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2019 School Budget Planning:  A Transitionary Time

By Brock J. Bowsher, Manager, June 14, 2018

It’s that time again. School corporations across Indiana need to start developing 2019 school budgets.

Budget preparation can be a laborious and time-consuming process, but adding to the already complicated process for 2019 are the fund changes effective January 1, 2019. School boards will adopt 2019 budgets with two new funds: Education Fund and Operations Fund.  School budgets will no longer prepare general, capital projects, transportation, bus replacement (in addition to, if applicable:  historical society, racial balance and art association, public playground) funds budgets.  The Education Fund is to be used exclusively to pay expenses allocated to student instruction and learning. The Operations Fund will be used to track non-academic and non-debt expenses.  School corporations will continue to use existing debt funds to prepare 2019 budgets.  

One of the first steps school boards will take is to pass resolutions establishing the new Education and Operations Funds effective January 1, 2019.  Resolutions establishing these two new funds should be done no later than December 2018. 

As for specific 2019 budget preparation, budget forms are available through Gateway at http://gateway.in.gov.  Slight revisions to the 2019 Budget Forms 2 and 4B reflect the transition to the new budgeted funds:

  • Budget Form 2 and the Current Year Financial Worksheet must be completed as if the Education and Operations Funds were in place for the second half of 2018.
  • Budget Form 2 also includes a new line item called “Other Revenue.” That line should reflect the amount school corporations intend to transfer from the Education Fund to the Operations Fund or vice versa. 
  • Form 4B includes an additional line item (Line 1a) labeled “School Transfer Out”, which  should be used to report the amount school corporations intend to transfer from the Education Fund to the Operations Fund or vice versa. 

School corporations will find that starting with a clearly defined budget plan for 2019 to prepare for the fund changes will lead to a smoother transition. If you would like additional information regarding these changes, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Do You Have a Financial Roadmap to the Future?

By Paige E. Sansone, CPA, Partner, May 31, 2018

Many governmental units across Indiana, large and small, are facing financial challenges due to rising costs, declining revenues, lack of economic growth, and property tax losses due to Circuit Breaker Tax Credits and other legislative changes. All of these factors are changing the way we budget. Taking a short-term “fill-in-the-forms” approach to budgeting is no longer sufficient to the need. There is a greater urgency to extend planning horizons beyond one year and develop long-term cash flow projections to identify potential budget deficits and cash flow shortages before they occur.

Developing a three to five year comprehensive financial plan can provide your community with a financial road map to the future. The plan can be used as a tool to map out priorities and estimate the impact of increasing costs, changing revenue streams, and legislative mandates. It can define your government’s financial position, predict receipts and disbursements, and identify potential funding gaps or investment opportunities. A comprehensive financial plan can provide the framework for developing financing plans for capital projects and better manage debt obligations.

If you have any questions about developing comprehensive long-term financial plans or need assistance, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Utility Legislative Update

By Scott A. Miller, CPA, Partner, May 30, 2018

The Dust Has Settled on an Extended 2018 Legislative Session that Saw Several Significant Utility Bills Enacted

There was a lot of drama surrounding the special legislative session called by the Governor to finish business undone at the end of the regular session. Utility-related issues were not impacted, however, since the legislature wrapped up its work on Indiana’s "wet" utility infrastructure prior to the March deadline.

Using a methodical approach towards understanding the needs of utilities, the legislature issued two new laws that could significantly impact the industry.

The first, Public Law 126 (formerly Senate Enrolled Act 362) includes three main components:

  1. New water and wastewater utility companies that are created after June 30, 2018 will be subject to the jurisdiction of the Indiana Utility Regulatory Commission (IURC) for approval of rates and charges, financing, rules and annual reporting requirements for at least the first 10 years of existence as a legal entity even if they are otherwise able to opt out of IURC jurisdiction. These provisions would not affect municipalities, regional districts or conservancy districts.
  2. Participation in the State Revolving Fund (SRF) loan program will now require documentation that demonstrates the utility has the financial, managerial, technical and legal capability of operating and maintaining its water or wastewater treatment, distribution and collection systems. Additionally, documentation that demonstrates that the utility has or is in the process of developing an asset management plan will be required. SRF is in the process of developing guidance regarding the technical and financial components of an asset management plan.
  3. Permits issued or amended for newly constructed, newly acquired or expanded water or wastewater treatment plants will require documentation certifying the completion of a life cycle cost-benefit analysis, a capital asset management plan and a cyber security plan. The statute describes some of the additional components that each of these items must contain including user rate analyses. These studies must be updated every five years while the facilities continue operation. Importantly, these rules do not apply to renewals of permits for existing plants provided there is not expansion of capacity.

The second new law, Public Law 196 (formerly House Enrolled Act 1267), establishes a Water Infrastructure Task Force that is charged with examining recommended standards and best practices for the maintenance and life cycle management of drinking water systems, wastewater management systems and storm water management systems.

As part of this examination, the task force is to analyze whether individual systems are achieving the recommended standards, assess the adequacy of funding sources, evaluate the impact of regionalization on system performance and ratepayer value and assess the impact on economic development in Indiana of an improved system of water infrastructure.

The task force is also directed to (1) create an empirical decision-making tool to assist policymakers in prioritizing funding for water infrastructure projects and (2) develop a long-term plan for addressing drinking water, wastewater and storm water management needs in Indiana.

The task force must act quickly. A report on recommendations from the task force is due no later than December 1, 2018.

If you would like additional information regarding capital asset management plans, rate studies or other long-term financial planning tools, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Special Session Brings New Requirements for Redevelopment Commissions

By Matt Eckerle, Principal, May 29, 2018

The May 14th special session of the Indiana General Assembly saw passage of HEA 1242 in both chambers, and the bill was subsequently signed into law by Governor Holcomb. Included in this law are new requirements affecting redevelopment commissions.

Effective July 1st, all redevelopment commissions will be required to hold an annual meeting during which it must present certain financial information for the governing bodies of the taxing units that overlap with the boundaries of established Tax Increment Finance (TIF) allocation areas. The requirement, which mandates long-term planning for TIFs and direct engagement with other taxing authorities, encourages increased communication between redevelopment commissions and its other taxing units.

Although specific guidance from the state regarding timing and content requirements is not yet available, the bill outlines items that a redevelopment commission must address in its meeting with overlapping units. The commission’s meeting must address the following items:

  • its budget for tax increment revenues
  • the long-term plan for each TIF area
  • the impact of each TIF area on overlapping taxing units.

Additionally, the new law states that the governing body of an overlapping taxing unit may request that a member of the redevelopment commission appear at a public meeting of that body.

This new law affects all redevelopment commissions in the State. Direct engagement with overlapping taxing units and the development of strategic financial plans for TIF areas, while always a best practice, now have greatly increased importance to redevelopment commissions.

Your community’s overall financial planning process can make use of the information developed to meet these new requirements. Moreover, the redevelopment commission will have access to additional information as it makes its annual assessed value pass-through determination each spring.

Please note: This article references the special session version of HEA 1242, which addresses State and Local Administration. Bill details can be found by clicking here.

Umbaugh will assist your community with the development of TIF strategic financial plans, budgets and impact analyses so you are compliant with the new requirements. Please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Utilizing TIF to Support Education in Your Community

By Matt Eckerle, Principal, May 17, 2018

Tax Increment Financing (TIF) is traditionally viewed as a resource for funding infrastructure, downtown redevelopment or incentives to promote economic development in a community. TIF funds are not generally viewed as a possible source for funding educational programs or projects, but that is changing.  Communities across Indiana are finding opportunities to partner with their local school corporations and educational institutions to allocate TIF funds in support of educational programs and capital projects.

Some redevelopment commissions have begun to utilize a state law that allows for up to 15% of TIF revenues generated in an allocation area to be used for programs that provide job training and re-training for residents of the community. Eligible organizations include local school corporations, nonprofit organizations whose primary purpose includes job training and re-training, and institutions of higher education that offer these types of programs, such as Ivy Tech Community College of Indiana.

Many redevelopment commissions also are exploring opportunities to collaborate with local school corporations on capital projects. Such projects may be eligible for TIF funding as long as they are (1) located in or directly benefit the area and (2) included in the area’s economic development plan.

Examples of successful TIF-Education partnerships in Indiana include:

  • The Whitley County Redevelopment Commission is contributing $7.5 million to the Whitley Consolidated School Corporation over a three-year period to a new high school project.
  • The Gibson County Redevelopment Commission contributed $600,000 to Ivy Tech to fund a local welding program.
  • The Town of Plainfield is utilizing TIF funds to make debt payments on the school transportation center bonds.
  • The City of Lebanon used TIF to fund a multi-use training room at Lebanon High School.

Another tool available to redevelopment commissions is the pass-through of incremental assessed value for the benefit of overlapping taxing districts, including school corporations. Redevelopment commissions typically use the time leading up to the June 15th TIF excess incremental assessed value notification deadline to evaluate opportunities for such pass-through determinations.

Along with monitoring and carrying out the economic devlopment plan(s) for your community, exploring partnership opportunities with local education providers and other taxing units should be part of your annual analysis of your community’s TIF areas. Engagement with these units can be a part of a larger economic development strategy in your community.

Umbaugh can assist you with evaluating potential opportunities to utilize your TIF dollars to support local education efforts or collaborate with other taxing units.  If you have questions or need assistance with the analysis of your community’s TIF area or areas, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Cities and Towns Face Changes to Transportation Funding Distributions and Reporting Requirements

By Eric Walsh, CPA, Partner, May 17, 2018

In April 2017, Indiana legislature passed HB 1002, a sweeping bill covering transportation infrastructure funding. Among the bill’s many provisions, of note were changes related to State motor vehicle highway distributions and how local governmental entities are permitted to use their distributions.

HB 1002 calls for an incremental increase in the amounts distributed from the motor vehicle highway account to state and local units to 60 percent for state units and 40 percent for local units after June 30, 2022. This reflects an increase from the current 53 percent and 47 percent for state and local units, respectively. 

In addition, cities counties, and towns are no longer permitted to use their allotted distributions for painting of structures and objects or law enforcement. Rather, local governmental units must use at least 50 percent of their distributions on construction, reconstruction and maintenance of roadways. The last word in this description is notable because additional legislation passed just this year changed maintenance to preservation.

