Indiana Loses as Politicians Block Small-Government Drive

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Before leaving office in January, Mitch Daniels, a popular two-term governor in Indiana, a state known for its common-sense fiscal policies, pushed streamlining government for five years.

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Photographer: Scott J. Ferrell/CQ via Getty Images

Before leaving office in January, Mitch Daniels, a popular two-term governor in Indiana, a state known for its common-sense fiscal policies, pushed streamlining government for five years. Close

Before leaving office in January, Mitch Daniels, a popular two-term governor in Indiana, a state known for its... Read More

Photographer: Bill Clark/Getty Images

Without the consolidation of local government, Indianapolis would not have attracted the development and growth it did, said former U.S. Senator Richard Lugar, who pushed for the change after he became Indianapolis mayor in 1968. Close

Without the consolidation of local government, Indianapolis would not have attracted the development and growth it... Read More

Photographer: Andrew Harrer/Bloomberg

Indiana Governor Mike Pence, a Republican, said he wants to create a state website to document the costs of local government. That would allow residents to see exactly where there is duplication and build a consensus for change, he said. Close

Indiana Governor Mike Pence, a Republican, said he wants to create a state website to document the costs of local... Read More

Photographer: Raymond Boyd/Michael Ochs Archives via Getty Images

The State Capitol Building stands in Indianapolis. Indiana showed the benefits of streamlining local government more than 40 years ago when Indianapolis consolidated with surrounding Marion County with changes that took effect in 1970. Close

The State Capitol Building stands in Indianapolis. Indiana showed the benefits of streamlining local government more... Read More

Former Governor Mitch Daniels argued for years that Indiana had too much local government -- a costly maze of overlapping townships, taxing districts and city and county entities that took shape before the Civil War. The Republican even recruited his Democratic predecessor to help make the case.

A prime example was the factory town of Muncie, seat of Delaware County. With 37 entities taxing a declining population and a projected deficit of $5.6 million next year, the county is “ground zero” for the problems Daniels targeted, Ball State University economist Michael Hicks said. Merging Muncie and Delaware could save at least $7 million a year thanks to efficiencies and improved services, he said, as Indianapolis and Marion County did by combining four decades ago.

Yet when voters considered a merger last November, almost two-thirds said no.

“This is one of those issues where bipartisanship and a great good-government rationale isn’t enough,” said Daniels, 64, now president of Purdue University in West Lafayette, Indiana. “It’s easy enough if you’re passionate in defending the status quo to persuade enough people to stand pat and not take a chance on something new.”

The failed referendum and other thwarted efforts in Indiana show how difficult it is to shrink local government, even with political support at the highest levels and obvious taxpayer savings. Before leaving office in January, Daniels, a popular two-term governor in a state known for its common-sense fiscal policies, pushed streamlining government for five years.

Entrenched Interests

With entrenched interests protecting jobs, only a handful of changes were made. Most of the restructuring that Daniels and his allies sought either died in the legislature or was never seriously considered, and only two of five ballot measures to consolidate local governments have passed.

BIG SPENDING

The commission also proposed reducing the number of school districts by setting a minimum student population of 2,000, an idea that went nowhere in a state whose celebration of small towns was immortalized in the basketball movie “Hoosiers.”

There’s been a proliferation of government across the U.S., with the number of units increasing by 10 percent since 1982 to more than 90,000, according to the U.S. Census Bureau. Residents pay taxes for representation and services from government entities that are often duplicative, even when shrinking budgets forced the elimination of 360,000 public-school positions from July 2008 through October 2012 and reductions at half the nation’s police departments.

Taxing Districts

While Illinois has the most taxing districts in the U.S. and New Jersey has the most government workers per square mile, the phenomenon sweeps to the California coast and from Chicago to Dallas.

Daniels had hoped to change that in Indiana. After he defeated Democratic Governor Joe Kernan in 2004, he persuaded Kernan in 2007 to join then-Supreme Court Chief Justice Randall Shepard, a Republican, to lead a blue-ribbon committee to study and propose ways to streamline local government.

The Hoosier State, Daniels argued, had more townships, taxing units and politicians than most U.S. states -- more than Indiana needed, more than taxpayers could get good services from, and more than they should be funding.

The commission agreed, releasing a report in December 2007 with the subtitle, “We’ve got to stop governing like this.” It found that Indiana had more counties, townships, cities, towns, school corporations and other government units with the power to levy property taxes than all but nine U.S. states.

Five Units

Indiana had almost 11,000 elected officials with more than 3,000 independent local governments, the report said. A typical state resident paid taxes to at least five different units and often many more, according to the report.

The legislature took some action on the commission’s 27 recommendations, such as reducing the number of township property-tax assessors. Yet only seven proposals were adopted.

Indiana still has essentially the same amount of government, with its 1,008 townships and 293 school districts reduced only by three each since the report’s release, said Jamie Palmer, an analyst at Indiana University’s Public Policy Institute.

Republican Governor Mike Pence, who replaced Daniels in January, said he wants to create a state website to document the costs of local government. That would allow residents to see exactly where there is duplication and build a consensus for change, he said.

‘Broader Appreciation’

“What was missing from the last debate was a broader appreciation for the need for reform,” Pence said in an interview.

A 2009 study by Hicks and other researchers at Ball State estimated that the changes the commission recommended would have saved Indiana as much as $622 million a year. Still, there was little support for eliminating public jobs and government spending, Hicks said.

“I never thought the economics of this were driving the train,” Hicks, who co-wrote a 2011 book about local government consolidation in the U.S., said in a telephone interview from Muncie. “There are no rewards to cutting costs in government for government bureaucrats or employees. The rewards come with getting more people and bigger budgets, not in efficiencies.”

