Opinion: Local income tax increase, a way to heal rift between Bloomington, other stakeholders?

On Wednesday, Bloomington’s city council could take a final vote that would enact an increase to the local income tax (LIT) that is paid by all residents of Monroe County, whether they live inside the city limits or not.

Bloomington mayor John Hamilton has proposed an increase of 0.855 points, which would make the total rate 2.2 percent. For county residents who pay the tax, it would mean an extra $85 dollars paid on every $10,000 of taxable income.

At the city council’s Wednesday night corral, there’s the possibility of some political horse trading, based on the amount of increase to the rate. The horse trading could even lead to a delay in the final vote for at least another week.

At-large council representative Matt Flaherty said at last week’s meeting he would support the rate as proposed by the mayor. But he added, “In working to meet my colleagues somewhere in the middle, at the very least, I think I can come down to 0.65, and find a balance of what I think is most essential.”

The balance to be struck in the package proposed by Hamilton is between public safety and essential services on the one hand, and climate change mitigation and quality of life on the other.

The focus of the council’s consideration now appears to be just the rate, and how much revenue it would mean for the city of Bloomington.

I think it’s wrong to make that the sole focus of deliberations.

It’s wrong for at least two connected reasons.

First, it only drives deeper the existing wedge between Bloomington and every other governmental unit in the county. That’s a well-documented wedge for which there’s plenty of blame to slather around. It includes the ongoing fight over annexation, and the governance framework for a possible expansion of the convention center, among other things.

Second, it fails to recognize that addressing the impacts of climate change will require a collaborative effort from all of the county’s other governmental units. I think the only question given careful study so far  by the city council is: What are Bloomington’s own needs?

Given that Bloomington has the power to enact a LIT increase that includes or excludes other governmental units, I think solid information is needed about the needs of those other governmental units.

Those other governmental units include: all 11 townships, the Monroe County Public Library, Bloomington Transit, Monroe Fire Protection District, Monroe County general government, Ellettsville, and Stinesville.

Question: What else should be included in the city council’s deliberations besides the rate of increase? Answer: The category of LIT to be increased.

The category of LIT that Hamilton has proposed to be increased is one that is not currently used in Monroe County at all: economic development.

If a LIT increase is enacted in the economic development category, then under state law the revenue from that rate gets divided among just four governmental units: Bloomington, Monroe County, Ellettsville and Stinesville.

Receiving zero extra dollars from an economic development LIT increase would be: 11 townships, the Monroe County Public Library, Bloomington Transit, and the Monroe Fire Protection District.

There’s a different category of LIT that is already used in Monroe County—0.9480 points worth—which is called “certified shares.” Under state law, the existing certified shares category distributes revenue to most other governmental units, including the public library and the public bus company, among others.

If a LIT increase of 0.855 points were enacted in the existing certified shares category, then every governmental unit in the county would receive nearly double the amount it already receives from that category.

For example, the city of Bloomington’s certified shares amount for 2022 was about $12.6 million. If another 0.855 points were enacted in the same category, Bloomington would see another $11.3 million.

For the Monroe County Public Library, which has $2.5 million worth of certified shares for 2022, an increase of 0.855 points in that category of LIT would mean another $2.3 million.

Why use economic development as the category of LIT? On Jan. 1, 2020, when Bloomington mayor John Hamilton proposed a 0.5 point increase in the LIT to address climate change, there was an argument for using the economic development category. Under state law, the revenue that comes from economic development LIT gets distributed to just four units of government: Bloomington, Monroe County, Ellettsville and Stinesville.

The idea was to limit the increased revenue to just four units of government, which would create four relatively large pools of funding—big enough to fund the kind of ambitious projects that climate change mitigation would require.

The incremental additional revenue that a township, or the public library, might receive from a 0.5-point increase in the certified shares category would not add up to enough for those units to launch substantive climate change initiatives by themselves—so the thinking went.

