Tuesday, December 30, 2008



Now is the time for the Indiana General Assembly to streamline and strengthen county government and abolish the antiquated system of township government.

It's the perfect time.

With the state facing dwindling revenue amid national recession, legislators won't need to spend hours debating costly new programs and spending proposals. They need, of course, to pass a slimmed-down state budget that should still include some infrastructure spending to create jobs and spur the sputtering economy, and education spending aimed at reducing the deplorable drop-out rate.

But they shouldn't just sit around complaining about lack of funding to do much of anything else.

They should do something other than pass a budget and adjourn. They should do things that don't cost a lot but could be of real value in these tough times.

Streamlining county government and doing away with the 1,008 townships — an unneeded, outmoded and costly layer of inefficient bureaucracy — wouldn't cost anything. It would save money.

Another reason why this is a perfect time is the political situation.

Gov. Mitch Daniels, a Republican who cannot run again for governor because of the two-term limit, can push now for this without appearing to be aiming at his re-election. He is pushing hard for these governmental changes.

The Indiana General Assembly is politically split. While this might seem to diminish chances for effective, equitable governmental reform, it is one of the reasons that now is the perfect time.

Too often we see "reform" passed for partisan purposes, especially in election law. But here is a situation in which the governor's proposals must win support in the Democratic-controlled House as well as in the Republican-controlled Senate. It must be bipartisan.

The governor cannot push through something aimed at punishing Democratic-tending cities and counties. His recent harsh criticism of South Bend and St. Joseph County in a WNDU-TV interview raised fear of this.

But even if the governor wanted to be vindictive — and there is no sign that his restructuring proposal is aimed at hurting any area — a Democratic House, with Speaker Pat Bauer, D-South Bend, could stop any such shenanigans.

Bauer and the governor have shown they can work together. They can again.

Also, the proposal is based on recommendations of a commission headed by Indiana Supreme Court Justice Randall Shepard and former Gov. Joe Kernan of South Bend. The commission took a nonpartisan look and recommended eliminating townships and taking numerous county offices off the ballot, eliminating elective offices now held by big bunches of both Republicans and Democrats.

A key proposal would provide for one elected county executive to replace the three-person board of county commissioners. As the governor noted, we don't elect three presidents or three mayors and businesses don't operate with three chief executive officers. Russia found that a troika doesn't work. It doesn't work well with county government either.

Through constitutional change, the county offices of assessor, treasurer, recorder, surveyor and coroner would be taken off the ballot. They would be appointed by the county executive, the way a president appoints members of a cabinet.

Most voters don't know these officials (can you name those officials in your county?) and often can't fix blame when it's not clear which official really is responsible for something like late tax bills. Put the authority with the county executive, who then can be blamed or retained at election time.

The governor has made a sensible compromise in saying the sheriff, clerk and auditor should still be elected.

He also compromised in calling for the combination school districts with less than 1,000 students. The commission put the minimum size at 2,000.

Moving municipal elections from odd-numbered years to even years when most other elections are held is one proposal that could be eliminated. The move was cited as saving money. But the cost is worth it to allow voters to concentrate on the city elections. Having voters pick city officials at a time such as during an outpouring for a presidential election could bring unfortunate decisions by folks not knowing or caring much about the city candidates listed way down on the ballot.

Most of the other changes should be approved. Now is the perfect time.

Jack Colwell is a columnist for The South Bend Tribune.

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.