To the Editor:
The law of unintended consequences is alive and well at the Indiana State House.
Back in a 2010 referendum, Indiana voters passed an amendment to the State Constitution which made permanent changes to our Indiana local property tax formula. These changes limited local property tax rates to 1 percent for residential homesteads, 2 percent for commercial property and second homes, and 3 percent for industrial and agricultural property.
Indiana public schools are funded via property taxes. Because of the reduction in how much the state can levy for property taxes, much of the funds schools had counted on for their budgets are no longer available to them. This reduction in funds is referred by legislators as tax cap losses or “circuit breaker losses.”
To make matters worse, in 2012, the Indiana General Assembly passed language changing how school districts can use some of the money they receive from that reduced pool of money. With the best of intentions, lawmakers created a protected tax statute which changed the rules on how a school district must manage its Debt Service Fund.
Sounds pretty good, right? Guide schools districts in responsibly managing their debt service. What’s wrong with that? Absolutely nothing. And many school districts have been managing their debt service funds wisely and well for many, many years.
Unfortunately, and likely unintentionally, this language change is having some potentially dramatic consequences to the services our schools can provide.
Prior to the language change, the tax cap losses could be evenly divided between the Debt Service Fund, Transportation Fund, Capital Projects Fund, and School Bus Replacement Fund. Now, the protected taxes statute allocates all available property taxes (after the tax cap losses) to the Debt Service Fund.
In other words, each school district’s Transportation Fund, Capital Projects Fund, and School Bus Replacement Fund may be dramatically impacted.