Wednesday, April 16, 2008

Indianapolis Still Faces Financial Crisis After Tax Increase And State Bailout

Mayor Greg Ballard's administration put out a 100-day report today which warns that "Indianapolis can no longer afford to stay the course if it is to achieve long-term financial stability" because "local government faces a structural deficit and financial challenges that will require a change in the way we do business." That's a bit of an understatement if you believe a financial study Katz Sapper & Miller performed for the administration. It says our city "has lived beyond its means in recent years" and "is on an unsustainable financial path." According to the KSM study, the current structural deficit in local government (which includes all local units of government supported by the property tax) exceeds $151 million. Hold on, it gets better. "By 2012 this deficit is projected to exceed $361 million." Ballard already claimed the city budget alone was running a $26 million deficit for the current budget year when he took office, which the report says is the amount his administration must cut from this year's budget.

Why is this report so disturbing? We just concluded a legislative session where the State of Indiana essentially agreed to a bail out of the City of Indianapolis--perhaps the largest in the state's history. Indiana state government assumed a $1 billion pension liability the city had accrued on its police and fire pensions. That, along with other local levies picked up by the State, will save the City's budget at least $65 million a year. Last year, the City hiked the local option income tax by 65%, which is supposed to generate at least an additional $90 million in annual revenues. Now, we're being told the City will face a something close to a $140 million deficit (excluding schools and townships) by 2012 without a tax increase or severe budget cuts. Either the Bart Peterson administration completely misrepresented to the public the state of the City of Indianapolis' financial situation last year or the numbers are now being cooked to convince us we can't afford to give up any part of last year's income tax increase. Regardless, there is no way we're going to grow ourselves out of this problem in the near term, and there is absolutely no way we can sustain higher levels of taxation in Marion County to make up this deficit. I don't want to sound too doom and gloom, but this financial study is pretty troublesome.

8 comments:

Sir Hailstone said...

I have a feeling in 5-10 years or sooner we will see a "head tax" on persons who live outside Marion County but work within Marion County. Which in essence is rewarding the previous administration for their incompetence.
And become counterproductive if its over-relied upon and becomes a significant expense to employers and they will leave Marion County leaving empty businesses in their wake.

spooknp said...

I have a feeling in 5-10 years or sooner we will see a "head tax" on persons who live outside Marion County but work within Marion County.

The commuter tax is coming. However, it will never pass unless every single county get its. There is no way the urban cities will get to tax those coming in while suburban counties don't get to tax people coming to their county to work. As long as it is a two way street, it will easily pass.

Lots of fools will back this measure because they claim suburban commuters use up a lot of resources. That is a joke most of the time. I myself spend 15 miles on a federal interstate vs. three miles on city streets. The pro-commuter tax types will claim that the city needs money to pay for cops for all the services. That is a joke. Here is the scary thing about Marion County: If you took away 50% of the suburban commuters, you would still need all the cops you have. The city cops are usually busy in the ghettos, trying to keep the places from truly becoming Modagishu. It is not the suburban commuter that is pulling "licks" all over the city. The suburban commuters are not the ones constantly beating their wives, neglecting their kids to the point of death, etc. etc..

Citizen Kane said...

Well, when a city borrows money annually for several years to help cover operating expenses, I do not a whole lot of studies to know that there are bad times coming.

jabberdoodle said...

I appreciate the heads up about this report. I had not heard of it. I will download it in a minute.

Just to correct one thing - even before reading the report. The Peterson administration was always up front about budget problems. That was part of the sales pitch for the $90 million increase in income taxes put through last year. I would also add, Mr. Steele (sorry, can't remember his first name) who was the finances advisor for the Council republicans and is now the Council CFO, said that he thought the City couldn't make it as far in time as it had, but Peterson had held it together years beyond what Steele thought possible.

Its Campaigner Ballard who said there was $70 million in fat in the budget.

jabberdoodle said...

Okay - read it. Lots of information and I've downloaded a copy to review again.

But, compare the two Appendices.

First one's conclusion is - if past expenditure growth is any indication, all taxing units will be in the red soon. I might note that the study shows the City-County budget/expenditures to be in balance in 2008. So much for a $26 million deficit crafted by the evil Peterson administration.

Second one says - property tax caps will cause a decrease in the City-County (only) revenue of $11.0million in 2009 and $39.2 million in 2010.

So - my take home message is that the taxing units need to halt the aggressive growth in spending that has gone on in the past few years. And, since Campaigner Ballard said there was $70 million in fat in the 2008 budget, being short by $39 million in 2010 isn't all that much of a problem.

Concerned Taxpayer said...

"Either the Bart Peterson administration completely misrepresented to the public the state of the City of Indianapolis' financial situation last year or the numbers are now being cooked to convince us we can't afford to give up any part of last year's income tax increase."

Let's see....Peterson and Clifford lied, or Ballard is "cooking the books."

Give me a break!

David Myers said...

Don't forget the ten million we must find to maintain the new Colts dome. Where is this money going to come from?

Crossed said...

Sir Hailstone, Try the previous 3 administrations. Most of this debt came from Goldsmith refinancing and borrowing for Building Better Neighborhoods instead of dealing with the police pension and combined sewer issues, which Bart had to take on since Hudnut and Goldie punted on them.
I beleive the same Mr. Steele worked under Goldsmith. Maybe he knwos where all the money was hidden? or ask Gene Sadler.