Last December, Governor Mitch Daniels stood in his office at the Statehouse and held up a card from the board game Monopoly. It read, “Bank Error in Your Favor.”
Daniels announced that Christmas had come early for Hoosiers when the state discovered a software error in the Department of Revenue had kept around $320 million out of the state’s General Fund. Using that money, the legislature allocated funds for full-day kindergarten and additional relief for victims of the State Fair stage collapse, and padded the state’s budget surplus.
Four months later, state budget director Adam Horst announced a similar programming error, but with a decidedly different tone.
“The OMB discovered an error in the county statistics report,” he said at a press conference.
Another glitch at the Department of Revenue had mistakenly put more than $200 million of local option income tax revenues, into the state’s coffers – instead of giving it to local governments. The first mistake had not yielded any negative consequences for state employees. This time, that was not the case and Horst announced changes had been made.
“There are two senior managers at the Department of Revenue that no longer work for the department as of yesterday,” Horst says. “Commissioner Eckert also offered his resignation. He has agreed to stay on to assist in the transition.”
The state is also hiring an outside firm to conduct an independent audit of state accounts and root out any more problems. Horst says while the error is unfortunate, he considers there to be a positive outcome for counties.
“The good thing from them from a budgetary perspective is they’re going to receive $206 million plus interest,” he says.
Counties Cut Projects, Job Because Of Error
But that was money the counties were entitled to over the last year and a half. Bob Kovach, a county commissioner in St. Joseph County in northern Indiana, does not agree with Horst’s spin on the error.
“From an officeholder standpoint, it was relief. From a taxpayer standpoint, it was outrage.” – Rick Davis, Vanderburgh County Treasurer
“Never ceases to amaze me the difficulty that the Department of Revenue and the budget agency has had in dealing with the monies of local units of government,” Kovach says.
St. Joseph will receive about $12 million, which Kovach says is about one-fifth of its yearly budget. That’s money he says the county could have been using to make infrastructure upgrades.
“One year on trucks, for example, for the highway department rather than buying new and keeping the fleet replacement up to snuff because once you get behind, it’s tough to catch up,” he says.
More than $6.5 million was withheld from Vanderburgh County in southwestern Indiana. County treasurer Rick Davis says he had mixed emotions when he heard the news.
“From an officeholder standpoint, it was relief,” he says. “From a taxpayer standpoint, it was outrage.”
Davis says losing out on those revenues for a year and a half forced the county to trim an already lean budget. He says he is watched plenty of people leave government in that time.
“If two or three people quit, resign or retire, we may only get one or two of them back and that places a much bigger burden on offices,” Davis says.
Uncertainty Rises At The County Level
A complication is that many counties actually owe the state when it comes to the income tax credit. That’s because more than a year ago, the state announced it had overpaid local governments, and ended up asking for more than $600 million back. The programming error helps either lower the amount counties owe or wipes it away entirely.
But as Lafayette mayor Tony Roswarski notes, it’s caused uncertainty at the local level.
“It’s very hard to budget, provide services and do those things with that type of situation: ‘You’re going to owe us money, now we owe you money, now we have money we don’t have.’ I mean, that makes for a challenge,” Roswarski says.
Trying to help reduce the problems with Local Option Income Taxes is now a major focus for governments across Indiana. Any changes would have to be made by the General Assembly. House and Senate majority leaders directed the budget committee to work closely with the state when dealing with the independent audit.
The results of that audit are not expected until September. And it is possible – perhaps even likely – that careful consideration of what to do about local income taxes will be a major topic when the legislature convenes in 2013.