Auto bridge loan crucial to Kokomo survival, local officials say

With the failure of bridge loan legislation in Congress, the Bush administration became the last hope Friday for the beleaguered auto industry.

And perhaps nowhere was more attention paid to the news out of Washington than Kokomo, where a quarter of the area's work force is tied to the fate of the Big Three.

Early Friday, several local callers mistakenly thought one of Indiana's own was involved in the Senate filibuster against the bridge loan legislation.

But U.S. Sen. Richard Lugar, R-Ind., broke ranks with most of the Senate Republican caucus Thursday evening, and offered basically the same opinion.

"Our economic situation is such that a failure of the Detroit Three could trigger much broader damage to the entire U.S. economy," Lugar said in a statement Friday.

"In 1979, at the brink of collapse, the Chrysler Corp. came to Congress asking for aid. Senator Paul Tsongas and I worked more than six months to forge a deal based on tough love: assistance would be provided, but only on condition of substantial compromise by all parties."

Kokomo residents are already wary of the "restructure now" stance taken by Indiana Gov. Mitch Daniels and bridge loan opponents in Congress.

That's because Delphi Corp., one of GM's major parts suppliers, filed for bankruptcy in 2005, and has yet to emerge. Two years before the current credit crisis, the financing package Delphi tried to secure for reorganization fell through, and no alternative financing has been forthcoming.

As Delphi struggles, it has continued to cut its local work force.

In mid-2003, Delphi employed 6,300 in Kokomo. Today, its work force is about half that.

Even with Kokomo's two largest employers - Delphi and Chrysler Corp. - shedding jobs, the area remains hugely dependent on the auto industry.

This week, Forbes magazine listed Kokomo third in its ranking of the "10 fastest-dying cities," saying the City of Firsts was "remarkably poorly positioned" in the current auto crisis.

The latest employment statistics available from the Indiana Department of Workforce Development showed 9,716 auto-industry jobs in Howard County.

That was before Delphi cut more than 500 jobs, mostly of white-collar engineers, at its Electronics & Safety Division headquarters in Kokomo.

Those jobs also accounted for more than 25 percent of Howard County's entire work force.

Since manufacturing peaked during the SUV craze of the late 1990s, the Kokomo area has been losing about 1,000 jobs a year, mainly in the auto sector.

Auto industry analysts at the Center for Automotive Research Thursday said the bridge loan funds were needed immediately to prevent a collapse of the industry.

Daniels, however, reiterated his stance against the bridge loan during comments to media Friday.

"He's hopeful someone will find a formula which will allow an orderly restructuring of the industry, which has too much capacity and too much cost," Daniels spokeswoman Jane Jankowski said Friday. "[Daniels] is not encouraged more federal money will do anything other than postpone the problem."

Asked about any specific plans to aid Kokomo if the Big Three automakers shut down, Jankowski referred to the grim revenue forecast published by the state Thursday.

"The state has upwards of a three-quarter billion dollar hole to fill," she said. "Governor Daniels said we all have difficult decisions and there are going to be difficult times ahead. We're trying to prepare and do the things we can in state government to prepare for these times."

Kokomo Mayor Greg Goodnight said he has a simple response to anyone who thinks the Big Three should be allowed to fail.

"The cost of allowing them to fail is substantially higher than the cost to help them survive," Goodnight said Friday. "They can't even be compared."

Goodnight has been on a media blitz, talking with national news sources along with Fort Wayne Mayor Tom Henry and Marion Mayor Wayne Seybold.

"We're doing everything we can, and it's gotten some national attention," Goodnight said. "We're trying to get the message out that this is important, not just to Kokomo or northern Indiana, but to our country."

Initial indications Friday from the White House were positive after the Senate meltdown.

Bush spokeswoman Dana Perino said, "A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time."

Federal aid is crucial to Chrysler and General Motors Corp., said Jason Van Alstine, acting professor of economics at Indiana University Kokomo.

"I was surprised the idea for a bailout failed in the Senate," he said. "There were a number of points the Republicans wanted included that Democrats couldn't agree to. I hope something is worked out next week."

When asked about comments made by United Auto Workers officials that senators from the Southern states were attempting to break the union, Van Alstine said the talks have deteriorated.

"The Democrats are pointing fingers at the Republicans and the Republicans are pointing fingers at the UAW," he said. "There is enough blame to go around to everyone."

Van Alstine said federal aid is important to the economy of Kokomo.

If President George W. Bush decides to provide federal funds to the auto industry, Van Alstine said the short term goal is to keep the companies in business and the long-term goal is make them competitive.

Van Alstine said the restructuring of the auto industry will probably result in more plant closings and job losses.

"Right now it's hard for any type of business to survive," he said. "Even the foreign companies are not doing well."

The immediate impact on the operation of county government would be a loss of revenues collected through income taxes.

Commissioner Brad Bagwell said Chrysler and Delphi have already paid 2008 property taxes, so there won't be an impact on the 2009 budget.

"Someone will still own the property and it will be assessed," Bagwell said. "Impact from property taxes might not be significant."

In the case of bankruptcy, like when Delphi filed, it didn't pay a portion of the property taxes, he said. The property taxes are included in the bankruptcy plan, but not paid.

Bagwell said the larger impact is likely to come in the area of income taxes used to finance local government such as the County Option Income Tax (COIT), Economic Development Income Tax and the special COIT to fund operations at the county jail and Robert J. Kinsey Youth Center.

For 2008 Chrysler paid $12.7 million in personal property taxes and $2.5 million in real estate taxes. Delphi paid $4.3 million in personal property taxes and $2.8 million in real estate taxes, according to information provided by the Center Township and Howard County assessor's offices.