A Sprint, Not a Marathon

This so-called “short session” was long on major issues in its ten-week sprint from the opening gavel to adjournment just after midnight on Wednesday. The legislature raced through major tax relief and economic development plans (notably consequential for a non-budget year), detoured into divisive education issues, and finally found the finish line of the COVID public health emergency.

As we look back on the last two-and-a-half months, we’re generally pleased with how our priorities fared:

• A business-friendly compromise on vaccine mandates that helps employers protect workers and customers—HB1001.
• Protecting school boards from political takeover as bills adding partisan labels to school board ballots failed to advance.
• Defeating attempts to stifle open and accurate discussions of race and equity in the classroom (stopping HB1134), preserving district-level DEI programs that help engage underrepresented students in learning and prepare all students to succeed in a diverse workforce.
• Making modest progress on data-driven juvenile justice reform focused on education and successful re-entry as HB1359 heads to the Governor, setting up a more comprehensive package for next year’s budget session.
• Updating Indiana’s economic development toolkit—SB361—while preserving the fiscal capacity for continued investments in regional quality of life and growth strategies like READI.
• Taking some common-sense steps to promote public safety in Indianapolis—SB7— acknowledging complex root causes and more heavy lifting ahead on anti-crime efforts.

And along the way, we played defense on another frontal assault on bus rapid transit (SB369) as well as anti-IndyGo amendments to SB290 and HB1251. All in all, a positive wrap-up…now on to a few more updates from the last few days.

Spilling the tea:

George Washington once said that the U.S. Senate worked like a saucer to cool the overheated tea (legislation) brewed by the House of Representatives. Timely reference, we know, but very consistent with much of this session’s bicameral bargaining.

After all, the Senate buried HB1134, listening to educators on the bill’s burdensome requirements inspired by misinformed controversy over “Critical Race Theory.” It also dealt a late death blow to HB1369, which would have left school libraries (and local taxpayers) vulnerable to lawsuits.

As we mentioned earlier, the Senate was also the collective voice of reason on vaccine requirements in the workplace, narrowing the massive exemption loopholes originally in HB1001 to be consistent with other occupational health and safety regulations and providing reasonable latitude to sports, music, and entertainment venues.

Finally, the Senate pumped the brakes on tax breaks, dialing back HB1002 and forcing a compromise more in line with Governor Holcomb’s plan than the more expansive House version. The final bill reduces the state income tax rate from 3.23% to 2.9% over seven years and eliminates the utility receipts tax without touching the hotly-debated 30% depreciation limit on business personal property tax (PPT) assessments.

Balancing act:

We walked a fine line on PPT relief, not taking a formal position before the session. We believe the tax code should promote new capital investment and fair assessment of existing equipment reduces costs to help businesses marshal resources for reinvestment.

But at the same time, cities like Indianapolis are under growing budget pressure from property tax caps, local income tax distributions based solely on residence (penalizing commuter-heavy communities), inequitable road and school funding formulas, and other factors. We believe PPT reform should include full revenue replacement via the state to avoid worsening the situation.

The original version of HB1002 lowered the 30% floor on existing personal property via state-level tax credits but left local governments to grapple with the future impact of newly-purchased equipment.

In the end, the skepticism of the Senate pushed business PPT out of HB1002, and that’s likely okay considering the compressed schedule of the short session. The tax treatment of business personal property deserves more thorough discussion in tandem with local revenue reforms aimed at easing fiscal strain in the urban centers that are also the anchors of Indiana’s economy.

This coming budget year—with a surplus over $4 billion remaining in state coffers—presents a unique opportunity to tackle local capacity challenge and more aspirational state-level investments.

Driving new development:

Even though HB1002 didn’t directly upgrade Indiana’s current business climate, the General Assembly did push forward some new tools to help Indiana outpace the competition for new employment and investment opportunities.

