LIBERTY & PROGRESS

All of us pay local income tax on every dollar of earned income. In this article I will try and help you better understand what taxes are not local income taxes, how much our local income taxes are, where they go, and how they can be changed.

Here are a couple of taxes that are NOT local income taxes. The Indiana state income tax is 3.05% of every dollar earned and the Indiana state sales tax is 7% of every dollar spent. These taxes DO NOT come back to the county. State income taxes fund the operation of the state government, and state sales taxes mainly fund per student education grants from the state to school corporations and charter schools.  

St. Joseph County itself has a 1.75% income tax, which is actually made up of five individual taxes. Some Indiana counties have higher tax rates, up to 4%, and others lower rates that are as low as 1%. Income tax revenue is divided up based on the approval of the Income Tax Council. The Income Tax Council is made up of County Council and councils for the towns, and the cities. Here are the five taxes that combined make up our county-wide income tax rate of 1.75%.  

• .25% for Public Safety – distributed to the county, cities, and towns only.
• .40% for Economic Development – distributed to the county, cities, and towns only.
• .3596% for General Expenses – distributed to the county, cities, towns, townships, libraries, and airport.
• .6004% for Property Tax Credits – credits available to taxpayers to reduce their property tax bills.
• .14% for PSAP (911) – distributed to the county as the provider of PSAP services.

In St. Joseph County the total income tax amount of 1.75% nor the allocation to each bucket as described above can be changed by any one entity (such as the county, Mishawaka, or South Bend) by itself. Instead 50.1% of the Income Tax Council, made up of representatives from the county, cities and towns, must agree to any change. So the practical implication is that St Joe County and one of the two large cities, or the two large cities without the County would need to agree on a change. Any change would also require multiple public hearings and each entity involved in the vote would be required to give notice to its taxpayers.  

So once the state collects the money and distributes it to local entities, where do the dollars go? In 2024, St. Joe County was certified by the state to receive the following:

• $12.2 million for General Expenses – This goes into the General Fund.
• $14.2 million for PSAP Operations – This goes into the PSAP Fund.
• $8.6 million for Public Safety – This goes into the Public Safety Local Income Tax Fund.
• $16.8 million for Economic Development – This goes into the Economic Development Local Income Tax Fund.

Since 2008 when property taxes declined substantially after the circuit breaker credits kicked in (maximum property taxes of 1% for homesteads, 2% for farms, and 3% for businesses of assessed value), income taxes have been used to assist local governments in providing services to their citizens. Some see property taxes as regressive, but do not associate the same logic with income taxes. If you make more, you pay more. Others of us see a tax as a tax as a tax. As your representative on the St. Joe County Council, I will not, at any time, agree to any increase in our local income tax.  

.Here in Harris and Penn Townships, as well as greater Mishawaka, we are blessed with a well run, highly accessible library system that has embraced modern technology while maintaining hometown charisma. At the September 10th general meeting of the St. Joseph County Council, we had to choose which bonding strategy to use in order to pay for needed upgrades to Mishawaka Penn Harris Public Library's facilities. Without going into mind mumbling detail, I would like to explain the needs of the library system and the decision of the Council.

The library system came to us to approve a 4.2 million dollar bond. This money will be used for four separate projects. First, the Bittersweet Library in Penn Township needs several upgrades. Roof work needs to be done, the HVAC system needs extensive work or replacement, and the library has decided to go to LED lighting at that facility. Second, the main library in Mishawaka also needs extensive roof work done. Third, the Elm Street library in Granger needs a fair amount of tuckpointing done to the outside of the building. Finally, the library's leadership would like to build a garage on property that is being donated in order to house three library vehicles, including a new book mobile. The book mobile will be used, among other things, to take a collection of books to low income neighborhoods in which the children underutilize the library system.

As a Council, we had two bond options to choose from. These choices had some things in common. They were both for the same principal amount, covered the same projects, and would be fifteen year bonds. The important differences boiled down to three factors. First, bond A is front loaded with principal payments. In the long run, the taxpayers would have paid less interest and therefore a lower total cost once the bond was paid back. On the other hand, bond B is paid back on a regular repay schedule, so more interest is paid up front in a similar fashion to a 15 year home loan. The total cost of that loan is higher. From this information, along with the fact that paying principal earlier would give the library more flexibility if they needed to bond again in the next ten years, you would assume that bond A is the better deal for the taxpayer.

Not quite so fast! We have to consider how it is possible that bond A is frontloaded with more payment on principal. The answer is that the payments would be higher earlier in the repayment cycle to pay the extra principal and would therefore require more revenue coming into the library; and that, my friends, would mean a slight increase in property taxes. Yes, the cost of choosing bond A would be a slight increase in property taxes for those of us living within the library district and who are not already capped out at the state mandated maximum of one percent of assessed value on a homestead, two percent on farmland, and three percent on a business (Your property taxes may be higher if your school system has "pierced the cap." See issue three of Liberty and Progress for a general explanation of property taxes). Bond B would require no property tax increase.

I discussed the bonding options the Council faced with roughly sixty of my constituents. The response wasn't like the Anderson Road garage with a very large minority against the project. It wasn't like rezoning St. Joe Farms for the Microsoft purchase with a smaller minority against the project. It was almost unanimous that property taxes are high enough and that the Council should do absolutely nothing that would cause those taxes to go even the slightest bit higher. Given that response from the overwhelming majority of my constituents, I voted for bond B, which passed the Council on a 5-4 vote. Between the inflation we have experienced over the last three years and the large increases in property taxes over the last six years, folks are just tapped out. We had to and must continue to consider how each decision we make effects the lives and wallets of our taxpayers.



Respectfully,

Dan