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Indy Chamber proposes commuter tax

January 25, 2014
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Indy Chamber is making the case for a commuter tax, arguing that it’s the best way to solve continual fiscal problems threatening to make Marion County, thus the whole metro area, less competitive.

The concept, a local income tax on non-residents, requires a change in state law, which the chamber would not start chasing until the 2015 legislative session, at the earliest. CEO Michael Huber said the issue is one of the chamber’s top five priorities, and he promised that it won’t drop from the agenda.

Michael Huber Huber

“This is one of the most significant, if not the most significant, fiscal issues impacting Indianapolis’ ability to invest in its amenities, and therefore is a serious nine-county issue,” said Huber, former deputy mayor for economic development under Greg Ballard.

Indy Chamber is a regional membership organization, but it’s also in charge of attracting jobs and business investment to Marion County through Develop Indy, which works closely with city officials. 

Corporate leaders worry that Indianapolis, which is struggling to cover budget basics like public safety, will not be able to grow its tax base fast enough to also invest in parks and other infrastructure that make the city attractive, Huber said.

Emmis Communications Corp. CEO Jeff Smulyan, whose company headquarters is on Monument Circle, said he’s always believed, even when he lived in Hamilton County, that commuters should pay for the roads they travel and services they use.

“There’s a fairness issue and I feel pretty strongly about it,” he said.

Smulyan said he also agrees that Indianapolis’ fiscal health affects the whole region.

“You can’t be a suburb of nothing,” he said, echoing the mantra of former Mayor Bill Hudnut.

Ballard is not ready to back a specific commuter-tax proposal, but Chief of Staff Ryan Vaughn said, “We absolutely believe there needs to be a discussion about it.”

This is not the first time Indianapolis business leaders have recognized the untapped revenue potential of the roughly 200,000 people who travel into Marion County for work. Two separate policy study groups, one in 2002 and another in 2006, have recommended taxing non-residents.

The 2006 group’s report called for creating a local option income tax of up to one-quarter of a percent, which would be collected by the county where a person works. If commuters’ average income were $50,000, a quarter-percent tax would generate $25 million a year for Marion County.

The idea is a non-starter for Republican Sen. Brant Hershman, chairman of the Tax and Fiscal Policy Committee, who said, “It is in essence taxation without representation.”

At the same time, Hershman acknowledged the budget pressure facing many cities in the wake of property-tax caps, which voters added to the state Constitution in 2010. While he doesn’t like the idea of allowing counties to tax non-residents’ income, he said he’s willing to discuss other potential revenue streams.

tax-table.gifOne political dynamic that might work to the chamber’s advantage is that Indianapolis and suburban leaders already are working together on regional issues. Suburban mayors have lobbied alongside Ballard for the right to create a regional mass-transit system, and Westfield Mayor Andy Cook said he would do the same on a commuter tax.

“I would probably be one to say we need to spread some of the costs Marion County is facing to the suburbs,” Cook said.

Indianapolis’ reputation applies to the whole metro area, including Westfield as it’s marketing a new youth-sports complex, Grand Park, on a national level, Cook said.

“Central Indiana competes against Denver, Salt Lake City, Dallas,” Cook said. “When we say Indianapolis, we also mean Westfield.”

Marion County residents pay a 1.62-percent income tax, and the city is trying to build that base by attracting more residents.

Indianapolis has had success luring high-income professionals to such developments as downtown’s CityWay apartments. However, the larger trend for Marion County is growth in the young adult population, ages 20 to 34, while suburbs get the families with school-age children, Vaughn said. That means the city is probably also missing out on residents who are at their peak as wage earners, he said.

Meanwhile, public safety and criminal justice consume an increasing share of the city’s general-fund budget, 92 percent last year, up from 84 percent in 2011, Vaughn noted.

Taxing commuters is a logical way to pay for the services they consume, and many states—including Michigan, Ohio and Kentucky—allow local communities to impose those taxes, said Indiana University economist John Mikesell, an expert on state fiscal issues and taxation.

A common criticism of commuter taxes is that they create a disincentive for business location because they burden employees and small-business owners, but Mikesell said he’s not seen evidence of that.

There’s no point in discussing the mechanics of a commuter tax unless Indiana lawmakers can first agree on the value of Indianapolis to the state, said Drew Klacik, senior policy analyst at the Indiana University Public Policy Institute.

The widespread perception seems to be that Marion County is in fine shape, and that it takes in more state tax dollars than it generates, Klacik said.

Klacik argues that Indianapolis and the metro area drive the state’s economy. Downtown alone hosts 3.8 percent of all jobs in the state, and 11 percent of all jobs paying $3,334 or more per month. He included those figures in a report titled “Why Downtown Matters,” which was funded by Indianapolis Downtown Inc.

“If Indiana were a solar system, what would be the sun?” Klacik said. “The answer is Marion County.”•

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