• The House and Senate reached a compromise on SB361 (economic development), sending the bill to the Governor to endorse its expanded powers for the IEDC.
• It authorizes new film production incentives, adjusts the terms of existing tax breaks, and limits the total tax credits authorized annually for the IEDC to $300 million. But outside that cap, it provides for a $300 million direct appropriation to a flexible business promotion and innovation fund in the next budget cycle.
• Another potential game-changer for large-scale attraction opportunities is the creation of state-led Innovation Development Districts (IDDs) to capture incremental growth of state and local taxes for physical, financial, and programmatic investments tailored to major projects.
• After much back-and-forth debate over local buy-in and the limits of state-imposed tax increment authority, the bill designates a local IDD fund to capture the property tax increment for use only in the designated district (and a 12% pass-through to surrounding units).
• The final compromise also removes a proposed state-local oversight committee in favor of directing the IEDC to negotiate terms of the IDDs directly with the executive elected officials of impacted cities and counties for all but the largest mega-deals.
• State sales and income tax increment continues to be dedicated to a statewide fund that can be used across districts and for related purposes, and the ability to create new IDDs expires (subject to legislative renewal) in 2025.
• Finally, the bill doesn’t fund but does allow local governments to create remote worker relocation programs.

Welcome home?

To that point, we need more Hoosiers—specifically, a bigger (and better-educated) labor force to compete in the talent-driven economy. But there’s a long list of factors more persuasive than worker relocation incentives in community appeal to current and potential residents.

For example, available housing—a resource in short supply across much of the state. Two bills that could help are headed to the Governor:

• HB1306 creates a statewide housing taskforce to examine and report on obstacles to affordable and workforce housing development;
• HB1214 will help ensure that eviction records can be fairly expunged; and
• SB382 includes new tax credits for residential development.

People also need to feel safe in the places they live, work, and raise their families. Public safety is an increasing threat to quality of life in Marion County, and SB7 will create a Marion County Crime Reduction Board to coordinate efforts among law enforcement agencies and other partners developing anti-violence strategies in high-crime areas of the city.

Ball State economist Michael Hicks (among others) makes a strong case that quality schools are among the biggest factors influencing local livability and in-migration. The defeat of anti-diversity measures is a win for welcoming schools, and we’ll be working hard next year towards a K-12 funding formula that supports Indy-area schools and addresses persistent achievement gaps.

In the meantime, HB1251 attempts to address teacher shortages and drive more dollars to the classroom by authorizing adjunct teachers to fill openings while granting more flexibility on school transportation—a major operating cost for most districts.

Unfortunately, the passage of HB1041 sends the message that Indiana isn’t a welcoming place to put down roots, and that Hoosier schools are forced to adopt hostile policies towards certain students. At this writing, Governor Holcomb hasn’t acted on the bill, but we hope he’ll veto this intrusive and ill-informed ban on trans girls seeking to participate in school sports.

Power of the pen:

That’s the last chapter of this session as bills that survived the General Assembly gauntlet now hit the Governor’s desk to be signed or vetoed within seven days:

• Governor Holcomb made HB1001 the first measure to earn his signature, signaling the end of Indiana’s 24-month COVID public health emergency.
• He’s also signed off on SB1, expanding eligibility for this year’s automatic taxpayer refund (language duplicated in HB1002).
• On Wednesday, HB1004 joined the growing list, shifting many non-violent drug offenders from county jails to state prisons—a way to ease local jail overcrowding and community corrections costs while providing substance abuse treatment to those in need.
• Speaking of the ever-mounting human and economic costs of substance abuse, Holcomb also inked his approval on HB1193, adjusting the formula for dividing Indiana’s share of the national opioid settlement.
• We applaud his signature on SB245 (the statewide sports and convention bid fund) and SB166 (public-private financing for transportation infrastructure projects).
• SB82 (providing FAFSA information to graduating high schoolers) also made the grade, along with HB1003 (addressing nursing education and licensing bottlenecks as a workforce priority).

The session is over, but these updates aren’t: We’ll be back next week for a final accounting of bills that were signed and officially hit the books on July 1^st. We’ll also fill in the blanks on the rest of our scorecard for the session and touch on some of the issues we’ll be watching heading into elections and interim study season.

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