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Gov. Mike Pence has spent the past few weeks laying out his vision for 2014 legislation, including a proposal to eliminate a business tax on equipment.
But some friends and foes alike say the governor has been vague on how to pay for reforms he wants the General Assembly to turn into law this winter.
Pence said fiscal details will become clearer over time, and he insists legislators should play an equal role with the governor’s office in deciding how to fund programs.
The General Assembly reconvenes for a nine-week, non-budget session beginning Jan. 6.
The governor said he sees his task as crafting a broad vision of how to boost the economy and create jobs in Indiana and then guiding the debate rather than dictating the end result.
“My aim as chief executive is to articulate a vision for where I think we need to go as a state and the policies that will achieve those objectives,” he said. “I recognize this is not a budget session, but there are a number of examples in Indiana where we have designed programs in a non-budget session and then completed the budget piece in the following session.”
Key proposals outlined by Pence for 2014 in a recent series of speeches and position papers on jobs, education and taxation have included:
A phaseout of the state’s tax on business personal property and equipment that the governor says puts Indiana at a disadvantage versus neighboring Illinois, Ohio and other states in attracting corporate investment and new manufacturing plants.
Investing $400 million in the next era of highway expansion “to keep freight and people moving in Indiana.” The governor said much of that money already has been set aside for highway construction, and the General Assembly only has to authorize spending it.
Establishing a voucher pre-K program for families with incomes up to 185 percent of the federal poverty level. Pence sees this as a way to promote school choice and increase the chances of success for children raised in disadvantaged families.
He hasn’t put a price tag on the plan, however.
Creating an Indiana Teacher Innovation Fund to award grants to educators who want to try new concepts in their classrooms.
Starting a “Choice for Teachers” fund to pay public school teachers a stipend if they apply and are hired by charter schools or underperforming public schools with a high percentage of low-income students.
Tweaking state law to make it easier for charter school operators that run multiple campuses to share state funding and move the money among their various schools as needed.
State legislators estimate that scrapping the state’s tax on business personal property and equipment would cost local governments about $1 billion in lost revenue and shift a significant additional tax burden onto other categories of property owners.
Pence insists the time has come to phase out the tax because it discourages businesses from expanding their operations in Indiana.
But some city and county government officials say they’re wary of losing money that pays for key local programs, including public safety, at a time when the economy isn’t fully healed.
“I’d like to see all taxes go away. But I’m a realist, and I know the demands on local governments are significant,” said Jorge Morales, president of the Bartholomew County Council.
Morales said he’s not sure what impact the county would feel or how local governments would compensate if the business tax disappeared.
But the numbers seem big.
A legislative study done based on 2012 data for the Commission on State Tax and Financing Policy said doing away with the business personal property tax would siphon a net amount of $14.7 million away from Bartholomew, Jackson and Johnson counties combined.
But one more less obvious part of the equation is that the average residential property owner, landlords and others who don’t own business equipment may have to pay more if the assessed value of business equipment disappears from tax rolls.
According to the recent tax policy study, doing away with the business tax in one fell swoop would cause the average homeowner’s property tax bill to rise by 10.6 percent statewide to compensate. Tax rates would have to be recalculated under state law to bring in the budgeted amounts apportioned to local governments.
There are caps on what taxpayers must pay, but many people’s tax bills are still well below those caps, said Purdue University agricultural economist Larry DeBoer, who has studied the issue.
“The burden will vary because there are two factors at work here — the amount of assessed value and how many property owners are below their property tax caps (meaning they’ll pay more),” DeBoer said. “At least part of the lost tax payments would be shifted to other taxpayers.”
The most recent state fiscal study — done for both houses of the General Assembly — says Bartholomew County would lose $16 million in tax collections from the business personal property tax, but recalculating tax rates would shift two-thirds of that or about $10.7 million onto other property taxpayers. One third, or about $5.3 million, would actually be lost.
In Jackson County, $1.4 million would actually be lost, but $5.6 million would be shifted to others. In Johnson County, about $8 million in revenue would be lost, and another $5 million would shift to the property tax bills of others, the study found.
Legislators hear unrest
State Rep. Milo Smith, R-Columbus, said he’s already heard clamoring from a number of local governments asking for some other revenue source to be found to fill holes in their budgets if the business tax disappears.
“Local leaders tell me that because of the enactment of statewide property tax caps (five years ago), it’s already been hard to make ends meet. If we eliminate one other tax that puts revenue into their coffers, they’ll have even less money to spend. They say they’ve cut and trimmed all they can.
“If legislators have to seek out some other tax strategy to compensate for $1 billion in lost revenue, you’ll have lots of people up in arms who’ll call it a new tax. We need to be very cautious with this,” Smith said.
Pence said he’s open to suggestions about how — and over what period of time — to phase out the equipment tax, but he said it is important that Indiana make that leap or it will lose jobs to competing states. He’s also aware of local governments’ revenue concerns.
Pence said he doesn’t intend to use the term “tax cut” when talking about a phaseout of the tax.
“I want to be very clear here. I’m talking about tax reform, making sure that our communities have the resources to cope with this by some other means over the short term and long term,” the governor said.
“That is an extremely important part of the debate.”
Currently, 12 states have no business personal property tax, and at least 20 others have substantial exceptions and exemptions that reduce the financial impact, economic data show.
“I acknowledge there have been voices in opposition, and I respect their viewpoints. But in a broad range of tax options, I don’t see how it’s a good idea to have this tax in a state like ours with such a strong manufacturing economy,” Pence said.
Pence sticks to goals
The governor said he has heard complaints from some quarters that he’s biting off too big of an agenda for a non-budget legislative session starting next month, but he doesn’t see it that way.
“Our road map for Indiana included some 50 different policy proposals to advance our six goals. Our goals haven’t changed,” said Pence, the Columbus native who was sworn into office last January and has one General Assembly under his belt. “People can draw their own conclusions about whether I’m being more bold than last time. We’ve just tried to evaluate the progress we made in the last session and figure out how we can build on that momentum for Indiana.”
Smith said he gives Pence solid marks for collaborating with legislators, but the devil is in the details.
“I think he’s doing everything with integrity and trying to do the right thing. He doesn’t mislead,” the Columbus legislator said. “These programs may be great, but how do you afford them? I don’t want to have to vote for a new tax.”
The governor said Indiana is making good economic progress amid slow growth nationally. He said the state’s economy remains on the right track even though recent monthly revenue totals have fallen below budget projections.
Pence recently ordered a series of belt-tightening measures to control spending, including selling a state airplane.
Republic reporter John Clark contributed to this story.
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