Indianapolis Chamber of Commerce

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Invest in Indianapolis Phase II

Our city’s future depends on smarter spending, stronger community investment

Invest in Indianapolis

Phase II

Indy’s future relies on smarter spending, stronger community investment The need is great for investment in education and delivery of social services in the Indianapolis metropolitan area. Doing so will alleviate root causes of increased crime and juvenile problems, as well as enhance the quality of life for all residents in the community. Prolonged inattention to these issues produces strain elsewhere, requiring increased expenditures on child welfare and criminal justice.

These and other issues are creating serious fiscal crises in local government and great distress in our community. The greater Indianapolis community must now look beyond township lines and come together to find solutions that achieve meaningful and lasting reform.

Beyond representing the business community, the Greater Indianapolis Chamber of Commerce believes it is our responsibility to analyze and address issues facing our community and, most importantly, to provide solutions. No individual segment of a community exists in a vacuum.

For a community to thrive and be progressive, it relies on all segments achieving at high levels — business, education, public works and social services.

With this in mind, the Indianapolis Chamber commissioned a study, Invest in Indianapolis Phase II, to address this fiscal crisis. The Indianapolis Chamber assembled a task force of community leaders

Identifying the challenge Local governments are consumed by persistent fiscal crises and “quick fix” solutions. Acting in this “crisis management” mode makes it challenging to adopt a vision, strategize and seek progressive economic development policies because all energies are devoted to keeping local government afloat.

Failure by the Indiana General Assembly to enact a comprehensive set of local government efficiency and autonomy measures has exacerbated the challenges. A further hindrance has been the imposition of limits by state lawmakers on local governments’ ability to raise revenue through property taxes and alternative means. These actions and inactions further heighten the urgency around addressing fiscal crises in our community.

The Indianapolis Chamber identifies the community’s major challenges as: ■ Public safety and criminal justice expenditures.

This chart indicates the city and county are significantly dependent on property taxes to fund the fastest growing areas of expenditures, namely public safety, criminal justice and child services. The future of property taxes as a primary funding source is examined below.

3%

5% 3% 5% 5%

Source of tax-supported funds 50% 4% 5% 15% 5%

5% 5% 3% 5% 3%

50%

15%

Credits

4%

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peak of approximately $66 million in the years 2018 to 2025. Payments are not projected to decline back to $50 million until 2035.

Mayor Bart Peterson recently has requested a 65 percent increase in County Optimization Income Tax (COIT) to fully fund these plans, a request the Indianapolis Chamber has endorsed as a long-term solution to this challenge.

to produce a five-year financial model of the city’s budget and make recommendations to alleviate the increasing fiscal crises facing greater Indianapolis.

Through Invest in Indianapolis Phase II, the Indianapolis Chamber offers several recommendations to stem the tide of financial shortfalls and implement pragmatic fiscal changes to achieve success. But first, we must understand the problem.

Content

Property taxes Pension stabilization County option income tax Pension relief Licenses, permits, fees, charges for services Gas and cigarette tax Auto excise tax Wheel and other taxes Repayments and assistance Other

Content supervisor Leigh Hedger

Photo: Randy Baughn

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Indy a winner. Indianapolis has blossomed into a city that attracts visitors and businesses from around the world.

■ Child-services expenditures.

■ Revenue loss from elimination of the inventory tax.

■ Diminishing fund balances.

■ Circuit-breaker legislation.

Public safety and criminal justice expenditures: The city and county have significant unfunded pension obligations because of pension plans for police officers and firefighters hired before April 30, 1977. No significant assets are accumulated for the payment of future benefits under these plans.

Annual payments under these plans are expected to grow each year from the current level of $50 million to a

Child-services expenditures: This is the fastest growing expense category in city and county government. For 2006, the county tax rate was raised 29 percent to meet the program’s requirements. With assessed values expected to grow at 1.7 percent and child services expected to grow at 10 percent annually, revenue shortfalls will result in a major challenge.

Revenue loss from elimination of the inventory tax: Beginning this year, the city and county will feel the impact of the elimination of the assessment of local inventory with an expected loss of about $1.5 billion in assessed value, or $22 million in annual lost revenue. Without elimination of other expenditures or replacement of the revenues from other sources, property tax rates will have to be increased to fund this shortfall.

Diminishing fund balances: In recent years, budgets have been balanced partly through spending down fund balances. The Government Finance

The following represents a comparison of major challenges predicted for 2007-2010.

