Indiana officials say $205M in local taxes mishandled - 13 WTHR Indianapolis

Indiana budget officials say $206 million communities could have spent on public safety, streets and other services residents expect was mistakenly kept by the state.

The local income tax revenue collected by the state is now being transferred to local governments after the oversight was discovered, and the head of Indiana's Department of Revenue is stepping down.

Indianapolis resident Will Lutz reacted with disbelief. "Yeah, okay. A mistake, great," he said.

Indianapolis figures it's getting $41 million it hadn't counted on.

Eloise Townsend, another local resident, asked, "So okay, what do we do with it now?"

Democrats see the windfall as a solution to a public safety crisis.

Indianapolis Metro Police and the Marion County Sheriff's Departments have estimated budget deficits totaling $25 million.

City Council President Maggie Lewis wants to spend at least some of the money now.

"If public safety is job one, this is our opportunity to correct the shortfall," she said.

Mayor Greg Ballard disagrees. He plans to used the cash to offset an even bigger budget crisis expected next year.

"Let's do everything we can to live in the budget parameters as they are now set. Let's use this money. Bank it and apply it to next year's deficit," said mayoral spokesman Marc Lotter, explaining the mayor's position.

But Marion County Sheriff John Layton insists his department can't wait. With a predicted $16 million shortfall, he needs help now.

"Why would we hold on to that money until next year? The wheel is coming off the axle right now," argued Layton.

State officials attribute the money mix-up to a computer programming error at the Department of Revenue.

Earlier this year, the same Department of Revenue found $320 million mistakenly put in the wrong account - money that could have been spent on local schools and other state-funded services.

State Budget Director Adam Horst says independent auditors are now being hired "so we can investigate all the errors and restore confidence in the functions of the Department of Revenue."

According to Horst, two senior managers have already left the Department of Revenue. Its director of seven years, John Eckart, is resigning.

The money is already being electronically transferred to local governments. Horst says all the funds should be distributed by Monday at the latest.

Hamilton County stands to receive $17 million from the state. The next highest payout goes to Johnson County at more than $3 million.

(See how much money each county will receive.)

$300 million turned up in 2011

This is the second time the state has discovered missing funds.

In December 2011, Gov. Mitch Daniels said the state found an extra $300 million that should have been allocated to the state's general fund, but instead was sitting in an account.

An internal audit turned up the stash of corporate income tax money. The governor said the software programmer who modernized the rest of the system "did not write the necessary code to routinely sweep the money from one account to the general fund."

The $300 million began accumulating in 2007, but it wasn't noticed until early 2011 when the corporate income taxes collected began to increase and the total began to skyrocket.

Bosma calls for independent audit

House Speaker Brian Bosma (R-Indianapolis) and Senate Pro Tem David Long (R- Fort Wayne) issued the following joint statement today regarding the programming error announcement by Department of Revenue and the Office of Management and Budget:

"We have been informed by the Administration of the discovery of an additional reporting error related to the distribution of local option income taxes to local units of government. Based on this newest report, we believe that an independent audit jointly selected and retained by the Administration and the State Budget Committee is in the best interest of all Hoosiers. Joint engagement of an independent auditing firm will allow the Administration and legislative leaders of both parties to have full access to the results of the audit and provide the most transparent opportunity to confirm accountability for all public funds.

We expect to work in cooperation with the Department of Revenue and the Governor's Office with the intent that a preliminary report be provided by early September to the State Budget Committee and legislative leaders with an update between the filing of the report and when the final audit is released.

We appreciate that the Administration is taking the necessary steps to make the local units whole, but we need to move forward at this time with an independent audit that is transparent, thorough and done in a bipartisan fashion."