How do city budget hearings work? How does the tax rate come together and what is a levy?

Good question and it’s not an easy answer.

The city of Carmel’s property tax rate is actually several rates added together, one for schools, one for the city, the township, the county, the library, etc.   Each of these local units sets a rate, and the total is paid by property owners.

The rates are adjusted annually after a public notice, a public hearing, and a vote by the fiscal body of each local unit, such as the Carmel City Council, which is the fiscal body for the city, and the Carmel Clay School Board, which is the fiscal body of our local public school system.

The rates are adjusted annually after a public notice, a public hearing, and a vote by the fiscal body of each local unit…

What some may not realize is that local fiscal bodies are bound by Indiana state law that limits the amount each unit can raise in property taxes.  Generally, the “property tax levy” can increase only in proportion to the increase in the incomes of Indiana residents – not the income of each individual property owner but the average percent increase of all Indiana residents.  Thus, Indiana property taxes are designed to stay strictly within the ability of Indiana citizens to pay.

The limits are enforced by a state agency called the Indiana Department of Local Government Finance – or DLGF for short. The DLGF does not make budget policy decisions.  It only makes sure that property taxpayers pay only the legal limits on the amounts of property tax that can be raised each year.

There are provisions in the law to make adjustments for extraordinary circumstances, such as exceptionally high population growth.  DLGF can approve such adjustments, but they are rare and narrowly defined. Also, levies are allowed to the extent necessary to meet current debt payments, but only for bonds that were approved for payment from property tax at the time the bonds were issued.

A further limit is placed over the amount an individual property owner can be required to pay.  Regardless of the rate, a tax bill cannot exceed a certain percentage of the market value of a property: 1% in the case of homesteads, 2% for other residential property, and 3% for commercial property.  These limits are known as “tax caps” or “circuit breakers.”

Each year, the City Council passes a budget – a balanced budget, as mandated by state law – and submits it to the DLGF, which then has the ability to make adjustments based on the levy, at which time the final “city tax rate” becomes officials, along with the other rates that each taxpayer pays.

Authored by Laura Campbell, Sue Finkam, Kevin Rider, Jeff Worrell, Sue Finkam, Bruce Kimball, Miles Nelson, Anthony Green and Adam Aasen.