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Loss of institute may polarize Statehouse debate: Board considers shuttering respected government research organization

October 8, 2007

If the Indiana Fiscal Policy Institute remains shuttered due to a lack of funds, the public won't notice immediately. After all, the Indianapolis-based organization focused on long-term analysis of complicated communal questions, such as how to equalize property taxes, diversify state pensions or finance public schools.

But taxpayers eventually will feel the impact. For 20 years, the institute has played a key role in Statehouse debate, helping frame major issues with hard facts and figures that conservatives and liberals alike agreed were sound.

Political insiders already are lamenting the likely loss of Indiana's only independent, non-partisan organization for longterm government research.

Former State Budget Director Chuck Schalliol summarized its contribution:

"We used to say 'If the Democrats said it, the Republicans didn't believe it. If the Republicans said it, the Democrats didn't believe it. And if the governor said it, neither believed it,'" he said. "But if the Fiscal Policy Institute said it, it was taken at face value."

Funding woes forced institute CEO Steve Johnson to quietly close shop in late August. According to Internal Revenue Service tax statements filed last year, the organization lost $96,398 in the year ended June 30, 2005, on revenue of $464,900-mostly from corporate contributors. The year before, it lost $59,994 on revenue of $646,739. Johnson could not provide more recent results to IBJ.

Johnson, 60, took over the organization in 2003. On his watch, it regularly produced reports on subjects such as Indiana's budget and the impact of the national recession on the state economy. A 2005 paper highlighted the flaws in Indiana's property-assessment system that contributed to this year's tax crisis.

State Sen. Luke Kenley, R-Noblesville, said the loss of the institute is a loss for the entire General Assembly. He said its many factual, objective reports over the years helped educate legislators. He pointed to that 2005 property-tax report in particular.

"That was the first indication we had how mixed up the assessment processes were in the different taxing units," Kenley said.

Johnson is glad lawmakers paid attention to the organization's research, but he wishes that donors had done the same.

"Ironically, if the property-tax thing had really sort of exploded 10 months earlier, we probably wouldn't be in the [financial] position we're in," Johnson said.

By the end of his tenure, Johnson said he was forced to spend most of his time on fund raising, rather than policy analysis. Corporate contributions aren't as reliable as they once were, he said, partly because Indiana has lost so many headquarters.

"It's just very difficult, quite frankly, to keep an institute like this going. I was just not able to sufficiently raise the dollars," Johnson said. "Oftentimes, the corporate community is more interested in what can happen in the next legislative session than what will happen three to five years down the road."

His predecessor, Bill Sheldrake, said fund raising always was a challenge for the institute. That's ironic, considering the organization's impact.

Sheldrake, now president of the local consultancy Policy Analytics LLC, pointed to its work in the 1990s documenting the opportunity cost of Indiana's publicpension law, which for decades restricted pensions from investing in anything riskier than bonds. IFPI research was the cornerstone of a 1996 constitutional referendum to allow the Indiana State Teachers' Retirement Fund and the Indiana Public Employees' Retirement Fund to invest in stocks and, eventually, real estate and venture capital, among other options.

As a result, the pensions are flush with cash-each with billions under management.

Institute Chairman Bob Kraft said the organization's board has not yet decided what to do. It is considering different financial models, including one where parttime contractors would conduct sporadic research. But Kraft said the institute must tread carefully so it can maintain its hard-won reputation for independent analysis.

It's unlikely that another entity could easily step in to replace the Indiana Fiscal Policy Institute, Kraft said. There are plenty of organizations that provide research on public-policy questions, but most do so as part of a particular agenda.

"There is a very definite need for objective analysis that is analytical and not trying to be persuasive-simply a cold hard look at what's reality," he said. "I'm not sure that objectivity is available anywhere else."

Without the institute, next year's Statehouse debate on property-tax reform likely will be dominated by special interests, making legislative consensus more difficult, said David Bennett, executive director of the Community Foundation of Greater Fort Wayne. Bennett previously was the head of Taxpayers Research Association, a policy-analysis firm that closed seven years ago, and has published books on state government finance and Indiana's property-tax system.

"Maybe it's only geeks like me who get interested in state budget stuff, but they always produced great research. You knew they were independent. It was just a great resource for information," he said. "There will be lots of voices trying to be heard in this [property-tax] discussion. But a lot will be interest groups with a particular point to bring forward. You knew ... [the institute would] make what they thought would be the best unbiased recommendation. It's a shame a group like that won't be heard."

The institute's board will meet this month to discuss its future, Kraft said. Schalliol said the organization may have an easier time raising money once business leaders better understand the impact of its disappearance.

"It's a hard message to sell," he said. "But people in the know realize that having a credible, impartial source is valuable."
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