A major talking point of Carmel mayor Jim Brainard and those councilors aligned within him on the City Council is how Carmel’s taxes have remained low, even as the city and demand for its services have both grown substantially. Even as they make this claim, the city budget — and spending — grows year after year.
“Wait a minute,” your ask. “How can the city be spending more and more money each year, yet my (property) taxes remain low?”
Ah, what a great question! One that many Carmel residents take for granted in the day-to-day ordinary busy-ness of their lives. Let’s look at how this economic sleight of hand works.
To fully understand and appreciate how municipal government finance works for any jurisdiction, one must think of in terms of a delicate balance supported by three “legs”:
Tax Base: The sum of all assessed valuations of real properties within the taxing authority of the municipality. That is, that portion of each residential, commercial and industrial property that is subject to the levy and collection of property taxes based upon the current rate.
Revenues: All sources of ordinary income received by the municipality. This includes property taxes, local sales taxes and the municipality’s share of state income taxes collected from those living and/or working within the municipality (known within Indiana government as ‘County-Option Income Tax’ or ‘COIT’). Revenues also include fees for permits and other activities as required by local ordinance, as well as payments received from leasehold tenants where the municipality has a security interest or ownership in the building.
Expenditures: More commonly referred to as the budget, though a balanced budget also must include revenues to offset each expenditure included in the budget. Each expense dollar spent from revenues received typically falls into one of three broad categories:
Operations Expenses (‘OpEx’ for short). The ordinary day-to-day expenses incurred by the municipality, including rent, utilities, payroll and benefits, travel and property taxes paid.
Capital Expenditures (‘CapEx’ for short). These are expenses for assets whose life extends beyond the current budget year and whose costs can be recovered over time due to depreciation.
Debt Service: Payment of principal and interest on all forms of money borrowed by the municipality (or its agencies) to fund infrastructure improvements, parks, redevelopment projects and – to a lesser extent – assets that would be considered CapEx.
In order to maintain a balance and avoid a budget deficit, tax base, revenues and expenditures must remain in equilibrium. If a budget increases to due to – say – large increases in redevelopment or community relations expenses, then a corresponding increase in revenues must be made. This can be accomplished by either increasing revenues outright through an increase in tax rates, fees and/or lease revenues. In a housing market where demand is strong, assessed valuations increase naturally up to the level of caps set by state law. Or, revenues can be increased by increasing the tax base, so that more assessed valuation becomes available to tax.
In Part 2, we look at how this last option is at the core of the Brainard quest to capture as much revenue potential from every parcel of property within the city of Carmel, Indiana as possible. We will show how it attempts to the dual aims of keeping property taxes low while funding a complete ground-up redo of central Carmel into a high-end district designed to appeal to patrons of the arts. To be sure, it is a sobering reality when one takes the time to understand the processes and individuals involved and what it ultimately means for Carmel taxpayers.
