Gary seeks bailout from state of Indiana

January 7, 2011

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(WBEZ/Michael Puente)
The city of Gary, Indiana needs a state bailout or more cuts to emergency services could come. (Photo by Michael Puente/WBEZ)

The city of Gary is aiming for an $11 million property tax bailout from the state of Indiana. City officials, including Mayor Rudy Clay, will be in Indianapolis Friday morning to make their case to Indiana’s Distressed Unit Appeals Board.

The process is necessary, given that Indiana’s clamped down on local government’s power to raise property taxes. The Hoosier state’s constitution now caps homeowners’ property taxes at one percent of a home’s value, so every city from farm towns to Indianapolis can only take in so much in property taxes.

That’s a good deal for taxpayers, but it has sapped money from some city’s coffers.

But local governments have had an out; they could ask Indiana’s Distressed Unit Appeals Board (DUAB) for an exception, and permission to raise property tax rates for a year. So far Gary’s been the only Indiana city to ask for such help from the DUAB. It’s received help two years in a row.

Given that this is the final year it can ask for such help, though, it’s no wonder that Gary officials are apprehensive about Friday’s hearing. They’ll have to convince the DUAB that Gary’s been fiscally responsible. They’ll explain how they’ve slashed from several places, including the fire department, which laid off 34 firefighters late last week.

“Public safety is the last thing that you want to affect because it is a core service. But I also realize that each year that goes by the amount of money that we are allowed to use to provide these services shrinks,” said Kyle Allen, vice president of the Gary City Council.

“Eighty-five percent of our revenue comes from property taxes so, somebody comes in and tells you to cut 50 percent of your budget and we expect you to comply in three years and still provide the same amount of service is basically unrealistic.”

Fellow Gary city council member Marilyn Krusas is usually critical of how Gary spends money, but even she says Gary should get an exception to the tax cap.

“A city this size for the services, basic services, fire protection alone, and police protection, public safety is $30 million. That takes up over 60 percent of our budget,” Krusas said. “But you can’t just reduce with budget solely by cutting. There has to be revenue generation and that would be coming from new homeowners, new businesses and the like coming into the city.”

And, there’s the rub for some.

If the board allows Gary to keep charging higher property taxes, Gary’s property tax rate would hover at three percent, making Gary’s rate the highest in Indiana. Critics say that could scare new investment away from Gary.

Tony Walker, chairman of the Gary Public Library Board, agrees with that logic. Walker’s board is a separate taxing unit from the city.

The Gary library system must slash its budget in half, from about $6 million to $3 million due to the property tax caps. One option officials are considering is to shutter the main library in downtown Gary. The move would spare four branch libraries located throughout the city.

Walker says a smaller budget simply won’t allow him to keep open the main branch, which is the system’s costliest.

Still, Walker said he won’t ask for help from the DUAB.

“I am absolutely opposed to it. Right now, our property owners are pretty much at peak at what they can take,” Walker says. “We didn’t feel we should go and raise the taxes on the property owners just to put a Band-Aid on a situation that’s going to require some austerity.”