By VICKI URBANIK

In a party-line vote, the Porter County Council on Tuesday rejected Porter County Treasurer Jim Murphy’s plan to start drawing down the interest earned on last year’s hospital sale.

Known as “The Murphy Plan,” the proposal calls for tapping $8.3 million of the interest earned in two ways: By distributing about $3.3 million to taxing units as reimbursement for the delayed tax bills and by jump-starting the state’s 1 percent tax cap for homeowners this year instead of in 2010.

Murphy, the Republican candidate for South County Commissioner against incumbent Carole Knoblock, said because the county hasn’t been able to get tax bills out on time this year or last year, helping local governmental units seems a “satisfactory and even fitting use” of the hospital interest, which is projected to total $11 million by the end of this year.

A motion to recommend approval of Murphy’s plan prompted a fiesty debate Tuesday, mainly between council members Karen Conover, R-3rd, Jim Burge, R-at large, and Dan Whitten, D-at large.

Conover and Burge strongly supported the plan for its aid to local taxing units. As Conover put it, should the county use the hospital interest to help local units that have suffered because of the county’s problems, or “should we keep it for little park barrel projects?”

But as he did last month, Whitten said the plan encourages new spending by local tax units while leaving out many homeowners who won’t benefit by the 1 percent cap.

“I’m not going to turn my back on South Haven” and other homes in unincorporated Porter County, Whitten said, referring to lower assessed homes that won’t get a tax cut under the cap.

Whitten said he would prefer to leave the hospital interest earnings intact until a long-range plan is developed. But if the county is going to use the money now, he said, it should return the funds to all homeowners, either in the form of rebate checks or an increased homestead credit, so that “everyone’s invited to the party.”

Both Conover and Burge ripped the idea of rebate checks as an administrative nightmare. Both also said lower-assessed homes already benefited a few years ago when the state increased the standard homestead deduction to $45,000. Whitten questioned if that means that the county is now going “to punish” those people.

About 14,000 of the county’s approximately 44,000 homesteads would receive a tax cut under the plan, according to council members.

With Burge and Conover voting in favor, the plan was rejected with Whitten, Mike Bucko, D-4th, Robert Poparad, D-3rd, and Rita Stevenson, D-2nd, voting no. William Carmichael, R-at large, was absent.

At one point, Conover said that in all her years on the council, she has never before “heard so much political grandstanding.”

Out of Proportion

As Murphy noted, it was Poparad who, back in May, first proposed using the hospital interest earnings to reimburse local taxing units for their borrowing costs due to the late tax bills.

But while Poparad proposed the reimbursement for only this calendar year, Murphy’s plan went further, by proposing a distribution based on how much each tax unit, except for county government, could have collected in interest if their tax funds were disbursed on time.

Poparad said his intent was merely to help local government units. But others have “jumped on the bandwagon” and like everything in government, the idea “has gotten blown way out of proportion.”

A number of municipalities and other taxing units have endorsed Murphy’s plan, and on hand at Tuesday’s council meeting was tax consultant Karl Cender, who represented the cities of Valparaiso and Portage in urging the council to adopt the plan.

At one point, Whitten questioned if the numbers in Murphy’s plan are accurate, and Murphy said the numbers would have to be re-worked to take into account the tax impact from the latest changes in assessing known as trending.

Who’s to Blame?

As they have before, council members debated who’s most to blame for the county’s delayed tax bills.

Burge cited reports from the Department of Local Government Finance, which tracks each county’s progress in getting tax work done. For tax bills payable last year, he said only six counties were farther behind than Porter County. Currently, however, only five counties are at the same stage or behind Porter County.

“We’re actually getting worse,” Burge said. “We’re going in the wrong direction.”

But Bucko said the tax problems are “a mess” statewide, and Whitten said county officials “dug in” last year trying to fix the problems but got no help from the state. He also said the problems in Porter County date back for years. “This has been going on for a long time, and we’re trying to fix it,” he said. Responded Conover: “In the meantime, every taxing entity has suffered.”

Investment Decision

Exactly when the county council – in conjunction with the Porter County Commissioners – will decide what to do with the hospital sale earnings remains to be seen.

Poparad said after the meeting that he expects plans will be discussed again later this year, possibly in October or November.

In the meantime, the council unanimously endorsed an idea floated last year: To retain a financial consultant to develop an investment strategy for the hospital proceeds.

Council attorney David Hollenbeck said the total hospital sale proceeds now stand at about $160 million, so even one-tenth of a fluctuation in the interest rate would be significant. The independent investment firm will be able to access a broad array of markets, while keeping the funds as liquid as possible as needed, he said.

The council agreed to seek requests for proposals and named Bucko and Whitten to a council committee to help select and work with the investment firm. Burge urged a sealed bid process.

Posted 7/23/2008