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Healthy choices

Tough decisions face Terre Haute, other cities struggling to improve economic well-being

Tough decisions face Terre Haute, other cities struggling to improve economic well-being

  • 6 min to read

Seven years ago, many Hoosier cities began facing a new level of tough choices.

Two economic upheavals — the Great Recession and state reforms that capped property taxes that funded the bulk of Indiana cities’ operations — forced those decisions. Some towns adopted local option income taxes to replace diminished property tax funds. Others annexed outlying suburbs. Some began charging fees for services, cut or streamlined other services, or imposed layoffs. A few did all of that, others a mix.

A handful escaped the hardest decisions, such as affluent cities perched on Indianapolis’ perimeter and the hometowns of Big Ten universities.

The economic well-being of Indiana’s 18 largest cities reflects the tough choices made, or not made, and the benefits of proximity to a met-ropolis or a major college campus. The Indiana Fiscal Policy Institute analyzed those cities (excluding Indianapolis because of its unique, combined city-county government) and ranked their overall fiscal health; study findings were released last week.

The healthiest, Jeffersonville, increased its size and tax base through annexation, and also enacted a local option income tax to fund public safety. In the middle of the pack, Elkhart dealt with 20 percent unemployment and cut its expenditures by $5 million, and also adopted local option income taxes (or LOITs).

Terre Haute, last in the fiscal health index, is still considering a trash fee in 2016, but has not pursued a new LOIT through the Vigo County Council. The city’s core revenue — the combination of revenue from property taxes and long-unchanged existing local income taxes — is 78.4 percent of what it was in 2008.

The ranking “shouldn’t be a surprise to anyone, because most of these other communities have already adopted new income taxes or user fees that we have not,” Terre Haute Mayor Duke Bennett told the Tribune-Star last week.

In looking at the core revenue difference from 2008 to now, the study rated the cities by their fiscal capacity, ranging from “gainers” to “barely falling behind,” “mostly falling behind,” and “concern.” Terre Haute joined Hammond, Gary, Muncie, South Bend and Anderson in that latter category. Those cities of “concern” formed the backbone of Indiana’s industrial base in decades past, but lost large manufacturing outlets since the 1970s. With those cities’ shrunken tax bases and the property tax revenue limited by the caps, changes were necessary.

Those changes can come in the form of new LOITs or streamlining city operations, said Brandt Hershman, the Republican state senator from Wheatfield who co-authored the amendment that etched the property tax caps into the state Constitution in 2010. The older industrial cities, Hershman insisted, tend to have more layers of governmental bureaucracy, which can be shed.

“I think the generic sentiment [among tax cap proponents in the Legislature] is to be more empathetic to the communities that have tried to help themselves through the available avenues” such as LOITs and cuts, Hershman said last week.

“The Legislature was forced to make some very tough decisions” in providing taxpayers relief by creating the caps, Hershman added, “and we expect the same level of intestinal fortitude from local governments.”

Hershman stands by the value of the property tax caps, which reduced Hoosiers’ tax bills by $727 million this year, according to Purdue University economist Larry DeBoer, a lead researcher in the institute’s report. Those caps limit property taxes to 1 percent for homeowners, 2 percent for rental properties, and 3 percent for businesses. A tax bill exceeding those caps flips the “circuit breaker” switch, meaning the excess goes back to the taxpayer as circuit breaker credits.

In upscale Indianapolis rim communities such as Carmel, Fishers and Noblesville, along with Bloomington, home of Indiana University, the caps barely affected incoming property tax revenue, thanks to their growing economies and populations. “They would say, ‘Circuit breakers? What circuit breakers?’” said John Stafford, author of the institute’s report, “The Fiscal Health of Indiana’s Larger Communities.”

Bloomington lost less than 1 percent of its revenue to tax-cap “circuit breaker” credits to taxpayers. Terre Haute took a 31.6-percent hit. “The circuit breakers have obviously hit two municipalities that are relatively similar in size [differently]. There’s a radical difference in the impact they’ve had on those two communities,” said Stafford, retired director of the Community Research Institute at Indiana University-Purdue University Fort Wayne.

County LOIT helped Elkhart

Perhaps no Indiana city in 2009 stood in a predicament like that of Elkhart. The recession hammered the town like no other in America. The RV industry plummeted, rocketing Elkhart’s unemployment rate to 20.3 percent. On top of that, Indiana’s tax caps were about to curtail the flow of revenue to that northern Indiana city.

“We knew we were going to lose about $12 million to the property tax caps, so we reduced our budget,” said Mayor Dick Moore, who had just taken office. Elkhart shaved its $57 million budget to $52 million, and wound up returning $4.5 million into the general fund. The cuts continued.

