Indiana mayors oppose business tax repeal without replacement income

Republican leaders in the Statehouse say getting rid of the business personal property tax would lure manufacturers and other big job-creators to the state. But a chorus of mayors say the loss of revenue would hit communities already struggling with the impact of state-imposed property tax caps.

“We’re still discovering the consequences of the tax caps, and now they want to throw another disaster at us,” said Goshen Mayor Allan Kauffman. Goshen and other local governments units in Elkhart County would lose more than $7.5 million a year in revenue if the tax was repealed.

“It’s a crazy idea,” said Batesville Mayor Richard Fledderman, who lives in a small rural county that would lose more than $560,000 in tax revenue. “I find it hard to believe that they would even consider doing this, with the impact that tax caps have already had on communities.”

Indiana companies pay nearly $1 billion a year to local governments, including school and library districts, through a tax on machinery, computers, furniture and other equipment.

A bipartisan group of mayors, meeting in Indianapolis Wednesday to talk about their legislative priorities for the next session, were vehement in their opposition to a proposal to eliminate the tax that’s been identified as a top priority for GOP leaders who control the Statehouse.

Since the General Assembly passed legislation in 2008 capping local property taxes, Indiana’s cities and towns have lost about $250 million annually in revenue. Many communities have cut services in response.

The word “crazy” was used by several mayors at the meeting to describe their sentiment about the tax cut proposal, which has strong backing from the Indiana Chamber of Commerce. While no bill has been drafted yet, legislation is expected to be filed early in the 2014 session.

A study last year for the Regional Chamber of Northeast Indiana found that eliminating the tax would impact almost all Indiana communities but would cause significant stress in those with large manufacturing bases. In Whiting, for example, where the BP oil refinery is located, 60 percent of the city’s revenue stream comes from the business personal property tax.

Both the Association of Indiana Counties and the Indiana Association of Cities and Towns have come out against the wholesale repeal of the tax unless there is replacement revenue, saying it would force local communities to further cut services. They also worry about impact of the tax repeal on homeowners and other property owners. Purdue University economist Larry DeBoer estimates that property owners across Indiana would see an automatic increase of more than $450 million in property taxes, because of the way Indiana’s complicated property tax cap system works.

“This is a bigger issue than the property tax caps, from the financial impact on local communities,” said IACT executive director Matt Greller.

Rep. Tim Brown (of Crawfordsville), the Republican chairman of the House Ways and Means Committee, said Wednesday that he supports the concept of eliminating the business personal property tax as “an economic incentive” for businesses to invest in the state. He cited the recent drop in the state’s unemployment rate to 7.5 percent, the lowest it’s been since late 2008.

“We’re just crawling toward reducing the unemployment rate, so we want to see more economic activity,” Brown said. “We know business personal property tax affects that.”

But Brown also acknowledged the concerns of local communities over the lost revenues. “We’re looking at options for them,” Brown said.

It’s not clear what those are. One idea being floated is to allow communities to raise their local option income tax. That idea prompted groans from mayors gathered at Wednesday’s meeting, who fear they’ll be blamed for raising taxes while legislators take credit for cutting them.

Republican legislative leaders who support repealing the business personal property tax point to surrounding states that have already eliminated it, and argue that Indiana needs to do the same to stay competitive. But at the mayors’ meeting, Greller pointed out that those states replaced the lost revenues to local communities.

Senate President David Long, a Fort Wayne Republican whose city would lose $9 million a year if the tax is repealed, said the state can’t afford to replace the lost revenues.

State Sen. Luke Kenley (R-Noblesville), the powerful chairman of the Senate Appropriations Committee, told mayors the same thing. “Oh no, the state can’t do it,” he said.

Kenley voiced skepticism about the proposed tax repeal at Wednesday’s meeting of mayors, after someone mentioned the proposal to him. “I’m with you guys on that,” he said.