The legislation also called for changes to the Annual Operations Report (“AOR”) for Highway and Street Departments for cities and towns with a population of 20,000 or more. The AOR population threshold also was lowered from 20,000 to 15,000. This will result in a handful of cities and towns in the 15,000 – 20,000 population range filing an AOR for the first time in early 2019. As for the 50 percent use restriction, it will be tested at audit (for now) and could eventually become an annual test.

Updates are still being made to the AOR and the prescribed forms issued by the Indiana State Board of Accounts (SBOA) last year. There will be more to follow on these new reporting requirements as the information becomes available.

For questions on how transportation funding can be used at the local level or how new reporting requirements may affect cities or towns, please .(JavaScript must be enabled to view this email address) the professionals at Umbaugh.

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

In the World of Circuit Breakers, More Counties Turning to Local Income Tax

By Jason G. Semler, CPA, Partner, May 03, 2018

Local Income Tax (LIT) is a resource that communities are increasingly relying on as pressures build on property tax revenues. With the greater flexibility now allowed since CAGIT, CEDIT and COIT were consolidated into a single LIT, you may wonder what options you have with the various rate components and how your county’s total rate stacks up to your peers.

Current LIT statute allows for a Property Tax Relief rate up to a maximum of 1.25% and a total Expenditure rate (which can be allocated between Certified Shares, Public Safety and/or Economic Development components) up to a maximum of 2.50%, for a maximum total rate of 3.75%. The 3.75% limit is prior to any additional county-specific Special Purpose rate approved through legislation.

In 2017, 22 of Indiana’s 92 counties adjusted their LIT rate. Only one county reduced its total rate, through the expiration of a Special Purpose component. Three counties maintained the same total rate, while reallocating amongst the various components. The remaining eighteen counties increased their total rate, with increases ranging from 0.10% to 1.30%. For fiscal year 2018, Indiana counties maintain rates ranging from 0.35% to 3.38%, with a state-wide average of 1.67% and mean of 1.73% for the 92 counties.

2018 LIT Rates for Indiana’s 92 Counties

 

If your community is struggling with the constant challenge of doing more with less, remember that Local Income Tax is a resource available to provide important dollars for the essential services that your constituents expect. Your Umbaugh team will provide an analysis of your options and the impact of any action, and we are ready to assist if an adjustment to your county’s rate makes sense. Please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Next Level Roads Program (Part 1)

By Jeffrey P. Rowe, CPA, Partner, May 03, 2018

In 2017 the State announced a 20-year program to begin implementing projects aimed at improving the condition of the State’s roads and bridges.  The State released a plan for INDOT projects to be completed during the first five years and can be found at http://nextlevelroads.indot.in.gov. The program contains the following projects:

  • $5.1 billion in total investment
  • 122 lane miles added
  • 9,628 lane miles resurfaced
  • 1,295 bridges rehabbed or replaced

The five year projects are all approved, scheduled and fully funded which creates an opportunity for local projects to be completed concurrently with the INDOT projects to take advantage of construction conditions that exist and allow for local projects to be done at the least cost possible as well as minimize the number of disruptions.

If your community would like to explore working concurrently with INDOT as it proceeds with its projects, you should contact the local INDOT district office (https://entapps.indot.in.gov/dotmaps/districtmaps/) and/or your Metropolitan Planning Organization ("MPO") at (http://www.indianampo.com/indiana-mpo-regions.html).

In the next part of this series, we will further explore the next level roads program and how developing an asset management plan can aid in combining multiple projects together to save money and minimize disruptions.

If you have questions regarding the next level road funding program or would like assistance with your planning or funding needs, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Update:  Supplemental LIT Distributions

By Paige E. Sansone, CPA, Partner, April 19, 2018

Previously, we published an article that stated the supplemental distribution of LIT (to be distributed in May) should be receipted to the Rainy Day Fund.  We have recently obtained information from the State Board of Accounts that indicates the supplemental distribution may be receipted to the Rainy Day Fund or the General Fund unless otherwise directed.   If the distribution includes Economic Development and/or Public Safety LIT those amounts may be receipted to the LIT Economic Development (EDIT) and LIT Public Safety funds. The uses of the supplemental distributions are limited to the uses of the fund into which they are receipted.

According to an informational report from the State Budget Agency dated November 15, 2017, the counties listed below have excess balances above 15% in their trust accounts.  Please note that the numbers listed below are estimates.  The actual distributions will not be finalized until May, 2018.

 

County

Estimated
Supplemental
LIT by County
Boone  $         916, 428
Clark 2,385,506
Crawford              157,041
Dearborn 241,150
DeKalb 235,689
Dubois 602,173
Elkhart 3,445,381
Floyd 1,617,889
Gibson 1,650,594
Hamilton 12,680,207
Hendricks 852,868
Howard 750,177
Kosciusko 6,234,666
LaGrange 44,345
Orange 57,734
Owen 1,777,855
Randolph 259,368
St. Joseph 4,424,392
Switzerland        49,365
Tippecanoe 1,492,728
Wabash 1,022,821
Warrick 628,372

 

If you have questions about Supplement LIT or any other budgetary planning, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Does Your Website Have a Link to Gateway?

By Eric Walsh, CPA, Partner, April 19, 2018

If your political subdivision has a website, you are required to permanently display a link to the Indiana Gateway for Government Units website on your homepage.  The requirement is referenced below:

Political Subdivision Summary of Publication on Internet Website

After July 31, 2017, the Department of Local Government Finance ("DLGF") shall publish an annual summary of each political subdivision on the Indiana transparency Internet web site on the dates determined by the DLGF.

A political subdivision shall prominently display on the main Internet web page of the political subdivision's
Internet website the link provided by the DLGF to the Indiana transparency Internet website.

If you have questions regarding the information above or need assistance, please contact us at .(JavaScript must be enabled to view this email address)

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

2019 Budget Deadlines

By Paige E. Sansone, CPA, Partner, April 05, 2018

Even though we have just started the second quarter of the year, it is time to start thinking about preparing your 2019 Budget.  Please note that two budget deadlines have moved up this year to allow the Department of Local Government Finance (“DLGF”) to complete budget certifications by January 1. Cumulative Fund proposals are now due to DLGF by April 30 and Pre-Budget Worksheets are due in Gateway by May 1.

If you are new to your position, the budget deadlines for you and your staff are listed below.  Even if you are an experienced pro, this list is a good refresher.

  • April 30 – Deadline to submit proposed cumulative fund to DLGF (applies to establishing a new fund or reestablishing the rate on an existing fund)
  • May 1 – Pre-Budget Worksheet due in Gateway
  • May 31 – Deadline for County Auditor to distribute supplement LIT distributions (if applicable)
  • July 16  – DLGF provides estimate of maximum levy for 2019
  • July 31 – DLGF provides estimates of circuit breaker tax credits for 2019
  • August – At their first meeting in August, the County Fiscal Body is required to review property tax levies and circuit breakers for each taxing unit and distribute a written recommendation
  • August 1 – Deadline for County Auditor to certify net assessed values to the DLGF
  • September 3 – Deadline for units that require a binding review to submit proposed 2019 Budget to appropriate fiscal body
  • October 1 – Deadline for State Budget Agency to certify income tax distributions for 2019.
  • October 12 – Deadline to post Notice to Taxpayers (Budget Form 3) of the 2019 budget in Gateway.  This date applies only if adopting on November 1.  Please note that the notice must be posted at least 10 days prior to the Public Hearing on the budget.
  • October 19 - Deadline to file an excess levy appeal with the DLGF (excluding shortfall appeal)
  • October 22 – Deadline to hold a Public Hearing on the 2019 budget.  Please note that the Public Hearing must be held at least 10 days prior to budget adoption.
  • November 1 - Deadline for second and third class cities to adopt salary ordinances for employees other than elected officials.
  • November 1- Deadline to adopt the 2019 budget (appropriations, tax rates, and levies) 
  • November 5 (or 2 days after adoption) – Deadline to submit 2019 adopted budgets to DLGF through its online Gateway system
  • December 14 – Deadline to submit additional appropriations to DLGF
  • December 30 - Deadline to file a shortfall excess levy appeal with the DLGF
  • December 31 – Deadline for Towns and Counties to adopt salary ordinances for 2019
  • December 31 – Deadline for second and third class cities to adopt salary ordinances for elected officials for 2019

Budget forms must be completed on the Gateway budget program.  Once your budget has been submitted through Gateway and certified by the DLGF, the information is available for public viewing.  The DLGF’s deadline to certify budgets is January 1 (or January 15 if the unit is issuing new debt by December 31, 2018 or files a shortfall excess levy appeal).

This is the general timetable.  Exceptions and differences exist, such as for Appointed Boards and Special Districts.  Please contact us for the specific budget adoption requirements for your taxing unit.

It is a best practice to have someone take an additional look at your budget before its adoption.  [In light of the current budget complexities.]  If you have questions or need assistance in preparing or reviewing your budget, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Tax Rate or Tax Levy Management:  Questions School Corporations Need to Consider

By Belvia B. Gray, CIPMA, Partner, April 05, 2018

As part of their project planning process, school corporations need to determine whether their goal is maintaining the tax rate (debt service of total tax rate) at a certain level or keeping the tax levy near current levels.

Deciding whether to pursue a tax rate or tax levy management strategy can be complicated, but considering these seven factors can make it easier:

  1. How long will the current debt service levy continue to meet the school corporation’s funding needs?
  2. Is the tax base projected to change in the short- or long-term (decline, stabilize or grow)?
  3. How will adjustments to the debt service levy impact circuit breaker losses?
  4. For school corporation’s eligible for the protected tax waiver: Will the protected tax waiver remain or will tax cap losses be managed another way?   
  5. How will TIF or other significant assessed value changes affect the school corporation’s tax base and the magnitude of circuit breaker losses?
  6. Will taxpayers support increased spending?
  7.  What is the right mix of spending vs. taxpayer relief?

The answers to these questions can help guide your school corporation toward the best solution to meet its capital needs. Umbaugh can assist you with thinking through these types of questions and developing a plan that meets your school corporation’s needs. Please contact us at .(JavaScript must be enabled to view this email address) for assistance and more information.

