Week of March 18, 2008

2008 Legislative Session: Success, but at What Price and For How Long?
Indiana General Assembly passes significant property tax reform, but questions of permanency and sustainability remain

The 2008 session of the Indiana General Assembly came to a close Friday, March 14 as legislators reached a bipartisan agreement on property tax reform seen by many as fair, far-reaching and final. Still, others question the permanency and sustainability of the legislation engrossed in HEA1001.

The legislation, which includes many of the elements of the Governor’s original plan, including a phase in of the 1-2-3 property tax circuit breakers, relies heavily on an increase in the state’s sales tax, but did not fully address the recommendations of the Indiana Commission on Local Government Reform (better known as the Kernan-Shepard Commission).

Given the unenviable situation that most legislators found themselves in, the reforms enacted represent a compromise that most can live with. But absent true local government reform, and with the state sales tax revenue coming in below projections for the fifth straight month ($43 million under in February alone), one must wonder if we will not be back next year to correct issues created by the legislation.

Below is a more detailed synopsis of the legislation that you, the members of the Greater Indianapolis Chamber of Commerce, have said is most important to you:

Local Government & Fiscal Policy

Government Modernization

  • Fire Consolidation: Efforts to consolidate Marion County fire departments into one, unified, more efficient and effective department failed once again due to partisan posturing. While the issue passed through the Senate (SB280), the bill did not receive a hearing in the House. Efforts to insert the language into several other bills were also blocked.
  • Township Government: The push to streamline overlapping government functions through the consolidation of township government was once again stymied, though not completely killed. HEA1001 included the consolidation of township assessors with fewer than 15,000 parcels (all townships in Marion County except Decatur Township). The bill also requires a referendum in the 2008 general election to determine if a township with over 15,000 parcels will consolidate into the County assessor- an effort the Chamber will take an active leadership role in supporting.
  • Standardization: HEA1001 also requires the Department of Local Government Finance (DLGF) to perform operational audits of assessors to improve quality/accuracy of assessments, as well as provide standard contracts for use by assessors in securing outside vendor assistance and DLGF certification for assessment related software. HEA1001 also denies township assessors the authority to employ professional appraisers, but allows county assessors to do so.

Local Government Finance

  • Circuit Breakers: HEA1001 provides phased-in circuit breaker protections for property tax payers in three classes: Homesteads (1 percent); Other Residential (rentals, apartments and residential nursing homes—2 percent); and commercial, industrial and other personal property (3 percent). HEA 1001 also provides for debt approved by referenda to not count towards the circuit breakers, nor will debt issued before July 1.
  • PILOTs/User Fees: Efforts to allow municipalities to pursue user fees, payments in lieu of taxes (PILOTs) and other payments that target those who benefit from investments made by local governments failed to pass the House.
  • County Option Income Tax: Attempts to create a County Option Income Tax (COIT) which would remain in the county in which one works failed to pass once again, though HEA1001 did include provisions to allow communities to utilize COIT to offset a loss in revenue as a result of the circuit breakers, but unlike last year, this decision must be made on an annual basis.
  • County Levies Assumed by the State: A major component of the property tax relief package included in HEA1001 was the state assumption of several funds currently paid for by local property taxes. To offset the cost of the state assuming the following funds, the state will increase the sales tax to 7 percent (up from 6 percent) and eliminates the Property Tax Replacement and Property Tax Reduction Funds.
    • Child Welfare Levies: Currently programs mandated and administered by the state but funded by the county, these funds are two of the fastest growing portions of the Marion County budget.
    • School General Fund: Currently closely controlled and mostly funded with state dollars, this fund will now wholly be funded by the State.
    • Healthcare for the Indigent: The state will assume the cost of providing healthcare for those who cannot afford it. HEA1001 also includes $40 million for Marion County Health & Hospital Corp. to help offset losses caused by the removal of the levy for indigent care.
    • Pre-1977 Police & Fire Pensions: An albatross around Marion County’s budget for years, the State, which currently pays up to 50 percent of the pensions, will take full responsibility for payment beginning 2009.

Oversight & Spending Controls

  • Remonstrance: Efforts to strengthen the remonstrance process for municipal and school capital construction projects were trumped by calls for referenda on school construction projects. Referenda will also be required for municipal projects in excess of $12 million or 1 percent of assessed valuation, while petition remonstrance procedures will be used for projects with lesser amounts. The referenda will be held during general elections.
  • Review: HEA1001 eliminated the tax review boards created just last year in favor of greater oversight and approval by local elected bodies (City-County Council) of debt issued by non-elected bodies.

