News From Terre Haute, Indiana

News

December 14, 2013

Bennett says city budget can’t absorb biz tax loss

Loss of fund would mean cutting 150 jobs

TERRE HAUTE — Mayor Duke Bennett is warning the City Council – and anyone else who will listen – about the impact to Terre Haute’s budget if Indiana’s business personal property tax is jettisoned by the state Legislature.

Personal property taxes, which are collected on business equipment, provide more than $4 million to the city’s approximately $33 million general fund budget each year, according to county figures. If the tax is lifted, the city would lose that money and, in addition, the Terre Haute Sanitary District would lose nearly $1 million.

“We can’t sustain another $4 million hit on the general fund,” Bennett said in his office Thursday afternoon. That would be on top of millions of dollars in losses over the past six years due to Indiana’s property tax caps, he said.

Loss of the personal property tax revenue would mean cutting about 150 employees, Bennett said. “A big portion of that would be policemen and firemen,” he said. “We’ve cut all of the other areas to the bone, basically.”

The city employs approximately 500 people.

A $1 million loss for the sanitary district would imperil the city’s ability to make outstanding sanitary district bond payments, the mayor added. The sanitary district has already had to tap the wastewater treatment plant’s budget to make the district’s bond payments, Bennett said. Loss of another million from the sanitary district’s budget would also likely be made up through the wastewater treatment plant. Taking another million from the wastewater budget could mean increasing sewer fees again, he said.

In 2012, the mayor implemented a roughly $2.1 million annual “payment in lieu of taxes” from the wastewater utility to support the city’s general fund.

Talk of dropping the personal property tax has gotten the attention of local officials and their lobbyists across the state. The Indiana Association of Cities and Towns has joined other local government groups to try and deal with the proposal, which is being pushed by General Assembly’s Republican leadership, Gov. Mike Pence and business groups.

Supporters believe dropping the tax, which brings about $1 billion to the state annually, would encourage businesses investment in the state. Indiana’s personal property tax rates are some of the highest in the country and many of Indiana’s neighbors do not tax business equipment, according to the Indiana Chamber of Commerce.

But Bennett argues Indiana already has a top-notch business climate. And lifting the business personal property tax would also create higher real property taxes for other property owners, he said. Unless local government budgets shrink, “you’re going to shift [taxes] from businesses to people who are in less of a position to pay more [real] property taxes,” he said.

While local government leaders are deeply concerned about the possible loss of the personal property tax, they frequently grant personal property tax abatements in their own communities. Within Terre Haute there are more than three dozen active personal property tax abatements, according to figures from the city clerk’s office. In all of Vigo County, including the city, about $171 million in business equipment is currently abated, according to county figures. That translates into millions of dollars in potential property taxes forgone.

Inside the city limits, the City Council votes on abatements, which are then either approved or vetoed by the mayor. Most abatements pass without opposition.

Abatements, which forgive about half of the taxes due on business equipment, are an important tool for local governments seeking to attract and retain companies, Bennett said. Without abatements, companies might leave or refuse to locate in Vigo County, he said. “If [companies] pick up and leave, they’re not going to be paying for a lot of stuff,” Bennett said.

Ryan Cummins, a vocal opponent of property tax abatements during two terms on the Terre Haute City Council, said that if abatements create business investment with virtually no effect on other taxpayers, as is typically argued by local officials, then not collecting personal property taxes from all businesses should be welcome. Local officials “should be ecstatic,” he said. Cummins argued abatements increased taxes for other people and said it’s ironic that city officials are making that point now, when faced with losing all personal property taxes.

If personal property taxes are lifted, some sort of replacement revenue is a must, Bennett said. Some in Indianapolis have suggested a higher income tax or sales tax. But Bennett said those taxes are too tied to the ups and downs of the economy. Property taxes are relatively stable, he said.

“You’ve got to have some replacement revenue, something,” Bennett said. “You’ve got to have something to fund local government.”

Reporter Arthur Foulkes can be reached at 812-231-4232 or arthur.foulkes@trib star.com.

 

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