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March 22, 2014

State’s local leaders fear business tax cut signals more to come

INDIANAPOLIS — Local officials who opposed Republican Gov. Mike Pence’s proposal to get rid of a tax on business are gearing up for another round in the fight.

They’re fearful that a partial measure to reduce the tax - passed by the Legislature in the final hours of its 2014 session - is just the beginning of the eventual end of a revenue source that provides $1 billion a year to schools, libraries and other public services.

“This is the camel’s nose under the tent,” said Matt Greller, executive director of the Indiana Association of Cities and Towns. “We’re going to have to be vigilant on this issue for years to come.”

They won’t wait long. Greller’s group and the Association of Counties both plan on raising their voices loud enough in coming months to make sure a commission created by the Legislature to study the tax knows exactly where they stand.

“Our legislators have seemed confused about why we’re so apprehensive of what may come next,” said Rushville Mayor Michael Pavey, a Republican and one of the many local officials who opposed Pence’s plan to roll back the tax. “We have a duty to make sure they understand.”

At issue is Senate Bill 1. Passed late last week, it falls far short of Pence’s oft-repeated call for a statewide end to the tax that businesses pay on machinery, equipment and other personal property.

The final bill instead creates options for counties to reduce or repeal the tax after July 1, 2015.

Even as a small measure, it’s gotten pushback from local officials and some legislators.

They warn the approach will pit communities against each other in unhealthy competition. And they fear it will further drain local coffers, adding to the $800 million yearly loss in local revenues chalked up to the residential and commercial tax caps imposed in 2008

“I don’t see many counties acting on it,” said state Sen. Jean Leising, R-Oldenburg. “There are too many communities that are already financially strapped.”

Legislators who backed the bill praised it as compromise legislation that gives local officials more options.

Rep. Eric Turner, R-Cicero, a House sponsor, called it “a strong jobs bill with local flexibility.”

But local officials call it a temporary step toward a permanent repeal, as Indiana moves to match neighboring states that have done away with the tax to lure new business investment.

One of the biggest boosters of the tax rollback has portrayed it that way. Kevin Brinegar, president of the Indiana Chamber of Commerce, called Senate Bill 1 “a good initial step toward totally eliminating personal property tax in the future.”

A key piece of the bill sets up a “blue ribbon” commission of lawmakers and citizens to study the tax and the impact of its elimination. The chamber will have a seat on the commission, as will representatives of counties, cities, townships and schools.

Rep. Mike Karickhoff, R-Kokomo, chairman of the House Ways and Means Committee’s budget subcommittee, said legislators wary a full repeal have pushed to expand the commission’s duties.

They want to see it look at options for revenue to replace the dollars lost to communities if the tax is eliminated. They also want to see the commission look at a multitude of tax breaks granted by the Legislature to businesses and homeowners over the last decade.

“We want the state to be competitive,” Karickhoff said. “But we need to do it in a way that considers the needs of local communities too.”

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