House Enrolled Act (HEA) 1001 enacted in March 2008 created property tax caps and guidelines, the result of which will mean a state average property reduction for homesteads of about 3%, although other property categories are estimated to increase by approximately 6%, according to Professor Larry DeBoer, Agricultural Economist, Purdue University.

Overall, this will create a revenue shortfall for both state and local municipalities alike. Legislative Services Agency has estimated that property tax collections will be reduced by over $500 million statewide as a result of the tax cap, when fully implemented. Also, in 2008, Indiana increased its state sales and use tax by 1¢ from 6¢ to 7¢ as a means to offset some of the anticipated shortfall.

The options for local governments vary but fall into one or other of the following categories: expenditures, personnel/staffing, services and alternate revenues. The first item is top of the County Council's agenda in preparing for next week's painful process of reducing its expenditures. The second and third items will be directly impacted by the first.

As our local government representatives are better equipped to make sound decisions when well-informed, Greene County Economic Development Corporation (GCEDC) recently hosted a seminar prepared by Umbaugh & Associates, leading Indiana municipal tax specialists. Invitees included Greene County Council and Commissioners, all Council members of the seven incorporated communities and school district superintendents. The topic was, "Understanding HEA 1001 -- Where Do We Go From Here" and discussed the impacts and response options, including alternative municipal funding.

Umbaugh's presentation outlined a six-point strategy as follows: Develop new revenues, manage revenues efficiently, utilize opportunities for cost efficiencies, consolidate services, manage capital expenditures and grow your tax base.

As for alternate revenues, the recommendations include adopting a Local Option Income Tax (LOIT), additional income taxes, Innkeepers taxes and Food & Beverage taxes. Non-tax revenues consist mostly of increasing, or implementing new, user fees to pay for services.

Strategies to manage the shortfalls ranged from the obvious strategies of reduced spending and reducing authorized levies to the more pro-active measures that will increase the tax base and correspondingly reduce the tax rate, such as consolidation of emergency service territories and (for cities and towns) annexation.

Some of the cost efficiencies that other counties have started to use include reduced work weeks, self-insurance programs, coordination of city policy and county sheriff, centralized purchasing and energy audits. Caution was given to be very careful when considering downsizing personnel so as to maintain the ability to deliver essential services.

The recommendations regarding capital expenditures are to develop a 5-10 year capital improvement plan that includes current debt repayment obligations and structuring the repayment of debt as a means to "pay as you use" rather than "pay as you go."

Umbaugh representatives, Loren Matthes and Gary Malone, placed great emphasis on growing the tax base using the following justifications:

* growth in assessed value minimizes total property tax rates and the revenue losses associated with tax caps

* growth in employment base helps offset the natural swings in local income tax revenues that result from shifts in the economy

* growth of investment and employment are both necessary to provide a stable source of tax revenue.

Their final recommendations included strong support of economic development with its focus areas of job creation, wages, local spending, economic diversification and building the tax base. Specifics include having a shared strategic vision and plan, and being open to the use of financial incentives, such as tax increment financing and tax abatements, to attract and retain business while balancing their use with the public interest.

A copy of the Umbaugh presentation can be e-mailed upon request to admin@gcedc.us.

Joan is the executive director at Greene County Economic Development Corporation and can be reached at (812) 847-4500 or jbethell@gcedc.us