State corrects $206 million error

FORT WAYNE — Fort Wayne and Allen County governments will each receive millions in unexpected revenue – possibly by today – thanks to a state error reported last week.

State officials on Thursday said a programming error cost local units of government $206 million in local option income tax revenue in 2011 and early 2012, meaning $15.6 million in unexpected revenue will be flowing to governments within Allen County this year. Auditor Tera Klutz on Monday released how that money is expected to be split among the different government units.

Her analysis showed Fort Wayne will receive $8.5 million and Allen County will get $4.8 million because of the state error. The bulk of that money will be given in a lump check for underpaid taxes in 2011 and the first part of this year. The rest will be paid over the rest of 2012. For example, of Fort Wayne’s $8.5 million, about $2.7 million will not be part of the initial lump sum.

Klutz said the state told her the money for the entire county should be deposited in the county’s bank account by today. The state department of local government finance is expected to finalize the distributions to local governments today, but Klutz said it was important to provide estimates quickly to help plan for the money.

After she is able to check the state’s numbers, she said the county will be able to distribute the money to local units quickly.

The money comes at a needed time for local governments, which had been squeezed by property tax caps and lagging income tax revenue. Klutz called the announcement of the error bittersweet because while the money was good news, many governments across the state made difficult budgeting decisions – including layoffs – based on state revenue information.

“To learn that was inaccurate information was really tough,” she said.

Fort Wayne and Allen County both declined to give their employees raises this year, citing a lack of money to do so. In addition, the county decided to require its employees to contribute 3 percent of their wages toward their retirement – money that had been picked up by the government before.

A large rollover balance from the previous year prompted the county to issue employee bonuses to offset this extra expense.

Some members of the City Council previously said the money from the error should be used to help improve neighborhood infrastructure, including concrete streets.

County officials, however, said they will need time to discuss how best to use the additional revenue.

The state error also means local governments owe the state far less than originally projected.

In 2011, state budget officials told cities, towns and counties the state had overpaid them $500 million in local income tax revenue as a result of the recession and the process the state uses to estimate the payments.

After the error, that total debt was dropped to $150 million. Klutz said Allen County’s aggregate debt fell from $30 million to $1.4 million because of the error.

Counties that owe money to the state will see their future revenue remain flat, and the state will be reimbursed for any growth in income tax revenue until the debts are paid.

Klutz said Allen County’s debt should be erased by the end of this year, meaning units will realize any revenue growth starting in 2013.

“It is good news for local governments,” she said. “We won’t have to cut deeper next year. We should be able to sustain our current services.”

blanka@jg.net