Corrections Tax and Safety Tax

Perhaps some background is needed.  In 2018 the state legislature in reaction to the continuing requests by counties for “Special Purpose Taxes” to fund their jails, enacted HB1263.  The reason for requesting special purpose taxes was that the resultant tax need not be shared with the other shareholders.  Extremely relevant, since most counties only get about 40-50% of the income off the normal income taxes.  So otherwise, any available tax would have to be twice that actually required to fund the project.

HB 1263 did several things:

  • It allowed the counties to put in place a Corrections and Renovation Tax (for jails only) of 0.20%. It had to be within the statutory limit of 2.5% of income tax overall.  But, and most important, it need not be shared with the other shareholders.
  • It allowed the tax to be put in place by a simple ordinance of the county council
  • It defined the time lines of when the ordinance would be activated and the time when the tax would be realized
  • It required a study of the jail and the various options be done including a public hearing on the results.
  • It did not allow for adjustments to the variances in county income tax generation vs. the need and cost of a jail that would result from the study. In simple terms the 0.20% did not generate enough annual income by itself.  e. Some counties could generate as much as twenty million while others only three hundred thousand.

So, because of this lack of recognition in the law for the cost of the jail and its relevance to the income stream in various counties, counties are finding that the corrections tax is simply not enough annually.

Remember that the annual costs that will need covered for a new jail: is the bond repayment itself (comprised of construction and soft costs), operational increases (bigger building), staffing increases, and bond coverage.

So if the overall need annually is say two million dollars and the 0.20% generates $1.8 million, where does the county go to get this excess need of two hundred thousand?  In almost every case, the option of a Safety Tax (Income tax).  Of course, recognizing that this is a shared tax and thus the tax would have to be $400,000 (in most cases) to result in the county getting their share of $200,000.  The biggest windfall goes to the largest community in the county.

An added problem in the safety tax is the need to get the majority of those receiving the tax to vote for it in the first place.  The vote is distributed on a population that is represented by 100 votes.  In most cases if the county votes for it and the largest community, it would pass.  It is none the less a difficult political situation of raising a tax that is well beyond the correction’s tax, that simply needs support of the county council.  The county’s share of the vote is the net after incorporated cities and towns are subtracted from the count.

If both taxes are activated prior to a serious undertaking of determining costs then the county (Corrections Tax) or shareholders (Safety Tax) can adjust either tax annually to get in line with the need.  The DLGF has determined that both can be adjusted.  I am a great proponent of getting at least the corrections tax in full going as soon as possible to minimize the bond and thus the interest for the sake of the taxpayers.

This all may seem confusing but without the support of the council and in many cases the largest income tax shareholder the jail cannot be funded.