Daniels said in an interview he understood that government reforms are difficult because they have no natural constituency to overcome the motivated opposition of vested interests threatened by the proposals.

“We went at it the best way we could think of, but it shows how difficult it is really to make big change in an area like this,” Daniels said. “Those who would resist are active, and those who would benefit wish you well but don’t feel the need to do anything much about it.”

Fear of Change

The major impediment was fear of change, as well as the opposition of legislators -- many who rose through the ranks of local government and didn’t want to take positions from other officials, Kernan said.

The recommendations are still worth pursuing to streamline local government, said Kernan, 67, a former mayor of South Bend who teaches in the political science department at Notre Dame.

“It’s duplicative, it’s unnecessary, it’s confusing for the general public,” Kernan said in a telephone interview. “Most people in Indiana couldn’t tell you who their township trustee is. I have no idea who mine is.”

The most significant savings from the efforts under Daniels came from the state taking over funding for child welfare, according to the state’s Office of Management and Budget.

Property Taxes

Previously, each of the Indiana’s 92 counties used property taxes with different prices and levels of services. Under a plan enacted in 2008 to cap local property taxes and levy a higher state sales tax, child welfare funding was shifted to the state and standardized, saving an average of $165 million a year, the budget office said.

Other changes that could save millions of dollars, such as eliminating the state’s townships and their more than 4,000 elected officials, weren’t adopted. The townships, which duplicate relief for low-income residents conducted by state and federal welfare programs, collect so much in taxes that they had a combined $341 million in surpluses at the end of 2012, the budget office said.

Indiana showed the benefits of streamlining local government more than 40 years ago when Indianapolis, the state’s largest city, consolidated with surrounding Marion County with changes that took effect in 1970.

Without the merger, Indianapolis would not have attracted the development and growth it did, said former U.S. Senator Richard Lugar, who pushed for the change after he became Indianapolis mayor in 1968.

Reduced Costs

The consolidation reduced costs for duplicated government and enabled property-tax reductions, attracting investment that might otherwise have gone to the suburbs or another county -- transforming a city “that was going toward moribund to one of enormous vitality,” Lugar, 81, said in a telephone interview.

Lugar said he was able to get the Indiana Legislature to approve the change after meeting with each lawmaker personally. The factors impeding consolidation, especially having elected officials give up their jobs, would make it difficult to achieve the same outcome today and worked against Daniels, he said.

Even so, the worsening financial situation of cities can still be a motivation for reform, Lugar said.

“It comes down to whether the economy of government is important, and I think it is,” Lugar said.

Besides the consolidation with Indianapolis, there have been two successful and three failed referendums in Indiana since the state legislature passed a law in 2006 allowing two or more units of government to consolidate if voters approve.

‘Middletown, USA’

Muncie, a city of 70,000 that was once the home to booming auto parts plants and whose largest employers are now Ball State and Indiana University Health Ball Memorial Hospital, became known as “Middletown, USA,” after a husband-and-wife sociologist team arrived in the 1920s to study how a typical U.S. city dealt with economic change.

The proposed merger plan with Delaware County called for consolidating most of the government functions of the city and county. The mayor, city council and the legislative functions of the county commissioners and council would have been replaced with an elected county executive and 15-member body. Existing departments would be restructured to avoid duplication.

The proposal was doomed even before voters went to the polls in November, said Eric Damian Kelly, a professor of urban planning at Ball State who helped draft the plan.

Joining Forces

The county’s Democratic and Republican leaders joined forces to campaign against the issue, and officials who opposed the plan sought to kill it by requiring that at least two-thirds of voters approve it, he said. Only 39 percent did.

“We knew it would probably just be a fledgling effort,” Kelly, 66, said in an interview. “You’ve got entrenched party structures that really don’t want to see change.”

There’s a framed picture of Daniels and his inaugural address hanging on the wall at the Republican headquarters in downtown Muncie, yet the party actively opposed the kind of change Daniels wanted.

The plan was flawed because it would have forced rural and urban residents with different needs under the same government, said Republican Chairman Will Statom. Supporters also didn’t demonstrate savings, and the proposal would have shifted the tax burden by forcing county residents to pay more, he said.

“This is not a one-size-fits-all proposition,” Statom, 61, said in an interview.

‘Reorganization Mish-Mash’

There are ways to avoid government duplication incrementally rather than a “reorganization mish-mash” that isn’t “just taking two buckets of water and pouring them into a bigger bucket,” Mike White, 63, a former Democratic state representative who opposed the consolidation, said in an interview at the county’s Democratic Party headquarters in Muncie. He cited the city and county agreeing to combine separate animal control programs.

Even so, merger supporters said it took years to reach agreement on a joint animal-control program. A comprehensive financial plan for the county released in June projects a county general fund deficit of $5.6 million next year and $11 million in 2015, if no budget adjustments are made.

It was easy for politicians wary of losing influence and the ability to control government employment to generate public opposition to the merger, said Muncie Councilwoman Linda Gregory, who supported the plan.

‘Political Power’

“In this community, political power means jobs, and they would have lost a whole bevy of jobs that they could fill,” Gregory, 69, said in a telephone interview from Muncie. “It’s been good ol’ boys for too long, and that’s what makes it hard.”

It may take seeing other states cut government for Indiana to make progress, Daniels said. To officials elsewhere who take on that challenge, the former governor had a piece of advice: be ready for a fight.

“Be sobered by what it’s going to take,” Daniels said. “And maybe do a better job than we did building a network of people who will speak for this, who will speak to it in terms that an average taxpayer and citizen can understand.”

To contact the reporter on this story: Mark Niquette in Columbus, Ohio, at mniquette@bloomberg.net

To contact the editors responsible for this story: Jeffrey Taylor in San Francisco at jtaylor48@bloomberg.net; Stephen Merelman at smerelman@bloomberg.net.

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