INDIANAPOLIS – Gov. Mitch Daniels' administration revealed a $206 million error Thursday that shortchanged local units of government and led to the resignation of the Indiana Department of Revenue commissioner and an outside audit of the agency.
State Budget Director Adam Horst said two other employees also resigned and that the money owed to cities, counties and towns would be in their hands by today or Monday.
The news came after the governor announced in December that the Department of Revenue had found $320 million in corporate tax revenue that had been unknowingly accumulating in a holding account.
That totals more than $500 million in mismanaged tax revenue in just a few months.
"We take this very seriously," Horst said. "There is nothing being overlooked."
The latest mistake was due to a programming error in the report used to create the distribution formula for local option income tax revenue. The state initially collects the tax dollars and then passes them on to individual counties and other units.
Horst called the local option income tax system one of the most complex in state government and acknowledged an "internal controls" problem within the department.
The mistake started in January 2011 and continued until a few days ago, when it was corrected.
Allen County is set to receive a one-time distribution of about $10.1 million. It was not known immediately what amounts would go to individual units in the county, such as the city of Fort Wayne.
This is money that local governments could have budgeted for pay raises, road construction, economic development projects, employee health care coverage, snow removal, and police and fire protection.
When the December error was announced, Democrats called for an independent audit of the Department of Revenue, but Daniels and GOP leaders, including Horst, refused, saying an internal review by the Office of Management and Budget was good enough.
It was during that internal review that the new blunder was found, causing the governor to order an audit by a third party Tuesday when he discussed the latest revenue mistake.
"In light of the second error, we believe it is even more prudent to bring in additional resources so we can more aggressively investigate all the different errors and restore confidence in the functions of the Department of Revenue," Horst said.
Democrats responded Thursday by blasting Daniels' vaunted reputation as a fiscal hawk.
"Rapidly, an administration that has tried to convince the public that it brought needed sound fiscal management to Indiana state government has become a shining example of ineptitude," said House Democrat Leader Patrick Bauer and Senate Democrat Leader Vi Simpson in a joint statement.
"These aren't small mistakes to be shrugged off," the statement said. "This is incompetence of the highest order. It is only right that people are losing their jobs. It is only a shame that the governor himself didn't appear before the press and accept his share of the blame."
Daniels is on an eight-day "personal" trip to Israel, and his office refused to make him available via a conference call.
He did respond by email to calls for Horst's ouster, saying "Adam and his group discovered the problem and fixed it. If anything, he'll get a commendation. And when I want management advice, I won't start with Mr. Bauer."
Horst said he informed Daniels of the error, who expressed "disappointment and frustration and very quickly turned to 'how do we make it right?' "
State officials first caught wind of the problem in March when legislators were still in session, but its scope was not clear until further analysis was completed.
Democrat gubernatorial candidate John Gregg also weighed in, saying a clear, quick and thorough investigation is necessary.
"This is extremely important to restore Hoosiers' faith in the management of their tax dollars," he said. "From where this ole boy is from, a half a billion dollars is a ton of money."
Gregg also said the error points to the problem of having one-party control in the Statehouse.
As a result of the mistake, Indiana Department of Revenue Commissioner John Eckart submitted his resignation, though he will stay on for an undisclosed period of time to aid the leadership transition of the agency.
Two senior supervisors also left state employment as of Wednesday. Chief information officer Roy Gabriel, with a salary of $100,000, retired. Chief financial officer Darrel Anderson, with a salary of $99,500, resigned.
Refund still on track
Even though the new error means the state surplus was overstated, Horst said Indiana is still on track for an automatic taxpayer refund when Hoosiers file their income tax returns next year.
He said other unexpected growth in revenue, as well as state agencies leaving unspent more dollars than expected, leaves the refund intact.
A December report from OMB showed the state expected $30 million in unspent money for fiscal year 2012 ending in June and $30 million for fiscal year 2013. An updated statement released by Horst, though, shows that figure having risen to $143 million this year and doubling in 2013.
But Horst says that is all because of efficiencies that state employees are finding – not because of budget cuts ordered by the governor to preserve the taxpayer refund he championed.
Right now, the refund is projected to be about $65 per taxpayer.