Elkhart County leaders say the state should 'pony up' funds to offset losses to any business property tax cut

State lawmakers are mulling two proposes to reduce business property taxes, S.B. 1 and H.B. 1001.

Posted on Feb. 13, 2014 at 6:23 p.m.

ELKHART — As state lawmakers debate some sort of reduction in the state's business property tax, one thing's for sure as far as officials in Elkhart County are concerned.

If there's going to be a cut, lawmakers in Indianapolis have to create some sort of replacement revenue, the locals say. In Elkhart County, the cumulative loss to county government and the cities, towns, schools and other taxing units could reach around $1.5 million in 2016. That's on top of losses that have been racking up since 2009 due to property tax caps, some $36.4 million in 2013 alone.

And the fix can't just be an option granting local officials authority to raise income taxes or create some other sort of new fee. It's got to be revenue identified and earmarked at the state level.

"What we've been saying is, 'Don't throw it back to us,'" said Elkhart Mayor Dick Moore. "They are taking away those dollars. They need to find a way to replace those dollars."


Kyle Hannon, president of the Greater Elkhart Chamber of Commerce, said the state should "pony up" funds if the business property tax is to be trimmed.

Chamber members back the idea of a tax cut,"but it's a two-part deal," he said. "There has to be replacement revenue."


The business property tax issue, embodied in two proposals, Senate Bill 1 and House Bill 1001, has been one of the most debated by the Indiana legislature this session. The ramifications are noteworthy — proponents such as Gov. Mike Pence say reducing the tax, applied to factory equipment, machinery, desks and even computers, will solidify Indiana's reputation as a place to do business. Such change, boosters say, would make it cheaper to do business here and help lure new companies into the state, generating jobs and economic development.

The pushback among local leaders, though, has been strong. Already hit hard by reductions brought on by tax caps on real property taxes — on land, homes and buildings — they worry about another hit to their revenue stream. They worry about their ability to provide constituents with the services they've come to expect.

"Every dollar makes a difference, so yes, it's a big deal," said Elkhart County Commissioner Mike Yoder.

To the extent that elimination of the business property tax would reduce the workload in the Elkhart County Assessor's Office, responsible for cataloging such property here, Yoder favors the move. Still, he also thinks the state ought to create a mechanism to offset any losses to local government.

Losses to tax caps, an issue of concern for local leaders dating to 2009, have already prompted Elkhart County government officials to reduce funding earmarked for road maintenance, among many other things. At Elkhart area schools, tax cap losses have prompted cutbacks on building maintenance projects and busing, requiring kids to walk longer distances or find other means of transport. At the city level, Moore says it's getting to the point that officials may have to pick and choose between vital services.

"It just comes to a point in time when we throw it to to people and ask, 'What are you willing to do without?'" Moore said.

Hence, the push for the state to create revenue replacement. A group of Indiana mayors on Tuesday promoted the call, and Pence said he's open to offsetting any cuts brought on by SB 1, which would eliminate the business property tax on small operations with less than $25,000 worth of equipment. "This would ensure that any reform of this tax does not unduly burden local governments or shift the cost of this tax onto hardworking Hoosiers," Pence said in a statement.


Still, no clear proposal has emerged to generate the offsetting revenue. SB 1 would cut cut around $31.5 million in business property taxes statewide in 2016, according to a fiscal statement prepared by Indiana's Legislative Services Agency, or LSA. The reduction in Elkhart County would total around $1.3 million to $1.5 million, depending on varied estimates.

The impact to individual taxing units under SB 1 wouldn't necessarily be massive. Elkhart Community Schools, for instance, would potentially lose $166,602 in 2016 while the city of Elkhart would lose $314,614.

"It's not that alone," said Doug Hasler, executive director of support services for the Elkhart school district. "It's that on top of losses we've already head."

For his part, Moore noted the impact that even a few hundred thousand dollars can have. That's enough to buy a fire truck or an ambulance.

Beyond the debate over the current initiatives, local leaders still chafe at the loss of property tax revenue due to tax caps. The caps put more stringent limits on the tax rate that can be applied to homes, businesses and other real estate, reducing overall tax inflows to Elkhart County's cities, towns, school districts and other taxing units by $36.4 million in 2013, according to the LSA.

The state created a means allowing individual counties to implement a new local option income tax, or LOIT, to help offset tax cap losses, but Elkhart County officials have rebuffed such a move over the years and Yoder recoils at the notion of a repeat of that sort of solution.

"Why put it on us to raise the tax?" Yoder said.

Under the sort of option created when tax caps went into effect, the state is able to claim the credit for reducing taxes, he said. On the flip side, it's left to local government entities that choose to create a new local option income tax in response to bear the blame for tax hikes.


The two proposals, SB 1 and HB 1001, are a far cry from Pence's original proposal, to do away with the business property tax altogether. Completely axing the tax would've eliminated an estimated $1.06 billion in tax revenue statewide in 2015 and $20.6 million to $23 million in Elkhart County.

Even so, Yoder is skeptical the impact of SB 1 would be as limited as envisioned, $1.3 million to $1.5 million in Elkhart County in 2016.

The way the legislation is worded, he said, businesses use federal depreciation guidelines in determining the value of their personal property. As such, more property could be exempted from taxes than estimated. He said there are scenarios in which a business with perhaps $65 million in business property would have to pay no taxes because the federal guidelines would reduce the taxable value of the property below the $25,000 threshold outlined in SB 1.

HB 1001, too, generates concern locally. That proposal calls for elimination of the business property tax only on new equipment, starting when it's purchased. The tax would remain on existing equipment. Moreover, the legislation leaves it to individual counties to decide whether to implement the change or not.

As Hannon, the Elkhart chamber head sees it, that measure could create competition between Indiana counties that implement the allowed tax cut and others that don't. More rural LaGrange County to the east, say, could more feasibly implement an HB 1001-style cut without the sort of financial repercussions manufacturing-heavy Elkhart County might experience.

"That would chase business expansion across the county line," to LaGrange County, Hannon said.

Given the potential repercussions, Goshen Mayor Allan Kauffman thinks state lawmakers ought to take a step back and study the matter more comprehensively in a summer study session, an approach backed by Yoder. The last day for adjournment of the legislature is March 14, about a month away, and both measures still face debate and deliberation.

"You shouldn't be doing it in a short session," said Yoder. "Take time to do it right."

Follow reporter Tim Vandenack on Twitter at @timvandenack.


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