Howard County forming contingency plan in case bankrupt firms don't pay taxes

Local officials are working on a contingency plan to continue to finance local government operations in the event that property taxes from Delphi Corp. and Chrysler LLC are not received by the June 19 deadline.

With Chrysler's bankruptcy filing, officials felt a plan was needed in case the company can't pay or pays late the approximately $8.5 million in property taxes owed.

When Delphi first filed for bankruptcy protection in 2005, the state provided Howard County government entities the opportunity to borrow the amount of unpaid taxes from the Rainy Day fund. The no-interest loans have to be repaid in 10 days.

Ryan Kitchell, state director of the Office of Management and Budget, said Wednesday the state has thought about the possible need to help communities with a large auto industry presence.

A small internal working group has been meeting regularly to determine the impact on jobs and property taxes, he said.

"The state did loan money from the Rainy Day Fund when Delphi filed bankruptcy," he said. "That is a reason to keep the reserves."

How much of the state's $1.3 billion reserve to keep has been a point of contention between Gov. Mitch Daniels and Indiana House Democrats; a special budget session begins Thursday.

Kitchell said Kokomo is one of several cities that could be severely impacted and require emergency loans if automakers default on property taxes.

"There are a couple of spots in the state we're watching," he said. "We're considering what type of action can be taken by the administration or legislature."

Kitchell said the state wants to prevent a disaster in those communities.

"It's certainly on our radar," he said. "Ultimately we have a little bit of cash available if a quick infusion is needed."

Howard County officials said there has been no indication that either Chrysler or Delphi won't pay the spring property tax installment.

Kokomo and Howard County officials met Thursday to discuss finances.

"We are working on a contingency plan if Chrysler doesn't pay or pays late the property taxes," Treasurer Martha Lake said.

Lake said Chrysler has always paid its property taxes, and except for 77 percent of the taxes not paid by Delphi in 2006, it has always paid the taxes on time.

She expects Delphi to repay the remaining 2006 taxes when it emerges from bankruptcy, so the county can repay the state loan.

"We have a plan B," Lake said.

Commissioner Dave Trine said the meeting with city officials was to have a plan of action together.

"There are a lot of 'what ifs,'" he said. "We need to have some sort of back-up contingency plan."

City controller Jim Brannon said there are too many unknowns right now to discuss possible scenarios.

If the taxes weren't paid and local taxing units - including schools - couldn't obtain emergency funding, the consequences could be dire.

For instance, last year the city alone received $7.6 million in property taxes from Chrysler. That amounted to about 22 percent of the city's total property tax collections.

"Dramatic changes would have to take place, and we don't want to talk about that, because it would be awful," Brannon said. "Right now, we'd hate to get everybody excited about something we don't know about."