Thursday, February 14, 2008


There has been a great deal of talk concerning upcoming budget shortfalls. Mayors from different cities mention that their local governments will lose millions of dollars and as a result will have to cut services.

Hammond Mayor Thomas McDermott Jr. has said there is no way his city can shed $21 million overnight without affecting police and fire protection.

As a homeowner in Hammond, I am deeply concerned. What will happen to the police and fire protection? Will we have enough police and firemen?

I took my car and headed to Hammond City Hall where I picked up a copy of the city budget. The budget has eight sections and there is a bunch of numbers. So I started at the beginning. There is a budget estimate page with fund names, such as a General Fund, Debt Service Fund, Fire Pension, Police Pension, and so on. Each of these funds included a dollar amount. The total dollar amount for the budget is $109,988,393.00 for the 2008 budget. That sure is a lot of money; I had to double check the amount so I added all those numbers. When I totaled the numbers I was shocked to find that the real amount is $110,184,213.00. I added those numbers again, and again, I arrived at $110,184,213.00. The budget didn’t add up.

I started to get more curious about this budget. I looked at every page and as I went through the budget, questions started to pop up. Where are the take-home cars? I know there are over 90 take-home cars, but they aren’t in the budget. What about gas for vehicles; that isn’t in the budget. The self-insurance fund is not listed in the budget. The Mayor has a photographer, and the Mayor has a television show. Where are all these items? In fact, I counted 25 city departments and funds that were not included in the budget. Again, the budget didn’t add up.

Now the question is, how are these departments funded, and what are the true costs?
I turned to the State Board of Accounts, and they sent me a financial report for the City of Hammond. It is called the Annual City and Town Financial Report. The report that I received is for the Fiscal Year ending December 31, 2006.

There are 13 parts to this Financial Report. I turned to Part 1-Statement of Receipts, Disbursements, Cash Balances & Investment Balances. I discovered the City of Hammond had receipts of $195,443,208.70 for the year ending 2006.

The budget for 2008 shows a budget total of $109,988,393.00, but Hammond has receipts over $195,443,208.70. This is a difference of 85 million dollars. The budget again didn’t add up.

Hammond Mayor Thomas McDermott Jr. has said there’s no way his city can shed $21 million overnight without affecting police and fire protection.

Where did the Mayor of Hammond get the money for the following items?
1) $13,000,000 for a clubhouse for Lost Marsh Golf Course
2) Lost Marsh Golf Course. The cost to operate the golf course is close to $2 million a year.
3) $55,000 for the Mayor’s photographer
4) $900,000 commission for the Mayor’s father in the Cabela’s store deal
5) $100,000 to Purdue University for an endowment for the Mayor’s father
6) $1,500 for health care per employee per month for City Departments
7) $432,192 for Festival of the Lakes
8) $250,000 for a legal aid clinic
9) $65,000 for campaign workers
10) $10,000,000 in raises since the 2005 budget. In fact, some employees received $15,000 raises this year (Police Chief & Fire Chief).
11) The Mayor’s salary is $95,000 per year. The Governor’s salary is also $95,000.
12) There are a total of 9 Pages of Financial Assistance to Nongovernmental Entities as listed in the Annual City and Town Financial Report of 2006. Here are some items from that list:
a) $50,500 Hammond YMCA
b) $60,000 Running Rebels
c) $70,000 Parents as Teachers of Hammond
d) $350,000 St. Margaret Mercy
e) $20,000 The Laura Austin Passmore Guild
f) $40,300 Towle Community Theatre
g) $50,000 United Neighborhood Inc.

Can Hammond shed $21 million dollars from their budget and save the Police and Fire departments?

What do you think?

Blunt Proof of the Feasibility to Permanently Abolish Property Tax

Media Contacts:
Melyssa Donaghy 317-938-8913
Max Katz 765-409-6669

Hoosiers For Fair Taxation, Senator Delph, Representative Noe, Representative Elrod and many other legislators along with Stop Indiana, attorney John Price, Eric Miller's Advance America, and the Statewide Taxpayer Alliance know that property tax abolishment, without substantial increases in sales tax and income tax, is realistic and possible. The economist Dr. Bill Styring's 2/2/2 Plan demonstrates that the state of Indiana can completely replace property tax without changing the state's current spending habits.

Dr. Styring's plan does not account for positive changes in Indiana's economy that will undoubtedly follow the elimination of property tax such as heavy real estate investment and increased consumer spending due to increased statewide disposable income. The real estate investment in Indiana alone would cause such an economic boom that it could likely end our abandoned property and foreclosure crisis. Property tax elimination would also likely cause a surge in Indiana's population as more people locate to Indiana to take advantage of real estate purchase opportunities without the burden of property tax. With the population surge would come more sales and income taxes.

The General Assembly does not have to adopt a specific plan until the year 2011. In the meantime, we recommend that the General Assembly approves the 27steps outlined in the report prepared by the Sheperd Kernan commission. While the Governor's commission cannot forecast the savings to the state once the plan is implemented, there is no doubt that the savings would be substantial--perhaps equivalent to the the entire property tax burden currently placed on Indiana's homeowners because our legislators have not had the political will to liberate Indiana's governing structure and her taxpayers from the 19th century.