Classification of major challenges 48% Public safety and criminal justice 26% Child services 7% Elimination of inventory tax 19% Restoration of recommended minimum fund balance

Contributing editors Manda Newlin, Kevin MacDonald

19% 48%

7% 26%

Graphics supervisor Beth Winchell

Graphic designer Joe Soria

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Invest in Indianapolis

Phase II

Advisory Committee ■ Phillip L. Bayt Co-Chairman Ice Miller

■ David P. Lewis Co-Chairman Eli Lilly and Company

■ Catherine A. Langham 2007 Chairman of the Board Greater Indianapolis Chamber of Commerce Langham Logistics, Inc.

■ Roland M. Dorson Photo: Joe Soria

President Greater Indianapolis Chamber of Commerce

A capitol idea. The economic vibrancy of Indianapolis has been tested by recent legislation from the Indiana General Assembly.

Officers Association recommends minimum fund balance levels of approximately 10 percent of current expenditure levels. Currently, many city and county balances are below this level. Fund balances at the end of 2006 fell short of this level by $25 million.

Circuit-breaker legislation: The 2006 Indiana General Assembly enacted legislation that limits a taxpayer’s property tax liability to an amount equal to 2 percent of the assessed value of the taxpayer’s eligible property before deductions. Using current tax rates, the loss in property tax revenues resulting from this circuit breaker could approach $20 million for the City of Indianapolis and $24 million for Marion County by 2010.

State lawmakers have assured taxing units that increases in property values resulting from the recent reassessments will allow local governments to reduce tax rates to maintain current budget levels.

However, the extent of the increases in these property values and its subsequent impact on the circuit breaker legislation is not yet fully understood.

Solutions Thinking and acting as a

loosely banded group of individual communities will widen the problems faced by greater Indianapolis even further. To better understand and alleviate the financial burdens expected from these major challenges, the Indianapolis Chamber recommends that the Indianapolis/ Marion County City-County Council: ■ Use our forecasting tool on an annual basis.

■ Expand its use to all taxing entities in Marion County, including other government

units, municipal corporations and school systems.

■ Incorporate life-cycle planning (capital budgeting) for information technology, vehicles and facilities into the multiyear planning activities.

Major recommendations

1

Immediate implementation of City-County Council Special Resolution No. 34, 2006, Proposal No. 224. Among its goals, this resolution calls for directing the staff of each

Revenue and expenditure projections Revenue and other sources (in thousands)

2008

2009

Property taxes $369,212 $358,552 COIT 106,666 125,229 Pension relief and stabilization 71,470 70,701 Licenses, fees and charges 35,863 37,761 Other taxes 90,136 90,734 Other 48,878 64,366

$360,437 144,411 38,689 38,284 91,353 66,827

$369,688 $375,527 149,235 154,219 40,236 41,846 38,832 38,855 91,991 92,640 68,093 69,402

Total

Expenditures

2006

2007

2010

722,225

747,343

740,001

758,075

772,489

Public safety and criminal justice Child services Public works Other

437,294

460,776

477,685

495,485

513,381

93,480 83,414 136,092

102,828 85,664 146,165

113,114 88,023 145,914

124,422 90,499 153,070

136,864 92,778 155,497

Total

750,280

795,433

824,736

863,476

898,520

Shortfall

$(28,055)

$(48,090) $(84,735)

$(105,401) $(126,031)

governmental entity to develop its own comprehensive financial needs assessment, identifying critical needs for the next five to seven years.

2

The city administration and CityCounty Council should create an intergovernmental efficiency commission. This commission should include townships, municipal corporations and others in local government. This commission should be co-chaired by local business leaders designated by the Greater Indianapolis Chamber of Commerce.

This commission’s tasks should include: ■ Increasing cross-government accountability.

■ Seeking efficiency gains through shared services, outsourcing, joint purchasing and privatization.

■ Region-wide life-cycle and capital planning.

■ Sharing best practices.

■ Anticipating and planning for major projects on a regional basis.

Serious consideration should be given to this commission’s scope to include all public school systems within Marion County.

Phase II

Indianapolis’ bright future. From the redeveloped downtown districts to the recently merged Marion County Sheriff’s Department and Indianapolis Police Department, Indianapolis has taken the first steps toward becoming a world-class city.

