Institute, SPEA project reveals local revenue structure is less stable

October 02, 2014

INDIANAPOLIS -- A fiscal benchmarking project has produced its first report and it contains cautionary news for state and local officials and Hoosier taxpayers.

READ THE REPORT: Fiscal Benchmarking for Indiana's Local Governments Comprehensive Report for 2011-2012: Counties, Townships, and Cities and Towns

“Our data shows the taxes and other revenue streams that fund local governments are losing some of their historic stability,” said report co-author Craig Johnson of the Indiana University Bloomington School of Public and Environmental Affairs (SPEA). Johnson said an increased reliance on elastic revenues ― local option income taxes, local excise taxes, and other tax distributions―make local government revenue more susceptible to the ups and downs of the economy. Those fluctuations, in turn, can make planning and spending decisions more difficult for local government officials.

For the median municipality (city and town), elastic revenues as a percent of total revenue increased from 12.5% in 2011 to 13.89% in 2012. For the median township, elastic revenues as a percent of total revenues increased from 24.90% in 2011 to 27.60% in 2012.

“The increased reliance on these types of revenue is due to a number of factors,” said Justin Ross, also a member of the SPEA faculty. “State laws that dictate how local governments operate have changed. There are now caps on property taxes and more reliance on local-option income taxes.”

Ross and Johnson are part of an advisory committee leading the project, “Fiscal Benchmarking for Indiana’s Local Governments.” It was launched in 2012 by SPEA and the IU Public Policy Institute and is an extension of Policy Choices for Indiana’s Future, an initiative to provide decision-makers with unbiased information about issues facing state and local government.

This first comprehensive benchmarking report was released at the Indiana Advisory Commission on Intergovernmental Relations on Sept. 26, 2014. It provides 36 fiscal benchmarks for each of Indiana’s 92 counties, 1,006 townships and 568 cities and towns. The benchmarks address spending, revenue, property tax base and levies, local option income tax rates, and debt. “This will give policymakers, local officials, and interested citizens new, detailed information about the fiscal health of local governments,” said project coordinator Jamie Palmer, senior policy analyst with the IU Public Policy Institute.

The project team will release a series of issue briefs based on these data, including one that will be released in November outlining the effects of the state’s property tax caps on equity, service delivery, and tax competitiveness.