Opinion and Economic Analysis

HICKS: Accounting mistakes and local government reform

April 14, 2012

Over the past few months, two mistakes in tracking tax revenue and disbursements have cast a shadow on Indiana’s Department of Revenue.

The first of these, $320 million in funds that were collected over several years but not included in budget reports, was really nothing more than an embarrassment to an administration that prides itself on strong fiscal management.

The second error, though involving less money, was far more serious: The state held on to $206 million that should have been directed to county and municipal governments. These are funds local governments needed at a time the economy could have benefited from the spending.

The first mistake was a software error, detected by humans. That prompted a detailed review, which was the right (if politically imprudent) course of action. And that led to the discovery of the second error, which was big enough that it should have been previously discovered by either state or local officials looking at budgets. All of which begs the question of whether cuts in state personnel have gone too far.

It is worth noting that this is exactly the type of error over which it is rare for anyone in government to lose their jobs. There’s no question of ethical lapses, and these are complex jobs. Still, the departure of those responsible sets a good example for all of us in the public sector. There should be more of it. With a thorough external review, Indiana’s fiscal oversight will be far stronger in the years to come.

More than a little criticism of the administration is warranted. But most of the loudest protests come from folks who have no room for complaint, having fought tooth and nail against any modernization of Indiana’s local government.

The $206 million in late payments is about half the total tax revenue our state’s woefully mismanaged townships kept sitting in the bank over the past several years. At a time poverty rates grew sharply, townships banked funds that could have been used for poor relief. At a time local governments with actual responsibilities struggled to make ends meet, our unneeded township governments collected interest on a huge windfall of tax dollars. That is planned mismanagement, not a software glitch.

Moreover, in 2007, the bipartisan Kernan-Shepard Commission recommended some easily implemented changes to Indiana’s local government that would have dragged the state into the modern times of the late 19th century. According to my estimates, consolidation would save local governments more than $630 million annually.

The reform of local government and loss of this patronage was such a fearsome prospect in the Legislature that it outweighed the opposition to every other policy step of the past five years.

The administration earned criticism with this round of accounting errors and we should prepare ourselves for more bad news. Still, anyone who whines about local budgets but opposes local government reform is simply playing politics with a serious issue. They should be wholly ignored.•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.
 

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