Legislature and State Government and Bart Peterson and Property taxes and Government & Economic Development and Government

Property-tax plan shifts tab for poor relief from counties to state

January 14, 2008

Here's a political hot potato that so far has received little discussion in the rancorous debate over property-tax reform: Should the enormous costs of helping impoverished Hoosiers continue to be funded county by county, or spread to taxpayers statewide?

The stakes are huge for urban areas, where the state's poorest residents are concentrated. As he left office, Indianapolis Mayor Bart Peterson last month cast a gloom-and-doom scenario, warning of the impending "slow death" of Indiana's cities if they remain stuck with shouldering the bulk of indigent costs. Property tax reform could greatly diminish their resources to aid the needy or force urban leaders to hike other taxes so high that wealthier residents will accelerate their flight to the suburbs.

"There is no fairness argument on why somebody who doesn't utilize those services in Marion County should pay for them and somebody who lives in Hamilton County doesn't have to pay for them," Peterson told IBJ. "That is the biggest cause for the disparity between a tax bill in Hamilton County and a tax bill in Marion County for the same valued house."

In 2006, Marion County spent $102 million on child welfare and probation, according to the Indiana Legislative Services Agency. That's more than four-fifths of central Indiana's total spending to assist at-risk kids. Marion County taxpayers carried $73 million of that cost, with $42 million of it coming from property taxes.

Gov. Mitch Daniels, a Republican, is heeding Marion County's long-standing calls to transfer the enormous expense to the state. He proposes the change in the property-tax reform plan he rolled out last fall. The Indiana Commission on Local Government Reform, led by former Gov. Joseph Kernan, a Democrat, and Indiana Supreme Court Chief Justice Randall Shepard also recommended the change in its report released in December.

Even so, the move likely will face resistance from suburban lawmakers intent on keeping their constituents' taxes low.

And there are other sticking points. While Daniels' plan would take child welfare off Marion County's plate, it also would impose property tax caps that, according to an analysis by the Legislative Services Agency, would wipe out $100 million in funding for other county agencies.

That would mean either hiking local income taxes, increasing the already-wide gulf between Marion County and its neighbors, or cutting deeply into services for destitute adults, such as public defense or criminal probation supervision.

Not-for-profits that serve the neediest Hoosiers already are fretting about possible cuts. They're also uneasy over the state's controlling the vast child-welfare system, especially since many other services geared toward adults will remain at the county level.

"You can't really disconnect children from adults, because they're part of a family," said Cathy Graham, executive director of the Indiana Association of Residential Child Care Agencies. "It is much more than just moving the money. It has to do with the whole structure of how services are set up."

Living in poverty

U.S. Census figures show Marion County is home to two-thirds of central Indiana's poor. These are people who are barely scraping by. The census calculates poverty on a sliding scale, depending on age and the number of people living in a household. Thus, a senior citizen living alone with an annual income of $9,060 or less is considered impoverished. The poverty line for a family of nine is $39,048.

Marion County has 119,988 people--or about one in seven of its residents--who fit that description. The eight surrounding "doughnut" counties have just 57,936. Madison County has the second-highest number of impoverished, 15,236; Boone County has the least, 3,103.

For more than two decades, James Payne served as juvenile court judge and spearheaded Marion County's efforts to address the needs of its at-risk kids. Payne, now director of the Indiana Department of Child Services, considers property tax reform an opportunity to improve overall children's services while also reducing expenses and increasing consistency across the state.

If Payne's department takes over funding child welfare in each of the state's 92 counties, he hopes to install new quantitative measures to track and compare the progress of every at-risk kid. He also wants to boost Indiana's ability to attract grants from the federal government for child welfare. Because of the state's inconsistency of service delivery across its counties, he said, it leaves matching money on the table.

"I used to joke things are done 91 ways, because two [counties] do the same things by accident," Payne said. "I think the primary reason to go in this direction is so we don't spend a lot of valuable time and effort debating, criticizing and finger pointing. It's our collective responsibility to make sure children who need services get them."

But the not-for-profit groups that carry the lion's share of the burden to help needy children are worried.

Graham said it would be a mistake for the state to take a cookie-cutter approach. Every child's needs are different, she said. There's a broad spectrum of not-for-profits, each offering a different mix of foster care and adoption, education, medical aid and abuse counseling. A parentless infant with fragile health in rural Indiana has a very different situation than an urban teen-ager attempting to recover from sexual molestation, she said.

Graham's colleagues share her concerns. And they fear the state, as a single-payer, would be slow to reimburse child care expenses.

"We really don't want to get into a situation where one size fits all," said Dee Gibson, CEO of Wabash-based White's Residential & Family Services. "That might make it easier to administer, but I'm not sure that's necessarily best for the individual communities and kids that need services."

Unintended consequences

Through property taxes, Marion County provides a number of services to indigent adults. For example, penniless suspects are constitutionally entitled to public defenders, who are paid primarily from county coffers. Those on probation must be supervised, again at taxpayers' expense.

Marion County Chief Public Defender David Cook has an annual budget of $20 million and a staff of 225 that handles nearly 37,000 cases per year. If property tax reform reduces revenue for local government, Cook said, he'll have few choices. All would slow the wheels of justice, with unintended consequences on public safety.

"You can't not provide lawyers, and you can't just turn the switch off," he said. "The choice is, you either don't fund ... or you bite the bullet, provide the service and find other areas to get your cost savings."

Marion County Chief Probation Officer Robert Bingham oversees a budget of $17 million, with just $3.3 million coming from probation fees. His 314 employees supervise 12,000 adults and 3,700 juveniles. Cutting that budget would mean fewer home visits, fewer urine tests for drugs, and, most important, fewer probation officers.

"I think we're pretty bare bones," he said.

Caseloads, already 33 percent higher than Bingham recommends, would increase for officers who remain.

Advocates say skimping on such services is the wrong way to satisfy homeowners howling for property tax relief.

"One of the things to watch at the county level ... is, will there be new limits on what counties can spend?" Graham of the Indiana Association of Residential Child Care Agencies said. "Certainly, that would have a ripple effect."

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