Allen County officials could be facing a $1.7 million budget shortfall for 2014, the County Council heard Thursday.
Auditor Tera Klutz told council members she is estimating $84.6 million in expenses for 2014, but only $82.9 million in revenue. But that revenue, she said, could be even less: A change in state law will reduce the amount of property taxes paid on rental properties by about one-third. Property taxes make up about 60 percent of the county’s revenue.
Klutz said that currently the constitutional cap on property taxes for rental properties, which caps taxes to 2 percent of the assessed value, applies only to the land under the footprint of the building rented. Everything else, including the building and personal property, she said, is limited to 3 percent. But under new legislation being signed into law, all of it will be limited to 2 percent, cutting the amount of property taxes rental owners pay by about one-third.
“Our property tax revenue will be lower based on that,” Klutz said, but how much lower has not yet been calculated.
In her estimates, Klutz also did not show any increase in departmental spending other than increases already known about that can’t be avoided, such as step-increases in employees’ pay and election costs.
That leaves a shortage of 2 percent, plus the lower rental property taxes.
But council members said that rather than an across-the-board, 2 percent cut in expenses, officials should prioritize spending and target the cuts to services that are more expendable. That won’t be easy, they said, but is better than arbitrary cuts that would affect services such as police protection.
County Councilman Tom Harris warned that all the projections could change based on decisions by the Fort Wayne City Council, which is considering property tax and income tax increases.
“I trust the city of Fort Wayne is considering the impact of their decision far beyond the borders of the city,” Harris said.
Because of property tax caps and because almost every taxing body charges the maximum it can, any increase in property taxes Fort Wayne imposes – it is $6 million below its maximum – comes from the amount other bodies can collect.
So more property taxes for Fort Wayne means less for Allen County, the library and schools. At the same time, the city holds a majority on the Allen County Income Tax Council, so if it decides to raise the local option income tax, that decision will raise income taxes for all county residents. An increase for public safety would benefit the county directly; an increase for property tax relief would benefit the county indirectly through a bigger share of property taxes under the cap. Under the most generous scenario, the county would gain about $8.8 million.
Klutz said if a public safety income tax were imposed, Allen County would collect up to 40 percent of the revenue from the tax.
