Pharos-Tribune

February 7, 2014

Pence reaffirms support for end to business tax

Indiana mayors demand replacement revenue.

By Maureen Hayden CNHI Statehouse Bureau
Pharos-Tribune

---- — INDIANAPOLIS — Despite intensifying opposition from mayors around the state, Gov. Mike Pence is re-affirming his pledge to eliminate a $1 billion tax revenue stream for local governments.

Pence said he wants to eliminate the business personal property tax to boost job creation in the state, but still has no detailed plan to replace the lost revenue or to prevent a shift in the tax burden to homeowners and other property owners.

During a press conference with Statehouse reporters Thursday, Pence said he’s “in negotiations” with legislative leaders on the issue. Both the House and the Senate have bills that begin to phase out the tax in different ways, but neither bill replaces the lost revenue.

Pence said the legislation need to be improved, but declined to elaborate.

“I know you all want me to talk about details,” Pence said, after he was repeatedly questioned about how he’ll prevent what he calls “undue harm” to local governments if the tax is repealed.

“I don’t want to negotiate this in public,” Pence said.

His comments came on the same day of the release of an independent report that says eliminating the business personal property tax would drain significant revenue from local governments and would increase taxes on homeowners, farmers, landlords and other property owners by $376 million.

In 24 of Indiana’s 92 counties — including White County — those property owners would see a 12 percent or more increase in their tax bills.

The report, issued by the non-partisan Indiana Fiscal Policy Institute, also found that eliminating the tax would have minimal effect on luring new jobs to the state, but could pit local communities against each other.

Pence told reporters that he hadn’t read the report but that he believed it would add to the ongoing debate over his tax elimination plan.

Both Republican and Democratic mayors from around the state have voiced strong opposition to rolling back a critical revenue stream that funds local governments, schools, and libraries.

Neither the House bill nor the Senate bill totally eliminates the tax that manufacturers and other businesses pay on equipment. But Pence said again that his eventual goal is to match other Midwest states that have repealed similar taxes.

“This is just a bad tax in a state where you make things,” Pence said Thursday.

Last week, mayors from the state’s six largest cities met with Pence to press him for details on his often-repeated promise to mitigate the harm to local governments and other property owners.

They came away without answers.

“I don’t know any mayor who is saying, ‘Let’s get rid of this tax without replacing the revenue,” said Republican Mayor Duke Bennett of Terre Haute, who took part in the meeting.

Matt Greller, executive director of the Indiana Association of Cities and Towns, said local leaders are frustrated with the lack of detail.

“There is tremendous concern,” Greller said. “We have no understanding of what the Governor means when he says there will be no ‘undue harm.’ We don’t know if that means one dollar or a billion dollars.”

The report issued by the Indiana Fiscal Policy Institute explains the anxiety of local officials. It found that local units of governments are still grappling with property tax caps enacted in 2008. Those caps alone will reduce revenues by $800 million next year — money used to pay for police, school buses, and other public services.

If the business tax were eliminated, those losses would rise by another $687 million a year.

The report also notes that the property tax caps, now locked into the state constitution, limit the ability of lawmakers to “re-balance the tax burden among homeowners and business interests.” That means that a reduction in business tax revenue would automatically be shifted to other property owners. The report notes that tax cuts for businesses decrease business costs and add to profitability. Doing so can encourage companies to relocate or make new investments.

But it also says that 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.”

Mayors like Terre Haute’s Duke Bennett say that’s their biggest fear.

“We need to slow down and take a look at all the tax changes that have already been put in place and see how they impact local communities,” Bennett said.

The bill in the Senate calls for a “blue ribbon commission” to study this issue. But it also calls for eliminating the tax only for businesses with less than $25,000 worth of equipment. That would impact about 70 percent of Indiana businesses and result in revenue losses of about $50 million for local governments.

The House proposal gives counties the option of eliminating the tax on new business equipment, but offers no mechanism for revenue replacement.

Pence seemed to rule out the option that the state, which has currently has a budget surplus, would replace revenues lost to local governments, as some mayors have requested. Pence said local governments would have to identify their own revenue replacement options.

Maureen Hayden covers the Statehouse for the CNHI newspapers in Indiana. She can be reached at maureen.hayden@indianamediagroup.com. Follow her on Twitter @MaureenHayden