Many local government leaders are worried that a proposal to eliminate Indiana's property tax on business equipment and machinery would cause another big cut in revenue for their operations.
The plan backed by Republican Gov. Mike Pence would end a tax that puts about $1 billion per year into local coffers. Many communities are still struggling with their budgets five years after the enactment of statewide property tax caps.
Some leading GOP lawmakers have also endorsed the proposal, which could be debated during the legislative session that begins in early January.
Local governments would need replacement sources of tax revenue or face cutting "vital public safety services and other things that residents absolutely need and expect," said Matt Greller, executive director of the Indiana Association of Cities and Towns.
"Every mayor that I have spoken with is deeply concerned about what the elimination of the personal property tax might mean to local government, to their cities," Geller told the Tribune-Star.
Statewide, business personal property tax collections for 2012 totaled $1.04 billion, with that money going to entities such as cities, counties, schools and library districts, The Times of Munster reported.
Some counties with numerous factories have high levels of property tax revenue coming from the business tax, such as more than 40 percent in southwestern Indiana's Gibson County and 26 percent in western Indiana's Vigo County. Largely rural Brown County in southern Indiana, however, has a level of about 3 percent.
Pence said he wanted to phase out the tax in a way that "does not unduly harm our local governments' abilities to meet their obligations." He gave no details about how that would work when he named it last week as the top priority of his 2014 legislative agenda.
House Speaker Brian Bosma, R-Indianapolis, said local governments might be allowed to decide whether to give up the business personal property tax in order to help those communities attract more business investment.
Local government units across the state have seen big drops in property tax collections since legislators approved statewide caps in 2008. Those limit annual property taxes to 1 percent of the assessed value for homes; 2 percent for rental property and farmland; and 3 percent for business property.
Supporters of eliminating the business equipment tax say few states tax the property of businesses as much or more than Indiana.
"It remains the one area in our tax climate where we stand out like a sore thumb," said Kevin Brinegar, president of the Indiana Chamber of Commerce.
Elimination of the tax would increase property taxes for other taxpayers, according to Larry DeBoer, a Purdue University economist. He estimates that without the business equipment tax, other property owners would pay about $453 million in higher taxes and local governments would lose $510 million.
House Minority Leader Scott Pelath, D-Michigan City, said he suspected eliminating the equipment tax would simply shift the tax burden onto homeowners and other residents.
"Consistently cutting taxes for those with all the power and all the money is not doing anything for middle-class pocketbooks," Pelath said. "This trend toward more corporate giveaways is going to end up hurting families who will not find much protection from the property tax caps."