Tax caps and declining sources of revenue will force counties, cities and towns to take a look at how they're doing things, particularly in 2011-2012, according to David Bottorff, executive director of the Association of Indiana Counties.
"Elkhart County had one of the highest unemployment rates in the state," he said. "That actually won't catch up in the county coffers until 2011-2012."
Revenue from the county option income tax is affected by the unemployment rate, but the effects are delayed by a couple of years. "That goes on at the same time the caps are being fully implemented," Bottorff said, calling it a "double whammy for the county."
When preparing the budgets, County Auditor David Hess said he uses conservative figures in the hope that things will turn out much better. For example, for this year's budget, Hess used a loss of $1.35 million from the circuit breaker. An analysis by Umbaugh and Associates shows the loss could be $1.063 million. Figures won't be official until tax bills are calculated. "If this pans out ... we just picked up roughly $300,000 in our working balance," Hess said.
The county also balances its spending with a mix of revenue sources. Hess said if the county relied solely on income taxes, "we could be in a world of hurt in another year."
As it is, he's used a 25 percent reduction in income taxes over 2009 figures because of the county's high unemployment rate. We'll should feel the full impact of that on income tax revenues in 2011, but Hess said his trendlines show higher collections in 2011-2012.
So how will counties deal with their budgets once the full impact of tax caps and declining revenues are felt?
Bottorff believes they'll consider ways to provide services more efficiently, but also look at consolidation of services with other counties and cities and towns. User fees also are being evaluated. Where fees are subsizidizing programs, they are being evaluated to see if higher fees are appropriate, he said.
Bottorff said raising fees will be a last resort, since only select properties will benefit from tax caps, but everyone would pay increased user fees. Local governments would be more likely to look for efficiencies or cut services first, he said.
Meanwhile, where there were turf battles previously that prevented local governments from consolidating services, they may be more inclined to consider it now.
In Lake County, for example, one city closed its health department and the county assumed its duties. In a couple of cases, smaller counties share health departments.
In other parts of the state, counties are participating in multi-county purchasing of 911 software. Others are reducing the number of call centers within the county. Others may consider parks and road maintenance as areas to consolidate with cities, Bottorff inddicated.
Some of the more rural counties are looking at sharing human relations and IT departments, Bottorff said. Those departments aren't required by state law, he said, "but they certainly provide a benefit to the county, all the technology they use now."
More counties also are using national and joint purchasing programs to save money, he said.
The Association of Indiana Counties plans to have district meetings this summer that will discuss best practices and taxpayer expectation for services for local government officials.
The ultimate last resort? Raising income taxes to offset the circuit breaker losses, Bottorff said.