| Larry DeBoer
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Property tax rate destiny
Consider the eternal questions. Why is the sky blue? Why is the grass
green? Why are some Indiana local government property tax rates high, while
others are low? Letís leave the answers to the first two to actual
scientists. Iíll take a stab at that last one.
Suppose we measure the revenue capacity of Indiana local governments. Our
counties, cities, school districts, libraries and townships receive revenue
from property taxes and local income taxes. Schools get a lot of aid from
the state. Counties, cities and towns receive state aid for roads. And
there are interest earnings, charges and fees, and dozens of other smaller
Letís calculate the average property tax rate for all Indiana local
governments, then multiply that rate by the taxable assessed value in each
county. That gives the amount they could collect if their tax rates were
just average. Calculate the average revenue from local income taxes by
multiplying the average local income tax rate by each countyís taxable
income. Then add in school and road aid, which depend on state aid
formulas. And take the state average of the other revenues per person, and
multiply by county population.
Add it up. Thatís the amount that local governments in each county could
raise if they behaved like the state average. Itís a dollar measure of
revenue capacity. The median county has $2,553 per person in local
government revenues at average tax rates. You can see the numbers and an
article explaining it all on the web at pcrd.purdue.edu/ruralindianastats.
Some counties have high capacity. Benton County has all those wind turbines
and very few people. Theyíd raise $4,572 per person at average tax rates.
Boone has high incomes and high home values. Their local governments could
raise $3,371 per person at average tax rates. Some counties have low
capacity. Delaware County has a lot of people, but has lost a lot of its
industry over the past couple of decades. Its capacity is $2,019 per
To answer the tax rate question, though, we need to know about the costs of
local government services too. It costs more to deliver services like
police and fire protection in cities and towns. So, take the state average
appropriation by cities and towns times the number of people in cities and
towns in each county. School kids are expensive. Schools are the biggest
government expenditure weíve got. Multiply the state average appropriation
per pupil by the number of pupils in each county. Do the same with average
road appropriations per road mile, and the average of everything else per
Again, add it up and itís a measure of service costs for the local
governments in each county, if services were delivered at the statewide
average cost. The median cost per person is $2,508.
Some counties face higher costs. Clinton County has a lot of school kids as
a share of its population. Its service cost number is $2,914 per person.
Urban counties have a lot of city and town population, of course, but
usually fewer school kids. Their service costs depend on that balance. Lake
has higher costs, $2,709, while Vanderburgh has lower costs, $2,204.
Suburban Hamilton has lots of population in cities, and a lot of school
kids too, which produces service costs of $2,998 per person.
Now, letís put revenue capacity and service costs together in a
capacity-cost index. Just subtract costs from revenues. Then, if the index
is positive, it means that the local governments in the county could more
than meet the costs of average services with average tax rates. But if the
index is negative, average tax rates wonít be enough to meet the cost of
average services. To cover those costs, a county would need higher than
average tax rates.
Sure enough, it turns out that counties with negative capacity-cost indexes
do tend to have higher average property tax rates. Counties with positive
capacity-cost indexes tend to have lower average tax rates. Less revenue
capacity and higher costs make for higher property tax rates.
Lots of other factors enter into the tax rate decision. But itís true that
a countyís economy and population are a part of its tax rate destiny.