Thursday, February 19, 2009


Senators defeat measures aimed at restructuring local government

By Mary Beth Schneider

Gov. Mitch Daniels' hopes of eliminating townships and otherwise restructuring local government suffered multiple blows Wednesday, as several bills he supported were gutted or defeated in Indiana Senate committees.

Advocates of the reforms blamed the setbacks on an entrenched political network in which lawmakers protect their friends in township government. Critics hailed the legislative defeats as a victory for maintaining decentralized government that is closest to the public.

Among the victims:

Bills to do away with township government, including one focused on Marion County. But senators passed amendments that would ban the future hiring of township officials' relatives and would require township budgets -- typically fat with reserves that vastly exceed the budgets -- to be reviewed by county councils.

A bill to consolidate smaller school districts was pulled from consideration without a vote.

A proposed constitutional amendment to eliminate some county offices as constitutionally required was voted down.

Daniels has made the reforms a centerpiece of his second term, and this week he went on the road to try to build support for them with former Gov. Joe Kernan, who was co-chairman of a commission that recommended the restructuring.

On Wednesday, Kernan's office had no comment about the township bills other than to say it would continue to monitor them.

But Daniels was sharp in his criticism of the votes of two Republicans -- Sens. Jim Buck of Kokomo and Sue Landske of Cedar Lake -- who joined four Democrats in voting against the constitutional amendment.

"I'll make no comment about Democrats all voting against reform, but when it comes to two members of my party, I'm disappointed in them and embarrassed for them. We'll try again next year," Daniels said in a statement.

Marilyn Schultz, a former Democratic state representative now leading the reform effort at mysmartgov.org, said her group is "profoundly disappointed the township bill was so gutted."
"There's a reason why things haven't changed for the last 150 years, since we've known it was a problem," Schultz said of Indiana government. "It's very entrenched local politics and it's the good ol' boy-girl network at its very strongest."

But she and other supporters of the reforms said they haven't given up hope that the issues can be resurrected before this session ends April 29.

She also pointed to a couple of successes:

Senate Bill 506, which passed 30-19, would set up a process for counties (other than Marion and Lake) to move to a single county executive or a board of supervisors, unless voters choose otherwise.

Senate Bill 452, which bars a local government employee from serving on his or her own unit's elected body, passed 32-18.

Those bills, and any hope of reviving the other reforms, would need to clear the Democrat- controlled House. But the odds of that don't appear good.

House Speaker B. Patrick Bauer, D-South Bend, repeated what he has said all session: Lawmakers' focus must be on job creation in light of the economic downturn.

He said he would review the bills that pass the Senate but added, "They spent an awful lot of time over there (in the Senate) on those bills and really came up with very little."

Sen. Connie Lawson, the Danville Republican who had fought to eliminate township government in Senate Bill 512, said she was disappointed at having to gut her own bill as the only way to keep the issue moving in the legislature.

"The township bill is still alive. It might be floundering, but it's still alive," Lawson said. "Whatever progress we can make is a step in the right direction."

The Senate Local Government Committee she leads rebuffed her suggested compromise to keep townships but eliminate their boards.

In the end, Lawson had to settle for simply barring nepotism in future hires -- though current employees who are related to township officials can keep their jobs -- and with having county councils review and approve township budgets.

Under that compromise, councils would examine the cash reserves of townships if they exceed 10 percent of their budgets to at least question whether the surplus should be spent before taxpayers are asked for more.

That issue recently was highlighted by The Indianapolis Star in a story that found Indiana's 1,008 townships are sitting on $200 million of reserves, about 10 times their annual budgets. For some townships, the reserves amounted to hundreds of times more than their budgets.
Lawson blamed the defeat in large part on a lack of political will.

"There's only so much political will a legislator is willing to expend," she said. "It's difficult to change because we know the people who are operating our township governments. It's always difficult to put aside personalities."

Sen. Teresa Lubbers, R-Indianapolis, said she remains optimistic that one reform -- SB 521, consolidating the administration of smaller school districts -- could be revisited, if not this session, then next year.

From The Indianapolis Star
February 19, 2009

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.