Monday, November 28, 2005
Bring Back the Tax Adjustment Board
Leo Morris wrote an editorial published a week ago November 21, 2005 in the Fort Wayne News-Sentinel. It was headed: "Flexibility and discipline -If local governments get revenue reform, they must be serious about budgetary reform".
He did something I found extraordinary; he accurately expressed the thoughts of his major source. I can say that with absolute authority; I was the source. The editorial conveyed my views on local budgeting, which I will talk more about later.
The other key part of the editorial endorses the idea of bringing back the County Tax Adjustment Board TAB). We used to have one in Allen County. It was the last stop before the proposed property tax rates got sent to the State Board of Tax Commissioners (now the Indiana Department of Local Government Finance). The Board had the power to cut tax levies, it did not have the power to cut individual budget items.
The TAB looked at the OVERALL tax burden on any given piece of taxable real property. That is, it looked at the "stacked plates" of the township, school corporation, city, county, library, airport authority, and, potentially, the fire district, the parks and so on.
Right now, no entity performs that function. The Tax Adjustment Board made the true economic decision that the individual local taxing units often will not. Economics is defined as the "allocation of scarce resources." Many local governmental leaders do not believe that tax resources are scarce. Or if they are, it is due to the profligracy of the other tax bodies in their community.
Some local officials do get it. One Fort Wayne City Council member, John Crawford, recently referred to the separate taxing districts making decisions without relation to each other the "silo effect."
Two things happened to the Tax Adjustment Boards in Indiana. The first was that, generally, the late 1970's and 1980's were a time of inflation. Local governments were capped, as a general rule, by a 5% maximum annual allowable increase in their tax levy.
The question most often asked of local governmental officials when they were before county Tax Adjustment Boards was, "Did you exceed your maximum allowable levy?" The answer most often was, "No." Since inflation was often running higher than 5%, the TAB's didn't do much cutting. The property tax levy caps in the Property Tax Control program did the heavy lifting of serving as a barrier to excessive taxation.
Toward the end of the 1980's, a few counties asked the legislature to be exempted from the necessity of having Tax Adjustment Boards meet. Then, the legislature made TAB's optional for all counties.
Allen County did away with its Tax Adjustment Board by resolution shortly thereafter.
However, the 1990's and the first 5 years of this century have seen inflation drop to very low levels. The legislature and Governors of that time had loosened local property tax controls. Many local goverments had treated the maximum allowable increase as something they should seek lest they lose.
Even in those counties, like Delaware, which retained their Tax Adjustment Boards, the local governments would automatically use their right under the statute to appeal the decision to the State Board of Tax Commissioners (now DLGF). While the governors had the power to constitute a board which would have been more stringent the people of Indiana ended up with an agency routinely overruling the decisions of local TAB's and allowing the higher taxes.
TAB's are not perfect. The appointments are split between the County Commissioners (4), County Council (1), largest city (1), and largest school corporation (1). The overall effect is to shift power over city, town, township, and special taxing districts to the county.
On the other hand, it has amazed but not surprised me that many of the strongest proponents of combining governments in a county do not want to do anything which would give one body the power to rationally examine the overall tax burden in the county. When government consolidation proponents are presented with the idea of reinstating the Tax Adjustment Board or creating some other entity to rationally examine the overall tax burden on Allen County residents, they tend to shrink from the idea of fiscal controls.
The Allen County Tax Adjustment Board can be reinstated with the passage of a resolution to do so by the Allen County Council. This is not even a decision which requires initiation or even approval by the County Commissioners. Shouldn't the question of whether a candidate for county council supports reestablishment of the Tax Adjustment Board be a threshhold question for County Council candidates in 2006?
When state legislators are being asked to change state laws to allow more governmental consolidation, shouldn't legislators tell the proponents to at least make sure they have the basic mechanism of tax control such as a Tax Adjustment Board in place in the county before seeking legislative support for consolidation again?
The proponents of consolidation always allude that consolidation makes sense because it will save money through the eliminatation of duplication of services and "economies of scale." The proponents ask their audience, by and large, to accept this as a truism. However, the academic studies indicate that, in practice, this has always been a chimera. Consolidation usually begets more spending and governmental expansion.
Leo Morris and the News-Sentinel are now willing to tell their readers that oversight of local government total spending and taxing is a prerequisite. That's a start.
From Leo Morris for the editorial board:
He did something I found extraordinary; he accurately expressed the thoughts of his major source. I can say that with absolute authority; I was the source. The editorial conveyed my views on local budgeting, which I will talk more about later.
The other key part of the editorial endorses the idea of bringing back the County Tax Adjustment Board TAB). We used to have one in Allen County. It was the last stop before the proposed property tax rates got sent to the State Board of Tax Commissioners (now the Indiana Department of Local Government Finance). The Board had the power to cut tax levies, it did not have the power to cut individual budget items.
The TAB looked at the OVERALL tax burden on any given piece of taxable real property. That is, it looked at the "stacked plates" of the township, school corporation, city, county, library, airport authority, and, potentially, the fire district, the parks and so on.
