Local governments need fiscal flexibility

(Fort Wayne) News-Sentinel

Starting in 2009, Indiana established property tax caps of 1 percent of a home’s assessed value. Rental properties were capped at 2 percent and businesses at 3 percent.

The good news from that is for taxpayers, says one new report from the Indiana Fiscal Policy Institute. The caps have saved them $760 million in property taxes so far, says institute President John Ketzenberger.

The bad news, says a second report, is for Indiana cities and towns and other taxing units, such as school districts. A look at 18 of the state’s biggest communities showed an overall reduction of 21 percent in property tax levies. And some cities were hit even harder.

Growing suburban communities fared much better. The Indianapolis suburbs of Carmel and Fishers saw declines of less than 5 percent, for example. Older, industrial cities fared worse — a 45 percent decline in Muncie, 35 percent in Anderson, 32 percent in Terre Haute.

Cities can lose a certain amount of revenue without hurting residents. There are the ever-present waste, fraud and abuse, of course, and a lot of cities do things that don’t need to be done or can be better done by the private sector.

But at some point, services are going to have to be looked at, including ones a majority of people would call essential. That will require a conversation between citizens and officials about what services the community actually wants enough to pay for.

But that conversation will be impeded by a silent and stubborn partner in the state. If residents of, say, City X, decide they want service Y but there is no money for it, the state will demand that the city come to the capital and beg for a way to raise it. The state might or might not give permission, and even if it does, the budget vultures will keep a very close eye out.

This is unacceptable. The property tax caps aren’t going away any time soon — our legislative geniuses saw to that by putting them into the state constitution instead of legislation. So taxing units that will get squeezed harder and harder must have the flexibility to enact a local sales tax or income tax or a utilities user fee or whatever other mechanism they feel meets a need.

And then voters can reward officials or punishment them based on how well they think their needs fiscal and otherwise are being met. There is no role for the state here.

This was distributed by Hoosier State Press Association.