3

The Indiana General Assembly should enact legislation in the 2008 session to allow even greater fiscal and structural “home rule.”

Home rule gives greater flexibility and fiscal autonomy to local units of government without needing to petition the Indiana General Assembly.

4

Municipalities should be empowered to pursue user fees, payments in lieu of taxes (PILOTs) and other voluntarily negotiated payments that target persons who work, visit and consume in Marion County, as well as entities that own tax-exempt properties that benefit from investments made by local governments in Marion County.

Although not unanimous, the majority of the Invest in

Indianapolis advisory board believes this option should be pursued, and the Indianapolis Chamber continues to support and advocate this position.

5

The Indiana General Assembly should transfer funding for the Child Services Fund to the State of Indiana. These services are administered by the state and should be funded by the state.

6

The state and city must address the growing crisis of police and fire pensions. Recommendations that should be considered are: ■ Blending the city’s old pension plans with the newer pension plans.

■ Solutions such as shifting defined contribution plans for future workers.

■ C onvening an Indianapolis/Marion County pension commission to analyze and make corrective recommendations.

Photos: Randy Baughn, Joe Soria

Invest Indianapolis

and realized more fully.

A call to action These recommendations may be controversial and are sure to raise public debate. But in the interest of the greater Indianapolis community, it is vital to address these issues in a bipartisan manner with innovative solutions that may go against normal conventions. If elected officials and community leaders do not begin charting a new path, the issues we face today will worsen in the future.

Tough choices have to be made and made now.

Additionally, the Indianapolis Chamber previously recommended and advocated the consolidation of fire services in Marion County into one fire department, as well as the consolidation of township services. The Indianapolis Chamber continues to believe these actions should be taken and the mayor and the Indiana legislature must achieve these objectives in 2008.

The Indianapolis Chamber believes tax increases are an option of last resort and should be enacted only after the expense savings generated from the above recommendations are understood

A complete version of the Greater Indianapolis Chamber of Commerce’s Invest in Indianapolis Phase II report may be found online at www.indychamber.com/ reportsResources.asp.

For more information about the Indianapolis Chamber’s fiscal plan, visit www.indychamber.com.

Invest in Indianapolis Phase II task force Indianapolis Chamber members are active and influential in the community. We interviewed a cross section of business leaders and public officials in Indianapolis and Marion County to gain perspective, comprehension and ideas about the current fiscal structure of the region.

Invest in Indianapolis Phase II consulted: Philip Borst Bart Brown Robert Clifford Scott Keller Barbara Lawrence Jackie Nytes Joanne Sanders Jim Steele Marty Womacks

City-County Council, District 23 Councillor City-County Council, CDFO Controller, City of Indianapolis City-County Council, District 16 Councillor Indianapolis Bond Bank and former City Controller City-County Council, District 9 Councillor City-County Council, Vice President, Member At-Large Retired Controller, City of Indianapolis Retired Marion County Auditor

Municipal corporations Fred Armstrong Fred Glass Becky Dixon Barbara Lawrence Robert Clifford

IndyGo and former city controller Capital Improvement Board Indianapolis-Marion County Public Library Indianapolis Airport Authority Health and Hospital Corporation of Marion County

Public finance involving the State of Indiana Christopher Ruhl Robert Lain

General Counsel, State Budget Agency Assistant Director, Tax and Revenue Division

Using the analogy that the city and county have a bucket of major

challenges, a combination of major impact solutions can provide ways to fill the bucket. A permanent solution, water to fill the bucket with sufficient revenue, is needed versus small drops in the bucket over time.

$140,000

Fire consolidation

$21,700,000

$120,000

Jail privatization

$6,000,000

$110,000

Income tax increases

$15,000,000 (0.10%)

$130,000

$100,000

Non-resident income taxes $8,000,000 (0.10%)

$90,000 $80,000

Regional sales tax

$15,000,000 (0.10%)*

$70,000

Innkeeper tax

$3,000,000 (1.00%)

Food and beverage tax

$16,000,000 (1.00%)

Gaming tax

$15,000,000

Refuse collection fee

$13,000,000

State assumption of child services funding

$16,400,000

$60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0

Major challenges requiring funding Average of 2007 – 2010

$97,250

* Marion County

For several reasons, the scope of this financial model was limited to the tax-supported funds of the city and county.

This special publication is in partnership with The Indianapolis Foundation, an affiliate of The Central Indiana Community Foundation.