INDIANAPOLIS – Gov. Mitch Daniels wants to suspend millions of dollars in tax credits given every year to individuals, non-profits and Hoosier companies as part of his proposed administrative cost-savings measure.
This comes despite his urging lawmakers in his State of the State speech not to "make this recession worse by adding one cent to the tax burden of our fellow citizens."
He pushed the tax-credit bill and others Thursday as he released the latest report on state tax collections. January’s revenue was $75 million short of projections – adding to the state’s $1 billion budget deficit.
Daniels has identified cuts and savings so far to cover the losses, but he said Thursday four bills he submitted to the legislature would save the state an additional $70 million and essentially cover January’s shortfall.
"We have to keep taking this month by month," he said.
Daniels did note that sales tax collections are starting to rebound, but individual and corporate income taxes continue to reflect the weakness in the economy.
Daniels’ cost-savings package passed the Senate – sometimes along party lines – and now heads to the Democratic-controlled House.
One bill that has received some attention, Senate Bill 298 would combine the administration of the Public Employees Retirement Fund and the Teachers Retirement Fund. It wouldn’t affect benefits and would keep the funds separate. But Daniels said it could reduce the fees paid to Wall Street brokers to help invest the funds.
"I would hope the (House Democrats’) conscience would tell them this perfectly sensible proposal is absolutely necessary," Daniels said.
But one bill that has flown under the radar is Senate Bill 236. It includes various tax provisions, including suspending eight tax credit programs for a two-year period. Daniels originally sought to have several of the programs eliminated altogether, but an amendment in the Senate changed it to a two-year suspension.
The tax credits that would be affected include the Neighborhood Assistance Credit, Enterprise Zone Investment Cost and Loan Interest Credits, the Community Revitalization Enhancement District Credit and several business credits for offering health benefits and a wellness program to employees.
State Budget Director Chris Ruhl said Daniels suggested the elimination of several of the credits and the Senate author added a few more that the administration supports.
Sen. John Broden, D-South Bend, defended the credits for enterprise zones and community revitalization districts, which are specific areas around the state targeted to spur growth.
"They are proven job creators in very difficult areas, in areas with high unemployment and poverty," he said. "We need to create jobs right now and we are eliminating one of the tools."
Broden offered an amendment to save the credits, but it was rejected by the Republican-controlled Senate.
Ruhl said the state should focus its resources on making the overall climate for businesses in Indiana competitive rather than on specific geographic areas.
According to the fiscal impact statement on the bill, the suspension of the various tax credits could save more than $8 million per year.
Ruhl said Daniels does not consider it a tax increase. He noted that one taxpayer or another can always see his liability go up or down in any given year due to changes.
"It’s a balancing act," he said, noting that something that affects one-tenth of 1 percent of the people is not a tax increase.
One of the more popular credits is the Neighborhood Assistance Credit. About 3,500 individual and corporate taxpayers received the credit in 2007, the most recent year the data are available. The credits totaled $2.2 million.
It is a non-refundable tax credit that may be claimed by an individual or corporate taxpayer contributing to individuals, groups or neighborhood organizations, or engaging in activities to upgrade economically disadvantaged areas and households.
Ann Helmke, executive director of Vincent Village in Fort Wayne, was shocked to hear the tax credits were being taken away.
"I cannot believe it," she said. "It generates a lot of support for not-for-profits. They are going to lose a lot more than they are going to gain."
Vincent Village provides shelter, care, advocacy, affordable housing and support services for homeless families
Helmke said the credit aids fundraising efforts because contributors receive a credit based on their donations. For instance, a person can give $10,000 and receive a $5,000 credit against his state tax liability.
Non-profits apply for the credits through the Indiana Housing and Community Development Authority, which reviews program proposals each year and distributes credits based on that. Then the non-profits sell the credits to donors.
Vincent Village received $38,000 in credits this year, and it is using the money to match a federal grant to rehabilitate a two-block area of boarded-up, abandoned homes in southeast Fort Wayne.
"We are turning around a neighborhood and providing jobs," Helmke said.
Supporters of the credit had prepared a presentation this year asking legislators to raise the $2.5 million annual cap to $4 million. Now the credit’s future is in doubt.
Ruhl said they found the credit wasn’t "terribly effective" when considering the amount spent for what was received in neighborhood development.
The bill also suspends two tax credits created in 2007.
The first can be claimed in each of the first two years that an employer makes a health benefit plan available to employees. The second may be claimed by an employer providing a qualified employee wellness program certified by the Indiana State Department of Health.
Both are paid for by proceeds of a cigarette tax increase in 2007 and were meant to encourage health insurance coverage by businesses.
The credits were claimed in 2007 by only a few hundred entities.
Rep. Randy Borror, R-Fort Wayne, was concerned to hear of the plan to suspend some tax credits, including one he helped put into law.
"I am very careful when delaying those tax credits, and I want to see proof that those aren’t working," he said.