Let me make sure I understand this. For many, many years, the State recognized that it imposed numerous burdens on local governments without giving those governments sufficient taxing flexibility. This recognition came in the form of the property tax relief credit and the homestead credit — these State subsidies reduced property taxes. Then, in 2005 and 2007, these credits were reduced by the General Assembly, effectively balancing the State budget on the backs of the counties. Reduction of these credits is a significant part of the huge property tax increases. So now we find out the State is projecting a billion dollar surplus.
This is not a case of those dumb counties outspending their means only to have their hand out when the fiscally responsible State has a surplus. Nope, these jacked up property taxes are directly related to the State surplus. If the State had not reduced the property tax replacement and homestead credit, the surplus would be less and so would the necessary property tax increases.
I could run a surplus too if I had the power to stop paying for the the things I demand.
At least that’s the way I see it. I’m not a tax expert. I welcome evidence that my analysis is flawed.
Yet another example as to why local rule should be established. The cities/counties suffer under the micromanagement of the state government yet local voters can’t hold those truly responsible accountable.
I couldn’t intentionally design a more screwed up system.
I deal with county/state tax issues in my practice, and I’d say your analysis is about right, but I think the legislature does recognize this too. In recent years, Indiana tax policy has been on a centrally planned model (or ‘top down’ if you prefer) with the state setting the policy and leaving a fairly limited range of decisions to the local (primarily municipal or county) authorities. I’ve heard some discussion indicating there may be a movement toward greater local control on the revenue side, and perhaps moving more of the costs of welfare and schools to the state.
I’d like to see a shift funding of schools to the state, with revenue support for schools mainly from sales and income tax. Education is a ‘big ticket’ item so a major shift there would make a big difference Kids in lower income districts have at least as much need for educational advantages as those from wealthier communities. Both of these facts suggest that schools shouldn’t be funded by local property tax; also parents generally have income and buy stuff.
If property taxes primarily funded local improvements, services and infrastructure, and the decisions on these matters were primarily local, I think property tax payers would be happier because they’d see that these expenditures were more closely related to supporting the needs of their property.
You are correct in all but one respect, Doug. You left out the part about various State officials then blaming local governments for their spendthrift ways.
You mean the $260 million dollars surplus? I’m fine with people complaining about that being too high. But the other money is either owed to other governments and shouldn’t be counted in any surplus, or it’s in a rainy day fund for a reason and the discussion should be around how much risk the state is willing to assume around Medicare, etc.
Indiana government does historically poorly with surpluses, don’t they? I recall a big surplus that was given away a few years back … then the state needed money all the sudden?
A good synopsis of this problem Doug, a problem that Kentucky (and in all likelihood, other states are grappling with also). It’s been a while since I had a chance to study the relationship between County, City, and State spending in Indiana, a big issue that many local governments are dealing with now is the requirements to adhere to GASB #43 and #45 (dealing with post retirement pension obligations and post retirement health care obligations). Without putting everyone to sleep with a long soliloquy about the requirements of GASB #43 and #45, basically what it says is that governmental entities will be required to book post retirement benefits. This requirement is a hot button issue in Kentucky and will probably escalate as local governments will be required to book the liability. Most teachers, firefighters, policemen, and other governmental employees who were already hired get their pension and 100% of health benefits paid until death. Of course, there are actuarial assumptions that have to be made in booking this liability, but there is dissension between Frankfort and the many governmental entities here in Kentucky. The state plan for new hirees is in the process of being changed. I think we would all like 100% of our health insurance premiums being paid until death a guarantee, in my opinion that is another reason to go to a one payer system.