‘Trouble ahead’ warning signs have been building for years

An erosion of state tax dollars that had helped fund county and municipal governments has left local officials across Indiana in the same boat.

Despite potential political fallout, many of them feel like they are backed into a corner of raising local taxes.

The current fiscal environment has been years in the making.

Indiana property tax rates began to increase dramatically by the late 1990s, largely due to increases in school funding, which led to calls for property tax reform.

After Republican Mitch Daniels — a former White House budget director — was elected Indiana’s governor in 2004, state legislative leaders began issuing warnings that property tax increases of up to 18 percent were ahead.

It wasn’t just Republicans who were frightened.

Proposals for reform were also applauded in 2007 by Democratic House Speaker Patrick Bauer of South Bend.

Business and economic experts such as Jerry Conover and Morton Marcus of Indiana University warned that local governments would eventually be severely hurt if property tax cuts were taken too far.

But all voices of dissension were drowned out by the Great Recession of 2007-09, which brought 10.8 percent unemployment, $4-a-gallon gasoline, and record home foreclosures to Indiana.

Regardless of political ideology, it seemed almost every panicked Hoosier was in agreement: Increasing taxes was not an option at the time.

The stage was set for the election referendum of 2010, when 72 percent of Bartholomew County voters said “yes” to making property tax caps a permanent fixture in the Indiana Constitution. Most of the other 91 counties voted the same way.

But that was just one example of what Dan Eggermann, Bartholomew County’s financial adviser, describes as many “constant erosions over time that takes money out of the county.”

Since the economic recovery came slow for average-income Hoosiers, anti-tax sentiment remained immensely popular when Republican Mike Pence, a Columbus native, followed Daniels into the governor’s office in 2012.

As outlined by GOP leaders in 2013, biennial budget revenue cuts included phasing out of the inheritance tax, a slight income tax cut, excise tax cuts for veterans and a tax cut for financial institutions designed to help banks compete with credit unions.

Then, the state reduced the corporate income tax to 4.9 percent from 6.5 percent by 2021, making it the second-lowest in the country.

Most local governments opposed the bill because the business personal property tax provides more than $1 billion a year in revenue for cities, counties, towns, schools and libraries.

Another setback came when analysts announced revenue from Indiana’s gas tax totaled $527 million last year, a 9.4 percent drop over 10 years.

The argument for tax hikes

Nearly all of Indiana’s 92 counties, as well as several municipalities, are facing many of the same problems, said John Ketzenberger, president of the Indiana Fiscal Policy Institute.“There’s no place left for any of them to cut,” Kentzenberger said.By reducing streams of revenue, Kentzenberger said state government is pushing all local units of government to enact a local option income tax.

Based on figures provided by Bartholomew County Auditor Barb Hackman, enactment of such a tax would cost a Bartholomew County residents making $35,000 a year about $1.68 every week.

The local option income tax is one of three taxes being considered in Bartholomew County. The other two are a wheel tax, which is essentially a user fee, and a cumulative capital improvement tax, which relies on property taxes.

“While the state would pass (the responsibility of raising taxes) on to the dogcatcher if they could, city and county councils can’t pass the buck,” Kentzenberger said.

Or as Bartholomew County Council member Bill Lentz phrases it, “We’re at the bottom of the food chain.”

Although state government is expected to consider new taxes regarding fuel or mileage, it’s highly unlikely that the state will take steps to increase revenue to the city and county level, Kentzenberger said.

What’s needed now is a philosophical shift among Hoosiers that changes the prevailing notion that all taxes are bad, he said.

Anti-tax sentiments remain strong, but Kentzenberger said attitude changes are already happening in Bartholomew County. Many more taxpayers are likely to start changing their attitudes within the next three years, he predicted.

Based on his experience, perspectives are readjusted quickly when there’s little money to fix damaged roads, clear roads of ice and snow, adequately fund police and emergency first responders, or repair broken infrastructure, Kentzenberger said.

And if you really want to see attitudes change, just wait until a lack of public investment begins to have an impact on individual property values, Kentzenberger said.

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Mark Webber is a reporter for The Republic. He can be reached at mwebber@therepublic.com or 812-379-5636.