Published: March 12, 2008 11:41 am      

Mayors concerned about tax caps

With the close of the state legislative session scheduled for Friday at midnight, officials of local cities and towns are bracing for the passage of property tax legislation that could significantly change the way they do business.

Mishawaka Mayor Jeff Rea spoke on the status of that legislation and its possible effects during Tuesday’s county/cities forum at the Elkhart County Public Services Building

“This is a pretty critical week for the future of all of our cities and towns,” Rea told those in attendance Tuesday. “We’re watching it very closely.”

Central to the discussion is legislation already passed by the Senate which would limit homeowners’ property tax bills to 1 percent of their homes’ assessed values, rental property owners’ tax bills at 2 percent and business property owners’ tax bills at 3 percent.

Rea indicated that such caps could result in significant budget difficulties for municipalities if passed, noting that Mishawaka alone could see an estimated loss of $6.2 million, or 15 percent of the city’s total budget.

And these expected budget difficulties will not be unique to Mishawaka, Rea said, noting that areas including St. Joseph County, South Bend and Goshen are all looking at budget shortfalls totaling in the millions of dollars if the legislation is allowed to go through unchanged.

According to Goshen Mayor Allan Kauffman, Goshen will be looking at a budget shortfall of approximately $1 million.

“It looks like urban areas and older communities will probably be hit the hardest,” Rea said.

Of particular concern to both Rea and Kauffman are the potential reductions in public safety services that may occur if the cities are forced to deal with such hefty shortfalls.

“We don’t have a lot of people to cut,” Kauffman told attendees in a brief speech at the close of the meeting. “Some of those cuts are going to be too deep.”

Rea noted that even by reducing the number of staff employed by each city agency by just 15 percent, the city of Mishawaka would be looking at a loss of approximately 20 police officers, 16 fire and ambulance personnel, six street department personnel, five parks department personnel and nine personnel from various other city agencies.

“We’re being told to just tighten our belts,” Rea said of the Legislature’s response to these statistics. “That is a little bit troubling to us.”

Rea said there are other options for making up the shortfalls, such as reducing or even eliminating some city agencies, but said he is sure none of them will be looked at favorably.

“We could eliminate all of the general fund departments. That would cover the $6.2 million,” Rea said. “I guess we could cut out the Park Department.”

Even with cutting out the entire Park Department, Rea said the city would still have to find an additional $2.8 million in order to make up the shortfall left by the property tax caps.

An increase of 1 percent in income tax has been proposed as a possible way to make up some of the lost revenue, but Rea said it would not be enough to completely counter the shortfall.

Rea also noted that income tax revenue can be unpredictable, and planning a budget around income tax dollars is an exercise in risk.

The elimination of tax increment finance districts also came up as a possible option for combating the shortfall, but again Rea was less than optimistic, saying that TIF districts have become one of the only tools left to municipalities for generating economic development.

“It would not generate enough funds to compensate anyway,” Rea said.

As for an increase in sales tax, Rea said any funds generated through this option will go directly to the state, so cities and towns will not receive any of those dollars.

“Those funds will be used to pay for the child welfare levy which is currently paid by property taxes,” Rea said.

With so much negativity currently associated with the property tax situation, Rea said he wants to remind people that the majority of municipalities are not opposed to the idea of property tax reform as a whole.

“We do want less reliance on property taxes. We do want more efficiencies at the local level,” Rea said. “We do want alternatives to financing services.”

The question now is whether or not the municipalities will be able to partner with the General Assembly, the governor, the taxing units and the special interest groups in order to secure a win-win solution for everyone by the close of business Friday.