Showdown looming over Marion County income tax

More agencies will be vying for a piece of the city’s income-tax revenue as next year’s budget process begins.

But with that money flat-lined next year, city leaders say there may not be enough to share.

For the first time this year, the City-County Council has the option of allocating some of its income-tax collections, which make up about one-seventh of the $1.2 billion budget, to the Indianapolis-Marion County Public Library.

The Legislature gave the council clear authority to do that in the most recent session, and library advocates say they will push councilors to take advantage of the change.

It’s not yet clear if leaders from IndyGo, which is eligible for income-tax money but typically does not receive it, also will ask for it to prop up the ailing transit system. But they project a budget gap and less stable revenue sources than in recent years and say there aren’t many other options for plugging the hole without reducing service.

Those agencies, along with the city, are in the process of crafting 2012 budgets now. Council hearings on the budgets begin in August.

Advocates for giving the financially ailing library system a share of the income-tax funds, which go mostly toward public safety, have begun prodding councilors. They plan to make it a key issue in the municipal elections this fall.

“Councilors are going to have to vote on a budget before the election,” said Jim Mulholland, a volunteer organizer with the Sustainable Library Citizens Coalition, a library advocacy group. “We’re hoping they will be nervous about not funding the library in an election year and we can make that an election issue.”

But the political pressure may not be enough to persuade councilors to reallocate some of the funds, particularly in a year when dollars are projected to be tight.

Marion County’s share of income-tax revenue will remain flat at $176.9 million in 2012 to compensate for an over-distribution of the monies in previous years.

“We have more people competing for a smaller pot now,” said Ryan Vaughn, the council’s Republican president.

Strapped agencies

The library’s financial challenges have been building over the last decade but became particularly severe last year, when property-tax caps caused a $2.5 million shortfall. As of last fall, the library projected a gap of $4 million this year and $1.7 million in 2012.

To cope with the gap, the library cut back its hours at its central location and 22 branches by 26 percent last fall.

Shevlot

So far, it doesn’t appear the system will face any deeper cuts in 2012. But the goal in getting a share of the income-tax money would be to restore the service that was pared down, said Tom Shevlot, the library board president.

“The coalition and the community spoke loudly last year that this entity is extremely important,” Shevlot said. “It’s been clear to us we should request the money to restore the hours to what they once were. I’m fully prepared to take that position.”

But some councilors say cash-strapped agencies such as IndyGo face a more pressing need.

Unlike the library, which maintains an operating reserve that is 10 percent to 12 percent of its roughly $38 million budget, the transit agency operates without reserves.

And Indy Go, which gets roughly equal shares of federal, state and local dollars for its $55 million budget, says all of those funding sources face uncertainty.

Budget-wrangling in Washington has made it difficult for the agency to project its federal allocation. And after a change in Indiana law this legislative session, state dollars must be set aside by the Legislature every biennium, rather than carved out from sales taxes.

Terry

Mike Terry, Indy Go’s CEO, said the agency has tried to cut operating costs in areas such as health care. But with rising fuel costs, he’s expecting next year’s finances to be challenging. He’s not certain whether he’ll ask for income taxes to fill the gap but said he doesn’t want to be faced with further reducing already minimal service.

“I anticipate we’re going to have a gap between revenue and expenses,” Terry said. “[And] I’m not planning any service cuts.”

Income-tax forecast grim

But as those agencies project struggles, the city’s income-tax forecast isn’t much brighter. That’s partly because, over the past three years, the state overpaid local government units’ share of income tax distributions.

To make up for the difference, the state will withhold any increase in income taxes counties generate next year. That will keep income-tax revenue flat for many counties.

In Indianapolis, it means that income tax revenue, which was down $50 million this year over last, will remain stagnant.

Any allocation of income-tax dollars to the library would take away dollars from other agencies, such as public safety.

“When you stack the library up against IndyGo and public safety, it’s about prioritizing,” Vaughn said. “I won’t put public safety operations in jeopardy to expand library hours.”

But Vaughn also said he and other councilors want to help the library restore its hours and could look at ways other than income taxes to do that.

In this year’s budget, the council allocated an additional $1 million for the library by shifting some debt payments, and Indy Go found funds by appealing a shortfall in the amount of property taxes it collected.

Jackie Nytes, a council Democrat, said giving the library even a small share of income taxes this year is important in setting a precedent.

“We recognize there is a need as a show of faith to find a way to begin that sharing of income taxes,” Nytes said, “even if the initial allocation may be more symbolic than substantive.”•