Bloomington mayor renews call for local income tax increase, reduces ask from 0.5 percentage points to 0.25; says 2021 budget for sworn police officers will decrease

Bloomington’s mayor John Hamilton has renewed his call, made at the start of the year, for the Bloomington city council to increase the local income tax.

Such a tax would apply to all residents of Monroe County.

The additional revenue from the income tax would still go towards climate action and sustainability initiatives. But the 0.25-percentage-point increase suggested by Hamilton on Thursday is half the 0.5-point increase that Hamilton had proposed on New Year’s Day.

Another highlight from Thursday’s message from the mayor, which could be overshadowed by reaction to the income tax proposal, is an indication that recent calls to “defund the police” have resonated with the mayor at least a certain degree.

From the mayor’s Thursday speech: “Our budget for 2021 will propose significant changes in the police department, including reductions in funding of badged officer positions and increases in non-badged positions…”

Reaction to the income tax proposal from Monroe County councilor Geoff McKim, who’s a Democrat like Hamilton, came shortly after the mayor’s 30-minute pre-recorded videotaped Facebook broadcast ended. “I do not support an additional county-wide income tax at this time, under the existing local income tax rules (where the Bloomington city council can unilaterally impose a county-wide income tax),” McKim wrote on his Facebook page.

McKim pointed to some signs that in January 2021 the state legislature could be taking up the issue of how local income tax works in Indiana. The reforms could allow a city council to impose a local income tax just for city residents, not including other residents of the county.

Asked about a hoped-for timeframe for the 0.25 proposal to be approved, Yael Ksander, communications director for the mayor’s office, said, “The tax is in Phase 3 of the plan the mayor laid out today. If the tax is passed by the end of October it would go into effect in January 2021.”

The “Phase 3” reference is to the COVID-19 economic recovery plan that the mayor introduced during his Thursday speech, which he’s calling “Recovery Forward.”

The first phase is something the mayor pitched to the city council during a work session last Friday. It involves using $2 million in “reversion money” starting this fall, to get a head start on economic recovery. The initial $2 million would include allocations to three broad categories: equitable and sustainable recovery; job growth and economic recovery; and affordable housing.

A first reading of an appropriation ordinance for the $2 million is expected to be in front of the city council at its meeting next week, on Wednesday, July 22.

The second phase of Hamilton’s plan is the next two budget years, starting with the 2021 budget. The city council’s hearings on that budget will start at the end of August.

Hamilton is proposing to use some of the city’s rainy day fund reserve. The city’s reserves currently stand at twice the minimum amount recommended by the state of Indiana, which is two months’ worth of operating expenses, according to Hamilton. The mayor proposes to bring down that reserve level from four to three months’ worth of operating reserves by the end of 2022. That means using a total of $8 million in reserves, spread across two years.

Of that, $4 million—$2 million each year—will be used to avoid lay-offs and sustain essential operations, Hamilton said. The other $4 million—also split evenly over two years—would be used to help accelerate community and household recovery and to “reduce the pain and damage of the pandemic,” according to Hamilton.

The third phase was described by Hamilton as “the year 2022 and beyond, through the decade of the 20s.”

In Hamilton’s speech, the mention of the next decade was the start of the windup for a renewed pitch for an increase to the local income tax. It’s a proposal that up to Thursday seemed to have been benched for the foreseeable future, due to the COVID-19 pandemic.

Hamilton said, “The reality is that, in order to invest significantly in climate justice, racial justice, and economic justice beyond 2021, we will need additional revenue.”

Hamilton gave standard arguments for the tax increase based on overall rate of taxation in the U.S. compared to other countries and in the state of Indiana, compared to other states, and in Bloomington, compared to other cities in Indiana.

Spirited resistance from non-city residents to the idea of increasing the local income tax was heard in January, based on the fact that, practically speaking, the Bloomington city council has the legal authority to impose an increase in the local income tax for the whole county. Other local governmental units have votes, but Bloomington’s  58-percent voting share, which is based on Bloomington’s relative population in the county, means that Bloomington’s city council can decide tax questions for all county residents.

Legislation passed during this year’s session changes the bloc allocation of votes. Previously, all of Bloomington’s 58 votes, out of the 100 available, were allocated based on the majority vote of the nine-member Bloomington city council. That meant that a mere five-vote majority of councilmembers could impose a tax countywide.

Now, each individual member of a governing body is allocated a proportionate share of the group’s allocation of votes. If the Monroe County council and the Ellettsville town council voted unanimously against the tax increase, and two of Bloomington’s city council members opposed it, that would leave a proposal short of the 50-percent majority it needs. [7/9*58 = 45.1 percent]

The change from bloc voting still leaves Bloomington and Ellettsville residents legislatively “overrepresented” compared to county residents who live in neither of those two places. For example, Bloomington residents vote for eight representatives in the mix—four each from the city of Bloomington and the county council. (That’s one district representative and three at-large for both governing bodies.) Non-city county residents vote for just four electeds, those on the county council, who represent their interests.

A 0.25-point increase would generate roughly $4 million for the city of Bloomington annually and another $4 million for Monroe County’s and Ellettsville’s governments.

Republican state representative Jeff Ellington reacted shortly after Hamilton’s first-of-the year proposal by saying that there was some interest by the legislature in sorting out how local income taxes can be enacted. The current system, where a city council can impose a tax unilaterally on the rest of county residents is “unfair,” Ellington said.

The 2020 session was a short one, so at the time Ellington, said he was not sure how much progress could be made on the question.

The 2020 session’s revision to the bloc voting procedure was analyzed by some as a way to address part of the question of equitable representation, without revamping the entire local income tax system. McKim wrote in his Facebook post: “[T]he relevant clauses expire May 2021, so this was clearly intended to be a temporary change presumably pending a broader reform.”

The kind of broader reform that some have proposed is a way for a city to enact an income tax just on city residents, without including non-city residents of the county. According to McKim, “This is an approach that had already been proposed under House Bill 1033 of 2019; however, at the time state software could not handle multiple income taxing districts in a county.”