$9.5M excess in LIT trust fund comes back to Monroe County units in 2026 by state formula

For 2026, the city of Bloomington will have about $3.5 million more in completely flexible revenue than was originally budgeted. Monroe County government will have about $2.9 million more. There’s even more if public safety money is added in.

That’s based on distributions of supplemental local income tax (LIT) announced by Indiana’s Department of Local Government Finance (DLGF) on Friday (May 15).

The fact that there will be some extra money from local income tax (LIT) is not news, because it comes from a routine calculation done every year by Indiana’s State Budget Agency (SBA) all across the state. But the exact dollar amount varies from year to year, based on a formula that is meant to keep the amount of money in the local income tax trust fund from getting too big.

Released in mid-February, the excess balance for all governmental units in Monroe County amounted to about $9.5 million. That’s up from the $6.95 million in excess last year, but not as much as the record-setting $14.3 million in 2024.

Local units include: Bloomington, Ellettsville, Monroe County government, Bloomington Transit, Monroe County Public Library, Monroe Fire Protection District, and all the townships.

Monroe County residents pay local income tax at a total rate of 2.14%. That includes the 0.17% rate for the jail tax, which was enacted by the county council last year.

Indiana’s local income tax trust fund is meant to smooth out year-to-year swings in LIT distributions, to make local units less vulnerable to sudden drops in revenue or delays in collections. So the fund is built up by setting aside a portion of LIT revenues for the fund. But state law specifies that the amount of money in the trust fund can’t get too big.

The state legislature’s idea of what counts as “too big” for the trust fund has evolved to mean that the trust account balance for any county should be no bigger than 15% of the total certified distribution of income tax to the county in a given year.

For fiscal year 2026, the total amount of certified distribution to Monroe County units was $99,642,921. The amount in the SBA trust account for Monroe County was $24,502,742. That was too much, because 15% of $99,642,921 is just $14,946,438.

To get the trust account balance down to the 15% level, the SBA is distributing the difference ($24,502,742 – $14,946,438) to Monroe County units. That’s where the $9.556 million figure for the excess comes from.

This familiar picture for calculation of LIT will probably change, possibly radically, once the major SEA 1 revisions to the structure of LIT take effect in 2029. But for now, local units in Monroe County know they’ll have a little more room to make this year’s budget work.

The budget originally proposed for 2026 by Bloomington mayor Kerry Thomson’s administration, at $147 million, called for tapping $11.2 million in reserves. The supplemental LIT distribution announced at the end of the week doesn’t erase all of that deficit, but drops it to around $7.7 million.