News From Terre Haute, Indiana

February 8, 2014

EDITORIAL: More time needed to study impact of additional tax cuts

Depleting local funds a serious drawback

The Tribune-Star

TERRE HAUTE — Hoosiers deserve a definition of “unduly harm” from Indiana Gov. Mike Pence.

The governor wants the state’s business personal property tax eliminated. He contends that it deters businesses from locating in Indiana. Apparently, some are choosing to set up shop instead in neighboring states that abandoned such taxes on equipment — even Illinois, which Pence’s secretary of commerce described last week as “one of the worst states in the country for doing business and getting worse.”

There are complications, though. The equipment tax generates $1 billion a year to fund cities, counties, schools and libraries. The governor has acknowledged the concerns of local officials, who have already trimmed staffs and public services after caps on property taxes, enacted in 2008, substantially reduced their revenue. The caps were written into the Indiana Constitution at the urging of former Gov. Mitch Daniels. If Pence’s desire to add the equipment tax to the extensive list of fiscal reforms, the most basic services in Hoosier communities may cease to be basic.

Pence has repeatedly reassured mayors and school district officials he does not want repeal of the tax to cause “undue harm” to local entities. Two bills in the current session of the General Assembly would phase out the equipment tax, rather than immediately eliminating it. But neither proposal — one in the House and another in the Senate — establishes replacement revenue for the $1 billion of local funding.

Mayors from six large cities, including Terre Haute’s Duke Bennett, met with Pence last week and tried to get him to explain how the revenue would be replaced. He did not, according to a story published Friday from CNHI statehouse reporter Maureen Hayden.

In a news conference Thursday, Pence said he is negotiating with legislators on the issue and doesn’t “want to negotiate this in public.”

The concerns of the mayors got some affirmation from a study conducted by the nonpartisan Indiana Fiscal Policy Institute. The research concluded that repeal of the equipment tax would have only a small effect on out-of-state businesses seeking to relocate. The report also found that the 2008 property-tax caps will reduce funding for police and fire protection, school buses and public services by $800 million next year. The losses from the elimination of the equipment tax would come on top of that.

The burden of replacing the revenue would fall on property owners, average Hoosiers.

The report verifies that tax cuts reduce business expenses, boost profits and can encourage relocations to Indiana and investments. But it adds, tax cuts “are most effective where the loss of tax revenue to governments does not reduce public services, especially on highways, police and fire protection, and perhaps education.”

The intention to ease undue burdens on businesses and corporations generally makes financial sense. That relief should not simply move the burden to homeowners, many of whom work at those businesses. Nor should that corporate and business tax relief deplete the already tenuous ability for local communities to maintain a basic quality of life for their residents — an undue harm.

The concept of repealing the business personal property tax should go to a summer study committee of the Legislature. The impact of rushing it into reality is unclear and troublesome. The governor and lawmakers need to slow down.