that one of his areas of concern, and a possible area for legislative work in the 2021 session, is to make explicit and list out what income tax revenues can be spent on.

What’s up for Labor Day week?

The county council starts its budget sessions on Tuesday, Sept. 8, at 4 p.m. Background on the county’s budget process is available on the county council’s budget webpage.

If the Bloomington city council approves the local income tax increase, the county would need to create a capital improvement plan, in order for Monroe County government to be eligible to receive its portion of the extra revenue. So county councilors could give the proposed local income tax increase some kind of mention at their Tuesday session.

The city council meets in a special session on Wednesday, Sept. 9, to start considering the local income tax increase, with an eye towards a final vote the following week on Sept. 16. The text of the proposed legislation is included in the city council’s Sept. 9 meeting information packet.