Porter County Taskforce Advances Local Income Tax Structure Proposal

The Porter County Municipal Unit Strategic Taskforce (MUST) is solidifying its proposed approach to a local income tax (LIT) structure, aiming to submit a non-binding report to the Indiana Department of Local Government Finance (DLGF) by November 2. The taskforce met for its second session on Tuesday afternoon, continuing discussions focused on maintaining unity among municipalities, allocating funds for fire and EMS services, libraries, and townships, and seeking state legislative permission to include school funding. This initiative directly responds to the mandate to address revenue shortfalls caused by property tax credits introduced under Senate Enrolled Act 1.

The MUST group is charged with developing a new LIT structure to compensate for these property tax credit losses. Senate Enrolled Act 1 requires Porter County to submit a non-binding report outlining its future LIT plans. The legislation also grants cities and towns with populations exceeding 3,500 residents the option to opt out of a county-wide LIT. These municipalities, which include Valparaiso, Hebron, Porter, Chesterton, and Portage, can instead adopt their own municipal services rate, up to 1.20%, through a vote by their respective city or town councils. For those that opt in, and for all municipalities with fewer than 3,500 residents, the county will establish the rate.

Porter County currently maintains a local income tax rate of 0.5%, recognized as the lowest among Indiana's 92 counties. This rate generates approximately $38 million in county-wide tax revenue from a tax base of $7.6 billion. Annually, $3.5 million from this revenue must be contributed to the Regional Development Authority (RDA). While the new LIT structure preserves this RDA obligation, it eliminates the $13.5 million in homestead credits that are currently deducted.

Changes to the local income tax structure are slated for adoption by municipalities by October 1, 2028, based on 2020 census data. These new rates would then take effect in 2029, with revenues commencing in 2030. Under current statute, the initial LIT adoption would be valid for three years, followed by annual adoptions thereafter.

The MUST membership, comprising Porter County Councilwoman Michelle Harris and clerk-treasurers from every city and town in the county, focused its recent discussions on a specific proposal referred to as Scenario 6. This scenario projects an estimated total LIT of 0.6509% in 2030, which Baker Tilly senior manager Amber Nielsen noted is "lower than 1%." Scenario 6 suggests illustrative rates including 0.23% for municipalities, 0.14% for the county, 0.02% for townships, 0.01% for libraries, 0.01% for the Porter County Airport Authority, and 0.08% for fire and EMS providers. A crucial component of this scenario is a 0.17% rate designated for school funding.

However, current provisions of Senate Enrolled Act 1 do not permit the inclusion of school funding within the LIT. Despite this, Nielsen indicated that every county she is currently advising on similar reports is emphasizing this need to the state. In the interim, schools may need to rely on referendums for financial support. Porter County Council Attorney Adam Mindel stated his belief that school corporations would not have the option to seek funds directly from city or town councils. Nielsen estimates that four school districts in the county currently operate under referendums, with three of these supporting operating expenses rather than capital projects.

During the meeting's public comment period, James Chowning, a new member of the East Porter County School Corporation Board, expressed gratitude for the taskforce's acknowledgment of the LIT's impact on schools. He later added that the funds thought to be saved in property taxes were essential for schools. Valparaiso Clerk-Treasurer Holly Taylor highlighted potential taxpayer impacts, noting that while a household might save $300 annually in property taxes, individual earners could pay an additional $166 in income taxes. Taylor concluded that "They're not saving any money" due to the property tax savings being offset. She also pointed out that Porter County is one of few counties without a public safety tax, which, if adopted, would be in addition to the figures currently under discussion.

County Councilwoman Harris conveyed appreciation for Porter County's initial 0.5% LIT, describing it as "significantly lower starting than any other county" compared to other areas. Nielsen agreed, noting that many counties lack sufficient adjusted gross incomes (AGIs) to offset lost revenues. Nielsen also cautioned the taskforce that their work would likely extend beyond the upcoming November deadline, suggesting a high probability of reconvening next year.

The MUST will now gather feedback from their respective municipalities and plans to reconvene for a final meeting before report submission. This meeting is scheduled for Monday, October 19, at 3:30 p.m. in the Porter County Board of Commissioners Chambers.