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John Tuohy
IndyStar
A pothole on a stretch of I-65 in Downtown Indianapolis caused as many as eight flat tires Tuesday morning, before crews from the Indiana Department of Transportation were able to fix it just before 7 a.m.

Should suburbanites who work in Indianapolis help pay for city’s streets?

That’s a question being pondered by Mayor Joe Hogsett as the city scrambles to fill potholes that seem to grow larger and deeper each year.

In looking for a long-term funding source to pay for repaving and maintenance, officials have cast their gaze on outsiders who use Indy’s roads, bridges, sewers and water. A so-called commuter tax would allow Marion County to collect income taxes of people who live elsewhere but work in Marion, then use the money to fix the streets.

"I would encourage a conversation to take place over the long term that might cause the General Assembly to more equitably distribute income taxes that we currently pay," Hogsett said last week.

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Such a tax has been discussed intermittently for three decades and would require the approval of the legislature and, presumably, the collar counties. But its mere revival is an indication of Indianapolis' dire shortage of funds to fix the rapidly disintegrating roads.

Because local income taxes are distributed to the county in which the taxpayer lives, not where they work, Indianapolis officials assert the formula puts an unfair burden on cities that provide the most jobs, such as Indianapolis. The 141,131 daily commuters who drive to work in Indianapolis each day contribute to pavement wear and tear, so those drivers should help pay to fix them, Indianapolis officials have said.

But in Hamilton County, the biggest exporter of jobs to Indy, the proposal has little support from political leaders.

Alhough some officials agree a regional approach to road maintenance would benefit all communities, a commuter tax by itself is fundamentally unfair, they said.

“Whenever someone goes into the city and buys lunch, dinner, or goes to a Pacers game they already pay a sales tax,” and contribute to the local economy, said Hamilton County Councilor Fred Glynn.

In addition, Glynn said, Hamilton and other county residents already pay a 1 to 2 percent food and beverage tax to pay off Lucas Oil Stadium debt. He said a commuter tax would amount to taxation without representation.

“We’d be paying a tax without being able to hold the local elected officials who are collecting it accountable because we can’t vote for them,” Glynn said.

Indianapolis officials estimate it will cost $732 million for city streets to be upgraded to fair condition from the current rating of poor. To keep the streets in fair condition — a 4 on a 10-point scale — another $178 million a year would be needed for upkeep, more than double the current annual funding that Indianapolis has available for all roads, bridge and sidewalk projects.

Hogsett recently requested $14 million to cover short- and long-term repairs to the worst spots, and the city launched its second a pothole-filling blitz of the year Monday.

Cities and counties have increasingly relied on local income tax hikes to pay for essential city services such as public safety and transportation since the state legislature capped property taxes in 2008 at 1 percent of assessed value for homes and 3 percent for businesses.

But while cities must be self-sufficient and often compete with one another to attract businesses, they must also rely on each other for workers, or amenities, and work in tandem as a region to get the companies in the first place, said Drew Klacik, a senior policy analyst at the Indiana University Public Policy Institute.

And Marion County’s role in the state’s economy is outsized, Klasick said. What’s good for Indianapolis is generally good for everyone. “About 4.2 percent of all jobs for the state are in the mile-square of Downtown Indianapolis,” he said. “And many of them are filled by professionals who come in from out of county. As goes Downtown, so goes Central Indiana so goes the state.”

Conversely, he said, the jobs that leave Marion County are mostly in the lower-paying service, transportation or warehousing sectors. But Klacik said a commuter tax wouldn’t be as effective as it once would because of trends in mobility.

“It was a perfect plan for the 1990s,” Klacik said. “But the modern trend is for cities to build residential housing near the workplaces and to get people to live close to their jobs. So the revenue from a commuter tax might be declining in the future”

Klacik said a regional taxing district for certain services or shifting the tax burden to out-of-state visitors through more hotel or entertainment taxes may be a more palpable revenue stream than a commuter tax.

“The key is to realize the purpose of the tax and finding which ones are fairest,” Klacik said.

From 2000 to 2015, the number of commuters into Marion from the counties of Hamilton, Hendricks, Johnson, Hancock and Boone increased to 141,131 from 130,966, according to the STATS Indiana database kept by the Indiana Business Research Center at Indiana University's Kelley School of Business. The workers going from Marion to those counties increased to 37,791 from 21,695.

The number of employees commuting from Hamilton County to Indianapolis increased to 54,898 from 40,956 in those 15 years, as did the number of workers going from Marion to Hamilton — to 15,131 from 10,475.

The commuter tax could be extracted by either increasing an employee's income tax rate or a shifting a percentage already collected to the county in which they work. A hike of one-quarter of 1 percent would cost a person making $100,000 a year $250 annually and raise $25 million a year. Employees in Hamilton County and all Indiana residents pay a base state income tax of 3.23 percent, which funds state services, as well as a 1 percent county tax, which funds local services.

Westfield Mayor Andy Cook agreed that the health of Marion County is vital to the economic well-being of the region but was suspect of a commuter tax.

“For Indy’s roads to fall apart hurts me and Westfield,” Cook said. “It hurts recruiting people, recruiting companies. When we recruit we it is to the region, not just Westfield. I can’t have Indy falling apart and do that.”

It’s especially important now that the region is going after bigger, worldwide companies, Cook said. Ikea recently moved into Fishers, Amazon has placed Indianapolis on its short list of 20 finalists for its $5 billion second North American headquarters.

“If I’m with Amazon and I’m driving on Indy’s streets this week, I’m like 'I’m outta here!' ” Cook said.

Cook said relying on a commuter tax alone would be too punitive and narrow and advocated some type of regional approach to fixing Indy’s streets.

“First we need to determine if Indianapolis is getting the short end of the stick on funding for infrastructure and then we have to make sure we are thinking as a region and make sure it is about economic development,” Cook said.

Carmel Mayor Jim Brainard and Fishers Mayor Scott Fadness have also ruled out a commuter tax as an antidote to Indy's road woes, their spokespeople said.

Hamilton County Commissioner Christine Altman said she would oppose a commuter tax but suggested businesses in Marion County could be assessed a "head" tax on out-of-county employees.

Bill Smythe, a small business owner and member of the Fiscal Conservatives of Hamilton County political action committee, agreed that businesses could contribute, perhaps through a bump in the corporate tax.

“I completely think the business community should have some buy-in to this,” he said. “They are the ones benefiting from the out-of-county workers, and they would benefit from well-maintained roads."

The Indianapolis Chamber of Commerce has long supported a commuter tax but is open to suggestions, said Mark Fisher, vice president of government relations & policy development. He said every county should be able to tax incoming workers, not just Marion.

"It remains a top priority," Fisher said. "We think communities should be able to capture revenue from non residents who use our streets and other infrastructure."

Call IndyStar reporter John Tuohy at (317) 444-6418. Follow on Facebook and Twitter.