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Now is the Time for Asset Management Planning

By Jeffrey P. Rowe, CPA, Partner, March 22, 2018

Recent studies by the EPA and American Water Works Association (AWWA) estimate the nation’s infrastructure replacement needs in the hundreds of billions of dollars. These studies reinforce Indiana’s own findings. The Indiana Finance Authority’s (IFA) 2016 study identified an immediate need for $2.3 billion just to replace outdated water infrastructure assets.  At the same time, many Indiana communities are facing implementation of wastewater long-term control plans, which for some communities is the largest infrastructure project they have ever undertaken. 

Taking a passive approach to addressing infrastructure needs is no longer a viable strategy. Indiana utilities need to develop financial plans for asset renewals in combination with long-term control growth. Doing so will enable them to plan for the timely replacement of an aging infrastructure while managing large fluctuations in utility rates.  This was recently reinforced by the Governor signing into law SEA 362 which requires the development of an asset management plan if a water or wastewater utility seeks to participate in the State Revolving Fund Loan Program (SRF) or in the event a permit is being issued or amended for the purpose of the inclusion of a newly constructed or newly acquired plant; or the expansion of an existing plant.

Options are available to utilities seeking to fund their asset renewal needs. Depending on the level of need, a properly prepared financial plan can be funded through the utility’s rate-funded capital plan, cash on hand, or included in a bond financing. In addition, the SRF is encouraging communities to begin the  process by allowing asset management planning  costs, such as engineering and financial advisory fees to be eligible for funding in conjunction with other project-related costs. 

Regardless of how communities decide to pay for infrastructure improvements, it is increasingly important to recognize that these needs will not go away on their own, and the initial step of developing a financial plan needs to start soon.

If you have questions about asset management planning or would like assistance with your funding needs, please contact us at .(JavaScript must be enabled to view this email address).

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Supplemental Local Income Tax (“LIT”) Distributions in May 2018

By Paige E. Sansone, CPA, Partner, March 22, 2018

Each year, the State Budget Agency makes a determination as to whether each county’s local income tax trust balance (held at the State level) exceeds 15% of certified distributions.  Excess balances above 15% are to be distributed to each affected county as “Supplemental LIT” by May 31.  Supplemental LIT should be deposited in a unit’s Rainy Day Fund and must be appropriated by the local fiscal body.

In May, the DLGF will provide to County Auditors the allocation by taxing unit of Supplement LIT. According to an informational report from the State Budget Agency dated November 15, 2017, the counties listed below have excess balances above 15% in their trust accounts.  Please note that the numbers listed below are estimates.  The acutal distributions will not be finalized until May.

 

County

 

Estimated
Supplemental
LIT by County

Boone

 

$            916, 428

Clark

 

2,385,506

Crawford

 

157,041

Dearborn

 

241,150

DeKalb

 

235,689

Dubois

 

602,173

Elkhart

 

3,445,381

Floyd

 

1,617,889

Gibson

 

1,650,594

Hamilton

 

12,680,207

Hendricks

 

852,868

Howard

 

750,177

Kosciusko

 

6,234,666

LaGrange

 

44,345

Orange

 

57,734

Owen

 

1,777,855

Randolph

 

259,368

St. Joseph

 

4,424,392

Switzerland

 

49,365

Tippecanoe

 

1,492,728

Wabash

 

1,022,821

Warrick

 

628,372

 

If you have questions about Supplement LIT, or any other budgetary planning, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Pieces of the Puzzle - AV & LIT Analysis

By Andrew O. Mouser, Manager, March 08, 2018

As a public official, you may at times feel stuck in the detail of what is affecting local government funding in your community. Often, taking a moment to step back from the specifics to see the big picture can prove invaluable. To help you, we have created a focused Assessed Value and Local Income Tax Analysis service, or as we call it, AV & LIT Analysis.

Assessed Value (AV) plays a large role in how budgets convert to tax rates and Circuit Breaker pressures.

  • What percentage of your tax base is made up of agricultural and farm land, industrial and commercial property or residential homes and apartments?
  • How does the age and occupancy rate of your housing stock affect your AV?
  • What impact do large utility or industrial equipment investments have on your tax base?
  • What are the single largest AV investments across your multi-county region?
  • How is your community affected by anticipated future decrease in farmland AV as pointed out previously in the New Indiana Farm Ground Tax Valuation Reduction article.

The answers to questions like these provide insight to what your future AV might look like, which then allows you to better project future property tax dollars you’ll have available to provide services.

Umbaugh will identify the AV components and drivers in your tax base, diagnose trends and benchmark your community to its peers. If the signs point to increasing pressures on property tax revenues, you may need to consider exploring your Local Income Tax (LIT) options, a resource that communities are increasingly turning to. The Umbaugh AV & LIT Analysis will provide beneficial information to explain not only where your community is coming from, but also where it may be headed in the years to come.

If you have questions about our new Umbaugh AV & LIT Analysis, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

TIF Management:  Part Two

By Matt Eckerle, Principal, March 08, 2018

As noted in the last TIF article, if you are planning to issue debt payable from tax increment or to fund projects on a pay-as-you-go basis, you should be aware of the possible revenue impacts of the expiration of your TIF area and its components so you can better manage your planning strategy. Below is a checklist of other important items to consider when evaluating your TIF areas and planning the use of your TIF resources:

  • The effects of existing and proposed property tax abatements;
  • Scope of new construction underway in the TIF area;
  • Outstanding and probable property tax appeals;
  • The effects of potential building demolitions;
  • The financial health of the taxpayers in the area and understanding the risk of potential business closures;
  • Possible changes in tax status for TIF taxpayers, (a for example, a parcel changing from taxable to tax-exempt status);
  • The requirements of outstanding obligations payable from the tax increment revenues; and
  • Possible opportunities to cooperate with the overlapping taxing units, including the school corporation.

Actively managing your TIF areas will help the community maintain an up-to-date understanding of its ability to meet its current and future obligations. Proper management also provides needed context to inform important decisions when using TIF as a financial planning resource.

Umbaugh can assist you with developing comprehensive analyses and action plans for your TIF areas. Please contact us at .(JavaScript must be enabled to view this email address).

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Natural Disaster Levy Appeal

By Paige E. Sansone, CPA, Partner, March 05, 2018

Many communities throughout the State are suffering loss due to flood damage and facing expensive clean-up efforts.  After emergency management is complete, finance officers will turn toward financial recovery for extraordinary costs.  Fortunately, State Law allows for a temporary increase in property taxes to pay costs related to a natural disaster.  Per Indiana code, civil taxing units (excluding school corporations) can file an excess levy appeal with the Department of Local Government Finance (DLGF) by October 19, 2018 for taxes payable in 2019. 

A levy increase could be granted for one year to reimburse or pay for costs associated with flood damage and clean up. A successful appeal will require careful tracking of all expenses related to flood damage so information can be itemized and included with the DLGF’s levy appeal application. In addition, like any other levy appeal, the unit must demonstrate financial need. 

Umbaugh will review this information and the process in detail at the upcoming Spring Budget workshops (offered in conjunction with AIM).     

If you have questions, need assistance with excess levy appeals or any other budgetary planning, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Attention:  New CCD Deadline

By Paige E. Sansone, CPA, Principal, February 22, 2018

If you have a CCD fund, you may have noticed the rate declining over the past few years, possibly related to reassessment and annual trending. As a reminder, maximum CCD fund rates are:

  • Municipalities
    • $.05 – in counties that adopted CAGIT or COIT
    • $.04 – in counties that previously did not adopt CAGIT or COIT
  • Counties
    • $.0333 – in counties that adopted CAGIT or COIT
    • $.0233 – in counties that previously did not adopt CAGIT or COIT

The process to establish a CCD Fund or re-establish the rate to the maximum is the same, but be aware that the required process takes time and the Notice of Adoption must be submitted to DLGF by April 30. This is a new deadline and is much earlier than previous years. The previous deadline was August 31.

The process is generally as follows:

  • The legislative or fiscal body must approve the rate after conducting an advertised public hearing.
  • A Notice of Adoption is published which starts a 30-day remonstrance period whereby 50 or more taxpayers may file an objection.
  • When the remonstrance period ends, proofs of publication, signed ordinance or resolution and a procedure checklist (available from the DLGF) are forwarded to DLGF no later than April 30.

So, to complete the tasks required given the new deadline for submission, the county or municipality must start the process by March.  If you have questions, need assistance with establishing a cumulative fund or budget planning, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Long Term TIF Management:  Part One in a Series

By Matt Eckerle, Principal, February 22, 2018

Tax Increment Financing (TIF) is a well-recognized economic development tool in Indiana and nationally. TIF is used in Indiana to help facilitate development in areas where new development might not otherwise occur. TIF areas in Indiana, depending on their date of establishment and the presence of outstanding debt, may have a term of 25 years to 30 years. Given the frequent legislative changes affecting TIF, active management is a necessity.

Not actively managing your TIF areas can lead to strategic financial issues downstream. As TIF areas mature it is important to methodically analyze them to understand their past, present and future. 

Active management of TIF areas is especially important if you plan to issue debt payable from tax increment. You must know the possible revenue impacts of the expiration of your TIFs or portions of your TIF area.

The term of a TIF area depends on the date of the Declaratory Resolution’s adoption. This chart for Indiana illustrates the impact of expiration dates for three basic configurations:    

Date TIF Established

Expiration Date

TIF area is established before July 1, 1995.

TIF expires the later of 2025 or following the final maturity of obligations outstanding as of July 1, 2015.

TIF area is established between July 1, 1995 and July 1, 2008.

TIF expires 30 years after the adoption of the Declaratory Resolution.

TIF area is established after July 1, 2008.

TIF expires 25 years after the date the first obligation payable was incurred.

In circumstances where a TIF area has been expanded over time there can be different expiration dates for portions of the area based on the resolution dates for the initial establishment and subsequent expansions. These “nested” TIF areas add complexity to your TIF strategy which must be considered in your short-term and long-term planning for the capture of incremental assessed value and using TIF revenues.

In an upcoming issue of Vision we will highlight additional important items to consider in the TIF planning process. The evolution of a TIF area and its components may not be obvious. Umbaugh can assist you with tracking and maximizing your TIF area’s potential.

