Cummins: Is Your Town Going Bankrupt?

December 30, 2015

by Ryan Cummins

The city of Terre Haute has been informed by the State Board of Accounts that as a result of the most recent audit “there is substantial doubt about its ability to continue as a going concern.”

With a private business, such an audit would indicate the business must either liquidate or substantially change the way it operates. With a city or county, however, liquidation is not an option generally considered. That leaves substantial change as the best course of action.

But not so fast. Change in the way a local government operates requires leadership, political courage and guiding principles. If your community lacks any of that, there is a third option, i.e., confiscating even more money from taxpayers and continuing operations in pretty much the same way as before.

Some incumbent and newly elected mayors, commissioners and council members gravitate to option three. They imagine they can kick the financial can down the road for a few more years; their crisis need not be faced, just delayed.

In such an approach, nobody mentions tax increases but rest assured that is exactly what’s on the table. Fees imposed for services previously paid by property tax without a corresponding decrease in the property tax levy, is a tax increase. Converting municipal services (transit, utilities, etc.) to a public corporation with its own tax rate without a corresponding decrease in the property tax levy, is a tax increase. Dramatic increases in municipal utility rates corresponding to dramatic increases in PILOT (payment in lieu of taxes) from a utility are a particularly egregious tax increase. And, of course, there is the renewed push for open tax increases in the form of food and beverage taxes and the mother lode, local-option income tax.

But with a stultifying burden of taxes already imposed by national, state and local governments, how can anyone seriously conclude that government needs more? Such a proposal does not reflect courageous and principled leadership but quite the opposite.

My experience is that in a financial crisis there might be cursory political mention of reducing expenditures but it is usually made only for cover-your-ass purposes — only in passing and never with specifics. And rarely is there reference to the hugely costly, counterproductive and ethically suspect economic “development” efforts of the typical failing city.

There is a better way than another round of tax increases and economic “development.” It has been outlined in detail by the Indiana Policy Review Foundation in numerous journal articles beginning more than a decade ago. Writers with backgrounds in business, government and academia have provided specific steps that local government can take to change the way it operates in the face of financial challenges. In doing so, it can free its citizens to take responsibility, create opportunity, embrace real economic development, build community and live their lives as they see fit.

If there are those in your community with leadership skills, courage and principles, it is time for them to step up — that or wait for the letter from the State Board of Accounts to show up in your city hall mailbox.

Ryan Cummins, a former chairman of the appropriations committee of the Terre Haute Common Council, is an adjunct scholar of the Indiana Policy Review Foundation.



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