Tuesday, November 26, 2013

Commission on State Taxation and Financing Publishes Minutes from November 18th Meeting

MEETING MINUTES

Meeting Date: November 18, 2013
Meeting Time: 9:00 A.M.
Meeting Place: State House, 200 W. Washington
St., Room 431
Meeting City: Indianapolis, Indiana
Meeting Number: 2

Members Present: Sen. Brandt Hershman, Chairperson; Sen. Edward
Charbonneau; Sen. Timothy Skinner; Rep. Eric Turner; Rep.
Greg Porter.

Members Absent: None.

The meeting was called to order at 9:05 A.M.

I. Tax Credits

Scott Drenkard of the Tax Foundation testified regarding tax preferences. (See Exhibit A, Mr. Drenkard's written testimony.)

In response to a question from Senator Hershman about providing tax credits to certain identified business industries, Mr. Drenkard testified that often the comparative advantage for such industries is unrelated to tax issues. Mr. Drenkard described the components of the Tax Foundation's "State Business Tax Climate Index", and he testified that: (1) the Index is a study of tax structure, not tax burden; (2) offering a credit hurts a state's score on the Index; (3) income taxes are the most destructive for economic growth, and sales taxes and then property taxes are the least destructive; (4) Indiana's best feature for purposes of the Index is a low, flat income tax rate; and (5) corporate taxes are passed on in the form of higher prices, lower wages, or lower dividend payouts.

Senator Skinner questioned Mr. Drenkard regarding the correlation between unemployment and economic growth. Mr. Drenkard testified that he had not made such an analysis, and that unemployment is often a structural issue and not a tax issue.

Heath Holloway of the Legislative Services Agency (LSA) then began presenting the LSA's studies regarding Indiana's state tax credits. (The LSA studies regarding the various state tax credits are included in Exhibit B.)

Historic Rehabilitation Tax Credit and the Residential Historic Rehabilitation Tax Credit

Mr. Holloway provided background information on the Historic Rehabilitation Tax Credit and the Residential Historic Rehabilitation Tax Credit.

Representative Ed Clere testified regarding the Historic Rehabilitation Tax Credit, and he briefly described his HB 1318 from the 2013 Session. He testified that: (1) the biggest issues are the existing state fiscal year cap on the credit and the lengthy waiting period before an awarded credit may be claimed; (2) there are community development benefits associated with the tax credit; and (3) a 2007 study found that each dollar of tax credit generated multiple additional dollars of spending. Representative Clere recommended: (1) raising the annual credit cap; (2) transferring administration of the credit to the Office of Community and Rural Affairs (OCRA); and (3) using a formula to take into account median income, rurality, and significance of structure to generate a factor that could enhance the tax credit. The proposal would also include a small-project set aside, so that major projects would not consume the entire tax credit.

Marsh Davis, President of Indiana Landmarks, described how the tax credit works. He testified that: (1) the tax credit should be relevant to small projects; (2) there are both large and small projects that need assistance, so he would prefer a tax credit that works for both types of project; (3) Indiana has one of the lowest tax credits; (4) increasing the tax credit amount would do the most good; and (5) the state tax credit and federal tax credit contributions toward a project should be around 50/50. Mr. Davis distributed the executive summary of a 2007 study concerning the tax credit. (See Exhibit C.)

James C. Kienle, representing the American Association of Architects (Indiana) stated that he is a practicing architect who does historic preservation work. He testified that: (1) all of the work on a project must be done before the tax credit is awarded; (2) because of the nature of a project for which a tax credit is granted, the project typically uses local labor and more money is retained locally; and (3) the tax credit is a tool to retain buildings for both economic and cultural benefits. He distributed an Issue Brief from the American Association of Architects. (See Exhibit D.)

Matt Bell, representing the Regional Chamber of Northeast Indiana, testified that: (1) the Regional Chamber recognizes the value of the tax credit as a tool to spur economic growth, and it supports clearing the backlog of credits, using a rurality factor, and transferring administration of the tax credit; and (2) the annual cap should be around $10 million.

Mayor Steve Croyle of the City of Winchester testified that: (1) he supports raising the annual cap; (2) the city has an historic downtown, but what the city can "bring to the table" for revitalization efforts is not enough; (3) the city has used revenue from a tax increment financing (TIF) district for these purposes ($60,000 per year for a $1 - to - $1 match); and (4) the tax credit backlog has meant that some projects which would have been rehabilitated if the tax credit had been available are not done.

