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‘Replace, Don’t Erase’ sensible response to revenue erosion

The people charged with running Indiana cities, counties, public schools and more are no strangers to Statehouse politics. They know that if the governor and lawmakers are intent on handing out another tax break, it will happen – regardless of the effect on local government revenue.

Now, with Gov. Mike Pence and legislative leaders targeting the business personal property tax – a $1 billion source of revenue – local government and school officials are taking a new, pragmatic approach to addressing the legislation: “Replace, Don’t Erase.”

The new coalition representing mayors, city government, police chiefs, school boards, libraries and more launched their campaign last week, just as legislation to reduce their dwindling revenue advanced in both chambers of the General Assembly.

“We are 100 percent unified on this issue,” said Matt Greller, executive director and CEO of the Indiana Association of Cities and Towns during a news conference to introduce the coalition. “I think we all see this as the most significant piece of revenue loss coming down the road that local governments have faced in the history of Indiana.”

Not only is it the most significant piece of revenue, it also follows years of revenue cuts and hundreds of millions of dollars in losses from the state’s property tax caps. The losses have already endangered the ability to provide basic services, with cities forced to lay off employees, schools closed and classroom sizes increased, library hours reduced and parks suffering from neglect.

“Funding for public safety has been diminishing since the tax caps went in,” Syracuse Police Chief Tony Ciriello said at the news conference. “We’ve all faced major budget cuts – not able to hire additional personnel; sometimes not able to even replace personnel lost through attrition. We have fire trucks that are lasting a lot longer than they should and police cars that probably shouldn’t even be on the road because – without the funding – we can’t replace them.”

The governor, who first challenged the General Assembly to eliminate the business personal property tax, has since called for it to be phased out. He hasn’t, however, offered an idea for making up the difference.

That’s why the Replace, Don’t Erase coalition’s approach is a wise one. It emphasizes the need to maintain vital services while putting pressure on lawmakers to do more than cut taxes. Their work so far has failed to provide replacement revenue:

•House Bill 1001, the House version of the personal property tax measure, would allow counties the option to eliminate the tax on any new machinery or equipment. Of course, the communities most desperate for the economic investment the bill’s supporters promise are those where residents are the least able to afford the lost revenue. The local option also is placed with counties, leaving schools, townships and other units to suffer the consequences with no voice in the decision. The bill was approved 63-33 and has been referred to the Senate Tax and Fiscal Policy committee.

•Senate Bill 1 would cut the tax for businesses with less than $25,000 worth of equipment, eliminating the tax for 70 percent of Indiana business owners. The bill would also reduce the corporate income tax from 6.5 percent to 4.9 percent by 2019 and shifts more than $31 million in taxes to property owners, including almost $9 million on homeowners. Losses to schools and local government would exceed $27 million. The bill was approved 35-11 and has been referred to the House.

IACT’s Greller conceded that the current bills have “relatively minimal effect” but warned they are only a first step toward total elimination.

“The legislature has to understand that without full replacement it’s a no-deal for us, and replacement has to come at the state level,” he said. “We’re not asking the legislature to get rid of the business personal property tax – that’s not a proposal from any of us. Maybe it makes sense from an economic development standpoint, but so does providing police and fire protection in our communities, quality of life amenities in our communities.”

If Indiana lawmakers are convinced the state can’t prosper without eliminating the personal property tax for businesses, they must replace it before erasing it.