The governor wants to focus on early education, more money for roads and tax cuts for businesses in the upcoming legislative session, but one main question is how the programs will be paid for.
Gov. Mike Pence has spent the past few weeks laying out his vision for the 2014 legislative session, including a proposal to eliminate a business tax on equipment. Fiscal details will become clearer over time, and legislators should play an equal role in deciding how to fund programs, he said.
The General Assembly reconvenes for a nine-week session Jan. 6. The governor said he sees his task as crafting a broad vision of how to boost the economy and create jobs and then guiding the debate, rather than dictating the end result.
“My aim as chief executive is to articulate a vision for where I think we need to go as a state and the policies that will achieve those objectives,” he said. “I recognize this is not a budget session, but there are a number of examples in Indiana where we have designed programs in a non-budget session and then completed the budget piece in the following session.”
Pence has outlined proposals to:
Phase out the state’s tax on business personal property and equipment, which Pence says puts Indiana at a disadvantage to neighboring states when attracting corporate investment and new manufacturing plants.
Invest $400 million in highway expansion projects. The governor said much of that money has been set aside for road construction, and state lawmakers have to approve spending it.
Establish a voucher preschool program for families with incomes up to 185 percent of the federal poverty level, which Pence said would promote school choice and increase the chances of success for children.
Create an Indiana Teacher Innovation Fund to award grants to educators who want to try new concepts in their classrooms, and start a fund to pay teachers a stipend if they are hired by charter schools or underperforming public schools with a high percentage of low-income students.
Change state law to make it easier for charter school operators that run multiple campuses to share state funding and move the money among their various schools as needed. Pence also wants a special state council to do an inventory of unused or under-utilized school facilities and make a recommendation by July 1 on the best financing and legal framework to put them to use. The buildings could house fresh, innovative school programs or new charter schools, he said.
State legislators estimate that scrapping the state’s tax on business personal property and equipment would cost local governments about $1 billion in lost revenue and shift a significant additional tax burden onto other property owners.
Pence believes the time has come to phase out the tax because it discourages businesses from expanding their operations in Indiana, he said.
But some city and county government officials say they’re wary of losing money that pays for key local programs, including public safety.
“I’d like to see all taxes go away. But I’m a realist, and I know the demands on local governments are significant,” said Jorge Morales, president of the Bartholomew County Council.
A legislative study done based on 2012 data showed doing away with the business personal property tax would siphon a net amount of $14.7 million away from Bartholomew, Jackson and Johnson counties combined.
And homeowners, landlords and others who don’t own business equipment may have to pay more if the assessed value of business equipment disappears from tax rolls.
‘The burden will vary’
According to the recent study, doing away with the business tax would cause the average homeowner’s property tax bill to rise by 10.6 percent statewide to compensate. Tax rates would have to be recalculated to bring in the amounts local governments are allowed to spend on employees and programs.
The state has capped what taxpayers pay based on the value of their property, but many people’s tax bills are still well below those caps, said Purdue University agricultural economist Larry DeBoer, who has studied the issue.
“The burden will vary because there are two factors at work here — the amount of assessed value and how many property owners are below their property tax caps,” DeBoer said. “At least part of the lost tax payments would be shifted to other taxpayers.”
In Johnson County, about $8 million in revenue would be lost, and another $5 million would shift to the property tax bills of others, according to the most recent state fiscal study.
State Rep. Milo Smith, R-Columbus, already has heard from local government officials asking for some other revenue source if the business tax disappears.
“Local leaders tell me that because of the enactment of statewide property tax caps, it’s already been hard to make ends meet. If we eliminate one other tax that puts revenue into their coffers, they’ll have even less money to spend. They say they’ve cut and trimmed all they can.
“If legislators have to seek out some other tax strategy to compensate for $1 billion in lost revenue, you’ll have lots of people up in arms who’ll call it a new tax. We need to be very cautious with this,” Smith said.
Pence is open to suggestions about how — and over what period of time — to phase out the business equipment tax, but he said it is important that Indiana make that leap or it will lose jobs to competing states.
“I want to be very clear here. I’m talking about tax reform, making sure that our communities have the resources to cope with this by some other means over the short-term and long-term,” the governor said. “That is an extremely important part of the debate.”
‘How do you afford them?’
Currently, 12 states have no business personal property tax, and at least 20 others have substantial exceptions and exemptions that reduce the financial impact, economic data show.
“I acknowledge there have been voices in opposition, and I respect their viewpoints. But in a broad range of tax options, I don’t see how it’s a good idea to have this tax in a state like ours with such a strong manufacturing economy,” Pence said.
The governor has heard complaints that he’s got too big of an agenda for a non-budget legislative session, but he doesn’t see it that way.
“Our road map for Indiana included some 50 different policy proposals to advance our six goals. Our goals haven’t changed,” Pence said. “People can draw their own conclusions about whether I’m being more bold than last time. We’ve just tried to evaluate the progress we made in the last session and figure out how we can build on that momentum for Indiana.”
Smith wants to know the details about the proposals.
“These programs may be great, but how do you afford them? I don’t want to have to vote for a new tax,” Smith said.
Members of the Indiana State Teachers Association also raised concern about Pence’s education proposals, saying he favors charter schools and offers no plan to pay for the programs.
“We’re in complete support of innovation in public education, but there is no innovation in Pence’s simplistic education road map. It’s just the same old, warmed-up proposals,” the group said in a news release.
Indiana is making good economic progress amid slow growth nationally, Pence said. The state’s economy remains on the right track, even though recent monthly revenue totals have fallen below budget projections, he said.
Pence recently ordered a series of belt-tightening measures to control spending, including selling a state airplane.
Republic reporter John Clark contributed to this story.