State versus local control of budgets and taxes

The Palladium-Item has an editorial entitled State should give options to local level. In it, the editors of my old home town newspaper opine:

Gov. Mitch Daniels and Republican and Democratic leaders in the Indiana Statehouse can’t agree on much, but on this much they see eye-to-eye: County governments ought to enact the property tax alternatives that legislators in the last session provided them.

. . .

An income tax option will, as state officials note, help shift a good portion of the higher costs away from property taxes to a local option income tax.

But state officials, with a shared interest in mollifying taxpayer anger, ought to express that interest by giving local officials incentives to choose an alternative to the property tax.

With all due respect: no. If state lawmakers wanted counties to shift from the property tax to an income tax or other sort of tax, they had the power to do it; and, if that’s what they had in mind, they should have gone ahead and enacted the tax change when they decided to balance the state budget on the backs of local government.

Instead, what they did was balance the state budget by capping the property tax relief credit – Hooray! Balanced State Budget!

Then, state legislators provided options allowing counties to shift from property taxes to county income taxes – Hooray! Home Rule! Local Control!

But then they left it up to county officials to pull the trigger on the new taxes – Boo! Tax-raisin’, money spendin’ local officials. Hiss!

See how that works? You impose spending obligations on local communities — juvenile detention fees; child services, for example. You even fund those obligations for awhile. But, when times get tough for the State, you go ahead and balance the state budget and give a bit of the “screw you” to the locals. Then, to make up the gap, you force the local officials to do the tax raising.

It’s not that local officials are poor fragile things that can’t take a little heat when they make tough decisions. The problem is that the State has taken a great deal of control out of the hands of county officials with respect to spending and taxing. Their options are limited when they want to cut spending; and their options are limited when they want to raise taxes.

Want an example? On August 24, the Department of Local Government Finance just issued a letter to every county demanding that data sets from 2002 through 2008 be submitted to the DLGF by October 15, 2007. Governor Daniels’ prior appointee as Commissioner of the Dept. of Local Gov’t Finance was more lenient in terms of deadlines for submitting these sets of data to the State. Once the property tax shit hit the fan, Gov. Daniels appointed a new Commissioner, Cheryl Musgrave, who has been taking a much harder line. According to the letters, the DLGF will not approve any local unit of government’s 2008 budget or debt issues until all of the data is provided. Further, the DLGF will hold a unit’s property tax replacement credit hostage pending delivery of this data. I believe this abrupt change from the DLGF will force many counties to scramble even more than they have been from the already chaotic property tax situation. Assessors’ and Auditors’ offices around the State, already stretched thin by the demands placed on them will have to devote scarce resources to complying with the State’s data requests. In some respects, this may be adding insult to injury. Becky Williams, president of the Indiana Assessor’s Association says that the DLGF is directly responsible for counties being behind on some of the deadlines. She says, the agency hampered assessors by failing to provide new trending rules until last summer, setting assessors behind in their work and making it nearly impossible to do their job correctly and still meet deadlines.

To be sure, some counties are worse off than others. For example, the letter to Marion County indicates that Marion County has failed to provide Auditor data from Pay 2004 – Pay 2006; sales disclosure data from 2004-2005; real property data from 2004; and personal property data from 2004 – 2006. The letter to Warren County indicates that it still owes the State data from 2006 sales disclosures and real property as well as 2004 – 2005 personal property. It looks like all of the counties got demands of one sort or another.

If the State is determined to micromanage county finances, holding budgets and property tax relief credits hostage to the State’s demands, state lawmakers should at least be gracious enough to raise taxes themselves when it’s necessary.

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Since I’m on the topic of property taxes, I’ll mention this excellent article by Niki Kelly in the Fort Wayne Journal Gazette entitled “Panel floats ideas for taming property tax.” Senator Kenley’s interim study committee, the Commission on State Tax and Financing Policy, is studying the issue. Apparently it would take a 9% income tax or 13.2% sales tax to cover the property tax gap.

Apparently conservative demagogue, Eric Miller, got a cool reception from the panel when he proposed “passing a constitutional amendment eliminating property taxes in 2008 and 2009 with a public vote on the issue in 2010. Then in 2011, he said, legislators could come up with a mechanism to replace the billions of dollars that would disappear in 2012.”

Sen. Kenley astutely questioned the propriety of passing a Constitutional Amendment first and finding a funding mechanism second.

“Let me get this straight. We don’t know what the plan is until after the constitutional amendment is passed? Wouldn’t we want to pass that upfront so people would know where they are going?”

Rep. Espich pointed out that Miller’s suggestion to increase sales taxes to 8% and increase income taxes to 4.4% would generate only $4.4 billion of the $6.1 billion dollar funding gap that would be created if property taxes were eliminated.