Then, last year, the Elkhart County Council adopted two LOITs — one for 0.25 percent public safety, and another at 0.25 percent for property tax relief. The council’s action not only generated funds Elkhart County needed, but also provided nearly $4.2 million a year to the city of Elkhart, according to the Elkhart Truth.

The LOITs “helped a great, great deal,” said Moore, a Democrat. “For the first time, we could see the light at the end of the tunnel.”

Elkhart was able to raise public safety employees’ wages for the first time in years, by 11 percent. “[The LOITs] took the pressure off the general fund, and we used the general fund for everybody else,” Moore said.

Elkhart will begin the New Year with a $61.2 million budget and a new mayor after Moore lost his bid for a third term to Republican Tim Neese. Elkhart’s general and Rainy Day funds combined topped $30 million going into 2015, highest among cities in the fiscal health index. The city opened a long-awaited, $20 million railroad overpass (including $5 million in city funds) two weeks ago. Elkhart also reopened the historic Learner Theatre after an $18.1 million renovation from public and private funds, a project Moore jump-started as he took office in the throes of the recession.

“Managing money is our proudest moment,” Moore said by phone last week.

Elkhart ranked 10th on the fiscal health index.

Bridge to prosperity

Two-hundred and 69 miles south of Elkhart, the Ohio River city of Jeffersonville landed at the No. 1 spot on the index. The report cited the boost from annexation, implemented before current Mayor Mike Moore (no relation to the Elkhart mayor) won election in 2011. The Republican, who lived in the annexed area, said he opposed the move.

Asked if the annexation proved to be good for the city, he said that with city services and amenities now in effect there, “I would say yes.”

Jeffersonville led all cities in cumulative gain in core revenue — property taxes and local income taxes — of $75 million from 2009 to 2015. Much has happened in that time, the mayor explained. The Big Four Bridge catches the greatest attention. A joint effort by the sister cities of Louisville, Ky., and Jeffersonville, and their states, converted the defunct railroad span across the Ohio River into a pedestrian and cycling bridge.

Jeffersonville committed $2 million, or 20 percent of the cost to revamp the Indiana side of the ramp, while the state funded the remaining 80 percent, Mike Moore said. A two-block park rests nearby. Walkers and bicyclists enter Indiana amid historic downtown buildings, shops and eateries in Jeffersonville. The 51-year-old mayor remembers, as a boy, going to Louisville to find fun with his family. That’s changing.

“We’ve found ways for people to enjoy life on the Indiana side of the river,” he said.

Estimates by the city show an average of 100,000 people cross the walk bridge every month. “We’ve got a whole new set of customers coming across the bridge,” he said. The mayor called that new revenue stream “enormous.”

Options exist, senator says

The ability to invest in such quality-of-life amenities has become more difficult for cities still considering ways to replace lost property tax revenue and maintain basic local services. That includes the traditionally industrial cities, such as Terre Haute, on that fiscal capacity “concern” list mentioned in Stafford’s fiscal health report.

“In many cases, these municipalities drive the state’s economy,” Stafford said, “and to an extent, a number of them — certainly not all, but a number of them — found it difficult to operate as they have been, let alone be able to make those kind of investments, which at least under the philosophy of the [Indiana Regional Cities Initiative] would lead to longer term population growth and economic prosperity.”

Projects to enhance the quality of life in and around Hoosier cities are the focus of Gov. Mike Pence’s Regional Cities Initiative. That program will provide $84 million to two of the seven Indiana regions competing in the initiative. Outside that program, though, funding of such future-securing amenities is more difficult for the older industrial towns. “They’re harder pressed to do that today than they were seven or eight years ago,” Stafford said.

Sen. Hershman acknowledged the unique obstacles of some cities, such as those with high concentrations of aging housing and large sectors of property held by public entities and primarily off the tax rolls. “I think Terre Haute is one of those communities that has problems not all of their own making,” he said.

Still, the property tax caps “are here to stay,” he emphasized, and cities must adapt. Local option income taxes are just that, an option, Hershman said. Though for Terre Haute, the local power to enact such taxes rests with the Vigo County Council. The city can seek action from the county on LOITs that could pay for public safety salaries or further reduce property tax bills.

“Terre Haute can be the tail that wags the dog in this,” Hershman said, “if the case is made that this is the right thing to do.”

Mark Bennett can be reached at 812-231-4377 or mark.bennett@tribstar.com.

Mark Bennett has reported and analyzed news from the Wabash Valley and beyond since Larry Bird wore Sycamore blue. That role with the Tribune-Star has taken him from Rome to Alaska and many points in between, but Terre Haute suits him best.