STATEHOUSE DISPATCH Ed Feigenbaum: Competing interests emerge to cloud coming budget tiff

At the beginning of the legislative session, you probably thought that given Republicans were firmly in charge at the Statehouse for the first time in 20 years, bu d g e t – m a k i n g would be easy.

Guess again. And gear up for a major budget battle.

When Gov. Mitch Daniels proposed his budget ideas, lawmakers immediately shot down the most visible and memorable feature: the 1-percent surtax on higher-income Hoosiers. House members then passed a budget that failed to address the fiscal reality, in the minds of Daniels and senators, of soaring Medicaid costs.

And now, the proposed Senate Republican budget faces a wild ride of its own.

While the first Senate version of the budget finds a modicum of more money for schools and Medicaid than the House version, it, too, avoids the onetime windfall sought by the governor in the surtax, proposing instead an increase in the excise tax imposed on cigarettes and the diversion of about $70 million in riverboat taxes currently gobbled up by casino host communities to the state as an alternative to a general tax hike.

After looking under what he described as “every rock” for potential revenue, Senate Appropriations Committee Chairman Bob Meeks, R-LaGrange, persuaded his Senate GOP colleagues to sign off on his budget plan.

Keep a very close eye on the proposed diversion of the riverboat taxes.

When Sen. Meeks first floated the concept, he looked to funnel as much as $75.8 million in admission and wagering taxes currently raked in by casino host communities back to the state. A firestorm of protest immediately erupted from the counties and communities that have come to count on the riverbooty to not only fund additional services required by the influx of visitors, but also to build for the future. In some cases, this has been building in a literal sense; in others, it meant assisting additional economic development.

While the way that the diversion has been structured in the Senate will affect only one Republican Senate district, look for those who currently reap the rewards to unite to fight the plan. Delegations of lawmakers and local officials have already elbowed their way into the governor’s office to express their dismay. They found that Daniels, while sympathetic to their concerns, wanted to keep state revenue options open.

Many lawmakers are also upset with the windfall that some communities-they point to Gary and Lawrenceburg specifically-have enjoyed with their tax take.

Several districts represented by Senate Democrats would see a reduction in taxes retained locally under the Meeks proposal. They are fighting the prospect, but their actions become complicated by the fact that they are pushing for additional funding for education-and just hosted a Statehouse rally for this last week.

But this all becomes more interesting in the House.

Diversion of tax funds, some of which some communities note have already been committed to projects, if successful, could mean an immediate end to the lucrative voluntary revenue-sharing by some communities, a tactic that has helped to make more local government allies for gaming issues as assorted battles have been fought in succeeding years.

Lawmakers from revenue-sharing counties may now be natural opponents of this version of the budget.

Then there is Lake County.

Lake County lawmakers from both the House and Senate made it clear at a recent major anti-tax rally at the Statehouse that they would not back funding for a new Colts stadium-or even the budget as a whole-unless the budget or complementary measures afforded property tax relief for Lake County.

With the prospective loss of more local taxes, their votes for the budget become even less likely and makes the search for votes for funding a new Colts stadium and an Indiana Convention Center expansion even more difficult.

This bizarre confluence of circumstances-and strange set of alliances and opponents-begins to remind us of 1993, when riverboat gambling was approved as part of the budget over a gubernatorial veto.

And talk is again percolating about expanding gambling.

There is a big $400 million shadow hanging over the shoulders of lawmakers. That is the high-end estimate of cash to state coffers from legalizing the proliferation of currently illegal video gambling devices. Meeks continues to suggest this as a revenue-raising alternative, although he avoided it in his budget bill. Daniels, who authorized more aggressive tactics against these machines during March, has suggested they either be legalized or that the state get rid of them entirely.

The Hoosier Lottery also dangles Keno as a revenue option.

Goodies for Indianapolis, higher gambling taxes and gambling expansion: Sure sounds like a volatile mix.