If you have any questions, please contact us at .(JavaScript must be enabled to view this email address).

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Reminder:  Gateway Debt Verification Due March 1

By Susan Borries Reed, Director of Disclosure Strategy and Services, February 13, 2018

Local units of government will once again be required to complete an annual review and verify the accuracy of its debt on the State’s Gateway website.  Debt that must be verified includes:

  • All bonds and loans (except temporary loans)
  • Lease rentals of real property;
  • Equipment that is under a lease-to-own arrangement (not short-term leases for equipment like copiers and vehicles; and
  • For cities, towns and counties, any utility or redevelopment commission debt.

Additionally, issuers need to provide supporting documentation for any debt that was issued after January 1 2013.  For debt issued with an official statement, the official statement needs to be filed.  However, for debt that did not require an official statement (not subject to SEC Rule 15c2-12), the Department of Local Government Finance, requires that “bond covenants be filed”.  Most bond covenants should be captured by filing the authorizing document (indenture, resolution, or ordinance) and bond purchase or loan agreement.

Should you require assistance or have any questions, either with the verification process or providing the supporting documents, please contact Umbaugh at .(JavaScript must be enabled to view this email address).

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Don’t Miss Redevelopment Commission 2018 Reporting Deadlines

By Matt Eckerle, Principal, February 07, 2018

Redevelopment Commissions must meet several reporting deadlines during the 2018 calendar year. It is important to adhere to these requirements as the Department of Local Government Finance (DLGF) tracks compliance and failure to meet the excess notification and neutralization deadlines can jeopardize your ability to capture incremental assessed value.  Below is an outline of filing and deadline requirements for 2018, and to see more detail click here: Download More Information

April 1: Annual Report of the Redevelopment Commission Treasurer on the Financial Status
The treasurer of the Redevelopment Commission, which is the fiscal officer of the unit, is required to report the Commission’s financial status to the Commission.

April 15: Previous Year’s Activities of the Commission and of Each Allocation Area: the TIF Management Report
Redevelopment Commissions must report the previous year’s activities by the Commission to the fiscal body of the unit, the executive of the unit and to the DLGF through the Gateway system.

June 15: Upcoming Excess AV Pass-Through 
Written notice must be provided to the unit’s fiscal body, the overlapping taxing units, the County Auditor and the DLGF stating the amount of excess incremental assessed value, if any, that will be passed through to overlapping taxing units from each allocation area.

Before August 1: Neutralization of Base AVs for the Upcoming Year
The County Auditor must complete a DLGF form to neutralize the effects of reassessment or trending of real property in each allocation area of the county.

If you have questions or need assistance with TIF timing and reporting requests, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Other Post-Employment Benefits (OPEB) Filing Due March 1

By Paige E. Sansone, CPA, Partner, February 07, 2018

What is OPEB?

“OPEB” stands for Other Post-Employment Benefits. Pension is the most common post-employment benefit. As the name suggests, Other Post-Employment Benefits (“OPEB”) are benefits other than pensions. Typical examples are health, dental, vision and life insurances; prescription or other healthcare benefits; and other benefits provided to eligible retirees and, in some cases, their beneficiaries.

What is the purpose of OPEB Reporting and why is it important?

The purpose is to report for the preceding year, current liability, unfunded liability, assets, contributions, and expenses associated with non-pension benefits offered to retirees. Accounting and reporting standards for pension plans have existed for many years, but similar standards did not exist for OPEB.  OPEB is a part of the compensation that employees earn each year, even though benefits are paid after employment has ended. Therefore, the cost of these future benefits is a part of the cost of providing public services today. Since most governments report only their cash outlays for OPEB in a given year, rather than the employer’s incurred cost of OPEB earned by employees in that year, the numbers can be vastly different. Due to this potential inequity, those who read or analyze financial statements do not have complete information to assess the cost of public services and to evaluate the financial position and financial health of the government. In Indiana, the OPEB reporting required by the Department of Local Government Finance via Gateway closes this gap by requiring basic information and estimates.  

Who is required to file an OPEB Report?

All political subdivisions must file the report even if it does not offer OPEB. This applies to counties, cities, towns, airport authorities, libraries, townships, schools, regional sewer districts, fire protection districts, solid waste management districts, conservancy districts, and other special taxing districts. 

Is an actuarial valuation required in order to complete the OPEB Report on Gateway?

No, an actuarial valuation is not required to complete the Gateway OPEB report; however, there is a requirement under GASB 45 to have an actuarial valuation every 2 years (for units with more than 200 employees) and every 3 years (for units with 200 employees or less). 

If you have questions or need help determining OPEB liabilities, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Umbaugh #5 in National Rankings

By Umbaugh Announcements, February 01, 2018

Once again, we are proud to be ranked in the top ten of all municipal advisors in the U.S. by the Thomson Reuters reporting company. For 2017, Umbaugh ranked fifth in the nation for the number of public market municipal bonds with a par amount of $10 million or less.

Moreover, Umbaugh served as municipal advisor to more than 344 bond issues in 2017 ranging from $237,000 to over $285 million and totaling over $3.4 billion par. These statistics include the Indiana State Revolving Fund, USDA Rural Development financings, and private placements on which Umbaugh worked last year.

The financed projects ranged from schools, utilities, economic development, roads, libraries and other projects to improve the quality of life for the clients we serve.  Thank you for the trust and confidence you placed in us!

As the funding environment becomes more complex, and as the regulatory requirements bring a greater level of scrutiny, it is important for issuers to work with advisors who have a depth of experience. As our tag line says: “It’s all about Experience.”

If you have any questions or comments, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Upcoming Deadlines for 2018

By Paige E. Sansone, January 25, 2018

As the New Year begins, it is time to focus on wrapping up the previous year.  At the close of December, all records must be posted and reconciled with bank statements as promptly as possible.  Utilities and other departments maintaining separate records must also be reconciled.  Below are upcoming deadlines prescribed by the State Board of Accounts for the first few months of the year. Please note that this is not a comprehensive list; you should check the State Board of Accounts Accounting and Compliance Guidelines Manuals for more information at http://www.in.gov/sboa.

 

Deadline

Report

Filing Method or Recipient

January 31

Certified Report of Names, Addresses, Duties and Compensation of Public Employees (Form 100-R)

Gateway

January 31

W-2's

Employees

January 31

File withholding statements W-2 and WH-2 together with Yearly Reconcilement of Employer's Quarterly Tax Returns W-3 and WH-3

District Director of Internal Revenue and Indiana Department of Revenue

March 1

Annual Financial Report for 2016 (This report must also be published by this deadline)

Note: Schools, charter schools and turn-around academies are due August 29

Gateway

March 1

Gateway Debt Management – Annual Affirmation

Gateway

March 1

Prepare list of old outstanding checks (unpaid for 2 years) for cancellation

Fiscal Officer and
Fiscal Body

March 1

Video Franchise Fee Report

IURC

March 1

Other Post Employment Benefits Report ("OPEB")

Gateway

March 5

Signed Attestation Statement for Annual Financial Report mailed to State Board of Accounts

State Board of Accounts
(via mail)

April 15

TIF Management

Gateway

 

If you have any questions about the above deadlines, or need assistance, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Umbaugh Partner Doug Baldessari Elected IWEA Vice President

By Announcements, January 25, 2018

Doug Baldessari, CPA, has been elected Vice-President of the Indiana Water Environment Association (IWEA).  He begins his term this month.  He has served on the IWEA Board of Directors for the past three years as Secretary/Treasurer.  Doug has also been involved with IWEA through his service on the Joint Utility Management Committee and as the Utilities Industry Group Leader for Umbaugh.

Together with the other board members and volunteers, Doug is committed to IWEA’s mission of preserving and protecting Indiana's waterways through educating its members and the citizens of Indiana about the importance of our water environment.   He received the IWEA Tumblebug award in 2014.

Doug’s practice includes financial studies and projects for municipally-owned water, sewage and stormwater utilities, not-for-profit water, regional water and sewer districts and conservancy districts. These projects often involve rate-making, bond financing, and capital projects planning. Doug is a registered Municipal Advisor with the U. S. Securities and Exchange Commission. He currently serves on the Board of Directors of the Indiana CPA Society.

Congratulations Doug for exemplifying Umbaugh’s core values of leadership and our deep commitment to the utilities industry and the associations that serve our clients. Please join us in recognizing .(JavaScript must be enabled to view this email address) on his achievement.

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Umbaugh Announces New Partner

By Umbaugh Announcements, January 11, 2018

We are proud to announce Belvia B. Gray became a partner at Umbaugh on January 1st.  Belvia has been involved in many areas of practice at Umbaugh, but she is especially active in bond issues for schools and libraries, budgeting and legislative analysis.  She is a registered municipal advisor with the U. S. Securities and Exchange Commission (“SEC”).

Belvia was a founding board member for the Indiana Women in Public Finance Association. She previously served on the Butler University Alumni Board of Directors.

She earned a Bachelor of Arts degree in political science and public relations from Butler University and a Master of Public Affairs degree from the School of Public and Environmental Affairs at Indiana University – Bloomington with concentrations in public financial management, policy analysis and economic development. She joined Umbaugh in 2005 and is based in the Indianapolis office.

We value all our personnel and are especially pleased to watch someone meet the challenges presented and grow into greater responsibilities. 

Please join us in congratulating .(JavaScript must be enabled to view this email address) on her accomplishment.

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Promotion to Principal

By Announcements, January 11, 2018

Andre J. Riley was selected for promotion based on his commitment to Umbaugh's core values of Excellence, Innovation, Independence, Integrity and Collaboration.

Andre has been with Umbaugh since October 2003 and is based in the Indianapolis office. Andre is a registered municipal advisor with the U. S. Securities and Exchange Commission ("SEC"). Andre is a member of the American Institute of Certified Public Accountants, the Indiana CPA Society and the Indiana Water Environment Association.

Andre's experience includes financial studies and projects for municipally-owned water, sewage and stormwater utilities, not-for-profit water, regional water and sewer districts and conservancy districts. In addition, he assists utility clients with financial management services ranging from financial management reports, financial accounting and reporting, budget services and utility controller assistance.

Andre grew up in Louisville, Kentucky and received his Bachelor of Science in Business Economics from the University of Kentucky. Andre obtained his Masters of Professional Accounting from Indiana University's Kelly School of Business.