Economic Growth

Economic/Community Development

  • Local Incentives: Calls to sunset state and local incentives for economic and community development efforts were defeated in the House.
  • TIF: To ensure sensible use of tax increment financing (TIF) for economic development projects, while maintaining some flexibility, HEA 1001 provided for the following changes to TIFs:
    • Limits the life of a TIF to 25 years (down from 30) and repayment of debt backed by property taxes to 25 years (from 50 years).
    • Requires TIF revenue to be used to finance projects in, or physically connected to, the service area- changed from “serving the allocation area”
    • Requires the earnings from refinancing a TIF to be used to reduce levies or pay down the debt.
    • Requires the payment of principle and interest on substantially equal schedules except to: maintain equal payments for all obligations, accelerate or level out payment of the principle, or to account for variations in tax collections.
    • Subjects debt and/or certain actions of a non-elected body or redevelopment commission to approval of local fiscal body (City-County Council)
  • Environment: The Chamber led the charge to promote and incentivize the use of “green” business practices for sustainable economic development, while opposing efforts included in HB1280 that would have mandated all renovations, additions and new buildings funded through public works dollars to be certified as Energy Efficient (LEED, Green Globes or other recognized certification programs). The Chamber supported efforts to send the bill to summer study committee, but the issue failed on the last day.   

Transportation

  • Mass Transportation: Efforts to increase investments in mass transportation Central Indiana and throughout the state went to the wire, but were removed in the final version of HEA1125 due to cost concerns. This is an issue that will be led by the Chamber during the 2009 budget session.

Quality of Life

  • Labor and Safety (Immigration Reform): The General Assembly did not pass immigration reform legislation this session. Originally housed in Senate Bill 345, the legislation would have penalized businesses for employing illegal immigrants and required businesses to verify citizenship through an unreliable database, eVerify. The House amended the bill to appropriate funds to the State Police for enforcement purposes and required the Indiana Department of Labor to hire administrative law judges to determine violations. In the end, negotiations broke down when the House delayed naming conference committee members and conferees then refused to sign the conference committee report. The business community worked emphatically in opposition to this legislation. We strongly anticipate that this language will re-appear in future legislative sessions

Education & Workforce Development

  • School Board Elections: HB1196, which included efforts to increase accountability of school board elections by moving them from the primary to general elections fell victim to legislative maneuvering in the final days of session.
  • Graduation Rate: SEA111 amends the current graduation rate formula to ensure that a student is counted in only one cohort in the graduation rate. This will ensure accurate accounting for schools in formulating the graduation rate.
  • School Choice: SB248, which would have promoted school choice and provided an incentive for individuals and businesses to donate to approved, non-profit scholarship granting organizations that serve Hoosier students, did not survive the House due to opposition from the urban schools and the teachers’ unions. We expect this bill to reappear in 2009 during the Budget session.
  • Circuit Breaker Relief for Schools: HEA1001 provides $120 million to offset the revenue loss for schools that have an impact of greater than 2 percent of the levy ($50 million for 2009, $70 million for 2010). In addition, HEA1001 allows schools to have a referendum to offset Circuit Breaker impacts (7 year life).
  • Schools and State Tuition Reserve Fund: HEA1001 also creates the State Tuition Reserve Fund and limits use of revenues to fund Tuition Support distributions. The bill requires the Budget Agency to transfer $50 from the General Fund to the Tuition Reserve Fund by Dec. 31, 2010, and provides for an approximate $400M Balance by 2010. The new language permits a School Corporation to file a Shortfall Levy Appeal for 2009 to cover a GF Shortfall for 2008. School Corporations are required to adopt budgets on a July 1-June 30 basis beginning in 2010.
  • School Construction (Little Red School House): In addition to requiring referenda, HEA1001 also requires the Department of Education (DOE) to establish guidelines for selection and construction of buildings and other facilities. The law will require schools to submit building plans to DOE for review and requires DOE to provide written comments back to school concerning whether the plans meet the guidelines. School must have a public hearing on the plans and the written findings of the DOE. The new law will require the DOE to establish a clearinghouse of prototype designs for school’s reference and use.