The Senate Utilities Committee heard a full day of testimony on SB 309 on February 9 from both sides. No vote was taken and the bill will be heard again on February 16.
Most of the committee testimony was focused on net metering. Senator Hershman offered an amendment on the floor and Sen. Tim Lanane (D-Anderson) indicated he will be offering additional amendments to be considered at the next hearing. The Indiana Chamber gave testimony in support of the bill, including stating: the expectations for energy needs are diverse; our concerns about net metering if we do not make a step forward; the potential for rising costs through continued litigation; and the concern of numerous parties intervening in cases which will further slow down the process and increase costs to both utilities and ratepayers.
Overall, we testified the current bill is a step in the right direction and can be used as a building block going forward.
This bill is truly a compromise of long-standing issues that industrial users and businesses, as well as residential ratepayers, have had with Indiana’s investor-owned utilities. It will not fix all of the concerns our members expressed, but is a first step in helping businesses control costs. It has elements of competitive procurement, net metering, distributive generation and transparency of utility rates. It will serve as a building block of the Chamber’s efforts to maintain Indiana’s historical competitive edge, given the increase in energy costs over the past decade. With that said, we will need to consider all of the amendments before ultimately taking a final position on the bill.
This summer, as we wander Indiana for work or pleasure, motorists experience both how good and bad Indiana’s road infrastructure is. The real issue is Indiana’s road funding mechanisms are in need of modernization to keep up with today’s demands.
To address the issue short and long term, several months ago the Legislature passed and the Governor signed two important bills on road funding, HB 1001 and SB 67. Combined, the bills did the following:
Provided a total of $689 million of additional funding over the next four years to Indiana’s local governments for their road funding needs.
Provided an additional $228 for state road funding in 2017. (Funding for this and the above came from a combination of using some of Indiana’s budget surplus, providing revenue from local option income tax collections and directing some of the sales taxes collected on fuel to road funding.)
Provided Indiana counties the option to double their wheel tax and for municipalities with a population over 10,000 to establish a wheel tax. If eligible local governments choose to do this, they can raise up to an additional $376 million a year.
Established the FIRSST (Funding Indiana’s Roads for a Stronger and Safer Tomorrow) Task Force to develop a long-term plan for state and local roads and bridges, and develop funding mechanisms for the various components of the plan.
The FIRSST Task Force has a lot of work to do before the end of this year. The goal is to present a plan that will set the stage for what might take place during the 2017 legislative session. Its 16 members will verify the costs of road maintenance needs, look at current revenue streams and determine what current and new ideas are viable for the future. This is important given that the primary funding mechanism, the 18-cent-per-gallon gas tax, is not keeping up with the cost to maintain state and local roads, let alone build new ones.
In a recent Chamber infrastructure policy committee meeting, Senators Luke Kenley (R-Noblesville) and Brandt Hershman (R-Buck Creek) indicated their commitment to achieving a solid and sustainable long-term solution during the 2017 session. Given the Indiana Chamber’s Indiana Vision 2025 goal area of “Superior Infrastructure”, we will play an active role in this discussion.
A few big bills filled with various tax provisions remain. Ones dealing primarily with property tax are SB 308 and HB 1290, and another affecting sales and income taxes is SB 309. Meanwhile, a couple bills – SB 323 and HB 1215 – call for important issues to be studied during the interim. And another bill cleans up last year’s “de minimus” legislation in HB 1169. All par for the course going into the final leg of the session.
Senate Bill 308, authored by Sen. Brandt Hershman (R-Buck Creek), and HB 1290 authored by Rep. Tim Brown (R-Crawfordsville), are intended to take another shot at the “big box” property assessment issue and will require the Senate Tax and Fiscal Policy Committee chair (Hershman) and the House Ways and Means Committee chair (Brown) to work out some differences in conference committee. There is much agreement on a new approach to incorporate the concept of market segmentation into the process, but disagreement on the need to include a provision concerning actual building construction costs (that was part of the legislation from last year that is being repealed and replaced with the market segmentation provisions).
The two chairmen will also have to sit down and sort through differences in SB 309 that gets into all kinds of other tax matters. This bill is the one that effectively overturns the Tax Court case regarding the taxation of materials used in construction projects (the Lowe’s case.) Senate Bill 323, also a Sen. Hershman bill, directs the Legislative Services Agency to study mandatory unitary combined reporting for apportioning Indiana’s corporate income tax. This is an issue of great significance and concern to the Chamber. The House amended this bill to add transfer pricing, a related issue, to the scope of the study. Transfer pricing was at the heart of the Tax Court cases that spurred Sen. Hershman to promote the idea of combined reporting.
Another bill, HB 1215, authored by Rep. Brown, asks for the study of the personal property audit process. The Chamber welcomes this initiative to take a closer look at how these audits are conducted by private consultants working for the county assessing officials.
And lastly, we are pleased to report the passage of HB 1169, introduced by Rep. Tom Saunders (R-Lewisville) to remove the notarization requirement attached to last year’s “de minimus” personal property tax exemption. Last week, the Senate took out the House’s reduction of the maximum county option fee; Rep. Saunders and the House concurred to that change and the legislation now moves to the Governor for signature.
What’s in store for 2016 relating to tax issues? Nothing is too clear just yet, but there are a couple significant areas of speculation:
Revisiting “Big Box” Commercial Assessment: This issue was addressed last session in SB 436. But most expect it to be brought back up again in some fashion in 2016. The Indiana Board of Tax Review (IBTR) has raised several legitimate questions about exactly how the changes in SB 436 should be interpreted. Ambiguities will make application of the new laws difficult for the IBTR. This has led some to conclude that a different approach may be better than what was passed last year.