What has changed since Jan. 1, 2020? The need for a LIT increase is no longer only about addressing climate change. It’s about keeping the lights on for Bloomington government. Without a new source of revenue, the city of Bloomington is projecting a $5 million shortfall in each of the next four years.

It’s worth noting that a 0.855-point increase in the certified shares category of LIT would still generate for Bloomington twice as much every year ($11.3 million) as would be needed to cover that projected shortfall.

Surely the general economic factors that put Bloomington in enough of a financial bind that require it to look for additional sources of revenue also affect every other unit of government in the county. If Bloomington needs additional revenue to cover basic operating costs, then surely other units do as well.

For Bloomington Transit, a certified shares increase of 0.855 points would mean an additional $481,000. That additional revenue could be applied towards whatever BT’s basic needs are, in the best judgment of its board, which five seats are appointed by the city council (3) and the mayor (2).

Those basic BT needs could include increasing driver compensation—even more than in the recently approved labor contract—to attract and retain the drivers that are required to staff existing routes.

If BT does not have additional basic needs, then at least some of the transportation items listed in the climate change category of Hamilton’s proposal could be accomplished through BT’s action alone—by using its additional certified shares revenue. Those items could include adding Sunday service ($300,000) and expanding access to low-income riders ($100,000).

If the logic behind increasing revenues for Bloomington government is based on generally dire economic conditions, then I think it’s important to shore up the layer of government that is custom custom-built to help people in dire economic conditions. That layer is the townships.

Townships can provide help to people to cover cost rent, utilities, food, and health care. They are also equipped to help residents find other resources.

According to the Indiana Department of Local Government Finance, in 2021 Perry Township (the southern half of the city of Bloomington), gave financial assistance to 822 people, totaling $267,000. Another $5.5 million was provided from sources other than township funds through efforts of township staff, according to DLGF. Enacting a LIT increase of 0.855 points in the certified shares category would mean $232,771 more for Perry Township’s budget.

When the predicted climate disasters start to unfold, it will be important that every layer of government in the county is strong. Climate issues inherently require a collaborative effort.

That’s why an increase in the certified shares category warrants serious consideration by the city council. It does not have to be an all-or-nothing approach. It’s possible to enact, for example, a 0.75-point increase in the certified shares category, and a 0.25 increase in the economic development category.

There’s one beneficiary of a certified shares increase that could be a dealbreaker for some councilmembers. The Monroe Fire Protection District (MFPD) would receive an additional $2.4 million.

The change to state law that allows the MFPD to retain the property tax levy for fire protection, even in territory that gets annexed by the city, led to the expansion of the MFPD to include most of the area in the county outside Bloomington. So MFPD now competes with Bloomington’s department for full-time firefighters, sometimes successfully.

Why should Bloomington’s city council add $2.4 million to MFPD’s budget, with no strings attached, which could be used to increase compensation even more, to lure firefighters away from Bloomington’s fire department? I say it shouldn’t—some strings should be attached.

The strings could take the form of an interlocal agreement: The city council enacts the LIT increase in the certified shares category, with a couple of conditions. One condition would require some kind of reduction to MFPD’s property tax levy. Another would require some kind of agreement that includes the two collective bargaining units, to prevent the departments from poaching personnel from each other.

That kind of interlocal agreement could lead eventually to a single countywide fire department, which I think would serve the residents of Monroe County better than a set of independent departments. Automatic aid versus mutual aid would be a non-issue—because it would be one department.

Achieving a countywide fire department would, at some point, require some decisive leadership.

Starting to heal the current well-documented rift between Bloomington and the rest of Monroe County will also, at some point, need some decisive leadership.

That point could be now.

And that leadership could take the form of enacting the LIT increase in the certified shares category. It would require less “Bloomington first” thinking.

I don’t think voters in the 2023 municipal elections or the writers of Bloomington’s history will remember how many points someone managed to shave off the LIT rate increase or how many points someone was able to  preserve.

But history would certainly record the start of a new era in Monroe County politics, when Bloomington’s city council as a body reached out to all of its governmental partners with an open hand, they grabbed hold of it, and we walked together into the uncertain future.