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The Effect of Tax Caps on Local Services

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Posted by: Jeff Rea
President and CEO
South Bend Regional Chamber on Wednesday, January 25, 2017 at 12:00:00 am

The town of Osceola dominated the headlines this past week as it wrestled with the best way to provide fire protection to its residents. Osceola has struggled to respond to emergency service calls and the Penn Township Fire Department has stepped forward to fill that need. The issue came to a head as Penn Township protested about not getting paid to provide such a service.

The story is just the latest example of the struggles of local governments as they react to shrinking revenues and the fiscal impact that the full implementation of property tax caps will cause when it goes into effect in 2020. The rest of Indiana has already made this adjustment; Lake and St. Joseph counties will be the last to make the change.

The Indiana General Assembly passed the tax caps into law in 2008. The caps were set at 1 percent of the assessed value for residential property, 2 percent for rentals or agricultural land, and 3 percent for commercial property. Those caps were placed in the state Constitution in 2010 when 71 percent of Indiana voters voted in support. At the same time, a 1 percent sales tax increase was passed to help lessen impacts.

Experts predicted the tax caps would save the taxpayers/cost local government around the state about $500 million. Most local governments believe that number was low and in St. Joseph County, taxpayer savings is approaching $70 million annually among all taxing units.

In an effort to keep up with the rising demand for services and the increased costs associated with delivering those services, we’ve seen local governments begin to make major changes in how they do business.

The closing of a public pool, the sale of city-owned golf courses, the changing of bus routes, the consolidation of the 911 center, the limiting of where people can pay their taxes, the hours at the libraries or across-the-board budget cuts are just some of the steps we’ve seen to date. Most of those actions have been unpopular to a vocal public that supported tax caps.

To date the public safety units have largely been spared from the cutting board, but the Osceola situation scratches the surface of an issue we’ll hear a lot more about in the years to come. In St. Joseph County, we have at least 12 different fire departments that cover various parts of the geography. They, like Osceola, may soon find that the tax rate simply won’t support the level of service that residents have come to expect.

Consolidation of any services is a difficult conversation. Each jurisdiction wants to be in control of its own destiny and wants to determine the level of service it believes is appropriate. The key question will be whether taxpayers are willing to pay for that.

So what’s next? The news could be dominated in the years to come by the threats of closings or the elimination of services and reductions in staff. That won’t help efforts in our region to attract new people, new jobs and new investment. In fact it could really hamper those efforts.

Or we could begin working outside of the silos and collectively across political boundaries and across party lines toward potential solutions.

It’s time for a countywide plan that includes each of the cities, towns and townships, for how critical services like fire and police protection, road maintenance, general government operations, recreation services and other quality-of-life improvements will be delivered and paid for. The business community stands ready to offer its experience and expertise to preparing that plan.

Also published in South Bend Tribune

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