Local income tax notebook: Who gets what slice of the pie?
On Tuesday night, Monroe County councilors will be trying to arrive at a consensus on funding a new jail.
If that turns out not to be possible, then support from at least four out of seven councilors will be enough to deal with the funding dilemma. That means finding up to $200 million, depending on the size they want to build.
Here’s the specific question they will be tackling on Tuesday: At what rate, if any, should a local income jail tax be set? The maximum rate under state law is 0.2 percent.
Last year, the council already enacted a new tax in the jail LIT category, at a rate of 0.01 percent, but balancing that was a reduction in a different category at the same rate.
So at the same time the county council enacted a new jail tax at a rate of 0.01, the “special purpose” LIT—which goes towards the operation and maintenance of a juvenile services center—was reduced by 0.01 points.
On Tuesday night, county council discussions will likely include another kind of LIT revenue stream, which could be used in combination with, or as an alternative to a jail LIT—the ED (economic development) LIT.
There is a key difference between the ED LIT and the jail LIT that could factor into the way that county councilors consider each funding stream.
The ED LIT was enacted countywide by Bloomington’s city council in 2022.
But it’s the county council that can, on its own, enact the jail LIT and change its rate. And the revenues from the jail LIT are all distributed to Monroe County government.
That’s not true of the ED LIT, which gets distributed to Monroe County government, the city of Bloomington, the town of Ellettsville, and Stinesville—with a population-based formula.
By way of basic background, in the state of Indiana, local income tax (LIT) collections are first distributed to the county where the income was earned. Then, it’s up to the county government to allocate that revenue among various local government units within the county, such as cities, towns, townships, and other taxing entities.
Because the jail tax revenue all goes to Monroe County government, the outcome of the pending annexation litigation involving the city of Bloomington will not affect jail tax revenue—it all goes to the county government anyway.
But because the distribution of ED LIT is based on population, the effect of annexation will shift more of the ED LIT revenue to the city of Bloomington. For 2025, Bloomington is estimated to receive $17.2 million in ED LIT revenue, compared to $11.7 million for the county government.
There’s another category of LIT that is distributed to more than just the four units that receive ED LIT money. That category is called certified shares. The certified shares category is distributed to Monroe County, Bloomington, all the townships, the county library, Bloomington Transit, and Monroe County Fire Protection District.
The certified shares category of LIT will likely not get much discussion in the context of the county council’s discussion of the jail LIT tax rate.
But certified shares did get a mention on Monday night, by Bloomington’s controller Jessica McClellan. That came in the context of the possibility that Bloomington would issue GO (general obligation) bonds in connection with the 2025 budget.
On Tuesday, McClellan confirmed to The B Square that the property tax levy that would be generated by the rate established to pay for GO bonds would not count towards Bloomington’s total for calculating its share of LIT certified shares. So issuing GO bonds would not mean more LIT certified share money for Bloomington.
That’s because under state law, one of the first steps in the calculation is to subtract the levy that is generated to cover debt from the total (bold added for emphasis):
IC 6-3.6-6-12 Allocation amount of certified shares; civil taxing units
Sec. 12. (a) Except as provided in this chapter and IC 6-3.6-11, this section applies to an allocation of certified shares in all counties.
(b) The allocation amount of a civil taxing unit during a calendar year must be based on the amounts for the calendar year preceding the distribution year and is equal to the amount determined using the following formula:
STEP ONE: Determine the sum of the total property taxes being imposed by the civil taxing unit.
STEP TWO: Determine the sum of the following:
(A) Amounts appropriated from property taxes to pay the principal of or interest on any debenture or other debt obligation issued after June 30, 2005, other than an obligation described in subsection (c).
(B) Amounts appropriated from property taxes to make payments on any lease entered into after June 30, 2005, other than a lease described in subsection (d).
STEP THREE: Subtract the STEP TWO amount from the STEP ONE amount.
STEP FOUR: Determine the sum of:
(A) the STEP THREE amount; plus
(B) the civil taxing unit’s certified shares plus the amount distributed under section 3(a)(2) of this chapter for the previous calendar year.
The allocation amount is subject to adjustment as provided in IC 36-8-19-7.5.
