LEGISLATIVE SERVICES AGENCY OFFICE OF FISCAL AND MANAGEMENT ANALYSIS 200 W. Washington St., Suite 301 Indianapolis, IN 46204 (317) 233-0696 iga.in.gov FISCAL IMPACT STATEMENT LS 6580 NOTE PREPARED: Jan 24, 2022 BILL NUMBER: HB 1260 BILL AMENDED: Jan 24, 2022 SUBJECT: Department of Local Government Finance. FIRST AUTHOR: Rep. Leonard BILL STATUS: CR Adopted - 1 st House FIRST SPONSOR: FUNDS AFFECTED:XGENERAL IMPACT: State & Local XDEDICATED FEDERAL Summary of Legislation: (Amended) Economic Stimulus Fund: This bill makes changes to requirements for federal economic stimulus funds. Secretary of State: The bill requires the State Budget Agency (SBA) to augment from the state General Fund the amount appropriated for the Secretary of State's administration fund, by an amount not to exceed $3.2 M the amount necessary to meet the Secretary of State's obligation for election security consultant services. Career Accelerator Fund: This bill requires the SBA, if the Office of Management and Budget (OMB) determines funds appropriated for the Career Accelerator Fund is an ineligible use of funds under the American Rescue Plan Act, to augment from the state General Fund the amount appropriated for the Career Accelerator Fund by an amount not to exceed $10 M. Law Enforcement Training Grants: The bill allows the SBA to augment and appropriate amounts appropriated for local law enforcement training grants. Church Personal Property: This bill provides that certain churches are not required to file a personal property tax return. Property Record Cards: This bill provides that a county assessor shall provide electronic access to property record cards on the county's official Internet web site. Utility Assessment Notice: The bill requires the DLGF to notify a company if any of the company's property that was previously assessed by the DLGF will instead be assessed by the township assessor, or the county HB 1260 1 assessor if there is not a township assessor for the township. Property Tax Exemptions: The bill provides that the authority of a property tax assessment board of appeals (PTABOA) is not limited to review the ongoing eligibility of a property for an exemption. Property Tax Deductions: This bill provides timing clarifications for property tax deductions for taxpayers who are over age 65 or who are disabled veterans, and for the over age 65 circuit breaker credit. It provides that the assessor shall provide a report to the county auditor describing any physical improvements to the property. Assessment Appeals: The bill defines the term "taxpayer" for purposes of the procedures for review and appeal of assessments and corrections of errors. It provides that in an appeal, an assessment as last determined by an assessing official or the PTABOA is presumed to equal a property's true tax value until rebutted by evidence presented by the parties. Certified AV Amendments: This bill provides that a county auditor shall submit a certified statement to the Department of Local Government Finance (DLGF) not later than September 1 in a manner prescribed by the DLGF. PTABOA Reports: For reports filed by PTABOAs with the DLGF, the bill changes the requirement for the total number of "notices" to be filed to the total number of "appeals" to be filed. It requires additional information to be filed in such reports. Tax Representative: This bill provides that the term "tax representative" does not include an attorney who is a member in good standing of the Indiana bar or any person who is a member in good standing of any other state bar and who has been granted temporary admission to the Indiana bar in order to represent a party before the PTABOA or the DLGF. Assessor Complaints: The bill provides that the DLGF may not review certain written complaints if such a complaint is related to a matter that is under appeal. Residential Property Definition: This bill provides that for certain airport development zones and allocation areas established after June 30, 2024, "residential property" refers to the assessed value of property that is allocated to the 1% homestead land and improvement categories in the county tax and billing software system, along with the residential assessed value as defined for purposes of calculating the rate for the local income tax property tax relief credit designated for residential property. Referendum Question: The bill provides formulas for school corporations that propose to impose property taxes under a referendum tax levy. Cumulative Funds: This bill removes the remaining cumulative funds for the requirement or adjust maximum tax rates after reassessment or annual adjustment. Pro Bono Legal Services Fee: The bill removes the sunset provision on the $1 pro bono legal service fee. County Surveyor Relocation Notice: This bill allows a county surveyor to send relocation requirements for a proposed regulated drain by either registered mail or certified mail (current law requires the relocation requirements be sent by registered mail). HB 1260 2 Repeal: The bill also repeals various property tax provisions. Effective Date: (Amended) Upon Passage; July 1, 2022; January 1, 2023. Explanation of State Expenditures: (Revised) Economic Stimulus Fund: The bill makes changes to the structure of the Economic Stimulus Fund. For the current biennium beginning July 1, 2021, and ending June 30, 2023, the bill makes changes to certain appropriations made under HEA 1001-2021. These changes could result in additional expenditures from the State General Fund. It requires or allows the SBA to use the State General Fund to augment the following appropriations: (1) It requires augmentation to the Secretary of State's Administration Fund for election security consultant services by up to $3.2 M. (2) It requires that if the OMB determines that appropriations to the Career Accelerator Fund are an ineligible use of funds under the United States Treasury's guidance on the American Rescue Plan Act of 2021, then the SBA would augment $10 M to the Career Accelerator Fund. The SBA would make the augmentation from the State General Fund. HEA 1001-2021 established Indiana Career Accelerator Fund to provide financial assistance awards to assist individuals in obtaining credentials from qualified education programs. It appropriated $75 M to the fund. (3) For FY 2022 