Lawmakers rethink automatic refund to Indiana taxpayers - Indianapolis Star

Only a year after passing a law giving taxpayers an automatic refund if the state surplus was big enough, the surplus is big enough and legislators are getting cold feet.

The Senate Appropriations Committee is debating a bill that would significantly alter the refund process in order to preserve more state money to fund schools, in case of another economic downturn, and would issue the refunds only every other year, after the legislature has passed a new state budget. That happens in odd-numbered years.

Senate Luke Kenley, R-Noblesville, postponed a vote on the plan, Senate Bill 143, until the committee meets again Thursday to give senators more time to consider changes to the bill.

The refund plan was proposed last year by Gov. Mitch Daniels, and lawmakers inserted it in the budget. The law calls for the refund any time reserves are 10 percent of appropriations or higher. With state reserves expected to exceed $1.76 billion at the end of this fiscal year, that's enough to trigger refunds of about $50 per individual income tax payer, to be paid as a credit on April 2013 taxes.

Some lawmakers, though, now question whether the trigger is too low; whether some taxpayers might prefer to see money to go state needs rather than get a small tax credit; and whether the state might be setting itself up for future tax increases.

Kenley said the governor's office did not want to see the refund discarded the first time it became possible. Under his bill, SB 143, the current law would stay in effect so that if conditions still allow for a refund in 2013, Hoosiers will get it. The money would be distributed on a per-taxpayer basis, with every Hoosier who paid income taxes the previous year getting the same refund.

"After this year, the automatic taxpayer refund would be affected by, number one, it can only occur in a budget year, after the legislature had a chance to consider the budget," Kenley said, "so the legislature can be sure they're comfortable with what's going to happen."

And, he said, it would require that an amount equal to 10 percent of K-12 school funding be set aside. Under current spending, Kenley said, that means the triggers would not kick in until reserves hit about $2.05 billion.

"Handled properly, it can be a tool that works and gives the taxpayer comfort that we're not going to get out of control down here," Kenley said. "We do know it's their money and at some point maybe we should give some of it back."

Follow Star reporter Mary Beth Schneider on Twitter at twitter.com/ marybschneider. Call her at (317) 444-2772.