Indiana must find a way to deal with big issues

State must find a way to deal with big issues

The Indianapolis Star
By John Ketzenberger
5/10/15

It already seems like an eon has passed since the Indiana General Assembly called it quits on a tumultuous session just 10 days ago.

Is it too soon to start looking ahead?

The simple answer is no, there are a lot of important issues that should get more time and attention from lawmakers, including transportation funding, rationalizing the tax structure between local and state government, and ensuring the state’s tax revenue streams are fair and robust.

In fairness, a lot of that work is being done away from the maddening crowds, or will be, in summer study committees and through seemingly mundane legislation. Yet the sideshows that started with the aborted JustIN media operation proposed by the governor’s office that continued through the Religious Freedom Restoration Act and then the changes to Indiana’s common construction wage law dominated discussion and attention.

Yes, the issues are serious and important in their own right, especially if you’re a construction worker on a public project. I contend, however, that these are not the issues that are central to the state’s business at hand, such as setting tax policy to raise the revenue necessary to educate our citizens, provide services and safety to vulnerable Hoosiers, and provide the physical and legal infrastructure for a thriving economy.

Gov. Mike Pence declared last December that the legislative session would focus on education, and it did. Base funding was increased by about $470 million to more than $13.8 billion over the next two fiscal years. Funding education from kindergarten through high school remains by far the state’s biggest expenditure and the new money appropriated is important.

A new funding formula was approved that sends more money to growing suburban school districts and less to those with declining enrollment in mostly rural and urban areas. It also affords new funding for charter schools and more for vouchers that some families can use to remove their students from public schools and pay for private-school tuition.

These developments, however, only extend a trend that began three budgets, or six years, ago. Most of the remaining education issues, such as standardized testing and the authority of the superintendent of public instruction, amounted to intramural or political fights that did little to advance the actual education of Hoosier students.

Before lawmakers reconvene in January for the short legislative session, and certainly before the next budget-writing session in 2017, let’s hope momentum builds for action on three important and, potentially, transformative issues for the state.

Transportation leads the parade. It’s time for state legislators to quit kicking the can down the deteriorating road. But it’s not just roads. Transportation infrastructure in Indiana includes railroads, airports and water ports. We all know the importance of transportation to Indiana and its economy; it’s time to act like we believe it.

Budget makers decided to reduce road funding by $200 million, or about the amount of tax revenue that forecasters figured Indiana would not collect thanks to a sluggish economy. It was deemed more important to maintain a surplus of about $1.8 billion instead.

Part of the problem is Congress, which has managed to pass a new, comprehensive transportation bill just once since 2005. All the others were reauthorizations of existing appropriations. Indiana lawmakers have a difficult time meshing the state and federal transportation funding, when Congress refuses to provide legislative guidance.

With aging infrastructure in need of repair, Hoosier lawmakers should not emulate their congressional cousins. It’s time for the General Assembly to take action on the numerous studies of infrastructure needs and costs, and then find ways to pay for it.

Paying for it, of course, will require creativity and fortitude. Creativity to identify new funding methods and fortitude when it likely means an increase in taxes.

Local government financing is the next area for concentration. The technical issues are being sorted out through summer study committees and legislation that has come from them. Information for big issues — local option income taxes, property taxes and tax-increment financing districts — has been gathered or more work is in progress.

The hardest part remains: creating a package that ensures local governments have sufficient say-so and local funding without reaching further into taxpayers’ pockets. Big questions, such as whether to enact a commuter tax or adjust Local Option Income Tax distributions, remain unresolved and require political finesse.

Until legislators in the Statehouse and those in courthouses, city halls and school headquarters can reach détente, the state will suffer through more incremental “fixes” that may stunt economic growth.

Finally, the state should consider extending the sales tax to more services. A recent study by the Indiana Fiscal Policy Institute laid out the case for such a move. A dramatic shift toward service-oriented transactions has eroded the traditional sales tax base on consumer goods. Extending the sales tax to all services, including legal and medical, could generate $5 billion more in tax revenue each year.

This is politically difficult and leaders in the General Assembly and the governor’s office immediately downplayed the idea. There are difficulties to work through, such as avoiding a double-tax on sales to businesses and collection of the tax by many small businesses. But the potential to lower the tax by broadening its base is good tax policy and would help protect the sales tax, which by far is Indiana’s most lucrative source of revenue, against economic downturns.

This is not meant to diminish the very real philosophical differences between many legislators who are well aware of these issues. The thorny political divides are real, too. Progress has come in increments, but it’ll take a laser focus for any meaningful action to occur on these issues.

It’s worth the effort, though, for the good of the Hoosier economy.

(John Ketzenberger is president of the Indiana Fiscal Policy Institute, a nonpartisan and nonprofit organization to research state budget and tax issues. Email him at jketzenberger@indianafiscal.org. Follow him on Twitter: @JohnKetz.)


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