Porter County explores local income tax options to bolster county revenue

Porter County commissioners and the county auditor’s office met in a workshop to review local income tax (LIT) options and their likely fiscal and distributional effects, consultant Jason Sendler of Baker Tilly said at the session.

Sendler told the commissioners the main LIT choices fall into three broad buckets: property-tax relief, expenditure-rate options (eight specific categories the county may adopt), and special-purpose rates for large projects. “There’s really kinda 3 different buckets of local income tax,” Sendler said, adding that LIT is charged on adjusted gross income for individuals who live in the county, not on where they work.

Why it matters: Porter County currently has one of the lowest LIT rates in the state, the workshop heard, and officials said revenue pressures mean the county needs to consider new or expanded LIT revenue to maintain services. Sendler and county staff emphasized that different LIT types have different limits on how revenue is shared with other local units, and that some options produce new operational revenue while others primarily shift funding from property taxes.

Key options and constraints discussed

- Property-tax relief: A property-tax-relief LIT does not generate net new county revenue; it shifts funding for budgets currently paid from property-tax levies to the income-tax levy. Sendler said the property-tax-relief cap is 1.25% and that this bucket “is just reducing our property taxes” rather than creating new revenue.

- Expenditure-rate buckets: The county may adopt any of several expenditure-rate options (public safety, certified shares, correctional/rehabilitation, EMS, digital/judicial, and others) up to a combined ceiling of 2.5% for those rates. Within the expenditure rate group, Sendler explained, the county already has a 0.5% economic development rate; the county could add up to another 2.0% within the expenditure-rate ceiling before hitting the 2.5% limit.

- Certified shares (wide sharing): Certified shares is one of the more flexible options but is shared with cities, towns, libraries and (if included) townships and is therefore split among many local units. Sendler cautioned that certified shares spreads revenue to multiple units according to levy rules.

- Public safety: A public-safety LIT is more restrictive about allowable uses but can include a carve-out called a PSAP allocation (Public Safety Answering Point) so the county can retain a portion for 911/dispatch costs. Public-safety LIT revenue flows to the county and to cities and towns but not to townships, unless money is transferred through a contract.

- Correctional/rehabilitation (jail) rate: A correctional/rehabilitation LIT can be adopted to fund jail construction or bond payments; these rates commonly have multi-decade lives (Sendler said 20–25 years is typical). The correctional rate is limited (Sendler noted a 0.2% maximum for one such rate) and revenues are applied to bond payments and operating costs for facilities.

- EMS rate: An EMS-specific LIT is available in some counties and is typically capped at 0.2%. Counties have used this bucket to help cover growing ambulance/EMS contract costs.

- Digital/judicial rate: A newer, more restricted option that can be used mainly for court staffing costs (court reporters, bailiffs, court administrators). Sendler said statute limits the use and typically only up to 50% of the related budget can be funded from that source.

Revenue and distribution examples

Sendler provided an illustrative example showing that a second 0.25% (beyond the county’s existing economic-development 0.25%) could generate roughly $18 million in gross revenue; he said about $3.5 million of that would pass to the county’s RDA under Porter County’s special statute and the remainder would be applied to additional homestead credits or other statutory distributions. He cautioned that the special statute governing Porter County’s existing economic-development allocation requires specific legislative language to change how that money flows.

Timing, increments and mechanics

- Smallest increment: The smallest LIT change can be set in 0.01% steps, Sendler said. - Effective dates: If adopted by Aug. 30 in the calendar year, Sendler said the effective payroll withholding could begin Oct. 1 and revenues would start flowing (in their example) to the county in January of the next calendar year; later adoption windows shift the first revenue month into the following calendar year. (Exact calendar dates and deadlines discussed in the workshop were described as statutory deadlines; officials said they would confirm timing with DLT templates and counsel.)

Taxpayer impact examples

Sendler illustrated taxpayer impacts on adjusted gross income: a 0.5% LIT increase would raise a person reporting $50,000 in adjusted gross income by about $250 a year (roughly $20 a month); $75,000 AGI would increase by about $375 a year.

Policy, sharing and municipal concerns

Workshop participants pressed on how particular LIT choices affect municipal partners and townships. Sendler said certified shares spreads revenue among more units (including townships if the county opts in) while public-safety and special-purpose rates are shared only with certain units and can sometimes be carved out to fund county-only functions (for example, a county jail). He also explained that money intended to be passed to a township or volunteer fire department typically needs a contract or an express statutory mechanism rather than being a straight ‘‘set and forget’’ allocation from a county rate in many circumstances.

Legislative dependence and next steps

Multiple participants and Sendler noted that pending or future state legislation could change caps, allowable uses, or calculation rules for LIT. Sendler repeatedly cautioned the options he described reflect current statute and that “this is kinda how the world is as of today, but it could change.” Commissioners and auditors said the county will continue modeling scenarios, review legislative outcomes when the session concludes, and coordinate with the county council and legal counsel before any adoption vote. The workshop did not include any formal vote.

Ending

County staff and the auditor’s office requested further modeling of budget scenarios and requested time to present refined options after the legislative session and after staff-run revenue models are complete. The county council (which must adopt any tax ordinances/resolutions) was identified as the body that would ultimately approve LIT changes following required public hearings and statutory notice requirements.