Study: Urban tax money subsidizes rural counties

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A study released Tuesday morning by the Indiana Fiscal Policy Institute shows residents in metropolitan counties subsidize their rural counterparts by paying more in state taxes than they receive in benefits.

While the results may not be unexpected, they demonstrate for the first time in Indiana the disparity in state tax collections and distributions among urban and rural counties, IFPI President John Ketzenberger said.

“The outcome is not surprising, but it does show what has long been suspected,” he said. “And there’s some value in that.”

Overall, taxpayers in 46 metropolitan counties paid 82.5 percent of the taxes, or $11.3 billion, and received 76.7 percent, or $10.5 billion in expenditures, the study said.

The disparity is equally pronounced in the 10-county Indianapolis metropolitan area. Residents there paid 33.5 percent, or $4.6 billion, of total state taxes and received 28 percent, or $3.8 billion, back.

Still, William J. Rieber, an economics professor at Butler University’s College of Business, said the method in which states distribute tax dollars is justified.

“Rural areas don’t have the same infrastructure as urban areas do, so they often need additional help,” Rieber said. “To some extent, we’re in the same state, and we’re all in this together.”

The Indiana study is consistent with the results from other states that examined the distribution of state government finances, the fiscal policy institute said in its report.

Steuben, Kosciusko, Adams and Dubois are the only non-urban counties that collected more tax revenue than they got back from the state.

Steuben County in northeast Indiana is bordered by Michigan and Ohio, two states that have higher gasoline and cigarette taxes than Indiana. As a result, the county collects a larger share of cigarette and gasoline tax revenue.

“You often hear in the Legislature about raising the cigarette tax and the gas tax,” Ketzenberger said. “Some people will say that will hurt border counties, and this bears this out a bit.”

Kosciusko, Adams and Dubois counties have a large number of residents working in a metropolitan area with relatively high household incomes and therefore paid more taxes than other rural areas, the study said.

On a per-capita basis, residents of Vanderburgh County in southwestern Indiana paid the most in state taxes when compared to expenditures, while Cass County in the north-central part of the state received the most benefits.

In fiscal 2009, which ended June 30, Indiana collected about $25.5 billion in total state revenue, of which it allocated $13.7 billion to the 92 counties.

State taxes accounted for roughly 55 percent of Indiana’s revenue in the fiscal year, followed by federal aid at 34 percent, and various state fees at 11 percent.

The sales tax is the largest source of state revenue and generated $6.2 billion in the fiscal year. Individual income taxes, which generated $4.3 billion, were the next largest source. Gasoline and other fuel taxes accounted for almost $800 million.

Indiana allocates spending of tax revenue through roughly 550 separate funds, ranging from K-12 education spending ($4.6 billion) to the preservation and display of the state’s Civil War battle flags ($38,000).

The Ball State University Center for Business and Economic Research compiled the results for the study.



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  1. I took Bruce's comments to highlight a glaring issue when it comes to a state's image, and therefore its overall branding. An example is Michigan vs. Indiana. Michigan has done an excellent job of following through on its branding strategy around "Pure Michigan", even down to the detail of the rest stops. Since a state's branding is often targeted to visitors, it makes sense that rest stops, being that point of first impression, should be significant. It is clear that Indiana doesn't care as much about the impression it gives visitors even though our branding as the Crossroads of America does place importance on travel. Bruce's point is quite logical and accurate.

  2. I appreciated the article. I guess I have become so accustomed to making my "pit stops" at places where I can ALSO get gasoline and something hot to eat, that I hardly even notice public rest stops anymore. That said, I do concur with the rationale that our rest stops (if we are to have them at all) can and should be both fiscally-responsible AND designed to make a positive impression about our state.

  3. I don't know about the rest of you but I only stop at these places for one reason, and it's not to picnic. I move trucks for dealers and have been to rest areas in most all 48 lower states. Some of ours need upgrading no doubt. Many states rest areas are much worse than ours. In the rest area on I-70 just past Richmond truckers have to hike about a quarter of a mile. When I stop I;m generally in a bit of a hurry. Convenience,not beauty, is a primary concern.

  4. Community Hospital is the only system to not have layoffs? That is not true. Because I was one of the people who was laid off from East. And all of the LPN's have been laid off. Just because their layoffs were not announced or done all together does not mean people did not lose their jobs. They cherry-picked people from departments one by one. But you add them all up and it's several hundred. And East has had a dramatic drop I in patient beds from 800 to around 125. I know because I worked there for 30 years.

  5. I have obtained my 6 gallon badge for my donation of A Positive blood. I'm sorry to hear that my donation was nothing but a profit center for the Indiana Blood Center.