Please join us in congratulating .(JavaScript must be enabled to view this email address) in his promotion to principal.

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

A Property Tax Abatement Checklist

By Matt Eckerle, Principal, November 16, 2017

Property tax abatement is a widely used tool in the economic development incentive “toolbox” available to local governments in Indiana. Abatement differs from TIF, another local incentive tool, in that the incentive mechanism is driven by property tax savings rather than revenue generation. Here is a checklist of important questions that should be contemplated when considering requests for a tax abatement from a new business prospect or a company that exists within your community:

  • Does your community have an incentive policy?
  • How does the project “score” within the framework of the incentive policy?
  • What are the characteristics of the company?
  • Does the company have reputation or environmental issues that would not reflect the values of your community?
  • What is the incentive value to the prospect/recipient? How much money will it save?
  • Has the company presented a business case for this incentive? Does your community require the business case in the company’s application?
  • What will your community gain from the abatement recipient?
    • Number and quality of jobs? Community marketing advantage?
  • What is the amount of the investment?
    • How does this investment affect your property tax base?
  • Does the value generated by the long-term development justify the short-term “cost” of the abatement?
  • Will the abatement affect the overlapping taxing units, such as the school or library, or the budget of your community?

Considerations for new companies:

  • Will the company commit long term to your community?
  • Does the company’s business “fit” your community? That is, does its management philosophy, product or services reflect your community’s values?

Considerations for existing companies:

  • How long has the company operated in your community?
  • Has the company been a good corporate citizen?
  • Has the company met its prior commitments to the community? What is its track record?

Evaluation of a proposed economic development incentive should be based on the financial and non-financial aspects of a project.

Although they are a commonly used economic development tool, property tax abatements are complex. Umbaugh can assist you with evaluating potential and existing abatements to better understand their impact on your community. Please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

The 27th Pay Period Conundrum

By Daniel A. Hedden, CPA, Partner, November 16, 2017

Every few years we experience a phenomenon caused when the calendar eventually results in a 27th bi-weekly payday.  Although it may not sound like a big deal, this phenomenon often leads to many questions and concerns. 

What are the issues? 

For hourly paid employees, there should be no issues.  They are paid an hourly rate based on the Salary Ordinance for hours worked and each week stands on its own.

There should also be no issues with employees paid bi-weekly if the Salary Ordinance shows a bi-weekly pay (rather than an annual salary). 

Most issues arise in connection with salaried employees.  An employee who has an approved salary of $50,000 on the salary ordinance will make $1,923 bi-weekly if divided by 26 pay periods.  If the bi-weekly amount is not amended in a year with 27 pays, that same employee would make nearly $52,000.  So, what are the options?

  1. Do nothing.  Pay employees the same amount each pay period as in a normal year.  This will result in an effective increase in pay for salaried employees (see example above).
  2. At the start of a 27th pay year, divide the salary by 27 pays instead of 26.  The problem with this option is that the employee perceives that he or she is receiving a reduction in pay.
  3. Pay employees on a semi-monthly basis (like on the 15th and the 30th).  This seems like an easy option to implement but dealing with overtime on hourly employees may be tricky.
  4. Do not set salaries as an annual amount on the Salary Ordinance.  Use hourly or bi-weekly instead. If the Salary Ordinance is consistently prepared this way, no changes will be necessary for the years with 27 pay periods.

The key to handling the 27th pay period conundrum is planning and preparation.  Be aware of those odd years and decide which option works best for you.

If you have questions or need assistance with accounting issues, please contact us at .(JavaScript must be enabled to view this email address).

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Tax Bill Jeopardizes Certain Municipal Bond Financing Tools

By Umbaugh Announcements, November 10, 2017

Congress is currently considering H.R. 1, which passed the House Ways and Means Committee yesterday.  In its current form, the bill proposes substantial changes to the federal tax code.  Since the House Ways and Means Committee approved the bill, it is expected to be considered by the full House of Representatives for a vote.  The Senate Finance Committee bill under consideration is hoped to be more favorable to municipal issuers.

As this process unfolds, it is very important for municipal bond issuers to be alert on these important tax reform issues that would have a major impact on municipal bonds.  Municipal issuers should be concerned about some specific provisions that are currently in the bill.

ADVANCE REFUNDING REPEAL

The bill repeals issuers’ ability to advance refund municipal bonds after 2017.  Current law provides issuers with the ability to have one opportunity to refund outstanding debt more than 90 days in advance of its redemption date.  Having the one opportunity to advance refund bonds is important because it enables issuers to take advantage of placing restrictions on “bond calls” that may affect bond pricing when the debt is issued while still preserving the opportunity for issuers to reduce interest payments in the event that the market is more favorable during the window before the bonds are callable.

PRIVATE ACTIVITY BONDS TERMINATION

Under current law interest on Private Activity Bonds (PABs), like municipal bonds, is excluded from gross income for federal tax purposes. PABs are used for a wide variety of projects like utilities, airports, seaports, affordable housing, and non-profit health and education facilities, all of which provide essential public services.  Under the current bill, newly issued PABs would be income subject to tax for bonds issued after 2017.

NO TAX EXEMPT BONDS FOR PROFESSIONAL STADIUMS

Currently, state and local governments may issue bonds for public purposes as tax-exempt bonds.  Some state and local governments have issued bonds for professional stadiums as tax-exempt bonds, citing these bonds as exempt due to the public purpose of the stadium.  Under the current bill, interest on bonds to finance these projects would be taxable. 

REPEAL OF TAX CREDIT BONDS 

Under current law, governmental issuers may issue various tax credit bonds for projects.  Under the bill, with certain exceptions, the authority to issue tax credit bonds would generally be repealed after 2017.

BOTTOM LINE:  Repealing the provisions listed above will increase the borrowing costs for many issuers that prudently monitor opportunities to lower debt burdens for taxpayers and ratepayers.  For more information about H.R. 1, click here.  We will continue to monitor these developments closely as they occur and we will keep everyone informed as more information becomes available.  As always, you need to contact your bond counsel for legal advice.

If you have any questions or comments regarding these changes, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Life After Budget Adoption . . . What’s Next?

By Paige E. Sansone, CPA, Partner, November 02, 2017

After budgets are adopted and submitted in Gateway, the Department of Local Government Finance (“DLGF”) will review and issue a Notice of Final Budget Recommendation (more commonly referred to as the 1782 Notice).  Taxing units have ten calendar days to review the Notice and request budget revisions in writing to the DLGF.

Reviewing the 1782 Notice

When your taxing unit receives its 1782 Notice, carefully review the documents.  If there are discrepancies between the adopted budget and the 1782 Notice, attempt to determine why the revisions were made.  Reasons for revision by the DLGF may include:

  • budget reductions due to insufficient funding;
  • decreased tax rates due to higher certified assessed values;
  • revised miscellaneous revenues to reflect certified state distributed revenues; and
  • reductions of property tax levies to keep the levies within the maximum allowable by law.

In some cases, the DLGF may deny or modify budgets and levies.  The most common reasons for budget and/or levy denial/modification are:

  • the Notice to Taxpayers was not posted in Gateway by the deadline (ten days prior to the public hearing);
  • there were fewer than ten days between the public hearing and adoption meetings; or
  • budget adoption occurred after the November 1 deadline.

There may also be new changes for the upcoming budget year that taxing units will want to make sure are included in the budget, if applicable, such as:

  • a maximum levy increase due to an annexation or requested through an appeal process; and
  • a new debt service levy for a recently issued bond or lease.

Fortunately, the 1782 Notice provides a window of opportunity to request changes and provide DLGF with necessary documentation to ensure the final budget certification reflects the best interests of your taxing unit.

If you have any questions about budgeting, or if we can assist in reviewing or analyzing your 1782 Notice, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Succession Planning for Indiana Utilities

By Scott A. Miller, CPA, Partner, November 02, 2017

Effective Succession Planning is Critical to Promoting Continuity of Utility Operations

In the aftermath of hurricanes Harvey and Irma, we are once again reminded of our dependence on our critical utility infrastructure.  Long hours spent developing recovery scenarios prove their worth as we witness utility crews quickly moving into affected areas to begin the restoration process.  And while the timing of future events is unknown, the planning to address them has already taken place.  The same level of care put into disaster recovery planning should be practiced with your most important asset – your employees.  A succession plan needs to be an integral management tool for your utility.

America’s workforce is changing.  Every day since 2011, approximately 10,000 baby boomers have turned 65 and this trend will continue until 2030.  Information compiled by the Pew Research Center, indicates that during the first quarter of 2015, Millennials surpassed Generation X to become the largest share of the workforce.  At the same time, Bureau of Labor and Statistics data shows the median age for water and sewer plant operators is 48.3 years – near the top of the list.  In fact, across-the-board public sector jobs have, on average, an older workforce than many other industries.  In time, changing demographics will impact utilities as well.

Implementing effective succession planning now can help you manage these workforce transitions while retaining key skills and knowledge within your organization.  At its core, succession planning is simply a process to identify and develop new people to fill critical roles.  Start by preparing an inventory of your current employees detailing their skills and responsibilities.  Then define which positions must be filled on a daily basis for your utility to continue to operate.  For these key positions, identify the knowledge or skills that are crucial to success.

Next, perform a gap analysis to determine where you may have exposure if a current employee leaves or if you have a current unmet need.  There are a number of ways these gaps can be closed.  Cross-training, additional education or mentoring for current employees can all be effective means to enhance your existing employee’s performance and value to the organization.  If internal solutions are not available, identify where and how you can access external talent pools.  Finally, reassess and track your progress.  Succession planning is an ongoing business process.  When conducted effectively, you should see gaps in knowledge or skills being closed and employees should be progressing in their careers.  Be prepared to make adjustments to the plan to achieve the best results.

If you would like additional information regarding implementing a sustainable Succession Plan, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Are Your Municipal Fees Covering Costs?

By Jeffrey P. Rowe, CPA, Partner, October 19, 2017

With the many fiscal challenges facing municipalities, it has become increasingly important to regularly review your fee structure to ensure existing fees remain adequate to recover the costs associated with providing municipal service.  This may also serve useful in identifying new types of fees in order to generate new sources of revenue. 

