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TAX NEWS - may 2010

Lake County Tax: County income tax option still faces geographic rift

By Andy Grimm, 30 May 2010, CROWN POINT -- A proposal to create a Lake County income tax failed -- narrowly -- two years ago, and an election year is seldom time to talk about new taxes.

But local governments have been slashing costs for four years, and few believe the cutting can continue for another four without taxpayers seeing significant service cuts.

A combination of state-mandated property tax caps and a sluggish economy have dramatically drained government revenues in recent years, prompting painful cuts that have fallen in large part on Lake County's northern cities, home to some of the state's highest tax rates.

But smaller south county towns are suffering, too, from a state-mandated freeze on tax levies -- the total amount governments can collect from property taxes -- that will remain in place until Lake County passes an income tax.

In November, members of the County Council face a general election that will likely dampen talk of new taxes. But there is little doubt among local government officials that an income tax proposal will come to a vote before their terms end in four years.

"Will it come up for a vote in the next four years? How about the day after the election?" said state Rep. Chet Dobis, D-Merrillville. "I was born at night, but it wasn't last night."

Officials in Gary, Hammond and East Chicago have been the only supporters of an income tax, and their budgets have been slashed to close deficits caused by the tax caps. But while those cities have reputations -- sometimes well-deserved -- for free-spending, a lesser-known factor in government spending is begin to strain the budgets of communities that are considered frugal.

Freezing the levy means towns that are growing may see their tax rates drop, but local governments have less money to provide services to more and more residents.

In Merrillville, town employees have had to take unpaid furlough days and the town has shut off half their streetlights.

In Dyer, the town has suspended road repairs and infrastructure projects. Small towns that don't share the Lake County reputation for taxing and spending are starting to feel budget pressures that pressure might change attitudes toward an income tax, local leaders say.

"The state legislature wants us to adopt an income tax, and the revenue freeze was their club over us," said Lake County Councilman Larry Blanchard, the lone Republican on the seven-member panel that creates the county budget. "It punishes us all alike. It won't even hurt the cities with high taxes as much as it will the places that are growing and have low taxes."

2010 needs, 2007 cash

The booming town of St. John will likely double in population to more than 15,000 residents when the 2010 Census is completed, but the town still will only be able to collect the same amount of property tax revenue as it did in 2007, said Town Manager Steve Kyl.

Meanwhile, health care and other costs have increased, prompting the layoff of five town employees, cutbacks on spending for community events and other reductions in operating expenses. Residents probably have not noticed a decline in town service.

"There is no question the levy freeze is hurting the town," Kyl said. "We can maintain the community at the level we're at now, but we've had to really scale back our operations.

"I'm not a proponent of more taxes. Freezing the levy for years and years and years ... makes it hard to run a town."

The county is facing budget cuts for a fourth straight year, and after $30 million in spending reductions, services and entire programs may be cut, said County Council President Thomas O'Donnell, who in May sent notice to county department heads and elected officials that the 2011 budget will be 8.5 percent smaller than this year.

"By and large, I think we have made the cuts that taxpayers are calling for," O'Donnell said. "I don't know that the average taxpayer has noticed a change in service. But I don't think we get through the next year without losing entire programs."

O'Donnell, who faces Republican Dan Dernulc in the November election, voted against a proposed 1 percent income tax in 2007.

Elsie Franklin, D-Gary, remains an outspoken supporter of passing a tax. The support of council members from Gary, Hammond and East Chicago board members saw the tax pass that year by a 4-3 vote. But Franklin couldn't find a fifth vote to override a veto by the county commissioners.

Roosevelt Allen of Gary remains the only commissioner among the three-member panel who supports a tax.

Fran DuPey, D-Hammond, said she won't be running for re-election but will stick by her pledge to vote against an income tax, and Gerry Scheub, D-Merrillville, said he won't be changing his no vote, either.

'A shell game'

"It's a shell game. They want us to pass an income tax to replace money from property tax, and all that does is take the tax burden off big industry," Scheub said. "I don't think we're done with the cuts we can make."

But Blanchard, whose district comprises towns including Crown Point and Winfield, said officials there are asking him to do something about the levy freeze. Right now, Blanchard said, the only option available under current state law is passing an income tax.

"We're going to have to do something eventually, because government is going to need more money to operate.

Costs go up, especially for towns that are growing," said Blanchard, who isn't running for re-election but said he would not vote in favor of an income tax.

Dobis said he has been pleased by the millions of dollars trimmed from the county budget, a favorable "unintended consequence" of the tax caps and levy freeze. Another consequence is that even already-lean communities have to share in the cuts. After four years of cutting budgets, residents have yet to see a real impact of the reductions, but they will within the next four years, Dobis said.

"When their streets fall apart, when their police and fire protection is cut ... then (voters) are going to understand you can't have low taxes and great services," Dobis said.
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