The UNIGOV reorganization of local government affected public finance—governmental revenues, expenditures, and indebtedness—within Indianapolis and Marion County. As with service delivery, few aspects of public finance were actually consolidated under Unigov. Instead, Unigov increased the reliance of city-county government onand covering portions of the county for collecting revenue to support additional or improved governmental services.
Revenues. Primary revenue sources for the city of Indianapolis are localand fees and federal and state funds. Historically, the local property tax has been Indianapolis’ major source of revenue. But voter resistance to rising local property taxes led to the Indiana General Assembly’s adoption of a property tax reform program in 1973. The state legislature limited future increases in property tax rates by local governments, substituting a system of property tax replacement funds generated by an increase in the state sales tax. In 2007, the General Assembly enacted legislation to provide for a property tax cap referendum. Three years later, the state’s voters approved the referendum to insert property tax caps into the Constitution. The caps, which became effective in 2012, were set at 1 percent, 2 percent, or 3 percent based upon the type of property owned. While the property tax continues to be the largest local tax source, its share of city-county government’s total revenue has declined. As a result, local officials have searched for and increased their reliance on other sources.
Federal and state funds were one such source, although they have been subject to similar political pressures from the so-called taxpayer revolts of recent decades. During the 1980s, for example, Congress ended one significant source of local support, the federal general revenue sharing program. Federal block grants—such as the Community Development Block Grants (CDBG) and the Job Training Partnership Act (JTPA)—continue to be used to transfer funds to local government for broad purposes.
To replace the loss of federal revenue sharing funds the Indiana General Assembly in 1982 authorized counties to adopt a County Option Income Tax (COIT), the rate of which varies by county. Indianapolis-Marion County government adopted this local income tax in 1983. Thewas also permitted to adopt a 10 percent additional county excise tax on automobiles and wheel tax on trucks to be used for curb, sidewalk, and street resurfacing and repair. In addition, the state of Indiana distributes to local governments some of the revenue it collects from automobile excise taxes and taxes on motor vehicle fuel, alcohol, tobacco, intangible assets held by financial institutions, and inheritance taxes.
Fees and charges for specific services have also been used to replace reduced federal funds and limits on local property tax rates. These fees have included sewer volume charges, solid waste collection fees, air pollution monitoring charges, zoning petition and building permit fees, and charges to local telephone users for 911 emergency service.
Under the Unigov reorganization, Indianapolis’ property tax base is potentially the entire Consolidated City (Marion County minus theof Beech Grove, Lawrence, Southport, and Speedway). Unigov’s expansion of the territory of the city of Indianapolis increased its total assessed property valuation—its potential property tax base—by 70 percent.
Despite Unigov’s effort at city-county consolidation, however, Marion County still contains many different taxing jurisdictions and property tax rates. There are about 60 taxing units within the Consolidated City alone. The overlapping territories of taxing units in the county produce an even larger number of total property tax rates faced by Marion County residents depending on where they live. Total nominal property tax rates varied from a low of $2.33 per $100 assessed valuation in parts of Pike Township to a high of $4.77 per $100 assessed valuation in Beech Grove.
Center Township includes many large and valuable properties in and around downtown Indianapolis. However, several of them are exempt from property taxation because they belong to government or charitable organizations, or because they have been temporarily exempted under arrangements to encourage redevelopment . At the same time, Center Township residents have the greatest needs for public assistance and other services in the county. Public assistance for Center Township residents is currently supported by property taxes imposed only on Center Township properties.
The property tax base and property tax rates have been used more aggressively to support local economic development policy. Indianapolis promotes economic development by providing tax-related assistance in the form of abatements, enterprise zones, and tax-increment financing districts.
There are two types of property taxes—one on real estate such as land and buildings, the other on personal property such as business equipment and inventories. Property tax abatements, which lower the tax on buildings and machinery, make holding vacant land less attractive and developing property more attractive. On the other hand, because abatements reduce the amount of tax collected from those properties, it may be necessary to raise other tax rates to make up for the forgone revenue.
Enterprise zones provide tax incentives to businesses that locate within them. These incentives include forgoing the personal property tax on inventories.
Tax-increment financing (TIF) uses the expected increase in property revenues from a development project to pay for the project. TIF makes redevelopment self-financing but, like abatement, may force other taxing units to increase rates because they do not share in the growth of the real property tax base.
City-county government has employed each of these economic development incentives, but it is difficult to determine their relative success because several other factors also contributed to Indianapolis’ strong economic performance beginning in the 1980s. City-county government can also use its power of eminent domain to assemble parcels of land, and may build a parking garage as part of a private developer’s project. The, which is responsible for the development and administration of an air transportation system for not only Marion County but the eight-county metropolitan area, also plays a key role in economic development.
Expenditures. Expenditures reflect the functions and financing methods of government. Protection of people and property is the largest expenditure category in the city’s budget, accounting for about 37 percent of all city expenditures for 2021. Other public services constitute 25 percent and criminal justice services 21 percent. Debt service (interest payments and redemption of outstanding bonds) and capital outlays (expenditures for construction and infrastructure) represent 9 percent of total expenditures, followed by executive, legislative, and administrative services at 8 percent.
During the 20-year period from 2000 to 2020, city government expenditures in Indianapolis rose 284 percent, from $426,250,696 to $1,212,269,739. This increase exceeded both the rate of population growth and the rate of inflation during the decade.
Indebtedness. The city borrows money primarily to fund large-scale projects that are impractical to fund from a single year’s budget and that will generate benefits over a long period. The usual method of borrowing is to sell bonds. Buyers of the city’s bonds are repaid from either the city government’s general revenues or the specific revenues generated by the project for which the money was borrowed.
The Unigov reorganization improved the city’s ability to borrow substantial amounts of money at favorable interest rates. The inclusion of outer-county suburban areas raised the city’s total property valuation and therefore raised the debt limit available to the city of Indianapolis. This eased borrowing for several large-scale capital projects begun in the 1980s and continues to the present.
Indianapolis also has maintained beneficial bond ratings that keep interest costs relatively low. Municipal bond rating agencies have shown financial confidence in Indianapolis, giving the city AAA and AA bond ratings for many years. These bond ratings attract outside investors to the city’s bonds, reducing the interest rate the city must offer in order to find buyers.
To maintain this confidence in the city’s financial condition, and to maintain service quality despite restraints on revenues, city officials have given increased attention to measuring the effectiveness of government expenditures. Alternative means of delivering services are being considered. Agencies are being urged to clearly articulate outcome-oriented goals and measurable objectives and to report annually their progress toward them. Continued public confidence in government depends upon effective accounting for where tax dollars go.