It’s very common for cities and towns to assess municipal utility fees, but perhaps not as common for other types of fees such as fines, fees, permits and licenses to name a few.  As cost drivers increase over time, these fees can quickly become outdated and may result in an increased reliance on the general fund and other property tax supported funds to absorb these increases.  Updating these fees can have a direct impact on these funds and can aid in freeing up revenue for other needs or to offset impact of circuit breaker credits.

As pressure continues to build on property tax supported funds, municipalities have had to re-think the way services are funded.  Services that have traditionally been paid through property taxes are now being supported at least in part through fees.  Recent examples are fees charged for trash service, stormwater, public safety, the use of parks, buildings, pools and other recreational facilities.

If you have questions regarding municipal fees or if we can help assist your city or town with assessing your fee structure, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

New Requirements for Referendum and Remonstrance Thresholds for Schools

By Belvia B. Gray, CIPMA, October 19, 2017

The financial thresholds necessary to initiate petition and remonstrance and referendum processes for school corporations are changing per House Enrolled Act 1043 effective January 1, 2018.

 

 

Current Law

Per House Enrolled Act 1043 effective
January 1, 2018

No formal taxpayer approval required

Projects that cost less than the lesser of (a) $2,000,000 or (b) 1% of gross assessed value (“GAV”) (if that amount is at least $1,000,000)

Projects that cost less than lesser of $5,000,000 or 1% of GAV (if that amount is at least $1,000,000)

Subject to
Petition-Remonstrance

Projects that cost more than the lesser of $2,000,000 or 1% of GAV and less than $10,000,000

Projects that cost between $5,000,001 up to $15,000,000 depending on GAV.

Subject to Referendum

Projects that cost more than $10,000,000

  1. Projects that cost more than $10,000,000 or $15,000,000 (depending on gross AV)
  2. If projects subject to petition/ remonstrance or referendum on or after January 1, 2018 plus projects subject to petition/ remonstrance or referendum with preliminary determination adopted within previous 365 days exceed $25 million

On or after January 1, 2019, the thresholds will increase each year by applying the assessed value growth quotient for the year to the threshold amount determined for the preceding year and will be calculated by the Indiana Department of Public Finance.

It is strongly suggested that you contact your financial advisor and bond counsel to help determine the thresholds that apply to your school construction project. Please contact us at .(JavaScript must be enabled to view this email address) if you have any questions or if we can help with your future project planning.

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Thirty-Five Year Utility Financing Option

By Christina De Witt, CPA, Principal, October 12, 2017

Umbaugh completed the first financing through the Indiana State Revolving Fund’s (SRF) new program that allows for up to a 35-year repayment period for pipe components of utility improvement projects. The Town of Michigantown was the first to finance the pipe components of their sewer project with the new SRF program.  The repayment of the pipe components of their project, which totaled $274,000 of the overall $1,156,000 project, allowed the community to save each sewer customer over $4.50 on their monthly bill.

As long as the useful life of the overall project improvements are equal to or exceed 35 years, the pipe component repayment period can be extended from the typical 20 years to a maximum of 35 years. The extended repayment period lessens the rate impact to customers and better matches the useful life of the assets. The extended repayment period does increase the interest rate 30 basis points (.30%) over the conventional 20-year repayment period.

This program can be beneficial to communities that are in need of upgrading and replacing pipe infrastructure. As you are working through the planning process of your utilities’ upcoming improvement projects, this new SRF program is one more option to consider.

To discuss more details of the program’s applicability to finance your communities’ upcoming utility improvement projects, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Top Five Reasons to Comply with Arbitrage Regulations

By Christina L. Cromer, CPA, Principal, October 05, 2017

If you are an issuer of tax-exempt debt, there are five very good reasons to comply with the arbitrage rules of the Internal Revenue Code and related regulations.

5. It’s a valuable project-planning tool

Periodic analysis not only keeps you informed of any rebate liability that is accumulating; it also provides valuable project planning information.

4. Increasing interest rates may increase your arbitrage risk

Recent bonds have been issued at historically low interest rates. As interest rates rise, the risk of generating positive arbitrage increases. Long-term funds, such as Debt Service Reserve Funds, are more susceptible to the risk of increasing interest rates.

3. Potential loss of tax-exempt status

The IRS could declare your bonds taxable if a failure to comply with arbitrage regulations was due to willful neglect. Even If the IRS does not make a determination of willful neglect, significant late filing penalties and interest can be assessed.

2. Increased number of audits and IRS questionnaires

Post-issuance compliance continues to be an IRS priority. The Tax Exempt Bonds office of the IRS Tax Exempt and Government Entities division has developed and implemented questionnaire projects over the past few years to evaluate and promote post-issuance compliance.

1. It’s required!

Tax-exempt bond issues are subject to arbitrage compliance from the date of issuance until final maturity or redemption of the bonds.

 

If you have questions or need help with arbitrage compliance, please contact us at .(JavaScript must be enabled to view this email address).

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Thinking About the Future

By Jason G. Semler, CPA, Partner, October 05, 2017

When we say the future we don’t mean 2018, we mean 2019 and beyond.  You have probably just finished adopting your community’s 2018 budget. Now that your 2018 budget is adopted this is the perfect time to start planning for 2019 using the 2018 budget as a starting point.

The fiscal challenges of rising costs and property tax losses due to circuit breaker tax caps create difficult budget decisions for many communities across Indiana. It’s possible you have already cut your budget to the bare essentials only to learn from the Department of Local Government Finance you are required to make additional cuts for 2018.

Unfortunately, revenue growth is often not keeping up with the increasing costs of providing services. It is increasingly more difficult for Hoosier communities to improve or even maintain the services they provide citizens. It is also more difficult to forecast the future requirements of your community by looking at only a one year budget.

Conclusion:  Extend your horizons

Extend your planning horizons beyond one year and take a more comprehensive view so you can develop long-term cash flow projections and identify potential budget deficits and cash flow shortages before they occur. A long-term financial plan, as part of an overall strategic plan, assists your community by identifying other priorities, including capital projects, over the next several years.

Umbaugh can assist you in developing a comprehensive long-term financial plan or reviewing and analyzing your financial situation. Please contact us at .(JavaScript must be enabled to view this email address) .

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

TIME SENSITIVE REMINDER:  Adjust LIT by 10/31 to Generate Addtn’l Revenues

By Jason G. Semler, CPA, Partner, September 21, 2017

We have heard from a number of local units who are anticipating a revenue shortfall next year as you project next year’s revenue and plan your 2018 budgets. We have also heard that because of this serious dilemma, many are considering or in the process of adopting/amending a Local Income Tax (LIT) in your County.

We just wanted to remind you that it is not too late to adopt or adjust a LIT rate for next year – but time is quickly running out.  If you adopt a LIT or adjust your LIT rate by October 31, the new rate will be in effect – and producing revenue for you – starting January 1, 2018. 

LITs are not “one size fits all.”  Not only are there several varieties (i.e. property tax relief, certified shares and public safety), changes in taxes and revenue streams are interdependent, so you must look at several scenarios to arrive at the right solution for your situation.  

If you’d like to figure out the possibilities for a new LIT or determine if a LIT rate adjustment might be the answer to your 2018 budget gap, get started NOW to be able to act by October 31.  Please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

SEC Fines Local Official $37,500

By Susan Borries Reed, Director of Disclosure Strategy and Services, September 21, 2017

Since 2014, municipal bond issuers have experienced a heightened focus on continuing disclosure for outstanding bond issues and disclosures to the market for failures to comply with these obligations.  Over the past few years, Umbaugh’s client list to which the Firm provides continuing disclosure services has grown to include over 460 filings in Indiana and Michigan.

What brought about this focus? In 2014, the SEC found that from 2011-2014, many issuers sold municipal bonds using offering documents making false statements about their compliance with CD obligations for prior bonds.  Because this lack of compliance was wide-spread, the SEC offered the Municipalities Continuing Disclosure Cooperation (MCDC), a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents.  The MCDC initiative offered favorable settlement terms to underwriters, issuers, and obligated persons that self-reported.  Under this program, the SEC offered settlements to 71 municipal issuers and other obligated persons for violations.  In late 2016, the SEC announced that the MCDC program had concluded, and no additional settlements would be offered under MCDC program.

On August 23, 2017, the SEC announced that a municipal financing authority in Beaumont, California (“Authority”), and its then-executive director (also Beaumont’s city manager) entered into a settlement on charges that they made false statements about prior compliance with continuing disclosure obligations in bond offering documents.  The underwriter also settled charges.  The Authority was charged with negligently failing to disclose a lack of compliance in its offering documents when it sold $32 million in new bonds from 2012-2013, and the settlement results in additional compliance obligations for the issuer.   The local official agreed to settle the charges without admitting or denying the allegations and to pay a $37,500 personal fine as well as being barred from participating in any future municipal financings.  The SEC noted that he approved and signed misleading statements.

So what does this mean for other issuers and local elected officials?  Here are some takeaways that can be gleaned from this case:

  • SEC’s expectation is that issuers follow securities laws, comply with outstanding obligations to provide information to the bond market and do their due diligence when issuing bonds and making statements to the bond market.
  • It is a reminder that the SEC has the legal authority to seek fines and sanctions against local issuers and the local officials involved in approving bond offering documents.  It’s worth the time to make sure that the offering documents are accurate and contain no material omissions.

If you would like more information, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Three Compelling Reasons to Address Surplus Bond Proceeds

By Christina L. Cromer, CPA, Principal, September 07, 2017

Do you have surplus bond proceeds remaining after completion of a project?  There are three very good reasons to develop a plan for utilizing these remaining proceeds.

