Editor’s note: The story has been changed to remove an Indiana Department of Revenue official’s comment that the Office of Management and Budget distributes income tax revenue. Actually, the Indiana State Budget Agency, the Indiana Department of Local Government Finance and the state auditor are involved in that process, according to the office of Gov. Mike Pence.
Leaders across Elkhart County have long charged that they’re being short-changed by the state.
And even though a state legislative proposal meant to address the issue has seemingly stopped in its tracks, don’t expect them to stop the clamoring.
“I’m absolutely disappointed,” said Goshen Mayor Allan Kauffman, who favored the proposal and took part in a special state legislative committee last year that looked into the matter. “I don’t think the state wants to fix this.”
Employers here, as in all Indiana locales, withhold a portion of their workers’ pay — the part that corresponds with the state and local income taxes they have to pay — and send it to the Indiana Department of Revenue. Only after workers file their tax returns each April are the income tax funds corresponding to Elkhart County — and all other counties — sent back, based on who actually fills out returns.
Thing is, not every worker here files returns, notably some undocumented immigrants, Elkhart County leaders say. As such, Elkhart County, the city of Elkhart, Goshen and other taxing units here don’t get their fair share, they charge. As they see it, the state pockets a portion of income tax revenue that they think should be coming here, millions of dollars a year, perhaps.
It’s bad enough that locales don’t get the revenue they’re due, say officials like Kauffman and Elkhart County Council President John Letherman. But in light of caps on property taxes, which limit the ability of counties, cities and other govermental units to generate revenue, it’s doubly tough, making locales scramble, scrimp and cut even more to make ends meet. At the county level, funding for road maintenance has taken a particular hit while Kauffman warns that in light of limited revenue, the city of Goshen may once again have to consider the idea of trash-collection fees.
“I think it’s only fair we get every penny that we send down,” said Letherman, one of many officials who has sounded off on the matter for several years now.
State Rep. Wes Culver, R-Goshen, had authored legislation to address the seeming discrepancy, House Bill 1479. The measure would have required state officials to accurately track the amount of local income tax money coming in from each of Indiana’s 92 counties — something not done, apparently — and return the total back in full, once processed.
The Goshen lawmaker, however, recently received word from Rep. Tim Brown, R-Crawfordsville, chairman of the House Committee on Ways and Means, that H.B. 1479 probably wouldn’t get a committee hearing. That would effecitvely stall the measure.
Brown told Culver it’s the state’s view that Indiana communities are not being short-changed, Culver said.
LOSS IN THE MILLIONS
The collective income tax rate in Elkhart County totals 1.5 percent. That includes a 1-percent adjusted gross income tax, 0.25-percent economic development income tax and another 0.25-percent tax that generates funds for the Elkhart County jail. All told, said Elkhart County Auditor Pauline Graff, the three taxes are expected to generate $43.7 million this year for the varied taxing units here — the county, cities, towns, townships, schools and libraries.
The sum supposedly lost to the state isn’t clear.
As conveyed to Culver by Brown, the state claims innocence. A rep from the Indiana Department of Revenue, which collects the money, declined comment, deferring to the Indiana Office of Management and Budget. The OMB didn’t immediately return calls seeking comment.
Letherman thinks the loss is in the millions — “the seven-figure range” — and that other counties suffer as well, though it might be more pronounced here.
Elkhart County Commissioner Mike Yoder crunched some numbers several years ago, trying to estimate the amount, and he puts the loss in the seven figures too, maybe $2 million to $4 million per year.
Whatever the specific figure, officials here are steadfast that Elkhart County loses out.
Yoder noted that in the mid-2000s, the income tax revenue coming into Elkhart County didn’t rise in correlation with spiking employment figures, a sign to him that something was amiss.
Graff, like other officials, points to the segment of undocumented immigrants here. When they’ve gone to the auditor’s office on business, she said, many have flat-out stated that they don’t file state tax returns.
Yoder thinks the problem is exacerbated in heavily industrial counties, like Elkhart County.
Whoever it is exactly that’s not filing returns, their withheld income tax “just kind of sits right in the pot over there and kind of makes its way to the state general fund,” said Graff. That funding “really is our money and we need that money to run.”
SUBSIDIZING THE STATE
In a series of hearings last fall on the matter, state officials acknowledged that they don’t track incoming income tax revenue from employers, county by county, Kauffman said.
Yoder thinks new computer software would help the state with tracking and he hopes they get it, enabling officials to more accurately determine what’s coming from each individual county and what’s owed locales. “This is just good management practice by the Department of Revenue,” he said.
Barring that, Kauffman suggested a proposal that would let counties collect income tax revenue, instead of the state. Local officials could then determine what share belongs to the state and hold on to the rest.
As is, Kauffman wonders if the state’s surplus revenue, reported at around $2 billion, stems in part from unreconciled income tax revenue from locales across Indiana. That, perhaps, would be motivation from the state’s perspective to maintain the status quo, but it’s driving local leaders here the other way.
“From our perspective in Elkhart County, we’ve been subsidizing the state general fund,” said Yoder.