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Andrews embarking on tax experiment with cut levy for 2013
Cindy Klepper - Thursday, April 4, 2013 8:30 AM
The town of Andrews is embarking on an experiment.
For 2013, the town is asking its residents to pay just enough in property taxes to cover the year's town expenses. The experiment will knock nearly 60 cents off the town's property tax rate.
"We need tax relief out here," Andrews Clerk-Treasurer Bill Johnson says.
The corporation tax rate for Andrews will drop from the 2012 rate of $2.71 per $100 of assessed value, the highest of all corporation rates in Huntington County that year, to just $2.11 for 2013, according to figures approved last month by the Indiana Department of Local Government Finance.
The new tax rate will bring in just $239,552 for the town this year, a drop from the $323,541 received in property tax revenue last year.
"We're looking for financial stability for the community and tax relief for the residents," Johnson says.
Last year, as in previous years, Andrews had set its tax rate so as to bring in the maximum amount of revenue - an amount known as the levy - allowed by the state.
Until recently, it was possible for local governments to reduce their levy, but it would also have been dangerous - once the levy amount was decreased, the state would not allow it to be increased to previous levels in subsequent years. If the town had unexpected expenses or wanted to begin a major project, there would have been no way to return to previous revenue levels.
"Up until a couple of years ago, you got penalized if you didn't use your max levy," Johnson says.
"If you didn't tax at the maximum levy, they would take it away the following year. They were forcing communities to tax when they really didn't need it because you didn't want to lose the opportunity if you needed it later."
However, a recent change in state law has made it possible for a town to reduce its levy and later return to the previous higher amount if necessary.
That, plus some savings the town has built up from the years it taxed to the maximum levy, gives the town some cushion as it cuts its income to the bone.
"We're going to give this a try," Johnson says. "If we find we need a higher levy, we can go back up."
Not too long ago, Johnson said, the property tax rate in Andrews - then at 4.3 percent - was the fifth highest in Indiana.
The town's assessed value, which was $16.5 million in 2007, dropped drastically as its industrial base disappeared. The total assessed value for the town now stands at just $11.1 million.
"We've lost nearly a third of our assessed value," Johnson says. "Our tax rate just skyrocketed."
And with the state limiting an individual's property tax payment to a percentage of the assessed value of the property, Andrews residents were paying the highest amount of property tax allowed. The tax on a primary residence is capped at 1 percent of that residence's assessed value, for example; once the tax hits that number, it can't be increased unless the property's value increases. There was no opportunity for the town to bring in additional tax money.
"Most people have reached that cap," Johnson says. "We decided, ‘Let's try a new angle at this thing.'"
The town approved a "zero base budget," raising just enough through property taxes to cover its projected expenses.
"The question was, can we survive on just that?" Johnson says.
Johnson, and the town leaders, believe they can.
"We think it's worth the attempt," he says. "We have a cushion and we have an opportunity to raise the levy. That's our fail-safe."
The town has a million-dollar balance in its general fund and spends about $300,000 of that a year, giving it a cushion of $700,000, he says. That's money that has been saved over a period of years, he says.
"I commend the people who were here prior to me," Johnson says. "They brought the money in and didn't spend it. It was in the bank."
While building the budget, Johnson moved some expenses out of the general fund and into funds more appropriate to those expenses. In some cases, that meant that those expenses could be paid by revenue other than property tax income.
The town reduced its contributions to employee health insurance. It had been paying 100 percent of insurance costs for employees and their families, incurring a bill of $120,000 last year for the town's five employees. By moving to a high deductible health savings account and paying only 50 percent of employee insurance costs, that bill will drop to $36,000, he says.
Andrews residents shouldn't see any reductions in services, Johnson says. In fact, the town is planning to build a new barn and do "lots of paving," he says. The town is also eyeing some redevelopment activities, including convincing a discount store to move to Andrews.
"Our goal is to make this a place to come home to and have a nice place to live," he says.
There's an ongoing improvement project at the town park and a former union hall has been renovated for use as a community center, with the possibility of bingo and teen activities being offered there in the future, Johnson says.
Grants are available for improvements to streets, sidewalks and other infrastructure, but most of those grants will require the town to provide a match. Johnson wants to make sure the town has that matching money at the ready.
Johnson wants to move some of the town's savings into its Rainy Day Fund, which now holds only $17,000. The Rainy Day Fund can be used for emergency expenditures or when the town's revenue dips below expected levels.
"I'd like it to have $100,000," he says.
Complete caption: Lori Mower, an employee of the Huntington County treasurer’s office, prepares property tax bills for mailing. It took “four long days” to print the bills, Treasurer Brenda Hamilton says, and the notices will be sent to the post office on April 5.