Study Shows Fiscal Vulnerability Among Local Governments

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Chris Watts is president of the Indiana Fiscal Policy Institute. Chris Watts is president of the Indiana Fiscal Policy Institute.

A new report commissioned by the Indiana Fiscal Policy Institute suggests a vulnerability to an economic downturn among Indiana's cities, counties and towns. IFPI President Chris Watts says the report follows a national survey of economists, who are predicting another recession.

The report, "A Fiscal History of Indiana Local Government," was conducted by researchers from the Indiana University School of Public and Environmental Affairs. It says local governments throughout the state are spending at 2002 levels as they deal with declining revenues and the uncertainties of property tax caps. 

Watts says while Indiana is one of the better-prepared states for an economic "rainy day," local governments are on shakier ground.

"Indiana has given more predictable property tax bills to homeowners, farmers and employers, in exchange for a less predictable fiscal outlook for local government," said Watts. "While much of the public sector has rebuilt budgets since the Great Recession, local government in Indiana has continued to cut in response to property tax caps and the annual uncertainty of ‘circuit breaker’ shortfalls."

Watts says for every dollar spent by state government on education, public health and infrastructure, local governments collectively spend 75 cents on other important priorities, such as police and fire protection, criminal justice and maintaining roads.

According to the report, while local budgets nationwide have been rebounding since 2012, Indiana expenditures continued to contract. In 2015, which has the most recent data available, local per capita spending climbed back to 2010 levels throughout the country, while Indiana's declined to a post-9/11 low.

"Some responsibilities shifted to the state, like county welfare administration, and we also noted a wave of local government consolidation from 2007 to 2012," said Craig Johnson, one of the reports authors. "We didn’t attempt to assess the consequences for the quality of public services, but we can say that Indiana’s local governments have managed to keep expenditures in line with revenues – for now."

Watts says, while the intention of the report is not to be alarmist, a full-blown recession combined with the constraints of property tax caps would be "uncharted territory."

You can view the full report below:

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