MUNCIE – Few, if any, thoughtful observers of Indiana government would conclude that the current local tax system is sufficient to meet the needs of the 21st century. The tax and spending innovations of the past decade have dramatically improved the prospects of the Indiana economy. However, a half-century of bad investment has left many cities and towns in such a sorry state that they cannot attract nor retain young families with options, much less offer them quality schools, decent neighborhoods and safe streets even if they stayed. This is a painful thing to write, but the relative or absolute population decline in 80 out of 92 Hoosier counties is stark testament to this difficult truth.
    
Many men and women in local government, whose judgement I respect, argue that they desperately need more tax revenues. For many places this is likely true, and it is probable that many voters share this belief. Indeed, it is certain that in many communities, local tax referendums would result in more money for schools, roads and quality of place improvements.

There are many examples of fiscally conservative voters in other states supporting more funding for local schools, parks and roads. And, in the coming years, I hope the legislature will allow more fiscal flexibility for local governments. Indiana’s taxpayers ought to have more of a direct say in local taxes. But it is a mistake to suppose that most local governments have learned the lessons from the crisis that brought us property tax caps. Before the legislature gives local government more revenue options, local government needs to do its part to streamline and modernize. There are three necessary steps to a better system.
    
First, we must eliminate most local governments. We must close townships, allowing counties to absorb their fire and cemetery maintenance duties. We must consolidate 100 or more school corporations – those with fewer than 2,000 students and exhibiting long-term decline. We need to shift all library systems and countywide special districts to county government. This would free up perhaps a $1 billion in the first year, and $600 million per year after that. That is equivalent to more than a 10 percent increase in local tax revenues.
    
Second, local governments need to privatize significant services from trash collection to road maintenance. This would remove perhaps another $400 million from the tax rolls.
    
Finally, local government simply must get better at management. Many shrinking Hoosier cities have the same number of firefighters they did in 1960, but no one with the accounting skills to manage a budget, or really understand TIF and tax abatements. None of these changes would reduce the quality of public services, but they would free up $1 billion in wasted local spending, more than 15 cents on every tax dollar.
    
In a better world, Hoosier voters would choose their own tax rates for local government and local governments would manage their own affairs. But, until mayors and county commissions push for real change, local home rule will surely remain a distant dream.  

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.