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More tax problems emerge
Schools could lose $8M, city $2.8M in revenue

Laurie Wink
The News-Dispatch

MICHIGAN CITY - Michigan City Area Schools could lose $8 million and Michigan City an estimated $2.8 million in 2006-pay-07 property tax revenues, based on financial projections resulting from County Auditor Craig Hinchman's decision to use 2005 assessed values, rather than the contested 2006 figures.

Hinchman blames the state's Department of Local Government Finance for creating the shortfall. He sent a letter Sept. 14 to state government officials claiming "the DLGF is hurting the people of La Porte County."

But DLGF Commissioner Tim Rushenberg sent a pointed response to Hinchman's letter a week later, making it clear Hinchman is the only county auditor in Indiana to use untrended 2005-pay-06 property values for the 2006-pay-07 tax bills, rather than trended values forwarded by the County Assessor's Office.

Hinchman deliberated about the decision for three months before certifying the 2005 values to the DLGF on July 24, a delay Rushenberg referred to as "excessive."

"In fact, the delay in certification not only put La Porte County at greater fiscal risk (the treasuries of local units were depleting to disastrously low levels)," Rushenberg said, "but it put you at risk of being charged with criminal negligence in the performance of the duties of your office."

The commissioner said the DLGF has never shared Hinchman's conviction about using 2005 values, but the department approved his decision in order to finalize tax bills "that should have been final two years ago."

"You deserve to take full responsibility for your actions in this matter," Rushenberg wrote. "The (DLGF) cannot, in good conscience, claim responsibility for any of the actions that you have taken."

Hinchman maintains the shortfalls wouldn't occur if the DLGF had OK'd using 2005 property values across the taxing units, rather than using 2006 trended numbers for 22 cross-county units, where school districts cross county lines.

In his response, Rushenberg said the DLGF had repeatedly explained to Hinchman what the consequences would be if they followed Hinchman's plan. Some 22 of La Porte's taxing units overlap with Porter, St. Joseph and Marshall counties, all of which have already issued 2006-pay-07 tax bills. The DLGF would have to ask these counties to reopen their tax bills, something they are not willing to do.

"Understandably, those counties were not interested in incurring the cost, undertaking the effort and stirring up massive taxpayer confusion and backlash to reopen 2-year-old tax bills," Rushenberg said.

Michigan City Mayor Chuck Oberlie said he'll ask the City Council Monday to consider filing an appeal with the DLGF to recover possible shortfalls. City Council Finance Committee Chairman Marc Espar, D-2nd Ward, said the appeal is a cautionary measure that would allow the city to make up for any revenue losses by increasing property tax rates in 2010. Espar said the full council would have to approve a resolution before the city could file an appeal. Shortfall appeals must be filed with the DLGF by Dec. 31, 2009.

Unlike the city, the school corporations aren't eligible to file shortfall appeals because the state will take over school funding in 2010. Theo Boone, MCAS chief financial officer, was reported to be out of the office and not available for comment, and the interim superintendent, Carla Iacona, did not return calls.

At this point, final property tax revenues are not certain, said Hinchman, who's waiting for the Assessor's Office to forward information he needs to prepare an abstract. The DLGF uses the auditor's abstract to calculate the county tax rate. Hinchman hopes the reconciled property tax bills can be sent out by the end of this year.

Contact Laurie Wink at lwink@thenewsdispatch.com.

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MCAS mulls $8.3M shortfall

Laurie Wink
The News-Dispatch

MICHIGAN CITY - Faced with an $8.3 million reduction in property tax revenue for the 2006-pay-2007 tax year, Michigan City Area Schools administrators and board members held a work session Wednesday to consider possible options to prevent the shortfall.

The shortfall was calculated by Theo Boone, MCAS chief financial officer, based on the 2005-pay-06 assessed property values certified by La Porte County Auditor Craig Hinchman. By deciding to use the lower assessed values instead of the trended values for 2006-pay-2007 as approved by the Indiana Department of Local Government Finance, Boone said Hinchman caused the tax rate to be applied to a smaller pool of funds, creating shortages for most county taxing units.

The DLGF had set the 2006-pay-2007 tax rates in fall 2007 because Marshall, Porter and St. Joseph counties, all of which have cross county tax units with La Porte County, were on schedule with their budgets and needed the tax rate to produce property tax bills.

Boone said MCAS lost $1 billion in assessed value when the 2005-pay-06 values were applied, and the shortfall represents 27 percent of the MCAS budget.

"It's not just Michigan City schools," Boone said. "We're the biggest and the number is the largest, but the impact (for others) can be exactly the same. We all hurt proportionately."

Philip Bender, New Prairie United School Corp. superintendent, was at the meeting to join forces with MCAS because his school system is in the same boat. Bender said New Prairie lost between 18 to 20 percent of its budget, or $4 million. They have already borrowed $5 million in tax warrants - the maximum possible - to keep functioning. An interest payment on the loan of some $180,000 is coming due at the end of December, Bender said.

"Taxpayers don't understand they will pay for this at some point in time," Bender said. "It's a travesty not just to schools, but any municipality in the county."

Boone said MCAS has been able to carry over some funds each year to cover the interest on loans, but the so-called savings account is about to run dry. The school corporation received about one third of its tax draw in 2008, but so far nothing has been issued by the county this year.

The option favored by those at the meeting is to file an appeal with the DLGF to recover any shortfalls. A possible stumbling block is that, unlike municipalities, the school corporations are not now considered eligible to file appeals because the state will take over school funding in 2010.

But consultant Beth Henkel questions whether the state can apply its recent decision to take over education funding to an earlier tax year when the law wasn't in place. Henkel formerly was the general counsel for the DLGF and served as DLGF commissioner from 2004 to 2005.

According to Henkel, an appeal has to be filed within 45 days of when the DLGF issued the budget order on Aug. 31. The other possibility is to file a suit with the Indiana Tax Court.

"I can't imagine how your auditor can stay with this position, knowing what it's going to do," Henkel said. "It's the auditor you have the beef with."

MCAS Interim Superintendent Carla Iacona is setting up an executive meeting at 6:30 p.m. Monday to decide on an action plan.

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Contact Laurie Wink at lwink@thenewsdispatch.com.