  1. IRS Requirements - Most bonds issued to finance governmental projects are issued as tax-advantaged debt.  Issuers of tax-advantaged debt must comply with the arbitrage requirements of the Internal Revenue Code.  The arbitrage rules are designed to prevent issuers from issuing more bonds than needed, issuing bonds earlier than needed, or leaving bonds outstanding for longer than needed to accomplish the governmental purpose of the issue.  Surplus proceeds that remain long after the project has been completed are a red flag to the IRS.
  2. Indiana Code Requirements - The Indiana Code prescribes the manner in which surplus bond proceeds may be used.  Some examples of how remaining proceeds may be used include principal and/or interest payments, maintenance of a debt service reserve, or for use towards a project of the same purpose or type as the original issue.  Bond counsel and your municipal advisor should be consulted to determine which uses are allowable and what makes the most financial sense for your situation.
  3. Financial Stewardship - Constituents expect their elected officials to be financial stewards of their communities’ limited financial resources.  When surplus bond proceeds remain, thoughtful consideration should be exercised in managing those resources.  Borrowing money comes at a cost, and current investment rates are not doing much to offset the interest costs on borrowed money.   By allowing borrowed money to sit around, you are paying interest and your community is receiving no benefit from those excess proceeds.

If we can assist you in the development of a plan for prudent utilization of surplus bond proceeds, please contact us at .(JavaScript must be enabled to view this email address).

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Is My Fiscal Plan Adequate?

By Deen C. Rogers, CPA, Partner, September 07, 2017

Due to the lack of a threat of remonstrance, many communities have traditionally prepared super-voluntary annexation fiscal plans in-house.  However, with the change in annexation laws in the summer of 2015, the required content of the fiscal plan became more complex and cumbersome.  As a result, many communities have outsourced the preparation of their fiscal plans, even for those super-voluntary annexations that were once pretty simple and straight-forward.

Are you one of those communities that still tackles the challenge of an annexation fiscal plan in-house?  If so, are you meeting the new requirements of Indiana Code?  Are you well-versed on the proper residential deductions, the application of tax caps and other property tax nuances? 

These questions are pertinent, as we have seen many fiscal plans over the past couple of years that are not sufficient.  They did not include 4-year projections, the supplemental homestead deduction was not factored in when determining the estimated net assessed value of future development, nor was there an indication of whether or not the affected parcels were subject to a remonstrance waiver.  This was a change that was effective as of July 1, 2015.

With so many demands on local government officials, it’s difficult to be a jack of all trades and master them all.  For that reason, and because of all of the attention that annexation has received over the past few years, you are encouraged to contact your professional team to help navigate these complicated matters.

If you have questions or need assistance with your annexation fiscal plan, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Umbaugh Continues to Grow

By Umbaugh Announcements, August 24, 2017

Inside Public Accounting (IPA) Magazine recently announced the rankings of the nation’s largest public accounting firms.  Umbaugh’s ranking has increased to 160th on its list of top 200 CPA firms in the nation.

Earlier Umbaugh was also recognized as the second most active Municipal Advisor (MA) in the Mideast Region and the sixth most active MA in the nation last year by Thomson Reuters.

Umbaugh is the most active firm of MAs in the nation that pairs the ethics, structure, quality control and business discipline of a CPA firm with the skills and knowledge of a municipal advisor. 

“We share this distinction with our clients who trust us to help them solve their difficult financial challenges and improve their communities,” said Umbaugh Executive Partner, Todd Samuelson.  “We take pride in this acknowledgement.  From everyone at Umbaugh we say a heartfelt, Thank You.”

Umbaugh serves its clients with a staff of over 120 in four offices in Indiana, Michigan and Ohio.

If we may be of assistance, please contact us at .(JavaScript must be enabled to view this email address).

www.umbaugh.com

 

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Allowable Uses of Police and Fire Pre-1977 “Old System” Pension Funds

By Paige E. Sansone, CPA, Partner, August 09, 2017

Do you have healthy fund balances in your “Old System” Police (1925) and Fire (1937) Pension Funds and wonder if you can use the money for anything else besides paying pension and death benefits to members of the Old System Pensions?  The answer is yes, but there are limitations.  Additional uses of the funds include payments of the following:

  • Health insurance or other health benefits provided to members, survivors, and beneficiaries of the 1925 and 1937 Fund;
  • The City’s employer contributions to the 1977 Fund (usually paid from the General Fund); and
  • The 6% employee contribution to the 1977 Fund paid by the municipality on behalf of the employee (usually paid from the General Fund).

It may be possible to temporarily shift some pension related costs as noted above from the General Fund to the Old System Police and Fire Pension Funds; however, there is a limitation to the amount that may be used to pay for the above listed expenditures.  The maximum amount is equal to the sum of:

  1. The unencumbered balances of the 1925 and/or 1937 pension funds as of December 31, 2008; plus
  2. The amount of property taxes:
    • Imposed for an assessment date before January 16, 2008 for the 1925 and/or 1937 pension funds; and
    • Deposited in those funds after December 31, 2008.

If you have questions or need assistance with analyzing funding options for your budget, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Public School Fund Accounting Changes

By Brock J. Bowsher, Manager, August 09, 2017

Indiana public schools’ annually budgeted funds will be combined into four funds in accordance of HEA 1009 effective January 1, 2019: Education, Operations, Debt Service and Pension Debt Service. 

According to HEA 1009, current school General Funds will be split into Education and Operations Funds.  The Capital Projects, Transportation, Bus Replacement, Art Association, Historical Society and Public Playground Funds will also be consolidated into the Operations Fund. 

On December 31, 2018, schools will transfer the General Fund cash balance proportionally to the Education and Operations Funds.  Beginning in 2019, school funding generated through the Indiana Department of Education funding formula will be allocated to the Education Fund. 

The Operations Fund will be funded by local property tax revenue which will be the combined current Transportation and Bus Replacement Fund max levies and the Capital Projects Fund tax rate levy.  After 2019, the Operations Fund levy will be increased by the 6-year non-farm income assessed value quotient that is established annually by the Department of Local Government Finance. 

2019 Operations Fund Levy = Max levies for Transportation & Bus Replacement Funds + Capital Projects Fund Tax Rate Levy

Transfers can be made from the Education Fund to Operations Fund, but must be approved at a Board of School Trustee public meeting.  Money transferred from Education Fund to Operations is removed from consideration for purposes of collective bargaining. 

Rainy Day, Operating Referendum and Capital Referendum Funds will remain as separate funds after January 1, 2019. 

HEA 1009 also includes a provision that public schools with enrollment of 15,000 or more may not issue bonds after August 15, 2020, unless the school corporation has for its preceding budget year (2019) prepared an annual financial report using modified accrual basis of accounting in accordance with generally accepted accounting principles (GAAP). 

                                                                        

If you would like more information on preparing for these changes, please contact us at .(JavaScript must be enabled to view this email address).

                         

 

 

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Federal Regulations Spark Important Issue Price Considerations

By Susan Borries Reed, Director of Disclosure Strategy and Services, July 27, 2017

On June 7, 2017, new issue price regulations were effective (which are set forth in Treasury Regulation Section 1.148-1).  These regulations prescribe how issuers of tax-exempt bonds may determine the issue price on these bonds.  This is important to municipal bond issuers because there are now multiple ways to establish issue price, instead of the “reasonably expected initial offering price to the public on the sale date” method that existed prior to June 7th.

Due to the multiple considerations, Umbaugh and bond counsel will be talking with issuers about considerations around the various ways issue price may be established.  Keep in mind that “issue price” will not impact the amount of bond proceeds that an issuer receives, but rather it relates to the bond yield on the bonds being issued and has tax implications.  The regulatory change necessitates a “team approach” because bond and tax counsel will likely walk issuers through tax considerations while Umbaugh, as a municipal advisor, will provide insight into considerations around marketing the bonds and the bond sale.

Under the new regulations, there is a “General Rule” that provides that the issue price of the bonds is the first price at which a substantial (10% of each maturity) amount is sold to the public.  The challenge with the General Rule is that an issue price might not be “established” by the time the bonds close, or even when tax reporting begins.  As a result, this is not really an option for bond issues where an issue price will be important, like with an advance refunding.  An alternative for issuers that must, or want to, know the issue price by the time of closing has been nicknamed the “hold the offering price” option.  The hold the offering price option allows for the issue price to be treated as the initial offering price to the public as of the sale date, provided certain conditions are met, including that the underwriter would agree in writing that it will neither offer nor sell the bonds to any person at a price higher than the bonds’ initial public offering price from the sale date until the earlier of: (a) the close of the 5th business day after the sale date, or (b) the date on which the underwriters have sold at least 10% of the bonds (of the particular maturity) at or below such bonds’ initial public offering price.  The challenge with the hold the offering price option is that there has been discussion that this approach may not be as attractive to bidders and may affect bond prices as underwriters may assume more risk than they do with the General Rule.

There is also a definition in the new federal regulations for “competitive sale”.  After a sale occurs, if an issuer is able to show that a bond sale was a competitive sale under the federal definition, then establishing issue price is much easier as the issue price is equal to the “reasonable expected initial offering price to the public on the date of sale.”  The challenge is that an issuer will not know if a competitive sale is achieved until after the bond sale has occurred.  Unfortunately, this unknown requires an issuer to provide bidders with the alternative plan within the notice of bond sale and preliminary official statement.  As a result, discussions about issue price should happen well in advance of when any notice may need to be published.  With negotiated sales, there is more flexibility, but discussions should also occur as early as possible.

The bottom line is that the new issue price regulations are very new.  There is still much speculation about the best approach and what the true impact of the new regulations will be.  As always, Umbaugh will watch for trends and will let you know if there are things about which we believe issuers should know. Umbaugh will be happy to provide you with a copy of the regulation (which is short considering all the choices it includes) as well as other materials summarizing options available under the regulation. 

Please contact us at .(JavaScript must be enabled to view this email address), for additional information.

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Utility Legislative Update (Part Two in a Series)

By Scott A. Miller, CPA, Partner, July 27, 2017

Legislature Gives IURC Authority to Allow a Customer Assistance Program for Water and Wastewater

The first part in this series discussed the new Infrastructure Assistance Program created by Public Law 233 (formerly Senate Enrolled Act 416).  In this part of the series, we look at a different section of the new law that may give water and wastewater utilities the ability to implement what are sometimes known as “lifeline” rates. 

In its Principles of Water Rates, Fees and Charges, the American Water Works Association defines lifeline rates as follows:

“Rates applicable to usage up to a specified level that are below the cost of service for the purpose of meeting the social goal of providing so-called minimum annual water requirements to qualified customers at a below-cost price.”

The new legislation states that “upon request by a water or wastewater utility in a general rate case, the commission may allow, but may not require, a water or wastewater utility to establish a customer assistance program that:          

  1. uses state or federal infrastructure funds; or
  2. provides financial relief to residential customers who qualify for income related assistance.”

