CICP News & Updates

Yesterday, there was even more bad news about Indiana’s fiscal plight, with state tax revenues falling $142 million below expectations for January.  As lawmakers struggle with the state’s budget in this climate, local officials face a daunting challenge as well: An estimated $400 million budget shortfall next year, as caps on property taxes are fully phased in.

In these tough economic times, it’s even harder to justify Indiana’s 1850’s-vintage government structure, featuring nearly 3,000 units of local government (including more than 2,000 with the power to levy taxes) and 10,000+ elected politicians.  This bloated structure means multiple layers of government and overlapping bureaucracies siphoning off tax dollars.

Take township government, with its collective operating budgets of approximately $400 million a year.  Imagine eliminating township offices altogether, as recommended by the Kernan-Shepard Commission.  It’s reasonable to assume county government could shoulder the duties of the townships (primarily poor relief and fire protection) for at least 25% less, by merging offices and consolidating budgets while at the same time maintaining and even improving services.

That’s $100 million a year that could help local governments face a looming budget gap.  The property tax caps passed by the General Assembly in 2008 are expected to hit some localities with significant revenue shortfalls in 2010, estimated at approximately $400 million statewide.  Reducing these anticipated deficits by 25% or more would help city and county governments avoid more dramatic cuts in services or local tax increases as they face the new reality of lower property tax revenues.

Indeed, consolidating township government would also free up significant surplus funds that could help localities in their transition to capped property taxes.  The state’s 1,008 townships hoard hundreds of millions of tax dollars they don’t even use, holding $230 million in cash balances (excluding cumulative funds) as well as millions more in unused assets like buildings and land).  That these surpluses are padding the coffers of township offices while dire budget forecasts are looming at the state and local levels is certainly a compelling argument for local government reform.

To look at one notable example: Marion County’s nine township governments held a collective fund balance of nearly $40 million at the end of 2007.  The property tax caps are expected to hit Marion County government to the tune of $63 million in 2010; tapping the township surplus would close two-thirds of this gap and allow Indianapolis to address critical priorities. 

In the private sector, tough times force successful companies to work smarter, to look for opportunities to cut waste without slashing budgets in ways that are counterproductive.  While state government can’t ever truly be ‘run like a business,’ the analogy certainly applies in this case:  As legislators debate budget priorities as revenues dwindle, it’s ludicrous to ignore the hundreds of millions of tax dollars being funneled into a patchwork of township governments that persist as relics of the Civil War era.

It’s hard to find a silver lining in our cloudy economic forecast.  But if one good thing comes out of this downturn, it could be that budget challenges finally force the General Assembly to do what should have been done decades ago – eliminate township government, pass the other reforms outlined by the Kernan-Shepard Commission, and allow local government to do more with less.