Carolyn Elliot, representing the Indiana Economic Development Association (IEDA), testified that: (1) the IEDA supports the tax credit as an economic development tool; and (2) the tax credit is not functioning properly. She offered the IDEA's assistance in improving the tax credit.

Andy Frazier of the Indiana Association for Community Economic Development (IACED) testified that the IACED supports eliminating the backlog of the tax credits which may be claimed and also supports increasing the amount of the annual cap on the tax credit. Mr. Frazier distributed a news article describing a rehabilitation project that was done in Elkhart. (See Exhibit E.)

Gina Leckron, State Director of Habitat for Humanity, testified that: (1) in certain cases where Habitat for Humanity is acting as a developer, the tax credit will help bring in other developers to participate; and (2) Habitat for Humanity supports correcting problems with the tax credit.

Individual Development Account Tax Credit

Heath Holloway of LSA provided background information on the Individual Development Account (IDA) Tax Credit.

Kathy Williams, representing the Indiana Community Action Agencies (INCAA), testified that: (1) the IDA program encourages low-income people to save and it is a good way of leveraging private donations; and (2) she encourages the continuation of the program. Andy Frazier of the IACED testified in support of the IDA tax credit. (See Exhibit F.)

Neighborhood Assistance Program Tax Credit

Heath Holloway of LSA provided background information on the Neighborhood Assistance Program (NAP) Tax Credit.

Kathy Williams, representing the INCAA and the Indiana Coalition Against Domestic Violation (ICADV), testified in support of the NAP tax credit.

Emily Bryant, representing Feeding Indiana's Hungry, testified in support of the NAP tax credit. She noted that more than half of the food banks that her organization serves use the tax credit, and she testified that these tax credits help fill gaps in funding.

Andy Frazier of the IACED testified in support of the NAP tax credit. (See Exhibits G and H.) He recommended increasing the cap on the tax credit and returning to a competitive process to award the credit.

Rebecca Seifert, Executive Director of the Gennesaret Free Clinic, testified in support of the tax credit. She explained that there had been a competitive process used to award the tax credits, but it is no longer used. There are now more recipients of the tax credit, so there is a lower allocation of tax credits per taxpayer. She supported increasing the cap on the tax credit.

Glenna Shelby, representing the Indiana Association of Rehabilitation Facilities, testified that the tax credit supports funding for programs serving individuals with physical and intellectual disabilities, and she urged continuation of the tax credit.

Lucinda Nord of the Indiana Association of United Ways testified that the United Way does not directly use the tax credit, but supports it on behalf of various community groups that do use the tax credit.

Jacob Sipe of the Indiana Housing and Community Development Authority described the tax credit and the award process, and he noted that it is an extremely popular tax credit. He explained that the tax credit is used to leverage money for various community projects in economically disadvantaged areas, and that of 217 applications in 2013, 210 were approved.
Gina Leckron, State Director of Habitat for Humanity, testified in support of the tax credit and noted that they use the tax credit in their program. She supports a return to a competitive process to award the tax credit.

Indiana 529 College Savings Contribution Tax Credit

Heath Holloway of LSA provided background information on the Indiana 529 College Savings Contribution Tax Credit.

Brian Burdick, representing the Indiana Education Savings Authority, testified that: (1) some states have a pre-paid tuition plan for state universities; and (2) there have been relatively few accounts for which the account owner makes a contribution, claims the tax credit in the same year, and then keeps the account open with only a small balance. John Grew of Indiana University testified that the university supports the tax credit.

Senator Hershman recessed the meeting at noon.

College Contribution Tax Credit

When the Commission reconvened at 1:25 P.M., Heath Holloway of LSA provided background information on the College Contribution Tax Credit.

John Grew of Indiana University testified that: (1) the amount of the tax credit is relatively small, but it does benefit higher education; (2) there is a broad base of individuals claiming the tax credit; and (3) contributors can claim this tax credit even if they do not itemize on their federal tax returns, which can also help establish a pattern of giving for younger taxpayers. He encouraged the continuation of the tax credit.

School Scholarship Contribution Tax Credit

Heath Holloway of LSA provided background information on the School Scholarship Contribution Tax Credit. Senator Skinner asked LSA to provide information regarding what portion of the donations went to public schools and what portion went to private schools.

21st Century Scholars Tax Credit

Heath Holloway of LSA provided background information on the 21st Century Scholars Tax Credit.

Research Expense Income Tax Credit

Randhir Jha of LSA provided background information on the Research Expense Income Tax Credit. Senator Hershman asked LSA to examine the extent to which the corporate income tax could be lowered if the tax credit were eliminated.

