Daniels says local governments have capability to deal with less revenue

Property tax reform has local governments sweating every dollar, and that’s the way Gov. Mitch Daniels thinks it should be.

A budget shortfall last year and a predicted revenue gap for 2010 resulted in the Clark County Council passing a Local Option Income Tax. New Albany has also dealt with deficits in 2008 and 2009 that ended with the city council using reserve funds to make up the difference.

New Albany is now deliberating shifting a portion of its public safety salary expenses to its Economic Development Income Tax fund for this year and possibly 2011.

The blame, especially in New Albany, has been placed on the property tax caps that Daniels championed. But in an interview with The Tribune Editorial Board on Wednesday, the governor said officials can’t “tax and spend” their way to a successful community.

“You can’t have it both ways, the property taxes were too high,” Daniels said. “For New Albany to be an attractive town, people have to be able to afford houses here and have taxes they can afford.”

The property tax legislation allows for cities, counties or school boards that feel the tax caps are too cumbersome to appeal the limits. Daniels said about a dozen appealed last year and half were approved.

“It says to me that if people use their common sense — if a mayor or a school superintendent or somebody can show good cause — people will invest a little more in a community,” he said.

New Albany Deputy Mayor Carl Malysz said this week the impact of the tax caps is just starting to be felt.

“We’re expecting to be loosing revenues in a big way in 2010,” he said.

New Albany has two sets of estimates to help predict the amount of property tax revenue it could lose this year and in 2011. According to a Crowe Horwath prognosis obtained by the city in June, New Albany will lose $641,000 this year and $844,000 in 2011, when the caps take full effect.

But Mayor Doug England’s administration has affirmed that state projections are much more conservative for the city’s property tax receipts, calling for a loss of $254,310 this year and $338,654 in 2011.

But the city isn’t exactly broke.

New Albany is sitting on more than $8 million — or about $1 million less than half of its anticipated 2010 general fund revenue — in reserve funds from its EDIT, rainy-day and riverboat accounts.

Also, New Albany was awarded an additional $532,000 last month by the Department of Local Government Finance that will go toward this year’s budget.

Due to an oversight by the city, it had failed to claim its maximum property tax levy and had to appeal to the DLGF to recover some of the lost revenue.

At a council work session Monday, England said EDIT money will have to subsidize some public safety expenses at least until the city expands with annexation.

If not, England said layoffs of up to 20 firefighters will be imminent.

“Property taxes aren’t going to pay for anything anymore,” he said.

Unlike in Clark County, the Floyd County Council defeated LOIT in 2008 and England doesn’t expect the public safety tax to be brought back for a vote this year.

If the caps are made permanent in a 2010 voter referendum, property taxes would be limited to 1 percent of the value of a home, 2 percent on rental property or agriculture land and 3 percent on any other businesses.

Local governments are having to make cuts and come up with creative financing plans because of less revenue — something the state has been doing for five years according to Daniels.

“What I’m finding across the state is local officials, sometimes they grumble, but they are finding ways to stretch dollars,” he said.

“Frankly in private, the school board president or the mayor say ‘well, we probably should have done it before but hey, we had [more property tax money] before so we didn’t.’”