and FY 2023, the SBA may augment the amounts appropriated for local law enforcement training grants by an amount not to exceed the amount necessary to fully fund the grants awarded by the Criminal Justice Institute (CJI) during each state fiscal year. HEA 1001-2021 appropriated $3.5 M annually towards local law enforcement training grants. The amount of additional appropriations will depend on grants awarded by the CJI and actions taken by the SBA as allowed in the bill. Tax Representative: This provision could reduce DLGF workload. The DLGF will no longer be charged with granting authority to out of state attorneys to represent a client before the county PTABOAs and the DLGF. Under the bill, an out of state attorney may represent clients as long as they have been granted temporary admission to the Indiana bar. Assessor Complaints: Under current law, a taxpayer may submit a written complaint to the DLGF if the taxpayer has reason to believe the assessing official failed to adhere to Uniform Standards of Professional Appraisal Practice (USPAP) or does not have the necessary competency to perform the assessment. This bill provides that the DLGF may not review such a complaint if related to a matter currently under appeal. This provision could delay the review of some complaints until the related appeal has been adjudicated. Airport Loans: This provision may reduce DLGF workload. Under current law, the DLGF must review airport loan contracts and either approve, disapprove, or reduce the amount of the loan. The DLGF will no longer review these contracts under the bill. Lease Agreements: This provision may reduce DLGF workload. Under current law, the DLGF must approve all noncapital leases with a term exceeding 10 years. The DLGF will no longer review these leases under the bill. Sale-Leaseback: This provision may reduce DLGF workload. Under current law, the DLGF must approve all sale-leaseback transactions. The DLGF will no longer review these under the bill. (Revised) Utility Assessment Notice: This provision will minimally add to the workload of the DLGF. Under current law, the DLGF assesses all utility distributable property. Under this provision, the DLGF must notify HB 1260 3 a utility if any property previously assessed by DLGF will now be assessed locally. Additional Information: (Revised) Economic Stimulus Fund– HEA 1123-2021 created the Economic Stimulus Fund for the deposit of all discretionary funds received by the state. It defined "discretionary funds" to mean federal economic stimulus funds received under federal legislation granting the state authority to determine the amounts and manner in which the federal economic stimulus funds may be expended. Explanation of State Revenues: Pro Bono Legal Services Fee: The courts will continue to collect this fee from persons who pay a civil filing fee, a probate fee, or a small claims filing fee. [Current law provides that this fee will not be collected beginning in FY 2023.] Clerks of circuit courts, city and town courts, small claims courts, and township courts collect this fee and forward it to the Auditor of State. The Auditor’s office then transfers the revenue to the Indiana Bar Foundation, which administers the proceeds to assist or establish approved pro bono legal services programs. The revenue that has been collected from this fee since FY 2018 is shown in the following table. Fee Revenues Collected by Fiscal Year 2018 2019 2020 2021 $341,105$368,275$304,839$291,596 Explanation of Local Expenditures: Property Record Cards: This provision will result in an additional expense for computer services in a small number of counties. Most counties already provide access to property record cards through their website. There are currently 17 counties that do not do so. The estimated cost for a county to add online property record cards to their website is about $600 per county. Certified AV Amendments: This provision has little to no fiscal impact. Under current law, county auditors must certify assessed values (AV) to the DLGF by August 1 of each year. Auditors are permitted to amend their certifications before the DLGF certifies tax rates. This provision specifies that amended AV certifications must be submitted to DLGF by September 1 of each year. Additionally, current law requires that the county auditor must hold a public hearing before making the amended certification unless the amendment (1) corrects a mathematical error, (2) adds the AV of omitted property, or (3) will not result in a tax rate increase. This provision deletes the exceptions and requires a public hearing in all cases. PTABOA Reports: This provision may increase workload for county PTABOAs. Under current law, PTABOAs must prepare and submit an annual report regarding assessment appeals to the DLGF and the Legislative Services Agency. This provision adds additional detail to the reports. Referendum Question: This provision may increase some county auditors’ workloads. Under current law, the county auditor must calculate the estimated average property tax increase percentage that a homestead and a business would pay to the civil taxing unit or school corporation seeking a controlled project, school operating, or school safety referendum levy. Those increase percentages are included in the public question. This provision applies the same requirements to a referendum to extend a levy and changes the computation HB 1260 4 of the business increase percentage to start with the average business AV rather than the average homestead AV. Redevelopment Commission Property Disposal: This provision may reduce the number of public hearings that as redevelopment commission must hold. Under current law, a redevelopment commission must hold a public hearing before it may dispose of any real property. This provision limits the need for a public hearing to: (1) Property that was acquired by the commission to carry out a project; and which the commission has, at a public hearing, decided that the property is not needed to complete the activity in the project area; (2) Real property acquired that is not in a project area; (3) Parcels secured from the county that were acquired by the county in the tax sale process; and (4) Real property donated or transferred to the commission. (Revised) Church Personal Property: This