Millions in school tax money paid to banks

Late property tax bills force schools to borrow to operate, pay lots in loan interest
2010-01-17T00:05:00Z Millions in school tax money paid to banksBy Dan Carden - dan.carden@nwi.com, (317) 637-9078 nwitimes.com
January 17, 2010 12:05 am  • 

INDIANAPOLIS | Late tax bills are forcing property taxpayers to pay higher taxes to cover the interest on loans taken out by schools and local governments that need operating revenue until their tax money comes in.

A Times analysis found Northwest Indiana schools have paid more than $16 million in interest over the past two years on these tax anticipation loans.

Many school corporations pay those interest costs out of a debt service levy. That means taxpayers are forking over more tax money to their schools -- not for teachers, classrooms or books -- but to pay back the bank what the school had to borrow because school tax revenue was delayed.

Late tax bills have become a way of life in Northwest Indiana. In Lake County last year, tax bills that should have been paid in May didn't even go out until October. In LaPorte County, property tax bills are so far behind that the state Department of Local Government Finance has taken over assessing duties from the county.

Schools would have to borrow some money, even if tax bills were on time, to cover expenses from January until June, when schools should receive their tax money from the county treasurer.

However, the delayed tax bills have forced schools to borrow more money, because they don't know when they'll be getting their tax payments, and to hold those loans on their books longer, leading to higher interest payments, said Lynn Kwilasz, director of finance for the School Town of Highland.

Highland schools were about average for the region, paying $731,301.59 in interest in 2008 and 2009 for tax anticipation loans. The School City of Hammond paid more than $2.4 million in interest.

Statewide, schools paid more than $66 million in interest on loans needed because of delayed tax distributions in 2008 and 2009, according to the Indiana Department of Education.

Not all school corporations have a separate debt service levy. In those schools, interest payments come out of the general fund, taking money directly from classroom learning, said Peggy Smith, a state education department fiscal analyst.

Many city governments are in the same boat. East Chicago is paying 3 percent interest on $22 million in tax anticipation loans this year, while Gary paid nearly $2 million in interest in 2008.

State Rep. Shelli VanDenburgh, D-Crown Point, says she wants to fix a system in which tax dollars are being used to pay interest, rather than provide services to taxpayers.

"We're cutting education left and right, and to spend $66 million over two years -- that's huge," VanDenburgh said. "Tax money is tax money, every penny."

VanDenburgh's House Bill 1059 would require counties to send a tax bill in the spring, even if the total taxes due haven't officially been determined yet. The spring bill would be 50 percent of the taxes paid the year before. In the fall, any additions or corrections would be made on the second tax bill.

The system in place now means tax dollars are "basically flushed down the toilet," VanDenburgh said, because they could be used for more than just interest payments to banks.

State Rep. Tom Dermody, R-LaPorte, is the former board president of LaPorte Community School Corp. He said the borrowing schools have been forced to do is "absolutely ridiculous."

"That is the biggest waste of taxpayer money I've ever seen, and that has to stop," Dermody said.

He would change VanDenburgh's legislation to allow counties that do bill property taxes on time to keep doing what they are doing. The Department of Local Government Finance estimates 70 out of Indiana's 92 counties will bill on time this spring, up from only two counties on time last year.

Republican Gov. Mitch Daniels said Friday that counties need to do everything they can to get tax bills out on time. But, he added, "if they're that incompetent, I'm not against them having some backup opportunity."

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