Insurance and Tourism & Hospitality

Counties, cities welcome food/beverage tax: Suburbs see extra funds as way to balance budgets

August 1, 2005

Several suburban cities and counties that have approved new food and beverage taxes view the windfall as a panacea for their budget woes.

Six of the seven counties surrounding Marion County, excluding Morgan, have OK'd the 1-percent surcharge to help fund a new stadium for the Indianapolis Colts and Indiana Convention Center expansion. Morgan County councilors turned down the measure at a June meeting.

The legislation, approved during the past session, directs counties to contribute half the food and beverage tax toward the project while the other half will return to county coffers. The tax applies to food or drinks "furnished, prepared or served by a retail merchant."

State officials estimate without Morgan County's participation that the food and beverage tax will raise $7.7 million a year, half of which will go toward the $923 million stadium and convention center project.

Moreover, some municipalities within the counties that passed the tax were given the option of instituting an additional 1-percent food and beverage tax for their own use.

Cities that so far have approved an additional 1-percent food and beverage tax are Westfield, Noblesville and Carmel in Hamilton County. Fishers has yet to discuss the proposal. Neither have Lebanon and Zionsville in Boone County, nor has Greenfield in Hancock County.

Mooresville, Plainfield and Brownsburg already have a similar tax.

Even though Morgan County defeated the proposal, Martinsville enacted the tax.

"In most cases, it is revenue that is desperately needed," said Matthew Greller, director of the Indiana Association of Cities and Towns. "I think we are going to see it used for a number of things."

A provision in the legislation gave state lawmakers the authority to exclude cities within their districts from participating in the tax. Rep. Woody Burton, R-Greenwood, took advantage of the clause to remove Franklin, Greenwood and Shelbyville from the list of cities eligible.

Opponents of the legislation, such as John Livengood, executive director of the Restaurant & Hospitality Association of Indiana, say lawmakers gave cities the option to pass their own tax as an incentive for counties to support the construction project.

"[The tax] has nothing to do with benefiting the restaurant industry," he said. "But at the same time, it's singling us out. This is not a situation where [cities and counties] have built their budgets around this money; it's just cash."

COIT problems

In Hamilton County, budget woes created by less money from the county option income tax have cities there earmarking food and beverage tax funds for that purpose. The state reduced the county's share of COIT funds after determining two years ago that it had been distributing too much of the money deducted from residents' paychecks to the county. Hamilton County, in turn, sued the state. The lawsuit is pending.

Noblesville Mayor John Ditslear, who favored the food and beverage taxes, expects the levy to bring the city $400,000 annually. The extra money will allow Noblesville to continue providing city services without major cutbacks, he said.

Noblesville City Council President Alan Hinds, however, was one of two out of seven councilors who voted against the tax. He said the city should have restrained spending before resorting to the tax.

Westfield Town Manager Jerry Rosenberger said the shortfall in COIT funds will cost his town roughly $150,000 this year. The food and beverage tax is expected to net the city $100,000 to $180,000, he said, preventing the city from raising property taxes.

"It's just really hurting us big time," Rosenberger said of the COIT dispute.

Fishers Town Council President Scott Faultless said he still needs to discuss the subject with fellow councilors to determine whether they even want to consider bringing the tax to a vote. Even though it could generate $800,000 annually for Fishers, Faultless is unsure whether the desire is there to impose the additional expense. If the measure were to pass, it might fund bridge projects, he said.

Carmel Mayor Jim Brainard and City Council President Kevin Kirby were out of town and unavailable for comment. Hamilton County Council President John Hiatt did not return a phone call seeking comment.

Mixed bag of uses

Hendricks County officials plan to use the roughly $700,000 in annual food and beverage tax money to meet unexpected expenses, such as increases in employee health insurance costs, County Council President Larry Hesson said.

The county terminated its county administrator, due to a lack of funding, but now is likely to reinstate the position, he said. Hesson welcomes the additional funding from the tax, especially since the county had instituted a wage and hiring freeze, and had begun prioritizing expenditure reductions.

"In short, it gives us a little more flexibility than we would have had otherwise," he said. "We were going to have to do some belt-tightening."

Similar to Hamilton County, Hendricks County blames its budget dilemma on the lack of sufficient income tax money it receives. Even though Hendricks is the second-fastest-growing county in Indiana, behind Hamilton County, its share of state tax money is not keeping pace, Hesson said.

Boone County, conversely, is taking a different approach. The county should receive $250,000 annually from the tax, which will be spent on "tangible" items, said Jeff Heck, Boone County Council president.

The money might be used to make road repairs, improvements to county fair buildings, or help purchase a $6 million countywide emergency radio system, he said.

"We don't want to use it to make up budget shortfalls," Heck said. "We felt like even before we took our vote we wanted to do something that was tangible, where it would benefit everyone in the county."

Kim Kiger, director of the Boone County Tourism Council, favors using the money to help build a convention center, which Heck said could be a possibility.

The county has a 5-percent tax on rooms that funds the tourism council. Hendricks County also has a 5-percent tax, while Hamilton County has a 3-percent tax.

A county decision

Several in the tourism industry said they didn't object to what the cities and counties have planned for the funds. Brenda Myers, executive director of the Hamilton County Convention and Visitors Bureau, said her county would indirectly benefit from the convention center expansion, anyway.

"We feel we get a lot of overflow from events in downtown Indianapolis," she said.

Jamie Bohler, spokeswoman for the Hendricks County Convention and Visitors Bureau, said her organization trusts the County Council will use the money wisely.

At the state level, Amy Vaughan, executive director of the Indiana Department of Tourism, said county taxes are best decided at the county level.

But Tom Foulkes, director of state relations for the Washington, D.C.-based National Restaurant Association, views the tax as a disturbing trend imposed on citizens for simply dining out. He said a general increase in the sales tax would be fairer.

Patrons now will pay an 8-percent tax in surrounding suburbs that approved both food and beverage taxes. Customers of Marion County establishments will pay the same, because the City-County Council approved doubling its rate from 1 percent to 2 percent. The state sales tax is 6 percent. The taxes have no expiration dates.
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