The law goes on to say that a customer assistance program that affects rates and charges for service is not discriminatory under any law regulating rates and charges for service.  This point is key as water and sewer rates in Indiana have historically been required to follow cost-based principles and such a program in the past could likely have been challenged.

There are several issues that remain unknown at this time.  First, the statute specifically refers to a general rate case before the Indiana Utility Regulatory Commission (“IURC”). It is unclear whether or not a utility that has removed itself from IURC jurisdiction has the legal authority to implement a customer assistance program.  Second, it is unclear how the courts might react to the non-discriminatory provision of the law should a challenge to this new type of rate structure be pursued.  Finally, there are a number of ways a customer assistance program could be designed and implemented in order to achieve the stated goal of assisting the most economically disadvantaged customers with obtaining affordable water and wastewater service.  The statute directs the IURC to adopt new rules to implement the new law.  What exact form these programs might take remains to be seen.

In the next part of this series, we will discuss new legislation related to infrastructure development zones and lead service lines.

If you would like additional information regarding implementing a Customer Assistance Program, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

S&P CreditWatch Update

By Susan Borries Reed, Director of Disclosure Strategy and Services, July 18, 2017

Several weeks ago, Umbaugh highlighted recent S&P Global Ratings (S&P) actions that placed the ratings assigned to municipal bond insurance providers (insurance providers), Build America Mutual Assurance Co. (BAM), MBIA Inc. (MBIA) and National Public Finance Guarantee Corp. (National) under review on a “CreditWatch Negative” based upon their evaluation of the bond insurers' competitive positions.  At that time, BAM held an 'AA' financial strength rating, MBIA had an 'A-' long-term counterparty credit rating and National maintained an 'AA-' financial strength rating.  S&P reviewed all municipal bond insurers at the same time it reviewed those placed on a credit watch.

S&P resolved the credit watch quickly by taking the following action on June 27:

  • 'AA' financial strength rating on Build America Mutual Assurance Co. (BAM) was affirmed, and S&P removed it from CreditWatch Negative, with a stable outlook.
  • National Public Finance Guarantee Corp. (National) was downgraded to 'A' from 'AA-' and its long-term counterparty credit rating on MBIA Inc. to 'BBB' from 'A-', with a stable outlook.
  • 'A' long-term counterparty credit rating on Assured Guaranty Ltd. (AGL) was affirmed, and its 'AA' financial strength ratings on its bond insurance subsidiaries (collectively Assured), with a stable outlook.
  • 'CCC' financial strength rating on MBIA Insurance Corp. (MBIA Corp) was affirmed, and S&P revised the outlook to stable from negative. The rating agency also withdrew its 'D' rating on MBIA Corp.'s surplus notes and preferred stock. 

When an issuer’s bonds are insured by an insurance provider, rating actions affecting insurance providers also apply to the ratings on the bonds insured by this insurance provider.  Many issuers had bonds placed on a credit watch when S&P made this determination.  Since the credit watch has been resolved, these bonds are also off the credit watch.  There was no rating change on bonds insured by BAM or MBIA Corp.  Only bonds insured by National or MBIA, Inc. were downgraded, and these bonds would be older bonds that pre-date the recession.

In order for municipal bond insurance to be an attractive option for bond issuers, the bond insurers rating would generally need to be stronger than an issuer’s.  Post downgrade, National laid off employees and announced that it would shutter its business operation. 

What does this mean for issuers?  Some of the impacts to issuers include:

  • And then there were two…With National’s exit from the bond insurer market, this essentially leaves Assured and BAM as providers of municipal bond insurance.
  • Less available options for insurance providers ultimately translates to less competition when an issuer may want to purchase an insurance policy or a debt service reserve surety to make the bond financing more marketable.
  • If an issuer’s bonds were downgraded as a result of an insurance provider’s downgrade, this is a “material event” for any bonds subject to SEC Rule 15c2-12.  Issuers should double check any insured outstanding debt to make sure that no outstanding bonds were impacted.

For have questions or need assistance, please contact us at .(JavaScript must be enabled to view this email address)

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Linking Debt in Gateway

By Belvia B. Gray, CIPMA, Principal, July 13, 2017

Did you issue new property-tax-supported bonds or refund existing ones in 2017?  If so, make sure your new or updated debt payments are connected in the Gateway system as budget documents are prepared for 2018. Gateway is the Department of Local Government Finance’s computer system for submitting budget data.  While all debt (property-tax-supported and revenue-supported) is required to be uploaded to the Gateway system, linking debt for budget preparation is only necessary if a property tax levy is needed.

After new bonds are issued or refunded, debt reports are prepared and uploaded into the Gateway system. It is important that the information uploaded to Gateway is accurate because the debt service worksheet filled out during the budget process relies on these payment amounts to complete the worksheet.

When you are in the Gateway system, carefully review the debt service worksheet. If any debt is missing, you will need to link the new or updated debt to the debt service worksheet.

To link debt to the debt service worksheet, follow the steps listed below:

  • Click on “Customize Funds, Departments, Debts, Rev. Codes”,
  • Click on “Customize Debts by Fund List”,
  • Click on “Edit Debts” and select which bonds need to be included.

Note that if your political subdivision plans to issue bonds before the end of the year, you can add a line item for “Anticipated Debt Service” for 2018 if you are do not yet have a final payment schedule.

When completing the debt service worksheet, you will need to indicate which payments will be made in July to December of the current year (2017), January to December of the ensuing year (2018) and January to December of the following year (2019). Keep in mind, that debt originally incurred after June 30, 2014, is limited to a 15% operating balance. Debt originally incurred prior to July 1, 2014, including refinanced debt, is still allowed a 50% operating balance.

As you prepare the debt service worksheet, keep in mind the payment dates to be paid over the two-year time period. Below is a listing of payment dates depending on if debt is payable on a budget year or calendar year basis:

 

Payment Year

July to December 2017

January to December 2018

January to December 2019

Budget Year

1/15/2018

7/15/2018 and 1/15/2019

7/15/2019 and 1/15/2020

Calendar Year

7/15/2017

1/15/2018 and 7/15/2018

1/15/2019 and 7/15/2020

 

Be sure to carefully check the debt service worksheet for accuracy, as it is the basis for which the debt service fund budget, tax rate and levy are calculated.

If you have questions or need help with preparing the 2018 budget or ensuring that all current debt is linked in Gateway, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Utility Innovation

By Doug L. Baldessari, CPA, Partner, July 13, 2017

Utilities have been around for a long time with some delivering potable water for over 100 years.  With water and sewer utility rates staying relatively low for a lot of utilities in Indiana and across the Midwest many utilities may not have put much thought into being innovative or efficient.  We have seen significant increases in utility rates over the past few years resulting from increasing legislative requirements and the implementation of construction programs for new infrastructure necessary to comply with sewer Long-Term Control Plans and aging infrastructure.    

It is time now to focus on innovation and efficiency for your water and sewer utilities which can in turn help keep your utility rates and charges lower than they would otherwise have to be to meet the requirements of your utility.  It is counterintuitive but it may cost a bit more now to save money in the future. 

What is your utility doing to be innovative or more efficient?

In future series of articles on innovation we will discuss what innovative utilities are doing to save rate-payers money now and in the future.  

If you have any questions, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

WIFIA Assistance Available

By Scott A. Miller, CPA, Partner, March 02, 2017

In 2014, Congress passed the Water Infrastructure Finance and Innovation Act of 2014 which established a federal credit program known as WIFIA. Administered by the U.S. Environmental Protection Agency (EPA), the program is designed to accelerate investment in water and wastewater infrastructure projects that have national or regional significance.  Since adoption, EPA has worked to develop the rules and framework for the program and is now ready to begin funding projects.  In legislation adopted late last year, Congress provided $20 million in budget authority which EPA estimates may provide more than $1 billion in credit assistance and may finance over $2 billion in water infrastructure projects.

Letters of Interest (LOIs) for the first funding cycle are now being accepted by EPA through April 10, 2017.  A second submittal period will begin August 1, 2017 and run through September 29, 2017 if funding remains available.  EPA will use the LOIs to evaluate, score and select proposed projects for funding based on a variety of criteria including the significance of the project on a national and regional basis, the credit worthiness of the borrower, the likelihood that WIFIA funding will accelerate the project, the use of innovative approaches and environmental impact among several others.  Selected projects will be invited to submit an application for WIFIA credit assistance.

Selected projects are eligible to receive credit assistance in the form of secured direct loans or loan guarantees.  The maximum amount of assistance to a project is 49% of eligible project costs.  The remaining 51% of project costs can be funded using tax-exempt or taxable bonds, loans, grants and equity.  Projects benefiting communities with a population greater than 25,000 must have a total estimated cost of at least $20 million while projects benefiting smaller communities must have a minimum total estimated cost of $5 million.

If you would like additional information about the WIFIA program, or if you would like assistance in determining whether your project might benefit from WIFIA, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.

Promotion to Principal

By Umbaugh Announcements, February 23, 2017

Heidi Amspaugh was selected for promotion based on her commitment to Umbaugh's core values of Excellence, Innovation, Independence, Integrity and Collaboration.

Heidi Amspaugh joined Umbaugh as an Analyst in 2006 after working as an intern. She graduated from Indiana University - Bloomington with a Bachelor of Science degree in Public Affairs from the School of Public and Environmental Affairs (SPEA) with a concentration in Public Financial Management, and with a certificate in Non-Profit Management. She is a registered Municipal Advisor and holds a Certified Independent Professional Municipal Advisor (CIPMA) designation.

Heidi has been involved in many areas of the firm’s practice, including economic development, tax increment finance (TIF), structuring incentive packages for industrial/commercial prospects, and the financial planning associated with the issuance of both tax-exempt and taxable bonds for communities around the State.

Heidi has been on various panels discussing public financial management topics for the School of Public and Environmental Affairs at Indiana University – Bloomington and for many Indiana associations. She serves on the Board of the National Association of Municipal Advisors (NAMA) and was recently elected as Treasurer for Indiana Economic Development Association (IEDA).

Please join us in congratulating .(JavaScript must be enabled to view this email address) on her promotion to principal.

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.


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