The 2002 Legislative Session, by law, ended on March 14th. By now, most of the readers of this column understand that the Governor’s proposed tax package designed to deal with the serious State budget problems did not pass. If you were to read the editorials of some of our State’s newspapers, you would think that a catastrophe had occurred. Legislators have been alternately branded as derelict in their duties, playing politics at the expense of the State’s future, etc. It should come as no surprise to any of you that those editorial writers have likely never seen what was being proposed in the last hours by the Governor and the House Democrats. If they did, they might arrive at a different opinion about the desirability of the Governor’s tax package. I’ll explain why below.
In the meantime, the Governor has begun a media campaign threatening to make cuts in the area of the budget dedicated to K-12 education (kindergarten through high school). He has said that teacher layoffs and a reduction in programs are inevitable because the Legislature failed to pass his budget bailout legislation. I strongly disagree with the Governor on this issue, and I am very troubled by his rhetoric that I believe is intended to scare teachers and parents into demanding tax increases that would be totally irresponsible and harmful to our State’s economy.
Let me explain why I believe that coming to an agreement by March 14th was not a good idea. At the same time, I hope to convince you that things are not nearly as bad as advertised, and that a bi-partisan, focused approach to solving our State’s problems can achieve a sound, workable solution by the end of this year.
It cannot be said often enough that the State Legislature was in a short session this year, and that under the Constitution, we had to complete our business by March 14th. That means that we had approximately 10 weeks to come to agreement on legislation that proposed to alter our tax code more than it had been changed in the past 100 years! On top of this, there were strong disagreements between Democrats and Republicans on what our goals should be.
There are three issues tied up in this debate that need to be addressed: (1) a $1 billion dollar deficit in our state budget; (2) the looming property tax reassessment ordered by the Supreme Court that threatens to increase homeowner’s property taxes significantly; and (3) the need to restructure our state tax codes to encourage economic development and turn around the negative economic trends confronting Indiana’s future. The disagreements between the political parties centered around which of these issues was the most important, as well as how they should be addressed.
Everyone agrees that the State needs to come to the aid of homeowners. The issue is not if, but when. You see, the Courts have ordered all of our County Assessors to have their work completed by March 31st of this year. Yet most of our Assessors say that is an impossible deadline to meet. If their work isn’t completed, then we have no idea what the actual impact upon homeowner’s property taxes will be. Yet, under the Governor’s plan, we would plow ahead with a tax increase designed to help homeowners without any idea of whether the amount raised was too little, too much, or just right. I suspect that we would be raising more money than needed, which would mean that the extra money would go into the State’s coffers. I assume you would rather hold onto your money than donate it to the State, especially when that money wasn’t actually needed! By waiting until this Fall, we should have a good idea of what will be needed to help homeowners, and can act accordingly. That, to me, is the fiscally responsible way to operate.
The Budget deficit is the second of the three key areas that needs to be addressed. Again, the issue is not if, but when. For now, Republicans believe that good old fashioned belt tightening by the State can get us through until next year without having to make any cuts to K-12 education or health care. By the Governor’s own estimates, if we do absolutely nothing until next year, we will most likely end up with a $300 million dollar surplus. But there are other alternatives available to the Governor besides raising taxes. Republican leaders have pointed out numerous areas where money can be saved by the State. In addition, Governor O’Bannon proposed last week to temporarily divert all of the Build Indiana money from capital projects to the State General Fund. This is money from the State lottery and the Riverboats that is designated for state and local projects. Despite the fact that many good and important local projects for our community will be delayed, I believe that this is a proper use of the money given the current circumstances. It is consistent with the message Republicans have been stating: that there is enough money available to the State to get by without cutting dollars that would harm our children’s education or threaten health care for the needy.
I do want to be fair, however. We will have to do something about the State’s deficit by next year, because the State might very well run out of money by the year 2004. Again, the issue is not if, but when, and this leads me to the last, and in my opinion, the most important issue of all.
The economy of our State is in trouble. We are far too dependent upon the manufacturing sector for our economic health, because jobs in this area are slowly disappearing as the national economy evolves into a higher technology, information based system. Indiana has lost over 100,000 jobs in the past two years in the manufacturing sector. Most likely, many of these jobs will not be coming back when the Recession is over. Don’t get me wrong: manufacturing will always be an important part of our State’s economy, but we must begin to attract or develop businesses that are part of the future economy of the United States.
The problem is that Indiana’s economy is not developing in this manner, and thus, those new jobs are not available now, and won’t be in the future unless things change quickly. We are 50th in the nation in creating these jobs. Dead last! That is a severe problem. Few disagree that one of the culprits is an antiquated tax code that is based upon an economy dominated by steel and auto manufacturing. Worse, our tax system has aspects to it that have been abandoned by most other states. One example is the inventory tax, which is a job killer for Indiana. Whenever we are in competition for companies that are interested in locating in the Midwest, our rival states (Michigan, Ohio, Illinois, and Kentucky) are quick to use this tax against us. More often than not, they are successful. The inventory tax must be eliminated.
Our Senate Republican leaders proposed a bold plan to dramatically restructure the tax code in a way that would provide serious property tax relief for homeowners and businesses, while also creating an environment for developing the types of jobs necessary to move our state economy into the 21st century. Even after reassessment, property taxes would be drastically and permanently reduced for everyone. The inventory tax would be eliminated. The plan was revenue neutral, meaning that it did not raise any new money for the Governor. Instead, it shifted taxes to other sectors such as sales taxes and new business taxes. There are aspects of this plan that I do not agree with, but it is a huge step in the right direction, and given time, we can arrive at a bi-partisan compromise that can create a powerful shot in the arm for the future economy of our State. The key is that this will take some time. By working together through the spring, summer and fall, I believe that Democrats and Republicans can arrive at a middle ground that will take care of all the current problems facing our State. The key is to understand that we cannot tax our way out of our current economic dilemma; we must grow our way out, and that will require a new approach to taxation.
As stated previously, the proposals presented by the Governor and House Democrats late in the day on March 13th would not have achieved anything but raising more money to spend. First, there was inadequate relief for homeowners’ property taxes. Second, the proposed tax restructuring was not going to do anything to help the Indiana economy out of its doldrums. And finally, serious new taxes were being raised on the backs of individuals and businesses with the sole goal of creating a large new surplus for the State.
On top of this, the Democrats’ proposal would have caused a massive expansion of gambling in our state. Essentially, the two horse racing tracks in Anderson and Shelbyville and two off track betting parlors in Indianapolis would be transformed into land based casinos with hundreds of slot machines. Eventually, these locales would look just like a Las Vegas casino. Riverboats would have been able to become barges of unlimited size, permanently docked, essentially creating another ten land based casinos! And there were numerous hidden fee increases that had never been discussed in negotiations which would have had the effect of increasing everyone’s daily cost of living. This is what I meant by those editorial writers who didn’t bother to read the proposal. These same writers are pontificating about the need for Indiana to avoid an expansion of gambling! Somebody needs to do their homework.
I want everyone to understand that the problems being faced by Indiana today are serious, but they can be resolved. It will simply take more time than we had during this year’s Session. But wouldn’t you rather that we get it right than rush through it in such a manner that nothing was accomplished except to raise more money for the state government to spend? And even if you have no problem with expanding gambling, wouldn’t you prefer to see the revenues raised go toward reshaping our State’s economy than simply going into the endless black hole of the State general fund? Republican and Democratic leaders will have to roll up their sleeves and begin meeting immediately, but I firmly believe that we can get it right given enough time. You should expect no less of your state leaders.