South Shore funding took unplanned route through 2014 Indiana Legislature

How that money was directed to the Northwest Indiana Regional Development Authority "to establish or improve public mass rail transportation systems in Lake County" is a tale of big ideas, politics, luck, hubris and compromise.

U.S. Rep. Pete Visclosky, D-Merrillville, set things in motion. As the biggest cheerleader for South Shore expansion -- and the new jobs, residents and developments it could bring -- Visclosky met regularly with state lawmakers and other region leaders to figure out how to pay for it.

A little-read report issued in September by the Legislature's Commission on State Tax and Financing Policy was the key to unlocking at least some of the needed funds.

That panel, led by state Sen. Brandt Hershman, R-Buck Creek, spent the summer reviewing all of the income tax credits available under Indiana law, including how many people claim each credit, how much the credit costs the state and whether the credit is having economic impact originally expected.

One item that stood out to commission members, including state Sen. Ed Charbonneau, R-Valparaiso, a regular in Visclosky meetings, was the Lake County Residential Property Tax Credit.

The $300 credit was created in 2001 to help Lake County homeowners with annual incomes below $18,000 pay their property taxes. Those taxes increased dramatically following a 1998 Indiana Supreme Court ruling involving the town of St. John requiring property be assessed at its true market value.

The commission discovered that of the 29,050 Lake County residents who claimed the credit in 2012, some 13,400 homeowners whose total incomes topped $18,000 received the credit, because under the law "earned income" did not include most investment or retirement income. At least 23 households with incomes of more than $500,000 got the $300 refund.

Lake County officials were aware of the tax credit abuse, but couldn't do much because legislative action was required to stop it.

Seeking to close that loophole, Charbonneau filed Senate Bill 383 at the start of the legislative session in January. His plan would have capped eligibility for the credit at $18,000 in total income, and returned the $4 million a year in excess tax credits to Lake County, Hammond, East Chicago and Gary.

Those localities were chosen because the state deducts the cost of providing the credit from casino admission tax revenue that otherwise would go to the county and casino cities.

Charbonneau's proposal never received a Senate committee hearing.

That normally would be the end of the story, except in this case Charbonneau met with Hershman, who also was dismayed by the abuse of the Lake County tax credit, and persuaded him to keep the idea alive.

"Once my bill died, it became a scramble to find someplace for it to go," Charbonneau said. 

Hershman agreed to add it to his Senate Bill 367, which was moving through the Senate, on the condition the $4 million saved by fixing the income definition be sent to the RDA, which Hershman believed was the "best, highest use" for the funds.

"It is relatively common that we don't hear certain bills and roll ideas into other bills, just in the interest of time," Hershman said. "This was just more of a fortuitous coincidence than anything."

Senate Bill 367, which became a home for dozens of semi-related tax proposals, was approved by the Senate, 44-4, on Feb. 4.

Three of four "no" votes came from senators whose hometowns stood to benefit directly if the money was returned to the casino cities and not sent to the RDA -- state Sen. Frank Mrvan, D-Hammond; state Sen. Lonnie Randolph, D-East Chicago; and state Sen. Earline Rogers, D-Gary.

Following the Senate vote, Hammond Mayor Thomas McDermott Jr., who serves as Lake County Democratic Party chairman, spoke against sending the money to the RDA.

He later persuaded the Northwestern Indiana Regional Planning Commission to send a letter to legislators insisting the $4 million be returned to Lake County and the casino cities.

Back at the Statehouse, state Rep. Charlie Brown, D-Gary, convened a meeting of the Democratic members of the region's legislative delegation. They also concluded the money should not go to the RDA.

"There was consensus among everyone there that it would make more sense, and it should be a local decision about how that money is distributed, since it comes from the local community," Brown said.

All along, the RDA vowed to use the $4 million for mass transit in Lake County.

Prompted by state Rep. Hal Slager, R-Schererville, and state Rep. Mara Candelaria Reardon, D-Munster, the House Ways and Means Committee changed the legislation Feb. 24 to require the funds be spent on Lake County transit.

Candelaria Reardon later learned the committee chairman, state Rep. Tim Brown, R-Crawfordsville, and the House sponsor, state Rep. Eric Turner, R-Cicero, intended to keep the $4 million for the state's general fund if the money did not go to the RDA.

"It was never in discussion in the Senate or here (in the House) for that money to go back to the locals," she said. "They can be upset about it, but the way I look at it is we are bringing home $4 million for Lake County."

On Feb. 27, the House rejected Brown's final attempt to return the money to Lake County, Hammond, East Chicago and Gary. It approved the legislation, 73-24, on March 3.

A House-Senate conference committee met to resolve differences in the separately approved versions of the proposal. The word "rail" was added to the Lake County mass transit designation to ensure the money only is used for South Shore Line expansion.

Rogers and Hershman battled over that change on the Senate floor Thursday. She had hoped a portion of the money also could be used for regional bus service.

Hershman and Charbonneau promised to work with Rogers next year to find other funds for bus transit in Lake County. With that promise in hand, Rogers changed her vote and supported the conference committee report, as did Mrvan and Randolph.

It passed the Senate, 47-1, the House, 73-24, and is awaiting action by Republican Gov. Mike Pence.

State Rep. Ed Soliday, R-Valparaiso; state Sen. Karen Tallian, D-Ogden Dunes; and Slager, who each participated in Visclosky's meetings on South Shore expansion, all said they were shocked and pleased the Statehouse found money that will help it.

"The Lord works in strange and mysterious ways," Soliday said. "We did not plan this; it just became available."