ANDERSON — City officials are considering a boost to the countywide income tax to soften estimated budget shortfalls.

The proposed county option income tax of .25 percent increase would bring the city’s total income tax rate to 1.5 percent and collect an estimated $5 million for city coffers in the next two years.

But before the tax could go into effect, at least one other Madison County government body would need to approve the measure. Jim Steele, a consultant working with the city, said the additional votes would either have to come from another large body, such as the Madison County Council or the city of Elwood, or several smaller bodies.

During a special informational meeting of the Anderson City Council on Wednesday, Steele outlined the city’s projected deficit and the proposed tax increase, which would mean an additional annual tax of $100 for a city resident with an adjusted gross income of $40,000.

The shortfalls are partly due to changes in property tax laws passed earlier this year by the Indiana General Assembly, which also gave local governments authority to use income tax increases to replace lost revenues.

The state’s Legislative Services Agency estimates Madison County will lose $14.4 million by 2010 and the city of Anderson will be short $4.6 million by 2010 because of new limits on property tax payments.

Additionally, city officials say they are facing more than $2.6 million in inaccurate budget projections for 2008 while coping with the rising costs of providing services.

And based on the first month of Hoosier Park electronic gaming revenue, Steel said the city’s draw from the racino could be about 71 percent of early estimates.

Although the city has already trimmed about $850,000 from its 2008 budget since January, Steele reported the city could end the year with a general fund deficit of close to $1.2 million. In order to begin 2009 in the black, Steele, with the backing of Mayor Kris Ockomon, suggested the city take out a $1.2 million emergency loan from the police and fire pension funds surplus.

But by the end of 2010, Steele projected, the city’s general fund deficit would reach $7.6 million without the added income tax revenue.

With the tax, he said, the city might collect an additional $5 million by September 2010, leaving an adjusted negative balance of $2.6 million at the end of the year. That deficit would then be paid with excess funds from pension relief investments.

City councilman David Eicks said the tax increase was a viable option to ward of debt, but he was concerned that other government’s won’t back the measure.

“It’s an issue that all the county and all communities face,” he said after the meeting. “It’s an issue that should be addressed by all of them.”

The Anderson City Council will likely review the resolution to adopt the increase at its meeting on Aug. 14, which will include time for public comments. The resolution will then go to the county auditor, who will notify other government bodies in the county. Those bodies will then have 30 days to act on the resolution.

Ockomon said he was in the process of meeting with officials from other communities about the tax, and he encouraged the city counsel to move forward with it.

Steele told the city counsel if the tax increase does not pass, their alternative option would likely be to begin charging for trash service, which could bring in $2.8 million annually.

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Looking forward: The Anderson City Council is expected to hear public comments on the proposed income tax increase and vote on the resolution during its public meeting on Aug. 14. It would then take the approval of at least one other large government body in the county or several small bodies for the tax to go into effect before the end of the year.

Anderson’s changing property tax bills

Residential property with homestead exemption and average gross assessed value of $67,953

Net property tax bill 2007 $692.20

Net property tax bill 2010 425.11

Anderson’s estimated lost property tax revenue due to capped tax bills

2008 $821

2009 $2,081,559

2010 $4,656,498

City of Anderson General Fund Budget Projections, 2008-10

Balance at the end of 2008 -$1,151,965

Estimated loan $1,200,000

Adjusted balance $48,035

Balance at the end of 2009 -$1,067,730

Balance at the end of 2010 -$7,573,333

Local income tax revenue as of Sept. 2010 $4,970,592

Adjusted balance -$2,602,741

(from police and fire pension fund surplus)