Biodiesel Income Tax Credit

Lauren Sewell of LSA provided background information on the Biodiesel Income Tax Credit.

Coal Gasification Income Tax Credit

Randhir Jha of LSA provided background information on the Coal Gasification Income Tax Credit. Lisa Kobe of Duke Energy testified in support of continuing the tax credit.

Ethanol Production Income Tax Credit

Lauren Sewell of LSA provided background information on the Ethanol Production Income Tax Credit.

Lake County Residential Property Income Tax Credit

Randhir Jha of LSA provided background information on the Lake County Residential Property Income Tax Credit.

Uniform Income Tax Credit For the Elderly

Heath Holloway of LSA provided background information on the Uniform Income Tax Credit For the Elderly.

Kristen LaEace of the Indiana Association of Area Agencies on Aging testified in support of this tax credit and suggested indexing the income thresholds and credit amounts to inflation.

Lucinda Nord of the Indiana Association of United Ways testified that she supports the tax credit and indexing the tax credit. She commented that a $40 tax credit means a great deal to seniors with incomes less than $10,000 per year.

Representative Porter commented that given the water and sewer bill increases coming in Marion County, it is important to maintain (and possibly increase) this amount.

Insurance Guaranty Association Income Tax Credit

Randhir Jha of LSA provided background information on the Insurance Guaranty
Association Income Tax Credit.

Trent Hahn, representing the Association of Indiana Life Insurance Companies, supported the tax credit, and he testified that: (1) the tax credit allows insurance companies to recoup assessments that are made to cover for failing insurance companies; (2) 44 states have a similar program; and (3) assessments are recouped over five years at 20% per year.

Prison Investment Income Tax Credit

Heath Holloway of LSA provided background information on the Prison Investment Income Tax Credit.

Riverboat Building Income Tax Credit

Randhir Jha of LSA provided background information on the Riverboat Building Income Tax Credit.

II. Providing State Tax Credits to Taxpayers that Hire Ex-Felons

William Alexander of Beyond the Bridges testified in favor of establishing a tax credit for hiring individuals who are ex-felons, and he commented that such an incentive is important to convince employers to these individuals. He stated that providing employment for these individuals will allow them to become productive members of society.

Nick Rush testified regarding a non-profit organization that serves homeless individuals and substance abusers, including individuals who are ex-felons. He testified that: (1) he supports establishing a tax credit for hiring ex-felons; (2) such a tax credit would provide a meaningful incentive to employers; (3) individuals who are turning their lives around become frustrated when they are unable to get a job; and (4) the new expungement law has helped.

John Hawkins testified that he works with the homeless and with individuals leaving prison.
He stated that finding a job is the biggest obstacle. He testified that ex-felons have difficulty getting get past an initial review for a job offer, and that he supports the "Ban the Box" proposals.

Senator Skinner commented on sentence reform and the importance of incentives to hire individuals who are ex-felons. Representative Turner commented that individuals who return to society from prison need help in finding a job, and that this would reduce recidivism.

Representative Shackleford described HB 1216-2013 (which did not pass in the 2013 legislative session), and she testified that: (1) it costs $20,000 to house each offender; (2) a tax credit of $3,000 per offender is better economically; and (3) she would consider the possibility of including veterans under such a proposed tax credit, because they also often have trouble finding jobs.

Heath Holloway of LSA provided a memorandum to the Commission concerning state tax credits for hiring ex-felons. (See Exhibit I.)

III. Use of Tax Increment Financing

Bob Sigalow of LSA provided four memoranda regarding tax increment financing (TIF) to the Commission (See Exhibits J, K, L, and M.)

Andrew Berger of the Association of Indiana Counties (AIC) testified that: (1) the issue of TIF is important; (2) there is a need for greater transparency; (3) TIF can be a good economic development tool; (4) counties with a high percentage of assessed value allocated to TIF districts are usually rural counties; and (5) there may be some gaps in the data.

Mark Fisher of the Indianapolis Chamber of Commerce testified that: (1) a study has been done of TIF in Marion County; and (2) there is a need for more transparency, including online resources for citizens to use.

Rhonda Cook of the Indiana Association of Cities and Towns (IACT) gave an example of a TIF project, and she testified that: (1) TIF does work; (2) the process to amend a TIF plan is too cumbersome; and (3) IACT will work with the General Assembly to keep TIF as an economic development tool.

The meeting was adjourned at 3:35 P.M.