City considers using one-time burst of tax revenue to reduce deficit

July 28, 2016

Indianapolis officials are considering using a special one-time burst of cash from income tax reserves to help reduce the city’s structural budget deficit.

Marion County recently got about $59 million from a special disbursement of the county’s local option income tax trust account as part of a compromise road and transportation funding plan passed by the Indiana General Assembly this spring. About $435 million was disbursed to local governments statewide.

Most of the county’s money went to Indianapolis. Three quarters of the money the city received—$39 million of about $53 million—is required to be spent on road funding.

But Indianapolis City-County Council CFO Bart Brown said officials were considering using the remaining $13 million of the distribution to “help the Council fund next year’s budget.”

Mayor Joe Hogsett said throughout his campaign and so far this year that reducing an expected $50 million structural deficit problem was one of his biggest priorities. The mayor told reporters this week that "every option was on the table."

The administration will present its proposed budget Aug. 15. After expected debate over spending priorities, final passage is expected Oct. 10. The Department of Local Government Finance has instructed cities to put the cash in their rainy day fund until a final use is decided upon, Brown said.

Brown said the council looked into trying to use more of the one-time distribution to reduce the deficit by using it to offset typical transportation revenue, but he said road money is too restricted.

“We couldn’t just take the gas-tax revenue and use it for fire operations,” Brown said. “Unfortunately the answer is no.”

Council members and city officials met Thursday in a required meeting to discuss whether they wanted to increase income taxes. Marion County currently has a 1.77 percent income tax rate, the second highest among Indianapolis-area counties. Morgan County has a 2.72 percent tax rate.

Marion County received $349 million in income tax distributions in 2016, with $197 million coming from the county option income tax, $99 million coming from the public safety tax and $53 million coming from the levy freeze tax.

Increasing the local option income tax by its maximum rate would produce an additional $203 million in revenue countywide, but officials said a tax hike is unlikely.

City Controller Fady Qaddoura said the mayor was not recommending a tax increase. He said the city is seeing “signals of growth” in income tax revenue.

“We hope that trend continues,” he said.

Likewise, council President Maggie Lewis said she “has no desire” to consider raising the local option income tax.

“I’d be really surprised” if any other council members brought proposals of the sort, Lewis told IBJ.


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