EDITORIAL: City government in financial bind

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IBJ Editorial

The solution to the property tax fiasco that swept Mayor Greg Ballard into office in 2007 is making his job harder, and it could lead to his undoing.

The Republican Ballard came out of nowhere to beat Bart Peterson, a Democrat who had served two terms and had been considered unbeatable. Ballard won because the public was furious over property tax bills that were dramatically higher than they were used to paying.

Turning him out of office might represent sweet revenge for Democrats, six of whom are lining up for a shot at Ballard in 2011, but they’d be stuck with the same problem Ballard faces: growing need in the face of shrinking city revenue. And, like Ballard, they’d be almost powerless to fix it.

The hikes that got Peterson in trouble were largely a function of the statewide transition to market-based assessments. The relief from those hikes—property tax caps—also were outside local control. The caps, which were adopted by the Legislature in 2008 and begin phasing in here with the bills to be mailed in October, will give relief to property owners, but they’ll limit how much governments around the state can raise to fund basic services.

The specter of the caps and their expected negative effect on city revenue has already gotten the city in hot water with one bond-rating agency. As IBJ reported last week, Fitch Ratings last month downgraded the city’s AAA rating. The ratings downgrade, if repeated by other agencies, could increase the amount of interest the city pays on its debt.

Fitch’s concern about the city’s finances comes in spite of the Ballard administration’s tight grip on city spending. The mayor’s first two city budgets both cut spending 5 percent, and the 2010 budget he proposed last month lops off another 5 percent. And City Controller David Reynolds is building up the city’s rainy day fund in anticipation of $30 million in annual revenue losses caused by the tax caps.

Perhaps the city’s conservative budgeting should have averted the ratings downgrade. But regardless of the rating, the city will be collecting less money at the same time it needs millions to pay for the increased cost of public safety and upgrades to the city’s crumbling infrastructure.

The mayor has, commendably, assembled an infrastructure task force to find creative ways to pay for sewer upgrades and to repair or replace inadequate roads, bridges and sidewalks.

But creativity can’t solve all the problems of a city whose hands are tied by decisions made by the state. The tax caps themselves aren’t bad, but state lawmakers won’t budge on giving local governments the freedom to restructure in ways that would allow them to live within the caps.

That’s the sad reality an Indianapolis mayor from either party will have to face.•


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