Right now, no entity performs that function. The Tax Adjustment Board made the true economic decision that the individual local taxing units often will not. Economics is defined as the "allocation of scarce resources." Many local governmental leaders do not believe that tax resources are scarce. Or if they are, it is due to the profligracy of the other tax bodies in their community.
Some local officials do get it. One Fort Wayne City Council member, John Crawford, recently referred to the separate taxing districts making decisions without relation to each other the "silo effect."
Two things happened to the Tax Adjustment Boards in Indiana. The first was that, generally, the late 1970's and 1980's were a time of inflation. Local governments were capped, as a general rule, by a 5% maximum annual allowable increase in their tax levy.
The question most often asked of local governmental officials when they were before county Tax Adjustment Boards was, "Did you exceed your maximum allowable levy?" The answer most often was, "No." Since inflation was often running higher than 5%, the TAB's didn't do much cutting. The property tax levy caps in the Property Tax Control program did the heavy lifting of serving as a barrier to excessive taxation.
Toward the end of the 1980's, a few counties asked the legislature to be exempted from the necessity of having Tax Adjustment Boards meet. Then, the legislature made TAB's optional for all counties.
Allen County did away with its Tax Adjustment Board by resolution shortly thereafter.
However, the 1990's and the first 5 years of this century have seen inflation drop to very low levels. The legislature and Governors of that time had loosened local property tax controls. Many local goverments had treated the maximum allowable increase as something they should seek lest they lose.
Even in those counties, like Delaware, which retained their Tax Adjustment Boards, the local governments would automatically use their right under the statute to appeal the decision to the State Board of Tax Commissioners (now DLGF). While the governors had the power to constitute a board which would have been more stringent the people of Indiana ended up with an agency routinely overruling the decisions of local TAB's and allowing the higher taxes.
TAB's are not perfect. The appointments are split between the County Commissioners (4), County Council (1), largest city (1), and largest school corporation (1). The overall effect is to shift power over city, town, township, and special taxing districts to the county.
On the other hand, it has amazed but not surprised me that many of the strongest proponents of combining governments in a county do not want to do anything which would give one body the power to rationally examine the overall tax burden in the county. When government consolidation proponents are presented with the idea of reinstating the Tax Adjustment Board or creating some other entity to rationally examine the overall tax burden on Allen County residents, they tend to shrink from the idea of fiscal controls.
The Allen County Tax Adjustment Board can be reinstated with the passage of a resolution to do so by the Allen County Council. This is not even a decision which requires initiation or even approval by the County Commissioners. Shouldn't the question of whether a candidate for county council supports reestablishment of the Tax Adjustment Board be a threshhold question for County Council candidates in 2006?
When state legislators are being asked to change state laws to allow more governmental consolidation, shouldn't legislators tell the proponents to at least make sure they have the basic mechanism of tax control such as a Tax Adjustment Board in place in the county before seeking legislative support for consolidation again?
The proponents of consolidation always allude that consolidation makes sense because it will save money through the eliminatation of duplication of services and "economies of scale." The proponents ask their audience, by and large, to accept this as a truism. However, the academic studies indicate that, in practice, this has always been a chimera. Consolidation usually begets more spending and governmental expansion.
Leo Morris and the News-Sentinel are now willing to tell their readers that oversight of local government total spending and taxing is a prerequisite. That's a start.
From Leo Morris for the editorial board:
Let’s bring back the Tax Adjustment Board, the group that once reviewed the annual budgets and tax rates of all tax-dependent entities in the county. That’s a simple step – it can be done just with a vote by the County Council – suggested by Mitch Harper, former head of the Taxpayers Research Association, and it’s a good one. The state’s budget problems have added more urgency to the requests of local governments for more control over their own destinies. If there’s going to be greater revenue-generating flexibility, local units also need to show budgetary restraint and fiscal discipline, which can be provided by an adjustment board.Leo Morris further wrote:
Individual taxing units just look at their own realms, not at the overall impact of taxes in the county. The more local options there are, the more chances there will be to add to the array of confusion.
That’s where the Tax Adjustment Board comes in. It had the power to look at the overall picture and tell taxing units they needed to adjust their budgets according to an overall plan. Such boards were once mandatory. When the state made them optional, all but a few counties ended them. They were ended by votes of county councils and can be reinstated the same way.
One of the problems faced by local officials is the way all this “reform” is being forged – not by thoughtful debate over the most sensible way to run things, but in desperation because of increasingly difficult budgets at the local level and a state that needs to get its fiscal house in order. That means taxpayers will need more convincing that they’re being treated fairly. They tend not to see the specific needs of individual taxing units. They just look at their overall tax bill and judge accordingly. And the tax bill tends to rachet up.
In the best of all possible worlds, Harper says, we’d go back to a more rational time when “the state took care of its own needs and didn’t get federal money, and local units of government raised the money they needed locally.”
That will never happen, of course, which is why the burden is on local officials to be as scrupulous and transparent as they can be.