Our citizen networks will work to replace all legislators who do not support property tax repeal in the November 2008 election.

The 2/2/2 Plan, to replace property taxes in Indiana based upon the latest revenue forecast (07/08 fiscal, estimate):

1) Current IN sales tax (state level rate of 6%): $5.601 billion2% increase would yield an additional $1.867 billion

2) Current corporate profits tax: ~$2 billion

2% increase would yield an additional $.286 billion ($286M)

3) A 2% statewide average of the COIT would yield $2.705 billion to cover local civil units of gov.

By adding these three together ($1.867 billion + $.286 billion + $2.705 billion), a total of $4.858 billion is realized; enough revenue to replace property taxes.

Indiana has a 70-plus year history of attempts to lower property taxes by raising other, non-property taxes. In every case these have failed miserably. The new taxes, or higher rates on old taxes, remain in place. And, in short order, property taxes rise back to their old levels, poised to roar even higher.

--1933. General Assembly imposes two new taxes: an individual gross income tax and a corporate gross income tax. The morgue of the Indianapolis Star indicates that the political leadership at the time said this was for property tax relief (1933 was the pits of the Great Depression, and people were losing their homes. Home prices declined by over 40% in the 1929-1933 period). Property tax relief was nonexistent. The state used the money to bail out the state's own finances.

--1963. General Assembly imposes a new sales tax at a rate of 2% and changes the 1933 individual gross income tax (from 1933) to an adjusted gross income tax (the one we have now) at a rate of 2%. Again, the ostensible reason was for property tax relief and again little PTR was forthcoming.

--1967. Those 1963 tax changes were raising more money than projected. The GA decides to give back 8% of sales and income tax revenue to local government for property tax relief. Local units spent the money. No PTR.

--1973. Gov. Otis Bowen launches the most determined PTR offensive yet. The sales tax goes to 4% and a new corporate supplemental net income (profits) tax is imposed. Strict property tax levy controls are imposed. It works... for a time. By 1980, property taxes adjusted for inflation are some 30% lower than in 1973. When Bowen leaves office the levy controls are relaxed. By the end of the decade, property taxes (adjusted for inflation) are back to 1973 levels. The doubling of the sales tax rate from 2% to 4% remains in place, along with the new corporate SNIT.

--2002. More fiddling with the sales tax in the hope of property tax relief. The results of this are obvious, or we wouldn't be debating the current property tax mess. All of this suggests that unless the property tax is totally ripped up by constitutional amendment, the assessment and collection mechanism dismantled, it will grow back. The PTR-inspired hikes in other taxes remain. That is our history. It is a terrible deal for taxpayers.

2. A vote in the 2008 legislative session for a constitutional amendment to repeal property taxes does not amend the constitution. It merely starts the amendment process. Amendments must be passed by two consecutively elected General Assemblies, then submitted to a referendum. Thus any amendment passed by the '08 Assembly must be passed by either the 2009 or 2010 legislatures, then submitted to the voters at the 2010 general election. The General Assembly does not need to decide on a "replacement revenue" package until the 2011 session.

3. What might such a "replacement revenue" package look like? The particular answer will come from the 2011 General Assembly and cannot be determined now (if for no other reason than forecasting state level taxes and property taxes out that far would be a most unreliable exercise. No one need be locked into any particular plan just yet. However, as an illustration that a replacement plan is feasible and less scary than many fear (we don't need to be talking about a 12% or 13% sales tax ... in fact, we should not be), consider just this one possibility.

Local sales taxes are generally very bad policy, for a whole host of reasons too numerous to mention in this short sketch. Sales and corporate taxes are best levied at the state level. It happens that roughly a 2% increase in the sales tax and a 2% increase in the corporate profits tax roughly take care of school propertytaxes. The loss of local control by the state assuming school property taxes is minimal. About the onlylocal control left is on building projects.

For local civil units, a statewide average increase in the individual adjusted gross income tax of about 2% suffices to replace local civil government property taxes, higher than 2% in some units, less than 2% in others.

Thus, a "2-2-2" plan~2% sales and 2% corporate profits at the state level for schools and a 2% average on personal income taxes for civil units—is about what would be needed. This is merely a ballpark projection to 2011.

There may be better plans, it's really a policy question for the General Assembly: do you want to make the trade of something like this in exchange for no-property-taxes-forever-on-anything? Everyone understands "zero."

4. Are there "practical problems? Of course. The two identified are how to make the civil government transition from a property tax base to an income tax base, and how to handle debt backed by property taxes. Without elaborating, the former can be handled using locator software (Map quest-type programs). The debt problem might be handled by treating the current state paid PTRC's as in lieu of property taxes (which they are) and paying PT-backed debt service from each unit's own PTRC.

Conclusion: Total elimination of the property tax via constitutional amendment is the only way to give property tax relief that will stick. The other tax action necessary to achieve this goal—in 2011-are large but not so scary as "a 13% sales tax." They are feasible. The question is for the General Assembly. Are we going to once again go down that 70-odd year path of failed PTR policies or are we going to rip the property tax up by the roots?

Posted by Hoosiers For Fair Taxation on Friday, January 4, 2008.