Gov. Mike Pence pitched his plan to phase out the property tax on business equipment in a long letter to local officials packed with data intended to make the case for his controversial proposal.
But it will be a tough case to make to the people trying to run cities, counties, schools, libraries and other local government functions. They’re the ones who would lose valuable tax revenue if the personal property tax goes away.
The tax generates more than $1 billion in tax receipts each year for local governments. A study by the Legislative Services Agency shows that if the tax were eliminated — and no other changes are made — those local governments would lose about $554 million annually.
Why less than $1 billion? Well, that’s because absent other changes to the tax system, about $375 million would be shifted from the personal property tax to other property owners. That means homeowners and others would pay more.
The rest of the cash is lost to various government entities or made up by other sources.
Pence has specifically stayed away from suggesting how local governments might make up the revenue — or deal with less money. He says that’s a job for the Indiana General Assembly, where the House and Senate are moving bills that fall far short of Pence’s elimination proposal.
Last week, Syracuse Police Chief Tony Cirillo told lawmakers that he and other law enforcement officials are seriously concerned about “whether we’re going to be able to maintain the standard of public safety that our citizens have grown to expect and deserve from all of us.”
That’s a legitimate issue. After all, local governments and schools have been losing money for several years to the caps the legislature — and eventually Hoosiers through a constitutional amendment — put on overall property tax bills.
That’s why local officials are calling on the General Assembly to find a way to replace the cash they would lose to a personal property tax elimination or cut.
“Eliminating the personal property tax may be the right thing for the state of Indiana. OK, we understand that,” Indiana Association of Cities and Towns Executive Director Matt Greller said. “What is more important is that we replace that revenue at the local level.”
Pence emphasizes that he’s empathetic to local officials’ concerns and he’s said repeatedly he doesn’t want to “unduly burden” local governments. And he seems convinced that eliminating the tax will mean a big boost in economic growth, which could in turn produce additional tax revenue.
In his letter to local officials, the governor said that 68 percent of the economic development projects Indiana lost went to states with no personal property tax. Another 29 percent went to states with lower tax rates.
Only 3 percent of businesses went to states with higher rates, Pence said.
“This tax stifles investment and modernization in our industrial base at a time when we can ill afford that handicap,” Pence wrote.
But Hoosiers have heard these arguments so many times. Previous governors and state lawmakers — and business lobbyists — have said that in order to get ahead, Indiana needed to, among other things:
Eliminate its inventory tax, a property tax that used to be levied on business products.
Reduce the corporate income tax.
Switch to daylight saving time.
Become a right-to-work state.
The legislature has done all four. And while recently the state has outpaced the nation in private-sector job growth, per-capita income has been falling in relation to the rest of the country.
There’s no clear-cut tie between the above changes and job growth. There’s only anecdotal evidence presented by state officials.
Now, business leaders say, the state’s economic problem is the personal property tax.
It’s no wonder that local officials — and some lawmakers — are skeptical.
Lesley Weidenbener is executive editor of TheStatehouseFile.com, a news website powered by Franklin College journalism students.