FROM: Micah G. Vincent, Commissioner
SUBJECT: School Corporation Waiver from the Implementation of Protected Taxes
DATE: April 11, 2014
On March 25, 2014, Governor Mike Pence signed House Enrolled Act 1062 (“HEA 1062”) into law. Section 3 adds IC 6-1.1-20.6-9.9 to allow certain school corporations a waiver from the implementation of protected taxes under IC 6-1.1-20.6-9.8 for 2014, 2015 or 2016 as applicable. This memorandum details the process that needs to be completed in order to take part in this waiver.
Under IC 6-1.1-20.6-9.8, implementation of protected taxes provisions will go into effect for Pay 2014. Protected taxes are designed to ensure sufficient tax collections in a taxing unit’s debt service funds in order to meet debt service obligations. In order to “protect” the debt service funds, the circuit breaker credits attributable to the tax rate for the debt service funds will be applied against a taxing unit’s unprotected or non-debt service funds.
Under HEA 1062, a school corporation can determine its eligibility to waive the implementation of protected taxes for 2014, 2015 or 2016. School corporations that are eligible for the waiver in a given year will be allowed to allocate its circuit breaker credits proportionally across all funds that are not exempt from circuit breaker, without regard for whether the fund is a debt service fund. Only exempt (voter-approved referendum) funds are excluded from the application of circuit breaker credits. This means debt service funds will be allowed to experience a loss associated with circuit breaker credits for those school corporations that are eligible for and timely request the waiver from the implementation of protected taxes.
To determine if a school corporation is eligible for a waiver from the implementation of protected taxes, a school corporation should prepare the following analysis:
1. Determine the amount of circuit breaker credits being applied to the school’s transportation fund. This
amount should be calculated assuming protected taxes are in place for the school corporation. To determine
this amount, the school corporation can use the Department of Local Government Finance’s (Department)
circuit breaker reports. These reports can be found on the Department’s webpage at
http://www.in.gov/dlgf/9354.htm in the next several days. The values computed for this report assume the
implementation of protected taxes for the school corporation’s funds. The school corporation can utilize the
circuit breaker credit amount shown for its transportation fund.
2. Determine the amount of the transportation fund levy for the school corporation. This should equal the
certified levy for the school transportation fund from the 2014 Budget Order. The certified levy is also shown on the circuit breaker report for easy reference.
3. Divide the circuit breaker credit amount by the transportation fund levy and express it as a percentage. If the circuit breaker loss accounts for at least 10% of the transportation fund levy, the school corporation is eligible for a waiver from the implementation of protected taxes. In order to qualify, this calculation must show a loss of at least 10%. Rounding up the calculation in order to achieve 10% will be not accepted.
A school corporation that determines it is an eligible school corporation must submit a written request to the
Department for a certification that the school corporation’s calculation is correct. This written request must be provided to the Department by May 1 of the year in which the school corporation wants the waiver from the implementation of protected taxes. In order to facilitate the calculation detailed above and the written request by the school corporation, the Department has prepared a standard form for the written request. This form is attached to this memorandum. A school corporation desiring to be determined to be eligible for the waiver from the implementation of protected taxes should complete this form and email it to David Marusarz at dmarusarz@dlgf.in.gov. This form must be received by May 1.
After receiving a written request from a school corporation, the Department shall determine whether the percentage computed by the school corporation is accurate and whether the school corporation is eligible for the waiver from the implementation of protected taxes. The Department must complete its actions by June 1 of the year for which the waiver is requested.
IC 6-1.1-20.6-9.9 allows for a waiver to be granted for taxes payable in 2014, 2015 and 2016. A school corporation that is approved in one year for a waiver must submit a written request and calculation again in each future year in order to qualify. As an example, if a school corporation receives a waiver in 2014, it must submit a written request again by May 1, 2015 using 2015 circuit breaker credit and levy information in order to qualify for the waiver in 2015. Each waiver applies only to one applicable tax year.
For those school corporations that are determined to be eligible for the waiver from the implementation of protected taxes, additional steps will be necessary when the school corporation receives its tax distributions in June and December. The school corporation will be responsible for reallocating its tax distribution among the appropriate funds in order to eliminate the impact of protected taxes. Further information and guidance on this process will be provided by the Department in advance of the June tax distributions.
