By Scott Smith, Kokomo Tribune staff writer
scott.smith@kokomotribune.com
The way Kokomo Common Councilman Mike Karickhoff figures, the city of Kokomo found out almost a month ago the "old" Chrysler wouldn't pay its taxes.
Now, Karickhoff said, instead of having 6 1/2 months to decide how to cut the city and county budgets, both government units now have 5 1/2 months.
The past month has been a blizzard of bad news for Howard County local government.
In that time period, news has emerged that could result in a $50 million hit to local property tax revenues.
Even worse, prospects for regaining that tax base in the future are uncertain, to the point that borrowing money to close the expected deficit could be inadvisable.
Inadvisable or not, the schools and the county are expected to borrow money from the state. On the other end of the spectrum, the Kokomo-Howard County Public Library cut costs and instituted fees to make up part of the difference.
The great unknown, however, is what the city of Kokomo will do to deal with the mounting problem.
Thursday, city officials remained mum on their plans.
"We are working on it," was city spokesman David Galvin's only comment.
The Kokomo-Howard County Public Library Board is thus far the only local taxing unit to cut spending in the wake of the Chrysler announcement.
Instead of borrowing almost half a million dollars from the state, library board members decided to shorten library hours, charge checkout fees, and mandate furlough days for employees.
Howard County officials have all but said they'll borrow from the state, saying they have no other alternative.
"We have got to worry about today, but at the same time never forget it's going to take years and years to pay this off," Howard County Commissioner Dave Trine said. "We've got to provide services today, and there's only one way you can do that, and that's to borrow."
Efforts are underway to enlist the aid of the federal government, but U.S. Rep. Dan Burton's office has already admitted Congress and the Obama administration are both skittish about opening up a new wave of "bailouts" for local government.
And Karickhoff, chairman of the council's finances committee, said he doubts any loans from the state will be forgiven. They'll all have to be paid back, most likely with interest, and within 10 years.
On top of that, Karickhoff said, the sheer sum total of unpaid taxes could become astronomical.
The "new" Chrysler, led by Fiat, has already informed county officials it won't pay more than $24 million in property taxes that are technically owed by the "old" Chrysler.
This year, because of the Chrysler non-payment alone, the city will receive $5.91 million less, school districts will receive $3.55 million less, and the county will receive $2.06 million less.
Now it appears Delphi Corp. may attempt to do the same thing in its bankruptcy reorganization.
At stake is $6.5 million Delphi didn't pay in 2006, plus property taxes due this year and next.
Then there are other taxpayers who aren't paying.
Howard County Treasurer Martha Lake said spring tax collections came in at only 78 percent of what was owed. In a normal economic year, the county collects about 96 percent of what is owed, she said.
The Chrysler non-payment was 12 percent of the deficit, leaving an additional 6 percent that simply wasn't paid, Lake said.
That adds more than $3 million in unpaid taxes to the total.
Adding everything up - Chrysler, Delphi, other unpaid taxes and declining assessed values - local government revenues between now and the end of next year could easily be upward of $40 million less than originally anticipated.
That's why, Karickhoff said, borrowing may not be the answer.
"Our collections are lower than our budget. So that requires the [city] administration to do what they're charged to do - which is managing the funds and not spending everything we've collected."
The library board already decided not to borrow, saying it was highly unlikely the library would have enough revenue in future years to pay back any loans.
But the library only had to cut $491,000 this year.
In 2008, city of Kokomo officials borrowed $2 million from the state to make up for the 2006 Delphi shortfall, so the city has already borrowed money once to fill a budget hole.
But the size of the shortfall has increased exponentially, and borrowing to meet it would almost certainly mean large property tax increases in the future.
Any borrowing to close the tax deficit would not be counted toward the state-mandated property tax caps, which will further tighten in 2010. Legislators have yet to decide whether to make those caps permanent after 2010.
Karickhoff said he wants council members to help the administration find ways to cut at least part of the expected shortfall.
"We need to provide the administration some guidance on how we think we should operate," Karickhoff said. "There are more reductions not being made to keep within the available funds."