Tax Reform Appears to Be Big Win for Indianapolis

It will take time to digest the changes passed in the Indiana General Assembly, and to calculate their final impact, but right now I'd have to agree with Mayor Ballard that the tax reform package will benefit Indianapolis significantly.

The most notable item was the state taking over pre-1977 police and fire pensions, benefits that are unfunded to the tune of $400 million. The importance of getting this liability off the books cannot be overstated. Mayor Peterson had floated a plan to issue bonds to fund the pensions, using the proceeds of an income tax hike to pay for it. This plan made sense as long as Indianapolis had to take care of the problem itself.

However, I'd been an advocate for not fixing the problem. Here was the reasoning. Indianapolis, with its relatively strong economy and good credit rating could afford to cover the pension deficits. But lots of other Hoosier cities have similar funding gaps. This included places with no prayer of ever closing them, like Gary and Hammond. Because this was a statewide problem and clearly beyond the capability of some cities to fix it, this made a statewide solution inevitable. It would have been crazy to fund your own pension, only to have the state come along the next year and take over the obligations.

Now a huge black hole in the city budget just disappeared. This might even provide some big immediate benefits to some cities. For example, Carmel had money put aside in a fund to fully pay for its pensions. Presumably it will be able to redeploy this money elsewhere now that the state is taking things over. Others with funded pensions might be able to do the same.

The other big item the state is taking over is health care for the indigent. With the skyrocketing cost of health care, this was a time bomb that was just waiting to go off. The future cost of this program would have been open ended. Though a future national health insurance scheme may yet render these savings moot.

Also being taken over by the state are juvenile incarceration and child welfare, though I see these as tactical items.

Of course, property taxes will come down, leaving a budget gap still. But the income tax is still there for now, and this provides financial flexibility to the city.

Mayor Ballard still has his hands full financially, however. Among other problems, an estimated $10 million/year funding cap to cover increased operating costs at Lucas Oil Stadium versus the RCA Dome. But the tax reform plan takes a few of the most onerous items off the city plate, leaving room for future maneuver.