In the past month, I feared Gov. Mike Pence and legislative Republican leaders had a rude surprise for us middle class working stiffs.
They want to repeal the business personal property tax in an effort to improve what is already one of the best business climates in the nation. They are attempting a phase-out on new business equipment this year, with the goal of a total repeal a few years down the road.
This is good, right? Aren't all tax cuts good?
Perhaps, unless the tax cut for businesses and big corporations comes out of your pocket. A local option income tax means they want individual counties to make up the $500 million to $1 billion or so in revenues lost to local governments, libraries and schools by dinging your paycheck.
Earlier this month, Pence said in his annual State of the State address, “To make Indiana more competitive let’s find a responsible way to phase out this tax. But let’s do it in a way that protects our local governments and doesn't shift the burden of a business tax onto the backs of hardworking Hoosiers.”
That is the dilemma facing the governor and legislative Republicans. The constitutional property tax caps passed by voters in 2008 have already sliced away significant portions of municipal budgets. Cities like Terre Haute and Muncie have had to slash budgets by millions of dollars. What mayors and city councils are now facing is cleaving into bone.
Terre Haute Mayor Duke Bennett, a Republican, told the Tribune-Star it could lose $4 million of a $33 million general fund budget. ”We can’t sustain another $4 million hit on the general fund.” Bennett said that without replacement revenue, the city would be forced to cut 150 employees. “A big portion of that would be policemen and firemen,” he said. “We’ve cut all of the other areas to the bone, basically.”
Think of it like this. You can create the sexiest business climate to lure companies to Indiana. Geico is bringing not only its British accent lizard (or is that an Ausssie accent?) and hundreds of jobs to Carmel, but that city also has great parks, a new performing arts center, a revived downtown, trails and an improving road system. Companies wanting to set up shop in Indiana look for those amenities to attract good employees.
What the tax caps, and now a potential business personal property tax repeal, could end up doing is to create communities that can't afford to bus their kids to school, keep the streetlights on, plow the snow and fix the streets. We've seen the police chief in Knightstown tase himself in a publicity stunt to buy new squad cars.
Two bills in the General Assembly — House Bill 1001 and Senate Bill 1 — begin the repeal process, but neither has replacement revenue for municipalities and counties, other than a slow phase-out and the income tax. SB1 would form a summer study committee while eliminating the tax for businesses with less than $25,000 in property.
There are about six weeks left in this session, and the replacement part of this equation is sketchy at best, and revealing when you consider how ill-prepared the governor and legislative leaders have been to find a replacement solution.
Last week, Republican mayors Greg Ballard of Indianapolis, Jim Brainard of Carmel, Lloyd Winnecke, of Evansville, and Democrat mayors Greg Goodnight, of Kokomo, Tom Henry, of Fort Wayne, and Peter Buttigieg, of South Bend, met with Pence to express their alarm at what cities would face with a repeal and no replacement.
Pence sent a letter to mayors later in the day, saying, “I want to assure you that I understand your concerns. You provide essential services to your citizens, and I can see why some believe the phase-out of the business personal property tax could threaten service delivery. I have said that we cannot phase out this tax in a way that shifts the tax burden to hardworking Hoosiers. You may be assured that I will stand by these commitments to your community and your citizens.”
Winnecke told the Evansville Courier & Press afterward, “He reiterated to us that he would not sign any legislation that was not revenue neutral to communities. He reiterated that point several times during the meeting.”
Here’s a couple of closing thoughts. First, over the past 10 years, Indiana has dramatically altered its tax structure. Who are the winners and losers? I'm not sure anyone can tell you. We need a timeout, and a comprehensive study of what's been accomplished and whether the winners have won too much and the losers are just poor schmoes.
Second, Pence is on record saying he understands the dilemma, and that replacement revenue will be found.
We need to hold him to that promise.