Kenley and Dillon: Local government debt needs tighter controls
Senate Bill 18 contains provisions to help manage local government debt
STATEHOUSE – Sens. Luke Kenley (R-Noblesville) and Gary Dillon (R-Columbia City) say the time has come to limit local government debt in Indiana.
Kenley – who chaired the Commission on State Tax and Fiscal Policy and helped engineer a comprehensive property tax study this summer – said he was pleased to see a bill introduced by Dillon this week in the Indiana General Assembly that would establish controls and requirements for issuance and management of local debt.
“Approximately 30 percent of all property taxes is going to pay for debt service and levies of capital projects, and we feel that’s too high,” Kenley said. “This bill is geared toward encouraging local government to pay off debt rather than extend it.”
Senate Bill 18 was just one of several property tax-related bills introduced during the General Assembly’s “Organization Day” Nov. 20. Dillon said helping local government control its debt would aid greatly in bringing property taxes under control.
“I believe these limits are appropriate and will give local governments some good benchmarks to use in their decision-making and long-range planning,” Dillon said.
One of the key elements in Dillon’s proposal is reducing from 50 to 30 the maximum amount of time a bond issue can be paid off. “Leaving it at 50 has the same effect as raising taxes on people,” Kenley said.
Other provisions of the bill include:
- Prohibiting refinancing bonds to final maturities that extend beyond the final maturity of the original bonds;
- Requiring savings realized as a result of refinancing to be used to repay debt or reduce levies;
- Requiring a more steady level of retirement of principle throughout the financing period; and
- Lowering the threshold that triggers County Projects Review to the lesser of $7 million or .5 percent of taxable assessed valuation.
Indiana’s rate of indebtedness has steadily climbed over the past few years. As recently as 1999, the Hoosier state was among the nation’s lowest in per capita state and local government debt, ranking 47th, according to an Indianapolis Star article. “But we’ve done an awful lot of bonding in the last six or seven years,” Kenley said.
More recent numbers from the U.S. Census Bureau show Indiana has risen to 39th in that category. According to Gov. Mitch Daniels, property taxes for school debt service and capital projects have increased over 8 percent per year between 1984 and 2006.
“From 2000 to 2006, Indiana had an approximate 10 percent annual increase in school debt service, according to Larry DeBoer of Purdue University,” Dillon said.
Opponents may believe the move to force debt limits is another example of local control being taken away from civic governments, but Kenley and Dillon say the rising tide of debt is a major factor in property tax increases statewide.
Kenley and Dillon said civil units of government should strive to limit their debt as much as reasonably possible and are looking at an overall indebtedness limit. They hope SB 18 will be a tool to help not only local governments, but taxpayers as well.
“In order to control the rise of property taxes, we must control the growth of debt,” Dillon said.
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