The focus has remained on what is properly considered a “comparable sale” for appraisal/assessment purposes when evaluating a special-built commercial structure. The discussion has turned to an appraisal concept referred to as “market segmentation”, essentially a method for narrowing the field of sales that should be considered reflective of the value of these more limited purpose buildings. Other ideas revolve more around how the IBTR goes about its adjudicatory work and whether some additional procedural adjustment and guidance from the Legislature would be beneficial.
Push for Combined Reporting: Sen. Brandt Hershman (R-Buck Creek), chairman of the Tax and Fiscal Policy Committee, is apparently entertaining the idea of changing the requirements relating to how a corporation must report its income. Under current law, a corporation files its return based on the separate, independent status of each corporate entity, without regard to its affiliation or business relationship with other entities. Nevertheless, the Department of Revenue (DOR) is authorized to require a corporation to combine its income with that of an affiliated/related company in a “combined reporting” if there is such a connection between the companies that the DOR views them as having a unitary business purpose and believes they should be treated as one for taxation.
A good number of states make such combined reporting mandatory in all cases, and the speculation is that Sen. Hershman is thinking about putting Indiana in that category. But this would be a very controversial move and is fraught with a myriad of economic, political and practical issues. Not the kind of matter typically taken on in a non-budget year; perhaps he wants to float it this year to spur discussion. The Indiana Chamber has a long-standing position against combined reporting.
The Interim Committee on Fiscal Policy, chaired by Sen. Brandt Hershman (R-Buck Creek), met three times in October and took testimony on several important issues.
At the first meeting, the group discussed the pros and cons of granting counties the general authority to adopt a food and beverage tax. Representatives for restaurateurs spoke against; county officials argued in favor of the measure. Following that debate was over four hours of testimony regarding property tax assessment procedures and appeals under Indiana’s market value in use standard – a continuation of the “big-box” issue that was addressed last session. The issue is being revisited as county officials think more needs to be done. Commissioner Jonathan Elrod of the Indiana Board of Tax Review presented a lengthy legal analysis; his memo and a flow chart of the process created under last session’s legislation (SB 436) are part of the collection of documents (Oct. 7 meeting) incorporated into the committee’s proposed final report (Oct. 21 meeting).
But in keeping with traditional practice, this committee is not making any recommendations for future legislation. The draft report simply references the volume of data, memos and other evidence brought before the committee during the course of its meetings. The committee has typically served as a forum to air the issues and collect information. Rarely is there any level of consensus on how difficult tax matters should be resolved; yet the information and discussions do often provide the impetus for various proposals in the next session. This will no doubt be the case as to the assessment issues and other matters considered by the committee.
In the following two meetings, the committee studied many substantial tax issues. It pondered the idea of permanently authorizing schools to pay for several operating expenses such as insurance, utilities and maintenance service with property tax revenues. Generally speaking, property taxes may only fund capital projects and debt service (since the state pays for general operating expenses via the school funding formula). But leeway to pay for these other items with property taxes has been granted on a temporary basis in the last several state budgets.
Purdue professor Larry DeBoer presented a cost-benefit analysis evidencing the ratio of tax pay to benefit received by different categories of taxpayers. No surprise to businesses, the ratio is not good. The committee also looked at farmland assessments (another almost perennial issue). Finally, the group received annual reports from the Legislative Services Agency’s fiscal analysts and economists evaluating existing tax incentives. These reports are always full of hard data on the utilization of numerous credits and deductions. These discussions included consideration of Tax Increment Financing (TIF) districts, the Earned Income Credit (EIC) and the Economic Development for a Growing Economy (EDGE) credits.
The committee’s draft report, and everything that was presented in each of the three meetings, is available for downloading, and archived video of the meetings is available at the at the General Assembly web site.
Money money money money MONEY.Some people got to have it.
For Democrats working on the state budget, that last lyric has been amended to: Some districts got to have it.
The D’s are pushing hard to protect K-12 school funding for districts rather than students. In other words, enrollment numbers be damned; urban districts, which have historically received higher funding levels than others, should stay that way regardless!
Thanks to items called the “minimum guarantee” and the “deghoster,” declining districts like Indianapolis Public Schools (IPS) have continued year after year to receive annual funding increases – even as enrollment levels have declined dramatically. Today, most of these urban districts get far more funding per student than rural or suburban schools.
The Indiana Chamber’s education expert, Derek Redelman, notes that the state currently provides IPS with over $8,500 per student – far more than the $6,500 state average. When federal funds are included, the total for IPS rises to more than $9,400 per student, while the state average is just over $6,700. The numbers are even higher – over $15,000 for IPS – when local property taxes are included.
Yet, IPS Superintendent Eugene White today (one of a seemingly endless stream of testifiers, most of whom can now venture to the Statehouse committee rooms in their sleep) came before the budget conference committee with his hands out for more. Despite fewer and fewer students and additional increases in per pupil funding, White contends the money IPS gets from the state is still not enough.
White had no answer for Rep. Brandt Hershman (R-Monticello) when asked what districts should be cut to give IPS more money or whether he would support a tax increase to give his district more money.
According to Redelman, “This is the epicenter of our current budget debate. Democrats firmly back districts while Republicans want to fund students.”
Just how wide is the gap?
After it was noted that IPS funding would take a cut under the Senate budget bill (though it would get one of the largest increases per pupil) while the growing Hamilton Southeastern district would see an increase (but a cut on a per pupil basis), Rep. Bill Crawford (D-Indianapolis) imparted this bit of logic:
“We (the Democrats) are looking for a way to make K-12 education (funding) more equitable. If we have to bring the top (funded schools in the Senate plan) down to bring the bottom up, I’m for it.”