provision will reduce the number of business personal property tax returns that local assessors must process, reducing local workload. For taxes payable in CY 2021, there were just over 6,000 totally exempt tax returns filed by organizations claiming a religious exemption. (Revised) Property Tax Deductions: This provision will add to the workload of local assessors. The assessors will be required to notify the county auditor of any substantial renovation or new improvements to properties receiving the over 65 deduction, the totally disabled veteran deduction, or the over 65 tax cap credit. (Revised) County Surveyor Relocation Notice: This provision could result in reduced expenditures for county surveyors. Under current law, county surveyors must notify public utilities by registered mail if the surveyor determines that a new or reconstructed regulated drain will cross utility lines and the utility equipment will interfere with the drain. This bill will permit the surveyor to send the notice via certified mail if the surveyor chooses to do so. In addition to regular postage, the USPS fee for registered mail is $13.75 whereas the fee for certified mail is $3.75. Explanation of Local Revenues: Property Tax Exemptions: This provision has little to no fiscal impact. The bill clarifies that the county PTABOA is not prohibited from reviewing the ongoing eligibility of a property for an exemption. Maximum Levy Appeals: This provision will allow more taxing units to qualify for a higher maximum levy because of high unit AV growth. Current law allows taxing units to appeal for a higher maximum levy if their 3 year average AV growth percentage exceeds the statewide growth percentage by at least 2%. The formula includes transitional calculations that adjust for the implementation of the statewide inventory deduction (2007) and the supplemental standard deduction (2008). Now, after the transition, these calculations skew the actual AV growth percentage. The DLGF reports that 168 taxing units were eligible for a three-year growth appeal for taxes payable in 2020 and that an additional 50 units would have been eligible without the transitional adjustments. If more taxing units become eligible and receive higher maximum levies, their tax rates will increase, potentially causing increased tax cap losses for those units and intersecting units. (Revised) Assessment Appeals: This provision makes several changes to the property tax appeals process. It is uncertain as to what overall effect this provision will have on assessments and appeals. The bill removes the assessor’s burden of proof in cases where an assessment rises by more than 5% and in cases where the assessor changes the underlying parcel characteristics of a parcel. However, under the bill, HB 1260 5 an assessment that has increased by more than 5% is not presumed to be the parcel’s true tax value and the assessor has the burden to present evidence sufficient to substantiate the true tax value. The bill requires the Indiana Board of Tax Review (IBTR) to determine the value of a property under appeal based on the totality of the evidence. (Currently, the IBTR must choose either the assessor’s valuation or the taxpayer’s valuation). Residential Property Definition: This provision clarifies the definition of residential property as it relates to the base AV in a TIF area. Most TIF areas exclude residential AV from the TIF increment. To do this, all residential AV is added to the base AV for the allocation area. For new TIFs established after June 30, 2024, the bill defines residential property as all homesteads plus the residential value that would qualify for the nonhomestead residential local income tax (LIT) credit. This clarification does not apply to any existing TIF areas. Cumulative Funds: This provision could increase tax rates for taxing units that would not otherwise re-adopt their cumulative fund after rate adjustment. Under current law, the maximum tax rates for the fire territory equipment replacement fund, cumulative township vehicle fund, and township park and recreation cumulative fund must be adjusted each year to neutralize the increases in assessed value from annual adjustments and general reassessments. After the tax rate is reduced, a taxing unit may re-adopt their cumulative fund at the maximum statutory rate. Under this bill, the maximum rates will no longer be adjusted, eliminating the need for the taxing units to re-adopt their cumulative funds. Mortgage Deductions: This provision has little to no fiscal impact. The mortgage deduction equals up to $3,000 in AV, limited to (1) the amount of mortgage indebtedness, and (2) one half of the AV of the property. This provision clarifies which year’s AV is to be considered for the limit. (Revised) Church Personal Property: This provision has no impact on local revenues. Churches that have filed business personal property tax returns for five years and who were exempt from taxes in those years will not have to file returns going forward unless there is a change in ownership or a change that makes the church ineligible for the exemption. (Revised) Property Tax Deductions: This provision should have little to no impact on local revenues. Under current law, a taxpayer who qualifies for the over 65 deduction, the totally disabled veteran deduction, or the over 65 tax cap credit does not lose there deduction or credit if the assessed value (AV) of their property later exceeds the statutory AV limit and the increase is not attributable to physical improvements to the property. Under this provision, the deduction or credit will not be lost if the increase is not attributable to substantial renovation or new improvements. State Agencies Affected: Department of Local Government Finance; Indiana Board of Tax Review; Secretary of State; Budget Agency; Office of Management and Budget. Local Agencies Affected: County auditors; Local assessors; County property tax boards of appeal; Local civil taxing unit sand school corporations; Clerks of circuit, city and town, small claims, and township small claims courts; County surveyors. Information Sources: Emily Crisler, General Counsel, DLGF, 317-232-3777; Auditor of State; USPS.gov. Fiscal Analyst: Bob Sigalow, 317-232-9859; Corrin Harvey, 317-234-9438; Randhir Jha, 317-232-9556. HB 1260 6