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FEIGENBAUM: Fiscal issues to dominate waning days of the session

March 3, 2012

When one party controls both chambers of the General Assembly and the Governor’s Office, and there is no personal or political rivalry among the leaders of the two branches, you can generally expect a relatively tranquil conclusion to a legislative session.

This year, with the right-to-work debate having sucked all the air out of the session—and largely all the fight out of House Democrats—before the Super Bowl, the final weeks of the session are less intriguing than usual, despite a hefty pot of money left dangling like raw meat in front of cash-starved lawmakers.

That unexpected largesse—some $320 million in misdirected corporate tax collections—will play a key role in conference committee deliberations as the session winds down by March 9. But it will not precipitate any last-minute meltdowns nor even high-level policy debates.

There is consensus among lawmakers who largely control the purse strings as to how much of the newly discovered dollars will be devoted to education needs (principally increased full-day kindergarten funding). The amount to be directed to the State Fair victim compensation fund is so small in comparison to the corpus that an agreement between the chambers acceptable to Republican Gov. Mitch Daniels will not be problematic.

What will be more interesting is how other tax-related matters evolve.

Legislation to expand the historic preservation tax credit passed the House, but received a chilly reception in the Senate. A panel there removed additional funding for the credit, and imposed changes hamstringing the program over the next decade.

While this tussle isn’t a high-profile subject with widespread impact, many big-ticket items of broader interest remain hot on the legislative front burner.

A phaseout of Indiana’s inheritance tax—the so-called “death tax”—is palatable to many lawmakers this year. As always, there is concern over how the state would compensate for the forgone inheritance tax income. Also being debated are changes to exemptions in the inheritance tax law.

Particularly intriguing are calls to simply eliminate the tax entirely upfront, something pushed by lawmakers weary of seeing the issue return session after session. A vote against elimination is a tough political choice for many, but past sessions could not unearth offsetting revenue. Some suggest the dollar difference between reduction and elimination is so small in relative terms that it should end in full now.

Lawmakers are grappling with the retroactive loss of some $65 million in slot wagering tax revenue (and as much as $25 million annually going forward) after a federal bankruptcy court in Delaware overturned an Indiana tax law. This battle is being waged legislatively and in Indiana and Delaware courts, but legislative options might be limited under federal bankruptcy laws.

The House and Senate will massage legislation related to the automatic taxpayer refund law, likely allowing some minimal return to individual taxpayers this year, but redirecting much of the remaining windfall into paying down long-standing pension obligations.

No one had expected a 2012 refund would be possible, and some lawmakers were privately wary last year of passing the law, concerned a governor would impound cash or require sufficient agency reversions to force a refund in an election year when cash might have been more appropriately spent on publicly approved legislative priorities.

Shaping up as an ugly fight between the governor and Legislature is a rescission of a special tax credit for Indiana Gasification LLC’s proposed facility in Rockport that would convert some 3 million tons annually of Indiana coal into substitute natural gas. Daniels, through the Indiana Finance Authority, committed the state to purchase the output, and many lawmakers, who can’t syntactically analyze the complicated deal, are reluctant to commit the state to the extent the executive branch has.

Finally, expect more grass-roots rhetoric about requiring online retailers (such as Amazon.com) to immediately begin collecting and remitting state sales tax as Hoosier brick-and mortar retailers must. Such a cash infusion could offset other tax cuts and spending hikes, but the powers that be won’t move forward on this in 2012.

Lawmakers had expected little fiscal leeway in this non-budget session. But circumstances have coalesced to allow significant fiscal finagling in the waning days.•

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Feigenbaum publishes Indiana Legislative Insight. His column appears weekly when the General Assembly is in session. He can be reached at edf@ingrouponline.com.

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